Source: https://www.gavinlawoffices.com/2016/04/
Timestamp: 2019-04-25 00:40:58+00:00

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You’ve got a great idea for a new business and the pieces are slowly falling into place — you’re preclearing a few options for a company name, you’ve garnered interest from potential business partners, and there’s a vacant office in the nearby office park that’s the perfect distance from your house. During a recent meander through the office park, you noticed that many of the companies there append the acronym “LLC” to their company name. That got you thinking: what’s an LLC, and why are so many companies identifying as one?
LLC is a short form for “Limited Liability Company,” a business structure that has a straightforward format and notable flexibility that offers unique benefits to business owners. There are as many iterations of business structures as there are businesses, and between C Corporations and sole proprietorships, it’s not difficult to personalize a company’s organizational structure to cater to that company’s particular circumstances. Nonetheless, the particularly customizable format of the LLC has made it the business entity of choice for many fledgling companies.
LLCs are straightforward to establish and maintain: the primary formal legal step in most states is to prepare and file Articles of Organization with the state Payment of a nominal filing fee typically accompanies such registration. Some states also require LLCs to file an annual report or a renewal to ensure that the LLC is still operational and that the information in the State LLC database remains accurate.
In addition to streamlined administrative and recordkeeping requirements, LLCs also have the advantage of providing great flexibility in ownership, internal organization, and profit sharing arrangements. An LLC can be owned by a single individual, multiple individuals, or even multiple companies, depending on the laws of the state where the LLC is established.
The owners of an LLC are often referred to as “members.” The internal organization of an LLC can be modified to give each particular member distinct duties from the outset or, on the other hand, left undefined until the members organically determine the roles that they each best fill. The duties of LLC members are highly customizable: the members can elect to actively participate in the daily management of the LLC, or they can elect to be passive investors; they can choose to establish distinct roles via adoption of a formal internal operating agreement, or they can assume mutable roles via an informal understanding about how to manage the company. An LLC has the additional advantage of limiting the liability of its members, potentially shielding the members’ personal assets in the event the company runs into trouble.
LLCs also permit great flexibility in profit sharing and loss distribution. The flexibility offered by LLCs also extends to taxation schemes. In some states, unless an LLC’s members affirmatively elect for their LLC to be taxed as a corporation, LLCs are usually automatically subject to a “pass through” tax scheme. This means that, unlike a traditional corporation, the company itself is not subject to separate taxation. Instead, profits, losses, and tax reporting responsibilities are “passed through” the company to the members of the LLC. Thus, the profits and losses each member incurs in connection with the LLC are reported on that member’s personal federal tax return, potentially simplifying the reporting requirements for the company as a separate entity. Despite the flexibility an LLC offers in electing a taxation scheme, LLC members should be aware that they may be required to pay self-employment tax on all profits they earn from the LLC during a given year.
Indeed, LLCs are not without drawbacks, in part because of the operational simplicity that makes them so attractive. Although LLCs are easy to establish and operate, they can also be easy to dissolve. In certain jurisdictions, absent an agreement to guard against dissolution, the loss of a single member may cause an LLC to cease to exist. Additionally, the organizational structure of a multi-member LLC can quickly become unclear unless the members create and abide by an operating agreement that parses out which member plays what role and establishes which members are authorized to enter into legal agreements on the LLC’s behalf. Nonetheless, the problems posed by the flexibility of LLCs can be easily navigated with foresight and adoption of an effective operating agreement.
With its rapidly expanding economy, the largest middle class in the world, and significant manufacturing capacity, China can be a great new market for American businesses interested in global expansion or manufacturing goods for export in China. Before expanding, however, American companies should first ensure that their brand is sufficiently protected from a common practice in China — trademark squatting.
Unlike the United States, China is a “first-to-file” country. This means that, in order to accrue rights in a trademark in China, a company must be the first to file to register that trademark there. This system is very different from the United States, where the senior user of a mark, regardless of registration, has rights. In addition, the Chinese Trademark Office does not require an applicant to prove that it is using the applied-for mark before granting a trademark registration. This system of first-to-file with no proof of use requirement allows unscrupulous individuals and entities to engage in the practice of trademark squatting, or registering Western brand names (or their Chinese-character equivalents) in China. Trademark squatters in possession of a Chinese registration for a Western brand name will often either: (1) hold the registration hostage and demand large sums of money for a trademark assignment; or (2) sell cheap knockoff goods under the pirated trademark, leading the Chinese consuming public to link the Western brand with inferior products.
Unfortunately, many Western companies and famous individuals have experienced firsthand the consequences of trademark squatting in China. One example is Nike and Michael Jordan’s line of Air Jordan shoes. In 1993, Nike registered to protect the trademark JORDAN in English in China but neglected to file for the Chinese-character transliteration “Qiaodan.” Several years later, Qiaodan Sports registered the Chinese trademark Qiaodan and began operating retail stores offering shoes and athletic wear under the Qiaodan mark, including selling shoes with a basketball player’s silhouette, similar to the silhouette found on Air Jordans. Qiaodon Sports also registered and used other marks commonly associated with the basketball player, such as the number 23 (Michael Jordan’s Chicago Bulls jersey number) and the names of Michael Jordan’s two sons. Currently, Qiaodan Sports operates approximately 6,000 retail locations in China, with many of its customers believing that Qiaodan Sports is endorsed by or affiliated with Michael Jordan. Upon learning of Qiaodan Sports in 2012, Michael Jordan instituted proceedings against the Chinese company. The Beijing Intermediate People’s Court, in finding for Qiaodan Sports, held there was insufficient evidence to conclude that Qiaodan referred to Michael Jordan. This ruling was upheld on appeal to the Beijing High People’s Court.
 National Public Radio, The Trademark Woes of Michael Jordan (And Many Others) In China (Aug. 16, 2015), http://www.npr.org/2015/08/16/430998321/the-trademark-woes-of-michael-jordan-and-many-others-in-china.
 Eben Blake, International Business Times, Michael Jordan Loses China Trademark Lawsuit to Chinese Knockoff Brand Qiaodan Sports (July 30, 2015), http://www.ibtimes.com/michael-jordan-loses-china-trademark-lawsuit-chinese-knockoff-brand-qiaodan-sports-2032080.
As published in the April 2016 issue of Virginia Lawyer.
It’s not often that trademark law faces a direct conflict with constitutional law. Yet recent cases have turned a bright spotlight on the tension between federal registration of disparaging marks and the First Amendment.
Though cancellation of the Washington Redskins’ trademarks may have dominated the discussion of disparaging trademarks among Virginians, recent major strides for deeming Section 2(a) of the Lanham Act unconstitutional have come from a groundbreaking case in the US Court of Appeals for the Federal Circuit involving the trademark “The Slants.” After an arduous process, the Asian-American rock band The Slants succeeded in defeating the disparagement provision so the band can register its trademark.
Initially, the USPTO rejected “The Slants” because the name was “offensive to people of Asian descent” and therefore disparaging under Section 2(a). The 2010 application included a specimen showing use of the mark that referenced Asian themes and culture, potentially adding to the trademark examiner’s impression of possible disparagement. The band abandoned the original application after receiving an initial rejection on this basis and refiled for the trademark using different specimens that did not reference the band members’ Asian descent. The application was once again denied under the disparagement provision.
Trademark registration provides important legal rights including presumptions of ownership and validity, nationwide constructive notice, and the ability to obtain US Customs assistance in combatting infringing or counterfeit imports, among others. Although a disparagement refusal does not ban use of a mark, the mark holder loses the benefits associated with federal registration and may therefore be discouraged from using such a mark. Throughout In re Tam, the court repeatedly underscored the numerous valuable benefits that federal registration bestows.
When examining potentially disparaging marks, the USPTO examiners consider two factors: (1) The likely meaning of the mark, considering not only dictionary definitions, but also the word in relation to other elements in the mark, the nature of the goods or services, and how the mark is used in the marketplace; and (2) Whether that meaning refers to identifiable persons, institutions, beliefs, or national symbols. Once an examiner makes a prima facie showing under these factors, the applicant must successfully rebut the finding or the examiner will refuse to register the mark.
Disparaging mark refusals were fairly uncommon until the last several decades. Notably, examiners who determine that a mark is disparaging do not have to consult a supervisor or take steps to ensure consistent application, as is required for marks deemed immoral or scandalous. Thus, one single examiner can determine the fate of an ostensibly disparaging mark. The potential for arbitrary application clearly exists.
In The Slants’ case, the examining attorney stated that the term “has long been a derogatory term directed towards those of Asian descent.” The refusal also pointed out that an applicant’s intent to disparage the referenced group is not required. Thus, it is irrelevant that the band is attempting to “take the term back” and transform it into something positive.
On April 20, 2015, the appeals court upheld the denial of registration, following the precedent of In re McGinley. McGinley permitted refusal of disparaging marks because the denial of federal registration does not prevent someone from using the mark. Thus, the court held that the First Amendment is not violated because “no conduct is proscribed, and no tangible form of expression is suppressed.” The court failed to cite legal authority for its rationale.
Rather than harkening back to the misguided approach applied in McGinley — that refusal of a disparaging mark does not prohibit any speech — the CAFC highlighted the significant chilling effect that the disparagement provision has on private speech. Laws that burden speech, even indirectly, are just as problematic as laws that censor outright. Emphasizing the value of federal registration, the court explained that “[d]enial of these benefits created a serious disincentive to adopt a mark which the government may deem offensive or disparaging.” The court expressed concerns that a disparagement refusal is dependent on the subjective view of a particular group, and that usage or meaning of terms may change over time or in different areas of society. Thus, a mark that has been registered for decades could later be cancelled after substantial investment (e.g., Redskins). Faced with this potentially severe penalty, applicants are unwise to select a mark that may become problematic in the future, contributing to the chilling effect. Most applicants denied registration under the disparagement provision abandon the application and change their name rather than forego federal registration or challenge the rejection.
As support for its right to refuse to register disparaging marks, the USPTO argued that trademark registration (not the trademark itself) constitutes government speech. The court disagreed, finding that trademark registration is merely a regulatory activity that does not transform a trademark into government speech. The court repeatedly pointed out that following the USPTO’s logic, copyrights registered with the federal government would convert the underlying works into government speech. The government could therefore censor copyrighted works that contain immoral, scandalous, or disparaging material — a clearly untenable idea.
The CAFC’s opinion was loud and clear. “It is a bedrock principle underlying the First Amendment that the government may not penalize private [nongovernment] speech merely because it disapproves of the message it conveys.” For these reasons, the court found the disparagement provision unconstitutional, in violation of the First Amendment.
The USPTO can appeal the CAFC’s decision to the US Supreme Court within ninety days after issuance. Commentators agree that the Supreme Court would likely consider the case.
Meanwhile, the battle rages on. The Slants band has asked the USPTO to proceed with federal registration of its mark. The USPTO has refused this request, stating in a letter to the band’s attorney that registration will be suspended until either the agency forgoes the appeal or the Supreme Court decides the case, as is consistent with USPTO policy following a federal circuit ruling. Furthermore, the USPTO has stated it will generally suspend consideration of potentially disparaging marks until final resolution of these proceedings. The USPTO has not sought a stay in enforcing the Federal Circuit’s determination that the disparagement provision is unconstitutional — only a thirty-day extension to file a petition of certiorari. In light of the extension request, an appeal by the USPTO seems highly likely and could potentially block the registration of disparaging marks until a Supreme Court ruling. As of March 15, 2016, The Slants filed a petition for a writ of mandamus with the Federal Circuit, calling for an order that would require the USPTO to proceed with registration. The court reacted within hours, ordering that the USPTO respond to the petition within one week and answer The Slants’s accusation that the agency has ignored the court’s ruling.
As football fever slowly amps up again before the NFL draft at the end of April, the Redskins’ lawyers are also gearing up for the Fourth Circuit appeal centered on the cancellation of the team’s marks under the disparagement provision. While The Slants’ case was based on First Amendment arguments for a trademark application, the Redskins’ case is based on both First Amendment and Fifth Amendment arguments fighting the cancellation of six marks.
The Redskins team has been battling cancellation of its marks for a long time. In 2014, the Trademark Trial and Appeal Board (TTAB) found the Redskins’ marks disparaging to Native Americans and canceled the registrations. The Redskins then appealed to a federal court in Virginia, claiming that the marks’ cancellation violated First and Fifth Amendment protections. On July 8, 2015, the district judge upheld the TTAB’s earlier decision, finding the disparagement provision constitutional. The opinion deemed trademark registrations government speech similar to the license plates in Walker, thus exempting them from First Amendment protections. Notably, this decision did not consider the seeming conflict between this interpretation and the problems that parallel application to copyright registration entail.
In November 2015, the Redskins appealed to the Fourth Circuit, which is not bound by the Federal Circuit’s ruling in The Slants’ case. In the meantime, the Redskins can still use the name, and claim extensive common law rights in the trademarks, but the marks no longer have the benefits of federal registration. Final briefs were due mid-March 2016. If the Redskins can make the crucial distinction between its case and Walker, the team may be able to obtain a reversal and resume its federal trademark registration rights.
To view the full April 2016 issue of Virginia Lawyer, please click here.
 In re Tam (Fed. Cir. 2015).
 Compare TMEP § 1203.03 (including no further protocol to follow if examiner finds mark disparaging) with TMEP § 1203.1 (requiring examiners to consult a supervisor after deeming a mark immoral or scandalous).
 Office Action, THE SLANTS App. Ser. No. 85/472044 (January 6, 2012).
 Tam at 62. Two of the judges in the majority wrote a separate opinion that found the disparagement provision to be impermissibly vague as well, citing examples of inconsistent application. Id at 63-73.
 Id. at 23-24. The court also determined that even if the disparagement provision was found to address commercial speech, it would fail the applicable intermediate scrutiny test. Id. at 56-61.
 The USPTO argued that the markholder’s use of the (R) symbol, the mark’s placement on the Principal Register, and Certificates of Registration issued to markholders are government speech.
 Walker v. Texas Division, Sons of Confederate Veterans, Inc., 135 S. Ct. 2239 (2015). The court considered only license plate designs, typically sponsored by organizations, and not license plate letters/numbers.
 The offensiveness standard applied to the license plates stems from a different area of law than the disparagement provision of § 2(a) of the Lanham Act.
 Tam at 40 (quoting Walker at 2248) (internal quotes omitted).
 It is important to note that the holding applies only to the disparagement provision and not the rest of Section 2(a), which also forbids registration of immoral and scandalous marks.
 Bill Donohue, ‘Slants’ Trademark Suspended For Now, USPTO Says, Law360 (March 14, 2016, 3:58 PM), available at http://www.law360.com/articles/771166/slants-trademark-suspended-for-now-uspto-says.
 Bill Donohue, Fed. Circ. Orders USPTO To Explain ‘Disparaging’ TM Delay, Law360 (March 15, 2016, 11:28 AM), available at http://www.law360.com/articles/771742/the-slants-ask-court-to-make-uspto-comply-with-tm-ruling.
 Pro-Football, Inc. v. Amanda Blackhorse, Case. No. 15-1874 (Fourth Circuit).
 The Redskins’ First Amendment arguments include a claim that the disparagement provision is impermissibly vague.
 In 2009, after 17 years of litigation, the Supreme Court of the United States denied certiorari, upholding a ruling that the Native American plaintiffs in that case did not have standing because they waited too long before attempting to have the Redskins’ trademarks canceled. See Pro-Football, Inc. v. Harjo, 415 F.3d 44 (D.C. Cir. 2005). A group of younger Native Americans brought the most recent case. See Pro-Football, Inc. v. Blackhorse, Case No. 1:14-cv-01043 (E.D. Va. 2015).
On first thought, copyright protection may seem fairly easy to understand. Put simply, creative works can receive protection from being copied. But copyright law has many nuances that are important to consider when seeking federal copyright protection. The first of these is determining whether and what aspects of a work can be protected.
Copyright protects “original works of authorship fixed in any tangible medium of expression.” Fixation means that it is somehow captured in a way that can be perceived by others. For example, if you make up a song and sing it in your shower, you have not fixed the work in a tangible medium. However, if you write down the lyrics or notes to the song, or record yourself singing it, you have met the fixation requirement. The originality requirement demands both independent creation by the author and at least some minimal degree of creativity. Independent creation is fairly self-explanatory — you must have created the work. As for creativity, the more creative the work is, the stronger your claim to copyright protection will be. But a very low level of creativity in a work is all that is required for copyright protection — you do not have to be a master of high art to receive protection.
One of the first things we typically tell clients interested in copyright protection is that ideas cannot be protected — only your individual expression of those ideas can be protected. The Copyright Act makes it clear that ideas, procedures, processes, systems, methods of operation, concepts, principles, or discoveries cannot receive copyright protection, “regardless of the form in which [they are] described, explained, illustrated, or embodied in such work.” The doctrine of the idea/expression dichotomy provides that ideas must be separated out from expression, and the expression is the only protectable part of the work.
Though the line between ideas and expression can at times be murky in works with a lower level of creativity, many instances regarding creative content are evident. For example, copyright would not protect the idea for a story about an innocent man who is sent to prison and later escapes. However, copyright does protect the specific expression of that story idea as Stephen King wrote it in the short story “Rita Hayworth and the Shawshank Redemption” and as it was later depicted in the acclaimed film The Shawshank Redemption. This extends to facts as well. While the compilation of information that comprises the non-fiction book The Devil in the White City receives protection as a literary work, the fascinating individual facts that author Erik Larson uncovered about the 1893 World’s Fair in Chicago and serial killer H.H. Holmes do not, by themselves, receive copyright protection. This keeps any one person from owning ideas and facts so that knowledge can spread and such ideas and facts can form the basis for other original works.
The Copyright Act defines numerous examples of original works of authorship, including literary works; musical works, including any accompanying words; dramatic works, including any accompanying music; pantomimes and choreographic works; pictorial, graphic, and sculptural works; motion pictures and other audiovisual works; sound recordings; and architectural works. Though this list specifically details the categories of registrable works, this is not a complete list of works that can receive copyright protection.
Notably, while the Copyright Act does not specifically refer to works associated with computers and the Internet, a number of computerized creations constitute original works. For example, copyright protects the computer code written for software for a video game like Pac-Man as well as the creative visual aspects of the video game displayed on screen during game play. Copyright also protects works in digital form, such as digital photographs, YouTube videos, and songs in mp3 format.
Additionally, the types of works described above can be combined in various ways to create copyrightable works. Take websites for example. A website typically contains a variety of elements such as articles and other written content, photographs, or videos, and the webpage design itself, not to mention underlying coding and software. While each piece may be eligible to receive federal copyright protection individually, certain circumstances will allow for multiple pieces to receive combined protection or for registration of the website as a whole. Developing the right strategy for protection of works individually or combined together will depend on a variety of factors, including authorship, potential damages, and budgetary considerations.
So what kind of works remain uncopyrightable? A range of works have been deemed uncopyrightable, typically because of their primarily factual nature or because of the limited ways to express them. When an idea and its expression are inseparable, one person cannot claim an exclusive copyright in the expression of that idea (often called the “Merger Doctrine”). For example, calendars themselves are not copyrightable because the calendar year can only be expressed in limited ways that are useful. However, the photographs used for a calendar can be protected. Other works found to have little to no protectability include phone books (comprised of facts and utility requires them to be alphabetized in some fashion), sweepstakes agreements (similar rules can only be stated in a few ways), and recipes (the identification of required ingredients is both a statement of facts and a functional process/procedure).

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