San Jose Business Lawyers Blog

Articles Posted in Limited Liability Companies

At the end of June 2015, the Supreme Court of the United States (SCOTUS) published several opinions, including the highly-publicized decision that ruled all bans on same-sex marriage unconstitutional. While most of America was focused on the equal rights decision, there were two additional decisions regarding the use and protections of patents and copyrights that may be highly important to business owners and entrepreneurs.

Kimble v. Marvel Enterprises

Owners of patents may license their invention to others to use, to sell, to manufacture with, or to advertise for sale. In return for the license, the patent owner collects royalties. Some patent holders have long-lasting royalty agreements with companies that depend upon the technology to operate.

In 1964, the Supreme Court ruled in Brulotte v. Thys Co. that a patent holder should not be allowed to collect royalties after the patent had expired and that doing so would constitute unlawful misuse of a patent. This caused significant issues in existing royalty and licensing agreements that had to be renegotiated, as well as changed the way licensing agreements were set up in the future.

In the recent case of Kimble v. Marvel Enterprises, Stephen Kimble wanted to collect disputed royalty payments from Marvel for a Spider-man toy he patented in 1990. However, patents expire after 20 years, so both the district and appeals courts found that, under the Brulotte decision, Kimble was not entitled to any royalties since the patent expired in 2010. Kimble appealed, arguing that SCOTUS should overrule its previous decision and allow patent holders to continue to collect royalties after patent expiration. Ultimately, SCOTUS decided that the precedent from Brulotte would stand as Kimble did not present enough justification to overturn it. In particular, Kimble argued that the Court should use a “rule of reason” standard and analyze the anticompetitive effects of royalties following the expiration of a patent on a case-by-case basis. Kimble also argued that Brulotte stifled technological innovation. The Court disagreed on  both accounts, holding that Kimble failed to provide evidence sufficient to overturn longstanding precedent.

Oracle America, Inc. v. Google, Inc.

The second intellectual property case appealed to the Supreme Court involved software licensing. In 2007, Google introduced the new software development kit for Android phones utilizing its own versions of Java applications programming interfaces (APIs). Google did not have a formal license from the maker of Java, Sun Microsystems, to use the Java technologies. When Oracle subsequently purchased Sun Microsystems in 2010, Google and Oracle were unable to reach an agreement after protracted negotiations. Oracle then filed suit for patent and copyright infringement. The issue under appeal was limited to whether Google infringed Oracle’s copyrights in 37 packages of source code contained in the Java API. At trial, the jury brought back a verdict of copyright infringement against Google with respect to the 37 packages, but also determined that Google did not infringe on Oracle’s copyright with respect to eight decompiled security files. The jury deadlocked on the issue of fair use.

The district court set aside the jury’s verdict and determined that the Java API’s were not copyrightable. The district court argued that Google had written its own code under the Java API and that an API method or function itself was not original enough to warrant copyright protection, holding specifically that the expression of the code, which is copyrightable, and the function of the code, which is not copyrightable, had merged.

The Ninth Circuit reversed the district court’s decision, ruling that a “structure, sequence and organization” of an API could be protected by a copyright. Because the code could have been written in multiple ways at the time of its creation, the code is original and unique. The Ninth Circuit’s analysis differentiated between the copyright in the APIs and the infringing uses. Google argued that the code was not unique and it copied the code only because there was no other way to write it. The Ninth Circuit determined that whether the code could have been written in multiple ways is determined from the position of the creator at the time of creation, not the infringer at the time of infringement. Oracle presented sufficient evidence that at its inception the creators of Java had multiple ways to write the code. Second, whether the infringement is defensible, namely because the expression and function of the code had merged, is an affirmative defense and a separate question from whether the code is copyrightable.

The Ninth Circuit reversed the District Court’s decision and remanded the case for determination of the fair use issue. Google appealed to the Supreme Court on the central issue of copyright.

SCOTUS denied certiorari and, therefore, the decision of the Ninth Circuit stands. This is a curious result, because the Ninth Circuit’s opinion explained in detail that the circuit courts are split in their analysis of copyright under 17 USC 102(a) and infringement under 17 USC 102(b). Why the Supreme Court did not take the opportunity to interpret the Copyright Act and put an end to the circuit-split is unclear. Denials of writs of certiorari rarely come with explanations. It is unclear where the denial of review upholds the Ninth Circuit analysis, which clearly spelled out how the courts in the Ninth Circuit will analyze copyright and infringement, or leaves it for the circuit courts to figure out. In short, had this case been held in another circuit court it could have easily resulted in a different opinion, leaving makers of computer code with unclear results depending in which circuit the code is created.

The case will now return to the District Court for a determination of Google’s “fair use” defense. We are sure to see this case again as neither side appears ready to back down.

This is an important decision for any companies or individuals who are in the business of developing software or using third-party development tools embedded in proprietary programs. Prior to development, you should discuss any possible copyright, infringement and licensing issues with an experienced intellectual property attorney. At the Structure Law Group, our skilled IP attorneys regularly assist business these and other types of intellectual property matters. If you need any type of legal assistance with your business, call today at 408-441-7500 for help.

The robust expansion of the Internet and increased accessibility of Internet-enabled devices has provided entrepreneurs and existing businesses an easy and relatively inexpensive way to reach millions of people. One only needs to look the meteoric rise of companies like Amazon and Netflix to see the growth potential of an Internet-based business.  In fact, many types of businesses which once were required to have a bricks-and-mortar presence can now operate solely online, significantly cutting their overhead costs. One only needs to look at the rise of companies like Amazon and Netflix to see the growth potential of an Internet-based business.

Because of this potential, more and more people are choosing to start their own online business selling goods or services to people around the country and even the world. While the Internet has removed many of the barriers of entry that have traditionally kept many people from starting a business, it has also created significant and new legal issues that business owners must consider before building a website and selling their product. It is for this reason that anyone considering starting an online business should discuss their situation with an experienced lawyer. Some of the more important issues related to starting an online business are discussed below.

Type of business entity

The type of business entity you choose for your business can have a significant impact on your personal liability for business debts as well as the amount you will pay in taxes. There are a number of entities to choose from, including partnerships, limited liability companies, or corporations. The one best for your business will depend on a variety of factors, including the type of operation you are running as well as your plans for growth.

Choosing a unique business name

Prior to the Internet, small business owners did not need to be concerned about whether there was another business with the same or a similar name operating halfway across the country.  This is because local or regional businesses were unlikely to be confused with one another and were practically incapable of competing with one another. With the reach that the Internet can provide, choosing a business name that is too similar to another business’s name risks a costly and time-consuming trademark infringement suit.

Compliance with federal and state regulations

Many types of businesses are subject to federal or state regulations. Importantly, while you may be in compliance with the regulations of your state, if you do business with an out of state customer or client, your business may be subject to the regulations of the state in which your customer resides. Consequently, it is important to research the laws in any state in which you may do business to ensure that you are in violation of the applicable regulations.

Contact a San Jose business law lawyer today to discuss the legal issues related to your internet based business

An online presence has become a near-necessity for a business in virtually every industry. In addition, the Internet allows businesses to reach an unprecedented number of potential clients and customers than ever before. While the internet can be an excellent tool for growing a business, it can also expose a company to additional legal liability and regulatory oversight. As a result, anyone who has started doing business online or is planning on implementing an online presence for an existing business should discuss their circumstances with an experienced lawyer. To schedule a consultation with one of our experienced San Jose business lawyers, please call Structure Law Group today at 408-441-7500.

For many new and existing businesses, their intellectual property (IP) may be by far their most valuable asset. Intellectual property can include literary works, software code, processes, formulas, manufacturing specifications, marketing plans, or designs.  In some cases, a company’s ideas may literally be their only asset – consider, for example, an individual with the idea for the next smartphone app that will be downloaded by hundreds of millions of people. She, and any company that she forms to develop that app, have the asset of that idea before even a single line of code is written. Of course, it is only natural to want to protect that asset from misappropriation by other parties. In many cases, the best way to achieve this goal is to use a non-disclosure agreement (NDA) with any other parties with whom the idea may be discussed.

What is a Non-Disclosure Agreement?

Fundamentally, NDA agreements are contracts between two or more parties that outline information that they wish to share with each other but not with other parties. There are two main types of NDA agreements, which are:

  • One-Way NDAs – Also known as a “unilateral non-disclosure agreement,” this type of NDA restricts one party from disclosing information to another third party.
  • Mutual NDAs – This type of non-disclosure agreement, which may also be called a “bilateral non-disclosure agreement,” is often used when two parties need to disclose confidential information to each other in order to be able to work together. They restrict both parties from disclosing certain information to others.

Sticking with our app-developing entrepreneur, let us further imagine that she has a degree in marketing and does not know the first thing about developing a smartphone app. In order to bring this app to market, then, she must hire a company or partner up with someone else who has that expertise. In order to do so, however, she needs to disclose certain information about the app that would potentially allow another party to take the idea and develop it themselves. In these cases, a NDA agreement can operate to prohibit any party with whom she discusses her idea from disclosing its details to others. NDAs can be used to protect a variety of information that may be valuable to your business. Among the most common include:

·         Manufacturing processes

·         Business strategies

·         Software

·         Machines and devices

·         Designs

·         Formula

·         Business models

·         Sales contacts

·         Recipes

·         Artistic or literary works

 

Contact a Silicon Valley business lawyer today to discuss your legal matter

Businesses that are seeking to protect their intellectual property from misappropriation should discuss their circumstances with an lawyer as soon as possible. Call the Structure Law Group today at (408) 441-7500 to schedule a consultation with one of our San Jose business lawyers.

There are pros and cons to including an arbitration clause as part of your contractual agreements. Arbitration is a popular and can be effective forum for settling disputes between individuals, businesses, in real estate contracts and in employment settings under the right circumstances. There are two types or arbitration clauses:  non-binding and binding.

 

Non-Binding Arbitration

In non-binding arbitration, the arbitrator makes a decision to determine which party is liable and then suggests possible compensation for damages. Neither party is obligated to follow through with these guidelines.

Binding Arbitration

Binding arbitration is the opposite. The decision-maker hands down a ruling of liability and also assigns penalties. An arbitration clause can be binding in most contracts but California allows for the clause to be ignored if all parties agree to the change. Here are the advantages and disadvantages of having an arbitration clause.

3 Pros of Having an Arbitration Clause

  1. Saves Money

Arbitration is usually much cheaper than going to court and may be a viable option to save money. If the dispute continues to litigation, costly fees associated with depositions, uncovering evidence and pre-trial meetings follow.

  1. Speed of Decision

A case in litigation can take many months or years to conclude while having an arbitration clause may resolve the dispute much faster, usually averaging 475 days.  Arbitration has more relaxed rules of pleading and evidence in comparison to litigation rules.

  1. Confidentiality

Arbitrations can be held in private are subject to rules concerning confidentiality, so the parties that especially prize privacy are not exposed to public scrutiny.  Despite the fact that proceedings may be transcribed, arbitrations have no “public record.”

3 Cons of Having an Arbitration Clause

  1. Only One Decision-Maker

While litigation usually leaves the final decision to a panel of jurors, arbitration has only one arbitrator (who can be hand-picked) who passes down a decision of liability. Without an impartial jury vote, your case may be treated unfairly or receive a fraction of the required attention.  There is rarely a right to appeal if a mistake is made.  Further, arbitrators can make decisions on what they perceive to be fair, rather than what the law directs.

  1. Can Become Costly

The process of discovery is becoming more prevalent in arbitration, which not only lengthens the time of arbitration, but also the cost.   Unlike traditional court proceedings, wherein judges are compensated by the state, parties to an arbitration must pay the arbitrators out of their own pockets.  Many arbitrators charge hundreds of dollars per hour.

  1. Possibility of Unnecessary Claims

Arbitration may be taken less seriously than a lawsuit in court so some parties may treat it more like mediation. Necessary or frivolous disputes may not be weeded out through procedural processes normally applicable in court.

Having an arbitration clause can save time and money, but it may also be biased or lack the necessary procedural filters of litigation. An experienced attorney can help you navigate the legal system and determine if this is the right choice for you.

About Structure Law Group, LLP

Structure Law Group is a San Jose based law firm that serves its clients’ business, employment and real estate needs, including but not limited to business formations, debt and equity investments, employment agreements, commercial leasing and purchases, commercial contracts and related litigation.

The possibility of a hostile takeover is a very real concern for many publicly traded companies. A hostile takeover can occur in a number of ways, but one of the most common is purchasing enough stock on the open market to obtain a controlling majority. The main characteristic that defines a corporate takeover as “hostile” is the fact that the transaction is opposed by the target companies’ management.

Corporation Corkboard Word Concept with great terms such as business, public, articles and more.

In many cases, a shareholder rights plan, often referred to as a “poison pill,” is an extremely effective tool to prevent hostile takeovers of publicly traded corporations. Basically, these plans trigger rights for existing shareholders that, when exercised, make the potential transaction much less attractive for a potential buyer. As a result, potentially hostile acquiring parties are then economically incentivized to negotiate with the target company’s board of directors, strengthening the target’s bargaining position.

While there are many potential types of shareholders rights plans, two of the most common are “flip in” and “flip-over” plans, which are detailed below.

“Flip-in” shareholder rights plans

In this type of plan, existing shareholders of a company are able to purchase addition shares of stock at a discount but does not offer the acquiring party the same opportunity. As a result, the value of the shares that were purchased are by the acquiring party are diluted due to the market being flooded by new shares, as well as providing the existing shareholder with immediate profit due to the difference in the discounted and market value of the shares purchased.

“Flip-over” shareholder rights plans

On the other hand, a flip-over plan allows existing shareholders to purchase the shares purchased by the acquiring party at a discount. When exercised, this type of right causes dilution and devaluation of the acquiring party’s shares.

In order to be effective and legally enforceable, a shareholder rights plan must be properly drafted, structured, adopted, and exercised. For this reason, any company considering protecting itself from hostile takeovers by using a shareholder rights plan should consult with an attorney familiar with them.

Contact a San Jose business lawyer today to schedule a consultation

In many cases, an effective and enforceable shareholder rights plan can help ensure that a company is able to strengthen its position when approached by a potential buyer as well as defend itself from hostile takeover attempts. As a result, any business that is considering going public should discuss the implementation of any plan with an experienced San Jose business attorney. To discuss your options with one of our lawyers, please call the Structure Law Group today at 408-441-7500.

Historically, only general or limited partnerships were used for investing in real estate, but over the past decade, forming a Limited Liability Company (an “LLC”) has become a more popular choice for real estate investors. An LLC formed for real estate investment purposes is not very different from a regular limited liability company, and the steps for formation are very similar. Here are 4 benefits of using an LLC instead of a partnership or a corporation for real estate.

LLC - Purchaseing REal Estate

 

 

 

 

 

Continue Reading

Many business owners rely on ideas, formulas, inventions, and other types of intellectual property (IP) in order to make a profit. In fact, IP can be one of the most valuable assets of a company. Your specific product, brand, and other identifiers are often the components that define you and set your business apart from others. Therefore, protecting your IP is extremely important to the success of your venture. In order to prevent others from misappropriating your valued intellectual property, you always want to obtain formal legal protections.

trade secret

There are many options for protecting your IP, and choosing the right one may be confusing for business owners who are not familiar with the relevant laws. Many business owners receive denials for their applications for patents, trademarks, and copyrights and do not know what their options are from there. Fortunately, an experienced business attorney can help you achieve trade secret status for your IP, which may actually be more beneficial than other protections in several ways. Continue Reading

Purchasing real estate for investment purposes can be an excellent decision for individuals and businesses alike. Real estate tends to appreciate over the long-term, and both residential and commercial investment properties can generate significant rental income while building equity. Unfortunately in spite of the benefits, investment properties can also expose investors to significant legal liability as well.

Whether your property is an apartment building or a retail lot, issues that commonly arise within a building all have the potential to cause serious injury or financial loss. Fortunately, forming an LLC can help limit real estate investors’ personal liability and protect them from potential financial disaster.

 llc

LLCs Protect Investors from Personal Liability

An LLC, or limited liability company, is a type of business formation that combines the liability protections of a corporation with the flexibility afforded by a partnership. They are particularly attractive to smaller companies and individual investors. LLCs can be owned by individuals or other businesses. Continue Reading

If you’re thinking about starting a nonprofit, there are some steps to take before you begin. Forming a nonprofit organization is much like starting a regular corporation, except there are several additional steps you must take to ensure tax-exempt status, which includes a rigorous application process. Here are some common questions and their answers about forming a nonprofit organization.

nonprofit word in letterpress type

Forming a Nonprofit Organization: Common Questions and Answers

What does ‘501(c)3’ mean?

Being a 501(c)3 corporation means a company has been approved by the IRS as a charitable organization, exempt from specified taxes. The IRS may grant your nonprofit organization tax-exempt status if the nonprofit was formed for religious, charitable, scientific, literary or educational purposes, so long as the nonprofit does not distribute profits to individuals above reasonable compensation. Continue Reading

January 1st brought 930 new California laws which are enforceable in the new year. We’d like to share some of the new and relevant laws for 2015 that may affect you and your business activities. Here are 7 new federal and California laws that took effect January 1st.

Signing contract

7 New Laws for 2015

  1. Driver’s Licensing

Experts expect more than a million applications for California driver’s licenses to flood the DMV offices following new laws allowing non-U.S. citizens without documentation to get driver’s licenses. Continue Reading