The franchise industry, and its trade association, the International Franchise Association, continues to heavily promote franchising for veterans in the VetFran program.  The IFA recently introduced its VetFran Toolkit and a new Veterans Mentor Network.  These two initiatives are designed to complement the IFA’s announced commitment to the White House Joining Forces Initiative to hire as team members and recruit as franchise business owners 75,000 returning veterans, military spouses and 5,000 wounded warriors by the end of 2014.  To recruit veterans as franchisees, a large number of franchise systems offer special deals to veterans, including waiving or reducing the initial franchise fee and offering reduced royalties.  For further information, go to www.vetfran.com. –Stephen E. Story

It is well established that copyright protection extends to literary, musical, dramatic, pictorial, graphic and sculptural works, motion pictures, sound records and architectural work.  There are several categories of work that are not eligible for copyright protection, including titles, names, phrases or slogans; listings of ingredients or contents; ideas, methods, processes and systems.  Titles, names, phrases or slogans may be eligible for trademark protection and ideas, methods, processes and systems may be eligible for patent protection.  On the other hand, consider recipes – the list of ingredients cannot be protected and it is even questionable whether copyright protection will extend to the instructions.  That determination depends on whether there is “substantial literary expression” in the instructions. –Nicole J. Harrell

Anyone considering becoming an area developer (sometimes also called multi-unit developers) should beware of cross-default provisions in their unit franchise agreements.  These cross-default provisions generally state that it will be grounds for termination of the franchise agreement if the franchisee breaches any of its other agreements with the franchisor.  However, area developers often breach the terms of their area development agreement by failing to fully complete their build-out schedules, for example, by building only four of five required units.  Under those circumstances, that breach of the area development agreement, standing alone, could give the franchisor the right to terminate the other established unit franchises, even if those franchises are in full compliance with the terms of their individual unit franchise agreements.

At the time of negotiating the area development agreement, potential franchisees should be extremely careful to ensure any cross-default provision is clarified, to ensure that a breach of the area development agreement, solely as a result of not completing the anticipated number of individual franchise units, does not give the franchisor the right to terminate all of the unit franchise agreements that are otherwise fully in compliance with the terms of their individual unit franchise agreements. –Stephen E. Story

Unless you closely followed the legal victory of the late Vicki Lynn Marshall, a.k.a. Anna Nicole Smith, you are probably unfamiliar with the legal action known as “tortious interference with expectancy of inheritance or gift.” While this tort has been rejected by Virginia courts, it has long been recognized in North Carolina as well as at least nineteen other states. Where it is a cognizable claim, the tort is committed when a third party – through fraud, duress, undue influence, or some other tortious means – intentionally interferes with the receipt of a beneficiary’s expected inheritance or gift. In order to be successful, a claimant must provide proof that, but for the interference, the bequest or gift would have been made.

Tortious interference with expectancy of inheritance or gift is closely related to the more widely recognized action for “interference with a prospective contract,” such as when a third party interferes with a prospective employment or customer relationship, and courts are becoming increasingly willing to extend the same legal protections to noncommercial expectancies. The tort is generally available only when no other legal remedy exists. For example, in a situation where a will is produced and one party claims that a third party exerted undue influence over the decedent to exclude him from that will, probate law presumably provides an adequate remedy through a will contest. However, where a will has been destroyed or the alleged interference prevented its construction altogether, probate law avails no adequate remedy and an action for interference may lie.

Such was the situation in Griffin v. Baucom, a 1985 North Carolina case. Otha Griffin’s wife, Eunice, often vocalized her displeasure about her husband’s decision to bequeath half of his estate to other family members. When Mr. Griffin became feeble and senile, Eunice and her sister, defendant Beulah Baucom, executed a plan whereby Beulah advised the attorney for whom she worked that Mr. Griffin wished to see him to discuss real estate matters. When the attorney arrived at the nursing home, Mr. Griffin requested to see his will, at which time Mrs. Griffin handed him a pair of scissors and assisted him in cutting the will into small pieces. After the destruction was complete, Mrs. Griffin obtained and destroyed all copies of the will, as well as the notes accompanying its preparation. The Court of Appeals decided that the evidence produced by the plaintiffs was sufficient for a jury to find that Mr. Griffin lacked sufficient mental capacity to revoke the will, that the defendants exercised undue influence over him to commit such revocation, and that they intentionally destroyed all known written evidence regarding the contents of the will with the intent to deprive the plaintiffs of their expectancy. Thus, the plaintiffs in the case had met the required elements for a claim of interference with an expectancy of inheritance.

The typical award for interference with an expectancy of inheritance or gift is compensation for the value of the lost expectancy. However, punitive damages, legal fees, lost time from work, and damages for emotional distress may also be awarded, while a will contest does not allow for these non-compensatory damages. Thus, not only does tortious interference with expectancy of inheritance afford a remedy in situations in which probate law does not, it may provide for higher damages as well.

Whether you need assistance with an interference dispute in North Carolina or a traditional will contest in either North Carolina or Virginia, we are experienced in handling inheritance matters and would be pleased to offer you our assistance and expertise. –Jason R. Davis

In the face of an award of an injunction, those accused of infringing a patent often “redesign” their product to avoid infringement.  How much change is enough and how much change will land you in hot water with the Court?  Traditionally, the Court looked at the changed product to ascertain if it was “colorably” different than the product found to infringe the patent.  If the issue raised a substantial question, the patent holder had to institute a whole new lawsuit; if the change was insubstantial, the Court could summarily hold the adjudged infringer in contempt.  The rigid standard required the moving party to prove that the difference was insubstantial and presented a difficult hurdle to overcome when enforcing a patent even after winning an expensive lawsuit. Recently, that has all changed. 

In Tivo v. Echostar, 646 F.3d 869 (Fed. Cir. 2011) (en banc), the Federal Circuit outlined the legal standard governing contempt proceedings when an adjudicated infringer claims that it has redesigned an infringing product.  The Federal Circuit collapsed the traditional two-part inquiry, “eliminating the separate determination whether contempt proceedings were properly initiated.”   Id. at 881.  That question, the Federal Circuit held, “is left to the broad discretion of the trial court to be answered based on the facts presented.”  Id.  The Federal Circuit explained that a district court may hold contempt proceedings upon receipt of “a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.”  Id.

In Tivo, the Federal Circuit rejected the infringer’s argument that “contempt is improper where the defendant engaged in diligent, good faith efforts to comply with the injunction and had an objectively reasonable basis to believe that it was in compliance.” Id. at 880 (internal quotations omitted).  The Court explained, “[w]e have made it clear that, under Supreme Court precedent, a lack of intent to violate an injunction alone cannot save an infringer from a finding of contempt…” Id.  The Federal Circuit further explained that once contempt proceedings are initiated, “the party seeking to enforce the injunction must prove both that the newly accused product is not more than colorably different from the product found to infringe and that the newly accused product actually infringes.”  Id. at 882.  In conducting this analysis, the Federal Circuit instructed courts to “focus initially on the differences between the features relied upon to establish infringement and the modified features of the newly accused products,” or put differently, “those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims.”  Id.

To determine whether a relevant feature in a redesigned product is more than colorably different from a corresponding feature in the infringing product, courts should first determine whether the feature “has been modified, or removed.”  Id.  If the feature was modified, the court must then “make an inquiry into whether that modification is significant.”  Id.  Only if the district court concludes that “differences between the old and new elements are significant” can the newly accused product be “deemed more than colorably different from the adjudged infringing one.”  Id.  Thus, “the primary question on contempt should be whether the newly accused product is so different from the product previously found to infringe that it raises ‘a fair ground of doubt as to the wrongfulness of the defendant’s conduct.’”  Id. (quoting Cal. Artificial Stone Paving Co. v. Molitor, 113 U.S. 609, 618 (1885)).  If there are no colorable differences, the district court must next determine whether the redesigned product infringes the relevant claims.  Id. at 883.  The Tivo standard allows parties to initiate contempt proceedings with more ease while, at its core, maintaining the high standard of proof requisite with a contempt proceeding. 

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

Due to budget constraints, the Virginia Department of Labor & Industry stopped administering Virginia’s Payment of Wage Act effective June 25, 2012. According to the VDOLI website, employees must now direct all claims concerning minimum wage or overtime to the Federal Department of Labor’s Wage and Hour Division or, if the employee has a claim for unpaid wages that is a minimum of $2,500 dollars and has documentary evidence in support of a claim, he/she should call the law firm appointed as special counsel at 1-877-VA-WAGE4. This is a dramatic change to the enforcement of the Virginia wage-hour law. –Burt H. Whitt

In a surprise ruling, the U.S. Supreme Court has upheld all material provisions of the Patient Protection and Affordable Care Act of 2010 (the “ACA”), including the controversial individual mandate that requires taxpayers to obtain health insurance or pay a penalty tax starting in 2014. With much of the uncertainty about the future prospects of the law now lifted, employers should prepare for compliance with upcoming ACA requirements.

The Decision

Writing for a 5-4 majority in National Federation of Independent Business et al. v. Sebelius, conservative Chief Justice John G. Roberts, Jr., found that the ACA individual mandate is a permissible exercise of Congressional taxing authority. The ruling came as a surprise to many observers as it had been widely assumed that the individual mandate would be found unconstitutional, leaving questions about whether the remaining provisions of the law would also be invalidated by the Court. The ruling instead upheld all material provisions of the ACA (other than a Medicaid-specific issue that should not be relevant to employers).

What’s Next for Employers?

Now that the ACA has been upheld, sponsors of employer group health plans must focus on the pressing tasks for compliance under the act. Barring repeal or amendment of the ACA by Congress, a number of requirements, including the following, will go into effect in the near future:

• W-2 Reporting: Starting with the 2012 taxable year, wages reported on Form W-2 must include the value of employer-provided group health insurance. Employers should determine if they are appropriately tracking group health plan valuation data in order to comply with this new reporting requirement.
• Cap on Flexible Spending Account Contributions: Beginning with plan years starting in 2013, salary deferral contributions to a health flexible spending account (“FSA”) will be capped at $2,500. This cap should be communicated to participants in open enrollment materials applicable to the 2013 plan year, and appropriate changes should be made to payroll and administrative systems.
• Medical Loss Ratio Rebates: Beginning in 2011, health insurance companies were required to devote no less than a specified percentage of premiums to the provision of health care (as opposed to overhead or profit margin). Insurers who fail to meet this requirement are required to issue rebates to insured customers. Plans may soon begin receiving rebates associated with 2011 insured health coverage and employers should accordingly determine how to properly distribute or apply the rebates, keeping in mind that these funds will likely be considered to constitute plan assets and that the fiduciary provisions of the Employee Retirement Income Security Act (“ERISA”) will accordingly apply to how the rebates are handled.
• Summary of Benefits and Coverage: Starting with the first open enrollment period beginning after September 2012, plan sponsors will be required to include a plain-language Summary of Benefits and Coverage (“SBC”) with plan enrollment materials. Employers should watch for guidance and samples to be issued by the Department of Labor and should prepare to draft a SBC for inclusion with 2013 open enrollment materials.
• Affordable Health Coverage Requirement: Beginning in 2014, employers (other than certain exempt small employers) will be required to make “affordable” health coverage available to all full-time employees or face a “shared responsibility” tax penalty. Future guidance should more precisely define the kind of coverage that must be offered to avoid the penalty. Employers should watch for this guidance, which could require the addition of a low-cost coverage option available to a larger group of employees than are eligible to participate in any current health plans.
• Cadillac Tax: Beginning in 2018, employers offering health plan coverage that exceeds a threshold value (to be determined in future guidance) will face a punitive “Cadillac Tax.” Employers should watch for guidance defining what level of coverage will trigger the Cadillac Tax and prepare to make any appropriate changes to their health coverage options in order to avoid the tax.

Implications

The Supreme Court’s decision is likely to be just the first in a string of federal discussions and actions relating to health care reform. The federal debate will now move to the November elections, where the ACA is expected to serve as a key topic for both parties. For the moment, however, it is premature to expect any quick legislative repeal of any of the ACA’s requirements. Employers should operate under the assumption that all provisions of the ACA will go into effect and should plan accordingly to ensure timely compliance.

Concerns about online privacy are much in the news.  Businesses, consumer advocates and governments debate what online privacy means, and what practices should be adopted by web site operators to address privacy concerns.    It is an issue for all web site operators, not just the likes of Google and Facebook.   

What does the individual web site owner need to know, and do?

Most web sites post some form of privacy policy.  Having a reasonably conspicuous privacy policy is a standard practice, and it is required by at least one state statute, California Bus. & Prof. Code 22575 et seq.   That statute sets forth some minimal requirements for the content of policies, and some other statutes impose related confidentiality and security obligations when certain information is collected.  This and other relevant state statutes are accessible through the National Conference of State Legislatures.  

At the federal level, the Children’s Online Privacy Protection Act of 1998 sets forth rules for collecting personal information by web sites directed at children.  Financial institutions are subject to separate requirements under the Graham-Leach-Bliley Act, discussed here.

Compliance is complicated not only by the fragmented legal landscape, but also by the fact that new legislation is proposed every year. 

Beyond complying with particular statutory requirements, the general approach to a privacy policy should be to disclose what personal information you collect and what you do with it, and, importantly, to update the policy to reflect changing business practices.  Privacy policies are mostly disclosure documents, and the overarching goal should be to ensure they do not run afoul of the FTC Act’s prohibition of “unfair or deceptive acts or practices.”   To fully and fairly disclose what information is collected and how it is used, a web site operator must take into account not only its own business needs, but also technical processes (e.g., delivery of cookies and the creation of user logs) as well as potentially different practices of any business partners involved in the site who may receive some personal information (e.g., web site hosts, the policies of “cloud” data storage providers, providers of ecommerce fulfillment or processing services).    

Online privacy remains very much an evolving concept, and the debate over standards likely will continue for years to come.  In March of 2012, the Federal Trade Commission issued a comprehensive report, entitled Protecting Consumer Privacy in an Era of Rapid Change, which offers a good overview of the state of the law, varying business and consumer perspectives on the question, and the different approaches under consideration.   The FTC web site, http://www.ftc.gov/, contains additional guidance.  Some of the practices referenced in this Report, while not now legally required, may emerge with time as “best practices.”

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