By Jessica C. Engler, CIPP/US

Whether you keep up with the Kardashians or you are just a casual Instagram user, you have probably been exposed to social media influencer posts. Due to social media’s increased marketing importance, companies will offer free products, money or other compensation to social media “influencers”, i.e. users that boast at least 2,000 or more genuine followers. “Macroinfluencers” with millions of followers can often command $10,000 or more for a single product endorsement on Instagram. Influencers have been used by industries including hotels and travel services, fitness, cosmetics, clothing and accessories, food and beverage, restaurants, dietary supplements, and a litany of other consumer products and services. Similar to celebrity brand ambassadors, these influencers provide “peer” recommendations to their followers with the intent of directing the followers to purchase the endorsed products and services. These posts are often successful and have led to increased profits for many brands.

In addition to or in lieu of traditional social media influencers, companies are also looking to their own employees to serve as online brand ambassadors, participate in ad campaigns, and to share content on social media about the company. Since the advertising budget for “employee influencers” is relatively low, many companies are implementing employee advocacy programs and incentivizing employees to be spokesmen for the company in their own circles. Certain commentators have listed employee advocacy as one of the social media strategies to watch in 2019.[1]

This young, alternative form of advertising and endorsement has caught the attention of federal agencies. Starting in March 2017, the Federal Trade Commission began notifying companies using compensated influencers that the relationship between the company and the influencer needed to be made clear in a disclosure. The FTC’s Endorsement Guidelines state that if there is a “material connection” between an endorser and an advertiser (i.e., a connection that might affect the weight or credibility that a customer would give the endorsement), then that connection must be clearly and conspicuously disclosed.[2]  The FTC has stated that these guidelines apply to social media, and both marketers and endorsers are required to comply.[3] In April 2017, the FTC sent letters to almost 100 celebrities, athletes and other influencers, as well as the marketers of the brands endorsed, regarding the disclosure obligations.[4] Since that time, the FTC also settled its first formal complaint against social media influencers—gaming influencers Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell.  These men were charged with failing to properly disclose that: (1) they owned the online gambling company that they were promoting; and (2) they paid other well-known online gaming influencers to promote the platform without disclosing the financial relationship.[5] Despite the additional FTC “educational notifications” to influencers[6] and complaints to the FTC by watchdog groups,[7] some marketing commentators claim that the majority of influencer posts are still not compliant.[8]

Most recently, the Securities and Exchange Commission entered the influencer realm when it charged boxer Floyd Mayweather Jr. and music producer DJ Khaled.  Mayweather and Khaled were promoting investing in Centra Tech, Inc.’s initial cryptocurrency offerings (ICO) on social media without disclosing that they had been paid for the promotions.[9] The SEC had previously warned that cryptocurrency sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws— including disclosure of payment for promotional statements.[10] The SEC has since settled with Khaled and Mayweather, requiring them to return the $350,000 they collectively received from Centra Tech (who is currently under SEC investigation for fraud).[11] Mayweather also agreed to pay a $300,000 fine to the SEC, abstain from promoting other investments for three years, and to cooperate with the SEC’s investigation. Khaled also agreed to a $100,000 fine to the SEC and to abstain from similar promotions for two years.

The FTC’s continued letters and notifications shed light on the agencies’ interest in helping influencers and brands to be more transparent about their relationships. These educational letters are often the first step in an FTC crackdown, so influencers and brands would be well advised to ensure their posts are compliant. As businesses set their marketing plans for 2019, now would be the time to ensure that any arrangements with influencers or employee advocates are appropriately detailed. While the FTC regulations (or SEC for financial products) provide more specific guidance, the below items offer some general tips and considerations.

  1. Confirm whether social media posts need to include FTC disclosures. The FTC requires a clear and conspicuous disclosure if there is a “material connection” between an influencer and brand that might materially affect the credibility of the endorsement (meaning, where the connection is not reasonably expected by the audience).[12] Material connections can include, but are not limited to, a business or family relationship, employment relationship, monetary payments, or free products.

Disclosure is not required when the material connection between the endorser and the marketer is expected. For example, if a doctor was featured in a television advertisement claiming that an anti-snoring product is, in his opinion, the best he has ever seen, a viewer would reasonably expect the doctor to be compensated for appearing in the ad and a disclosure would not need to be made. However, a viewer may be unlikely to expect that the doctor is an owner in the company or that the doctor received a percentage of the product sales, so the advertisement should clearly and conspicuously disclose such a connection.[13]

The time when the incentive is promised is also a factor. If a restaurant asks its patrons to post pictures and honest reviews of its food on Instagram, and the patrons have no reason to expect compensation or benefit from the restaurant before making the post, then the restaurant’s later decision to send the posters a free dessert coupon will likely not require a disclosure. However, if patrons were specifically informed that a social media post would result in being given the coupon or that their pictures and reviews may be used in the restaurant’s advertising, then those opportunities may be seen as having value and may need to be disclosed.

  1. The disclosure must be clear. Disclosures must be clear enough that an ordinary reader understands the relationship between the poster and the brand. The FTC has cautioned against vague references like “Thank you [Brand Name]”, “#ambassador”, “#[Product]_Rocks”, and similar language that shows just an appreciation of the product/company. Instead, the FTC encourages clear statements like “[Brand] gave me this product to try”, “Thanks [Company] for the free product”, “Sponsored”, “Promotion” or “Paid ad”. For platforms like Twitter that limit the number of characters you can use, the FTC recommends starting the tweet with “Ad:” or “#ad.”
  1. The disclosure must be conspicuous. The FTC advises that the disclosure should be: (1) close to the claims to which they relate; (2) in a font that is easy to read; (3) in a font shade that stands out against the background; (4) for video ads, on the screen long enough to be noticed, read, and understood; and (5) for audio disclosures, read at a cadence that is easy for consumers to follow and in words the listener will understand.

Certain platforms like Instagram limit the amount of text on photostreams when viewed on a smartphone, so longer descriptions are truncated with only the first few lines viewed unless the user clicks “more”. The FTC requires that the disclosure be presented without having to click “more”. It is not sufficient for an influencer to make a general disclosure on the influencer’s profile page or through links to a separate disclosure page; rather, a disclosure must appear on each endorsement post. Similarly, the FTC cautions that the disclosure should not be buried in a long string of hashtags.

In response to the FTC’s enforcement, platforms like YouTube and Instagram have added a feature where posts can be tagged as “paid”. While these can be helpful tools, they are not foolproof.  For example, the paid tag could be sufficient when only one product is pictured in an Instagram post. But if the sponsored product appears with other products—some compensated and others not compensated—then additional disclosures may need to be made. The brand and influencer need to carefully evaluate whether the tags are sufficient or if additional statements need to be made, as it is the brand or influencer that will be responsible for the failure to properly disclose—not the platform.

  1. The endorsement must be true. This requirement is true of all advertising. An influencer cannot provide a review of a service or product that the influencer has not personally used. The influencer also cannot post that the sampled product or service is amazing and #newfavorite when the influencer hated it and would never use it again. A brand looking to use influencers should not require the influencer to make a positive post if the influencer did not have a positive experience.
  1. Monitor the influencer. Even if the influencer claims they follow legal requirements, the brand or company is still responsible for ensuring that the influencer is true to their word. Brands should regularly monitor or review the influencer’s post(s) to ensure that the posting is compliant, as the brand can still be responsible for the failure to disclose.

These above tips provide some initial considerations to brands that are using influencers and the influencers make the posts. Any written agreement between the brand and influencers should include obligations to comply with FTC guidelines. Companies that are considering an employee advocacy program would be well advised to ensure that their employee social media policies carefully detail the requirements for employee endorsements online. Consultation with an attorney to prepare these agreements or social media policies or to review proposed influencer posts are a good step towards avoiding unwanted regulatory attention.

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[1] See Lilach Bullock, “5 Social Media Strategies That Will Grow Your Business in 2019”, Forbes (Dec. 20, 2018) (available at https://www.forbes.com/sites/lilachbullock/2018/12/20/5-social-media-strategies-that-will-grow-your-business-in-2019/). See also Ryan Erskine, “The Key to Increasing Your Brand’s Reach by 561%? Your Employees.”, Forbes (Jun. 30, 2018) (available at https://www.forbes.com/sites/ryanerskine/2018/06/30/the-key-to-increasing-your-brands-reach-by-561-your-employees/#3331b89429bb); Steve Cocheo, “Employee Advocacy in Banking: Aligning Culture & Content in Social Media Channels”, The Financial Brand (Nov. 15, 2018) (available at https://thefinancialbrand.com/76838/social-media-employee-trust-consumer-banking-postbeyond/).

[2] 16 C.F.R. § 255; “The FTC’s Endorsement Guides: What People Are Asking”, Federal Trade Commission (Sept. 2017) (available at https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking).

[3] “FTC Staff Reminds Influencers and Brands to Clearly Disclose Relationship”, Federal Trade Commission (Apr. 19, 2017) (available at https://www.ftc.gov/news-events/press-releases/2017/04/ftc-staff-reminds-influencers-brands-clearly-disclose). One survey done in May 2017 showed that at least 90% of celebrity influencer posts were not compliant with the FTC guidelines. “93% of Top Celebrity Social Media Endorsements Violate FTC Guidelines”, Mediakix (May 31, 2017) (available at http://mediakix.com/2017/05/celebrity-social-media-endorsements-violate-ftc-instagram/#gs.SHytKyU).

[4] Lesley Fair, “Influencers, are you #materialconnection #disclosures #clearandconspicuous?”, Federal Trade Commission (Apr. 19, 2017) (available at https://www.ftc.gov/news-events/blogs/business-blog/2017/04/influencers-are-your-materialconnection-disclosures).

[5] “CSGO Lotto Owners Settle FTC’s First-Ever Complaint Against Individual Social Media Influencers”, Federal Trade Commission (Sept. 7, 2017) (available at https://www.ftc.gov/news-events/press-releases/2017/09/csgo-lotto-owners-settle-ftcs-first-ever-complaint-against).

[6] Id.; see also Sam Sabin, “DeGeneres, Minaj Among Celebrities Whose Social Posts Drew FTC Interest in Past Year”, Morning Consult (Oct. 5, 2018) (available at https://morningconsult.com/2018/10/05/degeneres-minaj-among-celebrities-whose-social-posts-drew-ftc-interest-in-past-year/).

[7] See, e.g., “TINA.org Files FTC Complaint Against Diageo for Deceptive Influencer Marketing of Ciroc”, Truth in Advertising, Inc. (Dec. 11, 2018) (available at https://www.truthinadvertising.org/ciroc-press-release/).

[8] See Sam Sabin, “A Year After Major Actions, FTC’s Influencer Marketing Guidelines Still Overlooked”, Morning Consult (Oct. 4, 2018) (available at https://morningconsult.com/2018/10/04/a-year-later-ftcs-influencer-marketing-guidelines-still-largely-ignored/).

[9] Ahiza Garcia, “DJ Khaled, Floyd Mayweather Jr. charged with promoting cryptocurrency without disclosing they were paid”, CNN Business (Nov. 30, 2018) (available at https://www.cnn.com/2018/11/29/tech/dj-khaled-floyd-mayweather-coin-crypto-sec/index.html). Part of the increased scrutiny by the SEC is likely due to the SEC’s criminal charges of fraud against Centra Tech, which allege that Centra Tech “sold investors on false promises of new technologies and partnerships with legitimate businesses.” Frances Coppola, “SEC Fines Floyd Mayweather and DJ Khaled for Illegally Promoting a Fraudulent ICO”, Forbes (Nov. 29, 2018) (available at https://www.forbes.com/sites/francescoppola/2018/11/29/floyd-mayweather-and-dj-khaled-were-paid-to-promote-a-fraudulent-ico/#9c4b6c14665e).

[10] “Two Celebrities Charged with Unlawfully Touting Coin Offerings”, U.S. Securities and Exchange Commission (Nov. 29, 2018) (available at https://www.sec.gov/news/press-release/2018-268).

[11] Nathaniel Popper, “Floyd Mayweather and DJ Khaled Are Fined in I.C.O. Crackdown”, The New York Times (Nov. 29, 2018) (available at https://www.nytimes.com/2018/11/29/technology/floyd-mayweather-dj-khaled-sec-fine-initial-coin-offering.html).

[12] 16 C.F.R. § 255.5.

[13] 16 C.F.R. § 255.5.

By James R. “Sonny” Chastain, Jr.

In a recent Supreme Court decision involving the Fourth Amendment, Justice Roberts noted that there are 396 million cell phones accounts in the United States for a nation of only 326 million people.  The cell phone provides numerous functions including access to contacts, data, information and the internet.  Some studies suggest people check cell phones every ten minutes and are less than five feet away from the phone most of the time.  It seems the cell phone has become an integral part of daily living. While the development may be productive in terms of the overall access to information, it also creates certain risks that employers should consider.

In many instances companies operate on a platform of bring your own device to work (“BYOD”).  Employers should consider what business information may be available to that employee on his or her personal cell phone.  An employer is vulnerable if an employee is connected to the employer’s computer system and can access valuable confidential information through the cell phone.   The risk is that the employer’s business information may “walk” out the door with the employee.  Moreover, if the information gets comingled with the employee’s personal information, there could be a problem in terms of “unscrambling” or wiping the phone on departure.   Certainly one approach is to not permit the employee to have access to the information on the phone.   However, an employee may need access in order to perform his or her job responsibilities.  Employers should consider whether to have a cellular phone policy that addresses how employees should use the phone, any issues regarding expectation of privacy, ownership of information, and wiping upon termination.

Additionally, a cell phone may cause distracted driving. Whether ringing, beeping, vibrating – the cell phone may cause drivers to lose focus.  A driver’s perceived belief that the ever important text/email may have just come in can create an overwhelming desire to check/respond.  To the extent an employee is on the road, the temptation to text, call or open an app may create serious risks.   Distracted driving is alleged to be a contributing factor in 80% of the automobile accidents on the road today.  Employers need to recognize this risk and be proactive in addressing it.  Employers should consider having a policy regarding the use of cell phones while driving.

Cell phones are integrated into our daily activities – just look around at any restaurant, getting on an elevator, or at a stop light.  No matter the time, place or circumstances, staying connected seems to be of utmost importance.  A cell phone is certainly very beneficial in terms of facilitating access to people and information.  However, cell phones may also bring about certain risks.  Employers may want to consider the risks which that may be applicable to it and any policies to put in place to address them.

By James R. “Sonny” Chastain, Jr.

On June 21, 2018, the Louisiana First Circuit Court of Appeals addressed the right of publicity and right of privacy in connection with Barry Seal (“Seal”) and the movie titled “American Made”.  In 2014, Universal City Studios, LLC (“Universal”) entered an agreement to purchase the life story of Barry Seal from his surviving spouse and children of his third marriage (“Seal Defendants”). Thereafter, Seal’s daughter from his first marriage, Lisa Seal Frigon (“Frigon”), as the administratrix of the estate of Adler Berriman Seal, filed suit against Universal and the Seal defendants seeking to nullify the agreement and claiming violation of right of privacy, right of publicity and asserting other causes of action.  Frigon claimed the right to control the commercial appropriation of her father’s identify and public image.  In response, Universal and the Seal Defendants filed a peremptory exception of no cause of action seeking dismissal of the claims which was granted by the district court.

On appeal, the First Circuit affirmed the district court ruling concluding that the right of privacy protects the individual.  Seal’s right of privacy was held to be strictly personal, not heritable, and died with Seal.  Moreover, the Court found no right of publicity has been recognized under Louisiana state law.  The court cited Prudhomme v. Procter & Gamble Co., 800 F.Supp. 390 (E.D. La. 1992) in which a federal court noted the possibility of a civil action to enforce a right publicity being recognized in Louisiana. However, the First Circuit said it could not find where such recognition had occurred.  The Court noted that judicial decisions are not intended to be an authoritative source of law in Louisiana, but are secondary.  The Court concluded, “Hence, for us to hold jurisprudentially that a right of publicity exists would constitute an unwarranted intrusion into an area in which the legislature has not seen fit to act”.  It declined to supply a cause of action through jurisprudence that it concluded Louisiana law does not.

We will see if Frigon files for a rehearing or seeks review at the Louisiana Supreme Court.

By Sonny Chastain

In its recent campaign, Bud Light recognizes true friends of the Crown by raising a cold adult malted beverage and chanting Dilly Dilly.  The marketing slogan was created apparently coming out of nonsense and fun.  In its campaign, Bud Light seems to want people to celebrate with a lighthearted toast of Dilly Dilly and escape the Pit of Misery.

On December 1, Modest Brewing Company in Minneapolis introduced Dilly Dilly Mosaic IIPA into the market place.  Instead of the typical “stop it or else” demand letter, Bud Light turned an infringement situation into a marketing opportunity.  Bud Light sent an actor into the Modest Brewery dressed in medieval garb to read a pronouncement from the Crown.   The Town Crier proceeded to read from a scroll, requesting Modest’s latest brew be put on a limited edition run.  The Town Crier stated that the Crown was flattered by the loyal tribute, but noted that Dilly Dilly is a motto of the Crown and disobedience would be met with additional scrolls, formal warning, and a private tour of the Pit of Misery.  As a peace offering, the Town Crier also offered two employees a free trip to the Super Bowl which is being held in Minneapolis.

The unusual cease and desist demand is achieving rave reviews on social media.   Instead of dilly dallying around in the typical strong-arm legal maneuvering, Bud Light raised a Dilly Dilly to the Modest Brewing Company.  In a creative manner, Bud Light made its point of protecting its trademark from further infringement, while generating some laughs and likely some goodwill among consumers. So, to Bud Light, Dilly Dilly!

By Sonny Chastain

General Mills filed an application to register the color yellow appearing as the uniform background on a box of Cheerios.   It contended that consumers have come to identify the color yellow specifically with Cheerios, when used in connection with the goods.  It submitted survey evidence and expert reports to support the claim of acquired distinctiveness.  However, the trademark examiner concluded that General Mills failed to prove acquired distinctiveness and that the mark fails to function as a mark.  An appeal was submitted to the Trademark Trial and Appeal Board (“TTAB”).

General Mills argued that the purchasing public recognizes the color yellow on a package of toroidal (ring or doughnut-shaped) oat-based breakfast cereal as an indicator that it is the source of the cereal.  The record showed that General Mills has sold Cheerios since 1945.  In the decade prior to 2015, General Mills spent over $1 billion in marketing yellow-box Cheerios with sales exceeding $4 billion.  However, the question was not whether consumers recognized the term Cheerios as a source indicator but whether the color yellow identifies origin.

The TTAB agreed with the examiner’s conclusion citing lack of exclusive use of the color yellow.  The Board noted that the examiner pointed to 23 cereal products that offered packaging in a similar color.  Several of the products are even offered by companies which are recognized as General Mills’ biggest competitors:  Kellogg, Post, and Quaker.  Some of General Mills’ survey subjects showed their awareness of several of the products, especially Honeycomb and Corn Pops.  Additional cereal boxes cited included Joe’s O’s, Honey O’s, Tasteeos, Honey Bunches of Oats, Crispix, and Life.  The Board concluded that General Mills is not alone in offering oat-based cereals or even toroidal shaped, oat-based cereal in a yellow package.  Thus, customers are unlikely to perceive yellow packaging as an indicator of a unique source.  While the color may be attractive and eye-catching ornamentation, it alone did not connect to a potential source.   The Board noted that while customers are familiar with the yellow color of the Cheerio’s box, the color yellow is only one aspect of the complex trade dress that includes many other features that perform as a distinguishing and source-indicating function.   It was not persuaded that customers perceive the proposed mark, the color yellow alone, as indicating the source these goods.  The Board found the yellow background did not acquire distinctiveness and does not function as a trademark.

The case teaches that it is important to recognize what mark or components thereof function to identify a source. A question to ponder is, with what features do consumers identify to connect a particular good or service with a source of origin? General Mills took an aggressive view of the source identifying capability of this color which the Board concluded was not correct.  It is possible that if additional features had been included in connection with the overall trade dress, that registration may have been possible.

By Lauren J. Rucinski and R. Devin Ricci

As of December 14, 2017, the Federal Communications Commission (“FCC”) repealed the so-called net neutrality regulations in a 3 to 2 vote along party lines. But what does this mean and how may this decision affect you or your business?

To be honest, it is too early to tell if derailing the short-lived regulation of internet providers will significantly impact the casual user’s internet experience, but there are some issues which should cause companies and individuals alike to be wary.

What is Net Neutrality?

Net Neutrality defines the concept that all content transmitted over a phone company or cable company’s network are to be treated equally and without preference. During the Obama administration, the FCC adopted rules to protect net neutrality.[1] These 2015 rules reclassified broadband Internet service as a form of telecommunications, allowing the FCC to regulate providers of Internet services, e.g., Comcast, Cox, AT&T, as common carriers under the Communications Act. The rules also aimed at specifically prohibiting certain “non-neutral” leaning actions by the internet service providers such as:

  1. blocking (providers cannot discriminate against any lawful content),
  2. throttling (providers cannot slow data transmission based on content), and
  3. paid prioritization (providers cannot create internet “fast lanes” for those willing to pay premiums).”[2]

These rules were, at least somewhat, in contrast to case law at the time. For example, in Verizon v. F.C.C., the D.C. Circuit held that anti-blocking and nondiscriminatory rules were unlawful because they treated internet service providers as common carriers in violation of the Communications Act.[3] At the time, telecommunications companies were treated differently than common carriers like the telephone companies. The 2015 FCC rules circumvented this issue by expressly making internet service providers common carriers. Without the 2015 FCC rules, cases like Verizon are going to become relevant again.

Should the average business owner be concerned?

Maybe. By dismantling the net-neutrality rules, internet service providers are no longer regulated as common carriers. In theory, the service providers can demand premiums for fast or substantial access to web-based services. This, of course, may have immediate implications for popular streaming services such as HBO, Netflix, and news outlets. These companies are likely to pass along any increase cost to the ultimate users, so it may not affect their bottom line. Some argue that the common mid-sized business is unlikely to feel much effect as typical webpages do not require substantial bandwidth. However, modern business is intrinsically tied to Internet based services. Although a company may not be part of e-commerce, it may rely upon every day services for billing, time keeping, or communications that could be affected.

One thing is for certain: we should not expect Net Neutrality to be reinstated any time soon. The Trump administration successfully pushed for its repeal and has shown no sign of recanting. Past Congressional attempts to regulate the area have not been fruitful, and it is unlikely that any new legislation will fare better in the current political climate.

Many groups have already voiced their intent to sue the FCC over the new regulations: the Internet Association (representing tech firms like Google and Facebook), public interest groups, and the New York Attorney General, to name a few. But, whether or not they will be successful is far off and yet to be seen. The concept of net neutrality issue is no stranger to litigation. In fact, the net neutrality regulations were borne out of case law deeming the regulations of non-common carriers unconstitutional. Because the common carrier classification of Internet service providers was repealed, precedential case law implies that any attempts to regulate these companies in the future would be unconstitutional. Only time and, unfortunately, more lawsuits will tell if Internet service providers will be able to cherry pick users and broadband speeds for a fee. We will continue to monitor this progression and provide updates as it unfolds.

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[1] Protecting and Promoting the Open Internet, 80 FR 19738-01; 47 C.F.R. §8.1, et. seq.

[2] 47 C.F.R. §§ 8.5, 8.7, and 8.9.

[3] Verizon v. F.C.C., 740 F.3d 623 (D.C. Cir. 2014).

By Jessica Engler

  • This article originally appeared in the Fall 2017 edition of DRI’s In-House Defense Quarterly

On March 11th of this year, the Defend Trade Secrets Act (DTSA) celebrated the one-year anniversary of its enactment.  The DTSA, 18 U.S.C. Section 1831, et seq. expanded the federal legal protection for holders of trade secrets presently offered to holders of copyrights, trademarks, and patents.  As of April, 2017, approximately 129 DTSA cases have been filed in federal court since the DTSA’s enactment.

Read the entire article here:  Defend Trade Secrets Year One

 

aqd2

By Devin Ricci

The City of Baton Rouge and the surrounding areas have been struck by devastating floods.  Thousands were stranded. The roadways to their homes are flooded and most impassable.  Flooding is not new to Louisiana.  Just over ten years ago, the state experienced one of the most devastating natural disasters on record with Hurricane Katrina.  Since then, numerous other storms have taken swipes at the state –  Gustav, Rita, Isaac, to name a few. 2016 has been the year of unnamed storms thus far for the citizens of Louisiana. Alexandria, Monroe, Shreveport, and Lake Charles each flooded in the months preceding the “Great Flood of 2016” currently affecting Baton Rouge.

Storms are uncontrollable, but as a patent attorney, I turn to technology that we can control for assistance in the aftermath. There is a glimmer of hope that we are not alone, that similar events throughout the world have resulted in great innovations some of which are currently being implemented throughout Baton Rouge to speed the recovery and rescue stranded citizens.  These innovations are far and wide, including solar technology, mobile cell phone towers, power stations, water filtration apparatuses. Even the oft-hated drones are being used to locate people and assess flooding from vantage points that would have previously been limited to helicopters.

One of the more popular examples of these innovations is the Aqua Dam by Layfield, which is being used across the area to block water from roadways.  We have all heard the moniker that you cannot fight fire with fire; the Aqua Dam is proof, however, that you may be able to hold off water with water.  Patented as U.S. Patent nos. 8,840,338 in 2014 and 9,297,133 in 2016, the Aqua Dam is a portable reservoir body apparatus comprising a plurality of interior bladders contained within an exterior housing (the outer tube).  The interior bladders are filled with fluids causing them to expand and fill the cavity of the outer tube.  The unit further comprises a series of fasteners to maintain its shape, thereby creating a displacement dam which prevents the passage of water.  These units are being used on the interstate, major highways and bridges.  In most instances, the flood water is being pumped straight from the road into the dam being formed to keep the water at bay, opening the roadways.

To the folks at Layfield, we salute you and appreciate your innovative contributions.  The Aqua Dam structures have and will continue to open our roadways, allowing evacuees to escape and rescuers to enter flooded areas. To others, and particularly the citizens of Louisiana, please keep innovating.  We cannot prevent all future flooding, but we can help diminish their impact with innovations like these.

 

trade secrets

By Jessica C. Engler

On May 11, 2016, President Barack Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”). Through the DTSA, claims for trade secret misappropriation will now have a basis in Federal law and Federal Courts will have jurisdiction over such claims. In addition to the new federal cause of action, the DTSA adds in several tools that trade secret holders can use to protect their trade secrets, making this Act one of the most broad-sweeping changes to American intellectual property law since the Leahy-Smith America Invents Act in 2011. Given these changes and the Supreme Court’s recent decisions on the patentability of software and business methods, it is important that trade secret holders understand the new tools available for protecting their intellectual property rights and their new responsibilities.

Generally, a trade secret is information, including patterns, plans, compilations, formulas, design, processes, procedures, and more, where the holder has taken reasonable measures to keep the information secret, the information is not readily ascertainable or reverse-engineered, and the information gives that owner some kind of economic value or competitive edge.[1] Famous examples of trade secrets include the recipe for Coca-Cola, Google’s proprietary search algorithm, and the formula for WD-40.[2] However, trade secrets do not extend to just these highly-valuable examples. A majority of businesses have at least some trade secrets including, but not limited to, customer lists, marketing strategies and analyses, manufacturing techniques, pricing and purchasing information, business methods, business forecasts, and product information.

A trade secret is valuable for as long as the information remains a secret. Trade secrets can be lawfully learned through reverse engineering. What becomes more concerning for trade secret holders is unlawful use through commercial or industrial espionage, breach of contract, or employee poaching while non-compete agreements are in place. The unauthorized use or misappropriation of a trade secret by a person other than the holder is considered unfair competition and an unfair trade practice.

Before the DTSA, trade secrets were the only major form of intellectual property that that is not backed by U.S. federal civil remedies. Trade secret holders whose secrets were publicized typically only had state-level remedies available. The DTSA extends the current Economic Espionage Act of 1996, which criminalized certain trade secret misappropriations, to now permit civil lawsuits for trade secret appropriation. This new law will have significant impacts on holders of trade secrets.

First, this new law provides a federal remedy for trade secret misappropriation, but does not eliminate the remedies previously available in state court. Accordingly, litigation costs may increase since claimants may bring their claims in federal court alone or in both state and federal court. However, the federal claim will provide federal jurisdiction, which may reduce jurisdiction battles that were are common in trade secret litigation where the trade secret had crossed state lines. International companies will now also be able to bring suit in federal court where their United States office is located, which may help improve foreign companies’ ability to enforce judgments.[3] Further, having a federal remedy will create a nationwide body of trade secret law, which will provide a greater degree of predictability to trade secret litigation.

Second, in addition to allowing damages for wrongful takings of trade secrets, the DTSA includes a seizure provision, wherein a trade secret owner can obtain, on an ex parte basis, an order to seize “property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” This provision is intended to apply in cases where a trade secret thief who receives notice of the court action would leave the country or disseminate the secret before a court could stop them. For a seizure order to issue, the claimant must establish the standards necessary for a state civil injunction and show specific evidence demonstrating that the injunction would be insufficient because the thief would violate the order or would make the secret inaccessible to the court for seizure.

Third, the DSTA also has provisions that impact employee mobility. Employers can seek an injunction to prevent actual or threatened misappropriation of a trade secret by an employee, provided it does not prevent that person from entering into an employment relationship. For this injunction to be granted, there must be evidence of threatened misappropriation of the trade secret. An employer will not be awarded an injunction “merely on the information that the person knows.” Also important for Louisiana—a state that strongly disfavors non-compete agreements—the injunction cannot be used to circumvent state laws regarding restraints on employment and non-compete agreements.

Last, the DTSA provides immunity for whistleblowers. Under this provision, an individual cannot be held criminally or civilly liable under any federal or state trade secrets laws for revealing the disclosure of a trade secret in confidence to a federal, state, or local government official or an attorney for the purpose of reporting or investigating a suspected violation of the law. Employees may also disclose the trade secrets of their employer in court documents filed under seal as part of a lawsuit for retaliation by his employer.

In order to take full advantage of the DTSA, the Act requires employers make some changes to employee contracts, confidentiality agreements, and nondisclosure agreements. As part of the immunity provision, employers are now required to “provide notice of the immunity” created by the DTSA “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Failure to include this notice will strip the employer of certain remedies available in an action against an employee. The DTSA allows for exemplary damages when the trade secret has been willfully and maliciously misappropriated. Attorney fees can be awarded when the misappropriation is made in bad faith or when the trade secret was willfully and maliciously misappropriated. Attorney fees and exemplary damages are not recoverable unless the employer has provided the defendant employee, consultant, or contractor with notice of the immunity from criminal and civil prosecution granted by the DTSA to whistleblowing persons. Therefore, if an employer is to recover exemplary damages or attorney fees against an employee who unlawfully disclosed its trade secrets, the employee must have been notified of the immunity provisions. Therefore, if a company has employees, or employs consultants or contractors who have access to the company’s trade secrets, the company should consider consulting an attorney to ensure that their employment agreements include the proper DTSA immunity notifications.

While the DTSA presents new opportunities for a trade secret holder to enforce its rights, it is important to note that the DTSA did not alter the holder’s need to make efforts to keep the secret confidential. Trade secret holders must still make efforts to maintain the secrecy of their trade secrets and confidential information. An attorney can assist with ensuring that the proper steps are taken to maintain this confidentiality.

[1] 18 U.S.C. § 1839.

[2] Melanie Radzicki McManus, 10 Trade Secrets We Wish We Knew, HowStuffWorks.com (last accessed May 4, 2016) (available at http://money.howstuffworks.com/10-trade-secrets.htm)

[3] Monika Gonzalez Mesa, Latin American Companies Back New US Trade Secrets Law, Daily Business Review (May 3, 2016) (available at http://www.dailybusinessreview.com/id=1202756520297/Latin-American-Companies-Back-New-US-Trade-Secrets-Law?slreturn=20160404115326).

Go

By Jessica C. Engler

For many inventors, the grant of a patent application is quite exciting. However, once the inventor seeks to market their invention, they can find the process costly and overwhelming. Often when small companies or solo inventors develop new ideas that are later patented, they discover that manufacture or use of the patented invention is unmanageable for an entity of their size. Rather than sit on this technology and let the patent protection expire, these persons will seek to sell their patented idea to another person or company who can use them. Scattered among firms and investors who are attempting to acquire valuable patents for use in their own businesses are non-practicing entities, who have more litigious purposes in mind. Non-practicing entities, which are known colloquially as “patent trolls,” are entities that purchase patents solely for the purpose of enforcement of the patent rights. Patent trolls do not make, use, sell, or offer to sell the technology that is disclosed in the patent; rather, they acquire patents and then send out cease and desist letters or demands for licensing fees to persons (typically individuals and smaller companies who do not have the means to pay for expensive patent infringement litigation) that they perceive to be infringing its patents. At times, these claims of infringement are based on tenuous grounds, and the person receiving the threats feels that they have no choice but to pay the patent troll what they are demanding.

Patent trolls have contributed to the push to reform the patent system by a variety of people—from the legislature to late night television show pundits. However, a recent new player has presented an idea for changing the patent landscape by taking would-be sales of patents away from the trolls. Google, who has previously openly criticized the patent system and questioned the need for patents as a whole, announced on April 27, 2015 that it will be testing a new program for two weeks called the “Patent Purchase Promotion.” This promotion invites owners of non-expired United States patents to sell their patents to Google. From May 8, 2015 to May 22, 2015, Google will open a streamlined portal for patent owner to offer to sell their patents to Google at a price that the patent owner sets.[1]  Google will review all of the offers for sale and then let patent owners know Google’s decision by June 26, 2015. Google has not set any kind of standard for the type of non-expired United States patent that will be considered other than that the patent cannot be a design patent. Google anticipates that all of the patent sellers would be paid by the end of August. Through this, Google claims that it is seeking to protect those patent owners who wish to sell their patents without the risk of the patent falling into a patent troll’s hands.

Google has yet to announce how many patents it will be purchasing or how much money it has invested into this new promotion. Google has also not announced what kind of critiques or methodology that Google will be using to evaluate the patent purchase offers that it receives. However, since Google would likely want to obtain some value from the patents it purchases, considerations that are typical of intellectual property acquisitions will likely be involved including, but not limited to:

  • The remaining life of the patent rights (Patent protection is granted for 20 years from the date of filing the patent application. 35 U.S.C. 154.);
  • Strength of the patent (i.e., is the patent strong, or is there a high potential for a patent to be declared invalid?);
  • Breadth of patent rights (i.e., are the patent claims relatively broad, or are the claims limited to the narrow, specific, singular embodiment described in the application?);
  • Ease of use of the patent (i.e., is the cost of purchasing the patent outweighed by the cost of making or selling the disclosed technology?); and
  • Marketplace concerns (e.g., number of competitors, available alternatives in the marketplace, etc.)

One interesting aspect of Google’s promotion is that the sale between the patent owner and Google will not completely remove all rights that a patent owner has in the patent. After the sale, Google promises to grant a non-exclusive, non-transferrable, non-assignable, non-sublicenseable license to the patent owner to develop, make, use, sell, offer to sell, import, export and otherwise transfer or dispose of the patented technology.[2]  So, while a patent owner cannot license his or her invention to another person after Google has purchased the patent, the patent owner still has rights to make some use of the ideas he or she developed and patented.

Google has stated that this initial two-week program is experimental, and that it may reinstitute the program or open the program to foreign patent owners if enough interest is generated in the promotion. The full details of Google’s program are still being released, but the new Patent Purchase Promotion presents an interesting strategy to combat patent trolls’ attempts to purchase patented technology for litigious uses. Rather than sell to the patent trolls, Google hopes that patent owners will instead sell to it.

Selling a patent to Google may be a tempting opportunity to many inventors and patent owners. In its detailing of the program, Google strongly encourages potential patent sellers to consult with an attorney before making a pitch to Google. Among other services, an attorney can assist patent owners with review of the terms of making the pitch to Google and the terms of sale. An attorney can also assist patent owners in understanding what rights they will have to the patented technology once the sale is complete. Consultation with an attorney who is experienced in transactions that involve intellectual property would be extremely beneficial to a hopeful seller to Google.

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[1] Allen Lo, “Announcing the Patent Purchase Promotion”, Google Public Policy Blog, Google (Apr. 27, 2015) (available at http://googlepublicpolicy.blogspot.com/2015/04/announcing-patent-purchase-promotion.html).

[2] “Patent Purchase Agreement”, Google (last accessed April 29, 2015) (available at http://services.google.com/fh/files/misc/patent-purchase-agreement.pdf).