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Maker's Mark's "Mark" Is Protected

Posted by Jeff Klein on May 17, 2012

Makers Mark

The U.S. Court of Appeals for the Sixth Circuit held that the red wax seal on every bottle of Maker’s Mark bourbon is a protected “trade dress.” The case involved a dispute between Maker’s Mark bourbon and Jose Cuervo tequila—particularly, Cuervo’s premium tequila Reserva de la Familia—concerning the wax seal on both bottles of liquor.

According to Judge Boyce Martin Jr.'s review, "[t]he Samuels family, founder of the Maker’s Mark distillery in Loretto, Kentucky, has produced whiskey in Kentucky nearly continuously from the eighteenth century through today.” In 1953, Bill Samuels, Sr. formulated the recipe for the Maker’s Mark bourbon we know today. Bill Samuels, Sr.’s wife, Margie, “conceived of the red dripping wax seal and used the family deep fryer to perfect the process of applying it.” Since 1958, the company bottled bourbon for sale under the Maker’s Mark name and has used the red dripping wax seal on its Maker’s Mark bourbon bottles.

In 1985, Maker’s Mark registered a trademark for the dripping wax seal describing its trade dress as a “wax-like coating covering the cap of the bottle and trickling down the neck of the bottle in a freeform irregular pattern.” The trademark description never mentioned the color of the wax but Maker’s Mark sought to enforce its trademark as applied only to the red dripping wax seal.

Jose Cuevo began marketing its premium tequila, Reserva de la Familia, in 1995 with a “straight-edged” red wax seal which was later altered in 2001 to a freeform, irregular red wax seal. After Maker’s Mark sought to enforce its trademark in 2003, Cuervo reverted to the straight-edged red wax seal.

As reported on the Wall Street Journal, “[t]he ruling gave Judge Martin an opportunity to talk at length about the history of bourbon — an opportunity he clearly relished.” In his opening, Judge Martin offered some interesting “sociopolitical” commentary on bourbon’s place in the United States:

Justice Hugo Black once wrote, “I was brought up to believe that Scotch whisky would need a tax preference to survive in competition with Kentucky bourbon.” While there may be some truth to Justice Black’s statement that paints Kentucky bourbon as such an economic force that its competitors need government protection or preference to compete with it, it does not mean a Kentucky bourbon distiller may not also avail itself of our laws to protect its assets.

While I don’t necessarily agree with Justice Black’s whimsical speculation about the necessity of tax protection for Scotch Whiskey, I do agree with his depiction of the lofty position of bourbon in comparison.

Jose Cuervo Reserva de la Familia

The essence of the legal argument by Maker’s Mark was “confusion of sponsorship”—namely that while the goods do not directly compete and are unrelated enough that no inference arises that they originated from the same source, the similarity of the trademarks suggests a connection between the sources. Among the factors balanced, the court found that the relatedness of the goods favored Cuervo in that, while both products were part of high-end distilled spirits category, Cuervo was priced around $100.00 compared to $24.00 for Maker’s Mark bourbon. However, the court found the strength of Maker’s Mark’s mark, the dripped red wax seal, was “extremely strong.” After assessing a number of factors as to the likelihood of consumer confusion for a trademark infringement claim, the Sixth Circuit held that there was in fact a likelihood of consumer confusion between the two products and therefore Cuervo had infringed Maker's Mark's trademark.

In my partial opinion, as a Maker’s Mark Ambassador and a lover of Maker’s Mark bourbon, the Sixth Circuit correctly decided the issue. Even before becoming a fan of Maker’s Mark bourbon, the red wax seal was instantly identifiable for the brand. While courts applying “balancing tests” can break either way when applying the factors involved, here they broke the right way.

The Boulder business lawyers at Laszlo & Associates, LLC provide legal counsel to businesses on a variety of business needs including products liability, risk management, corporate protection and legal compliance. http://www.laszlolaw.com/civil

Non-Compete Agreements - What You Need To Know

Posted by Ted Laszlo on May 16, 2012

In Colorado “non-compete agreements” are presumptively void and are only valid if they meet one of four requirements:

The covenant is made in connection with the sale of a business;
The contract protects trade secrets;
The contract recovers an employee's training or education costs; or,
The contract is for "executive and management personnel" or "officers and employees who constitute professional staff to executive and management personnel." C.R.S. § 18-2-113(2)

If the non-compete agreement falls within one of the statutory exceptions and the restrictions on competition are reasonable under the circumstances, then the courts should enforce the non-compete agreement.

Colorado extends the “executive and management personnel” category to include even mid-level supervisors who lack key decision-making authority. Generally, so long as the employee is at the top level of compensation and at least at the start of the decision-making level, with some amount of autonomy, then that employee will fall within the statutory exception for management and executive personnel. Further, Colorado courts have expanded the exception to also include officers and employees who constitute “professional staff” to management and executive personnel. The exception applies to individuals who qualify as “professionals” serving as key members of the manager's executive staff and are involved in the implementation of management or executive decisions.

Finally, the Colorado Supreme Court recently decided that continued at-will employment is sufficient consideration for a non-compete agreement entered into after hire. Thus, if the non-compete agreement fits into one of the four statutory requirements and is reasonable in scope, time and geography, it is supported by sufficient consideration with the continuation of “at-will” employment alone regardless of when the agreement is entered into. While this may not seem fair, it does make sense as an at-will employee could simply be fired for not signing the agreement, so continued employment would be a benefit of signing the agreement. This may not be the case in other states however. If you are a contract employee however, such an agreement, without consideration, would most likely not be enforceable.

The lawyers of Laszlo & Associates Boulder provide legal counsel to for-profit and non-profit businesses on a variety of business needs including startup and corporate formation, employment law, risk management, corporate protection and legal compliance.

Non-Disclosure Agreements: Essential Points to Remember.

Posted by Mike Laszlo on May 16, 2012

Loose Lips Sinks Ships Non-disclosure agreements or “NDAs” are agreements common in the early days of startups wherein parties agree to keep certain information confidential. NDAs make sense and are necessary where one or multiple parties party seeks to share an idea with multiple potential investors and business partners. NDAs are generally limited in duration and "bridge the gap" so to speak between an initial meeting and a later final agreement.

When drafting an NDA, here are some key points to keep in mind:

Is the NDA a “one way” or “two way” agreement? This is important to determine who is sharing the information and who is agreeing to keep it confidential? If both parties are sharing information, you’ll need a two way NDA.
Like any agreement, be sure your NDA sets forth the goals and objective of the agreements and represents the positions of the parties.
Be sure your NDA adequately protects the information you seek to protect, i.e., using a broad term like “all confidential information” may not protect your IP as it may simply not be “confidential information.” Be specific and spell out what it is you seek to protect.
Be reasonable and realistic in the NDA. A requirement that all information must be stamped “CONFIDENTAL” may be over burdensome and not be realistic – and might ultimately hurt you if some information slips through the cracks and is left unmarked.
NDAs should have a termination date or event. For example, an NDA is a transitional agreement that would expire once a fully executed final agreement is reached.
NDA provisions that call for the return of protected material should reflect applicable document retention rules and laws. Certain return provisions may not be practical.
If you are considering crowdfunding to raise capital, an NDA is probably not workable as your ideas and information will necessarily need to be shared with countless individuals.

The above are simply general points of consideration when formulating your NDA. Some NDAs are simple, and some require more thought, detail and specificity. As with any agreement, be sure you know exactly what your goals are and what you are trying to protect.

Laszlo & Associates' Boulder lawyers provide legal counsel to for-profit and non-profit businesses on a variety of business needs including startup and corporate formation, employment law, risk management, corporate protection and legal compliance.

Employee v. Independent Contractor - What Is The Difference?

Posted by Mike Laszlo on May 16, 2012

The lines are often blurred between employees and independent contractors, and we are always amazed by how often we are asked by business owners whether they have an employee or independent contractor on their hands. The distinction between employee and independent contractor is important to both the worker - in order to ensure you are receiving the proper benefits and are not being taken advantage of - and the business owner – to ensure it is complying with employment laws and regulations and protecting against liability.

In Colorado, a person hired to perform services for pay is presumed by law to be an employee unless they meet the definition of an “independent contractor” or qualify under a specific exemption provided by workers’ compensation laws.

An employee is broadly defined as any person in the service of a private or public employer under a contract of employment.

Conversely, an independent contractor is one who works for himself and is not under a contract of employment with an employer. West’s C.R.S.A. § 8-40-202(1).

Here are some signs that you are likely an independent contractor:

The Company does not tell you what hours to work;

The Company does not tell you where to purchase supplies or services;

You do the same type of work for multiple different companies;

Your work for the Company is generally short-term;

You are more likely to have expenses that are not reimbursed by the Company;

You are typically paid by the job rather than hourly, weekly or monthly;

You typically do not receive benefits, including health care, sick time, paid vacation or worker’s compensation from the Company.

While a written contract may be helpful in proving independent contractor status, the facts of the work relationship are actually more important than what the contract says. And remember, each of the above factors need not exist in order for you to be considered an independent contractor. All businesses should consider what they are trying to achieve with a worker before hiring or contracting with a worker. Further, different states have vastly different rules and employment laws regarding employment. If you are a Colorado company and hire an independent contractor salesperson in California, you may have actually just added an employee to your payroll.

The Boulder Business Lawyers of LaszloLaw provide legal counsel to startups, for-profit and non-profit businesses on a variety of business needs including corporate formation, employment law, risk management, corporate protection and legal compliance.

C Corp, S Corp or LLC: What Corporate Form Should You Choose For Your Startup?

Posted by Mike Laszlo on May 10, 2012

While there are many forms your startup can take, in reality, there are only three forms a startup will consider: C Corp, S Corp, or LLC. Deciding what corporate form a startup should take is one of the most critical early decisions a startup will make. But, making an informed decision and laying the proper foundation will save many headaches down the road.

The C Corp: The C Corp is a separate legal entity and is a separate tax payer, i.e., it pays its own state and federal taxes and if it distributes dividends to shareholders, those dividends are taxed (and paid by the shareholders). This is commonly referred to a “double taxation.” But does it make sense for a startup to organize as a C Corp? Maybe … maybe not. The most important scenario for startups to organize as a C Corp is where it plans on raising venture capital – in this instance it has to be a C Corp. Another reason to be a C Corp would be where the startup plans to retain money in the company.

The S Corp: If you are not sure whether your startup will need to be a C Corp down the road, but it remains a possibility, the S Corp offers very good flexibility and can be easily converted to a C Corp should the need arise. Perhaps the most attractive feature of the S Corp is the pass through taxation and ease with which it can be converted back to a C Corp (I say “back” because you first organize as a C Corp, then elect S status by filing Form 2553 with the IRS). There are key drawbacks to the S Corp however. An S Corp must adhere to all C Corp formalities including recordkeeping, shareholder meetings, file annual reports, etc. Also, S Corps cannot have more than 100 shareholders – which would essentially eliminate the possibility of crowdfunding – LLCs cannot be shareholders and all individual shareholders in an S Corp must be US citizens or permanently reside in the US. Finally, the S Corp is far less flexible in terms of division of profits and classes of stock – for example, as an S Corp, your startup cannot have common and preferred classes of stock.

The LLC: Which brings us to the darling of the small business world – the LLC. If your startup does not plan to raise venture capital and seeks flexibility in ownership structure, the LLC is a very desirable corporate form. Like the S Corp, the LLC provides for pass through taxation and will protect personal assets from liability (when corporate formalities are observed). One of the most convenient aspects of the LLC is that owners of an LLC operate the business pursuant to an “Operating Agreement.” Please do not mistake this to mean an Operating Agreement is a simple document – generally, they are not. However, LLC Operating Agreements can be drafted to address very specific items unique to a given business’ needs. Further, division of profits and losses are easily dealt with in the LLC – whereas in an S Corp, any division must strictly conform with one’s percentage ownership of the company. It is important to note that not all states permit conversion of an LLC to a C Corp – thus, an LLC may not be the best option if you need to be a C Corp down the road.

The above is a very general overview of the three main types of corporate structures utilized by startups. It is paramount that any startup fully understands its current position with an eye toward the future when deciding what form to take.

The Boulder Business Lawyers of LaszloLaw provide legal counsel to startups, for-profit and non-profit businesses on a variety of business needs including corporate formation, risk management, corporate protection and legal compliance.

Metz v. Wyeth: Implied Warranty Claim Against Generic Drug Manufacturer Survives Preemption Under Mensing

Posted by Jeff Klein on May 04, 2012

Our previous posts (here and here and here) discussed the Supreme Court’s decision in Pliva v. Mensing which largely immunized generic drug manufacturers from state law failure-to-warn claims. In Mensing, the Court held that federal regulations preventing generic drug manufacturers from independently changing their drug's labeling preempted state law failure-to-warn claims for injuries caused by the generic drug since it was “impossible” for the generic drug manufacturers to comply with both state and federal requirements.

Since Mensing, there have been a number of district court opinions finding preemption for product liability claims against generic drug manufacturers, regardless of the theory. For this reason, courts overwhelmingly have dismissed numerous claims based upon preemption grounds.

However, the decision in Metz v. Wyeth provided a gasp of air for a plaintiff’s product liability claims against a generic drug manufacturer. In Metz, the court, similar to numerous other courts addressing the issues, dismissed the claims of strict liability, misrepresentation, and fraud on preemption grounds but found that the plaintiff’s implied warranty claim was not preempted.

Metz involved claims for injuries caused by the generic of Reglan, metoclopramide. According to the court, under Mensing, the plaintiff’s implied warranty claim would be preempted “to the extent it stems from [defendant’s] failure to provide additional warnings relating to the risks associated with long-term metoclopramide use or Actavis' failure to stop manufacturing and marketing the generic version of metodopramide.”

However, the court offered a possible interpretation for an implied warranty claim that may survive preemption under Mensing:

Unlike Plaintiffs' strict liability claim which must demonstrate that metoclopramide was unreasonably dangerous when used in a manner consistent with the FDA approved label, an implied warranty claim may survive preemption based on a showing that [defendant] knew metoclopramide was likely to be used to treat GERD for longer than twelve weeks and implicitly warranted that it was safe and effective for such use despite the warning to the contrary in the FDA approved label. That is, it is conceivable that Actavis could have taken additional steps consistent with the FDCA and the FDA approved label to impact the manner in which physicians prescribed metoclopramide (i.e., the “intended” use) and that a claim based on this failure to act may survive preemption under Mensing.

While generic drug manufacturers have been scoring preemption victories for most claims in the wake of Mensing, implied warranty claims may survive Mensing preemption.

FDA Issues Industry Draft Guidance On The Use Of Nanotechnology In Food and Cosmetics

Posted by Jeff Klein on April 30, 2012

In April of 2012, FDA issued a draft guidance for the use of nanotechnology in both food and cosmetics. While a draft guidance does not technically establish “legally enforceable responsibilities,” its purpose is to provde an agency's thinking on a particular issue in the form of tentative guidelines—here being the use of nanotechnology in food. The draft guidance opens a period for comment from industry participants as to their opinion of the effect if the draft guidance were to be implemented as a regulatory standard.

In this particular draft guidance, FDA has opined that the use of nanotechnology in food may require additional "scrutiny" and, thus, it is best practice for industry participants using nanotechnology in food substances to consult FDA prior to marketing such products:

As with all food substances, this guidance also is intended to recommend that you consult with us regarding a significant change in manufacturing process for a food substance already in the market, irrespective of your conclusion about whether that change affects the safety or regulatory status of the food substance. It is prudent practice for you to do so, particularly when the change in manufacturing process involves emerging technology. Food substances may be used in a wide array of products manufactured, distributed and sold at retail by a large number of firms. The consequences (to consumers and to the food industry) of broadly distributing a food substance that is later recognized to present a safety concern have the potential to be significant.

If implemented, the draft guidance may have significant impact on both the manufacturers using nanotechnology in their food substances and the nanotechnology firms developing and marketing nanotech applications for food substances as the use of nanotechnology in food will almost certainly increase in cost for all. Requiring FDA consultation prior to taking a nanotech food application to market, including the necessary research and/or studies substantiating the safety of the intended nanotech food use to FDA, will create regulatory hurdles, lengthening the time and increasing the expense of developing and marketing nanotech food products and applications.

Moreover, food substance manufacturers will likely require a more thoroughly reviewed safety profile of the intended use from nanotech firms both to convince the FDA as to the safety of its application and as "insurance" against future product liability claims. In light of the FDA draft guidance, failure to properly investigate the safety risks of a nanotech application in food prior to marketing by either the nanotech firm marketing the nanotech application or the food manufacturer using the nanotech application in its food substances could expose both entities to liability from future product liability claims as the draft guidance will certainly be used as a standard for reasonable industry conduct. Notably, even if the draft guidance is not implemented by FDA for some years to come, its issuance in itself can arguably be an informal standard of the "reasonableness” of a company’s actions and practices in the context of a product liability lawsuit. Thus, any deviation from the draft guidance can be fodder for product liability lawsuits.

Is Your Company Prepared For a Recall? If You're Not On Twitter, You're Not Prepared.

Posted by Mike Laszlo on April 21, 2012

In 2003, Cervelo, the maker of high end road bicycles, voluntarily, and in conjunction with the U.S. Consumer Product Safety Commission, recalled 317 Wolf all carbon road bicycle forks. In April 2012, a Massachusetts man riding on a bike fitted with the recalled forks crashed and died. Police stated that the rider was on a Cervelo Soloist and that it appeared a "mechanical failure" causing the forks to separate from the bike led to the crash. An investigation is currently underway, but let us assume, for purposes of this article, that the recalled Cervelo forks caused the accident and ultimately the man’s death.

Most punitive damage awards stem from evidence that the manufacturer knew or should have known about a post-sale problem but failed to take adequate remedial measures to prevent accidents.

In the Cervelo case, the recalled Cervelo forks were sold from April 2003 until July 2003 - with a recall announced July 31, 2003. It would appear that Cervelo worked swiftly to recall the defective forks. But with only 300 forks sold in such a short period of time, how was it that Cervelo was unable to reach all owners of the forks? The bottom line is no one should have been riding on those forks. In its latest Consumer Product Safety Commission Recall Handbook, the CPSC lists dozens of ways to inform consumers of a product hazard and recall. Of note is the social media aspect, perhaps the most efficient way to reach your consumer:

The Commission encourages companies to be creative in developing ways to reach owners of recalled products and motivate them to respond ... As new or innovative methods of notice and means of communication become available, such as social media, the staff encourages their use. ... use of a firm’s social media presence to notify consumers of the recall, including Facebook, Google +, YouTube, Twitter, Flickr, Pinterest, company blogger networks, and blog announcements.

Just this week, bike manufacturer Specialized issued a recall due to hazardous break levers. However, the company has not yet announced the recall on Twitter - where it has more than 60,000 followers. Others have tweeted about the recall but nothing from the Specialized company itself (as of the writing of this blog post). This is such a missed opportunity - Specialized can immediately reach 60,000+ consumers who will immediately get the information it provides (not to mention there are more likely than not some affected consumers following on Twitter.)

In the Cervelo case, a question will certainly be asked whether Cervelo did everything it reasonably could have done to ensure all forks were replaced. How did (if at all) Cervelo try to inform the man that his bike was one that had the defective forks? Twitter was not around in 2003, and it is doubtful the company had policies and procedures in place to notify customers via social media at that point. But times have changed. It is 2012, and there is simply no excuse not to use social media to inform consumers of hazards and recalls associated with your products. And keep in mind that many (if not most) of your jurors will use and understand Twitter, Facebook and the latest social media - and wonder why you did not use it to let them know they could get hurt.

The Boulder lawyers at Laszlo & Associates, LLC provide legal counsel to businesses on a variety of business needs including products liability, risk management, corporate protection and legal compliance.

Crowdfunding Under the JOBS Act - Key Points For Startups.

Posted by Mike Laszlo on April 19, 2012

Financing is the most important and most frustrating thing a startup faces. The most well known ways startups raise capital are through Venture capitalists, Angel Investors and now Crowdfunding.

Printing Money If your startup is considering crowdfunding as a way to raise capital, there are a few keys to keep in mind.

A company can raise a maximum of $1 million per year from individual investors.

An investor can only invest the greater of $2,000 or 5 percent of their annual income or net worth if either is less than $100,000; or 10 percent of their annual income or net worth if either is greater than $100,000 not to exceed a maximum aggregate amount sold of $100,000.

A company can only sell to investors through a middleman – a broker or website – that is registered with the SEC.

The middleman can only sell shares that have originated from the company.

Your startup will need to provide detailed financial information; business plans and information that will help potential investors decide if they want to invest – and then you’ll also have to comply with state laws governing companies with shareholders. This is not unique to crowdfunding however, you’ll have to do this for most traditional forms of investment and stock sale – it may just not be at the scale you’ll have to do it with a crowfunding effort. Further, with crowdfunding, you are sharing your idea with the potentially huge numbers of people. With traditional funding you may share your ideas with very few people – all of whom propbably signed an NDA. This is not to say you cannot protect your ideas, it will just be more difficult to keep 10,000 people from sharing your idea as opposed to 10 people.

Finally, you are going to have to wait to start crowdfunding - the JOBS Act provides that the SEC has until January 1, 2013 to make rules for crowdfunding “intermediaries” such as what information must be provided to potential investors, how to ensure individuals do not invest more than is permitted, and so on. So be sure to keep in mind that crowdfunding is one of many options to raise capital for your startup, and it may not be easy as it sounds.

Laszlo & Associates' Boulder Lawyers provide legal counsel to for-profit and non-profit businesses on a variety of business needs including startup and corporate formation, employment law, risk management, corporate protection and legal compliance.

Howard Stern's $300 Million Lawsuit Against Sirius Comes Down To Simple Contract Law

Posted by Mike Laszlo on April 17, 2012

Yesterday, a New York Supreme Court Judge (In New York, Supreme Courts are the state's trial courts) granted Sirius XM Radio Inc.'s motion for summary judgment in a $300 Million + case brought against it by Howard Stern. Stern v Sirius.pdf In the lawsuit, Howard Stern and agent Don Buchwald claimed that Sirius failed to honor its agreement to pay them "Sirius Subscriber" based bonuses totalling over $300 million. Sirius took the position that the subscriber number "triggers" were only met after Sirius and XM Radio merged in 2008 and therefore did not trigger the "Sirius Subscriber" language in the contract.

The dispute ultimately boiled down to what a "Sirius Subscriber" was. The agreement did not define "Sirius Subscriber" and Stern argued the term included all subscribers to the new Sirius XM Radio, regardless of whether they subscribed to Sirius Radio or XM Radio. Siruis took the position that the contract terms were unambiguous and that Sirius and XM subscribers were not the same. The New York court agreed with Sirius.

Perhaps the most relevant term of the agreement in favor of Sirius' position was the "XM Merger" clause providing:

In the event Sirius merges with XM Satellite Radio, Sirius shall pay you [Howard Stern] a fee of $25,000,000 , whereupon the HS [Howard Stern ] Programs may be broadcast to all subscribers of the surviving company.

This term, Sirius argued, made clear that Sirius and XM subscribers were different and that the agreement contemplated as much.

Legally it makes sense. When Howard Stern and Sirius were negotiating the agreement years ago, both sides were hedging their positions against the unknowns of the future - something we all try to do in any contract. At the time, it was not clear whether Sirius and XM would merge or be permitted to merge. The affect of a Sirius/XM merger, Sirius argued, was treated separately in the agreement as evidenced by the $25 million merger payout. The court agreed - but look for an appeal of the decision by Stern in the near future.

The take away from the Stern v. Sirius case is that smart contract drafting is critical at any level. In reality, when the agreement was drafted, Howard Stern and his team along with Sirius were not blind to the ambiguities upon which this lawsuit was based. These types of "unknowns" provide wiggle room down the road, but are very risky.

Laszlo & Associates, a Boulder Law firm, provide legal counsel to for-profit and non-profit businesses on a variety of business needs including startup and corporate formation, employment law, risk management, corporate protection and legal compliance.

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