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  • The Truth Is Out There: Does anyone own exclusive rights to the term UFO?

    The Truth Is Out There: Does anyone own exclusive rights to the term UFO?

    Showtime is facing a trademark infringement lawsuit based on its show UFO—a docuseries that explores the possibility of alien life and government coverups of alien encounters.  UFO Magazine—a periodical that reports on UFO sightings—filed a complaint against Showtime in the District of Wyoming, alleging that the title of the show infringes the magazine’s trademark rights.

    UFO Magazine owns three federal trademark registrations for “UFO” in standard characters covering magazines and other entertainment services, including, “Entertainment in the nature of a television series and motion picture film series.”  Generally speaking, the owners of a registered trademark have the exclusive right to use that mark in commerce with the goods and services identified in the registration.  But UFO Magazine is likely to encounter several difficulties in its pending lawsuit.

    First, the magazine might not have any valid trademark rights at all.  To be worthy of trademark rights, a mark owner needs to be using that mark in commerce.  In its complaint, UFO Magazine merely alleges it “has been in discussion for development of a UFO motion picture and/or television series for many years.”  Indeed, the company’s trademark filings include an advertisement that declares “UFO Magazine, Inc. is looking to make a UFO movie” and includes an offer to sell the company’s “UFO” trademarks.  Showtime can argue that this is not a valid use of the mark in connection with the entertainment services identified in UFO Magazine’s registrations.

    Showtime is also likely to argue that the term “UFO” is generic for alien-themed entertainment.  A generic term is one that consumers understand to describe a type of product or service.  Generic terms are ineligible for trademark protection because all competitors in the marketplace need them to accurately describe their goods and services. Here, it seems unlikely that consumers associate the term “UFO” with a single source of entertainment services and giving UFO Magazine exclusive rights to the term for alien-themed entertainment would certainly have anticompetitive effects.

    The First Amendment might also provide Showtime with a strong defense.  There is a long line of precedent that recognizes titles of expressive works—like movies and TV shows, are entitled to protection under the First Amendment and require a stricter test for trademark infringement. Under this standard, the use of another’s trademark in the title of an expressive work is protected when use of the mark is artistically relevant to the underlying work and there is nothing else that explicitly misleads consumers as to the source or content of the work.  In this case, “UFO” is relevant to a show about aliens, and it is doubtful that anything in the show would explicitly mislead consumers to believe it is associated with UFO Magazine.  

    Despite the weakness of its claims, UFO Magazine is seeking to recover Showtime’s profits from the show, as well as punitive damages and attorneys’ fees.  However, it seems unlikely that UFO Magazine will prevail on its trademark infringement claims. 

    Kloss Stenger & Gormley LLP is a firm with experienced attorneys ready and able to help you with any trademark questions or concerns. Contact us today to get started.

    Disclaimer: This blog is made available by Kloss Stenger & Gormley LLP for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss Stenger & Gormley LLP. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • Did Booking.Com Fumble Their Trademark Rights In New Super Bowl Ad?

    Did Booking.Com Fumble Their Trademark Rights In New Super Bowl Ad?

    By: CAITLIN CANAHAI

    Booking.com’s new self-deprecating ad could mean trouble for their trademark rights.  In the travel site’s Super Bowl spot, Idris Elba pokes fun at the company’s name, saying, “We named ourselves Booking.com, which is kind of lit, if we’re talking…literal.”  The statement comes on the heels of the brand’s nearly 9-year long legal battle to obtain trademark protection for its name. 

    Trademarks are words and symbols that consumers use to distinguish the goods or services of one business from another.  For instance, “Apple” is a strong trademark for computers.  Importantly, trademark protection is denied to generic terms for goods and services.  “Apple” could never be protected as a trademark for apples because it communicates the type of product, rather than the source.  This principle protects competition in the marketplace, so that companies can accurately describe their goods and services. 

    As Idris said, “BOOKING.COM” seems like a pretty literal name for a website that allows you to book travel accommodations.  In trademark terms, you might say “Booking.com” is generic. This was exactly what the U.S. Patent and Trademark Office (USPTO) decided when Booking.com applied to register its name as a trademark for making hotel reservations in 2012.  The USPTO denied the registration on the grounds that “booking” was generic for Booking.com’s services. Adding “.com” to a generic term could create a protectible trademark, because “.com” merely indicates web address and adds no source identifying significance.

    Booking.com appealed the USPTO’s decision all the way to the Supreme Court. In 2020, the Court ruled in their favor in United States Patent and Trademark Office v. Booking.com B.V.  The Court rejected the USPTO’s rule that the addition of a top-level domain (.com, .org, .net, etc.) to an otherwise unregistrable term could not create a protectible trademark.  Instead, the Court ruled, the mark must be considered in its entirety to determine whether consumers perceive it as a trademark.  The decision allowed Booking.com to introduce evidence demonstrating that it had taught consumers to perceive “BOOKING.COM” as a trademark through many years of use and advertising. 

    Following the decision, Booking.com obtained three trademark registrations for its “BOOKING.COM” mark.  The registrations issued in January of 2021, over 8 years from the date of the initial applications.  Given how much time and money Booking.com invested in proving its mark is not generic, its decision to mock its own name on the biggest advertising day of the year is surprising, to say the least.  Trademarks lawyers will tell you that it’s never a good idea to point out how weak your mark is in advertising. 

    Realistically, Booking.com’s probably doesn’t have anything to worry about.  To obtain its registrations, Booking.com already had to prove that consumers primarily understood “BOOKING.COM” to be a brand name.   The company introduced survey evidence suggesting that about 74% of participating consumers recognized “BOOKING.COM” as a brand name.  So, a tongue-in-cheek joke in a commercial is unlikely to do serious damage to their name recognition. 

    Still, Booking.com’s new ad campaign highlights the importance of having an experienced trademark attorney advise you on how you use your mark in advertising.  Using a trademark in certain ways in advertising can weaken or even eliminate your trademark rights, even after you obtain a trademark registration. 

    Kloss Stenger & Gormley LLP is a firm with experienced attorneys ready and able to help you with any trademark questions or concerns. Contact us today to get started.

  • Failure to Function as a Trademark?

    Failure to Function as a Trademark?

    Each case brought before the Trademark Trial and Appeal Board (“TTAB”) raises a unique issue of trademark law, and provides new insight into how trademark questions are decided.  Recently, the refusal to register the mark MAMA BEAR, applied for in connection with various clothing products, was appealed to the TTAB. The resulting analysis focused on whether or not the phrase MAMA BEAR functions as a trademark. In short, is it eligible for the protection of registration? Or is it a message which “merely conveys ordinary, familiar concepts or sentiments that are used by a variety of sources in the marketplace?”

    The Trademark Examining Attorney had denied the original application for registration on the grounds that the mark was not a trademark, as it failed to, “…indicate the source of Applicant’s goods and to identify and distinguish them from the goods of others.”

    In order to be entitled to the protection of registration, a trademark must identify the applicant as the source of particular goods or services. Here, the TTAB had to conduct a failure-to-function analysis. This analysis looked at whether or not the mark did identify the applicant as the source of the goods in the mind of the consumers, or if the mark was simply a common, widely-used phrase that didn’t identify any particular source. A failure-to-function analysis examines all of the evidence on the record. Often times, this will include the Applicant’s use, dictionary definitions, and third-party uses of the term, to determine how potential consumers are likely to view the product.

    The TTAB found, once all evidence had been reviewed and an analysis conducted, that MAMA BEAR was a “…common, widely used and generally understood term to convey a message of an ordinary or familiar concept or sentiment – aggressive protective parenting.” The phrase is one that consumers would expect to see on clothing items, but not necessarily to identify any particular brand. Thus, the TTAB determined that the mark did not serve as a designation of applicant as the source of the clothing. Therefore, the mark was not entitled to registration.

    Ultimately, in this case, the TTAB denied the applicant’s appeal to register the mark MAMA BEAR.

    So does this mean that the phrase MAMA BEAR can never serve as a trademark or be entitled to the protection of a USPTO registration? Not necessarily. Throughout these proceedings, the applicant brought up several examples where the phrase MAMA BEAR is present within registered marks. However, each of those marks either contains additional words, phrases, or images making it distinctive, or is arbitrary when applied to the respective goods and services set forth in those registrations. These may seem like small or unimportant distinctions, but they can be crucial when determining issues of trademark law.

    Kloss Stenger & Gormley LLP is a firm with experienced attorneys ready and able to help you with any trademark questions or concerns. Contact us today to get started.

  • Starting a Start-Up

    Starting a Start-Up

    By: Ranja Bose, KSG Contributor

    Before starting your own business venture, what are the potential issues that you may need to consider? Our law firm works with entrepreneurial clients every day to get them started, and to allow them to maintain and flourish their business in today’s fast-paced world. Whether your business will be for profit, non-profit, service-oriented, or something entirely unique, there are a few things that you will need to consider.

    a.         Your product should solve a problem, partially or wholly.

    A new business should offer something unique to the marketplace, ideally a product or a service which offers a solution to an existing problem, or which makes life easier for its users. Firstly, make sure that the problem being “solved” needs solving. For example, many users were disappointed with Apple’s removal of the headphone jack, lamenting that the presence of the headphone jack was not an issue that needed solving in the first place. A way to do this would be to reverse engineer the issue at hand; identify a problem, and then think of a unique product or service that would solve that issue.

    After doing the basic market research for existing products, you need to evaluate your target audience. Who are they, what is their purchasing power like, are they distributed uniformly geographically? Surveys, questionnaires, and networking come in handy during this step. The results found with these can be used to create fictional user personas to test the product or service on. This step requires a lot of manpower and research and will let you know if the product or service is needed. Some startups hire external agencies to do this, then develop their good in accordance with the findings.

    b.         Protect your IP.

    Your market research should make sure that your product is not infringing on anyone else’s intellectual property. Remember, two different products may solve the same problem, but may not do so in the exact same way. Conversely, your product must also be protected from infringement. This can be done through contacting an attorney to assist you with the process of obtaining registration of your patent, copyright, or trademark, or possibly more than one of these. What type(s) of protection your product requires will depend on the product itself and the circumstances surrounding the creation and marketing of the product. A prudent step after obtaining IP protection may be to speak with your attorney regarding transferring the ownership of the IP to your company or business entity, if you have one. This may help to shield the individual creator from certain liabilities, and to shift certain legal obligations to the entity. You may also obtain business license and tax permits at this time.

    c.         Solidify your brand and secure it.

    Solidifying your brand may include assigning an identity to your product. People need to relate to what a company offers. The brand will differ from company to company, and depends on the industry. Solidifying your brand may also include creating and securing incidental IP like websites, any supplementary products, marketing methods, as well as having a pitch ready. These pitches, or descriptors, should be short. This ensures that you do not lose your investor’s attention, while demonstrating that you are providing the best possible product for that particular problem. You should conduct extensive research on and be well-versed in the issue, enough so that you can call yourself a subject matter expert. This will encourage others to value your opinions and ideas and thus help reinforce your brand.

    d.         Define your company.

    You have your product and you know what it does. Now might be the time to formalize the company, i.e., the entity that will have ownership of the product. Choosing the name would be the natural first step. You will then have to register your company as a particular type of organization. This can be done by contacting an attorney to help you register the company as a corporation, limited liability company (LLC), non-profit, sole proprietorship, or limited or general partnership. The way in which you register your company will affect its structuring and tax liability. You also need to choose which state you want your company incorporated, organized, or domiciled in. This step should include consultation with tax and financial professionals, and once the company is formed, will also include obtaining a federal EIN (Employment Identification Number) from the IRS.

    e.         Pick a team.

    Now that you have protected your product and company, it is time to pick a team. This team may consist of many people, or only one other person, but you should make sure they each have a separate skill set from you. Investors are more confident in a company that has diversity of thought and know that the team members will keep each other in check.

    f.          Raise capital.

    This “step” is usually not just a step, but an ongoing process which should be done simultaneously with the steps above, after your IP has been secured. Often times, startups do not have the money to hire people without some seed capital. Thus, you need to know a basic pitch of your product as soon as you have secured your IP. Most of the networking required to raise capital is often done while you are solidifying your brand and creating your company. By the time you reach this step of raising capital for your product, you should preferably have moved your product through your local investment circles.

    g.         Make a business plan.

    For your product to be successful, you need to market it to the right people. Business plans may differ by company and industry. This also helps keep track of the finances, turnovers, and making plans for subsequent growth.

    h.         Pick a workplace.

    Once you have accumulated enough capital that your company can afford a place, get a sufficient workplace, and be sure to set policies and procedures for your expenses, hiring practices, future possible employees, etc.

    The process of starting a new business may seem complex at times, but it can be incredibly rewarding, both personally and professionally. Contact Kloss Stenger & Gormley LLP today at 716-853-1111 for more information, and for help navigating these important legal issues.

  • Service of a Lawsuit via Twitter

    Service of a Lawsuit via Twitter

    In August, the Democratic National Committee (DNC) used popular social media platform Twitter to serve a lawsuit against WikiLeaks. In addition to acting as a source of news, a marketing platform, a place to share images of your aesthetically appealing lunch, as well as a home for late-night political statements, Twitter has now become (on rare occasion) an acceptable means for serving an opposing party with a lawsuit.

    What is “Service of a Lawsuit”?

    Service of a lawsuit simply means the process of notifying someone who is being sued that they are being sued. In New York, Rule 308 of the Civil Practice Law and Rules governs service of a summons and complaint on the opposing party.

    The idea behind requiring service upon an opposing party is to provide notice so that they can appear and defend themselves. Additionally, service notifies the court that the opposing party is aware of the legal action taken against them. This is a prerequisite to obtaining a final judgment.

    How can a Lawsuit be Served upon an Opposing Party?

    As mentioned earlier, in New York, Rule 308 provides several different methods of service. Some examples are:

    1. Personal delivery of the documents to the adversary.
    2. Personal delivery to an individual at the adversary’s last known residence AND mailing a copy as well to that address.
    3. Personal delivery to the adversary’s legal agent.
    4. By affixing a copy of the documents to the door of the last known residence or place of business AND by mailing a copy of same to that address. This method can only be utilized if attempts at using the first two methods are unsuccessful.
    5. In such manner as the court may direct if service under methods 1-4 are impracticable.

    In the federal court system, service is governed by Rule 4 of the Federal Rule of Civil Procedure. Rule 4 lays out the methods by which service can be effectuated:

    1. Personal delivery of the documents to the adversary.
    2. Leaving a copy of the summons at the adversary’s home AND mailing a copy of same to that address.
    3. Delivering a copy to each person authorized to receive service for the defendant

    Before allowing a creative form of service, a judge will usually require a party to exhaust all other service methods.

    DNC Serves WikiLeaks via Twitter

    For the DNC, service via ordinary means would have been no easy task. How could the DNC personally serve papers on an organization that prides itself on anonymity and a decentralized global presence? The lawyers for the DNC therefore had a compelling argument that the normal methods of service were impractical. Thus, the lawyers had to develop a creative method of providing “notice” of the lawsuit to WikiLeaks.

    The DNC argued that serving WikiLeaks via Twitter was appropriate because WikiLeaks frequently Tweets. Thus, it can be understood that WikiLeaks regularly uses and checks their Twitter account. Further, the DNC argued that service via Twitter was permitted in a prior lawsuit – a 2016 case in California.

    The service of the lawsuit came in the form of a single Tweet from the law firm representing the DNC.

    The Court found that this single social media message is an appropriate form of notice of a legal action.

    Though it may seem odd that a judge in a court of law would permit use of a social media platform in order to deliver correspondence in a lawsuit pending before the court, there have been other instances of service via social media in recent years.

    Other Examples of Service via Social Media

    As mentioned above, there is a 2016 case from the United States District Court for the Northern District of California in which the judge permitted service via Twitter. In that case, the plaintiff was attempting to serve a man living in Kuwait who could not be located. Due to the fact that the man had resisted all conventional forms of service and because the man had a large, active Twitter account and following, the judge gave the plaintiff permission to serve the Kuwaiti man via Twitter.

    In 2014, a judge allowed a man to serve his ex-wife over Facebook. The man’s ex-wife had successfully evaded all conventional attempts at service. The ex-wife operated an active Facebook account. Due to the level of activity, the family court judge ruled that it would be appropriate to serve the lawsuit over Facebook.

    In later 2017, a Canadian judge allowed a defendant to be served via Instagram private message and LinkedIn. The defendant in that case was unable to be reached at his physical address or email address. The plaintiff’s lawyer in that case used her social media sleuth skills to find the defendants profiles online on Instagram and LinkedIn and successfully served the plaintiff through those platforms.

    In the United Kingdom, service via social media platforms has become much more commonplace than it is in the United States. As far back as 2011, lawyers in Britain were permitted to serve a summons using social media platforms like Facebook. As far back as 2009, a court in Britain allowed an injunction to be served to a defendant via Twitter.

    What does this Mean for You?

    The consequences of these expanded forms of service are two-fold. As the world becomes more and more connected with the pervasiveness of the internet and the interconnectivity facilitated by social media, it is becoming harder and harder to avoid service of a lawsuit. No longer can one dodge a lawsuit by not providing a current mailing address or by not checking your mail. Courts are becoming wise to the prevalence of social media (as well as technology generally) and are using that to better promote the administration of justice.

    If you have questions about service of a lawsuit, or have other questions, please call or email one of our litigation attorneys for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed”attorney for any legal questions you may have.

  • Super Lawyers 2018 Honors Attorney Justin Kloss

    Super Lawyers 2018 Honors Attorney Justin Kloss

    KSL Attorney Justin Kloss has again been selected by Super Lawyers as a New York State “Rising Star” for Civil Litigation in the areas of Business and Intellectual Property. This marks the third straight year that he has been selected as a “Rising Star” in Civil Litigation.

    Among his other accomplishments, Justin Kloss has successfully tried cases to verdict for business and intellectual property clients in recent years.

    Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The selection process includes independent research, peer nominations, and peer evaluations. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis.

    Each year, fewer than 2.5 percent of the lawyers in the state are selected by the committee at Super Lawyers to receive the honor.

     

  • Trade Secret Protections for Small Businesses

    Trade Secret Protections for Small Businesses

    Business owners seeking to protect their proprietary information or invention have many different options. The most common method that people think of is patent protection. Depending on the complexity of the subject matter, patents can be expensive to draft, prosecute, and defend. Additionally, not all information that a business may find valuable will fall under the umbrella of patentable subject matter. Where can a business turn to protect their valuable information that is not protected by a patent?

    The simple answer is to turn to trade secret for protection. The same protections that have protected the iconic taste of Coca-Cola, Google’s proprietary search algorithm, McDonald’s Big Mac special sauce recipe, as well as WD-40’s secret formula can be put to use by your business to efficiently and effectively protect your business’ information.

    What is a Trade Secret?

    A trade secret can take several forms. For instance, a trade secret could be a formula, pattern, compilation of data, computer program, or device. Practically, with trade secret protections you can protect any information that is valuable to your business that you keep secret. In order to receive common law legal protections for a trade secret, the information must meet a few requirements.

    Trade Secret Requirements

    First, the information must actually be economically valuable. That is, what you are seeking to protect must convey some kind of economic benefit to the holder. For example, a curated client list satisfies this requirement because the list is valuable to a competitor in the field. Think of this as the secret sauce.

    Second, the information must be secret. This requirement is a bit confusing because secret here means not widely known by the public. You do not need to keep the information you wish to protect as a trade secret absolutely secret. Your business’ managers and employees are free to possess and use the secret knowledge for the benefit of the business. The secrecy requirement is closely tied to the economically valuable requirement. If your competitors and the public are generally unaware of the information then it is likely valuable to your business.

    Third, the holder of the information must have taken some kind of precautions to keep the information secret. You can satisfy this requirement, for example, through non-disclosure or confidentiality agreements that prevent employees from sharing your valuable, secret information.

    What is Trade Secret Misappropriation?

    Trade secret misappropriation is legalese that simply means that some bad actor stole your business’ valuable information and either used it or disclosed it in a way that harmed your business. There are a few requirements to meet in order to assert a claim of trade secret misappropriation in state court.

    Information is a Trade Secret

    First, the holder of the trade secret must prove that the information met the requirements for a trade secret. Business-owners often overlook this initial step. You or your business’ conduct prior to the trade secret theft could potentially be detrimental to your ability to recover for the trade secret theft. For example, if your business does not have a confidentiality agreement in place with your employees, vendors, or potential business partners then the courts may find that your business did not do enough to protect your trade secret.

    Trade Secret Acquired Through Confidential Relationship

    Second, trade secret misappropriation requires that the bad actor acquired the trade secret information as a result of a confidential relationship with the holder of the trade secret. For example, if you hired an employee who signed a non-disclosure agreement and then upon leaving your business that employee spread confidential information protected by the non-disclosure agreement, you or your business could potentially pursue that employee for trade secret misappropriation. However, if you disclose the information outside of that confidential relationship, it is likely not actionable (think of an inventor or entrepreneur’s elevator pitch).

    Here, it is important to note what trade secret misappropriation does not cover reverse engineering. Reverse engineering of a trade secret is not trade secret misappropriation. This is the big trade-off associated with trade secret protection. Unlike patent protection, trade secret protection does not prevent use of the secret information. Instead, trade secret protection only prevents a bad actor bound by some kind of agreement from violating that agreement. Trade secret provides another cause of action to help to protect the internal workings of your business that set you apart from your competitors.

    Unauthorized Use or Disclosure

    Third, trade secret misappropriation requires that the bad actor has either made unauthorized use of the trade secret information or has disclosed the secret information. For example, this requirement would be satisfied if a disgruntled ex-employee of Coca-Cola who signed a non-disclosure agreement shared Coca-Cola’s secret formula on the internet.

    Potential Remedies for Trade Secret Misappropriation?

    Remedies for trade secret misappropriation fall generally into the two buckets. First, pursuing trade secret misappropriation as a cause of action allows the court to enter injunctive relief. If a disgruntled ex-employee is sharing your company’s secrets online on social media, a court can order that ex-employee to stop spreading your business’ trade secrets. A judge can enter this order early in litigation before any arguments on the merits of the case have begun. This is a time and cost-effective way to protect your business’ trade secrets.

    Second, juries have been extremely sympathetic to businesses harmed by trade secret misappropriation. Juries have awarded huge awards in the past. For example, in a case recently heard in a Texas state court involving a Quicken Loans company allegedly stealing the trade secrets of a Silicon Valley real estate start-up, a jury awarded the start-up over $706 million dollars to compensate the start-up for the theft of its trade secrets.

    Trade secret protection is a valuable option for businesses seeking to protect the inner workings of their businesses.

    For more information, or to speak with an attorney about protecting your business, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

     

  • You Will Have to Start Paying Online Sales Tax (in 2018)

    You Will Have to Start Paying Online Sales Tax (in 2018)

    In the near future, you may be paying more for goods that you buy online. On June 21, 2018, the Supreme Court delivered its decision in South Dakota v. Wayfair. The Court’s decision will likely impact the way you shop – both online and in brick-and-mortar shops.

    In a previous blog post, we reported that the Supreme Court agreed to hear a case concerning the validity of state legislation permitting the state to tax an out-of-state retailer’s sales in the state. That blog post can be read here. This post is an update to the previous post and will address the Court’s decision in Wayfair.

    Supreme Court Precedent

    The Supreme Court previously held that a state could tax a retailer’s sales only if the retailer had a physical presence within the state. An out-of-state retailer with no physical presence (e.g., warehouse, brick-and-mortar store) could not be taxed by the state. The Court viewed taxing an out-of-state retailer as a violation of the Dormant Commerce Clause.

    Times have changed since the Court last visited this issue in 1992. The Court in 1992 could not have foreseen the explosive growth of online, out-of-state retailers. Nor could the Court have forseen the impact those retailers would have on the sales tax revenue of the States.

    Lost Tax Revenue in the Age of Online Sales

    With the ever-rising popularity of online retailers, states have lost out on substantial sales tax revenue. It has been estimated that states have been unable to collect between $8 and $33 billion in sales tax revenue every year due to out-of-state retailer’s effective sales tax-free status.

    The South Dakota legislature realized how much tax revenue was being lost by permitting out-of-state online retailers to do business in the state without paying any sales tax. South Dakota passed state legislation which obliged out-of-state retailers to collect the same taxes that brick-and-mortar retailers collected. In short, South Dakota sought to even the playing field for brick-and-mortar retailers and collect additional tax revenue.

    Given the Supreme Court’s previous decisions explicitly preventing legislation like the legislation passed in South Dakota, a constitutional clash was unavoidable.

    Court’s Decision

    At issue in Wayfair is whether or not a state can require an out-of-state seller to collect state sales tax on the goods sold in a particular state. Specifically, the out-of-state sellers in this particular case are popular online retailers Wayfair, Overstock.com, and Newegg.

    The Court held, by a 5-4 majority, that the previously decided Supreme Court cases were incorrect. There was no basis for the Court to require a physical presence in a state in order for a state to collect sales tax on sales made in the state. In overruling previous Supreme Court precedent, the Court has paved the way for the States to pass legislation to collect sales tax on online sales made to customers in the State – much like South Dakota has done.

    In essence, the Court reasoned that the “physical presence rule” did not age well. While the rule may have worked well in the late 1900s when out-of-state sales consisted of mail-ordered crockery from Sears Roebuck catalogs and vacuums bought from door-to-door Kirby salesmen, the rule does more harm than good in the age of the internet. The physical presence rule harmed both brick-and-mortar retailers as well as states that relied on sales tax revenue to carry out their governmental functions.

    Dissent

    Four of the nine Justices of the Supreme Court disagreed with the Court’s holding. The basis for the disagreement stems from the nature of the Commerce Clause. The dissenting Justices believe that the decision as to whether states can tax out-of-state retailers should fall to Congress.

    After all, the Constitution gives Congress the power to regulate interstate commerce. Further, the dissent argues the majority has failed to take account of the impact of the decision on small businesses. Suddenly, small online retailers shipping to customers in different states will be faced with over 10,000 jurisdictions. Each of these jurisdictions levies taxes in different ways.

    What to Expect as a Consumer

    If you shop on Amazon, nothing will change. Amazon has already been voluntarily collecting sales tax on online purchases. However, if you shop at a retailer like Wayfair, Overstock.com, or Newegg expect to pay more for your purchases.

  • What is a Corporation?

    What is a Corporation?

    There are many different ways in which a business can be formed. When forming your own business, though, there are four main types to consider, each with their own pros and cons. For this post, we will answer “What is a Corporation?”

    A corporation is the most easily recognizable

    Advantages of a Corporation:

    • Limited Liability for shareholders. Personal assets are protected (with some rare exceptions, i.e. fraud).
    • Easily raise capital through the sale of stock. (You can also create multiple levels of ownership, as well as non-voting ownership).
    • Transferring ownership is simple.
    • Potential Tax Advantages. (Deductibility of employee health benefits, exception from certain individual taxes).
    • Perpetual duration or unlimited life.

    Disadvantages of a Corporation:

    • Double taxation. (Profits are taxed first at the corporate level, then again at the personal level when that income is distributed to owners).
    • Cannot elect to be treated as an individual for the purposes of taxation.
    • Corporate Formation and Franchise fees required to be paid to the state.
    • Required Corporate Formalities. (Meeting and record keeping requirements are strict).

    A Corporation is an effective tool for business to expand, obtain larger investment, and take the business to the next level . Before forming a corporation, you should consult with a knowledgeable business attorney to go over the rules and requirements that you must follow in order to protect yourself. To speak with one of our business attorneys, please call (716) 853-1111 for a free consultation, or simply leave a comment below!

  • Clarence High School Mock Trial Team Wins 6th County Championship in 7 Years

    Clarence High School Mock Trial Team Wins 6th County Championship in 7 Years

    March 19, 2018 Buffalo, NY The Clarence High School Mock Trial Team won the Erie County Championship Monday, March 19. Clarence competed against the Buffalo Academy of the Sacred Heart in the final round of the Erie County Mock Trial Competition and walked away with their 6th County Championship in 7 years. Erie County Court Judge Susan Eagan presided over the round. This year’s case involved a high school student charged with disorderly conduct for allegedly refusing to comply with a teacher’s directions and becoming violent.

    Led by seniors, Ryan Mazurkiewicz, Alexander Maccallini, and Derek Andrews, the team includes Sean Andrews, Michael Baehre, Russel Bassarath, Allie Boeing, Kate Buckley, Anna Geiger, Justin Gugliuzza, Ryan Kist, Nadav Langberg, Aliana Mazurkiewicz, John Micciarello, Erin Miley, Hailey Seibold, Jackie Thomson, Ellie Tiu, Maggie Palka, Emily Purcell, and Hannah Zalen. The three seniors, Mazurkiewicz, Maccallini, and Andrews, were on the Clarence Team that won the New York State Championship in 2015.

    The team’s attorney advisors are Justin D. Kloss, attorney at the local law firm of Kloss, Stenger & LoTempio, and Colleen Mattrey, attorney at the law firm of Smith Sovik Kendrick & Sugnet, P.C. The team’s faculty advisor is Clarence High School Business Law teacher, Ronald DiNicolantonio.

    Kloss, who has just completed his 7th year coaching the mock trial team, said, We are very proud of how hard the students worked this year, and their performance Monday night reflects that. We are also very grateful to the parents, faculty, and Clarence community, especially William Shippengrover, for all of the support that they have shown this team.

    The team will now move on to the Regional Competition held in Rochester, which will take place Mid-April.

    For information on the Mock Trial program visit https://www.nysba.org/NYSMockTrial/

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