What Constitutes a Trade Secret?

Unlike patents and trademarks, trade secrets are protected without any procedural formalities associated with the benefits of registration with a government agency. The benefit to this is that a trade secret can be protected for an unlimited period of time and requires no public disclosure. The downside is that defining and protecting a trade secret can be trickier.

There are different definitions of what constitutes a “trade secret.” California law has adopted the Uniform Trade Secrets Act definition, qualifying a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process” that meets two qualifications. The first qualification is that the information must derive “independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use.”  The second qualification is that the trade secret owner must take reasonable steps to maintain the secrecy of the information.

The Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, an international agreement administered by the World Trade Organization, similarly defines a trade secret.  According to the TRIPS Agreement, trade secret information cannot be generally known among, or readily accessible to, circles that normally deal with the kind of information in question.  It must also have commercial value because it is a secret, and it must have been subject to reasonable steps by the rightful holder of the information to keep it secret.

Thus, if a company deals with third parties who are privy to a company’s trade secret, it is important to always have them sign confidentiality agreements to make sure they understand that the information is a secret.  Taking those steps not only gives the company a cause of action for breach, but also evidences reasonable steps to maintain the secrecy of the trade secret.  Information that constitutes a trade secret can include processes that make production more efficient, a formula (like the Coca-Cola soft drink formula), customer lists, and proprietary business plans.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us at (310) 277-7747 to see how we can help you with your business needs.

Cancelling or Dissolving Your Business Entity

Parties often wait until a dispute arises to exercise or learn about their rights.  However, it is often more prudent to know and exercise rights before a dispute arises.  The main shareholder or partnership rights include limited “economic” rights, voting rights, inspection rights, the right to bring a derivative action, and, in certain circumstances, the right to start the dissolution process.

Business entities can dissolve or cancel their businesses at almost any time. In particular, California corporations  “dissolve,” while limited liability companies and partnerships “cancel.”  Dissolution or cancellation are options for businesses that wish to cease operations in California and need to terminate their legal existence in the state. In some instances of partner withdrawal from a partnership, cancellation or dissolution will be automatic.

The process for cancelling or dissolving a business entity will depend on the applicable state laws and the terms of the corporate or partnership agreement. For example, some partnership agreements may contain a provision stating that the death of a partner, or the withdrawal of a partner, will lead to automatic cancellation of the partnership.  This is merely a term that parties agree to at formation and not one that is required by the state.

More specifically, in a limited partnership, a general partner may withdraw at any time by giving written notice to the other partners. The general partner’s withdrawal from a limited partnership will terminate his or her or its status as a general partner, and the certificate of limited partnership (filed with the Secretary of State) must be amended. The same is true if a new general partner is admitted.

A limited partner, on the other hand, must give at least six months written notice to each general partner of his or her desire to withdraw. A partnership agreement can change this requirement, permitting for less or more notice.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and commercial claims. Contact us at (310) 277-7747 to see how we can help you with your business  needs.

California Shareholder Rights

“Economic” Shareholder Rights

Shareholders invest in corporations primarily for economic gain or profit.  The two main ways shareholders can profit from a corporation are by receiving distributions of the company’s profits and by selling all or part of their interest in the corporation. These correspond with the two main “economic” shareholder rights: the right to receive dividends and the right to sell shares. Notably, shareholders only have the right to receive dividends as they are declared by the corporation’s board of directors, and directors are not obligated to declare dividends.  In addition, some investments and receipt of shares may come with limitations on transferability of the shares.

Shareholder Voting Rights

A company’s board of directors has the right to manage the company’s business. However, shareholders have the right to vote on important matters relating to the business, which gives them some control over the corporation as well. Most importantly, shareholders have the right to elect directors.

Shareholder Inspection Rights

Under California Corporations Code Section 1601, shareholders also have right to inspect the corporate documents, such as the incorporation record, accounting books, and meeting minutes.

Derivative Actions and Shareholder Rights

Derivative actions are brought by a shareholder on behalf of a corporation. Officers, directors, and majority shareholders owe a corporation a fiduciary duty. Someone who owes a fiduciary duty and who breaches that duty can be held liable to the corporation for damages.  Thus, in a derivative action a shareholder seeks judicial enforcement of, and redress for breach of, management’s fiduciary duties to the corporation and its shareholders by means of derivative litigation.

Involuntary Dissolution of the Corporation

Under California law, one-half of the directors or one-third of company shareholders can sue for involuntary dissolution of a corporation. A corporate dissolution may consist of a court approved liquidation or sale of corporate assets. However, the involuntary dissolution of a corporation may be avoided if at least 50% of its shareholders elect to purchase, for cash, the shares owned by the shareholders initiating the dissolution proceeding.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business needs, or visit our Shareholder Rights page for more information.

Ridesharing Hit with More Business Lawsuits

California prohibits unlawful, unfair, and fraudulent business practices, as well as unfair, deceptive, untrue or misleading advertising. Recently, the district attorney offices for Los Angeles and San Francisco claimed that Uber, one of the the most popular ridesharing companies, violated these California business laws in recently filed actions against the company.

Uber (recently valued at $41 Billion and has backers from Wall Street to Silicon Valley), is no stranger to lawsuits, which are coming from all over the world. In California, the district attorneys’ offices are alleging that Uber misleads consumers about the service’s safety and overcharges them with unnecessary tolls in violation of California consumer protection laws.

According to the lawsuit, Uber claims to be an industry-leader in conducting background checks, but fails to fingerprint its drivers. The district attorneys’ offices claim that without fingerprinting, the company’s criminal checks are “completely worthless.”

The San Francisco district attorneys’ offices also accuse Uber of fraud for charging certain tolls. Uber charges a $4 “airport fee toll,” which is automatically added to rides to and from San Francisco International Airport, even when drivers do not pay a toll themselves. Uber also automatically adds a $1 “safe rides fee” to every ride, claiming that this fee goes to funding the company’s background checks.

The district attorneys’ offices have asked the court for an injunction that will force Uber to stop these practices immediately. They also seek restitution and civil penalties for riders who suffered economic harm from the unnecessary fees.

California law allows a $2,500 penalty to be issued for each violation of the business code. The district attorneys’ offices claim that that are “tens of thousands of violations,” meaning that Uber may be facing a very expensive lawsuit.

Lyft, a competing ridesharing company, who recently raised $700 million, chose to settle a similar lawsuit, agreeing to stop picking up passengers at airports until it obtains the necessary permits and approvals. Lyft will also submit its application to a California testing agency to measure its accuracy in calculating fares.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law needs

 

What is a Sole Proprietorship?

Establishing a sole proprietorship is the most common and basic way to start a new business.  In most cases, a sole proprietorship is established by an individual by simply starting a business.  At most a sole proprietorship will need a few simple filings to get going.

Sole Proprietorship

Only one owner is involved in a sole proprietorship. There is an exception for spouses, as California law allows a husband and wife venture to be classified as a sole proprietorship. The owner of a sole proprietorship controls every aspect of the business, and receives all profits from it.

There is no separate legal entity with a sole proprietorship. This is very important to note for liability purposes. For example, if a corporation, which is a separate legal entity, is sued, the corporation owners – its shareholders – are generally protected from individual liability, that is, their liability is limited by their investment in the company in the form of the amount they paid for their shares. However, because there is no distinction between the business and the business owner in a sole proprietorship, the owner can and will be held liable for all business liabilities. In other words, the sole proprietor is personally liable for all debts and actions of the company.

A sole proprietorship exists as long as the proprietor (business owner) is alive. The sole proprietorship will cease to exist once its owner dies.

Filing Requirements

A sole proprietorship in California does not need to file any organization documents with the Secretary of State. However, if the sole proprietorship is going to do business using a name different from the sole proprietor’s, a Fictitious Business Name Statement must be filed.

The sole proprietor will also have to report all business income and expenses on his or her taxes. There is a specific form for this that is part of the California personal income tax return. As with personal income, the sole proprietorship’s tax rate will depend on the proprietor’s total taxable income.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law needs.

What is an Adhesion Contract?

An adhesion contract is also referred to as a contract of adhesion or a standard form contract.  Often times this type of contractual agreement is drafted by one party, and usually looks like a template contract used in all agreements with that party. Adhesion contracts are commonly used for car purchases, cell phone and cable contracts, insurance matters, rental agreements, mortgages, and deeds.

In an adhesion contract, the drafting party is usually a business (typically a large business) with a much stronger bargaining position. The other party, usually the purchaser or consumer, does not have a role in drafting the contract and is simply presented with a “take-it-or-leave-it” offer without the ability to negotiate or modify the contract terms.

Because of the mismatched drafting power that is a part of an adhesion contract, courts will carefully scrutinize the terms of challenged adhesion contracts. A court can invalidate provisions in an adhesion contract if it finds evidence of unequal bargaining power, unfairness, and unconscionability, all to the detriment of the challenging party.

In determining whether there was unequal bargaining power, unfairness, and unconscionability, a court will examine the nature of what the signing party was agreeing to, the possibility of unfair surprise, and whether there was a lack of notice. The “doctrine of reasonable expectations” is one way for an adhesion contract challenger to justify invalidating an entire adhesion contract, or certain terms thereon. Under this doctrine, the weaker party will not be held to contract terms that are beyond what the party would have “reasonably expected” from the contract.

For example, a cell phone company forcing all customers who use its services to attend arbitration sessions in Detroit would likely not be “reasonably expected” by consumers in Southern California.  A court will not, however, free a party from an obligation to perform contract terms just because they did not read or understand a contract.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law needs.

Title Insurance: Why It’s Important and Why You Need It

Title insurance protects real estate owners and lenders from property loss or damage that could arise from defects in the title to the property, or damages due to liens and/or encumbrances.  Each title insurance policy is different, as each one will have different terms and conditions.

For most types of insurance (such as car or health insurance), the insured generally pays a monthly premium to protect against potential future events. With title insurance, the insured pays a one-time premium at the close of escrow (when the property sale becomes final) to protect against events that occurred in the past. For example, title insurance can protect a property owner from claims from other individuals who claim to own the property or have certain rights to it.

Most lenders require real estate purchasers to have title insurance. In fact title insurance is usually one of the many fees involved in closing costs. What buyers should know is that they usually have the option to shop around for their own title insurance if they want to, and should always review the coverage offered to ensure that all appropriate endorsements are included. This could be a good idea if the buyers expect to property to greatly appreciate in value.

Should a title dispute arise in a real estate transaction, the title insurance company should be responsible for the buyer’s litigation representation and associated costs. Specific terms and limits of the policy, and the extent of the representation, will be outlined in the policy. However, it may still be (and often is ) beneficial for a buyer to retain his, her, or its own counsel to oversee the representation provided by the insurer, as an insurance company’s attorney may be more concerned with saving the insurance company money throughout the litigation process.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, contract, and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law needs.

 

Intellectual Property Basics for Businesses

Intellectual Property Basics

It is important to protect the intellectual property and proprietary aspects of any businesses’ goods and/or services.  There are a variety of different ways to go about protecting your intellectual property, and it is important to determine what method will accomplish your goals effectively. It is therefore important to develop an understanding of the different intellectual property protection options. Depending on your company’s needs, you may want to consider either a patent, trademark, trade secret, or copyrights.

What is a Patent?

patent is a property right. Upon successful application, a patent is granted by the federal government to an inventor. The purpose is “to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.” This protection is given to an inventor for a limited time in exchange for the public disclosure of the invention when the patent is granted.

What is a Trademark?

A patent is very different from a trademark.  A trademark is a word, phrase, symbol, or design (or a combination of these), that identifies and distinguishes the source of one’s goods from others.  A “service mark” is like a trademark, but it identifies and distinguishes the source of a service instead of goods.  Like a patent, a trademark is also granted by the government and entitles the holder of the mark to protect their marks from other competitors.

What is a Trade Secret?

When determining whether a patent is feasible for you, you should also take timing into consideration. For example, if your idea is for something that would be part of fast-moving industries, a patent might not be viable. Technology often moves faster than the patent application process, so it might be better to keep your idea a trade secret, i.e., information that companies keep secret to give them an advantage over their competitors.  Protecting trade secrets often involves contractual protections and state unfair competition laws, among others.

What is a Copyright?

A copyright is a form of protection offered to authors of “original works of authorship,” such as music, books, and plays. Copyrights are available for published and unpublished works and are given copyright protection after the copyright is registered through the Federal Government.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with your business law needs.

 

Understanding California’s Franchise Investment Law

If you are interested in buying or selling a franchise in California, it is important to be familiar with the applicable law before taking action.  California franchise law is largely governed by the state’s Franchise Investment Law, which was enacted in 1970.

One of the major requirements of California’s Franchise Investment Law is that franchisors must register with the California Department of Business Oversight before selling or offering for sale franchises in California. An “offer” or “offer to sell” includes every attempt to solicit an offer to buy or offer to sell a “franchise or interest in a franchise for value.”

The Franchise Investment Law also requires that franchisors provide franchisees with final franchise agreements as well as registration disclosure documents at least ten business days before the sale of a franchise. The purpose of these pre-sale disclosures is to provide, fully and truthfully, material information about the franchisor and its franchise offering to the prospective franchisee prior to the purchase.

Recently, the California Legislature attempted to amend the Franchise Investment Law.  Senate Bill 610 (SB 610), which was approved by the State Senate and Assembly, would have prevented a franchisor from severing licensing agreements with franchisees unless the franchisor could demonstrate that a “substantial and material breach … of a lawful requirement” of the agreement took place. In other words, it would have made it more difficult for franchisor companies to end licensing agreements with franchisees.  However, California’s Governor, Jerry Brown, vetoed the bill, stating that it would change the well-established “good cause” standard already in law to an untested benchmark of “substantial and material breach” that is not found in California or other states.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

Mold Liability in Rental Properties

The discovery of mold on rental property usually means costly remediation and litigation between the tenant(s) and the landlord.  However, California is one of the few states that have taken steps toward establishing permissible mold standards.  California’s “Toxic Mold Protection Act of 2001” authorizes the state’s Department of Health Care Services (“DHCS”) to set permissible levels of indoor mold exposure for sensitive populations, which include children and people with compromised immune systems.  The California law also allows the DHCS to develop identification and remediation standards for contractors, owners, and landlords and requires landlords to disclose to current and prospective tenants the presence of any known or suspected mold. This requirement pertains to both commercial and residential tenants.  The law also requires commercial or industrial tenants who become aware of mold to inform their landlord.  Cal. Health & Safety Code §§ 26142.

Residential tenants are further protected from mold and mold liability by the implied warranty of habitability, which requires the landlord to make sure the premises are livable, which typically means that the rental unit is free from hazardous substances and that there is adequate water, heat, and weatherproofing. Generally, the warranty of habitability does not extend to commercial leases.

As for eliminating the mold, that responsibility may depend on who caused the mold. In some cases, this  can be traced to the tenant, in which case they will be responsible for costs associated with eliminating the mold.  However, if the cause can be traced to the landlord, or part of the rental unit that the landlord is responsible for (such as the plumbing), the landlord will have to remove the mold and can be held responsible for any other associated damages, including injuries suffered by the tenant due to exposure to particular forms of toxic mold.

It is always recommended to consult a lawyer before pursuing or defending any legal action concerning  mold liability.  Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business or real estate law concerns.