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The Morton Memo - MAY 2009

Law Offices of Eric D. Morton provide quality and responsive legal services

Welcome to The Morton Memo. By changing to a digital format, we will be increasing the frequency of publishing, and by going paperless, we are also joining the "green revolution." You'll continue to find valuable information that will be helpful in making your business a success. Look for The Morton Memo more frequently in your e-box, and please let us hear about those issues that are pertinent to you. Email: emorton@ericmortonlaw.com.

>> Protecting Your Business Assets

>> Employees' Wages Are Sacred

>> Be Cautious of Web Links

 

PROTECTING YOUR Business Assets

Copyright registration can be extremely important to the protection of a business’s assets. Copyright protection extends to software, art, photographs, written materials and many other works that express ideas. Copyright-protected materials are often the very basis of a business. Artists, photographers, software companies and many others solely traffic in copyright-protected works.

The registration of copyrights is important for two reasons: First, such a registration gives public notice of ownership of a work. Second, (and most importantly) the only way to enforce the ownership of a copyright is with a registration. A little explanation is in order here:

Unlike trade secrets and trademarks, the owner of a copyright can only sue an infringer of that copyright in a Federal Court. Each state has its own trade secret and trademark laws but there are no state copyright laws. The only copyright law in the United States is the U.S. Copyright Act (a Federal statute). With that law, the U.S. Congress specifically preempted the states from passing laws on copyrights or state courts from hearing cases regarding copyrights. So, if one wants to sue for copyright infringement, one must do so in the United States District Court for the appropriate district. (In San Diego County, we are in the U.S. District Court for the Southern District of California).

However, there is another catch. In order to enforce one’s copyright, the copyright must be registered by the U.S. Copyright Office. Once a work is registered with the U.S. Copyright Office, the owner may enforce his or her rights to enjoin infringement and seek damages for infringement under the Copyright Act.

The final problem is that there is a huge difference in the types of damages that can be awarded if the infringement of copyright occurs before the registration of the copyright or after registration. Generally, if a copyright owner can prove infringement, the court will issue an order for an injunction to prevent further infringement and the court will also award damages for any profits the infringing party gained from the infringement. Since damages are sometimes difficult to prove, the court may also award what are called statutory damages. Statutory damages are authorized by the Copyright Act and may be awarded even if a copyright owner cannot prove actual damages. The court can also order attorney's fees for pre-registration infringement.

As you can imagine, the ability to get statutory damages and incurring attorney's fees can make a big difference as to whether or not a copyright owner decides whether or not to file a suit or not. We encourage business owners to file applications for registration of their copyrights for any work that might be important to their company.

The following steps should be take to protect your copyrights:

  1. Always place a copyright notice on any work you own, as follows:
    © Copyright 2009, WXYZ, Inc
    This give persons notice of the ownership of the work and may allow greater damages for willful infringement.
  2. Register your copyrights. The U.S. Copyright Office makes the process of registering copyrights easy. To file a trademark one needs to give the U.S. Copyright Office three things: 1) a completed application, 2) a deposit of the work to be registered, and 3) the filing fee. One can apply for a copyright either electronically or by mail.

Electronic registration is done through the Copyright Office’s website. Instructions on the site state what can be registered electronically. Registration by mail is done through a form that is filled out on-line, then printed and mailed to the Copyright Office.

Once the basics of copyrights are understood, copyright registration is a straightforward process. We encourage our clients to file their own copyright registrations. To this end, The Law Offices of Eric D. Morton offers copyright-registration training. We meet with business owners and their staff and walk them through the registration process, including what can be registered and how to do so. Call us at (760) 722-6582 for more information and to make an appointment for copyright registration training.

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EMPLOYEES' WAGES ARE SACRED

Employees WagesFrom time to time, clients ask me about payment of employee’s wages, particularly, when an employee is being fired. Does the employer have to pay all of the employee’s wages on the date of termination? What if the employee stole from the employer or owes the employer money? I am not a specialist in labor law but the laws regarding the payment of wages to employees are really very simple.

Employees must be paid all of their wages on their payday. If an employee is terminated by an employer for any reason, then the employer must pay, on the date of termination, all wages owing as of the date of termination. Basically, you must give the employee a check on day that you fire him or her. Employers must not pay terminated employees through direct deposit, if the employee was receiving payment by direct deposit. The direct deposit must be cancelled and the employee paid immediately on termination. If an employee quits, the employer has three days to pay the quitting employee.

Employers may not deduct anything (other than taxes and certain other lawful deductions) from an employee’s wages. If an employee owes the employer money, the repayment of the debt must not be tied to the employee’s wages. The only exception to this is if the employee agrees to the deduction, in a specified amount, and in writing.

Even if an employee steals from an employer, the employee must be paid in full on termination. The penalties are severe for nonpayment of wages. Employers can be charged a day’s wages for each day that an employee is not paid. This is true for both terminated employees and employees who are not paid on their payday.

Under California law, an employee can seek to what are called “waiting penalties” equal to the amount of the employee’s average daily wage for every day that the employee is not paid in full up to 30 days. These penalties will be awarded in addition to any wages that are owing to the employee, and they are awarded for calendar days, not business days. For example, an employee’s daily wages are $100.00 a day. The employee is terminated and is owed $200.00 for two day's wages. The employer does not pay the employee. After 30 days, the employer will owe the employee $3,200.00: $200.00 for the wages owing and $3,000.00 in waiting penalties. Ouch!

California’s laws regarding compensation date back to the Great Depression. They are strictly enforced and liberally interpreted in favor of the employee. Basically, employees’ wages are sacred. It behooves any employer to be very careful in the payment of wages. I recommend that employers hire payroll companies to calculate wages and deductions. If, as an employer, you are ever in doubt as to your obligations to pay wages, please consult with your payroll company, a human resources specialist or an attorney.

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BE CAUTIOUS OF WEB LINKS

tradesecretsAlmost every business owns a website. Even individuals have websites or Facebook pages, often with links to other sites. Providing links on a website is also a way of being of service to the viewer of the site. For instance, the website for the Law Offices of Eric D. Morton, www.ericmortonlaw.com has a links page that is devoted to informational websites that might be useful to our client.

An increasingly common marketing—and highly recommended—tactic is to obtain many links to a business’s website. The more there are to a website, the greater the visibility of that site on the Internet, particularly with search engines. I have received several invitations to provide a link on my website in exchange for a link on another business’s website.

Some companies will even offer to place advertising on a website in the form of banner ads or other forms of advertising.

However, there are dangers in providing links to other websites. If a website conducts illegal or tortuous activities, a person who directs third parties to that site may be found to have aided and abetted such illegal activity. For instance, if a website provides an advertisement to an illegal gambling site, then the link provider could be held to be liable to persons losing money on that site through class action lawsuits and other legal action.

Many of the legal standards for liability for links were developed in the area of intellectual property. For instance, Federal copyright law provides that contributory copyright infringement liability exists if someone engages in personal conduct that encourages or assists the infringement activity. The contributory liability has been held to owners of websites who have links on their sites that lead to websites that display or provide material that infringes on the copyrights of a third party.

I have some general experience with this area. More than five years ago, I represented a company that provided on-line payment services. It was sued in a class-action suit in Orange County regarding an illegal on-line lottery. The persons who ran the lottery were in Texas and never answered the lawsuit—they were not important. The four important defendants were the four providers of payment services, including my client. The other payment systems' defendants included PayPal.

Plaintiffs essentially sued on the theory that the payment systems' defendants were aiding and abetting the illegal lottery. The defendants claimed that they did not know what the nature of the activity was; they only provided a lawful service.

Long story short, the trial court threw out the case and the court of appeal upheld the dismissal of my client and PayPal, but left the other two payment systems' defendants in the case. Since it presented a rather unique legal issue, the court published it. It is one of the few published cases in which I was the attorney of record.

Ultimately, what the case turned on was knowledge. The legal standard is that a business is liable for to a person harmed by the illegal actions of a third-party person if the business: 1) knew of the illegal activity of the third party, and 2) gave substantial assistance or encouragement to the illegal activity. All the defendants were held to have given substantial assistance in that they provided payment services. My client and PayPal got out because the Plaintiff did not allege that they knew of the illegal nature of the website.

What this means to businesses that provide links on their websites is not completely clear. Simply providing a link could hardly be considered “substantial assistance.” However, copyright cases seem to hold that knowingly providing a link to a website that is conducting illegal activity might be enough.

This problem is compounded by the fact that sometimes we can’t be sure what will be considered illegal or tortuous activity because no standards have been set and because of the changing nature of the business.

For instance, the Federal Trade Commission has recently begun cracking down on negative-option sales or “bump sales.” These are sales in which the consumer must affirmatively refuse to buy something. They take various forms such the classic Columbia Record Club in which you receive a new CD every month unless you refuse it. Other forms are more insidious, particularly on-line. Some sites employ pre-populated forms that will obligate the consumer to buy products unless the consumer removes the items from the form. Some of these practices are clearly fraudulent.

Negative-option sales are causing a stir in the Internet marketing industry because some Internet marketers do not want to be held liable for directing consumers to websites in which fraudulent “bump sales” occur. I believe that there may be a wave of litigation over these practices and many on-line marketing companies may be sued for directing consumers to websites that contain fraudulent bump sales.

Most website owners will never have the potential liability an Internet marketing company may have, but nevertheless, you should be wary. The following are suggestions for preventing legal exposure for links on your website:

  1. Check out the websites of proposed links. You should never blindly allow a link to your website simply because it is good advertising and/or the other party offers to put a link on your site.
  2. If you believe that a linked website is carrying on anything that appears to be illegal or is suspicious, then immediately cut the link. You must not knowingly direct consumers to a website on which suspected illegal activity is taking place, even if the advertisement you are promoting is legal
  3. Inform companies that have links on your website that you will not provide any link on your website that directs a consumer to a website from which illegal activity or unfair business practices are conducted.
  4. Have a contract in which the other party warrants that the website does not and will not conduct any illegal activity.

As I noted above, this area of law is not settled. I expect that the liability of persons providing links to websites with illegal advertising (whether it is through email advertising, website advertising, or simple links from one website to another) will be litigated and some standards will emerge. In the meantime, business owners providing links on their websites should employ some precautions.

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