How the Trademark Modernization Act Will Affect Everyone
As part of an appropriations bill in 2020, Congress passed the Trademark Modernization Act (“TMA”). Parts of it took effect on December 27, 2020 when it was signed, but much of the rest of it will become effective on December 27, 2021. The USPTO is delaying implementation of the remaining changes until June 27, 2022. The TMA is designed to decrease the “deadwood” of registrations which have not been used in US commerce or have become abandoned. It also shortens the response times for office actions, clarifies the presumption of irreparable harm in trademark cases, and modifies how representation works at the USPTO. So, the TMA will affect everyone.
The TMA’s first change, effective December 27, 2020, clarifies that there is a presumption of irreparable harm in trademark infringement cases. Before the TMA, there was a circuit split on this issue. Now, it will be easier for everyone to obtain injunctive relief in an infringement case.
Third parties who want to bring information to the USPTO Examiner’s attention during trademark examination have long been able to file Letters of Protest. The TMA expands the grounds for doing so. Now, essentially any grounds for opposition or cancellation of a trademark can now be grounds for a Letter of Protest.
The TMA also introduces two new methods to petition the USPTO Director to seek cancellation of registrations. These are much simpler than formal cancellation proceedings before the Trademark Trial and Appeal Board (“TTAB”).
The first petition method, Ex Parte Re-Examination, must be filed in the first five years of registration. After a reasonable investigation into the use, the petitioner can claim that the mark was actually not used in commerce as of certain relevant dates claimed by the registrant.
The second petition method, Expungement, can be filed between three to ten years after registration if the mark has never been or is not currently in use, in whole or in part. A reasonable investigation is required. Until December 27, 2023, however, a proceeding may be requested for any registration at least three years old, regardless of the ten-year limit.
Both petition methods will allow the registrant an opportunity to refute the allegations, with a decision then being made by the Director. Registrants can appeal unfavorable decisions to the TTAB.
Currently, attorneys are recognized as representatives during examination and while maintenance documents are being filed. Representation is deemed to end at registration, although the attorney is still listed as attorney of record. The TMA will now require attorneys to formally withdraw from representation if they no longer wish to be recognized as representatives at all times.
The TMA will allow shorter response times to office actions, but those changes will be implemented later, i.e., by June 27, 2022. The proposed rules indicate that the periods could be as short as 60 days, with an extension available up to six months if needed.
For more information on changes coming to trademark practice as a result of the TMA, we invite you to attend an LG Webinar presented by Kevin Thompson on November 10, 2021, at 12:00 PM. This 30-minute presentation will focus on the changes coming to trademark practice and how brand owners should prepare. To register, visit https://bit.ly/3lJqYx5.
Riparian Rights – Who Owns the Water?
Assume you own a parcel of land that abuts a pond or river. Do you also have rights to the water? Similarly, assume you and a neighbor own separate parcels of land that abut the same pond or river. What rights do each of you have to that body of water?
Riparian rights refer to the rights of a landowner to use bodies of water — such as ponds, lakes, streams, or rivers — that border the land. These rights exist by operation of law and have been embodied in Illinois law for over a century. If two separately-owned properties abut the same body of water, both land owners have equal rights, and neither owner may exercise their rights in a manner that prevents the other from utilizing the body of water.
But what ownership rights do the owners have if the body of water abutting two properties is a river? The Third District Appellate Court answered this question in Adam Holm et al. v. Peter Kodat et al. In Holm, the plaintiffs and defendants each owned property that abutted the Mazon River in Grundy County, Illinois. The plaintiffs used kayaks on portions of the river that abutted their property, but wanted to kayak along the entire Mazon River. The defendants objected to plaintiffs’ use of kayaks on the portion of the Mazon River that abutted their property. The trial court found in favor of the defendants.
The Third District Appellate Court agreed, adopting the trial court’s reasoning that regardless of the fact that kayaks could be used on the Mazon River, it was a non-navigable body of water, and as such, each property owner owned up to the center of the river abutting their respective properties. Accordingly, the defendant landowners could lawfully bar any and all trespassers (including their neighbors) from the segment of the Mazon River that abuts their property. Thus, the court held that the defendants could bar plaintiffs from using their kayaks on the portions of the Mazon River abutting the defendants’ property. Correspondingly, under Holm, the plaintiffs have the right to bar defendants’ use of the Mazon River abutting plaintiffs’ property.
When it comes to land use, especially in situations involving riparian rights and easements, it is important to know what your rights are. For more information regarding these or similar issues, please contact Roenan Patt at rpatt@lgattorneys.com or (312) 368-0100.
Buyers of New Construction Beware: The Breach of Implied Warranty of Habitability in Illinois Further Erodes
Historically, the purchaser of a newly constructed home took the property at his or her own risk if they failed to discover a hidden or latent defect in the home’s design or construction prior to the closing of the sale. It used to be that after the sale closed an aggrieved buyer of new construction would not be able to pursue claims against the developer who performed the shoddy work. In 1979, the Illinois Supreme Court recognized the harshness of the doctrine of caveat emptor and out of the ashes of disappointed expectations rose the doctrine of breach of the implied warranty of habitability – a legal theory that protects a purchaser’s legitimate expectation that the home will be reasonably suited for its intended use. Quite recently, an Illinois Appellate Court took steps to further erode the already fading implied warranty of habitability when the buyer, who usually purchases the new construction from a developer, tries to sue the company that performed the shoddy work – the contractor – directly.
In 1400 Museum Park Condominium Association v. Kenny Construction Company, et al, an Illinois Appellate Court held that a buyer of new construction may not pursue a claim for breach of the implied warranty of habitability against the general contractor responsible for the shoddy construction. The court’s reasoning was based in part on the Illinois Supreme Court’s recent decision in Sienna Court Condominium Association v. Champion Aluminum Corporation, 2018 IL 122022 holding that a purchaser of a newly constructed condominium cannot pursue a claim for breach of the implied warranty of habitability against a subcontractor where the subcontractor had no contractual relationship with the purchaser. Because the implied warranty of habitability is a creature of contract law, the Supreme Court reasoned that in order for an implied warranty to exist, the buyer must have a contractual relationship with the subject of his or her ire – the subcontractor. Because there was no contractual privity between the buyer and the subcontractor, the Illinois Supreme Court held that regardless of the nature of the defect, no cause of action existed between the purchaser and the subcontractor. While the unit owners and condo association in 1400 Museum Park Condominium Association could have pursued a direct action against the developer with whom they had a contract, as is often the case, once the developer sold all of the units, the developer had no assets and was insolvent and suing the developer would have been pointless. The purchasers, therefore, were left to sue the general contractor directly. Although the general contractor obviously had a contract with the now-defunct developer, that relationship was insufficient to permit the condo purchasers, with whom no contractual relationship existed, to directly sue the contractor that actually performed the work for breach of the implied warranty of habitability.
Construction law in Illinois is constantly evolving. While general contractors and sub-contractors welcome these recent court decisions, for owners, the pendulum may be slowly swinging back to the days of caveat emptor. For more information regarding regarding these, or similar issues, please contact Howard L. Teplinsky at hteplinsky@lgattorneys.com or (312) 368-0100.
Are you Planning to Sell your Business?
You, the business owners, have just signed a “Letter of Intent” to sell your business for $10,000,000, “subject to buyer’s due diligence”. Before you start making retirement plans, let’s determine what that means.
The buyer will require copies of all your accounting and financial records, as well as all agreements and written contracts with your vendors, customers, employees and others with whom you do business. The buyer will forward you a rather lengthy list of items they require. Then, if something does not meet with their satisfaction, they may either terminate the potential transaction, or demand a reduction in the purchase price.
How can you, as the seller, prepare the business so that there are no “surprises”?
Many business owners may come to the point where they feel it is time to sell their business and “take it easy”. Having built and operated a successful business for decades, most owners are very knowledgeable about all aspects of their business. However, most owners have never before acquired or sold a business.
Selling a business is a process. Prior to finding a buyer, the seller should conduct its own due diligence. The seller, together with its legal, accounting, and other advisers, considers the following:
• Whether all organization documents are up to date, such as Articles of Organization, Bylaws (or operating agreement), minutes, and ownership records;
• Whether “key employees” are bound by appropriate confidentiality and non-compete agreements;
• What agreements are in place with key suppliers and key customers;
• Whether employee records are up to date;
• Whether there is a union;
• Whether there are any existing or potential claims against the business;
• Whether the lease for the business premises is satisfactory, and the condition of the business premises;
• Whether there are any environmental issues;
• What obligations the business will have after it is sold;
• Whether there are any issues with accounts receivable or accounts payable; and
• Whether there are any licensing or permit issues.
The foregoing items are just examples of some of the things a seller should be examining before entertaining offers to purchase a business. It is better that the seller recognizes any issues affecting the business before a buyer points them out (and asks for a reduction in the price).
Levin Ginsburg regularly represents both sellers and buyers of businesses. We have developed detailed “due diligence” checklists to help sellers and buyers navigate the sale process. If you would like to discuss a sale or purchase of a business, please contact Morris Saunders or any of our partners in our mergers and acquisitions practice.
Illinois Legislation Narrowing Restrictive Covenants Takes Effect January 1, 2022
Levin Ginsburg previously updated our clients on the proposed changes to Illinois non-compete and non-solicitation law (See March 30, 2021 blog here). That legislation passed on May 31, 2021, was signed into law August 13, 2021, and takes effect January 1, 2022. The new law is not retroactive, so it will not impact any agreement entered into before the new year.
Employers must understand this new law and how it will impact their restrictive covenant agreements with employees. The key requirements are as follows:
- Employers may not enter into non-compete agreements with any employee earning $75,000 or less per year. This salary threshold is scheduled to increase by $5,000 every 5 years through 2037.
- Employers may not enter into non-solicitation agreements with any employee earning $45,000 or less per year. This salary threshold is scheduled to increase by $2,500 every 5 years through 2037.
- Every restrictive covenant must include a notice for the employee to consult with counsel, which must be given to an employee 14-days before the restrictive covenant is executed.
- The new law codifies legal precedent that requires an employee to work at least 2 years before continued employment would be considered sufficient consideration for the agreement. As a result, employers will be required to provide some professional or financial benefit in exchange for signing any agreement in order for the agreement to be deemed enforceable at the time of execution.
- A restrictive covenant will be unenforceable if the employee was terminated or furloughed due to the COVID-19 pandemic or under similar circumstances (yet to be defined).
- The law does not allow a court to entirely rewrite a restrictive covenant, but gives the court broad discretion to modify or delete provisions of a covenant rather than hold the entire covenant unenforceable.
- Finally, the new law will require employers to pay an employee’s attorneys’ fees if the restrictive covenant is deemed unenforceable.
These changes will have a significant impact on an employer’s decision to require its employees to sign non-compete and non-solicitation agreements. Employers should begin working with their employment counsel now — well before the new law’s effective date of January 1, 2022 — to ensure their agreements are enforceable and avoid the risk of litigation and liability for an employee’s attorneys’ fees.
For assistance in drafting enforceable restrictive covenants and protecting your business, reach out to Walker R. Lawrence (wlawrence@lgattorneys.com), a partner in Levin Ginsburg’s employment law practice, or Joseph A. LaPlaca (jlaplaca@lgattorneys.com), an associate attorney at Levin Ginsburg.
Advantages of Arbitration Agreements in Commercial Transactions
Oftentimes, private arbitration is the preferred method of resolving commercial disputes, including disputes with employees and customers. Because arbitration is a creature of contract—i.e., only parties that agree to resolve disputes by arbitration are required to do so—determining whether to include an arbitration clause in a contract requires careful consideration during the negotiation of a transaction. Including an arbitration agreement in your contract is generally advantageous because:
- The arbitrators are usually selected from a finite list of individuals, usually for their special expertise in a particular area.
- Relaxed rules of pleading, discovery, and evidence generally make it easier, less time-consuming, and thus less expensive to present your case.
- An arbitration can be scheduled, conducted, and concluded more quickly and conveniently than in court.
- An arbitration can be privately held, without public scrutiny, and transcripts of sworn testimony or other proceedings are not made public except by agreement.
- For defendants, there is usually less chance of a “runaway verdict” because a jury does not decide the case.
- The arbitrator generally will focus on the merits of the case and will make a decision based upon a fair view of the totality of the evidence submitted, which means there is less chance of a harsh result based on a technicality or procedural fluke.
Because both sides theoretically can agree to arbitration at any time during the dispute, even after a lawsuit has been filed by one of the parties, what is the advantage to having an arbitration clause in your contract? The real advantage to having an agreement to arbitrate disputes prior to the time the disputes actually arise is the ability to force the other side to arbitration even if they do not want to go, or to force them to abide by a particular procedural rule. Before you put that arbitration clause in the contract, however, you have to make a judgment call as to whether it is more likely than not that you will want to arbitrate, or force the other side to accept any particular rules or procedures for the arbitration. Even if you draft an airtight arbitration agreement or procedural rule, you should first think through what the ramifications would be if, when a dispute actually arises, you were to find yourself on the wrong end of your own arbitration clause. Arbitration clauses in commercial contracts should not simply be boilerplate, but rather, should be tailored to your business, industry, or particular transaction. Because many factors go into your decision to include an arbitration clause in your standard or specially negotiated contract, it is vital that you consult with an attorney who understands your business and the nature of possible disputes that may arise.
For more information regarding arbitrating commercial disputes and tailoring an arbitration clause to best meet your needs, please contact Howard L. Teplinsky at hteplinsky@lgattorneys.com or (312) 368-0100.
California is Serious About Privacy – Does Your Business Have a Roadmap to Comply with California Law?
By now, many companies who do business with California residents are familiar with the California Consumer Privacy Act of 2018 (“CCPA”), which became effective on January 1, 2020. The CCPA is one of the most comprehensive privacy laws in the country. Despite some familiarity with its requirements, compliance with the CCPA brought many challenges for business owners and their management teams. Violations of the CCPA can be extremely costly — up to $7,500.00 per intentional violation and $2,500.00 per unintentional violation.
Under the CCPA, businesses that collect personal data from any California resident must meet several obligations:
(1) posting a Privacy Notice on the business’s website;
(2) providing account verification;
(3) to not sell personal data pertaining to children;
(4) providing timely responses to residents’ requests that the business delete their personal information or provide residents with information concerning what personal information the business has collected relating to that resident; and
(5) providing timely responses to residents’ requests that the business not sell the resident’s personal data.
Shortly after the CCPA’s effective date, the California legislature passed the California Privacy Rights Act (“CPRA”) on November 3, 2020. The CPRA will become effective January 1, 2023 and will apply to all personal data collected by a business on or after January 1, 2022, with certain exceptions.
Among other things, the CPRA added obligations to the CCPA pertaining to:
(1) Sensitive personal information;
(2) Automated decision-making;
(3) Consumer profiling; and
(4) The formation of the California Privacy Protection Agency.
As if compliance with the CCPA and CPRA are not enough to pose significant challenges for businesses who serve California residents, numerous other California laws pertain to privacy and data security, such as the California Data Breach Law, the California Online Privacy Protection Act, the Shine the Light Law, and the California Invasion of Privacy Act.
If you are a business owner who does business with California residents and need assistance navigating the expansive and ever-changing legal landscape of privacy law, please contact Natalie A. Remien at nremien@lgattorneys.com or (312) 368-0100.
Business Owners Beware – Illinois has Expanded the Recoverability of Pre-Judgment Interest
It is rare if a business has not experienced a bodily injury claim such as a slip-and-fall in a retail store, or an accident at a construction site. In Illinois, those claims are ordinarily governed by common law negligence principles. An injured party who prevailed at trial was entitled to recover medical expenses, loss of earnings, pain and suffering, loss of normal life, disfigurement, increased risk of future harm, and 9% annual post-judgment interest—but not pre-judgment interest.
That has changed, and businesses should be aware that an injured party can now recover pre-judgment interest pursuant to a recent amendment to Illinois’s Prejudgment Interest Statute, 735 ILCS 5/2-1303, which took effect on July 1, 2021. Now, pre-judgment interest on bodily injury claims begins to accrue at the rate of 6% annually “on all damages, except punitive damages, sanctions, statutory attorney’s fees, and statutory costs” on the date the lawsuit is filed. Significantly, only private businesses are on the hook for pre-judgment interest, as governmental entities have been expressly excluded.
Business owners should be concerned about this new law. While not all bodily injury claims have merit, of course, the statutory amendment puts business owners in a precarious position. If a business seeks to contest a bodily injury claim that it believes is meritless, it has a proverbial “Sword of Damocles” hanging over its head because pre-judgment interest is now recoverable in addition to all other damages. The amount of interest can be significant, since bodily injury claims can take years to reach trial. In essence, the amendment can be viewed as taxing a business that is merely exercising its right to contest a claim.
Thus, it is expected that the recoverability of pre-judgment interest in bodily injury claims may force more businesses to consider settling claims that they otherwise would have taken to trial before a jury. Additionally, businesses should confirm that their insurance policies extend coverage to awards of pre-judgment interest under the new statute.
If you have questions regarding the impact of these claims on your business, or whether your business has the appropriate insurance coverage in place, please contact Roenan Patt at rpatt@lgattorneys.com or (312) 368-0100.
Champlain Towers South: A tragic case study in the pitfalls of condominium association management
Owning a condominium may seem like an easy alternative to home ownership. Maintenance costs are spread among the condominium associations’ units, a board manages the condominium association’s affairs for the other association members, and a property management company might even handle the association’s day-to-day issues. After all, board members are generally volunteers who have other, full-time occupations.
But the June 24, 2021 collapse of the Champlain Towers South condominium building in Surfside, Florida should be a gut-check to every condominium owner nationwide. A condominium association does not run itself.
Immediately following the tragedy, conflicting stories arose—stories that are familiar to any experienced condominium owner. In September 2019, facing substantial special assessments and unhappy unit owners, five of the seven condominium board members resigned. One board member cited a pattern of “ego battles, undermining the roles of follow board members, circulation of gossip and mistruths.” The association reportedly had less than $800,000.00 in reserves, but needed to fund more than $15,000,000.00 in repairs. The board had asked condominium unit owners to pay special assessments ranging from $80,000.00 to $200,000.00, but reports show that many condominium unit owners balked at the repair project’s scope and cost.
Condominium board members must understand their duty to act in every association member’s best interests. And condominium association members can only hold board members accountable if the members actively engage in their association, which starts with attending every quarterly meeting. There, the board should make clear what actions they have taken over the past months, and present the issues that the association expects to face in the future. Association members should also understand a building’s history. The Illinois Condominium Property Act requires condo boards to maintain the association’s records, such as by-laws, meeting minutes, and receipts for all expenditures. And every association member must know they have the right to review those records.
Associations must also lean on their professionals. For instance, a board can spend hundreds of thousands of dollars trying to address water leaks before realizing they should have hired an engineer to comprehensively examine the root of the problem. And boards who try to deal with “problem unit owners” without understanding the rules binding the association can easily mire the association in lawsuits and a toxic living environment.
There is no doubt that the Champlain Towers South condominium association faced unique challenges leading to one of the deadliest building collapses in American history, but most condominium associations face one or more similar challenges at any given time.
If you are a condominium unit owner, board member, or property manager who needs assistance navigating these issues, feel free to contact M. Reas Bowman at rbowman@lgattorneys.com or (312) 368-0100.
Illinois Employers Should Think Twice Before Using Criminal Background Checks Going Forward
On March 23, 2021 Governor Pritzker signed into law Senate Bill 1480 which makes several meaningful changes to the Illinois Human Rights Act (“IHRA”). One significant change under the new law is that employers may not use criminal records when making employment decisions unless they consider specific factors and take certain steps before making a final employment decision. The law goes into effect immediately.
Employment Decisions Based on a Conviction Record Violate the IHRA
It is now a violation of the IHRA to “use a conviction record” as a basis for any employment-related decision, unless the employer can establish either:
- there is a “substantial relationship” between the criminal conviction and the employee’s job; or
- hiring or retaining the employee would create an “unreasonable risk” to a specific individual or the public.
To determine whether an “unreasonable risk” exists, employers must consider “whether the employment position offers the opportunity for the same or a similar offense to occur and whether the circumstances leading to the conduct for which the person was convicted will recur in the employment position.” Accordingly, in evaluating whether an “unreasonable risk” exists, employers must evaluate the following six factors:
- the length of time since the conviction;
- the number of convictions that appear on the conviction record;
- the nature and severity of the conviction and its relationship to the safety and security of others;
- The facts or circumstances surrounding the conviction;
- the age of the employee at the time of the conviction; and
- evidence of rehabilitation efforts.
Interactive Process
If an employer determines that one of the two exceptions applies, the employer must engage in an interactive process with the employee or applicant. The employer is required to notify the employee or applicant in writing of its preliminary decision that the employee’s conviction record disqualifies the employee. This notice must include:
- notice of the conviction or convictions that are the basis for the preliminary decision and the employer’s reasoning for the disqualification;
- a copy of the conviction history report, if any; and
- an explanation of the employee’s right to respond to the employer’s preliminary decision before it becomes final. This explanation must inform the employee that the response may include “submission of evidence challenging the accuracy of the conviction record that is the basis for the disqualification, or evidence in mitigation, such as rehabilitation.”
Upon receipt of the employer’s notice, the employee has up to five business days to provide a response before the employer makes a final determination.
Written Final Decision
Before making a final decision, the employer must consider any information submitted by the employee. If the employer determines that the employee or applicant is disqualified “solely or in part because of the employee’s conviction record,” the employer must provide another written notice to the employee. The second notice must include the following:
- notice of the conviction or conviction(s) that are the basis for the final decision and the reasoning for the disqualification;
- any existing procedures available to the employee to challenge the decision or request a reconsideration; and
- a statement that the employee has the right to file a charge with the Illinois Human Rights Department.
Practical Considerations
Illinois employers should reconsider how they will use criminal background checks in the future. While the law does not prohibit an employer from obtaining criminal background checks, it places a significant burden on employers if they want to use this information to make employment-related decisions.
Given the burdensome notice obligations, it may be more practical for employers to forego the use of criminal background checks altogether, unless there is a particularly compelling business reason for doing so. Due to the complexities of this decision, employers should discuss this matter with their employment lawyer. If an employer intends to continue using criminal background checks, it will need to implement appropriate procedures and policies to ensure compliance with the new law.
For additional help navigating these issues, feel free to contact Walker R. Lawrence, a partner in the employment law practice at Levin Ginsburg, at wlawrence@lgattorneys.com, or Joseph A. LaPlaca, an associate attorney at Levin Ginsburg, at jlaplaca@lgattorneys.com.