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Chosen Group Light Bulbs Success Light BulbFor many businesses, intellectual property rights are their most important and valuable assets. Intellectual property refers to the legal right to use creative works, from a company name and logo to a new invention. The owner or holder of most types of legally protected intellectual property has the exclusive right to use the material in their business, or for any other purpose. This includes the right to license its use to other people or businesses, or to keep it for their own use.

Trade Secrets

Businesses often rely on information that has value primarily because of its confidentiality, also known as “trade secrets.” They might include client lists, internal business procedures, and business plans or strategies. Since their value depends on remaining confidential, businesses are not required to register them with a government office like a trademark, copyright, or patent. Instead, trade secret laws give businesses tools to prevent disclosure by employees and other insiders.

In order for information to qualify for trade secret protection under state law, it must meet three criteria: (1) it must “[d]erive[] independent economic value, actual or potential,” from being secret; (2) it must “not be[] readily ascertainable” by others who stand to benefit from it; and (3) it must be “the subject of [reasonable] efforts…to maintain its secrecy.” N.J. Rev. Stat. § 56:15-2. Individuals who misappropriate trade secrets may be liable to the business for damages. Theft of trade secrets may also be subject to federal criminal jurisdiction, under a law enacted last year. Pub. L. 114-153, 130 Stat. 376 (May. 11, 2016).
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Idea Innovation Bulb Energy Light Power LightbulbStarting a new business requires extensive planning, with regard to both the product or service that the business will offer and the structure and operations of the business itself. Protecting the new business’ assets is critically important, and this applies not only to its physical assets but its intellectual property as well. The brand names, logos, designs, business plans, and other creative works used by a business are all examples of intellectual property. State and federal laws provide multiple ways to protect a business’ intellectual property rights, but business owners must first understand the different types of intellectual property and the laws that protect them.

Defining “Property”

It might be easiest to define intellectual property in relation to other types of property:

Real property includes land and attached structures, such as houses and office buildings.
Personal property refers to movable property, such as a pencil, coffee mug, computer, car, or refrigerator.
Intangible property may include financial instruments like securities, although cash is often considered personal property.
Intellectual property, while also intangible, generally refers to the results of the creative process, such as designs, photographs, written works, and computer code.

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bookThe structure of a corporation establishes a division of rights and responsibilities among at least three groups. Ownership of the corporation is vested in the shareholders, while directors are charged with its overall management. Officers are responsible for the corporation’s day-to-day operations. A shareholder who is not also a director or officer may not have much of a role in the operation or management of a corporation, but they have rights to information about the corporation’s financial status. The Delaware Court of Chancery recently ruled in favor of a shareholder seeking access to a corporation’s books. Rodgers v. Cypress Semiconductor Corporation, No. 2017-0070-AGB, order (Del. Chanc. Ct., Apr. 17, 2017). The court’s order offers useful guidelines for shareholders seeking access to corporate information.

New Jersey law defines “shares” as “the units into which the proprietary interests in a corporation are divided,” and a “shareholder” as “a holder of record of shares in a corporation.” N.J. Rev. Stat. §§ 14A:1-2.1(l), (m). Any shareholder has the right to request financial documents, including balance sheets and profit and loss statements, from the corporation. Certain shareholders “have the right for any proper purpose to examine…[the corporation’s] minutes of the proceedings of its shareholders and record of shareholders.” Id. at § 14A:5-28(3).

Delaware law goes further, giving shareholders the right to inspect a wide range of corporate documents upon a “written demand under oath stating the purpose” of the shareholder’s request. 8 Del. Code § 220(b). If the corporation denies the shareholder’s demand, the shareholder can petition the Court of Chancery to compel production. A plaintiff in such a case must establish standing as a shareholder, compliance with the “form and manner of making a demand for inspection,” and a “proper purpose” for the inspection.” Id. at § 220(c).

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drinking glassConsumer protection laws allow the recovery of damages from businesses for various fraudulent or deceptive practices. These laws tend to define prohibited conduct in very general terms. Businesses that provide goods or services to the general public should be aware of the latest developments in consumer protection law in order to avoid unwitting liability for deceptive business practices. The New Jersey Supreme Court has agreed to hear two appeals of putative consumer class actions alleging deceptive pricing schemes against two restaurant chains. While these cases only directly involve alcohol sales, they demonstrate how major consumer complaints can arise from seemingly minor practices.

The New Jersey statutes at issue are the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 et seq., and the Truth in Consumer Contract Warranty and Notice Act (TCCWNA), id. at 56:12-14 et seq. Among the many acts prohibited by the CFA is the offered, attempted, or completed sale of retail goods without clearly stating “the total selling price.” Id. at § 56:8-2.5. The statute also prohibits “the knowing, concealment, suppression, or omission of any material fact,” when such an action is intended to induce a consumer to make a purchase. Id. at § 56:8-2. The TCCWNA prohibits businesses from offering or entering into contracts with consumers that “violate[] any clearly established legal right of a consumer,” including a consumer’s rights under the CFA. Id. at § 56:12-15. Both statutes allow individual consumers to sue for damages. Id. at §§ 56:8-2.11, 56:12-17.

When an individual consumer’s damages are not enough to make the time and expense of pursuing a claim worthwhile, multiple consumers with similar claims can file a class action on behalf of all similarly situated consumers. To obtain class certification, the plaintiffs must be able to establish four elements:  (1) that the class is sufficiently numerous that it would not be practical to join every plaintiff individually; (2) that all class members have factual or legal issues in common; (3) that the claims of the plaintiffs are typical of the rest of the class; and (4) that the plaintiffs can “fairly and adequately protect the interests of the class.” N.J.R.C. 4:32-1(a).

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New Jersey CapitolThe overall economic outlook for New Jersey is cautiously optimistic, at least according to some sources. The New Jersey Business & Industry Association (NJBIA) describes a gradual increase in “business confidence” in its annual Business Outlook Survey, but it also notes several downward trends. People are apparently leaving the state in substantial numbers, as are many businesses, resulting in fewer jobs and less income statewide. The NJBIA offers possible explanations for why this is happening and what might be done about it. The state is also taking steps to evaluate the situation. A bill that recently passed the New Jersey Senate, which is now awaiting action in the Assembly, would direct the New Jersey Department of Labor and Workforce Development (LWD) to conduct detailed surveys of businesses that are leaving the state.

In 2007, the New Jersey Legislature enacted the Millville Dallas Airmotive Plant Job Loss Notification Act, also known as the NJ WARN Act. P.L.2007, c.212; N.J. Rev. Stat. § 34:21-1 et seq. The law applies to employers that have done business in the state for over three years and that have at least 100 full-time employees. Covered employers are required to provide a notice, in a specified form, to any employee who is terminated as part of a “mass layoff” or to all employees who lose their jobs as a result of a “transfer of operations” or “termination of operations.” Id. at § 34:21-2. The law also directs the LWD’s response team, whose purpose is to assist laid off employees, to offer to consult with the business’ management and workers.

While the NJBIA’s 2017 Business Outlook survey shows optimism among business owners, another study published in early 2016 shows significant rates of “outmigration” by both residents and businesses. From 2005 to 2014, the NJBIA estimates that more than two million people moved away from New Jersey, and this cost the state about $18 billion in net revenue. It further estimates that the state has lost about 75,000 jobs and $11.4 billion in “lost economic activity.” Despite these grim statistics, other measurements seem much more hopeful. Another organization, for example, reported that home sales in New Jersey have increased by more than 30 percent since early 2015.

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cube-game-cube-instantaneous-speed-568192Government contracts are a major source of revenue for many businesses, both large and small. In order to prevent corruption, and to avoid the appearance of corruption, Congress, state legislatures, and city councils have enacted laws addressing the overlap of government contracts and political contributions, often known as “pay-to-play” (PTP) laws. Businesses and business owners who rely on government contracts for some or all of their revenue must be careful to avoid even unintentional violations of these laws. A recent decision by the New Jersey Appellate Division, in which a single political contribution cost a business eligibility for government contracts, illustrates this concern. Della Pello Paving, Inc. v. N.J. Dept. of Treasury, et al, Nos. A-3774-15T3, A-3784-15T3, slip op. (N.J. App., Feb. 9, 2017).

Business activities covered by government contracts range from advertising campaigns in local markets to massive engineering operations. The associated fees can go from a few thousand to hundreds of millions of dollars. Any type of contract, and the processes of bidding and procurement, are covered by PTP and other anti-corruption laws. New Jersey’s PTP law was enacted in 2005 as an amendment to the Campaign Contributions and Expenditure Reporting Act. It seeks to address the “widespread cynicism” among the public caused by “[t]he growing infusion of funds donated by business entities into the political process at all levels of government.” N.J. Rev. Stat. § 19:44A-20.13.

The New Jersey PTP law bars anyone from eligibility for a contract worth more than $17,500 if they made political contributions in a state election within the previous eighteen months. It also bars eligibility for contracts of that size during the current or upcoming term of a governor or lieutenant governor for anyone who contributed to that person’s campaign or their party. Id. at § 19:44A-20.14. Business entities may avoid adverse consequences under this law by requesting “a full reimbursement” of any political contribution that would make them ineligible for a contract, provided they do so within thirty days of making the contribution. Id. at § 19:44A-20.20.
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stormtroopersIn closely held businesses, minority shareholders—generally meaning shareholders with less than 50 percent of the company’s voting shares—can easily find themselves at a disadvantage in disputes with majority shareholders. New Jersey’s Oppressed Shareholder Statute (OSS), N.J. Rev. Stat. § 14A:12-7 et seq., provides shareholders with a means to assert their rights when they suffer from bad-faith actions by other shareholders. They do not necessarily have to be in the minority to qualify as oppressed shareholders under the OSS, according to New Jersey courts. A recent decision illustrates how shareholders can benefit from this statute. RP v. SP, No. UNN-C-108-13, mem. op. (N.J. Super. Ct. Chanc. Div., Dec. 22, 2016).

Avoiding conflicts that lead to litigation is obviously the goal of any business owner. Still, it is useful to know which options are available should a company’s operating agreement fail to provide an adequate means for dealing with conflict. The OSS authorizes courts to intervene in a business for various reasons, with remedies ranging from the appointment of a custodian or provisional director to the dissolution of the business entity. If a corporation has no more than 25 shareholders, the OSS allows court intervention if “the directors or those in control…have acted oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers, or employees.” N.J. Rev. Stat. § 14A:12-7(1)(c).

“Control,” in this context, refers to control of the corporation’s voting stock. A “minority shareholder” can include not only a shareholder with a minority of shares but also one who “does not have control of the corporate shares with respect to voting rights.” Berger v. Berger, 249 N.J. Super. 305, 317 (1991). A minority shareholder, under this definition, can also be an “oppressed shareholder” under the OSS, regardless of whether they actually own a minority of shares. Balsamides v. Perle, 313 N.J. Super. 7, 16 (1998).

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contractNew Jersey businesses that provide online services, sell goods online, or otherwise interact with their customers via the internet should be aware of some recent developments involving New Jersey consumer protection law. Two pending consumer class actions are seeking a broad application of the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA), N.J. Rev. Stat. § 56:12-14, et seq. While neither case has produced a final ruling, they have the potential to significantly affect businesses with an online presence, specifically in relation to the terms and conditions of website user agreements. Specific provisions could cause a business to violate state law, even inadvertently. Exactly when and how this might happen depends on multiple factors, including the nature of the business and the goods or services it provides.

Businesses often include agreements on their websites as a means of clarifying the business relationship—if any—established when someone visits the site and limiting their liability in various circumstances. A good business attorney will tell you that presenting an agreement in this manner is generally a good idea, but the reality is that almost no one ever reads these agreements before agreeing to them. When a consumer is presented with a contract that they cannot negotiate, essentially on a “take it or leave it” basis, courts tend to scrutinize the terms of those contracts very closely. The TCCWNA provides additional protections for consumers in this situation.

Under the TCCWNA, businesses may not use consumer contracts containing any “provision that violates any clearly established legal right of a consumer,” nor may a contract omit any legal “responsibility of a seller, lessor, creditor, lender or bailee.” N.J. Rev. Stat. § 56-12-15. This is a highly ambiguous restriction. The general rule in New Jersey has been not to bother contractual clauses that have no impact beyond the parties themselves. “Exculpatory clauses in private agreements that do not adversely affect the public interest are generally sustained.” Kane v. U-Haul Int’l Inc., 218 Fed. Appx. 163, 165 (3d Cir. 2007). A few recent cases may have changed this principle somewhat.

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The internet offers seemingly infinite possibilities for businesses to connect with their customers and reach out to new ones. It also gives consumers nearly unlimited ways to communicate with businesses and also with other consumers about businesses. Websites like Yelp enable consumers to post reviews of businesses for the public to see. Many businesses take negative reviews as a sign that they need to reconsider some aspect of their operations. A few, however, have taken a more assertive stance by attempting to bar customers entirely from posting negative reviews. A law passed by Congress and signed by President Obama in late 2016, the Consumer Review Fairness Act (CRFA) of 2016, prohibits businesses from using form contracts that purport to restrict consumers’ ability to post negative or critical reviews, commonly known as “gag clauses” or “non-disparagement clauses.”

1 starsAt first glance, a contract prohibiting someone from posting negative reviews to a site like Yelp, while possibly allowing positive reviews, might seem to violate the free speech guarantee of the First Amendment. This is not entirely accurate, though, since the prohibition comes from a contract between two private parties—a business and its customer. The First Amendment, simply stated, only prohibits the government from imposing content-based restrictions on speech. A private party, such as a restaurant or retail store, is legally permitted to eject a customer for almost any reason, including offensive speech.

One exception to the First Amendment’s free speech protection is defamatory speech. This is a statement made to the public that is false, that causes harm to the subject of the statement, and that the person making the statement knows or should know is false. A spoken defamatory statement is known as slander, and a written one is called libel. A customer who posts a negative review of a business that contains false information could be liable to the business for damages in a defamation lawsuit. The CRPA does not concern itself with this type of situation but instead with contractual clauses that prohibit both truthful and false negative reviews.

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penguinDigital technology enables businesses to store information electronically, without the need for expansive file cabinets and storage facilities, and to transmit data quickly and efficiently. It also exposes businesses to the risk of data breaches, which expose consumers to risks like identity theft. The Federal Trade Commission (FTC) recently issued guidelines regarding compliance with two major federal statutes that protect consumers and their privacy:  the Health Insurance Portability and Accountability Act (HIPAA) of 1996, Pub. L. 104-191, 110 Stat. 1936 (Aug. 21, 1996); and the Federal Trade Commission Act (FTC Act) of 1914, 15 U.S.C. § 41 et seq.

HIPAA is a comprehensive law dealing with various aspects of health insurance, but it is perhaps best known to the public for its provisions regarding medical information privacy. The statute directed the Department of Health and Human Services (HHS) to present “detailed recommendations on standards with respect to the privacy of individually identifiable health information” to several Congressional committees. Pub. L. 104-191 § 264, 110 Stat. 2033. HHS developed a set of standards and procedures from this, commonly known as the Privacy Rule, found at 45 C.F.R. Part 164.

In a very general sense, the Privacy Rule only applies to health care providers, insurers, and related businesses, described as “covered entities.” 45 C.F.R. 160.103. The Rule also applies, however, to “business associates,” defined to include any “subcontractor that creates, receives, maintains, or transmits” PHI. Id. This definition can apply to many types of businesses besides medical professionals and health care providers.

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