What’s Happening Now in Technology, Arts, Small Business and Contracts – September 2017

Technology News

Distributed Ledger Technology and new Delaware law

On August 1, 2017, Delaware became the first state to allow share issuing corporations to keep track of stockholders and outstanding stock via blockchain technology. This is one of several steps Delaware has identified as part of its initiative to use blockchain technology as a streamlining tool for the government. The act to “To Amend Title 8 Of The Delaware Code Relating To The General Corporation Law” was sponsored by 9 Democrats and 3 Republicans. It was passed overwhelmingly in both the Delaware House and Senate and was signed by Governor Jack Markell on July 21, 2017. While shares and shareholder records are primarily maintained on databases, spreadsheets or paper, this amendment includes distributed networks as acceptable means of maintaining shareholder records. Following are excerpts from the amended Delaware code related to distributed databases.

“Section 11. Amend § 232(c), Title 8 of the Delaware Code, by making insertions as shown by underline and deletions as shown by strike through as follows:

(c) For purposes of this chapter, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in, one or more electronic networks or databases (including one or more distributed electronic networks or databases), [new language] that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.”

The amendments also include a definition of “stock ledger” as follows:

“Section 6. Amend § 219(c), Title 8 of the Delaware Code, by making insertions as shown by underline and deletions as shown by strike through as follows:

(c) For purposes of this chapter, “stock ledger” means one or more records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each such stockholder, and all issuances and transfers of stock of the corporation are recorded in accordance with § 224 of this title.[new language] The stock ledger shall be the only evidence as to who are the stockholders entitled by this section to examine the list required by this section or to vote in person or by proxy at any meeting of stockholders.”

In addition, the amendments make significant updates to mergers and related changes in certificates of incorporation.

This is a milestone for state recognition of blockchain technology and its uses for corporate shareholder management. It may be expected that other states will follow Delaware’s lead and enact similar amendments to their state corporate codes.

While this is certainly a step forward with regard to state regulation and accommodation for new technology, the amendments didn’t go far enough. Specifically, this would have been an opportunity to address mergers and consolidations where shares are managed via blockchain technology. From a practical perspective, stock corporations may have to maintain shareholder records in a “traditional” way until there is some method to convert legacy shares into blockchain native shares. Gayton Law will keep a look-out for updates to DMV corporate codes in response to the Delaware changes.

It might be of interest to some readers that the Commonwealth of Virginia recently allocated technology research funding in the amount of $450,000 including almost $50,000 to a company dedicated to commercializing blockchain technologies. If you have questions about the legal requirements for these programs, please contact Gayton Law. For those interested in cryptocurrency transactions generally, money transmitter licenses are required in Virginia, Maryland and Washington, DC.

Intellectual Property News

Design Patent, Trade Dress, Copyright, Unfair Competition and False Designation of Origin. Puma, SE v.Forever 21, Inc.

This case, Puma SE v. Forever 21, Inc. was filed on March 31, 2017 and offers an opportunity to see how Puma SE, a German company and Puma North America, Inc. attempts to show how Forever 21 infringed on its patent, copyright, trademark, and trade dress rights.

Puma’s Women’s Creative Director for clothing and footwear is Rihanna, a well-known music artist. According to Puma’s Second Amended Complaint, Rihanna served as brand ambassador for its “Fenty” luxury product label, including 3 footwear products which are at the heart of this dispute, specifically, 1. the “Creeper” sneaker; 2. the “Fur Slide” sandal; and 3. the “Bow Slide.” All three shoes have been sold in brick-and-mortar stores as well as online and have obtained some fashion media attention. Puma alleges that Forever 21 copied or “knocked off” all of these shoes violating a number of intellectual property rights held by Puma. It is also alleged that Forever 21’s business model is based on “trading-off of the established goodwill of reputable,, name-brand companies” such as Puma.

The “Creeper” shoe is protected by U.S. Patent No. D774,288. Puma alleges that Forever 21 have a “substantial degree of similarity” to the Creeper. According to Puma, Forever 21 has infringed on its trade dress and copyright interests in all three shoe designs. In addition, Puma alleges that Forever 21 has created market confusion and suggests that the shoes are “sponsored, endorsed, approved by, or connected with Puma” and therefore subject to laws related to federal false designation of origin and unfair competition laws as well as California’s unfair competition laws. Puma sought preliminary and permanent injunctions to prevent Forever 21 from selling the allegedly infringing shoes, state and statutory damages as well as treble damages for federal infringement claims, and restitution under California’s unfair business practice laws. Puma is also asking for attorneys fees and pre-judgment and post-judgment interest.

As of June 2017, both the preliminary injunction request and temporary restraining order requests were denied by California Federal Judge Philip S. Gutierrez who was assigned to this case. The denial of injunctive relief in the form of a preliminary injunction and temporary restraining order means that Puma failed to meet the standard required to support these injunctions so Forever 21 can continue to sell the shoes for the time being.

Generally, in order to obtain a preliminary or permanent injunction, the plaintiff has to show four things. Specifically, that: 1. The Plaintiff has suffered irreparable harm; 2. The harm will not be sufficiently cured with money; 3. There is a substantial likelihood of success on the merits of the case and 4. The public will not be harmed if the injunction is awarded. Judge Gutierrez said that Puma failed to prove “irreparable harm” which is required element for injunctive relief. The case is ongoing and there is a scheduling conference on November 27, 2017.

Although this case was before a California federal district court, the intellectual property issues (trade dress, patents, copyright) it addresses are nationwide. This case is instructive with regard to articulating and proving that a plaintiff is entitled to injunctive relief. Contact Gayton Law to how you can protect your intellectual property from IP infringement.

What’s New at Gayton Law and the Gayton Law Blog

Tokens, Branding and Digital Assets by Cynthia M. Gayton, Esq.   

What is a token? For purposes of this discussion, I am not going to address how people are raising money selling tokens as a crowdfunding venture (like an initial coin offering or ICO). Rather, I am going to address how artists can use tokens to sell and market existing art and music. In addition, I am going to limit my points to using a token as a “key” which permits users to access often exclusive digital content and assets.   See the rest of the post here.

Marriage in Ethereum by Cynthia M. Gayton, Esq.

In May 2016, a couple who intend to get married in December 2016 created a prenuptial smart contract agreement on Ethereum in blockchain. Ethereum is not a honeymoon resort, but provides a unique way to create, enter into, execute, pay for, secure, and enforce, contracts.  What follows is my take on the legal intersection of autonomous contracting software and human relationships – specifically, a self-executing prenuptial agreement. See the rest of the post here.

Programs and Publications

Art on the Blockchain (AOTB)

Cynthia Gayton is a co-host and co-founder with Jeff Clarkin of Art on the Blockchain podcast and MeetUp. This podcast and MeetUp intend to spread some light on the issues facing artists in this new technology and distribution space. Our next MeetUp event is scheduled for September 19 2017 at The Black Cat in Washington, DC. Learn more here.

Legal Aspects of Engineering, Design and Innovation 10th edition by Cynthia Gayton

This edition was released in January 2017 and is available through the publisher, Kendall-Hunt publishers and on Amazon.com in paper and e-book form. 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. This new edition includes separate chapters for each intellectual property type, introduces and explanation of blockchain smart contracts, discusses trends in product liability, and has recent case law to highlight chapter topics. It also expands from a primarily engineering perspective to include design professionals and innovation-specific coverage.

The information contained in this newsletter is for general guidance on matters of general interest only. The application and impact of laws can vary widely based on specific facts. The information contained in this newsletter should not be construed as a substitute for consultation with professional advisors. Certain links in this newsletter 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.

© 2017 Gayton Law

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