Beverly A. Berneman
In the olden days, you’d buy an album and when you grew tired of it you’d sell the album to a used record store. That’s because you owned the physical record and once you bought it, that record was yours to do with as you please. This is called the “First Sale Doctrine”. Nowadays most people download their tunes. They still buy or rent it but now they don’t have a physical embodiment of the music. Relying on the First Sale Doctrine, ReDigi Inc. had offered a service whereby you could upload your digital music that you legally purchased from iTunes and resell it. Capitol Records LLC had a problem with that. Capitol Records sued ReDigi for copyright infringement arguing that the First Sale Doctrine doesn’t apply to digital files. The act of uploading the files to ReDigi’s server was creating a copy without permission. The Second Circuit Court of Appeals affirmed a judgment in Capitol Records’ favor. ReDigi also argued that its use was Fair Use. The court held against ReDigi on that as well because ReDigi was commercially motivated, made no changes to the copyrighted works, used the entire works, and resold the digital music files in the same market as the copyright owners.
WHY YOU SHOULD KNOW THIS. This is a good example of ownership in the copyright world. You can own the physical embodiment of a copyrighted work but you don’t own the copyright. You can do what you want with the album, the book or the painting, etc. The problem for ReDigi was that there was no physical embodiment of the music. It was all digital. And the only way to resell the digital file was to copy it and distribute it. Both of those rights belong exclusively to the owner of the copyright.
Property Tax Insights
Donald T. Rubin
By Donald T. Rubin and James W. Chipman
There’s a remedy for correcting errors or mistakes in a property tax assessment even after the deadline for appealing to an assessor or board of review has passed.
Mistakes happen. If a mistake occurs in the property tax process, it could be costly if not corrected. Fortunately, some errors are fixable -- even those that may have occurred in a previous year or years -- thanks to what is known as a Certificate of Error, or in property tax parlance, a C of E. When an assessment error is discovered, taxpayers can seek relief by filing a C of E with local assessing officials. However, be advised that the granting of a C of E by an assessing authority is discretionary, not mandatory.
In Cook County, the assessor can consider the correction of an assessment error going back as far as 3-years, whereas most other counties will only consider a current year correction or one for just the year prior to the current tax year. In Cook County, the Assessor will generally only issue C of E’s to applicants who did not previously file an appeal for the year or years in question.
DEFINING WHAT IS WRONG TO MAKE IT RIGHT
A Certificate of Error is a written acknowledgement by either the county supervisor of assessments (chief county assessment officer) or the board of review that there has been an error made during the course of deriving a value for your property that has resulted in an excessive assessment. The C of E law can be used to correct problems such as mathematical errors, incorrect descriptions of property, duplicate assessments, and improvements that have been damaged or destroyed. It also can apply to cases where an exemption for which a property was eligible, but the exemption was not applied to the tax bill.
There are some instances that cannot be remedied by a C of E, including “errors of judgment as to the valuation of the property" (although in Cook County, particularly egregious errors in judgement may be correctable).”* In most instances, ordinary valuation disputes about market value or lack of uniformity can only be resolved by filing a timely appeal with the board of review and the state Property Tax Appeal Board (PTAB).
C OF E PROCESS AND PROCEDURE
In Illinois counties outside of Cook County, the C of E process is initiated whenever the supervisor of assessments or the board of review discovers an error, or upon the taxpayer’s initiative. A C of E requires the approval of the supervisor of assessments and a majority of the board of review. It is then forwarded to the county clerk and treasurer.
Interestingly, a taxpayer isn’t entitled to notice and an opportunity to be heard. In fact, local assessing officials can fix a mistake without the taxpayer’s knowledge or input. Should the county treasurer refund money because of a C of E, the taxpayer is entitled to 0.5% interest per month.**
LIMITATIONS AND THE NEED FOR AN ANNUAL REVIEW
Generally, a C of E can be issued “at any time before judgment or order of sale is entered” in a proceeding to collect unpaid taxes on a property.*** The term “judgment” refers to the annual tax sale that typically takes place within 60 days after the second installment of taxes is due.
While local assessing officials must act before the annual application for judgment, a 1977 Illinois Attorney General opinion added a further limitation finding that the period in which a C of E may be issued expires when a taxpayer files an appeal with the PTAB or when the PTAB renders a decision.****
Like it or not, the valuation of property is an art, not a science, so the property tax process is subject to mistakes. That’s why an annual review of your property assessment and tax bill for accuracy is time well spent.
If you believe that you found an error or mistake in the value of your property, contact Donald T. Rubin at DTRubin@GCT.law or 312.696.2641 for legal advice on whether a C of E is available to address your situation.
*35 ILCS 200/14-20 (The certificate of error process differs in Cook County – see 35 ILCS 200/14-10 & 200/14-15)
**35 ILCS 200/20-178
***35 ILCS 200/14-20
****IL Atty. Gen. Op. No. S-1307 (1977)
Beverly A. Berneman
Using your name as a trademark is doable. Even if someone else has the same name. A surname is considered a descriptive trademark because it references a person or company who’s providing the goods and services. Generally, descriptive marks can’t be registered as trademarks. But, the recent case between The Saint Louis Brewery (“SLB”) and Phyllis Schlafly and Bruce Schlafly (the “Schlaflys”) demonstrated how to get a trademark in a surname. The Schlaflys are family members of the late Phyllis Schlafly who was a writer and political activist best known for her opposition to the women's movement and especially the Equal Rights Amendment. Bruce Schlafly is a doctor and he uses his name in his medical practice. SLB marketed its beer using a logo design that incorporated the name of one of the founders, Thomas Schlafly, for about 30 years. SLB sold more than 75,000,000 units of beer, not counting restaurant sales. SLB applied to register the word mark “Schlafly” saying that the surname has acquired distinctiveness through secondary meaning (connecting the name to the goods) and was no longer merely descriptive. The Schlaflys opposed the registration. The Schlaflys argued that being associated with beer was going to have a negative effect on the name. The Trademark Trial and Appeal Board (“TTAB”) denied the opposition. The Schlaflys appealed to the United States Court of Appeals for the Federal Circuit (“CAFC”) arguing that the use of the name violated the First Amendment and their Due Process Rights. The Schlaflys argued that the name “Schlafly” is recognized primarily as Phyllis Schlafly’s surname, and that the CAFC should adopt a new test called the “change in significance” test, “whereby a surname cannot be registered as a trademark without showing a change in significance to the public from a surname to an identifying mark for specified goods.” The CAFC rejected the Opposers’ arguments and affirmed the TTAB’s decision.
WHY YOU SHOULD KNOW THIS. The Schlaflys were up against a well-accepted trademark principle when it comes to registering surname trademarks. They thought that the fame of Phyllis Schlafly should change those rules. If you decide to adopt a surname as a trademark, keep in mind that you will most likely have to prove that the name acquired distinctiveness through secondary meaning. Three types of evidence may be considered to show secondary meaning: 1) Ownership of prior registration(s); 2) Five years substantially exclusive and continuous use in commerce; and 3) Other evidence (i.e. evidence showing duration, extent and nature of the use in commerce and advertising). Because there are a lot of nuances to this, it’s best to consult with an experienced trademark attorney.
Beverly A. Berneman
Breaking attorney-client privilege can open a floodgate of information in infringement litigation.
Becton Dickinson & Co., a medical supplier, sued Thermo Fisher Scientific Inc. for infringement of its patents used in “Super Bright” fluorescent dyes. During discovery, Becton asked Thermo Fisher to hand over e-mails between its in-house counsel and Thermo Fisher’s subsidiary, Affymetrix Inc. Thermo Fisher refused claiming that those e-mails were privileged because they involved a licensing and development deal between Thermo Fisher and Affymetrix. The District Court entered an order that there was no privilege and compelled the production. Affymetrix brought a petition for mandamus which is where a party (or non-party in this case) petitions to a higher court to order the lower court to correct an abuse of discretion. Affymetrix argued that Thermo Fisher and Affymetrix had a common interest so the attorney communications were privileged. Federal Circuit Court of Appeals affirmed the District Court’s order. The Court held that common interest privilege only applies to communications between an attorney and different parties when the attorney is representing both parties.
WHY YOU SHOULD KNOW THIS. Attorney-client privilege is there for a reason. A client has to be open and candid with its attorneys so the attorneys can properly prepare a case. So it pays to be very careful about attorney communications to non-parties. Even if the non-parties have the same interests as the client.
Andrew S. Williams
We have an award winner for 2018: Florida eye doctor Samuel Poppell.
In McLain v. Poppell, it was alleged that Dr. Poppell, owner of the Emerald Coast Eye Clinic and trustee of its 401(k) plan with total investment discretion, invested plan assets primarily in VirnetX, a publicly traded company whose principal business was acting as a “patent troll” (a company that acquires patents and uses them primarily to sue other businesses for alleged patent infringement).
Dr. Poppell’s investment decisions were based on his personal review of internet message boards. His investment acumen resulted in a loss of more than one-half of the plan’s asset value in a single year as the VirnetX stock cratered.
In response to participant complaints about these investment losses, Dr. Poppell allegedly threatened to terminate the plan as its VirnetX investment continued to lose money. Dr. Poppell’s next response, as participants continued to complain, was to terminate their employment!
Dr. Poppell was able to settle the suit filed by participants against him for about 25 percent of the plan’s total investment losses. However, the Department of Labor subsequently intervened and required Dr. Poppell to compensate participants for the balance of their aggregate losses.
So, for his complete disregard for his fiduciary duties to his employees and his related retaliation against participants who had the temerity to complain, Dr. Poppell is our 2018 ERISA Hall of Shame “honoree.”
Fiduciaries of 401(k) plans need to engage and rely on their professional advisors – you can’t just wing it when it comes to plan investment decisions.
Beverly A. Berneman
The Copyright Act allows the recovery of actual damages; but not everything is included. Rachel Ann Nunes wrote a novel called Bid for Love. Tiffanie Rushton admitted that she copied some of Bid for Love for her book, The Auction Deal. Rachel sued Tiffanie for copyright infringement. Rachel claimed that her actual damages were the lost sales of two books she didn’t write because of the emotional distress she suffered as a result of the infringement. The court held that the Copyright Act does not provide for the recovery of damages for emotional distress. So Rachel had no actual damages. However, she still is entitled to statutory damages.
WHY YOU SHOULD KNOW THIS. The Copyright Act provides for injunctive relief, actual damages and, if the work was registered before the infringement, statutory damages and attorney’s fees. No question that copyright infringement can take an emotional toll on the owner of a copyright. Rachel tried to stretch the definition of actual damages to cover that emotional toll. But the Copyright Act does not stretch that far.
Beverly A. Berneman
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
James W. Chipman
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.
*“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.
Beverly A. Berneman
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.
Beverly A. Berneman
I’m Dreaming of a White ...
Wait, can I sing that without paying a royalty? These days, we start hearing Christmas songs right after Halloween. Some holiday songs are in the public domain; while others are still protected by copyright. If the song is protected by copyright, it earns a royalty. How can you tell which songs are “free” and which are not? Copyright Law protects works of authorship for a limited number of years namely life in being of the author plus 70 years. After that, the works fall into the public domain. Still can’t tell? You better not shout, you better not cry, IP News for Business will give you a non-exhaustive guide:
In the public domain: Come all Ye Faithful; Deck the Halls; Hark, the Herald Angles Sing; Jingle Bells; Joy to the World; O Little Town of Bethlehem; Silent Night; The First Noel; The Twelve Days of Christmas; Toyland; We Wish You a Merry Christmas.
Not in the public domain: A Holly Jolly Christmas; Frosty the Snowman; Have Yourself a Merry Little Christmas; I’ll Be Home for Christmas; Jingle Bell Rock; Let it Snow, Let it Snow, Let it Snow; Little Drummer Boy; Rudolph the Red Nosed Reindeer; Santa Clause is Coming to Town; Silver Bells; Sleigh Ride; Winter Wonderland; White Christmas.
WHY YOU SHOULD KNOW THIS. Have a joyful and music filled holiday season.
Beverly A. Berneman
Sometimes the long road of Intellectual Property infringement ends up in Bankruptcy Court. Then the normal rules can change. Tech Pharmacy Services, who owned patents for pharmaceutical dispensing machines sued Provider Meds LLC and its affiliated companies for patent infringement. The parties ended up settling. As part of the settlement, Tech Pharmacy licensed the patents to Provider Meds. The Provider Meds' companies filed Chapter 11 bankruptcy reorganization cases. The cases were later converted to Chapter 7 liquidation cases and a Chapter 7 trustee was appointed. But, Provider Meds somehow managed to not list the patent license on their bankruptcy schedules. The Chapter 7 trustee had 60 days from the date of conversion of the cases to assume the licenses. Since the trustee didn’t know about the licenses, the trustee didn’t assume them. Since they weren’t assumed, they were deemed rejected by operation of law. Rejection means that Tech Pharmacy would no longer have to honor the license agreements. The Chapter 7 trustee sold Provider Meds’ assets to RPD Holdings. Imagine RPD’s surprise when it realized the sale didn’t include assignment of the Tech Pharmacy patent licenses. RPD appealed. The Fifth Circuit Court of Appeals affirmed the lower court rulings that the rejected licenses couldn’t be resurrected.
WHY YOU SHOULD KNOW THIS. Here lies a cautionary tale. Whenever a transaction involves a party who is a debtor in bankruptcy, land mines abound. This case went wrong in a number of ways. First of all, the bankruptcy petitions omitted material information about their patent licenses. Second, the Chapter 7 trustee was kept in the dark and ended up involuntarily rejecting valuable patent licenses. Third, RPD erroneously assumed it was getting the licenses along with the other assets thereby violating the 11th Commandment, “Thou Shalt Not Assume.”
Beverly A. Berneman
Updating a trademark can be risky if someone else gets in ahead of you. Inn at St. Johns, LLC registered its name “5ive Restaurant” in logo form. So far so good. Eleven years later, St. Johns decided to update its trademark to 5ive Steakhouse in logo form. But St. Johns got derailed. Three years after St. Johns registered its first trademark, OTG Management Inc. registered 5Steak. (All 3 mark drawings appear to the left). The United States Patent and Trademark Office (“USPTO”) refused registration of St. Johns’ 5ive Steakhouse due to a likelihood of confusion with the OTG’s 5Steak registration. The Trademark Trial and Appeal Board affirmed the refusal.
WHY YOU SHOULD KNOW THIS. What, if anything, could St. Johns have done to avoid this outcome? First, St. Johns could have monitored the USPTO to see if any applications were being filed to register similar trademarks and then oppose the registrations. There are services that will monitor the records for you. Some can be costly; others not so much. Second, St. Johns could have set up an alert on a search engine to let it know if anyone is using a similar mark on a common law basis. This could have given St. Johns a heads up about 5Steak in time to do something about it. Third, before applying to register the updated trademark, St. Johns could have conducted due diligence, discovered 5Steak and perhaps, worked something out with them.
Beverly A. Berneman
A trade secret isn’t really a secret without proper measures of protection. Kevin Barker, a vice president of Yellowfin Yachts, left the company to start a competing company, Barker Boatworks. Yellowfin sued Kevin and his new company for trade dress infringement and for trade secret misappropriation. Yellowfin alleged that Kevin downloaded hundreds of files with customer specifications, and drawings. The Eleventh Circuit Court of Appeals affirmed summary judgment in Kevin and Barker’s favor. First, the court disposed of Yellowfin’s trade dress claims because it couldn’t prove any customer confusion between its designs and Barker’s designs. In addressing the trade secret misappropriation claim, the court affirmed the lower court’s ruling that the customer information wasn’t a trade secret because boat owners have to register with the State of Florida. Then the court focused on Yellowfin’s measures of secrecy and found them wanting. While the information was password protected and only certain employees had access, the Eleventh Circuit concluded that “Yellowfin effectively abandoned all oversight in the security” of the information at issue because Yellowfin: (1) encouraged Kevin to store the information on his personal devices and didn’t ask him to delete the information when he left the company; (2) didn’t ask Kevin to use security measures for the information on his personal devices; (3) allowed Kevin access to the information even though he refused to sign a confidentiality agreement; and (4) none of the information was marked ‘confidential’.
WHY YOU SHOULD KNOW THIS. Trade secrets have two primary attributes. First, they are not generally known or easily ascertainable. Second, they are subject of reasonable measures to keep the information from becoming publically available. It’s the second attribute that tanked Yellowfin’s trade secret misappropriation claims. Yellowfin has learned that reasonable measures of secrecy require procedures that are tailored to the function of the business and require vigilant enforcement. The best way to avoid Yellowfin’s mistakes is to have a written trade secret protection program tailored to your business, prohibit the storage of trade secrets on personal devices, and make sure that departing personnel are cutoff from access to the trade secrets.
Property Tax Insights
James W. Chipman
By James W. Chipman
Unfavorable PTAB rulings often lead to an uphill battle in court, but working with an experienced property tax attorney can ensure you are well-positioned for a positive outcome.
When taking a case to the Property Tax Appeal Board (PTAB), it’s only natural to hope for the best. However, not everyone receives the result they desire. Fortunately, any party dissatisfied with a PTAB decision can appeal it.*
The PTAB is an independent state agency that hears appeals from boards of reviews on the valuation of assessed property. Appeals are heard “de novo,” which means a fresh start. A new administrative record is made at the PTAB that includes all of the evidence and testimony offered by the taxpayer and the board of review whose decision was appealed. The PTAB operates informally with relaxed rules of evidence and practice.**
A word to the wise is in order for anyone who wishes to appeal their PTAB decision—courts apply strict standards of review to the decision of an administrative agency such as the PTAB.
The court’s only job on appeal is to look at the administrative record and see if any errors were made by the PTAB. The appealing party has the burden of convincing the court the decision was wrong. No new or additional evidence can be submitted by anyone. There is a rebuttable presumption that the PTAB’s decision was correct, and unless an opposite result is clearly evident to the court, the decision will be upheld.
Courts won’t reassess witness credibility, reweigh evidence or make an independent determination of facts. PTAB legal interpretations aren’t binding on a court, but they are given great weight and deference.
Conventional wisdom may tell you that overturning a PTAB decision is an impossible feat, but the truth is, they are reversed more often than you think. Sometimes, the best offense is having the best defense.
AN OUNCE OF PREVENTION
Some taxpayers are frustrated after losing their PTAB appeal because they felt like they had the best evidence and made a good presentation at the hearing.
PTAB decisions are based on the evidence and testimony that was made part of the record. Thus, creating a complete record that accurately reflects arguments is critical—everything filed and discussed at a hearing becomes a permanent part of the record that follows you through the court review process, including the reasons why you lost the appeal. Therefore, building a defensible record is the single most important thing you can do to prepare for a PTAB or future court appeal.
There are no guarantees in the property tax appeal process. However, if you want to increase your chances of success, consult a property tax attorney who will work with you from start to finish. They’ll ensure that even if you get a negative result from the PTAB, you’ve got a good record upon which to pursue a court challenge.
Learn more about what follows the Property Tax Appeal Board by contacting Donald T. Rubin at DTRubin@GCT.law or 312.696.2641.
*35 ILCS 200/16-195
**35 ILCS 200/16-180
Andrew S. Williams
Whether you are an accountant, lawyer, banker, business consultant or investment advisor, many of your business clients will have a 401(k) or other qualified retirement plan. You may not specialize in retirement plans, but consider the following as the kinds of things you might do to assist your clients and prospects with their retirement plans:
- Introduce your client to responsible third party administrators (TPAs), investment advisors, record keepers and, if necessary, ERISA counsel
- Make sure your client has an investment policy statement and uses it as a basis for investment decisions
- Your client should meet at least twice a year with an investment advisor to discuss the plan’s investment funds – and document those discussions
- Encourage your client to maintain fiduciary liability insurance (not to be confused with the plan’s required ERISA fidelity bond!)
- See that your client has participants sign a release when they receive benefit distributions (see Howell v. Motorola, Inc.)
- Suggest that your client include low cost index funds as 401(k) investment selections to provide a defense to claims of excessive costs or poor performance on other fund selections (see Divane v. Northwestern University)
- Encourage your client to use independent ERISA counsel to assure confidentiality of sensitive information (the company’s lawyer has a confidential attorney-client relationship only with the company, not the plan or its fiduciaries)
Beverly A. Berneman
Trade show materials may be a patent buster. Trade shows are a way to showcase products and innovations in an industry. Materials distributed at a trade show are usually promotional and are designed to get more sales and establish a beacon in the marketplace. But, trade materials that identify inventions could bust a patent. The US Patent Trial and Appeal Board (the “Board”), in an inter parties review (“IPR”) between Nobel Biocare Services AG v. Instradent USA, Inc., held that certain claims in Nobel’s patent for a dental implant screw were not patentable because they were anticipated. “Anticipated” is similar to “prior art” which means that the claimed invention isn’t new. Instradent, the IPR petitioner, argued that Nobel’s invention for a dental implant screw had already been disclosed in a product catalogue from Alpha-Bio Tech Ltd. (“ABT”). Instradent proved that ABT disclosed the product in a catalogue it distributed at a 2003 dental trade show in Cologne, Germany. ABT had a rather small booth at the show and not much of a presence. But people at the trade show had seen the catalogue. So it was considered publication of the prior art. On appeal, the Federal Circuit affirmed the Board’s determination that the ABT catalogue was prior art and so some of Nobel’s claims in the patent were not patentable.
WHY YOU SHOULD KNOW THIS. Patent protection is limited to inventions that are new, useful and non-obvious. Patents give the patent owner a monopoly on practicing the invention for 20 years. So, the U.S. Patent Office has to determine if claims are really new in order to issue a patent. The Instradent case shows that an invention is not new if there’s publication of prior art; even small publications with a limited distribution at a trade show outside the U.S. are published prior art so inventors should always conduct a prior art search before going through the time and expense of filing a patent application. And, for that matter, inventors should always be careful about disclosing their inventions at a trade show before they file the application.
Beverly A. Berneman
Captain America, Thor and Iron Man can’t save your party guests without a license. Characters for Hire, LLC (“CFH”) advertises premium entertainment for parties and private events by booking actors dressed like popular characters. CFH offers hero characters and famous characters from popular scifi/fantasy movies. Understanding that Disney, Marvel and LucasFilm own the rights to characters that fall into those categories, CFH used generic names like "Big Green Guy" (Hulk) and “The Dark Lord” (Darth Vader). Similarly, CFH advertised themed parties that referenced Plaintiffs’ movies, such as “Frozen Themed” (Frozen), “Avenging Team” (The Avengers), and “Star Battles” (Star Wars). But CFH used the original images of the characters in its ads (see picture). After CFH ignored several cease and desist letters, Disney, Marvel and LucasFilm sued. The court entered summary judgment against the plaintiffs on trademark infringement. The court appeared to put a lot of weight on the fact that the plaintiffs couldn’t show actual confusion and there was enough notice that CFH was not affiliated with the plaintiffs. But the court will proceed on the other counts of unfair competition, dilution and copyright infringement. So CFH can’t breathe a sigh of relief yet.
WHY YOU SHOULD KNOW THIS. A themed party is a popular way to entertain at a child’s birthday party, a corporate event or even a brand awareness meeting. Character themed apparel is even more common. The problem arises when one wants to use protected characters and doesn’t have the permission to do so. CFH’s experience on the trademark infringement count is not typical. Whenever contemplating the use of protected characters for any reason, be sure to get the right permissions. And, always respond to a cease and desist letter.
Beverly A. Berneman
Even Halloween can’t escape copyright.
Frankenstein: This year is the 200th anniversary of the first edition of Mary Shelley’s Frankenstein which means it’s in the public domain. Here are some other non-copyright fun facts. Mary Shelly’s mother, Mary Wollstonecraft, was a writer, philosopher and is credited as being the first feminist. Mary Shelley was just 17 years old when she wrote Frankenstein. The name “Frankenstein” refers to the creator of the monster and not the monster itself. In the original story, the monster is 8 ft. tall, had beautiful black hair, white teeth, yellow skin and, apparently, was really buff (see picture).
Movie Characters: Your favorite horror characters, Freddy, Jason, Pinhead, etc. have been copyrighted by their various studios.
Halloween Costumes: Most costumes are considered “clothes” and are not subject to copyright. However, a costume that has a creative element unrelated to its function as clothing is copyrightable. See IP News for Business Blawg post Spooky Halloween Banana, http://gct.law/blog/113.
Halloween Masks: Masks are copyrightable because they aren’t considered useful articles.
Shameless Plug: I highly recommend Remy Bumppo Theater’s production of Frankenstein. It’s Jeff Recommended and has gotten rave reviews. Now playing until November 17, 2018. Visit https://www.remybumppo.org/ for more info.
WHY YOU SHOULD KNOW THIS. Happy Halloween.
Property Tax Insights
James W. Chipman
By James W. Chipman
Beginning on January 1, 2019, every property assessment in Illinois outside of Cook County will be fair game for assessors. Here’s what you need to know.
Illinois law requires a general assessment of all property in the state to be made every four years, except in Cook County.*
In less than three months, assessing officials will begin the painstaking process of systemically reviewing each property in their jurisdiction. A general assessment, also known as a “reassessment” or a “quadrennial assessment,” helps ensure that properties are assessed at or near a required level of assessment, which in Illinois is 33 1/3% of market value. Keeping assessments up to date equalizes property values and helps eliminate unfair assessments or “sticker shock” that taxpayers can experience when assessments are not periodically reviewed.
During general assessment years, assessors must value a large number of properties in a relatively short period of time. That’s why they often rely on “trending” and “mass appraisal” models to assist them. Trending is applying a positive or negative factor to a designated group of properties to reflect changes in market conditions over a period of time, usually the three intervening years between general assessments. Thus, a 10% trending factor would indicate that property values have increased by 10%. Mass appraisal involves developing values for a large group of properties by using current data that is based on one of three accepted approaches to determining value—cost, market or income.
Relying on these rigid valuation models can often lead to errors in valuing property because of their inability to recognize differences in the physical characteristics of properties in a given area. Additionally, use of either model doesn’t mean that all the properties in a jurisdiction will be uniformly and equitably assessed.
WHAT TO EXPECT IN 2019
- Assessors are required to “actually view” each property in a general assessment year.** This may involve simply driving by your property to document any exterior changes, or making a formal request to take a look inside. If you receive such a request, you have options.
- Mailers may be sent asking you to correct or update your property’s information. Accurate information on your property record card is critical and pointing out errors to the assessor can work in your favor.
- Finally, you’re entitled to notice. Every four years when property is reassessed outside of Cook County, a complete list of assessments must be published in a local newspaper of general circulation. Publication also serves notice on taxpayers that they have 30 days to challenge their assessments. Taxpayers who don’t file within this time frame must wait until the following year.
History tells us taxpayers should expect assessment increases in a general assessment year based on market changes that took place three years earlier. Making sure your assessment is fair and equitable in the first year of a general assessment can eliminate the need for appeals in the next three years. If that sounds appealing, talk to a property tax attorney once your 2019 assessment is published because the 30-day clock will be ticking.
For more information on the how the quadrennial event could impact you and your assessment, contact Donald T. Rubin at DTRubin@GCT.law or 312.696.2641.
*35 ILCS 200/9-215 & 9-225 (Property in Cook County is assessed triennially under 35 ILCS 200/9-220)
**35 ILCS 200/9-155
Andrew S. Williams
No fee mutual funds are here!
Fidelity recently announced domestic and international “index” funds that would charge no management fees – and no transaction fees when purchased directly from Fidelity.
The no fee structure appears to be more than a come on, and industry sources report that Fidelity intends to subsidize fund costs in order to provide no fee funds indefinitely. Fidelity’s expectation is that the no fee funds will generate business for Fidelity’s other mutual funds. So, should retirement plan investment fiduciaries rejoice at the potential cost savings and flock to these new mutual funds?
Well, a word of caution is in order.
As part of the cost savings for the new funds, Fidelity will not license an index such as the S&P 500 for the new funds. Instead, Fidelity will create its own index. Neither the new funds nor the index will have a track record, so plan investment fiduciaries need to do their homework on both the no cost funds and the new Fidelity index. Then these fiduciaries need to determine if the investment prospects of the new funds outweigh the likely returns of existing index funds which charge management fees as low as three or four basis points.
The no cost mutual funds will attract a lot of attention and likely some new business for Fidelity. Retirement plan investment fiduciaries need to carefully consider the funds’ investment prospects – and, as ever, document their decision making. From an administrative standpoint, plan fiduciaries should also bear in mind that in order to avoid transaction charges on the “no cost” funds, they have to invest directly with Fidelity.
Beverly A. Berneman
A weak trademark is hard to enforce. IAC Search U Media Inc. owns the “Ask” trademark for a search engine. IAC brought a petition to cancel the trademark “ASKBOT” for question and answer software. IAC argued that it had priority of the use of the word “ask” with respect to search engines and that ASKBOT is likely to cause confusion with its “Ask” trademark. In the proceeding before the Trademark Trial and Appeal Board, ASKBOT produced ninety-seven news articles from the Lexis/Nexis database for the term “askcom”, third-party registrations of marks using the word “ask”, and excerpts from an unrelated opposition in which IAC opposed registration of the mark ASKVILLE. The Board held that, yes, the two marks were similar, involved the same or similar services and they each were reaching for a similar customer base. But here’s where it went sideways for IAC. The Board held that one must 'ask' a question in order to get an answer. So, the Ask mark is merely suggestive of the services provided and is a weak mark entitled to the barest minimum of protection. Since customers have to pay for IAC’s service and ASKBOT is free, customers will be able to tell the difference between the two and there is little likelihood of confusion. The Board denied the petition to cancel.
WHY YOU SHOULD KNOW THIS. Choosing a trademark can be really tough. You want to choose something that is easily relatable to your product or service. And yet, in order for it to be protectable, your trademark has to be distinctive. In this case, IAC chose a trademark that really just described an attribute of its services. As ASKBOT demonstrated, a lot of other companies are using “ask” for similar services. So the Board didn’t want to give IAC a total ‘lock’ on the word.
Beverly A. Berneman
Those pesky on-line terms and conditions strike again. James May listed his vacation rental property on HomeAway, an online marketplace for vacation rentals. Originally HomeAway only charged the owner and not the traveler. In 2016, HomeAway, which was acquired by Expedia, changed its policy to charge both the owner and the traveler. In 2016, James renewed the HomeAway subscription. Actually he renewed it in his wife’s name and not his own name. Then James brought a class action suit against HomeAway/Expedia for breach of contract, fraud, fraudulent concealment, and Oregon and Texas state law claims based on HomeAway’s imposition of a “traveler fee” and its negative effect on owners who used HomeAway to rent properties. The terms and conditions of the on-line agreement required arbitration for all disputes. So HomeAway/Expedia brought a motion to compel arbitration. James opposed the motion arguing that because he renewed in his wife’s name, he wasn’t bound by the arbitration clause in the terms and conditions. The magistrate judge hearing the case quickly disposed of this argument. First, the terms and conditions didn’t allow assignment of the agreement without HomeAway/Expedia’s permission. Second, the magistrate held that James had notice of the terms and conditions and so he was bound by them. The magistrate judge made a recommendation to the district court judge to enter an order granting the motion to compel arbitration.
WHY YOU SHOULD KNOW THIS. Online terms and conditions are enforceable as long as the party enforcing them can show consent by the other party. In this case, HomeAway/Expedia showed consent with two things. First, James renewed. Second, James booked a property through HomeAway/Expedia. James initiated the class action lawsuit with both hands tied behind his back. One hand was tied by his failed attempt to get around the terms and conditions. The other hand was tied by the enforceability of online terms and conditions.
Beverly A. Berneman
Inventor identification gets lost in the haze of a patent application for a cannabis delivery system. Michael Pappalardo met Samantha Stevins at a pharmaceutical products trade show. Michael told Samantha about his concept for a new product related to liquid and solid cannabis delivery systems. They agreed to work on it together. Samantha, who is an attorney, suggested that they apply for a patent. When Michael found out that Samantha had named herself as the sole inventor on the patent, he brought suit to add his name as an inventor. The Federal Circuit affirmed the district court’s dismissal of Michael’s case. The court held that there is no cause of action to challenge inventorship until a patent issues. So Michael will have to wait until then to file suit.
WHY YOU SHOULD KNOW THIS. If everything Michael says is true and he is the inventor or at least one of the inventors, then Samantha may have problems beyond cutting Michael out of the deal. Inventors have a duty of candor when filing a patent application. The duty of candor includes disclosing all inventors and anyone else who was substantively involved in developing the invention. The failure to make a full disclosure can compromise the ability to enforce the patent. So Samantha may be putting the viability of the future patent at risk.
Property Tax Insights
James W. Chipman
By James W. Chipman
Although the Illinois tax on personal property was eliminated nearly four decades ago, the approach to classifying real and personal property remains controversial.
Before Illinois’ personal property tax was abolished, both real and personal property were assessed and taxed the same. Nobody cared if property was called “real” or “personal.” But when the tax on individuals was eliminated in 1970 and its corporate counterpart was phased out nine years later through a constitutional amendment, classifying property as real or personal suddenly became a big deal. Since then, only real property has been taxed.
BEATING A DEAD HORSE
The personal property tax, however, has died a very slow death. After its elimination, the courts and Property Tax Appeal Board (PTAB), a quasi-judicial state agency that reviews local assessment disputes, began hearing multi-million dollar appeals where businesses claimed assessors were arbitrarily switching property classifications from personal to real to replace lost tax revenue generated by the old tax. The practice still occurs today.
A 40-year track record of these appeals suggests a subtle erosion of the personal property exemption and raises the question of whether the tax really was eradicated. Throughout its history, the tax was regarded by many as burdensome, unfair and even scandalous. Personal property returns were often not filed or grossly understated, and little effort was made by assessing officials to verify figures or ensure that all taxable property was accounted for.
Before the personal property tax on corporations was repealed, lawmakers had to come up with a replacement tax. They chose to impose a corporate income tax surcharge and an invested capital tax on regulated public utilities that would be state collected and, it was thought, have a far greater annual growth rate than its predecessor tax.
STATUS QUO UNIFORMITY
The replacement tax, however, only solved part of the problem. Because there was no statewide classification scheme when the personal property tax was eliminated, the legislature decided to preserve or freeze the pre-1979 assessment practices of assessors in each county over time to prevent widespread reclassification of property. Essentially, each county’s 1979 classifications of property as real or personal would control current and future classifications.* This preservation of the status quo meant there would be uniform treatment of property within a county, but not across county lines, meaning it was legal to have different classifications for the same type of property from one county to the next.
During the past four decades, classification disputes have focused mainly on process machinery and equipment, which were once listed among 36 classes of personal property in an old state law and assessor manuals.
Litigation over reclassification began shortly after the tax was eliminated in 1979 and continues to this day. Many of the lawsuits were decided based on agreements made by the taxpayer and the assessor** or on the pre-1979 assessment policy of the disputed property in a county.***
Today, some assessors may occasionally engage in selective reclassification when a new business locates in their jurisdiction or machinery and equipment are upgraded in an existing manufacturing plant. Whether acting in good faith or not, assessors must interpret and apply the law, however confusing. As time passes, historical classification practices from the 1970s are difficult to ascertain as participants change and business records are destroyed.
As assessments are reviewed and updated every four years, businesses should be on guard for signs of reclassification, particularly in 2019 when the entire state will experience a reassessment. If your business’s property assessment rises significantly in just one year, call a property tax attorney to help you pinpoint the cause and advise you on how best to proceed.
*35 ILCS 200/24-5
**Central Illinois Light Co. v. Johnson, 84 Ill.2d 275 (1981)
***Commonwealth Edison Co. v. Property Tax Appeal Board, 219 Ill.App.3d 550 (2d Dist. 1991), appeal denied; Oregon Community Unit School District #220 v. Property Tax Appeal Board, 285 Ill.App.3d 170 (2d Dist. 1996)
Andrew S. Williams
We’ve all read about the lawsuits questioning an employer’s 401(k) investment fund selections and related claims of excessive fund costs. And typically a plan’s professional investment advisor (yes – you should have one unless you have an investment professional on staff) meets with company representatives periodically to discuss a detailed report on fund investment performance and any recommended changes in the plan’s investment fund selections. So, your 401(k) plan files bulge with investment-related materials (and they should!). But what about the rest of an employer’s 401(k) responsibilities?
As posed by the moderator of the 401(k) panel at the Illinois CPA Society’s recent annual Summit that I had the pleasure of appearing on, what should plan sponsors be paying attention to in addition to monitoring plan investment results?
Good question – so what can you do to get a leg up on the rest of the 401(k) universe?
Consider online IRS compliance guides like “A Plan Sponsor’s Responsibilities”. This material covers plan documentation, monitoring plan service providers, internal controls, law changes, payroll data you need to share with plan providers, hardship distributions, participant loans, ERISA fiduciary bonds, as well as eligibility, vesting and benefit payment matters. It also provides links to other IRS compliance resources and is a good starting point to find more detailed information on specific plan administrative requirements such as government filings, participant notices and fiduciary requirements. Also consider articles such as “Your Fiduciary Duty – And What to Do About It”.
There’s more to an employer’s 401(k) responsibilities than selecting and reviewing plan investment funds. Remember, as the “Plan Administrator,” the buck stops with the employer when it comes to all compliance matters. So, consider IRS guidance as a starting point, but do not hesitate to address any resulting concerns with your plan’s investment advisor, third party administrator, accountant or ERISA lawyer.