GENERAL INTEREST

The K-cup story

Many years ago, John Sylvan had an idea: provide a hermetically-sealed, compact cartridge containing a filter and enough ground coffee to brew a single serving in a specially designed brewer. After the freshly brewed coffee was delivered, the remaining carcass would simply be discarded without fuss or muss. Sylvan’s brilliant idea came to him in the mid-80s. He did not begin working on the idea in earnest until the 90s. John and the company he formed had the forethought to apply for patents on his innovation.

Keurig, named after the Danish word for excellence, toiled through the 90s funded almost exclusively by investors perfecting the cartridge, which came to be known as the K-cup, and its associated brewer. John and his fellow founders were able to convince the investors that the benefits of the K-cup system far outweighed the simple fact that a cup brewed with it cost five-to-10 times as much as a traditionally brewed cup. Truth be told, the otherwise visionary investors really only saw a play for the corporate/office market where convenience outweighed cost: a niche market in the multibillion dollar coffee industry but one with potential sales at least in the tens of millions annually.

Around 1998, when Keurig finally started selling brewers and K-cups in earnest, it registered trademarks for the brand names. When the system took off, the competition was left scratching their heads. A new product segment had been created, one with terrific margins and one in which purchasers of Keurig coffee makers were forced to buy consumables from Keurig itself. The strong patents coupled with Keurig’s aggressive enforcement stance contrasted with the time, cost and uncertainty in developing a suitable non-infringing alternative, left potential competitors with no other alternative than to figuratively beg Keurig for a license to make their own versions of the K-cup.

Keurig and its successor in interest Green Mountain Roasters, who bought the company out in 2002, were under no compulsion to grant patent licenses, but wisely realized it was better to derive revenue from its competitors than to back them into a corner and force them to try and develop a K-cup alternative. If successful, the competitors would have jeopardized the company’s future. Keep your friends close and your enemies closer: The maxim rings true in business as well.

The Keurig system found a place not only in the office and commercial markets but in homes as well. The K-cup system has proven to be the biggest thing to hit the industry since Mr. Coffee killed percolators in the 70s.

One might figure Sylvan became a wealthy man. Sadly, inventors and innovators often do not make great businessmen. He had trouble getting along with the investors and was forced out for a mere $50,000 shortly before the company’s first production commercial brewer was released. In hindsight, perhaps he should have demanded a percentage. Suffice it to say, the sharks freely roaming the ocean of commerce aren’t as tame as those kept in primetime tanks.

As the product grew, Keurig continued to innovate and protect the improvements to the brewers and the K-cups. Even though the seminal patents were strong, they realized it would expire someday. Hopefully, however, improvements to the K-cup would mean competitors’ post patent cartridges would remain a step behind the K-cup in terms of cost, functionality and quality. To date Keurig has been issued 44 patents in the United States and has more pending all related to their K-cup cartridges and the associated brewers.

Patents weren’t the only intellectual property trick up Keurig’s sleeve: they also had trademarks, and trademarks don’t have expiration dates as long as you keep using them. Currently Keurig has 15 registered United States trademarks and about 35 more pending.

When the company’s initial patents expired in 2012, many articles predicted Keurig’s decline. Keurig’s competitors still face major obstacles. Any systems and cartridges they may develop might not infringe the expired patents but they have to be very careful not to infringe the remaining 40-plus patents. While the remaining patents are much more narrow, they do lay a minefield that competitors must navigate in developing their non-infringing alternatives, greatly increasing the cost of development. Stepping on a mine can mean an expensive lawsuit.

Even if successful in developing a suitable K-cup alternative, competitors don’t have a word or phrase to describe their coffee cartridges. If a competitor strays and improperly insinuates some connection with K-cups or Keurig, the company, which is now the 500-pound gorilla in the coffee industry, releases its pack of lawyers to shut things down.
If a competitor stays clear of the Keurig marks, it faces the monumental and uncertain task of educating the public about a new single serving cartridge without reference to the original – all at great expense and huge risk of failure. Ultimately, most of the industry players have or will decide to go the certain and predicable route of licensing Keurig’s technology and trademarks adding even more money to its $4 billion-a-year revenues.

Would there be a Keurig or even a single-serving coffee cartridge today if they had not pursued intellectual property protection? Its seminal patents helped garner investors in the 1990’s permitting the system’s development. The patents kept competitors at bay during its growth years of the 2000s.

Today, as the industry leader, its trademarks and patent portfolio continue to thwart competitors and allow it to maintain its position as the market leader. Sometimes my start-up clients ask me whether it is worthwhile to pursue patent protection on their idea. All I need to do is look over my shoulder and point to the coffee machine on the credenza and say, “Yes, it is.”

Hazy times for Colorado’s marijuana businesses

Many businesses are dealing with the impacts of Colorado’s foray into recreational marijuana. Often, this uncertainty is focused on how the new laws and regulations will be implemented. While compliance with the Colorado regulatory framework is often the first priority of companies associated with the marijuana industry, another important legal issue is lurking below the surface, and unfortunately how it is resolved remains to be seen. The issue concerns an area of intellectual property law that all businesses have – trademarks.

Trademarks protect identifiers of the source of goods in commerce – essentially they protect brands. Trademarks can be any non-functional aspect of a product or service that identify its source. They can be business or product names, logos, or even things such as product packaging or design (e.g., the shape of an I-Phone or a Coke bottle).
The law protecting trademarks has two main purposes. The first is to protect the goodwill built up by business owners with the consuming public.

Basically, we don’t want a company to spend 20-plus years building a good reputation only to have another company come in and adopt a mark that is intended to ride on the coattails of the first company. The second purpose is to protect the consuming public. Essentially, when you go and buy a Coke, you do so because you have certain expectations about the product including quality, price etc. Therefore, the law recognizes that it is in the public’s best interest to not allow dish water to be bottled and sold to the unsuspecting consumer as a Coke or for a fly-by-night company to sell shoddy knock off shoes as a pair of Nikes.

There are basically two types of trademarks – registered and unregistered. Unregistered trademarks (also called common law trademarks) arise from the business’ use of the terms to identify its goods. The scope of protection for common law trademarks is generally narrow. Fights about the geographic scope of common law trademark rights often get down to the zip code level. Because of these limitations it is not preferable to just rely on common law rights.

Registered marks are those in which the trademark owner has sought registration of the trademark with a state or with the federal government. Each state’s laws are different and can range from highly complex systems to Colorado’s system, which basically just defaults back to common law protection. Most trademarks are protected under the federal Lanham Act. Trademarks registered under the Lanham Act are enforceable in all 50 states even if the business hasn’t had sales nationwide.

The problem facing Colorado companies that are involved in or sell goods or services related to the marijuana industry is that, generally speaking, the law doesn’t allow for trademarks rights in goods or services that are illegal. On a broad level this makes sense; if you are conducting an illicit activity, you shouldn’t be able to sue someone else for doing the same illicit activity under a similar name. Doing so would tend to legitimize the illegal activity. But what happens when something is legal under state law but illegal under federal law?

Usually the answer would be that the state law is invalid due to the Supremacy Clause of the United States Constitution. However, this inconvenient fact is essentially the third rail in the marijuana debate. Even though the last two administrations have looked the other way, marijuana is still illegal federally. The federal controlled substances act prohibits among other things the manufacturing, distributing, dispensing or possession of certain controlled substances including marijuana and marijuana-based substances.

Additionally the CSA makes it illegal to sell, or offer for sale any drug paraphernalia (“any product, equipment or material which is primarily intended or designed for use in manufacturing, compounding, producing, preparing, injecting, ingesting, inhaling or otherwise introducing into the human body a controlled substance”) 21 U.S.C. §863. Because of this a company will not be granted federal trademark registration for marijuana or marijuana paraphernalia. Therefore a business owner cannot get a federal trademark for the name of their dispensary or their own brand they might assign to a particular strain of marijuana. Additionally a business owner would also be denied federal common law protection for any such mark under the Lanham Act.

Things most likely don’t fare much better under a state common law analysis. While there isn’t any case law out on this yet, but strictly going by the law, a court would have to deny state common law protection as well, due to the Supremacy Clause. This causes a huge conundrum – how are marijuana business owners supposed to protect their goodwill?  How do we protect consumers that rely on brand names to make purchasing decisions regarding, quality, strength and safety?

Most ironically, a grower could produce a new strain, protect it with a plant patent, and give it a new name. If someone infringed the patent the grower could sue and obtain an award for damages. However, if the same individual sold an existing (non-patented) stain under the same brand name as the patented strain, the grower might not have any recourse.

So does this mean that marijuana-related businesses should just ignore trademarks? I would say that is not a wise choice. There are still many strategies that a business can use to get the most protection possible under both state and federal law, which while might not be ideal, it is definitely better than nothing. Additionally, sophisticated legal counsel can also employ other areas of intellectual property may also prove helpful in protecting brand identity.

Lastly, we really are in a situation of wait and see. Until either the federal law is changed, or some cases concerning these companies move their way through the courts, it’s all a bit hazy.

The murky law of fair use

Weird Al doing a Michael Jackson song parody?

In our practice, we deal not only with the enforcement of intellectual property rights, but we also do a fair amount of defense of accused infringers. One of the surest ways of getting into an intellectual property dispute (aside from illegally downloading movies using BitTorrent) is to make reference to, mention or otherwise utilize someone else’s intellectual property.

While this may seem obvious, it can creep up in the business context in unexpected ways. Generally speaking, business will cite that they are allowed to do their activities under the doctrine of “Fair Use.” Additionally, it is important to note that there is a difference in running afoul of the law and being embroiled in a conflict with another business. While a company’s actions may be justified legally, it may still find itself in a dispute which can cost a lot of money, time and resources.

These issues come up in two different areas of intellectual property – copyright and trademark. While each area of law adopts a concept that allows certain usage by parties other than the owner, the concepts are quite different in what they allow third parties to do.

In general, trademark law can be seen as more lenient when it comes to the commercial use than copyright law, which is somewhat understandable given the objectives of each type of protection. The goals of trademark law are to: 1) prevent consumer confusion in the marketplace between the source, sponsorship or affiliation of different goods, and 2) to protect the goodwill built with respect to trademarks by their owners.

Copyright has a slightly different focus of protecting the benefits to society derived from the labors of those who create creative works. The underscoring notion is that unimpeded copying of creative works will lessen the incentive for authors to create such works, which will yield an overall undesirable outcome. To that end, copyrights have a definite term (in theory) and then become part of the public domain, free for all to use. Trademarks, on the other hand, can be indefinite as long as the owner continues to use the mark to identify its goods or services.

Fair Use in copyright law generally favors noncommercial use whose benefits are mainly felt by society as a whole. It covers limited usage for things such as criticism, comment, new reporting, teaching, scholarship or research. The use will be treated more favorably if the use is “transformative” as opposed to mere copying, meaning that the user has added something of their own to the work. In determining whether a use constitutes a fair use under copyright law, a four-factor test is applied:

1) Whether the use is commercial in nature or is for nonprofit educational purposes;
2) The nature of the copyrighted work;
3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
4) The effect of the use upon the potential market for or value of the copyrighted work.

As a rule of thumb, the more artistic the use, the more likely it could qualify as a fair use. On the other hand, the more commercial the use, the less likely it will be considered fair use. Simply put: Weird Al doing a parody of a Michael Jackson song – okay. But using a photo or music in an advertisement without the copyright holder’s permission – not okay.

While these broad generalizations might be pretty easy to determine what is OK and what is not, in reality these determinations are often highly complex and are always very fact determinative.

Because of the explicitly commercial nature of trademarks, the law is more allowing of use of someone else’s mark in a commercial environment. However, there are still restrictions and business owners still need to be extremely careful to not run afoul of the law.

Classical Fair Use is when a business uses a term not as a mark but in a descriptive sense. Therefore, the owners of the Aspen trademark for ski resorts cannot preclude someone from using the term Aspen to refer to the Colorado town or the tree.  Additionally, you can generally use a third party’s trademarks to refer to their own goods. This usually comes up when your product or service is complementary to another, or you are engaged in comparative advertising. Some jurisdictions call this use Nominative Fair Use.

In Colorado, the  U.S. 10th Circuit Court of Appeals has not officially adopted the defense of Nominative Fair Use, but various district court decisions have stated that such a use does not cause a likelihood of confusion. Therefore, in general companies can state that their accessory is designed to be used with an iPhone or an Xbox, or that more people prefer Coke over Pepsi (or vice versa). However, there are important restrictions placed on the use. For example, you only should use the trademark as much as necessary to identify the other person’s mark. Excessive use of their third party mark could be interpreted as an attempt to leverage the other party’s mark for your own benefit. As with copyrights, what constitutes proper use of a third party mark is a complex analysis and utilization of qualified intellectual property counsel is essential.

The last consideration when using third party copyrights or trademarks in your business is more of a practical consideration rather than a legal one. A lot of business owners (and business lawyers) do not understand the laws regarding use of others’ intellectual property. Often clients will get threats of lawsuits even though we believe that their use is permitted by the law. People often get emotionally attached to these sorts of things and do not appreciate someone else using them.

While your position may be vindicated, in the end these disputes, do take time and money to sort out. Therefore, if a company is highly risk adverse and would rather stay away from any potential problems (regardless whether they are in the right), then the best course of action would be not to engage in any use of another company or individual’s intellectual property.

A fool’s bargain: Part 1 – Should you sue over keyword advertising?

A Fools Bargain: Want to Sue Over Keyword Advertising?  Think Again.

 

One thing is guaranteed, the law will always lag technology.  That’s just the way it is.  However, eventually the law catches up and usually comes up with the right result.  Such is the case with paid search advertising such as Google Ad-words.  In case you have been living under a rock for the past decade, paid search advertising is where a company purchases web based advertising that is triggered by users typing certain keywords into a search engine.  When the user types in their query the search engine will display the paid ads in addition to the organic search results.  The ads generally contain a few lines of text and will have a link that directs you to the advertiser’s website.  Advertisers pay per click and the dollar amount paid as well as the order in which the ads are displayed are determined through a bidding system.  One of the most common practices and thus far controversial practices is to bid on competitor’s names as keywords.  Recent decisions have indicated that while this practice may be annoying to trademark holders, such activities are not a violation of trademark law.

 

Before going much further I must disclose that our firm is involved in one of the most recent and broadest reaching decisions in this area in the case of General Steel Domestic Sales, LLC v. Chumley, 2013 WL 1900562 (D.Colo. May 7, 2013).  Since the case is still ongoing with post-trial activities I will not comment specifically on it, but it is available for your reading pleasure at http://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=1382&context=historical.  However, the case does represent the continuing evolution in the law and acknowledges that as a society our use and understanding of technology is also an evolutionary process and as consumers in the marketplace our sophistication also increases as technology advances.

 

When dealing with keyword advertising, they basically come in two flavors: 1) cases in which an ad is trigger by keyword that utilizes a competitor’s trademark, but does not mention the trademark in the text and 2) one in which the person is so brazen (insert sarcasm) as to use the trademark as a keyword and mention the trademark in the ad text.  In the past there have been decisions regarding merely using a competitor’s trademark to trigger an ad, but very few cases dealt with using a competitor’s trademark in the ad itself.

 

In recent years there has been a lot of confusion amongst trademark owners about what these rights actually cover.  We have seen an increasing rise in what a commonly called trademark bully’s.  These are individuals or companies that take an overly broad and often time unjustifiable position concerning the breadth of their rights.  A lot of times trademark owners feel as if they “own” words, phrases or symbols and that no one can ever use the same or similar marks– ever.   Contrary to these positions, trademark law does not solely exist for the benefit of the trademark holder.  In fact, the thrust and most important aspect of trademark law (as recited by courts) is to present consumer confusion about the source or sponsorship of goods or services.  Trademarks are an exclusionary right, meaning that a trademark owner can prevent others from using a mark that causes confusion amongst consumers as to the source, sponsorship or endorsement of the goods or services in question.  If there is no confusion or a likelihood of confusion, then there is no trademark infringement.  Therefore as our society changes and evolves so does the concept of what trademark infringement is.

 

In the early days of the keyword advertising cases the courts struggled with some threshold concepts such as was bidding on someone else’s trademark a use in commerce.  Some courts said yes and some said no.  After many years everyone seems to agree that even though the consumer never sees the keyword bidding process, that the act of bidding on another’s trademark as a keyword is a use in commerce.  The next question is whether the company’s actions cause a likelihood of confusion.  The situation in which the ad text doesn’t mention the trademark is almost universally accepted as not causing a likelihood of confusion.  But what about ads that do mention the trademark?  This situation is a little less cut and dry and this is where society’s use and understanding of technology starts to play a role.  Whenever courts are dealing with novel legal questions, they often try to look back to something that is known to compare the current situation to.  The legal arguments start to become a battle of analogies.  Sometimes they can get quite humorous.  In the keyword advertising context several competing analogies have evolved.  One is of a driver driving down a desolate highway (picture something on Route 66 in New Mexico) that sees a billboard advertising that a store sells a certain product, let’s say for example Coca Cola.  The driver exits the highway and drives a few miles to the store.  When they get to the store the driver finds out that the store does not sell Coke, but instead sells their own house brand cola.  Tired, dejected and thirsty the driver buys the house brand cola, turns around and drives back to the highway.  Early courts advocating this analogy often found trademark infringement for use of a trademark in the add text.  The rationale was that just as the driver was duped to exit the highway and drive to the store expecting to buy a Coke, so to are internet users who type search quarries into a search engine expecting to find a certain product and upon landing on a website, they to are so tired, dejected and thirsty that they buy the “house cola” instead of the cold refreshing Coke that they were originally seeking.

 

While the above analogy works well for misleading billboards and weary interstate travelers, it doesn’t necessarily represent the realities of the internet world and online advertising, at least not in its current state.  It is conceivable that in the early days of the internet, people just shopped at the first site they came across.  But as time has gone on, consumers searching habits have evolved and become more savvy.  As this has happened the transaction costs of searching on-line have dropped and the Billboard example has become less and less appropriate.  In the billboard example the consumer purchases the house brand cola because the transactions costs are too high – they would have to drive back to the highway, go down to another exit and try a different store.  It is much easier to buy the house brand cola, even though it was not what they were looking for.  One of the great benefits of the internet is that it vastly reduces transactions costs.  Almost an infinite amount of information is available to users at the click of a button.  If someone does a search clicks on a result and doesn’t get what they are looking for, the remedy is as simple as clicking the back button on their browser.

 

Consequently, the analogies used by courts has also changed.  One of the more prominent ones is that of a consumer at a drug store where the brand name medication sits right next to the generic store brand with its packaging that says “same active ingredient as ____”.  In these case the courts rationalize that the use of the competing trademark benefits society in that it gives consumers more options to choose from.  Since the consumer is not confused by the presence of the generic medication and understands that it is an alternative to the branded medication, the use of the trademark on the packaging is not considered a trademark infringement.  My own analogy that we used in arguing the General Steel case is that search engine results and keyword advertising are more like a menu, where the possible choices are presented before a consumer and that the consumer can pick or choose the ones that fit their needs.  If they click an ad that they think is for the product they want and it leads to a different product they can easily hit the back button, chose another item off the menu and see if that takes them where they need to be.  Courts have come around to this reality and the changing direction in trademark law reflects it.

 

So what is a company to do?  Well if you are a trademark owner, you better get used to other companies using your trademark as a keyword.  That’s just life in the digital age.  I would suggest that you do the same.  As for mentioning the trademark in the ad text, well we will have to wait and see.  Things seem to indicate that those types of activities will be allowed as well.  However, one thing can be guaranteed – trademark owners will not like that sort of activity and will more likely take issue with it and potentially even continue to sue on it.  However, the odds are that those trademark holders will continue to loose.  For trademark holders it is probably wiser to develop other strategies to deal with keyword advertising than to spend massive amounts on litigation and enter into a fool bargain.  As with any sort of trademark matter, it is always important for business owners to seek out the advice of qualified trademark counsel before embarking on any keyword advertising or other marketing strategy.  Failure to do so could end up costing a company in the future.

By | September 11th, 2013|BLOGGING, CYBER LAW, GENERAL INTEREST|0 Comments

The $64,000 Innovation Question

What do Yahoo, telecommuting and intellectual property legal services have in common?

At first glance, the popular answer may be “Absolutely nothing.” But those three seemingly unrelated topics might actually have a profound effect on your business and the quality of your intellectual property legal representation.

Yahoo made some waves last month by issuing an edict that it was discontinuing its telecommuting program.  While many in the techno press panned the decision as backward thinking, Yahoo’s rationale is actually quite interesting.  Yahoo’s reasoning was not based on efficiency, productivity or employee morale, it was based on innovation.

Yes, innovation—that magical moment sparked by conversations and personal interaction at the vending machine, water cooler and even in the restroom.  While some studies have shown an increase in worker productivity through the use of telecommuting, studies by Google and Isaac Kohane of Harvard Medical School have shown that people who work in close proximity create a positive impact on a company’s business, including innovation.  Therefore, telecommuting may work for those who perform repetitive routine tasks as their productivity may increase, but it may not be so effective for employees whose jobs rely on collaboration with other individuals.

For example, telecommuting may work well for telemarketers, call centers, help desks, etc., but probably will not work well for people in product development or other strategic departments.  While individual employees may feel that their performance or efficiency increases through telecommuting, the performance of the company as a whole may actually decrease.

Effect of Face-to-Face Interaction on Innovation

So what does this have to do with the delivery of legal services, and in particular legal services pertaining to intellectual property?  Intellectual property is different from a lot of other areas of the law in that it is based mainly on federal statutes.  Most other areas of law are primarily based on state law.  State unauthorized practice of law rules generally limit the possible pool of attorneys that can represent a particular client.  If a lawsuit is filed in Colorado state court, for instance, it can only be tried by attorneys that are admitted to the Colorado Bar.

Because most intellectual property cases are based on federal laws, they are considered a nationwide practice.  Thus, an attorney in New York can represent a client in San Francisco for IP matters.  This fact has created many “firms” that advertise on a nationwide basis.  Oftentimes these firms offer cut rates and rely on a high-volume business model that offers only limited contact over email or the phone.

While we are big believers in technology and frequently employ it with our clients that live out of state or in remote parts of Colorado, nothing beats good old face-to-face interaction.  The spontaneous conversations that happen often lead to insights that help us represent our clients better.  Sometimes it’s the ability to manipulate and play with a prototype with the inventor present; other times it’s sitting down and listening to a few tracks of a musician’s CD, or even visiting a client’s business to understand their processes and how they do what they do.  Unfortunately, many times these intangibles cannot be communicated in a phone call, email or even over Skype.

Recently, I was watching a local program on PBS that featured representatives from local wine and spirits companies.  They were commenting on how consumers in Colorado really get into the “buy locally” concept.  A representative from Shanahan’s Whiskey recounts seeing consumers pulling out bottle after bottle in a liquor store looking for one that was bottled by a specific individual or bottled while listening to specific bands.

If people take such care in buying whiskey, why not take the same care in choosing a law firm to protect some of your companies most valuable assets?  The plain and simple truth is that while technology is great, it simply cannot replace actual human interactions.  Virtual law firms and out of state high volume legal service “mills” can offer a lower price point; however, they cannot offer the quality of representation that one gets when you meet face to face, and the client learns about the firm, and even more importantly, the firm learns the ins and outs of its client’s intellectual property.

While technology is a wonderful tool, there are some things it cannot replace:  The chance meeting at the water cooler that sparks a revolutionary idea, the impression left by someone’s office space, or the sweet sound of a note being played through an all tube guitar amp.  Some things just still need to be done the low tech way.

By | March 26th, 2013|COPYRIGHTS, GENERAL INTEREST, INVENTION PROMOTERS|0 Comments

Got content for kids? You better get to know the new COPPA

If you say “COPPA” to somebody who works in the business of providing online content to kids, they will instantly know exactly what you are talking about, and it might cause them to have a panic attack. Due to regulations promulgated by the FTC this past December, many more business owners will need to become familiar with the law, the associated regulations and their requirements.

The Child Online Privacy Protection Act (“COPPA”) was passed in 1998. The purpose of the bill was to regulate how online businesses collected and used personal information of children under age 13. The act sets forth requirements for what must be disclosed in privacy policies and mandates that covered businesses seek verified consent from parents prior to obtaining any information from children under 13 years of age.

Originally, the act applied to commercial content providers that focused primarily on delivering  content to children. Therefore, the “Dora The Explorer” website would have to adhere to COPPA, but Facebook, which requires its members to be at least 18, does not. This distinction made determining whether a company was subject to the COPPA regulations relatively easy. Additionally, to add a bit of extra clarity, many companies include a statement in their Terms of Service or Privacy policy that their website is not intended to be used by those under 13. By and large, that would make sure that a company was not subject to COPPA.

In December the FTC announced final regulations that will go into effect on July 1, 2013 that will exponentially expand the reach of COPPA in terms of who and what technologies will be subject to the regulations. The regulations no longer apply just to content providers that derive significant portions of their revenue from providing content to children, but apply if the content is directed at children under 13, regardless if it is 100 percent of the content or just a portion of the content made available by the provider.

In determining whether the content is directed at children, the FTC will look to the subject matter, visual content, use of animated characters, child oriented activities or incentives, the nature of any audio content and other “kid-centered” characteristics.  Furthermore, the FTC will also look at empirical evidence regarding the composition of the actual audience for the material (thereby creating the possibility that a content provider may be inadvertently subject to COPPA just because many under 13-year-olds visit the site, even though the site provider never intended the content to be “directed” to children). Companies can be subject to COPPA even if a small fraction of their overall content is directed at children.

The FTC also broadened the scope of technology that falls under COPPA. Under the new regulations websites, parts of websites and even cell phone and tablet apps are covered under COPPA. The FTC also greatly broadened the definition of what constitutes “personal information,” which triggers an operator’s obligation to first obtain verified parental consent.

Back in the good old days, personal information was pretty much confined to the basics: name, date of birth, social security number, address, etc. Now any data that could be reasonably used to reveal the identity of the child is covered by COPPA, as long as it is not collected and maintained purely for the operation and maintenance of the website.  Basically this covers widely used tracking tools such as cookies, javascript tags, flash cookies and beacons. Additionally, in the cell phone app world, this would mean device IDs and other persistent identifiers. This can have major implications for ad-brokers, ad-networks, social networks and any other company that shares data with third party services.

If a content provider is subject to COPPA, the provider must obtain verified parental consent prior to collecting personal information from anyone under the age of 13. The new regulations include many new technological options, such as scanned signed consent forms, video-conferencing, or sending an email requesting consent with a delayed confirmation of the consent sent to the parent. As one can see, none of these methods are particularly painless, and they require substantial investment and forethought by the content provider.

In the next six months, it will be important for business owners to take stock of the electronic content they are producing and whether that content may subject them to the new COPPA laws. The federal government has been ramping up COPPA law enforcement in recent years. Companies such as Ms. Fields Cookies, Hershey, and Girls Life, Inc. have been slapped with COPPA enforcement actions. UMC Recordings, Inc. was fined $400,000 for COPPA violations in connection with a website that promoted then 13-year-old music star Lil’ Romeo.  As silly as it sounds, under the law Lil’ Romeo had to get his parents’ permission before signing up for his own website.

With the broadening of the regulations, expect enforcement actions to continue and most likely exponentially increase in the years to come. Make sure your company isn’t added to the ever growing list of companies that were bitten by that little known law called COPPA.

By | January 28th, 2013|BUSINESS LAW, CYBER LAW, GENERAL INTEREST|0 Comments

The perils of public-generated content

There is a well-known phrase known to businesses relying on the internet to help drive marketing and sales: “Content is king.”

That phrase has expanded, in the wake of businesses turning to Facebook and YouTube and in the development and use of better consumer digital cameras and video. That new and improved phrase is this: “User-generated content is king.” Soliciting user-generated content (UGC) is often an attractive marketing strategy: It engages customers and cultivates much-desired online content for a business all at the same time.

Some companies have come to regret that marketing move, however, as users who generate content are bringing suit when their material appears in future advertising, marketing or other company collateral, as McDonalds recently found out.

In the McDonald’s case, the wheels were set in motion in 2008 when McDonald’s hosted a “Big Mac Chant” contest on MySpace. Contestants created videos of their chants and uploaded them to the website. One participant, Daniel Calden uploaded a video of him in sunglasses with a sock puppet singing “Big Mac. Big Mac. Big Mac.  Everybody wants to eat a Big Mac.” Nothing came from the entry, although a few days after it was submitted it was removed, and Mr. Calden’s inquiries with McDonald’s and their marketing firm went unanswered.

A year later, McDonald’s launched a commercial involving a fish mounted on a wall singing to a man about wanting a Filet-o Fish sandwich. Three years later, Calden filed suit against McDonald’s and their marketing company for theft of intellectual property, breach of the contest contract, copyright infringement and a host of other theories. (Interestingly, the statute of limitations on a copyright infringement case is three years.) McDonald’s fired back with a motion to dismiss the claims, citing among other reasons, that the works are not similar in the least except that both works contained men, non-human characters, and music about McDonald’s sandwiches.

Probably the McDonald’s case is one where the plaintiff is fishing for a settlement.  However, it serves as a good example of the perils of soliciting UGC. No doubt McDonalds crafted their contest contract in a careful manner, which will definitely help them in the case, however even careful drafting might not prevent a business from being sued. While wanting to be involved with customers on a more interactive basis is an admirable objective, business owners must remember that generally people are passionate about their creations and creative works. They can and often do get very possessive and angry if they feel they have been taken advantage of – even if they assigned their rights to the company in the contest rules. Something that might make good business sense to a marketing professional may leave a customer feeling cheated, taken advantage of, or betrayed.

The worlds of contests and UGC also have a lot of legal issues associated with them.  Contests are subject to state gaming laws and can potentially lead to serious liability for illegal gambling if not structured correctly. Additionally, a business will want to make sure that it owns any UCG submitted and that the contestant is not entitled to any additional compensation other than what is provided for in the contest rules – even if they are not the contest winner.

These contracts need to be tightly drafted. Otherwise a company could wake up with a much-enlarged audience resulting from an online initiative, but simultaneously be subject to not just intellectual property violations, but illegal gaming issues as well.

“Content is King,” still applies, but care and caution could help a company’s online efforts from also becoming costly.

Avoidance: Understandable, but Often Painful

This is about pain — the avoidable kind.

Lawyers can get a bad rap for shark-ism and sometimes, that’s fair. In this case, however, the pain is shared across the board, by both the lawyers and the clients. No one, including a hard-working and ethical attorney, likes seeing people have to spend blood, time and money on heartbreak and angst that is fairly easy and cheap to avoid.

Our firm has been involved in a number of litigations that were very costly to our clients, but which could have been avoided. For the most part, those costs could have been side-stepped if the clients had engaged an IP attorney to help them set up intellectual property policies and procedures; properly protect the intellectual property (IP); and clearly define ownership.

Human nature being what it is and cash always being tight in a young growing company, non-essential tasks and expenditures are often put off as more pressing fires are fought. This short-sightedness, however, can come back to haunt. It can be painful to witness.

The math is simple: An IP attorney review of website content may cost up to $1000, depending on its size. However, if one or more third-party photos are found on the site, an expensive five- or six-figure copyright infringement settlement could be immediately eliminated.

Moreover, seeking the blessing of an IP attorney and filing for trademark registration before settling on a brand for a new product or service might set an enterprise back less than a couple thousand dollars, but could save hundreds of thousands of dollars in litigation when, for example, a well-heeled competitor decides the brand is too close to one of theirs.

Registering copyrights for important materials and images typically cost a few hundred dollars each. It’s money well spent. Doing so can deter competitors from copying all or in part of the fruits of a business’ hard work and expenditures. Infringement could cost $150,000 per instance in statutory damages.

A business that institutes and follows a trade secrets policy that includes non-compete agreements with key employees might cost a few grand, all said and done. However, instituting a trade-secrets policy could prevent employees from being able to take specific knowledge learned while employed to a competitor. Not doing so, can cause a business to lose a competitive advantage worth hundreds of thousands if not millions of dollars over time.

Having clear and concise intellectual property clauses drafted for use in contracts with third party contractors sets an organization back a few saw bucks. Alternatively, the matter often ends up in federal court as the business and the contractor both claim ownership to a valuable piece of IP. If lucky, the experience will settle before trial and a company may only be out a $100,000 or so.

Many a wise business owner understands these warnings, but immediate demands call out.  The phone rings or a colleague comes into the office, or a deliverable needs immediate attention. Several years later, a complaint and the prospect of spending hundreds of thousands of dollars defending the company in court presents itself.

Sometimes an ounce of prevention truly is world’s better than a cure. No one likes to watch money eaten up after-the-fact on avoidable circumstances. IP protective measures can and often are an easy and preventative business strategy — and the truth is that everyone, including good lawyers, feel better about that.

Kurt Leyendecker is a founding member of the intellectual property law boutique, Leyendecker & Lemire. Leyendecker & Lemire specialize in patents, trademarks and related complex civil litigation. Kurt Leyendecker can be reached directly at 303.768.0123 or kurt@coloradoiplaw.com. Visit www.coloradoiplaw.com for further information, including Leyendecker & Lemire’s weekly blog, “Control, Protect & Leverage.” 

Caution: You’ve been hacked—and sued

The newest legal challenge on the horizon for businesses may be the rise of what is known as “The Copyright Troll.”  Copyright Trolls are generally companies formed by attorneys whose sole purpose is to secure the enforcement rights from content providers (usually movies) and then find infringers (using a special software) — wherein those same attorneys sue the infringers in federal district court.

Simply put, these lawyers build a list of people who illegally download things like movies or photographs and when they’ve built a list, they sue them all on behalf of the movie maker.

A few years back, the movies were pretty high brow, usually independent films that were nominated for Academy Awards. The Hurt Locker is an example. The Trolls filed suit naming several hundred John Does, subpoenaed the infringers’ ISP for the account information corresponding to the IP address that downloaded the movie, and sent out a demand letter.

In truth, a lot of the alleged infringers probably downloaded the movie, which is illegal. The amounts to settle were relatively low — $1,500 -$2,500.  The infringers sheepishly paid the money and learned a bit of a lesson to share with their kids: Don’t steal other people’s copyrighted creative work.  It’s a bit of a slick business model:  Everything is geared for economies of scale and the demand was priced low enough that it didn’t make economic sense to fight it.

However, the current iteration of The Troll takes the business model to another level.  The movies are not as high-brow and generally involve pornography. This change has introduced a shift in the demographics of people coming into our offices with demand letters.

Gone were the thirty-somethings that were good with technology and downloaded pirated movies using bit torrent software even though they knew it was wrong. They were replaced with retirees – grandmothers and great-grandmothers who are not so computer savvy.  By and large, these older folks also have unsecured wireless networks, so neighbors or other third parties download the content using their network.

An additional twist: Most consumer wireless routers do not extend back far enough to provide the alleged infringer with the exonerating evidence of who actually downloaded the content. Additionally, the demands are still relatively low when compared to the cost to legally fight the allegations, but also high enough to cause pain to those on a fixed income.

Here’s the ugly, new situation nearly anyone with a computer can face: A client of ours was out of the country with no one home when a download supposedly took place —some allegedly downloaded pornography on their computer. They received a demand letter from a Troll for $8,000.

Does the elderly couple fight the allegation or pay the eight grand? To prevail, the Troll/plaintiff must prove that the defendant (our client) actually infringed the copyrights, so the accuser must work to win. But once named in a federal lawsuit a defendant is going to be spending money regardless – either they settle the case or they have to defend it. Getting you out of the case will costs thousands at a minimum and more realistically will be in the tens of thousands of dollars.

These instances are concerning because they are also beginning to show a sophistication in those committing the infringement – the ability to utilize viruses or hack passwords. Additionally, the demands from the Trolls seem to be going up as well.  We expect to see demands go even higher than $8,000.00.

While most WIFI routers have the ability to have pretty good encryption that would withstand a brute force attack, must businesses do not use strong enough passwords.  A thirteen character password that is made up of random numbers and letters is generally recognized as being sufficient. Anything short of that and you are most likely at risk. Readily available programs can break weak passwords in under an hour.

Moreover, business owners need to make sure their work computers and any machine that connects to its network are free of bit torrent software, as they could be liable for the infringing acts of their employees.

Finally, businesses should always have up-to-date virus software on all of their computers and perform routine scans to minimize the chance that a third party is entering the network through an infected machine. Not only do these precautions prevent the potential theft of your business data, they can help prevent you and your business from landing in the middle of a German pornography copyright infringement lawsuit. And that ain’t pretty — or cheap.

Moving on up – and out

Some of you may have noticed that our firm has not published a new column in a few weeks now. The reason for this is that we were engaged in a Major Office Move.  You know the kind: anguished over for months, thought about repeatedly at 3 a.m. and again at 6 a.m. and over dinner with your spouse. But our move was inevitable. The firm has grown and along with that, we had outgrown our old office suite in more ways than one. In addition to simply needing much more space, we also wanted to be in offices that better reflected the firm’s character and personality.

This is, technically, our third space in the company’s history and we have been able to learn from our past experiences and plan for the future. For example, we learned that as you add attorneys to your staff, those attorneys tend to schedule meetings with clients and prospective clients. Also, if you have multiple meetings back-to-back and your main lobby is the size of a British phone booth, things will get crowded and look like I-25 prior to T-REX.

Generally speaking, this is not good for business.

While I can’t say that moving a law firm, or any business for that matter, is something I would want to do on a regular basis (particularly when it comes to getting employees packed up and ready to go prior to the movers arriving), businesses can seize the move as a great opportunity to reflect upon where they have been and where they are going.

A few columns ago I talked about the opportunities that spring provides to do some spring cleaning for your business. It was essentially a mini-audit for the business owner to determine if they were covering all the legal details necessary to ensure the vision they have for their company. As we were going through the process of finding new offices, I became aware that the moving process itself forces you to take stock of your company and start thinking about what that company will look like years down the road.

Through the myriad of necessary decisions inherent in moving a business — like office location, size, configuration and the type of building finish and personality — you are organically lead to essentially constructing a strategic plan for the length of the term of your lease.

Where do I want to be located? How many employees do I have now and will have in the future? What does the space say about my company (or does it even matter)? How long do I want the lease to be? What are the main functions of my business and will we be adding any lines of business in the future that might need special accommodations or a special environment?

It’s easy to consider staying put: but if one thing is certain it is the inevitable, change.

It’s easy to think of the headaches of moving, but what if, instead, you and your staff spent the time leading up to the move as a fun exercise of strategic planning, goal setting and visionary pursuits that can revitalize your business and possibly open up opportunities that were not perceived before? What inadvertently happens is that you become more in touch with your company’s mission and can therefore take measure of how successful you are in keeping true to that mission.

Sure: No one necessarily wants to stop and carefully think through the details of a strategic company vision. And the actual act of moving is often painful, much like herding cats.

But a business move can be cathartic. Furthermore, the momentary pain of moving is temporary, yet the fruits of your labor are everlasting – especially if the new space has a great view, like Leyendecker & Lemire, LLC’s new offices. Come see the digs: 5460 S. Quebec St., Suite 330, Centennial, Colo., 80111. We make good coffee.