HealtH care:
Green Building Standards Designed Just for Health Care Facilities
p.28
litigation:
laBor & emPloYment:
Teleworking: Is It a Good Fit For Your Workforce?
p.30
IP Litigation: What are the Stakes?
p.21
perspectives Sml
VolUme tWo | 2011
A Smith Moore Leatherwood Publication
Matters of Law as They Relate to You CORPORATE | COMMERCIAL REAL ESTATE | HEALTH CARE LABOR & EMPLOYMENT | LITIGATION
Nanotechnology Patents: An Evolving Landscape 5 Tips for Patenting Inventions: What Academic Researchers and Technology Managers Need to Know
Q&A on Clinical Research Is a Joint Venture Right for You? The Lay of the Land What Does the Future Hold for Land Use, Zoning Codes, and Innovation?
SOPHISTICATED. INNOVATIVE. INSIGHTFUL. We like to think we have a lot in common with our intellectual property clients.
速
Attorneys at Law
INTELLECTUAL PROPERTY TEAM ATLANTA 404.962.1000
CHARLESTON 843.577.9888
CHARLOTTE 704.384.2600
GREENSBORO 336.378.5200
GREENVILLE 864.242.6440
RALEIGH 919.755.8700
Phil McCann, Intellectual Property Team Leader | Greensboro, N.C. Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com
WILMINGTON 910.815.7100
from the chairman Innovation fuels entrepreneurship. Developing new technologies, products, and services results in the formation of new businesses. Entrepreneurship fuels the U.S. economy. According to the Kauffman Foundation, an organization that studies the economic impact of entrepreneurship, oneyear-old businesses create almost one million new jobs a year, while 10-year-old businesses generate just 300,000. Between 1980 and 2005, almost all net job creation in the United States took place in companies less than five years old. This statistic demonstrates the vital importance of robust innovation to our economic recovery. Staking your future on the success of an idea requires inspiration and gumption. But it also requires unimaginable amounts of planning, research, and know-how. That’s where we, as lawyers, try to protect our clients as we propel them forward into the marketplace. In this edition of SML Perspectives, we have compiled a series of articles that touch on some of the legal issues faced by both innovators and entrepreneurs. Whether talking about commercializing research, determining whether a joint venture will get you to market, or evaluating what could be at stake in intellectual property litigation, our focus is on finding ways to allow our clients to flourish. In good times and bad, Americans launch around 600,000 new businesses every year. Facilitating new businesses in getting to market, and continuing to protect them once they get there, is what our firm is all about. It’s incredibly rewarding to play a part in these enterprises, and to be part of the engine that drives our economy forward. We truly appreciate and respect the work of our clients and their efforts to always be better and smarter. They make us better and smarter lawyers. Rob Marcus is Smith Moore Leatherwood’s Chairman. The focus of his legal practice is on complex commercial and appellate litigation. He has represented numerous corporations and financial institutions in high profile and complex litigation matters throughout the state and federal courts in North Carolina and elsewhere. He is also wellversed in alternative dispute resolution, including mediation and arbitration. Rob has been selected by Law & Politics Magazine for inclusion in North Carolina Super Lawyers for Business Litigation and is listed in Woodward/White’s Best Lawyers in America for Business Litigation, and Mass Tort Litigation. rob.marcus@ smithmoorelaw.com 704.384.2630
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perspectives Sml
A Smith Moore Leatherwood Publication
the innovation issue
44
con
P.10
From the Editor: Fostering Innovation
P.12
Nanotechnology Patents: An Evolving Landscape
P.14
5 Tips for Patenting Inventions:
P.16
Clinical Research: Q&A with Molly Huggins
P.18
Is a Joint Venture Right for You?
P.21
IP Litigation
P.24
The Lay of the Land
What Academic Researchers and Technology Managers Need to Know
What are the Stakes? What Does the Future Hold for Land Use, Zoning Codes and Innovation?
departments
P.03
From the Chairman
A letter from Smith Moore Leatherwood’s Chairman
P.08
Perspectives
Three unique takes on the obstacles to successful commercialization of research
P.11
Fast Facts:
Patent Law Update
P.20
ProďŹ les
Clint Wimbish
P.42
Legal News You Can Use
LegalHIMformation is now on Facebook
ntentS VolUme tWo | 2011
featUreS P.26
What You Need to Ask to Find the Right Recycler Getting Rid of Old Electronic Office Equipment
Every company in the U.S. is inundated with out-of-date equipment. A new industry has developed to help companies get rid of old electronics that are banned from landfills.
P.28
LEEDing Health Care Why the New Green Building Standards are Better for Us All LEED for health care is expected to open the doors to a new generation of medical building design.
5
P.30
Teleworking: Is it a Good Fit for Your Workforce?
P.35
Employment Eligibility Verification:
How do you design a telework program that facilitates your employee’s ability to perform at the highest level from outside the office and minimize the legal risks you may face as an employer?
Are You Up on the New Rules?
In April 2011, U.S. Citizenship and Immigration Services issued a final rule regarding the changes put in place with the 2009 Form I-9. The principal changes include new document requirements that all employers need to be aware of.
P.38
Discipline or Discharge: The Tough Choice
P.40
Consumers and Manufacturers Beware
In today’s tough economic times, employers are having to make more and more decisions about whether or not to discharge poorly performing employees.
Is the Consumer Safety Product Database Accurate?
In March 2011, the U.S. Consumer Product Safety Commission launched the first public database of consumer product safety complaints. But can you trust the information?
contributors
All e-mail extensions @smithmoorelaw.com
perspectives Sml
Alex Audilet
Partner, Greensboro, N.C. Corporate alex.audilet@ 336.378.5438
Jon Berkelhammer Partner, Greensboro, N.C. Litigation jon.berkelhammer@ 336.378.5251
Michael Lee
Partner-in-Charge, Wilmington, N.C. Commercial Real Estate/Land Use michael.lee@ 910.815.7121
Dave Neill
Associate, Raleigh, N.C. Land Use dave.neill@ 919.755.8766
Mike Bowers
Partner-in-Charge, Charleston, S.C. Litigation mike.bowers@ 843.577.9888
Laura Burton
6
Partner, Greensboro, N.C. Immigration laura.burton@ 336.378.5566
Clara Cottrell
Associate, Greensboro, N.C. Intellectual Property clara.cottrell@ 336.378.5597
Rick Coughlin
Partner, Greensboro, N.C. Litigation rick.coughlin@ 336.378.5471
Jerry Oliver
Partner, Greensboro, N.C. Environmental steve.earp@ 336.378.5314
Molly Huggins
Of Counsel, Raleigh, N.C. Clinical Trials Team Leader molly.huggins@ 919.755.8792
Trey Ingram
Associate, Greenville, S.C. Labor & Employment/ Litigation trey.ingram@ 864.240.2472
Editor-in-Chief: Michael Lee michael.lee@smithmoorelaw.com Managing Editor Brenda Stewart brenda.stewart@smithmoorelaw.com Executive Editor Jess Robertson jessica.robertson@smithmoorelaw.com
Partner, Raleigh, N.C. Labor & Employment jerry.oliver@ 919.755.8710
Creative Director Jess Robertson jessica.robertson@smithmoorelaw.com
Collins Pickup
Copy Editors Kathy Bagwell kathy.bagwell@smithmoorelaw.com
Of Counsel, Greensboro, N.C. Corporate collins.pickup@ 336.378.5459
Patti Ramseur
Partner, Greensboro/Charlotte, N.C. Labor & Employment Team Leader patti.ramseur@ 336.378.5304
Tom Terrell Steve Earp
A Smith Moore Leatherwood Publication
Partner, Greensboro, N.C. Land Use Team Leader tom.terrell@ 336.378.5412
Clint Wimbish
Partner, Charlotte, N.C. Intellectual Property clint.wimbish@ 704.384.2658
John Zimmer
Associate, Charlotte, N.C. Intellectual Property john.zimmer@ 704.384.2659
Gayle McCall gayle.mccall@smithmoorelaw.com Circulation/Subscriptions Lisa Amos lisa.amos@smithmoorelaw.com Web Development George Nelson george.nelson@smithmoorelaw.com
QUESTIONS, COMMENTS OR LETTERS TO THE EDITOR: Brenda Stewart, Managing Editor brenda.stewart@smithmoorelaw.com Smith Moore Leatherwood LLP Attorneys at Law 300 East McBee Avenue, Suite 500 Greenville, SC 29601 864.242.6440 www.smithmoorelaw.com www.smlperspectives.com
All contents Š COPYRIGHT 2011 Smith Moore Leatherwood LLP. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without written permission from Smith Moore Leatherwood LLP. The information contained herein should not be interpreted as legal advice with respect to speciďŹ c situations.
Some things become even better when brought together
In your next corporate venture, rely on experienced business advisors who regularly assist clients with mergers, acquisitions, divestitures, spin-offs, corporate restructurings, leveraged buyouts, joint ventures and strategic alliances of all sizes and levels of complexity.
速
Attorneys at Law
Mergers and Aquisitions Team ATLANTA 404.962.1000
CHARLESTON 843.577.9888
CHARLOTTE 704.384.2600
GREENSBORO 336.378.5200
GREENVILLE 864.242.6440
RALEIGH 919.755.8700
WILMINGTON 910.815.7100
Frank C. Williams III, Corporate Practice Area Leader, Greenville, S.C. | frank.williams@smithmoorelaw.com Smith Moore Leatherwood LLP | Attorneys at Law | www.smithmoorelaw.com
perspectives on innovation
“ The value of an idea is in the using of it.� ~Thomas Edison
888
What are the most common obstacles to the successful commercialization of research?
Tom Epting Partner
Greenville, S.C. Between an inventor’s “Aha!” moment and his financial reward are the challenges of commercialization. It is a rare inventor who does not encounter difficulty in funding, manufacturing, distributing and marketing his invention. The fruits of research may yield an intriguing invention, but entering the market often proves equally challenging. A myriad of factors complicate the journey to commercialization: • Undue delay caused by the inventor’s attempts to “perfect” his or her product may allow a competitive, lesser quality product to enter the market, to the detriment of the inventor. • Licensing manufacturing to another may hasten market entry, but at the expense of the inventor’s control. • Funding may be exhausted in pre-sales activities. • Distribution and supply chains take time and expertise to establish.
Kim Gatling
John Zimmer, Ph.D.
The most common obstacle to successful commercialization of research is simply a well-developed business plan. It is “simple” to use the term business plan to sum up all the facets of successful commercialization; however, there is really nothing simple about it. A well-developed business plan is quite complex and requires input from a wide variety of specialists, including attorneys (business, intellectual property, and possibly regulatory), venture capitalists, financial planners, and marketing experts. Assembling such a dream team of consultants can be an obstacle in and of itself, so researchers have to take off their lab coats, put on their business attire, and engage in good, old-fashioned networking to connect with professionals who are willing to invest time and resources in the research. Many researchers find it helpful to partner with technology incubators and technology transfer offices to get support in developing the business plan and getting access to the necessary consultants.
Insufficient intellectual property is a common obstacle. Most researchers understand that IP protection is an important component of successful commercialization. Entrepreneurial innovators particularly recognize the value of “patent pending” status or issued patents covering core technologies. Without patent protection, many technologies cannot be commercialized. Investors are generally unwilling to bring products to market if those products can be easily and quickly copied by competitors with no available remedy.
Partner Greensboro, N.C.
Tom Epting’s primary practice areas include intellectual property, patents, trademarks and copyrights, technology, licensing, litigation, and corporate and business transactions. He was formerly a Patent Examiner with the United States Patent and Trademark Office.
Kim Gatling concentrates her practice in patent and trademark prosecution, licensing, and litigation. Particularly, she prosecutes computer software, business method, and mechanical patent applications, as well as trademark applications, before the United States Patent and Trademark Office. She also drafts and negotiates agreements for IT transactions, including software development and maintenance agreements, and advises clients on computer law and internet issues.
tom.epting@smithmoorelaw.com 864.240.2453
kim.gatling@smithmoorelaw.com 336.378.5356
The inventor who finds equal pleasure in inventing and reaching market is rare. But the successful inventor must proactively attack these practical problems of commercialization.
Associate Charlotte, N.C.
However, many researchers and their employers wrongly assume that any patent protection will suffice. Patents should not be treated like commodities, especially at early commercialization stages. Patent quality varies dramatically, and higher quality patents are worth much more in the marketplace than lower quality ones. Investors, potential licensees, and competitors frequently scrutinize patents and patent applications. Poorly drafted patents frighten investors, reduce licensing fees, and empower rather than deter competitors. Higher quality patents may cost a little more up front, but the extra money is usually well spent. Dr. John Zimmer focuses his practice on matters including patent prosecution and counseling in the chemical and materials science areas. Dr. Zimmer holds four patents related to colloidal semiconductor nanocrystals and has coauthored 13 papers, appearing in peerreviewed scientific journals, including the Journal of the American Chemical Society, Nature Biotechnology, Nature Medicine and Angewandte Chemie International Edition. john.zimmer@smithmoorelaw.com 704.384.2659
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foStering ing inn Vation by Michael Lee
S
uccessful companies know that innovation isn’t simply about creating the next brilliant product or service that changes the way we live or do business. They recognize that novel ideas, or even subtle changes in perspective, can transform corporate structures, business models, pricing structures, marketing strategies, or management styles. These ideas can come from every level of an organization, and when employees are asked to engage in the process, ideas abound. The first challenge is in fostering dialogue, and the second is in harnessing great ideas when and if you can pause long enough to spot them. While most companies would theoretically like to make innovation a responsibility of the entire organization, they often find that it’s very difficult to put into practice. It tends not to happen organically. But in today’s uncertain economic landscape, innovation is the very thing that can provide the competitive edge a company needs not only
to survive, but to thrive. But how do you foster innovation? Innovation must be achieved systematically, and should be a part of a company’s strategic plan. Companies often plan how to market, how to be more productive, how to cut costs and be more efficient, but those elements are distinctly different than how to be innovative. Innovation requires gathering information and ideas from people with different skill sets and knowledge bases, and then looking at an organization as a whole, examining the complex relationships and connections between departments. This systemic view often exposes the root causes of problems and provides a master view of the way the organization can be improved or reinvented. There are countless applied-creativitysystems developed by various authors or consultants upon which a company might model their innovation strategy, but the
process needs to be driven by an enthusiastic problem-solver that is passionate about creating a culture of learning within the organization. Gary Hamel, an author ranked by The Wall Street Journal as the world’s most influential business thinker once put it simply, “Out there in some garage is an entrepreneur who’s forging a bullet with your company’s name on it. You’ve got one option now — to shoot first. You’ve got to out-innovate the innovators . . . .” Just how you bring those ideas together is what will set you apart, and make your company great. Michael Lee is the Partner-in-Charge of Smith Moore Leatherwood’s Wilmington, N.C. office and the Editor-in-Chief of SML Perspectives. michael.lee@smithmoorelawcom 910.815.7121
FAST FACTS:
Patent Law by Clara Cottrell
We may see a change in the patent law this session of Congress. The America Invents Act has passed the Senate (SB 23) and its House counterpart (HB 1249) has been voted out of committee and is awaiting a floor debate. One major change would be moving from a first-to-invent system to a firstinventor-to-file system. Another change would amend the false marking statutes to allow only the United States and people who have suffered a competitive injury to file false marking suits. See http:// smlperspectives.com/technology/false-patent-markings-could-cost-you/ issue for more information about the influx of false marking litigation. Of course, there have been attempts to reform the patent act for years now. We will just have to wait and see what emerges from this session. For up to date information, visit http://thomas.loc.gov/ and search for SB23 and HB1249. Did you know that if you do not register your patent assignment documents with the Patent Office, you could lose your rights? Assignments must be registered within three months of being made or before a subsequent purchaser. If not, your assignment is void as to the subsequent purchaser! For businesses looking to pursue patent protection outside of the United States, having the priority patent application assigned prior to filing the international patent application (a PCT application) may be a necessity, especially if any of the inventors are not your employees. Just ask Cook Biotech Inc! Its patent was invalidated when a United Kingdom court determined that Cook did not have the right to claim priority to an earlier PCT application because all the assignments to Cook had not been made at the time of filing the PCT application. http://alpha.bailii.org/ew/cases/EWHC/Patents/2009/1304.html It might be time to take another look at your document retention policies, especially if you anticipate patent litigation. The Federal Circuit in two recent decisions has stated the standard for determining when the duty to preserve evidence attaches when litigation is pending or reasonably foreseeable, not imminent or probable. When exactly “pending or reasonably foreseeable” happens is very fact specific, but having a business plan to sue for patent infringement may be it! Micron Tech., Inc. v. Rambus Inc., No. 2009-1263 (Fed. Cir. May 13, 2011); Hynix Semiconductor, Inc. v. Rambus Inc., No. 1009-1299, -1347 (Fed. Cir. May 13, 2011).
Clara Cottrell is an associate in Smith Moore Leatherwood’s Greensboro office. She is a registered patent attorney, and regularly advises clients on patent, trademark and copyright matters, and related business issues. clara.cottrell@smithmoorelaw.com | 336.378.5597
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ING V L EVO CAPE N A DS N A L
NANOTECHNOLOGY PATENTS by Clint Wimbish and John Zimmer
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T
he term “nanotechnology” generally denotes a wide array of technologies related to materials with physical features on the order of 1 nm to 1 µm. Beginning largely with the discovery of buckminsterfullerenes in 19851 and the development of carbon nanotubes six years later,2 nanotechnology has been the subject of considerable research interest. With these seminal advances solidly in place, viable technologies on the nanoscale had arrived with the potential to revolutionize materials and materials research.
Realizing this potential, universities and corporations alike made significant investments in the development of nanotechnology. Such investments have yielded a variety of important and interesting materials including semiconductor nanocrystals/quantum dots, organic and inorganic colloids, organic light emitting materials, wear resistant coatings, photovoltaics having nanoscale heterojunctions and lithographic resists having resolutions sufficient to enable the patterning of nanoscale circuitry.
1 Smalley et al., C60:Buckministerfullerene, Nature, 318, 162 (1985) 2 S. Iijima, Helical microtubes of graphitic carbon, Nature, 354, 56 (1991)
The successful development of nanotechnology over the past 25 years has
also yielded an increasingly crowded patent space addressing nanoscale inventions. Furthermore, over two decades of intense nanotechnological research has produced a voluminous body of prior art operable to significantly erode claim scope of newly filed patent applications. Given these considerations and the importance of patents to the commercialization of nanotechnology, questions arise regarding the present and future nanotechnology patent landscape. Is the nanotech patent landscape so overdeveloped that only pockets of meaningful protection currently exist or do large tracts of unclaimed space remain?
TABLE 1 – CLAIM SCOPE CONTRACTION U.S. PAT. NO. 6,251,303 (THE ’303 PATENT)
U.S. PAT. NO. 7,601,424 (THE ’424 PATENT)
Claim 1:
Claim 1:
A water-soluble semiconductor nanocrystal comprising:
A semiconductor nanocrystal comprising:
a semiconductor material having a selected band gap energy and being a nanocrystal; and
a semiconductor nanocrystal; and
an outer layer comprising a multidentate compound having at least two linking groups for attachment of the compound to a surface of the nanocrystal and at least one hydrophilic group spaced apart from the linking group by a hydrophobic region sufficient to prevent electron charge transfer across the hydrophobic region.
an outer layer including an oligomeric polydentate ligand bound to the nanocrystal by three or more donor groups, each donor group independently selected from the group consisting of P, N, P=O, and N=O, wherein each monomeric unit includes one or more donor groups, one or more linking groups, and one or more functional groups.
FIGURE 1
MicrotechnologyNanotechnology Patent Evolutionary Comparison
2000—2009 1990—1999 1980—1989
NANOTECHNOLOGY
1970—1979
MICROTECHNOLOGY
0
2000
4000
6000
8000
10000
12000
14000
16000
UNITED STATES PATENTS It is intrinsically difficult to answer such questions with a high degree of certainty given the breadth of the nanotechnology field. Available patent space is sure to vary significantly across nanotechnology’s numerous subdisciplines. However, it is still useful to examine the evolutionary track of the nanotech patent landscape on a macro-level to identify a general trajectory. Interestingly and fortunately, we can look to the predecessor of nanotechnology for assistance in mapping the evolutionary track of the nanotech patent landscape. Prior to nanotechnology, microtechnology was at the leading edge of materials research. Figure 1 provides an evolutionary comparison between microtechnology and nanotechnology based on the number of United States patents issued in each field over the last four decades.3 Two features are especially notable in Figure 1. First, significant growth in patenting microtechnology continues, with the number of issued patents in the most recent decade eclipsing the prior three decades. Second, the nanotechnology 3 The microtechnology patents represented here are those including the term “micro” in the claims. The nanotechnology patents are those including the term “nano” in the claims. These patent sets obviously do not include all patents related to microtechnology and nanotechnology, respectively. In addition, they probably include some patents unrelated to either field. Despite these imperfections, the two sets of patents should provide a reasonably accurate snapshot of the microtechnology and nanotechnology patent spaces at a high level.
patent landscape exhibits features of a still young technology, especially compared to microtechnology. Nanotechnology patents were essentially non-existent in the 1970s and 1980s. Slow development occurred in the 1990s, with significant growth coming in the most recent decade. This macroscopic view is favorable to companies and universities investing in nanotechnology as large tracts of unclaimed patent space likely remain available. Moreover, factoring in robust development, it could still take several decades for nanotechnology to reach the present maturity of the microtechnology patent landscape. Even then, the patent landscape of nanotechnology would likely continue to evolve at a significant pace, as microtechnology has done. In 2010, for example, over 2000 patents having “micro” in the claims were issued by the United States Patent Office. One word of caution is in order, however. As with other developing technologies, the available claim scope in most nanotechnology related fields has substantially declined during the growth of the last decade. This decrease in available “white space” has been driven primarily by the proliferation of nanotech patents and publications that can be used by the Patent Office as prior art against later filed applications. Table 1 (opposite page) illustrates a common type of claim scope contraction. The patent claims listed in Table 1 both cover semiconductor
nanocrystals stabilized by a ligand that can impart water solubility to the nanocrystals, and both come from the same research group. The ’303 patent issued in 2001, and the ’424 patent issued in 2009. The later patent claim covers nanocrystals comprising only a relatively specific type of polydentate ligand, whereas the earlier claim nominally covers a much more generic class. Despite the general contraction in claim scope, both the short and long term patenting forecasts for nanotechnologyrelated inventions is encouraging. Ultimately, however, the nanotech patent landscape will become overdeveloped thereby posing the question of what will be the next materials frontier? Clint Wimbish is a partner in Smith Moore Leatherwood’s Charlotte office, and focuses his practice on the procurement of patent rights in the chemical and biochemical fields with special emphasis on inorganic and organic nanomaterials. clint.wimbish@smithmoorelaw.com 704.384.2658 Dr. John Zimmer is an associate in Smith Moore Leatherwood’s Charlotte office, and focuses his practice on various patent-related matters including patent prosecution and counseling in the chemical and materials science areas. john.zimmer@smithmoorelaw.com 704.384.2659
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5 TIps
for paTenTIng InvenTIons by Dr. John Zimmer
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Y
What academic researchers and Technology managers need to know
ou experience many pressures — from pressures to publish, to pressures to keep state and federal regulators happy. In the midst of earning a degree, obtaining tenure, or running a safe and well-funded laboratory, you may have little time to think about how your daily habits can affect your ability to protect the intellectual property your research activities generate. The following list of best practices can help you get the most out of your innovations.
KEEP GOOD RECORDS: Establishing who did what, when, can be just as important in patent law as it is in a tenure file or grant proposal. Lab notebook entries should be complete, accurate, and made soon after an experiment is conducted. Entries should also be dated and signed by a person who understands the work but did not conduct the experiment herself. Sloppy record keeping can result in the attribution of a researcher’s insights (and patent rights) to somebody else. FILE FIRST: It is almost always better to file a patent application before publishing a manuscript, presenting a poster, or giving a talk about a new technology. Making a public disclosure before filing an application can result in a permanent loss of patent rights in the United States and abroad. Filing first is especially important for preserving foreign patent rights and is likely to become more important in the U.S. as well. For example, in most foreign jurisdictions publishing research results before filing a patent application destroys legal novelty and thereby precludes the possibility of ever obtaining patent protection. If a public disclosure is imminent, a call should be placed to the research institution’s technology management office or patent attorney as soon as possible to avoid forfeiting rights. TALK TO A PATENT ATTORNEY EARLY AND OFTEN: Patent applications are both technical and legal documents and therefore should be drafted by a licensed patent attorney or agent who understands the technology. It is far too easy for an unqualified person to make mistakes that drastically curtail or destroy patent rights. To be most helpful, patent attorneys need to know as much as possible about their clients’ research and publication plans as soon as possible. Researchers who publish and patent frequently might consider scheduling a regular meeting with their patent attorney to discuss the status of their lab’s intellectual property. DISCLOSE THE RIGHT AMOUNT OF INFORMATION: As emphasized above, it is generally best for inventors to disclose everything to their patent attorney right away. But more care should be taken regarding what ideas are disclosed to the public and when. Under-disclosing and over-disclosing can both be harmful to inventors’ rights. In exchange for patent protection, inventors are required to fully disclose their claimed inventions to the Patent Office. But inventors are not required to disclose innovations they are not claiming, nor do they need to disclose the seeds of future inventions before those seeds have borne fruit. Researchers should work closely with their patent attorneys to ensure proper development of their patent portfolios. FULLY ENGAGE IN THE PROCESS: The best patent applications result when inventors work closely with their patent attorney and fully engage in the patenting process. It may be difficult for many researchers to find extra time in a busy schedule, but carefully reading drafts, asking questions, and providing thoughtful feedback pay large dividends later. Once a patent application is filed, it is too late to correct major misstatements or add new data. Cutting corners on the front end will haunt a patent application and any patent that issues from it for the entire life of the patent and possibly for the lifetime of other related patents as well.
Dr. John Zimmer is an associate in Smith Moore Leatherwood’s Charlotte office. He focuses his practice on various patentrelated matters including patent prosecution and counseling in the chemical and materials science areas. Dr. Zimmer holds four patents related to colloidal semiconductor nanocrystals and has co-authored 13 papers appearing in peer-reviewed scientific journals, including the Journal of the American Chemical Society, Nature Biotechnology, Nature Medicine and Angewandte Chemie International Edition. john.zimmer@smithmoorelaw.com | 704.384.2659
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Q a Clinical Research &
on
with Molly Huggins
When most people think about clinical research, they imagine the development of new wonder-drugs or devices that ease pain and suffering and extend our lives. Those conducting clinical research, however, have to consider the myriad technicalities—both scientific and legal—that will determine whether their research endeavor will come to fruition. Molly Huggins leads a team of medical research attorneys devoted to helping clients get clinical research projects up and running. In the following Q&A, she provides direct insight into the industry, and addresses some current and future challenges.
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What types of companies or organizations touch clinical research? What are the most common legal challenges facing them today?
Our clients include academic medical centers that perform clinical research as a part of their core mission, pharmaceutical companies that are engaged in drug development and sponsorship of clinical trials, community hospitals participating in multi-site clinical trials, biotech companies that provide research support services, and physicians who participate in clinical trials.
This is an extremely heavily regulated industry, so the challenges are many, but billing compliance is at the top of my list right now. Medicare requires specific budget and billing processes related to clinical trials, and these can be daunting. Billing for device trials can be particularly complex, due to certain approval processes under Medicare that must be followed. When we are working with a client who is performing a clinical trial, we want to look very closely at the budget and billing pieces with them, to be sure all the right steps have been taken and documented. When our client is sponsoring the research, we help educate them about the steps the sites must take in setting up the billing process for the trial, so that they can help provide the sites with sufficient information on a timely basis. It’s also important to understand that there are an enormous number of players involved in a clinical trial (even before you bring in participants), and risks have to be fairly allocated among them. Contracts between clinical trial sponsors, sites, and investigators must be carefully drafted and negotiated. Confidential disclosure agreements, clinical trial agreements, material transfer agreements, data use agreements, and informed consent documents all have to be carefully considered. Consistency among the documents is another key matter – we serve as a final set of eyes for our clients to make sure the clinical trial agreement, budget, and informed consent documents all align. With different parts of an organization involved in preparing each one, it’s not surprising that the final documents often contain inconsistencies among them related to the same trial.
Intellectual property issues also arise with research, as well as day to day operational questions that arise from our clients’ internal institutional review boards, research finance departments, and federal grants offices.
What new legal issues have emerged in this field?
What have sites and sponsors found surprising when negotiating a clinical trial agreement and budget?
What red flags are you asking your clients to be particularly attuned to?
What legal issues are on the horizon going forward?
Without a doubt, patient privacy and the intersection of research and access to patient data is at the top of our minds. Over the years, we have seen sponsors of clinical research and entities performing clinical research generally come to a good understanding of how to properly protect subject confidentiality. Recently, however, we are seeing a rise in the involvement of contract research organizations and other third parties in clinical trials. When a third party is involved that is not the sponsor or the site, we need to think carefully about when that third party has access to protected health information, and who is responsible if that third party improperly uses or discloses the protected health information. These are issues that are not commonly addressed in the research agreements or informed consent documents, and we are encouraging clients to really engage on this issue.
We often see sponsors caught off guard by requirements that must be met by sites in order for the agreement and performance of the research to be consistent with the sites’ non-profit status. This generally comes up during the negotiation of publication and presentation rights for Phase I and II clinical trials, and we always encourage sponsors to think through these issues while in the drafting stages of their clinical trial agreement template. We also find that sponsors are generally not as focused on health care compliance laws, such as the Anti-kickback statute and Stark laws, that hospitals and physicians must navigate when performing clinical trials that are paid for by an outside party. When sponsors work with counsel who is well versed in these requirements, we find the negotiation and finalization process for the agreements goes much more quickly.
Post-market studies and registries. We have seen a number of very quirky agreements in the past six months, all of which have been post-market studies or registries. These raise particular compliance concerns when there is the possibility that they could influence a health care provider in his or her referrals for a particular device or product. When our clients have a proposed agreement for the performance of a post-market study, we look very carefully at whether the study has genuine scientific merit, whether participation in the study could improperly influence referral patterns, and whether performance of the study is consistent with the client’s non-profit status, if applicable. Sometimes the arrangement turns out to be fine, but we’ve had a number of circumstances recently where we have advised the client to decline the study.
Billing compliance and patient privacy will continue to be critical issues. Financial disclosures and issues related to transparency in research are also getting a good bit of attention, and we have a number of clients who are real thought leaders on this issue. We consider ourselves fortunate to be a part of this industry.
Molly Huggins leads Smith Moore Leatherwood’s medical research practice team. Her practice focuses on providing legal services to sponsors of clinical research, and institutions where federally funded and privately sponsored research is conducted, and to physician groups and contracting organizations involved with the development, performance, and oversight of clinical studies. molly.huggins@smithmoorelaw.com | 919.755.8792
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Is a Joint Venture Right for You? by Alex Audilet and Collins Pickup
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n today’s economy, companies are increasingly looking at different business structures to bring new ideas, technology and products to the market. One common and constructive solution is a joint venture arrangement. In a joint venture, businesses or individuals combine their resources, expertise and skills for a specific project. It gives them the opportunity to collectively focus on a common goal, while diffusing the risk, liabilities and costs. The parties in a joint venture generally structure it by forming a separate entity for the new line of business or by entering into one or more contracts with each other and sometimes with outside parties. Joint venture arrangements have many benefits to potential partners. The parties may each gain (1) supply and distribution opportunities that may not be accessible to such party independently, (2) entry to domestic and/or international markets that were otherwise unavailable, (3) a reduction in expenses and costs associated with such venture, and (4) access to assets of other party (i.e., intellectual property, licenses, manufacturing capabilities, etc.). For smaller companies, there are additional benefits such as a source of capital, improved credibility in the market, and the ability to compete with larger businesses. As with any new arrangement, parties must weigh the benefits against the disadvantages of the business structure. The drawbacks to a joint venture arrangement generally relate to the partnership between the multiple businesses. Each company lacks total control over the new enterprise. Depending on the specific details of the business organization, there may be issues among the parties regarding each
party’s flexibility and participation as well as each party’s commitment of time and resources to the project. There may be too much dependence on one party in the arrangement. These types of struggles lead to a somewhat high rate of failure for joint ventures. As a first step in considering the benefits and disadvantages of a joint venture arrangement, potential partners should negotiate and execute a confidentiality or nondisclosure agreement with each other. This agreement will secure privacy and protection for the exchange of their confidential information during the due diligence phase and the negotiation of any joint venture agreement(s) between the parties. The parties should closely consider the objectives of each party, and whether their goals appropriately coordinate, and the requirements of the new business and each party’s abilities to meet those necessities. Before negotiating a definitive joint venture agreement, the companies will generally conduct a mutual due diligence investigation, during which each company researches the business of the other company. The parties will typically exchange, among other items, corporate information, financial records, asset and liability information, and sales/marketing information. During its investigation, each company should closely consider the costs and benefits of entering into a business arrangement with the other party and what issues and concerns should be addressed in the business structure. In forming the joint venture, most companies choose to form a separate entity for the arrangement rather than entering into one or more contracts. Even with the
formation of a separate entity, the parties will most likely have additional contracts that address their involvement and participation in the new business (i.e., licensing, manufacturing, services, etc.). Through the formation of a joint venture entity, the parties can limit their liability and also detach the operations and assets of the new line of business from each party’s existing business. A party may ultimately decide that a joint venture is not the best structure for developing its technology and concept. Other options for such company include merging or acquiring another company to meet its needs for the new line of business, proceeding independently with its existing resources, or entering into an independent contractor arrangement. Mergers and acquisitions can be costly, and, depending on the acquisition, a company may acquire more assets than it needs or raise regulatory concerns depending on the industries of the two businesses (i.e. antitrust). An independent contractor agreement is generally used for a specific business need and not the broader requirements of a new line of business. Companies should assess a variety of business structures in pursuing a new development opportunity, but joint venture arrangements can potentially offer a multitude of benefits and advantages.
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Profile
clint WimBiSH
BIG on Nano
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P
eople who find material science and inorganic chemistry interesting tend to gravitate toward other people who find material science and inorganic chemistry interesting. If you are one of those people, and you need a patent, then you will have a field day talking with attorney Clint Wimbish.
Clint is one of those hybrids who enjoys both science and intellectual property law. He simply loves his practice in patent prosecution and opinion work. “I get to see cutting-edge technologies in a variety of chemical disciplines,” he explains. “I can be reviewing three or four pages of findings, knowing that I’m also looking at two or three years of incredible scientific work. It’s very exciting to see.” For Clint, a significant portion of his practice is devoted to nanotechnology. Clint has procured patent rights in a variety of nanotechological fields including nanolithographic resists, quantum dots, cancer therapeutics, photovoltaics and composite materials. Moreover, Clint often lectures on the interplay between nanotechnology and patent law, including a lecture last fall in Rio de Janeiro, Brazil, on the commercialization of nanotechnology at the Workshop on Nanoscale Science, Technology and Innovation. “Nanotechnology continues to play an increasingly important role in the development of new technologies and realizing comprehensive strategies to move such technologies from the laboratory to the marketplace is critical for the continued growth of nanotechnology,” he says. Clint will tell you that the best part of his work is being able to meet the high demands of his clients. “There aren’t a lot of attorneys who do what I do in this particular field. I’m often involved at the genesis of a new product launch or a new process. It’s very gratifying to assist clients in obtaining protection for their intellectual property and turning that protection into a dominant market position.” Clint’s enthusiasm and experience is paying off. He was recently selected for inclusion in SuperLawyers® Magazine as a North Carolina “Rising Star”, a distinction reserved for the top 2.5 percent of North Carolina lawyers who are under 40 or in practice for 10 years or less. Clint Wimbish is a Partner in Smith Moore Leatherwood’s Charlotte, N.C. office. He can be reached at clint.wimbish@smithmoorelaw.com or 704.384.2658
IP LITIGATION What are the Stakes? by Rick Coughlin and Clara Cottrell
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our company has invested countless hours and money developing and introducing a new product, and it’s been paying off with sales that have exceeded even your most optimistic forecasts. Now your biggest competitor has come out with a knock-off that is priced twenty percent lower than yours (it’s easy for them, given they didn’t have any R&D expenses). You are sure that the knock-off is infringing one of your hard-earned patents. How much will it cost to sue for patent infringement? Can you stop the competitor from selling its infringing goods, or are you limited to trying to get a judgment for money damages? What can you get if you win? Or, you receive a “cease and desist” letter from a lawyer on behalf of a company that you’ve never heard of, located in “Timbucktoo”, claiming that your company’s name, which it has used for years, is “confusingly similar” to a federally registered trademark issued last year. Do you need to change your company’s name? What happens if you get sued? How much might the company have to pay? If you fight it and win, can you recover your attorneys’ fees? Whether you are considering filing a suit, or you’ve been threatened with a suit, it is extremely important to understand what you are getting into, what it can cost, and what you can win or lose. Protecting or asserting your IP rights is a business decision, and the more information you have, the better. The first question is almost inevitably, “How much is this really going to cost?” Determining the actual costs of a lawsuit in advance of litigation is typically difficult. However, taking a look at the laws surrounding the different types of intellectual property can provide a better understanding of just what could be at stake, and help you determine how best to position your company, whether it’s on the defense or the attack.
INJUNCTIONS Many IP cases start with a cease and desist demand. Absent a resolution, the next step usually involves the filing of a law suit, and a request that the court immediately enter an injunction stopping the alleged infringement. To obtain a preliminary injunction, a party needs to convince the court that it is likely to win the case (which goes to the merits of your claim) and that the party is likely to suffer “irreparable harm” if the court does not order that the other side stop its alleged infringing activity. That means the party needs to prove that money damages at the end of the case would not be sufficient to compensate it for the damage caused by the infringement. Examples of irreparable harm include: loss of good will, loss of market share, and customer confusion.
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Because you need to prove that you are likely to win the case, efforts to obtain a preliminary injunction are intensive, and they often require extensive discovery and an evidentiary hearing, all on an expedited basis. And if you win, you are likely going to have to post a bond to pay damages in case it turns out that the injunction was improper (i.e., the party who was enjoined won the case). Many times, the fight at the preliminary injunction stage ends up determining the overall outcome of the case. This occurs because the process leaves the parties well informed with regard to the evidence, and the court has given some indication as to the strength of the parties’ relative positions.
PATENTS Very simply, if someone makes, uses, sells or offers to sell someone else’s patented invention, the patent owner can sue for infringement. If they win in court, the patent owner will receive “reasonable damages” adequate to compensate for infringement, with interest and costs as fixed by the court. There are two damage components used in calculating an award: first, compensation; and second, reasonable royalties. Generally, compensation refers to compensating the patent owner for lost profits and even price erosion that occurs through unjust competition with the patent infringer. Lost profits must be shown by some economic
markers that the court can use to justifiably quantify the actual profits. If the damages awarded are supported by the evidence, and are not “grossly excessive, or based only on speculation and guesswork,” appellate courts are unlikely to disturb the award. 1 Above and beyond these damage calculations is the specter of “willful infringement.” If a court determines that the infringer knew what they were doing, triple damages could be awarded. The court also has the ability to award prejudgment interest for the time between the first infringement and the payment of judgment. In infringement cases that drag on for years, this can be a substantial increase to the award amount. Attorneys’ fees may also be awarded to the prevailing party in some cases.
How Much Are We Talking About? The question of what “reasonable” royalties are continues to be a much debated subject, the answer to which could climb into the millions. In the past, courts have used the 25 percent rule: 25 percent of the value of the product should go to the patent owner as a royalty and 75 percent would remain with the seller/infringer.2 However, recently this rule was expressly overruled and is no longer the correct starting point for determining a reasonable royalty. The effect is yet to be seen, but it could result in wild conjecture and questionable “evidence” of what is reasonable. Regardless, any royalty reward is going to depend on a number of factors related to the patents, previous licenses, competition, and the relationship between the parties, to name a few.3 IP litigation, particularly patent litigation, can be very expensive. Although each case is unique, the average contested case costs each party seven figures to litigate, particularly if there are questions as to the validity of the patent and counterclaims seeking to invalidate the patent. The recoveries can also be significant. For example, in 1991, Polaroid won a record setting award against Eastman-Kodak over the infringement of several patents.4 The resulting $900 million reward was later revised to $873 million. More recently, Microsoft lost a patent infringement suit to Uniloc. The “reasonable royalty” in that case was determined to be
$388 million, based on a royalty rate of $2.50 per license.5 Although most cases do not involve claims that support such an award, many meritorious claims involve potential recoveries that justify the cost to pursue them.
COPYRIGHT Copyright categories include literary, musical, and dramatic works, choreographic works, pictorial, graphic and sculptural works, motion pictures and other audiovisual works, sound recordings, and architectural works. Software falls under literary works. A copyright gives the owner the exclusive ability to reproduce the work, prepare derivative works, distribute copies, display the work, and perform the work. Of all the intellectual properties, copyright infringement remedies are the most governed by statute. A copyright owner must elect to pursue either actual damages or statutory damages prior to a final judgment. If the copyright owner elects to pursue actual damages, often the most attractive method is to disgorge the infringer’s profits. To determine an infringer’s profits, the copyright holder is allowed to show the infringer’s gross revenue. The burden then shifts to the infringer to prove its attributable expenses. The infringer can also seek to prove that profits were attributable to factors other than the copyrighted material, which could allow for an additional offset in damages. The copyright owner can also recover damages for its own lost profits, so long as there is not a double recovery in light of the disgorgement. Damage to the copyright owner may include not only lost sales, but also the difference in sale prices. The court will also take into consideration fair market values and the state of the market in determining what is attributable to the infringer and what is attributable to a poor market. If the copyright owner elects to pursue statutory damages, it will simply show that there was an infringement. Then it is the infringer who must prove that his
or her infringement was limited to as few “infringements” as possible. The infringer will also attack the ability of the copyright owner to elect statutory damages. Statutory damages were designed to encourage copyright registration. Therefore, statutory damages are only available if the copyright was registered within three months of first publication or if it was registered prior to the infringement.
How Much Are We Talking About? Disgorgement of profits is simply a matter of the extent of the infringing sales and how much profit the infringer earned from such sales, and they can run from pennies per item to hundreds or thousands of dollars per item. Statutory damages range from $750 to $30,000 for “all infringements involved in the action, with respect to any one work.” The award can be increased to $150,000 if the copyright owner proves that the infringement was willful. However, this limitation to “all infringements… with respect to any one work” is the main drawback of statutory damages. For example, producing 100 prints of one copyrighted work is one infringement under the statutory scheme, not 100 infringements. Attorneys’ fees are available for the prevailing party.
TRADEMARKS AND TRADE DRESS Someone may infringe on a trademark if they use an identical trademark or a trademark that is likely to cause consumer confusion as to the source of those goods. There are also actions for trademark dilution. Trademark dilution occurs when a famous mark is being tarnished by another trademark or the distinctive quality of the mark is blurred through association with inferior products or services even though there is no likelihood of confusion. (Think McDonald’s and McSleep6.) If a party is guilty of trademark infringement, the remedies for the trademark owner include injunctions designed to prevent the violation of the trademark owner’s rights, the infringer’s profits, as well as damages sustained by the trademark owner and costs of the action, and destruction of the infringing articles. Additionally, if the infringer was intentionally using a counterfeit trademark
for selling goods or services, the court “shall” triple the profits or damages, whichever is greater, and award attorneys’ fees. Unlike patent damages, where the tripling of damages is discretionary in exceptional cases, the tripling of damages is required in trademark counterfeit cases unless there are “extenuating circumstances”. Counterfeit trademarks are also subject to statutory damages at the trademark owner’s election. Statutory damages entile the trademark owner to not less than $500 and not more than $100,000 per counterfeit mark per type of goods or services sold, offered for sale or distributed; and not more than $1 million per counterfeit mark per type of goods or services if the court finds the use was willful.
How Much Are We Talking About? Although the ability to collect monetary damages appears clear from the statutes, it is actually harder to prove the damages/profit required for a monetary reward. The obstacles for monetary damages include showing that the infringer knowingly acted to infringe another’s trademark and what portion of the infringer’s sales constitute profits that should be attributed to the trademark owner as well as how those sales or trademark uses actually damaged the trademark owner. In cases of counterfeiting marks, it is easy to show what was sold (profit) and what portion of those sales would have been lost sales (damages). In other trademark and trade dress infringement cases however, the cost to prove the profits and damages may be more than the remedy. The ability to collect attorneys’ fees for “exceptional” cases also limits collection. Additionally, monetary damages are generally limited to compensatory damages, not punitive, except in the case of counterfeiting. The above factors make injunctions which require a showing of a likelihood of confusion the more prevalent remedy for trademark and trade dress infringement. Keep in mind, unlike some other areas of intellectual property, an owner of a trademark or trade dress has an affirmative obligation to enforce its rights against an infringer and to stop infringement, or else its right might be lost. Accordingly, a decision as to whether to take action against an infringer might not be limited to the questions of how much it will cost to pursue the claim and how much can be recovered from the infringer, but instead what is the value of the mark and the good will associated with the mark.
CONCLUSION Unlike in poker where you have to play the hand you are dealt, good IP counseling and planning lets you pick which cards to hold. How you play those cards, however, depends on the amount of the ante and the number of chips in the pot. Early consultation with IP counsel can help you make smart decisions.
Rick Coughlin is a partner in the Greensboro office of Smith Moore Leatherwood. He regularly represents businesses in intellectual property matters involving patents, trademarks, copyrights and trade secrets, as well as other business disputes. r i c k . c o u g h l i n @ s m i t h m o o r e l aw. c o m 336.378.5471 Clara Cottrell is an associate in Smith Moore Leatherwood’s Greensboro office. She is a registered patent attorney, and regularly advises clients on patent, trademark and copyright matters and related business issues. c l a r a . c o t t r e l l @ s m i t h m o o r e l a w. c o m 336.378.5597 1. See Interactive Pictures Corp., 274 F.3d at 1376. 2. See Polaroid Corp. v. Eastman Kodak Col, 17 U.S.P.Q.2d 1711 (D. Mass. 1991). 3. This case was appealed and remanded back to the District Court by the Federal Circuit. 4. See Uniloc USA, Inc. v. Microsoft Corp., slip opinion at 34, No. 2010-1035, -1055 (Fed. Cir., Jan. 4, 2011). 5. Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1119-20 (SDNY 1970). 6. Quality Inns Int’l v. McDonald’s Corp, 695 F. Supp. 198 (D. Md. 1988).
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The lay of the land
What Does the Future Hold for Land Use, Zoning Codes, and Innovation? by Tom Terrell
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n the final scene of the movie Back to the Future III, Marty McFly (Michael J. Fox) stands on the train tracks as Doc Brown and his wife Clara arrive on a locomotive from 1884 fitted with folding wings and an engine from an unknown but distant future. As they prepare to return to that future time, Doc Brown shouts to Marty “Where we’re going, we don’t need roads” as the engine goes airborne and disappears. Although fictional, the dynamic is a proven one. Technological changes have always been one of the factors that have altered the ways we use, develop and regulate land. Prior to WWII, American towns were held together by centripetal forces that pulled development to the center like the sun holds the planets in orbit. Banks, churches, department stores, schools and the neighborhoods that were connected to all of these uses by sidewalks both prevented and discouraged what later became known by the pejorative term sprawl. When you moved beyond them you moved to the country. But after WWII, the automobile became a primary and improved means of transportation. Town residents now had greater means to move beyond the center, and year after year more roads were built to accommodate movement to what became ubiquitous suburbs built on cheap land with large lots and shopping malls wedged between. Land uses that once were geographically connected were now separated, connected by roads and machines on wheels. And entire zoning codes had to be developed in response. The automobile, thus, became a centrifugal force, sending main parts of the center city into the outlying areas that once was country. Looking, as Doc Brown did, “back to the future,” there are many changes one can predict or identify now based upon technological advancements that have been made or are being developed. For decades the neighborhood gas station was connected to a repair garage, and the two uses were zoned as one. Then gas pumps became ancillary uses to convenience stores rather than garages, which meant changes in allowed signage and some expansion of locations.
But with the advent of the battery-powered, electrically recharged car, will there become a new use—a “recharge” station—where cars can be parked long enough to receive a new charge for the trip home? Will zoning codes treat it as a primary or ancillary use in various zoning districts? And could it be connected to just about any non-residential use or, for that matter, residential uses themselves, such as apartment complexes that provide recharge stations just like they provide a swimming pool?
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Wind turbines, yet an infant industry, create an opportunity and a dilemma. Under many states’ laws, placing a 250-foot tall wind turbine in the middle of an agricultural district would constitute illegal “spot zoning,” and calling them wind “farms” doesn’t make them agricultural.
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Wind turbines, yet an infant industry, create an opportunity and a dilemma. They are, in essence, industrial power generators converting wind into electricity. But these large, visually obtrusive and audible industrial machines need open land—and open land is invariably zoned for agricultural and low density uses, not industrial ones. Under many states’ laws, placing a 250-foot tall wind turbine in the middle of an AG district would constitute illegal “spot zoning,” and calling them wind “farms” doesn’t make them agricultural. And good luck to the company that thinks it can meet special use permit requirements for something of this magnitude.
It doesn’t help that the only places that have sustained, high winds are “pretty places” that folks want to protect from visual clutter —places such as the coast and mountain ridges. Solar “farms” are another new industry made practical by modern research that local governments are trying to accommodate and regulate. Solar farms, to be economically feasible, need acres of open space with good southern exposure. And they are, intrinsically, industrial. Do we allow them in agricultural districts as primary uses? And, more importantly, do we allow them as accessory uses on smaller scales in any zoning district if placed on rooftops of schools or office buildings? Cell towers, although seemingly regulated as essential nuisances, will continue to be accepted more readily near homes and offices as we become increasingly connected to the outside world through little handheld digital devices that used to be “just” phones but now play movies and videotape soccer games. But as smart phones and their eventual replacements morph from being extensions of our lives to, in some sense, being our lives, we will view quite differently the physical architecture that makes signals and download speeds possible. Who would have thought in 1980 that computers would, in 20 years, make it possible to have a virtual university campus? Or that scanned documents and email and fax machines would one day cause the U.S. Postal Service to begin shrinking the number of post offices by the thousands? And who can guess what the next 20 years of technological and digital advances will do to affect our interconnected relationships with and the way we regulate land? My crystal ball is cloudy. Tom Terrell is a partner in Smith Moore Leatherwood’s Greensboro, N.C. office. He regularly offers legal updates and commentary on his wordpress blog, NC Legal Landscapes, North Carolina’s first blog on zoning and land use. Tom was also selected by his peers for inclusion in The Best Lawyers in America® (Copyright 2010 by Woodward/White, Inc., of Aiken, S.C.), Land Use & Zoning Law, 20072011. tom.terrell@smithmoorelaw.com 336.378.5412
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What you need to ask to find the right recycler
Getting Rid of Old Office Electronic Office Equipment
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very company in the United States is inundated with out-of-date electronic equipment. More and more items are “smart”: they store data, turn themselves on and off, talk with you when you are traveling—and also break or become obsolete quickly. As a result, nearly every company has a growing collection of old computers, televisions, copiers, printers, fax machines, telephones and assorted other electronic devices. What should you do with all this stuff? Increasingly, states are banning electronic devices from landfills, because some of the equipment contains hazardous substances. Televisions and older computer monitors contain lead and cadmium. Newer LCD screens and some larger copiers have light bulbs that contain a small amount of mercury. Other electronic equipment might have batteries and other hazardous substances. As a result, throwing the equipment out is no longer an option. A new industry has developed to help companies get rid of old electronics. Over the past 10 years, the volume of electronics recycled in the United States has quadrupled, and more than 2,000 companies now offer electronics recycling services. Electronics recyclers differ in their focus. Some companies concentrate on finding new uses for old equipment, thus maximizing its financial value. Others disassemble the equipment and harvest parts for resale. Other companies mechanically shred and process the equipment, converting it into commodity grade materials for use as raw materials in the production of other products.
The challenge for any company is to find an electronics recycler that will help meet its specific goals. Determining which recycler is right for your company takes some homework.
Determining your goals Before deciding what to do with your company’s old equipment, you should decide what goals are most important to the company: •
Do you want to get the highest price for your equipment, or at least minimize the cost associated with getting rid of it?
•
Do you want to make absolutely sure that all confidential data stored on your devices are destroyed?
•
Do you want to avoid any residual liability if the equipment causes any contamination or other problems?
•
Do you want to avoid exporting your equipment to other countries?
•
Does your company follow a “reduce, reuse, recycle” hierarchy so as to minimize its impact on the environment?
While all these goals may be important, sometimes they conflict with each other. In thinking about how to dispose of your electronic devices, it is important to recognize when you are choosing one goal over another.
How to select a recycler Once you have identified some electronics recyclers that operate in your area, you should consider a number of questions in addition to price:
What will the recycler do with my equipment, and where? As discussed above, some recyclers will grind your electronic devices up and separate them into commodity-grade scrap. Others will repair or refurbish it and sell it on the open market, while others might fill a shipping container and send it to another country. The recycler should tell you exactly where your material will go throughout the recycling chain. If it does not tell you, that is a warning sign.
What is the recycler’s reputation for service? Ask for names and telephone numbers of the recycler’s clients in your area, and call them up. A recycler that works with your schedule, shows up when expected and provides prompt and accurate documentation will make your life easier.
Is the recycler certified? A key consideration is whether the recycler has been certified under one or more of the prevailing national and international standards. These standards do not provide a guarantee that the company is acting
responsibly, but they do indicate that the company takes its work seriously. Three of these standards are familiar to many companies. The ISO 9001 (quality), ISO 14001 (environmental), and OHSAS 18001 (worker health and safety) standards are international in scope and are written to apply to all industries. Most electronics recyclers have at least one of these certifications. The scrap recycling industry has developed the Recycling Industry Operating Standard (RIOS), which brings together elements of all three international standards into one program applicable generally to the recycling industry. Less than 25 percent of electronics recyclers have adopted this standard. Two standards have been developed recently to apply specifically to electronics recyclers. The e-Steward standard and the Responsible Recycling (R2) standard are similar in scope and require each certified facility to have a documented quality, environmental, health and safety program. They also require that each facility examine all downstream facilities throughout the recycling chain to ensure that materials are being handled properly. The best recyclers will have a package of information available to demonstrate their commitment to these standards.
Is The reCyCler operaTIng In ComplIanCe WITh The laW? Finding a recycler that operates in compliance with environmental, health and safety laws has important benefits. Because some electronic equipment contains
hazardous substances, your company faces potential Superfund liability if the recycler contaminates the soil, groundwater or surface water. Thankfully, Congress has provided an exemption from liability for any company that uses reasonable care to determine that the recycling facility it deals with is operating in compliance with the substantive aspects of all environmental laws. A check of EPA’s “ECHO” database (http://www.epaecho.gov/echo/compliance_report.html) will provide a snapshot of the company’s environmental compliance history. You also may want to request information from state and local environmental agencies. Further, you should ask the recycler to certify that it is in compliance with all applicable laws and regulations. You should document your reasonable efforts to determine compliance. You also can find out a great deal about a recycler’s commitment to compliance by visiting its facility. Does it operate completely under roof, without storing anything outside? Is it using proper care in storing batteries, mercury-containing light bulbs and used oil? Is the facility neat and orderly?
hoW To proTeCT yoUr daTa A company that wishes to maximize the money it can make on its used electronic equipment but also wants to be sure that its sensitive data have been destroyed faces a dilemma. Computer data are stored on hard drives. The two most common ways to destroy that data are (1) to wipe them following prescribed protocols; or (2) to destroy them by shredding.
Reselling the wiped drives may generate more money, but it also leaves open the possibility that confidential data might reach the public. Shredding a hard drive absolutely destroys the data it holds, but a shredded hard drive has only scrap value. Companies must choose which goal—maximum profits or absolute certainty of data destruction—is more important to them.
don’T forgeT aBoUT CopIers Large copy machines include hard disks, which store images of documents and then reproduce them. Many companies forget that the data stored in copiers probably are just as confidential as the data on computer or server disks. Make sure that the recycler has a procedure for removing and destroying the data on these drives. Choosing an electronics recycler may seem bewildering at first, but the rewards are great. You may find another revenue stream for your company, you will free up storage space, and you will be able to sleep at night knowing that your company’s confidential data will not end up in the wrong hands. Steve Earp is a partner in Smith Moore Leatherwood’s Greensboro office. He handles complex environmental litigation and regulatory matters throughout the nation, and has extensive experience helping companies engaged in various aspects of recycling, including scrap metal, plastic, electronics and rendering. steve.earp@smithmoorelaw.com 336.378.5314
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by Dave Neill
O
n April 8, 2011, the U.S. Green Building Council (USGBC) rolled out its latest green building rating system, LEED for Healthcare. (“LEED” is an acronym standing for “Leadership in Energy & Efficient Design.”) Specifically tailored to the special requirements of healthcare facilities, the new rating system is expected to open the doors to a new generation of medical building design. While hospitals and other medical facilities have for years been working to incorporate “green” features into their new projects and major renovations, the LEED for Healthcare or “LEED HC” standards provide a new, objective structure for incorporating sustainable development strategies.
So, does it matter? Designers, owners, and managers of healthcare facilities pursue green building techniques in pursuit of a variety of goals. The promise of reduced operating costs and improved patient outcomes certainly catches the attention of every hospital operator. Scot Horst, Senior Vice President with USGBC, noted at the Phoenix, Ariz. press conference announcing the debut of LEED HC, “Research has shown that when we are treated and heal in a green healthcare facility—one that has a healthy indoor environmental quality and connects us to the outdoors —we heal faster, have shorter hospital stays and fewer return visits.”
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Research has shown that when we are treated and heal in a green healthcare facility—one that has a healthy indoor environmental quality and connects us to the outdoors—we heal faster, have shorter hospital stays and fewer return visits.
The U.S. Green Building Council’s LEED green building certification system is the foremost program for the design, construction, and operation of green buildings. For years, healthcare facility designers had lamented that the general LEED rating system; while fine for general office, hospitality, and industrial buildings; did not adequately address the peculiar needs of a hospital. The new LEED HC standards are the culmination of six years worth of effort among various stakeholders to shape something more appropriate for round-theclock healthcare facilities. For those who have been monitoring green development options for healthcare facilities, it is worth noting that LEED HC incorporates many of the features of “The Green Guide for Healthcare” pilot program that has been available since 2007. Now, however, the imprimatur of “LEED” can be assigned to those hospitals and related facilities that truly qualify as green.
While any medical or healthcare facility may elect to register their building under the LEED HC criteria, LEED HC was specifically developed to meet the unique needs of a 24-hour operational facility. It is likely that more limited healthcare-related operations, including medical office buildings, will elect to be registered and rated under the more general LEED for new construction (LEED NC) standards.
Since the pilot launch of LEED more than a decade ago, only 225 healthcarerelated projects have been certified with a LEED designation. This is a small percentage of the more than 40,000 LEED Certified business and institutional facilities that have been certified over that same period. With the new LEED HC standards and increasing attention to green development techniques, expect that balance to change. Stay tuned...
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The launch of LEED HC did not come as quickly as many expected. In the end, the development of the new standards took nearly six years. While observers had been anticipating that LEED HC would be in place by mid-2010, numerous drafts, revisions, and adjustments to incorporate feedback from architects, designers, engineers, facility operators, and LEED Accredited Professionals were required to bring together a consensus.
This article was orginially published in the June 2011 edition of the Atlanta Hospital News and Healthcare Report. Dave Neill is an attorney with Smith Moore Leatherwood LLP. Dave’s multifaceted practice is dedicated to assisting his clients with the many challenges of commercial and residential real estate development. Dave is a member of Smith Moore’s Sustainable Development practice group. He holds the LEED Accredited Professional (LEED AP) designation with a Building Design & Construction specialty (BD+C). Admitted in North Carolina only. dave.neill@smithmoorelaw.com | 919.755.8766
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g n rce?
i K
o f k r o r W r o u o Y W r o f e it l F d e o o ttaG Is i ti Pat by
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A
s gas prices soar, an increasing number of employees are requesting alternative work arrangements that allow them to work from home, a local coffee shop, or else where. Employers, on the other hand, are constantly struggling to hire and maintain talented employees, increase productivity and job satisfaction, and decrease overhead costs. With everincreasing internet connectivity and the ability to remotely access computer systems and networks, many employers are turning to “telework” arrangements. While such arrangements vary greatly depending on the particular industry, employer, and employee, a more flexible working arrangement often proves to be mutually beneficial and rewarding to both the employer and employee.
Employers considering creating a teleworking arrangement, however, should carefully evaluate whether an alternative working arrangement is feasible and whether it will be a good fit for a particular position or individual. If so, the challenge then becomes designing a telework program that effectively facilitates the employee’s ability to perform at the highest level, from outside the office, while minimizing the legal risks the employer may face.
teleWorK generallY Some of the benefits of a telework program for the employer include reducing turnover and the associated costs, while increasing employee productivity, morale, and job satisfaction. For the employee, the benefits of an alternative work arrangement may include
ram Ing y re dT n a r
eu ms a R
increased flexibility and work-life balance and less time and money spent traveling to and from work. Despite the many potential benefits, there are a number of issues an employer should consider in deciding whether to implement a telework program. For example, an employer will need to decide which employees are eligible for participation in such a program. Will the telework program be limited to employees whose employment with the company exceeds six months or exceeds one year? Will the program be limited to employees who meet certain performance standards or criteria such as consistently high ratings on performance evaluations or those with an absence of active counselings? Another eligibility requirement may be the employer’s more subjective evaluation of the
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employee’s ability to work independently or with little or no supervision, which may depend both on the position and personality of the individual employee. Not surprisingly, certain positions tend to lend themselves to management by objective standards, rather than management by actual observation, while others do not; and some positions entail duties which are not dependent upon a specific location for proper performance, while others do not. Similarly, some individuals will thrive with such flexibility, and some will completely flounder with a less formal structure. While offering a telework program to select employees or positions does not legally require the employer to offer the program to all employees or to all positions, an employer must proceed cautiously and recognize
the risks involved with telework programs. Below is a summary of some of the risks and concerns that should be considered for any such arrangement.
effectiVe coUnSeling and docUmentation Allowing employees to work virtually (i.e., remotely) can have significant advantages, but it also creates the need for more-effective counseling and feedback to the employees about their work as well as more-effective documentation of employees’ work and productivity. Obviously, it may be more difficult to monitor and evaluate an employee’s performance if the employee seldom reports to the “office” for work. Thus, there is a greater need for a written job description that clearly sets forth the employer’s expectations
for the employee’s hours, availability, and job duties. Additionally, there will be a greater need for a written performance evaluation and other documentation relating to any performance issues. From the outset, there should be a clear understanding of the employee’s performance requirements and the potential consequences for diminished performance or any other indicator that the arrangement is not working. Similarly, supervisors of employees who participate in a telework program may have to utilize different management styles for such employees in order to accomplish the expected performance objectives.
Wage and HoUr iSSUeS (flSa liaBilitY) Although a telework arrangement creates
more flexibility, it does not in any way relieve employers of their obligations to comply with the Fair Labor Standards Act (FLSA). For this reason, employers may want to limit participation in a telework program to employees who are exempt under the FLSA in order to try to eliminate the risk that an employee will later claim that he or she was not properly paid for all hours worked or not paid overtime for hours worked in excess of 40 hours in a work week. Another reason for such a limitation is that it is generally more difficult to monitor the actual hours remotely worked by non-exempt employees.
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If a telework arrangement is considered for non-exempt employees, there are ways an employer can minimize its FLSA exposure. A simple example would be requiring more detailed time sheets. Employers should provide written notice and have participating employees acknowledge their expected hours and that no overtime hours will be allowed without prior written approval from a supervisor. An inexpensive method of tracking a participating employee’s hours is requiring the employee to virtually “clock in” and “clock out” via e-mail, telephone, or other electronic media, although an employer may also consider available software programs which are designed for this function. It may also prove beneficial to require employees who telework to turn in daily reports of their time so supervisors can monitor actual hours and productivity.
Potential PrecedentSetting Effects One significant consideration for a telework program is the potential that such a program will later be considered a reasonable accommodation for an employee’s workplace disability. If a telework program is offered and available to some, then an employee with a disability may argue that a telework arrangement would be a reasonable accommodation. Although employees are still required to perform their essential job functions, it may be more difficult for the employer to show that a telework arrangement creates an undue hardship on the employer or is otherwise not a good fit for this particular employee or position, if it has allowed other employees who are similarly situated to telework. Other instances where this issue may arise outside of disability accommodation requests include situations in which an employee requests a modified schedule for intermittent FMLA
leave or an employee requests a telework arrangement in lieu of taking FMLA leave.
Discrimination or Retaliation One issue for management to carefully consider in creating and implementing any telework program is the need to try to avoid any appearance that program participation or policies are being administered in a discriminatory or retaliatory manner. For this reason, employers need to be mindful of the practical and legal implications of selecting or excluding certain employees or
“
There are significant benefits for employers hoping to increase the productivity of their employees, boost morale, and even decrease certain overhead costs.
”
positions for program participation. One way to reduce the risks of discrimination or retaliation claims relating to teleworking is for employers to identify specific, objective criteria for selecting employees or positions for program participation and ensure these criteria are based upon legitimate business reasons. Identifying such criteria from the outset will help prevent the appearance of discriminatory or retaliatory application.
Trade Secrets/ Confidential Information Another concern for employers is the protection of the company’s electronically stored information (ESI). Employees participating in a telework program are generally provided access to company ESI —which may include trade secrets or other confidential information—which they access from remote locations and possibly, even from personal computers, where monitoring and control may be limited. Additionally, employers often tend to increase the amount of information electronically available
to teleworking employees in an effort to ensure they have the resources needed to be productive from their remote locations. Employers should consider, however, how much ESI to make accessible and what security precautions are necessary. An employer should also consider whether an employee will be permitted to store files containing confidential or proprietary ESI on personal devices and whether files or the ESI therein will be subject to a copy-paste feature that allows employees the capability of bypassing other security features. An employer may even consider imposing more restrictive access to certain ESI via remote access and may require that all remote work be done on a company-owned laptop or through a direct connection to the company’s network. Trade secrets and other confidential or proprietary ESI need to be considered and safeguarded in the same manner and to the same extent that the company protects such information physically located on its premises. Electronic safeguarding will, of course, look different than physical storage and protection, but the concepts are generally the same. This includes taking steps to protect against hackers or unassuming thieves, who can cause great disruption to an employer’s business by wrongfully taking and disseminating company information. Employers should also consider any applicable state laws protecting personal identifying information. The majority of states have enacted legislation that requires certain measures be taken to protect individuals’ personal identifying information and notification to individuals and various third parties when a security breach occurs. Exactly what is required by employers, whether the information is maintained solely in the office or accessible from outside the office, may depend upon the particular nature of information maintained and whether it includes information relating to residents of other states. Finally, an employer should implement a policy that requires employees, upon request, to immediately return all employer-provided equipment and all confidential information, regardless of storage location. Employers may also require employees to certify in writing that they have not stored or downloaded any confidential ESI onto any unauthorized location and take necessary precautions to protect against such.
WorKerS’ comPenSation liaBilitY One consideration that should not be overlooked is the extent to which an employee participating in a telework program may be covered by Workers’ Compensation laws. If an employee is injured while working from home or elsewhere, it may be compensable, despite the employer’s lack of control over the workspace and other related safety risks. The company may want to discuss this coverage issue with its Workers’ Compensation carrier. There are many ways in which an employer can attempt to minimize Workers’ Compensation liability in telework situations. One way is to require the employee to set up a designated workspace, where he or she can be both efficient and safe. The employee should be reminded of the need to keep this designated area free of trip or fall hazards and with adequate lighting and ventilation. An employer should also provide information and/or assist participating employees in setting up a workspace in an ergonomically correct fashion. Another way to decrease injuries and minimize exposure is to require periodic inspection of home-offices or other remote workspaces with the employee’s written authorization. The employer may decide to condition participation in a telework arrangement to employees who consent in writing to allowing the employer to inspect the workspace in the event of any alleged injury and/or on a periodic basis, regardless of any such injuries.
Written agreement detailing arrangement Employers should consider entering into a written agreement with teleworking employees, which specifically detail the terms and conditions of the arrangement.
There are a great number of items the employer may want to include in such an agreement. For instance, if applicable, there should be a reminder that the employment is still considered “at will” and the arrangement is not to be construed as a contract of employment or for any specific term of employment. The employer should specify it has the express right to reverse its decision to permit a telework arrangement or to implement any additional requirements or criteria at any time in the future. In other words, the agreement should make clear that the telework arrangement is a privilege and not a right. The agreement should also include a reminder that normal work rules apply. To help ensure efficiency and productivity, the agreement should contain a clear outline of the employer’s expectations. For instance, the employee should be reminded to devote working time to work and not be distracted by personal commitments or endeavors. The employer may want to include a written work schedule, the location where the employee will be working, and a number where the employee can be reached at specific times. If the employer requires any appearance in the office, such requirements should be specified. If there are specific jobrelated objectives or goals for the employee’s performance, those should be stated in writing, especially those which the employer considers a prerequisite for continued participation in such a telework program. The employer should also consider what reporting requirements will be imposed, and the employee should be instructed in writing as to how to track time and otherwise communicate with supervisors and others. If the employer desires to make reasonable visits to inspect the employee’s remote workspace, this should be expressly stated. Likewise, there should be a provision regarding the employee’s responsibility to ensure a safe work environment and to immediately report any work-related injuries. The employer may also want to address in the agreement any equipment issues that could arise such as whether equipment will be provided by the employer, whether the employee is eligible for any reimbursements for equipment purchases related to a telework program, and whether the employee will be required to return employer-provided (or employer-reimbursed) equipment and other confidential information. The employer should also expressly acknowledge any
intention it has to monitor an employee’s electronic communications and other documents prepared or accessed via the company computer or network and confirm with legal counsel that such monitoring methods are in fact legal and do not otherwise create any additional legal risks. The employer should include a written provision detailing any confidentiality requirements pertaining to the employee’s work or specifically the employee’s access to trade secrets or other confidential or proprietary information. Although such agreements may need to be tailored to the particular position or individual, clearly setting forth the employer’s expectations in writing at the outset of a telework arrangement will help prevent or reduce disputes and lawsuits.
conclUSion Teleworking can provide incredible flexibility and opportunities. There are significant benefits for employees hoping to reach their own unique, optimum work-life balance, reduce family and other conflicts, and reduce work-related travel costs. There are also significant benefits for employers hoping to increase the productivity of their employees, boost morale, and even decrease certain overhead costs. Nevertheless, employers considering creating or implementing a telework program for some or all of their employees should carefully consider the potential risks and the best ways to reduce those risks and create a working arrangement that has the potential for being mutually rewarding for all involved. Patti Ramseur leads Smith Moore Leatherwood’s Labor & Employment team. She has been selected by Law & Politics Magazine for inclusion in North Carolina Super Lawyers–Rising Stars Edition, Labor and Employment, 2011. patti.ramseur@smithmoorelaw.com 336.378.5304 | 704.384.2654 Trey Ingram is an associate in Smith Moore Leatherwood’s Greenville office, and is a member of the firm’s Litigation and Labor & Employment teams. trey.ingram@smithmoorelaw.com 864.240.2472
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Employment Eligibility Verification Are You Up on the New Rules? by Laura Burton In April 2011, U.S. Citizenship and Immigration Services issued a final rule regarding the changes put in place with the 2009 Form I-9. The principal changes include new document requirements that all employers need to be aware of. The Social Security Administration also resumed sending “no-match� letters, and has also issued new guidance for how to respond to these letters.
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There is much confusion in the workplace when it comes to immigration laws and how they affect US employers— even those who do not sponsor foreign nationals for temporary (nonimmigrant) or permanent (immigrant) visas. It can be hard to determine which rules apply and how to apply them, and the rules of the game change frequently. Employment eligibility verification is an issue that affects every employer in the United States. All employers need to be aware of and comply with federal employment eligibility rules and regulations, including special rules for federal contractors. In addition, some states have imposed additional verification burdens on employers. Therefore, employers must review their potential status as federal contractors, as well as state law, before finalizing the employment verification process. Employers must also be aware that the Social Security Administration resumed sending “no-match” letters on April 6, 2011.
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Final Rule for Employment EligibilityVerification (I-9 Forms) Only individuals authorized to work in the United States may be hired by US employers. The federal government requires specific proof of employment eligibility through the use of the I-9 Employment Eligibility Verification Form. Pursuant to the Immigration Reform and Control Act of 1986 (“IRCA”), an I-9 form must be completed for ALL employees hired after November 6, 1986. This form verifies the identity and work authorization status of all new employees on or before their first day of work, including U.S. Citizens. The forms must be maintained for all current employees and for a specified period after termination of employment. On April 14, 2011, USCIS issued a final rule regarding the changes put in place with the 2009 I-9 Form. The principal changes include requiring that all documents presented be unexpired, revising the list of documents that an employer may accept when completing the form, and adding documents relating specifically to citizens of the Republic of
the Marshall Islands and the Federated States of Micronesia. Employers should use I-9 forms dated 02/02/2009 or 08/07/2009 until new forms are issued. Earlier editions of the form are not acceptable. Employers should also check periodically for updated I-9 forms to make sure that the most current form is in use. Any new I-9 form must be used on a going-forward basis from the date of issuance but should not be completed for existing employees who have gone through the I-9 process. Penalties for technical and substantive errors on I-9 Forms, even if made inadvertently, can be substantial. Therefore, it is critical to have specific, uniform I-9 policies and procedures in place to address potential errors and to
respond to audits by U.S. Immigration and Customs Enforcement (“ICE”). An external audit and training of those company representatives who are responsible for completion of the I-9 forms are recommended.
Social Security Administration No-Match Letters Many employers remember receiving Code V “no-match” letters from the Social Security Administration (“SSA”). These letters informed the employer that social security numbers being used by employees did not match numbers in the SSA database and asked that the matter
TYPES OF PENALTIES FOR I-9 ERRORS
1
Knowingly hiring or continuing to employ an unauthorized worker: a.
$375-$16,000 per individual, depending on number of repeat
b.
Additional criminal penalties for “pattern and practice”.
offenses;
2
Discrimination on the basis of national origin or citizenship status: a.
$375-$16,000 per individual, depending on number of repeat
b.
Additional remedies include back pay, injunctive relief and
offenses; attorney’s fees.
3
Paperwork violations (for failing to properly complete I-9s) or overdocumentation (for requesting too many documents): a.
$110-$1,100 per individual, depending on number of repeat offenses.
4
Document fraud for knowingly accepting a forged document: a.
$275-$5,500 depending on number of repeat offenses;
b.
Additional potential criminal penalties.
be resolved. Once resolved, the employer was to provide updated information to the SSA. The stated goal of these letters was not to detect unauthorized workers or fraudulent social security numbers, but rather to protect employees and avoid paperwork errors relating to the SSA and the IRS. The SSA has not sent no-match letters to employers since 2007, due in large part to litigation involving the Department of Homeland Security’s proposed “safe harbor” regulation. However, on April 6, 2011, the SSA announced that it has resumed sending no-match letters to employers. Unlike the previous no-match letters, which provided a list of employees and numbers, each new no-match letter will list only one employee for verification. It is anticipated that over one million workers in the United States will be named in the new no-match letters. In addition to the above change, the new letter states: “We may give this information to the Internal Revenue Service for tax administration purposes or to the Department of Justice for investigating and prosecuting violations of the Social Security Act.” Despite this, the new no-match letter, like the previous version, states that no adverse action should be taken against an employee on the basis of receipt of a nomatch letter and reiterates that the letter is not an indication of wrongdoing on the part of the employee. An employer may not suspend, fire or discriminate against the named employee on the basis of the no-match letter alone. According to the SSA Office of the Inspector General, more than 70 percent of the 17.8 million
discrepancies in SSA’s database relate to individuals who are U.S. citizens by birth. New guidance from the SSA indicates that, upon receipt of a no-match letter, an employer should check its records to determine whether the company information matches the information in the no-match letter. The employer should also request that the employee check to make certain that he or she provided the correct full name and social security number to the employer. If this resolves the matter, the employer should notify the SSA. If these steps do not resolve the
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New guidance from the SSA indicates that, upon receipt of a no-match letter, an employer should check its records to determine whether the company information matches the information in the no-match letter.
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discrepancy, the employer should ask the employee to visit the local SSA office to resolve the discrepancy. The employer should provide a “reasonable” amount of time for the employee to resolve the matter with SSA (official guidance on a reasonable time period ranges from 30 to 120 days).
The employer should not try to re-verify the employee’s work eligibility through completion of a new I-9 form. If the named employee is no longer employed by the company, the employer should document its efforts to find the corrected information. If the employee still works for the company, the employer should document the efforts made to resolve the issue. When the specified time has passed, the employer should confirm with the employee(s) that the matter has been resolved and update I-9 and W-2 forms. If the matter has not been resolved, apply company policy in a uniform, nondiscriminatory manner to suspend the employee until the matter is resolved, or terminate the employee. Employers who knowingly submit or continue to use invalid social security numbers on employee W-2 forms after notification are liable for penalties under the Internal Revenue Code of a minimum of $50 per incorrect form. Fines may be waived in the presence of positive mitigating factors, including actions taken in response to “no-match” letters. Therefore, it is important to establish and enforce a consistent company policy. These are just two of the employment eligibility verification matters for which all US employers are responsible. There are a number of overlapping federal and state requirements and laws relating to employment verification, and failure to comply can be costly in terms of employees, time, and money. Therefore, it is in the interest of every employer to make sure that its I-9s are correct, that a compliance policy is in place, and that the responsible company representative stays up to date on the applicable regulations. Laura Burton is a partner in Smith Moore Leatherwood’s Greensboro office. She is a North Carolina State Bar Board Certified Specialist in immigration law, and has been selected by her peers for inclusion in The Best Lawyers in America® 2011 (Copyright 2010 by Woodward/White, Inc., of Aiken, S.C.), Immigration Law, 2007-2011 laura.burton@smithmoorelaw.com 336.378.5566
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Discipline
or
Discharge
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The Tough Decision by Jerry Oliver
In today’s tough economic times, employers are having to make more and more decisions about whether to discharge poorly performing employees. In facing those judgments, there are few absolutes and hardly any lines in the sand as to what conditions require what outcomes. But, let’s look at some of the economic and emotional costs of the borderline employee that can factor into what to do.
C
ertainly, there are a host of economic costs: (1) the initial cost of hiring and training new employees; (2) the invested cost of the employee’s salary and benefits; (3) the cost of the employee’s accrued leave and vacation time; and (4) the cost of lost business caused by poor performance and mistakes of the employee.
can fall short if his or her documentation is poor. Employers often face difficult-todefend lawsuits from discharged employees because no one properly recorded a history of poor performance or bad conduct. Adequate documentation demonstrates that disciplinary action and/or termination was properly motivated and administered
Some of the less quantifiable and more emotional costs include the following: •
the frustration of having to deal with the employee;
•
the low morale of co-employees caused by the marginal employee;
•
the drain on valuable time in having to deal with problems created by the employee;
•
the additional supervision required of the employee;
•
the additional time necessary to document problems and pursue corrective actions; and
•
the difficulty of getting the job done when having to rely upon the borderline employee.
Once an employer is at the point of weighing unavoidable costs, though, the best opportunities to make good employment decisions are already gone. Why? Because the best decisions are those made earlier, as part of a good, thorough disciplinary system. If used properly, it can keep the employee from reaching the discharge borderline in the first place. Imposing well-defined expectations, clear rules of conduct, and consequences for misconduct or poor performance is the first step. Many supervisors hesitate to take advantage of an employer’s disciplinary system. Often the supervisors are poorly trained, do not appreciate the value of investing the time required to mete out discipline, would rather avoid conflict, and—quite simply—do not act until they are pushed past their limit, which is when they march to upper management and demand that someone be fired. So, the second step is motivating supervisors and training them on how to handle disciplinary matters. Third, even the best intended supervisor
“
A wait-and-document approach can be particularly important when files include information that would discredit an employer’s decision to dismiss a borderline employee.
”
by the supervisor consistently and in accordance with company policies and procedures. When evaluating whether to discharge a borderline employee, look to see that the key records of the employee’s tenure with the company are included in the personnel file: •
job application;
•
receipt of employee handbook and job training;
•
decisions to promote, demote or pass over an employee;
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complaints about the employee’s job performance and/or conduct;
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disciplinary actions;
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performance evaluation/annual reviews; and
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the decision to terminate the employee.
If avoiding litigation is a component of the risk analysis, as it almost always is, gaps in paperwork can be fatal to an employer’s defense of wrongful discharge claims. Sometimes it is advisable to postpone a discharge in order to ensure that proper documentation, whether in the personnel file or in the hands of someone at the management level, exists to help prove the legitimacy of the reasons for the job termination. This wait-and-document approach can be particularly important when files include information that would discredit the employer’s decision to dismiss a borderline employee. For example, what do the employee’s evaluations say? Many times, supervisors and employees look to this document as unimportant, or as nothing more than an opportunity to learn what the next annual salary increase will be. Consequently, even an actually poor performer may have a file full of satisfactory job reviews. Generally speaking, this borderline employee is not one whom management should want to discharge for poor performance. Instead, make the evaluations accurate so that the ultimate decision can then be made based on good facts, not on bad ones carelessly created by supervisors who thought they would never ultimately matter. So, discharge decisions have costs—direct and indirect. It is better, instead of facing those costs, to intervene earlier through the skills of supervisors who are well versed in the company’s appropriate disciplinary policies and procedures, who document the key events of the employee’s tenure, and who complete regular and reliable performance evaluations. Even when these steps are not enough to keep an employee from crossing the borderline and being fired, they may well keep him or her from successfully challenging the decision in court.
Jerry Oliver is a partner in Smith Moore Leatherwood’s Raleigh office. He has been selected by Law & Politics Magazine for inclusion in North Carolina Super Lawyers, Labor and Employment, 2006-2011. jerry.oliver @smithmoorelaw.com 919.755.8710
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Consumers and Manufacturers Beware
Is the Consumer Product Safety Database Accurate?
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by Jon Berkelhammer and Mike Bowers
I
n March 2011, the U.S. Consumer Product Safety Commission (CPSC), launched the first-ever public database of consumer product safety complaints: www.saferproducts. gov. The CPSC has been around for more than 30 years and works to ensure the safety of such products as toys, cribs, power tools, cigarette lighters, and household chemicals. Reports of harm or risks of harm to the database will be restricted to the types of goods under the jurisdiction of the CPSC, and excludes food, drugs, medical devices, cosmetics, tobacco, automobiles, or tires. The database accepts reports about product defects that may cause injury or death, but not complaints regarding reliability or quality. Complaints can be made by virtually anyone, and that is at the heart of the debate about the reliability of the database. Those who file a complaint must identify themselves, but the complainant’s identity will not be disclosed on the database, or to the manufacturer without the complainant’s consent.
Manufacturers have expressed concerns about the ease with which inaccurate or fictitious complaints could be submitted by competitors, disgruntled employees, or others with less-thanhonorable motives. In late 2010, one of five Commissioners of the CPSC, Nancy Nord, expressed concern that, “the database will not differentiate between complaints entered by lawyers, competitors, labor unions and advocacy groups who may have their own reasons to ‘salt’ the database, from those of actual consumers with firsthand experience with a product.” While the CPSC technically has procedures in place to allow manufacturers to respond to reports before they are posted, the CPSC itself admits that its relatively small staff will be ill equipped to verify the accuracy of information in the large number of complaints they receive, recently estimated to be about 30 a day. This calls into question the reliability of the information contained within the database for consumers; and it could also cast manufacturers in a false light.
What Are Manufacturers to Do? Once a complaint is filed, the CPSC has five days to send an official notice to the manufacturer. The manufacturer then has ten days to respond, and can either: (1) submit a response; (2) challenge the complaint as false; or (3) assert that it will disclose a trade secret. After the ten-day period, the CPSC will post the report for the public to see, along with any comments submitted by the manufacturer, even if a determination of “material inaccuracy” is still being investigated. The CPSC states that it will remove information already published in the database within seven business days of determining that there has been a “material inaccuracy” in the report of the complainant.
New Best Practices for Manufacturers The new database requires manufacturers to integrate a new set of best practices into their existing
operations policies. The following should be but a few of the key components: •
Register with the database online;
•
Designated point of contact should understand the importance of the 10-day response deadline;
•
Never forget that your comments may be used against you in future litigation as they will become part of the public record;
•
•
•
•
Comment within the response period. Leaving a report of harm unanswered could reflect poorly on your company and spiral into a public relations nightmare (particularly if it spreads through social media); Challenge reports that are materially inaccurate, if for instance, you were incorrectly listed as a manufacturer of a product; Review all reports for confidential information or trade secrets and immediately request that the CPSC prevent that information from being viewed by the public; Highlight your company’s commitment to safety.
The new burden placed upon manufacturers to respond to reports of harm adds one more layer to a manufacturer’s risk management strategy, and consequently, one more cost of doing business. These costs will undoubtedly get passed on to consumers, or they could cost manufacturing jobs.
Who Benefits Most? While consumer advocacy groups argue that the database allows ordinary citizens a way to voice their concerns about product safety, there is another group that
stands to benefit from the database in unanticipated ways: the Plaintiff ’s bar. The CPSC site offers a way for Plaintiff ’s lawyers to troll for complainants and injured parties.
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Manufacturers have expressed concerns about the ease with which inaccurate or fictitious complaints could be submitted by competitors, disgruntled employees, or others with lessthan-honorable motives.
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An Uncertain Future for the Database The Government Accountability Office is required to report how the database is functioning to Congress within 180 days of the March 2011 launch. Meanwhile, Republican lawmakers are continuing their attempts to change the rules governing the database, saying that the new regulations go too far. They would like to allow only those who have been injured, or members of their families, or people authorized by them to have the ability to file complaints. They would also like additional time for manufacturers to respond, and the CPSC to investigate reports more carefully before posting them.
Until this legislation is changed, manufacturers must be vigilant in the monitoring and defense of complaints filed within the database. Updating operational policies to include the handling of these new regulations and strict adherence to those policies continues to remain the best defense for claims against manufacturers.
Jon Berkelhammer is a partner in Smith Moore Leatherwood’s Greensboro office, and a member of the Products Liability Advisory Council. He has a sophisticated trial practice, regularly appearing in the state and federal trial and appellate courts in North Carolina, as well as the North Carolina Business Courts defending catastrophic personal injury and product liability matters, as well as trade secret and intellectual property matters. jon.berkelhammer@smithmoorelaw.com 336.378.5251 Mike Bowers is Partner-in-Charge of Smith Moore Leatherwood’s Charleston office, and a member of the Products Liability Advisory Council. His practice focuses on defending complex cases in the areas of products liability, toxic tort, transportation and insurance law. mike.bowers@smithmoorelaw.com 843.577.9888
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