Austin TX Business Law Blog

What litigation strategies should start-ups pursue to protect valuable intellectual property from rivals?

Austin, Texas-based start-up Allure Energy has sued Honeywell International in a case involving innovative thermostat technology.  Allure Energy's Eversense thermostat integrates location-based controls in mobile phones to allow users to control their home environment.  Allure alleges that Honeywell's Lyric thermostat infringes on two of its patents.

In its complaint in the U.S. District Court for the Western District of Texas, Allure Energy seeks damages, profits, and an injunction against Honeywell's use of Allure's technology.  The litigation also alleges that Honeywell engaged in false advertising under the Lanham Act.

In 2012, at a trade show in San Antonio, Texas, Honeywell requested that Allure demonstrate the EverSense thermostat, which is designed to detect users' locations through their mobile devices and automatically adjust temperature settings depending on whether homeowners are going out or returning home.  Allure Energy owns several patents on the technology underlying the smart thermostat.  Honeywell ordered samples and Allure Energy's CEO, Kevin Imes, thought a business partnership might be in the offing.

Instead, says Allure Energy's complaint, Honeywell took the geolocation technology that Allure developed for EverSense and incorporated it into Lyric.  Honeywell has been marketing Lyric since August 2013, according to Imes. 

Imes was previously the founder of an Austin-based intellectual property services firm, Imes IP LLC, as well as 3Gfoto Inc., a mobile imaging software maker, also in Austin.

This is not Allure Energy's first lawsuit against a competitor for infringement of its IP.  The start-up previously sued Nest Labs, now part of Google, in a Texas federal court. 

Intellectual property is often a company's most valuable asset and the crown jewel of many start-ups and growing businesses.  Patent, copyright or trademark infringement by a large competitor can be devastating to a new enterprise, requiring a forceful legal response.

The expert business and intellectual property lawyers of the Kumar law firm in Austin, Texas, can help you protect your IP.  The firm’s expert business strategists can help you choose the best course of action to prevail against competitors and prevent or resolve disputes.  Call (512) 960-3808 for a consultation today. 

Will Your Company Have a Future Without You?

If you are running your own business you are probably very focused on the here and now, making sure your business is running well and avoiding (or getting through) the many obstacles it faces. But you should also think about the future, because the future will happen whether you are prepared for it or not.

One thing to consider is succession planning which outlines the transfer of leadership in the event that you leave your company by choice (perhaps to start another business or retire) or suffer serious injury or death.  

A recent Inc. magazine article states that a Deloitte survey found:

• Nearly 90% percent of business leaders realize their company’s success depends on proper leadership succession, 

• 13% are confident with their succession plans, and 

• 54% stated lack of talent has damaged their companies.

To help plan for succession:

• Define what type of leader your company needs. What type of skills and behaviors are needed to run it? What specific actions will a new CEO need to take and what knowledge and experience will be needed to succeed? 

• Identify job specific assignments linked to business strategy which can help to prepare this person, in addition to useful feedback to make sure the person is on the right track. 

• Define how leadership talent will be promoted and identify high potential employees formally as those with potential. Give worthy candidates training, incentives and added authority.

• Track the development of needed skills. Measure candidates' problem solving and decision making skills, a candidate's emotional intelligence and his or her ability to negotiate and navigate problems with employees, customers and outside partners. 

If you are not the sole owner, succession planning should include buy sell agreements between those with ownership interests. If one party wants to sell his or her share, to whom can that interest be sold and for what price? A mechanism needs to be worked out so if a part owner is leaving the company, he or she (or his or her family) will be treated fairly.

If you own a business and want help preparing for its future, call business law attorney Sanjeev Kumar at (512) 960-3808 to schedule a consultation today.

Is patent reform being considered by Congress?

Our nation's patent system was not created with today's technology in mind. Over the years, various issues have been addressed by legislation or court decisions, but many believe a modernized law is needed. The United States House of Representatives created a Subcommittee on Courts, Intellectual Property, and the Internet in order to stay abreast of technological changes and their intersection with the law.

A subcommittee hearing was held recently to review United States Supreme Court cases in the patent arena. The chairman noted that the Innovation Act had been reintroduced in the House; the bill contains reforms to address abusive patent litigation. Lawmakers discussed the importance of venture capitalists in fueling the patent system and the danger of amending patent laws in such a way that would lead to excessive litigation and discourage product development. Patent trolls were also considered; that term refers to people or entities who purchase patents without the intent to benefit from their protections, but rather initiate patent infringement lawsuits against businesses with similar ideas. Panelists urged lawmakers to adopt changes to current patent policy that would address trolling and frivolous lawsuits.

Patent quality was cited as an important goal, striving to strengthen requirements for patent eligibility in order to reduce the number of weak or overly broad patents in the system. Patent equality was also mentioned as a priority, seeking to ensure that laws apply fairly and equally to all. An essential component to this equality would mean refraining from legislative carve-outs for certain industries. Still, the venture capital industry, particularly those involved with technology patents, has urged the House to consider the unique needs of the start-up tech space.

The Kumar Law Firm PLLC is experienced in the field of intellectual property law. Founder and principal Sanjeev Kumar is an attorney who also has a bachelors and masters degree in electrical engineering. He has filed multiple patents in his own name and has been granted a patent by the United States Patent and Trademark Office (USPTO). Contact Kumar Law Firm today at (512)960-3808 for guidance on your intellectual property issue, whether it involves patents, trademarks, copyrights, trade secrets or more.

What remedies does a business have against former corporate officers who go into direct competition against it?

When business partners, officers or employees leave the company, ownership of intellectual property can become a source of conflict. Contentious claims to Trademarks, computer source code and numerous other IP assets, often of substantial value to the company, may become the basis of a conflict. In a recent Texas case, the disputed property is the right to breed dogs—specifically descendants of Rin Tin Tin, the canine movie and television star from the 1950s and earlier.

Rin Tin Incorporated has sued several of its former corporate officers for trying to sell dogs from the bloodline of the original Rin Tin Tin. The lawsuit, filed in a Texas federal court, accuses the defendants of breach of contract, breach of fiduciary duty, trademark infringement and dilution, unfair competition and more. Dogs descended from Rin Tin Tin sell for as much as $50,000.

Rin Tin Incorporated's owner, Daphne Hereford, says she holds the copyrights and trademarks that allow her to use the Rin Tin Tin name. The company uses those trademark registrations to sell not just dogs but clothing, dog accessories, children's books and other products.

In 2008, Hereford began working with the defendants, professional breeders who had once been involved in the training program for Lassie. She appointed them officers of her company. She also registered them with the American Kennel Club as owners of some of the Rin Tin Tin Dogs. In the current litigation, she maintains that those registrations were not intended to transfer actual ownership of the dogs or conflict with other contracts and policies of her company.

A dispute over finances and the operation of the business ensued, however, and in 2014, Hereford dismissed the defendants from the company. The defendants kept a number of the dogs and refused to return them. They are, Hereford alleges, trying to breed them in violation of written commitments.

According to the complaint, when the defendants took possession of the dogs, they signed documents barring them from breeding the dogs or using them in advertising or promotions. Hereford and Rin Tin Incorporated are seeking damages and a permanent injunction preventing the defendants from using the dogs commercially.

Whether you are formulating a strategy to protect your company's intellectual property or you are already engaged in litigation, The Kumar Law Firm in Austin, Texas can help. Contact us today at (512)960-3808 to learn how our experienced business attorneys can help protect your interests.

What factors should be covered in a joint venture agreement?

A joint venture with another company may be a way to grow your business. You may want to exploit a potential market for your products or services, but your business may not have the needed resources. Perhaps there is another company that complements what you do, and the two of you could work together to open up a new market so you can both profit.

That sounds good on paper, but in reality, it can be difficult to pull off. Properly drafted agreements are crucial to avert failure of joint ventures. Some common pitfalls to consider are:
• Rapid consumption of capital: Capital is often used much faster and much earlier than expected. Failure to plan for this may result in a struggle to find more capital and agreeing to a loan on unfavorable terms. The joint venture agreement may include the option of a loan from one of the partners, but the terms should be at least as favorable as a loan from a third party.
• Arguments over control: Each partner will be accustomed to his or her leadership style, and disagreements over management often occur. To manage conflicts in the future, if and when they arise, the joint venture agreement should spell out the management structure, how decisions are to be made and how are any disagreements to be resolved.
• Desire for assets: One partner may want to control the assets of the other party. A smaller company may be willing to give more control to a larger company in exchange for capital, which could result in loss of control over the project and failure in the long run. Assets that each party brings to the venture need to be properly valued and that value should be reflected in reasonable shares of ownership and control.
• Unrealistic profit expectations: Partners want to see profits, but how should they be distributed? An agreement could list priorities as to where profits should go, including paying off debt or investment back into the business.

If you are in the Austin, Texas area and think a joint venture is something that may be in your company’s future, call business and corporate law attorney Sanjeev Kumar at (512)960-3808 for a consultation today. With his successful business background, Sanjeev Kumar provides insightful and effective counsel to business owners and entrepreneurs.

Do I have to seek design protection in each different country where I sell my products?

Businesses seeking to expand their markets to other countries have often sought foreign patent protection. That process will now be much simpler. The United States is joining the Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs. This means that rather than filing for design protection in individual countries, applicants can file one international design application with the United States Patent and Trademark Office. From that single application, protection can be obtained from all countries that are members of the Hague Agreement.

The terms of the Hague Agreement are scheduled to go into effect in the United States in May 2015. At that time, newly-filed design patents will have a term of 15 years instead of 14 years. Another feature of the new international application is that it can contain up to 100 designs, unlike the current U.S. design patents that can only contain a single claim. The U.S. Patent and Trademark Office has not yet published its final rules on how it will handle the new international applications.

Generally, design patents protect the way a product looks; they relate to the shape or configuration of a product, or to the surface ornamentation applied to a product, or to a combination of those. To be patentable, a design has to be original. Since design has to do with visual appearance, it is distinct from how a product works, which might be the subject of a utility patent. Sometimes, products are eligible for both kinds of patents.

The Kumar Law Firm PLLC in Austin, Texas is uniquely qualified to help your business leverage its intellectual property assets. Sanjeev Kumar's business experience enhances his legal services. Contact him today at (512)960-3808 for a consultation about forming your business strategies.

Can the state require a business owner to take classes and buy equipment unrelated to the business?

The entrepreneurial spirit is usually celebrated, but one woman in Texas found nothing but obstacles in her way when trying to open a school to teach hair braiding. The Texas Department of Licensing and Regulation informed the expert hair braider that she would have to become a state-licensed barber instructor before she could open her own hair braiding school. This would have required 1,500 hours of classes and more than $20,000, in facility and equipment costs, yet none of it was relevant or necessary for a hair braiding business.

A federal lawsuit successfully challenged the licensing requirements. The judge called the rules irrational and found them to be unconstitutional. In just one example, the state required a minimum of five sinks, arguing it was related to health and safety. Braiding hair, however, does not require washing hair. As for Texas sanitation standards, the judge pointed out that a sink was not needed, as braiders could use hand sanitizer, for example.

The Institute of Justice, a legal advocacy group, was involved in bringing the lawsuit. It has been litigating similar cases around the country pushing back against regulations that are supposed to be about public health and safety but might be more about protecting certain professions after political lobbying.

For the hair braider in Texas, she is now able to open her school. It is not the first time she helped to change Texas law. In 1997, she was arrested for operating a braid shop without a barber license. That became legal in 2007.

If you have an idea for a business, The Kumar Law Firm PLLC in Austin, Texas can provide the guidance you need. Sanjeev Kumar has experience as a technology professional and engineer; his business background enhances his legal services. Contact him today at (512)960-3808 for a consultation about forming your business strategies.

Is a franchise right for you?

There are many ways to start a business, including buying a franchise. No matter which path you take for your start up, there  are advantages, disadvantages and legal challenges associated with each.

The person buying a franchise is called a franchisee. That person pays a certain amount of money up front, makes ongoing payments to the franchisor (the company that started the business) and promises to live up to the rules and conditions set forth in the franchise agreement. A franchise business provides the franchisee with a business model and normally supplies everything he or she needs to get started and maintain it.

There are a number of responsibilities and benefits that come with owning a franchise.  A prospective franchisee should be aware of the pros and cons of a franchise structure.   Though not an exhaustive list, following are some of the issues associated with a franchise business:

• Similar to an owner having substantial leeway to run his or her business, the franchisor also can have a lot of control over what he or she does. This can impact what a franchisee can do and generally would put limits on the franchisee' s control of the business operations.  If the franchisee does not like the color scheme, marketing or uniforms, they usually cannot be changed. Therefore, a franchise may not be the best form of business to pursue for a headstrong person accustomed to doing things his or her own way. 

• Just because it is a franchise does not mean it will require less work than starting a business from scratch. Even if a person buys a well known franchise, it does not mean people will be lined up at the door.

• Buying a franchise should be a lesser risk than starting a business from the ground up, but there are no guarantees. The franchisee can rely on the experience and support system of the franchisor. The franchisor would generally offer training for the franchisee and staff. The franchisee might also be able to take advantage of lower prices for supplies because the franchisor is buying in bulk and passing on the savings.

• Buying a franchise can be expensive and range from tens of thousands of dollars to over a million, though the upfront cost can vary widely depending on the franchise a person gets involved in. A person may need a wealthy partner or a healthy line of credit to get started. There are also ongoing fees normally based on a percentage of sales plus contributions to a marketing fund.

The key document in buying a franchise is the franchise agreement. It should spell out the rights and responsibilities of the parties and the penalties if the contract is breached. It is critical that you fully understand the agreement and its legal and financial impacts. The Kumar Law Firm can assist you in navigating these agreements and negotiate any changes.

If you are considering getting involved in a franchise, contact the Austin, Texas, business law and franchise attorney, Sanjeev Kumar, by calling (512)323-6060 for a consultation today.

What rights do minority shareholders have when in dispute with majority shareholders?

When starting a business you need to think about what form that business should take. One option is a corporation. You see yourself as the majority shareholder, with others, possibly investors, getting minority shares. What are the limits to the power of majority shareholders? The state’s supreme court took up that issue earlier this year in the case of Ritchie v. Rupe.

In that case a minority shareholder, Ann Caldwell Rupe, filed a lawsuit against a closely held corporation and its board of directors. She claimed the majority shareholders engaged in oppressive conduct (forcing minority shareholders to lose their rights and/or investment in a corporation to the benefit of the majority) and breached their fiduciary duties by refusing to buy plaintiff’s shares for fair value or meet with prospective buyers. 

Initially the case went well for the plaintiff. The jury found in her favor and the court ordered defendants purchase her shares for $7.3 million. The court of appeals upheld the decision, deciding the defendant directors’ refusal to meet with Rupe’s prospective purchasers constituted oppressive conduct. 

The case turned in the defendants’ favor at the state Supreme Court. It reversed the lower courts’ decisions, deciding that those courts issued orders not authorized by state statute.  The court found that the defendant directors’ conduct was not “oppressive” under the relevant statute, that the statute did not allow courts to order a corporation to buy out a minority shareholder’s investment, and that there was no common-law cause of action for “minority shareholder oppression.” The court sent the case back to trial to consider plaintiff’s breach of fiduciary duty claim.

Often a new business will start as a corporation that is closely held by its founders. Because it’s closely held by a few people, there is no open, public market for these shares. Though initially shareholders may agree to work together and have common goals, as time goes on, differences in managing the business can arise, or if a minority shareholder wants to simply sell his or her shares or retire, majority shareholders may want to limit how much they pay for those shares or put obstacles in the way of the party to find a buyer for the shares.

Before the Rupe decision, when necessary, courts ordered majority shareholders to buy shares owned by minority shareholders at a fair market price set by an independent expert. The Texas Supreme Court decision in this case ended the minority shareholder oppression doctrine in Texas, ceasing that practice by lower courts.  But, the court in Rupe didn’t leave minority shareholders totally defenseless. There are several other potential causes of action minority shareholders may be able to use depending on the circumstances, including breach of fiduciary duty claims.  

If you are starting a business and will either be a majority or minority shareholder the language of a shareholder agreement plays a critical role in the relationship between shareholders and spells out their duties and responsibilities. If you have questions about business formation, shareholder agreement or and what your rights are as a shareholder, call Austin, Texas business law attorney Sanjeev Kumar at (512)323-6060 to schedule a consultation today.

For some, owning a business is a lifelong dream.  While starting a business from the ground up can be difficult, buying an existing business can make this goal much more attainable.  Purchasing a business is a serious matter which should not be taken lightly.  It is important to do the appropriate leg work in order to be successful in this type of transaction and with the purchased business in the future.

The first step is deciding which industry you are interested in and what type of business you want to operate.  For example, if you are interested in the technology field, do you want to manufacture a good or provide a service or both?  Narrowing down your area of interest will greatly increase the chances of finding a business that suits your needs.  After you decide on a specific business type, the search for available businesses can begin.  This can be a drawn out affair and it is best to utilize contacts within your network to assist you in finding a good fit.

Once you find an appropriate business for sale, you can then begin your investigation into the businesses circumstances.  You want to know everything you can about the business before you make an offer to purchase it. You should obtain all financial information, including balance sheets, tax returns, and any other financial reports or documents that may help you assess the business’s past, present and future financial situation.  You also want to inquire as to the business’s liabilities, including current contracts and agreements for things such as real property, service providers and employees.  You might also want to take a look at its legal history and inquire about its reputation to get an idea about where this business stands in the community.  Please note, this is not an all encompassing list of inquiries and that depending upon the business you are interested in, different concerns can and will arise.

It is important to valuate the business as you want to know how much the business is worth before making an offer or entering into any agreement.  So you should use one of the various methods for valuation, including looking at the business’s capitalized earnings or tangible assets.  You should seek the advice of an experienced business law attorney and accountant to assist you with this as it can be a confusing assessment. 

After you determine how much the business is worth, you should make an offer.  Once the offer is accepted, you will be asked to enter into a sales agreement or contract.  The sales contract is the document that will govern the transaction from start to finish and it is therefore important that it is carefully negotiated and drafted.  It is imperative that your consult with a business law attorney during this stage.

If you are considering the purchase or sale of an existing business, you should retain a seasoned attorney to guide you through the process. Call Austin, Texas business law attorney Sanjeev Kumar at (512)323-6060 to schedule a consultation today.

The State of Texas is taking another step in the right direction when it comes to small businesses.  The state is expanding the mechanisms that a business startup can use to raise money.  

Texas laws currently limit private investments in business.  To comply with Texas law, contributions from venture capital and angel funds must be from investors with a certain amount of wealth or that are accredited.  This regulation seriously restricts the types of investments businesses are allowed to obtain.  But, in November, these rules are changing after the Texas Board of Securities approved crowdfunding in the state.  

Crowdfunding is a method of raising capital, usually from a large amount of investors who all make small contributions.  This process is completed mostly online and is popular in a variety of industries.  Crowdfunding will be allowed between investors and businesses in the state and investors will be able to contribute up to $5000 to a particular venture.  Businesses in Texas will now be allowed to utilize the internet to raise funds and private investors will no longer have to meet strict requirements.  The Texas Securities Board will continue to regulate the practice and will still request that businesses disclose certain investor information.  Businesses will also only be allowed to raise $1 million dollars per year.  

While some believe that this is a breakthrough for startups and small businesses in Texas, others are not as enthusiastic.  Critics highlight that crowdfunding is not the best choice for all businesses and that the decision to utilize this method should be made on a case by case basis.  They also point out that crowdfunding is much more difficult for larger businesses and even small startups might not want to deal with a large group of investors in the future. 

In any event, as we are still waiting for Federal regulation of crowdfunding, it is important to know and understand the state specific rules applicable to investments in your business.  If you are considering starting a business and using crowdfunding to raise capital, you should consult with a competent attorney. Call Austin, Texas business law attorney Sanjeev Kumar at (512)323-6060 for a consultation today.