Warranties as Effective Marketing Tools

Warranties: An Effective Marketing Tool

Warranties May Be Automatic

When a business sells goods, under the various State versions of the Uniform Commercial Code (UCC), implied warranties attach to the goods sold – unless the UCC’s implied warranties are specifically disclaimed in writing. If your company sells goods to customers in various States and some defective goods were discovered subsequent to the sale, one or more State’s version of the UCC’s implied warranties will apply. In the event of litigation, attorneys for each party will argue for the most favorable jurisdiction and venue. You, as the seller, could be forced to defend a legal action in the buyer’s home venue.

As a general rule, warranties are not applied to services supplied by the company supplying the service. For instance, no warranty is implied by law for a business that assists customers with the purchase of insurance policies, unless that business makes a warranty to the customer.

The Legal Aspects of Implied Warranties

Merchantability

The UCC’s Implied Warranty of Merchantability, in part, reads: “(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section, the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale…”

Fitness for a Particular Purpose

The UCC’s Implied Warranty of Fitness for a Particular Purpose reads: “Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.”

Warranty of Title and Against Infringement

The UCC’s Warranty of Title and Against Infringement reads, “(1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that (a) the title conveyed shall be good, and its transfer rightful; and (b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.  (2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.  (3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.”

How to Eliminate Implied Warranties

In the majority of instances, the only way to eliminate the application of the various States’ versions of the Uniform Commercial Code to the sale of your company’s goods is to specifically disclaim the UCC’s implied warranties in writing.

Warranty Use as a Marketing Tool

Patented Product vs. Generic Product

As CEO of your company, you believe that invention is the lifeblood of the company and you have budgeted ten percent of annual sales for development, improvement and Patent procurement for the company’s new products. The company’s engineers have developed the third-generation widget which is patented and has also just received FDA approval. The company’s second-generation widget’s Patent expired years earlier and is currently manufactured by generic company competitors. Users of the second generation widget love the operation of the second generation widget manufactured by your generic competitors. Those users also like the price that is several thousand dollars less than what your company sold the second generation widget for before the Patent expired. Other than the UCC’s implied warranties and any other warranty required by law, the generic manufacturers offer no other warranties.

Competing with Generics

Your company’s patented third-generation widget includes radio frequency capabilities, memory, processing means, sensors, etc. not included in your second generation widget. FDA testing revealed that over a span of years, the patented third-generation widget is more durable than the second generation widget. The third generation widget performs healthcare functions impossible for the second generation widget to perform. Costs of the patented third-generation widget to the user are thousands of dollars more than the generic second-generation widget. Your company struggles to have its patented third-generation widget regain and improve its former market share previously achieved with its second generation widget.

Improving Market Share With Warranties

To improve the company’s market share of its patented third-generation widget, the CEO took instruction from the motor vehicle industry. The CEO opted to provide a ten year “bumper to bumper” warranty and commenced advertising that the patented third-generation widget was sold under warranty. The advertisement touted a limited ten-year warranty and superior performance compared to other widgets. Over the years, the marketplace has revealed that for high “price point” goods, generous warranties can improve sales.

Limited Warranties in Lieu of UCC Warranties

A business can offer a limited “bumper to bumper” warranty for its new product while expressly disclaiming the States’ Uniform Commercial Code’s implied warranties and other conditions. Depending on the type of goods and other facts, it is also possible for a business to expressly place limits on liability.

If you have questions about intellectual properties, warranties, and disclaimers, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

 

Physician Sunshine Laws and Your Business

Physician Sunshine Laws And Your Business

Physician Sunshine Laws and Small Businesses

Does 42 U.S.C. 1320a-7h, known commonly as the “Physician Sunshine Laws-Open Payments” apply to a small business?  Maybe. If Physician Sunshine Laws (Open Payments Laws) are applicable to your business, you may also be surprised how these laws can be applied to your company.

Some States have their own version of physician sunshine laws. In some cases, the State version may apply when the federal version does not.

Many Business Patent Law, PLLC’s clients are involved with the provision of medical devices, supplies, etc. For most Business Patent Law clients, the Physician Sunshine Laws apply to an “applicable manufacturer” that “provides payment or other transfer of value” to a “covered recipient.”

Who Administers Physician Sunshine Laws?

CMS.gov (Centers for Medicare & Medicaid Services) is the Federal Agency that Administers Physician Sunshine Laws (Open Payments). 42 U.S.C. 1320a-7h (b) sets forth penalties for failing to file a required report to CMS.gov.

Who Needs to Report to Under Physician Sunshine Laws?

Subchapter S Company Examples

Does a Subchapter S Company that Manufactures Surgical Sponges for Use in Operating Rooms and Gives Samples of the Surgical Sponges to Medical, Surgical and Dental Practices Need to Report to CMS.gov?

Yes, according to 42 U.S.C. 1320a-7h (e) which reads:

(2) Applicable manufacturer

The term “applicable manufacturer” means a manufacturer of a covered drug, device, biological, or medical supply which is operating in the United States, or in a territory, possession, or commonwealth of the United States.

(4) Covered device

The term “covered device” means any device for which payment is available under subchapter XVIII [Medicare] or a State plan under subchapter XIX or XXI [federal or state plans for medical assistance] (or a waiver of such a plan).

(6) Covered recipient

(A) In general…“covered recipient” means the following: (i) A physician [is a doctor of medicine or osteopathy, a dentist, a doctor of podiatric medicine, a doctor of optometry or a chiropractor – as defined by 42 U.S.C. 1395x (r).] or

(ii) A teaching hospital.

LLC Examples

Does a Limited Liability Company (LLC) Manufacturing and Selling Scalpels Need to Report to CMS.gov?

  1. If the LLC makes quid pro quo sales to dentists, physicians and hospitals? No. (There is no transfer of value or gift.)
  2. If the LLC supplies lunches for the surgical office and the employees? Yes. (The lunches were a transfer of value.)

Does an LLC (having one or more covered recipients holding a minority equity ownership interest) that manufactures radio frequency devices for treatment of the human body need to report equity ownership Interests to CMS.gov? 

It depends.

  1. If a dentist owns 5% equity in the LLC? Yes.
  2. When the wife of a surgeon owns 10% equity in the LLC? Yes. ***
  3. If a pharmacist owns 5% equity in the LLC? No.
  4. When a physician’s assistant owns 5% equity in the LLC? No.

***42 U.S.C. 1320a-7h (a) reads:

(2) Physician ownership

In addition to the requirement under paragraph (1)(A), on March 31, 2013, and on the 90th day of each calendar year beginning thereafter, any applicable manufacturer or applicable group purchasing organization shall submit to the Secretary, in such electronic form as the Secretary shall require, the following information regarding any ownership or investment interest (other than an ownership or investment interest in a publicly traded security and mutual fund, as described in section 1395nn (c) of this title) held by a physician (or an immediate family member of such physician ([immediate family member] as defined for purposes of section 1395nn (a) of this title)) in the applicable manufacturer or applicable group purchasing organization during the preceding year:…

Determining what you need to do in these situations, and what you are legally required to do, can be difficult. If you have questions about your whether your company needs to file reports with CMS.gov, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

International Classifications for Trademarks

International Classifications for Trademarks

The Nice Treaty 

The United States is a party to the June 15, 1957 Nice Treaty and its subsequent amendments. A US Trademark or Service Mark Registration is granted in one or more of the forty-five International Classifications of the Nice Treaty.

  • There are 34 International Classifications for Trademarks
  • There are 11 International Classifications for Service Marks

For the rest of this article, Trademarks or Service Marks will be referred to as “Marks.” Under Title 15 of the United States Code, the applicant must demonstrate interstate or international use before a federal Mark Registration is granted.

In the United States Patent & Trademark Office (USPTO), a government filing fee is required for each International Class in which an applicant seeks federal Registration. Most companies do not register their Marks in all International Classifications.

How International Classifications Influence the Registration Procedure

As a general rule, US Trademark Examiners will not allow an Application of a Mark to become a Registration if there is a “likelihood of confusion” between the Application’s Mark and another Registration or pending Application for Registration. The examination of the Applicant’s Mark may be limited to prior Registrations and Applications in the same International Class.

An Applicant can be granted a US Registration in some International Classes, but not in other International Classes.

Influence over Registration

In this hypothetical example, we will consider a brand called GoodBad. The company that produces the GoodBad product is seeking registration of its Mark. Let’s review the following possible scenarios:

If GoodBad is a Razor Brand

1.) Applicant seeks registration of the – GoodBad – Mark for razors in International Class 8 (Hand Tools & Implements) and there is a prior Registration of the – Good – Mark for razors in International Class 8.

The Trademark Examiner would probably find a “likelihood of confusion” between the – GoodBad – Application and the existing – Good – Registration and deny registration of Applicant’s – GoodBad – Mark.

2.) Applicant seeks registration of the – GoodBad – Mark for razors in International Class 8 (Hand Tools & Implements) and there is a prior Registration of the – Good – Mark for scalpels in International Class 10 (Surgical, Medical & Dental Apparatus).

The Trademark Examiner would probably not find a “likelihood of confusion” between the – GoodBad – Application and the – Good – Registration and allow Applicant’s – GoodBad – Mark to mature into a Registration.

If GoodBad is a Beverage Brand

1.)  Applicant seeks registration of the – GoodBad – Mark for teas in International Class 30 (Staple Foods) and there is a prior Registration of the – GoodBad – Mark for blouses, coats, dresses, jackets, pants and shoes in International Class 25 (Clothing).

The Trademark Examiner would probably not find a “likelihood of confusion” between the – GoodBad – Application for tea and the – GoodBad – Registration for clothing and would allow Applicant’s – GoodBad – Mark to mature into a Registration.

2.) Applicant seeks registration of the – GoodBad – Mark for coffees and teas in International Class 30 (Staple Foods) and there is a multibillion-dollar company that owns prior Registrations of the – GoodBad – Mark for:

  • Facial makeups in International Class 3 (Cosmetics & Cleaning Preparations);
  • Pharmaceutical compositions used in cosmetology and dermatology treatments in International Class 5 (Pharmaceuticals);
  • Custom-made bedroom, dining room and living room furnishings in International Class 20 (Furniture);
  • Blouses, coats, dresses, jackets, pants and shoes in International Class 25 (Clothing); and
  • Wines in International Class 33 (Wines & Spirits).

In this scenario, some Trademark Examiners would allow the Applicant’s – GoodBad – Mark for coffees and teas to be published for Opposition while other Trademark Examiners would deny registration. Should Applicant’s – GoodBad – Mark be published for Opposition, there is a high probability that the multibillion-dollar company would file either a USPTO Opposition or Cancellation Proceeding against Applicant’s – GoodBad – Mark.

If GoodBad is a Service Brand

Applicant seeks registration of the – GoodBad – Mark for the provision of continuing education services for physicians, surgeons and other medical personnel in International Class 41 (Education & Entertainment Services) and there is a prior Registration of the – GoodBad – Mark in International Class 36 (Insurance & Financial Services) owned by a multistate national bank that also specializes in the provision of accounting services for physicians and surgeons under the – GoodBad – Mark.

Although each – GoodBad – Mark is associated with a different International Class, it is highly probable the Trademark Examiner would find a “likelihood of confusion” between the – GoodBad – Application and the – GoodBad – Registration and deny registration of Applicant’s – GoodBad – Mark.

Need Help With International Classifications?

If you have questions about your company’s Marks or you seek to register a Mark, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Retain Control of Patent Assets

Control Patent Assets

Who controls a Patent? Inventor? Company?

35 United States Code (U.S.C.) 101 reads as follows:

“Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore . . . ” and this is the starting point for determining ownership of Patent Assets.

Last month’s blog included illustrations of how a company can lose control of its Patent Assets. This month we will explore steps you can take to retain control of your company’s patents.

Control of Patent Assets

Whenever possible, companies should limit the possibility that statutes and case law will determine the ownership of Patent Assets and other Intellectual Properties. To blindly believe that because the company paid someone to do something for the company, the company owns what was created is not always effective. It’s similar to people assuming that when they die without any estate planning, State law will distribute their property according to their wishes. It seldom works that way.

How to Better Control Company Patent Assets

Use contracts with employees, agents, and independent contractors to ensure the company’s ownership of the invention’s Intellectual Property rights. Some  conditions for control of Intellectual Property rights can include:

1. As a condition of employment, the employee agrees, in writing, that the company is the owner of:

  • all inventions invented by the employee; or
  • the inventions invented by the employee at any workplace provided by the company or with devices, tools, programs, etc. supplied by the company; or
  • the inventions invented by the employee that are associated with the company’s goods or services or the company’s pipeline of goods or services.

2. As a condition of employment, the employee gives the right of first refusal (in writing) to the company as to whether the company will own the invention.

3. Prior to hiring an agent or independent contractor, the company requires that agent/independent contractor to sign a written agreement stating that:

  • all the inventions invented by the agent/independent contractor at any workplace provided by the company or with devices, tools, programs, etc. supplied by the company are owned by the company; and/or
  • all inventions invented by the agent/independent contractor associated with the company’s goods or services or the company’s pipeline of goods or services belong to the company.

Control Your Company’s Patent Assets or Someone Else Will

An assignment document is used to transfer ownership of the invention’s intellectual property rights to the company.

If the employee will not agree to assign Patent Assets to the company as a condition of employment, hire someone who will.

The same approach should be applied to agents and/or independent contractors.

If you have questions about your company’s ownership of Patent assets, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Patent Ownership Determination

Who Owns Patents – It Depends

Ownership – Patents

Article 1, Section 8, Clause 8 of the United States Constitution reads: [The Congress shall have power] “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” The Constitution does not, however, address who owns the Patent or Copyright.

When an inventor invents a novel and non-obvious composition, device or method, who owns the Patent?

That depends.

Patent Rights Are Federal, But Patent Ownership Rights…

Under the United States Constitution and Title 35 of the United States Code, the granting and enforcement of Patents are exclusively matters of federal jurisdiction. However, unless owned by a federal entity, the ownership of Patents is a matter of State Law. Intellectual property ownership rights flow from Patents and who owns property rights is usually a matter determined by State Law,

Who Owns The Patent?

The following examples show how different situations impact or can impact the determination of Patent ownership:

Illustration 1

The Inventor is self-employed, invents the invention and is domiciled in State A.

The Inventor owns the entire interest in the Patent’s Intellectual Property Rights.

Illustration 2

The Inventor is an employee of Company B. The Inventor invents the invention while at work on the premises of Company B. Both Company B and Inventor are domiciled in State A.

In most jurisdictions, Company B owns the entire interest in the Patent’s Intellectual Property Rights.

Illustration 3

The Inventor is an employee of Company B and Company B is domiciled in State A. In the Inventor’s garage located in State Z, the Inventor invents the item related to the products sold by Company B.

Some courts would hold that Company B owns the Patent’s Intellectual Property Rights while other courts would hold that the Inventor owns the Patent’s Intellectual Property Rights.

Illustration 4

The Inventor is an employee of Company B that is located in State A. In the Inventor’s garage located in State Z. The Inventor invents an item not related to the anything manufactured or distributed by Company B.

Most courts would hold that the Inventor owns the Patent’s Intellectual Property Rights.

Illustration 5

The Inventor is an Independent Contractor who has worked onsite, on and off, at Company B’s plant located in State P for more than a year. Company B’s headquarters are located in State A. The Independent Contractor invented an improvement to Company B’s patented product in State J.

Some courts would hold that Company B owns the Patent’s Intellectual Property Rights. Other courts would hold that the Independent Contractor owns the Patent’s Intellectual Property Rights. Some States would not have any case law corresponding to this scenario.

Illustration 6

Company B is domiciled in State A and displays its patented product line at a trade show in State N. The chief engineer of Competitor X takes photographs/videos of Company B’s patented product line at the tradeshow. The chief engineer returns to Competitor X’s headquarters with the photos/videos. At the headquarters, located in State Q, Competitor X’s engineering staff invents several improvements to Company’s B patented product line which ultimately results in Improvement-Type Patents for Competitor X.

Courts would hold that Competitor X owns the Improvement-Type Patents – However, a federal court could also determine that Competitor X’s Improvement-Type Patents infringed Company B’s patented product line.

How to Control Ownership of Patents

What can a business do to limit its Intellectual Property from flying out in many different directions?  Next month’s blog will address some of these issues.

If you have questions about your company’s ownership of its Intellectual Properties, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and Intellectual Properties.

If you would like to stay up-to-date with news that impacts your Intellectual Property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Entrepreneurs Small Business Startup Advice

Advice for Entrepreneurs and Small Businesses

Entrepreneurs and Small Businesses

In the United States there are approximately 29,000,000 small businesses. Most of these small businesses are founded by one or more entrepreneurs. One US Small Business Administration (SBA) measure for defining a small business is: a small business has 500 or fewer employees. According to the SBA, of these 29 million small businesses, approximately 23,000,000 small businesses do not have any employees.

In the United States, approximately one-half of all jobs are supplied by small businesses, so there is a correlation between more small businesses and increased availability of jobs.

Entrepreneurs Create Small Businesses

First, the entrepreneur conceives the invention/product/service and/or business model. Then that entrepreneur will develop a method to commercialize the invention/product/service. According to the SBA, each year more small businesses “are birthed than die.” Over the years, BPL has witnessed entrepreneurs who fail to realistically approach the problem of anti-commercialization forces that result in the death of small businesses. At the same time, those entrepreneurs who do persist can create small businesses that have 100 or more employees with annual sales of 200 million dollars or more.

The owners of a $200MM small business usually have a group of trusted advisors in place, but what about startups?

Entrepreneur Advice and Startup Considerations

If you are one of the 23 million small business owners, entrepreneurs or start-ups, you should:

  • Think and rethink the invention/product/service
  • Discover competitors and discern how your invention/product/service is different – your market niche is likely narrower than you originally thought
  • Determine how to make a profit in your niche market
  • Seek and listen to the advice of other successful small business owners
  • File Intellectual Property Applications – if your market and price point(s) justify the filings
  • Patents owned by startups provide the owners a limited monopoly to prevent others from making, using, offering for sale or selling their patented invention
  • Investors appear to like small businesses with Intellectual Property portfolios
  • Prepare a business plan
  • Commence assembling your team of trusted advisors – mentors first – then accountants, attorneys, engineers, insurance professionals, investors, lenders, and scientists, etc.

Many small business owners reap large financial rewards when the small businesses are sold to a third party.

Get Help With Your Small Business Venture

Business Patent Law, PLLC would like to assist you with your small business or Intellectual Property needs.  Please contact Business Patent Law, PLLC and we will discuss possibilities for your business.

If you would like to stay up-to-date with news that impacts your Intellectual Property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Rental Property and Intellectual Rights

Real Estate Rental, Tangible Property and Intellectual Property Rights

Relationship Between Commercial Rental Property and Inventories

Landlords own the real property rented by tenants (rental property). Tenants have an interest in the use of that real property. A commercial landlord rents square footage to the tenant and grants the tenant permission to operate a business from the rented space. Under most commercial leases, inventory remains the personal property of the tenant. Landowners may also operate their own businesses from commercial real properties.

Real Property Cases: Traditionally Matters for State Courts, However…

For centuries, disputes involving real property and rental property contracts have fallen under the law of the jurisdiction where the real estate is located. Each State has its own version of its real property laws. However, in today’s world, federal laws can influence a State’s real property laws.

Intangible Patented Inventions as Tangible Personal Property

A Patentee can sell tangible widgets that include intangible patent rights for the circuitry, processor, and memory that cause the tangible widgets to operate differently from unpatented widgets. Patent infringement of the patented widget can result when someone who did not purchase the patented widget from the Patentee makes, uses, sells or offers to sell the patented widget without the permission of the Patentee.

Under United States law, Patent infringement cases have exclusive jurisdiction and venue in federal district courts.

When Patented Widgets are Offered for Sale on Consignment

Possible interactions between the real estate owner or the commercial tenant (hereinafter Commercial) and the Patented Widgets Owner (hereinafter PWO):

  • As long as Commercial and PWO meet the terms of the consignment agreement, both parties are probably happy.
  • When Commercial refuses to pay PWO according to the consignment agreement, the PWO could sue the Commercial for breach of contract in a State court.
  • When Commercial refuses to honor the consignment agreement and subsequently gives the patented widgets to a third party who thereafter uses the patented widgets in the third party’s plant. Under the Supreme Court’s Impression Products, Inc. v. Lexmark International, Inc., 581 US 1523 (2017) case, because there was no sale of the patented widgets by the Patentee, PWO can sue both the thirty party and Commercial in a federal district court for patent infringement. Any case by PWO for breach of contract by Commercial would likely be joined with the patent infringement case in federal court.

The commercial tenant (hereinafter Tenant) and the PWO:

  • When Tenant sublets a space for a booth to PWO and PWO fails to pay rent to Tenant, the Tenant can sue PWO in State court for collection of unpaid rent.
  • In a State that provides for commercial landlord lockouts and seizures of personal property, Tenant fails to pay rent and the landlord locks out and seizes all inventory including PWO’s patented widgets. Under the lease, Tenant did not have a right to sublet space to PWO and the landlord is unaware that PWO’s patented widgets are not part of Tenant’s inventory. After seizing PWO’s patented widgets, the landlord sells PWO’s patented widgets to a third party who resales the patented widgets to a fourth party who destroys the patented widgets and sells the junked parts to a recycler. Under Impression Products, Inc. v. Lexmark International, Inc., 581 US 1523 (2017), because there was no sale of the patented widgets by the Patentee, PWO could sue the commercial landlord, the third party and the fourth party for patent infringement in federal court. For the landlord, the third party and the fourth party, reliance solely on real estate law is insufficient to prevent a patent infringement lawsuit in federal court.

Have More Questions About Intellectual Property?

Contact Business Patent Law, PLLC  to get your questions answered and to discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Personal Property Assets and Real Property Assets

Assets – Real – Personal

Personal Property Assets versus Real Property Assets

Most companies have both personal property and real property assets. As general rule, real property includes the land, building(s) attached to the land and fixtures attached to the building(s). A personal property asset is any asset other than real property.

The Relationship Between Real Property and Personal Property

Buildings, Structures and Fixtures are Tangible Real Property

By way of illustration, your plant’s building and its fixtures (such as cooling fans, ductwork and pipes) are generally considered tangible real property. Real property assets are tangible and can become tangible personal property assets. When an old cooling fan is replaced with a newer more efficient cooling fan, the new cooling fan becomes a tangible fixture and the old fan becomes tangible personal property.

Real Property Boundaries

A deed sets forth the boundary lines of the real property. Without permission of the land owner, anyone who crosses over the boundary lines of the real property may be charged with trespassing.

Patents are Usually Intangible Personal Property Assets

The claims of a Patent “stake out” the legal boundaries of the Patent. An analogy is the 1849 California Gold Rush where miners staked out their “gold fever” claims in the Sierra Nevada Mountains.

When the Patent claim remains valid, anyone who invades the space claimed by the Patentee without permission may become a defendant in an infringement suit. Staking your Patent infringement claims can be a “rough and tumble” adventure for both the plaintiff and the defendant. Under some select circumstances, that legal tousle may result in the defendant paying treble damages.

  • A few US Patents have been issued for real properties (e.g., building components attached to land), but most Patents are valuable intangible personal property assets.

Goods Covered by Patent Claims are Tangible Personal Property Assets

As noted above, Patents are generally intangible personal property assets. However, the widgets manufactured by your company that are covered by one or more claims of your Patent(s) are tangible personal properties which could also fall under the parameters of the Several States Uniform Commercial Codes. And if your widgets are medical devices, FDA approvals of the tangible personal properties are required before the widgets can be sold for medical use in patients.

Simultaneous Multiple Property Types

What happens when a situation arises where there are simultaneous real property, personal property and intellectual property issues? This will be addressed in a future post, so stay tuned!

If you have questions about intellectual property, tangible or intangible assets, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Bylaws and Operating agreements for LLCs

Operating Agreements

Operating Agreements And Bylaws

Operating agreements for LLCs, or bylaws for C-corporations, are essential for successful companies. CEOs know the combination of market and governmental forces influence their company’s “up-and-down” cycles. Highly qualified directors for a corporation or members of an LLC can provide helpful advice for management. However, such advice is weighed under the purview of the company’s operating agreement or bylaws.

Operating Agreements Assist In Navigating Business Cycles

Frequently, an LLC is organized by the joint inventors of a widget. The articles of organization are filed with a Secretary of State, but the joint inventors failed to have an operating agreement in place prior to selling widgets. Sometimes the widgets (that may begin as an experiment in someone’s garage) become a multi-billion dollar international company.

Since human memories are faulty, particularly under the stress of managing a new startup, operating agreements help keep the members focused on the company’s business and profitability. Without an operating agreement, the transition from an LLC startup to an international company can be painful for the joint inventors/owners.

Key Provisions

The founders of the LLC may consider an Operating Agreement that addresses some of the following:

  • Goals for sales and profitability
  • Declaration of each member’s ownership interests in the Intellectual Properties
  • Maximum quantity and type(s) of equity units
  • Type of equity units issued for a member’s capital contributions to the LLC (e.g., licensed/leased, sweat equity, transfer of title, working capital, etc.)
  • Qualifications for membership and maximum number of shareholders (Note: membership may be limited to certain classifications of investors as defined by the federal securities acts and regulations)
  • Vesting of members rights and privileges
  • Day-to-day management of the LLC–by members or nonmembers–and restraints to management’s authority
  • Annual and/or special meetings–quorums, majority, supermajority
  • Milestones for ceasing operations or selling the LLC–asset purchase agreement, bankruptcy, equity sale, merger, re-branding the company, etc.
  • Requirements for a withdrawing member or the estate of a deceased member
  • Conditions for forced withdrawal of a member from the LLC

The success of your business and its Intellectual Properties are directly related to sales, profitability and current/future market value. A well drafted operating agreement (bylaws) can make the road to achieving your goals less bumpy.

If you have questions about Intellectual Property matters, an operating agreement or the organization of a Limited Liability Company, please contact Business Patent Law, PLLC . We welcome the opportunity to discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your Intellectual Property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

LLC friendly states

Organizing Your LLC Intellectual Property Startup

Limited Liability Company – IP Startup

One or more Limited Liability Companies, can be be beneficial for Intellectual Property startups. As indicated in a prior blog, it is prudent for companies owning Intellectual Property rights to hold the Intellectual Property in a holding company and to have the goods/services associated with the Intellectual Property owned by a separate manufacturing/distribution company.

LLC Organization and Tax Law

Should organizers of a Limited Liability Company seek the advice of a tax professional prior to organization the LLC?  Yes.

Business Patent Law, PLLC does not provide tax counsel. However, with the ever-changing tax codes, organizers should consult with a tax professional. If an inappropriate jurisdiction is initially selected for the organization of the LLC, it may not be cost-efficient to redo the LLC’s organization in another jurisdiction.

Limited Liability Companies are Legal Entities

Limited Liability Companies are legal entities of the state (or District of Columbia) in which the LLC is organized.

For a Limited Liability Company with all members domiciled in the same jurisdiction, some states offer more owner friendly in-state taxation and fees to the citizen-members than other states.

You should review a state’s securities laws (and jurisdictional fees associated with the capitalization of the LLC) to determine if a state other than your home state may be better for the organization of the LLC.

As a general rule, a Limited Liability Company is treated as a pass through entity for federal income taxation purposes.

Where Should I Organize my LLC?

Where Should the Organizers Organize a Limited Liability Company? It depends

  • The nature of the LLC’s business can affect which jurisdiction is more favorable, e.g., some jurisdictions provide favorable state and local tax preferences for certain businesses
  • Some jurisdictions are more organizational, fee and tax-friendly than other jurisdictions
  • Management of an LLC can find it advantageous to organize in a first jurisdiction and locate the LLC’s principal office in a second jurisdiction
  • Some jurisdictions require out-of-state members to pay jurisdictional taxes in the jurisdiction where the LLC is organized or conducts business while other jurisdictions do not tax out-of-state members

Business Patent Law, PLLC has a history of working with tax professionals to optimize the organizational structures of LLCs. Because of our experience with different jurisdictions, Business Patent Law, PLLC (in conjunction with a trusted tax professional) can create a workable organizational structure for LLCs.

If you have questions about the organization of a Limited Liability Company or  Intellectual Property matters, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

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