Archives for 2013

If a website operator in New York establishes a site and permits anyone, including people from Arizona, to use that site, will that operator be subject to personal jurisdiction in the courts of Arizona, even if it has never opened an office there? Anyone who expected a yes or no answer to that question is going to be very disappointed. The answer, of course, is a most unhelpful, "It depends. . . ." Personal jurisdiction is the legal authority of a court over the parties to a lawsuit to make and enforce a judgment, and there are now a number of cases across the U.S. that deal with what business activities conducted on the internet will subject a company to jurisdiction in foreign states. These cases are not consistent, and consequently, there is no clear rule of law. Nevertheless, broadly speaking, the cases divide websites and website businesses into three general categories:[1. … [Read more...] about “I’m Being Sued Where?!”: The Uncertainties Of Riding On The Information Superhighway

One of the first legal issues that an entrepreneur faces when starting a new business is the type of entity that should be formed to conduct the business' operations. There are a myriad of choices available to the entrepreneur -- sole proprietorships, general partnerships, limited partnerships, C Corporations, S Corporations, limited liability companies and limited liability partnerships. While the limited liability company is a relatively new type of entity and subject to some uncertainties, it is almost always the best vehicle for a new venture. Sole Proprietorship/General Partnership The sole proprietorship and the general partnership are the most basic business forms, and will apply unless the entrepreneur affirmatively chooses otherwise. The default vehicle for a business owned by one person is the sole proprietorship. If two or more persons go into business for profit, the … [Read more...] about From Foraging to Farming: An Overview For Starting A Small Business — Part 2

Prior to forming a corporation, selecting a brand name, appointing officers and directors, hiring salespeople, making a deal with the first customer and all other considerations that a new business must address, the entrepreneur needs to evaluate the business opportunity. An entrepreneur with a new business idea needs to assess whether the business idea is a good one. This proposition, while seemingly self-evident, is often ignored in substance. Embarking on a new venture requires a leap of faith and instincts – but only to a point. The tendency is to grab at the first idea that presents itself. To be sure, energy and spontaneity are an important for a new venture, but the key is to maintain this energy while acting intelligently. Evaluating an opportunity is a business decision, capable of analysis, and the skills to make that evaluation are not entirely instinctive; they can be … [Read more...] about From Foraging to Farming: An Overview For Starting A Small Business — Part 1

Covenant Not Enforced: In Malcolm Pirnie, Inc. v. Werthman, No. 04701824, NYLJ November 30, 1999, p. 30, col. 5, the New York State Supreme Court in Erie County refused to enforce a non-compete clause and dismissed a lawsuit brought against a professional engineer by his former employer. Unlike a number of prior federal and state cases, including those discussed in the Summer, 1999 issue of this Quarterly ("You Can't Take It With You"), the court did not pare down the overbroad covenant and enforce it in part, choosing instead to dismiss it in its entirety. The case underscores the ongoing importance of using tailored restrictive covenants that are not vague and do not exude coersion or overbreadth. Werthman, a professional engineer, was an employee, officer and shareholder of the plaintiff, a nationwide engineering company. After leaving, the plaintiff commenced an action claiming … [Read more...] about Follow-up on Restrictive Covenants

It is common to find clauses in employment agreements restricting an employee from soliciting an employer's customers or competing in any respect with the employer, or both, during the term of employment and for a period thereafter. It is also common for courts to refuse to uphold these clauses to the fullest extent drafted. Two recent New York cases, however, one by the New York Court of Appeals, the other by the Federal Court of Appeals for the Second Circuit, may signal a new trend. Both decisions hold that an employer has a right to protect the customers that it has nurtured at its cost and expense. The federal case can be read to allow an employer to restrict a former employee from competing for and soliciting any of the employer's customers, whether or not the employee serviced those customers or brought those customers to the employer through the employee's individual efforts. … [Read more...] about You Can’t Take It With You: Protecting The Customer Base Using Restrictive Covenants

The Internet age has created a variety of new means of making money. Much to the dismay of many established companies, one new internet scheme is "cybersquatting", a practice whereby a third party registers a domain name containing another company's established trademark (i.e., "www.disney.com"), either with the intent to sell the domain name (for a hefty price, of course) to the legitimate trademark owner, divert consumers from the trademark owner's website or some combination of both. With a few limited exceptions, the law did not provide an effective remedy to those injured by cybersquatting, because this conduct did not fit within the traditional definitions of activities that constituted trademark infringement. Until now, the federal trademark laws (the Lanham Act) only protected against infringing commercial uses. Several trademark owners had commenced lawsuits against … [Read more...] about Uprooting the Cybersquatter: The Anticybersquatting Act and the End of Cyberpiracy

Frequently in an asset acquisition involving a substantial portion of the seller's business, the seller's concern about the erosion of collectibility resulting from a decreased incentive for account debtors to pay pre-closing receivables after the asset sale will create an opportunity, mutually beneficial to both buyer and seller. Although the buyer may not want to acquire the accounts, for purposes of business or good will continuity or otherwise, the acquisition of this asset may enable the buyer to obtain significant financial benefits from the float of the fund of collections occurring between the time of collection and the time when the buyer must remit to the seller. A properly implemented strategy for the purchase of the seller's receivables in the acquisition contract negotiations will enable the buyer to obtain significant financial benefits, including the interest-free use … [Read more...] about An Asset Buyer’s Windfall: Financial Benefits From Collecting Seller’s Accounts Receivable

Companies relying on arbitration clauses in their contracts must be more careful, particularly in employment discrimination claims, about how the arbitration is conducted, making sure that the proper procedures are followed. Otherwise, the lack of an adequate forum may rebound and render their arbitration agreement a nullity. People expect arbitration awards to be "final and binding," as arbitration clauses often recite. The Federal Arbitration Act and state laws provide for an extremely limited judicial review of such awards, restricted only to cases of an arbitrator's fraud, manifest disregard of the law, conflict of interest, transcendence of his or her authority or similar egregious conduct. There is no explicit authority for a court to re-examine the factual determinations. In a rare example of theory-meets-practice, occasions where courts have overturned awards are almost … [Read more...] about When A “Kangaroo Court” Becomes A Boomerang: The Un-Finality of Arbitration Awards

p>Many U.S. distributors have faced the problem of the importation of gray goods into the United States (i.e., goods of foreign manufacturer, legally acquired abroad, bearing a legally affixed foreign trademark identical to a mark registered in the United States, and then imported without consent of the U.S. trademark holder). The importer purchased these goods innocently, with no knowledge of the U.S. distributor's trademark rights or exclusive territory in the U.S. The U.S. distributor is then faced with a problem it did not expect to have when it registered its mark or bargained for exclusivity – competition with foreign sources who seemingly have the absolute right to sell products wherever they wish, including in the United States. These U.S. trademark owners and distributors have attempted to cease the importation of gray goods through trademark infringement actions. In … [Read more...] about Barring the Importation of Gray Market Goods by Demonstrating “Material Differences”

In a landmark decision destined to cause significant reverberations in the apparel industry, the United States Supreme Court reversed and remanded Wal-Mart Stores Inc. v. Samara Bros, Inc. (Spring 2000 Quarterly "Trade Dress For Product Designs") and held that product designs can never qualify for trade dress protection by virtue of inherent distinctiveness and can only be protectable trade dress upon a showing of secondary meaning.1 It also advised courts , when in doubt as to whether the trade dress at issue is a product design or a product's packaging, to require plaintiffs to demonstrate the existence secondary meaning. The Supreme Court, in a rather terse opinion, held that product designs primarily serve an aesthetic purpose, as opposed to a source identifying purpose, and stressed the interests of the consumer, reasoning: "The fact that product design almost invariably serves … [Read more...] about Wal-Mart and the Supreme Court’s Diminishment of Inherent Distinctiveness