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Guidelines for Picking a Company Name

An emerging company’s name can be as important as its product. Names, logos, and branding can have an extraordinary effect on individuals and businesses, as consumers, and can shape the marketplace so directly that a nonsensical word like “uber” can come to identify a multi-billion dollar company. Since company and product names can be so powerful, it is important to be deliberate and intelligent in naming your startup.

The best protection for a company or product name is a trademark, but not all trademarks are alike. Names that are arbitrary or fanciful have the greatest trademark protection. Fanciful marks have no meaning and exist only for the purpose of branding.  Whereas, arbitrary marks have a common meaning, but do not describe the product or service itself. Examples of fanciful marks include Exxon and Kodak – words created for the purpose of branding. An example of an arbitrary mark is Apple – the common meaning of the word related to fruit has nothing to do with computers and electronics. Arbitrary and fanciful names have the highest levels of protection, and are therefore great assets for companies.

The next level of trademarks are suggestive marks. These marks may be desirable for companies because they can speak to the nature of the products, thereby notifying consumers of the nature of the goods or services being provided. For the same reason, the trademark protections are not as strong. Examples of suggestive marks are Greyhound for the bus line and Jaguar for the automotive company. These marks suggest the nature of the good or service, but require “imagination, thought and perception” from consumers. Suggestive marks can be difficult to trademark, however, because the line between suggestive and descriptive marks is sometimes hard to define.

The US Patent and Trademark Office is disinclined to issue trademarks for descriptive marks – unless they obtain secondary meaning. Just as the name suggest, descriptive marks speak directly to the good or service provided. These marks cannot be trademarked until a company can prove that the name has acquired a secondary meaning where consumers associate the name with a particular product, which usually requires five years and significant advertising budgets to prove. Startups without the luxuries of time and money are encouraged to avoid descriptive marks.

The last category of marks are generic marks. The US Patent and Trademark Office does not issue trademarks for generic marks and there are, therefore, no protections for these marks because they directly and generically describe the company’s product or services. The name “Emergency Dental Center” would never pass for an office that provides emergency dental services because it is completely descriptive of the services.

Startups should think very carefully before naming their company and products. A fanciful or arbitrary name can usually be easily trademarked and provides the company with the greatest extent of protection. A strong name with high levels of protection is likely to become one of the greatest assets for an emerging and developing enterprise.

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George A. GellisGuidelines for Picking a Company Name

Supreme Court decision likely to increase Trademark owners’ costs

The Supreme Court settled a divisive trademark issue in Hana Financial, Inc. v. Hana Bank, et al. The Justices decided that the legal concept of “trademark tacking” should be analyzed by a jury, in the event of a lawsuit, instead of a judge. The decision may not seem important to anyone unfamiliar with “trademark tacking,” but it will likely result in higher litigation costs for any trademark owner who has to protect their registered trademarks in court.

The concept of trademark tacking allows a trademark owner to alter a registered trademark and still keep the legal protection of the original mark. The only requirement is that the new mark must be the “legal equivalent” of the old mark. The test for this determination is that consumers must consider both marks to be indistinguishable. If the new mark meets the standard, it is afforded the legal benefits associated with the original mark. Trademark tacking exists because the Courts realize that trademark owners change their marks to modernize or adjust to market conditions.

The decision in Hana Financial makes sure that the question of what a typical consumer would consider “legal equivalents” is decided by a group of, presumably, typical consumers – the jury. The Supreme Court’s decision seems logical when considered that way. However, the ruling will have several implications for any trademark owner who has to defend a trademark in court. Any lawsuit that involves trademark tacking will now, likely, be more expensive. Matters of law can be decided by the judge at many stages of litigation and do not always require a full trail, which limits the costs and time associated with a lawsuit. Now that trademark tacking is determined by a jury, a full trial with discovery on the matter will be required. A potential unintentional benefit to this increased litigation cost is that fewer trademark tacking cases may be filed altogether. A second big concern for trademark owners is the increased uncertainty associated with jury determinations. A jury consists of a different group of people in every trial. Trying to guess how a hypothetical group of people will decide an issue is much more difficult than guessing how a judge who handles a lot of trademark lawsuits will rule.

The Supreme Court’s decision in this case will not have a direct impact on many people’s lives. However, all trademark owners should be mindful of this when making alterations to trademarks or contemplating litigation.

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George A. GellisSupreme Court decision likely to increase Trademark owners’ costs

Employer updates for the New Year

At the turning of the calendar year, several laws affecting employers’ obligations changed, which are very important for those employers – especially small business owners – to be aware of, and comply with. Three such changes for 2015 include: wage reporting requirements; an increase in New York’s minimum wage; and exemptions from overtime pay for certain employees.

In the final days of 2014, Governor Cuomo signed a bill eliminating the wage notice requirement. Previously, employers were required to notify ­– and receive written acknowledgment from – every employee about their rate of pay, allowances, and pay day, amongst other information. Effective as of the new year, Governor Cuomo’s signature eliminated the Wage Theft Prevention Act’s reporting requirement, so employers need not expend energy and resources on this notification process.

New York also implemented the second stage of a minimum wage increase at the end of 2014. As of December 31, 2014, the minimum wage is $8.75 per hour. A third increase will occur at the end of 2015, raising the minimum wage to $9.00 per hour. The New York Department of Labor has made new posters available at http://www.labor.ny.gov/workerprotection/laborstandards/workprot/MW%20Updates/minimum-wage-update.shtm for publication.

The third change affects the salary minimum for the exemption from overtime pay. The “Executive or Administrative Exemption” exempts certain employees (such as bona fide executive, administrative, professional and outside sale employees) from overtime pay. To qualify for the exemption, an employee’s job duties and salary must meet certain requirements (an executive or administrative job title does not suffice). In New York, as of December 31, 2014, the minimum weekly salary for an employee to qualify for the exemption is $656.25; the federal standard is $455.00.

The change in calendar year generally correlates with implementation of new or amended legislation. It is important for business owners to be aware of these changes to avoid potential regulatory compliance issues.

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George A. GellisEmployer updates for the New Year

Do you need to #trademark your hashtag?

Trademarking hashtags has emerged as an important topic of conversation online and amongst business owners. The conclusive decision is that hashtags can be trademarked through the United States Patent and Trademark Office (USPTO). In fact, a quick search of the US Patent and Trademark Office database shows over 200 already registered hashtags. However, the benefit of trademarking a hashtag remains dubious.

Trademarking a hashtag can be a long and laborious process. Hashtags, conversely, are often sparked by a temporary occurrence or campaign, and fade rapidly. Additionally, a hashtag must be associated with a good or service provided to the public (within one of the UPSTO’s 45 classes) to be trademarked. The enforceability of the legal benefits is also questionable. The public uses hashtags with (reckless) frequency on several social media platforms now. Though Twitter has a trademark policy, it is rather vague – saying only that “using a company or business name, logo, or other trademark-protected materials in a manner that may mislead or confuse others with regard to its brand or business affiliation may be considered a trademark policy violation.” (emphasis added)

While the benefits of trademarking a hashtag may be unclear, it is important for businesses to note that some companies take hashtags very seriously. As in other trademark infringement cases, companies can receive cease-and-desist letters from other business’ attorneys for hashtags that conflict with registered trademarks or hashtags. Before launching a marketing campaign or social media strategy, companies should do their due diligence to ensure that the proposed hashtag does not conflict with a registered mark. Quick searches can be done through online services such as Twubs or hashtags.org, but a thorough search of the USPTO’s database is advisable.

Hashtags have infiltrated all realms of social media and popular culture. Businesses must now be very aware of the implications of hashtag usage. Whether to trademark a hashtag is an important discussion for marketing and legal teams. However, the more pressing concern is ensuring that hashtag usage does not result in legal conflict with a trademark owner. No matter how companies decide to approach hashtags, they must be mindful in their approach, as hashtags are now soundly established as intellectual property.

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George A. GellisDo you need to #trademark your hashtag?

M&A Target Companies Must Ensure Consistent Management

The sharp rise in Mergers and Acquisitions (M&A) transactions has been dominating headlines. The financial markets have shown strong increases with reports of over $3 trillion in global deal-making in 2014 – $1.5 trillion of which has targeted American companies. The large, multi-billion dollar acquisitions have received lots of attention. However, the general upswing is affecting several markets — most notably healthcare, technology, and media industries – and can benefit smaller companies too. The conditions are ideal for this increased M&A activity. Recent months have seen steadily low borrowing costs as well as rising share prices. There is a sense of relative stability in the market which has led companies to consider, and aggressively pursue, M&A transactions.

When considering any M&A transaction, it is vitally important for companies – especially smaller target companies – to be prepared and knowledgeable. Seemingly minor phrasing in purchase agreements can have significant implications for the acquired company. One area of particular importance is how the target company will be compensated. A commonly used tool for payment is escrow. However, an increasingly common, and less understood, tool is an earnout. Earnout provisions are contingent on the future performance of the targeted company. The shareholders or target company only receive a segment of the consideration – up to 50% of the purchase price – if certain milestones are met over a designated time.

Since earnouts are contingent on performance, management is crucial. Poor management, or even intentional manipulation, may deprive the target company and/or its shareholders of a considerable amount of the purchase price. Target companies should ensure that old management remains after the sale to ensure consistent operations. At the Gellis Law Group, we have the knowledge and experience to protect target companies from potentially detrimental situations, such as a poorly construed earnout clauses in merger agreements.

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George A. GellisM&A Target Companies Must Ensure Consistent Management

Protect Your Brand, or . . . Else

Nowadays, most businesses know that companies need to attentively monitor their brands. When a new business starts operating, more often than not, it has no offices or other brick-and-mortar assets. Its primary asset is its intellectual property, which includes a brand under which the goods or services are marketed and sold. This brand, and all of its components, is of paramount value because it critically contributes to the new company’s asset base and, as a result, to the company’s ability to raise capital.

As most modern companies conduct business through the internet, at some point they are likely to find themselves in a vulnerable position when exposed to the vast “black hole” that is the internet. Recent changes in domain names regulations resulted in a multitude of new domain extensions getting the “green light” to be used for commercial purposes. Naturally, this development exposed brand owners to the new challenge. With the increased number of domain extensions, potential for infringement upon earlier established brands grew exponentially. Domains almost identical to the established brand names – differing only in the extension – offer an ample opportunity for misuse or infringement of legitimate brands and expose branded goods and services to a potential likelihood of confusion among consumers.

Not only is misuse of domain names associated with existing brands likely to dilute the strength of those brands, it can potentially expose the owners to negative publicity associated with the content published on such other “similar looking” domains. There is an infinite amount of content placed online which is next to impossible to erase. Therefore, for companies with “young” and developing brands looking for investors and to strengthen their reputation, this creates an additional level of risk that needs to be controlled to prevent negative financial implications.

There are two steps that must be taken by all growing companies interested in securing their rights to brands: (i) registration of trademark(s) involving their brand names, and (ii) monitoring the use of domain names similar to theirs. The first step involves filing trademark registrations with the United States Patent and Trademark Office. The second step requires signing up with a monitoring service that can update them on their brand’s registrations under different extensions.

At Gellis Law Group, our attorneys handle trademark and service mark due diligence, as well as searches and registration on a regular basis, a separate note is required for monitoring of domain names and extensions. Monitoring domain names and extensions can be just as important and should be undertaken, as far as is economical. For a large consumer goods company that owns thousands of brands and trademarks, such as Proctor & Gamble, domain monitoring processes can be quite complex and expensive. However, for smaller companies that own single brands, these services are completely affordable and rather simple. If your company wants to ascertain whether it needs such monitoring and protection services, please consult us at Gellis Law Group.

Just remember, if at some point either you or your company will decide to enforce IP rights and sue either a competitor or a violator for infringement, you will most likely be required to prove that you protected your brand. If the infringer can demonstrate that you have not taken appropriate and prudent steps to monitor and defend your brand, it may prevent you from succeeding against a real competitor.

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George A. GellisProtect Your Brand, or . . . Else
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Advice for Startup Founders and Employees – Never Sign Agreements You Do Not Understand

Start-up teams are usually composed of young entrepreneurs untrained in legal dealings, particularly in the countless intricacies hidden within stock purchase, stock option and technology transfer agreements. In fact, that’s precisely why they need competent legal counsel.

We encounter an increasing number of start-up teams that run into legal problems because attorneys they chose at the inception of their operations behave merely as vendors of legal services, instead of as trusted advisors. It is well known that large law firms are in a great position to offer tech start-ups a good “bang” for their buck — knowing that start-ups are typically cash starved, large law firms often charge very little money upfront for their standardized multiple-page contracts with the balance of costs due at a later time. This is easy because such services for start-ups are virtually zero-cost – some firms simply reuse templates and recycled documents.

However, when the ink hits the page, the founders and early employees of start-ups are left in the dark as to the true nature of the agreements. Large law firms do not waste time educating clients who are receiving discounted services about the details within the provided agreements. While it is the right of every person to take the risk of signing a document without being fluent in its language, clients should at least be made aware of those risks.

At Gellis Law Group, whether we represent and deal with founders, key employees or consultants, we thoroughly educate our clients on the ins and outs of every document they are about to sign. Even a one-pager is broken down meticulously. This ensures that our start up team clients do not come to the realization years down the line that the founders or investors got everything while they were left with a fraction of the value of their contributions.

Say for example that a key employee was awarded stocks at an agreed-upon price at the founding of a start-up. What he may not know is that, if he is ever terminated or demoted, the company may have the legal right to buy back these shares for a fraction of the original cost – leaving that employee with almost nothing upon his exit. Was he aware that he may not be getting what he signed up for? Not if his attorneys didn’t thoroughly take him through the contract.

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George A. GellisAdvice for Startup Founders and Employees – Never Sign Agreements You Do Not Understand

Not Another Cyber Liability Alert – An Opportunity To Address Risks

This morning we woke up to yet another major security breach — a US hospital group said it was the victim of a cyber-attack resulting in the theft of 4.5 million people’s personal data. According to the Community Health Systems, the attack and breach happened in April and June of this year. Reportedly, the data included patient names, addresses, birth dates, telephone numbers and social security numbers. This time, the breach affected a hospital group which runs 206 hospitals in 29 states.

Putting aside the issue of the ongoing FBI investigation and that the data could (and most likely will) be used to steal people’s identity, this breach brings to the forefront, yet again, the issue of cyber liability of the company that managed the accounts.

We have been advising our clients regarding cyber liability risks for quite a number of years. Protection from cyber liability is especially critical for those companies that, in the course of their operations, whether over the internet or otherwise, collect data about their patients, clients or customers that includes personally identifiable data. However, any company that accepts credit cards or other electronic payments online is exposed. At the end of the day no customer is interested in hearing that the company used some unknown payment processing center, so the company selling goods or services will be at the forefront of the liability exposure.

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George A. GellisNot Another Cyber Liability Alert – An Opportunity To Address Risks