What’s Happening Now in Technology, Small Business & Contracts

Technology News

Patents

Are you a small business that considered applying for a patent, but didn’t because of costs? The America Invents Act, which went into effect in September 2011, provides some financial relief in the form of a fee reduction. However, how a small business can take advantage of the fee reduction was unclear until this month. A filing fee reduction of 75% may apply if your business qualifies as a “micro entity.” A micro entity is defined as an applicant who certifies that “that the applicant: (1) Qualifies as a small entity as defined in 37 CFR 1.27 (2) has not been named as an inventor on more than four previously filed patent applications …; (3) did not, in the calendar year preceding the calendar year in which the applicable fee is being paid, have a gross income, as defined in section 61(a) of the Internal Revenue Code of 1986 (26 U.S.C. 61(a)), exceeding three times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census; and (4) has not assigned, granted, or conveyed, and is not under an obligation by contract or law to assign, grant, or convey, a license or other ownership interest in the application concerned to an entity that, in the calendar year preceding the calendar year in which the applicable fee is being paid, had a gross income, as defined in section 61(a) of the Internal Revenue Code of 1986, exceeding three times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census.” For further information, please contact the USPTO and James Engel, Senior Legal Advisor ((571) 272–7725), Office of Patent Legal Administration, Office of the Deputy, Commissioner for Patent Examination Policy.

Social Media

Ever wonder what is and is not allowed with social media advertising? Being in compliance with the specific social media company’s rules does not guarantee that you are in compliance with the Federal Trade Commission (FTC). Among other goals, the FTC promulgates rules, monitors and enforces laws related to unfair and deceptive trade practices. As computer, smart phone and mobile device screens become smaller, some businesses are removing lengthy disclosure/disclaimer language that clutter the screens. This month, the FTC prepared some guidance for both businesses and consumers regarding advertising for online media distribution. Here is a summary of the new guidelines:

  1. The same consumer protection laws apply online as they do in print or other media. The FTC’s rules and guides are not medium specific and may apply to many online behaviors.
  2. Claim qualification should be incorporated in the advertiser’s message (when practical).
  3. Required disclosures must be clear and conspicuous.
  4. As a “sub requirement” to guideline 3, advertisers should place the disclosure as close as possible to a claim which may otherwise be deceptive.
  5. If a disclosure is necessary to prevent deceptive advertising, don’t publish the ad on that particular media platform.

Summarized from “.com Disclosures – How to Make Effective Disclosures in Digital Advertising,” Federal Trade Commission, March 2013.

Gayton Law can review your online advertising to ensure compliance with these guidelines.

Small Business News

Employee Benefits

Employee benefits and federal and state leave requirements are expensive for businesses, especially small businesses. The relationship between and employer and employee should be based on trust, and when an employee negotiates leave under the Family and Medical Leave Act (“FMLA” or “Act”), trust is paramount. Unfortunately, that trust may be abused as outlined in a recently decided case, Lineberry v. Detroit Medical Center et al., No. 11-13752 (E.D. Mich. Feb. 5, 2013), where an employee who took leave under the Act, was fired for failure to comply with company policy.

As background, Lineberry, a registered nurse, was placed on FMLA leave because she experienced excruciating back and leg pain after moving stretchers. During her FMLA leave, Lineberry posted photos on her Facebook page where she was seen drinking beer and riding a motor cycle while on vacation. Her co-workers, who saw her Facebook page, reported these activities to her boss, who initiated an investigation into possible termination. Lineberry’s employer, Detroit Medical Center (“DMC”), requires an investigation when an hourly employee is facing termination.

After the investigation, DMC’s human resources representative wrote a letter to Lineberry terminating her employment. The letter said that Lineberry was being terminated for failure to abide by DMC’s discipline policy which provided that an employee may be terminated for “[d]ishonesty, falsifying or omitting information, either verbally, in written format … on DMC records including, but not limited to payroll records, human resources records etc.”

Lineberry brought a lawsuit against DMC for “(1) interfering with and denying her right to be reinstated to her position as staff nurse with DMC upon return from her FMLA leave, and (2) retaliating against Plaintiff for taking FMLA leave” both of which are rights guaranteed by FMLA. DMC responded by filing a counter-complaint where DMC sought to recover $3,636.57 it paid Plaintiff in short-term disability benefits.

When the court reviewed the case, it noted that in Michigan, “interference with an employee’s FMLA rights does not constitute a violation if the employer has a legitimate reason unrelated to the exercise of FMLA rights for engaging in the challenged conduct.” Edgar v. JAC Products, Inc., 443 F.3d 501, 507 (6th Cir. 2006) (emphasis added). Because Lineberry was unsuccessful in proving that DMC violated the FMLA by terminating her employment, the court agreed with DMC and dismissed the case.

Please note that this case was tried in Michigan and may not apply in your jurisdiction. Gayton Law can help you draft employment policies which may help prevent similar abuses.

Sequestration and Small Businesses

Under the Balanced Budget and Emergency Deficit Control Act of 1985, some automatic cuts became effective on March 1, 2013, including a reduction to the “refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers under Internal Revenue Code section 45R.” The refundable portion for these employers will be reduced by 8.7 percent and will be applied until 9/30/13, or until Congress intervenes.

Please contact your tax professional to see if this applies to you.

Contracting News

Collusion

Times are tough and many business owners spend sleepless nights trying to figure out how to make ends meet (perhaps joining with competitors to keep prices high), but the law never rests. Price-fixing is one area of antitrust law about which even small businesses should be aware. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) enforce laws related to price fixing which is “is an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold”. Price fixing violations come under the Sherman Act, which was enacted into law in 1890.[i] The reason why price fixing is under tough scrutiny is because “[w]hen consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors. When competitors agree to restrict competition, the result is often higher prices. Accordingly, price fixing is a major concern of government antitrust enforcement.” FTC Guide to Antitrust Laws. Depending on the nature of the price fixing behavior, a case may be brought by either the Department of Justice or the Federal Trade Commission.

On February 8, 2013, the DOJ settled with Holtzbrinck Publishers LLC, which does business as Macmillan. DOJ said that Apple and five publishers, including Macmillan, had conspired to “eliminate retail price competition, resulting in consumers paying millions of dollars more for their e-books.” The DOJ complaint said that Apple and the five publishers were unhappy with e-book prices and related low profit margins. The settlement requires that Macmillan immediately allow retailers to “lower the prices consumers pay for Macmillan’s e-books.” The DOJ is continuing its litigation against Apple.

Before entering into a contract with a competitor, ask Gayton Law to review the document to make sure that the agreement is not anti-competitive.

Contractor Fraud

The Justice Department announced on March 18, 2013, that executives at two Arlington, Virginia based businesses pled guilty to “fraudulently obtaining more than $31 million in government contract payments that should have gone to disadvantaged small businesses.” The court records do not identify the company names (they are identified as Company A and Company B), but the named conspirators are Keith Hedman of Arlington, Virginia and Dawn Hamilton of Brownsville, Maryland. According to the DOJ press release, Hedman formed a company with “an African-American woman who was listed as its president and CEO to enable the company to participate in the Small Business Administration’s (SBA) Section 8(a) program, which enables certain small businesses to receive sole-source and competitive-bid contracts set aside for minority-owned and disadvantaged small businesses.” He then formed another company to operate as a shell company in order to secure contracts for which the first company could not qualify. Dawn Hamilton was a “figure-head” owner who could qualify for 8(a) contracts due to her “Portuguese heritage and history of social disadvantage, when in reality the new company would be managed by Hedman and senior leadership” from Hedman’s other company. In 2011, Hedman withdrew $1 million from the second company’s account and distributed the funds in cash to co-conspirators. Hedman and Hamilton together brought in $31 million in government contracts. Hedman and Hamilton pled guilty to “major government fraud and face a maximum penalty of 10 years in prison and a multimillion-dollar fine. Hedman also pleaded guilty to conspiracy to commit bribery, which carries a maximum penalty of five years in prison. Hedman agreed to forfeit more than $6.3 million, and Hamilton agreed to forfeit more than $1.2 million.” Sentencing is scheduled for June 2013.

Have a government contract problem? Gayton Law can help!

Publications

In March 2012, Kendall-Hunt publishers released the 9th edition of Legal Aspects of Engineering by Cynthia Gayton. This book is used in several engineering courses and is a useful reference for anyone interested in contracting, intellectual property, engineering practice, and other general legal issues.

Thank you for reading!

The information contained in this post is for general guidance on matters of interest only. The application and impact of laws can vary widely based on specific facts. The information contained in this post should not be construed as a substitute for consultation with professional advisors. Certain links in this post connect to other websites maintained by third parties over whom Gayton Law has no control. Gayton Law makes no representations as to the accuracy or any other aspect of information contained in other websites.

© 2013 Gayton Law


[i] Interested in the events behind the Sherman Act? Consider watching “The Men Who Built America.”

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