• IP BLAWG

    The Prime Cut of Family Trademark Disputes

    Beverly A. Berneman
    1/15/19

    The grandkids didn’t play nice when it came to a famous restaurant trademark. The nationally famous Palm steakhouse was founded in New York City in 1926 by John Ganzi and Pio Bozzi. The Palm enhances their patrons’ steak eating experience by decorating the walls with caricatures of famous people contributed by cartoonists who often exchanged their cartoons for meals. Eventually, the grandchildren took over management. One set of grandchildren became the majority shareholders and the other set of grandchildren were relegated to the ignominious status of minority shareholders. In 2012, the minority filed suit against the majority for breach of fiduciary duty based upon gross mismanagement and self-dealing with restaurants that were owned and operated solely by the majority. The chief issue was the sweetheart trademark license deal the majority’s restaurants were getting. Even though Palm was a national brand with almost 100 years of fame, the majority’s restaurants only paid a flat license fee of $6,000 a year for decades. The court agreed with the minority and entered judgment in their favor. In assessing the damages, the court accepted the minority’s expert damage witnesses’ conclusions that the majority’s restaurants should have paid a reasonable royalty of 5% of gross sales. The court concluded that the undervalued license agreements were self-dealing by the majority and an example of textbook fiduciary misconduct. Even though the statute of limitations limited the damages to six years of royalties, the royalty damages were over $68 million. Additional damages for other breaches of fiduciary duty were also awarded, along with interest and attorney fees, which increase the total judgment to over $120 million.

    WHY YOU SHOULD KNOW THIS. From a corporate governance standpoint, majority shareholders don’t get a free pass to do whatever they like. They have a fiduciary responsibility to act in the best interests of the company. When any one of the majority shareholders breaches that duty, minority shareholders can fight back. Trademark-wise, it’s not unusual for a company to have an Intellectual Property holding company that licenses the trademark to related companies. But the license fee should be at or near market rate. Otherwise, as the majority shareholders in the Palm learned, they’re going to end up paying that and more in the end.

  • Property Tax Insights

    Assessing renewable energy devices in Illinois

    James W. Chipman
    1/10/19

    By James W. Chipman

    Wind energy devices have proliferated across the central Illinois landscape in recent years. Get wind of how the assessment process works by talking to a property tax attorney.

    Illinois is home to both the Windy City and a very flat, windy prairie. When the state’s first wind turbine went online in rural Lee County in 2003, no one could have guessed that 15 years later over 2,600 of these devices would be operational and account for 6.2% of all in-state electrical production.*

    Wind turbines convert the wind’s kinetic energy into electrical energy for commercial sale. Most turbines are located in rural settings where land is rented from the property owner, usually a farmer. The company that installed the turbine pays the taxes, and the farmer receives an annual royalty. One individual “wind farm” typically occupies about an acre of land.

    TWISTING IN THE WIND

    Because wind turbines have both real and personal property components, assessment criteria varied from county to county based on a jurisdiction’s treatment of classifying property prior to 1979. (Real and personal property classification is still unsettled law.) Inconsistent and confusing assessments were frequently the subject of appeals before boards of review and the state’s Property Tax Appeal Board.** Eventually, it became clear that the wind farm valuation process needed a legislative solution.

    WINDS OF CHANGE

    A 2007 change in Illinois law made the state even more attractive to wind developers when a uniform system of tax assessment was finally adopted.*** The “market value” of a turbine is $360,000 per megawatt of capacity adjusted annually for inflation by a trending factor. An amount for physical depreciation is then deducted from the “trended real property cost” to determine the assessed value [($360,000 x trending factor) – depreciation = assessed value]. Wind turbine operators must have a surveyor prepare a plat that includes a metes and bounds description of the area surrounding the turbine over which the owner exercises exclusive control.

    Although wind turbine assessments are now computed annually under the state formula, assessments can be challenged if the turbine is affected by what appraisers call “functional and external obsolescence.” These two forms of depreciation differ from physical depreciation, which is deterioration of property due to age and wear. Functional obsolescence occurs when conditions exist within the property—such as an outdated design feature—that cannot be easily changed, as opposed to external or economic obsolescence, which is due to negative influences outside the property and are usually not fixable.

    Don’t throw caution to the wind. If you have questions about a wind farm assessment, call a property tax attorney for answers.

    Learn more about wind farm assessments by contacting Jim at JWChipman@GCTSpringfield.law or 217.391.6858.

    Sources:
    *“Wind Energy in Illinois” U.S. Wind Energy State Facts. American Wind Energy Association (2017)
    **Property Tax Appeal Board decision (#06-2736.001-C-2: Pike Co.), Feb. 23, 2010
    ***35 ILCS 200/10-600 et seq.

  • IP BLAWG

    The 2018 IP Hall of Fame

    Beverly A. Berneman
    1/9/19

    Welcome to the Third Annual IP Hall of Fame. In past years, we have awarded Crippys to those who achieved infamy by committing Intellectual Property crimes during the previous year. This year we add the Hippy for an IP hero whose good deeds are an antidote for those with nefarious intent. Click here to see the winners.

    The Inaugural Hippy Goes to The United States Navy:The US Navy announced that for the first time, it is transferring royalties collected from the use of the Navy’s logos to the Navy’s Morale, Welfare and Recreation program. The program is devoted to enhancing the quality of life for sailors and their families. The revenues are estimated at $3 million. The US Navy joins other branches of the military that support their military welfare programs using royalties collected from their branded products.

    The 2018 Crippy is a Three-Way Tie. In 2018, trade secret theft reached new heights. Each of these trade secret thieves used different methods but deserve equal infamy. In no particular order, our Crippy winners are:

    Jerry Jindong Xu. Jerry worked for DuPont and then its spin off company Chemours. Jerry plead guilty to stealing trade secrets related to Chemours’ sodium cyanide business and selling them to Chinese investors. He was sentenced to one year in prison with credit for time served.

    Sinovel Wind Group Co. Ltd. A jury convicted Sinovel for various crimes related to the theft of trade secrets related to wind turbine production. Sinovel had partnered with AMSC, a company that developed software to control turbines. Taking advantage of this business relationship, Sinovel secretly downloaded AMSC’s source code and used it to run their turbine engines. AMSC lost over $1 billion in shareholder equity and about 700 jobs due to the theft. Sinovel has to pay restitution of more than $57 million, the maximum statutory fine in the amount of $1.5 million, and $850,000 to other victims of the trade secret theft.

    Tao Li and Ye Xue. Tao and Ye plead guilty to conspiracy to steal trade secrets. These two scientists stole documents from GlaxoSmithKline PLC, their former employer. The documents related to the research and development of drugs. Ye emailed the documents from her GSK email to her personal email account and then forwarded it to Tao for the benefit of his Chinese company. The prosecuting U.S. Attorney, William McSwain, said in a press release: "The lifeblood of companies like GSK is its intellectual property, and when that property is stolen and transferred to a foreign country, it threatens thousands of jobs here in America. Not only is this a serious crime, but it is literally a form of economic warfare against American interests.” No word on sentencing yet but Tao and Ye face up to 10 years in prison, a $250,000 fine plus having to pay restitution that could add up to $2 billion.