The Impact of Varsity Brands for Design Protection in the Fashion Industry

On Wednesday, July 19, Olivera Medenica will be moderating a panel as part of Hot Topics in IP Law presented by the New York Intellectual Property Law Association at the Princeton Club.  Speaking on the panel The Impact of Varsity Brands for Design Protection in the Fashion Industry are Viviana Mura (Intellectual Property Law Counsel, Luxottica Group) and Lisa W. Rosaya (Baker and McKenzie LLP).  Hot Topics in IP Law takes place from 12-5pm.  The Princeton Club is located at 15 West 43rd Street, New York, NY.  For more information on this event and tickets please visit www.nyipla.org.

Intellectual Property Protection for the Fashion Industry

On March 21, 2017 Medenica Law held an in-house CLE entitled Intellectual Property in the Fashion Industry.  Included below is the PowerPoint deck circulated to attendees.  Topics covered include copyright, trademark and patent law (design patents).   The lecture was geared towards non-IP practitioners and included an overview of key cases.  You can access the slides here.

Cross-Border Litigation: Chasing Foreign Law and Facts

"United Nations" by Thomas Galvez under CC by 2.0 some changes made

"United Nations" by Thomas Galvez under CC by 2.0 some changes made

Please join us on May 16, 2017 at 8:00 am at the New York City Bar for a breakfast program entitled Cross-Border Litigation: Chasing Foreign Law and Facts.  Program panelists will discuss tips and strategies for conducting party and non-party international discovery in New York State courts.  Topics of discussion will include: the Hague Convention, depositions through electronic means, live electronic witness examination, and the use of translators and foreign law experts.  To register click here.  

CROSS - BORDER LITIGATION: CHASING FOREIGN LAW AND FACTS
New York City Bar - 42 West 44th
Tuesday May 16, 2017 - 8:00 - 9:15 am
$5 Student Members; $15 Members; $30 Non-Members

MODERATOR: Olivera Medenica, Medenica Law PLLC
PANELISTS: Florian Bruno, Bruno Law LLC; Raymond J. Dowd, Dunnington Bartholow and Miller LLP; Anne Li, Crowell & Moring; Jay G. Safer, Wollmuth Maher & Deutsch LLP.

SPONSORING ASSOCIATION COMMITTEE: State Courts of Superior Jurisdiction Committee, Adrienne B. Koch, Chair.

Is a Letter of Intent Binding?

"Proud lock" by Holly Victoria Norval is licensed under  CC BY 2.0 no changes made.

"Proud lock" by Holly Victoria Norval is licensed under  CC BY 2.0 no changes made.

Letters of intent can serve an important business and legal purpose.  In the business context, it helps to solidify a deal if the parties are able to flesh out its salient terms.  From a legal perspective, the benefits can cut both ways.  Letters of intent, because of their brevity, have resulted in a tremendous amount of litigation.  The terms of the deal are usually laid out in a rudimentary fashion, often overlooking important ramifications that the parties ignored in the haste of getting something in writing.  If a party deems the letter favorable to it, it will seek to enforce; if unfavorable, it will claim the letter is non-binding.

Indeed, the question that most often arises is whether the letter of intent is binding, or not.  The short answer is that courts give great deference to the intent of the parties.  So if a document says it is not binding, New York courts will give great deference to the parties’ intent that it be not binding.  Where unclear, a court will examine the content of the document, as well as the parties’ behavior, to determine whether the letter is binding.

The factors that New York courts look at to determine whether a letter of intent (or term sheet, or memo of understanding etc.) is enforceable are: (1) the parties’ explicit statements to be or not to be bound; (2) partial performance by one party; (3) whether there is nothing left to negotiate; and (4) whether the subject matter is complex requiring a more lengthy contract.

In Dunhill Sec. Corp. v. Microthermal Applications, Inc., 308 F. Supp. 195 (1969), Plaintiff underwriter filed a claim against defendant corporation for breach of contract and quantum meruit based upon a letter of intent in connection with the corporation’s proposed issuance of stock.   The parties had executed a letter that set forth a preliminary understanding in regard to a proposed offering of common stock by the corporation.  The corporation subsequently sent a letter to the underwriter terminating any understanding after the corporation discovered that proceedings had been brought against the underwriter by the Securities and Exchange Commission. 

The court examined the letter and concluded that it stated that the parties did not intend any liabilities to emanate from the letter.  The court specifically examined a paragraph in the letter which stated in “the clearest possible terms that the parties did not intend any liabilities to emanate from the letter.”  This language in question is included here:

Since this instrument consists only of an expression of our mutual intent, it is expressly understood that no liability or obligation of any nature whatsoever is intended to be created as between any of the parties hereto. This letter is not intended to constitute a binding agreement to consummate the financing outlined herein, nor an agreement to enter into an Underwriting Agreement. The parties propose to proceed promptly and in good faith to conclude the arrangements with respect to the proposed public offering and any legal obligations between the parties shall be only those set forth in the executed Underwriting Agreement. In the event that the Underwriting Agreement is not executed and/or the purchase of the securities is not consummated, we shall not be obligated for any expenses of the Company or for any charges or claims whatsoever arising out of this letter of intent or the proposed financing or otherwise and, similarly, the Company shall not be, in any way, obligated to us.

The court further found that there was not likely to have been an intent to enter into a binding contract because the custom of the industry was not such that a letter of intent created a binding agreement.  The court ultimately granted summary judgment in favor of the corporation on the underwriter’s claims for breach of contract and quantum meruit.

But what if the letter has no “non-binding” type of language?  In those circumstances, it is necessary to examine the parties’ original intent when executing the document.  “A primary concern for courts in such disputes is to avoid trapping parties in surprise contractual obligations that they never intended.”  See Teachers Ins. Annuity Asso. v. Tribune Co., 670 F. Supp. 491 (1987).  In Teachers, the court identified two distinct types of preliminary contracts with binding force. 

One occurs when the parties have reached complete agreement on all terms that require negotiation.  The agreement is deemed merely “preliminary” because the parties state they will subsequently enter into a more formal agreement; but preliminary is not synonymous with non-binding.  Under such circumstances, the parties have reached a full agreement and the letter is enforceable.  See V’Soske v. Barwick, 404 F.2d 495, 499 (2d Cir.), cert denied, 394 U.S. 921, (1969) (“the mere fact that the parties contemplate memorializing their agreement in a formal document does not prevent their informal agreement from taking effect prior to that event. . . “).

The other occurs when the parties express mutual commitment to a contract on agreed major terms, with the recognition that there remains open terms to be negotiated.  The fact that there remains open terms, however, does not mean that there is no binding agreement.  Rather, there is a binding commitment on both ends to negotiate together in good faith in an effort to reach final agreement within the scope that has been settled in the preliminary agreement.  See Teachers, at 498.

When analyzing a letter of intent, the first and foremost factor to consider is therefore the plain language of the letter and whether the parties unequivocally considered the letter binding, or non-binding.  If non-binding language is absent, the factors cited in the Teachers court, and listed above, are of greater relevance.  If the letter is deemed binding, then the analysis must focus on whether the letter represents a fully negotiated agreement, or rather a preliminary agreement with a good faith obligation to negotiate the remaining terms.  The former requires execution, and the latter, further negotiation.

As is evident from the discussion above, the subject matter is ripe for litigation precisely because it is difficult to generalize about a letter of intent’s legal effect, without examining a whole host of factors extraneous to the letter itself. 

For any questions regarding the above, please feel free to contact Olivera Medenica at OMedenica@Medenicalaw.com.

Olivera Medenica to Chair Organizing Committee for Federal Bar Association's Fashion Law Program

Olivera Medenica is pleased to serve as Chair of the Organizing Committee for the Federal Bar Association's Annual Fashion Law Program, which will be held at the Parsons School of Fashion.  The program includes all-star panels featuring speakers from Estee Lauder, Google, Macy's and many others.  Please join us on February 10, 2017.  To register, click on the image below.

Free CLE - Music Licensing for the Non-IP Practitioner

Thursday, November 17, 5:30 - 7:00 pm

This session will cover the basics of music licensing, including what is ASCAP, BMI and SESAC, licensing for television and film, publishing rights and PROs, mechanical rates, digital rights, remixes, streaming and other potential sources of revenue.

Medenica Law PLLC, 3 Columbus Circle, (entrance is at Broadway between 57th & 58th Streets), 15th Floor.

RSVP required/space limited: office@medenicalaw.com

Non-Compete Clauses in Employment Agreement

Employment related non-competition clauses often result in bitter court disputes as the employee moves on to greener pastures.  In this article, we review what a non-compete clause is, why it is important to include it in a contract and how such clauses can be enforced or stricken in New York courts.

What is a non-compete?

A non-compete provision can be just a clause included in a broader employment contract, or it can be formed as a separate agreement. A non-compete states that upon termination of an employment relationship the employee will not compete for a certain period of time within a particular geographical area.  This means that the employee is restricted from working within a particular industry, with a specified party or starting a new business in the same field.

Why should you include a non-compete provision?

Its purpose is to protect the employer so that the former employee does not injure the commercial interests of the employer (e.g. customer lists, trade secrets, business and training methods and overall goodwill of the company). It is critical to carefully draft a non-compete clause so as to avoid enforceability issues down the line.  An employee, for example, will pay special attention to the length of the restrictive time period and the geographic scope that the non-compete covers. An employer, on the other hand, will want to minimize exposure by making sure that a candidate for employment has not already signed a non-compete with his or her previous employer.  Similarly, an employer will seek to impose a restriction on the contemplated employment relationship.

How do courts in New York enforce non-competes?

Generally, courts strictly construe non-compete agreements. In order for courts to enforce such a covenant, it has to be reasonable in (a) duration, (b) geographic scope, (c) serve a legitimate business purpose, and (d) be supported by consideration. Generally speaking, New York courts frown upon non-compete agreements as an unreasonable restraint of trade. Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303, 307 (1976).

a.      Duration

There is no all-encompassing rule with regards to the duration or the geographical scope of a non-compete. The duration factor is discretionary, and is assessed by courts on a case-by-case basis. Time restrictions included in a non-compete clause depend on the nature of the industry. Fashion or technology are fast moving industries and as a result, a court may find two or three-year non-competes as unreasonable in length.  In other fields, however, such a restriction might be deemed reasonable. For example, New York courts have held that a one-year non-compete was too long given the fast-paced nature of the Internet industry, but a three-year geographically contained covenant was enforceable against a physician. See 13A N.Y. Prac. Employment Law in New York § 5:209 (2d ed.); H. Meer Dental Supply Co. v. Commission, 269 A.D.2d 662, 702 N.Y.S.2d 463, 465 (3d Dep't 2000). Similarly, a six months restrictive covenant for an employee in the insurance industry was deemed reasonable, as decided in Ticor Title Inc. Co. v. Cohen, 173 F.3d 63.

b.      Geographic Restriction

Again, the scope of geographic restriction depends upon the industry. Courts look into the particular facts of a case. In Natsource LLC v. Paribello, for example, the court was willing to enforce very broad geographic restrictions on employees where the “nature of the business requires that the restriction be unlimited in geographic scope,” so long as the duration of those restrictions was short. Natsource LLC, 151 F.Supp.2d 465, 471-72 (S.D.N.Y.2001).  But in another case, a 50-mile radius was found to be unreasonable. Genesis II Hair Replacement Studio, Ltd. v. Vallar, 674 N.Y.S.2d 207 (App. Div. 4th Dept. 1998).  Courts may look at a variety of factors such as a business’s channels of trade, existing client base, potential scope of expansion, marketing efforts, ability to service clients based upon a geographic scope and many other applicable factors within that particular industry.  For example, a mail order business may have a different geographic scope from an ophthalmologist who needs to examine clients.  All of these issues will necessarily affect the enforceability of the clause.

c.       Legitimate Business Purpose

Courts will also look into the employer’s business purpose for imposing the restriction in deliberating whether a non-compete is enforceable. BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999). Courts weigh the need to protect the employer's legitimate business interests against the employee's concern for possible loss of livelihood. Simply put, an employer must have a valid reason for prohibiting the employee from competing. He or she might want to protect confidential business information such as IP, business methods or customer databases. Conversely, employees are often under the erroneous belief that contacts or intellectual property developed during the course of employment are transferable to another professional setting at will.  For those reasons, an employer must be able to verbalize the tangible risk of loss that it would suffer as a result of the breach of the non-compete, such as loss of competitive edge, or the disclosure of a trade secret, and so forth.

d.      Consideration

As far as consideration, courts have found an offer of employment, an employee’s remuneration, or the gain of specialized knowledge or skill to constitute sufficient consideration. Additionally, courts have ruled that the promise of future employment may constitute sufficient consideration in a non-compete clause.  Poller v. BioScrip, Inc., 974 F. Supp. 2d 204 (S.D.N.Y. 2013) (holding that “the fact that a restrictive covenant agreement is a condition of future employment does not automatically render such an agreement coercive and unenforceable”). Similarly, in Ikon Office Solutions v. Leichtnam, the court found that the non-compete covenant was enforceable as it included consideration that the employee would continue employment. See Ikon Office Solutions, 2003 U.S. Dist. LEXIS 1469, *1, 2003 WL 251954 (W.D.N.Y. Jan. 3, 2003). Remuneration or an employee’s receipt of knowledge or skill (e.g. a language course or a handcraft workshop) are also sufficient consideration to support a non-compete provision under New York law. See Arthur Young & Co. v. Galasso, 142 Misc. 2d 738, 741 (Sup. Ct. N.Y. County 1989).

Non compete clauses must be analyzed from a fairness perspective.  It is important to draft non-compete clauses that are actually enforceable and appear fair to both parties to the agreement.  While an often challenging balance to achieve, it can certainly make the employment relationship smoother and minimize the risk of unpleasant legal consequences down the line.

Negotiating Commercial Contracts With Foreign Based Businesses (Free CLE)

On October 13, 2016, Olivera Medenica will present, along with Celine Bondard of Bondard and Partners, at the Center for International Law at New York Law School on essential considerations when negotiating between U.S. and foreign based entities.  This event is sponsored by the French-American Bar Association USA and the French American Bar Association FRANCE.  Learn more here.

 

Basics of Trademarks: Strong v. Weak Marks

Choosing a mark is often an exciting first start to a business, or product.   It is the first time you put a face to your business, and you want to infuse it with the creativeness, quirkiness, elegance, or gravitas that is appropriate for your business.  But it is a process fraught with pitfalls, and that can easily be avoided by understanding some of the basic rules of trademark law.

One of the first problems that we encounter in our practice when advising clients on their trademark choices, is the strength of their trademarks.  In order for a mark to be “strong” it must rate fairly high on the USPTO registrability meter. 

Generally, marks fall into one of four categories:  fanciful or arbitrary, suggestive, descriptive, or generic.  Where your mark falls will significantly impact whether it can be registered at the USPTO, and whether you are able to enforce your mark against a purported infringer.

The strongest marks eligible for protection are fanciful and arbitrary marks, because they are inherently “distinctive.”  Fanciful marks are invented marks that have no dictionary or other known meaning (for example, BELMICO for insurance services).  Arbitrary marks are actual words that have a dictionary meaning, but have no association/relationship with the goods protected (think APPLE for computers).  These marks are inherently creative and unusual, and as a result (assuming nobody else already has done it, or uses it), they can be registered on the USPTO’s principal register.

Suggestive marks suggest, but do not describe, what the goods and services do or offer to do.  These types of marks are eligible for protection, and are considered “strong” marks, but are not as strong as fanciful/arbitrary marks (for example, GLANCE-A-DAY for calendars).

Descriptive marks are where the pitfall is most glaring.   Descriptive marks describe what the goods or services do, and as a result cannot be registered unless the applicant shows “secondary meaning” (in other words, that the consumer can recognize the mark as the applicant’s mark – not easy).  Applicants often choose descriptive marks, because they identify the products or services being offered to the consumer.  While this may appear logical, it is not helpful when seeking to register and protect a trademark.  Example of descriptive marks are WORLD’S BEST BAGEL, for a bagel store, SOFT FABRICS for a fabric store. 

Generic marks are the weakest forms of marks.   These are common everyday words that are the names of the actual product or service.  So for example, MILK for dairy based beverages, or ASPIRIN for pain relief medication.

In other words, think creatively and out of the box when choosing a trademark, your marketing dollars are at stake, and it is well worth the investment to do so.