Articles Posted in Idea Phase

2008 DraftThe regulation of any new economic activity should be of interest to New Jersey business owners, even if it does not directly affect their business. “Fantasy sports” has been both a popular pastime and a controversial topic lately. Many people participate in fantasy sports leagues organized among their friends, but businesses have also begun offering online fantasy sports competitions. This has led to concerns among lawmakers about whether they violate laws that regulate or prohibit sports betting. The Third Circuit Court of Appeals struck down a New Jersey law allowing sports betting, holding that it violates a 25-year-old federal statute. The U.S. Supreme Court has agreed to hear the state’s appeal in that case. At around the same time that the Supreme Court made that decision, the Governor of New Jersey signed a law authorizing and regulating fantasy sports, while maintaining that fantasy sports do not constitute “gambling” under state law.

In 1992, Congress enacted the Professional and Amateur Sports Protection Act (PASPA), codified at 28 U.S.C. § 3701 et seq. That law effectively prohibited sports betting throughout the country, except in several states, including Nevada and Delaware, which had already created sports lotteries. It prohibits gambling and related activities based on athletic competitions or on the performance of individual athletes. In addition to gambling by private individuals and entities, the statute prohibits governmental entities from “authoriz[ing] by law” any such gambling activities. Id. at § 3702(1).

New Jersey enacted a law in 2014 that repealed some of the state’s prohibitions on sports betting. See N.J. Rev. Stat. § 5:12A-7. In response, a group of sports organizations, consisting of the NCAA, NBA, NFL, NHL, and Major League Baseball, filed suit against the governor, other state officials, and several horse racing organizations. The plaintiffs alleged that the New Jersey law violated PASPA and was therefore invalid under the Supremacy Clause of the U.S. Constitution. A panel of the Third Circuit struck down the New Jersey law, and the full court affirmed this ruling after an en banc rehearing. NCAA, et al. v. N.J. Governor, et al., 799 F.3d 259 (3d Cir 2015); 832 F.3d 389 (3d Cir. 2016).

secretInformation is a critical asset for any New Jersey business, and the value of many types of information is based, in whole or in part, on its secrecy. State and federal laws protect businesses’ rights to keep certain information, known as “trade secrets,” from becoming known to competitors or the general public. The federal Defend Trade Secrets Act (DTSA) establishes criminal and civil penalties for misappropriation of trade secrets and other acts. Businesses must make affirmative efforts to preserve the secrecy of information in order to enjoy the protection of laws like the DTSA. A currently pending federal lawsuit involving trade secrets asserts multiple statutory and common-law causes of action, including a DTSA claim. The lawsuit specifically alleges that the breach of trade secrets resulted from a romantic relationship between a now-former executive of the plaintiff and an executive employed by the defendant. Teva Pharmaceuticals USA, Inc. v. Sandhu, et al., No. 2:17-cv-03031, complaint (E.D. Pa., Jul. 7, 2017).

Almost any kind of information used in business can constitute a trade secret. Common examples include designs or processes used by the business, client lists, and lists of sales leads. The DTSA defines a trade secret by two criteria:  the owner has made an effort to maintain the information’s secrecy or confidentiality, and the information has “independent economic value” specifically because it is not widely known or easily discoverable. 18 U.S.C. § 1839(3).

A person can violate the DTSA through a variety of acts undertaken “with intent to convert a trade secret,” for the “benefit of anyone other than the owner,” and with either the intent to injure the owner or the knowledge that an injury is likely to result. Id. at § 1832(a). Violations may include stealing or otherwise misappropriating trade secrets, copying or altering trade secrets without permission, and receiving information known to be a misappropriated trade secret. The DTSA allows the government to file a civil lawsuit seeking injunctive relief against further violations. The plaintiff in the Teva case is also asserting a claim under this statute.

Offensive balloonTrademark registration with the U.S. Patent and Trademark Office (USPTO) protects businesses’ rights to the exclusive use of names, logos, and certain other designs used in commerce. Business names, product names, and logos associated with either of these are eligible for trademark protection if they meet the criteria established by the Lanham Act, 15 U.S.C. § 1051 et seq. Section 2(a) of the statute prohibits the registration of “immoral, deceptive, or scandalous matter,” as well as “matter which may disparage” a wide range of individuals, institutions, or “national symbols.” Id. at § 1052(a). This provision, commonly known as the Disparagement Clause, was the subject of a dispute that went to the U.S. Supreme Court. In June 2017, the court held that the Disparagement Clause violates free speech rights under the First Amendment. Matal v. Tam, 582 U.S. ___ (2017).

The Lanham Act establishes the general principle that the USPTO may not reject a proposed trademark registration unless it falls under certain specified exceptions. These include flags, seals, or other official symbols of the United States or any U.S. state, city, or other local jurisdiction, or foreign country. A trademark is also ineligible for registration if it uses a person’s likeness without their permission. Any proposed trademark must not be so similar to an existing registered mark that it is likely “to cause confusion, or to cause mistake, or to deceive.” 15 U.S.C. § 1052(d).

The Disparagement Clause prohibits the registration of any trademark that “may disparage…persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” Id. at § 1052(a). Determining whether or not a proposed mark is “disparaging” is highly subjective. Perhaps the most famous example of a trademark disparagement claim involves the professional football team in Washington, D.C. In one decision from that case, the Trademark Trial and Appeal Board (TTAB) held that an evaluation of whether a mark is “disparaging” should look at the mark from the perspective of a “substantial composite” of the group allegedly being disparaged, rather than the point of view of the general public. Harjo v. Pro-Football, Inc., 50 U.S.P.Q.2d 1705 (TTAB 1999).

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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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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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baseballBusinesses that engage in new types of business activity, particularly those on the internet, often face scrutiny from regulators. The New Jersey Legislature is considering at least two bills that would regulate daily fantasy sports (DFS). “Fantasy sports” refer to games in which participants create imaginary sports teams based on real players and earn points based on those players’ actual performance. DFS games typically take place on a more accelerated basis online and involve cash awards to whomever has the most points. Multiple state regulators have concluded that this violates laws prohibiting sports betting and online gambling. The two New Jersey bills are under consideration at a time when the state is also challenging the constitutionality of a federal law that bans sports betting.

Two federal statutes could apply to DFS. The Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, 31 U.S.C. § 5361 et seq., essentially prohibits many forms of online gambling by prohibiting online gambling companies from accepting transfers of money from anyone they know to be making a “bet or wager” via the internet. 31 U.S.C. § 5362(10). The law had a devastating impact on some online gambling companies. It also led to a complaint against the United States by Antigua and Barbuda before the World Trade Organization (WTO), which built on a previous complaint regarding online gambling laws. DFS companies have argued that they are not subject to this statute because DFS is a “game of skill” rather than a “game of chance.”

The Professional and Amateur Sports Protection Act (PASPA) of 1992, 28 U.S.C. § 3701 et seq., created a rather uneven national standard for the legality of sports betting. It generally prohibits sports betting but exempts states that established sports lotteries during a specified time period. At the time of the law’s passage, this included Delaware, Montana, Nevada, and Oregon.

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Open APISA jury recently issued a significant verdict in a legal fight between two major technology companies, although it might not resolve some questions brought up by the litigation. The two companies are fighting over protocols used in a wide range of software applications, known as application programming interfaces (APIs). The plaintiff sued for copyright infringement, alleging that the defendant unlawfully appropriated its APIs for use in its mobile device operating system. Oracle America, Inc. v. Google, Inc., No. 3:10-cv-03561, complaint (N.D. Cal., Aug. 12, 2010). APIs are essential tools for countless digital technologies, so the outcome of this case ought to be of great interest to anyone who regularly uses the web. A federal judge ruled in 2012 that APIs are not subject to copyright infringement, but an appellate court reversed that ruling. On remand, a jury found that Google breached Oracle’s copyright, but the breach was excused under the Fair Use Doctrine.

Copyright law protects “original works of authorship fixed in any tangible medium of expression.” 17 U.S.C. § 102(a). This includes books and other written works, musical recordings, video or film recordings, and software code. It does not, however, include “any idea, procedure, process, system, [or] method of operation.” Id. at § 102(b). A copyright can be a very valuable asset for a business, and copyright owners must take affirmative steps to protect their copyright interests. The Fair Use Doctrine holds that unauthorized use of a copyrighted work is not infringement under certain circumstances, including “criticism, comment, news reporting, teaching…, scholarship, or research,” provided that the use is “transformative.” Id. at § 107; Campbell v. Acuff-Rose Music, 510 U.S. 569, 579 (1994).

The Oracle case presented the question of whether APIs are subject to copyright protection, or whether they are non-copyrightable procedures or processes. An API, simply stated, allows one software application to communicate or interface with another application, acting as a sort of translator between different pieces of software. APIs are essential parts of many common digital technologies, allowing mobile devices to run a wide range of applications and allowing websites to interface with social media services like Facebook and Twitter, to name just two examples.

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Coca ColaThe protection of trade secrets is a critical component of building a competitive business. Companies must safeguard proprietary information against misappropriation by employees and others, typically through nondisclosure agreements. State law provides remedies through the court system, both to enjoin potential disclosures of trade secrets and to obtain damages for theft or misappropriation. Most states have enacted the Uniform Trade Secrets Act (UTSA) in some form, but the enforcement of these laws across state lines can be difficult. In May 2016, the U.S. Congress passed the Defend Trade Secrets Act (DTSA) of 2016, Pub. L. 114-153 (May 11, 2016), which gives the federal court system jurisdiction over claims of trade secret theft that affect interstate and international commerce. This gives trade secrets federal legal protection that is comparable in many ways to copyrights, trademarks, and patents.

The precise definition of a “trade secret” may vary from one jurisdiction to another, but every definition has common features. The UTSA, drafted by the National Conference of Commissioner on Uniform State Laws, and approved by the American Bar Association in 1986, ascribes two key elements to a trade secret. First, it must have “independent economic value” that derives from the fact that it is not known to others who might derive economic benefit from it, nor is it something they could easily figure out on their own. Second, reasonable efforts must have been made to keep it secret. The “secret recipe” for Coca-Cola is perhaps the most famous example of a trade secret.

Unlike other forms of intellectual property, such as copyrights, trademarks, and patents, no government agency registers or directly regulates trade secrets. This makes sense, considering that the whole point of a trade secret is to keep it out of the public eye. It also means, however, that the owners of trade secrets have the sole responsibility to protect and enforce their rights, using a patchwork of state laws. All but three states have enacted the UTSA. See, e.g., N.J. Rev. Stat. § 56:15-1 et seq. New York is one of the three states that has not enacted it, relying instead on common law trade secret protections. A bill is currently pending that would add the UTSA to the New York General Business Law.

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Blue Diamond Gallery [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0/)]Trademark law enables businesses to protect brand names, logos, and other “marks” used to identify, or that are strongly associated with, their products and services. The owner of a registered trademark can use the courts to prevent another business or individual from using a name or logo that is the same as, or substantially similar to, the registered mark. Since a trademark registration confers such a great deal of authority, federal law allows objections to pending trademark registrations, as well as petitions to cancel existing registrations, on various grounds. The Trademark Trial and Appeal Board (TTAB) recently dismissed a cancellation petition alleging fraud during the registration process. Embarcadero Tech., Inc. v. Delphix Corp., Opposition No. 91197762, Cancellation No. 92055153, opinion (TTAB, Jan. 21, 2016).

The term “trademark” generally refers to “any word, name, symbol, or device” used by someone in commerce “to identify and distinguish his or her goods…from those manufactured or sold by others…” 15 U.S.C. § 1127. The term “service mark” has the same meaning applied to services, rather than goods, but the term “trademark” may often refer as a shorthand to both trademarks and service marks.

A person can oppose the registration of a mark by the U.S. Patent and Trademark Office (USPTO) on the ground that they “would be damaged by the registration of a mark.” 15 U.S.C. § 1063(a). This might include harm to the person’s own registered trademark, such as by causing confusion among consumers or by diminishing the value of the existing mark. These are known, respectively, as “dilution by blurring or dilution by tarnishment.” Id. After the USPTO has registered a mark, a person can petition for cancellation of the mark on the same grounds. 15 U.S.C. § 1064. In most cases, this must occur within five years of the registration date.

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