3 Small Business Disaster Response Tools

Forced closures, quarantined customers and an unknown future can make this feel like a dystopian future no one could imagine just a few days ago. Unless you are in the toilet paper or ammo business, this may feel like the worst week of your business’s life. However, just like Dorothy’s ruby slippers in the Wizard of Oz, you may have some tools to save your business from the Corona Crash of 2020. Below are three things you may have overlooked that could save you a ton of money and perhaps your business.

FORCE MAJEURE

A force majeure (“superior force”) clause in your lease or other important contracts is often overlooked as “boilerplate” or missed altogether. However, these clauses may be critical to keeping your business afloat during an unexpected crisis like we are seeing today.

These clauses basically say that if something awful and beyond a party’s control happens, they are excused in some way from performing some obligations (like making payments). For example, a force majeure clause might say you don’t have to pay rent, which would be pretty handy if the Governor just ordered your business closed. People often (mistakenly and frustratingly) refer to these types of clauses as “boilerplate” because they do not deal with the economics of the agreement and often are in the “Miscellaneous” section at the end of the document along with other yawners like “Choice of Law” and “Dispute Resolution.” That stuff is boring if you never have to consider it but a) many but not all leases have it, and b) they do not all say the same thing. If you have one or more leases for a brewery, restaurant or just about any hospitality venue, you should go read your lease and see if you have this clause (sometimes called “Acts of God”). Furthermore, they do not all say the same thing. Each clause may define what qualifies as a “Force Majeure.” Consider these two examples below (both from real commercial leases involving large companies):

A. FORCE MAJEURE CLAUSE. The parties hereto are relieved of any liability if unable to meet the terms and conditions of this Agreement due to any "Act of God", riots, epidemics, strikes, or any act or order which is beyond the control of the party not in compliance; provided that it takes all reasonable steps practical and necessary to effect prompt resumption of its responsibilities hereunder.

B. FORCE MAJEURE CLAUSE. Wherever there is provided in this Lease a time limitation for performance by Landlord of any obligation, including but not limited to obligations related to construction, repair, maintenance or service, the time provided for shall be extended for as long as and to the extent that delay in compliance with such limitation is due to an act of God, governmental control or other factors beyond the reasonable control of Landlord.

Can you see the difference? The first one (A) is “bilateral,” meaning that either of the parties “are relieved of any liability” based on their failure to perform due to “Acts of God,” which expressly includes epidemics. In sharp contrast, B only applies to the Landlord’s obligations and does not expressly include epidemics (even though it has the broad “beyond the control language”). Which is better? It depends, in this case on what side of the contract you are on. B is a better clause for the Landlord and we can assume that this one was either in a stronger negotiating position or understands how important and customizable a “boilerplate” clause might be. As lawyers, people often ask to create or review a boilerplate contract. Since we can’t see the future (who would be practicing law if they could?) we do our best to think these things through. I am going to bet that the next ten years will see more force majeure clauses than the 20teens. If you have a lease, distribution, royalty or similar agreement, go look at it to see if it has this kind of clause and have your attorney help you evaluate how it can help you.

BUSINESS INTERRUPTION INSURANCE

If you own or run a small or medium business you likely have at least some Business Interruption Insurance (“BII”) as part of your general business owner’s policy. Unlike property insurance, BII generally covers lost income based on some covered event. While many small businesses have some BII coverage it is also not boilerplate. As described in this excellent and timely article from Workfest, since the insurance industry paid millions after the SARS epidemic, most modified their policies to limit covered events to losses caused by physical damage like a flood, fire or asteroid strike that shuts down a business until it can rebuild. Potentially, your policy could cover you for a leaking HVAC unit that makes a room unusable but not for a pandemic that eliminates all customer visits. You can buy riders for infectious diseases, but that may be limited to certain “trigger dates” when the CDC, for example, would provide notice, or some governmental authority shuts down certain businesses. This kind of coverage could also affect landlords as an event like this will interrupt their businesses. Imagine building or redeveloping a project with tenants set to move in in the spring of 2020.

NEGOTIATE

Think of the crisis like a stream. Your customers are “upstream” from you. If they don’t buy from you there is no money to pay your vendors, lenders, and landlord, who are all downstream from you. They know that. We are all in the same pandemic boat. In the landlord example, they may have legal rights to terminate the lease, accelerate payments and collect on a personal guarantee, but imagine being in their shoes. Terminating a lease and collecting on a personal guarantee is not without cost in terms of time, money and stress. Furthermore, in this environment, the landlord may just wind up with an empty building, no prospective tenants, loan payments and nothing to tell lenders and investors. Finding a new tenant can take months (or years in this environment), and requires significant TI expenditures, commissions, and legal fees. Instead, smart tenants will call up their landlords and see if they are willing to help. You could start by asking to skip or defer rent payments, or by paying some fraction of your monthly rate as long as the pandemic continues. There is no guarantee that the landlord (or other contract parties) will be receptive, and you should be careful when you approach them, but communication is often appreciated in times like this. Furthermore, your lease or contract may have other provisions that will at least enhance your negotiating position.

Few if any of us have ever seen a situation like the one we are in today but know that acting rather than just waiting almost always gives better results. Look at your contracts, get in touch with your landlord and other parties you need to pay, and speak with your advisors. Not covered in detail here are how to protect yourself if you have a significant debt personally guaranteed, and how to talk to your landlord or counterparty without breaching the lease or contract. We can save that for another post or a direct conversation.

Photo Credit: https://unsplash.com/photos/IEeqknvHRKQ

Is your website ADA accessible?

The Department of Justice (DOJ) recently released a letter that may provide some comfort to craft brewers and other small businesses regarding an explosion of lawsuits filed against owners of non-handicapped accessible websites in violation of the Americans with Disabilities Act (ADA). Such lawsuits can cost small businesses $20,000 to settle and much more if the case goes to trial. One enterprising attorney sued 25 breweries claiming (in one example) that the brewery’s website was “inaccessible” because it did not work with a screen-reading program used by the visually impaired to read text aloud. In response to a congressional request and after hundreds of lawsuits were filed against business owners alleging that their websites were not ADA accessible, the DOJ issued a letter, which said in relevant part that businesses have some “flexibility” in how they decide to comply with the ADA and just because a website does not use accessibility technology does not per se mean it is not compliant. While this appears to provide some comfort for small businesses, it’s important to note that the DOJ letter does not tell businesses exactly how use this new flexibility standard, or what would constitute compliance.

So what to do?

There are several websites that allow you to input your web address and will then provide some feedback as to whether the site is compatible with screen readers. If that sounds too techie for you, call your web developer and have them look at your code. While it may seem like a hassle for small business owners, making websites accessible is the right thing to do and, not terribly expensive or time-consuming.  Furthermore, if you are are supporting screen readers, the murkiness of this DOJ letter is less of an issue to you.

This document has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. © Blackgarden Law

Photo by Glenn Carstens-Peters on Unsplash

Trademark Law with Seth Gardenswartz : The BIG Idea by InkSoft

We were pleased to be featured on InkSoft's Big Idea podcast last week, where Seth Gardenswartz spoke about common IP issues that affect screen printers and graphic artists. 

In the episode, we discussed topics like:

• The difference between trademarks, copyrights, and patents

• The limits of copyright protection

• Things to look out for when printing 3rd party designs

• Work for hire agreements and indemnity protection for your shop

• Potential consequences of violations

• Brand vs. Trademark

• How to protect your trademark

• Best ways to engage with legal professionals

Click here to listen

Photo by Saviya Photography

A Guide for Businesses Selling Gift Cards Under the Credit Card Act's Gift Law.

By Seth Gardenswartz (originally published on BoomTime.com in 2010)

If you are like many small or independent retailers across the US, you are probably wondering how the new federal gift certificate laws affect you and your business. This guide is meant to help you understand the new law and determine how to adjust your gift card or gift certificate program. It is not legal advice, and should not be a substitute for legal counsel.  With that out of the way, let's get started!

Gift Card Rules: The Card Act sets a federal minimum term for the sale of gift certificates, store gift cards and general use prepaid cards of five years from the date of issuance or the date funds are last loaded on the card (if it is a store gift card or general use prepaid card).  It also requires disclosure of any expiration term for funds underlying a gift certificate or gift card on the card prior to purchase. The new law also limits dormancy, inactivity, or service fees that can be charged to gift cards or certificates. Specifically, it does not permit such fees unless there has been a year of inactivity and then only permits one such fee per month. Such fees must be disclosed clearly and conspicuously prior to purchase. However, since few small and independent retailers are charging the types of "inactivity" or "dormancy fees" covered by the new law, we will focus on expiration dates as they might commonly affect small and mid-sized retail businesses.

How to determine when or if you gift cards or certificates can expire:

It's actually simple. Step one; determine if your gift card or certificate is subject to the federal law. If the answer is no, mazal tov! The new law does not apply to you, but your state law still does. So you have to understand what your state law says and adjust your expiration date (and other terms) accordingly.  If the new law does apply to you, step two is to see if your state law is more or less restrictive than the new law. If it is more restrictive, you go back to your state law. If it is less, the new federal law applies to your card or gift certificate. Simple right? Our government rocks!

How to determine if the new federal law applies to your gift card or certificates:

The good news (for everyone) is that the new federal law does not apply to all gift certificates or cards. To figure out if your gift program is affected, you have to know what the law says. It's harder to find than you might think. The legislative history is slightly different than what we learned from the campy schoolhouse rock. A short history of the Card Act: Credit card companies did lots of nasty things to their customers like jack up annual interest rates without warning or make oppressive changes in their service agreements. The Congress came to the rescue by passing the Credit Card Accountability Responsibility and Disclosure Card Act of 2009 (the "Card Act"). The Card Act is mainly concerned with credit cards but while they were at it, congress decided to regulate gift cards and gift certificates. Specifically, the Card Act requires that most gift cards and gift certificates be redeemable for at least five years, and limits the manner in which inactivity fees can be charged.

The Card Act was signed into law by on May 22nd, 2009.  You can read the gift card provisions here, but that won't really give you the whole story. The juicy bits you might have missed at first glance are in Section 2 of the Card Act, which gives the Board of Governors of the Federal Reserve System (the "Board") authority to make additional rules it thinks are necessary to implement the Card Act by implementing Section 915 of the Electronic Funds Transfer Card Act ("EFTA") under Regulation E. The Board decides how individual definitions and provisions of the EFTA and Regulation E apply to gift cards, certificates and other stored value products. Therefore it is the "Final Rule" issued by the Board that really discusses, defines and constitutes the federal law that affects business selling gift certificates or cards. It is important to remember that one of the core functions of the EFTA is to determine "individual consumer rights." That means the purpose of this law is not to help small business. It is consumer protection, protecting your consumers from you.

Are Your Gift Cards Covered in the Card Act's Definitions: Who cares about the legal mumbo jumbo! What is my expiration date? We're getting there. The good news is that the Final Rule (and the amendment that was passed on August 11th, just eleven days before the provisions became effective) is very helpful in explaining how the Card Act is to be applied. It is over 100 pages of rule, explanation and official staff comments, which are more or less the law.  Lets jump into step one and analyze if your gift cards are subject to the new law. The Final Rule slightly modifies the Card Act's definitions of "gift certificates and "store gift cards". It says:

(1) Gift certificate means a card, code, or other device that is:

(i) Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount that may not be increased or reloaded in exchange for payment; and

(ii) Redeemable upon presentation at a single merchant or an affiliated group of merchants for goods or services.

(2) Store gift card means a card, code, or other device that is:

(i) Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment; and

(ii) Redeemable upon presentation at a single merchant or an affiliated group of merchants for goods or services.

The Final Rule and comments explain that the Card Act should not be applied differently just because someone is holding a piece of plastic as opposed to a piece of biodegradable material, memory chip, paper or code. Regardless of the form, the substantive requirements of the Card Act will apply to gift certificates, store gift cards and general use pre-paid cards (the latter of which are not discussed in detail here), and adopts the terminology "card, code or other device."  So let’s cut to the chase in these definitions. The "prepaid basis" requirement seems to turn on how or when the value was loaded. It's not much of an exception. The comments clarify two more exceptions. Specifically that certificates or cards (1) NOT issued primarily for personal, family, or household purposes to a consumer, and (2) cards not issued in a "specified amount" are not subject to the Card Act. The "personal, family or household" is meant as a narrow exception. Essentially, if the card is in the hands of a consumer to use for themselves, it's subject to the Card Act. The example given by the Final Rule of an exempted card is one given by a business to its employee to reimburse for travel expenses or to purchase office supplies.

The second exemption is huge, and very important for small and service business to understand. The Rule interprets "specified amount" to mean a specific dollar amount that can be applied toward any purchase. Therefore gift cards or certificates issued for a specific good, service or experience, WITHOUT A SPECIFIC OR DENOMINATED AMOUNT are simply exempt from the new federal law. So if a spa sells a gift certificate for a massage treatment, a restaurant sells a gift card for a fixed price dinner, or either one issues a card or gift certificate for 20% off, so long as the card, code or other device does not state a specific monetary value (like "a $50 value!") it is not subject to the Card Act at all.  This is a very good exception. The Board's reasoning here is that if a business were liable to redeem an "experience" card or certificate for five years they would charge more for such card to adjust for anticipated price increases over the following 60 months. It is a very smart and well-reasoned interpretation. Consequently, if you issue gift certificates for a Blended Massage, or a fixed price dinner you need only abide by your state laws for expiration restrictions. You can find a handy guide here.

Exceptions:

If your gift certificate or card is covered by the Final Rule's definitions and therefore subject to the federal law, it may still quality for an exclusion. There are six "statutory exclusions" meaning that the Card Act says some store gift cards or gift certificates, issued "in a specified amount" may be excluded from coverage. The exclusions are:

1.     Useable solely for telephone services;

2.     Reloadable and not marketed or labeled as a gift card or gift certificate;

3.     A loyalty, award, or promotional gift card;

4.     Not marketed to the general public;

5.     Issued in paper form only; or

6.     Redeemable solely for admission to events or venues.

Out of this list, only two of these are likely to impact a small or independent retailer selling gift certificates or gift cards. Telephone cards, are just that. Reloadable/not marketed as gift cards are mostly cash cards and the comments say that if you market them as an alternative to a bank or debit card all year but state in any form of marketing just around a holiday "ok for as a gift" you have lost the exclusion. Not marketed to the general public is also narrow. If you market gift cards or certificates exclusively to your newsletter list or Facebook friends, since any member of the general public can join that list the exclusion does not apply. Similarly, "solely for admission to events or venues" is a very narrow exception limited to tickets and the like. If you think you might qualify, grab yourself a venti caffeinated beverage, read the Final Rule and then consult your legal council. Otherwise, read on and then do the same.

Issued in paper form only:

This is also a very narrow exception. The official comments explain, "the sole means of issuing the card, code or other device must be in paper form." The fact that a card or certificate is printable or even generally tendered in printed form does not qualify. In fact, one of the comments seems to speak directly to users of the BoomTime services.  Our platform creates a private labeled gift certificate that end users can purchase online, or at retailer's physical location in paper form. It generates an image and secure barcode that can be printed or emailed to a purchaser or gift recipient. The comment states that the exclusion does not apply because the gift certificate was "issued to the consumer in electronic form even though it can be reproduced or otherwise printed on paper by the consumer. One may argue that our retail gift certificates, which are "issued to the consumer" at retail in paper form are excluded. However, the examples given of certificates that do meet the exclusion are cases where the gift certificates are not available in any form other than paper, like a prepaid parking code or ticket from a fuel pump good for a car wash.

Loyalty, Award or Promotional:

This is a potentially large exclusion. The official staff comment to the Final Rule provides seven examples of programs excluded as loyalty, awards or promos. The summary of the Final Rule, explaining the history of the comments regarding this exclusion (yes, it really is that complicated) states that the commenters agreed with the proposed examples because they apply even if consumers have paid for or otherwise exchanged value for the certificates or cards. Of the seven examples (its Paragraph 20(a)(4) to the official staff comment if you are hungry for details) the first two and number seven are the most likely to apply to small and independent retailers. They are:

i. Consumer retention programs operated or administered by a merchant or other person that provide to consumers cards or coupons redeemable for or towards goods or services or other monetary value as a reward for purchases made or for visits to the participating merchant;

ii. Sales promotions operated or administered by a merchant or product manufacturer that provide coupons or discounts redeemable for or towards goods or services or other monetary value.

vii. Charitable or community relations programs through which a company provides cards redeemable for or towards goods or services or other monetary value to a charity or community group for their fundraising purposes, for example, as a reward for a donation or as a prize in a charitable event.

Number seven is for cards provided to a charity or community group.  Nice that they are exempt (from the federal law) but not helpful to small businesses trying to control their long-term liabilities. So now you have read the examples from the official comments to the Final Rule to the Card Act, but if you are a normal person you may still be wondering; is my gift certificate exempt?  Most small businesses participate in customer rewards programs and sales promotions. If you run legit promotions that fit these descriptions, gift cards and gift certificates issued under such programs may qualify and thereby be excluded from the substantive expiration requirements of the Card Act if they also meet the disclosure requirements.

Disclosure Requirements to qualify for the Loyalty, Reward or Promotional Program Exception:

In order to qualify for this exemption the Final Rule requires you to disclose on the front of the gift card or gift certificate that it is issued for loyalty, award or promotional reason; provide a toll-free phone number and, "if one is maintained" website. While it is crazy to require small businesses to maintain a toll-free number, the Board was very reasonable about implementing this disclosure. The real reason for the toll free number and website is so consumers can get fee information about their card. Comment 20(a)(4)-3 says if you aren't charging fees, you do not need the toll-free number or website to be disclosed on your gift certificate. Generally financial organizations and big gift card issuers charge non-use or dormancy fees so it makes sense that businesses who don't charge them don't need to maintain a toll-free number.  The bottom line is that the Final Rule permits exemption of certificates or cards that are for retention, reward or sales promotions as defined above so long as they are clearly marked as such. The comment even gives examples; "Reward" or "Promotional" is appropriate language. So we know what needs to be disclosed and how to say it. The last question is what does it need to look like. The Final Rule states that all disclosures must be "clear and conspicuous" meaning "readily understandable" and "the location and type size are readily noticeable to consumers." The Board did not adopt a more rigid size or prominence standard for these disclosures required by the loyalty, award and promotion exception.

Reality Check: We are well over 2,000 words here and are still not sure when we can expire our gift cards and certificates. So let's go back to our algorithm. If your gift certificate does not meet the Final Rule's definitions, we go to state law. If it does meet the definitions but there is an exception, we go to state law. If we determine that our gift card or certificate is subject to the new law, what is the permitted expiration? It still depends, this time on your state's law and federal preemption. The Supremacy Clause of the United States Constitution generally allows federal law to preempt state law where there is a conflict. However, the Card Act's core purpose is to provide consumer protection. So the Card Act expressly preempts state laws only when they are inconsistent with its protections and only to the extent of the inconsistency. Therefore, if you sell a gift certificate that has a dollar value and is not subject to one of the seven statutory exceptions, it is subject to the Card Act's five-year minimum expiration date. If your state law says there is a three year minimum, it’s now five years. However, if your state law has a seven-year minimum, your gift certificate still cannot expire before the seven years. If you are in one of the states, like California and Florida that do not allow gift certificates to expire at all your gift cards may not be expired. It's worth noting that states like California makes it unlawful to sell one with an expiration date on it at all. Thus, the new law is a floor, not a ceiling.

Funds vs. Card Expiration:

While it’s fun to whine about how convoluted these rules are let's keep in mind that the Card Act applies to a very broad range of products. For example, a gift card has an expiration date printed on it that is hard to change. Gift certificates generated electronically offer a lot more flexibility. So, the Final Rule says that we can't issue gift certificates or store gift cards unless the underlying funds do not expire for at least five years.  What does that mean? It's in the Final Rule because a card may have an expiration date before the five-year minimum and the Board wants consumers to get at least 60 months to use their funds without being confused. So, if your card expires less than five years before the funds expire, you have to say so on the card and the Final Rule gives some examples of acceptable ways to do so. In one of the most confusing parts of the Final Rule the Board states that issuers or sellers of gift certificates or cards are required to adopt policies and procedures to ensure that a consumer will have a reasonable opportunity to purchase a gift certificate or gift card with at least five years remaining until the certificate or card expiration date. This means, to avoid confusing consumers, issuers must make cards or certificates available that do not have expiration dates less than five years, even if the underlying funds are good for five years. The explanation to the comments describe why and how to comply. The comments are as confusing as the confusion they are trying to avoid. However, it should not really matter to those of us who either sell or help small businesses sell gift certificates and store gift cards. If your gift card or certificate meets the Card Act's statutory definition of a gift certificate or store gift card (as interpreted by the Final Rule), and does not qualify for a statutory exception, your expiration date and your underlying funds should be the longer of five years or what is required by state law.

What is state law? That should be easy, but you may not feel that way. There are fifty states (plus territories like Guam and Puerto Rico). Some of them are wackier than others in terms of their gift card laws. There are at least 10 states that do not permit gift cards or certificates to expire. There are several more that require valid terms of greater than 60 months. How do they feel about underlying funds?  Good question. There may not be 50 different answers but its likely more than two.  The big question is; how will your state handle underlying funds. Some states (like Arkansas for example) use a definition that generally tracks that of the Card Act. Therefore an "experience" or service gift certificate sold without a dollar or specific amount on its face may not subject to the Arkansas gift card law.

Lost and stolen not required for replacement:

The Card Act states clearly that there is no requirement to replace gift cards or certificates that are lost or stolen.

Prior to Disclosures: One of the simple but important requirements of the law it to mandate that if a gift card or certificate or underlying funds expire that fact must be disclosed "prior to purchase" of such card.  Of particular interest to those of us involved in selling instant gift certificates and gift cards online is the requirement that for certificates or cards purchased via the web, disclosures can be made after a consumer has started an online purchase of a certificate or card, but before the purchase is consummated. However, simply posting such disclosures on an issuer's website that need not be accessed during the purchase process will not satisfy the prior-to-purchase requirement.

Non-compliant cards in inventory:  On August 11th 2010, the Board issued an amendment to the Final Rule that lets card issuers sell through some existing stock of gift cards. In a nutshell addresses cards produced before April 1, 2010 that are not compliant with the new law's requirements of disclosure prior to purchase, fee disclosures, the requirement of reasonable opportunity to purchase one with at least 5 yrs left, disclosure of underlying funds expiration and the disclosure on the card of a toll-free number and website and other fee disclosures.  The amendment lets issuers continue to sell those non-compliant cards through January 31, 2011 if they, otherwise comply with the Card Act, do not expire the underlying funds (ever), don't charge any fees, and provide signage, oral and electronic notice regarding the accessibility to those funds for up to two years after the January 31, 2011 date. If you are still reading this the ship has sailed for this amendment.

A Possible Approach:

If you are selling dollar valued gift certificates or gift cards that do not qualify for the promotional, loyalty exemption, you only need one expiration date, which must be the greater of five years or your state's minimum term.  If you are selling a "service," or experience gift card or certificate, consider having two dates; a reasonable time frame during which you will honor the card or certificate for the service on the face and then your state's minimum for the underlying funds.  The funds part could say "Funds valid until [date]". If you have a qualified promotional program where the purchaser buys a gift as part of a sales promotion, or receives it as some kind of award let those gift certificates or gift cards can expire in some reasonable time but make the funds available for your state's minimum term. If you give a certificate away, set the term to whatever you like so long as it complies with state law. You don't want to be foolish in what you offer your customers. Good practice is to set a reasonable expiration date and generally honor expired gift certificates in a reasonable way. That way you can manage your liability, but provide great customer service. Always be confident that you are compliant with state law and use tools and vendors that give you the flexibility to do so.

What to do next:

Anyone selling gift cards or gift certificate should take a good hard look at their entire program. A great start is a review of your state law. It is probably worth engaging counsel unless you have the time and background for understanding statutes and how they have been interpreted. Specifically, you need to know if your state law is more or less restrictive than the new federal law and if it imposes other substantive requirements. For example, some states require some gift cards to be redeemable in cash under certain circumstances. Some state set minimum terms for gift cards given away with no exchange of value. These are the kinds of details you need to understand to make your gift program comply with the law and work for you.

As discussed above, if your state law is more restrictive (requires longer terms) than the Card Act, it probably does not affect you that much.  If it is less restrictive, that's good, but you have to do some real analysis and strategic planning. If all you are selling is dollar denominated gift cards, you might consider selling "experience" or service denominated cards or gift certificates. They are exempted from the Card Act and therefore expire as required by state law. To revisit the examples from above, if you are in a state with a two-year expiration requirement, a $50 gift card now has a five-year minimum term. But if instead you sell a 30 minute massage for $50, with no amount specified on the fact, it can expire in two years, but you may be able to expire it in one year if you make the underlying funds (the $50 paid by the purchaser) available for the entire two years mandated by state law.  Again, understanding your state law is critical.  Similarly, you might evaluate selling gift certificates or cards that qualify under the loyalty, award and promotional exemption for the Card Act. If you sell such certificates or gift cards exempt from the Card Act you may be able to expire their promotional value in some reasonably short time frame, but you should probably make the underlying value good for your state's minimum term.

After evaluating your program and creating a new strategic plan you may need to implement some new procedures and controls. Your tools and vendors should be able to accommodate strategies like experience-based gift certificates and dual expiration dates so that a promotional value or an experience can expire while the underlying funds remain available for a longer term. Again, this guide is not legal advice and should not be a substitute for your own counsel. Do your homework, get the right advisers and implement any new procedures as necessary. Finally, don't wait. The Card Act is in place now and the holidays will be here before you know it. If you act now you can limit your exposure and make your gift card program a wonderful customer service and marketing tool for your business.

Keeping Your Hotel Gift Card and Experience Program U.S. Compliant was published as an update to this article on www.techsembly.com in 2023.

Photo by 30daysreplay (PR & Marketing) on Unsplash

Mutual Nondisclosure Agreements: A Necessary Component of Your Co-Founder Search

By James J. Mangan

Starting a company can be a daunting task, and many good ideas never get past the "idea stage".  One of the main reasons for this innovation stasis is that rarely does one person have all the required skills to take an idea from concept to launch.  It usually requires a team.  Maybe you have the technical background to create the product, but you will need partners with skills that complement yours.  That may mean someone with a different area of technical expertise, someone with strong marketing skills, and perhaps someone with operating and/or financial and accounting expertise to really get your company going.  This is why we don't hear the term founder in its singular version very often.  Most successful exits begin with a team of founders that have the skills, time and tenacity to bring an idea through the prototype and market validation stages, early financing stages, scaling up and eventually an exit or an initial public offering.  

Finding pools of potential partners has never been easier - not only in traditional hubs of innovation like Silicon Valley but also in up and coming areas like the Lodo neighborhood of Denver, Austin, Seattle, and my (new) hometown of Phoenix.   You can find weekly if not daily gatherings of entrepreneurs at formal events sponsored by groups such as the Founders Institute or informal gatherings held by groups on Meetup.com.   Going through the search process, however, can be a difficult step in your journey.  Having ridden in the sidecar with many of my clients during their co-founder searches, I understand the challenges of identifying potential partners and taking the dialogue to the point where you are ready to join forces and create something exciting.

One of the main obstacles my clients face is obtaining a level of comfort where they can discuss their ideas with potential co-founders to a level of specificity necessary for a meaningful discussion.  They need to be able to entice a person to consider devoting their time and potentially capital to a project without the fear of giving away too much information before any formal relationships are created with the entity that will implement the business plan.  In these cases, I often recommend that my clients enter into a mutual non-disclosure agreement with prospective co-founders once the conversation is expected to reach a level of specificity where such protection is warranted.

Mutual non-disclosure agreements are superior to one-sided confidentiality agreements in that one side will not view themselves at a disadvantage in the dialogue.  Presenting a mutual non-disclosure agreement to a potential co-founder is much more palatable and far less awkward than insisting that someone sign a one-sided confidentiality agreement before you order coffee together.  It shows that you have an idea you value, but also shows respect to what a potential partner can offer to the venture.  It may also cause the potential co-founder to be more forthcoming with respect to what they could contribute.

In my view, a good mutual nondisclosure agreement has to carefully address several key areas.  First and foremost is the definition of confidential information.  While I generally think it is better to draft contracts elegantly and simply where possible, I tend to be quite verbose when it comes to defining what constitutes confidential information because, quite frankly, quite a bit of information falls into what should be you or your company's proprietary, internal knowledge.  In addition to the obvious, such as formulas, algorithms, software in source or object code, and other technical data, confidential proprietary information must include lists of potential customers, suppliers, financial projections, potential strategies, potential fundraising discussions, etc.  The definition of confidential information must encapsulate anything that could be used by another party to your competitive disadvantage. In the last mutual nondisclosure agreement I wrote, the definition of confidential information contained 467 words - every one of them necessary and not one of them redundant.  Furthermore, it is important to note that there is no one definition that fits all situations.  Every business is different.  A craft brewery will want to include different terms than a blockchain-based start-up.  It is critical that your agreement's definition of confidential information be precisely tailored to your proposed business and any possible offshoots or evolutions of such business.

Another critical aspect of a well-written mutual nondisclosure agreement is the standard to which you will hold prospective co-founders in guarding your confidential information, and vice versa.  Many agreements I have read simply state that each party will use the same level of care they do in guarding their own confidential information.  But as one of my favorite clients once told me, "The system a lot of these people use to guard their own information is crap!"  You don't want your potential partner leaving a laptop unattended at Starbucks when they get up to grab another latte with the algorithm you spent two years developing stored on a thumb drive in that laptop.

It is also important to remember that you will be expected to live up to the same standard of care.  While you can set the standard to something along the lines of NSA - black helicopter oversight, I think is reasonable in most cases to use an appropriate objective standard of care that accomplishes your objectives but can be easily shown to have been violated in a litigation context if something goes wrong.  

Finally, you must provide a mechanism for the return of any exchanged hard copies of confidential information in the event you decide not to proceed in a business venture with the other party.  If you choose to give an option for the parties to destroy any exchanged hard copies, the individuals must certify that they witnessed such destruction   (or if one of the parties is a corporation, then an authorized officer must make such certification).  This certification will make your cause of action stronger in the event the destruction of the information did not occur and ends up being made public or misappropriated in the future.  

It is important to remember that a mutual nondisclosure agreement is not a guarantee.  If it is violated, you will have to seek remedy in court, but, the disclosure, and often damage, is already done.  However, insisting on such an agreement when discussions with potential co-founders reach a certain level of specificity will clearly outline the parameters for the exchange of any information, and will serve to highlight your seriousness.  A mutual nondisclosure agreement, combined with your own self-policing as to what you choose to disclose prior to forming an actual business relationship with your co-founders, should at least provide you with a level of security as you embark on your journey to assemble your team and make your idea a reality.  

Photo by Saviya Photography

Name Before Logo; Get your Trademark Priorities Right!

A logo avoids the conformity of 11 point Times New Roman and seems like a universal expression of your brand. Let’s not forget that 35,000 years ago, early “words” were pictograms functioning much like a successful logo does today.

Images are powerful but when trademarking your brand in the 21st century, you should protect your name before your symbol. When people see your logo you want them to think of the name of your business. Take a moment to think about how your logo is used each day. I might see a swoosh on the feet of an athlete but when someone asks me what shoes I run in I don’t draw a picture.

Remember “O(+>” a/k/a “The Artist Formerly Known as Prince” or “TAFKAP”. He thought his strong brand could be embodied by an unpronounceable symbol. Turns out we still needed a way to speak or write it so the market just created a new one (and the new phrase “the _____ formerly known as ______” to describe any once-famous thing or person who has evolved or rebranded).

Over time, a logo should make customers think of your business and form an association in the minds of the purchasing public. Furthermore, logos famously evolve as a business grows. Nike, The Gap, and Starbucks have all transformed their logos as their business grew and it is very likely that yours will change too, but the name of your business will likely remain the same.

Finally, in 2018 the name of your mark is related to something we did not have to worry about before the late 90s; a domain name. While it’s possible you might change your name or your domain it’s less likely unless you made a bad choice to begin with, need to pivot or rebrand. Generally a name becomes associated with a company over time and with many impressions. In my experience time and impressions are hard to come by. The last thing you want to do is abandon any hard-earned impressions and consumer awareness. The bottom line is you should protect both your name and logo(s) but for startups and any business on a budget, if you can only do one, start with the name.

Photo by Razvan Chisu on Unsplash

Trademarks, Coyotes, and Craft Brews; are names over the legal limit?

The Craft Beer community has a problem; we are running out of names. Every hilltop, critter and local legend has been, or is about to be used to name a brew.

Why is that a problem?

Craft beer might be local but trademarks are federal. So you after releasing your Coyote Amber, investing in cans and inking a distribution deal you might be forced to swallow a bitter brew when a nasty cease-and-desist letter arrives saying “you’re using my mark” and threatening an injunction.

Welcome to the big time where you get to think about your intellectual property strategy along with your humulus. In the brewery business names are important and you may have lots of them. In addition to the name of your brewery, each of your beer names (and labels) are opportunities for infringement.

So what’s a brewer to do?

First, assess. Make a list of all the names you are currently using and search the US trademark database for potential conflicts. Then do the same thing using regular internet search. For each name record the potential conflict(s). For example — the USPTO returned 541 documents with the word “Coyote.” BeerAdvocate.com returned 14. That should be a signal that some further investigation is warranted before you add yourself to that list. To make good use of your time, rank order the product names by total sales especially those sold at retail or off-premise.

Next, plan. Estimate how many new brews you will release in this year and brainstorm a bunch of names. Put them in order of the ones you like best and repeat Step 1. Finally, understand the opportunities, risks, and options around conflicts. If you are planning a new name there is no excuse for not at least looking for potential conflicts before they arise. Ignorance is not bliss or a defense to infringement. In fact, a registered trademark enjoys the legal fiction of “constructive notice,” which means that a court will treat an infringer (person or entity) as if they knew of the other mark, even if they have no actual knowledge of it. If you are lucky enough to be on the right side of this equation, meaning another party is infringing on your mark, consider that a lawsuit might not be the first, best solution. Generally litigation is best for the lawyers. Better to plan ahead and focus on serving good beer at your bar rather than fighting with someone who studied to pass one.

Photo by Adam Wilson on Unsplash