Third Quarter 2015 - ACC North Florida Chapter Newsletter

FOCUS...on the North Florida Chapter

 

By in-house counsel, for in-house counsel.®

North Florida Chapter News and Information
Chapter President's Letter
By Harvey Granger, SVP and General Counsel, Baptist Health

The website for the North Florida Chapter of the ACC currently displays a list of 267 members.  In actuality, in the last year or so, we have exceeded the 300 threshold, thanks in large part to the number of new members joining from CSX and Deutsche Bank.  Noteworthy too are the smaller companies, including the Wounded Warrior Project, whose lawyers are new members of our Chapter.

While acknowledging some of the companies whose lawyers have joined most recently, I would be remiss if I did not mention my gratitude for the rest of you who have continued their memberships through the years.  The group of the Fidelity companies, including Black Knight Financial Services, supplies many of our members, including some of our most active. 

While our membership numbers grow, the number of us attending our CLE events has leveled off.   As I noted in my earlier President’s message, the future of our Chapter depends on you.  While I have enjoyed my service on the Board for several years and as President for the last year, I would really like to see more of you attend more of our various events, and, more importantly, participate in Chapter activities. 

Opportunities for active participation abound in this ACC Chapter.  I know that our newly elected Prez, Blake Gibson, Managing Division Counsel and Vice President of Black Knight, will soon be rolling out multiple new opportunities including a women’s professional group and a community outreach group.  I won’t steal any more of Blake’s thunder.  He will be communicating to you soon the details about these opportunities.

Thank you for allowing me to serve as your President for the last year.  I also want to thank the sponsors of the Chapter without whom we could not have maintained and achieved the successes of 2014-15.  Please join me in welcoming Blake as my successor and support the initiatives that he and the Board will announce soon.  I am sure that this Chapter of the ACC will continue to grow and thrive under Blake’s leadership!

Return to Top
Upcoming Events & Past Events Recap
By Rodolfo Rivera, ACC North Florida Board Member

Upcoming Events:

1) ACC Annual Meeting, Oct 18-21, Boston, MA. The ACC Annual Meeting is the world’s largest gathering of in-house counsel and offers the best value in corporate legal education. More info ...

2) A Social Gathering @ Ovinte sponsored by Special Counsel, Nov 4, 2015 5:30 PM - 7:30 PM, Please join us for some tasty treats and wine selections. Location: Ovinte @ The St. Johns Town Center, 10208 Buckhead Branch Dr., Jacksonville, FL 32246More info ...

3) A View from the Bench - Judicial Panel, sponsored by Akerman, Nov 10, 2015 12:00 PM - 1:30 PM. Location: The River Club, 1 Independent Drive, Suite 3500, Jacksonville, FL 32202. Please join us for an enlightening discussion with a panel of distinguished current and retired judges. More info ...

4) Annual Holiday Gathering and CLE sponsored by Jackson Lewis, Dec. 3, 4:00 PM - 8:00 PM, Epping Forest Yacht Club, 1830 Epping Forest Drive, Jacksonville, FL 32217. More info ...

Please be sure to check our Chapter page for other upcoming events by clicking here.

Return to Top
Newsletter Articles
Credit Card Fraud Liability Shift Arrives for Businesses
By: Christopher J. Thanner (McGuireWoods LLP)

On October 1, 2015, a substantial portion of the liability associated with in-store fraudulent credit card purchases shifted from credit card issuers, such as banks or credit unions, to merchants.  Credit card companies instituted the shift in a push to force businesses to adopt new EMV (EuroPay, MasterCard, and Visa) chip technology over the traditional magnetic strip readers prevalent in the United States.  

EMV chip technology is considered a more secure payment system than traditional credit card magnetic strips.  Magnetic strips contain a single set of unchanging data that can be replicated and used repeatedly for fraudulent purchases until the card is cancelled.  In contrast, a card with an EMV chip generates a one-time transaction code that cannot be used for any other in-store transaction, limiting the utility of the stolen data.  According to the credit card industry, the adoption of EMV chip technology will also limit fallout from significant company-wide data breaches as the breach would yield less profitable information for hackers.    

Credit card companies hope to expedite the new technology rollout through the change in liability rules. Under the prior rules, the card issuer assumed all liability for counterfeit or stolen credit card transactions.  Under the new rules effective October 1, merchants who choose to accept payments via a credit card’s magnetic strip will be able to do so but may be liable for fraudulent purchases resulting from the use of the magnetic strip on EMV chip enabled cards.  Generally speaking, if the card does not contain an EMV chip, the card issuer can be held liable.  If the card contains an EMV chip but the merchant has not adopted EMV chip technology, the merchant can be held liable.  As between the two parties, the party with the least EMV-compliant transaction network will be responsible for the fraudulent transaction.  

The new rules will likely generate some confusion over who is liable for specific transactions, as each instance of fraud requires the following factual determinations, among others: 

(i) what type of card was used in the fraudulent transaction (counterfeit magnetic strip card with data copied from another magnetic strip card, or counterfeit magnetic strip card with data copied from a chip card); 

(ii) whether the card was EMV chip-enabled;  

(iii) whether the point-of-sale (POS) terminal was EMV chip compliant; and

(iv) if the POS terminal and the card were both EMV chip enabled, whether the transaction was a “fallback” transaction in which the magnetic strip was used despite the EMV chip capability of both the card and POS system.  

Depending on the answers to each inquiry, either the merchant or the issuer will be liable for the fraudulent transaction.  The liability analysis becomes even more complex if chip and pin technology is part of the transaction.  

In order to be deemed EMV-compliant, merchants need to upgrade their POS terminals and review their software to ensure both can process the new technology.  Cost estimates for converting the entire U.S. network range from 8.5 billion dollars to in excess of 30 billion dollars.  Advocacy groups for the retail and restaurant industries asked for an extension of the October deadline because some merchants are experiencing delays in procuring the new technology.  Additionally, the new liability standard calls for the installation of chip and signature technology as opposed to the more secure chip and pin technology.  Chip and signature cards require the customer to sign for each credit card transaction.  Chip and pin cards require the customer to memorize a numerical pin to authorize the transaction and offer an additional layer of security.  Many businesses are concerned that the failure to convert to chip and pin technology as part of the EMV transition places an undue share of fraud liability on the merchant handling the in-store transaction.  Credit card companies have responded that the conversion to chip and pin will be phased in over a period of years to give the U.S. consumer time to adjust.  

After October 1, 2015, merchants may continue to use the old magnetic strip technology but will be subject to the new liability-shifting rules.  Although the cost of switching to the new technology may be high, the potential liability of failing to make the switch is significant under the new rules.  Card issuers are well on their way to full EMV chip compliance and estimate that two-thirds of U.S. credit cards will contain an EMV chip by the end of 2015, placing the burden of compliance squarely on the shoulders of merchants.  Businesses still contemplating converting their networks need to weigh the cost of adopting the new technology against their potential liability exposure now that the new rules are in effect.  

 ____________________

Chris Thanner is a Partner in the Real Estate and Land Use Department of McGuireWoods LLP’s Jacksonville, Florida office. Chris practices in the areas of commercial real estate acquisition, leasing and development, distressed assets, real estate finance and financial services litigation. Chris can be reached at 904.798.2686 or at cthanner@mcguirewoods.com.

69986235_2

Return to Top
The Role of Labor and Employment Counsel in Today’s Work Landscape: Business Partner and Trusted Advisor
By Rob Devine (Holland & Knight LLP)

With the growth of technology and a shortened pathway to globalization, business models are changing at a meteoric pace and strategies such as the “command and control” work environment are no longer viable for many companies. This creates a business environment that is best described using the military term Volatile, Uncertain, Complex and Ambiguous (VUCA). This means, as labor and employee attorneys, we must get comfortable with uncertainty. Instead of fighting ambiguities and paradoxes, counsel must embrace and manage them.

For years, the core function of labor and employment counsel has been to: (1) manage a litigation spend to budget; (2) manage high-risk litigation to avoid catastrophic losses either in money or reputation and (3) focus on legal compliance. While these goals have not changed, the methods that counsel should use to achieve these goals have. 

As company stewards, labor and employment attorneys still want to protect the assets – both goodwill and financial – of the company. But as a member or vendor of the organization, counsel should also strive to help propel the business forward. Now, labor and employment counsel are called upon to focus more effort endeavoring to contribute to the overall success of the business.

The Top Talent Model

Attracting and retaining talent is the driving force changing the way both labor and employment attorneys and HR departments are doing business. Today’s effective HR organizations are aligned with the business by developing people-based business solutions from an outside-in, consumer-based perspective. In this landscape, attorneys must manage paradox and understand that while managing compliance and risk is important, strict management of those areas can, more often than not, impede organizational growth. A few paradoxes that many businesses consider include the following: 

managing an organization that needs to effect change while also maintaining stability

being global in reach but local to consumers

developing mass production for economies of scale while facilitating consumer customization in this era where consumers want personalized solutions

While these concepts are in tension with one another, counsel should see them as opportunities to display strategic thinking, sharp analysis and business acumen. We may be lawyers, but businesses now embrace outstanding ideas from anywhere in the organization.

In the face of unprecedented innovation and competition, many companies are in a constant spin cycle. They must attempt to keep pace as certain areas of talent are first in demand and then quickly become less relevant to their business. By necessity, this means that today’s superstar worker may be tomorrow’s victim in a reduction in force (RIF). This also means a one-size-fits-all total rewards structure that, while safe and fair, causes companies to lose the battle for critical talent because competitors have chosen to be nimble and flexible to maximize talent. 

As labor and employee attorneys, we must get comfortable with uncertainty. Instead of fighting ambiguities and paradoxes, counsel must embrace and manage them.

Total Compensation and Risk versus Reward Approach 

In today’s world, those who win the talent competition customize compensation, benefits and a work environment to the individual need. This trend places counsel in a quandary, as it must largely abandon its safe and equitable model to minimize litigation and move toward a risk-reward model, where many times the gains from enhanced risk outstrips conservative labor policy. Business units are no longer looking for “yes” or “no” as it relates to advice from counsel. The business now needs labor and employment counsel to tell them “how.”

While managers take comfort in having their charges in the office, where workers’ physical presence serves as proof that they are working and adds to collegiality, today’s emerging workforce views physical office locations much differently. They find technological connectivity preferable to face-to-face interactions. Many employees do not see the need to drive 20 miles to work when tools such as FaceTime and Skype exist to bring people together virtually, with the added benefit of eliminating transportation time and cost. 

How counsel resolves this conflict—the paradox of managers who want their workers in an office and top talent who desire to work virtually—is our measure of success. As counsel, we should be thinking of how work-from-home situations create an opportunity for managers of people to move away from managing a process and toward managing a result, which is the ultimate business goal. The benefits of the work-from-home model include the following:  

Allowing remote work likely will eliminate many reasonable accommodation issues in the workplace, since it is much easier for a worker to accommodate themselves at home, where they already accommodate themselves, than in the workplace. 

An accommodated employee is a happier employee, resulting in higher productivity and lower turnover through job satisfaction and flexibility. 

The business reaps reduced overhead costs, a greater focus on objective performance, a reputation as a thoughtful employer and ultimately, higher profit. 

Goodbye, Performance Management Reviews

Performance management is another key area that is shifting as a result of today’s work environment. Counsel should rethink the return on investment in annual performance reviews. In today’s fast moving atmosphere, performance reviews are losing relevancy, as many managers believe the process is ineffective, time consuming and not valuable. The fortune of today’s business now swings as narrowly as month-to-month, causing the need for performance management processes to shift from annually to shorter intervals, such as ten-minute conversations on a monthly or quarterly basis, which will help drastically reduce the friction on the speed of business. To achieve this goal, in-house counsel should work with the core business and human resources to design short mini-reviews that focus on the following: 

outline the organizational goals over the next 60 days and what this means for the worker as it relates to objectives

provide feedback on how individuals have performed since the last check-in and

achieve a symbiosis between the worker and the company regarding his or her development

The elimination of annual performance reviews and ratings will likely have a positive impact on litigation, as ratings have hurt the case more often than helped it. Consider the person who is rated a “3” or “meets expectations” being terminated for performance when another employee in the same unit was also rated a “3” but did not get fired. The elimination of ratings also removes issues that arise around the fact that managers loath to give anything below a “meets expectations” to employees who are struggling.

While some may worry that a lack of performance scores eliminates a means to evaluate employees in a RIF, scores actually tend to get in the way. Without performance scores, business units can get to the real meat of who stays and goes by matching employees to business goals. Suddenly, the business leader is in position to retain 100 percent of the people he or she wants, rather than the usual 80 to 90 percent. With regular check-ins and clearly stated performance goals, there is only one question that needs answering: Did the employee meet the goals or not?

Holistic Labor and Employment Approaches Achieve Businesses Ever-Changing Targets

Businesses should expect the same business-centric, holistic approach from both in-house and outside counsel. As labor and employment attorneys, we should work hard to get to know the business, cultures and values to contribute meaningfully to the achievement of business goals and in a way that results in less litigation. 

In business, when faced with an issue, it is never just the goal to resolve the conflict. The goal is to resolve the conflict and then examine the root cause of the issue to ensure the company does not repeatedly encounter the same issue. By changing our “go-to-market” to align with our client’s business objectives, both internal and external labor and employment counsel will again be perceived as a true business partner and a trusted advisor. That is a good thing, because that’s why we are here.

 ____________________                                                                                                                                          

Robert Devine is a senior counsel in Holland & Knight's Jacksonville office. Mr. Devine focuses his practice on labor and employment law. He also handles immigration matters, employment contract/restrictive covenant and data privacy issues. Additionally, Mr. Devine has extensive experience optimizing in-house counsel and human resources roles to enhance the overall strategies of companies. 

Return to Top
Litigating Trade Secrets Cases: The Risks of Going Overboard©
By Erika C. Birg (Nelson Mullins Riley & Scarborough LLP)

It is Friday afternoon, 3 P.M., before a long, holiday weekend when you get a call from your CEO.  Your HR director just announced her immediate resignation and headed out the door.  To make things worse, the CEO just discovered that the HR director had secreted away the employee handbook, knew all of employees’ skills and talents, and planned to recruit the employees for her new, competing business.  Of course, while the HR director made sure everyone else signed the company’s normal restrictive covenant agreements, she did not sign them or they cannot be found in the file.  Certainly all of the information that she had was secret and very valuable to competitors.  One instant thought you have is turning to a trade secret misappropriation claim to protect the company.  

Trade secret protection has become an increasingly popular tool to secure valuable company property.  The Florida Trade Secret Act is codified at Florida Stat. § 688.001 et seq. (“FTSA”).  The statute is Florida’s version of the Uniform Trade Secrets Act, enacted by every state (save Massachusetts and New York), the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.  

A trade secret is defined as:  “information, including a formula, pattern, compilation, program, device, method, technique, or process: that (a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain the secrecy.  

As the potential plaintiff, the company will have to bear the burden of proof of each of these elements.  The Fourth District Court of Appeals has broken it down a little further, requiring the plaintiff to present proof of the following to succeed:

(a) the [information] is secret, (b) the extent to which the information is known outside of the owner’s business, (c) the extent to which it is known by employees and others involved in employer’s business, (d) the extent of measures taken by the owner to guard the secrecy of the information, (e) the value of the information to the owner and to his competitors, (f) the amount of effort or money expended by the owner in developing the information, and (g) the ease or difficulty with which the information could be properly acquired or duplicated by others.  

Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 10 So.3d 202, (quoting Lee v. Cercoa, Inc., 433 So.2d 1, 2 (Fla. 4th DCA 1983)).  Although most courts do not separately identify the elements of proof this narrowly, this is a fairly good outline of what facts you will have to present through affidavits and documentary evidence at a temporary restraining order or preliminary injunction hearing, not to mention trial.  

So, what does that mean for the example above?  Can the employee handbook be a trade secret?  Likely not.  It should be known to all employees and often not secured or treated as protected information outside the company.  Most employers have similar policies regarding attendance, work ethics, leave, and vacation as others, with a very little likelihood that the variances would provide the company with a distinct advantage in the marketplace if competitors knew about it.  (Now, to be fair, in one case, the court found that the employee handbook “arguably” could be a trade secret, but declined to address it further because it was not referenced in the complaint. Advanced Techn. Resources, Inc. v. Kelly Serv., Inc., No. H017773, 1999 WL 33956152, *3 (Cal. Ct. App. 6th Dist. Aug. 12, 1999) (unpublished).  That case alone would not provide any comfort for a company seeking to protect an employee handbook in Florida litigation.)

Asserting a trade secret claim over an employee handbook may be difficult to prove as well, because it likely would be hard to show the value of the information contained in the handbook to competitors, the precise cost of development of the handbook, or irreparable harm if it were disclosed.  Think about how you would put a price on the handbook, which was developed first many years ago and involved any number of employees, who did not track their time or effort in developing it.  Additionally, what harm would come to the company if it were published?  Of course, as defense counsel, the first discovery requests are going to be for this information.  If you have to answer in response to discovery that you do not have the information available to answer the costs of development or value to the company, that will not help your case.  Thus, actively considering how you would gather the evidence of each of these items at the outset, particularly the costs of development and value to competitors, helps you understand whether it is a claim you want the company to make in court (think cost/benefits).  

What about the knowledge of employees’ skills and talents?  Running through the test above, certainly the HR Director only learned of their individual abilities through her role, but does that make it the company’s information if she did not take any documents in the process?  It would be extraordinarily difficult (if not impossible) to show what time and expense the company put into developing that information, which arguably belongs to the employees themselves.  And, in the absence of a non-solicitation clause, she is free to recruit employees away for her new business.  See Mittenzwei v. Industrial Waste Serv., Inc., 618 So. 2d 328, 329 (Fla. Ct. App. 3d Dist.  1993).  None of this conduct likely would be addressed by the FTSA.

You also may not want to claim certain information, like the handbook, is a trade secret because of the preemption provision in the FTSA.  Fla. Stat. Ann. § 688.008.  That is to say that the FTSA preempts any claim that is premised on allegations that are nearly identical to those of a trade secret misappropriation claim.  Am. Honda Motor Co. v. Motorcycle Inform. Network, Inc., 390 F. Supp. 2d 1170, 1180-81 (M.D. Fla. 2005) (analyzing the preemption provisions of the FTSA); see http://apps.americanbar.org/litigation/committees/businesstorts/articles/winter2013-0213-preemption-business-torts-uniform-trade-secrets-act.html.  For example, asserting a conversion claim in the alternative to the trade secret claim only will highlight the preemption defense and get the conversion claim tossed.  

In the trade secret context, pleading what could be called a “lesser included offense,” such as conversion or fraud (i.e., making fraudulent statements to get access to trade secrets), will not leave you with that back-up defense if you cannot prove that a trade secret exists.  Instead, both claims will be dismissed, and the company will have no remedies available.  Indeed, if you are unsure of your ability to prove the claim, it would be better to allege only conversion of employer property, leaving the heavy lifting required to prove a trade secret out of the complaint all together.  

There is one notable exception to this, of course: the FTSA’s preemption does not reach breach of contract claims.  Here, in our scenario, there is no contract, and thus, no exception.  But, that should highlight the importance of having a strong contract in place as your primary tool, leaving trade secret allegations for clearer cases.

________________________________________

 
Erika C. Birg is a partner in the Jacksonville, Florida and Atlanta, Georgia offices of Nelson Mullins Riley & Scarborough LLP. Ms. Birg focuses her practice on commercial litigation, arbitration, business torts, contract disputes, trade secrets, computer fraud and non-compete matters.  Ms. Birg chairs the firm’s Legal Project Management task force.

 

Return to Top
The Legal Challenges of Telecommuting
By Kimberly Doud and Chris Anderson (Littler Mendelson P.C.)

Telecommuting is big and getting bigger in both government and private sectors. Available technology, such as broadband, laptops, smart phones and tablets, allows employees to work virtually anywhere at any time. Inflexible work schedules and static office space are relics of the pre-Wi-Fi era. In 2014, Florida ranked fourth, behind California, Texas and New York, among states with the most open jobs involving telecommuting, according to FlexJobs, a Colorado-based firm with online telecommuting job listings. By some estimates, nearly 63 million people, or 40 percent of the workforce, will work from home by the end of 2016.  

Companies who understand and embrace the philosophy that workers can generate and develop ideas almost anywhere realize telecommuting can benefit the bottom line.  Fewer employees on company property mean less office space and lower overhead. Happy employees are healthy employees, leading to higher production, increased revenue and lower health care costs.  Florida’s government also encourages telecommuting given increased fuel savings and environmental benefits. Expanded customer service may be additional value added from telecommuting.  While there are many reasons why telecommuting is rapidly becoming the “new normal,” employers need to understand the legal implications of this shift in how, when and where employees work.  

Issues involving wage and hour compliance (for non-exempt employees), workers’ compensation, and discrimination are three areas of legal risk that employers need to address when implementing telecommuter programs.

Wage and Hour

State and federal wage and hour laws apply to telecommuters.  Employers must pay non-exempt telecommuters minimum wage and overtime and provide them mandatory meal breaks and rest periods, if required by state or local laws.  To ensure that employees are properly paid, employers should establish work schedules and insist that telecommuters keep an accurate record of all hours worked.  To monitor working time and ensure that telecommuters are not working during meal breaks, employers should consider having employees turn off their phones, log off their computers, or notify a supervisor when they “clock in” and “clock out” for their meal breaks.

Most employers understand that home-to-work travel is not compensable.  But, what if the employee rarely comes to the office or does not commute to the office at all?  Is the employee’s drive to the office compensable?  Maybe.  If the telecommuter’s remote workplace is the employee’s main worksite, then travel to and from the company’s office may be compensable because the employee has to travel to a distant worksite.  Also, travel time during the workday is compensable.  So, if a telecommuter starts the workday at home and then drives to the office, the travel time is generally compensable as it represents travel time between two work locations.

Workers’ Compensation

Can an employer be responsible for a telecommuter’s injury even when the employer does not have any control over the physical environment?  The answer is yes.  If an injury is work-related, it is compensable under workers’ compensation without regard to where it occurred because employers have the same obligation to provide a safe environment for telecommuters as they do for employees who work on company property.  For an injury to be compensable, the employee must merely be acting in the interest of the employer at the time the injury occurred.  

So, how can an employer limit exposure to workers’ compensation claims from telecommuters?  Consider establishing clear guidelines for a home office to ensure that telecommuters have a designated work area free from obvious safety hazards.  Also consider conducting periodic visits to the employee’s home office to ensure that it complies with the company’s guidelines and safety standards.  While unannounced visits can engender distrust and damage employee morale, calling 30 minutes ahead gives the employee a chance to “tidy up” without providing too much time to change the work area in any substantial way. Lastly, requiring employees to notify management when they take a meal break may help employers determine if an injury is work-related.

Discrimination

EEO issues are always a concern for employers, but telecommuting presents some unique challenges in this regard.  In short, employers cannot exhibit a bias against any protected class when offering employees the opportunity to telecommute.  Employers must be careful to avoid stereotyping and outmoded assumptions that can often influence the process to select employees for telecommuting. 

Employers should be careful to avoid the stereotype that older workers are less suitable for telecommuting because they lack the ability to manage the technological demands of working remotely.  Employers should also train managers and human resource professionals to avoid gender stereotyping that can result in discriminatory selections for telecommuting.  For example, managers may assume that mothers will be less productive at home because they are preoccupied with their childcare responsibilities or that females prefer to work at home more than their male counterparts. Such perceptions may result in the company having to respond to an administrative charge or lawsuit alleging discrimination.      

Telecommuting can be an appropriate accommodation for a disabled employee. Remember, the ADA does not require an employer to allow telecommuting if it imposes an undue burden or if the employee cannot perform a position’s essential functions from home.  To determine whether telecommuting is an appropriate accommodation, employers should ask:

o Is face-to-face contact with coworkers or customers necessary?

o Is close coordination with other employees necessary?

o Is immediate access to information or documents in the workplace needed?

o Can the employee be supervised effectively at home?

o Can the equipment necessary for the employee’s job be used at home?

If these factors weigh against allowing a disabled employee to work from home, the ADA does not require telecommuting as an accommodation.  Moreover, there may be alternative accommodations that address the employee’s needs.  The ADA allows employers to select any effective accommodation, even if it is not the one requested by the employee.

Lastly, employers should consider implementing a carefully prepared telecommuting policy and may want to require telecommuters to sign an agreement addressing work schedule, job-related injuries and the establishment of a designated and safe workplace.  Implementing a clear policy and securing signed agreements can help employees to have a clear understanding of their obligations and may mitigate the employer’s risks in this fluid and constantly changing virtual workplace.

Firmwide:135770327.1 999998.1004 


Kimberly Doud is an associate in Littler’s Orlando office. She can be reached at  kdoud@littler.com. Chris Anderson is a shareholder in Littler's Nashville office and he can be reached at chrisanderson@littler.com.


Return to Top
Handling Domain Names in the Wake of the New gTLDs
By Crystal T. Broughan, Esq. (Marks Gray, P.A.)

In May 2015, I had the good fortune to attend the International Trademark Association’s (INTA) Annual Conference in San Diego, California.  Each morning as I walked to the convention center and each afternoon when I walked back to the hotel, there were people standing on street corners with big signs saying “.sucks” (Dotsucks).   There were also many cars with big “.suck” signs on their roof.  In the exhibitors’ hall at the conference there was a large “.sucks” exhibit where people could engage in conversations about the regulation of domain names and First Amendment free speech rights Needless to say, the .SUCKS campaign got my attention. As a Trademark Lawyer, I couldn’t help but wonder: how can I better educate my clients about the latest developments with domain names? How do companies protect their brand and domain names in light of the expansion of domain names throughout the world?


A Brief Background

A word used as a domain name identifies an address or place on the internet where a “home page” or “web site” can be located.  5 McCarthy on Trademarks and Unfair Competition §25A:10 (4th ed.).   See Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1044 (9th Cir. 1999).  A gTLC is a generic top-level domain.  The gTLD of an Internet address appears to the right of the “dot” in the address.  gTLDs include the familiar .com, .net and .org as well as many newe gTLDs that focus on a particular business or group. www.inta.org 

The Internet Corporation for Assigned Names and Numbers (ICANN) was formed in 1998 and the U.S. Department of Commerce officially recognized ICANN as the official organization designated to carry on administration of the internet name and address system, also known as the DNS (Domain Name System).  ICANN is a global, multi-stakeholder, consensus-based, non-profit organization.  See Name.Space, Inc. v Network Solutions, Inc., 202 F.3d 573, (2d Cir. 2000) reviewing the history of the domain name system and transfer of authority to ICANN).  

ICANN coordinates the Internet Assigned Numbers Authority (IANA) functions, which are key technical services critical to the continued operations of the Internet's underlying address book, the Domain Name System (DNS). 

The IANA functions include: 

1. The coordination of the assignment of technical protocol parameters including the management of the address and routing parameter area (ARPA) top-level domain; 

2. The administration of certain responsibilities associated with Internet DNS root zone management such as generic (gTLD) and country code (ccTLD) Top-Level Domains; 

3. The allocation of Internet numbering resources and services. 

ICANN performs the IANA functions under a U.S. Government contract. www.ICANN.org

As of 2013, about 252 million domain names were registered worldwide.  About 60% were in the gTLD registries (i.e. .com and .net) and the remainer in the ccTLDs (country code registries).  5 McCarthy §25A:11; Statistics from VeriSign Domain Name Industry Brief (2013), at http.//www.verisign.com.  Businesses and commercial entities in the United States prefer to use the top level domain “.com”.  Educational institutions use “.edu” as a top level domain, military offices use “.mil” and government entities use “.gov”. Originally, “.net” was designed for internet network related entities, “.org” for nonprofit or public organizations. The boundaries of the uses of .com, .net and .org have not been enforced since 1995, because it was decided to suspend screening to reduce delays in the processing of registrations. Virtual Works, Inc. v. Volkswagen of America, Inc. 238 F.3d 264, 266 (4th Cir. 2001).


Registrars of Domain Names

Registrars accredited by ICANN register domain names. This reserves either a geographic, country code ccTLD domain name (www.holidaycottages.co.uk/) or a global, generic gTLD domain name, such as the popular “dot-com” TLD, as in www.starbucks.com 5 McCarthy on Trademarks and Unfair Competition §25A:13 (4th ed.) A battle over a domain name is essentially a battle for the same “intuitive” domain name - a domain name that makes sense without looking it up in a search engine.  It is the demand for “intuitive domain names that drives many of the trademark disputes over domain names.  Prospective buyers usually assume that a company will have its business name or brand as its domain name. Id.  


If the hypothetical clothing manufacturer Silk, Inc. were to purchase a domain name for its website it would probably want the domain name “silk.com” so prospective consumers may easily find their website.  However, what if the clothing manufacturer discovers that someone else, like the hypothetical Silk Chocolate Company has already reserved the domain name “silk.com”.  There can only be one silk.com domain name on the World Wide Web under the “first-come-first-reserved” policy of the domain name system. The clothing manufacturer must choose another name such as silkclothing.com or silkcloth.com. 


Link and Gateway pages

Proposed solutions to these types of problems include “link pages”, “directories” or “gateways” that consist of pages of listing companies that share the same domain name.  Dupre, A Solution to the Problem?  Trademark Infringement and Didlution by Domain Names: Bring the Cyberworld in Line with the “Real” World, 87 Trademark Rep. 613 (1997).  For example, a consumer types in “silk.com” and would see a “link page” listing and describing all of the parties who share the domain name, “silk.com”.  The user would then choose by clicking on the name or logo of the company that she was seeking.  The use of “gateway pages” or “link pages” would lessen the demand for more top level domains as a means of preventing the depletion of commercially useful domain names.  Since many firms could share the same domain name, there would be little likelihood of a paucity of marketable names.  Also, the use of “link pages or “Gateways” would bring domain name usage more in line with global trademark law, which permits several users in different territories or in different product lines to use the same mark.  5 McCarthy on Trademarks and Unfair Competition §25A:13 (4th ed.)


ICANN’s Open Framework for an Unlimited Number of gTLDs

ICANN adopted an “open framework” for the addition of new top-level domain names in June 2008.  Under this system, ICANN permits any entity that meets ICANN criteria to apply for and operate its own gTLD.  The new domains may appear in non-Latin characters, such as Chinese or Cyrillic.  The policy set no limits on the number of new gTLDs that may be added. See http://www.icann.org/. This policy led to fears of a proliferation of cybersquatting in the new top level domains.  5 McCarthy on Trademarks and Unfair Competition §25A:15 (4th ed.)

In early 2012, ICANN began accepting applications for new top level domains. See Prahl and Null, The New Generic Top-Level; Domain Program:  A New Era of Risk for Trademark Owners and the Internet, 101 Trademark Rep. 1757, 1763 (2012).   Almost 2000 applications were filed.  It was predicted that within a few years there would be ICANN approval of 1300 to 1400 new top level domains.  It was anticipated that a number of brand owners would seek to register their brands as new top level domains in order to protect their intellectual property, build a secure communication hub on the web and to create a valuable piece of internet real estate that only the brand owner controls.  5 McCarthy on Trademarks and Unfair Competition §25A:15 (4th ed.)

ICANN had taken the final steps to approve and authorize over a hundred new global top level domains by 2014, and hundreds more were in the pipeline Id.


Rights Protection Mechanisms (RPMs)

Traditional remedies against trademark infringement and cybersquatting in the United States include the Uniform Dispute Resolution Policy, the Anti-cybersquatting Protection Act and the Lanham Act infringement provisions. The new gTLD framework provides additional remedies against cybersquatting such as the Trademark Clearinghouse (TMCH), Sunrise Periods and the Uniform Rapid Suspension System. 5 McCarthy on Trademarks and Unfair Competition §25A:15 (4th ed.)


These RPMs are briefly described below.

Trademark Clearinghouse

The Trademark Clearinghouse provides a list of marks deposited by trademark owners.  The entity operating the clearinghouse verifies the data and maintains a database with the verified trademark records. See www.trademark-clearinghouse.com.  To be eligible for the TMCH, a trademark must be: a nationally or regionally registered word mark; a word mark validated through a court of law or other judicial proceedings; a word mark currently protected by statute or treaty; or other marks that “constitute intellectual property.” See www.newgtld.icann.org/en/aobut/trademark-clearinghouse. The trademark owner must pay all costs verifying the information and responsible for periodic renewal to keep the mark active in the TCH. 5 McCarthy on Trademarks and Unfair Competition §25A:15 (4th ed.)

A new gTLD registry must have a Trademark Claims service that under some circumstances, must notify a trademark owner whose mark is in the Clearinghouse that an identical string has been applied-for in that gTLD. Id. and see Prahl and Null, The New Generic Top-Level; Domain Program:  A New Era of Risk for Trademark Owners and the Internet, 101 Trademark Rep. 1757, 1780-1781 (2012).  

Sunrise Periods

Each new gTLD registry must have a Sunrise pre-launch period allowing only verified trademark owners to register marks in that gTLD.  This allows trademark owners to register names in a new gTLD before registration opens to the public.  To be eligible, the trademark owner must have its trademark data verified by the TMCH. 5 McCarthy on Trademarks and Unfair Competition §25A:15 (4th ed.) 

For example, the “.sucks” registry had two different launch periods with different products for each.  The TMCH Sunrise Period was from March 30, 2015 to June 19, 2015.  The General Availability period started June 21, 2015.  

Premium Names such as life.sucks and divorce.sucks were created by the Registry and were available during the TMCH Sunrise Period and continued through the General Availability phase.  The prices for Premium Names depend on the individual name. If you want to know more about these products go to www.registry.sucks/products

Uniform Rapid Suspension System (URS)

URS is a new post-launch measure designed to give some protection to trademark owners from clear cases of abuse of their marks in second level domain name strings.  The URS is an expedited on-line system in which a single “examiner” resolves, in a short time period, obvious cases of bad faith use of trademarks proven by clear and convincing evidence. 5 McCarthy on Trademarks and Unfair Competition §25A:15 (4th ed.); See Prahl and Null, The New Generic Top-Level; Domain Program:  A New Era of Risk for Trademark Owners and the Internet, 101 Trademark Rep. 1757, 1780-1781 (2012).  See Facebook Inc. v. Radoslav, NAFA 1308001515825 (September 27, 2013) (In the first URS proceeding, the examiner found that the challenged domain name “facebok.pw” was registered in bad faith and was suspected after the complaint of Facebook)

Trademark owners need to take steps at all levels to protect their trademarks and domain names, from the very creation of the brand, through the registration process and development in the marketplace.  Here are a few recommendations I have gleaned from a variety of sources.


Recommendations

Secure your domain names by taking the following steps: 

1. Identify all domains owned by company and ensure all renewals are completed in a timely manner

2. Have one person or department manage all domain names

3. Identify countries in which you do business, have trademark rights, have growing online markets,  or are rapidly expanding and have at risk jurisdictions that can erode and dilute brand awareness and recognition if not secured

4. Secure key and at risk names

5. Monitor your domain names and brands

6. Evaluate and monitor new domain extensions as they become available

7. Hire a third party to monitor your brands for infringements and harmful registrations that attempt to profit from your valuable trademark.

8. Enforce your rights; consider the jurisdiction of the gTLD or ccTLD.

9. Register and validate your registered trademarks with the Trademark Clearinghouse.  


The need to monitor trademarks and domain names in the marketplace is crucial to successfully developing and maintaining a strong brand.  I recently received a message from a domain registry notifying me that the TMCH SunRise period for several gTLDs were open including “.law” from July 3, 2015 through September 28, 2015. Law firms that already have, or aspire to have, an identifiable brand must ensure that their names are protected during this SunRise period.

Ralph Nader is a spokesperson for the “.sucks” registry, which is “designed to help consumers find their voices and allow companies to find the value in criticism. Each Dotsucks domain has the potential to become an essential part of every organizations customer relationship management program.” www.registry.sucks  

There has been a lot of discussion on the ability of consumers to purchase “.sucks” domain names and voice their frustrations on the Internet about specific businesses.  Brand owners must consider the business case for owning their own .sucks domain, or the possibility of an outside party owning a .sucks domain of their brand.


For more information on this subject see:

www.icann.org

www.trademark-clearinghouse.com

www.inta.org

__________

Crystal Broughan, Esq. is Of Counsel at Marks Gray, P.A. in Jacksonville, Florida.  She is an AV rated attorney and leads the Intellectual Property section at Marks Gray.  She has practiced law for more than 25 years and enjoys advising individuals and businesses of all sizes with trademark, copyright and trade secret issues.  She can be reached at cbroughan@marksgray.com.

 
Return to Top
left corner
In This Issue
right corner
North Florida Chapter News and Information
Chapter President's Letter
Upcoming Events & Past Events Recap
Newsletter Articles
Credit Card Fraud Liability Shift Arrives for Businesses
The Role of Labor and Employment Counsel in Today’s Work Landscape: Business Partner and Trusted Advisor
Litigating Trade Secrets Cases: The Risks of Going Overboard©
The Legal Challenges of Telecommuting
Handling Domain Names in the Wake of the New gTLDs
Sidebar Bottom
Spacer
left corner
Newsletter Tools
right corner
Search Past Issues
Print-Friendly Issue
Forward to a Friend
Subscribe to This Newsletter
Subscribe via RSS
Sidebar Bottom
Spacer
left corner
2015 Chapter Sponsors
right corner

Platinum

Gold

Sidebar Bottom
Spacer
left corner
ACC North Florida Chapter Quick Links
right corner
•  Chapter Website
•  Upcoming Events
•  Chapter Leadership
•  Chapter Photos
•  Chapter LinkedIn
Sidebar Bottom
Spacer