Blue Sky Laws Securities and Smooth Sailing

Securities Laws: State Blue Sky Laws and Smooth Sailing

What Are Blue Sky Laws?

Blue Sky laws are another name for State Securities Laws. The first use of the term is unknown, but the first well-known use of the term was in 1917 by Supreme Court Justice Joseph McKenna. Justice McKenna wrote the Court’s opinion in Hall vs. Geiger-Jones Co., 242 U.S. 539 (1917), which upheld the rights of states to regulate securities. He wrote:

“The name that is given to the law indicates the evil at which it is aimed, that is, to use the language of a cited case, “speculative schemes which have no more basis than so many feet of ‘blue sky'”; or, as stated by counsel in another case, “to stop the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines and other like fraudulent exploitations.”

State Securities Laws

Unless preempted by federal law, each State regulates the securities of a company that are held by a citizen of the State. By way of example, unless preempted by federal law, the shares of an Ohio small business that are held by a citizen of Kentucky can be the subject of both the Ohio and the Kentucky Blue Sky Laws.

For a small business that has shareholders in several States it is wise to utilize a federal preemption to the registration requirements of the States’ Blue Sky Laws when possible.

Is My Small Business Exempt?

If your business has an exemption from the federal securities laws, you may be unclear on whether or not it is automatically exempted from a State’s securities laws.  Security laws are complex. Whether your securities are exempt depends on which federal exemption you use.

A Federal Preemption Strategy for Securities

When circumstances permit, Business Patent Law, PLLC prefers to utilize Rule 506(b) of Regulation D to obtain and exemption from the “Blue Sky” laws.  Use of Rule 506(b):

  • Provides an exemption from the registration requirements of the federal securities laws
  • Provides an exemption from the registration requirements of one or more States’ “Blue Sky” laws
  • Does not limit the amount of capital that can be raised from the private offering
  • Allows your company to offer a single class of stock to an unlimited number of “accredited” investors
  • Reduces governmental and attorneys’ costs associated with your company’s private stock offering

Rule 506 (b) is not the only federal preemption to the Blue Sky Laws, but it is probably a more cost-effective strategy for your small business.

If you have questions about the securities laws, 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.

Securities for small businesses

Federal Securities Laws and Your Small Business

Small business is not automatically exempt from the federal securities laws. Depending on the circumstances of the transaction, these laws can apply to any company, partnership or organization.

What is a Security?

The Supreme Court test for determining if something is an investment contract, i.e., security:

If something is an investment contract, it is a security. In the case of Securities and Exchange Commission v. W. J. Howey Co. 328 U.S. 293 (1946), the US Supreme Court defined an investment contract as follows:

  • It is an investment of money
  • There is an expectation of profits from the investment
  • The investment of money is in a common enterprise
  • Any profit comes from the efforts of a promoter or third party

Examples of Securities Utilized by Small Businesses

Securities can include such investment contracts as bonds, derivatives, leaseholds, intellectual property investment syndicates, options, leaseholds, publication syndicates, ownership interests in limited liability companies, corporations and partnerships and stocks.

Is Your Security Exempt?

If a security is associated with your business, it will fall under the registration and reporting requirements of the 1933 and 1934 Securities Acts – unless your business has obtained an exemption from registration.

  • Obtaining an exemption from the 1933 and 1934 Securities Acts is important – most small businesses cannot afford the costs of registering the security
  • Violations of the 1933 and 1934 Securities Acts can bankrupt most small businesses
  • Be cautious in accepting any risk capital investment from a potential investor who is not an “accredited investor” as defined in SEC Rule 501 of Regulation D
  • Be cautious in accepting any risk capital investment from a potential investor where your business has not first provided the potential investor with a private placement memorandum
  • Exempted securities can be an excellent source of capital for your company, partnership or organization

Before your company accepts the at risk investment capital, 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 Portfolios Increase Profits

Patent Portfolios Increase Profits

Patent Portfolios – A Way to Reduce Inventories And Increase Profits?

By using a Patent Portfolios business model, entrepreneurs, start-ups and established companies can:

  • enhance profitability
  • reduce inventory
  • decrease product liability risks

A Nontraditional Business Model utilizing Patent Portfolios

After spending years in your market space, you invented an improved Widget. Actually, it was the genesis of a long line of better Widgets. Instead of plodding along with the traditional business model of raising capital, building a sales staff and increasing inventory, you opted for the “brain rather than brawn” marketing strategy. To be sure this business model is not for everyone, but for a select few, here is what can happen…

Implementation of a Nontraditional Business Model can include the following:

  • Develop and test several prototypes to determine the best prototypes.
  • File as many Patent Applications as is economically feasible.
  • Patent, Patent, Patent as many improved Widgets as possible!
  • After the Patent Applications are filed, advertise as best fits the company’s budget.
  • Take the line of Widgets to trade shows to demonstrate the improved Widget line for potential manufactures.
  • When one or more manufacturers appear interested in the Widget line, offer reasonable royalty rates and license agreements to keep the manufacturers coming back – don’t be greedy, when the manufacturers profit, you will too.
  • Purchase intellectual property insurance to protect and preserve your Widget Patents, if the need arises.
  • Sell your company’s services to assist the manufacturer with the advertising, making and selling of the Widget Line.

Licensor of Patent Portfolios instead of Manufacturer

As a licensor rather than a manufacturer, you can eliminate all or at least most of the following expenses: inventory, transportation, property taxes, regulatory and labor. You also have the potential to perpetuate your company’s Patent monopoly for decades.

Business Risk

With each new endeavor, there is the risk of failure. However, if your licensor business model should fail, your monetary losses would likely only be a small percentage of the losses associated with the traditional model of scaling up your Widgets for sale.

This nontraditional business model is not for every company, but if your company is interested, 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.

when do patent rights expire

When Do Patent Rights Expire?

Patent rights do not last forever, eventually patent rights expire. A recent Supreme Court decision reviewed the conditions under which patent rights expire and one justice explained why they should. Here’s the information you need to know:

On May 30, 2017, in the case of Impressions Products, Inc. v. Lexmark International, Inc., 581 US ______(2017) 15-1189, the Supreme Court of the United States answered the decade’s old uncertainty regarding the “exhaustion of patent rights” doctrine.(

Impression Products, Inc., Petitioner v.  Lexmark International, Inc., 581 US _____(2017) 15-1189 

In the Lexmark International opinion, the Supreme Court of the United States held that a Patentee could not use patent rights to control the use or sale of the patented article once the Patentee or a licensee of the Patentee had sold the patent article to another.

35 United States Code Section 154(a) – Patent Rights

In the Lexmark International opinion, the Supreme Court wrote, “A United States patent entitles the patent holder (the “patentee”), for a period of 20 years, to “exclude others from making, using, offering for sale, or selling [its] invention throughout the United States or importing the invention into the United States.” 35 U.S.C. § 154(a). Whoever engages in one of these acts “without authority” from the patentee may face liability for patent infringement. §271(a).”

The Supreme Court’s Illustration Supporting the Opinion

Chief Justice Roberts wrote, “But an illustration never hurts. Take a shop that restores and sells used cars. The business works because the shop can rest assured that, so long as those bringing in the cars own them, the shop is free to repair and resell those vehicles. That smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale. Those companies might, for instance, restrict resale rights and sue the shop owner for patent infringement. And even if they refrained from imposing such restrictions, the very threat of patent liability would force the shop to invest in efforts to protect itself from hidden lawsuits. Either way, extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patentees retain. And advances in technology, along with increasingly complex supply chains, magnify the problem. See Brief for Costco Wholesale Corp. et al. as Amici Curiae 7-9; Brief for Intel Corp. et al. as Amici Curiae 17, n. 5 (“A generic smartphone assembled from various high-tech components could practice an estimated 250, 000 patents”).”

Doctrine of Patent Exhaustion and the Patentee’s Rights

In the Lexmark International opinion, the Supreme Court stated, “For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude. See Bloomer v. McQuewan, 14 How. 539 (1853). The limit functions automatically: When a patentee chooses to sell an item, that product “is no longer within the limits of the monopoly” and instead becomes the “private, individual property” of the purchaser, with the rights and benefits that come along with ownership. Id., at 549-550. A patentee is free to set the price and negotiate contracts with purchasers, but may not, “by virtue of his patent, control the use or disposition” of the product after ownership passes to the purchaser. United States v. Univis Lens Co., 316 U.S. 241, 250 (1942) (emphasis added). The sale “terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625(2008).”

Conclusion – Patent Rights Expire Stateside and Abroad

In the Lexmark International opinion, a majority of the Supreme Court Justices concluded that the patent exhaustion doctrine applies to both domestic and foreign sales of the patented article, unless the patented article was not purchased from a Patentee or the Patentee’s licensee.

If you have questions regarding Impressions Products, Inc. v. Lexmark International, Inc., 581 US ______(2017) 15-1189 opinion, or when patent rights expire, please contact Business Patent Law, PLLC and we will discuss how the Lexmark International opinion may or may not affect your business and your 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.

Intellectual property as collateral for small businesses

Can Intellectual Property Be Used As Collateral For A Loan?

Can your company’s intellectual properties be used as collateral for a loan? Yes, under certain situations. For instance, if a specialized insurance policy is used to establish a value for the intellectual property, the property can be used as collateral for loans from commercial banks.

Sources of Quick Cash

Occasionally, your company may need a quick influx of cash that exceeds your balance sheet’s liquid assets.

Traditional Sources for Cash Include:

  • Commercial Bank Loans
  • Government Grants
  • Small Business Administration Loans
  • Sale of Stock or Bonds

Other Sources of Cash: Angel Investors

Other potential sources of quick cash for your company are “angel investors.” Angel investors generally take greats risks when in investing in a startup or a company with few sales and expect large returns for their investments in return.

Beware of using Angel investors since the terms of “angel contracts” can cause companies to cease doing business.

Quick Cash for Publicly Traded Companies

You may have heard, “When you don’t need a loan, the bank is ready to lend more than you need!” If you do need a loan and your publicly traded company needs quick cash, you may consider:

  • Prime Rate Loans from Large Commercial Banks
  • Lines of Credit
  • Sales of Stocks or Bonds

Quick Cash for Private Companies

Private sales of stocks or bonds are an excellent source of capital for companies not traded in the public markets, but this is not usually an option for quick cash.

Before offering or issuing stocks or bonds, a privately traded company must be careful not to violate the Securities Laws of the United States or the “Blue Sky” laws of the state were buyers reside.

Disputes over the dilution of equity for current stockholders is a serious deterrent for using the sale of stock or bonds to raise capital.

SBA Secured Loans

Currently, the Small Business Administration will not guarantee an intellectual properties secured loan.

Collateral Protection Insurance for Your Company

Some startups or smaller and medium-sized companies have valuable intellectual property portfolios. These same companies frequently encounter cash flow difficulties.

Although intellectual properties are valuable assets for companies, most commercial banks are ill-equipped to determine the fair market value of the intellectual properties.

If you decide to leverage your company’s intellectual property portfolio, you can purchase a collateral protection insurance policy from a commercial insurance carrier. The collateral protection insurance policy establishes the value of the company’s intellectual properties (which can be used as collateral for the loan) and insures the lender against default on the loan.

Is An Intellectual Property Secured Loan Right for My Company?

This quick cash strategy is not for every company, but if you want to learn more about this option for your company, contact Business Patent Law, PLLC . We can discuss possibilities for your business and your 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.

manufacturing and business strategy

Business Strategy: Patent Portfolios and Holding Companies

Is it a prudent business strategy for a holding company (Company H) to own the patent assets used by Company A in manufacturing products sold by Company A?

Perhaps, let’s consider the following scenario:

Manufacturing/Distribution Considerations

  • Company A has been in business for several years and has an impressive twenty percent market share for its Widget.
  • The Widget generates one-half of Company A’s profits.
  • Company A has a superb engineering staff that has patented various improvements of the Widget invention creating a profitable patent portfolio for Company A.
  • Company A also generates royalties from its patent license agreements with other companies.

Supply Chain Problems

  • For several years, SupplyCo provided Company A with 99% pure Critical Composition to manufacture its Widgets, but due to temporary utility power supply limitations, Company A was able to deliver only 96% pure Critical Composition to Company A.
  • To meet pressing needs of its customers, Company A shipped 20 tons of Widgets made with 96% pure Critical Composition.
  • During the subsequent six week period, due to the number of injuries to the users of the Widgets manufactured with 96% pure Critical Composition, a national recall of the 20 tons of Widgets was initiated by Company A.
  • Unable to weather the recall and the pending lawsuits, Company A was forced to declare bankruptcy and the Widget patent portfolio was eventually sold in liquidation by the bankruptcy trustee.

Could the Sale of Company A’s Patent Portfolio been Avoided?

Generally – Yes – as long as the transactions between Company A and Company H are arms’ length dealings.

To minimize devaluation of an intellectual property portfolio, management can use one or more holding companies in their business strategy, such as limited liability companies to stabilize the value of the portfolio in the event the “unthinkable” occurs.

Advantages of Using a Holding Company for Intellectual Property

If Company H had owned the Widget patent portfolio and granted Company A an exclusive license to make, use and sale the patented Widgets, then:

  • The Widget patent portfolio would not have been part of Company A’s bankruptcy and liquidated by the bankruptcy trustee.
  • Company H would remain in business and could grant an exclusive license to Company X to make, use and sale the profitable Widgets.
  • Company H could sell the valuable Widget patent portfolio to Company Y.
  • It is likely that royalty income to Company H would be deemed as passive income.
  • It is probable than any sale of the Widget patent portfolio to Company Y would be determined to be a long term capital gain.

Other Considerations for Using a Holding Company as a Business Strategy

  • Better supply and manufacturing quality control – thereby avoiding the Widget recall and the ultimate demise of Company A.
  • Remove Company A’s engineering department from Company A and setup Company E to do business with Company H, identified above, to better take advantage of the tax code’s provisions for intellectual properties.
  • Company E can provide special enticements for its engineering staff to better retain and recruit the best engineering staff that will create subsequent generations of better and more profitable Widgets for licensing by Company H to Company A.
  • Special enticements for the engineering staff apply only to Company E – not Companies H or A.
  • Company E can be easily located in an area where Company E takes maximum advantage of governmental tax incentives.
  • Regardless of what happens to Company A utilizing this business strategy, Companies H and E remain viable entities.

As you can see, there are many different business strategies which o utilize corporate structures to maximize profits and reward the best efforts of employees. This illustration provides only a few of those options.

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

Provisional Patent Applications: The road to securing your patent rights

Provisional Patent Applications?

Business owners, investors and bankers consider national and foreign Patents and the goods and services associated with those Patents to be both intangible and tangible assets. Provisional Patent Applications are viable options for augmenting a company’s intellectual property portfolio.

Potential Patenting Pitfalls

There is a road you must travel  from inventor’s inspiration to the successful marketing and sales of the patented product, system, method, etc. That road must have well engineered bridges to successfully navigate the ravines that can otherwise destroy market share and Patent rights.

For example, the 2011 America Invents Acts includes a “limited grace” period to file a Patent Application – provided the conditions of 35 United States Code 102(b) can be fulfilled. However, is it prudent to rely on 35 United States Code 102(b), when an inadvertent public use of the invention can forfeit both national and international Patent rights for the invention that was inadvertently disclosed?

Provisional Patent Applications

Subsequent to the 2011 America Invents Act, the sensible business owner or CEO should consider filing Provisional Patent Applications to preserve future Patent rights.  Broad scope Provisional Patent Applications:

  • Provide substantive and procedural rights for one year from the filing date.
  • Permit the enterprise to make improvements to the invention disclosed in the Provisional Application which can subsequently be incorporated into a Nonprovisional Application and filed in a Patent Office before the expiration of the twelve month filing period.
  • Prevent public use, public disclosure, offers for sale and for sale bars to future Patents.
  • Allow the business to test-market the invention.
  • Allow the company the time to discern the real “inventive genius” of the invention.
  • Allow use of the Provisional Application as the priority document for national, foreign and international Patent Applications.
  • Encourage American inventors and engineers to quickly adjust to the worldwide “first to file” systems and to file the Patent Application, soon as possible, in at least one Patent Office.
  • Make it easier for the company to determine the relevant pool of capital for investment.

Provisional Applications Are Not The Only Solution

Changes happen slowly for some inventive segments of the global economy. For such inventions, the marginal costs of filing a Provisional Patent Application before filing the Nonprovisional Patent Application may not be warranted. However, if management has any doubt, it is wise to file the Provisional Application and be “safe” rather “sorry!”

Contact Business Patent Law, PLLC and we will discuss your business and Intellectual Property essentials.

If you would like to stay abreast of changes and other news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter

legal contracts online downloaded from the cloud

Legal Contracts From The Cloud?

Legal Contracts Online

Are you considering the use of downloaded legal contracts online? Before you do, you need to know a bit more about the pros and cons of using legal contracts you may find in the cloud.

Business owners, investors and bankers consider Intellectual Properties and the products associated with those Properties to be both intangible and tangible assets. Because these assets are the lifeblood of many companies, it is wise to use a seasoned professional to prepare your Intellectual Property agreements.

Cloud Intellectual Property Contracts

With the intent of saving money, sometimes a business drags a contract for intellectual property out of the Cloud.  On rare occasions, the Cloud strategy may be adequate for the business. (This is especially true if the agreement is never challenged.)

If, however, you pull a contract off the Internet and it IS challenged, you may find yourself in an expensive legal quagmire. More importantly, you may lose the challenge along with your rights to your Intellectual Property. Consider your needs carefully before using legal contracts online.

Patents, Trademark and Copyright Agreements

When Intellectual Property contracts are prepared, each genre has its own eccentricities. For example:

  • Contracts associated with Copyright rights frequently include the phrase “all rights reserved.”
  • In many jurisdictions, the sale or license of Trademark rights must also include the goodwill associated with the Trademark.
  • License agreements flowing from Patent rights should generally include royalty milestones, among other things.

Intellectual properties are unique and the facts associated with each Intellectual Property agreement are also different. A well-drafted contract takes time and expertise to prepare properly. This is not a “one-size-fits-all” legal situation and legal contracts online are usually too general to be of use.Continue reading

Intellectual Property Copyright Law Example

What Types of Property Can Accrue Intellectual Property Rights?

The Building Blocks of Your Business

Like many of their larger Fortune 500® counterparts, most creative companies know intellectual property is their most valuable asset. Intellectual property rights are essential in the legal exclusion of competition. Endeavors thrive because of their intellectual property, and due to Treaties enacted by many of the World’s governments, creative intellectual property owners often find the privileges and monopolies flowing from their Patents, Trademarks and Copyrights to be global in scope.

Protecting Your Products

Creatives with business savvy understand the importance of excluding competitors from competing directly against their product or service. In today’s far-reaching marketplace, only the most resourceful people have any hope of surviving the assault of their cheapest cutthroat competitors.

In the end, most creative start-ups find their intellectual property assets are the lifeblood which sustains them against the onslaught of larger and better financed rivals. History is replete with examples of this reality. At the same time, recent reports demonstrate Wall Street investors reward creative entrepreneurs, who are well-endowed with valuable intellectual property holdings.

Patent rights are excellent assets.

What Property Can Be Protected?

What kind of property is sufficiently creative to be protected by intellectual property rights? Business Patent Law, PLLC offers the following criterion to appraise the potential value of owning Patents, Trademarks and Copyrights.Continue reading

Leahy-Smith America Invents Act changes Patent Law

America Invents Act (AIA) Celebrates 5th Anniversary

What is the America Invents Act?

The Leahy-Smith America Invents Act was signed into law five years ago today. This legislation changed the legal landscape of patent system in the United States.

Prior to the America Invents Act, the United States was “first to invent” nation – meaning that the first person to invent the invention was presumed by the United States Patent and Trademark Office (USPTO) to be the inventor.

What is the Significance of the America Invents Act?

Pursuant to the America Invents Act, the United States is now a “first to file” nation – meaning that the first person to file the necessary documents in the USPTO is presumed by the USPTO to be the inventor.

How Does This Change My Intellectual Property Needs?

Because of the Leahy-Smith American Invents Act, more and more of my clients are opting to file Provisional Patent Applications.  Under the America Invents Act, filing Provisional Applications eliminates some of the pitfalls that were not a problem for Applicants prior to 2011.

Proponents of the Act say this law streamlines the process and encourages an increase in domestic innovation. Opponents of the Act have claimed that the changes favor large business over micro-businesses and the individual inventor.

To learn more general information about the changes implemented by this law, contact Business Patent Law, PLLC and we will discuss how these rules apply to your inventions.

If you would like to stay abreast of changes and other news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.