The Los Angeles Business Journal featured the recent expansion of Stubbs Alderton & Markiles’ Business Litigation practice in its March 31 edition regarding tech growth in the Los Angeles legal market. To view the full article, click here.
The Los Angeles Business Journal featured the recent expansion of Stubbs Alderton & Markiles’ Business Litigation practice in its March 31 edition regarding tech growth in the Los Angeles legal market. To view the full article, click here.
Washington, D.C. – This dispute between printer ink cartridge suppliers has encountered a blotchy area of the law. Lexmark, a laser printer manufacturer, encrypts the ink cartridges it manufactures for use in its printers with a microchip. Static Control Components engineered a microchip that allowed competing ink cartridge manufacturers to have access to Lexmark printers. Lexmark sued Static Control for copyright infringement, among other things, and Static Control countered with a false advertising claim against Lexmark. Lexmark sought summary judgment on the false advertising claim, alleging that Static Control did not have standing to sue under the Lanham Act. On Tuesday, March 25, 2014, a unanimous Supreme Court resolved a split of authority amongst the Circuit Courts over the issue of standing in false advertising claims brought under the Lanham Act, 15 U.S.C. § 1125(a). Who has standing to bring a false advertising claim under the Lanham Act? Justice Scalia’s opinion answers this question by establishing a two-prong test for interpreting the Act to determine whether a particular plaintiff “falls within the class of plaintiffs whom Congress has authorized to sue under §1125(a).” Lexmark at 9. First, a plaintiff’s interests must “fall within the zone of interests protected by the law invoked.” Id at 10. The Court explains that this “Zone of Interest” requirement “applies to all statutorily created causes of action… unless it is expressly negated” by Congress. Id at 10. However, “the breadth of the zone of interests varies according to the provisions of law at issue” for any particular statute. Id at 11. Second, “a statutory cause of action is limited to plaintiffs whose injuries are proximately caused by violations of the statute.” Id at 13. This “Proximate Cause” requirement asks “whether the harm alleged has a sufficiently close connection to the conduct the statute prohibits.” Id at 14. The Court explains that this second requirement “generally bars suits for alleged harm that is ‘too remote’ from the defendant’s unlawful conduct.” Id.
Applying the first prong to a false advertising claim under the Lanham Act, the Court identified the “interests protected by the Lanham Act” by referring to the “’unusual, and extraordinarily helpful,’ detailed statement of the statute’s purposes.”
Section 45 of the Act, codified at 15 U. S. C. §1127, provides:
“The intent of this chapter is to regulate commerce within the control of Congress by making actionable the deceptive and misleading use of marks in such commerce; to protect registered marks used in such commerce from interference by State, or territorial legislation; to protect persons engaged in such commerce against unfair competition; to prevent fraud and deception in such commerce by the use of reproductions, copies, counterfeits, or colorable imitations of registered marks; and to provide rights and remedies stipulated by treaties and conventions respecting trademarks, trade names, and unfair competition entered into between the United States and foreign nations.” Id at 12.
Although “[m]ost of the enumerated purposes are relevant to false association cases,” the Court explains that “a typical false-advertising case will implicate only the Act’s goal of ‘protect[ing] persons engaged in [commerce within the control of Congress] against unfair competition.’” Id. Justice Scalia looks to the common law for the definition of “unfair competition,” stating that it was “understood to be concerned with injuries to business reputation and present and future sales.” Id. Thus, a plaintiff comes within the zone of interests in a suit for false advertising under §1125(a) when that plaintiff “allege[s] an injury to a commercial interest in reputation or sales.” Id at 13.
Applying the second prong, the Court explained that the “[p]roximate cause analysis is controlled by the nature of the statutory cause of action,” and asks “whether the harm alleged has a sufficiently close connection to the conduct [that] the statute prohibits.” Id at 14. The Court held that, when suing for false advertising, a plaintiff “ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising.” Id at 15. This occurs when a defendant’s deception causes “consumers… to withhold trade from the plaintiff.” Id. Several examples include “afford[ing] relief under §1125(a) not only where a defendant denigrates a plaintiff ’s product by name… but also where the defendant damages the product’s reputation by, for example, equating it with an inferior product.” Id at 19. Further, a defendant who “‘seeks to promote his own interests by telling a known falsehood to or about the plaintiff or his product’” may be said to have proximately caused the plaintiff ’s harm. Id at 20.
The Lexmark decision is important in two aspects. Narrowly, in order to have standing under the Lanham Act for a false advertising claim, “a plaintiff must plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.” Id at 25. Broadly, the decision adopts a two-prong test for evaluating standing under any statutorily created cause of action, and provides a rubric for analyzing each prong. It will be interesting to watch the development of the jurisprudence of standing as lower courts apply Zone of Interest and Proximate Causation to false association claims under the Lanham Act and extend this analysis to other federal statutes.
For more information about our Brand Development & Content Protection Practice, contact Konrad Gatien (firstname.lastname@example.org) or Tony Keats (email@example.com)
SAM Partner, and Co-Chair of the Firm’s Brand Development & Content Protection Practice, Tony Keats has Co-Authored the book, “Protecting the Brand: Counterfeiting and Grey Markets.” For more information regarding our Brand Development and Counterfeiting expertise, contact Tony at (310) 746-9802 or firstname.lastname@example.org. For order information and discount codes, please see the below flyer.
Beginning January 1, 2014, AB 370, an amendment to the California Online Privacy Protection Act (CalOPPA), will require owners of commercial websites to disclose how they respond to “do not track” signals and to inform users of these websites if their online activities are being tracked. “Do Not Track” technology enables a web browser to express the user’s preference not to be tracked by websites. When this feature is activated, a user’s browser signals to advertising networks and other websites the user’s choice to opt out of being tracked.
This new law does not make it illegal to ignore “do not track” settings on web browsers. Instead, it requires each business to disclose whether or not they ignore these settings. The law also requires each business to disclose whether its website tracks over time and across other websites the online activity of consumers residing in California who visit the website or if the business allows third parties to track the website’s visitors. Failure to comply with the new law could lead to significant fines enforced by the California Attorney General.
Here are some suggested business practices for adapting to the new law:
How Stubbs Alderton & Markiles, LLP can help. We are a business law firm with particular expertise in privacy and Internet law. Our attorneys have extensive experience in developing effective and legally compliant privacy statements for websites. Please contact us directly if you would like assistance in updating your website’s privacy statement to comply with the new “Do Not Track” law.
Jason Lee is an associate of the Firm. His practice focuses on corporate transactions, including mergers and acquisitions, private equity transactions, and general corporate matters for both public and private clients, focusing on middle-market and emerging growth companies. In addition, Jason counsels companies in connection with company formation process, SEC reporting requirements and registrations, federal and state securities laws and compliance, corporate governance matters, joint ventures, employee incentive plans and executive employment agreements. Below, Jason evaluates exclusive dealing arrangements under Section 1 of the Sherman Act.
Q. What does Section 1of the Sherman Act seek to prevent?
A. Section 1 of the Sherman Act prohibits unreasonable restraints on trade. Section 1 of the Sherman Act prohibits any contract, combination or conspiracy that unreasonably restrains trade. Restraints are typically analyzed by two standards: per se or the rule of reason. Certain restraints are so unreasonably harmful that they are per se illegal. Others require court analysis under the rule of reason.
Q. What are the elements a plaintiff must establish to prove a violation under Section 1 of the Sherman Act for an exclusive dealing contract?
A. A plaintiff bringing a claim of violation of Section 1 must establish that an agreement between two or more parties exists, there is an effect on interstate or foreign commerce and the agreement places an unreasonable restraint on trade. The agreement between the parties can made among competitors or among parties at different levels within a certain distribution chain. In addition, an agreement can exist even if there is no written contract.
Under the rule of reason, a plaintiff must define the relevant market restrained by the challenged agreement, show that the defendant has market power in the relevant market and establish that such agreement adversely effects competition in the relevant market. For exclusive dealing agreements, courts examine the effects of competition on a relevant market by determining if such an arrangement forecloses a substantial portion of any competing supplier’s distribution channels.
Q. What factors do courts use to review the impact of foreclosure of competitors to distribution channels?
A. To assess the competitive impact of foreclosure, courts measure the percentage of foreclosure and several qualitative factors listed below.
- Percentage of foreclosure. Courts generally find that an arrangement that forecloses 20% or less of the relevant market presumptively does not adversely affect competition. However, the percentage of foreclosure is not a definitive factor. Under the qualitative substantiality standard, courts evaluate agreements and the percentage of foreclosure in light of conditions in the market.
- Market position of the seller imposing the restraint. Courts will require that the seller and party to the agreement has a dominant position.
- Duration and terminability of the exclusive arrangement. Courts generally hold agreements that have a term of one year do not have substantial anticompetitive effects and are presumptively legal. Likewise, if agreements are easily terminated by the distributor, even if its term is longer than one year, courts are likely to find the agreement reasonable.
- Level in the distribution chain where restraint is imposed and whether alternative methods of distribution exist. Courts review the level of the distribution chain where the restraint exists. If the restraint involves a middleman distributor, as opposed to consumers, courts tend to require a higher amount of foreclosure percentage because it is less obvious the restraint will affect competition at the consumer level. Courts will also look to see if there are alternative outlets for competitors to reach consumers. If such alternative outlets exist, courts are reluctant to find an exclusive dealing arrangement illegal.
- Whether there has been entry into or withdrawal from the supplier market. If there is a successful recent entry into the supplier’s market, courts are less likely to find that an exclusive dealing arrangement substantially foreclosed competition. Conversely, if there is evidence competitors have not been able to enter the market because of an exclusive dealing arrangement, the agreement is more likely to be found anticompetitive and illegal.
- Prevalence of exclusive dealing arrangements in the industry. Courts will review how prevalent exclusive dealing arrangements are in the relevant market.
- Whether the exclusive dealing arrangement was the product of competition. Courts also consider whether exclusive dealing arrangements result from vigorous competition as opposed to anticompetitive behavior. If there is a bidding process where a retailer or distributor sought exclusivity, courts are unlikely to find that agreement unreasonable because courts generally view a buyer seeking exclusivity obligations to be an indicator that the arrangement is procompetitive. If the arrangement exists because the defendant offers a better product or better price to the distributor than competitors, courts tend to uphold the agreement as legal.
Ultimately, a plaintiff must show that the supplier’s action forecloses competitors in such a way that allows the supplier to either raise prices, restrict output or otherwise harm consumers.
For more information about the Sherman Act and other corporate matters, contact Jason Lee at (818) 444-4506 or email@example.com.
1. What is intellectual property for purposes of this analysis?
a. Copyrights, literary, musical or artistic compositions or similar property are expressly identified under the Internal Revenue Code for special “non-favorable” treatment on sale by the creator. Video games, books, movies, television shows all fall into this category of asset in the hands of the developer.
b. Another class of intellectual property, including trade secrets, formulas, know how and other methods, techniques or processes that are the subject of reasonable efforts to maintain secrecy fall within the general class of intangible assets that may be treated as a capital asset on sale but are subject to special rules on the useful life over which to amortize the cost of the intangible asset, as discussed below.
2. How is the developer or owner of intellectual property treated?
a. In general, self-created copyrights, literary, musical or artistic compositions are not eligible for capital gain treatment on sale. As an example, the Tax Court has held that the concept for a television show was not eligible for capital gain treatment.
b. Purchased intellectual property is generally eligible to be treated as a capital asset on sale unless the owner holds the intellectual primarily for sale to customers in the ordinary course of business, as in the case of a software or game developer selling individual, non-custom programs. The sale of the copyright and the code to the program would not be treated as capital gain in the hands of the developer but could yield capital gain if the copyright and the software had been purchased.
c. The exclusion from capital asset treatment does not necessarily apply to a self-created invention that can be patented. The treatment on disposition of such assets may depend on whether the cost of development was capitalized and amortized or whether the development costs were expensed and deducted in the course of development as well as whether the asset is held for sale to customers (not a capital asset) or is used in the taxpayer’s business (in which case it may be eligible for capital gain/ordinary loss treatment).
d. A transaction in which the developer is compensated has to be analyzed to distinguish a license arrangement from a sale. An agreement cast in the form of an exclusive license may be treated as a sale for tax purposes even if title remains with the grantor. The key question is whether the transferor retained any rights which, in the aggregate, have substantial value.
3. How is the purchaser of intellectual property treated?
a. The purchaser of the intellectual property may capitalize and amortize the cost of developing the intellectual property if the intellectual property is to be used in the creator’s business. Computer software is automatically accorded three year straight line amortization if the developer or purchaser opts to amortize the cost of the software. If the development of the software qualifies as research and development in the laboratory or experimental sense, the costs are deductible currently.
b. The purchaser of the intangible assets used in the purchaser’s trade or business (other than computer software as provided above) is permitted to amortize the cost of purchase allocated to most forms of intellectual property over 15 years on a straight line basis. Section 197 assets include goodwill, going concern value, workforce in place, operating systems, information bases, customer based intangibles, vendor based intangibles, licenses, trade marks, trade names, and franchises.
c. The purchaser of the stock of a company that owns intellectual property is subject to the treatment to which the company is already subject unless the purchaser and seller of the stock elect to treat the stock sale as an asset sale.
4. Sales and Use Tax. Of the states that impose sales and use tax, most impose the tax on the sale of tangible personal property. In California, the sale of a custom written computer program is not subject to sales tax. In the case of the sale of a prewritten program to customers, the sales tax is imposed if the software is sold on compact discs or on other media stored in tangible form. Software that the buyer downloads from a website and that is not otherwise delivered on tangible media is not a sale of tangible personal property subject to the California sales tax.
5. Conclusion. The tax treatment of intellectual property is determined by the nature of the intellectual property and how the taxpayer obtained the intellectual property. The cost of developing self-created intellectual property may be eligible for immediate expensing or may have to be capitalized and carried on the taxpayer’s books, not eligible for either deduction or amortization depending on its purpose, the nature of the assets’ development and the assets’ useful life. The cost of purchasing intangible assets used in a business is amortized on a straight line over 15 years except for acquired computer software, which is written off over three years. The cost of other purchased intangible assets may be eligible for amortization using the income forecast method. The sale of intellectual property generally results in capital gain or loss unless the property is a self-created copyright or an asset held primarily for sale in the taxpayer’s business.
Michael Shaff joined Stubbs Alderton & Markiles, LLP in 2011 as Of Counsel. He is chair person of the Tax Practice Group. Michael specializes in all aspects of federal income taxation. Mr. Shaff has served as a trial attorney with the office of the Chief Counsel of the Internal Revenue Service for three years. Mr. Shaff is certified by the Board of Legal Specialization of the State Bar of California as a specialist in tax law. Mr. Shaff is the past chair of the Tax Section of the Orange County Bar Association. He is co-author of the “Real Estate Investment Trusts Handbook” published by West Group. Michael’s practice includes all aspects of federal and state taxation, including mergers and acquisitions, executive compensation, corporate, limited liability company and partnership taxation, tax controversies and real estate investment trusts.
For more information regarding Intellectual Property Taxation, please contact Michael Shaff at firstname.lastname@example.org or (818)444-4522.
 Internal Revenue Code (“IRC”) §1221(a)(3) (This category of intellectual property is denied capital asset treatment on sale if created by the taxpayer’s personal efforts.).
 See Rev. Proc. 2000-50, 2000-2 C.B. 601.
 See, e.g., Graham v. United States (N.D. Tex. 1979) 43 AFTR 2d 79-1013, 79-1 USTC ¶9274 (dealing with the formula for Liquid Paper).
 IRC §1221(a)(3).
 See, e.g., Kennedy v. Commissioner T.C.M. 1965-228, 24 (CCH) 1155 (1965).
 IRC §1235 (individual inventor or individual purchaser from the inventor will be able to treat the patent as a capital asset if held for more than a year.)
 See, e.g., Weimer v. Commissioner TC Memo 1987-390, 54 (CCH) TCM 83 (1987).
 E.I. DuPont de Nemours & Co. v. United States (3d Cir. 1970) 432 F2d 1052, 26 AFTR 2d 70-5636, 70-2 USTC ¶9645 (sale of right to use patents to manufacture nylon while retaining the right to manufacture Dacron with the same patents held a sale of substantially all of the value of the patent sold).
 IRC §167(g) (allowing the income forecast method of amortization for many types of intellectual property other than computer software).
 IRC §167(f).
 Treas. Reg. §1.174-2(a).
 IRC §197(a).
 IRC §197(d)(1).
 IRC §338(h)(10).
 Cal. Rev. & Tax. Code §6010.9; Nortel Networks, Inc. v. State Board of Equalization (Cal. App. 2011) 119 Cal. Rptr.3d 905.
 Sales and Use Tax Annotation 120.0531 (Apr. 10, 1997).
 Sales and Use Tax Annotation 120.0518 (March 11, 1994).
Partner Konrad Gatien was recently the featured speaker at a San Fernando Valley Bar Association event. Konrad spoke on the topic of “How to Protect Your Brand.” Key points included the business perspective, legal perspective, a primer on copyrights, trademarks trade dress, and how to make your brand unique.
For more information regarding Brand Development & Content Protection, contact Konrad Gatien at (310) 746-9810 or email@example.com
Stubbs Alderton & Markiles, LLP Partner Anthony M. Keats’ co-authored book, “Protecting the Brand: Counterfeiting and Gray Markets” has been released by Law Journal Press.
A company’s brands are often its most valuable assets. They’re also a rich target for counterfeiters. With the global value of counterfeit goods estimated at as much as $500-600 billion annually, companies must make a significant effort to combat counterfeiters, gray marketers and cyber squatters.
This uniquely valuable treatise is designed to help in-house and outside counsel as well as corporate and marketing executives understand the full scope of the problem and take preventive measures. It also explains, in detail, the strategies available when violations have already occurred. Topics covered include:
Protecting the value of a brand and protecting consumers from substandard, even dangerous, imitations requires every legal weapon available, in the U.S. and internationally. Protecting the Brand: Counterfeiting and Gray Markets is an essential part of that arsenal.
For more information and to purchase this publication, click here.
Tony Keats is a partner of the Firm and Co-chair of the Brand Development and Content Protection Practice Group. He was a founding partner of Keats, McFarland & Wilson LLP, in Los Angeles, and intellectual property practice team leader for the national law firm Baker & Hostetler. Tony’s almost three decade legal career has focused on both the business and the legal protection of brands and creative content from consumer products to entertainment, from designer goods to the Internet. Since he commenced practice, he has provided counsel and has litigated cases on behalf of many of the world’s largest consumer product and entertainment companies, as well as individual entrepreneurs, actors, and musicians. For more information on SAM’s Brand Development and Content Protection Practice, contact Tony at (310) 746-9802 or firstname.lastname@example.org
Louis Wharton is a Partner of the Firm. Louis’ practice focuses on advising startup, emerging growth and middle market companies across a spectrum of industries in securities compliance, corporate finance, mergers and acquisitions and general corporate matters. He counsels clients in the technology, internet/e-commerce, pharmaceutical, apparel and entertainment industries, among others.
Q. I’m considering engaging a finder to help me complete my capital raise. What issues should I bear in mind when discussing the engagement?
A. The staff of the Securities and Exchange Commission (SEC) has stated that a proposed arrangement whereby a finder provides to an issuer services related to raising funds to finance its operations and development, including making introductions to individuals and entities interested in providing such financing, where the finder’s compensation is based on a percentage of the capital raised from such investors, requires the finder to register as a broker-dealer. The Securities Exchange Act of 1934, as amended (Exchange Act), provides that any broker effecting transactions in securities, or inducing or attempting to induce the purchase or sale of securities, must be registered with the SEC, and defines a broker as any person engaged in the business of effecting transactions in securities for the account of others. The staff has indicated that a person may be ‘engaged in the business’ by receiving transaction-related compensation or by holding itself out as a broker-dealer. A person may ‘effect transactions’ by assisting an issuer to structure prospective securities transactions, by helping an issuer to identify potential purchasers of securities, or by soliciting securities transactions.
The staff also noted that a finder’s intention to introduce only those persons with potential interest in investing in the issuer’s securities implies that the finder anticipates both pre-screening potential investors to determine their eligibility to purchase the issuer’s securities, and pre-selling the issuer’s securities to gauge the investor’s interest. Moreover, the staff has indicated that the receipt of compensation directly tied to successful investments in the issuer’s securities by investors introduced by the finder (i.e. transaction-based compensation), would give the finder a “salesman’s stake” in the proposed transactions and would create heightened incentive for the finder to engage in sales efforts. Pre-screening and pre-selling activities, along with the receipt of securities commissions or other transaction-based compensation, are hallmarks of broker-dealer activity, requiring registration.
Accordingly, any person receiving transaction-based compensation in connection with another person’s purchase or sale of securities typically must register as a broker-dealer or be an associated person of a registered broker-dealer.
Q. What are the consequences of engaging an unregistered broker as a finder?
A. Engaging an unregistered broker-dealer may create a rescission right under federal and state law in favor of the purchasers of the issuer’s securities, potentially requiring the issuer to return the money it received in its capital raise.
Section 29(b) of the Exchange Act provides that every contract made in violation of the Exchange Act and every contract the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of the Exchange Act, shall be void, as to any persons who, in violation of any such provision, rule or regulation, shall have made or engaged in the performance of any such contract, provided that that no contract shall be deemed to be void by reason of this section in any action maintained in reliance upon this section, by any person to or for whom any broker or dealer sells a security in violation of the Exchange Act’s requirements regarding registration, unless such action is brought within one year after the discovery that such sale or purchase involves such violation and within three years after such violation.
While Section 29(b) directly applies to the finder, with the possibility of voiding the finder’s engagement agreement, the language also refers to claims maintained by investors to whom the finder sold securities in violation of the Exchange Act’s broker-dealer registration requirements, creating the possibility that an investor could assert a claim for rescission of their investment within 3 years after the date the securities are purchased by the investor and one year after discovery of the violation.
California Corporations Code Section 25501.5 also provides that a person who purchases a security from or sells a security to an unlicensed broker-dealer may bring an action for rescission of the sale or purchase or, if the plaintiff or the defendant no longer owns the security, for damages, providing a direct right of rescission to investors.
The use of an unregistered broker-dealer could also result in difficulties subsequently registering the issued securities for public sale. Most registration statements require the issuance of a legal opinion indicating whether the securities being registered will, when sold, be legally issued, fully paid and non-assessable. The issuer’s use of an unregistered broker-dealer and issuance of securities in transactions that violated the requirements of the Exchange Act will prevent the issuer’s counsel from issuing the required opinion. In addition, the unregistered broker-dealer’s contact with unaccredited investors in violation of available federal and state securities laws could result in the loss of exemptions from registration.
Accordingly, given the risks of rescission rights, the inability to subsequently register the issued securities and the potential loss of available securities exemptions, issuers should refrain from engaging finders for transaction-based compensation unless such finders are registered broker-dealers.
For more information on this or other related topics, contact Louis Wharton at (818) 444-4509 or email@example.com.
Do you have a question for one of our attorneys? Send your questions to firstname.lastname@example.org to be featured in future Questions columns.
Konrad Gatien, Partner and co-chair of Stubbs Alderton & Markiles’ Brand Development & Content Protection Practice, discusses the importance of establishing a distinctive website to create trade dress, and therefore protect your unique brand. Konrad is involved in all aspects of brand creation, promotion and protection, assisting clients in the selection and adoption of brand names, securing copyrights and trademarks worldwide, and running specialized global enforcement programs.
What is Trade Dress in the Electronic Age?
The digital age has seen the migration of store fronts from brick-and-mortar locations to the Internet. Currently, Amazon is the largest online retailer in the world, with over 48 billion in sales. Given the importance of e-commerce, it comes as no surprise that making an online “storefront” distinctive has become a key element in a company’s branding strategy. Not only must the website be eye-catching and interesting, it must stand out from among the over 600 million active websites online.
One means of achieving distinction is for a company to create a website that has a unique “look and feel” that sets it apart from the rest. In legal terms, this overall visual appearance is known as “trade dress.” Trade dress traditionally has consisted of the specific characteristics or visual appearance of a product or its packaging. The scope of trade dress protection has expanded from these traditional notions to include magazine covers, store interiors, and websites.
The elements of trade dress with respect to websites include such elements as the images, frames, colors, highlights, orientation, layout, graphics, animation, borders and sounds, as well as the selection and arrangement of all of these elements.
The purpose of trade dress protection is prevent marketplace confusion by ensuring that a consumer’s reliance upon the distinctive features associated with a single source are not copied and associated with another business and its products.
Trade dress is protectable once it has achieved secondary meaning, a status achieved when a substantial number of purchasers associate a particular appearance only with a single source. Once secondary meaning is established, the trade dress owner may prevent others from copying it under the Lanham Act, which prohibits unfair competition.
Articulation and Distinctiveness
To establish trade dress, a person or business seeking protection must be able to sufficiently articulate which elements of its website are distinctive. These elements cannot be “functional,” meaning they cannot be merely essential to the product’s use. For example, a shopping cart or check out feature in and of itself would be functional; however, a unique logo or graphic for this feature may be a protectable element of the site’s trade dress. The purpose of the requirement that trade dress consist of specific, articulable, non-functional elements is to give competitors sufficient notice of what the protected trade dress is, and to protect legitimate competition by prohibiting the monopolization of useful product features.
Preemption by Copyright
It is worth noting that where online trade dress is at issue, a trade dress owner’s claims may still be dismissed if the appearance of the website falls under the protections of the Copyright Act. Given the preemption rule, a brand owner cannot seek to protect the look of its website as both a copyrighted work and trade dress. Therefore, a website owner should be careful in selecting the elements of its trade dress in a manner that clearly distinguishes them from elements protected by copyright law. For example, common geometric shapes are not protectable through copyright law, so the owner should consider including those in its trade dress articulation. In addition, the format and layout of a website should be included in the trade dress articulation because they are not proper subjects of a copyright claim (though text and photographs would be proper subjects).
Your website’s appearance is the first impression consumers have of your business. A well-designed website that is distinctive and pleasing to the eye builds consumer confidence in your brand, and helps define your brand’s commercial integrity. To ensure that you maximize the impression of your brand, you should take care to populate your website with elements that are not only distinctive, but also that are legally protectable. From a trade dress standpoint, this will include the layout of the site, certain graphic elements, and its overall appearance, as opposed to its content. When articulating your trade dress, you should be careful to distinguish those elements from the text, original graphic elements and photographs protectable under copyright law to ensure that your trade dress claims are not preempted by the Copyright Act.
 Reader’s Digest Ass’n v. Conservative Digest, 821 F.2d 800 (D.C. Cir. 1987).
 Apple was issued a service mark registration for the design and layout of its Apple retail stores on January 22, 2013 (see Reg. No. 4,277,914).
 See, e.g., Sleep Science Partners v. Avery Lieberman, 2010 U.S. Dist. LEXIS 45385 (N.D. Cal. 2010).
 See id.
 Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 165 (1995).
 Sleep Science Partners, 2010 U.S. Dist. LEXIS 45385, at *13.