Monthly Archives

March 2010

CAN-SPAM Business Compliance and Penalties

By Blog, Business Law

E-mail spam is a part of our business and personal lives.  Do you think everyone else is getting away with spam, so you can too?  Think again.  The federal CAN-SPAM Act of 2003 is alive and well.  When you’re evaluating whether or not your business needs to be concerned about complying with Spam Laws, keep in mind that each separate violation of the federal CAN-SPAM Act is subject to penalties of up to $16,000 and California violations are $1,000 each.  If you need more evidence to become convinced, just ask Facebook about the $873,277,200 judgment they won against a Canadian spammer who used the social networking service to illegally advertise his wares.  It would seem that California Judge Jeremy Fogel wanted to send a powerful deterrent message to illegal spammers.  To read more about this case, click HERE.
Shortly after the federal Can-Spam legislation was adopted in 2003, Delaware and California adopted similar Anti-Spam Legislation.  They were the first two states to do so.  Under the California legislation Cal Bus & Prof §17529, it is illegal to send unsolicited commercial e-mail from California or to a California e-mail address.  The law applies to senders and advertisers on whose behalf messages are sent, so be aware that you cannot contract away your obligation to comply with state and federal Spam Laws.
Federal and state anti-spam laws are directed at commercial communications and are not strictly limited to e-mail or advertisements.  If a message contains only commercial content or its primary purpose is commercial (even if it is an order confirmation or other relationship communication), then it must comply with applicable anti-spam laws.
Here are some tips for helping ensure that your commercial communications comply with anti-spam laws:

•    Begin with Opt In (your e-mail should be addressed to visitors to your own site who request to be added to your mailing list; don’t use e-mail addresses that have been harvested from other web sites. If you purchased an e-mail list from a third-party, ensure that the e-mail addresses were on an “Opt-In” list related to your topic).

•    Provide an easy and clear Opt Out option (so recipients can avoid receiving unwanted communication in the future).
•    Honor Opt Out requests promptly (once someone Opts Out, you cannot continue to send them future messages).
•    Use an accurate source e-mail address (so recipients can identify who sent the message).
•    Use accurate and descriptive subject lines (so recipients are not mislead or tricked into opening e-mails).
•    Include your contact information in the body of your message (so recipients can discover how to contact you).

You can report being spammed to the Federal Trade Commission. Send a copy of the unwanted or deceptive messages to or call 1-877-FTC-HELP.
Kathryn Andrews, Business Group

Importing Gray Market Goods: An Overview of U.S. Trademark Law

By Blog, Intellectual Property Law, Litigation

“Gray market” is the phrase used to describe the sale of new, used, surplus and refurbished products through unauthorized resellers or channels. Gray market goods, also commonly referred to as “parallel imports,” may be considered unlawful when imported to the United States and sold in competition with authorized U.S. distributors.
The general rule followed by the courts is that identical goods sold in an unauthorized manner are not genuine for purposes of the Lanham Act, which regulates U.S. trademarks.  For instance, in Caterpillar, Inc. v. Nationwide Equipment, 877 F. Supp. 611 (M.D. Fla. 1994), the court placed particular emphasis on a manufacturer’s inability to maintain quality control over an unauthorized distributor’s sale of its products.  In Caterpillar, the defendant sold, without authorization, products manufactured using Caterpillar’s components and trademarks.  Defendants obtained certificates of origin from Caterpillar for the component parts of the machinery but used those certificates to represent falsely that the machines were Caterpillar. The court determined that the wide variance in quality control in the manufacturing process contributed to a presumption of customer confusion. The defendant’s deceptive business practices did not help its cause.
To minimize the risk of liability a gray marketer must minimize the likelihood customer confusion over whether the goods sold are backed by an authorized dealer’s good will and the manufacturer’s warranty. Gray marketers should advise prospective purchasers that the goods being offered are not simply the same goods offered by authorized dealers, but at lower prices, and that the product is not covered by any applicable warranties.  Gray marketers should also avoid procuring goods and redistributing them in territories that are already covered by exclusive distribution agreements – the existence of the exclusive agreement is strong evidence that the manufacturer never intended that the goods be resold in these territories. Under these circumstances, gray marketers may face related tort claims for knowingly interfering with or circumventing existing distribution agreements.
The range of “unauthorized” conduct that can turn the resale of otherwise genuine goods into a Lanham Act violation or other liability is great.  To the extent that gray marketers engage in deceptive practices in addition to committing the mistakes described above, courts will likely interpret the Lanham Act more liberally to impose liability.
Andrew P. Holland, Litigation Group

California Legislation Threatens Tax-Free Exchanges

By Blog, Business Law, Real Estate Law

California’s anticipated $20 billion budget shortfall is well-known and legislators are understandably scrambling for solutions.  Newly proposed AB 2640 was introduced in the California Assembly on February 19 and would raise revenues immediately.  In fact, its terms are retroactive to January 1, 2010.
Among other provisions, AB 2640 would tax gain from certain exchanges that are tax-free under federal law.
For example, Section 1031 of federal tax law provides that no gain or loss is recognized when business or investment property is exchanged for property of a “like kind.”  California has long-respected this non-recognition provision, but AB 2640 would require that those gains, exempt from federal tax, be taxed in California.  While 1031 exchanges apply to many types of property, they are most commonly used for real estate, allowing gains from the sale of one investment property to be rolled over into another investment property so long as the entire proceeds of the sale of the original property are used for the purchase of new property.  If AB 2640 is enacted into law, gain on the transaction will be taxed at California’s rates and, in order to qualify for the full federal tax exclusion, anyone wishing to complete a 1031 exchange will have to pay the California taxes from funds other than the proceeds of the sale of the original property.
AB 2640 also takes aim at two valuable corporate non-recognition provisions.  Currently, when a corporation issues its stock, whether in a public or private offering, it does not recognize gain or loss.  Section 1045 of the Internal Revenue Code also allows gain to be rolled over if a taxpayer sells “qualified small business” stock and rolls over the proceeds to another “qualified small business” stock within 60 days of the sale.  These two provisions allow corporations to effectively raise capital and favor investment in small businesses.  Both of these provisions will be eliminated with AB 2640, causing corporations to pay tax on stock issuances and discouraging additional investment in small businesses.
There are a number of other exclusions AB 2640 would eliminate, including the exclusion of gain on transfers between spouses when they are divorcing, non-recognition provisions that apply if property is destroyed or condemned and other provisions that relate to exchanges of insurance policies and corporate securities.
It seems unlikely that AB 2640 will become law with its sweeping changes.  It will, however, only require a majority vote in the California legislature to enact it.  The bill does not create any new taxes (which would require a 2/3 majority to enact), it simply removes some existing exemptions and exclusions.  It would certainly generate current revenues and alleviate the present budget crisis.  Over the long term, however, it does not increase overall revenues but accelerates them to the present.  The Legislative Counsel of the State of California allows you to track the bill’s progress at by entering “AB 2640” into the search line.
Anne E. Senti-Willis, Business Group

Green Construction Contract Checklist

By Blog, Real Estate Law

Implementing a sustainable, energy efficient construction project involves many considerations encompassing the full range of development activities: site selection, design, construction, operation, maintenance and demolition. Every owner must consider a wide variety of implications, including cost, availability of materials, schedule and quality. Among the first issues to be addressed is the content of
the design and construction contracts. What follows is a checklist of issues to consider when negotiating and drafting contracts with architects, contractors and others involved in the project.

1. Should a certified green professional be retained? A design professional who has obtained accreditation in green design and construction will be recognized as an “Accredited Professional.”

2. If a specified standard of construction is required, be sure it is specified clearly, and with reference to the revision date of the applicable standard. A number
of organizations offer certification standards and ratings, including the LEED Green Building Rating System, Living Building, Green Globes, Green Point Rated and the National Association of Home Builder’s Green Building Program.

3. Be aware of changes in the law, especially local ordinances, relating to the requirements for any element of green design and construction.

4. Plan for extra time, and potentially extra cost, for delivery of materials.

5. Incorporate any applicable “performance” standards for the project, such as energy savings, air and water quality, water usage and recycling.

6. Watch for exculpatory provisions and disclaimers of responsibility at every stage. For example, a particular material requirement may draw a disclaimer of liability from an architect or contractor, who might not have confidence in the product. This may lead to extended negotiations over indemnities
and damage waivers.

7. Watch for, or give thought to clauses that require a particular standard of care that might be higher than customary. Such clauses may trigger insurance exclusions, thereby negating coverage from professional liability insurance or complicate bonding.

8. Consider extending any payment retention until the required certification is obtained. In addition, require that all documents related to the green requirements are created, maintained and turned over as part of the certification.

9. Reexamine how the green requirements may impact standard construction clauses, including such matters as delay, indemnities, consequential damage waivers, change
orders, insurance and substitutions.

10. Implement job-site recycling/waste
management requirements, if not already contemplated by a particular standard that is applicable.

Some of the standard forms of design and construction contracts include provisions that promote consideration of sustainability issues, but typically those are general and not mandatory. As with any contract, the parties need to identify exactly what their expectations are and specifically provide for the accomplishment of those goals in the contract.

Stephen C. Gerrish, Real Estate Group