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.
Copyright
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.
Trademarks
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.
Patents
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
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.
Business•
on August 12th, 2013•
Part 1 focused on forming and managing corporations in North Carolina. In Part 2, we turn to limited liability companies in North Carolina.
Limited Liability Companies
LLCs are formed by, and can have, one or more members. An LLC can be managed by either the members or one or more managers appointed by the members. An LLC offers broader flexibility in this regard, since an LLC could even have officers (like in a corporation), if the members so decided. As with a corporation, an LLC is a separate legal entity and can own real and personal property, incur debt, enter into contracts, etc.
Taxation: LLCs also offer broad flexibility in terms of taxation. An LLC with two or more members will generally be taxed as a partnership, while an LLC with one member will be taxed as a sole proprietorship. However, an LLC can also elect to be taxed as a corporation.
Formation: LLCs are formed in North Carolina by the filing of Articles of Organization with the Secretary of State, along with a $125 filing fee. The Articles of Organization contain incorporator information, registered agent information, and perhaps most importantly, the election as to whether the LLC will be member- or manager-managed.
Management: Depending on the election in the Articles of Organization, an LLC will be managed by either its members or one or more managers appointed by the members. The members will create and execute an Operating Agreement, which lays out the duties of the members, the duties of the managers (if the LLC has managers), buy/sell provisions, etc. The Operating Agreement also designates the capital contributions (i.e., the money or property put into the LLC by each member).
Member Liability: Typically, members of an LLC will not be personally liable for the debts of the LLC (with the exception of the portion of the LLC they own). However, a member could be liable if he/she personally guaranteed a debt of the LLC. Also, if the LLC was formed solely to defraud others, or created solely as an alter ego of the member(s), a court will invoke the “alter ego” doctrine, and hold members of the LLC personally liable.
Upkeep: An LLC is not required to have annual meetings or appoint (or re-appoint) managers on an annual basis. Maintaining the records of the LLC is therefore typically easier. Furthermore, the Operating Agreement will generally allow managers to handle most business (including incurring debt) on behalf of the LLC, so additional consents are not generally needed when the LLC is taking out a loan.
The LLC is still required, like the corporation, to file an Annual Report with the North Carolina Secretary of State (and failure to do so may result in administrative dissolution), along with a $200 fee.
When determining whether to form an LLC or corporation (or, in some cases, other forms of entities not discussed in detail in this two part blog post), consult with your attorney and your accountant, in order to determine which form of entity will make the most sense for your business. If you are purchasing land for your business to operate on, it may even be best to form both an LLC (to hold the land) and a corporation (to run the business and lease the land from the LLC). Every situation is unique and should be analyzed appropriately.
Business•
on August 7th, 2013•
There are many different types of entities entrepreneurs and start ups can form to manage their business. Each entity has its own pros and cons. There are limited liability companies (“LLCs”), a relatively new invention (LLCs, as an option, did not exist until the late 1970s). There are limited liability partnerships (“LLPs”) or in some states, limited partnerships (“LPs”). Then there are your good old-fashioned corporations (“Inc.”). Other states still have other formats or variations on the above, but these are some of the main entity types in existence today (which are common in most states). This blog post will focus on a few of the basic differences between two of the more common entities selected, LLCs and corporations, in North Carolina. Because of length, Part 1 will focus on corporations, while Part 2 will focus on LLCs.
Corporations
Corporations can have one or more shareholders. A corporation owned by shareholders and managed by directors and officers. The shareholders elect the directors and the directors elect the officers. A corporation must have at least one director and may have a number of officers. Typically, a corporation will have, at the very least, a President and a Secretary. A corporation could also have a Vice President, Treasurer and any number of assistant officers. A corporation is a separate legal entity and can own real and personal property, incur debt, enter into contracts, etc.
Taxation: A corporation can either be taxed as a separate entity (a “C-Corp”) or as a partnership/sole proprietorship (an “S-Corp”). All corporations begin as a C-Corp, and the corporation can make an S election at specific times by filing the appropriate form with the IRS.
Formation: In order to form a corporation in North Carolina, Articles of Incorporation must be filed with the Secretary of State, along with a fee of $125. This is the bare minimum needed in order to form a corporation.
Management: While a corporation can be formed with just a simple fee and the Articles of Incorporation, a corporation should also have bylaws which direct the management of the corporation. Bylaws provide direction as to the number of directors and officers, the duties of directors and officers, dates and times for annual meetings of shareholders and directors, limitations on director/officer liability, etc. If a corporation has more than one shareholder, the shareholders of the corporation should consider a shareholder agreement. Shareholder agreements lay out provisions which provide direction as to what occurs when a shareholder dies, wants to sell his/her shares, whether shareholders are entitled to financial statements, etc. Having these documents in place and agreed upon, early in the corporation’s existence, is paramount to curbing issues down the road.
Shareholder Liability: Typically, shareholders are not personally liable for any of the debts of the corporation (except for the value of their shares and therefore, interest in the corporation). However, in situations where corporate formalities were not observed (shares were not issued, meetings not held and documented, etc.), courts or the IRS may “pierce the corporate veil” and hold shareholders personally liable for the corporation’s debts. Obviously, a very good reason to maintain corporate records.
Upkeep: On an annual basis, a corporation’s directors and shareholders (each separately) must have an annual meeting, where new directors and officers are elected, and other business is conducted. These meetings are documented and all documentation is maintained in corporate books. Additionally, the corporation must file an Annual Report with the Secretary of State (failure to do so can cause administrative dissolution of the corporation), along with a $25 fee.
Additionally, if the corporation’s director(s) wish to make a large transaction, perhaps take out a large loan in the name of the corporation, and such an action is not contemplated or explicitly allowed in the bylaws, the shareholders will have to explicitly authorize such an action by written consent (or in person vote).
Look for Part 2 on LLCs next week.
Business•
on July 12th, 2013•
This week the Securities and Exchange Commission (SEC) approved new rules that will open the process of raising money for startup entities. This is a HUGE development and benefit for companies looking to gain investors and funding. Now, startups and other money-raising entities, like hedge funds and venture capital funds, will be able to publicly seek and advertise for investments through a process known as “general solicitation.”
For now, startups will be restricted to “angel investors” and will not be able to “crowdfund” (using such websites as kickstarter) from non-millionaires. The SEC is expected to issue rules regarding crowdfunding within the next year.
For more a deeper analysis, visit http://www.wired.com/business/2013/07/the-emerging-vc-machine/?cid=9730654.
Business•
on January 16th, 2013•
The North Carolina Business Court recently came down with an important decision that will significantly impact transfers of LLC interests and business succession planning in North Carolina. Anyone with a membership interest in a North Carolina LLC should take care to read this article: http://www.ncbusinesslitigationreport.com/2012/12/articles/watching-the-court/an-important-opinion-on-assigning-llc-interests-from-the-nc-business-court/.
If you are in need of assistance with business succession planning or are contemplating buying or selling a membership interest in a North Carolina limited liability company (LLC), contact Burger Legal, PLLC.
Over the past decade, the prevalence of “self-help legal services” has increased exponentially on the Internet through websites such as Legal Zoom, Rocket Lawyer, and NOLO. These websites offer a number of legal documents, including wills and trusts, documents to incorporate, and real estate documents, which are filled in by the purchaser through a series of basic questions. None of these documents, after being prepared automatically based on the consumer’s answers to basic questions, is ever reviewed or approved by an attorney. The consumer is simply filling in the blanks of a form document.
The problem with this scenario in the arena of estate planning is that every estate plan is going to be unique. Self-help fill-able forms will not take into account any of the unique circumstances of a given estate plan, nor does any self-help offer any legal advice as to what may be in the consumer’s best interest. If the consumer is dead set on using a self-help legal service website, he or she should take the time to read the fine print on these websites. For instance, Legal Zoom’s disclaimer contains the following: “We are not a law firm or a substitute for an attorney or law firm. We cannot provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defenses, options, selection of forms or strategies.” Yet, despite the fine print, many consumers believe that any document purchased from a website such as Legal Zoom will be legally sufficient and fulfill all of that consumer’s goals and plans. Many would be surprised to find out that their legal documents, albeit cheaper than hiring an actual attorney, may fail to achieve anything that the consumer purchased those legal documents for. A consumer will find a similar outcome using these websites for other purposes, such as preparing deeds, incorporating a business, and filing trademark registrations.
Recently, Consumer Reports used each of the three self-help legal services websites above to create four legal forms: a will, a car bill of sale for a seller, a home lease for a small landlord, and a promissory note. Each of these forms was then evaluated by three law professors in a blind test. The verdict from the law professors:
Using any of the three services is generally better than drafting the documents yourself without legal training or not having them at all. But unless your needs are simple — say, you want to leave your entire estate to your spouse — none of the will-writing products is likely to entirely meet your needs. And in some cases, the other documents aren’t specific enough or contain language that could lead to “an unintended result.”
In short, if a consumer truly wants to be certain that his or her legal documents are legally sufficient to achieve all of that consumer’s goals, the consumer should consult an attorney, who will be able to ask all of the questions necessary to fully understand that consumer’s unique circumstances.
For more information on the Consumer Reports study, please visit: http://www.lawsitesblog.com/2012/09/self-help-legal-sites-no-match-for-real-lawyer-consumer-reports-says.html
Burger Legal, PLLC is prepared to assist clients with their unique circumstances and to make recommendations based on those unique circumstances. If you need a will or trust, to incorporate a business, or to prepare a deed, lease or promissory note, please contact Burger Legal, PLLC at 336.705.1016 or info@burgerlegal.com, and the firm will be happy to assist you in achieving all of your unique goals.
