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Have You Seen Our New Website?
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The WLF Lawyers website has been completely redone to coincide with the recent growth and changes in our firm. If you haven't visited the site lately, stop by and let us know what you think: www.WLFLawyers.com. |
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E-Commerce Law Series - Crowd Law |
The latest technology buzz word is "cloud." A cloud allows software to be run, and data to be stored, on a remote server. The advantage to the user is the ability to run programs stored on a centralized server from multiple locations, and on multiple devices, without the need to install anything more than once. Running programs from the cloud, and storing data remotely, also reduces the operating requirements of user devices, especially mobile devices such as netbooks and tablets.
The cloud offers convenience and efficiency by offering this centralized location for data storage. The cloud can also be used by online businesses to harness labor and generate revenue. While the "cloud" leverages the power of computer networks to share virtual products and services among its users, the "crowd" leverages the power of human networks to accomplish a shared goal. Budding entrepreneurs naturally look to their friends and family for loans and startup capital. With the growth of social media, more and more businesses consider their "friends" to include fans and online followers. When these tenuous acquaintances are tapped as a source of investments it can be difficult to reconcile such offerings with securities laws that seek to protect investors from potential investment risks through an arduous regulation and review process.
Under the Securities Act of 1933, the term "security" is very broadly defined to include a number of investment contracts. The primary test for determining whether an investment is subject to regulation under the Act is whether a person is investing with the expectation of receiving profits from the work of another party. Essentially, if the investor is not taking an active role in the business, their investment is likely subject to scrutiny under the Securities Act.
Thousands of investors have already shown a willingness to invest in companies online. You may have already heard of a number of "crowdfunding" sites such as KickStarter and IndieGoGo. You may have also heard that these sites have been successful in raising hundreds of thousands of dollars in financing for new and small ventures. You may not know, however, that all of these sites prohibit the offering of securities. No project listed on any of these sites is currently offering equity in the underlying company or a financial return on a participant's "investment." In fact, these sites classify the contributions made by visitors as donations and the companies receiving funding are under no obligation to give anything in return. The successful projects usually do offer a "reward," but that reward comes in the form of acknowledgments, free t-shirts, copies of independent films that are being funded, or tickets to a premier.
So far, crowdfunding sites that offer voluntary "rewards" have withstood scrutiny from the Securities and Exchange Commission. The SEC, however, is certainly aware of the efforts of entrepreneurs to raise money online and is quick to take action against sites that violate their rules. While specific costs will vary, registration of a security can run upwards of $50,000, including attorney's fees and accounting figures and projections. In addition, registration adds months of work and lead time to a project to raise capital. Companies interested in crowdfunding are faced with three options: (1) start immediately but offer no financial incentive for investment; (2) register their offerings; or (3) look for an exemption to registration. While the first option is currently in use by the vast majority of crowdfunders, the success of this option has not been tested on a large scale, and most donation projects set goals of a few hundred thousand dollars or less. To raise the kind of money that traditional financing promises it seems that companies will need to offer true investment incentives, which means registration or an exemption.
So-called "private offerings" under Section 4(2) of the Securities Act and Regulation D are exempt from registration. While these provisions may be useful in limited situations where private offerings are made online, possibly on a closed network or intranet, they do not allow for the general solicitations inherent in a public website. While not a complete exemption from registration, Regulation A offers the possibility of a simplified registration process for offerings of $5M or less. Unlike Section 4(2) and Regulation D, Regulation A does not impose the same prohibition on general solicitations. To the contrary, offerors under Regulation A are allowed to "test the waters" for an offering before taking on the cost and time of filing the limited registration required with the SEC. An issuer under Regulation A can make solicitations of interest through written documents, scripted radio or television advertisements, and possibly websites, to determine the interest in an offering provided that no offers or sales are made during the testing process or until registration has been made and at least 20 days have elapsed from the date of the last solicitation publication. For crowdfunders looking to raise substantial capital that would warrant even limited registration, Regulation A poses a viable alternative to donation-based investment models.
Investors have made their interest clear in online investments and the offering of securities through the web. In an economy stagnant due to a lack of investment capital, regulators will be forced to consider the idea of online-specific exemptions. A number of exemptions have been proposed, ranging from an informal online request for a $100 individual investment cap to HR 2930 (the "Entrepreneur Access to Capital Act"), which provides for an offering limit of $5M and an individual investment cap of the lesser of $10,000 or 10% of the investor's annual income. HR 2930 is currently before the full Financial Services Committee for review.
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Advertising Law F.A.Q. | |
Q: What are the regulations regarding commercial email messages?
A: Unsolicited bulk commercial email (UCE), also known as SPAM, is bulk email of a commercial nature that is sent without the recipients' consent. In 2003, Congress passed the Controlling the Assault of Non-Solicited Pornography and Marketing Act (or "CAN-SPAM Act of 2003"). The CAN-SPAM Act seeks to regulate UCE whose "primary purpose" is to advance or promote a commercial product or service. Congress and the Federal Trade Commission (FTC) have established various guidelines for sending and managing commercial email messages. While the entirety of these regulations are beyond the scope of this newsletter, the following are general guidelines for online business communications.
1. CAN-SPAM applies to "commercial" rather than "transactional or relationship" content. The exact definitions of these terms are largely open to interpretation and the FTC places the burden on the party sending a message to determine whether they need to comply with CAN-SPAM rules. In general, if the recipient of an email will reasonably believe that the message's content is commercial, under the plain meaning of that word, and there is no prior relationship with the sender, then CAN-SPAM applies. If, however, the message is necessary to relay information pertaining to a prior relationship, then the message is not covered by CAN-SPAM. For messages that are mixed, a balancing test of the content is applied and the reasonable perception of the reader in determining the primary purpose of the message is taken into account. When in doubt, consider an email from your business to be commercial and comply with CAN-SPAM.
2. The subject line of a commercial message should never be misleading; whenever possible, identify your business, and the purpose of the email, in your message headers.
3. If your message is of an "adult" nature, or contains sexual or pornographic material, it should be properly labeled "SEXUALLY-EXPLICIT."
4. Commercial email must provide information for recipients to "opt-out," must include a physical address for the sender, and, especially where there is no prior relationship with the recipient(s), must give notice that the message is a solicitation.
The CAN-SPAM Act provides for both civil and criminal penalties for violations. Because of the large number of email messages many businesses send out, it is extremely important to monitor compliance with these, and other, regulations to limit potentially severe liability.
It is also important to consider these requirements when negotiating contracts with advertising agencies and marketing companies. Their failure to comply with proper email procedures on your behalf could spell trouble for your business.
Q: Can I use my competitors' names, brands, and trademarks in my advertising campaigns?
A: Yes, and No.
While you may want to absolutely prohibit your competitors from using your trademarks in their ads, and they may want to prohibit you from doing the same, there are circumstances in which you may legally refer to each other and each other's products and services. Whether it is advisable to do so is still a strategic decision that you should consider internally.
Fair Use: Under the "classic fair use" defense to trademark infringement, a defendant can use a plaintiff's trademark if the use of the term is necessary to describe the defendant's own products and the use is made fairly, and in good faith. If someone had a trademark on the term "Soda Pop" and your company made a competing carbonated beverage, you could use the classic fair use defense to your use of the generic term "soda pop" or some portion of the term to describe your product without intending to invoke the maker of "Soda Pop." With classic fair use, there can be no likelihood of confusion caused by your use of the trademark(s).
So-called "nominative fair use," however, applies when a defendant makes a specific reference to a competitor's name, products, or services, by using the competitor's trademarks. It is virtually impossible to legitimately compare your products to your competitors' without using one or more of your competitors' trademarks or tradenames. As a result, nominative fair use provides a defense to an infringement claim where you use a competitor's marks to describe their products, provided that the product is not readily identifiable without using a trademark, and nothing is done in conjunction with the use of the mark to suggest sponsorship. Essentially, it must be clear that you are referring to a competitor (and your reference must be fair and accurate) and that your competitor is in no way endorsing your use or your comparison.
Keywords: The use of competitor trademarks in "keywords" is still an unresolved issue. The current legal trend, however, suggests that competitor marks may be used "behind the scenes" where they are not visible to consumers. Examples include keywords in metatags on websites (which are largely ignored by modern search engines anyway), and in Pay-Per-Click advertising, so long as the marks do not appear in the text of the ads themselves. As this area of law is so fluid, it would be best to consult with an internet and e-commerce attorney before bidding on any keywords, or launching an advertising campaign.
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The Basics of Law: Negligence | |
One of the first things law students learn is that the law provides very specific definitions of words and those definitions are applied to specific fact situations to determine whether a defendant is guilty or held liable. Frequently, commonly used English words will be tied to legal definitions that are only ever known to lawyers, judges, and juries. One of those words: Negligence. Although people use the word generally to describe a failure to exercise a reasonable level of care and prudence, the law has broken the definition down further to assist in the dissection of the intersection of law and facts in particular cases, which are being used to determine the outcome of a case. To hold someone liable for negligence under the eyes of the law, you must meet four criteria: a duty, a breach, causation, and damages.
Duty
First, you must show that the defendant owed a duty or care to plaintiff to engage in, or refrain from engaging in, the specific behavior at issue. Generally speaking, people do not automatically owe a duty of care to others. And if you did not owe a duty of care to plaintiff, you cannot be held liable for negligence.
This changes when you create some sort of relationship with the plaintiff that requires you to act a certain way. If you promise you will do something, you must then do it. If you are in a fiduciary relationship with plaintiff, such as acting as his doctor or therapist, you must then act with a heightened level of care.
Breach
Breach is simple. If you owed a duty of care to a plaintiff, did you provide it? If not, you breached. If you did not breach a duty of care, you are not liable for negligence.
Causation
If you breached a duty of care, did it cause the harm being claimed? If so, the causation prong of the negligence factors is met. However, it is not always a simple answer, especially when you have multiple factors that did or could have caused the plaintiff's harm.
Damages
Even if you have apodictic evidence of an owed duty, a breach of that duty, and causation, you cannot succeed on a negligence claim unless you can show actual damages. This means you suffered some sort of quantifiable harm. If you are hit by a car but miraculously did not sustain any injuries (physical, emotional, monetary, etc.), then you have no damages and are entitled to no recovery regardless of any wrongdoing by the defendant.
Although this four-pronged test is simplified above, negligence is a classic and basic example of how the law provides specific definitions for words to provide some assurance that a defendant's fate does not depend on a particular judge's or jury's understanding of a word. |
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Sincerely,
WLF Lawyers
www.WLFLawyers.com
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About Us | |
We are a full service boutique law firm with hourly rates starting as low as $200. Our attorneys provide attentive service to you and your business; we strive to add value to your company in addition to legal advice.
Our offices are located in Glendale and Century City, California and are convenient for all of the Greater Los Angeles area. We are also able to work with clients throughout California because many of our services may be provided without in-person meetings.
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Our Practice Areas
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Did you know WLF Lawyers is a full-service business law firm? Our practice areas include:
*Drafting and Negotiating Contracts;
*Intellectual Property;
*Business Formations;
*Non-Profit and Mutual Benefit Entities;
*Estate Planning;
*Asset Protection;
*Litigation;
*Trademark Trial and Appeal Board Cases;
*Entertainment Law;
*Investments and Securities;
*General Business Services;
*Restaurant Law;
*Franchise Law;
*Apparel & Fashion
*Cloud Law;
*New Media Law;
*Collections;
*Gambling and Gaming;
*Internet and E-commerce;
*Privacy;
*and Employment Law.
Contact us anytime at (818) 649-7805 or click here to contact us.
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Disclaimer
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This email and its contents do not constitute or contain legal advice. Information is posted for educational purposes and as a means of providing a frame of reference for those considering seeking legal representation. Nothing associated with this email creates an attorney-client relationship. Nothing posted or submitted (including by email) as a reply or comment to any post will be considered private or confidential information.
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