In 1989, Home Paramount’s predecessor corporation found itself in the same situation: a valued employee had left the company and, in apparent violation of his written agreement, proceeded to compete with his former employer.  That case made it all the way to the Virginia Supreme Court as well, and the Court upheld the covenant as reasonable, narrowly-tailored, and enforceable.  This next time around, Home Paramount tried to enforce an agreement that was word-for-word identical to the agreement the Virginia Supreme Court held was enforceable in 1989.  However, the Court – citing some of its intervening decisions disapproving covenants over the past decade – held that the same language that was enforceable in 1989 was not enforceable in 2011.  What’s more, the Court held that the contract was unenforceable “on its face,” regardless of the facts surrounding the violation.

What does this mean for employers?  More than anything else, the Home Paramount decision signals the need for periodic review, and perhaps modification, of existing non-competition agreements.  What was enforceable a few years ago may not be enforceable now, and the time to find out about the problem and fix it is before, not after, a key employee sets up a competing business next door.  As a matter of good human resources practice, we recommend a thorough review of any non-competition agreements drafted more than five years ago, with periodic review of all such agreements perhaps every five years.  That way, the Home Paramount Pest Control decision will not end up, er, “bugging” you. –David J. Sullivan

Maker of the now famous foreign language learning products, Rosetta Stone, complained that Google was allowing Rosetta Stone competitors to use its federally registered trademarks as key words that triggered the competitors advertisements to appear on the internet when the trademark was entered as a search term on Google’s search engine.  Google had included several Rosetta Stone trademarks, including “language library,”  “global traveler” and “Rosetta Stone,” in its AdWords sponsored advertisement program. Rosetta Stone alleged that Google’s sale of its trademarks to unrelated third parties for use in sponsored advertising caused consumers to follow the unaffiliated sponsored link advertisements based on the mistaken belief that the associated links/websites were owned by or affiliated with Rosetta Stone when, in fact, they are not.  The Eastern District of Virginia Court (Rosetta Stone Ltd. v. Google Inc., 730 F. Supp. 2d 531 (E.D. Va. 2010), granted Google’s motion for summary judgment holding in part that “no reasonable trier of fact could find that Google’s practice of auctioning Rosetta Stone’s trademarks as keyword triggers to third party advertisers creates a likelihood of confusion as to the source and origin of Rosetta Stone’s products…”  The Court also found that the use of the marks as search engine keywords was protected under the functionality defense as the keywords served an indexing function to pull up the advertisements. 

In reversing this decision, the Fourth Circuit pushed aside the District Court’s internet based analysis and held that the case raised triable issues of fact under traditional likelihood of confusion principles.  The Court explained that evidence of actual confusion – in house studies of confusion, expert reports and survey evidence – was not properly considered on this issue.   The Court also reversed the district court’s approval of a functionality defense emphatically stating that: “it is irrelevant whether Google’s computer program functions better by use of Rosetta Stone’s nonfunctional mark.”  “Clearly, there is nothing functional about Rosetta Stone’s use of its own mark; use of the words “Rosetta Stone” is not essential for the functioning of its language-learning products, which would operate no differently if Rosetta Stone had branded its product ‘SPHINX’ instead of ‘ROSETTA STONE.’”

Similarly, the appellate court also reversed the District Court’s grant of summary judgment and dismissal of Rosetta Stone’s dilution claim finding that the lower court had improperly applied Louis Vuitton Malletier S.A. v. Haute Diggity Dog LLC, 507 F.3d 252 (4th Cir. 2007).  The District Court had dismissed the claims because Rosetta Stone failed to present evidence to show that Google was using the trademarks to identify its own goods and services and failed to demonstrate that Google’s use was likely to impair the distinctiveness or reputation of the Rosetta Stone trademarks.   The Fourth Circuit rejected both of these contentions, holding that the trademark statue (15 U.S.C. §1125(c)(3)(A)) requires Google—not Rosetta Stone—to establish as a defense that it made fair use of the trademarks in a manner other than as an identifier of source. “Thus, the district court erroneously required Rosetta Stone to demonstrate that Google was using the ROSETTA STONE mark as a source identifier for Google’s own products.” The appeals court further held that the district court mistakenly read the Haute Diggity Dog decision to require proof of actual economic loss or reputational injury, rather than a likelihood of dilution.

Stephen E. Noona is the head of Kaufman & Canoles’ Trial Section and Co-chair of its Intellectual Property Law and Franchising Practice Group.  In his 26 years of practice, he has been counsel in hundreds of intellectual property cases in federal courts across the nation, including over ninety (90) patent cases in the Eastern District and is Fellow in the American College of Trial Lawyers. He regularly appears before the judges in all four Divisions of the Eastern District on intellectual property matters.  -Stephen E. Noona

 1.  You are in a car accident that results in a serious injury. Your insurance coverage is insufficient, leaving you with personal liability in the amount of $250,000. You have $200,000 in a 401(k) account, $50,000 in an IRA, and $25,000 in net assets outside these accounts. Can the injured party collect the judgment by attaching the assets in your 401(k) plan? How about your IRA?

 2.  After losing your job, you find yourself over $50,000 in debt and begin to consider filing for personal bankruptcy protection. Your most significant asset is $25,000 in an IRA that originated as a rollover from your former employer’s profit sharing plan. Are you required to count the assets in your IRA when determining whether you can file bankruptcy? Will you be required to apply the IRA assets to pay off part of your debt? 

3.  You recently switched jobs and have $75,000 in an account under your former employer’s 403(b) plan. You are not thrilled with the investment options available under the 403(b) plan and would like to roll the account over into an IRA; however, you are concerned about a pending legal judgment and want to make sure that these assets will be protected against your creditors to the maximum extent possible. Should you keep the assets in the 403(b) plan or roll them into an IRA?

Asset protection is an important retirement planning consideration that is often overlooked. When considering where to place your retirement savings, keep in mind that different savings vehicles may leave your assets more exposed to the claims of creditors than others. This article outlines the basic asset protection rules applicable to ERISA plans, IRAs, nonqualified deferred compensation plans, and other common retirement savings vehicles.

I.  ERISA Plans

 Assets held in a qualified retirement plan sponsored by an employer or former employer (including 401(k) plans, profit-sharing plans, defined benefit pension plans, and ESOPs, among other types of plans) are covered by the Employee Retirement Income Security Act of 1974 (“ERISA”), a federal law that mandates a strong level of protection for retirement savings. ERISA also applies to certain 403(b) plans offered by non-profit or governmental employers. As a general rule, ERISA plans offer the most solid protection that is available under the law.

ERISA (as well as the parallel sections of the U.S. Tax Code) protects plan assets in several ways. First, ERISA requires that assets held in an employer’s retirement plan must be used for the “exclusive purpose” of providing benefits to plan participants and beneficiaries. ERISA also contains an “anti-alienation” rule prohibiting a plan from assigning plan benefits to any person other than the plan participant or beneficiary, and also from allowing any attachment, garnishment, or other forms of legal process against plan assets. What this means as a practical matter is that the plan is prohibited from paying the amount credited to a participant’s account to anyone but the participant. If a creditor contacted the plan administrator seeking to collect on a personal debt, the plan administrator would be required by law (and by the terms of the plan) to deny the claim.

As an additional layer of protection, ERISA plans are protected against claims under competing state laws. ERISA contains a broad preemption clause providing that ERISA supersedes any state law to the extent that the law “relates to” an employee benefit plan, meaning that ERISA’s protections (such as the anti-alienation rule) can be used to defend against collection actions in any U.S. jurisdiction.

The major exception to the exclusive benefit and anti-alienation rules is Qualified Domestic Relations Orders (“QDROs”), which pertain to the collection of court-ordered alimony, child support, or property division payments. If a plan participant is ordered to use assets from an ERISA plan in connection with a QDRO, the plan administrator can divert the assets in the plan account as required by the order without first obtaining the participant’s consent.

With respect to bankruptcy, assets held in an ERISA plan are treated as exempt for purposes of federal bankruptcy law (but may not be treated as exempt in all states, so make sure to do your homework to understand the bankruptcy laws applicable to the state where you reside or file for bankruptcy protection). This means that assets held in an ERISA plan are not counted as assets that must be used to pay off creditors under the federal bankruptcy rules, and the debtor is thus allowed to retain these assets after going through bankruptcy. Under Virginia law, assets held in an ERISA plan are also treated as fully exempt to the same extent as provided under Federal law. (Prior to 2007, however, Virginia law only exempted ERISA plan assets up to a certain level – a reminder that state bankruptcy laws can differ from federal laws in important ways, and can also be subject to change.)

II.        Individual Retirement Accounts (IRAs)

Assets held in an IRA or Roth IRA are not covered by ERISA, and thus do not qualify for the heightened protection of the exclusive benefit rule, anti-alienation rule, or ERISA preemption. This result applies regardless of whether the assets originated as contributions to the IRA or as a rollover from another IRA or ERISA plan. One implication of a decision to roll assets out of an ERISA plan and into an IRA is thus that the rollover may leave the assets more exposed to the claims of creditors than otherwise would have been the case.

Assets held in an IRA are generally subject to state law asset protection rules, which can vary widely from state to state. Many states, including Virginia, exempt assets held in an IRA from the claims of creditors to the same extent as assets held in an ERISA plan. (Prior to 2007, IRA assets were not treated as exempt under Virginia law if the debtor also held assets in an ERISA plan.) However, this is not universally the case. In some states, IRA assets are only partially exempt from the claims of creditors, and in others IRA assets are not exempt at all.

Federal bankruptcy law exempts assets held in an IRA to the same extent as assets held in an ERISA plan. Residents of a state that does not fully exempt IRA assets for purposes of state bankruptcy law may thus prefer to apply federal exemptions if allowed.

The major point to consider when deciding whether or not to roll assets from an ERISA plan into an IRA is that IRA assets will not be protected equally in all locations. If you currently reside in a state, like Virginia, that treats IRAs the same as ERISA plans for asset protection purposes, you may feel comfortable making the rollover. However, if you ever relocate in the future, you may move into a jurisdiction that leaves the IRA assets more exposed to creditors. General information about the bankruptcy and asset protection rules applicable in different states can be found online at sites such as Legal Consumer.com (http://www.legalconsumer.com/), but it is always best to seek the advice of counsel licensed to practice law in the state in question. 
–Shad C. Fagerland

Over the years the legal pendulum has swung from side to side on this question, with some court decisions being more favorable to the search engines’ position that keyword advertising does not violate trademark rights, and others being more favorable to the opposite position of the trademark owners.  The most recent decision addressing the question was issued by the U.S. Court of Appeals for the Fourth Circuit on April 9, 2012, and moved the pendulum back in the direction of the trademark owners.  In this case, the owner of the Rosetta Stone trademark was objecting to Google’s sale of that and other trademarks as keywords leading to sponsored link advertisements by other parties.  The lower court had ruled in favor of Google, but the Appeals Court reversed its ruling on the questions of whether Google’s keyword advertising program might involve direct infringement, contributory infringement or dilution of Rosetta Stone’s rights in its trademarks.  The case has been sent back to the lower court for further consideration of these issues. 

This decision by the Court of Appeals for the Fourth Circuit in favor of Rosetta Stone will likely give encouragement to other trademark owners who might want to challenge use of their trademarks in keyword advertising programs of Google and other search engine providers.  However, it bears mentioning that other recent court decisions have been more favorable to the position of the search engine providers than the Fourth Circuit’s decision in the Rosetta Stone case.  Of particular note is a March 8, 2011 decision by the United States Court of Appeals for the Ninth Circuit, which emphasized the growing sophistication of Internet users, their consequent ability to recognize sponsored ads for what they are and, therefore, the decreasing likelihood that such ads will create customer confusion as to the source of the goods or services promoted by the ads.

The court decisions mentioned above are Rosetta Stone Ltd.  v. Google, Inc. (Fourth Circuit, April 9, 2012), and Network Automation, Inc. v. Advanced Systems Concepts, Inc. (Ninth Circuit, March 8, 2011).  They are not the first and will not be the last to give conflicting judicial guidance on the legality of Internet keyword advertising programs.
–Robert E. Smartschan

As a result of that decision and others questioning the validity of the NLRB’s rule, the NLRB has issued a statement explaining that “regional offices will not implement the rule pending the resolution of the issues before the court.”   

Until further notice, employers do not need to post the notice.  Stay tuned, as we will continue to monitor the fate of this rule. –David J. Sullivan

None of us can read minds.  Thus, courts, Patent and Trademark Office examiners, and attorneys look to surrogate factors to assess the potential for confusion.  Different federal courts use different lists of factors.  The PTO and its appellate court, the Federal Circuit, use a 13-item list known as the DuPont factors, and they have adopted many rules-of-thumb for analyzing each factor.  There is no formula for weighing the factors, although usually the similarity of the marks (in sight, sound and meaning) as well as the relatedness of goods or services sold under the marks are the first and most important.  Others include the similarity of trade channels, the care typically used in purchasing goods of the type, the “distinctiveness” and fame of the first-used mark, the number of similar marks already in use, the duration of concurrent use, any evidence of actual (as opposed to likely) confusion, and more.  The legal analysis involves many judgment calls.  Despite review by experienced lawyers applying the list of factors and the rules of thumb, often there is much room for differences of opinion, a fact illustrated by the abundance of office actions by PTO examiners and cases decided by the Trademark Trial and Appeal Board (TTAB).

When some similar marks are registered or in use with somewhat related goods, the question becomes how close is too close.   Then, the “strength” of a mark can matter.  There are two dimensions to mark strength or weakness.  The first dimension is conceptual and focuses on a mark’s “distinctiveness.”  If the prior mark stands out because it says little about the product (think MONSTER or AMAZON), it is viewed as strong and they owner can be entitled to prevent use of similar marks with even less related goods or services. By contrast, highly suggestive marks, while protectable, have a smaller scope of enforceable rights.  The second dimension is empirical and focuses on the actual number of somewhat similar marks already in use with somewhat related products.  For example, marks that use prefixes or suffixes like “tech,” “dura,” “info” or “deluxe” are very common and generally considered weak.  In that situation, as with highly suggestive terms, the logic is that, with multiple users of somewhat similar marks, all must be co-existing without confusion and that consumers have learned to distinguish them based on relatively small differences.  Obviously, it is better to own a strong rather than weak mark, and when selecting a mark it is particularly important to avoid another’s strong mark. 

When the PTO or another user alleges that a client’s mark is likely to cause confusion, one often counters by arguing the other’s mark is weak,  by pointing to the mild suggestiveness of the other’s mark and/or the fact that there are several rather similar marks already un use with related products. 

Because the marks otherwise are fairly similar, and because it is hard to know how consumers are actually reacting to the marks, it usually is hard to persuade the PTO or a court that another’s mark is so weak that confusion is unlikely.  Yet, a recent decision by the TTAB illustrates the powerful role a marks weakness can sometimes play.  Hartz Hotel Services had applied to register GRAND HOTELS NYC for hotel services, and the PTO examiner refused the application based on a prior registration of GRAND HOTEL for, you guessed it, hotel services.  With virtually identical marks and identical services, normally there would be no doubt but that confusion is likely.  Yet, in March 2012 the TTAB held that the addition of the geographically descriptive NYC was sufficient to distinguish GRAND HOTEL NYC, as a whole, from GRAND HOTEL and as a result that confusion was not likely.  Go figure.

The Board’s reasoning turned on both dimensions of mark weakness.  HOTELS is a generic term for the services and so not in itself protectable.  GRAND is “highly suggestive,” it found, a none-too-subtle hint about the hotel’s size and elegance.  In addition, the suggestion was very common in the marketplace:  the applicant pointed to multiple registrations and unregistered users of other uses of GRAND and/or GRAND HOTEL with hotel services having minor, often geographic additional terms (THE GRAND HOTEL AT MOUNTAINEER, ANCHORAGE GRAND, FORT LAUDERDALE GRANDE HOTEL, MGM GRAND HOTEL & CASINO, PENSACOLA GRAND HOTEL and several others).  They appeared to be co-existing, and the PTO evidently thought them different enough to allow concurrent registration of several.  The marks were almost identical, but in context different enough to avoid confusion.

While Hartz Hotel Services won, the decision also illustrates the legal and business shortcomings of weak marks.  The TTAB concluded that all of these marks were highly suggestive and, while legally protectable, so weak that “the scope of protection to which the cited registration is entitled is quite limited.”  Hartz thus can “own” GRAND HOTEL NYC as a mark, but (like all the others) its mark is so weak that it cannot prevent others from using very similar but nonidentical names with the same services.  In a business that deals with travelers, Hartz also faces the challenge of competing and building a reputation for itself with a name that is so similar to so many others in different locations.  One has to wonder whether the victory was worth the fight. 

Chris Mugel practices intellectual property law from the Richmond, Virginia office of Kaufman & Canoles.  –Christopher J. Mugel

Once you make the decision to create an ECP, your employees should understand and observe the commitment from management.  Management should ensure that employees do not regard this plan as a set of written procedures that simply collect dust.  Employees will take these measures seriously only when they see that management is devoting time and resources to the implementation of the ECP and that the rules and procedures will be strictly enforced. 

The next step in implementing an ECP is to appoint a compliance officer from within the company with sufficient authority to demand compliance.  Due to potential bias, this person should not be involved in export sales. 

Before any written polices and procedures are put into place, management should conduct a risk assessment, which is usually performed along side an outside expert.  During a risk assessment, the individuals involved will discuss, in detail, the present environment surrounding the companies’ export transitions, including the likelihood of certain violations, the severity of consequences, and the controls already in place.

These elements are essential to building a solid foundation for an ECP.  Once accomplished, your business can begin creating the ECP’s written policies and procedures.  If you would like more information on export control regulations or an Export Control Plan, please feel free to contact me at recoley@kaufcan.com.  –R. Ellen Coley

For additional information on these new generic top-level domains, visit  http://newgtlds.icann.org. –Kristan B. Burch

Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.

Since it was initially filed in 1996, the case of Zoltek Corp. v United States has cast doubt on the efficacy of this statute to shield contractors from claims for infringement of U.S. patents, if the infringing activity occurs outside the United States.  This issue has remained in play through multiple decisions by the Court of Federal Claims and the Court of Appeals for the Federal Circuit, the latest of which was handed down on March 14, 2012.  In this decision the Federal Circuit overruled earlier decisions by it and the Court of Federal Claims to the effect that 28 U.S.C. 1498 does not make the government responsible for patent infringement liability arising from actions of federal contractors outside the U.S., and that the contractors can be sued for infringement arising from those actions.  In doing so the Federal Circuit resolved a seeming conflict between various statutory provisions to rule that the statutory language quoted above amounts to a waiver of sovereign immunity by the government for patent infringement by federal contractors performing within the scope of their contracts, even if some of the infringing activities occur outside of the United States.  It will not be surprising if this latest Federal Circuit decision in the Zoltek case is appealed to the Supreme Court; but, at least for now, this Federal Circuit ruling has improved the situation for federal contractors. –Robert E. Smartschan