As of November 21, 2009, businesses are required to display a new federal poster in the workplace which reflects the requirements of the Genetic Information Nondiscrimination Act (“GINA”). GINA was signed into law in May 2008 to address concerns over the use of genetic information in the health insurance industry and the acquisition and use of such information by employers.  Proponents of the law urged that this legislation will allow Americans to freely undergo genetic testing for diseases, such as cancer, heart disease, and mental health conditions without fear of losing their job.

GINA regulations apply to all private, state, and local government employers with 15 or more employees. Some states already have genetic information nondiscrimination laws, but the terms and application of those laws vary greatly. Pursuant to GINA, businesses may not intentionally acquire genetic information from applicants, employees or even former employers (with very limited exceptions). In addition, the law prohibits employers from using this type of information for any decision regarding the terms of employment, including hiring, firing, and promotion decisions.

The new “Equal Opportunity is the Law” poster is available on the EEOC website in English, Spanish, Arabic and Chinese. This poster also reflects the 2008 amendments to the Americans with Disabilities Act.  To obtain free copies of other federal required posters, you should contact the U.S. Department of Labor at (202) 693-0200 or visit DOL’s website.

While GINA seeks to encourage increased genetic testing, which will make it more likely for researchers to come up with lifesaving therapy for disease, its application may catch businesses by surprise. Most companies assume that the law doesn’t apply to it because they don’t actively collect genetic information on their employees or applicants. However, the law defines genetic information broadly and includes information on illnesses obtained through family histories. Thus, it could be problematic to the company that has such information and inadvertently uses it.

No. 3: You are Misusing Your Own Trademark

Many small firms spend significant amounts of money filing for trademark protection for the brands they plan to market (or have marketed) their products or services under.

Admittedly, the costs associated with preparing, filing and maintaining trademarks are far less than those associated with patents. As a small entrepreneurial firm, however, there is little room for any wasted expenditures!

Many small firms simply fail to schedule a legal review of their website, product literature and other marketing collateral for proper trademark usage.

For example, a firm may file for and obtain a federal registration for the trademark “MyBrand” in conjunction with a new router product it has developed. Yet, the firm may misuse its own trademark by having its website, product literature and other marketing collateral read, for example: “Our MyBrand® is the fastest router on the market! Contact us for more information about MyBrand®.”

With proper trademark usage, the statement should read: “Our MyBrand® router is the fastest on the market! Contact us for more information about our MyBrand® router.” Suffice it to say, and without getting into “Trademark Law 101,” the whole trademark system is based on the concept of “distinctiveness.”

Trademarks are adjectives used to describe the source of a product or service, not nouns to be used as a synonym for the product or service itself. This may seem like a trivial point, but it can have huge legal implications should the firm ever have to enforce the trademark.

Written by Raymond Millien

No. 2: You “Over File” For Foreign Patents

Any entrepreneur paying attention to their enterprise’s IP will soon learn that patents are jurisdictional. You cannot enforce an issued U.S. patent in, for example, France. Conversely, you cannot enforce an issued French patent in the United States. That is, generally speaking, you must apply for and be granted a patent on a jurisdiction–by–jurisdiction basis.

Despite several international treaties related to IP rights, there is still no such thing as an “international patent.” Given this fact, entrepreneurs and their patent attorneys invariably have the following conversation:

Patent Attorney:  “In what foreign countries would you like to file your patent application?”

Entrepreneur:        “Well, where should I file?”

Patent Attorney:   “You should consider filing in any country where you foresee a market for the product or service covered by the patent.

Entrepreneur:         “It can be sold and used everywhere in the world!”

And thus begins the path down the road of good intentions but wasted money. The truth of the matter is, an overwhelming majority of small high-tech companies have no business filing international patents. (There are of course some exceptions – for example, if your firm has discovered a new AIDS or cancer drug!)

Why? For a single-invention patent portfolio it can easily cost more than $1M to obtain global protection, and tens of thousands of dollars per year to maintain the portfolio. A failure to realize this prior to the foreign filing process invariably leads to wasted money.

This is especially true when many small firms begin the foreign filing process, incur significant filing, translation and legal fees, then realize (too late) that they cannot really afford the costs of foreign filing, and then abandon their international applications. In such an instance, not only has money been wasted, but time and effort as well.

Written by Raymond Millien

You manage the Virginia office of a company headquartered in the District of Columbia, and place an ad for a job opening in a Virginia newspaper. Thereafter, you conduct interviews for that position at your Virginia office, and hire a new employee who proceeds to work full-time in Virginia.

And a couple of years later, you terminate the employee for poor performance and the employee files a lawsuit against your company for discrimination. Clearly, the employee’s lawsuit must be brought in Virginia under Virginia law, right? If your answer is “yes,” you are not alone, as I would have answered “yes” as well. However, in light of a new D.C. Court of Appeals case, we would both be wrong!

In Monteilh v. AFSCME, AFL-CIO (PDF), the D.C. Court of Appeals held that an employee could maintain a lawsuit in the D.C. Courts under the D.C. Human Rights Act (D.C.’s anti-discrimination statute) even though the employee never worked one day for the company in D.C. According to the Court, the determinative factor was where the alleged discriminatory decisions took place, not where the employee may have worked during the course of his employment.

The Court reasoned that although the effects may have been felt outside of D.C., “recognizing jurisdiction under the DCHRA where actual discriminatory (and/or retaliatory) decisions by an employer are alleged to have taken place in the District is most faithful to the statutory language and purpose.”

The ramifications of this decision are quite significant for those businesses that are headquartered in the District of Columbia but maintain an office in Virginia. For one, the D.C. Human Rights Act (DCHRA) is much broader than the applicable anti-discrimination statutes in Virginia (namely Title VII) as the DCHRA prohibits discrimination based on race, color, religion, national origin, sex, age, marital status, personal appearance, sexual orientation, familial status, family responsibilities, matriculation, political affiliation, disability, source of income, and place of residence or business.

By contrast, Title VII only prohibits discrimination based on race, color, religion, sex, and national origin.

As this is a new ruling, it remains to be seen as to whether there will be a flood of similar cases filed. My guess is that we will see quite a few of these cases over the next couple of years. Certainly, given the potential impact to Virginia businesses, this head-scratcher of a case is something we will have to keep our eye on down the road.

Are you or your company considering the acquisition of another business? If so, you will want to discover and analyze all material information necessary to fully understand the target company before signing on the dotted line.

Due diligence is one of the most risk-fraught elements of the transaction; however, it rarely receives the attention it deserves in acquisitions involving small privately held companies most often because of budgetary constraints.  You don’t need to skimp on this phase, though – the proper implementation and execution of a well conceived due diligence review can control costs and expenses, reduce risk, and maximize the value of your investment.

A due diligence review reveals more than just potential “deal killers” in the target, it provides information that will be useful for valuing the stock or assets of the target and defining representations and warranties in the final sales agreement. Otherwise, how will you confirm that the business is what it appears to be and is worth the asking price?

The key to effectively and efficiently managing the due diligence phase of an acquisition is to include the following organizational elements into the review process:

• Prepare a Player’s List: Prepare a spreadsheet of contact information for each responsible person involved at the target company as well as your own team (i.e., address, telephone numbers, facsimile numbers and email addresses).
• Organize a Due Diligence Checklist: Prepare and organize a comprehensive Due Diligence Checklist with items grouped together in categories and columns for the names of the responsible team members, notes and status of each items.
• Assemble a Due Diligence Team: Assign a key staff member(s) to gather certain categories of documents. For example, make your accountant responsible for gathering and reviewing relevant financial documents and tax returns of the target company; chief operations manager responsible for gathering customer contracts; human resource manager responsible for gathering employee contracts and benefit information; etc.
• Structure the Due Diligence Process: Develop key phases for specific tasks, such as, the gathering documents, including on-site and off-site review; conducting research on target’s organization, liens, and litigation; researching the target’s industry, competition, long-term prospects; meeting with key management of the target company; document review; etc.
• Develop Milestones: Set reasonable deadlines for the review process with check points along the way to ensure complete and proper implementation of the due diligence process.

Due diligence should be approached as a business process in order to maximize the monetary benefits of the deal. Achieving success and efficiency in this phase of the transaction can be as simple as organization plus disciplined implementation.

In my past posts, I have consistently argued that the lifeblood of any small, high-technology enterprise is the intellectual property (“IP” – i.e., patents, copyrights, trademarks and trade secrets) that it controls or potentially controls. In other words, the short-term salability, the long-term profitability, and the eventual ability to undertake an initial public offering of a small company all depend upon its ability to develop, acquire, protect and apply innovative ideas and concepts.

To that end, my many posts have pleaded with entrepreneurs to pay attention to their small enterprises’ IP. Continuing on this theme, below I will outline the “top five common mistakes” I’ve observed over the years while working with various small high-tech company clients around the country.

No. 1: You Assume Your Patent Lawyer Got it Right

Hiring a registered patent attorney to prepare a patent application for one of your small enterprise’s key innovations is commendable. However, not carefully reviewing the drafts of the application before filing it with the U.S. Patent and Trademark Office (USPTO) is not.

Many a client has assumed that because the document was drafted by a competent patent attorney, it must be sufficient. This is simply a bad assumption to make. A patent application is as much a technical document as it is a legal document. Thus, it is the responsibility of the inventor(s) to make sure the document is technically correct.

Countless times, I have encountered clients who failed to review their attorney’s work product to make sure the patent application discloses ALL the technical facets of their invention, and adequately explains to a similarly-situated practitioner in the relevant technology field how to make and use the invention. Once the patent application is filed, that’s it! Making changes to the description section of a filed patent application will likely be expensive (in the form of new patent filings) or outright fatal to the patent application itself (in the case of intervening prior art).

Thus, unlike those with old Ragu® pasta sauce commercials, you can’t assume that “it’s in there!” Make sure you actually read, review and revise drafts of all patent applications received from your patent attorney. The best time to correct technical inaccuracies or add additional, known technical features of the invention is prior to filing it with the USPTO – not after.

Written Raymond Millien

As concerns about the H1N1 influenza virus (the “swine flu”) escalate across the U.S., business owners face the daunting task of creating and maintaining a healthy workplace for employees. With estimates of 22 million H1N1 cases in the United States between April and October 2009, the H1N1 flu is of pandemic proportions. As the holiday season fast approaches, businesses should immediately implement an H1N1 preparedness plan to maintain business continuity.

The adoption of an H1N1 preparedness plan is especially important for small businesses. As noted by Karen Mills, the Administrator for the U.S. Small Business Administration, “small business owners should take the time to create a plan, talk with their employees and make sure they are prepared for flu season”. “For countless small businesses, having even one or two employees out for a few days has the potential to negatively impact operations and their bottom line. A thoughtful plan will help keep employees and their families healthy, as well as protect small businesses and local economies."

Although developing an H1N1 preparedness plan may seem a touch overwhelming, the process is not as involved as it may seem:

• Identify work-related exposures and protect employees from health risks.
• Include business continuity measures for essential business functions, jobs, and roles.
• Update human resource policies to reflect public health recommendations and workplace law.
• Implement a telecommuting policy.
• Allow employees to stay home if they are sick or if they have to care for a sick family member.
• Establish procedures and triggers for activating and terminating the company’s response plan, altering business operations, and transferring business knowledge to key employees.
• Include a process to communicate information to employees.

Given the uncertainties of the H1N1 influenza, you must take the time to put a preparedness plan in place. At a bare minimum, you should organize a meeting of your company's key decision-makers and discuss the basic components of an H1N1 plan. (The Centers for Disease Control and Prevention has an excellent  H1N1 guide for businesses and employers.) So give your business a vaccine against H1N1 with a preparedness plan, and protect your business from the H1N1 pandemic.

The agency of the United States Government that enforces the federal employment discrimination laws was recently found to have violated the Fair Labor Standards Act (“FLSA”).  An arbitrator ruled that the EEOC’s practice of offering compensatory time off to certain investigators and mediators rather than overtime pay amounted to “forced volunteering,” which violated the law.

The three year dispute stemmed from a grievance filed by the National Council of EEOC Locals No. 216, AFGE, AFL-CIO, protesting the EEOC’s reclassification of certain investigators and mediators from non-exempt to exempt status under the FLSA in the wake of an outside consultant’s report. The arbitrator issued an earlier, interim decision returning all but one group of employees to non-exempt status.

In this matter, the issue boiled down to whether the EEOC had “suffered and permitted” employees in non-exempt positions to work overtime without offering employees the option of extra pay or compensatory time. The arbitrator determined that the EEOC should have given its nonexempt investigators, mediators and paralegals this option rather than just compensatory time. As a result, the EEOC will be liable for back pay, plus liquidated damages for the violations.

Given the current recession, the resulting tight credit markets and shrunken amounts of available private equity, it is no doubt a tough period to be a small, entrepreneurial firm.  Making payroll, generating sales and making ends meet at home are on the forefront of many an entrepreneur’s mind these days.  So what brilliant advice can I offer?  Well, as I often address in my blog posts, my advice may not be brilliant, but it is related to intellectual property.  And that advice is inspired by three recent observations I’ve made involving three well-known institutions – the President, the Pope and TiVo.

First, in his weekly radio address on August 1, 2009, President Obama proffered that America needs to recapture its spirit of innovation in order to recover from the current economic crisis.  How so?  Well, “[t]hat means leading the world in building a new clean energy economy with the potential to unleash a wave of innovation – and economic growth – while ending our dependence on foreign oil. And that means investing in the research and development that will produce the technologies of the future – which in turn will help create the industries and jobs of the future.  Innovation has been essential to our prosperity in the past, and it will be essential to our prosperity in the future.”

Second, in the Pope’s latest Encyclical Letter, dated June 29, 2009 – an autographed and leather bound copy of which he personally gave to President Obama during their first visit a week later – he states that: “The world’s wealth is growing in absolute terms, but inequalities are on the increase. … The scandal of glaring inequalities continues. … On the part of rich countries there is excessive zeal for protecting knowledge through an unduly rigid assertion of the right to intellectual property, especially in the field of health care.” 

Third, there is TiVo, Inc. – the makers of the well-known digital video recorders (DVRs).  In a closely-watched case, the U.S. Court of Appeals for the Federal Circuit – the court that hears appeals of patent cases from all of the federal district courts around the United States – decided on July 1, 2009, to grant EchoStar (28,000 employees and $13B in annual revenue) yet another stay of a permanent injunction in its long-running patent battle with TiVo (460 employees and, since its founding in 1997, only achieved its first positive annual net income in 2008).   In August of 2006, a jury had awarded TiVo over $73M in damages after it found TiVo’s DVR-related patent valid and that EchoStar had willfully infringed the patent.  EchoStar, however, has still not paid TiVo one cent as the case goes through its second round of appeals.

So, given these three (seemingly unrelated) observations, what conclusion should you draw?  Other than the conclusions that the Pope and President Obama may disagree on IP issues (among others!), and that the Pope probably does not own a TiVo DVR machine?   Well, the conclusion is that IP is important enough that world leaders are discussing and writing about it.  Thus, my advice is that small firms should continue to pay attention to it – even in a recession where it seems that there are no available funds to “pay attention” to IP!

As the economy journeys back from the current recession over the next year or so, entrepreneurs must be cognizant that IP resulting from small-firm innovation still is the new global currency within a new knowledge-based global economy.  As illustrated above, President Obama knows it and the Pope deems it important enough to broach the subject with him during their first-ever meeting.   And, in that new economy with the new global currency, being innovative will still not be enough to guarantee success.  This is because disparities will still exist in terms of resources to enforce the IP resulting from small-firm innovation – a la TiVo v. EchoStar!  However, this must not be a total deterrent.

Often it seems that our IP system only serves the most established, well-funded, and dominant players in the marketplace.  As the 20th century Czech economist Joseph A. Schumpeter famously observed, however, a nation’s long-term economic development is sustained only by the market entry of entrepreneurial firms overtaking larger, established firms.  (This is the concept known as “creative destruction.”)  Thus, not only do small, entrepreneurial firms need to continue to be innovative (enough with the “new Facebooks” and “new Twitters”) and take steps to protect their resulting IP rights, they must be cognizant of the changing legal landscape and the political forces that seek to undermine the nation’s IP system to assure it equally protects the interest of all innovators.  After all:

(President Obama Delivers Remarks on the Economy, Wakarusa, Ind., Aug. 5, 2009).

A few years ago, fellow IN Crowd member, André Carter, and I wrote a book entitled Little Blues: How to Build a Culture of Intellectual Property within a Small Technology Company (Euromoney/MIP 2006).  The book’s central thesis was that IP (i.e., patents, copyrights, trademarks and trade secrets) accounts for a vast majority of a small high-tech enterprise’s value and the key to any such enterprise’s exit strategy – be it an IPO or sale – is the IP that it controls, or potentially controls.  Hmm…maybe we were on to something!?

A few years ago my fellow IN Crowd member, André Carter, and I wrote a book titled Little Blues: How to Build a Culture of Intellectual Property within a Small Technology Company (Euromoney/MIP 2006).  In the book, our central thesis was that intellectual property (i.e., “IP” or patents, copyrights, trademarks and trade secrets) account for a vast majority of a small high-tech enterprise’s value and the key to any such enterprise’s exit strategy – be it an IPO or sale – is the IP that it controls, or potentially controls.  So, hopefully without cannibalizing the market for the book, I will outline in this post what specifically we meant by “building a culture.”

“Culture,” from an anthropological perspective, refers to a system of knowledge and beliefs shared by a group of people which is communicated from generation to generation via oral and written histories and artifacts.  From the perspective of a small, start-up firm, however, “culture” may be somewhat of a blank slate.  That is, often there exists no “corporate culture” in a start-up yet, because by definition it has only recently come into existence and has no historical knowledgebase or collection of beliefs.  Thus, every policy, plan, procedure or (good) habit that the founders of a start-up implement (early and often), begins to build the new enterprise’s corporate culture.

So the question becomes, which policies, plans, procedures or good habits can the founders of a start-up implement to begin to build a corporate culture?  And, where is its central focus?  In last month’s post, I mentioned the IP audit as a way to identify what IP assets an enterprise actually owns or controls.  Building a culture of IP, however, requires more “upstream” activity than this.  It requires the right perspective to recognize the importance of IP (something that André Carter addresses this month in his post), and then it requires concerted efforts to address that perspective.  Such concerted efforts can be categorized into infrastructure-, education- and implementation-related efforts.

With respect to infrastructure-related efforts, the founders and other stakeholders of a start-up must build a series of policies and procedures that are IP-centric.  These include, for example, the creation of employment and independent contractor agreements that address inventions, works-for-hire and the like, and non-disclosure agreements.  Other infrastructure-related efforts include putting someone in charge of IP and allocating a budget for IP-related activities (e.g., attorneys’ fees for drafting proper agreements, fees for filing patent and trademark applications, etc.).

With respect to education-related activities, the founders and other stakeholders of a start-up must communicate the IP-centric policies and procedures to all those who later join the enterprise.  As a matter of fact, these IP-centric policies and procedures must be constantly communicated – from new employee orientation to periodic reminders to exit interviews.  This process  not only serves to grow and reinforce the IP-centric corporate culture, but has external benefits as well.  Specifically, the enterprise’s personnel who are well-immersed in its IP-centric culture will project as much to the third parties they deal with (e.g., vendors, partners, potential acquirers, etc.) during day-to-day business.  This leads to such third parties also having a respect for the enterprise’s IP.

With respect to implementation, drafting the best employment and confidentiality agreements, putting someone in charge, allocating a specific IP budget, and telling everyone about the enterprise’s IP policies are all meaningless if there is no implementation.  That is, you can’t simply talk about it, you have to be about it.  Nothing reinforces culture than people seeing its manifestations in action.  Thus, the small, start-up enterprise’s corporate culture has to be one of actions, not one of written IP policies and procedures being simply placed in a file cabinet and paid the occasional lip service.

In sum, building a corporate culture of intellectual property requires not only the right perspective, but also concerted efforts with respect to building the proper infrastructure, educating the enterprise’s personnel on how to use and take advantage of such infrastructure, and actually insisting that such infrastructure be used and implemented properly.