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Be on the lookout for Intellectual Property (IP) and domain name-related schemes specifically designed to get you to needlessly part with your cash. If you registered a trademark, copyright or patent or if you own a website domain, there are number of deceptive marketing practices that some of you may fall prey to if you are not aware that they are actually scams.

What you need to know…

When you file a trademark, patent or copyright with the US Patent and Trademark Office, US Copyright Office or other IP-related government entities, your application becomes public information and anyone can access these databases. So-called marketing companies take your information and then solicit their victims via email or regular mail for services seemingly related to intellectual property or domain name registrations – services that you don’t actually need.

The solicitations may include:

(1) Offers for legal services to file your IP in another country.

(2) Trademark monitoring services

(3) Invoices for renewals (coinciding with your registration dates)

(4) Recordation fees for trademark registration with U.S. Customs and Border Protection

(5) Offers to include your trademark listing on private registries or directories

(6) Invoices for foreign registration

(7) Notifications that an unauthorized 3rd party seeking to register your trademark or domain and will be approved unless you respond and pay the listed fees

These companies send out notices and invoices under official looking letterhead and often times, use government sounding names such as the “TM-Collection – International Register of Trademarks-Hungary,” The Asian Domain Registration Service” or “US Customs and Border Protection (CBP) Bureau.” Oftentimes they use scare tactics such as:

another company is attempting to register your intellectual property in their country and that if you do not respond, we will assume you have authorized this registration. Click here for more information on this scam.

Other times these scammers will simply send you an invoice in order for you to register your trademark from Hungary, for example, (in the amount of $1650.00 or otherwise be advised that you that you will lose your rights to register in the future).  Again, the solicitations are worded in such a way so as to appear that these fees are an ordinary charge and that you are obligated to pay to protect your intellectual property.

Alternatively, victims who already own a “.com” domain name are warned by so-called international domain registries that they need to buy all of the other variations from .net, .biz, .cn ,etc. in order to protect their trademarks within their countries. The truth is that you don’t need the help of these officious third parties as you can easily register alternative domains yourself with reputable registrars in your home country for a few dollars each a year.

If you receive any kind of renewal or listing notice, here are the six basic things you should do to avoid a scam:

  • Check the source of the official correspondence – communication from the USPTO will either come from an address in Alexandria, Virginia or an email return address would end in “@uspto.gov.”
  • Research the exact name of the organization that sent out the invoice and see whether they show up on any watch lists (or simple google their names)
  • Read every word of the document. If it’s a “legal” trick, it will say somewhere (even in very small print) that it’s a solicitation, not an official invoice. You will probably note bad grammar and misspelled words in the solicitation as well.
  • Know the normal maintenance filing deadlines and requirements associated with a U.S. Trademark — which typically occur between the 5th and 6th year after registration and again between the 9th and 10th year.
  • Trust your instinct. Maybe the due date seems too soon? Maybe the due date has already passed? Maybe the details in the “notice” are limited and include no contact phone number?
  • Work with your lawyer or other provider to help verify the authenticity and accuracy of any invoice or before paying it.

IP scams have become so rampant that that government entities have begun issuing warnings to advise intellectual property holders to be aware. Click here for the USPTO official warning. The World Intellectual Property Office also maintains a database containing samples of scam letters and invoices. Click here for samples of these “scam” invoices. You may also file an online consumer complaint with the Federal Trade Commission www.FTC.gov and/or email the USPTO @ TMFeedback@uspto.gov.

Readers, be on your guard for this new surge in patent, trademark and domain registration scams deigned to trick inventors and businesses into paying hundreds or even thousands of dollars for bogus services.  Feel free to email or comment on this post if you’d been the target of one of these scammers.

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Employees vs. Independent Contractors and why it matters.

When starting a business and bringing staff on board, you must decide whether those individuals providing the services are employees or independent contractors. This post provides important information about how to classify your workforce and avoid costly penalties.

In my experience, many start-ups bring on initial staff as Independent Contractors — this way, they don’t have to withhold payroll taxes or provide benefits such as sick days or workers compensation.  However, according to the Department of Labor, up to “30% of companies misclassify their workers”  (See Statement by Deputy Secretary of Labor, Seth Harris, June 17, 2010; this results in billions of dollars of losses for the IRS so naturally they are now cracking down.

As of January 2013 when payroll taxes increased from 4.2% to 6.2%, a new level of scrutiny will applied to companies to make sure they are properly classifying their workers.  If you are later found to have misclassified an Employee as an Independent Contractor, the IRS can retroactively assess back payroll taxes and slap on penalties.

To be clear, Independent Contractors are generally those people you hire to complete a specific task or project; they work intermittently or on a temporary basis. in Examples include: accountants, lawyers marketing consultants, trainers or outsourced developers. These people tend to work primarily from their own homes/office and at their own hours and serve clients other than you. In other words, unlike an Employee, you do not control their “when, where and how” work is to be performed. For this reason, a company does not need to withhold taxes or provide benefits to Independent Contractors.  At the end of the year, your company issues them an IRS Form 1099 reporting all the monies that were paid to each individual.  It is the individuals’ responsibility to file returns and pay their own taxes for the amounts received.

Once you have set up an LLC or Corporation and start to bring on a workforce, follow the link below to review the IRS’s 20 Factor Test to find out whether someone should be classified as an Employee or Independent Contractor. If you think you have misclassified a worker — not to worry — as of 2011, the IRS began offering a Voluntary Classification Settlement Program to change the status of workers without penalty.  Click here for more information.

This is one area you don’t want to procrastinate — a falling out with an outside contractor that leads to litigation can open up a can of legal worms. States are working more closely than ever with the IRS to ensure that they are not missing out on the additional 2% of flesh from each worker’s paycheck. For more information, check out Forbes article, New Crackdown on Using Independent Contractors (Nov. 12, 2012).

Lastly to note, if you have determined that someone is legitimately an Independent Contractor, be sure to sign an agreement that obligates them keep your information confidential, requires that they transfer rights to intellectual property and itemizes the work product they have committed to deliver (and you have agreed to pay for), to avoid any disputes down the line.

Any doubts or questions as to whether you are properly classifying your workforce? Free to email me or post your questions below.

Is there a topic you would like to see covered on BrillsonLaw? Would you like to be a guest blogger?  Email info@paulabrillson.com

Going into business with someone or choosing to invest in a startup entity is a huge step and one that could have serious repercussions if the party (or parties) turn out to be less than scrupulous. Performing personal due diligence (not to be confused with corporate due diligence) does not necessarily mean ordering a credit or criminal background check in the manner that many employers do or doing a deep dive into their corporate or financial records. Rather, by using publicly available information (as outlined below), you can check out your potential partner to determine whether he or she is an upstanding match for you.

Case in Point…

A few years ago a client called me from a Las Vegas airport. He was prepared to write a check to invest in an exciting new business opportunity: a chain of executive health care centers.  According to the business plan, the company was operational and seemingly profitable in their first location and were looking to expand nationally.  He visited one location and was highly impressed.

Him: This is an amazing opportunity.. They told me I had to have the money deposited by the end of the week or I’ll miss out on this exclusive funding round.

Me:  Cool your heels. Get me a copy the company’s Cap Table (short for Capitalization Table, a document that lists out shareholders names, contact details and their ownership percentages) so I can check them out. I’ll work quickly. Don’t write the check – I’ll get back to you in a few hours.

Him: All I have is the business plan.

Me: The law requires that they disclose their Cap Table when offering securities – if they express any resistance, tell them I’d like to speak with their attorney.

The Cap Table was forwarded and I quickly went to work.

I researched each individual on the list and what I learned was startling…not only had 3 of the directors been charged by the IRS with tax fraud but it seems that a few of them (and their wives) had previously set up a similar company and were being sued in 2 states for embezzlement. I then came across a website that named these same individuals as the “masterminds” of an alleged ponzi scheme involving executive medical facilities. To this end, my client narrowly escaped being one of their many victims.

This is a perfect example of how many people – even highly successful ones – can be too trusting and take what other’s say on face value; this is particularly true of young entrepreneurs who are wide-eyed and relatively inexperienced. Though, when you are racing to the first goal line – whether it is raising money or launching a service or product – you may take short-cuts in choosing who you work with because you are so desperately in need of another pair of hands or eyeballs. Though, wouldn’t it be beneficial to you and/or your company to limit liability and risk by conducting due diligence before entering into business relationships?

Here is some insight into my typical investigation process

1) Name and Email Address Searches: Use popular search engines to research individuals/company names and email addresses. (Best if you have both their business and personal email addresses” If the company has a list of partners or shareholders, search their names and emails too.

2) Reverse look up phone-numbers. Use www. whitepages.com or fonefinder.net and see if the registered name appears.  Then enter the phone numbers e.g “111-555-1212” . Running this search gives me a good idea if the phone number has been used anywhere online.

Sidebar Note: Sometimes I find a different name other than what they provided as the registered user, or I may find a web site where the phone number or email was used as a contact number. From there, I may even find a personal ad placed where the subject was offering employment or seeking investment. I can also find out which forums the subject hangs out at and read their comments.

3) Patent/Trademark Searches: Go to the USPTO.GOV website and see if the person is associated with any trademark or patent filings. In one case we learned that an individual making detailed inquiries into a company was in fact representing a competitor and was posing as a potential customer, trying to find out confidential information from my client.

4) Domain Name Searches: Go to www.betterwhois.com and see if this person/company owns any by searching the whois directory to see if credentials check out.

5) Business registration searches: Go to the Secretary of State’s website in the company’s place of incorporation. Do a business entity search and see whether the company is in good standing (e.g., is the company paid up on taxes and registration fees) and who the shareholders are, if listed.

6) Consumer Complaint Websites: Go to sites such as”

http://www.ripoffreport.com

http://www.complaintsboard.com

http://www.complaints.com

There you may find whether any negative reports have been filed about individuals and companies

7) Civil/Criminal Records Search.  Go to the website of the county/state to search online for civil and criminal records on the subject. You can find out which county to search based on the subject’s phone number or zip code revealed in the previously mentioned searches.

Sidebar Note: I have found numerous civil filings on subjects regarding business dealings, family law cases involving domestic violence and DWI convictions. Some of these can be explainable (hey, no one is perfect) but if someone has a record, I’d respect them more for being forthcoming (since you’d likely find out anyhow) rather than failing to disclose their history.

Based on some of the above scenarios, it doesn’t take a rocket scientist (or a lawyer) to understand the importance of conducting due diligence on a individual or company before signing agreements or entering into a business relationship.  It may, however, make sense to contact a lawyer to assist in your due diligence process — which could cost anywhere from $250 to $1000 depending on the size and scope of the investigation.

Questions? Comments? Bloggers always like to hear from their audience!

ALWAYS RESIST BEFORE YOU CEASE AND DESIST

I was contacted by the management of a consumer product line; the COO was in a panic “we are being sued for trademark infringement and we received a 30-day cease and desist letter.”

Me: First, let’s be clear. You are not being sued. This is only a threat.

Him: But I am looking at the court papers, we are being sued.

Me: These haven’t been filed.  They are just threatening to file those papers if you don’t agree to their demands — basically, to stop using the trademark within 30 days.

Him: That’s not possible! But…they are a multi-million dollar company. They hired a top NY law firm to handle this.  They will crush us.

Me: They are just trying to intimidate you. No need to panic — let’s figure out a strategy.

Trademark infringement is when someone uses a brand name, logo, or slogan to trade off the goodwill of an established company.  The main test is whether it whether there is substantial similarly such that a competitor’s mark causes confusion in the marketplace. For example, a beverage manufacturer could not adopt the mark “Koka Kola,” because although this mark is spelled differently from the famous  Coca Cola mark, it is still pronounced the same and therefore could cause confusion amongst buyers. Trademark law would stop a manufacturer from using the name Koka Kola because It would appear to be trading off the good-will of an existing brand name to promote its products.

Whether or not a party has infringed on another’s trademark is a question for the courts. Though, most trademark infringement cases are settled out of court and they start with sending the alleged infringer a “Cease and Desist” notice to prompt negotiations. You don’t necessarily need to hire a big law firm to handle your case; as a solo practitioner, I have successfully defended clients against infringement claims. This one case stands out in particular.

I reviewed the claims and I told my client this: “if you want to defend this trademark, you it is unclear whether you will succeed (the name and logo were actually quite similar) and it will probably cost you upwards of $100,000 in legal fees; if you lose, in addition to these fees, you may have to hand over all your profits and pay the other side’s legal fees as well.”

“We’ll have to think about this” he replied. Then he shared with me something else … “our product is being counterfeited by a Chinese manufacturer using our same packaging and trademark and it’s being sold at such a low cost that we can’t compete. In any event, we were planning to discontinue this product in a year or so anyhow.”

At this point my legal light bulb went off.

1) Their remaining product cycle is 1+ year(s).

2) The counterfeiter in China affects not only my client but the guys threatening to sue us as well.

With this, I had my strategy: We have leverage as a result of this counterfeiter (as it would be in the other side’s best interest to allow us to keep the trademark so we would have the ability to go after these counterfeiters). “My suggestion is that we negotiate for the rights for 1-2 years of continued use and then we agree to abandon the trademark.” My client loved this idea and I agreed to a flat rate to handle this matter.

The Negotiations Begin….

I respond to their cease and desist by suggesting a conference call.

Round 1: Started out as friendly conversation and quickly became patronizing.

Them: Have you any experience representing clients in a trademark action of this magnitude?

 Me: Sorry, what do you mean by magnitude?

Them:  What I mean is that this is a fairly serious matter. A great deal of money could be at stake for your client.

Me: Yes, I read your letter but it is not clear that you have a valid infringement claim.

Silence.

Them: We are authorized to release our claims if your client agrees to cease using its trademark  — which is deceptively similar to ours. We can draft up the papers by Monday.

Me:  With all due respect, the United States Patent and Trademark Office approved our marks 2 years ago.  We also have valid trademarks in 9 other countries. You had every opportunity to file an objection to our registrations before they were granted.  How many attorneys do you have over there anyhow? Isn’t someone responsible for tracking these things?

Tone change. Suddenly I was being taken seriously.

Them:  Look, Ms. Brillson, our clients are expecting us to settle this matter by the end of the month.

Me:  Gentlemen, I’d love to help you get this done.  Sorry – I have to run to another meeting and then I will be on travel until next Friday.  Shall we reconvene on Friday then?

Round 2:

Me: Good afternoon sirs…, Excuse me, I have an urgent call on another line, please hold. (I clocked a 6 minute billing increment and then rejoined the call).

Side note: find ways to crank up legal billing for other side; may encourage the other side to compromise more willingly.

Me: Thanks for holding gentlemen.  I conferred with my clients we agree to abandon the trademark within 3 years of today’s date.

Them: This is not an acceptable offer!  Are you sure you have properly advised your clients that large damages are at stake here?

Me: I will have to seek guidance from my clients before I can revise my offer. Unfortunately, the CEO is out dealing with some urgent business until next week.   You see, we just discovered that the product bearing the trademark name in question is being counterfeited. This is something that affects us all.

Sidebar note: We had just received news that our sales were down as a result of the illegal counterfeiter in china. We began talks with Chinese customs to attempt to seize these goods. See To Catch a Thief: Intellectual Property Rights in Action (BrillsonLAW, Dec. 12, 2012).

Round 3

Me: Gentlemen, I’d like to bring in your attention the grave issue we are addressing with respect to the Chinese counterfeiting I advised you of during our last call.  These goods bear our trademark – that same trademark you say is substantially similar to yours.  Surely your clients are concerned about this as well. They are currently selling to Big Lots throughout the US.

Them: Go on.

Me:  We are in the process of tracking down these counterfeiters and seizing their goods.  It is a costly and potentially lengthy process but one that will benefit us mutually.  We have been asked to make a large deposit with Customs in Hong Kong.  I would recommend that we split this deposit.

Them: We do not have any instructions from our client in this regard.

Me: Either way – it could take up to 2 years to stop this production completely. I think you can agree that any efforts on our part to curb this activity would be of mutual benefit.

Them: Possibily so.

Me:  Ok. It seems we are close to reaching an agreement.  The revised offer from my client is that they agree to abandon the trademark within 2 years.

Them: Our client will only agree to a 1 year extension.

Me:  Gentlemen, I understand what you are authorized to negotiate but didn’t we just agree that going after the counterfeiters in China would be mutually beneficial? 

Them: In theory, yes.

Me:   …and that it could take up to two years.

Them: I don’t see how this is relevant to our infringement claims.

Me:  Forgive me if I am missing something here?  Doesn’t my client need to have a valid trademark in order to pursue the counterfeiters?

Them: We will need to discuss this with our client.

Me: I will be on extended travel starting on Monday. As your clients had hoped to settle this by the end of the month, please advise them that if we do not have a deal in place by then our offer will be withdrawn. While we prefer to stay away from litigation, (only the lawyers win here, hey…chuckle. chuckle) we are pretty confident that our trademarks will be upheld.

Them: We will get back to you as soon as possible.

Round 4:

Them: Our clients have agreed to allow you to continue to use the trademark for 2 additional years.

Me: Great… 2 years from the date of the signed agreement.  Thanks, it’s been a pleasure.

            Them: Um…sorry…but….

Me: Gentlemen, sorry to cut you off but I have a call on the other line…would you like to hold?

Them: Um…We will draft up the agreement.

Take-aways: If you are the recipient of a cease and desist letter (which is normally the first step in alerting someone that that are potentially infringing on their intellectual property), here’s what to do:

Step One – don’t panic

Step Two – hire counsel with experience in intellectual property before doing anything

Step Three – break apart scenario and understand the big picture

Step Four – perform a cost/benefit analysis

Step Five – formulate a strategy and take control of negotiations

And remember…the underdog wins by using an entirely different strategy: identifying and exploiting their stronger opponent’s weaknesses. I look forward to hearing your thoughts and comments!

Global reach of the Internet means that sellers of counterfeit goods can reach consumers like never before. For this reason, you will want to protect your goods with patents and/or trademarks in those countries you will be selling, manufacturing or developing your products or services. The biggest violators are based in China, Indonesia, Taiwan and Mexico; with cheaper labor available, they are manufacturing knock-offs and selling to customers in your most lucrative markets.

Even if you’ve taken every precaution to file trademarks and patents…what happens when you find out your goods have been counterfeited or your trademark has been misappropriated?

I represented a company whose goods were being knocked off by a manufacturer in China. The freight forwarder erroneously sent us a copy of the counterfeiter’s bill of lading– identifying the goods under my client’s trademarked name. The bill of lading revealed that over $100,000 of pirated goods were being shipped F.O.B. Hong Kong to several international destinations.

As this product was both patented and trademarked, I contacted Customs in Hong Kong and reported the infringing activity — I thought we could easily have the pirated goods seized at the port. It turns out that even with proof in hand, in order to seize goods, a deposit of over $250,000 would be required for Customs to take any action – more than the value of the shipment! If the goods were found to be non-infringing, a portion of that money would go back to the owner of the goods to pay for his damages and inconvenience.

In any event, this money would be tied up for months, if not longer, while an investigation would be conducted – comparing the goods with the patent claims to determine whether they infringed upon my client’s patents. Comparatively, we learned that it would be easier to claim trademark infringement because a trademark could be visually evaluated (though damages for trademark infringement are significantly less than for patents).

After several weeks of haggling with Hong Kong Customs with no results, I decided to take a drastic measure and contact the Hong Kong police to report a theft and, at the same time hired local counsel to file an injunction (an order issued by a court that forces someone to do something or stop doing something  — in this instance, it stopped the agent from shipping out the goods to his customers).  This method proved most effective; we were able to successfully seize the goods and the Police notified the manufacturer’s local representative that the goods would be held (at a hefty daily storage charge) until the matter was decided.

I contacted the local agent and, in the style of Vito Corleone, made him an offer he couldn’t refuse:
“Tell your boss that we are willing to release all claims provided:                                                          —all profits on this shipment get paid directly to us.                                                                          –we will release the goods to you so you can forward them on to your customers in order for you to get paid.  However, we will require your company to sign a manufacturing/distribution agreement with monthly guaranteed minimums under a long-term contract commitment .”

 Note: We had to assume they were still making the goods and had new orders to fill; since the goods were of high quality, we decided to take the approach that if you can’t beat ’em, join ’em — as a result of this relationship, over the next few years, my client grew his profits significantly.

While not everyone is so lucky as to be handed information that leads them directly to their counterfeiters, by monitoring the Internet (particularly wholesale sites) you may be able to uncover proof that unauthorized sellers are pirating your goods. In some cases you may want to stop the counterfeiting and sue for damages —  in others, you may want to negotiate. Contact a lawyer to help you strategize and take action – sometimes they will work on a success-fee basis.

Take-aways:
1. While patents are more valuable than trademarks, it’s easier to catch a thief based on appearance (trademark/packaging) rather than functionality.
2. Trademark filings are more nuanced that many people think. In addition to performing a trademark similarly search, classifying goods and services and determining where to file are other important considerations.
3. Don’t spend the money until you need to – start with a single trademark/patent and file in other countries when you start doing business there; you can still claim the date of first use based on your original trademark filing.
4. Ballpark costs

  • Trademarks: $1,200 to $1,800 to hire a lawyer to handle the initial filing
  • Provisional Patents: Approx. $1,500-$2,500 depending on complexity (gives you 1 year to market your product/service before filing a full blown patent application)
  • Patents: Costs up to $10,000 for a utility patent and $5,000 for a design patent

Note: Ask your lawyer to prepare an international patent/ trademark strategy that coincides with your rollout schedule for your budgeting purposes.   

5. Having a registered trademark can help you take control over bad actors that register a domain name using your trademarked name (e.g. .net, .biz, .cn, etc) more on this later…                                   6. Remember to use the ™ symbol next to your trademark while it is pending approval and the ® symbol after you have registered it.

In my next blog, “Davy vs. Goliath” I’ll share my experience from the other side of the table – defending a trademark owner against threatened litigation. Thoughts? Comments?

This article is not intended to constitute legal advice or to take the place of conferring with your own attorney.

©2012 Paula Brillson. All Rights Reserved

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