Defend Trade Secrets Act (DTSA) of 2016

Trade Secret Misappropriation Recourse and Whistleblower Protection

New Legislation Impacting Business

All businesses have intellectual property and trade secrets.  A company is in business because it is offering something of “value” which can be a number of things from product to process to promotion.  For example, proprietary software, product systems, new product generation, or even client lists.  The loss or misappropriation of such can be devastating to the success and profitability of a company.

In a measure to further protect businesses, the Defend Trade Secrets Act (DTSA) of 2016 was signed into law on May 11, 2016 after being unanimously passed in the Senate and ratified in the House. It creates a federal cause of action for trade secret misappropriation.  The central provision of the DTSA will be codified as 18 U.S.C. § 1836(b) and reads:

An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

What this Means

A “trade secret” means “all forms and types of financial, business, scientific, technical, economic, or engineering information …  if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.”

Misappropriation includes: without permission (A) obtaining a trade secret that was knowingly obtained through improper means or (B) disclosing or using a trade secret with knowledge that either (1) it is a trade secret or (2) it was obtained through improper means. The “improper means” include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” However, misappropriation does not include “reverse engineering, independent derivation, or any other lawful means of acquisition.”

The DTSA also creates an ex parte seizure procedure for use in extraordinary circumstances where the party against whom the seizure is ordered would “destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person….”

Protection for Whistleblowers Under DTSA

The DTSA seeks to protect whistleblowers from criminal or civil liability for disclosing a trade secret if the disclosure is made for purpose of reporting a violation of law. Employers have an affirmative duty to provide employees notice of the new immunity provision in “any contract or agreement with employee that governs the use of a trade secret or other confidential information.” Failure to comply means that the employer may not recover exemplary damages or attorney fees in an action brought under the DTSA for theft of trade secrets against an employee.  The definition of “employee” is drafted broadly to include contractor and consultant work performed by an individual for an employer.

What Companies Should Do Next

Companies should update their employment manuals, employment agreements and confidentiality agreement to disclose the whistleblower immunity provisions in the DTSA. Otherwise the company is not eligible to recover double damages or attorney fees in trade secret litigation.

Trade Secrets

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IP Protection of Typeface Logos

A current trend in design and marketing are simplified corporate logos or typeface logos.  Take Hull Barrett’s logo as an example:

Hull Barrett

The words “Hull Barrett Attorneys” in the logo are a typeface and not an artistic element like the peach in the State of Georgia’s logo.  Due to this trend, companies often inquire about protecting intellectual property in font or typeface logos.

The Background of Using Font and Typeface Logos

Typefaces and fonts are often used to create logos, designs, and graphics.  Such designs are protectable as a form of artistic and intellectual property. There is much confusion, however, regarding typefaces and fonts—particularly who has the rights to use them.  Many people are not informed of the law governing the use of typefaces and fonts. Not all typefaces or fonts may be used freely without license to do so.  Those interested in intellectual property rights in fonts and typefaces include type designers, lettering artists, punch-cutters, calligraphers, software developers, as well as persons or entities interested in trademark protection of names and logos written in certain typefaces.

What is the Difference Between a Font and a Typeface?

The terms “font” and “typeface” are often used interchangeably.  While the colloquial definitions are nearly identical, the difference between the definitions in a legal sense is significant. Put plainly, a typeface refers to the way that a set of characters (sometimes called “glyphs”) appears on paper or a computer screen.  Some examples of typefaces are Arial®, Times New Roman®, Helvetica®, and Lucida®.  A font, however, is a computer program or software that instructs a printer or computer display the manner in which a glyph or character is intended to be shown. Consequently, what people generally refer to as a “font” in conversation is actually a “typeface.”

Are Fonts and Typefaces Protected by Federal Copyright Law?

Congress has determined that “typefaces as typefaces” are not protectable under United States copyright law.[1]  Federal courts, on the other hand, have found that font software programs are protectable under federal copyright law because they are original works of authorship due to the creativity and artistry involved in their creation.[2]  Therefore, persons and entities that create typefaces should be aware that they do not have any copyright in such typefaces. But, those that create font software should consult an attorney in order to register and protect from infringers the copyrights that they have in font software.

Are Fonts and Typefaces Protected by Federal Trademark Law?

While copyright law deals with how a typeface or font is written, United States trademark law can protects the name of the typeface or font.  Some examples of typefaces which have been registered with the United States Patent and Trademark Office (“USPTO”) include Times New Roman®, Helvetica®, and Lucida®, while some examples of font software include Wingdings® and Helvetica®.  The owners of these trademarks may license the trademarks to software programs that use the typefaces.  However, this presents the problem that infringers need only to change the name of the typeface or font when using them to skirt the protections of trademark law.

Trademarks can be registered in a stylized design or typeface, or in block lettering.  If a trademark is registered in block lettering, its owner enjoys trademark protection regardless of the typeface in which the mark is written.  The waters get muddied when you consider that typefaces are commonly used as part of a logo or design. For example, the iconic Coca-Cola® logo mark, which has been registered numerous times, is written with specific cursive characters.  As mentioned before, the typeface itself is not subject to copyright protection in the United States, but the logo design in its entirety is protected as by United States trademark law.  Thus, trademark law can protect the design of a typeface so far as its use in a design, but not the typeface itself.

Typefaces themselves are not protectable under United States copyright or trademark law.  However, the names of the typefaces are protectable by trademark law, and the font software used to produce the typefaces is protectable under copyright law.  Those that create typefaces and font software, or design trademark logos should consult an attorney to help protect their intellectual property rights.

Typeface Logos

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[1]              37 C.F.R. § 202.1(e).

[2]              Adobe Sys. v. Southern Software, Inc., 1998 U.S. Dist. LEXIS 1941, 45 U.S.P.Q.2D 1827 (N.D. Cal. Feb. 2, 1998).

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The Curtain is Rising on the New Overtime Rules

Changes to the Overtime Rules are Here

On May 18, 2016, the Department of Labor announced the Final Rule defining and delimiting the changes in overtime exemption for Part 541 (“white collar workers”).¹  The new regulations significantly impact white collar overtime rules by more than doubling the salary threshold that would exempt an employer from paying employees overtime.  Prior to the new rules, if an employee qualified as a white collar employee, and had a salary more than $23,660 annually, then they were exempt from overtime pay.  The new rule changes that threshold to the 40th percentile of earning for full-time salaried workers for the lowest wage Census Region (currently the South), which is $47,476.00 annually ($913 weekly).² The threshold will be automatically updated every three years.  However, the Final Rule allows employers to satisfy up to 10% of the standard salary requirement with non-discretionary bonuses, incentive payments and commissions so long as they are paid at least quarterly.

What the Change Means to Businesses

The effective date of the Final Rule is December 1, 2016.   Employers should be taking action now to prepare.  The change in the overtime threshold for white collar employees will impact employers differently depending on the number of employees to be newly classified as non-exempt.  It is likely that the change may be felt more acutely by the retail and restaurant industries.

Cost to Employers

The cost to employers to incorporate overtime changes will vary depending on their industry size, sector and employee distribution.  However, the change itself is generally applicable and many businesses and employees will experience a substantial financial impact.  Accordingly, when CSRA businesses are budgeting, they should certainly consider the increased expense from the number of employees who are either given a raise above the new threshold to remain exempt or paid overtime because they are suddenly nonexempt.  Employers should also factor in the cost of initial compliance to include the changes in human resource and payroll.  For many businesses, there may also be cost associated with the possible increase in salary for employees up the chain if lower level employees receive raises because of the regulation.

Other Challenges

One additional challenge that businesses may face is the net negative impact on morale on staff from changes since many formerly exempt white collar employees will now be forced to “punch a clock.”  Some managers will now have to keep up with their lunch breaks, etc. and many will likely take issue with it.  However, if businesses focus some attention to their planning and roll out efforts they may more easily be able to highlight the positive aspects of the changes.

Steps to Prepare for the Overtime Changes

  1. Gather and assess information such as employee salary and total working hours. Taking the pulse of the organization is a great place to start.  Businesses should start to look at salary and benefit information to get an idea of how to most efficiently pay employees.  An employer should also take a close look at the hours of employees to assess how much time an employee spends both in the office and at home working.  Remember, responding to emails from cellular devices or home computers are a part of total working hours.
  1. Gather information about the actual duties of employees. An organization should take a close look at the duties of employees. The goal is to discover the actual activities performed in a position, not the written descriptions of the position, which are often outdated.  This step is important to determine how best to redistribute employees in the most efficient manner.
  1. Consider the Types of Changes Possible for your Organization to Comply with the Rules.
    a.  increase the salaries of currently exempt employees to the new threshold;
    b.  reclassify exempt employees as nonexempt and pay them hourly;
    c.  change staffing to eliminate the need for overtime;
    d.  change benefit plans.

The stage is set, and all of the actors in this production – regulatory agencies, employers and employees – must get ready to play their part.  It is imperative that local businesses take the time to familiarize themselves with the changes and start to take stock of their positions so that they can avoid the potentially crippling financial consequences of non-compliance.

overtime rules

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¹ The official document is scheduled to be published in the Federal Register on 05/23/2016 and will be made available online at http://federalregister.gov/a/2016-11754.
² The number was based on data from the fourth quarter of 2015.

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So You Are Presented with a Form Contract?

What About It?

When you or your company is presented with a form contract prepared by the other side in a transaction, red flags should go up. This is because the other side in the transaction has had its lawyers draft the form contract in order to maximize the interest of that party – that is what lawyers usually do for their clients.

Maximizing interest can take the form of setting forth only the obligations of the opposing party without setting performance obligations for the drafting party. Or a form contract often limits the damages that may be pursued against the drafting party without setting similar limitations for the opposing party.

Here are some additional items to be on the lookout for:

Indemnity and Hold Harmless Provisions in a Form Contract

The other side will often insert language that you or your company will be responsible for any and all claims that arise out of the contractual arrangement. Don’t agree to it. It is certainly appropriate for you to agree to be responsible for any claims that arise out of your errors or omissions, but you do not want to be in the situation of agreeing to hold harmless or indemnify some other party for its shortcomings.

Venue and Jurisdiction in a Form Contract

Many times a form contract will state that any dispute about the contract or its performance shall be brought exclusively in the home courts of the other party. Don’t agree to it. You never want to agree that you can be hauled into court in some distant place where the cost of litigation and inconvenience is far greater than would otherwise be the case. The best rule is for the contract to be silent on courts and venue as there are general principles of law that allow either party to bring a claim in a court that has significant contacts with the subject matter of the dispute and where the parties are registered or have done business. At the worst, try to compromise so that any claims against you must be brought in your home county, and any claims against the other party to the contract will be brought in its home county.

Arbitration Clauses in a Form Contract

Arbitration is another way for disputes to be resolved privately rather than in a court. One of the main drawbacks of arbitration is that the parties have to pay the fees of the arbitration company and for the arbitrator(s). Except for a relatively modest filing fee, the courts and judges are free – subsidized by all taxpayers. Also, if arbitration is agreed to, it is much more economical to conduct arbitration under the arbitration code of the state where the matter will be heard rather than to use the American Arbitration Association or some other arbitration group which charges stiff up-front fees and significant hourly rates for the one or three arbitrators who preside. Arbitration under the law of the state gives the same protection as arbitration in general, but administration fees to an outside company are avoided and the parties together can select the arbitrator or have one appointed by a local court.

These are not the only items of concern that might be found in a form contract, but they are three that often arise.

form contract

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Doubling Down on Overtime Exemption

Current Overtime Law

The Fair Labor Standards Act (FLSA) requires that covered, nonexempt employees in the United States be paid at least the Federal minimum wage for each hour worked and receive overtime pay at one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek. However, there are a number of overtime exceptions to this rule. For example, the current law does not require employers to pay overtime compensation to executive, administrative, professional and outside sales employees who are paid on a salary basis and receive more than $23,660.00 per year or $455.00 per week, even if they work over 40 hours. See 29 U.S.C. 213(a)(1).   This is referred to colloquially as the “white collar exemption.”

Overtime Exemption Change

The Department of Labor (DOL) proposes to more than double the salary level that would qualify white collar workers for overtime exemption. Among other things, the proposal sets the standard salary level equal to the 40th percentile of earnings for full-time salaried workers as of 2016, which is projected to be $970 per week, or $50,440.00 annually for a full-year worker. More importantly, in order to prevent the salary levels from becoming outdated, the DOL is proposing to include a mechanism to automatically update the salary and compensation thresholds on an annual basis. The DOL estimates that during the first year alone, 4.6 million currently exempt workers would become non-exempt and entitled to minimum wage and overtime protection under FLSA, without some intervening act by their employers. See Federal Reg. Vol. 80, No. 128 (Mon. July 6, 2015).

Impact on Business

The period for public comment on the proposal closed on September 4, 2015, and the proposed change attracted both praise and criticism from worker’s groups and businesses. The comment period also served to demonstrate some of the confusion that exists under the current regulation such as the mistaken belief that payment of a salary automatically disqualifies an employee from overtime pay; or that if a white collar employee is in fact nonexempt she would have to be converted to hourly pay. See Federal Reg. Vol. 80, No. 128 (Mon. July 6, 2015). The specific impact of the proposed changes on the CSRA is difficult to project, but the potential impact could be staggering for some businesses. The pending approval of the rule would be a good time for local businesses to reassess the exemption status of their employees in preparation for the change, which many believe to be inevitable.

Since the ultimate burden of proof for the actual application of an exemption rests on the employer, employers should begin evaluating the exemption status of employees as soon as possible so that they have enough time to adjust to the proposed rule. While the proposed bright-line salary test is one step of meeting exempt status, it works in concert with the “duties test.” As was previously the case, job titles, descriptions and paying a salary versus an hourly rate are not determinative of exemption status. In order to qualify as exempt under the proposed rule, an employee must not only meet the more than doubled pay requirement, but employees must also continue to meet certain tests regarding their job duties. There is potential for employees/positions that have traditionally been exempt to be treated as non-exempt for the first time in their careers or the history of the position.

Moving Forward

The new overtime white-collar exemption rule will be issued approximately July 2016, according to the U.S. Department of Labor’s fall 2015 regulatory agenda.  The DOL may also make some changes to the “duties test,” which have yet to be proposed. The proposed change is particularly relevant in Georgia and South Carolina where the annual pay is often less than the national average. The bottom line is that it matters, and moving forward, employers should pay close attention to employee’s job functions and make sure they brace for the impact of change to their current classification structure. A specific strategy is based on the needs of each individual business, but reclassification will require an effective roll-out strategy for all. As the DOL gears up to double down on overtime exemption, CSRA businesses should not gamble with their economic security. Businesses should be prepared to incorporate a communication plan, maintain proper documentation of the reclassification and schedule training regarding policies affecting employees.

Salary Threshold Increase for Overtime Exemption

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Witnesses in the Making: Opposing Counsel Communicating to Employees

Navigating a workplace incident can be a company’s nightmare. Claims of workplace injury, harassment, hostile work environment, OSHA violations, or the like put employers on pause as to the manner of properly handling legal proceedings. This is compounded when opposing attorneys interview company employees about the workplace incident without the presence and/or permission from the company’s counsel to interview such employees (commonly referred to as ex parte communications).

Ex parte communications can result in more than a few harmless comments. The interviewing attorneys may call upon these employees as liability witnesses at trial—often on cross examination. Under Georgia agency law, the statements and actions of employees regarding incidents for which an employer may be liable can be attributed to the employer. And, statements made by these employees are admissible at trial if it concerns a matter within the scope of the employment and is made during the time of employment. Thus, employees may make statements during ex parte communications with attorneys without the presence of defense counsel that could potentially be damaging to the company in a subsequent trial.          

Know the Ethical Violations of Ex Parte Communications

Lawyers must subscribe to ethical standards, and pursuant to Georgia Rule of Professional Conduct 4.2(a), “[a] lawyer who is representing a client in a matter shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or court order.” Comment 4A to this rule clarifies that a lawyer cannot have ex parte communications with:

  • Officers, directors, managers, and supervisors.
  • Employees who have the authority to obligate the organization with respect to the matter.
  • Employees who regularly consult with the organization’s lawyer concerning the matter.
  • Employees whose act or omission in connection with the matter may be attributed to the organization for purposes of civil or criminal liability.

The above parties are protected as clients under the counsel of the company. It is a violation of ethics, therefore, for an attorney to have ex parte communications with a company’s current employees regarding a dispute without the presence and/or permission from defense counsel if the employee falls within one of these categories.

There Are Always Exceptions

1.    Georgia Rule of Professional Conduct 4.2 requires that opposing counsel must know that the employer is represented by counsel at the time of the communications. Documentation will prove knowledge! Thus, a company should have its counsel send a letter of representation to the opposing attorney immediately upon receipt of information that the complainant has retained representation. Without such a letter, the opposing attorney will likely be able to participate in ex parte communications with employees by disclaiming knowledge of representation of the company.

2.    An attorney is allowed to have ex parte communications with employees who do not fit the descriptions listed in Comment 4A including:

  • Employees who do not hold positions with responsibilities related to directing, managing, or supervising;
  • Employees whose acts or omissions cannot be ascribed to the company; and
  • Former employees.

An employer’s counsel should, therefore, encourage employees to refer any questions related to incidents to counsel to prevent such ex parte communications.

3.    Georgia case law allows an attorney to call co-workers of the plaintiff for cross-examination in suits against a company. In order to prevent this, defense counsel should argue to the trial judge that if the opposing attorney can interview a party’s co-workers without the presence and/or permission from defense counsel, then the attorney should not also be permitted to cross-examine the employee.

What To Do If Ex Parte Communication Has Taken Place

It is critical for an employer to protect itself in that event that ex parte communications occur between an employee and opposing counsel. If such communications do transpire, an employer and/or its counsel should do the following:

  • Confirm with the employee-witness the timing and substance of the communications.
  • Depose any investigators that have conducted interviews in the case.
  • Request copies of all interview statements with witnesses in discovery.
  • Require opposing attorney early in litigation to seek a court order prior to speaking directly with employees.
  • Seek the appropriate remedy based on the facts of your case.

What Remedies Can an Employer Seek?

The primary remedy for a company in this situation is the disqualification of the offending opposing counsel. This is quite helpful when the case is nearing trial because another attorney (who is likely less familiar with the case) must assume the responsibilities of the case from the offending counsel. Additionally, other remedies are available. A court may exclude the employee-witness with whom counsel had ex parte communications, a court may issue sanctions, or the attorneys could enter into an agreement to stipulate to a jury instruction that the acts or omissions of the employee-witness with whom the offending counsel had ex parte communications cannot be used for the basis of any liability against the defendant employer. Finally, defense counsel could request a mistrial, but this is rarely granted.

If your company finds itself with a notice of lawsuit or investigation by an attorney for a workplace incident, converse with your lawyer, educate your employees about communication, and make sure opposing counsel has documentation that your company is represented.

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Four Tips to Start-Up Companies for Avoiding Trademark Pitfalls

In the early stages of start-up companies, generally protection of intellectual property rights is not a priority—whether it be from oversight or as a result of tight finances. Understandably, the leadership of start-ups primarily focuses on funding, organization, strategy, growth, talent, and marketing. Whatever the reason, neglecting to protect a start-up’s intellectual property at the inception of the company can be devastating in the long run.

Fortunately, with a little research and a reasonable cash outlay, companies can avoid many intellectual property pitfalls. Here are four tips that start-up companies should follow:

Tip 1: Not Already in Use

The business name is a critical factor in establishing and maintaining a brand to be protected by state and federal trademark law throughout the life of the business. One major stumbling block to a successful start-up is selecting a company name that is identical or similar to a name that is already in use. Remember, someone in a neighboring city, county, or state may have come up with a similar name. This problem can be avoided entirely with some preliminary research.

From the onset, the business should also decide if it will operate under a trade name. A trade name is the official name under which a company does business. It is also known as a “doing business as” name, assumed name, or fictitious name. For example, the name of a start-up company might be Robertson, Inc., but the company may decide to open all of its offices under the name “Robertson’s Rentals.”   As with the business name, it is important to select a trade name that is not already in use in order to receive maximum protection under federal and state trademark laws.

Start by researching the business name AND the trade name with the Secretary of State. The Secretary of State holds a database of registered domestic and foreign businesses and most can be searched online (Georgia and South Carolina). It is recommended to search the databases of all states in which the new company plans to do business. After searching the Secretary of State database for registered names, the start-up will need to search for registered trade names (not business names) in the records of the Clerk of the Court of General Jurisdiction in the county containing the principal place of business. While this type of search is not online, it can still be performed with relative ease.

Note: In your business formation process, contact a trademark attorney to register the trade name or fictitious name should you decide to utilize one. Luckily, registering a trade name is generally an inexpensive pursuit, especially in Georgia or South Carolina.

Tip 2: Does Not Run Afoul of Existing State or Federal Trademarks

Another consideration in choosing how to name the business is selecting a company name that is not identical or similar to a registered state or federal trademark. This is separate from a Secretary of State search or a county trade name search. A start-up should also exercise the same caution when naming products or services. Trademark rights are generally based on the principle that the first person or entity to use a mark has priority, whether trademarked or not. A trademark does not necessarily need to be registered in order to have priority. Therefore, if a start-up chooses a company name, product name, service name, or slogan that is already in use by another company, the start-up runs the risk of exposing itself to costly litigation, otherwise known as infringement.

Search the Trademark Electronic Search System (“TESS”) on the website for the United States Patent and Trademark Office (“USPTO”). Also, some Secretary of State websites have the capacity to search registered state trademarks. Finally, searching Google, Bing and Yahoo will also help a start-up in deciding a name.

Tip 3: Not Already an Existing URL

When choosing a company name, product name, service name, or slogan, a start-up should perform an online search to find out what URLs have been secured. Companies often overlook that website addresses are a form of intellectual property. Registering a domain name costs merely a few dollars, so a start-up should be sure to register a domain name that would not be easily confused with other businesses. Searching Google, Bing, and Yahoo is generally all that is needed to be sure that no identical or similar domain names are already in existence.

Tip 4: Plan in the Early Stages of the Start-up

While intellectual property registration should be sought as soon as the start-up can afford it, companies justifiably spend their limited budgets on strategy, growth, talent, and marketing. Thus, it is important that a start-up strategically plan to protect its intellectual property. As the company generates revenue, funds should be earmarked for intellectual property protections. A start-up should retain a trademark attorney for help in performing a full trademark search, filing a trademark, and executing other necessary legal actions to protect its intellectual property. A start-up should also police its intellectual property—meaning that the company should ensure that others are not making use of its marks without permission. If someone steals intellectual property, the start-up should retain counsel to send cease-and-desist letters and file infringement suits if need be. After the start-up has worked so hard to foster and hone its intellectual property, it should protect it.

Why Start-Ups Should Follow These Steps?

Following these four tips will provide a start-up with protection against the copying, theft, and illegal use of its marks. Additionally, the start-up will be protected from infringement litigation from other established businesses for intentional or unintentional use of their marks. Finally, seeking financing for the start-up will be easier because a start-up with protected intellectual property rights will gain improved attractiveness to investors. Starting a business with an intellectual property strategy is key to the success of the business.

Check out our other links for more information about copyrights and trademarks.

start up

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