Choosing a Business Name

Originally posted on December 26, 2006

Proper Grammar and Usage of Entity Names, Trade Names, Assumed Business Names and Trade Marks in Oregon

Once an entrepreneur decides on a name, they must consider how to maximize the value of that name. They may do several things with it. Lately, the first thing they do is get the universal resource locator (URL) or domain name on the Internet by registering it with one of the various registrars. Sometimes they register a trademark of the same name. Then they register with the Secretary of State to form the legal entity, if they think about it.

These events may happen either all at once or over a period of months. But, this process should be done sequentially first to limit liability, and then to preserve the entrepreneur’s right in time. There are differences between owning, registering and defending a name. At the very least, one should understand the differences, provide proper names, and use them correctly in formal documents and pleadings. Unfortunately, improper usage eclipses proper usage with a great many members of the bar.

Ideally, to limit liability, the first thing to do is to form an entity separate from the proprietor with the Secretary of State, thereby creating the “it.” This is, perhaps, the first defense to having an individual be personally liable for their activities in commerce. Only then can the business person look towards proper usage and grammar of the name to maximize the value and effectiveness of the entity.

While choice of entity is a complex and involved process, some basic considerations are available in the matrix listed as Appendix A to this article. A detailed discussion of those complexities and considerations are beyond the scope of this article, but the reader must recognize that a “person” in much of Oregon statutory law includes business entities. Therefore, the person is a noun, but business names and names used in commerce are seldom that simple.

1.0 Real and True Names

Real and True Names are nouns. These are popularly, and, depending on the circumstances, sometimes inaccurately known as “legal names,” “entity names” or “registered names.” Real and True names[2] may also be registered as assumed business names. For example, if a client incorporates as Acme Inc., they may also choose to register the assumed business name, Acme. You must refer to a company’s real and true business name when registering an assumed business name.[3]

Real and True names include surnames with a combination of the individuals given name and initials (this is common in sole proprietorships); names of domestic or foreign corporations, limited partnerships, business trusts, estates, general partnerships, non-profit, limited liability companies, as stated in the articles, amendments or foreign corporation[4] name as registered with the Office of the Secretary of State. This is optional under the statute[5]as the real and true name provides the public with notice of the entity. While a trademark, service mark, and trade name simultaneously, companies must do so appropriately.

1.1 Real and True Name Punctuation and Search Syntax

Given that the purpose of name registration is to give the public notice of the type of entity, and therefore which laws govern its existence, as long as notice is provided and non-deceptive, that is legally sufficient. For example, Acme Inc. cannot be a limited liability company as Inc. implies Incorporation, and therefore, the corporate form of structure. Recently, law firms were not allowed to have trade names but required to state the constituents of the entity structure. Of course, this is no longer the case.[6] The syntax that is not apparent is how practitioners can limit errors in filings, searching or other matters in representation and due diligence with a client.

When it comes to registering the Real and True name, less is more. Given the search-ability of today’s databases, the conventional wisdom in name registration is to omit punctuation. The more commas, periods and spaces in a name, the less likely it will be found or a searcher will find it. For example, registering Acme LLC is preferable to Acme, L.L.C. The probability I will drop a period or comma is obviously greater in the latter. Acme Corp. and Acme Inc. will require the period for traditional clarity, but searches, depending on the search structure used, may omit the period to get the widest group. Please consult the best natural language, Boolean or proprietary search formats of the database. The various state search structures vary widely, and even the United States Patent and Trademark Office has multiple search syntax options and has different data fields between patents and trademarks for basic information (e.g., separate state field in the address section). This makes searches sometimes tedious and susceptible to error. When in doubt, search all entities.

1.2 Virtues in Broad Due Diligence Searches

Do not assume your client is telling you the correct entity. If the client formed the entity, many times the registration has lapsed or they cannot remember whether a limited liability company or corporation was filed. In these cases, search, search Ajax, or if that is too broad to be managed given time restrictions, search under Ajax LLC, Ajax Limited Liability Company, Ajax L.L.C., Ajax, LLC, Ajax, L.L.C., etc.

There are legal reasons[7] and business reasons[8] to choose the format. So syntax and punctuation of real and true entity names must be reviewed with the client based on their intended goal.

2.0 The Assumed Business Name[9]

Assumed business names must be thought of as pronouns. They represent the actual entity, but are not that legal entity – the noun would be the Real and True Business Name. These are also known popularly as “trade names.” Just as “he” may represent the author, “Carl’s Jr.” may represent Carl Karcher Enterprises, Inc., as in the case to be discussed. They are often used, erroneously, as adjectives but they represent the actual “person” under the law. Often, one rarely sees in print “Microsoft Corporation Software,” which would be similar to saying KKR LLP Services. In “trade,” which includes not for profit enterprises, we generally say “Microsoft Software” or KKR Services. Proper usage is demanded by the law if one wants to efficiently prosecute or defend a name, entity or procedural shortcomings of a client.

Registration of an assumed business name is required in Oregon.[10] This is to provide the public with notice of whom they are doing business with. Logically, a service mark must be registered as an ABN if the public cannot determine the Real and True name of the person[11] as they are associated with the good, service or software as used in trade. The exceptions to registrations include foreign corporations issued a certificate of authority prior to September 20, 1985; a partnership that uses surnames; and a group of 10 or more farmers who associate to form an irrigation project. It has been held that the corporate name of a foreign corporation need not be registered with Secretary of State to qualify as “real and true name” for purposes of ABNA.[12]

The statutory example given is generic and, therefore, imprecise: “Any name that a person uses to identify a business that includes a word or phrase that suggests the existence of additional owne
rs, such as ‘Company,’ ‘& Company,’ ‘& Daughters,’ ‘& Associates,’ or a similar word or phrase, is an assumed business name, unless it is the Real and True name of the person that carries on, conducts or transacts the business.” Many are quick to point out “& Associates” seldom implies co-owners in a law practice, for example.

2.1 Statutory Damages and Legal Fees

If one successfully sues someone for failure to register their assumed business name, damages of $500 may be awarded along with legal fees.[13] This memorializes the need to punish those who play the name shell-game with the public. These claims are generally part of another claim or defense, such as failure to give notice, as was the case in a recent “Carl’s Jr.” personal injury case.[14] In that case, a lengthy dissent discusses the nexus between notice and the statutory requirements of registration, although the actual claim for violation of the registration statute of “statutory negligence” was settled. The dissenting judge believed the plaintiff satisfied the written demand requirement when asking for attorneys fees where $5,500 or less is pleaded.[15]

Failure to register is an additional claim that allows legal fees associated with the harm caused by the failure to register. In various fact patterns, exactly where the proximate cause of the harm ends is a point of skill in advocacy.

2.3 County Assumed Business Name Registrations

Assumed business names are a county by county affair [16] and disputes may involve a county by county examination.[17] Generally, one can register an Assumed Business Name for the same fee in all counties. The intent is for businesses to register in all counties where the business will be conducted under that name. Why would one not register in all counties as a matter of course? If one has knowledge of use of the name in various counties, to use that name may create conflict with ones common law trademarks. As will be more fully discussed below, Trademarks are adjectives, not pronouns and not nouns in usage, but are nouns in the actual asset sense.

3.0 Trade Names

A Trade Name is generally an adjective. It is less frequently an adverb, and may be a pronoun or noun, in certain circumstances. A Trade Name is used to denote a company, business or partnership and its goodwill.[18] A trade name is the broadest label under which one can conduct business. Trade Name means a word, name, symbol, device or any combination thereof used by a person to identify the person’s business, vocation or occupation and to distinguish it from the business, vocation or occupation of others. [19] Therefore, a Trade Name need not be associated with a specific good or service to be offered protection. A Trade Name may be an assumed business name.

In Umqua Broccoli Exchange v. Umqua Valley Broccoli Growers[20] the court was concise on the interaction between common law trademark, trade names and corporate names:

Undoubtedly the word “Umpqua or “Um-Qua” is a geographical word. “Broccoli” is a generic term. The plaintiff cannot acquire the exclusive right to the use of either of these words in its corporate name. The word “Umpqua” or “Um-Qua” has no secondary or particular meaning as denoting the business or products of plaintiff. But use of the name in several places, must be used properly to claim common law cross-over protection from corporate name to the product.[21]

3.1 Comparing Trademarks

A trademark means any word, name, symbol, device or any combination thereof adopted and used by a person to identify goods made or sold by the person and to distinguish them from goods made or sold by others.[22] This may be the actual goods where affixation of the marks is possible, like a digital camera, or the container of goods, for example, spelt flour where affixation on the actual goods is not practical.

3.2 Comparing Service Marks

“Service mark” means any word, name, symbol, device or any combination thereof used by a person in the sale or advertising of services to identify the person’s services and to distinguish them from the services of others.[23] This definition uses the term sale or advertising as a label cannot be affixed to services and a label can be affixed to a good. This is an absolute requirement to prevail as “use” may be used on the goods or their containers, or in association with sale or advertisement of the mark.[24] Use must be Bona Fide use. Selling an article every year to preserve the right, or once every five years is unlikely to be Bona Fide use.

Courts often use Trademark, Service mark and Trade Name interchangeably, and therefore imprecisely.[25] The analysis of trademark and trade name infringement, which may give rise to common law rights, is largely the same.[26]4.0 Trade Marks

A trademark is the right conferred on a party to use a source identifier exclusively or to bar others to trade on the good will created by the party that most aggressively uses the mark first in commerce. Trademarks are used as adjectives and sometimes, adverbs, but are actually a noun and receive intangible asset treatment for taxing purposes[27]. Generally, a mark must be used adjectivally to receive the full extent of its legal protections. If not, it may slip into generic use.

For purposes of analysis, terms that are alleged to be trademarks are regarded as falling on a continuum divided into four categories: generic, descriptive, suggestive, arbitrary and fanciful.[28] This continuum begins with the weakest legal protection, for generic marks, and ends with the strongest, those marks that are arbitrary and fanciful.

To help explain these categories, consider a business offering hunting services . Generic use, such as “Fowlers for Hire” Services, enjoys little, if any protection as a trademark, as it leaves nothing to the imagination and would be used by anyone ordinarily describing the good or service. A descriptive mark, such as AccurateTM only has protection if a secondary meaning[29] has been created. One obtains rights in a descriptive term only through actual use that creates a secondary meaning in the marketplace.

A suggestive mark, such as WhackerTM Services, denotes secondarily a particular product or service type and requires imagination to picture the nature of the product. An arbitrary mark, such as EverlastTM , has no logical connection between the name and the good or service. Finally, a fanciful mark is essentially made up, like KillkudosTM , and has no defining use other than the one the creator makes and associates with his goods or services.

Suggestive and arbitrary terms do not require proof of secondary meaning in order to be protectable as a trademark . A generic term refers to the basic nature of goods and, in the majority view, cannot be protected as a trademark[30]. As an example, Kleenex® is a federally registered mark for facial tissues, indicated by the ® symbol, that is used properly (TM is often used for pending or common law claims to use a mark).. Because of the storied history of this trademark, and its owner Kimberley Clark, the mark is used as an adjective to describe a type of facial tissue. To make absolutely sure, we generally see advertising using the format “Kleenex® bran
d facial tissues.” An example of an adjectival common law mark would be SoftlyTM

Moving Services. Use the mark to describe the good or service, and not as the good or service, which generally is not protectable on the federal level. For example, “Online Bookstore” is not federally registerable but a name like Amazon, generally is. There are a few arguable marks that have been registered federally that require no imagination.

“Mark” is a broad term which may include trademarks, service marks or other things. The mark may be a word, picture, sound, scent or color. A mark is a sensual perceptible identifier that is unique and indicates the origin of the good or service to the public. Overall look-and-feel, color schemes or distinctive designs may be protectable as “trade dress.” To enforce a trade dress claim, the claimant to exclusivity must show the form attained a secondary meaning in the marketplace.[31] The shape of a Weber grill, the layout and design of a McDonald’s restaurant are examples of trade dress.

There are many trademark concepts that are beyond the scope of this article but selection and usage make a difference. For example, marks in a “crowded field,” those with many similar names, such as Acme, Universal, American, etc. are weak, because consumers may have learned to pick carefully from among the marks.[32] Additionally, the case is often won for infringement by the prior user based on confusion. The concept of “reverse confusion”, where a senior user’s market is saturated by a junior user causing the senior user to be wrongly associated with the dominant junior user, occurs in many cases.[33]

4.1 Common Law Trademarks.

Using the mark and creating an evidentiary trail of how the public associates a mark with its source are possible without registration. The mark’s strength exists in its use. Nothing in the statutes undermines a person’s right to the mark, even if there is no registration.[34] Therefore, if a businessperson has not registered, but is able to establish a body of evidence showing that the mark is recognized and used in commerce, the only thing that may be to his disadvantage, may be statutory damages. Damages are available for “registered” marks, including lost profits for intentional infringement.[35]

4.2 State Trade Marks.

For a relatively low fee, regional players can register state trademarks and enjoy some exclusivity in the region. Often names including “Oregon” or a town name may be candidates for state registration where the value and use of the mark outside the state would not justify the expense of a Federal registration. For example, “Wheeler County Dog Walking” may not be used in interstate commerce, therefore, state trademark registration may provide the most robust protection to be hoped for. However, the Corporation Commissioner’s determination of granting a state trademark is not conclusive as the valid right to use the mark. The issuance of a state trademark merely constitutes prima facie evidence of the validity of registration.[36]

4.3 Federal Trade Marks

Federal marks protect goods and services sold in interstate or international commerce. The threshold issue for enforcement is the likelihood of confusion between the source of a chosen mark, with that of another.[37] Much of the discussion on the classes of chosen word applies in the general trade mark discussion above. Generally, you must use the mark to keep it and, generally, if you do not use it for two years, you are said to have “abandoned” the mark. Federally, two years of non-use may be abandonment and three years of non-use is prima facia evidence of abandonment according to Federal law and international treaty.

4.4 International Trademarks

There are limited protections on the international level,[38] with the most robust protections belonging to country by country registration. In the past, this meant hiring counsel in each country where protection was sought. The Madrid Protocol has simplified the application process to some extent, however, for registering trademarks in those countries which are members of the Protocol.[39] While the actual registrations still take place on a country by country basis, the initial registration process is somewhat simplified. The application can be filed through the United States Patent and Trademark office, where it will be certified if it meets the requirements of 37 CFR 711(a). Once the USPTO has certified the application, it is forwarded to the international bureau, along with the appropriate filing fees.

At first glance, this procedural simplicity masks the actual complexity of international trademark protection. First, although the World Intellectual Property Organization systems simplifies the application process, it does not guarantee registration. If an opposition is filed in a country where registration is sought, one must still hire local counsel to assist with the process. Next, there are many considerations both cultural and legal that should be addressed prior to attempting to register marks outside of the United States. These can range from difficult translations of words (which may be offensive in the local language) to the complexity of trademark search process. Finally, even with a streamlined application process, usage and other rules and requirements must be considered according to the local trademark laws. Even if a foreign trademark registration is obtained, vigilance in monitoring the local market as well as compliance with local laws is necessary to continue the protection in that country.

4.5 Domain Names

Domain names are nouns. They represent a location in cyberspace, electronically tangible, and are highly valuable pieces of intellectual property. Depending on their use, a domain name can increase a company’s profile worldwide, and therefore is subject to the risks of worldwide commercial and criminal laws. Trafficking in stolen domain names is a growing problem where names are transferred globally by lascivious entities who hack into registrar’s databases.

A due diligence search must be conducted to eliminate legal risks. Trademark infringement is a risk if one operates a website with a similar domain name offering similar services to a registered or common law trademark. For disputes regarding trademark, litigants may choose to go through a procedural process promulgated by registrants, the UDNDRP forum.[40] This process is not exclusive, nor can it be used for causes of action that do not involve trademark.

Use of domain names and trademarks to assist an inferior mark’s standing or searchability on the internet, may be illegal. This is generally an unfair trade practice under the Lanham Trade-Mark Act.[41] For example, website owners use “metatags” or words embedded in the code of the site to communicate their content to search engines, and increase their ranking in search results. In the Brookfield case, the court discussed the resulting “initial interest confusion” and likened the use of the metatag “moviebuff” (a registered trademark of the plaintiff) to a competitor placing a sign at a freeway exit to divert customers to the wrong store.[42]

Squatting or holding names ransom for large fees has been part of internet litigation since the early days of the world wide web.[43] This has lead to federal legislation to protect the abuse.[44]

There are occasions where another

Swider Haver Announces the Emerging Entrepreneurs Series

Originally posted on October 15, 2008

Most people would be surprised to hear that rocky economic times often lead to a surge in new businesses. Whether it is an employee who is laid off, an amateur inventor, a stay at home parent, an artist or other creative person seeking to sell creative works, or simply someone looking for an additional source of income or a combination of the above, starting a small business is often an attractive alternative to a slow job market and a potential way to diversify one’s income portfolio. To address the needs of these emerging entrepreneurs, Swider Haver will conduct a series of short Friday morning “coffee classes” to focus on some of the needs and concerns of the new entrepreneur.

If you are facing the question of whether to start a business, you may want to include the following seven initial considerations that we will be addressing in the seminar series:

- Ask around for a good accountant; it is often advisable to seek financial advice early, to understand record keeping requirements and implications of appropriately timing your outlay of expenses.

- If you are leaving the workforce, review your employment records to make sure you don’t have any restrictions on your activities or remaining obligations to your present or former employers. If you are subject to a non-compete or confidentiality agreement, seek legal advice.

- If you plan to hire employees, a down market often means there are even more talented and competent people to choose from. You should also be aware of any restrictions they may have vis a vis their former employers.

- Consider whether outsourcing to another company or using independent contractors is appropriate. Although this may be a more cost-efficient way to control your overhead, you should be aware of and comply with the state and federal independent contractor definitions, and carefully comply with a law. Just because you and the other party agree to an independent contractor relationship doesn’t necessarily mean it fits the legal definitions for tax and other purposes.

- Identify your intellectual property early on, and take appropriate measures to protect your patents, trademarks, and copyrights.

- Consider whether some of your ideas qualify as trade secrets, and whether you need to use appropriate non-disclosure agreements in your early negotiations.

- Take steps to formalize your business by discussing with legal and tax counsel what is the most appropriate type of entity for your business model and future plans.

To address the needs of these emerging entrepreneurs, Swider  Haver will conduct a series of short Friday morning “coffee classes” to focus on some of the needs and concerns of the new entrepreneur. Each class will be limited to ten participants, and will be offered periodically beginning December 2008. Course topics will include the items outlined above, and will feature instruction and discussion about topics relevant to the emerging entrepreneur. For more information, or to sign up for notification of upcoming classes, email us at info@swiderhaver.com. Classes will be offered at $20.00, and include coffee, Voodoo Doughnut® and class materials.

Efficient Branding: How Do I Choose a Strong Trademark?

Originally posted on March 18, 2008

A United States trademark protects a word, symbol, sound, device, or any combination thereof that is used as a source identifier for goods or in association with services. In the latter case, the source identifier is sometimes called a service mark.

Choosing a “strong” mark can help to avoid many problems in the future. New businesses rightly labor over which mark to choose and the usual suspects may not be the best: surnames, geographical indicators and generic names all wilt in the light of a creative and fanciful mark. But determining what marks are “generic” and which are “fanciful” requires more than testing the mark with a focus group, but a working knowledge of trademark law. A good trademark attorney is required to do the job right and nothing in this article should be acted upon as legal advice.

A trademark can be “strong” or “weak” depending on the mark selected and how it is used. The following graphic demonstrates the relative strength of different types of marks.

The look and feel of something that acts as a source identifier may be also be protected by trademark law. This “holistic” trademark is called trade dress, which is “essentially [a business'] total image and overall appearance.”[1] Trade dress can encompass many features, including “size, shape, color or color combinations, texture, graphics, or even particular sales techniques.”[2] Popular examples of trade dress are the shape of a car, the decoration of a chain restaurant, or the layout of a retail establishment.

Trademark rights may be acquired by common law, state registration, and federal registration. Common law trademark rights come into existence by mere use of the trademark in commerce. To provide notice of common law rights, the superscript “TM” for trademark or “SM” for service mark should be used after the source identifier. In the example AcmeTM Books, the word “Acme” followed by TM is a trademark. In the example AcmeSM Window Washing, the word “Acme” followed by SM, is a service mark. In both cases, the marks are used as adjectives. A mark should never be used as a noun. In addition to providing notice of common law trademark rights, the superscript TM or SM also helps a mark to acquire secondary meaning and to accumulate goodwill to the identified goods or services. Acquiring secondary meaning is important because marks that are relatively “weak” can become stronger if they have been used for a period of time, and the consuming public has come to associate the mark with a particular good or service.

State trademark registration is often a non-selective process. If the owner of a mark applies to register the mark in a particular state, and if the mark is not already registered in that state, the state will likely grant the registration without further inquiry. Upon registration, the owner of the mark will have an exclusive right in that state to use the registered mark in conjunction with the goods or services described in the application.

Federal trademark registration is more rigorous. The owner of the mark must submit an application to register the mark with the United States Patent and Trademark Office. The application must identify one or more fields of use, or “classes”, of goods and services that the mark identifies. If an applicant desires to file for the same mark in different classes, each class requires a separate application. If the mark is not yet being used in commerce, the applicant may file an intent to use application. If the mark is being used in commerce, the applicant must also submit a specimen showing how the mark is used. The USPTO assigns an examiner to review the application and search for other similar marks. If the examiner agrees that the mark is eligible for registration in the specified class, a notice of allowance is issued. Often, the examiner disagrees and issues an office action. The applicant then has several opportunities to make changes and negotiate with the examiner to get the application allowed.

Once the application is allowed, the mark will be placed on the Principal Register, and the owner will have the exclusive right to use the mark in the United States in connection with the goods or services specified in the registration.[3] In some cases, a mark is not eligible to be placed on the Principal Register right away. Such marks are placed instead on the Supplemental Register. After five years of continuous use, the owner of a mark on the Supplemental Register can apply to have the mark moved to the Principal Register on the grounds that the mark has acquired secondary meaning.

Federal trademark registration[4] is expensive relative to state registration or common law rights. However, federal registration is generally worth pursuing because it provides several advantages, including: (i) constructive nationwide notice of the trademark owner’s claim; (ii) evidence of ownership of the trademark; (iii) access to federal courts for enforcement; (iv) the ability to obtain trademark registration in foreign countries based on the United States registration; and (v) the bility to prevent importation of infringing foreign goods by filing the trademark registration with the United States Customs Service.

1. Geographical Indicators

Geographical Indicators (“GIs”) are indicators that identify a good as originating in the territory of a member that desires association, such as a farmer’s association, or a region or locality in that territory, where a given quality, reputation, or other characteristic of the good is essentially attributable to its geographic origin. GIs are valuable to producers for the same reason that other types of trademarks are valuable – they operate as source identifiers and help to accumulate goodwill. Because GIs are relatively weak marks, they must have acquired secondary meaning in order to obtain federal trademark registration.

2. International Trademarks

There are no “international” trademark registrations that provide protection in multiple nations around world, but there are various mechanisms and regimes that purportedly simplify the process of registering trademarks outside of the United States. The Madrid Protocol is one such mechanism. The Madrid Protocol is essentially a centralized filing system managed through the World Intellectual Property Organization (“WIPO”). WIPO does not confer trademark rights, and the Madrid Protocol does not include substantive trademark law. Rather, the Madrid Protocol provides a mechanism to simplify international registration of a trademark after it has been registered in the office of origin of one of the 72 participating nations.[5] The United States participates in the Madrid Protocol. For example, a United States business seeking trademark protection in the European Union, China, and Japan can file a single application through the USPTO (the office of origin for US-based applicants)[6] to WIPO’s Internat
ional Bureau, and thereby potentially extend protection of the trademark to all three foreign jurisdictions.

Generally speaking, using the Madrid Protocol can lead to savings in translation costs, legal costs, and application fees. The simplified application process thereby lowers one of the barriers to global market entry. Filing for trademark registration under the Madrid Protocol is not, however, the most effective approach for all businesses. There may be costs associated with clearance and prosecution that are not eliminated by using the Madrid Protocol.[7] Companies focused on South East Asia or Latin America do not benefit as much from using the Madrid Protocol since many nations in these regions do not participate.[8] Moreover, the Madrid Protocol does not yet allow applicants to “tweak” their international trademark registrations to localize branding, so a company that does this as part of its business strategy must be prepared to register anew with each change in its trademark.[9]

There are administrative benefits to using the Madrid Protocol in that it acts as a “one stop shop” for administrative procedures and maintenance, but there are also risks. For example, an error in the original registration may be replicated in all Madrid Protocol applications filed in the member states. If the original registration is attacked or cancelled within the contestable period (generally five years after issuance in the United States), all dependent Madrid Protocol registrations will also suffer because of the central filing.

[1] Blue Bell Bio-Medical v. Cin-Bad, Inc., 864 F.2d 1253, 1256 (5th Cir. 1989).

[2] John J. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 980 (11th Cir. 1983).
[3] In some circumstances, a trademark may provide exclusive rights beyond the scope of the goods or services specified in the registration. If the additional goods or services are “logically similar” to the original goods or services, the owner of the mark may be able to claim that the additional goods or services are within the “zone of expansion” for the mark. For example, if a business has a famous trademark for women’s scarves, and a second business begins using the same mark for women’s perfume, the first business may be able to prevent the second business from using the mark because women’s scarves and women’s perfume are both logically considered “first floor department store items.” Scarves by Vera, Inc. v. Todo Imports, Ltd., 544 F.2d 1167 (2d Cir.1976).

[4] Lanham Trade-Mark Act, § 43(a), as amended, 15 U.S.C. § 1125(a).

[5] http://www.wipo.int/madrid/en/members/, last visited April 15, 2007.

[6] Applicants are required to submit their international application through an Office of Origin. Protocol Article 2(2). The Office of Origin is the office of the nation or organization responsible for mark registrations where the applicant is qualified to file. Protocol, Article 2(3). An applicant is qualified to file in a jurisdiction by establishment, domicile or nationality, where establishment means a real and effective commercial establishment in the jurisdiction. Protocol, Article 2(1)(i), (ii). The Protocol provides guidance as to the meaning of these terms, but the contracting party’s laws determine their interpretation. Guide to the International Registration of Marks, Part B, Chapter 2, supra, Section 02.04-02.08.

[7] SME’s or Micromultinationals? Leveraging the Madrid System for International Branding, Roya Gafele, at http://www.wipo.int/sme/en/documents/madrid_system_branding.html , last visited April 15, 2007.

[8] http://www.wipo.int/madrid/en/members/ , supra. [13] SME’s or Micromultinationals? Leveraging the Madrid System for International Branding, Roya Gafele, supra.

[9] SME’s or Micromultinationals? Leveraging the Madrid System for International Branding, Roya Gafele, supra.

Data Security Updates

Data Security Updates
By Martin F. Medeiros, Managing PartnerSwider Medeiros Haver LLP

I. Privacy Policies Must be Followed or Warranty-Like Claims May be Triggered in Marketing Materials
If businesses are unable to perform and ensure their ability to protect privacy claims in marketing materials or privacy policies, expect liability for failure to so ensure. The Federal Trade Commission (FTC), one of the administrative agencies in the United States of America charged with regulating consumer affairs, ruled against one company in a recent decision (In re CBR Systems, Inc.) and ordered a bi-yearly audit for the next twenty years as it found the privacy policy claims marketed to consumers were deceptive, and its unmonitored allowance of employees to handle and transport information about consumers. The FTC concluded the company failed to take adequate steps to prevent, detect and investigate unauthorized access to its computer networks.

II. Important Updates to Children Online Privacy Protection Act (“COPPA”)
The amendments go into effect July 1, 2013 which redefine “operator,” “personal information” and “website or online service directed to children.” Readers and clients must update their privacy policies and processes before this date. The following are important changes:
1. Personal information or Personally Identifiable information (“PII”). Operators cannot collect PII such as geo-location information, photos, and videos from children under 13 without parental consent.
2. Mobile IDs and Internet Protocol (IP) Addresses are now PII. PII now includes persistent identifiers, such as IP addresses and mobile device IDs.
3. Plug-ins etc. Expressly covered. Third parties PII exclusion is now expressly prohibited for child targeted plug-ns, apps, etc.
4. Due Diligence Requirement on PII Release to Third Parties. Effected website operators must take reasonable steps to ensure they only release PII to companies that are competent to secure and maintain confidentiality.
Also, in 2012, the FTC approved safe harbor program for Aristotle International Inc., which is expected to be the model safe harbor for COPPA compliance. To be approved by the FTC, proposed safe harbor guidelines must fulfill three criteria: (i) provide the same or greater protections for children as those contained in the Rule; (ii) set forth effective, mandatory mechanisms for the independent assessment of members’ compliance; and (iii) provide effective incentives for members’ compliance. You can obtain copies of the approved program at: http://www.ftc.gov/opa/2012/02/aristotle.shtm.

III. Important Updates to Heath Insurance Portability and Accountability Act Updates (HIPAA)
New changes concern Personal Heath Information (PHI) became effective March 22, 2013 but the full compliance date for the majority of modifications is September 23, 2013. HIPAA governs the privacy protection of individual health information for “covered entities” (e.g., healthcare providers, health plans and health information clearing houses, etc.). 45 C.F.R. §§ 160, 164. Updates:
1. Privacy Notices. Readers and clients that are “covered entities” must review current notices and resolve discrepancies with the new rules on privacy notices and policies.
2. Subcontractors and Business Associates Now Explicitly Covered by the Law. Parties performing services on behalf of general contracts that create, receive or maintain, or transmit PHI are held directly liable. This broadens or makes the requirement explicit; as an example, any cloud computing service providers, information technology (IT) services, managed services, backup and storage companies who take custody of or transmit PHI or those of their customers are now directly liable for HIPAA non-compliance.
3. Notification Triggers Lowered. Now any “impermissible use or disclosure” is presumed to be a security breach. This clarifies some ambiguity in several instances.

Patents & Trademark Metrics: 2010-2012

Metrics for intellectual property issuance  in Oregon and Washington for 2010-2012 in .pdf.

Regarding patents, Oregon continues to show a growth trend, Washington, reversed a downward trend and shows strong growth in 2012.

A note on patented verses assigned data.  The inventing of a patent does not tell who actually owns the patent, that is the “assignee.”  Swider Medeiros Haver LLP has always tracked both metrics as generally, the assignee exerts more control and more return on the asset.  So while an innovation may happen in a state, that does not mean the owner also resides in the state.  For example, a research facility may have a patent created in Washington, but the corporate assignee may be in Delaware.

Negotiating Enterprise Resource Planning (ERP) Licenses in the Era of Cloud Computing

By Martin F. Medeiros, Managing Partner, Swider Medeiros Haver LLP

Institutions that use Enterprise Resource Planning (ERP) software are under new and constant pressure to make systems cost effective. Discovery of organizational efficiency is the goal.  Saving money on the initial transaction and maintaining an ongoing relationship is a concern.  However, the advent of sophisticated cloud computing applications seems to give organizations, information technology managers and general counsel a great deal of complex decision-making.  ERP vendors are under pressure to maintain and grow market share.  ERP software has proven to save companies tens of millions of dollars when implemented and negotiated professionally. However, when negotiated and implemented poorly, ERP projects have contributed to the dissolution of publicly traded companies. When it comes to difficulties, there are eight recurring themes I’ve noticed in the last eighteen years in negotiating with these providers.

1. Advanced Planning is the Key

Ensure you know what you want and how that fits into the organization, and then name licensing rights accordingly. Recently, it seems software publishers themselves have lost control of the actual product names and associated rights in the product set.  This control loss follows when publishers release a product under one name, discover it is not ready, pull the product, and rename it under something else or integrate it into a new product.  The legacy of thinking on the publisher’s part and the difficulty in the licensee’s part in letting go of the use of the former product may be challenging.  From day one, track licensing types (whether by CPU, site, machine, role, cloud subscription, etc.) and link them to a specific product name and the function on the module and any other restriction, which may even be a named end user. Swider Medeiros Haver LLP uses a universal matrix that keeps varied products, functions, rebranding and licensing rights organized. Planning is needed with regards to: which infrastructure pieces are required; the mix of internal installation of software verses cloud solutions; and how they interface with calls to cloud-based applications. Planning for a de-install if things go sideways is key for this risk mitigation exercise. This includes knowing data portability issues of cloud applications. Periodic testing of what I call “drone” data applications to ensure the cloud application is not corrupting data is also part of a strong risk management strategy.

2. Get the Right Staff on the Project

Managing an ERP takes organized, systematic and savvy team members from information technology (IT), business units, finance and procurement functions. Experienced license and vendor relation managers with their 10,000 hours in are invaluable.  These people make these projects work; the software itself will not solve the problem unless the right people are involved. Finally, note that the procurement negotiators need to realize that these relationships are strategic, never a one-off commodity relationship, but a serial event attended by all the systems and complexities of human interaction.  Experts are required on the front side of the deal and especially in disputes.

3. Licensing Manager Focused on Cost Control

The names, functions and charges of the modules change so you need to ensure that you have a keen idea of what the product set is, who is using it and what the value proposition looks like. As mentioned in another context above, products or modules are pulled off the market, “perfected” and reintroduced years later. Many still pay maintenance / support fees (typically 12-25% on the base license cost) years after the product is de-installed or removed from the market. When managing licenses, pay for the value received.  Avoid paying maintenance / support fees on software you are not running. What is the benefit you are buying?

4. Avoiding Sales Driven Pressure

Licensee must ensure they understand and comply with license terms.  This is a question of process.  Meet with internal folks to verify understanding and have the licensor validate intended use.  In 2011, ERP vendors found themselves under pressure to make the ERP financial model work given the threat of cloud based applications. Now, more than ever, Swider Medeiros Haver is seeing compliance audit teams being used by the sales force to gain concessions. Sales teams are telling licensees they are out of compliance prior to an audit.  In a competitive market, it is not unheard of that the word of a long standing relationship with a trustworthy IT manager is questioned over that of a disgruntled former employee of the licensee.  “Trust but verified” is the rule as misplaced fear opens, and shuts, many wallets.  Using the audit for increased sales is a poor customer relationship management (CRM) tool.

5. Audit Accuracy

When it comes time for the annual “true up,” or even an unplanned audit, ensure you know exactly what the vendor is asking for and that they not only know the product set, but the terms of the licenses. An ambiguous request for an unknown product set can take months to complete, which costs time and money to the licensor, but more so for the licensee.

6. Flexibility

Can you flex up in use or withdraw usage?  Take or pay does favor the licensor but may also corrupt the relationship.  In some industries, CIOs are under similar pressures as if they are a utility operator and must charge fair and reasonable rates for a given business function, in others, cost is not an issue. Should ERP costs get sticky on the upside, reasonable rates become more elusive.  Above all the relationship must be flexible to allow for technological change and change in value and cost.  In cloud computing as with the internet, the consumer is king as choices and price pressure trend downward.

7. Corporate Changes

Corporate changes, mergers, acquisition, divestitures, going public or going private all may have ramifications on your software licensing and can be very costly.  For example, when a company goes public, some data may be pulled from the ERP application which may trigger costs.  If you are on a per data push license, real-time market data reporting, capacity data, usage and other data pushed to mobile devices can ring up charges if the licenses says it can. Determine if a data distribution is part of your intended use.  So a full audit on ERP licensing terms prior to any change in control is essential. So too, per seat charges may increase in a merger or decrease in an asset sale, this may trigger more seat charges, liquidated damages clauses or cause you to incur licensing costs.

8. It’s About the Negotiation

Astronomers say that an asteroid in deep space that is on a collision course with the Earth will miss the target by millions of miles if hit by the force of a paintball in that deep space location; so too can problems, including litigation, be avoided by the parties by negotiating a good manageable license before the software is installed; a few hours spent negotiating critical clauses can save millions down the road in Swider Medeiros Haver’s experience.  Above are a few of the recurring themes, which contribute to optimizing performance in the contractual relationship. All of the above can be addressed in the request for proposal or sales cycle and in any amendment to the original license. The key is to plan where the ERP interfaces with any cloud solution and knowing what rights transfer and when.

Efficient Branding: How Do I Choose a Strong Trademark?

www.swiderhaver.com
Originally posted on March 18, 2008

 

At Swider Haver LLP (www.swiderhaver.com) we treat the hopes, dreams and desires of innovative and creative people as a business. This is not more true than in selection of a trademark.  Choosing the right trademark can be complex and emotional.  It should be a strictly data driven logical decision.  A United States trademark protects a word, symbol, sound, device, or any combination thereof that is used as a source identifier for goods or in association with services.  In the latter case, the source identifier is sometimes called a service mark.

Choosing a “strong” mark can help avoid many problems in the future.  New businesses rightly labor over which mark to choose and the usual suspects may not be the best: surnames, geographical indicators, and generic names all wilt in the light of a creative and fanciful mark.  But determining what marks are “generic” and which are “fanciful” requires more than testing the mark with a focus group; a working knowledge of trademark law is needed.  A branding expert recently told me that the Madison Avenue style of focus group in selecting a good mark, one that will imprint itself in the mind of your customers and potential customers, is falling out of favor.  The issue is that strong marks are personal and must appeal on the individual level.  If we see someone like a mark, we will like it also.  Researcher Robert Cialdini calls this phenomenon “social proof” and its ultimate manifestation has the legal corollary of the “famous mark” doctrine.  A good trademark attorney is required to do the job right and nothing in this article should be acted upon as legal advice as your facts and circumstances vary; therefore, obtain competent counsel in your jurisdiction.

A trademark can be “strong” or “weak” depending on the mark selected and how it is used.  The following graphic demonstrates the relative strength of different types of marks.  Let’s assume we just opened a business and nobody has heard of these marks outside of a handful of people who shop at the store.

Mark Category Book Retailer Name Protection Notes
Fanciful Alantra Strong
Stylized Foondis (stylized spelling that suggests the Swahili word for expert) Strong For foreign translations, the word “expert” should be searched as well
Arbitrary Amazon (for an online bookstore) Strong
Suggestive WeeRead (for a children’s bookstore) Strong-Medium
Surname Powell’s Books Medium
Geographical Descriptor Portland Books Weak
Generic The Book Store Not Protectable

The look and feel of something that acts as a source identifier may also be protected by trademark law.  This “holistic” trademark is called trade dress, which is “essentially [a business'] total image and overall appearance.”[1]  Trade dress can encompass many features, including “size, shape, color or color combinations, texture, graphics, or even particular sales techniques.”[2]  Popular examples of trade dress are the shape of a car, the architectural decoration of a chain restaurant, or the layout of a retail establishment.

Trademark rights may be acquired by common law, state registration, and federal registration.  Common law trademark rights come into existence by mere use of the trademark in commerce.  To provide notice of common law rights, the superscript “TM” for trademark or “SM” for service mark should be used after the source identifier.  In the example AcmeTM Books, the word “Acme” followed by TM is a trademark.  In the example AcmeSM Window Washing, the word “Acme” followed by SM, is a service mark.  In both cases, the marks are used as adjectives.  A mark should never be used as a noun.  In addition to providing notice of common law trademark rights, the superscript TM or SM also helps a mark to acquire secondary meaning and to accumulate goodwill to the identified goods or services.  Acquiring secondary meaning is important because marks that are relatively “weak” can become stronger if they have been used for a period of time, and the consuming public has come to associate the mark with a particular good or service.

State trademark registration is often a non-selective process.  If the owner of a mark applies to register the mark in a particular state, and if the mark is not already registered in that state, the state will likely grant the registration without further inquiry.  Upon registration, the owner of the mark will have an exclusive right in that state to use the registered mark in conjunction with the goods or services described in the application.

Federal trademark registration is more rigorous.  The owner of the mark must submit an application to register the mark with the United States Patent and Trademark Office (“USPTO”).  The application must identify one or more fields of use, or “classes”, of goods and services that the mark identifies.  If an applicant desires to file for the same mark in different classes, a separate application must be filed for each class.  If the mark is not yet being used in commerce, the applicant may file an intent to use application.  If the mark is being used in commerce, the applicant must also submit a specimen showing how the mark is used.  The USPTO assigns an examiner to review the application and search for other similar marks.  If the examiner agrees that the mark is eligible for registration in the specified class, a notice of allowance is issued.  Often, the examiner disagrees and issues an office action.  The applicant then has several opportunities to make changes and negotiate with the examiner to get the application allowed.

Once the application is allowed, the mark will be placed on the Principal Register, and the owner will have the exclusive right to use the mark in the United States in connection with the goods or services specified in the registration.[3]  In some cases, a mark is not eligible to be placed on the Principal Register right away.  Such marks are placed, instead, on the Supplemental Register.  After five years of continuous use, the owner of a mark on the Supplemental Register can apply to have the mark moved to the Principal Register on the grounds that the mark has acquired secondary meaning.

Federal trademark registration[4] is expensive relative to state registration or common law rights.  However, federal registration is generally worth pursuing because it provides several advantages, including: (i) constructive nationwide notice of the trademark owner’s claim; (ii) evidence of ownership of the trademark; (iii) access to federal courts for enforcement; (iv) the ability to obtain trademark registration in foreign countries based on the United States registration; and (v) the ability to prevent importation of infringing foreign goods by filing the trademark registration with the United States Customs Service.

1.                  Geographical Indicators

Geographical Indicators (“GIs”) are indicators that identify a good as originating in the territory of which a member desires association, such as a farmer’s association, or a region or locality in that territory, where a given quality, reputation, or other characteristic of the good is essentially attributable to its geographic origin.  GIs are valuable to producers for the same reason that other types of trademarks are valuable – they operate as source identifiers and help to accumulate goodwill.  Because GIs are relatively weak marks, they must have acquired secondary meaning in order to obtain federal trademark registration.  An example is “Champagne” which is a region in France that makes sparkling wine.

2.                  International Trademarks

There are no “international” trademark registrations that provide protection in multiple nations around world, but there are various mechanisms and regimes that purportedly simplify the process of registering trademarks outside of the United States.  The Madrid Protocol is one such mechanism.  The Madrid Protocol is essentially a centralized filing system managed through the World Intellectual Property Organization (“WIPO”).  WIPO does not confer trademark rights, and the Madrid Protocol does not include substantive trademark law.  Rather, the Madrid Protocol provides a mechanism to simplify international registration of a trademark after it has been registered in the office of origin of one of the 72 participating nations.[5]  The United States participates in the Madrid Protocol.  For example, a United States business seeking trademark protection in the European Union, China, and Japan can file a single application through the USPTO (the office of origin for US-based applicants)[6] to WIPO’s International Bureau, and thereby potentially extend protection of the trademark to all three foreign jurisdictions.

Generally speaking, using the Madrid Protocol can lead to savings in translation costs, legal costs, and application fees.  The simplified application process thereby lowers one of the barriers to global market entry.  Filing for trademark registration under the Madrid Protocol is not, however, the most effective approach for all businesses.  There may be costs associated with clearance and prosecution that are not eliminated by using the Madrid Protocol.[7]  Companies focused on South East Asia or Latin America do not benefit as much from using the Madrid Protocol since many nations in these regions do not participate.[8]  Moreover, the Madrid Protocol does not yet allow applicants to “tweak” their international trademark registrations to localize branding, so a company that does this as part of its business strategy must be prepared to register anew with each change in its trademark.[9]

There are administrative benefits to using the Madrid Protocol in that it acts as a “one stop shop” for administrative procedures and maintenance, but there are also risks.  For example, an error in the original registration may be replicated in all Madrid Protocol applications filed in the member states.  If the original registration is attacked or cancelled within the contestable period (generally five years after issuance in the United States), all dependent Madrid Protocol registrations will also suffer because of the central filing.


[1] Blue Bell Bio-Medical v. Cin-Bad, Inc., 864 F.2d 1253, 1256 (5th Cir. 1989). [2] John J. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 980 (11th Cir. 1983). [3] In some circumstances, a trademark may provide exclusive rights beyond the scope of the goods or services specified in the registration.  If the additional goods or services are “logically similar” to the original goods or services, the owner of the mark may be able to claim that the additional goods or services are within the “zone of expansion” for the mark.  For example, if a business has a famous trademark for women’s scarves, and a second business begins using the same mark for women’s perfume, the first business may be able to prevent the second business from using the mark because women’s scarves and women’s perfume are both logically considered “first floor department store items.”  Scarves by Vera, Inc. v. Todo Imports, Ltd., 544 F.2d 1167 (2d Cir.1976). [4] Lanham Trade-Mark Act, § 43(a), as amended, 15 U.S.C. § 1125(a). [5] http://www.wipo.int/madrid/en/members/ last visited April 15, 2007.  [6] Applicants are required to submit their international application through an Office of Origin.  Protocol Article 2(2).  The Office of Origin is the office of the nation or organization responsible for mark registrations where the applicant is qualified to file.  Protocol, Article 2(3). An applicant is qualified to file in a jurisdiction by establishment, domicile or nationality, where establishment means a real and effective commercial establishment in the jurisdiction.  Protocol, Article 2(1)(i), (ii).  The Protocol provides guidance as to the meaning of these terms, but the contracting party’s laws determine their interpretation.  Guide to the International Registration of Marks, Part B, Chapter 2, supra, Section 02.04-02.08.  [7] SME’s or Micromultinationals?  Leveraging the Madrid System for International Branding, Roya Gafele, at http://www.wipo.int/sme/en/documents/madrid_system_branding.html , last visited April 15, 2007. [8] http://www.wipo.int/madrid/en/members/ , supra. [13] SME’s or Micromultinationals?  Leveraging the Madrid System for International Branding, Roya Gafele, supra.  [9] SME’s or Micromultinationals?  Leveraging the Madrid System for International Branding, Roya Gafele, supra.

 

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Crowdfunding and Social Entrepreneurs

By Tichelle A. Sorensen

One of the challenges for any small business, including social enterprises, is the ability to raise sufficient capital to fund start-up or ongoing business operations.  Usually an entity’s ability to raise capital is limited in two areas:  first, identifying potential investors and securing the investment; and second, complying with the US Securities and Exchange Commission’s (SEC) regulations.  While securities regulations were implemented largely to protect potential investors and the public from fraud and other harmful business practices, the practical effect is that understanding and complying with the regulations in order to raise money – even where you have an identified investment source, or sources – can be complex and expensive.

For social enterprises, raising capital can be even more difficult.  Small businesses of all kinds are challenged to find financial support, but social entrepreneurs face the additional challenge of connecting with like-minded investors – investors who understand and support the social mission and are willing to invest in a company that prioritizes a social mission (in some cases, over increasing profits in a way that contradicts that mission.)

For these reasons new online models which enable entrepreneurs to market their projects inexpensively to many possible funders has gained popularity among social entrepreneurs.

Current Complexities and Limitations to Crowdfunding  

Some entrepreneurs are able to build effective campaigns on websites like Kickstarter and Indie GoGo, successfully raising enough money to complete their proposal.   Online platforms such as these have provided an avenue for project-based funding for innovative and creative individuals and entities.  But these sites are only useful to certain categories of entrepreneurs – those who have the type of offerings that can fit the specific project funding model criteria, with either tangible products (films, books, artwork, etc.) or intangible experiences (music performances, guest lectures, etc.) that can be given to the participant in exchange for their financial “investment.”

In these cases, supporters of such projects are not “investors” in the traditional sense.   While they may invest financial resources in a certain project or undertaking, they do so with the understanding that they will not share in the risk or reward of the company’s overall operations as a true investor would.   Their participation may help propel the business’ operations forward, but the only direct return they can expect is whatever item or experience is offered in connection with that project.

By contrast, an investor in the typical business scenario is interested in the opportunity to participate in the growth and financial success of a business in an ownership role.  In the securities sense, an investor has the expectation of a profit or potential profit.  An evidentiary instrument of this expectation is part of the investment agreement, typically in the form of a debt instrument, such as a promissory note, or an equity instrument, such as a stock certificate.  Along with this expectation, investors also share in the risks.  If the company fails, the investment is often lost.

Jumpstart Our Business Startups (“JOBS”) Act

For those social entrepreneurs that are seeking investors to participate in their company, the Jumpstart Our Business Startups (“JOBS”) Act, signed by President Obama on April 5, 2012, may open the door to opportunities for true crowdfunding, meaning the ability to raise capital by offering an ownership interest in the venture through crowdfunding portals.   The JOBS Act could help simplify the process of complying with securities regulations, as well as allow for a greater ability to promote the project to potential investors.

There are two noteable provisions of the JOBS Act that may be of interest to social entrepreneurs.  First, the JOBS Act amends Rule 506 of Regulation D of the Securities Act.  The practical effect of this change would allow more widespread advertising or general solicitation for investment, but only where all purchasers are “accredited investors.”  An accredited investor is a category of sophisticated purchasers that includes company officers and directors, banks, certain charities and trusts, and high net worth individuals. (For more information, on accredited investors, please visit http://www.sec.gov/answers/accred.htm)  So, for a social enterprise that is seeking investment specifically from accredited investors, this could allow for broader media and advertising campaigns which could also help the enterprise communicate its mission and build its brand at the same time it is seeking investment.

The more compelling piece of the JOBS Act however is the provision that would allow for crowdfunding.   This would allow entrepreneurs to seek funding through online portals, where they could connect with potential investors who could enter into equity purchase transactions.   The portal operator would be responsible for ensuring that investors have an appropriate understanding of the risks of investing, and that the investor has not exceeded the law’s limits on individual investment (which are based on the investor’s income.)

For now, we can only guess how the provisions of the new law will be implemented in practice.  The SEC requested additional time to implement the changes to Rule 506.  The draft changes are not expected until later this year.

Despite the potential benefits of the new law, the JOBS Act will not eliminate the transactional costs for the entrepreneur.   Companies using crowdfunding portals would still need to provide financial analysis and disclosures, and comply with ongoing reporting requirements.  Additionally, closely held companies who have never worked with outside investors may need additional assistance understanding and complying with proper governance and recordkeeping procedures.  For social entrepreneurs, this would also mean the need to better understand how to protect the social mission of the organization, perhaps by taking advantage of newer forms of entity available in some states, such as benefit corporations.

As always, before taking steps to offer or sell securities to any third party, all entrepreneurs (including social entrepreneurs) should seek advice from competent legal and financial counsel.  This article is not intended as legal advice, and may not be relied on as such.