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M&A Video Clip – Post-Closing Indemnifications: Common Issues in M&A Transactions 11/23/2015

Posted by Morse, Barnes-Brown Pendleton in Corporate, M&A, New Resources.
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In the ninth video of MBBP’s M&A Clip Series, M&A attorney Mary Beth Kerrigan describes post-closing indemnifications in M&A transactions.

M&A Clips Video #9 - Post-Closing Indemnifications in Purchase Agreements

Changes to Canadian Trademark Law 11/17/2015

Posted by Morse, Barnes-Brown Pendleton in Intellectual Property, Legal Developments, New Resources.
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On June 19, 2014, Bill C-31, Canada’s Economic Action Plan 2014 Act, No. 1, received Royal Assent. The Bill contains a large series of amendments to Canada’s Trade-marks Act and will allow Canada to (among other things) accede to three key international treaties: (1) the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (the Madrid Protocol); (2) the Singapore Treaty on the Law of Trademarks (the Singapore Treaty); and (3) the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks (the Nice Agreement).

The new regime is expected to come into force by late 2016 or early 2017. Those already owning or considering registration of a Canadian trademark should be aware of these new changes to Canadian trademark law. Read the full article here.

For more information on trademark matters, please contact Callie Pioli, Thomas Dunn or Sean Detweiler.

M&A Video Clip – Representations & Warranties: Common Issues in M&A Transactions 11/16/2015

Posted by Morse, Barnes-Brown Pendleton in M&A, New Resources.
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In the eighth video of MBBP’s M&A Clip Series, M&A attorney Mary Beth Kerrigan talks about representations and warranties in M&A transactions.



Happy Birthday Coca-Cola® Bottle! 11/16/2015

Posted by Morse, Barnes-Brown Pendleton in Intellectual Property.
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Coke Bottle100 years ago today, inventor Alexander Samuelson was granted the design patent for the bottle that would come to be known as the iconic Coca-Cola® bottle. The design patent lasted 14 years and then expired, but obviously the design has lived on, and is now considered protected under trade dress laws. The term of design patents filed on or after Dec. 18, 2013 is now 15 years from the date of grant. However, if the ornamental features covered by the design patent are sufficiently distinctive, such as the Coca-Cola® bottle, then over time the design may be protected by common law trade dress, and may even be registered at the Patent and Trademark Office, both of which can provide intellectual property protection for years beyond the design patent term.

For questions about design patents – or to Share a Coke® – please contact Sean D. Detweiler.

M&A Video Clip – Earn-outs: Common Issues in M&A Transactions 11/09/2015

Posted by Morse, Barnes-Brown Pendleton in Attorney News, M&A, New Resources.
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In the seventh video of MBBP’s M&A Clip Series, M&A attorney Joe Marrow discusses earn-outs.


The Contours of Copyright #2: Can You Copyright Yoga Poses? 11/06/2015

Posted by Morse, Barnes-Brown Pendleton in Intellectual Property, Legal Developments, New Resources.
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Attorney Howard ZaharoffBy Howard Zaharoff

Section 102 of the Copyright Act tells us that “choreographic works” – i.e., dances – are protected by copyright. So if you’re Alvin Ailey or Saroj Khan, the copyright police will protect you if someone copies or publicly performs your original choreography.

But what if you’re Beto Perez, who created Zumba; or Arnold Schwarzenegger (governor, actor, bodybuilder), who developed his own workout routines; or Bikram Choudhury (yoga guru and plaintiff), who in 1979 published a book describing his “Sequence,” 26 asanas and two breathing exercises performed for 90 minutes in a room heated to 105 °F? Does copyright protect original workouts or yoga sequences?

Probably not. At least according to the 9th Circuit in the recent case, Bikram’s Yoga College v. Evolation Yoga.

Discussion: Bikram Choudhury, self-proclaimed “Yogi to the stars,” was important in popularizing yoga in the U.S. He claimed he developed his Sequence after many years of research and verification, and he touted its many health and fitness benefits. But when two students who attended his 3-month teacher training started their own studio, offering a “hot yoga” class very similar to his Sequence, he sued for infringement.

The district court ruled that the Sequence was a “collection of facts and ideas” not entitled to copyright protection. Choudhury appealed and the Circuit Court upheld the lower court’s finding.

The Court first reasoned that the Sequence is “an idea, process or system designed to improve health” (Choudhury himself described his Sequence as a “system” or “method” designed to “systematically work every part of the body”). Since Section 102 of the Copyright Act is clear that copyright does not protect any idea, process or system, the Court easily concluded that the Sequence was an unprotectable idea or system. Put differently: “Choudhury thus attempts to secure copyright protection for a healing art,” an obvious no-no.

Nor does the grace and beauty embodied in the Sequence matter, since many processes can be beautiful –a surgeon’s movements, a baker’s kneading – without being copyrightable. In other words, “beauty is not a basis for copyright protection.”

The Court similarly dispensed with Choudhury’s argument that, even if individual yoga poses cannot be copyrighted, the original sequence of poses he developed is copyrightable as a “compilation,” that is, a work formed by “the collection and assembling of preexisting materials.” Not so, said the Court: because Choudhury himself claimed that “the medical and functional considerations at the heart of the Sequence compel the very selection and arrangement of poses and breathing exercises,” the entire Sequence, no less than the individual poses, is itself a process and “therefore ineligible for copyright protection.”

The final – and, as discussed below, least satisfying – part of the Court’s holding is that the Sequence cannot be protected as a “choreographic work.” The Court acknowledged that this term isn’t defined in the Copyright Act (though the legislative history makes clear that the term excludes “social dance steps and simple routines”). But that doesn’t matter, says the Court: “The Sequence is not copyrightable as a choreographic work for the same reason that it is not copyrightable as a compilation: it is an idea, process, or system to which copyright protection” may not extend.

The Court also noted that daily life consists of “many routinized physical movements, from brushing one’s teeth to pushing a lawnmower,” which could be characterized as forms of dance (by whom, the Court does not say). Only the idea/expression dichotomy prevents people from obtaining “monopoly rights over these functional physical sequences.” So at least in the 9thCircuit, arrangements of physical movements with a functional purpose, such as improving one’s health or fitness, no matter how aesthetic or beautiful, are merely unprotectable ideas or processes and therefore cannot be claimed as anyone’s copyright.

An Interlude for Copyright Aficionados: The Court’s final argument – that compilations of physical movements that “serve basic functional purposes” are unprotectable ideas/processes and not protectable choreography – begs the question. It’s cheating for a court to simply declare that a sequence of physical movements that functions as a means to health and fitness is thereby an uncopyrightable process without explaining why other sequenced movements that have similar fitness benefits are copyrightable choreography (which is surely true of the athletic choreographic routines of Alvin Ailey and Pilobulus).

Is it the functional purpose (or effect) of Choudhury’s sequence of poses – i.e., that despite their grace and beauty, they are particularly conducive to fitness – which makes the Sequence an uncopyrightable process? Why? Rarely does the functionality of a work completely deprive it of copyright. Even the designers of “useful articles” can claim copyright in any “pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects.” If functionality were a copyright killer, architecture and software would have no protection.

Indeed, why not treat physical movements like architecture and software? Just as copyright law provides no protection for “individual standard features” of architectural works, or for standard routines and features of software applications, can’t we conclude that, although individual poses (or short sequences of poses) that are included in the Sequence and that are unoriginal, standard, or highly effective for fitness cannot be monopolized by copyright, the original overall selection and order of the poses can be deemed sufficiently original and aesthetic to qualify as copyrightable choreography?

In short, nothing in the Court’s opinion explains why the entire 28-step Sequence was ruled an unprotectable idea and no aspect or feature of these graceful movements could be deemed choreographic and copyrightable. This is not to say the Court is wrong. Rather, right or wrong, the Court failed to articulate any principles that distinguish movements constituting “a healing art” from movements constituting athletic dance.

Conclusion: Despite its unfortunate failure to provide a principled distinction between copyrightable choreography and uncopyrightable workouts, it remains undeniable that, in the 9th Circuit at least, there is no copyright protection for sequences of yoga poses intended to improve health and fitness, no matter how graceful or beautiful they may be.

Still, given the gaping hole left by this decision, and the popularity of fitness and yoga, it’s hard to imagine that the issue of copyrightable choreography won’t reappear soon. Or, as Arnold Schwarzenegger (as actor, not bodybuilder) might say: “I’ll be back.”

For more information on this topic, please contact Howard Zaharoff.

Massachusetts Data Protection Regulations 11/03/2015

Posted by Morse, Barnes-Brown Pendleton in Internet and E-Commerce, Legal Developments, New Resources, Privacy and Data Security.
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As a reminder, Massachusetts has enacted stringent data protection regulations (the Massachusetts Standards for the Protection of Personal Information of Residents of the Commonwealth, 201 C.M.R. 17.00 et seq. (the “data protection regulations”) and data disposal legislation (Mass. Gen. Laws ch. 93I) (the “disposal law”).

These laws likely apply to your business to the extent that you collect information (either from your own employees or in connection with providing goods/services) that falls within the meaning of “personal information” under the data protection regulations.  Although the definition of “personal information” under the data protection regulations is relatively narrow (a Massachusetts resident’s first name and last name or first initial and last name in combination with any one or more of the following data elements that relate to such resident: (a) Social Security number; (b) driver’s license number or state-issued identification card number; or (c) financial account number, or credit or debit card number, with or without any required security code, access code, personal identification number or password, that would permit access to a resident’s financial account), the data protection regulations impose high minimum standards for protecting such information.  (The definition of “personal information” under the disposal law includes the same information as that in the data protection regulations’ definition, except that the disposal law’s definition also includes a Massachusetts resident’s first name and last name or first initial and last name in combination with a biometric indicator.)

Among other requirements, the data protection regulations require the adoption of a written information security program (WISP) including certain minimum administrative, technical, and physical safeguards – among which are to oversee third-party service providers and adhere to specific computer system security requirements.  The disposal law sets forth minimum standards for the proper disposal of records (including paper documents and non-paper media) containing personal information.

To assist in the compliance process with respect to the data protection regulations, the Massachusetts Office of Consumer Affairs and Business Regulation has created a compliance checklist, as well as a guide for small businesses entitled “A Small Business Guide: Formulating A Comprehensive Written Information Security Program.”

If you would like help in preparing a WISP or addressing other compliance issues, please contact MBBP Attorney Faith Kasparian.

M&A Video Clip – Working Capital Adjustment: Common Issues in M&A Transactions 11/03/2015

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Corporate, M&A, New Resources.
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In the sixth video of MBBP’s M&A Clip Series, M&A attorney Scott Bleier explains why working capital is a vital piece of the M&A transaction.

M&A Clips Video #6 Common Issues in M&A Transactions- Working Capital Adjustment

The Sweetest Trademark Cases of 2015 10/30/2015

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Legal Developments, New Resources.
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By Callie L. Pioli

In 2015 the U.S. Patent & Trademark Office (“USPTO”) received hundreds of thousands of trademark applications. While the USPTO did not face a scary number of cases in the candy and sweets industry, the ones that did appear addressed some very creative issues. As we prepare for this year’s Halloween and brace ourselves for the accompanying sugar-highs, we took a moment to trick-or-treat for the sweetest trademark cases of the year.

In re Kabushiki Kaisha Lawson

LawsonThe Japanese mega-brand Lawson filed with the USPTO to extend trademark protection covering its Uchi Café Sweets product line, currently registered in Japan. Lawson is a well-known operator of 便利店, “convenience stores” whose product lines epitomize the trend of cute, or kawaii, designs and objects common in Japanese culture and gaining popularity in the U.S. as well. Unfortunately for Lawson, UCHI had already been registered in the U.S. by Austin, Texas’s Uchi, a Japanese restaurant. Because of the similarity of the goods at hand, the USPTO declared that there is a likelihood of confusion among consumers as to the source of the confections, and accordingly denied registration.

In re Kristin Harris

GlutenIt is estimated that 1 of every 133 Americans suffers from Celiac disease; more still suffer from gluten-intolerance or gluten allergies. A great many delicious treats contain gluten-based sweeteners, such as barley malt, to sweeten the products (pure cocoa is devastatingly bitter.) Further, the tools and machinery used to harvest and process cocoa beans are often the same tools used to harvest and process wheat and other grains, creating cross-contamination issues for those with allergies. In response, entrepreneur KristAnn’s online store caters to those who are afflicted with Celiac disease, and offers shoppers the opportunity to purchase apparel and confections under the CELIABRATE (a combination of “celiac” and “celebrate”) brand. The issue that concerned USPTO was the use requirement. As trademarks are granted based on a mark’s use in commerce, a specimen demonstrating such use has to be submitted to the USPTO office during the registration process. In the specimen demonstrating use, KristAnn combined its mark with other phrases such as “Celiabrate Life,” “Celiabrate Love” and “Celiabrate Bliss.” The Examining Attorney felt that such combinations were inconsistent with the CELIABRATE mark for which KristAnn initially sought protection. Fortunately for KristAnn, the Trademark Trials & Appeals Board (“TTAB”) disagreed with the Examining Attorney based on the mark’s use with the variety of additional terms, as well as the mark’s independent significance. With the TTAB’s reversal of the Examining Attorney’s position, the mark will move on through the registration process and KristAnn may quite soon have another reason to Celiabrate!

In re August Storck KG


Have we gone 2far in our trans4mation of letters in common words? German candy company August Storck seemed to think it could push the boundaries a little farther. August Storck, known primarily in the U.S. for their brand “Werther’s Originals,” sought protection for its latest product in the candy market: “2good”. It is 2bad however that the mark “toogood” is already registered for use by the French distribution company Triumph Snat. The TTAB issued an opinion that, while not visually identical, the two marks were phonetically identical, and as the goods sought to be protected are substantially similar (though connoisseurs of German and French chocolate may disagree), there is a high likelihood of confusion between the two marks. August Storck was just 2 L8 this time.

For the rest of our list, click hereFor more information on trademark matters, please contact Callie Pioli.

Privacy for the Peeple 10/27/2015

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Legal Developments.
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Callie L Pioli Web Hi Res Crop (M0702163)The concept behind the latest app startup, Peeple,  has been trending on almost every social and mainstream media outlet for weeks and has been collectively referred to as the “Yelp for People.” The app’s purpose is to allow users to rate individuals much the way they would a restaurant: one a one-five star rating system. Users must be over the age of 21 and have a Facebook account. All reviews must be posted under a user’s real name. As originally conceived, anyone you had ever given your phone number to, or anyone who could locate it in a directory, could create a Peeple profile for you. Once your profile was created, any user can post a review of you, whether you gave them your phone number or not and regardless of whether you yourself used the application. Upon learning of the application, many have asked “how is this even legal?

MBBP’s Callie Pioli has the answer. Read the full article here.

Improving and Expanding Training Opportunities for F-1 Nonimmigrant Students With STEM Degrees and Cap-Gap Relief for All Eligible F-1 Students 10/26/2015

Posted by Morse, Barnes-Brown Pendleton in Immigration, Legal Developments.
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Immigration Attorney Grant GodfreyBy: Grant W. Godfrey

On October 19, 2015, the Department of Homeland Security (“DHS”) published in the Federal Register a proposed rule that would revise work authorization for F-1 students.  The proposed rule addresses extensions of F-1 post-completion Optional Practical Training (“OPT”) for foreign students who have completed U.S. degree programs in the fields of Science, Technology, Engineering, or Mathematics (“STEM”).  The proposed rule, if enacted as published, would replace the current STEM OPT regulations that were invalidated by court decision  in August 2015 on procedural grounds. To mitigate potential harm to foreign students and their employers, the court stayed its judgment for six months, i.e. until February 2016, to give DHS time to promulgate new regulations in accordance with the Administrative Procedures Act.

The proposed rule stays within the spirit of the rule that has previously been in effect, with a few twists.  Highlights include:

  • The STEM OPT extension of work authorization will be increased from 17 months to 24 months;
  • F-1 students who have graduated from a non-STEM degree field, but previously received a STEM degree in the U.S., may be able to use the STEM OPT extension if they meet certain eligibility criteria;
  • The employer must draft a formal mentoring and training program and submit it to the school before the F-1 student can apply for the STEM OPT extension.  The program needs to include formal evaluations and those evaluations must be submitted to the school prior to the conclusion of the STEM OPT program;
  • The employer will need to attest that: (1) the duties, hours, and compensation of the student will be in line with similarly situated U.S. workers; (2) it has sufficient resources and personnel to carry out the training program; (3) it will not terminate, lay off, or furlough any U.S. workers as a result of the program, and (4) the job opportunity furthers the training that the student received in the degree program;
  • The employer must be registered on E-Verify; and
  • Some of the students who are currently employed using the current 17 month STEM OPT extension will be allowed to apply for the extra seven months of employment authorization if they otherwise meet the requirements under the new program.

DHS will accept comments on the proposed rule until November 2015.  They will then need to review the comments, draft a final rule, and publish the final rule at least 60 days before it becomes effective.  We will provide updates when the final rule is published.  In the meantime, please do not hesitate to contact a member of our Immigration Team with any questions.

The Contours of Copyright #1: Can You Copyright Fast Foods? 10/19/2015

Posted by Morse, Barnes-Brown Pendleton in Intellectual Property, Legal Developments, New Resources.
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Attorney Howard ZaharoffBy Howard Zaharoff

As broad and creator-centric as copyright is, it doesn’t protect every creative output. For example, as a recent case confirmed – to no one’s surprise (probably not even the plaintiff’s) – copyright does not protect chicken sandwiches, nor even chicken sandwich recipes, nor even chicken sandwich names, no matter how original.

The conflict began after Noberto Colón Lorenzana, while employed by a Puerto Rican fried chicken chain, invented the “Pechu” chicken sandwich. Ultimately his employer greatly benefited from sales of the sandwich and various derivative items, but never compensated Mr. Colon for these remunerative products. Feeling he’d been cheated, Mr. Colón filed an amorphous set of trademark, fraud and (the district court generously found) copyright claims.

After ruling against Mr. Colón’s trademark claim – having never used the mark, he had no trademark rights to infringe – the court considered his assertion of copyrights in his sandwich. After quoting Section 102(a) of the Copyright Act, to the effect that copyright does not protect ideas or inventions, but only works of authorship, and remarking that the Register of Copyright specifically denies copyright to “mere listings of ingredients,” the court stated: “Neither plaintiff’s idea for the chicken sandwich recipe or the name ‘Pechu Sandwich’ is subject to copyright protection.”

To drive home its message, the court proceeded to note that neither the idea for the sandwich, nor its recipe, nor the concept of serving a chicken sandwich at a fast food restaurant, nor even the term “Pechu Sandwich,” were subject to protection by copyright (regarding the last, the court quotes several cases to the effect that copyright does not protect fragmentary words or short phrases).  In short, to the extent the plaintiff was raising a copyright claim – not clear from the proceedings – it was “dismissed with prejudice.”

The case was appealed to the First Circuit, which upheld the district court’s holdings. Regarding the copyright claim, the appeals court noted that neither the recipe nor the name fits any of the categories of eligible works and endorsed the district court’s finding that “a chicken sandwich is not eligible for copyright protection.”

So eat your hearts out, designers of designer-sandwiches and other food products … and be happy that, if you do, you’re not infringing anyone’s copyrights.

Stay tuned for more examples of what copyright does not – and does – protect.

For more information on this topic, please contact Howard Zaharoff.

MBBP Upcoming Exclusive Event – The JOBS Act: What You and Your Company Need to Know 10/15/2015

Posted by Morse, Barnes-Brown Pendleton in Events, Legal Developments, MBBP news.
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morseThe Jumpstart our Business Startups Act, commonly referred to as the “JOBS Act,” was signed into law in 2012 as a way to incentivize funding of United States emerging growth companies by easing various securities regulations.

Please join MBBP and Marcum on Thursday, November 12, for a discussion on the new MarcumLogorules and the impact this law has had on the equity crowdfunding and startup community since its inception, and how this may affect you and your company. CPE credits will be offered. 

We hope you can join us for this exciting event. Attendance is free, but seating is limited. To register today, click here.

MBBP Attorney to Discuss Judicial Developments Pertaining to Venture Capital at ABA WebEx Meeting 10/14/2015

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Corporate, Events.
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Corporate Attorney Scott BleierOn Friday, October 23 from 1-2pm, MBBP Corporate Attorney Scott Bleier will sit as one of four panelists at a WebEx meeting hosted by the Private Equity and Venture Capital Committee of the American Bar Association. The panelists will discuss important cases that are to be featured in the upcoming Annual Survey of Judicial Developments Pertaining to Venture Capital.

For the first time ever, the Annual Survey will be a featured article in The Business Lawyer, the very influential and widely read publication of the ABA that it is published on a quarterly basis each year.

Scott’s article, a case study of In Re Nine Systems Shareholders Litigation,  will be published this month in the newest issue of The Business Lawyer.

To learn more or to register for this event, please feel free to email MBBP directly.

M&A Video Clip – Escrow: Common Issues in M&A Transactions 10/14/2015

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Corporate, M&A.
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In the fifth video of MBBP’s M&A Clip Series, M&A Attorney Joe Marrow discusses escrow (or a hold back) which is common in most merger and acquisition transactions.


Client Alert: 4,500 Companies Reeling as EU’s Highest Court Invalidates Safe Harbor 10/13/2015

Posted by Morse, Barnes-Brown Pendleton in Legal Developments.
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client alertLast week, on October 6, the Court of Justice of the European Union (“CJEU”) issued a binding judgment invalidating the European Commission Decision that authorized the EU-U.S. Safe Harbor arrangement.  For the past fifteen years, this arrangement has been relied upon by many businesses to transfer personal data from the European Union to the United States in compliance with the EU Data Protection Directive. As a result of the CJEU’s judgment, self-certification under the Safe Harbor framework is no longer sufficient to comply with the Directive.

The CJEU judgment creates uncertainty for U.S. companies processing or storing EU data.  Without the protection of the Safe Harbor, U.S. organizations must take steps to ensure that any transmission of personal data from the European Union to the United States is carried out in compliance with the Directive.

The judgment also has implications for the European Union’s current efforts to reform the Directive and the U.S.-EU negotiations for a revised U.S.-EU Safe Harbor framework.

To learn more, please read the full Alert. Please do not hesitate to contact Morse, Barnes-Brown, and Pendleton’s privacy and data security team if you would like to discuss options for your business in light of this decision.

MBBP Attorney to Host Office Hours at TechSandBox on October 20, 2015 10/08/2015

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Events, Intellectual Property.
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IP and Technology Licensing Attorney Howard ZaharoffOn Tuesday, October 20th MBBP Attorney Howard Zharoff will host Office Hours at TechSandBox, providing legal guidance on topics that include licensing, partnering, and copyright, as well as on general business matters. These pro bono sessions give you access to experts in topics such as intellectual property, business formation, benefits, taxes, marketing, sales funding, IT and technology commercialization. Access is offered to Members and Non-members as space allows.

Sign up today to reserve your time slot by visiting TechSandBox!

M&A Video Clip – HSR Act and Timing Issues 10/05/2015

Posted by Morse, Barnes-Brown Pendleton in Corporate, Legal Developments, M&A, New Resources.
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In the fourth video of MBBP’s M&A Clip Series, Corporate attorney Mark Tarallo addresses HSR Act and timing issues related to closing an M&A transaction.


Did you miss last week’s topic? No problem. Check our archive.

BlueMetal Acquired by Insight 10/05/2015

Posted by Morse, Barnes-Brown Pendleton in Client News, Deal News, M&A.
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bluemetal-logoMBBP Client BlueMetal Architects, Inc., an interactive design and technology architecture firm based in the Boston area, was acquired in a merger transaction by Insight Enterprises, Inc.  a Fortune 500 company based in Phoenix, AZ.

MBBP has served as counsel to BlueMetal since its inception in 2010,  and advised it in connection with the structuring, negotiation and documentation of this merger. Mark Tarallo was lead attorney for the transaction.

For more information, read the full news release here.

Employers Cannot Pay Employees With Stock or Equity In Lieu of Cash 09/30/2015

Posted by Morse, Barnes-Brown Pendleton in Employment, Legal Developments.
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wht-logo[2]A company with a temporary cash shortage might be tempted to compensate employees with an ownership interest in the company (stock or equity) instead of with cash.

But, is this practice legal? Generally, the answer to this question is no. Under state and federal law, employees must be paid at least the minimum wage in cash. Providing equity does not fulfill this requirement.

An exception to this rule is made, however, if the employee comes within the exemption for executive-business owners provided for in the federal Fair Labor Standards Act (“FLSA”).

To be exempt as an executive-business owner under the FLSA, an individual must (1) be employed in a bona fide executive capacity, (2) own at least a 20% bona fide interest in the business and (3) be actively engaged in the management of the business.

Unless an employee meets each of these requirements, paying in equity alone could result in significant liability for the employer, as well as possible individual liability for the president, treasurer, and individual “officers and agents” of the employer’s corporate entity.

For further help in determining whether your employee comes within the executive-business owner exemption or questions about paying employees with equity, contact a member of our Employment Law Group.


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