Bus Law Business Entitites and Intellectual Property (IP)

Why does it matter what FORM a business takes?

Form can shield principals (main people running the business) from personal liability

Affects profit distribution and tax allocation

TYPES:
Sole Proprietorship

Partnership

Limited Liability Partnership (LLP)

Limited LIability Corporation (LLC)

Corporation (Corp. or Inc.)

Sole Proprietorship

Owner IS the business; reports income on personal tax return; legally responsible for all debts

Advantages: All profits go to owner; cheaper startup; taxed once

Disadvantages: Full personal liability; limited capital-raising; dissolves on owner's death

Partnership – Definition

2+ persons as co-owners of a for-profit business; share profits/losses, joint ownership, equal management rights

Articles of Partnership

Written agreement forming a partnership

•Each Partner’s Interest = his or her personal assets consisting of proportional share of profits and return of capital.  Partner’s personal creditors can sue for that interest.

•Partnership property is owned by the partnership as an entity and not by the individual partners.

Partners' Duties

Fiduciary = Owe each other good faith and duty of care; may pursue personal rights unless they violate fiduciary duties

Agency Powers = Each partner is a genreal agent of the partnership

Partners’ Liabilities

Joint and Several Liability: Third party may sue any one partner or all together; collects only from those sued; partner who caused a tort must repay the firm

General Partnership

All partners involved in day-to-day management; each fully liable for debts and shares profits

Limited Partnership

General partners: manage + fully liable. Limited partners: no management role; liable only up to their investment

Limited Liability Partnership (LLP)

•Allows professionals, like doctors, lawyers, accountants, to enjoy the tax benefits of a partnership while limiting their personal liability for the malpractice of other partners.

•Not liable for the errors or omissions of partners

•The partnership is the responsible entity

Partner Disassociation (like how a partner gets out of partnership)

Severance from partnership → right to buyout; loses management rights and duty of loyalty; both sides may remain liable to third parties up to 2 years; firm should notify creditors and file statement

Limited Liability Company (LLC)

Hybrid form of business entity. Combines limited liability of a corporation with the tax advantages of a partnership:

•Functions like a partnership

•Instead of partners, you have members

•Members liability limited to investment

•Profits pass through to Members

•Members pay the tax

•Members don’t have to be humans (corporations and trusts can be members)

Corporation (CORP. or INC.)

A legally distinct entity that has many of the same rights as individual persons:

•Entity considered a person

•Entity is responsible for the liabilities and is considered the “person” who earns the profit

•Issues shares or stock so owners are called stockholders or shareholders

•The corporation pays taxes on income earned by the corporation

•Oversight by a Board of Directors

Corporate Financing

•Corporations issue shares to raise capital.

•Shares (also known as stocks) raise money by giving purchases a share in the ownership in the corporation. Publicly Traded Corporations sell stock to the public

•Corporations can also issue Bonds.  Bonds are essentially loans backed by security.  If unsecured, then it is known as a debenture.

Stocks vs. Bonds

Stock = ownership equity; Bond = corporate debt, no ownership

Corporate Stockholder Rights

1.Need not be paid back.

2.Receive dividends only when so voted by the directors.

3.Are the last investors to be paid off if the corporation is dissolved.

4. Vote for directors and on major issues.

Corproate Board of Directors

Elected by shareholders; sets policy/vision; approves bylaws; elects officers (President, VP, Secretary, Treasurer)

What is considered Intellectual Property (IP)?

Anything that is a creation of the mind.

---Artwork; Designs, Inventions; Symbols; Methodologies

Why do we protect IP?

Fosters brand recognition

Enables licensing

Protects value generated by IP

IP Legal Framework

US has IP Laws that apply to these main categories:

Trademarks = Lanham Act (‘KLEENEX’, “NIKE SWOOSH SYMBOL”)

Patents = Patent Act (A NEW DRUG)

Copyrights = Copyright Act (A BOOK YOU WROTE, A SONG YOU MADE)

Trade Secrets = state laws

What is a trademark?

Word or symbol (like Kleenex or Adidas)

Colors can be trademarked if: (1) serve source-identification function AND (2) are not "functional" (for example, the pink color in Pepto Bismol. If someone else uses exact same color for tummy medicine it might be trademark infringement.

•In order to serve as a trademark, a mark must be distinctive -- that is, it must be capable of identifying the source of a particular good. like NIKE SWOOSH SYMBOL

•In determining whether a mark is distinctive, the courts group marks into four categories: •(1) arbitrary or fanciful, (2) suggestive, (3) descriptive, or (4) generic. 1 and 2 are worthy of trademark.

How does court decide if something is trademark infringement?

The use of a trademark in connection with the sale of a good constitutes infringement if it is likely to cause consumer confusion as to the source of those goods. LIKE YOU SEE SWOOSH YOU WILL THINK IT IS NIKE NO MATTER WHAT

The courts look to a number of factors:

(1) the strength of the mark; (2) the proximity of the goods; (3) the similarity of the marks; (4) evidence of actual confusion; (5) the similarity of marketing channels used; (6) the degree of caution exercised by the typical purchaser; and (7) the defendant's intent. 

Registered (®) vs. Unregistered (™)

® = registered with USPTO → enhanced legal protection; ™ = unregistered claim

Descriptive Fair Use

Using a trademarked term descriptively, not as a brand identifier

Nominative Fair Use

Using a trademark to refer to the actual goods/services of the trademark owner (e.g., DraftKings using "March Madness" to describe what you're betting on)

Fair use test = 1) Product not readily identifiable without the mark? (2) Used only as much of the mark as necessary? (3) No suggestion of sponsorship/endorsement?

Parody Exception to Trademark

Non-commercial parody/satire is not infringement. SO if you are using a trademark just to make a joke of soemthing it is not a trademark violation.

Dilution by Tarnishment

Linking a famous brand to something negative (e.g., luxury brand + dog feces or NCAA and gambling) violates Lanham Act even without likelihood of confusion. So even a parody exception can be found at fault of tarnishing a brand’s reputation.

Case Study: NCAA vs Draft Kings

NCAA said Draft Kings is using “March Madness” in its advrtising and this is trademark infringement.

Draft Kings is making a defense based on the following:

• It is hard to talk about March Madness as a real-world event without using the trademark term.

• In other words, the use is not promotional but rather informational.

• The use of the wording is functional, to clarify which sports events Draft Kings is related to.

 NCAA says Draft Kings is causing it HARM by using words March Madness. WHY?

• Creates an unwanted association between the NCAA and gambling. NCAA claims that this leads to trademark dilution by tarnishment.

Patent – Definition

Property right granted to an inventor by the USPTO, typically for 20 years

Patent Types

UTILITY: New and useful process, machine, article of manufacture, or composition of matter (or improvement thereof) - like. a NEW DRUG

DESIGN: New, original, and ornamental design for an article of manufacture

PLANT: New variety of plant that is asexually reproduced

PATENT: Experimental Use Exception

De minimis experimental use of a patented invention is allowed (e.g., experimenting with a patented drug formula for a new application)

Copyright – Definition

Protects original works of AUTHORSHIP fixed in tangible form; exists automatically upon fixation; © symbol gives notice; registration provides greater legal protection

THIS IS FOR SOMETHING YHOU WROTE LIKE A BOOK OR SONG.

Copyright Fair Use – 4 Factors

(1) Purpose/character of use (commercial vs. educational);

(2) Nature of the copyrighted work;

(3) Amount used relative to the whole;

(4) Effect on the market/value of the original work

Copyright Fair Use – Permitted Purposes

SECTION 107 of Copyright act: You can copy someone else’s writing for Criticism, comment, news reporting, teaching, scholarship, research.