After seven long years of planning, the Internet Corporation for Assigned Names and Numbers (“ICANN”) is making available new generic top-level domains which include different types of words in different languages.  This means that there may be new generic top-level domains besides the twenty-two generic top-level domains already available such as .com, .org, and .net. 

On January 12, 2012, ICANN began accepting applications for new generic top-level domains.  A qualified applicant can apply to create and operate a new generic top-level domain registry between now and April 12, 2012 which is the final day that ICANN will accept applications.  The evaluation fee alone for a new generic top-level domain is $185,000.  For additional information on these new generic top-level domains, visit ICANN’s new website. –Kristan B. Burch.

In a series of cases handed down recently, the Federal Circuit continued its post-eBay efforts to bolster the injunctive remedy provided to patent owners. Although many questioned whether injunctive relief would be readily available to patent holders both before and after trial in the wake of the more stringent test for injunctive relief handed down by the Supreme Court decision in eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006), the Federal Circuit continues to affirm injunctive relief and to defer to the findings of the trial courts on “irreparable harm,” “balance of hardship,” and on the scope of the injunctions granted. 

In Celsis in Vitro, Inc. v. CellzDirect, Inc., No. 2010-1547, 2012 U.S. App. Lexis 372 (Jan. 9, 2012), the Court reviewed a district court’s entry of a preliminary injunction under an abuse of discretion standard.  (citing Abbot Labs. v. Sandoz, Inc., 544 F.3d 1341,1345 (Fed. Cir. 2008)).  In reviewing the record, the Court upheld the trial court’s conclusion that their was a likelihood of success on the merits.  In addition, the Court accepted the lower court’s finding of “irreparable harm” based on “price erosion, damage to ongoing customer relationships, loss of goodwill…and loss of business opportunities.” These losses were particularly irreparable to the company since it was in the growth and brand building stage and because of the “difficulty in quantifying the effect” of these damages.  The Court refused to consider the defendants’ argument that these effects were indeed quantifiable because the market was in essence a two-competitor market.  The Court leveraged these irreparable harms to uphold the district court’s finding that the balance of hardship and public interest favored a preliminary injunction—especially since the defendants failed to provide countervailing expert evidence and because it determined that the defendants’ harms were the result of their own “calculated risk in selling a product with knowledge of [the patent in suit].” (citing Sanofi-Synthelabo v. Apotex, Inc. 470 F.3d 1368, 1383 (Fed. Cir. 2006)).

Similarly, in Streck, Inc. Research & Diagnostic Systems, Inc., No. 2011-1044, 2012 U.S. App. Lexis 458 (Jan. 10, 2012), the Federal Circuit rejected a challenge to the scope of injunctive relief granted by a district court.  After applying the four eBay factors, the Court entered a permanent injunction against the defendants enjoining them from making, using, selling, or importing into the United States certain accused products and “from otherwise infringing the asserted claims of [the patents-in-suit] until the expiration of the last to expire of the Patents-in-Suit.”  While the defendants did not appeal the underlying eBay findings, they did challenge the scope of the injunction as overly broad because the “otherwise infringing” language was ambiguous and unbounded under Rule 65 of the Federal Rules of Civil Procedure.  Straying from focusing just on the language of the injunction, the Court concluded that “[a]fter careful consideration,” and considering the injunction in context, the language of the injunction was not overly broad; the injunction “referred to the specific products at issue,” and the “[m]ere inclusion of the [challenged phrase], when taken in context of the entire order and record on which it was entered, does not render the injunction overbroad.” (emphasis added).  In short, the Court used the context and record to cure any ambiguities or over breadth in the scope of the injunction. \

Stephen E. Noona is the head of Kaufman & Canoles’ Trial Section and Co-chair of its Intellectual Property Law and Franchising Practice Group.  He has been counsel in over ninety (90) patent cases in the Eastern District, is Fellow in the American College of Trial Lawyers, and has appeared before the judges in all four Divisions of the Eastern District on patent and intellectual property matters.  –Stephen E. Noona

Imagine the following situation. Sam and Sue are in their early 80s, live in Virginia Beach, and are the proud parents of 3 children. Two of them, Bill and Betty, are grown, married, and between them have produced 6 wonderful grandchildren, all of whom live on the West Coast. Unfortunately, Jack, the third child, is bipolar and has numerous health issues, including impaired vision and serious periodontal disease. Unable to live on his own at 53 years of age, he lives in a group home in Norfolk. Jack receives Medicaid and Supplemental Security Income (“SSI”), both of which are primary means-tested government benefits.

Jack’s parents have been supplementing his needs at the group home for things not covered by the benefits he receives. This has included fishing trips and the purchase of fishing equipment. Jack loves to go fishing in the area lakes as well as deep sea fishing out of Oregon Inlet. They have also been paying for the extensive dental care that he needs as well as regular visits to his optometrist need to deal with a detached retina and macular degeneration. Dental care and eye care are not covered by Medicaid nor are the fishing trips.

Neither Bill nor Betty wants the responsibility of caring for Jack following Sam and Sue’s death. They have never been close to Jack and they live so far away that they believe it would not be practical for them to assume the responsibility. Sam and Sue want to treat their children equally but they are concerned that leaving one-third of their estate outright to Jack would perhaps not be a wise thing to do. Not only is Jack financially irresponsible; but, additionally, both Medicaid and SSI are means-tested government benefits that could be lost if a portion of their estate is left to Jack.

In general there is a $2,000 resource limit for an SSI recipient with cash or other liquid assets, as well as real estate and personal property the person owns being considered as resources. 20 C.F.R. 416.1205(c). Jack’s parents have thought about leaving their estate to Bill and Betty with the hope that they will continue to provide Jack with “the extras” that Jack has been receiving from them – the fishing trips, uncovered dental and eye care, extra clothing, etc. They are concerned, however, that Bill and Betty might decide that the extra funds they get could be better used for the educational expenses their own children and grandchildren are incurring. Sam and Sue also are concerned that the assets transferred to Jack’s siblings would expose those assets to the creditors of the siblings. These are all valid concerns.

Situations such as this are well suited to the use of a special needs trust (“SNT”) especially one funded with assets owned by Sam and Sue. This type of SNT is often referred to as a third party SNT (versus what is generally known as a self-settled SNT) and it can be established by anyone other than the beneficiary or the beneficiary’s spouse. One of the advantages of this type of trust is that it is not subject to the restrictions imposed by 42 U.S.C. 1396 which, among other things, require that any funds remaining in the trust at the death of the beneficiary be used to repay the state up to an amount equal to the total of the medical assistance received by the beneficiary. Also, unlike a self-settled trust, a third party trust can be created either by will or by a revocable or irrevocable trust.

It is important to remember that the trust must be drafted and administered carefully and the trustee may only supplement the needs of the beneficiary receiving government benefits. Thus, if the trustee provides distributions to cover items that are or that could be provided under the government program, the eligibility of the beneficiary for Medicaid or other government benefits being received may be lost. The trustee of the SNT, therefore, should not use trust income or principal to provide basic needs such as food or shelter or medical care covered by Medicaid. Trust income and principal should only be used for extra items not provided for under the available governmental programs.

Under a third party SNT assets remaining in the trust at the death of the beneficiary may pass according to the terms of the SNT (Sam and Sue might provide, for example, that the remaining assets pass to Jack’s siblings), or according to the exercise of a power of appointment in the beneficiary’s will. The important thing is that the remaining assets do not have to be used to reimburse the state for the Medicaid assistance received by the beneficiary.

Several suggestions for Sam & Sue in setting up a SNT are:

1. Their own estate planning documents should provide that debts, taxes, and expenses of their estates are not to be satisfied out of assets in the SNT. This makes it clear that they want the assets to be used solely for the beneficiary during the life of the beneficiary.
2. They might want to give the trustee the power to use trust assets for basic needs for food and shelter in the event SSI payments received by the beneficiary are not sufficient to meet those needs. This could result in a reduction in SSI benefits, however.
3. The trust should limit payments directly to the beneficiary. In many instances the beneficiary will not have sufficient financial responsibility to handle the distributions. However, in some cases, the beneficiary might be perfectly competent mentally, but might be profoundly physically handicapped and therefore eligible for the government benefits. In either event, distributions directly to the beneficiary from the SNT are treated as income that would reduce government benefits being received. The trust could require that payments be made directly to the vendor or provider of services.

Where parents or grandparents have a child or grandchild eligible for Medicaid and SSI, a third party SNT can be a valuable tool for their use to ensure the eligible beneficiary receives the extras they want that beneficiary to receive while not resulting in disqualification to receive the available Medicaid or SSI benefits and without requiring repayment of those benefits from any remaining trust assets at the death of the beneficiary of the trust. Careful drafting of the trust and as well as administration by a trustee familiar with the ins and outs of a SNT are required for this to be completely successful. –Robert H. Powell III

The Office of Federal Contract Compliance Programs (OFCCP) recently held a webinar to discuss proposed changes to its regulations related to the hiring of disabled individuals.  If enacted, these changes would be significant.  The Secretary of Labor Hilda Solis explained that the proposed rule “represents one of the most significant advances in protecting the civil rights of workers with disabilities since the passage of the Americans with Disabilities Act.”

In short, the OFCCP is seeking to enforce a 7% hiring goal for individuals with disabilities.  The new rule would also include enhanced obligations for federal contractors in the areas of recruiting, training, record-keeping and disseminating policies.

While these new rules are not yet final, federal contractors should be aware that changes may be on the way and should carefully monitor new developments.  Parties interesting in submitting comments on the new rules may do so until February 7, 2012. –David J. Sullivan

One of the many changes in patent law brought by the recently-enacted America Invents Act might make trade secret protection more attractive than patent protection, at least in some circumstances.   

Many inventions can be protected by either trade secret law or patents.  Which form of protection is best depends on a variety of factors.  One factor that to date favored patent protection has been the real risk that a trade secret user could be sued for patent infringement by someone else who independently and subsequently discovered the same invention and obtained a valid patent on it.  Under the Patent Act, the trade secret was not “prior art” that could invalidate a patent, this so precisely because it was used in secret and not publicly known.  Therefore, prior trade secret use was not a defense to infringement claims.  There was only one exception, a “prior use defense” that applied only to business methods, and that limited exception was added to the Patent Act a few years ago.  Because of the risk of being sued for using your own trade secret, many inventors chose patent protection, securing “defensive patents,” designed more to protect against such claims than to enforce patent rights against others. 

Amended Section 273 of the Patent Act enacted by the America Invents Act expands this changes this calculus by significantly expanding the prior use defense to all types of inventions:  New Section 273 reads in part: 

(a) In General- A person shall be entitled to a defense under section 282(b) with respect to subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process, that would otherwise infringe a claimed invention being asserted against the person if–

(1) such person, acting in good faith, commercially used the subject matter in the United States, either in connection with an internal commercial use or an actual arm’s length sale or other arm’s length commercial transfer of a useful end result of such commercial use; and

(2) such commercial use occurred at least 1 year before the earlier of either–

(A) the effective filing date of the claimed invention; or

(B) the date on which the claimed invention was disclosed to the public in a manner that qualified for the exception from prior art under section 102(b).

Because of the amendment, inventors who choose trade secret protection and qualify for the defense do not face the risk of a patent infringement claim from someone who subsequently secures a patent on the invention.  To the extent the defense is available, defensive patents are not so important.

Some suggest that this amendment may cause many to favor trade secret rather than patent protection.    Perhaps so, but the prior use defense remains limited in other ways, and will not be available in many settings.  Further, it will be difficult to invoke successfully.  Among the limitations to the defense, as set out in amended Section 273, are the following:

• The trade secret must have been in actual commercial use; with some exceptions (nonprofit laboratory use and pharmaceutical clinical trials) trade secret inventions in research and development will not qualify.
• The trade secret must have been in commercial use at least a year prior to the filing of the application for the claimed patent or the patentee’s public disclosure of the invention.  One will never know what others will do in the year to come, and in the new “first-to-file” world the risk of delay is significant.
• The defense extends only to the particular person or entity that uses or directs the commercial use of the trade secret, meaning ancillary participants may still face exposure.
• The defense is personal.  It is available if the trade secret is transferred along with the entire business, but is not available if the trade secret is separately licensed or assigned.
• Trade secret use is locked in place.  Even when transferred as part of an entire business, the trade secret is entitled to the defense only if it is used where it was used prior to the transfer or prior to the filing date of the opponent’s patent.
• Where the defense is available, the trade secret user carries the burden of proving it, and by clear and convincing evidence.

With such statutory limitations and factual uncertainties, Section 273 probably will not tilt many towards trade secret protection.  Other considerations — such as the ease of maintaining and duration of trade secret protection on one hand and the ease with which a patent can be designed around on the other — should and likely will weigh more heavily in the deliberations of most inventors.

Chris Mugel practices intellectual property law from Kaufman & Canoles’ Richmond, Virginia office. –Christopher J. Mugel

If you regularly use the website maintained by the United States Patent and Trademark Office (“USPTO”), be aware that its home page has changed. In late December 2011, the USPTO rolled out a new home page for its website at www.uspto.gov. The USPTO had received feedback indicating that its home page was too text heavy so the USPTO’s redesign is aimed at making the website more accessible to its users. For those who miss the old home page, it still is accessible via the USPTO’s website until the end of February 2012. The USPTO also has created an email so that users can send comments on its new home page. This is the first of several improvements that the USPTO plans to make to its website in 2012. –Kristan B. Burch

When Congress passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the 2010 Tax Act) in December 2010, it finally provided some guidance and certainty — albeit for just two years — for the estate tax planning world. Most of the characteristics of the estate tax regime created by the 2010 Tax Act resemble the estate tax planning regime in effect during the past decade – unlimited marital and charitable deductions and limited individual exemptions for estate, gift and generation skipping transfer (GST) taxes. Notably, however, the estate tax, gift tax and GST tax exemptions increased to $5 million from the 2009 levels of $3.5 million, $1 million and $3.5 million respectively. Additionally, the 2010 Tax Act created a new concept that had not been a part of the prior estate tax regime – the concept of “portability.”

In basic terms, portability allows a surviving spouse to use the estate and gift tax exemption that went unused by his or her deceased spouse. Recall that historically the use of one’s estate and gift tax exemption was a “use it or lose it” proposition. If an individual did not use his or her exemption, which was most commonly accomplished through lifetime gifting or the establishment of a credit shelter trust at death, the family had no way of benefitting from any unused exemption.

At first blush, the concept of portability appears to greatly simplify estate tax planning with couples whose combined assets do not exceed their combined exemption amounts, currently $10 million per couple. Even without establishing a credit shelter trust at the first spouse’s death, the surviving spouse can still get the benefit of any unused exemption by simply relying on portability. Before tossing existing estate planning documents into the shredder in favor of estate planning documents that rely on portability, such as “I love you” wills or simple trusts without estate tax planning provisions, however, clients should take notice of the many potential pitfalls surrounding portability:

Remarriage Issues
Only the unused exclusion amount of one’s last deceased spouse can be used. Therefore, if a surviving spouse remarries and his or her new spouse again dies first, the unused exemption from the first deceased spouse is lost. The surviving spouse may, however, utilize the unused exemption of the second spouse to die if the executor of that spouse’s estate makes the portability election. In contrast, if a credit shelter trust is established at the death of the first spouse to die, the exemption of both deceased spouses may be fully utilized.

Threat of Decreased Exemption Amounts
The 2010 Act provides that if the estate tax exemption amount goes down after the death of the first spouse to die, portability is limited to the lower exemption amount. For example, if the first spouse dies with a $5 million unused estate tax exemption, but the estate tax exemption decreases to $3.5 million by the time of the surviving spouse’s death, the amount of exemption that is portable is $3.5 million. This results in a loss of $1.5 million of estate tax exemption compared to a scenario where a $5 million credit shelter trust is set up at the first spouse’s death. Further, the portability amount will not go up if the estate tax exemption amount goes up after the first spouse’s death. Thus if the first spouse dies with a $3.5 million unused estate tax exemption and the estate tax exemption increases to $5 million by the time of the surviving spouse’s death, the amount of exemption that is portable is still the lower amount, $3.5 million. It is also important to note that the appreciation of assets in a credit shelter trust is protected from estate tax, whereas the appreciation of assets for which a portability election is made may be subject to estate tax.

Election Must be Timely Made
To use portability, the executor of the first spouse to die must make an election by timely filing an estate tax return (even if an estate tax return would not otherwise be required because the estate is below the filing threshold). Depending on the assets of the estate of the first spouse to die, this can be a substantial undertaking. Once made, the election is irrevocable. Note that a credit shelter trust can be created by the first to die even if no estate tax return is required because the estate is below the filing threshold.

Loss of Nontax Benefits of a Credit Shelter Trust
While estate tax planning is typically the driving force behind the establishment of a credit shelter trust, there are may other benefits to establishing a credit shelter, such as creditor protection from the claims of the beneficiaries’ creditors and ensuring that assets pass to one’s own children and not to a subsequent spouse and/or his or her children if the surviving spouse remarries. Therefore, for many estate planning clients, establishing a credit shelter trust may be advisable regardless of the ability to rely on portability.

2010 Tax Act Expires in 2013
The 2010 Tax Act is set to expire January 1, 2013. Therefore, unless new legislation is passed that continues to allow for portability, portability could only be used where the first spouse dies after December 31, 2010 and the second spouse dies before January 1, 2013. While most commentators believe any new legislation would continue to allow for portability, there is no guarantee portability will continue.

Conclusion
Portability is certainly a welcomed and important new tool available to estate planners. In particular, it will be invaluable for estates where a decedent’s estate plan contains no estate tax planning. Portability also can be an important component for those with borderline taxable estates, estates where retirement assets pass outside of a credit shelter trust directly to a spouse and estates where there are insufficient assets to fully fund a credit shelter trust for the first spouse to die. Because of the potential benefits and pitfalls discussed above, it would benefit the vast majority of fiduciaries of estates of a first to die spouse to discuss the portability election with his or her tax counsel. –Alexander W.  Powell Jr.

VetFran is a voluntary program sponsored by the International Franchise Association and is designed to help U.S. military veterans transition into civilian life.  Currently, more than 325 franchise systems participate in VetFran and voluntarily offer financial incentives to veterans seeking to become franchisees.  Those incentives vary by the participating franchise system, but can include reduced initial franchise fees and special financing.  To learn more about VetFran, the participating franchise systems and the incentives offered to veterans, please visit www.franchise.org/vetfran.aspx. –Nicole J. Harrell

The Foreign Corrupt Practices Act (“FCPA”) includes two primary components: (1) the anti-bribery provisions, and (2) the recordkeeping and internal controls provisions.  This post will discuss the primary exception and affirmative defenses to the FCPA. 

The primary exception to the FCPA is called the “facilitating payment exception.”  The anti-bribery provisions do not apply to “any facilitating payment or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action.”  This exception is extremely limited and there is little guidance available in applying it to specific transactions.  Nevertheless, it is important to note that if the payment does not qualify as a “facilitating payment,” recording the payment as such is a separate record keeping violation.

When dealing with a FCPA violation, you should consider whether certain affirmative defenses are applicable.  First of all, payments/gifts are permitted if they are lawful under the written laws and regulations of the foreign official’s country.  This defense only applies to laws that render the bribe itself legal (not simply legal amnesty to a defendant).  Also, there is an affirmative defense for reasonable and bona fide expenditures incurred by or on behalf of a foreign official directly related to the promotion, demonstration, or explanation of products or services or to the execution or performance of a contract with a foreign government or agency.  Once you and your attorney have determined that a certain expense qualifies as a reasonable and bona fide expenditure, the following are recommended best practices: 

• Only pay for the expenditures of the government official (not family members)
• Do not request a specific visiting government official
• Pay costs directly to service providers
• Do not provide officials with cash or spending money
• Souvenirs should have nominal value
• Do not fund non-business related activities

If you would like more information on the Foreign Corrupt Practices Act, please feel free to contact me at recoley@kaufcan.com.  -R. Ellen Coley