by Mike Oliver | May 6, 2013 | Corporate, Uncategorized
We often are asked whether to file a Maryland or a Delaware corporation or limited liability company. The chart below explains some of the factors that can affect this decision. We do not believe that there is any material difference if you are forming a single member LLC or sole stockholder entity and you are a maryland resident and the property and business is located in MD – in these cases it is just easier to register in MD. In any other case, this issue should be considered fully.
[table caption=”Delaware vs Maryland” width=”500″ colwidth=”100|200|200″ colalign=”left|left|left”]
Issue^Delaware^Maryland
Court System^Advantage Delaware: Delaware has the Court of Chancery, which is a pre-eminent court system, and a significant body of case law that allows lawyers to give fairly accurate advice regarding outcomes in disputes^Maryland has a Technology Track in its circuit court, but many fewer decisions, so it is harder to predict how a particular issue might be resolved
Informal actions^Delaware has a very flexible law for approving informal actions – they can be approved with just the number of persons necessary to take the action, unanimous approval is not generally necessary^Maryland law requires most informal actions to be unanimous, so as the number of members increases, this becomes inconvenient
Number of Members^As the number of members / stockholders increase, the harder it is to maintain a contractual stockholder agreement (this factor is about even for LLC’s), so the more you have to rely on applicable law. Delaware law is more fully developed than Maryland law^As noted above Maryland law does not allow for easy informal actions, so as the number of members / owners increase, it is harder to maintain control over the minority members.
Taxation^Delaware has no state income tax so non resident members are not taxed on passthrough income (at the state level)^There is no material difference for pass throughs as long as all members are MD residents- however, for non resident members who own a Maryland pass through entity, there is a tax withholding requirement for the Maryland LLC.
Conversions^Delaware law has a form entry for entity conversions (i.e. LLC to Corp or Corp to LLC)^Maryland law does not provide for a simple conversion process – you must fully document a merger transaction (which makes such conversion transactionally more expensive)
Garnishment^Bank accounts in Delaware are not subject to garnishment^Bank accounts in Maryland are subject to garnishment, however, a Maryland entity may own accounts in Delaware, so this is more a matter of convenience
[/table]
by Mike Oliver | May 1, 2013 | Case law, Content, Entertainment law, Intellectual Property, Licensing, Uncategorized
In The Hebrew University of Jerusalem V. General Motors, LLC, CV10-03790 AHM (JCx) (U.S. D. Ca March 16, 2012) the court refused to grant summary judgment on a claim that GM’s otherwise licensed use of an image of Albert Einstein violated the rights holder’s post mortem publicity right.
For more information contact Mike Oliver.
by Mike Oliver | May 1, 2013 | Case law, Intellectual Property, Litigation, Patents, Uncategorized
On January 10, 2013, the United States District Court, N.D. California, San Jose Division entered a permanent injunction against a patent-infringing defendant in BROCADE COMMUNICATIONS SYSTEMS, INC. v. A10 NETWORKS, INC., Dist. Court, ND California 2013 – Google Scholar. The ruling restrained the defendant and parties in active concert with it from “making, using, selling, or offering to sell in the United States, or importing into the United States any AX series application delivery controller that includes features that infringe claim 25 from U.S. Patent No. 7,454,500, claims 13 and 24 of U.S. Patent No. 7,581,009, or claim 1 of U.S. Patent No. 7,558,195.”
While this result would not have seemed odd before May of 2006, Brocade is now one of the few cases where permanent injunctions have been issued since the decision in eBay, Inc. v. Mercexchange, LLC, 547 U.S. 388 (2006). While the Supreme Court was careful to make it clear that permanent injunctions remained a viable remedy in patent cases, the eBay case changed somewhat well established case law that a prevailing patent infringement plaintiff was virtually always entitled to a permanent injunction.
A successful patent plaintiff must meet its “burden of showing that the four traditional equitable factors support entry of a permanent injunction: (1) that the plaintiff has suffered irreparable harm; (2) that “remedies available at law are inadequate to compensate for that injury”; (3) that “considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted”; and (4) that “the public interest would not be `disserved’ by a permanent injunction.”
While those factors might seem easy to meet, in practice, it is often very hard to show that legal remedies (damages) are inadequate. In Brocade, the court found that Brocade “practices its patent, that [the defendant] is its direct competitor, and that Brocade does not license its patents,” and therefore that “Brocade has shown that it suffers the type of irreparable harm that a permanent injunction is intended to remedy” (emphasis added).
For more information on patent licensing contact Mike Oliver.
Brocade is a district court case and may be subject to an appeal, but it now stands as one of the relatively few cases post eBay in which a permanent injunction was issued.
One take-away from this ruling for licensing transactions, is that a patent holder must consider whether this type of remedy will be sought before engaging in licensing, particularly come one come all or non exclusive types of licenses. That was one of the three key factors the court pointed to in finding irreparable harm and lack of an adequate remedy at law.
by Mike Oliver | May 1, 2013 | Contracts, Infotech, Intellectual Property, Licensing, Software, Uncategorized
In GMG Health Systems v. Amicas, Inc., 1st Cir April 10, 2012, the court had occasion to address a dispute between a software licensor / developer, and a licensee, in which more typical contractual language was in issue (for example, use of the term “go-live” and the phrase “substantially conform to Documentation” and typical warranty limitations).
GMG is a medical services provider – they typically have several systems to manage their billing, processing and other business functions. Here, GMG contracted with a third party (Amicas) for its software – which had to interoperate with software from an already existing vendor used by GMG. Like so many disputes, this one arose because of finger pointing between two vendors as to whose software was causing the error. As an added twist here, and something we have litigated on at least one occasion here – GMG had decided to leave Amicas and go with another vendor, and was desperately trying to find a way out of the long term agreement.
Normally in such disputes, the licensee (client) makes some effort to produce a viable claim of breach of the agreement by the licensor / software developer. In this case, however, GMG, which had not negotiated the agreement and signed a pre-printed form provided by the software company, produced a sole witness to fight the motion for summary judgment filed by the software developer. This witness had no IT or software training, was not a project manager, was not familiar with the function of either of the software systems at issue, and could not provide any details beyond that the “interface did not work.” GMG feebly tried to argue that the merger clause – a clause that states that all prior agreements including verbal understandings between the parties are “merged” into the agreement, did not apply because it had not negotiated the agreement. The court dismissed that argument without any discussion.
Without the ability to provide evidence of what the parties intended – the so called “seamless integration” with the other system – GMG was unable to overcome the warranty limitation in the agreement, which stated that Amicas did not promise that the software would work for GMG in its environment. Not surprisingly, GMG lost on all counts . . . and that loss was affirmed on appeal.
What is the moral of the story?
First, negotiate large scale enterprise resource planning agreements! Yes, the negotiation can be expensive, but far, far less than the litigation costs and potential damages. For example, in the GMG case, it was forced to pay an additional $700,000 for software it had abandoned, it was subject to an attorney fee award, it lost all kinds of time dedicating resources to fight the case, it had to pay its own lawyers, and it ended up taking 5 times as long to reach it s goal (of an integrated system).
Second, even if you do not want to hire a lawyer to negotiate, at least make sure that the party providing the service has stated clearly in the agreement, the deliverable, what it will do, and what you expect from the service. We have reviewed too many scenarios to count where a client has signed a pre-printed form that had NO promises or very light ones, like this agreement. If it is a critical result that software X must interoperate with software Y, state that in the agreement.
Third, consider the remedy. Many contractual negotiations can get hung up on the representations, warranties, disclaimers and so on – when they can be resolved by thinking in the opposite direction – assuming a performance representation is not met, what is the remedy? Remedies range from the “nuclear” option (total contract termination), to some form of “notice and cure” to a repair, re-perform remedy.
Fourth, consider the term of the agreement. In the GMG case, the parties amended their agreement and made it a longer term agreement. Many vendors will offer more significant fee discounts, or less escalation, if the term is longer. These can be attractive deals – but consider that as with GMG, you may desire to move away from that solution. So, my rule of thumb on this point is . . . the longer the fixed term of the contract, the more closely you must negotiate it – and the more you must pay attention to escape hatches and “relief valves” if something changes. Technology changes very fast – locking into a vendor for 5 years (as was done in GMG) is almost unheard of. A three year deal presents enough technology-change-risk to be the outer limit of most of these deals.
I could go on, but if you made it this far . . . well, thanks!
For more information, contact Mike Oliver.
by Mike Oliver | May 1, 2013 | Intellectual Property, LegalEase, Trademarks, Uncategorized
Low barriers to entry in certain businesses breed rapid response and quick-to-market products that capitalize on “in the moment” mania. Often the in-the-moment-mania products derive from long standing famous trademarks owned by aggressive trademark enforcers. Buyers should be beware of these types of aggressive trademark enforcers prior to making costly investments.
Here is a hint. The National Football League is one of them.
An enterprising sports fan who almost a year ago saw an investment opportunity in the term “HarBowl” recently got more than he bargained for when the NFL’s lawyers came knocking.
The term “HarBowl” emerged into popular sports conversation around Thanksgiving of 2011, when brothers John and Jim Harbaugh became the first siblings in NFL history to lead their teams against one another as head coaches. The first “HarBowl” was a media frenzy of a family affair staged on national television during one of the country’s favorite family meals. Older brother John’s Baltimore Ravens won the inaugural “HarBowl”, yet Indiana resident Roy Fox remained interested in the term even after the final whistle had blown.
The two teams would go on to have very successful seasons before each fell a game short of meeting once again in the only scenario possible that year; the Super Bowl. Despite the super rematch of the “HarBowl” not coming to fruition, Fox liked his chances of the possibility enough to invest in filing for a trademark in hopes of eventually profiting from the phrase.
He filed trademarks for “Harbowl” and “Harbaugh Bowl” on February 21, 2012. The marks, filed as intent-to-use, were allowed and published for opposition.
The NFL contacted Fox in August of 2012 stating concern that his recent trademarks could easily be confused with the NFL’s trademark of the term “Super Bowl.” It was reported the NFL encouraged Fox to abandon the marks shortly thereafter, which he did.
According to ESPN, the league refused to provide Fox with any remedy for his investment in the marks when he asked the league to reimburse him for his costs to file for the trademarks. He was also reported to have requested several other simple consolations such as season tickets and an autographed photo of league commissioner Roger Goodell.
Fox reported that instead of honoring his requests, the NFL chose to aggressively shift direction with its efforts and suggested that not only would the league oppose his filings, but they would also seek to have him pay its legal bills. Fox would eventually fold his hand. At least three more similar marks have been filed over the past month. They will likely meet the same fate.
The legal issue is not that Fox necessarily had a losing hand. The issue is that the NFL holds a lot more chips.
Many would argue that the NFL’s claim is not a legally strong one. “HarBowl” is certainly no less confusing to Super Bowl than other trademarked phrases such as “Sugar Bowl” and “Lingerie Bowl” which are also used to describe football games.
In reality, “HarBowl” is probably no less confusing than “cereal bowl” or “toilet bowl.”
Legal professionals who have publicly commented on the case have noted that the odds of a jury agreeing that the two phrases are confusingly similar are relatively poor. However, mere likelihood of confusion is only one aspect of the legal issues – Super Bowl is unquestionably a world famous trademark. Famous trademarks enjoy a much wider berth – even non confusing but tarnishing or blurring acts can dilute a famous trademark.
The NFL basically smoked Fox out of the hole by signaling their intention to be aggressive in pursuit to stop him. The NFL is an organization with essentially unlimited financial resources. Mr. Fox presumably does not have the type of financial capabilities as a multibillion dollar company. As a result, the question became – are the trademarks financially worthwhile to combat a lawsuit that could potentially cost six figures? Fox made the reasonable decision that no amount of revenue the trademarks could yield would justify that investment.
The moral of the story is an important message for anyone who considers pursuing a low barrier to entry business that expects to profit from the fame or notoriety of someone else or someone else’s trademarks, particularly famous trademarks. Legal review and anticipation of probable legal action is part of the going-into-business decision process. At the end of the day, legal costs in high risk activities should be considered as possibly significant line items on a budget just like any other expense. If the potential return of the expense is not equitable to the potential cost, it may not be a wise investment of resources.
For Fox, a few thousand dollars in filing costs for trademarks may have been worth the prospect of making some money off of clothing sales should the Harbaugh brothers inevitably meet in the Super Bowl. However, the cost of defending those trademarks against a force such as the NFL was not worth the legal bills.
For more information on trademark law, contact Mike Oliver or Kimberly Grimsley.
