Are Unregistered Domains A Violation of Trademarks?

Young lady laying on the floor using a black laptopThis could be the end of GoDaddy.

Five years ago, the Academy of Motion Picture Arts and Sciences (AMPAS) filed suit against GoDaddy.com.

GoDaddy allows customers to buy domains and “park” them.  Parking them means that the domain points to a web page that has advertisements on them from Google.

When clicked, the owner of the web page gets a portion of that ad revenue. When the page is parked using GoDaddy, both the owner of the page and GoDaddy split the ad revenue.

AMPAS owns The Oscars. It’s website is registered to the domain oscars.com. But someone else registered “theoscars.com” and was holding it ransom. This is sometimes called cyber-squatting; but it is legal in most cases.

Usually, in this situation, someone in AMPAS’s shoes would pay tens of thousands of dollars to recover “theoscars.com” from the registered owner. Or, they would ignore it.

Unfortunately for AMPAS, they are suffering from 56 Oscar-related parked domains. These domains include 2011Oscars.com, Oscar4re.com and Oscarcam.com.

So AMPAS sued GoDaddy. AMPAS claimed that GoDaddy pocketed roughly $90 million in revenue just from their parked pages directed at The Oscars alone. To put this in perspective, GoDaddy annually generates a revenue over $1 billion dollars. If AMPAS wins, that would be nearly 10% of GoDaddy’s annual revenue in damages. That’s a lot of ad clicks.

While this case may seem like it is the fighting of giants and unrelated to the rest of us, that is not so. The ruling could seriously impact millions of business owners. Here’s how:

  • You may now have recourse if you found out that someone was using a domain name that is similar to your trademarked name. Should you sue?
  • GoDaddy’s business would take a crippling hit, possibly scuppering it and the millions of websites it serves. At the very least, expect prices to go up.
  • GoDaddy and other domain registrars may become forced to police trademark violations by registrants, which means more work for all of us.
  • If you own trademarks, you may be required to put in claims on domains in order to keep your marks protected (and not considered “abandoned”).
  • The cyber-squatting industry may die. But more likely, it will continue overseas, outside the jurisdiction of the United States. This will make American companies like GoDaddy suffer, as it will put them at a competitive disadvantage.

Domain hijacking is a common problem that most business owners deal with. If you’ve registered a domain recently, you probably noticed spam that came a few days later trying to sell you similar domain names.

For example, our CEO is publishing a book on election law for third parties titled Just Pursuits. We put up a sales page at JustPursuits.com. About a week later, we were hit with a demand to pay thousands of dollars for “justpursuit.com” (the s is dropped off the end).

In more serious cases, someone will put up a malicious page to try and force you to buy the domain. This happens to celebrities and politicians a lot. For example, Carly Fiorina (former CEO of Hewlett Packard who is running for President) got this gem: CarlyFiorina.org. (Not only are different spellings a problems, the top-level domain suffix like .com, .net, and .org can create problems.)

By the way, only non-profits are supposed to register .org domains. But this is not policed, really.

Ms. Fiorina’s .org spoof page isn’t too bad. There are worse ones depicting pornography, foul language, or other scurrilous materials.

If you haven’t experienced this, try typing in your domain name with minor changes and see what comes up. Are there other sites out there with similar names to your own? If there are, this case means a great deal for you.


 

Given the impact this case will have on how it does business, GoDaddy has gone through trial in this case. A verdict is still pending.

GoDaddy has not played nice during the lawsuit, either. For example, GoDaddy accused AMPAS of rigging the court system to have U.S. District Judge Audrey Collins, whose daughter is a professional actress, oversee all of the GoDaddy cases. The Honorable Collins has made some decisions that were unfavorable to GoDaddy. GoDaddy got “bench slapped” for that one, but ultimately achieved a new judge assignment.

But both sides know what is at stake. AMPAS says that it seeks to establish cybersquatting as a “serious problem that should not be tolerated even if it is being perpetrated by a company that generates over a billion dollars in revenue….

For its part, GoDaddy says that the guns are aimed at the wrong target. “GoDaddy is not a cybersquatter. It is not a pirate,” its attorney said in opening statements at trial. And GoDaddy also tried to help AMPAS. Within three days after receiving AMPAS’s complaint about parked pages, GoDaddy redirected 37 domain names to no-ads templates. Given the current state of domain registration governance (something controlled by an international body), this may have been the best that GoDaddy could do for AMPAS.


 

While we await the verdict on this matter, it important to realize that it may have serious implications for us all. Currently, there is no solid law on what to do about cyber-squatters and parked pages. The legal system has simply not caught up with this issue.

There are dozens of conflicting interests at stake when it comes to domains and cybersquatting. This is an issue that impacts small and big business and even international relations.

Companies who feel their trademarks rights are being violated by parked domains have limited options, such as complaining to the domain holder, registering their page with an organization seeking to block parked pages or attempting to purchase all similar domain names so no one else may register them. Many businesses may find themselves playing a frustrating game of whack-a-mole.

We will update you with the verdict and its implications after it is reached and as the law on this evolves.

Non-Disclosure Agreement

NON-DISCLOSURE AGREEMENTS

Non-disclosure agreements are called by many different names: NDAs, confidentiality agreements, confidential disclosure agreements, and proprietary information agreements, among other terms. Regardless of the terminology or type of business entity which is involved, all non-disclosure agreements share the same basic objective: protecting businesses against financial losses arising from the disclosure of trade secrets and confidential information. They must not be confused with non-compete agreements, which are designed for a different purpose and are of limited use in the state of California, where they are typically considered unenforceable.

Startup Tools Toolbox

Because clear and enforceable non-disclosure agreements are a dynamic and effective means of protecting proprietary information, well-constructed NDAs have proven invaluable for countless business owners and employers across a diverse range of industries, and should be included in every company’s legal toolbox. But remember, NDAs which violate state or federal laws often create more problems than they protect against.

At Bellatrix PC, our knowledgeable business attorneys have extensive experience helping start-ups, partnerships, limited liability companies, and corporations draft detailed, favorable, and enforceable non-disclosure agreements.  We pride ourselves on our sophisticated understanding of state and federal business and employment law, and will work closely with your company to determine and pursue a strategic and cost-effective means of resolving any NDA-related matter.

To schedule a confidential legal consultation, call our law offices today at (800) 449-8992.

Understanding the Difference Between Non-Compete and Non-Disclosure Agreements

As noted above, it is critical for employers and business owners to familiarize themselves with the fundamental differences which separate non-disclosure agreements from non-compete agreements. The two contracts serve different purposes, yet the terms are often transposed or mentioned in the same context, which creates confusion and misunderstandings regarding their actual purposes.

Non-compete agreements impose restrictions on a current or former employees future employment opportunities. For instance, a non-compete agreement may state that when an employee leaves Company A, that employee cannot work at a competing company for a certain period of time.  In addition, it may state that the employee cannot start a competing business for a finite period of time. Because non-compete agreements expressly restrict both competition and a person’s ability to earn a living, they are rife with potential problems and are seldom enforceable in California.

NDA’s on the other hand are designed to prevent a party, often an employee, who will be exposed to confidential, trade secret, or proprietary information  from divulging that information without expressly restricting competition or future employment. In the instance of an NDA, an employee may agree that when they leave Company A, they will not divulge or misappropriate any confidential or proprietary information obtained from Company A. Breaking the terms of a well drafted non-disclosure agreement  would expose the breaching party to substantial liability  based on breach of contract (damages for breach of an NDA are discussed in more depth later in this article). Because NDAs do not prohibit competition per se – they merely prohibit misappropriation and use of the employer’s confidential information, they do not face the same enforceability problems as non-compete agreements.

NDAs can be “mutual” (meaning two parties share trade secrets, often used when two businesses collaborate on a single project) or “one-way” (meaning only one party shares information, often used when an employer is entrusting trade secrets to an employee).

For California business owners, the important thing to remember is that NDAs do not struggle with the same enforceability issues as non-compete agreements.  Therefore, NDAs are consistently the more effective and reliable means of protecting confidential information and preserving a business advantage.

What Are Trade Secrets?

Trade secrets are as varied as the businesses who hold them.  Depending on what the entity does, trade secrets might include formulas, computer software, algorithms, recipes, databases, product designs, methods of manufacturing, businesses strategies, and other pieces of information which give the business a competitive edge.

Cal. Civ. Code § 3426.1, which is part of the Uniform Trade Secrets Act, defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process” which both (1) “derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use” and (2) “is the subject of [reasonable] efforts… to maintain its secrecy.”

While there is no bright line rule for what constitutes a trade secret, it’s safe to say that any business which has created, designed, or implemented something that gives it an economic advantage or a competitive edge should take measures to protect it.

Recovering Damages for Breach of Contract and Confidentiality Violations

The Uniform Trade Secrets Act doesn’t simply define what trade secrets are: it also sets forth potential consequences of violating a non-disclosure agreement.  Cal. Civ. Code § 3426.3(a) clearly states the following:

A complainant may recover damages for the actual loss caused by misappropriation [defined as “acquisition of a trade secret… by improper means” or “disclosure… without express or implied consent].  A complainant also may recover for the unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss.

The Act also supplies some additional guidelines pertaining to civil lawsuits and compensation:

  • Even if it cannot be proven in court that misappropriation of a trade secret led to unjust enrichment or financial damages, the court can still “order payment of a reasonable royalty” for a limited period of time (see Cal. Civ. Code § 3426.3(b)).
  • If the misappropriation was “willful and malicious” (i.e. intentional and with the intent to do harm), then the plaintiff can potentially recover damages up to twice the award under Cal. Civ. Code § 3426.3(a) or Cal. Civ. Code § 3426.3(b) (see Cal. Civ. Code § 3426.3(c)).

As with any type of contract or written agreement, the use of generic boilerplate documents is a recipe for legal and financial disaster. The importance of drafting unique, customized NDAs with assistance from an experienced business lawyer cannot be overstated.  Businesses have maximum protection when they have NDAs which account for specific details and conditions unique to their business.  Using a clear, comprehensive, and tailored agreements drastically reduces the chance that the contract will be breached or found to be unenforceable in future.

Employers are urged to steer clear of the numerous generic templates available for download from the internet. NDA templates are often overbroad, unenforceable, and include non-compete clauses which violate California law. The breach of contract attorneys of Bellatrix PC have years of experience representing a broad spectrum of entities in the preparation and defense of business contracts like non-disclosure agreements and covenants not to compete. Whether you simply need assistance drafting or reviewing new or existing NDAs, or you need aggressive legal representation from a commercial litigation attorney, our team is ready to help yours

To talk more about how we can help you meet your goals and resolve your disputes, call Bellatrix PC right away at (800) 449-8992.

Unfair Competition

UNFAIR COMPETITION

 

The distinction between unfair competition and deceptive trade practices is that unfair competition covers only situations which target consumers, while deceptive trade practices also injure businesses.  Unfair competition laws are almost always applied against small businesses, while the corporate behemoths are subject to antitrust litigation. Despite the fact that federal law does have some application in this area, unfair competition is almost always dealt with at the state level.  The Federal Trade Commission (FTC), the federal agency responsible for consumer complaints, investigates unfair or deceptive trade practices.

garden snake head

Because so many business practices are currently recognized as unfair trade practices, few legislatures attempt to list every single action that could constitute unfair competition. Instead, most courts which have addressed the issue have concluded that each act of unfair competition must be judged individually on a case-by-case basis.  However, despite the general lack of clear legislative delineations, unfair competition usually encompasses the following categories:

  • Insurance rigging.
  • Deceiving creditors.
  • Slandering a competitor’s products or services.
  • Presenting a competitor’s products or services as your own, or otherwise violating trademarks or copyright law.
  • Predatory pricing or dividing up territory.

If your company has been accused of engaging in unfair competition, you need assistance from a knowledgeable business defense attorney who can safeguard your legal rights and aggressively protect your entity’s best legal and financial interests.  To arrange for a private legal consultation with the experienced attorneys of Bellatrix PC, call our law offices at (800) 449-8992 today.

Predatory Pricing and Misappropriation of Assets

Many people are surprised to learn that predatory pricing doesn’t only apply to usury or gouging (in which, as business owners should be advised, the Federal Trade Commission takes a particular interest).  Counter-intuitively, predatory pricing or “undercutting” also results where consumer goods and services are priced too low.  A deep-pocketed company can always disrupt a market by drastically undercutting the prevailing market rate with the intention of inflating its prices as soon as all the other competitors have been starved into bankruptcy.

Contrary to popular belief, misappropriation in this context does not refer to misappropriation of funds. Misappropriation, when stated mononymically, usually refers to the misuse or unauthorized use ofintangible assets, where those intangibles are not otherwise covered by copyright or trademark law.  Theft of trade secrets falls under this umbrella.

Commercial Disparagement and Tortious Interference

In plain terms, commercial disparagement is the business version of slander and libel, which are separate forms of defamation.  Traditionally, slander refers to oral defamation, while libel indicates injurious statements made in writing.  All forms of defamation involve intentionally false statements made with the intent to damage reputation.

If a competitor makes libelous or slanderous statements targeting your business, you may have a cause of action under commercial disparagement.  First Amendment protections aside, no one has the right to make false statements concerning your business.  Commercial disparagement laws are designed to protect you and provide you with legal recourse if such disparagement causes a financial loss.

Tortious interference occurs when a business, or a group of businesses, convinces a supplier to commit a breach of contract.  It goes without saying that if your competitor is legally able to interlope between you and your supplier, and persuades your supplier to sell you his services for a greater price than he provides to your competitors, you would soon be out of business.  If you suspect that you are in this situation, our business defense lawyers can provide aggressive representation.

The California Unfair Competition Law

Up until 2004, the Unfair Competition Law was very controversial, as the person filing the claim did not need to have been deceived or harmed by the business in question.  Additionally, if the individual won the claim, it would be in his or her name, leaving the business vulnerable to being sued again for the same conduct, since it was not a true class action lawsuit.  As a result, many attorneys were using Section 17200 as an “add on” claim in traditional product liability or torts lawsuits to raise the prospect of a larger payout.  Section 17200 also required attorney’s fees to be paid to the winning attorneys, which motivated lawyers to add on the claim to their current lawsuit.

In November of 2004, the law was updated to more clearly define Section 17200 and Section 17500 with the passing of Proposition 64.  The Unfair Competition Law now requires that a representative claim seeking relief on behalf of others may be brought only by a “person who has suffered injury in fact and has lost money or property as a result of the unfair competition.”  Proposition 64 also added language that cross-references California’s class action statute, meaning all representative actions under Section 17200 or Section 17500 must meet regular class action requirements.

The ability to defend a typical California Unfair Competition Law action requires an in-depth knowledge of this unique statute, a command of the rules and procedures governing class-action litigation and, in many cases, an understanding of substantive areas of law that are used to trigger the Unfair Competition Law violation.  Examples of actions that violate Section 17200 and Section 17500 include:

  • False Advertising and Promotion:
    A business makes a statement in advertising that is either untrue, or is likely to deceive the customer.
  • Misleading or Deceptive Trade Practices:
    A business deceives the consumer as to the quality, source, origin, or endorsement of the product.  Not to be confused with false advertising.
  • “Palming Off” Goods:
    A business portrays its goods to the public as being the goods of another, or originating from another source.
  • Trade Dress Violations:
    A business very closely copies the appearance of a competitor’s product and/or packaging so much that the consumer has trouble telling the difference between the two products.  This issue affects goods ranging from makeup to computers to cigarettes.

While healthy competition in the business world leads to innovation and efficiency, it also increases your risk of being accused of violating California’s Unfair Competition Law.  If your business is concerned about or has been served with a Section 17200 or Section 17500 violation claim, Bellatrix PC’s aggressive Unfair Competition Law attorneys are here to help.  We will carefully and thoroughly investigate the claim, and then work with your team to strategically develop a defense plan.

Call our law offices today at (800) 449-8992 or contact us online to schedule your confidential legal consultation.

Are there any laws I should know about when advertising my business?

Advertising Laws Video YES! Advertising laws are complicated. There are a lot of them. And there are even more urban myths about what rights consumers have (or do not have). But the consumer and advertising laws have a dominant theme: don’t screw your customer and trick them into buying stuff from you. That seems like common sense, right? It isn’t always, though. I have seen many a good company get bit by things like “ladies night” (illegal in California, for example). Anyone who has been reading my blogs for a while knows that I am not a big fan of government regulations. Ladies Night is a perfect example of a regulation having a perverse effect (it’s illegal because it’s gender discrimination!). That being said, I have experiences that make me understand why they exist. For example, I was recently approached by Covington Who’s Who for inclusion in their book and on their website. I said no. They pressed on and repeatedly lowered their price. Finally, they offered me plane tickets as part of an online-only membership for $200. I asked, “what’s the catch?” They told me that the tickets have some restrictions but that was it. Since I fly a lot and can always use plane tickets and networking links into my website, I said “OK.” In retrospect, I shouldn’t have. First off, the catch on the plane tickets is that they require a 5-day hotel stay. Then they processed an order and billed me more than they represented and for the book that I specifically declined. (I never even got the book!) I immediately called them up and protested. The response: “We don’t have a recording of you saying ‘no’ so we will not refund it.” I say, “Do you have a recording of me saying, yes?” Well, of course they don’t. Hey, guys, that’s not how you make an enforceable contract! I’m annoyed. I will prevail because I’m abnormally stubborn. But it wastes my time. (Bonus Advice: if any of you get a call from Covington, tell them your lawyer advises against you affiliating with them because they suck.) All my clients are awesome people and ethical businesses, so I don’t need to tell you to not be like Covington. But I still made a video for you on general things to keep in mind when selling your products.

Are there any laws I should know about when advertising my business? YES! There are several, in fact – too many to list in this video. As a good starting place, keep in mind that the laws embody some general principles:

  1. Whatever you say about your business or products, be honest.
  2. Deal with your customers in good faith.
  3. Don’t send anyone anything they didn’t explicitly ask for.
  4. If it is unlawful discrimination in a shop, its unlawful discrimination online and in advertisements. Be very cautious when engaging in gender or race specific promotions and pricing.
  5. You should have fair and clear contracts governing your business affairs, including on your website or in advertisements.
  6. If you are advertising to children, control your content.
  7. Don’t copy other people’s work.

If you have any questions, ask a business law lawyer before putting out an ad that costs you more than it makes you. You can also see this video and others on Alicia Dearn’s YouTube Channel.

Much Ado About Nothing: Non-Compete Agreements in Employee Contracts

confidential filesAs a business and employment lawyer, I see more unnecessary gnashing of teeth over one issue than any other. Employers really worry that their employees are going to steal their business, take their hard-developed systems or customer relationships to their competitors, or leave as soon as they are trained up to provide value to the rival company down the road.

As a small business owner, myself, I can understand this concern. I do not want to teach my associate lawyers all the tricks of my trade or let them manage clients, only to run off to another firm. But honestly, I do not worry about it that much. Why? Because, first, you cannot control everything, so there is not much point losing sleep over the uncontrollable. And, second, I have many safeguards that I put in place to prevent too much power vested in one employee. No employee is irreplaceable, but I treat the good ones well to keep them around as long as possible. That is no special legal secret; it’s just sound business management.

I do use legal and technological safeguards to protect my business.  But what safeguard do I not bother with? Covenants not to compete! Foremost, in California, covenants not to compete are not enforceable in employment contracts.  That bears repeating: you cannot prevent your employee from competing by contract after they leave your employ. Calling it a non-solicitation agreement does not make it any more enforceable, by the way. California covenants not to compete are enforceable as against your business partners and people from whom you buy a business, but not employees.

In Missouri, non-compete contracts are enforceable. That is indeed the case in most states. But they are strictly limited. They must be narrowly tailored (i.e. conservatively drafted) so as to only prevent realistic harm to the employer and not to restrain trade or the employee’s right to future work. There are no hard and fast rules on how to draft an enforceable covenant, but the general rules are that they must not be too broad in prohibited conduct, included industries, geographical location or too long in time.

But I still do not use them.  Why? Because they are not that strong of a deterrent in my experience, except in the limited cases of high-level executives (like CEOs). And employers are actually protected in several ways from truly bad behavior by employees.  The law provides for protection in these ways:

  • Trade Secrets: Trade Secrets and intellectual property are protected without the need for contracts. Trade Secrets can include product plans and formulations, marketing plans, manufacturing processes, client/customer lists, business practices, and upcoming products. Serious theft by employees carries heavy damages and penalties.
  • Fiduciary Duties: As a general matter, employees are not allowed to compete with their employers while in their employ, and owe their employers duties of loyalty and good faith. The work product created by employees during their employ belongs to the employer and the employee cannot take it, including art work, copywriting, and customer lists.
  • Non-Disclosure Agreements: Employers can require employees to sign confidentiality agreements during their employ to make clear what information cannot be disseminated outside of the company. Then, if the employee takes it, that is theft.  There are basic elements that all NDAs should include: a cogent definition of confidential information; a protocol for handling and sharing confidential information; the length of time that the information remains confidential; contractual penalties for breach. Then you must adhere to the protocols!

Ultimately, it is better to avoid problems than to sue former employees — an expensive, and often ineffective, strategy.  My number one recommendation is to control your data and make sure that no employee can copy and steal it. The main way I control data is by maintaining information on cloud servers with encryption and restricting download or access from unauthorized computers. I will draft agreements when necessary, but life is too short to be embroiled in lawsuits with former employees.

A Short History of California’s Unfair Competition Law

Stock-photo-mazeIn 1933, California passed the Unfair Competition Law, also known as Section 17200 of the Business and Professions Code. At the time of its origination, this law allowed public prosecutors and private citizens, acting for themselves or on behalf of the public as “private attorneys general,” to file lawsuits to protect businesses from the unfair business practices of competitors. By the late 1970s, legislative amendments gradually grew to protect consumers from any “unlawful, unfair or fraudulent business act or practice” and any “unfair, deceptive, untrue or misleading advertising,” also known as Section 17500.

Up until 2004, the Unfair Competition Law was very controversial because it did not require standing for the plaintiff to sue. Essentially, the person filing the claim did not have to be the person hurt by the business practice; the plaintiff did not need to be the one deceived or harmed by the business he or she sued. This is unusual in the law and led to a lot of abuses by “professional plaintiffs” who filed harassing lawsuits just for nuisance value settlements from businesses.

Additionally, even if the plaintiff won or settled the lawsuit, it would be in his or her name only, leaving the business vulnerable to being sued again for the same conduct. That is because the lawsuits were not considered to be true class action lawsuits, so a settlement or judgment had no preclusive effect (no res judicata). As a result, many attorneys were using Section 17200 as an “add-on” claim in traditional torts lawsuits to raise the prospect of a larger payout.

In November 2004, the law was updated once again with the passage of Proposition 64. The Unfair Competition Law now requires that a representative claim seeking relief on behalf of others may be brought only by a “person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” Proposition 64 also added language that cross-references California’s class action statute, which means that all representative actions under Section 17200 or Section 17500 must meet regular class action requirements.

The ability to defend a typical California Unfair Competition Law action requires an in-depth knowledge of this unique statute, a command of the rules and procedures governing class-action litigation and, in many cases, an understanding of substantive areas of law that are used to trigger the Unfair Competition Law violation. Here are just a few examples of actions that violate Section 17200 and Section 17500 include:

  • •False Advertising and Promotion: A business makes a statement in advertising that is either untrue or is likely to deceive the customer.
  • •Misleading or Deceptive Trade Practices: A business deceives the consumer as to the quality, source, origin, or endorsement of the product.
  • •“Palming Off” Goods: A business portrays its goods to the public as being the goods of another or originating from another source.
  • •Trade Dress Violations: A business very closely copies the appearance of a competitor’s product and/or packaging so much that the consumer has trouble telling the difference between the two products.

Despite these changes in the law under Prop 64, many businesses can be surprised by what activities may expose them to lawsuits, even when their activities are innocently done. This law is still routinely used by predatory plaintiffs and competitive companies, alike, to obtain money from a business or quash competition.

Bellatrix PC’s clients and businesses subject to this California law are welcome to contact us to discuss a Business Risk Review to identify and correct potential liabilities or to consult on any threats or active litigation.