Tuesday, May 31, 2011

Can We Sample Tequila? The Song That Is ...

Dear Rich: I am representing a band that has written a song that uses 4 seconds of the song "Tequila" in a break. The song is not sampled, but rather the melody is played by the lead guitar and the word "tequila" is sung once. The band expects to release the song for widespread commercial use. I have already determined that "Tequila" is protected by copyright and the publisher is registered with BMI as I recall. Do we need to get a license or sample clearance? Is there a fair use or some other exception that might apply? The good news is that you haven't sampled the Tequila recording. That eliminates the pesky issues raised by the 6th Circuit in this harshy-harsh sampling case. (They proclaimed that all digital sampling required a license no matter how short or inaudible the sample!)
Analog Not Digital. Since you're not doing any digital sampling, we think you're in a better position to go without permission and claim two defenses:
  • the de minimis defense. Four seconds of Tequila is not an infringement because the use is so minimal, or 
  • the fair use defense. You are using the song for transformative purposes (perhaps commenting on Tequila's retro-classic cultural significance, or referencing Tequila to make a point about alcohol consumption.)
But like Tequila, you may want to take our advice with a few grains of salt. We're discussing defenses and if the owner of the song disputes your position, a judge will have to decide the matter -- always an expensive proposition. Some other questions to consider: Is the band under contract and must they declare the samples to their label? Is the copyright owner likely to learn of your use? Need some more on sampling? Check out this article.

Friday, May 27, 2011

Does NFL Sticker + Lamp = Infringement?

Dallas Cowboys Glass Table
Lamp from Fansedge.com
Dear Rich: I have what I think may be a complex question and hope you can help me. Let's say I build a custom lamp and I also sell licensed NFL stickers. My question is if a customer would like to purchase a NFL sticker and have it put on the lamp, is that an infringement on the logo? Short answer: It probably depends on who places the sticker on the lamp. If you affix it, you may get a cease and desist letter from the NFL. If the customer does it, you're less likely to have problems.
Isn't that arbitrary? Yes, it is. But in the eyes of the NFL, you become a seller of NFL merchandise once you offer to sell lamps with logos on them, whether it's done at the request of the customer or under your own initiative. By selling a kit, you're less likely to run into problems --  for example, like these tail gate party kits. It's true that the NFL offers kits to create things (including pumpkin carving kits) but you're in a better position for a few reasons, including the first sale doctrine. As a general rule you should avoid including the NFL or team names in your website name or URL, and a disclaimer - "This website is not affiliated with or endorsed by the NFL" - may also help.
Bottom Line Dept. As with so many Dear Rich questions, your inquiry has a lot more to do with how visible you are on the NFL radar screen. If we were you, however, we'd still feel more secure if we were selling the parts separately rather than assembled.

Thursday, May 26, 2011

Copyright on 100-Year Old Photos?

Fritzie The Hawaiian
Hula Girl circa 1920s
Dear Rich: I have come across some very old photos taken by an uncle over 100 years ago. A few were sold to magazines at the time but most were never published. They were made into prints however. What would the copyright status on these be? My uncle died in the 40's. Could they be published now and copyright claimed starting in 2011?  As for the photos published in magazines before 1923, as you probably know, they are all in the public domain. We think it's possible there may be a few years remaining on your uncle's unpublished photographs. (By the way, making prints for private distribution does not amount to publication.) Copyright on those photos will end 70 years after your uncle's death. So if he died in 1949, you can claim eight more years of protection. You may find this strange, but under a quirk in copyright law, you could have earned an additional 45 years of protection (until 2047) if you had published these photos before December 31, 2002. (Who knew?) Publication after that date doesn't kick in this extra time period. For more on duration, check out the Copyright office circular on the subject.

Wednesday, May 25, 2011

Is Star Wars Blog Illegal?

Star Wars Episode 12:
Revenge of the IP Lawyers
Dear Rich: I have a blog that I recently finished called Anikin's Blog. It was a spin off of the Star Wars movie series. I was, however, afraid of copyright infringments and thus refrained from spelling any copyrighted names correctly. I want to start a new blog about a Storm Trooper, but I figure I will get more traffic if I spell the names correctly and then can receive more Google searches. Is this legal considering the blog is non-profit? Can we start by clarifying one small point? Many people write to the Dear Rich Staff and state that their business is nonprofit perhaps because they think that fact will influence whether they are liable for infringing (it won't). Many readers believe that nonprofit means that their business doesn't profit. Not true. A nonprofit has a fairly specific definition; it is a business that qualifies for certain tax benefits and has registered as a nonprofit corporation. It may seem paradoxical but a nonprofit can make a profit, provided it plows those profits back into the charitable, scientific, or educational purpose for which it was created.
Right, you had a question. We're not sure about the value of your misspelled name strategy. We don't know if it shields you from Google searches or more importantly from Lucasfilm lawyers. In any case, in light of the zillions of unauthorized Stars Wars related blogs (at least seven of which claim to be the "official" Star Wars blog), as well as the galaxies of Star Wars fanfiction, Star wars podcasts, wikis, videos, and parodies, we think that a new blog about Star Wars Storm Troopers will be flying lower than a Gungan 'Bongo' submarine on the Lucasfilm legal radar screen. In other words, don't expect a cease and desist letter in the near future. That's not to say that someday, the Star Wars legal team will decide to clean house. But as a very general rule, the attorneys appear to reserve their legal muscle to go after those who seek to profit from unauthorized Star Wars products or those with high-radar trademark violations.

Tuesday, May 24, 2011

Wants to Use Magazine Imagery in Book

Dear Rich: I am writing a book about an art technique using a national magazine. I can illustrate the process using the magazine without actually showing any of it's actual images, (see picture) but I must use the name as it is the only magazine that will work with this process. I have contacted the company and so far no one has been able to help me. The other product that I use has given me permission and is going so far as to help me promote the book because it will help them. This would also be the case with the magazine. I will be adding value rather than compromising it. I will list them in my sources. Would this be considered fair use? Do I need to have their permission to use their name? This reminds us of when our cousin Andrew used to paste rubber cement on a piece of wood and then apply rubber cement to a magazine picture and press them together after they dried (and I think he ran water over it until the paper washed off). He ended up with a piece of wood with an image on it, except you could see the wood grain, too. Kind of an old-timey look. He priced them at $50 or $100. We were about 13 at the time and that seemed a lot to charge for something you made with rubber cement. He told me, "If you don't charge a lot, people won't take it seriously." He was so young to know that.
Right, you had a question. We think you will be fine using the name of your magazine within your book. That's a trademark issue not a copyright issue and editorial uses of trademarks -- for example, talking about a magazine in a how-to book -- does not require permission. A conservative approach would also be to add a disclaimer at the front of the book to the effect that you and your publisher have no association with the magazine and that all rights in the magazine vest in the magazine owner. If you use imagery from the magazine, you'll trigger copyright issues and probably need permission either from the magazine or, if the magazine doesn't own the rights, from the photographer or designer who created the materials you're using. We think selective uses of the magazine in the context of a crafts project would likely be excused as a fair use since it is clearly a transformative use, but as Dear Rich readers know, fair use is just another word for a lawsuit, because that's often the only way you can prove fair use rights. As for the fact that your book adds value to the magazine, that may or may not be true, but it probably won't have much effect on your claim of fair use.

Monday, May 23, 2011

Had Domain Name First! Do I Own Trademark?

Dear Rich: In 2008, I purchased a domain name for a service business I wanted to start (abc-company.com). I'm based in the US and did a variety of small jobs under that business name for a while but due to life circumstances wasn't really able to give the business my full attention. Recently, I decided to refocus my energy on this business and begin building it again. It turns out in 2009, somebody else registered a similar domain name (abc-company.net). They are based in the UK but have a strong US presence, and they have published a book by the same name (ABC Company) and given several popular talks under the same name. While I have the company's name on LinkedIn, they have it on Facebook. The nature of our work crosses over in many ways but our service offerings are different. Their company clearly comes up in the search results before mine and is currently more established than mine. Would the fact that we are in different countries affect the rights to who has the best claim on the trademark? Do either of us have a right to that trademark?  The Dear Rich Staff suggests you consider the following questions.
  • Have You Established Trademark Rights? Your first question, regardless of the other company's use, is whether you qualify for a trademark. If yes, you may be able to claim a priority based on your earlier use of the name. Using a domain name doesn't create trademark rights. You have to use the domain name in a manner that customers associate with the business. For example, the original domain name for this blog was: patentcopyrighttrademarkblog.com, a URL that could never function as a trademark because it is the generic term for a blog about ... guess what? On the other hand, "Dear Rich" passes the test for "On-line journals, namely, blogs featuring commentary and information in the fields of patents, copyrights and trademarks." The fact that you stopped for a while may hurt you if you get into a spat and the other side argues that you abandoned the mark. But that's unlikely as abandonment typically requires three or more years of nonuse. 
  • Have They Established Trademark Rights? The fact that you're in different countries may be sufficient to avoid a dispute, provided that each company caters primarily to consumers in their own country and is not concerned with what happens across the ocean. If your UK doppelgänger is expanding into American markets, they may file with the U.S. Patent and Trademark Office. You can periodically check Trademark Office records (here's a video explaining how) to see if the company has filed anything. You may object to the registration if you have sufficient basis.  Again, if the term is generic, it will be equally tough for the UK company to claim rights.
  • Can You Both Claim Trademark Rights? That's possible if, like you say you offer different services. Many companies have the same or similar registered trademarks because the U.S. Patent and Trademark Office permits different companies to use the same mark if their services or goods are not likely to confuse customers (For example, nobody thinks that the people who make Arrow shirts also make Arrow staplers) 
  • Do You Need a Registered Trademark? The longer that you both co-exist without any confusion, the more likely that things will stay that way and you won't have to be concerned about fighting over registrations. Here's a recent case about domain names where that issue came up. On the other hand, if  you're concerned about expanding your business or you just want to shore up your rights -- and you have $325 to file a federal application -- go ahead and file for a trademark but take a look at this information before doing so.

Friday, May 20, 2011

Can I Get a Business Method Patent?

Dear Rich: I have an idea for an online service for promoting sports events. It can be done by existing companies, needs a big database, and requires no new technology. Is it possible to file a Provisional Patent Application for such a business idea with no new technology involved? Can it qualify for a Business Method Patent? We think what you're asking is "Can my idea qualify for a utility patent?" And the short answer is, that depends. We do know that it's possible to get a patent for a business idea that combines existing technology. Here's an explanation of the standard.
What's a business method patent? A business method patent is a type of utility patent popularized after a 1998 case. These patents are granted for a method of performing specific business tasks and they typically combine software with a business methodology -- for example, a method of calculating gold futures. But not all business method patents are high-tech. They can be as simple as a method for teaching janitors how to dust. Business method patents were thought to be dead after an appellate court ruled that a business method could only be patented if it (1) was tied to a particular machine or apparatus or (2) it transformed a particular article into a different state or thing. (In other words it had to get physical.) But after a nail-biting year for business method patent owners, the Supreme Court saved them when it held that the standard used by the appellate court was too narrow.
Summing Up Dept. It is still possible to obtain a patent for a method of doing business. You may encounter problems if an examiner suspects that your idea is not patentable subject matter -- for example, it is an abstract idea. And of course, you cannot get the patent if the idea has been sold or published more than a year before your filing.
Wait, we forgot something. You asked about filing a provisional patent application (PPA). Yes, you can file that. Here's something that explains the basics. Assuming the PPA was prepared properly, its value only lasts for a year unless you file a regular patent application for the same subject matter.
More on my grandfather. Your invention for promoting sports event online would not have worked on him (shown here with my grandmother). He didn't live long enough to go online and even if he did, there is no way you could convince him to go a sports event.

Thursday, May 19, 2011

Do I Need Permission to Publish My Animation?

Dear Rich: I have worked in animation for 30 years (as an animator, visual development artist and storyboard artist) and I decided to put together a compilation book of my own artwork (from games, TV shows, and animated Feature films) to sell. It would be self published, probably in a print run of 500 copies, and I would primarily sell it directly at comic book shows and my own website (and perhaps at some specialty shops). I am wrestling with whether to go ahead and print it, without seeking permissions. But, after much deliberation, I began the request process with a few clients that I have recently been working with and so far so good; I have been getting permission with only one firm "NO" so far. But there’s another issue. I used to work at an animation studio that did everything from commercials to TV shows, games, and even effects for feature films. I did TONS of design work for them, on properties they were trying to develop themselves and for clients coming to them for development. The tricky part is that this particular studio has been out of business since 1996 and so I have no way of knowing who actually owns the rights to some of the artwork. So, here are my questions: (1) Do I need to get permissions at all? (2) What is the worst case scenario for not getting permission? (3) Is it legal to just say that I tried to locate the rights holder and could not? And (4) What happens to the intellectual properties of a company that has been out of business for 15 years? Can we answer your questions in reverse order? For some reason we find that more fun. (And speaking of permission, thanks for letting us use one of your images.)
(4) What happens to the intellectual properties of a company that has been out of business for 15 years? The successor to the business owns it. If there is no successor it becomes an orphaned work and a minor annoyance for those who must get permission. For example, if an author has assured her publisher that she will get permissions for her book, she'll have a problem with an orphaned work, and the publisher may make her take the work out. We don't think you need to worry much about that issue, as we explain below.
(3) Is it legal to just say that I tried to locate the rights holder and could not? It's still infringement but it's not a bad idea to put a statement like that on the copyright page and to disclaim copyright in those works. That doesn't mean you may not have to eventually pay for their use but if you can document your attempts to find the owner, that will go a long way to mediating any damages you might be assessed (in the way outside chance you end up in court).
(2) What is the worst case scenario for not getting permission? The worst case is that you run into one of these types and you can't seem to remove their teeth from your pants leg. They will drag you into court and not let go until you get out your checkbook. In your case, this worst case is not a very likely outcome. You have several factors buffeting your position.
First, you have an excellent fair use argument, similar to the argument raised in this case involving the artist Basil Gogos. Gogos created covers for monster movie magazines and the copyright owner of the monster movie magazines sued over the use of the covers in a Gogos biography. A court determined that the use was transformative and permitted it as a fair use. One of the factors in the artist's favor  was that the magazines were no longer in print. Another was that the artwork was part of a biography/retrospective of the artist. Another reason that you may not have to worry is the limited publication. It would be difficult for a copyright owner to claim much in the way of damages if only 500 copies were distributed (and money is the main motivator for lawsuits).
1) Do I need to get permissions at all? See above. By the way, did you know it's easy, fast and kind of fun to search copyright office records? We're working on a video to explain the process but until then, check out the Copyright Office search engine.

Wednesday, May 18, 2011

What's a Reasonable Assignment Provision?

Dear Rich: The other day you criticized a contract clause that a developer sent you because the clause claimed rights to the developer's own software tools. Can you give an example of a clause that wouldn't do that? We usually don't like it when someone responds to a question by saying "Good question." It seems gratuitous and a bit of a stalling tactic, doesn't it? It reminds us of our grandfather (left) who could hear okay but whenever you asked him a hard question, he made you repeat it so that he would have more time to answer.
Right, you had a question.  Flakasoft, one of our favorite app developers, responded to our recent work-for-hire entry and sent us a contract they had just received. It included the following provision.
Ownership of Inventions. To the extent that, in the course of providing the Services, Consultant jointly or solely conceives, develops, or reduces to practice any inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws (collectively, “Company Inventions”), Consultant hereby assigns all rights, titles and interest to such Company Inventions to the Company. “Company Inventions” shall not include any software, owned or developed by, or licensed to Consultant, or methodologies, techniques, software libraries, tools, algorithms, materials, products, ideas, designs, and know-how (including all copies, enhancements, modifications, revisions, and derivative works of any of the foregoing) that existed prior to the date hereof or are acquired by Consultant from a third party thereafter or developed independently and outside the scope of this Agreement.
It's possible to draft a more specific or more favorable clause for protecting developer tools but this will give you a basic idea of what could work in terms of turf protection and fairness. And thanks for the good question!

Tuesday, May 17, 2011

40 Years Later: Fair Use, Public Domain, ITUs, PPAs, and more

Nolo, our employer, is celebrating its 40th anniversary this week and the editors have been asked to summarize legal changes during the past four decades. Here's an IP summary.
Ah, 1971, the good old days when nobody, except for a small group of attorneys and judges, even knew that “intellectual property” (IP) referred to copyrights, patents and trademarks. More importantly, back in 1971, consumers had no means of infringing intellectual property unless they owned a record pressing plant, a printing press, a film processing machine, or some other manufacturing device. Flash forward to 2011 and anyone with a smart phone can copy Nolo books, podcasts and Nolo videos. Intellectual property law has changed so dramatically in the past 40 years that documenting all of the major changes would take a week’s worth of blogs. So, we're going to just focus on five big changes to IP laws that affected Nolo.

Public Domain and the Never-Ending Copyright. In 1971, when Nolo was founded, the copyright in a Nolo book usually lasted an average of 56 years. But the 1976 Copyright Act initiated a new formula – copyright for the life of the author plus 50 years. For a Nolo author, that could mean that copyright in a book—for example, Patent It Yourself—could last longer than a century. In 1998, spurred on by the Disney Company and its aging mascot Mickey Mouse, the U.S. passed the Sonny Bono Copyright Term Extension Act which extended protection further (life of the author plus 70 years). One effect of this extension – which was challenged and upheld by the courts – is that for a twenty-year period ending January 1, 2019, no new works will fall into the public domain in the U.S.

Fair Use Defined. Five years after Nolo was founded, the U.S. overhauled its copyright law and included a historic first – a section defining fair use and establishing four factors to determine whether an infringement was excused as a fair use. The Supreme Court subsequently reshaped that provision twice.

  • (1984) The Court ruled in the Betamax decision -- thanks to some helpful testimony by TV’s Mr. Rogers—that recording television shows off the air for purposes of later viewing (time-shifting) was a fair use. That was also the first time that the Supreme Court said that copying of a complete work (not just a snippet) was okay. It was also the first copyright case to touch a popular nerve. The Supreme Court received a record number of “friends of the court” briefs (non-parties expressing an interest in the case), and the nascent video industry rallied Betamax owners to lobby their elected officials to prevent legislation that would have nullified the Court’s ruling. The Betamax case was a precursor of the battles over digital copying, most noticeably the Napster case.
  • (1994) The Supreme Court held in Campbell v. Acuff-Rose Music Inc. that 2 Live Crew's parody of Roy Orbison's song, "Pretty Woman," was a fair use. Prior to this ruling, most courts weighed the four fair use factors and placed the most emphasis on the "money" factor -- the effect of the use upon the potential market. But in Campbell, the court mandated that it was the first factor – purpose and character of the use -- that was most important. The question to be asked according to Campbell was whether the material taken from the original work was transformed by adding new expression or meaning, by creating new information, new aesthetics, new insights, or new understandings (sometimes referred to as the “transformative factor”). In a recent dispute where Nolo was threatened with a lawsuit over use of an image, Nolo was able to negotiate a settlement by asserting rights under the Supreme Court’s “transformative” standard.

The Intent-To-Use Trademark. Prior to 1998, there was no way for a company developing a new product to reserve a federal trademark. But the Trademark Law Revision Act of 1988 changed that and for the first time permitted applicants to “reserve” a trademark based on a bona fide intent to use the mark in the future. The new applications (dubbed “1b applications” or “intent-to-use applications” or simply ITUs) made it possible for Nolo to reserve one of its marks for a new software product.

Cybersquatters beware. Speaking of trademarks, Nolo was also able to take advantage of another change in trademark law – passage of the Anticybersquatting Consumer Protection Act in 1999. That law enabled Nolo to successfully challenge a Nolo domain name being used in bad faith to siphon web surfers who sought out Nolo but ended up at another site. In another domain name dispute, Nolo was able to successfully use the international arbitration procedures managed by the Internet Corporation for Assigned Names and Numbers (ICANN).

The Provisional Patent Application. At the time Nolo was founded, if you had invented something but you weren’t ready to file a patent application, there was no effective, fast and cheap way to record your discovery at the United States Patent and Trademark Office (USPTO). Then, in 1995, President Clinton signed a law that allowed inventors to file a provisional patent application (PPA) – a simple document consisting of text and drawings that describes how to make and use an invention. Once the inventor sends it to the USPTO, the inventor establishes an effective filing date for the invention and can use the "patent pending" label on the invention—at least for 12 months from the filing date, at which point a regular patent application must be filed. In 2009, Nolo created an online procedure to simplify PPA filing. As a result, hundreds of PPAs have been filed electronically using Nolo's system.

Monday, May 16, 2011

Should I Sign Work for Hire Clause?

Dear Rich: I'm a developer and I work as an independent contractor. Can I get your thoughts on a "work for hire" clause that a client wants me to add to my IC agreement.
Work for Hire. The deliverables (including any underlying technology) created pursuant to this Agreement shall be deemed a “work made for hire” as that term is defined under Section 101 of the U.S. Copyright Act, and the Company shall be considered the person for whom the work was prepared for the purpose of determining authorship of any copyright in the deliverables. If for any reason the deliverables are determined not to be a “work made for hire” under U.S. law or the law of any other jurisdiction, Developer hereby assigns and agrees to execute such written instruments and do such other acts as may be necessary in the opinion of the Company to assign, to the Company, without additional compensation, all of Developer’s right title and interest in and to the deliverables.
Ah, yes, the old "either/or" clause, popularized after a 1989 case in which a sculptor disavowed a work made for hire agreement. Companies didn't like the uncertainty of independent contractor (IC) status and this clause became de rigueur: the IC agrees that it is a work made for hire, and if for some reason, it isn't, the IC assigns ownership. Either way, the person who signs this is giving up all rights in the thing created.
What about the technology? One thing we're wondering about is giving up on the underlying technology incorporated within your deliverables. You may develop software tools or other programs that may have many uses in your work. Is there a way that you can carve out ownership of such technology? Or perhaps, can you and the company share nonexclusive rights?
Marwencol. We gave up searching in Google Images for "work for hire"  and decided to display the poster for our most recent favorite documentary. That got us thinking about a comment somebody made that they didn't know if the fantasy world of Marwencol was a form of therapy or an escape mechanism. Was Colonel Hogencamp treating his problems or evading them? If we weren't so concerned about our precious and ever-precarious blog metrics, we'd have an opinion on that.
[Note: There's a follow-up to this post here.]

Wednesday, May 11, 2011

Who is Responsible for Drop-Shipper Problems?

Dear Rich: I sell computer accessories online and use a drop-shipper to fulfill online orders for wireless routers. I ran into problem with one drop-shipper who sold some defective items and then wouldn't correct the problem. I got rid of him but now I have some angry customers who are leaving negative feedback and I don't have any way to fix the problem.  Your question reminded us of all the problems we used to have with wireless routers until we bought our Zyxel. It's so great when you actually forget you have an appliance ... y'know when it's just quietly working away TCB-style. I hope that's going to be the case with the new computer that's supposed to arrive today.
Right, you had a question. Drop-shipping is a process in which your business sells items you don’t keep in stock. Instead, you collect the money and forward the order to a distributor or manufacturer, who ships to the customer, often using your business's packaging. The drop-shipper bills you for the sale.
Who's responsible? Short answer dept. The short answer is that, according to the FTC,  you (the person taking the order) are responsible for fixing errors. So even though you may have a contract in which the drop-shipper promises to correct errors, ultimately, you, not the drop-shipper are responsible.  So, we're sorry to report that you're the one who will have to either refund the money or supply a working product.
The downside of drop-shipping. As you can guess, we're not wild about drop-shipping and here are some more reasons why:
  • You may be required to pay expensive setup fees — always avoid any drop-shipper who requests this.
  • You may have to make monthly minimum orders regardless of your sales — watch out for this requirement.
  • You will have little control over an item's price The drop-shipper may suddenly mark up an item, cutting into your profits.
  • Drop-shippers are often in long lines of distribution, so that if any step along the way has a problem — manufacturer, wholesaler, middleman — you will suffer.
  • You will unlikely have any warning before the drop-shipper runs out of stock — again, more negative feedback.
  • Drop-shipping sometimes triggers additional legal requirements.

Tuesday, May 10, 2011

Accused of Selling Knockoffs: What If I Do Nothing?

Dear Rich: I buy handbags from an importer and resell them online. I advertise them as knockoffs at various sites, including eBay. I never claim they're originals ... I always tell people they're copies. Recently, I got a letter from a lawyer saying I had to stop selling them or I would get sued.  Would I be better off running my business as a corporation so that I won't be personally liable? What will happen if I don't respond to the letter? Sorry, but the Dear Rich Staff has lost its ability to predict the future. (We think it happened when Google implemented Panda One and switched its search algorithm.) In any case, any of the following scenarios are possible after receiving a cease and desist letter:
  • you keep selling the knockoffs, the lawyer files a lawsuit, gets a default judgment and enforces it against you personally (assuming you're not an LLC or incorporated) or against your business
  • you stop selling the knockoffs, the lawyer drops the whole thing
  • you stop selling, the lawyer sends a second letter, gets no response and files a lawsuit and gets a default judgment. 
  • you blow off the letter, keep selling the knockoffs, and the lawyer is impressed with your moxie, and decides to hire you as an investigator of trademark counterfeiting. You do really well in that position, give up your handbag business and eventually write a book about the knockoff industry. 
Actually, the last choice --the Catch Me If You Can approach -- isn't very probable at all. If you continue to sell without either fighting the letter or otherwise responding, the lawyers will most likely pursue you because, as the young people say, that's how they roll.
Does forming an LCC or corporation shield you from these lawsuits? Converting your business to an LLC or corporation can establish limited liability and will shield you from personal liability in some instances -- the lawyers can only go after your business assets. But your liability is likely to be tied to your status at the time of the infringement. So if you're a sole proprietor when you got the letter, then you're probably going to be treated that way (personally liable) in court, as well, even if you later convert to an LLC or corporation. In addition, keep in mind that the LLC/corporate shield also won't protect you from the following:

  • You personally guarantee a loan or lease.
  • You owe federal or state taxes. 
  • You act negligently (people are injured by your handbags).
  • You fail to abide by corporate rules. 
That Said Dept. That said, perhaps you should reconsider your business model (as well as your business entity). First, you need to determine whether the lawyers are right -- that is, are your bags infringing? If yes, you should abandon the infringing items. If you're not infringing, you should consider whether you want to fight or move on. If you fight, you may be able to have some luck fighting takedown notices (we'll talk about them more this week) but keep in mind that if you're dragged into court, you'll be hit hard in your bankroll and the only guaranteed winners will be the lawyers.

Monday, May 9, 2011

How Do I Deduct Crafts Inventory on My Taxes?

Dear Rich: Last year we started selling handmade jewelry at places like Etsy. We had a good year but we ran into few problems at tax time and filed for an extension. We got your book but we're confused about how to calculate inventory. It's not that bad doing the calculations if you use a tax software program (we've used TurboTax Home and Business). But even if you use software, you'll still need to know your cost of goods (COGS) for the year. The IRS explains how to figure it out on its website by walking you through lines 35 through 42 of Schedule C. Here's a summary:
  • Line 35: Beginning of year inventory. If this is your first year of operations, beginning inventory would be zero. If it's not your first year, this amount should be identical to the prior year's closing inventory. (If it isn't, you must explain why to the IRS.) Include the total cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the crafts, but only those that were part of inventory at the beginning of the year. The IRS provides an explanation on valuing inventories (scroll down to "Inventories"). 
  • Line 36: What did you purchase this year? Here you provide the cost of all merchandise you purchased during the year. Include the costs of all materials you purchased in the year that were necessary to manufacture your crafts. Subtract the cost of any items withdrawn for personal use.
  • Line 37: Labor costs. Calculate labor costs — the amounts paid to employees for making your crafts. Do not include any amounts paid to yourself. (If you have employees that are not involved in manufacturing items for sale, their labor costs will be deducted elsewhere on the tax return and are not included in the cost of goods sold.)
  • Line 38: Other manufacturing supplies. If you need glues, chemicals or other crafts supplies to manufacture your goods for sale, list the amount paid for these supplies.
  • Line 39: Packaging costs. If you manufacture goods for sale, you can list additional costs such as containers and packages that are part of the manufactured product, costs of freight to bring in supplies, and overhead expenses — for example, rent, heat, light, power, insurance, depreciation, taxes, and maintenance — that are direct and necessary manufacturing expenses.
  • Line 40: Total lines 35 through 39. This represents the total cost of inventory that your business held in the year.
  • Line 41: End of year inventory. On Line 41, you enter the value of the inventory unsold at the end of the year. Keep in mind that the value of the remaining inventory is not the price you plan to sell it for; it is the amount you paid for it. This amount will become your beginning inventory for the next year — that is the number you will use on Line 35 of the following year's tax return. Note that most businesses do a "physical" inventory at the end of the year; that is, actually count and record the type and number of each remaining inventory item. The results of this work will provide the basis for the year-end inventory calculation. Physical inventories also allow you to inspect and discard inventory if it is damaged or of no value, thereby "writing it off" of year-end inventory and increasing the costs of your 'goods sold' deduction. A physical count also will alert you to items missing from your inventory.
  • Line 42: COGS deduction. On Line 42, you subtract the amount listed on line 41 (ending inventory) from line 40 (all inventory costs). The result is the amount you claim as your COGS deduction.

For more information on inventories, see the Cost of Goods Sold section in Chapter 7 of IRS Publication 334, Tax Guide for Small Businesses, and IRS Publication 538, Accounting Periods and Methods.
By the way ... Some cities also have a tax on business inventory. This is another reason why some retail businesses have inventory sales -- to reduce their stock before the tax date.

Thursday, May 5, 2011

Should I Make Disclaimer When I File TM Application?

Dear Rich: I am applying for a trademark and I had a question. I want to use my trademark for a website for people who own daycare businesses. (I already have the domain name.) The trademark has the word "DayCare" in it and I know that I can't trademark that part of the name. Should I make a statement giving up rights to "Daycare" under the "additional statement" section. What do you think? You're correct that nobody who runs a daycare business can claim trademark rights to the word "daycare" -- it is a generic term for  businesses that care for kids. So most people who include it in their trademarks will have to disclaim it. As a general rule, most trademark attorneys would probably take the position that it's best not to disclaim anything unless asked to do so by a trademark examiner. The reasons for this blanket rule: (1) you can't always predict what the examiner will ask you to disclaim -- for example, though it's highly likely you'll be asked to disclaim the term, there's always the possibility that the examiner may not ask for it because you are providing online services (and not daycare services), (2) adding a disclaimer later won't derail your application (though it will slow the process), and (3) by taking the initiative yourself, you may mistakenly disclaim an essential element of your mark.
That Said Dept. That said, if you're certain that an examiner will ask you to make the disclaimer -- for example, your competitors have been asked to make similar statements in their applications (you can review all existing applications and registrations online) -- and you're in a hurry to get your registration, then make the disclaimer at the time you file the application. (The intake box is shown below).

Wednesday, May 4, 2011

Does drawing a trademark prevent getting sued for infringement?

Dear Rich: In response to your recent question about a children's book ... I have done a book for children that features some of their toys, but instead of using photographs of these, I have drawn them, so they resemble the toys. I believe there is no issue with trademark infringment. Can you please clarify this for me? For those readers who don't have time to wade through a few paragraphs, the short answer to our blog's question for today is "Not necessarily."
Please Don't Sue Dept. By way of example, today's thumbnail image, Ed Ruscha's "Large Trademark with Eight Spotlights," (a painting of the 20th Century Fox logo), does not infringe under trademark law because Ruscha is not using the mark to sell anything (other than the art work itself). It's referred to as an informational (or "editorial") use. It's generally fine to use most trademarks for such artistic or news purposes without worrying about trademark infringement but if the trademark has substantial decorative features, it is also protected by copyright (we explain the diff here).  Any reproductions might be considered infringing derivative works (unless declared a fair use).
Walking a Thin Line Dept. Where Ed Ruscha could run into problems would be if he licensed the use of his painting for t-shirts, merchandise, or for use in connection with films or TV shows. In that case, the use shifts from informational (artistic or news) to commercial and 20th Century Fox might argue that consumers are likely to confuse its products with those offered by Ruscha.
"That Said"Dept. In summary, the fact that you drew the marks may not shield you from a cease and desist letter. In addition, some users of trademark images lose the "editorial shield" when they modify the appearance of a trademark. That said, you should also factor in the bigger question of whether the trademark owner will notice your use (or care if they do notice). If the answers are "no" and "no" then you're good to go.

Tuesday, May 3, 2011

Art and Text Combinations: Copyright or Trademark?

Dear Rich: I have come up with several different art works and slogans that go along with the art work. This art work and slogans are directed towards a certain group of people that enjoy participating in a certain type of sport. After doing some reading, it appears to me that both the art work and slogan would be protected under a trademark. I know art work can be protected under a copyright but I don’t think that includes a slogan that goes along with the art work. So my questions are as follows: (1) Does a trademark protect both art work and slogans? (2) Can I submit 2 or 3 different art works and slogans under one trademark if they are all directed towards the same clientele and sport? (3) And if my applications are denied, do I get my money back? We're in a backwards kind of mood so we'll answer your questions in reverse order.
(3) No, you don't get your money back. The USPTO will not refund your $300+ application fee if your trademark application is rejected. That's why the Dear Rich Staff urges applicants to make sure that their trademarks avoid the three most common reasons for rejection: the mark is descriptive and lacks secondary meaning; the mark is the generic term for the goods and services; or the mark (or something substantially similar) is already being used in commerce by a 'senior user' for those goods and services. (We explain all three standards here.)
(2) No, you can't include more than one mark per application. The application and fee are "per mark," so you can't compile a bunch of marks and register them in one application.
(1) Yes, trademark will protect artwork combined with a slogan (and so will copyright). Let's start by talking about copyright. The art world, as well as the publishing, and advertising industries have long relied on copyright protection for art and text combinations. However, because copyright does not protect short phrases, the copyright for an art+text work usually doesn't extend to the text, by itself. So if someone were to copy just the slogan from the works, you couldn't stop that person (with some rare exceptions). Registering the combination as a trademark will only work if you plan to use the art+text as a trademark -- that is, as a signifier for specific goods and services. This can pose some tricky issues. For example, if you use your art+text combo on a t-shirt, the USPTO might reject your application because the mark is being used in a decorative manner. That is, people are buying and appreciating the t-shirt for the art+text. Even if you can claim it as a trademark for apparel, for example, you would still need to register it in each class of goods for which you seek protection ... an expensive proposition. May we recommend that you rely on copyright until one of your works enjoys exceptional success, then you can consider trademark registration.

Monday, May 2, 2011

Can I Republish an RSS Feed?

Dear Rich: I'm interested in linking to a RSS feed which I subscribe to in an online website I'm developing. I can't seem to find any guidelines about how to use this content. Do I need to get permission to use the content if its from a company's RSS feed? What about a federal government website? As you may be aware, an RSS feed is a method of delivering news or any other form of digital content that is published regularly (for example, blogs, podcasts or video) -- hence the name, Real Simple Syndication. Originally RSS was simply for text but supposedly ex-MTV DJ Adam Curry encouraged RSS feed inventor Dave Winer to add "enclosures" into RSS feeds so that these feeds would recognize MP3 files. That's how podcasting and video casting were born. Want to see what a feed looks like? This is our RSS feed. Who knew?
Right, you had a question. Unless an RSS feed is created by federal government employees within the course of their duties (here are some examples), you should presume that the material provided in the feed is protected under copyright law. RSS is simply a method of delivery and just like other delivery systems --  television signals, radio transmissions, and newspaper deliveries -- the medium doesn't affect the copyright status of the message. If all you're pulling from the feed is the headline or blog entry title, that's probably not an issue (for example, we pull blog headers from other blogs in the right column on this page). In addition, many news outlets modify the feeds and provide a paragraph from each item along with a link back to the source (and whether that qualifies as a fair use has not been fully resolved, yet).