Business, Craft Beer
•on April 8th, 2014
North Carolina is the proud home of about 100 breweries and Asheville regularly challenges Grand Rapids, MI and a number of cities and towns in Colorado (and elsewhere) for the honor of Beer City USA. It is estimated that North Carolina breweries have an impact of about $791 million on the North Carolina economy. Locally, Foothills Brewing has been an integral part of the Winston-Salem and Piedmont Triad economy for several years, while Small Batch Beer Co. and Hoots Beer Co. have grown steadily in the craft beer scene since opening within the past year. Typically, especially with larger craft breweries, spent grains from the brewing process makes its way to farms, where it is used to feed farm animals (and less traditionally thought of farm animals– worms and tilapia).
However, a new animal food rule promulgated by the US Food and Drug Administration (FDA) as the FDA works to implement the Food Safety Modernization Act (signed into law in 2011) threatens to end that symbiotic relationship between brewers and farmers. The new rule, which appears to be a heavy-handed FDA interpretation of the Act, will likely make that relationship too costly to maintain (for both farmers and brewers). In short, the rule will require any such byproduct to be prepackaged, so as to avoid human contact, before it is received by the farm. According to a national Brewers Association, which conducted a member survey in 2013, approximately 90% of the spent grain produced by beer-makers is fed to livestock. Where will much of the spent grain go if the FDA rule is in place and makes the brewer/farmer relationship too expensive to maintain? Most likely the landfill.
At least one US Senator from Colorado has opened dialogue with the FDA, with the goal of reducing the heavy-handed interpretation of the Act. Unfortunately, the comment time period for the proposed rule has already closed, and the FDA will issue the final rule sometime later this year. There is more than enough documented data and evidence, over many decades, that spent grain byproduct does not compromise food safety to animals or humans. Hopefully the FDA will reexamine its interpretation of the law, and make adjustments that will be manageable for craft breweries all over the country.
Read more about this FDA rule and its impact in Colorado and North Carolina here and here.
So you’ve decided on your brewery’s name, logo, and the names and logos for some of your beers, completed all of the research and completed the trademark registration process. Congratulations! You may be feeling a (false) sense of security right now, since clearly if your mark is registered with the US Patent and Trademark Office, you must be good to go until it’s time to renew the registration, right? Do not fall into this trap.
One of the most important policies your brewery (and any business holding trademark rights) must have is that of regularly monitoring for and documenting of unauthorized use of your trademarks and, once unauthorized use is detected, taking the steps to enforce and protect your trademark rights.
To monitor for use of your trademark (or confusingly similar trademarks), it is simply a matter of regularly searching the USPTO database, the USPTO Official Gazette and, generally, the world wide web (i.e., “Google it”). Craft brewers should also consider searching beer review apps and websites such as Untappd, Beer Advocate, and Beer Buddy, which may make it easier to locate potentially conflicting marks within the brewing arena. If you happen to find a use of your mark, or a confusingly similar mark, you should then document as much as you can about the unauthorized use. When it began (as best you can tell), location, the name of the person or company that is making the unauthorized use, date of discovery, the type of goods or products it’s being used in conjunction with, etc. Many companies can hire either an attorney or a number of other paid service providers to handle all of the above.
If you happen across an unauthorized use of your trademark (or, again, something confusingly similar), it’s time to take action. This can range from a simple educational letter to full blown litigation. Normally, it’s best to start somewhat light handed, with an educational letter, and ramp up toward litigation if the desired result does not occur. An educational letter simply notifies the infringer of their actions, and educates them about trademark law, complete with a congenial request that they cease the infringement. If this method does not achieve the desired result, a “cease and desist” letter is usually the next step, demanding the infringer stop all manners of infringement and threatening a lawsuit if they do not. The final (and, generally, most expensive) method of enforcement is full blown litigation, suing the infringer in court. There are some other similar avenues (such as administrative actions with the USPTO to oppose another trademark’s application if it’s confusingly similar to your own) to consider as well.
Failure to adequately monitor for infringement and enforce your trademark rights may result in a loss of trademark protection for your own trademark. Make sure to have an effective policy in place and to adhere to that policy strictly.
Business, Craft Beer
•on February 11th, 2014
About a week ago, the North Carolina Court of Appeals issued a new Opinion (Copypro, Inc. v. Musgrove, No. COA13-297 (N.C. App. Feb. 4, 2014)) which centered on noncompetition agreements (also referred to as a “covenant not to compete”).
The case involved an employer (Copypro) suing its former employee (Musgrove) for violating a noncompete agreement that Musgrove had signed before beginning employment. The agreement stated that, for a period of three years following termination of employment, Musgrove could not compete with Copypro in any of the thirty-three eastern North Carolina counties in which Copypro conducted business (sales). Musgrove spent almost all of his time, on behalf of Copypro, in only two counties (and eventually resigned upon learning that he was not the only salesperson working for Copypro in those two counties). Within a year after leaving Copypro, Musgrove found another sales job with a direct competitor of Copypro, but focused on three counties which were not the two counties in which Musgrove had previously worked. Copypro learned that Musgrove was still working in Eastern North Carolina, and directly competing, and sued Musgrove for breach of the noncompetition agreement.
The court indicated a higher level of scrutiny for noncompetition agreements contained within employment agreements and that such agreements must be “(1) in writing; (2) reasonable as to time and territory; (3) made a part of the employment contract; (4) based on valuable consideration; and (5) designed to protect a legitimate business interest of the employer.” However, the agreement “must not impose unreasonable hardship on the employee and should not, for that reason, be broader than necessary to protect [the employer's] legitimate business interest.” In this case, the court found that the noncompetition agreement fulfilled the first four requirements above, but did not fulfill the fifth. The agreement was broader than was necessary to protect the Copypro’s legitimate business agreement and so the court found in favor of Musgrove.
This opinion illustrates the significance of hiring an experienced attorney to draft and review any covenants not to compete in a business’ employment agreement. These noncompetition clauses must be drafted very carefully and narrowly, so as to be fully enforceable and valid in a court’s opinion. Failure to do so may result in a former employee being able to compete with your business directly (and locally), which may ultimately cost more money, time, and headache to your business in the long run.
The full North Carolina Court of Appeals Opinion can be found here.
Trademarks are one of the single most important legal issues your brewery might ever deal with. Ideally, you should register for a trademark for your brewery’s name, logo, each individually named beer you create, and each beer’s unique logo. But before you go forward with registering any of these, you should have an attorney conduct a full search for any prior existing names or logos that might be similar or identical to your proposed mark. There are a number of different places to look and an experienced trademark attorney will be able to find anything similar (regardless of whether the prior existing mark is registered with the USPTO).
The craft beer industry is growing, countrywide and especially in North Carolina, so new beer names and logos are being created every day. Therefore, your new imperial stout’s might require a little extra creativity. Additionally, although beer, wine and spirits (liquor) are three separate classes of marks with the USPTO, the USPTO considers these “related products” and so a wine or liquor with a substantially similar name to your proposed beer name may be found to cause confusion (and therefore, be the basis for a lawsuit).
If you plan to create a new beer soon, and already have the name for your new beer, make sure to have a trademark search done immediately. If the name is available, the law allows you the register for the mark without even having used the mark in commerce (stating that you have an intent to use the mark). With the expanding craft beer industry, expedience in researching, and subsequently registering your trademark will serve two major purposes: (1) researching ahead of time will help you to avoid being sued for infringing on a similar trademark (i.e., will save you a lot of time, suffering, and most importantly, money) and (2) registering ahead of time will ensure adequate protection of your beer name and logo from trademark infringement by another craft brewer (ensuring you the ability to be compensated if someone else steals your mark).
A number of “inventions” are protected by patents, filed with the United States Patent and Trademark Office. Could you obtain a patent for your fantastic milk stout craft beer recipe? You could certainly be issued a trademark for the label placed on your beer bottle. But would you want to patent the recipe for your various types of craft beer (assuming you could)? The answer is probably not. If you were able to get a patent, that patent becomes instantly available to the public– anyone can see the entire recipe, for free (and you will have a heck of a time trying to protect the patent)! So, then, how can you protect your secret recipe for your most popular brew?
The best way to protect your brewery’s secret is by having a policy in place, which all of your employees are aware of, and through contractual agreements with your employees. But, what is a trade secret? A trade secret is any confidential business information which provides a business a competitive edge. You should start planning to protect your beer recipes and other secret beer making processes (if any are special and unique) as soon as you start the business. Create policy manuals for making sure there are no “leaks” to outside parties and so all of your employees know exactly how to handle your company’s trade secrets. Have confidentiality and non-disclosure agreements, including non-competition provisions prepared for all employees to sign. The key is to show that you tried to protect your trade secrets, in the event you ever have to litigate to protect your trade secret, and there are a number of different ways in which you can try to protect your trade secrets.
Whether you’re just starting your brewery, or have been open for some time, it is important to insure your trade secrets are adequately protected. Coca-Cola has protected its recipe for its signature soda using these methods for decades! Confidentiality and non-compete agreements have specific requirements and must be drafted carefully. Consult your attorney to have an adequate agreement prepared to protect your brewery’s secret beer recipes!
Business, Craft Beer
•on January 21st, 2014
Looking for investors or start up capital for your new craft brewery or brewpub? Not interested in a loan? There may be another solution available to you: crowdfunding.
You may have heard of crowdfunding. It has grown exorbitantly over the past few years. Online crowdfunding websites such as KickStarter and IndieGoGo have been used by thousands of entrepreneurs and start up companies to obtain start up capital to build a product and a business. To date, in exchange for monetary contributions, these companies have had to offer something in return, such as the product being created, at a discounted price. About a year ago, for instance, I contributed a set amount of money to a KickStarter campaign focused on creating a unique iPad stand called the Slope. In exchange, I received the Slope for an amount $15-$20 less than the retail price when the product was completed (my contribution doubled as the purchase price).
In late October, 2013, the Securities and Exchange Commission (SEC) released proposed rules regarding equity crowdfunding. While the rules have been proposed, they are currently under a 90 day comment period. Therefore, the earliest that equity crowdfunding could become legal would probably be Spring of 2014, but more likely the rules will not become official (and therefore, equity crowdfunding will not become legal) until the third or fourth quarter of 2014. The difference, if equity crowdfunding becomes legal, is that contributors to a company will become actual equity shareholders in the company. Traditionally, if a company wanted to solicit contributions from the public in exchange for shares, the company had to file with the SEC and follow the SEC’s strict guidelines (which typically required great legal expense). These new rules will change everything.
Under the new rules, a company (including any of its related subsidiaries or parent companies) can raise up to $1,000,000 in a 12 month period from an unlimited number of investors in small amounts. Investors do not have to be accredited with the SEC for these types of contributions. The solicitations must come via an internet platform and all communications must be publicly viewable on the platform (or via a registered securities broker). The $1M cap exemption from traditional SEC rules does not include other exemptions. For instance, if a company receives $200,000 through another method (other than crowdfunding) also exempted by the SEC, that $200k will not apply to the $1M cap above.
However, the SEC did place limits upon individual crowdfunders. If a crowdfunder has an annual income and net worth of less than $100,000, that individual can only crowdfund the greater of $2,000 or 5% of their annual income or net worth. If a crowdfunder has an annual income or a net worth of greater than $100,000, that individual can crowdfund 10% of their annual income or net worth up to a $100,000 hard cap, per year. The $100k hard cap applies to all investors.
These are just a few of the highlights from the proposed rules (the SEC’s rule proposal is a hefty 585 pages). If you are considering crowdfunding for your new craft brewery or brewpub, and especially equity crowdfunding (once it becomes legal), you should contact an attorney to help you navigate and follow all of the SEC’s rules (and other laws impacting equity crowdfunding and start up businesses).
•on January 14th, 2014
Burger Legal, PLLC is proud to announce its newest practice area: Craft Brewery and Brewpubs! The firm looks forward to representing and assisting many up and coming breweries in the future.
As a craft beer lover (all types of beer, but specifically IPAs and Pale Ales), I am very excited to dive into this up and coming niche. I believe that my love for craft beers and, really, breweries as a whole (I do enjoy visiting, tours, etc.) will be evident in my representation and assistance of each new craft brewery, and for that matter, each new craft beer invented by my clients. I will certainly be happy to visit each brewery (in North Carolina), learn the business, taste the beers, and meet the employees, in order to effectively assist each brewery’s unique needs.
As with all of my practice areas, I will strive to keep all of my fees economical, up front, and flat rate. I am always happy to work out a suitable billing arrangement or payment plan with each of my clients. Burger Legal is different from most law firms in its flexibility and convenience, and I believe that each of my clients will see the value invested in my services.
For a more in depth description of services I can offer to craft breweries and brewpubs in North Carolina (and nationally, for Federal trademarks and copyrights), please visit the Craft Breweries and Brewpubs Practice Area Page.
Your business just started to take off and you are ready to start making decisions for a financially successful long-term brand. These decisions might encompass a variety of marketing strategies: logos, advertisements, and taglines (slogans). It may be possible to trademark the graphics and slogans you choose to use to market your business and doing so, once the graphics or slogans are first used in commerce (i.e., you actually use the content to be trademarked in your sales), it is smart to go ahead and file an application for the trademark(s). Doing so will protect you and your business from potential infringement by other individuals or businesses and maintain your business reputation from attack.
However, many entrepreneurs and small businesses do not think to engage an attorney to perform a trademark search prior to making any branding decisions. Any attorney should perform a trademark search for existing registered marks before filing an application for a new trademark. Doing so will make certain that money is not spent attempting to register a conflicting mark and help to insulate the client from potential trademark infringement claims. Similarly, branding decisions are not cheap. Production of graphics, logos, advertisements and slogans is a costly endeavor for any small business. Furthermore, if the graphic, logo, advertisement or slogan commissioned is similar enough to an already existing trademark to cause confusion, the small business might be liable for trademark infringement.
Make sure to engage an attorney to perform a trademark search and assessment before making any branding decisions and moving forward with any advertising campaigns you or your business may be contemplating. Doing so may save you and your business a substantial amount of money (and headache) in the long run.
So you’ve had an idea for a unique and innovative iPhone/Android App. Before you starting writing code or creating graphics, logos, and the App’s name, make sure to take the time to understand how to protect your idea and its implementation from being stolen or used by someone else for commercial gain.
Here are some things to consider before you starting creating your App and selling it on the App Store or other Internet merchant:
Before Creating Your App
If you hire any developers to write code or create graphics, the very first thing you should do when hiring a developer is making certain they sign a non-disclosure agreement. This agreement will provide you with an avenue to seek compensation from the developer if they use or sell the created work or idea. Also, of some import, make sure that the developer signs an agreement which states that you, not the developer, are the owner of any created work and associated intellectual property, not merely a licensee.
A number of pieces of your App, and its general business nature, may be possible to copyright. Generally speaking, any original work of authorship fixed in a tangible medium of expression automatically has copyright protection. This includes graphics, video, and text. To hold the copyright does not require registration of the copyright. However, registration of the copyright, before infringement by another party occurs, will allow you the opportunity to seek attorney’s fees and punitive damages from the infringer, and will give you a presumption of a valid copyright.
The name, logo, look and feel of your App and App-related business can be trademarked, protecting it from infringement by other businesses or individuals looking to capitalize on your business’ identity. This will enable you to seek damages (and injunction, forcing the person to stop using their similar logo/look/feel/name) from the infringing party. Make sure the name and logos you select for your App are not confusingly similar to another App already in the marketplace.
You can also apply for a patent for your App. This will effectively give you a monopoly over the business area in which your App operates, for a set number of years, and allow you to file suit against infringers. The problem is that patents are very expensive and difficult to obtain. Also, if you use any open source code in the creation of the code for your App, it may help to decrease the cost of development of your App, but may also eliminate your ability to obtain a patent and any sale of your App may violate the open source license you agreed to when you used the open source code.
Trade secrets are a separate method to protect your intellectual property rights, based solely in contracts law. If your App source code can be sufficiently protected, such that it cannot be reverse engineered or otherwise discovered, you may be able to protect it through contract law. Any employee, developer, third party, or merchant would be required to have a license in order to do anything with the source code, which would include non-disclosure language. This type of protection requires a company-wide policy and strategy and strict adherence to the policy so that public disclosure of the trade secret is not made.
If you take the time to think through the above ideas and work with your attorney to plan an appropriate strategy, your App roll-out will go smoothly and all of your intellectual property will be well-taken care of.
In 1991, Desmond Howard backed up to his own 7 yard line, caught a punt, split two defenders and raced 93 yards down the sideline past Ohio State’s defenders into the end zone, effectively putting the game out of reach. Then, he struck one of the most famous poses in all of college football: the Heisman (which foreshadowed his receipt of the trophy mere weeks later). In this iconic moment, could Howard have known that Brian Maske, a freelance photographer for the Muskegon Chronicle, would snap a picture of Howard in the Heisman pose? Furthermore, could Howard have known he could never use the photo for his own purposes without Maske’s permission?
Two decades later, Howard is facing a lawsuit for copyright infringement by Maske due to Howard’s use of the photo on his own website, www.desmondhoward.com. He certainly could not have foreseen this at the time the picture was snapped. What amounts to a money-grab attempt by Maske (let’s be honest, would he really be suing Howard for using the picture if it weren’t for Howard’s many lucrative years in the NFL or public status on ESPN’s College GameDay?) acts as an small scale depiction of the exploitation of student athletes everywhere by the NCAA, EA Sports, and colleges and universities across the country.
From a legal standpoint, the O’Bannon vs. NCAA case is almost the more simple of the two. The NCAA licensed student-athlete likenesses to EA Sports to use in video games, which EA Sports and the NCAA both have significantly profited from. The student-athletes receive no payment (other than typical athletic scholarships and associated room/board compensation). The simple two part question in the NCAA case is: (a) did the student-athletes consent to the use of their likeness for commercial purposes?; and (b) is the “compensation” paid to student-athletes for their likenesses “fair” relative to the vast amounts made by EA Sports and the NCAA from the video games? The first question is based in law; the second, based in public policy. The more complex issue with the NCAA case appears in the event that the courts rule in favor of O’Bannon and the other plaintiffs. The order allowing players to make money will violate a number of NCAA rules (which will need to be changed), and will pose greater issues when it comes to how much to pay each player (given that only football and basketball tend to be money makers at universities, and even then only fifteen to twenty large universities even make an overall profit through their athletic teams).
The more interesting question (at least, to me) is in the Howard vs. Maske case. Clearly, Howard has a right to his likeness (or publicity). When Maske captured and produced the photo, he did so for journalistic non-commercial purposes (which is covered under the First Amendment to the US Constitution). Such a use of another person’s likeness is considered an “exception” or “defense” to a right of publicity claim. Maske also holds a valid copyright to the photograph. Assuming Howard did not give some passive consent to Maske (by virtue of the fact that Howard was voluntarily playing in a football game where he had to have known his picture would be taken), which property right is controlling? This is a much more interesting question, from a legal standpoint.
The right of publicity (or the right to one’s likeness) is a state law-based property right of a person to control the commercial use of his or her identity. The right is recognized in nearly every state, either in statutory or common law form. Copyright law is a federal law that protects “original works of authorship fixed in any tangible medium of expression.” (17 USCS Sec. 102(a)). The two intersect when the copyrighted work depicts another person’s personal attributes.
In Howard’s case, the copyright holder, Maske, is suing Howard for copyright infringement. Howard is claiming that he can’t possibly be committing copyright infringement when the copyrighted work in question is an image of his likeness and involves his right of publicity. If Maske were exploiting the photo for commercial purposes (other than by suing Howard for Howard’s use of the photo), Howard would have a claim for misappropriation of his right of publicity. Typically, in case law to date on the subject, the plaintiff is the person depicted, and the defendant the person holding a copyright to the photo (or the person licensed by such person to use the photo). Normally, “commercial purposes” would go beyond merely selling or licensing the photo (which would be a valid use). Exploiting a copyrighted photo for commercial purposes really means, according to the courts, using the photo for endorsements or advertisements; in effect, making it appear as though the person pictured in the photo is endorsing a particular product.
In sum, Maske’s copyright claim against Howard (for using the photograph without permission or a license on Howard’s website, which is a use in commerce of the copyright, will likely succeed. Maske has a right to sell and license the photograph which he has a copyright for. Howard’s right of publicity does not hold over Maske’s copyright (except and until Maske uses the copyright to endorse or promote another product). Howard likely won’t like this conclusion, especially since he is the subject of the photo, but it is the likely outcome according to the law.