Thursday, May 28, 2015

What: Andreas Killen, 1973 Nervous Breakdown: Watergate, Warhol, and the Birth of Post-Sixties America (Bloomsbury, 2006).

Why:  A review of the remarkable year when everything changed.

Just before the holiday weekend, the evening news ran a short story about the number of people expected to be traveling by car, despite a rise in the price of gas over the prior several weeks. This led me to reflect—as these things are wont to do—on a period in my life when you had to wait in long lines for gas, with no assurance that any would be left when you reached the pump.  Yes, I’m talking about 1973, the year I got my driver’s license, just in time for the Arab oil embargo and the resulting gas shortages. It was also the year of these songs, in case you were wondering. 

It turns out things were indeed as bad as I remember. And Andreas Killen, in his book 1973 Nervous Breakdown, reminds me that they were, in fact, much worse. As a child of the sixties, I have always had a vague feeling that sometime in the early seventies everything seemed to change. Killen designates 1973 as the year that happened. “By any standard,” he writes, “1973 marked a genuine low point in US history.”

In addition to the oil embargo, in 1973 the Vietnam War ended (much to my relief, as I was approaching draft age), coming to a grinding halt, not (as they say) with a bang but a whimper, becoming the first war popularly regarded as having been lost by the US. Add to that the beginnings of a “startling political crisis” arising out of the Watergate affair. On top of all that, the economy tanked, signaling “the end of the greatest prolonged boom in the history of capitalism.” The result?  “Any one of these events alone would have challenged America’s image of itself; together they shook the national psyche to its very core.”

With the benefit of hindsight, it seems that perhaps the greatest outcome of the resulting cultural reboot, arising from the loss of confidence in the government at the same time the economy stagnated, was a shift of faith to the private sector.  With this shift came renewed and reinvigorated entrepreneurial activity, which has blossomed ever since.

Thursday, May 21, 2015

What’s New in Town: The Spring Edition

Last fall, I wrote this post about new activities in the Twin Cities area. Since that time, Twin Cities entrepreneurs have been busy on some new things. So…just in time for the Memorial Day weekends of busy entrepreneurs, here’s my second installment: 

Trapped Puzzle Room.  Last weekend, a small group of puzzle lovers, including fellow entreVIEW author Dan Tenenbaum, had an opportunity to test out TRAPPED, a new team-based puzzle room experience in Uptown. *TRAPPED is scheduled to open to the public on Friday, May 29. Groups of 5-9 players are placed in a locked room filled with a series of intricate puzzles and a story surrounding them. The puzzles build upon one another, such that as the players solve one puzzle, they come closer to escaping the room. If the players haven’t escaped the room within an hour (you do get hints along the way if you get really stuck), they are freed and debriefed about the clues they missed. TRAPPED plans to initially offer players three different experiences: The Apartment, The Library, and The Workshop. Puzzle rooms are becoming wildly popular worldwide and can provide a great teambuilding experience with family, friends, or co-workers. Cost per person is $24.

Betty Danger’s Country Club. If you’ve driven through Northeast Minneapolis lately, you may have seen a Ferris wheel looming on the skyline. (Except it’s not technically a “Ferris wheel” — it’s “The Danger”). On the ground, you’ll find Betty Danger’s Country Club. Betty Danger’s is truly a one-of-a-kind experience — it’s part country-club and amusement park, features a plethora of outdoor-seating options, and specializes in cuisine that is Mexican and Hamptons-inspired. (Yes, that’s right, Betty Danger’s boasts that it is located in the “Village of Mexampton,” a combination of the two locales.) On the premises there is an 8 1/2-hole mini-golf course and, as previously mentioned, The Danger, a vertically-revolving patio complete with open-air dining cars. A typical ride on The Danger lasts 20 minutes and offers great views. A complete experience at Betty Danger’s will set you back a bit, but it’s definitely something I suggest you place on your summer to-do list.  

* Full disclosure (we are securities lawyers, after all), while TRAPPED was a really fun experience independent of any tie to Gray Plant Mooty, it is a client of our entrepreneurial services group!

Thursday, May 14, 2015


“Scam” notices for trademark services seem once again to be on the rise. Because filings with the United States Patent and Trademark Office (as well as state and foreign registers) are publicly available, unscrupulous entrepreneurs are able to easily obtain sufficient information to bombard applicants or registrants with personalized solicitations for services—often disguised as official notices of impending deadlines or bills for services.

Official-looking letterhead from such organizations as the “Trademark and Patent Office,” “Patent & Trademark Bureau,” “Patent and Trademark Agency,” or “United States Trademark Registration Office” generally appear as an invoice for a required registration or renewal fee, or for a new or continuing directory subscription or monitoring service. They are often sent in a windowed envelope bearing a warning such as “IMPORTANT—OPEN IMMEDIATELY” or “IMMEDIATE RESPONSE REQUIRED.” Some include return envelopes for the ease of payment. They have office/return addresses in Washington, D.C., Alexandria, Virginia, Arlington, Virginia, or a major city where government agencies frequently maintain branches—e.g., New York, Los Angeles, or Chicago.

One of the more common recent examples is from the “Trademark Compliance Center” (this one in Alexandria, Virginia). An invoice-like document bears the heading “Intellectual Property Rights Recordation Alert” followed by information regarding the recording of registered marks with the U.S. Customs & Border Protection. Designed in a way that suggests the recordation is either required or highly recommended, they are typically sent after a trademark owner initially files an application for registration even though marks cannot be registered with the CBP until the mark itself is registered. CBP registration is not required, and most registered trademark owners do not need or will not benefit from such registration.

Another example, from the “Trademark and Patent Office,” shows a “Balance Due” followed by a warning that the full amount must be paid by a specified date to avoid “additional penalties and like fees.” Only after this does the notice suggest that the bill is for monitoring services which may be suspended or canceled for nonpayment—not much of a threat if one has not been receiving such services. A notice from the “Trademark Registration & Monitoring Office” is similarly vague about what services are/have been provided, but states that notice to pay was “previously sent” and must be “paid in full today” or the TRMO may impose collection fees, discontinue monitoring services, discontinue notices regarding possible third-party infringement, etc.

While the foregoing notices are deceptive, the organizations may offer legitimate services, although I have not yet heard from anyone that engaged either of these or other similar parties. Other notices are just blatantly fraudulent. Such as the notice from the “Patent and Trademark Bureau” regarding renewal. The notice expressly states—in small print—that the Patent and Trademark Bureau is a private party and that the notice is a solicitation to provide services. However, it states that if engaged for the renewal services, the party’s trademark registration will be renewed for five years. Renewals of U.S. registrations are granted for ten years. The “Trademark Renewal Service” suggests that it is offering renewal services, but payment of the requested fee will only get you the documentation for renewal. The forms are available free from the USPTO.

The USPTO has received so many inquiries and complaints that it finally added warnings on its website about fraudulent solicitations masquerading as official notices. Recipients of such notices are encouraged to file complaints with the Federal Trade Commission. Although the FTC won’t resolve individual complaints or assist in the recovery of payments, the FTC may investigate and prosecute based on widespread complaints.

Anyone receiving a questionable notice or invoice should review it carefully and read the fine print. Many such documents state that they are not a government agency, but that the notice is a solicitation or something similar. Still, if it is not from the United States Patent and Trademark Office, be suspicious, and if it asks for a payment of any kind or says that you will be billed for the service, throw it away. 

Monday, May 4, 2015


Each morning as I gargle with Listerine, I am reminded that simple is sometimes best when drafting agreements. 

In 1881, Dr. J. J. Lawrence developed his now-famous antiseptic formula and agreed to make it available to Jordan Lambert. The simple two-sentence agreement used to transfer the Listerine formula reads as follows:

Know all men by these presents, that for and in consideration of the fact, that Dr. J. J. Lawrence of the City of St. Louis Missouri has furnished me with the formula of a medicine called Listerine to be manufactured by me, that I Jordan W. Lambert, also of the City of St. Louis Missouri, hereby agree for myself, my heirs, executors and assigns to pay monthly to the said Dr. J. J. Lawrence his heirs, executors or assigns, the sum of $20.00 for each and every gross of said Listerine hereafter sold by myself, my heirs, my executors or assigns. 

In testimony whereof, I hereunto set my hand and seal, Done at St. Louis, Missouri this the twentieth day of April 1881 Jordan W. Lambert.

Over almost 75 years, more than $22 million in royalties were paid to Dr. Lawrence and his heirs. The formula remained essentially the same. In 1959, Warner Lambert initiated litigation to void the agreement and end the royalty obligations. 

Warner Lambert argued that the formula was no longer a secret and the contract was unclear and indefinite as to duration. The court found in favor of Dr. Lawrence and his heirs: “There is nothing which compels the plaintiff to continue such manufacture and sale. The plain meaning of the language used in the agreement is simply that Lambert’s obligation to pay is co-extensive with the manufacture or sale of Listerine by him and his successors.”

Seventy-five years is fine with trade secret agreements, like the one covering Listerine, but you had better be careful when negotiating an agreement that includes patents. Royalties cannot exceed the 20-year patent term. 

Freedom to contract? Not so with patents. Just ask Peter Scheiber, the inventor of Surround Sound audio technology. Scheiber agreed in a patent license with Dolby to a lower royalty rate that went beyond the patent term. When Scheiber’s patent expired, Dolby stopped paying royalties. Even though the parties agreed to the extended payment period (at the request of Dolby!), the court determined that Dolby was not responsible for royalties after the patent expired. The court relied upon a United States Supreme Court case, Brulotte v. Thys. Co., 379 U.S 29 (1964). In Brulotte, the Supreme Court found that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.”

Brulotte has been viewed by many as discouraging flexible licensing practices. Some have even suggested that this long standing rule has had a negative impact on licensing in the pharma and life sciences industries and is an impediment to new medical treatments being brought to market. 

Though heavily criticized, Brulotte has remained the rule followed for patent licensing for over 50 years. But a recent Supreme Court case may finally put an end to Brulotte

On March 31, 2015, the United States Supreme Court heard oral arguments in Kimble v. Marvel Enterprises, 727 F.3d 856,863 (9th Cir. 2013). Stephen Kimble, the inventor of a toy that shoots foam string from a glove, settled a patent dispute with Marvel that resulted in an agreement that provided Kimble royalties for web-blaster products. When the Kimble patent expired in 2010, Marvel—like Dolby—cited Brulotte and stopped making royalty payments to Kimble. The Kimble case has made its way up to the Supremes. 

Will Stephen Kimble suffer the same fate as Peter Scheiber, or will Spiderman prevail and save the poor inventor from lost royalty payments? 

Will parties finally be given the freedom to negotiate and structure payment streams for patents that are relevant and meaningful to the transaction at hand?

Will Brulotte survive the Spiderman challenge? 

Entrepreneurs should stay tuned and pay very close attention to the Supreme Court’s forthcoming decision in Kimble v. Marvel Enterprises, as it may have a significant impact on how they can structure payment provisions in intellectual property agreements. 

Tip: To extend royalty payments, consider a hybrid agreement that includes both patents and trade secrets/know-how. And remember Listerine.

Thursday, April 30, 2015

Never Underestimate the Imagination of Technology Inventors

While I’ve never been afraid of technology (after all, I do work with lots of technology entrepreneurs), I’ve also never been someone who needs the latest gadget the moment it comes out. It may seem old fashioned, but I still read books made out of actual paper.

When two of my contacts (you know who you are) told me they stayed up until 2:00 a.m. so that they could order an Apple Watch as soon as it publicly launched, I was both a little incredulous and struck by the creative power of technology inventors to convince us all that we need the latest greatest gizmo. It seems like the stream of technology advances just keep coming. I know a certain entreVIEW author and colleague who isn't always that thrilled with new technology, but she isn’t going to stop new technology from coming into (or is it invading?) our lives.

Everyone seems obsessed with the "Internet of Things"  (or IoT if you’re really hip)—essentially, the ability to assign an IP address to any natural or man-made object. It seems like just about every time I turn around I hear about new capabilities of my mobile device (and it isn’t just about racially diverse emoji). It could be the ability to control your home with your iPhone or maybe even a smart toilet.  

People often tell me that they think I’m pretty creative (at least “for a lawyer,” admittedly a low standard). But sometimes I feel like I’ve had a right-brain lobotomy compared to technology inventors.  Of course, just because you can invent it doesn’t mean you have a business, right? Is there really a large market for a Bluetooth-enabled "personal massager"?  Doesn’t everyone need a toaster that can toast your selfie on bread?

Just to put some perspective on my skepticism about the need for every household item to be connected to the Internet, I do recall the first time I got a new “cell phone” (that’s what we called these things before they became mobile devices, remember?) that could take photos—admittedly grainy ones. The observation of one of my partners when I showed it to him was that the only thing he was more certain of than that I didn’t need my phone to take photos is that, somehow, within a year I’d wonder how I ever lived without the capability. More than a decade later, does anybody ever get a phone that doesn’t take photos (with effects, panaroma, full HD video, etc.)?

While I may not be staying up all night to get the next great technology “thing,” I’m sure it’s only a matter of time before I realize just how many of the “things” in my life somehow need to become part of the IofT. 

Wednesday, April 22, 2015

What: Joseph Wechsberg, The Merchant Bankers (Pocket Books, 1968)

Why: A fascinating look at the origins of some capitalist behemoths.

You may have heard the saying, “Great oaks from little acorns grow.” The Oxford Dictionary of Quotations tells us that this proverb has its origins in medieval England, but it continues to be an apt description of entrepreneurialism. This is especially true in the context of the huge merchant banks that once dominated—and, in some instances, still do dominate—the capitalist West from the small area known as the City of London. And, to my knowledge, no book describes this world better than Joseph Wechsberg’s The Merchant Bankers.

First off, this is an oldie but goodie, a snapshot taken in the mid-1960s. Some of the banks described in detail here, most notably Baring’s and Lehman Brothers, have since bitten the dust in spectacular ways. That does not detract from the stories behind their rise in influence and affluence. As Wechsberg notes, “Men have always been fascinated by the spectacle of other men making big money.”

Nearly all of these capitalist empires started as family businesses, where “there is one pioneer, who began with nothing and died rich.” They also originated out of other businesses: “Almost all merchant bankers were merchants before they became bankers. They traded with certain commodities in certain parts of the world, and later found it more profitable to leave the actual trading to others and to deal in credit instead of goods.” The book is loaded with tidbits along these lines. Did you know that Shell Oil (recently reported to be exploring the acquisition of BG for $70 billion) started as a company that traded in shells and grew into an oil company whose name reflects these lowly origins?

Even after great success, these dynasties have rarely rested on their laurels. One merchant banker summed up the secret of their success this way: “No one in the City ever stops learning.” That’s something any entrepreneur will recognize as key to the entrepreneurial way of life.

Monday, April 20, 2015

Crowdfunding (the SEC’s Version): What Is It and Where Does It Stand?

Recently, I attended a two-day continuing legal education seminar on the topics of Regulation D Offerings and Private Placements (sounds exciting, doesn’t it?). Crowdfunding, which as you know has been a frequent topic on this blog (see here and here, and even here and here for some examples), was also a significant topic at the seminar. Here are some of the presenters’ key points on the topic:

Crowdfunding is defined as using the Internet and social media to raise capital, usually from a large number of people, and in relatively small amounts from each person. Many start-up businesses that do not have easy access to traditional capital markets and/or venture capital fundraising are eager to engage in crowdfunding.  

In April of 2012, Congress passed the JOBS (Jumpstart Our Business Startups) Act. The JOBS Act  permits crowdfunding, but only subject to rules to be adopted by the SEC. The SEC has not yet adopted any such rules; its Regulation Crowdfunding, known as “Regulation C/F,” was proposed in October 2013, but the SEC is currently continuing to review comments. Unfortunately, until the SEC formally adopts Regulation C/F, crowdfunding as envisioned by the JOBS Act, other than traditional “non-equity” crowdfunding (or possible intra-state crowdfunding), is illegal.

Nevertheless, crowdfunding remains a hot topic in the entrepreneurial services world.  Here are just a few likely specifics about crowdfunding, as currently contemplated by Regulation C/F: 

  • It will be Internet- and social media-based only (in other words, it cannot be conducted by word-of-mouth);
  • Not just anyone will be able to engage in crowdfunding; in fact, public companies, hedge funds, and shell companies are just a few examples of entities that will be prohibited from crowdfunding;
  • There will be a $1 million maximum on funds raised via crowdfunding in any 12-month period;
  • Crowdfunding will have to be conducted through a (i) licensed broker-dealer or (ii) “funding portal” (either is referred to as an “intermediary”). Funding portals will be regulated by the SEC and FINRA and, although they will not be able to offer investment advice or solicit investments, they will have obligations regarding investor education, disclosure, and anti-money laundering; 
  • An investor’s annual investment will be limited. Investors whose income and net worth are below $100,000 will be limited to a maximum investment of (a) $2,000 or (b) 5% of their income or net worth; those whose income or net worth exceeds $100,000 will be able to invest 10% of their income or net worth, but not more than $100,000;
  • Entities engaged in crowdfunding will be required to disclose certain information to the intermediary and investors, including a business plan and financial statements prepared in accordance with GAAP. Additionally, crowdfunders will have to file a minimum of two updates with the SEC, one when the capital raise reaches 50% of its target and another at 100%; and 
  • Shares issued pursuant to crowdfunding will contain transfer restrictions. For a period of one year after issuance, the shares will be transferable only to (i) accredited investors, (ii) the company, (iii) pursuant to an offering registered with the SEC, (iv) family members, or (v) certain trusts.
Unlike “non-equity” funding campaigns managed by Kickstarter or Indiegogo, which provide a gift such as a T-shirt, trinket, or beta access to a product or service in exchange for contributed funds, the SEC’s version of crowdfunding will involve raising capital for a piece of the upside in a business entity, such as shares or membership interests.

The equity crowdfunding dialogue has been going on for several years, and members of our Entrepreneurial Services Group will continue to stay plugged into developments from the SEC (or at the state level) as they occur.