Kaufman and Canoles

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Archive for February, 2012

Wednesday, February 29, 2012

Early Public Disclosure of Patentable Inventions Under the America Invents Act

Changes to U.S. patent laws enacted at the end of last year will eventually change our system from one that awards patent rights in an invention to the first inventor(s) in cases where the same invention is created by more than one inventor or group of joint inventors acting independently of each other, to one in which those rights will be awarded to the first legitimate inventor or group of joint inventors to file an application to patent the invention with the U.S. Patent and Trademark Office.  As with all rules, this new one will be subject to certain exceptions.  The most interesting of those is an exception based on the new law’s treatment of public disclosures made prior to filing of a patent application.  The pertinent language from Section 102(b)(1) of the new law which follows will apply to U.S. Patent applications filed on or after March 16, 2013:

A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention . . . . if

A.  The disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or

B.  The subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

The upshot of this statutory language is that if an inventor makes a public disclosure of his or her invention within the one-year period preceding filing of a U.S. patent application on the invention, that disclosure will not cause any problems for that particular inventor’s U.S. patent application.  This preserves the one-year grace period for filing of U.S. patent applications that existed under prior law, but only with regard to public disclosures by the inventor who files the application.  However, because the new law limits availability of this grace period only to the inventor who made the public disclosure, someone else who independently came up with the same invention and was the first to file a patent application on it would not be entitled to a patent, because public disclosure by the other inventor would be “prior art” against this application.  In such a case, the inventor who made the public disclosure would be the one entitled to the patent, even though his or her patent application is filed later than the one filed by the other independent inventor.

One might conclude from this that public disclosure of invention details at the earliest possible time – even before one is ready to file a patent application – will be desirable strategy under the new law, because it could preempt others who independently are working on the same invention from wrapping up patent rights in it by filing first.  However, loss of foreign patent rights and other potential consequences of such early disclosure make this a questionable conclusion.  Under the new law, as under the old, it will remain prudent to file your U.S. patent application — which in many cases will be a provisional application — before any publication or other detailed disclosure with regard to your invention. —Robert E. Smartschan

Monday, February 27, 2012

The Foreign Corrupt Practices Act- Part 3

The Foreign Corrupt Practices Act (“FCPA”) includes two primary components: (1) the anti-bribery provisions, and (2) the recordkeeping and internal controls provisions.  This post will discuss the recordkeeping and internal controls provisions, which prohibits the false characterization of payments.  The purpose of the FCPA is to prevent a company from hiding bribes and other improper transactions.  However, the recordkeeping and internal controls provisions apply no matter if the record is linked to bribery of a foreign official or not.  In addition, there is no minimum dollar amount that triggers the FCPA: from $1.00 to $1 million, your recordkeeping must accurately reflect the transaction.

The recordkeeping and internal controls provisions of the FCPA require all issuers–all companies with securities traded on a U.S. exchange or which are otherwise required to file periodic reports with the Securities and Exchange Commission– to maintain records and accounts that accurately reflect the company’s transactions.  To facilitate this requirement, companies must maintain internal accounting controls sufficient to provide “reasonable assurance” that financial statements are accurate.  Reasonable assurance requires the level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.  Although such a standard may be somewhat vague, one thing is for certain: internal controls in your accounting department are a must.  Your company should consider implementing written guidelines and a checks and balances system that encourages accountability among employees.  

In addition, internal controls will help companies avoid violating the FCPA and incurring the penalties that come along with such a violation.  On the civil side, a business can be fined up to $500,000 and a criminal fine can be up to $25 million.  An individual can also be fined civilly $100,000 and $5 million for a criminal fine, neither of which can be paid by a company on whose behalf the individual acted.  Written policies and procedures that are adhered to and regularly enforced can help protect a company from these expensive violations. 

If you would like more information on the recordkeeping and internal controls provisions of the Foreign Corrupt Practices Act, please feel free to contact me at recoley@kaufcan.com
R. Ellen Coley

Friday, February 24, 2012

Do You Have an Implied Copyright License?

A recent opinion issued by the federal court in Norfolk explores the issue of whether a company has an implied license to use otherwise copyright protected work allegedly written by one of the company’s clients.  In a Report and Recommendation issued on February 13, 2012 in Innovative Legal Marketing, LLC v. Market Masters-Legal, Civil Action No. 2:10cv580 (E.D. Va.), Judge Stillman ruled that the defendant, Market Masters-Legal, had an implied nonexclusive license to use an email script allegedly written by a client.   

In order for an implied nonexclusive license for use of an otherwise copyright protected work to exist and be enforceable, the following elements must be established: (1) the licensee requests the creation of a work; (2) the licensor makes that particular work and delivers it to the licensee who requested it; and (3) the licensor intends that the licensee copy and distribute his work.

Both parties in the Innovative Legal Marketing case have until March 1, 2012 to file objections to the Report and Recommendation issued by Judge Stillman.  Any objections which are filed will be reviewed by Judge Smith before a final decision is issued on the dueling summary judgment motions filed in the case. —Kristan B. Burch

Tuesday, February 21, 2012

New Business Opportunity Rule

The Federal Trade Commission has recently issued the final Business Opportunity Rule which will be effective March 1, 2012.  The Business Opportunity Rule applies to commercial arrangements where a seller solicits a buyer to enter into a new business, the buyer makes a required payment to the seller, and the seller (either expressly or implicitly) makes claims that it will provide locations, outlets, accounts or customers or buy back the goods or services that the buyer makes.  Business opportunities include work-at-home opportunities and many vending opportunities.

The new rule streamlines the disclosures that must be made to a buyer.  The seller must give the buyer a standard one-page document (with supplemental disclosures attached if necessary) at least seven days before the buyer signs a contract or pays any money for the business opportunity.  The new disclosure document requires the seller to disclose (1) its identifying information (2) whether the seller or key personnel have been the subject of any civil and criminal legal actions involving misrepresentation, fraud, violation of securities laws or unfair or deceptive practices, (3) whether the seller has a cancellation or refund policy, (4) if the seller has expressly stated or implied how much money a buyer can earn, and (5) contact information for ten people who bought the business opportunity.  If the seller’s disclosures with respect to legal actions, cancellation/refund policy and/or earnings claims are affirmative, the seller must include supplemental information required by the Business Opportunity Rule.

The Business Opportunity Rule makes clear what the seller must produce in connection with an earnings claim, whether made in person, on paper, online, on television, in newspaper or in other media.  It also reemphasizes the Federal Trade Commission’s (“FTC”) long standing position that it is illegal to engage in unfair or deceptive practices in the promotion, marketing or sale of any business opportunity and includes a list of “dos” and “don’ts” for sellers.

A seller’s failure to comply with the Business Opportunity Rule entitles the FTC to bring an action against the seller, but does not entitle the buyer to bring a private cause of action.  Many states, including Virginia, have laws governing unfair and deceptive trade practices and a violation of the Business Opportunity Rule may also be a violation of state law which may give rise to a private right of action by the buyer.  Virginia does permit the buyer to bring a private cause of action against the seller.

For more information about the new Business Opportunity Rule, click here or contact Nicole Harrell. —Nicole J. Harrell

Monday, February 20, 2012

Final Deadline for 401(k) Fee Disclosures: August 30, 2012

The Department of Labor has postponed the date that 401(k) plan sponsors must comply with new fee disclosure rules from May 31, 2012 to August 30, 2012. These rules, introduced in final regulations under the Employee Retirement Income Security Act (“ERISA”) Section 408(b)(2), require sponsors of participant-directed account plans such as 401(k) plans to provide detailed information about the plan’s procedures for making investment directions as well as a breakdown of the fees charged by each available investment fund.

The postponement was granted by the Department of Labor in order to allow plan sponsors some additional time to adjust to recent revisions to the final regulations. The benefits community had been anticipating that the effective date of the regulations would be postponed, but most commentators had hoped for an extension into the 2013 calendar year. The three-month delay granted by the Department of Labor leaves little time for plan sponsors to finalize their disclosure materials to comply with the new fee disclosure requirements.

Within the next few months, plan sponsors should receive detailed fee disclosure information from the plan’s investment providers. This information must be compiled into two separate disclosure statements that are required to be provided to participants on an ongoing basis: an annual disclosure (which must be provided by August 30, 2012), and a quarterly disclosure (the first installment of which must be provided by November 14, 2012).

Stay tuned for further updates, including a more detailed discussion of the required contents of the new disclosure forms. —Shad C. Fagerland

Friday, February 3, 2012

CMS Publishes Proposed Rule on Physician Payment Sunshine Law

On December 14, 2011, the Center for Medicare and Medicaid Services (CMS) released a notice of proposed rulemaking implementing the Physician Payment Sunshine provisions of Section 6002 of the Affordable Care Act. The Sunshine provisions seek to make publicly available information about payments or other transfers of value to physicians made by manufacturers of drugs and medical devices and supplies covered by Medicare and Medicaid. Under the proposed rule, manufacturers must annually report all payments, gifts, consulting fees, research activities, speaking fees, meals, and travel reimbursements paid to physicians and teaching hospitals to the Secretary of Health and Human Services. The definition of manufacturer would extend to include entities under common ownership with a manufacturer that are involved in manufacturing, marketing, selling or distributing covered products. The proposed rule would also make available to the public information about physician ownership or investment interests in manufacturers or group purchasing organizations. CMS is accepting public comments on the proposed rule through February 17, 2012. A copy of the proposed rule is available here.  —Meagan J. Thomasson

Wednesday, February 1, 2012

IRS Has Two Smash Hits and Releases Offshore Voluntary Disclosure Program III

On January 9, 2012, the IRS reopened its successful Offshore Voluntary Disclosure Program to encourage taxpayers with undisclosed offshore accounts to come into compliance with U.S. laws. A previous program, known as the Offshore Voluntary Disclosure Initiative (“OVDI”), was announced on February 8, 2011, and expired on September 9, 2011, following an extension due to Hurricane Irene. The Offshore Voluntary Disclosure Initiative followed the 2009 Offshore Voluntary Disclosure Program (“OVDP”), which was open to taxpayers from March 2009 through October 15, 2009.

Unlike the earlier programs, the current Offshore Voluntary Disclosure Program (“OVDP III”) is available to taxpayers for an indefinite period, until otherwise announced. The penalty structure under OVDP III, however, is similar to that of the OVDI. It requires taxpayers to pay a penalty of 27.5% (up from 25%) of the highest aggregate balance in foreign bank accounts or entities, or the value of foreign assets, during the eight full tax years prior to the disclosure. As with the OVDI, some taxpayers are eligible for reduced penalties of 12.5% (available for accounts that have not exceeded $75,000 in any calendar year during the eight-year period) or 5% (available for a very limited class of inherited or similar accounts meeting certain criteria). Taxpayers who feel the program penalties are disproportionate may opt out of the penalty structure, and the decision to opt out is irrevocable. Participants in the program also must file all original and amended tax returns for the eight year period and include payment for unpaid taxes, interest, and accuracy related or delinquency penalties. On top of those payments, the cost of accountants’ and attorneys’ fees for assisting a taxpayer with compliance may be onerous. Above all, taxpayers and their advisors should be aware that the terms of OVDP III may change at any time. Additional details regarding OVDP III should be available on the IRS website in the coming weeks.

Along with its announcement of the new voluntary disclosure program, the IRS announced that it had collected more than $4.4 billion from approximately 33,000 disclosure filings under the two prior programs, and moreover, that since the expiration of the 2011 OVDI, hundreds of taxpayers have come forward to make voluntary disclosures and avoid criminal prosecution. In addition to the revenue generated by the delinquent taxes, interest, penalties, and future taxes on income and gain resulting from taxpayers’ disclosures, the IRS has obtained a trove of information about specific foreign financial institutions, bankers, financial advisers, and others who have aided U.S. taxpayers in establishing and maintaining undeclared foreign accounts. The IRS clearly has discovered an effective tool to promote tax compliance and raise money for the nation’s coffers.

Any non-compliant U.S. taxpayers who have not yet declared foreign accounts or other reportable assets should be aware of the increasing enforcement efforts of the Criminal Investigation Division of the IRS and growing cooperation among international institutions and tax authorities. While the civil penalties, other compliance costs and overall financial pain may be high, OVDP III offers U.S. taxpayers the opportunity to disclose and comply before penalties increase further, as well as the inestimable benefit of avoiding criminal prosecution.
Alison Lennarz

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