Nobody running a business wants to take time, energy and resources away from that business to defend or pursue a lawsuit. Following is a brief summary of four areas of law where businesses might run into problems – and ways to avoid them, according to Nevada legal experts.
Intellectual property falls into six categories: patents, copyrights, trade secrets, trademarks, rights of publicity and rights of privacy.
Businesses often run into problems with copyright law by using copyrighted material such as owned clip-art or photos. Less obvious problems can occur when a business tries to update its advertising campaign and learns it only bought the right to use the campaign – the ad agency owns the copyright. Or a business may make changes to its Web site only to learn the designer owns the site and the business must pay for changes.
Simply naming a business can violate trademark law. “There is a common misperception if a you obtain a business license or fictitious name registration or incorporate under a particular name, that obtaining the governmental approval to use the name means you’re entitled to do so,” said Michael McCue, partner, Lewis & Roca. A local trademark search isn’t enough – trademarks can be registered nationally and internationally. The business may not know a problem exists until the owner of the registered trademark sends a cease-and-desist letter.
The long-term effects of such an order include costs to recreate letterhead, advertising, phone book advertisements, etc. Damages are often awarded if the registered owner of the trademark sues. Most lawsuits are reported to trade publications, with the resulting black eye to a company’s reputation.
New areas of patent law created the Business Method Patent (BMP), allowing companies to patent the method of doing business, especially with computer- and Internet-related business. Most businesses won’t even know they’re violating a BMP until receiving a cease-and-desist order. Some 8,000 to 10,000 BMPs are filed with the U.S. Trademark Office annually.
The flip side of infringing on intellectual property rights is being the one who is infringed upon. Businesses stall on patenting inventions without realizing if the invention is in public use for over a year, they lose the right to patent, said Ken D’Alessandro, owner and founder, Sierra Patent Group.
“This is why having a relationship with a good intellectual property attorney is vital,” said Mark Tratos, partner, Quirk & Tratos. Savvy businesses are consulting with intellectual property attorneys before opening their doors. One of the smartest moves a company can make is to do an intellectual property audit to ensure it’s protecting its own intellectual property and not infringing on anyone else’s.
This broad area covers business transfers with the death or retirement of a partner, including questions regarding who owns the business, what happens to employees, valuation, taxation and transfer of ownership interest within a family or if a partner hasn’t designated a successor.
“The most common problem businesses run into is doing no succession planning at all,” said Scott Swain, partner, McDonald Carano Wilson LLP. “In other words, nobody has thought about this because none of us likes to deal with our own mortality.” Not having a plan in place means no one has addressed who successors will be, how to value an interest or how to pay for it. Thinking ahead and buying life insurance for a buy-out arrangement can ease the transition and help the business stay on track.
“Planning ahead can provide the mechanism and procedures to be followed, minimizing dispute and discord in the process,” said David LeGrand, partner, Hale Lane. “With insurance funding available and a plan in place, the economics of a purchase can be made reasonably affordable.”
This is particularly important in a family-owned business, because family members are already under stress from the death of a loved one. “A partner who wants to leave his interest to his children doesn’t want them to have to sell that interest at a fire sale in order to pay the transfer tax,” said Swain. Creating a system for valuation can settle disputes regarding the value of the interest. A succession plan can include provisions for hiring an accounting firm to perform an evaluation based on standard practices, and make provisions if surviving partners disagree with the valuation.
“The difficulty with a poorly implemented or designed succession plan is the opposite of certainty – it creates uncertainty, which will impact planning within the business itself. If the board of directors is uncertain as to who is going to be in charge, they’re going to struggle with critical decisions regarding the future of that business. They could end up losing sales and market share,” said LeGrand.
Most common business problems in this legal arena are wrongful termination, sexual harassment on the job and discrimination suits. It’s a broad area of law with a large number of laws governing the employer/employee relationship, so employers need to be very careful in hiring, disciplining and terminating employees – with so many statutes protecting employees, it’s difficult not to run afoul of them.
Good preventive work can save time and money later, suggests Mark Ricciardi, managing partner, Fisher & Philips Las Vegas. “We suggest employers put a lot of effort into being sure they hire the best people, thereby reducing the chance of legal problems later.” A common problem involves businesses hiring in a hurry without closely checking candidates’ backgrounds and experience, then not documenting the employee’s behavior – no annual performance evaluations, progressive discipline or paper trail. How does a business fire a five- or 10- year employee whose record looks clean?
Hiring the right people helps avoid problems. Ricciardi recommends using an accurate written job description, coupled with an employment application reviewed by a labor attorney familiar with Nevada law. The application should include an arbitration provision requiring both employee and employer to settle any disputes arising during employment by arbitration, not in court. “This benefits both employer and employee,” said Ricciardi. “It’s faster than the court system and somewhat private.” Do a thorough background check and a thorough interview process. And last, every company needs an employee handbook protecting both employer and employee. It should include a comprehensive written policy against harassment and discrimination and outline the reporting and investigation procedures. Supervisors need to be adequately trained in dealing with claims of harassment and discrimination.
Business liability is a broad term relating to virtually any kind of legal liability a business can incur. Professional liability is a subset concerned with malpractice in areas such as medical, dental and legal, where a mistake can potentially cause the client great harm.
“All businesses in this day and age face the specter of business liability,” said Michael Bonner, partner, Kummer Kaempfer Bonner & Renshaw. Companies need first and foremost to provide services or products in a competent and careful fashion, minimizing risks. Risk management departments work to minimize the chance of risk or liability to a business and to identify the risks for their industry and make recommendations to mitigate or minimize risks.
“Most of these issues are going to be company- or industry-specific. Take the hotel/casino industry – typically resorts have a large risk management department to be pro-active if a patron falls and is hurt, or eats something in the restaurant that causes the patron to become ill,” said Bonner. “Most risk managers try to deal with the issue promptly, make sure the patron’s injuries or complaints are taken care of quickly and professionally and are well documented. Documentation is a major issue if it goes to litigation.”
Dealing with a patron’s injury or complaint promptly and pro-actively makes good business sense to avoid losing customers and reputation, avoid impacts on liability insurance and increased costs. You may also become known as a forward-thinking company that reduces risks in a positive, up-front fashion.
Insurance plays into liability. From general liability to employment liability to malpractice insurance, it’s all part of the overall risk management strategy of being covered for unexpected problems. “Business owners should do planning,” said Bonner. “They should be pro-active. They should perhaps seek advice from experts – not necessarily lawyers, but people who are experts in the field, to try and determine if the way they run their business is appropriately risk-adverse. That will pay dividends to the company in the future with hopefully lower incidences of customer complaints or injuries or losses, loss of insurance, loss of employees, low morale – it’s just good solid planning advice. Any business can benefit from that.”