Published on:

Computer technology and the internet have created countless opportunities for both businesses and consumers. As more and more commercial activity moves online, however, the risks to the integrity of a company’s digital records grow greater. Cybersecurity breaches threaten not only the company’s assets but also stored customer information. Consumer information is often the target of hackers because it may enable further fraudulent activities like identity theft. Companies that collect and store personal information have a duty under California law to protect that information and to notify consumers in the event of a breach. Penalties for noncompliance may include civil liability to consumers and state or federal regulatory actions. Northern California business owners that deal with digital consumer information should make cybersecurity a critical part of their business operations.

hackingCalifornia’s Breach Notification Law (BNL) defines “personal information” as any information that “is capable of being associated with a particular individual,” such as a name, address, date of birth, and social security number or other identification number. Cal. Civ. Code § 1798.80(e). Businesses must “implement and maintain reasonable security procedures and practices” to safeguard customers’ personal information from cybersecurity breaches. Id. at § 1798.81.5(b).

If a breach occurs, the BNL requires businesses to notify individuals who were affected by the breach “in the most expedient time possible and without unreasonable delay.” Id. at § 1798.82(a). If a business intentionally shares customer information, such as for marketing purposes, California’s “Shine the Light” (STL) law requires it to make certain disclosures to customers in advance and to disclose, upon a customer’s request, which information was shared and with whom. Id. at § 1798.83.

Published on:

CerealsBusinesses rely on name and product recognition to develop customer loyalty and stand out in the marketplace. Products and services introduced into the market may have distinctive names, logos, or designs—known as trademarks or service marks—that help consumers identify them. Trademark law allows businesses to protect the value of these marks, such as by prohibiting their use by others. The extent of trademark protection is a matter of perpetual dispute. A truly distinctive name, such as Coca-Cola or Pepsi, is undoubtedly entitled to trademark protection, as are easily recognizable logos. When a particular color is intrinsically connected to a product design, it could be eligible for trademark registration, but the burden of proof is heavy. A cereal maker recently sought trademark protection for the color yellow, as used in its product packaging, but its application was denied. The Trademark Trial and Appeals Board (TTAB) affirmed this denial. In re General Mills IP Holdings II, LLC, Ser. No. 86757390, opinion (TTAB, Aug. 22, 2017).

The federal Lanham Act defines a trademark in part as “any word, name, symbol, or device, or any combination thereof” that a person uses “to identify and distinguish his or her goods.” 15 U.S.C. § 1127. A design, symbol, or name can be eligible for trademark registration under § 2(f) of the Lanham Act if it “has become distinctive of the applicant’s goods in commerce.” Id. at § 1052(f). The applicant can demonstrate this by showing “substantially exclusive and continuous use” of the mark for at least five years prior to the application date. Id.

Businesses have trademarked colors on multiple occasions. The trademark claim typically involves a distinct color used in a particular way. Five years ago, a federal appellate court held that a fashion designer could obtain trademark protection for a particular shade of red that it used on the soles of its shoes. Christian Louboutin v. Yves Saint Laurent America, 696 F. 3d 206 (2d Cir. 2012). Other recognizable color-based trademarks include the brown delivery vans used by United Parcel Service, the pink insulation produced by Owens-Corning, and the green and yellow color scheme used in the equipment manufactured by John Deere.

Published on:

San FranciscoAny business that takes on employees also takes on responsibilities to those employees. In addition to standards regarding wages and hours of work, employers must make reasonable efforts to maintain a workplace that is free from unlawful discrimination and harassment. Throughout California, workplace harassment remains a serious problem. The technology industry of Silicon Valley and San Francisco has received attention for multiple recent accounts of sexual harassment and other forms of gender-based discrimination. A lawsuit filed earlier this year asserts several causes of action under California employment anti-discrimination statutes, including harassment and hostile work environment. Scott v. Upload, Inc., et al., No. CGC-17-558730, complaint (Cal. Super. Ct., San Francisco Cty., May 8, 2017).

Title VII of the federal Civil Rights Act of 1964 prohibits employment discrimination on the basis of “race, color, religion, sex, or national origin.” 42 U.S.C. § 2000e-2(a). Many state laws and city ordinances go further. California’s Fair Employment and Housing Act (FEHA), for example, addresses discrimination based on sexual orientation, gender identity and expression, and more. Cal. Gov’t Code § 12940(a). Under both federal and state laws, sexual harassment is considered a type of unlawful sex discrimination. The FEHA expressly provides that both harassment and failure to prevent harassment violate its anti-discrimination provisions. Id. at § 12940(j).

The plaintiff in Scott states in her complaint that she began working for the defendant in May 2016. The defendant is a San Francisco-based business that “focuse[s] on the virtual and augmented reality industry.” Scott, complaint at 1. The plaintiff’s position was “Director of Digital and Social Media.” Id. at 3. She describes the “atmosphere and work environment” of the defendant as “marked by rampant sexual behavior and focus.” Id. at 4. Male employees and managers, including two individuals identified by the plaintiff as founders of the company, allegedly spoke openly about “sexual exploits” and made overtly sexual comments about women in the office, often right in front of them. Id. Work-related emails, the plaintiff claims, were similarly explicit.

Published on:

calendarThe California Labor Code states that employers must provide at least one day off per week, but the “day-of-rest statute” does not provide an unambiguous statement of employees’ rights and employers’ obligations. A federal lawsuit alleging violations of this statute raised multiple questions of interpretation. In 2015, the Ninth Circuit Court of Appeals sent three certified questions to the California Supreme Court, seeking to clarify several provisions. Mendoza v. Nordstrom, Inc. (“Mendoza I”), 778 F.3d 834 (9th Cir. 2015). The California Supreme Court ruled on the questions earlier this year, hopefully providing more clarity for both employers and employees. Mendoza v. Nordstrom, Inc. (“Mendoza II”), No. S224611, slip op. (Cal., May 8, 2017).

The day-of-rest statute, unlike many laws, is not wordy. The fact that a statute does not stretch on for many pages, however, does not imply that it is easy to understand or interpret. This statute provides that anyone “employed in any occupation of labor” has the right “to one day’s rest…in seven.” Cal. Lab. Code § 551. It further states that an “employer of labor” cannot “cause his employees to work more than six days in seven.” Id. at § 552. These provisions do not apply, however, when an employee works no more than 30 hours in a week, or no more than six hours in a day. Id. at § 556. The three sentences that comprise these three code sections raise multiple questions of interpretation.

The plaintiffs in the underlying lawsuit allege that the defendant scheduled them to work for more than six consecutive days, in periods of seven to 11 consecutive days. They claimed that this violated California’s day-of-rest statute. They appealed to the Ninth Circuit after the district court dismissed their claims.

Published on:

Balance iconIn order for a plaintiff to maintain a lawsuit, they must demonstrate that the court in which they filed suit has jurisdiction over the case. Our legal system identifies two types of jurisdiction. Subject matter jurisdiction means that a court has jurisdiction over the cause of action asserted in the lawsuit. For example, a county-level court in California probably lacks jurisdiction over a claim based entirely on federal law. Personal jurisdiction involves the court’s jurisdiction over the defendants themselves. The U.S. Supreme Court recently considered whether a state court in California had personal jurisdiction over a corporation located outside California in a California business lawsuit involving alleged incidents occurring outside this state. The Supreme Court ruled that this exceeded the state court’s authority. Bristol-Myers Squibb Co. v. Super. Ct. of Cal., 582 US ___ (2017).

The Supreme Court’s landmark ruling on personal jurisdiction is International Shoe v. Washington, 326 U.S. 310 (1945). This case held that a court cannot exercise personal jurisdiction over a corporation based in another state, unless the corporation has “minimum contacts” with the state where the court is located. Id. at 316. Since then, courts have further identified two types of personal jurisdiction. “General jurisdiction” is based on where an individual lives or where a company is domiciled, and it can allow a court to hear almost any case against a defendant. “Specific jurisdiction” is based on a defendant’s connection to the particular state, or “forum.”

When multiple courts could have jurisdiction over a defendant or a particular claim, plaintiffs may seek out the court that they believe will treat them most favorably, based on a range of factors like distinct procedural rules or a more amenable local jury pool. This practice is often known as “forum shopping.” Several recent decisions from the Supreme Court have limited some rather expansive views of personal jurisdiction in cases involving corporations with national or international presences. One case held that a California federal court lacked jurisdiction over a German corporation in a lawsuit involving alleged acts in Argentina. Daimler AG v. Bauman, 571 U.S. ___ (2014). These decisions have had the effect of reducing forum shopping in lawsuits against major corporations.

Published on:

fingerprintBusinesses that employ multiple people may be subject to employment statutes at multiple levels of jurisdiction, from city ordinances to state and federal statutes. Employers may not discriminate against employees or job applicants on the basis of multiple factors. In many jurisdictions around the country, this includes limitations on how employers may inquire about and consider criminal history during the hiring process. While employers may be reticent about hiring someone with a criminal record, California law seeks to ensure that past mistakes do not unreasonably burden people who need a job. California businesses and business owners should be aware of recent amendments to the state regulation that addresses access to and use of criminal history during the hiring process.

Laws that restrict employer inquiries about criminal history are sometimes known as “Ban the Box” (BTB) laws. They generally prohibit employers from asking about criminal history at the beginning of the job application process. Some application forms include a box that applicants must check “yes” or “no,” indicating whether they have ever been arrested or convicted of a crime. BTB laws often prohibit employers from asking about or considering criminal history—the aforementioned “box”—until an applicant has cleared the first hurdles of the process.

Some employers may see any criminal history as cause for automatic rejection of that applicant, and there are a number of valid business reasons for this view. For job applicants, however, this sort of practice makes it more difficult—and sometimes nearly impossible—for someone to find a job. This can have negative effects on society as a whole, since people with criminal records might be more likely to return to crime if no one will offer them a job. BTB laws try to ensure that criminal history only affects job applicants when the past crime directly relates to the job.

Published on:

Rocky LandscapeTrademark registration allows businesses to protect some very valuable assets—the names, logos, and related designs that clearly identify them to the public. The U.S. Patent and Trademark Office (USPTO) oversees trademark registration in accordance with the federal Lanham Act, which prohibits the registration of marks under certain circumstances. Section 2(a) of the Lanham Act, known as the Disparagement Clause, bars the USPTO from registering any mark that “may disparage…persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” 15 U.S.C. § 1052(a). The statute does not define “disparage,” and this vagueness is part of what led the U.S. Supreme Court to strike down the Disparagement Clause as a violation of the First Amendment right to free speech. Matal v. Tam, 582 US ___ (2017).

Both the USPTO and the Trademark Trial and Appeal Board (TTAB) acknowledge that “disparagement” is a highly subjective concept that must be evaluated on a case-by-case basis. The TTAB has identified two factors that can help identify material that might be barred by the Disparagement Clause. First, would a reasonable person, considering the context of the mark, interpret it as “refer[ring] to an identifiable” person or group of people? Second, would a “substantial composite” of that group of people view the mark as disparaging? See Harjo v. Pro-Football, Inc., 50 U.S.P.Q.2d 1705 (TTAB 1999); see also 284 F.Supp.2d 96 (D.D.C. 2003), 415 F.3d 44 (D.C. Cir. 2005).

The Harjo case referenced above involved a professional football team with a name believed by many to be disparaging to Native Americans. The proposed trademark at issue in Matal is generally known as a disparaging term for people of Asian descent. The plaintiff in that case is a member of a band who uses the word as its name and who sought to register it as a trademark. The band members, all of whom are of Asian descent, stated that they wanted to “drain [the word’s] denigrating force as a derogatory term for Asian persons.” The USPTO rejected the application under § 2(a). The plaintiff appealed, claiming in part that the Disparagement Clause is an unconstitutional content- or viewpoint-based restriction on speech.

Continue reading

Published on:

text balloonsBusinesses must always be aware of how their actions and communications could affect their legal rights. The media rather frequently report on internal company documents that become public, through the discovery process in litigation or by other means, which at best cause embarrassment for a company. A recent decision from the California Supreme Court, while not directly related to business litigation, offers a useful reminder of the importance of communicating with government officials and employees through “official channels.” The decision, City of San Jose v. Superior Court of Santa Clara Cty., 2 Cal.5th 608 (2017), addresses access to government communications under state law. The court held that official communications by government officials are still public record, even when the official uses a personal email account or mobile device. In other words, anything sent by or to a public official, for official reasons, could become public.

California’s Public Records Act (PRA), Cal. Gov’t Code § 6250 et seq., states that “every person has a right to inspect any public record” upon request, with some exceptions. Id. at § 6253(a). The statute defines a “public record” to include “any writing containing information relating to the conduct of the public’s business” that was “prepared, owned, used, or retained” by any government agency. Id. at § 6252(e). This includes communications written and sent by government employees, as well as those written by private parties and sent to government employees, provided that the subject matter relates to official business.

The San Jose case began in 2009 when an individual made a public records request to the city for “32 categories of public records.” San Jose, 2 Cal.5th at 614. The request was directed to the city itself, its redevelopment agency, the agency’s executive director, and various other officials and employees. The records that were responsive to the request included communications sent and received by city officials and employees. The city produced records of “communications made using City telephone numbers and e-mail accounts,” but not those made with personal phones or email accounts. Id. at 615. The individual who made the request filed suit against the city for declaratory relief.

Continue reading

Published on:

carSelf-driving cars have been a subject of great interest in Silicon Valley recently. The technology that would make autonomous vehicles viable on a wide scale is not here yet, but numerous companies are working to make it a reality. As with any new technology, competition can easily lead to conflict. In this case, a company affiliated with the tech company Google has filed suit against the ridesharing company Uber and others, alleging infringement of trade secrets and patent rights, as well as unfair business practices. Waymo LLC v. Uber Technologies, Inc. et al., No. 3:17-cv-00939, am. complaint (N.D. Cal., Mar. 10, 2017).

Unlike other forms of intellectual property, the value of a company’s trade secrets depends on their confidentiality. State and federal trade secret laws therefore focus on preventing or dissuading the misappropriation of trade secrets. A business must show that information meets several criteria in order to invoke trade secret protection. The information must have economic value based on the fact that it is not known to others and not easily discoverable by others who are in a position to benefit from it, and the business must have made reasonable efforts to safeguard the information’s secrecy. 18 U.S.C. § 1839(3), Cal. Civ. Code § 3426.1(d).

California law allows the owner of trade secrets to obtain injunctive relief preventing “actual or threatened misappropriation.” Cal. Civ. Code § 3426.2. If a court finds that an injunction would be “unreasonable,” it can order a person to pay “a reasonable royalty” for use of the information. Id. A court can award damages for “actual loss” or “unjust enrichment caused by misappropriation,” along with punitive damages in an amount up to twice the total amount of damages in cases of “willful and malicious misappropriation.” Id. at § 3426.3. Federal law contains similar provisions for damages and specifically allows courts to order “seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” 18 U.S.C. § 1836(b)(2).

Continue reading

Published on:

planetsMinority shareholders, meaning those whose shares in a corporation make up only a small percentage of the total outstanding shares, are at a disadvantage if one or more majority shareholders take actions that harm their interests. State business and corporate laws offer protection against certain potentially harmful actions by the majority. In the event of a merger, for example, minority shareholders can challenge the valuation of the corporation and the resulting price per share that they would receive. The Delaware Court of Chancery recently considered a shareholder’s claim that he did not receive sufficient information to evaluate and object to a planned merger. In Re United Capital Corp., Stockholders Litigation, No. C.A. No. 11619-VCMR, mem. op. (Del. Ch., Jan. 4, 2017).

A “merger,” generally speaking, involves two companies combining to form a single company. Delaware allows a procedure known as a “short-form merger,” which typically involves a parent company merging with a subsidiary. Since the parent company, by definition, owns a majority of the subsidiary’s stock, the merger only requires buying the shares of the minority shareholders. A short-form merger can also occur when one shareholder owns an overwhelming percentage of outstanding shares and wants to buy out the minority shareholders. Shareholder approval is not required for this type of merger. See 8 Del. Code § 253. This was the type of merger that led to the dispute in United Capital.

Minority shareholders who believe their shares have been undervalued in a short-form merger have little legal recourse. The Delaware Supreme Court has held that “absent fraud or illegality, the only recourse for a minority stockholder who is dissatisfied with the merger consideration is appraisal.” Glassman v. Unocal Expl. Corp., 777 A.2d 242, 243 (Del. 2001). This involves “an appraisal by the Court of Chancery of the fair value of the stockholder’s shares of stock” under the circumstances of a merger. 8 Del. Code § 262.

Continue reading