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The Morton Memo - October 2009

As we enter the last quarter of 2009, it's time to reflect on where we may be going in 2010. In today's climate, it's more important than ever to tend to our "legal and financial housekeeping" responsibilities. Protecting your business and your family from the economies fluctuations is key to long term success. And, it doesn't hurt to remain optimistic as the new year approaches. This issue addresses key issues that protect both you and your business. The Morton Memo is for you, so kindly email me those topics of interest to you.

>> Creating Your Own Recession? Let'sTalk Recovery

>> Dead Ringers: Stealing From The Departed

>> Regarding Copyright Laws



Earlier this year, I was speaking with a business consultant. We were talking about the state of the economy and the terrible situation of some industries. After we discussed this for a little while, he said something that I thought was very wise: “We have to be careful not to create our own recession.”

Given the almost constant bombardment of doom and gloom for the past year or more, it is too easy to cast a long and dark shadow from the economic news. This is not to say that the news isn’t bad. Every industry has suffered. The legal industry has seen massive layoffs in the big firms. The mortgage companies, apparel manufacturers, graphic design companies and heavy industries have all suffered. The construction industry and anything to do with real estate has been hit hard. Even public entities are cutting personnel and services.

However, concentrating on the bad news and getting into a mindset of fear can create our own recession. In addition to keeping mentally out of the recession, here are a few ideas to stay out of trouble and persist in the current economic times:

1. Take advantage of opportunities. Companies that are founded or create new products and services during tough economic times are often very successful. The cereal company Kellogg’s increased its advertising and introduced new products in the depths of the Depression. At that time, the early 1930s, dry cereal was a relatively new product and Kellogg’s competitors were cutting back on development of products and advertising. The result is that Kellogg’s came to dominate the industry (and still does).

In my own practice, I am looking for more business from companies that realize that they don’t need a large law firm to handle many of their business transactions.  The owners and officers of small and medium sized businesses are realizing that paying huge fees and waiting a week or more for legal work doesn't make sense.  They are getting an experienced attorney to do the same work for less cost and in a shorter time.

2. Bargain. Many companies are willing to reduce their prices on goods and services during these times. Often they will do so because they need the business, or to reduce inventory, or as a loss leader. You now have greater bargaining power regarding rates and payment terms, so take advantage of it.

3. Don’t do business with desperate people. This is a caveat to the above. If a deal is too good to be true, then it probably is. Businesses on the brink of failure are desperate for customers. They may take on products or services for which they have no expertise or qualifications. Construction work is a classic example. A desperate contractor may bid too low for a job or take on projects beyond his capacity to handle.

Another classic example (just to show that I am not picking on the construction industry) is the legal profession. Attorneys can easily get in over their heads, taking on matters or promising results that they cannot deliver. I have seen more unethical behavior by attorneys in the past 18 months than I have in the previous 20 years of practicing law. In each case, the source was desperation for business and fees. The attorney promises too much, bills too much, does not advise the client that nothing can be done or that the client should retain another, better-qualified attorney. (An ethical and competent attorney is one who will unhesitatingly tell you that you should do nothing or that you should hire another attorney - if that advice is appropriate.)

If someone is offering you the moon and stars for an unbelievable price, then you should be very cautious.

4. Make sure your transactions are correct. When money is tight and business is slow, people tend to get shifty–in a classic sense of the word. Too many people will try to shift out of deals if given a chance or they believe that they can squeeze more from a deal. Now is the time to nail down all the details of a deal in advance. Get the contract properly reviewed and documented so that the other party does not have wriggle room to not perform.

5. Give more value. No matter what the times, people appreciate good service and quality products. Go the extra mile for your customers. Do the little things well and honor your agreements. People will remember. Bad times don’t last forever.  In the end, people will remember the business that was there for them and acted with integrity and diligence, despite the hard times.

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Occasionally, businesses, or their marketing advisors or graphic designers, want to improve their advertising or the marketability of products by including images of famous persons. While most people know that they cannot use the image or name of living persons, I frequently see misunderstandings about the name or likeness of famous deceased persons. The dead person won’t mind, right? Many of us have seen the classic velvet painting of Elvis or other iconic images of deceased stars.

However, portraying the dead person without permission of their estate (or other registered successors) is a violation of the California Civil Code (section 3344.1 to be exact). The only exceptions are references in music, plays, articles in magazines, books, and other specified forms of entertainment. Products and advertising for those products are not covered by the exceptions.

The statute’s protection is fairly broad: if a person has died within the previous 70 years and the person’s successor registers with the state, then the deceased person’s image and name cannot be used without the permission of the successor. The successor is usually the trustee of a trust or the executor of the estate. If the deceased person’s image or name is misappropriated, then the deceased personality’s successor may bring legal action. The California Secretary of State keeps a registry of successors who can enforce section 3344.1 rights. There are registrations for Elvis, Jimi Hendrix, Johnny Cash, Bob Marley, Louis Armstrong and many others.

The successor can obtain an award of statutory and actual damages, punitive damages, attorneys, fees and an injunction.

Copyright Infringement

But, there’s more. Often these images are readily identifiable as being derived from famous photos. For instance, album cover photographs are commonly misappropriated for Jim Morrison, Louis Armstrong and Bob Marley.

The problem is that someone (a photographer, record company, for example) owns the copyright to each of those photographs. Using images derived from those photographs is an infringement on the copyright of the photograph and a violation of section 3344.1. Even if you do not use the actual photograph or adapt the image in a collage or some other form, it may still be a copyright violation in what is called a derivative work.

Willie Nelson’s tour bus is a case in point. A few years ago, Willie Nelson had someone spray paint an image on his tour bus. The image was taken from a painting that Nelson or the spray painter liked. A photographer took a photo of the tour bus (with the image on the side) and sold the photo to the producers of a CD of Willie Nelson live on tour. The producers used the photo for the CD’s cover art. Sony Records sold the CD with the cover art that included the photo with the image taken from the painting. The artist who owned the copyright for the original painting sued Sony. The artist won.

So, if you see a photo of Bob Marley or Johnny Cash and you want to use it, you must obtain permission from both the owner of the photo and the deceased personality’s successor. Or avoid trouble and the possibility of a lawsuit and just find something else to use.

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copyright lawWith everything from Gucci handbags to rap music driven these days by the Internet and the influence of international manufacturing and markets, I’d like to share the following notes with my readers on the subject of copyright laws.

The Power Of Copyright Laws

In June, a jury awarded $1.92 million dollars to the Recording Industry Association of America (RIAA) in a Federal copyright infringement case regarding music piracy. You would think that the defendant in such a case would be a large company like Napster or someone who had pirated thousands of songs. However, the judgment was against a 32-year-old woman from Minnesota who offered 24 songs for download using the Kazaa file-sharing program. The jury found her liable for damages of $80,000 per song! As of this year, the RIAA had sued more than 40,000 individuals for file sharing.

Of course, RIAA will never collect this judgment from the defendant, who is an ordinary woman with no money. The real point of going to trial was to send a message that the music industry is serious about infringement and a warning that it would sue individual infringers. Critics say the legal offensive has done little to stem the tide of illegally downloaded music. And it created a public-relations disaster for the industry, whose lawsuits targeted, among others, several single mothers, a dead person and a 13-year-old girl. For the recording industry, the “toothpaste is out of the tube” and nothing will return the business to its old ways. But RIAA lawsuits persist.

These cases also illustrates the potential power of copyright law and why I urge my clients to diligently register their copyrights. If you have a copyright registration with the U.S. Copyright Office at the time that someone infringes on your copyright, you can sue and collect up to $150,000.00 in statutory damages per violation, as well as statutory attorneys’ fees and costs.

Laws Encourage Lawsuits

The copyright laws are designed to encourage lawsuits by copyright owners. The only prerequisites are an enforceable copyright that is registered before the lawsuit is filed. If the registration is not filed before the infringement, the copyright owner loses a number of rights and remedies, including a significant reduction in the damages and fees that can be collected.

Things That Are Not Protected By Copyright

Recently, I have seen a few instances of persons claiming to own a copyright to something that cannot be copyrighted. The confusion arises because copyright laws do not protect the depiction of a “useful article.”

Useful articles are objects that have a utilitarian function. Cars, clothing, furniture, or silverware are examples of such items. Probably the classic example is clothing. Dresses by famous designers are copied and sold almost as soon as they are displayed publicly. The designers can do nothing about such copies because clothing is exempt from copyright protection. If a dress had a unique floral pattern printed on it, the fabric pattern might be protected but not the dress. This is very common.

Makers of clothing designs will often claim that their designs are protected. For instance, some dress-pattern designers will sell the designs with a copyright notice stating that the sale of products made with the design is prohibited. This is false. The design itself—the pattern—is copyright protected. Someone cannot take the design, copy it and sell it. However, a dress made from the design—a “useful article”—can be commercially sold.

I should point out that this is different from the misuse of a designer’s name on clothing, better known as a “knock-off,” which violates trademark law. I can copy a Gucci handbag and sell it but I cannot legally include the Gucci name on that handbag. (Of course, no one is likely to buy a Morton brand handbag.)

Another example is automobiles. For example, I am acquainted with one firm that makes drawings of cars and SUVs and prints those drawings on their goods. That is not an infringement because the design of a vehicle is not copyright protected. However, the drawings themselves are protected.

I recommend that you take the time to clarify how the laws apply to your product designs or other materials, as some things simply cannot be protected. Generally speaking, the expression of an idea can be protected as long as it is not for the making of a useful object. It is important for business owners to understand these distinctions.

If you have questions or would like to learn how we can train you and your staff on copyrights, please give us a call at (760) 722-6582.

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© 2009 Law Offices of Eric D. Morton