Buying a business is a complicated process, and often times, the business purchase agreements are presented by brokers and designed to protect the broker. Parties themselves must take great care in scrutinizing not just the transaction itself, but also the business purchase agreement. Starting with the big picture, parties need to look at the agreement itself to make sure it matches up with expectations. Parties should not “assume that the agreement is standard” or contains the basics.

Buyers should make the purchase contingent upon a careful investigation of all aspects of the business. Buyers need to think carefully about not just the financial records, assets, and monetary aspects, but other issues such as whether the seller is the actual owner, whether any liens or judgments exist, pending disputes and litigation, business licenses and transferability, compliance with ADA, and existence of warranties. All of these issues need to be investigated and properly addressed in the agreement if necessary.

The parties should also investigate all assets relating to the business. This includes all tangible property as well as intellectual property such as trademarks, trade secrets, business plans, customer/client lists, and domain names for any websites. Such assets should similarly be addressed in the agreement.

The buyers will also want to pay attention to how the sale itself will proceed logistically. Transfers of some of the assets above may be simple, but sometimes additional agreements may be needed such as for an assignment agreement to transfer intellectual property. Other transfers, such as lease transfers, credit cards, or log-in information,  may be more complex.

These are only some of the numerous issues that come up in the purchase and sale of a business. Again, it is important that you conduct careful due diligence on all aspects of the business.

 

During the course of a business litigation case, parties are often asked to mediate or consider mediation.  Sometimes, parties consider mediation prior to litigation.  In California, civil mediation is a type of alternate dispute resolution designed to assist parties in resolving their cases without litigation or trial.

Parties may have to mediate by contract, by stipulation, or by order of a judge.  The judge may order mediation if the case is suitable and will often ask if the parties are open to mediation or some other type of alternate dispute resolution.

Upon initiation of mediation, the parties must complete various forms and applications.  The parties will also likely have to pay any mediation fees or deposits.  Afterwards, the parties will usually select a neutral party to act as the mediator.  The parties may use a court-appointed mediator or a private third-party mediator.  Parties may choose to use a court-sponsored mediator due to price, as private third party mediators may be more expensive.  The mediator himself or herself is often a retired judge or attorney.

After a mediator is selected, a mediation time and place is scheduled.  The mediator may send out specific instructions prior to the mediation date.  Every mediator is different, and each may have different rules on continuations, deadlines, settlement, or mediation procedures.

Finally the parties will attend mediation at the scheduled time and place.  Whether the case settles or not, the mediator will usually submit statements describing the events at mediation.  Furthermore, the Court must be notified of settlement or non-settlement.  If the case does not settle, the parties will likely continue to proceed with the case and go to trial if necessary.

For more information regarding mediation in San Francisco, you can check out the Court’s alternative dispute resolution package here.

 

The United States Supreme Court, in a unanimous decision written by Justice Thomas, found that you pretty much cannot patent genes.  More specifically, merely separating out naturally occurring DNA is not patentable, but synthetically made (i.e. complementary DNA or cDNA) could be patented.  This makes sense, as there has been a long standing rule against patents on naturally occurring things, laws of nature, and natural phenomenon.

The ruling is summarized by Justice Thomas as follows: 

“[W]e hold that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but that cDNA is patent eligible because it is not naturally occurring.”

The patent at issue involved genes (called BRCA1 and BRCA2) isolated by Myriad Genetics.  The genes were involving mutations which indicate a high likelihood of developing breast cancer. Myriad Genetis apparently conducted significant research and developed an expensive set of tests to find those mutations and argued that others companies testing for the same breast cancer genes would violate Myriad Genetics’ patents.  However, the Supreme Court rejected their arguments, noting that “[g]roundbreaking, innovative, or even brilliant discovery does not by itself satisfy the §101 inquiry [for whether something can be patented].”  Discoveries are generally not inventions, and cannot be patented.

The Supreme Court wrote:

“It is undisputed that Myriad did not create or alter any of the genetic information encoded in the BRCA1 and BRCA2 genes. The location and order of the nucleotides existed in nature before Myriad found them. Nor did Myriad create or alter the genetic structure of DNA. Instead, Myriad’s principal contribution was uncovering the precise location and genetic sequence of the BRCA1 and BRCA2 genes within chromosomes 17 and 13. The question is whether this renders the genes patentable.”

This landmark case will invalidate a large number of gene patents, especially considering that the US Patent Office has routinely granted gene patents for the last several years.  Many, like Myriad, believe that such a ruling stymies research and may destroy the biotechnology fields.  After all, a good chunk of one’s patent portfolio may  now be considered void.  On the other hand, some companies may be able to do more exploration on genes without fear of patent infringement suits.

The state of California requires franchise registration from prospective franchisors, as well as compliance with a host of other California franchise laws.  The franchise registration involves the submission of a series of documents including but not limited to the application, the franchise disclosure documents, financial statements, certification page, sales agent disclosures, and the registration fee.

The financial statements must demonstrate that there is sufficient capital to meet various obligations.  In other words, you cannot rely on franchise fees to meet initial obligations.  The rules are to prevent large corporations from taking advantage of smaller potential franchisees, or developing some type of unfair pyramid scheme.  For more information, see here. Failure to register and file the disclosure documents may result in significant liability.

Keep in mind that the registration normally expires 110 days after the date of its next fiscal year.  As such, franchise renewals must be filed every year.  Failure to do so may lead to the franchisor to have to temporarily cease selling franchises in California until a new registration order is issued.

As such, it is important to know your franchise-related renewal filing deadlines (often in April of each year).  Franchisors can start preparing for the renewal early by compiling updated information.  Franchisors can also use the renewal time to implement any changes to their franchise system, if necessary.  In addition, remember that any changes to the disclosure statements or franchise agreements may require changes elsewhere, such as in the franchise promotional materials, manuals, and website advertisements.  As always, it is important to present the renewal application in an easy format for the examiner, so that you can expedite the renewal process.

 

After the licensing agreement is signed and done, what do you do to police the infringement?  Many licensors have great difficulty in policing the terms of the licensing agreement and in detecting unauthorized use.  If there are many licensees, it is challenging to monitor the activities of each licensee.

Instead, many licensors, especially of software, apply self-help mechanisms.  These self-help mechanisms can be as invaluable as a detailed, well-written license.  For example, manufactures can mark and verify the authenticity of the goods in clever ways by applying holograms to labels.  Other companies encode electronic fingerprints on labels or other unique designs.

Software licensors can lace their software with code that monitors attempts to copy or with code that can identify the source of unauthorized use.  In addition, various security measures can be added to the code to assist in the detection of improper use.  In fact, some creative programmers can design the software to disable and destroy the licensed program in the event of any breach.  The licensor may even be able to retrieve its property and intellectual property without the use of litigation.  While these self-help mechanisms are often used without notice, commentators caution that if the mechanism is misused, it could greatly disrupt the licensee’s business and lead to damages incurred by the licensee.

Policing infringement is difficult, and sometimes litigation is necessary.  However, it is equally important to use any simple self-help mechanisms that may be available.

We have previously written about how professional athletes should protect their intellectual property, and it appears that Colin Kaepernick has done just that.  Within weeks after starting as quarterback for the San Francisco 49ers, Kaepernick has not only taken his team to the Superbowl, but also filed for trademarks for the terms “Kaepernicking,” “Colin Kaepernick,” “Kap7,” and “Kap.”

If you’re curious about the spelling for “Kap” and “Kap7,” that’s how Kaepernick spelled his nickname his whole life.  Furthermore, he appears to have bought kaepernick7.com, ckaepernick7.com, and some other variations, while attempting to acquire colinkaepernick.com as well.