Many business owners ask the same question: can they raise capital on the Internet. My short reply to them is: "It's complicated." The securities rules do not specifically address the Internet offerings, so each offering has to be reviewed on a case-by-case basis to ensure that it satisfies the requirements that apply to private placement offerings. With the creation of online communities and networks, it seems like the Internet would be the logical place to conduct such offerings, as companies can inexpensively reach out to many potential investors at the same time. However, using the Internet to solicit interest in an offering is likely to invalidate the whole transaction since it would violate the ban on general solicitation and advertising that applies to most private placements.
Below is an excerpt from an article published by Michael T. Raymond, a partner in the Ann Arbor office of the law firm Dickinson Wright PLLC, regarding securities offerings on the Internet. Mr. Raymond did an excellent job in summarizing the current applicable securities laws. His article can be found here: http://tenonline.org/art/sl/0611.html.
An excerpt from his article is below:
"As a matter of background, a general solicitation (which, as noted, is prohibited by Rule 502(c) of Regulation D) is typically not found when a pre-existing, substantive relationship between an issuer (or its broker-dealer) and an offeree exists. A 1996 SEC No-Action Letter (IPOnet, SEC No-Action Letter (July 26, 1996)) extended this principle to private offerings posted on the internet. In that case, access to private offering material was granted only after a "member" had been pre-qualified as an "accredited investor" by completing a generic questionnaire. Once qualified, the member was issued a password which enabled access to a website page containing a notice of a private offering. In addition, the operator imposed a suitable "cooling off" period before the qualified member was granted access to the private offering material. The SEC approved the operation of this website. In doing so, the SEC found that the website operator had taken sufficient steps to allow a "pre-existing, substantive" relationship to be established between the issuer/broker-dealer and the offerees.
A similar 1997 No-Action Letter (Lamp Technologies, Inc., SEC No-Action Letter (May 29, 1997)) involved a company that administered a website containing certain hedge funds offered on a semi-continuous basis. The SEC staff determined that the proposed operation of the website would not involve a general solicitation since it was password-protected and accessible only to members who had been pre-qualified as accredited investors. The investors were also subject to a 30-day "waiting" period before investments could be made.
Based upon concerns that certain website operators conducting online private offerings may have been overly zealous in their interpretations of the IPOnet and Lamp Technologies No-Action Letters, the SEC issued a clarifying release in April, 2000 (Release No. 33-7856 (April 28, 2000)). The SEC expressed its concern that certain entities (notably those who were not broker-dealers or affiliated with broker-dealers) may have engaged in practices that deviated substantially from the facts set forth in the IPOnet and Lamp Technologies No-Action Letters in offering private placements over the internet.
For example, some third party service providers had set up websites that invited prospective investors to respond to a questionnaire, ostensibly for the purpose of qualifying them as an "accredited investor". Completion of the questionnaire permitted access to private offerings displayed on those websites. Some of the websites did not even require the completion of a questionnaire; instead, they simply invited the user to check a box as a means of self-accreditation and immediate access. The SEC staff expressed their view that these types of websites raise significant concerns that a general solicitation is occurring."
"Based on available SEC No-Action Letters and other commentary, it appears that the safest online private offerings under Regulation D will involve: (a) a password-protected website directly operated by an issuer or its broker-dealer firm (as opposed to an unlicensed third party), (b) use of a comprehensive, generic (non-offering specific) questionnaire that elicits sufficient information to permit a thorough evaluation of the prospective investor's financial standing and sophistication level, and (c) a requirement that a sufficient amount of time lapse between the response to the questionnaire and actual participation in a private offering. While the time may come when the SEC will truly embrace an online Regulation D offering sponsored by a non-broker-dealer, currently the SEC has shown practically no support for such offerings. Accordingly, start-up and early stage business seeking to utilize online angel investor networks or matching services to raise capital should ensure that these service providers have been registered as broker-dealers, and that they follow at least the "general solicitation" precautions noted above."
Please note that this post is for general information only and should not be used as a legal advice.
Tuesday, August 23, 2011
Wednesday, August 17, 2011
How Strong is Your Trademark? – The Red Shoe Sole Design Saga
On August 10, 2011, the U.S. District Court for the Southern District of New York denied Christian Louboutin’s motion to stop Yves Saint Laurent’s (“YSL”) use of red soles on their shoes, claiming infringement of its trademark. However, the Court denied that preliminary injunction motion and stated instead that Louboutin’s red soles may not be entitled to trademark protection at all.
Louboutin shoes are known for their red soles. On January 1, 2008, the US Patent and Trademark Office granted Louboutin a corresponding trademark (Registration No. 3,361,597) for the women’s high fashion designer footwear with lacquered red soles. In January 2011, Louboutin claimed that YSL was using the same or confusingly similar shade of red on the soles of its shoes in its Cruise 2011 collection. In fact, YSL’s shoes were either all red, including the soles, or blue, or yellow. An all-red version had previously appeared in YSL’s Cruise 2008 collection. Louboutin filed a lawsuit against YSL claiming trademark infringement, among other claims. YSL counterclaimed seeking cancellation of the Red Sole Mark because it is functional, ornamental, not distinctive, and was secured by fraud on the USPTO.
To succeed in its claim of trademark infringement, Louboutin has to show that its Red Sole Mark merits protection and YSL’s use of the same or similar mark is likely to confuse the consumers as to the origin of the shoes. Typically, in the fashion industry, courts have upheld the trademark registration for colors that appear in distinct patterns or combinations of shades that “manifest a conscious effort to design a uniquely identifiable mark embedded in the goods.” See Opinion at p. 12. For example, Louis Vitton has trademarked an LV monogram combined in a pattern of rows with 33 bright colors, and Burberry registered its check pattern. On the other hand, use of a single color has been held by the courts to be functional (functionality is defined by courts as a feature that would put the competitor at a disadvantage because it is “essential to the use or purpose of the article” or “affects its cost or quality.”) Looking at the use of red on Louboutin’s shoe soles, the Court noted Louboutin’s own words that his shoe styles give “energy”, they are “engaging”, red is “sexy” and it “attracts men to women who wear my shoes.” Also, red lacquered sole adds to the cost of the shoes. Further, the Court noted that granting one designer monopoly on the color red would hinder competition especially in the fashion industry that is so dependent on colors.
The Court concluded that it has “serious doubts that Louboutin possesses a protectable mark” and that it was unlikely to success in its infringement case.
This is just the beginning of the battle, as the decision of the Court can (and most likely will) be appealed to the U.S. Court of Appeals for the Second Circuit. However, it seems that the battle launched by Louboutin against YSL for trademark infringement is turning into the battle for Louboutin to keep its red sole trademark.
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.
Louboutin shoes are known for their red soles. On January 1, 2008, the US Patent and Trademark Office granted Louboutin a corresponding trademark (Registration No. 3,361,597) for the women’s high fashion designer footwear with lacquered red soles. In January 2011, Louboutin claimed that YSL was using the same or confusingly similar shade of red on the soles of its shoes in its Cruise 2011 collection. In fact, YSL’s shoes were either all red, including the soles, or blue, or yellow. An all-red version had previously appeared in YSL’s Cruise 2008 collection. Louboutin filed a lawsuit against YSL claiming trademark infringement, among other claims. YSL counterclaimed seeking cancellation of the Red Sole Mark because it is functional, ornamental, not distinctive, and was secured by fraud on the USPTO.
To succeed in its claim of trademark infringement, Louboutin has to show that its Red Sole Mark merits protection and YSL’s use of the same or similar mark is likely to confuse the consumers as to the origin of the shoes. Typically, in the fashion industry, courts have upheld the trademark registration for colors that appear in distinct patterns or combinations of shades that “manifest a conscious effort to design a uniquely identifiable mark embedded in the goods.” See Opinion at p. 12. For example, Louis Vitton has trademarked an LV monogram combined in a pattern of rows with 33 bright colors, and Burberry registered its check pattern. On the other hand, use of a single color has been held by the courts to be functional (functionality is defined by courts as a feature that would put the competitor at a disadvantage because it is “essential to the use or purpose of the article” or “affects its cost or quality.”) Looking at the use of red on Louboutin’s shoe soles, the Court noted Louboutin’s own words that his shoe styles give “energy”, they are “engaging”, red is “sexy” and it “attracts men to women who wear my shoes.” Also, red lacquered sole adds to the cost of the shoes. Further, the Court noted that granting one designer monopoly on the color red would hinder competition especially in the fashion industry that is so dependent on colors.
The Court concluded that it has “serious doubts that Louboutin possesses a protectable mark” and that it was unlikely to success in its infringement case.
This is just the beginning of the battle, as the decision of the Court can (and most likely will) be appealed to the U.S. Court of Appeals for the Second Circuit. However, it seems that the battle launched by Louboutin against YSL for trademark infringement is turning into the battle for Louboutin to keep its red sole trademark.
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.
Wednesday, August 3, 2011
Intellectual Property Protection for Fashion Designs
So far, the U.S. laws offer little IP protection to fashion designers. As a result, fashion designs are copied freely by many. The U.S. copyright law does not extend protection to the overall design of clothing (the “useful” articles are not protected). There is a limited exception for certain elements of a useful article, which are physically separable from the article itself (such as images that appear on the front of T-shirts, distinctive fabric designs, features of buckles).
Trademark law protects the designer’s use of logos, symbols on fashion items and names (for example, Louis Vuitton’s “LV” monogram or Lacoste’s alligator logo). However, trademark law protection only extends to these particular elements, and not to the clothing’s overall design.
Trade dress law protects the product’s overall look and feel, so theoretically, could be used to protect the overall clothing design. However, in 2000, the United States Supreme Court severely limited the extent of protection under trade dress law. In Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 529 U.S. 205 (2000), the Court held that the trade dress protection is only available to those who can prove that the design “has acquired distinctiveness by the consuming public or has developed secondary meaning”, - in other words, that an average consumer would identify the designer just by looking at particular fashion design of the clothes. This is difficult to show, and therefore, the trade dress protection has not be effective in protecting the IP rights of the designers either.
Patent law provides for design patents, but the designs have to be “novel” and “non-obvious”, which is a high bar to meet. Also, the expense of patent prosecution and the time delays involved in the patent review process often make this an unlikely choice.
The fashion industry has been fighting for decades to amend the copyright law to obtain the necessary protection. In fact, approximately 80 amendments have been proposed since 1910, but none have been successful. In the European Union, designers were given protection in 2002, when the EU adopted Council Regulation (EC) No. 6/2002 that gives a 3-year protection for unregistered designs and up to 25 years of protection for registered designs.
The current proposal, the Design Piracy Prohibition Act (H.R. 2196) calls for designers to register their designs within six months of creation. The bill, if passed, would extend copyright law protection to clothing, including underwear, gloves, shoes, coats, as well as accessories, such as handbags, belts and eyeglass frames. The protection would be limited to three years, which in case of fashion designs, should be enough to cover the latest fashion trends. However, the fate of this bill does not look very optimistic. It has been in the House Committee on the Judiciary since April 30, 2009 and no action has yet been taken.
The Senate has its own version of the bill, called Innovative Design Protection and Piracy Prevention Act (S.3728), introduced by NY Senator Schumer. On December 6, 2010, it was placed on the Senate Legislative Calendar. Further fate of this bill is also unclear.
It remains to be seen whether either of these bills will ever turn into law.
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.
Trademark law protects the designer’s use of logos, symbols on fashion items and names (for example, Louis Vuitton’s “LV” monogram or Lacoste’s alligator logo). However, trademark law protection only extends to these particular elements, and not to the clothing’s overall design.
Trade dress law protects the product’s overall look and feel, so theoretically, could be used to protect the overall clothing design. However, in 2000, the United States Supreme Court severely limited the extent of protection under trade dress law. In Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 529 U.S. 205 (2000), the Court held that the trade dress protection is only available to those who can prove that the design “has acquired distinctiveness by the consuming public or has developed secondary meaning”, - in other words, that an average consumer would identify the designer just by looking at particular fashion design of the clothes. This is difficult to show, and therefore, the trade dress protection has not be effective in protecting the IP rights of the designers either.
Patent law provides for design patents, but the designs have to be “novel” and “non-obvious”, which is a high bar to meet. Also, the expense of patent prosecution and the time delays involved in the patent review process often make this an unlikely choice.
The fashion industry has been fighting for decades to amend the copyright law to obtain the necessary protection. In fact, approximately 80 amendments have been proposed since 1910, but none have been successful. In the European Union, designers were given protection in 2002, when the EU adopted Council Regulation (EC) No. 6/2002 that gives a 3-year protection for unregistered designs and up to 25 years of protection for registered designs.
The current proposal, the Design Piracy Prohibition Act (H.R. 2196) calls for designers to register their designs within six months of creation. The bill, if passed, would extend copyright law protection to clothing, including underwear, gloves, shoes, coats, as well as accessories, such as handbags, belts and eyeglass frames. The protection would be limited to three years, which in case of fashion designs, should be enough to cover the latest fashion trends. However, the fate of this bill does not look very optimistic. It has been in the House Committee on the Judiciary since April 30, 2009 and no action has yet been taken.
The Senate has its own version of the bill, called Innovative Design Protection and Piracy Prevention Act (S.3728), introduced by NY Senator Schumer. On December 6, 2010, it was placed on the Senate Legislative Calendar. Further fate of this bill is also unclear.
It remains to be seen whether either of these bills will ever turn into law.
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.
Subscribe to:
Posts (Atom)