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runners-silhouettes-athletes-635906Patent protection can be the key to many business’ success, giving them the exclusive right to use a particular invention or process, or to license its use to others. The federal government has exclusive jurisdiction over patent law in the U.S. In the event of a patent dispute that crosses international borders, a patent owner in the U.S. has several options, including objecting to the importation of allegedly infringing products. The U.S. International Trade Commission (ITC) is authorized to investigate alleged intellectual property infringement under § 337 of the Tariff Act of 1930, 19 U.S.C. § 1337. A recently-closed matter involving rival wearable technology manufacturers demonstrates this process. In re Certain Activity Tracking Devices, Systems, and Components Thereof, Inv. No. 337-TA-963, notice (ITC, Oct. 20, 2016); see also 81 Fed. Reg. 74479 (Oct. 26, 2016).

Congress created the ITC in 1930, giving it responsibility to report on issues involving customs laws to both the White House and Congress. See 19 U.S.C. § 1332. The ITC’s investigative jurisdiction includes alleged import injuries and intellectual property disputes involving imports. This latter category includes patent, trademark, and copyright infringement.

Section 337 prohibits the importation of items that infringe a patent or copyright issued under U.S. law, as well as the sale of such items after importation. The ITC may initiate an investigation of alleged infringement on its own, or in response to a complaint. If it concludes that infringement has occurred, or is occurring, it can order the exclusion of the articles at issue from importation. This typically only applies to individuals or businesses found to have violated the law, but it can also be a general exclusion.
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DefaultBankruptcy offers a way to obtain relief when one’s available income is not sufficient to cover one’s required debt payments. Federal bankruptcy law offers several options for businesses, including a restructuring of debts through Chapter 11 of the Bankruptcy Code. The goal of a Chapter 11 bankruptcy is to create a plan that pays down much of a business’ debt, discharges some remaining debts, and allows continued business operations once the bankruptcy case closes. Creating a Chapter 11 reorganization plan can be a complex task, depending on the size of the business and the extent of its debts. The Ninth Circuit recently considered a question about whether a default interest rate should still apply after a Chapter 11 debtor cures the default. The court reversed its own precedent, ruling that curing the default does not wipe out the default interest rate. In re New Investments, Inc., No. 13-36194, slip op. (9th Cir., Nov. 4, 2016).

Many secured loan or credit agreements require a debtor to pay a higher interest rate after a default. Almost 30 years ago, the Ninth Circuit held that a debtor who cures the default could eliminate their obligation to pay the default interest in a Chapter 11 bankruptcy. In re Entz-White Lumber & Supply, Inc., 850 F.2d 1338 (9th Cir. 1988). The court based its decision in part on language in the Bankruptcy Code stating that a Chapter 11 bankruptcy plan “shall…provide adequate means for the plan’s implementation, such as…curing or waiving of any default.” 11 U.S.C. § 1123(a)(5)(G).

The Bankruptcy Code does not define “cure,” so the court applied the common meaning of “taking care of the triggering event and returning to pre-default conditions.” Entz-White, 850 F.2d at 1340 (internal quotations omitted). It held that the interest owed by the debtor should be “at the market rate or at the pre-default rate provided for in the contract,” rather than the higher default interest rate. Id. at 1343.

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Banana RepublicThree plaintiffs filed a putative class action against a retail clothing company, alleging that it induced them to enter store locations with misleading advertisements of a storewide sale. The defendant sought summary judgment, partly on the ground that the plaintiffs lacked standing to sue because they had not established actionable economic injuries. The trial court ruled in the defendant’s favor. The appellate court reversed this ruling, finding that the plaintiffs had demonstrated a triable issue of fact as to whether they suffered injuries-in-fact. SV v. Banana Republic, LLC, No. B270796, slip op. (Cal. App. 2nd, Dec. 15, 2016).

The lawsuit asserts causes of action under three California statutes. The Unfair Competition Law (UCL) prohibits “unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code § 17200. The False Advertising Law (FAL) broadly prohibits the advertising of goods or services using “any statement…which is untrue or misleading, and which is known, or which…should be known, to be untrue or misleading.” Cal. Bus. & Prof. Code § 17500. The Consumers Legal Remedies Act (CLRA) prohibits “unfair or deceptive acts or practices” connected with the sale of goods or services. Cal. Civ. Code § 1770(a). The plaintiffs in SV alleged three CLRA violations involving false advertising of goods, false or misleading statements regarding “price reductions,” and misrepresenting the nature of a transaction. Id. at §§ 1770(a)(9), (13), (14).

In order to establish standing under any of these statutes, a plaintiff must demonstrate that they have “suffered injury in fact and…lost money or property” because of the defendant’s unlawful act. SV, slip op. at 10, quoting Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 321 (2011), Cal. Bus. & Prof. Code § 17204. With regard to the amount of damages a plaintiff must show, the court notes that an “injury in fact is not a substantial or insurmountable hurdle.” SV at 10, Kwikset at 324. All three statutes allow restitution and injunctive relief. The UCL and the FAL limit any other kind of damages, but the CLRA expressly includes compensatory and punitive damages as available remedies.

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trademark symbolTrademark registration grants the exclusive right to the registrant to use a name, phrase, or logo in commerce. The Lanham Act, 15 U.S.C. § 1051 et seq., governs this process and provides measures for the enforcement of trademark rights. An important requirement for trademark registration is the use of the mark in interstate commerce, which confers legal jurisdiction on the U.S. Patent and Trademark Office (USPTO). The U.S. Court of Appeals for the Federal Circuit recently ruled on a petition to cancel a trademark registration on the ground that the registrant had not actually used the mark in interstate commerce prior to filing its application. The court’s ruling clarifies what it considers to be the “use” of a mark “in commerce.” Christian Faith Fellowship Church v. Adidas AG, No. 16-1296, slip op. (Fed. Cir., Nov. 14, 2016).

The Lanham Act allows the registration of marks that are already being “used in commerce,” 15 U.S.C. § 1051(a)(1); and marks for which applicants show a “bona fide intention…to use a trademark in commerce,” id. at § 1051(b)(1). Applicants must specify which type of registration they are seeking. The statute defines “use in commerce” as the “bona fide use of a mark in the ordinary course of trade.” Id. at § 1127. With regard to goods produced or sold by the applicant, “use in commerce” includes placing the mark “in any manner on the goods” or on packaging or related materials “when…the goods are sold or transported in commerce.” Id.

Even after the registration of a mark, anyone can petition the USPTO to cancel a registered trademark. A petitioner seeking termination must allege that the registration of that mark is causing them damage or will cause them damage based on a variety of grounds identified in the Lanham Act. Id. at § 1064. The Federal Circuit case mentioned above involved a petition for cancellation filed by a shoe manufacturer (the petitioner), challenging a trademark registered by a church (the respondent).

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thumbs upMost businesses must maintain an online presence these days in order to succeed. Even if a business does not provide any kind of online service, consumers are still likely to look for a website or social media profile. Many consumers will look at websites like Yelp, which allow consumers to rate businesses and write reviews describing their experience. A negative review can damage a business’ reputation, so businesses must be vigilant about their online profile. Some businesses, rather than responding to bad reviews, have tried to prevent bad reviews from ever occurring by placing “non-disparagement” or “gag” clauses in form contracts. These clauses prohibit customers from writing negative online reviews and penalize any who do so. Congress passed the Consumer Review Fairness Act (CRFA) of 2016 in December. This new law prohibits these types of clauses and allows enforcement by federal and state consumer protection agencies.

The CRFA only addresses contractual provisions that penalize consumers for writing negative reviews without regard to whether the negative review is accurate. A customer who writes a false review of a business could be liable to the business for defamation. This requires the business to prove that one or more statements made by the customer were false, that the customer knew they were false, and that the publication of the statement caused actual, measurable harm to the business. A clear-cut example might be a person who completely fabricates a set of facts in order to disparage a business in an online review, leading to a damaged reputation and loss of revenue.

The type of gag clause covered by the CRFA is not uncommon in certain situations, but it is a relatively new phenomenon for consumers and online review sites. These clauses often appear in settlement agreements resolving a lawsuit, in which a plaintiff accepts a settlement payment in exchange for dismissing the case and agreeing not to disparage the defendant with regard to the subject matter of the lawsuit. Both parties have an opportunity to negotiate terms and to review the final agreement before signing.

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carBusinesses that sell goods to the public must follow guidelines established by consumer protection laws, which prohibit deceptive advertising and other fraudulent or misleading acts. This can apply to the use of specific words in particular market sectors. If a word, term, or phrase has a distinct meaning for a particular good or service, it is known as a “term of art.” The misleading use of a term of art could entitle a consumer to damages under various California laws. The Ninth Circuit Court of Appeals recently ruled in favor of a consumer who brought statutory and common-law claims against a car dealership in connection with its use of the term “completed inspection report” in its marketing. Gonzales v. CarMax Auto Superstores, LLC, Nos. 14-56842, 14-56305, slip op. (9th Cir., Oct. 20, 2016).

The plaintiff in Gonzales asserted causes of action under three California statutes. First, the California Consumers Legal Remedies Act (CLRA), Cal. Civ. Code § 1750 et seq., prohibits a wide range of “deceptive practices.” This includes “[m]isrepresenting the…certification of goods;” “[r]epresenting that goods…have…characteristics…which they do not have;” and “[r]epresenting that goods…are of a particular standard, quality, or grade,…if they are of another.” Id. at §§ 1770(a)(2), (5), (7). Consumers may recover actual damages, injunctive relief, restitution, punitive damages, and other relief.

The Song-Beverly Consumer Warranty Act (CWA), also known as the California Lemon Law, covers retail goods sold in the state of California. Cal. Civ. Code § 1790 et seq. It requires sellers to include certain warranties with those goods:  the implied warranty of merchantability and the implied warranty of fitness for a particular purpose. If a manufacturer provides express warranties, it must offer sufficient resources or contract with third-party service providers to fulfill its obligations under those warranties. Damages for consumers include “replacement or reimbursement,” rescission of a sales contract, or the cost of repair. Id. at § 1794. Willful violations may allow an award of double the amount of actual damages.

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prism ringLaws at the federal and state levels regulate multiple aspects of the employer/employee relationship. Federal law sets certain minimum standards for many employers nationwide, such as a minimum wage of $7.25 per hour and a prohibition on specific types of discrimination. State laws may add to these minimum requirements, but they cannot reduce the standards set by the U.S. Congress. California has augmented the protections afforded to employees in many ways, including a state law prohibiting wage disparities based on gender. Several bills recently enacted by the California Legislature have further added to these provisions. Employers in the Bay Area and throughout California should understand how these amendments might affect them.

Prior to the 2015 session of the California Legislature, the California Labor Code prohibited employers from paying workers of different genders at different rates for “equal work” performed “in the same establishment.” The law defined “equal work” as work that “requires equal skill, effort, and responsibility” and is “performed under similar working conditions.” Cal. Lab. Code § 1197.5(a) (2014). Pay disparities were permissible if they were based on systems of seniority, merit, “quantity or quality of production,” or another “bona fide factor other than sex.” Id. Penalties for violations of these provisions included the amount of underpaid wages, along with “an additional equal amount as liquidated damages.” Id. at § 1197.5(b).

The California Legislature passed SB 358 in 2015, and it took effect on January 1, 2016. The bill amended § 1197.5 to expand the prohibition on wage disparities based on gender. Whereas an employee previously had to show a disparity in pay among workers “in the same establishment,” SB 358 allowed comparisons among all employees performing “substantially similar work.” Cal. Lab. Code § 1197.5(a) (2015). The assessment of whether the work is substantially similar is based on “a composite of skill, effort, and responsibility…under similar working conditions.” The same exceptions, such as a seniority- or merit-based system, still apply, except that the statute now addresses “bona fide factor[s] other than sex” in far greater detail. Id. at § 1197.5(a)(1)(D).

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Screen Shot 2016-12-01 at 6.08.06 PMA Los Angeles resident is suing Krispy Kreme Doughnuts, Inc. in federal court in California for false advertising. Specifically, plaintiff Jason Saidian claimed that the doughnut company’s blueberry, raspberry, and maple filled doughnuts don’t actually contain fruit or maple. Saidian bought the doughnuts at issue in 2015.

Krispy Kreme, which is based in North Carolina, has not responded to the complaint. The suit includes 10 allegations and seeks national class-action status. Saidian likely chose to file suit in California because the state sets a low bar for establishing violations of the business and professional code, breach of contract, and false advertising. Saidian is specifically suing under California’s False Advertising law.

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shopping basketThe internet has given businesses the ability to reach customers across the country, or even across the world. Doing business across state lines can involve different legal issues from keeping one’s business activities within California, and understanding state and federal regulations of business activities that cross state lines is crucial to operating a successful business. A petition for certiorari to the U.S. Supreme Court is asking for clarification on two constitutional doctrines that appear to conflict with each other. Texas Package Stores Assoc., Inc. v. Fine Wine and Spirits of North Texas, LLC, No. 16-242, pet. for cert. (Sup. Ct., Aug. 19, 2016). A doctrine known as the “dormant Commerce Clause” limits the ability of any one state to enact laws restricting interstate commerce, while the Twenty-First Amendment to the U.S. Constitution gives the states broad authority to regulate commerce involving alcohol.

The Commerce Clause, U.S. Const. art I, § 8, cl. 3, empowers Congress “to regulate Commerce…among the several States.” The Supreme Court has interpreted this authority very broadly. It has also recognized a negative converse to this doctrine, known as the dormant Commerce Clause, which bars state laws that discriminate against out-of-state businesses or otherwise unreasonably interfere with interstate commerce. The dormant Commerce Clause has been used, for example, to invalidate a state law that imposed an assessment on all milk sold within the state but only distributed the assessment to in-state dairy farmers. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994). The court held that this amounted to a discriminatory tax on out-of-state dairy farmers.

The Twenty-First Amendment is best known for repealing the Eighteenth Amendment and ending the period from 1919 to 1933, known as Prohibition, when alcohol was banned throughout the country. Section 2 of the Twenty-First Amendment gives the states the authority to regulate alcohol, including “the transportation or importation into” a state.

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California district mapIn almost any employer/employee relationship, an agreement between the parties governs the terms and conditions of employment, filling in the gaps not covered by local, state, and federal employment laws. These types of contracts rarely involve two parties with equal bargaining power. A longstanding legal principle holds that any provision in an employment contract that contradicts or violates an employment statute or regulation is unenforceable. The California State Legislature can enact laws targeting specific types of employment contract clauses. It recently enacted SB 1241, which takes effect at the beginning of 2017. This bill targets clauses that limit California employees’ ability to assert claims against their employers under California law, commonly known as “choice of law” or “forum selection” clauses.

In any lawsuit, a plaintiff must be able to establish that the court in which they have filed suit has jurisdiction over the defendant(s) and that the venue of the suit is proper. In most disputes filed in state court, a plaintiff must establish that the state of California has jurisdiction and that the county where the court sits is the correct venue. In a federal lawsuit, a plaintiff must establish the court’s personal jurisdiction over the defendant, its subject matter jurisdiction over the lawsuit, and the appropriateness of filing the case in that particular federal district. A defendant may object to the court’s jurisdiction, the venue of the case, or both.

Common jurisdictional questions include the jurisdiction of federal courts over disputes involving state law questions and the jurisdiction of a court in one state over a defendant who lives in another state. Choice of law clauses in written contracts allow the parties to agree in advance to both jurisdiction and venue in the event of a dispute that leads to litigation. For example, a choice of law clause might state that all disputes relating to the contract will be governed by California law and adjudicated in the courts of Alameda County. By entering into a contract with a choice of law clause, a party to a contract is generally deemed to have waived any and all objections to jurisdiction and venue, and to have agreed not to seek either in a different location.

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