Northern Nevada Law Journal

Issue No. 9 | October 30, 2017

Northern Nevada Business Weekly

LAWJournal NORTHERN

NEVADA

Leading the discussion on Nevada business law

Cannabis Protecting trademarks when Washington won’t

Water

Successions

Litigation

How do we get water in the desert?

All business owners need a succession plan — including Millennials

Preserving documents when litigation is on the horizon

An overview of impacts on business from the 2017 Legislature

N Legal E V ASolution.

D A’ S Dickinson Wright has served Nevada since 2010. Our attorneys practice in a range of legal areas including business litigation, construction, corporate, cannabis, intellectual property, entertainment, real estate, appellate and employment law. Our attorneys are recognized leaders in the community and in their respective �elds. They have joined together at Dickinson Wright to form a powerhouse team, able to meet your legal and business needs.

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Welcome

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TABLE OF CONTENTS Trademarking pot in Nevada

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Nevada’s water laws address population growth and demographic shifts

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What to know about succession planning in the age of Millennials

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Tenant construction in commerical leasing

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3

Business Law is the heart of Northern Nevada Law Journal It’s a time of change.

Employers should take advantage of 2017 Legislative changes to non-competition employment law

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What changed after the 2017 Legislative Session

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A highly consequential decision from the Public Utilities Commission

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Nevada’s mining roots support growth of a large-scale energy storage revolution

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Document preservation obligations when litigation is on the horizon

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Protecting your good name — Federal trademark registration

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Here, there or everywhere Patent Venue post: TC Heartland

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Northern Nevada Law Firm Listings

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As we move from hot summer days to cool autumn weather, we say goodbye to Business Law as we usher in the new Northern Nevada Law Journal. In all the changes to the publication, from masthead to directory, we were working toward one overall goal: to deliver compelling legal content in a sharper, more appealing format that would be the forum to lead the discussion on Nevada business law.

In these discussions, one area of critical importance in Northern Nevada (and the world) is water. As the region faces substantial population growth, Nevada remains America’s driest state. This issue discusses water laws and how they impact demographic shifts in this arid landscape. Another area of state and national interest is renewable energy. State leaders have positioned Nevada, along with a handful of states, to set an energy storage target. What does that mean and how does that affect the region? How do mining and lithium batteries relate to renewable energy? These questions and more are answered inside these pages.

Additionally, some of our top law minds offer analyses and insights to negotiate new issues such as trademarking challenges in the cannabis industry and non-compete agreements. They offer guidance on how to stay abreast of ongoing business needs, including succession planning and preparing for litigation. It’s also been a year of rapid change with new laws from the 2017 Nevada Legislative Session, new policies from a new administration in Washington, D.C., as well as voterinitiated change. How do these laws affect regional businesses?

Read on.

While change can be exhilarating, it can also be perplexing to businesses negotiating a maze of new laws and policies.

That’s where Northern Nevada Law Journal comes in. By working with the best and brightest attorneys in the region who keep a vigilant watch on the legal horizon, we’re able to deliver compelling information that impacts our business community.

Welcome to the new 2017 Northern Nevada Law Journal.

Kirsten McGregor Publisher - Northern Nevada Business Weekly General Manager - Reno, Sierra Nevada Media Group

advertiser index 50 W. Liberty St., Suite 203 • Reno, NV 89501 Phone: 775.770.1173 • Fax: 775.770.1171 www.nnbw.com ©2017 Sierra Nevada Media Group. dba Northern Nevada Business Weekly.

All rights reserved.

Reproduction in whole or in part without written permission is prohibited. For reprint permission, please contact the publisher.

Please look for these advertisements throughout this publication on the pages listed below.

For a comprehensive list of Northern Nevada Law Firms, please see pages 21 and 22.

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Cannabis

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Trademarking pot in Nevada

By Matt Francis and Michael Rounds — Brownstein Hyatt Farber Schreck, LLP

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ntil Nevada recently legalized recreational marijuana, the different types of marijuana strains and products may have seemed inconsequential to many Nevadans — an illegal, niche market, to say the least. Not so today, as legal marijuana and related products fly off the shelves in Nevada and in other states that have legalized marijuana for medicinal or recreational purposes. Want pot from Snoop Dog? “Leafs by Snoop.”

Whoopi Goldberg? “Whoopi & Maya.”

Damian Marley? “Stony Hill.”The influx of celebrities adding their brands and names to the marijuana business should put everyone on notice that the recreational and medicinal marijuana marketplace is already big business that is only poised to grow.

The marijuana strains and products themselves already have a host of interesting trademarks, many unregistered, but nevertheless entitled to protection in at least the states where marijuana is legal. For example, strains known as “L.A. Confidential” and “Skywalker OG” are popular, as are digestible products such as “Smack Bar,”“Cannabis Quencher” and “Day Dreamer.” All of these names operate as any other trademark for goods: They identify the source and quality for the given strain or product offered.

Yet, a problem arises with the federal protection (or lack thereof) of these trademarks because of the discrepancy between federal and state cannabis laws.

Under federal law, cannabis is a Schedule I drug that has no medical use. The Controlled Substances Act (“CSA”), prohibits, among other things, manufacturing, distributing, dispensing, or possessing certain controlled substances, including marijuana and marijuana-based preparations. 21 U.S.C. §§812, 841(a)(1), 844(a); see also 21 U.S.C. §802(16) (defining “[marijuana]”).

The CSA also makes it unlawful to sell, offer for sale, or use any facility of

interstate commerce to transport drug paraphernalia, i.e., “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under [the CSA].” 21 U.S.C. §863. Simply stated, marijuana ingestion and sale is a federal crime.

Despite being illegal at the federal level, many states such as Nevada have recently legalized the sale and use of marijuana in some form. Twenty-nine states and the District of Columbia have decriminalized the use of medical marijuana, and within those 29 states, eight states have legalized the use of recreational marijuana. The tension between the criminality of marijuana at the federal level and its legality at the state level invokes a number of interesting legal issues, not the least

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“Despite being illegal at the federal level, many states such as Nevada have recently legalized the sale and use of marijuana in some form.”

of which is trademark protection for marijuana strains and products.

Due to the vast differences between federal and state law, most of those involved in the marijuana industry are unable to obtain a federal trademark registration for their cannabis-related strains and products.

Federal trademark protection does not extend to activity that is illegal under federal law. So, as the law currently stands, the growers, suppliers and retailers that are making a name in the marijuana industry may only resort to registering trademarks for marijuanabased products at the state level.

There are a number of differences between federal and state trademark law. For example, a federal registration creates rights of national scope and the potential for nationwide injunctions from a federal court for infringing use. Additionally, the owner of a federal registration can have U.S. customs service block the importation of infringing goods. And, only a federal registrant can use the “®”in conjunction with its trademark to signify its federal registration, and perhaps deter potential infringers.

Despite these differences, however, state registrations have teeth too. Here in Nevada, for example, an owner of a Nevada registration who is the prevailing party in trademark litigation can obtain a statewide injunction, treble damages and attorney’s fees as remedies for infringement. While these remedies are more limited in scope than those available under the federal Lanham Act that governs trademarks, these remedies can be valuable to trademark owners.

At the Nevada Secretary of State’s offices, trademark owners are now

5 regularly filing marijuana-related trademark applications. For example, the trademarks “KYND” and “MYNT” are now registered in Nevada for medical marijuana and other registrations exist as well. While marijuana remains illegal on the federal level, it is clear that the marijuana industry will continue to secure state trademarks for their strains, products and associated items.

What does the future hold for federal trademark protection for marijuana goods and products?

During the Obama administration, President Obama did not endorse strict enforcement of the federal cannabis ban, stating in an exit interview with Rolling Stone that he “do[es] believe that treating [marijuana use] as a public-health issue, the same way we do with cigarettes or alcohol, is the much smarter way to deal with it.”The attorney general of the United States, Jeff Sessions, however, stated at a Senate drug hearing that “good people don’t smoke marijuana,” and marijuana “is not the kind of thing that ought to be legalized.”

In the short term, then, it is not looking good for federal trademark protection. But Nevadans can register and then enforce their marijuanabased trademarks in Nevada district courts, which is a good thing for a marijuana industry that continues to make its mark as big business in Nevada. ●

— Matt Francis and Michael Rounds are intellectual property attorneys at Brownstein Hyatt Farber Schreck, LLP, who register, protect and enforce trademarks and other intellectual property in the United States and abroad.

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Water

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Nevada’s water laws address population growth and demographic shifts

By Greg Morrison — Parsons Behle & Latimer

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nyone who has lived in northern Nevada for a few years can tell you about the rapid growth the area is experiencing. From roughly 200,000 people living in the metropolitan area in 1980, the population swelled to almost 580,000 in 2010.1 The Nevada State Demographer predicts as many as 150,000 additional people moving to the area by 2033!

Along with population growth has come a rural to urban demographic shift. Parcels that were recently open range or farmland are now residential, commercial, and industrial centers.

Since the early 2000s, tens of thousands of acres that were previously used for agriculture have been converted to urban uses.2 Population requires housing, and developers are eager to cash in on the population boom.

Complicating the population boom is the fact that Nevada is America’s driest state, averaging just over 7 inches of precipitation. Despite Nevada’s available space, growth will therefore be limited by the amount of water available. If you’re a developer in Northern Nevada, understanding where water will come from and how the state assures water supplies for its population will be the difference between a successful project and a waste of time and money.

WATER’S ROLE IN MASTER PLANNING

City and county planning commissions must adopt comprehensive master plans, accounting for projected growth. master plans must includes a public services element, which include an estimate of the total population that the natural resources of the city, county or region will support on a perpetual basis. Although master plans are not required to address available water supply sources to address projected demand during the planning period, virtually every master plan does include

that element. Subsequent local land use decisions must be consistent with the master plan. When adopting a zoning regulation or ordinance, a local government must make a specific finding that the ordinance conforms to the master plan.

Thus, land use planning is driven by counties, as is expected in a rural state, and fine-tuned by cities and towns to their individual circumstances.

While any prospective developer will consult local zoning prior to planning a development, knowing that water availability was a factor in the master planning and zoning process should allow the developer to move forward with greater confidence.

SUBDIVISION MAPS

An important element in Nevada water supply planning to a developer is at the subdivision map approval stage.

A planning commission considering a proposed subdivision must consider whether water “sufficient in quantity for the reasonably foreseeable needs of the subdivision” is available. To that end, an initial subdivision map going to a planning commission must be submitted to the Division of Water Resources for review and recommendation. The State Engineer will evaluate the proposed subdivision and whether or not a sufficient water supply can be identified, and will then issue a recommendation on water supply to the planning commission.

Once a planning commission approves a tentative subdivision map, it can proceed to the final subdivision map stage. A final subdivision map involves the same elements as a tentative map, including water supply availability, only in greater specificity. This multi-tiered subdivision approval approach protects both developers and communities by assuring that no development can be approved without a demonstration that the developer has considered current and future water supplies, and believes

NORTHERN NEVADA L AWJournal that they will be adequate to support the proposed subdivision.

SECURING WATER SERVICE FROM A UTILITY

Once a local planning commission approves the subdivision, a developer must provide for water service from the local water purveyor. That requires obtaining a “will-serve” commitment from the water provider, which is a statement from the purveyor that it will provide water to the development once it is built. To obtain the will-serve, the developer must assure the water purveyor that the water to serve the subdivision will be available when service is needed. Generally, this step is baked into the subdivision map approval process at the state engineer review stage. The volume of water needed is generally determined by the lot size (rather than structure size) to be served. The Truckee Meadows Water Authority(TMWA), Reno’s water purveyor, has adopted a formula in its Rules and Regulations for determining the water supply necessary, and Fernley has adopted the same formula.

To get the actual will-serve

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commitment, the developer generally must provide at its expense a commensurate amount of water to the utility. Where the utility has excess “banked” water – i.e. more water has been dedicated to the utility than is currently needed to satisfy its willserve commitments, a developer might be able to purchase banked water through or from the utility. Otherwise, a developer must find an existing water right to dedicate to the utility. If the developer has been diligent, and purchased a parcel with appurtenant water rights, those rights can be dedicated in exchange for will-serves.

Otherwise, the developer must find a willing seller in the utility’s service area, purchase that seller’s rights, and dedicate them to the utility.

CHANGING THE USE OF AN AGRICULTURAL WATER RIGHT

Generally, a vacant parcel in an urban area with appurtenant water rights will have water rights intended for use in irrigation. To serve a subdivision, the purpose of use of the water must be changed to municipal, which again requires the approval of the state

engineer. The utility might handle the process of changing the use, but the developer will be required to reimburse the utility for engineering and legal expenses in preparing the application to change to municipal use.

Additionally, developers should be aware that when water is changed from a partially-consumptive agricultural use (a portion of the water returns to the source as recharge) to a fullyconsumptive municipal use (no water returned to the source), the permitted volume of water will be reduced to account for the increase in consumptive use. Therefore, a greater volume of agricultural rights must secured than the will-serve formula requires to be dedicated. ●

— Greg Morrison is an attorney with Parsons Behle & Latimer.

He has array of experience in water, environmental, natural resource, and real property law matters. ________________ 1 Source: United States Census Bureau 1980 and 2010 Census.

2 United States Dep’t of Agriculture, Agricultural Census 2012.

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Succession

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What to know about succession planning in the age of Millennials By Gloria Petroni — Gloria M. Petroni LTD

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business of any size needs a succession plan. According to a recent Harris Poll survey, only about half of businesses with fewer than 300 employees possess one.

Surprisingly, many small business owners believe a succession plan isn’t necessary.

Other reasons they avoid succession planning involve being confused by the task — not understanding regulations, not knowing who to work with, not having the time for it, not knowing when to create one — and simply not wanting to give up their work.

If any of these reasons apply to you, it’s important to understand that it’s never too early to plan for a transition, especially because it’s impossible to predict a crisis.

Not only is a succession plan important for the future welfare of the business (and its employees and customers), but it’s also important to avoid conflict among family members and secure their economic well-being.

Considering that 40 percent of our workforce will be comprised of Millennials by 2020, however, some question what benefit succession plans will have to begin with. Of these 86 million or so employees, 66 percent expect to leave their employers within the next five years. But don’t be discouraged by these numbers — this doesn’t mean a succession plan won’t be useful, it just means that your plan may need to look a little different than it would have before. Here are some tips for succession planning in light of the upcoming generation: • There is a difference between who runs a company and who owns a company, so choose these roles with the greatest practicality. Don’t try to force your children to take on your business if they don’t want to. Millennials tend to be comfortable disagreeing with their families’ opinions, and a lack of cooperation could derail your entire estate plan after you’re gone.

• Update your succession plan periodically, and don’t allow the fact that you may have to change it dissuade you from creating it in the first place.

According to the Bureau of Labor Statistics, 20-24 year olds hold jobs for

less than 16 months, on average. Workers aged 25-34 tend to hold positions only 3 years.

• Choose your replacement based on personality rather than skill set. Skills can be learned, whereas personalities tend to stay the same. Don’t believe that all Millennials have brief employment tenures — any broad generalization like that will not hold true universally, and someone who is trustworthy now is likely to be trustworthy later.

• Millennials genuinely want their work to make the world a better place, so if the social impact of your company isn’t clear, consider partnering with a charity or other local cause.

• With family members, consider a gradual transfer of funds or responsibility.

Mentorship is important to Millennials, and this will grant your successor some degree of authority while allowing them the chance to make mistakes without huge repercussions. If a family member is taking over operations, this gives your inheritor a chance to learn how your business works. They’ll have time to build relationships with customers, suppliers, and employees, and you’ll have time to impart your wisdom and values to them. If a family member is taking over financially, consider establishing a trust, or having them buy out 5-10 percent of the business each year.

• Get to know your children’s spouses, and consider how divorce may affect the family business. The current divorce rate is approximately 50 percent.

• Groom inside track candidates with transparency, and give your potential successors frequent promotions or raises

to incentivize them. Millennials like to know their value and be able to see a tangible future with their employer. Meet with them monthly or quarterly to discuss their performance, and make sure they know what their professional track is and how far along they are. Don’t plan a big surprise raise or promotion years down the road — plan out smaller promotions every year or two that they know are coming. You may also consider lateral moves in order to teach your successor about other aspects of your company. If you’re worried about investing in training for employees who may not stick around, consider the liability of not training employees who do choose to stay with your company.

• Lastly, keep in mind that most Millennials desire to own their own business someday, so it’s likely that you’ll have a large number of them who are eager to take over yours. Just make sure that you’ve created a plan to protect family relationships and finances as well.●

— Gloria Petroni is the owner of Gloria M. Petroni LTD. With more than 38 years of experience in family law and estate planning, Ms. Petroni focuses her practice on divorce and family estate planning and small business planning. ________________ Resources: • https://www.nationwide.com/aboutus/020717-nw-business-succession.jsp • http://view2.fdu.edu/academics/ silberman-college/centers-and-institutes/ rothman-institute-of-entrepreneurship/ outreach-programs/family-business-forum/ family-ink-articles/how-to-leave-a-millenialyour-business/ • https://www.forbes.com/sites/ robasghar/2014/01/13/what-millennials-wantin-the-workplace-and-why-you-should-startgiving-it-to-them/#55477bce4c40 • http://www.softwareadvice.com/resources/ millennial-succession-planning-process-bestpractices/ • https://mikehooklaw.wordpress. com/2015/01/21/legal-aspects-of-businesssuccession-planning/ • https://www.silkroad.com/blog/issuccession-planning-still-relevant-in-the-eraof-millennials/ • https://www.wsj.com/articles/thedifficulty-of-succession-for-familybusinesses-1464832923

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Construction

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Tenant construction in commercial leases

By Courtney Forster — Gunderson Law Firm

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hen negotiating a commercial lease, the details of a tenant’s planned construction can be easily overlooked. The parties may have a general discussion about timelines and scope of work, but the specifics are often left to the boilerplate language in the landlord’s form lease. If disagreements arise during or after the construction is completed, this lack of preparation can cause significant problems for everyone involved. Before signing a lease, landlords and tenants alike should discuss the following to ensure that they agree on how to handle these common situations.

Who pays how much for what?

This first point seems to be the most obvious, but far too often landlords and tenants make general improvement agreements without fully considering the ramifications.

For example, a landlord may agree to make improvements to bring the building into compliance with the Americans with Disabilities Act before having a professional assessment of how much that work would actually cost. A tenant may agree to pay for all renovations to the interior of a building without realizing that its intended use will require a substantial upgrade to the building’s electrical systems. In both of these hypothetical cases, the landlord or tenant could be on the hook for a much bigger expense than anticipated.

The parties must consider the age of the building, the tenant’s planned use, any prior issues with the building, and the landlord’s long-term goals for the building.

Make a plan for unexpected cost overruns and stick to it.

How can a landlord protect the property from a mechanic’s lien caused by tenant improvements?

When a tenant is responsible for improving the landlord’s property, there is always a possibility that the tenant will not pay the contractor and leave the property at risk of a mechanic’s lien.

Before allowing a tenant to begin construction on their building, a landlord should refamiliarize herself with the laws surrounding these liens. A frequently overlooked

option is NRS 108.2403(1), which requires a tenant to post security before beginning a work of improvement and to meet certain other requirements to ensure the contractor is paid.

The requirements of this law can be onerous on the tenant, but failing to comply can interfere with a landlord’s right to record a notice of nonresponsibility on the property. Landlords are strongly encouraged to discuss the laws surrounding mechanic’s liens with their attorneys before any significant tenant improvements are constructed.

What will the property look like when the tenant moves out?

Landlords and tenants rarely think carefully about the end of a lease when they are first negotiating. Although it seems far away now, the landlord should always consider what he wants to do with the building when that lease is ended. Do they want to keep the improvements so that they can put another similar business into that same spot, or do they want the tenant to bring the building back to a blank slate? What fixtures does the landlord want the tenant to leave behind when their lease is up? Restaurant buildouts are frequently reused from tenant to tenant, but more distinct uses may be difficult to convert to a new tenant’s use.

Tenants should also read the lease thoroughly to see what they are required to remove or restore at the end of the term. A tenant should never assume that changes they have made — an elaborate mural on a wall, booths attached to the floor, specialty lighting — are required to be removed or are required to stay. One landlord may expect those fixtures to stay so the next tenant can reuse them, while another may insist they be removed entirely. Either way, the parties need to know what the expectations are before they begin construction.

How will these improvements affect the property’s fair market value?

Commercial leases typically include a rent escalation clause or option to purchase at the end of

the initial lease term. These clauses typically include a specific dollar amount, either as a percentage increase from base rent or a predetermined sales price agreed upon by the parties. However, they sometimes also include a fair market value analysis to be performed at the end of the term.

If a tenant plans to spend a significant amount of money improving the landlord’s property at the start of the lease, that tenant should consider how this presumed increase in the property’s value could affect subsequent rent payments or an option to purchase.

The landlord should also consider the value of those construction costs, for which he or she is not paying, in negotiating the lease renewal or purchase options with the tenant. As always, be sure that your lease and option agreements are very clear about what agreement you ultimately reach. ●

— Courtney Forster is an attorney with Gunderson Law Firm whose clientele includes individuals, business owners, commercial and residential property developers, homeowners, tenants, contractors, real estate brokers and agents, among many others.

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Employment Law

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Employers should take advantage of 2017 Legislative changes to non-competition employment law

By Will Wagner — Allison MacKenzie

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n July 2016, the Nevada Supreme Court issued the opinion Golden Road Motor Inn, Inc. v.

Islam(“Golden Road”), in which the Court pronounced that overbroad non-compete agreements between employers and employees were unenforceable in Nevada. As a result of Golden Road, employees were not bound by agreements courts deemed unreasonable and could freely join competitors; so employers needed to carefully craft non-compete agreements to ensure employees were not unreasonably restrained from joining a competitor in time frame, geographical area, or scope of activity restrained.

However, this year the Nevada Legislature passed Assembly Bill 276 (AB 276), which, among other things, appears to overturn the Golden Road rule and adopt a “blue pencil rule” for modifying overbroad noncompete agreements. The new rule allows courts to remove specific overbroad restrictions and enforce the remaining agreement—a result that is advantageous to any employer that relies on valid non-compete agreements to retain employees and protect proprietary information. This article discusses these changes and

how to most effectively take advantage of the new rule in AB 276.

Overview of AB 276:

Section 1 of AB 276 provides that every non-compete agreement is void and unenforceable unless it is (1) supported by valuable consideration, (2) does not impose a restraint greater than is required to protect the employer, (3) does not impose an undue hardship on the employee, and (4) its restrictions are appropriate in relation to the consideration provided to the employee.

An employer should be aware of and use the following criteria when drafting non-compete agreements.

For instance, the more consideration provided to an employee in support of his/her agreement to be bound by the non-compete agreement, the greater the restrictions an employer can impose. If the only consideration supporting the agreement is the continued employment of an atwill employee, the agreement can do little to restrain the employee post-employment. However, if the employee was provided a sizeable bonus and raise in exchange for agreeing to the non-compete agreement, then its terms can be more restrictive.

Section 5 of AB 276 provides the most significant change to noncompetition employment law by overturning Golden Road:

If . . . the court finds the covenant is supported by valuable consideration but contains limitations as to time, geographical area or scope of activity to be restrained that are not reasonable . . . the court shall revise the

covenant to the extent necessary and enforce the covenant as revised. . . .

Accordingly, if a non-compete agreement contains overly broad restrictions, courts now should “revise” the agreement so that it reflects the employer’s legitimate interests.

This will allow some otherwise unenforceable agreements to be revised to become enforceable.

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When drafting non-compete agreements, employers should ensure the criteria in Section 1 of AB 276 are considered. However, because courts may now revise overly broad agreements, employers can more aggressively attempt to restrain employees in terms of time frame, geographical area, or the scope of activity restricted.

The Blue Pencil Rule:

The text of AB 276 does not provide the extent to which courts are permitted to revise non-compete covenants to make them enforceable.

States around the country have adopted different standards governing the extent courts can revise overbroad non-compete agreements to make them enforceable. For example, the Arizona Supreme Court adopted a narrow blue pencil rule where overbroad language in agreements

“If . . . the court finds the covenant is supported by valuable consideration but contains limitations as to time, geographical area or scope of activity to be restrained that are not reasonable . . . the court shall revise the covenant to the extent necessary and enforce the covenant as revised. . . .”

11 can only be struck if the language is grammatically severable. See Valley Med. Specialists v. Farber. In contrast, the Minnesota Supreme Court has adopted a broad blue pencil rule that allows unreasonable language in an agreement to actually be rewritten/ modified to preserve enforceability.

See Hilligoss v. Cargill, Inc.

When the Nevada Legislature was considering whether to pass AB 276, Assemblywoman Ellen Spiegel testified in front of a Senate committee as follows: “Another provision this bill contains is bluelining. If a court of law finds that provisions in the noncompete agreement are invalid, it can strike out the invalid components but leave in what is valid.” Thus, it appears that the Legislature intended to adopt the narrow blue pencil rule, like Arizona.

As a result, non-compete agreements in Nevada should be drafted so that courts can strike grammatically severable language that may be considered overbroad. For example, when drafting geographical scope language, an employer may want to restrict an employee for up to 60 miles from its place of business, so it could include the following language: “Employee agrees not to compete with employer within the longest of 60 miles, 40 miles, or 20 miles of its primary place of business.”

If the forgoing example ended up in a courtroom, a judge could determine the employer only has a legitimate interest in restricting the employee for up to 20 miles, but the court could permissibly strike the overbroad language to make the agreement enforceable: “Employee agrees not to compete with employer within the longest of 60 miles, 40 miles, or 20 miles of its primary place of business.” This is a good result for employers as compared to the Golden Road rule, where the entire non-compete agreement with the employee would be unenforceable.

Keep in mind that this article is written in general terms and every non-compete agreement should be drafted with the specific facts in mind.

You should contact an attorney who is well versed in this area to review or draft any such agreement. ●

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Legislature

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What changed after the 2017 Legislative Session

By Bill O’Driscoll — Northern Nevada Business Weekly

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he 2017 Legislature proved less taxing than previous sessions for Nevada’s businesses.

But state lawmakers were busy nonetheless addressing myriad business concerns that in some cases made it into law and in others were left to die or were vetoed by the governor.

No new broad-based taxes were imposed. The most notable tax concern was the 10 percent excise tax on recreational marijuana sales. It came as no surprise after Nevada voters approved Question 2, legalizing cannabis, on the November 2016 ballot.

So far, that levy, enacted in Senate Bill 487, has been fruitful. Cannabis sales in July, the first month of legalized recreational use, generated $2.7 million from the new tax, all of it earmarked, by law, for state government’s rainy day fund.

Beyond that, the 2017 session was, from the business world’s standpoint, largely quiet when it came to major legislation, including opting not to address the state Modified Business Tax first enacted in 2003.

“Some bills were drafted but never heard that could have been damaging,” said Craig Madole, president of the Nevada Chapter Associated General Contractors.

The gaming industry, which touches an estimated one-third of Nevada’s workforce, was represented by the Las Vegas-based Nevada Resort Association, the state’s most powerful lobby.

“We monitored 300 pieces of legislation,” said Greg Ferraro, who led the NRA team, adding that those measures encompassed such issues as taxes, transportation, energy, economic development and employment.

With no big tax matters on the table, labor concerns topped the NRA’s attention, including efforts to raise the minimum wage that won lawmakers’ approval but was vetoed by Gov. Brian Sandoval.

Senate Bill 106 would have raised the minimum wage by 75 cents each year for five years or until the minimum hourly wage was $12 or more if the employer did not offer health insurance, or was $11 or more if the employer offered health insurance in accordance with regulations.

The measure elicited strong opposition from business interests, including the National Federation of Independent Business.

Since Sandoval vetoed the bill after the end of the session, lawmakers will have the opportunity to reconsider the measure next time.

“I suspect there will be more discussion on that in the next session,” Ferraro said of the 2019 Legislature.

Other notable legislation that didn’t make it into law this year included Senate Bill 196, which proposed mandatory paid sick leave in certain circumstances. The bill was approved by both houses and vetoed

by Sandoval but lawmakers took no further action.

In its July Tax Topics newsletter, the Nevada Taxpayers Association outlined other business-related legislation approved by lawmakers in 2017 and signed into law

by Sandoval.

Among them: • Assembly Bill 6: Removes the

exemption from licensing for

motion picture companies

operating in Nevada.

• A.B. 52: Establishes a fee of up

to $1,500 for a permit for drilling

and operation of a dissolved mineral

resource exploration well.

• A.B. 60: Adds to vehicle transport

licensure a $25 late fee for licenses

not renewed before expiration

and adds broker of vehicles and

auto wreckers to licensing categories.

• A.B. 165: Requires licensure to act as

a health services executive in a

nursing or residential care facility.

• A.B. 324: Prohibits anyone operating

as a document preparation service

from advertising or holding himself

out as a paralegal or legal assistant.

• A.B. 492: Allows $10 million

in each of the 2017-19 fiscal years

for transferable tax credits for film

productions and allows any unused

credits to carry forward into future

fiscal years.

• Senate Bill 64: Allows for aviation

fuel taxes to remain at the airport

that collects them instead of going

to the county.

• S.B. 199: Authorizes the licensing

and operation of estate distilleries in

Nevada starting in October and

outlines conditions for selling

distilled spirits on site. That includes

a maximum of 75,000 cases per

year to an in-state wholesaler or

400,000 cases for exporting out of state.

• S.B. 388: Requires a provider of non medical home care to obtain a

license from the State Board of Health.

• S.B. 407: Creates the Nevada Clean

Energy Fund tasked with providing

funding for and increasing the pace

of clean energy projects in Nevada.

• S.B. 415: Creates an exemption

from the sales tax for feminine

hygiene products, effective Oct.

21, 2017, and puts the question on

the November 2018 ballot to do the

same for the state portion of the

sales tax.

• S.B. 539: Addresses pharmaceutical

transparency, including requiring

a list of drugs for diabetes treatment

to be compiled by the state and

requiring manufacturers to provide

information about the costs of

those drugs. ●

NORTHERN NEVADA L AWJournal

Green Energy

13

A highly consequential decision from the Public

By Lucas Foletta — McDonald Carano Utilities Commission

N

o legal or policy area in Nevada has seen more consequential change in the last three years than energy. Since 2014, a wave of large customers (1 MW or more) has exited NV Energy’s system searching for lower prices and greener energy. Nevada’s net metering policy was substantially restricted through legislative and regulatory action, and then opened back up again in the same forums. And we have seen a ballot question providing for competition in Nevada’s retail electric markets pass with overwhelming support (approximately 72 percent of the popular vote). It’s no surprise that the Legislature has taken action to spur the growth of the electric storage and electric vehicle markets, modernize Nevada’s regulatory framework to account for developments in distribution level technology and provide for more renewable energy in Nevada. The vigorous nature of the legal and policy landscape reflects the importance of energy, as energy constitutes a major cost for business and is a product many businesses want to be able to better manage from an economic and resource perspective.

Nothing reflects this more than the impact of NRS 704B on the current climate.

Established in 2001 in response to the Western Energy Crisis, the provisions of NRS 704B provide a framework for large commercial customers in Nevada to exit NV Energy’s (monopoly) system and procure energy from providers of their choice. Until 2014, few customers availed themselves of the process. However, with competitive electric markets producing lower prices than NV Energy, along with the option to incorporate higher percentages of renewable energy, leaving NV Energy’s system has become a more appealing option. Northern Nevada companies like Switch, Caesars and Peppermill have all gone through the process, and more are likely on the horizon. Imperative to each of these entities was to what extent it would be required to pay an impact fee associated with their departure. The law authorizes the commission to impose such a fee to hold remaining ratepayers harmless for the financial effects of a customer departing.

These fees can be considerable, however, the attractive economics of market-based purchases of electricity can make the endeavor seem worthwhile.

As Northern Nevada has grown, a key question has arisen with real economic development implications. Specifically, should a company new to Nevada be required to pay an impact fee at all?

After all, if a company has never been a customer, why should it have to pay a fee for departing — a fee that has generally been viewed as a departing customer’s share of the electric system resources built to serve the departing customer’s needs?

Google, as part of its consideration as to whether to build a major data center facility in Northern Nevada, asked the commission to address this very issue, and the commission provided important guidance that, at least in theory, is applicable to other potential customers in our region. Indeed, the commission seems to have established a protocol that new customers can follow to obtain zero impact fees for taking electric services from independent power providers.

In articulating this protocol, the commission reached three consequential conclusions. First, the commission said there is no minimum duration of time required for an end use customer to receive bundled service from NV Energy in order to be eligible to exit the utility’s system pursuant to NRS 704B. Prior to this, one reading of NRS 704B included a requirement that to exit NV Energy’s system, an entity would have to be a customer for some minimum period of time. In rejecting this notion, the commission went further and said potential customers do not actually have to receive bundled service to be eligible to apply for 704B; instead, a potential customer need only file and execute an application for service with NV Energy.

The customer can then cancel the service the next day and maintain its eligibility for 704B.

Second, the commission said that a new customer can satisfy 704B’s load requirements (1 MW or more) by providing reliable documentation that it will consume 8,760,000 kWh of energy in the 12 months that follow departure. Acceptable forms of evidence include electric load information for similar facilities, detailed annual load projections, electrical single line drawings showing transmission and feeder sizes and all connected loads, transmission-related studies associated with the planned facility and evidence regarding projected loads at each point of delivery.

Third, the commission said that a 704B application can occur at any time during the development of a construction project—before, during or after construction, assuming the other requirements are met.

On the whole, the commission indicated that if Google followed this protocol, it would qualify for a zero impact fee, because the entity would not be planned for, and because it would only be establishing a paper relationship with the utility. While the commission stressed that its decision did not create a precedent, as no commission decision does, based on the plain terms of the order, it appears a new customer could follow the protocol outlined by the commission and qualify for a zero impact fee.

As our region grows, this may become a highly consequential decision from the commission. Increasingly, commercial and industrial customers look to take advantage of market pricing as well as the flexibility of market resources, including the integration of more renewable energy into their resource mix. Indeed, energy prices and the availability of reasonably priced renewable energy are often cited by major entities considering moving to Northern Nevada as a key decision point. Hopefully, the commission’s decision will provide a meaningful path forward for companies seeking to bring new jobs and resources to the state without being subject to unnecessary hurdles to relocation. ●

— Lucas Foletta, an attorney at McDonald Carano, represents clients before the Nevada Legislature, local governments and state government agencies in a wide array of regulatory and government affairs matters.

14

Mining

NORTHERN NEVADA L AWJournal

Nevada’s mining roots support growth of a large-scale energy storage revolution

By Laura K. Granier — Holland & Hart

O

ur pioneering spirit here in Nevada is at work yet again as our state leaders have positioned us among a very small handful of states to have set an energy storage target. This comes at a great time with storage devices being broadly recognized as renewable energy assets that can deliver energy along with solar, wind, and geothermal.

Newly adopted provisions in Nevada law have led our great state to recently be described as having “jumped to the vanguard of energy storage policy” after the 2017 Nevada Legislature revised our renewable energy targets and directed the Nevada Public Utilities Commission (PUCN) to investigate whether it is in the public interest to require an energy storage procurement by utilities. The

PUCN has just less than a year left to make that decision — by Oct. 1, 2018 — and in doing so, must consider all known measurable benefits and costs of energy storage systems.

The agency is not wasting any time, having already scheduled a workshop for Nov. 9. Among potential benefits of energy storage systems that the agency may consider are reduction in peak generation, transmission deferral, lower greenhouse gas and pollutant emissions, and the value of a diversified supply of electricity.

But the 2017 Nevada Legislature did not stop there. A renewable portfolio standard is a regulatory mandate to increase production of energy from renewable sources. In 2017, Nevada increased the renewable energy target from 25 percent by 2025

to 40 percent by 2030 and established additional incentives for construction of energy storage in Nevada by providing that every kilowatt-hour of energy delivered by a qualified energy storage device will count double for the renewable portfolio standard requirement.

NORTHERN NEVADA L AWJournal

This all comes at an optimal time as predictions abound that battery storage is the next disruptive technology to take the energy sector by storm and that lithium will be critical to the large-scale storage revolution. Here is where the mining comes in: to extract the light metallic mineral, lithium, which occurs in solid form or lithium brine deposits. Already in demand to power smart phones and electric vehicles, there is now increasing demand for the mineral for energy storage, and the desire to mine lithium responsibly, quickly, and abundantly will continue to grow.

What better place for that extraction to occur than in a state with mining so deeply embedded in its history.

Lithium extraction is time consuming and has recently been the subject of some criticism from environmental and other nonprofit organizations concerned about the need for best practices and social responsibility in lithium mining globally. Nevada has a rich history of developing effective and efficient oversight of mining — ensuring that projects can be developed in an

15

environmentally responsible way and on a reasonable timeline. There are a number of legal issues to maneuver before you can start mining (or even exploring for the minerals you hope to mine) — from land use and tenure, and rights under the General Mining Law, to environmental, permitting, and water law, there is much to be considered. Oh, and speaking of exploration and water, the 2017 Nevada Legislature also provided a little something for the research and development arm of the mining industry very important to lithium: Assembly Bill 52 clarified that an appropriation of water rights is not required for the reasonable loss of up to 5 acre-feet of water during the testing and sampling of water pumped within a dissolved mineral resource (such as lithium brine) exploration project. Given the water resource issues in Nevada, this could prove important to facilitate new discoveries of lithium deposits while at the same time providing a balance relative to water resources by requiring the usual appropriation process for losses during exploration that exceed 5 acre-feet.

As you can see, there is no shortage of issues to address. Having so many years of mining throughout Nevada, our state and our lawyers are well positioned to facilitate development of the mineral that is the focal point of this storage and renewable energy storm.

I have identified only a few examples of the many relationships between mining and renewables.

More and more hard rock mining operations are looking to renewable energy for power needed at mine sites, and across the world mining companies are looking at transforming abandoned mining infrastructure into power storage systems. Nevada is on the cutting edge of this exciting revolution and the possibilities are limitless — something very exciting to this home-grown girl. ●

— Laura K. Granier is a partner at Holland & Hart in the firm’s Reno office who delivers pragmatic counsel to help mining and natural resources clients navigate litigation and regulatory challenges.

Donald L. Carano McDonald Carano Founder, Partner, Mentor

1931-2017 McDonald Carano is saddened by the recent passing of Donald L. Carano, one of our founding partners and a brilliant real estate and gaming attorney. His vision helped shape McDonald Carano into one of the premier law firms in the West. We and our friends and clients in the Northern Nevada business community have lost a great friend and leader. We will miss him.

16

Litigation

NORTHERN NEVADA L AWJournal

Document preservation obligations when litigation is on the horizon

By Courtney Miller O’Mara — director, Fennemore Craig, P.C.

N

o company wants to become involved in a dispute with its customers, suppliers, or employees, or to become the target of a government investigation, but if this type of trouble is on the horizon, what document preservation steps should you take? If your company is involved in, or anticipates, litigation or a government investigation, issuing and implementing a litigation hold can help avoid making a dispute or investigation much more aggravating and expensive for the company.

Here are some essential points to keep in mind about litigation holds: 1. What is a litigation hold?

A litigation hold is a written directive advising custodians of certain documents and electronically stored information (“ESI”) to preserve potentially relevant evidence.

Sometimes it is called a “preservation letter” or “hold notice” or “stop destruction request.”

2. Solid implementation of a litigation hold begins with a good team.

The legal and technological issues involved in implementing a litigation hold mean that management should not go it alone. A litigation hold team should include, in addition to key personnel from the division of the company affected by the litigation or investigation, in-house counsel, outside counsel knowledgeable about litigation holds, and information technology personnel. Together, these individuals can help the company develop an implementation plan that will likely include (1) drafting and distributing a written hold notice, (2) following up to ensure compliance with the hold, (3) modifying the hold as necessary, such as when new facts

“If your company is involved in, or anticipates, litigation or a government investigation, issuing and implementing a litigation hold can help avoid making a dispute or investigation much more aggravating and expensive for the company.”

NORTHERN NEVADA L AWJournal develop or new witnesses become known, (4) distributing reminders to company employees who are custodians of data subject to the hold, and (5) lifting the hold when it is no longer necessary.

Legal counsel can help the company identify key custodians, given the facts involved, as well as help document the implementation of the hold so that the company is protected if later challenged about the sufficiency of its efforts. This assistance may include everything from the initial letter notifying company personnel and third parties of the hold to later written notices to document compliance with or modification of the hold.

3. The duty to preserve documents may attach sooner than you may think.

Many companies do not realize that a duty to preserve documents and ESI can attach even before a complaint is served. Once a company “reasonably anticipates” litigation or an investigation, paper documents and ESI need to be preserved. The duty could be triggered when the company is served with a complaint, obtains knowledge of stated threats of claims (such as a demand letter), learns of a related lawsuit (including receipt of a subpoena), receives a formal order of investigation, or completes an internal investigation yielding information that leads it to conclude litigation may result.

Whether the duty has been triggered is highly dependent upon the particular factual circumstances involved, but Nevada courts have found that something as simple as

the filing of an accident report can trigger this duty. Companies also need to use their past experience to assess what other types of events typically result in litigation. In a Nevada case against a drugstore, a plaintiff’s return of incorrectly filled medication to the drugstore triggered the duty to preserve.

4. What information must be preserved?

Only “reasonably accessible” ESI and paper documents must be preserved. In general, this is information available for use in the ordinary course of business. Examples are word processing documents, email messages, electronic spreadsheets, image or sound files, and material from databases. Information must be preserved in its current form regardless of the media on which it exists. What data falls under the “reasonably accessible” definition is not always intuitive. Information in the hands of the company’s agents (accountants, attorneys, etc.) as well as information contained on employees’ personal devices can be implicated.

The company should involve counsel in this analysis.

5. The penalties for destruction of relevant documents can be very serious.

Courts have imposed serious penalties against parties who failed to properly implement litigation holds. These have included monetary penalties, such as payment of the adversary’s legal fees and costs, adverse inference instructions to the jury relating to the information lost or destroyed (i.e., instructing the jury to assume that the information would have been damaging), preclusion of evidence that would support a claim or defense, and, in extreme cases, default judgment or dismissal.

In a Washington, D.C. case, the defendants continued to delete relevant email for two years after court ordered preservation. The court precluded defendants from calling a key employee and ordered defendants to pay costs relating to the spoliation and an additional $2,750,000 in monetary sanctions.

17 In one Nevada wage and hour case, serious sanctions were recommended after the defendant hospital didn’t even begin document preservation efforts until a year to two years after the case was filed. A substantial record was created indicating that there was no litigation hold imposed despite multiple legal hold demands from the plaintiff. Lost text messages and other mobile device data were especially at issue, involving both company issued devices and employee owned devices used under an unofficial BYOD policy. The special master proposed entering default judgment against the defendant hospital, and recommended numerous rebuttable presumptions that would cement the hospital’s liability. The special master’s proposed findings have been objected to, but the outcome of the objection won’t change the hefty legal fees the hospital incurred related to the document preservation dispute, fees that likely could have been avoided had a litigation hold been properly implemented years earlier.

The serious potential penalties mean litigation holds are not something companies can ignore or take lightly. Compliance with a properly documented and executed litigation hold can not only help a company preserve crucial information it may need to prove its own positions in litigation or an investigation, but can help avoid costly and time consuming discovery disputes with opposing parties. With the proper team in place and a measure of effort at the outset, when litigation is first “reasonably anticipated,” it may very well be easier for the company to show trouble the door. ●

— Courtney Miller O’Mara is a Director in the Reno office of Fennemore Craig, and her practice focuses on business litigation, creditors’ rights and bankruptcy litigation, and trusts and estates matters, including planning, administration, and litigation.

She can be reached directly at comara@fclaw.com.

18

Trademarks

NORTHERN NEVADA L AWJournal

Protecting your good name – Federal trademark registration

By Abigail Stephenson — Blanchard, Krasner & French

T

rademarks have been around for a long time (a really long time). The basic purpose of a trademark is to enable a consumer to identify the source of the good or service they are consuming.

Trademarks also protect the investment of a producer in the reputation of its good or service.

Imagine a world without trademark protection: How would a consumer know an authentic good from a counterfeit? How would a company protect the goodwill associated with its brand without the ability to stop others from using that brand?

This article provides a brief overview of trademark “basics” and why most businesses should consider federal trademark registration for key brands.

What is a trademark?

A trademark is a word, slogan, symbol, design, or combination of the foregoing that identifies the source of a good or service and distinguishes the source from others. In their most common and simplest form, trademarks protect brand names and logos. Some examples of well-known trademarks with significance in Reno include the name Patagonia for clothing and the Tesla “T” for its electric vehicles.

What are the benefits of federal trademark registration versus common law trademark rights or state trademark registration?

The most critical right a trademark owner desires is the right of exclusive use. In non-legal terms, the right of exclusive use is the right to prevent others from using the same trademark on the same or a similar type of good or service. There are three ways to establish a right of exclusive use in the

United States: common law trademark rights, state registration, and federal registration. Because trademark rights in the U.S. are based on use in commerce—that is, use it or lose it—the first two options require that a mark be in use in commerce before any rights of exclusivity can be secured. The three methods to establish trademark exclusivity rights are discussed in order of least to most protective below.

First and most limited: common law trademark protection. Simply using a trademark in commerce can create some rights of exclusive use (assuming no one else is using a confusingly similar mark already). No registration is needed. Common law trademark rights are very limited in that they only protect use of the trademark within a particular geographic area and they can

be difficult to enforce because there is no public record of the trademark and when use began. Some trademark owners use a “TM” or “SM” to designate their claim of common law trademark rights over a specific brand-identifier (E.g. MadCATSBikesTM).

“A trademark is a word, slogan, symbol, design, or combination of the foregoing that identifies the source of a good or

service and distinguishes the source from others.”

NORTHERN NEVADA L AWJournal

The second option is registration at the state level. In order to seek registration in Nevada,1 the mark must be in use in commerce in Nevada. If the registration requirements are met, the Nevada Secretary of State will issue and deliver a certificate of registration to the mark owner.2 The mark registration lasts for five years from the date of registration and can be renewed for successive five-year periods so long as the mark remains in use in commerce in Nevada.3 Trademark registration at the state level entitles the mark owner to broader remedies if another person infringes on the mark than common law trademark rights, but only provides a right of exclusive use in Nevada.

The third and most comprehensive option to protect a brand-identifier is federal trademark registration. Some of the significant advantages of federal trademark registration include a legal presumption of ownership of the mark and the exclusive right to use the mark nationwide in connection with the goods and/or services listed in the registration.4 For example, a business in Reno with a federal trademark registration could use its federal trademark rights to prevent a new business from using the trademark on similar goods or services in California, New York, or anywhere else in the country.

Another huge benefit of federal registration is that a mark registration can be applied for on an “intent-to-use” basis. In other words, a person desiring to use a mark can secure the mark first and then work on introducing the good or service into the marketplace. This can save substantial time and energy on rebranding if a conflicting mark arises after a brand has been selected but before the good or service is in use in commerce. In addition, a mark owner may use the federal registration symbol “®”, may record the registration with U.S. Customs and Border Protection to prevent importation of infringing foreign goods, and can use the U.S. registration as a basis to obtain trademark registration in foreign countries.

Federal trademark registration can also be an important deal point in the purchase or sale of a business.

For example, a company with a name

that is federally registered could seek a higher purchase price in an acquisition because it could assure the buying company that no one else is allowed to use its name.

Similar to state trademark registrations, federal registrations last for five (5) years and can be renewed for successive terms if they continue to be in use in commerce.

How do I secure a federal trademark registration?

To obtain federal trademark registration, the person or business that desires the registration must apply with the United States Patent and Trademark Office (“USPTO”) and have the registration approved. The process takes a minimum of about eight months and can take up to three years depending on whether the mark was filed on an in-use or intent-to-use basis and whether the USPTO issues an office action refusing registration of the mark for some reason.5 The USPTO has posted some very useful timelines on its website that show the stages of the registration process in detail.6 When it comes to cost, the non-refundable application fees start at $225 per mark per class of goods or services. Legal fees can be another cost because many mark applicants hire an attorney to assist with the application and analyzing a mark for potential bases for refusal including, importantly, whether any confusingly similar marks exist.

A few of the common reasons the USPTO rejects trademark registration applications include: (1) likelihood of confusion between the mark of the applicant and a mark already registered or in a prior-filed pending application owned by another party (e.g. use of “KOKA-KOLA” for soft drinks); (2) the mark is merely descriptive of the good or service (e.g. the name “JOE’S GARAGE” for an auto body shop owned by a person named Joe); or the mark is deceptively misdescriptive (e.g. “LOVEE LAMB” for seat covers not made of lambskin). A complete list of characteristics of a mark that bar registration can be found in the Lanham Act.7

Two other bases for refusal that have been especially interesting lately include illegality and disparagement.

Illegality refusals have presented

19 some interesting branding issues for companies involved in the sale of marijuana, which is illegal at the federal level, but legal in several states. With respect to disparagement, the Supreme Court issued an important ruling that opened the door to the registration of trademarks that “disparage” others.8 In the Tam case, the Supreme Court permitted the registration of the name “The Slants” for an Asian-American rock band.

Conclusion

Federal trademark registration is something every company should consider for its most valuable brands.

Registration can increase the value of a business, prevent others from infringing on a trademark by putting the world on notice that the mark is already being used, and provides tools to protect the trademark if another party does infringe. ●

— Abigail Stephenson is a partner with Blanchard, Krasner & French and leads the firm’s trademark practice. She also practices in the areas of business law and estate planning. ________________ 5 NRS 600.340.

5 NRS 600.350 5 NRS 600.360.

5 15 U.S.C. § 1057(b) 5 The process can take even longer if an action is initiated with the Trademark Trial and Appeal Board.

6 https://www.uspto.gov/trademark/trademarktimelines/trademark-application-and-postregistration-process-timelines 7 15 U.S.C. § 1052.

8 Matal v. Tam, 137 S. Ct. 1744 (2017).

20

Patents

NORTHERN NEVADA L AWJournal

Here, there or everywhere: Patent Venue

By Steven A. Caloiaro — Dickinson Wright post TC Heartland

T

here are very few axioms in life, and even less so in litigation.

However, over the past decade, one axiom in patent litigation remains: Each year the Eastern District of Texas (EDTX), located in Tyler, Texas, is the mecca of United States patent litigation.

Armed with local rules for patent cases, relatively fast trial settings, and a plaintifffriendly jury base, patent plaintiffs have flocked to this venue. In 1999, there were 14 patent cases filed.1 In 2015, an astounding 43.6 percent of federal patent suits (2,540 suits) were filed in EDTX.2 That remained true until May 22, 2017, when the United States Supreme Court issued TC Heartland LLC v. Kraft Foods Group Brands LLC. This decision potentially changes the course of U.S. patent litigation.

TC Heartland LLC v.

Kraft Foods Group Brands LLC

For the past 18 years, the term “resides” under 28 U.S.C. § 1391(c) was interpreted to mean “any district where there would be personal jurisdiction over the corporate defendant.”3 In TC Heartland, Kraft sued TC Heartland for patent infringement in Delaware. TC Heartland was an Indiana LLC headquartered in Carmel, Ind. However, it shipped allegedly infringing products into Delaware and was, therefore, allegedly subject to personal jurisdiction in Delaware.

TC Heartland moved to transfer venue to Indiana arguing that it neither resided, nor had a “regular and established place of business,” in Delaware. The district court denied the motion, relying on the broader definition of “residence.” TC Heartland fared no better at the Federal Circuit where its petition for mandamus was denied because the court found that, when it resided in Delaware under § 1391(c), it also resided

there under 28 U.S.C. § 1400(b). In particular, the Federal Circuit concluded that the statutory amendments to § 1391(c) supplied the definition of “resides” for § 1400(b).

In December 2016, the Supreme Court agreed to hear the issue. The question before the Court in TC Heartland was whether Congress changed the meaning of “resides” in the patent-venue statute when it amended § 1391(c). The Court held that it did not, explaining that its 1957 decision in Fourco, had “definitively and unambiguously” held that the word “resides” in § 1400(b) is limited to a domestic corporation’s state of incorporation, and Congress had not amended § 1400(b) since its Fourco decision.4 The Court also examining Congress’ amendments to § 1391(c) since Fourco, did not see any indication that Congress intended to change the meaning of §1400(b). Finally, the Court noted that the 2011 amendment to § 1391(c) did not codify VE Holding, and was, in fact, expressly contemplating narrower venue statutes with definitions that conflict with the “default” definition in § 1391(c).

Effects of TC Heartland

A little over a month after TC Heartland, Judge Rodney Gilstrap, a EDTX district judge who handles more patent cases that any other district court judge in the United States,5 created a new test to determine a company’s “regular and established place of business.”6 Judge Gilstrap noted that courts must consider the “totality of the circumstances” in determining when venue is proper and outlined a four-factor test: (1) Defendant’s Physical Presence in the Judicial District; (2) Defendant’s Representations about Its Presence in the Judicial District; (3) Benefits the Defendant Received from the Judicial District; and (4) Defendant’s Targeted Interactions with the District.

However, the Federal Circuit ruled on this test and determined, “the district court’s four-factor test is not sufficiently tethered to this statutory language and thus it fails to inform each of the necessary requirements of the statute.”7 The Federal Circuit interpreted the requirement of a “regular and established place of business” to require three elements: “(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.”

The key focus is a place of business that is both regular and established. According

to the Federal Circuit, these elements are statutorily required, and each “must be present” for venue to be proper under the provision.

Forum Shopping

What does TC Heartland and the Federal Circuit’s decision in Raytheon mean for patent forum shopping and the EDTX? At this point it is generally too early to tell.

Unsurprisingly, many think the judges of EDTX will continue to test the Federal Circuit by issuing decisions and interpreting the three-factor test to allow EDTX to continue to receive a disproportionate share of the patent litigation. In the meantime, Delaware (a popular state for incorporation) and the Northern District of California (regular and established place of business for many companies) should see an uptick in patent litigation.

What does all of this mean for Nevada?

Many believe Nevada could also see an uptick in litigation. Nevada is uniquely positioned, because of its friendly corporate laws and subsequent interpretation and a recent influx of Fortune 500 companies moving into the state. In addition, unlike Delaware, the District of Nevada is one of 10 districts to be in the United States Patent Pilot Program. The congressionally created program requires local patent rules, quick resolutions on discovery issues, claim construction, and trial, and dedicated patent judges. As a result, Nevada is generally seen as a good place to litigate patent disputes. ●

— Steven A. Caloiaro is Of Counsel in Dickinson Wright’s Reno office. He is an intellectual property litigator with an emphasis on patent and trademark law. ________________ 5 SUPREME COURT ENDS TEXAS’ GRIP ON PATENT CASES, Daniel Nazer, May 22, 2017, http://cyberlaw.stanford.edu/publications/ supreme-court-ends-texas%E2%80%99-grippatent-cases.

5 Lex Machina, 2015 Year End Trends, https:// lexmachina.com/lex-machina-2015-end-of-yeartrends/ 5 VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1575 (Fed. Cir. 1990).

5 TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1516, 197 L. Ed. 2d 816 (2017) 5 https://www.bna.com/rural-texasjudge-n57982086954/ 6 Raytheon Co. v. Cray, Inc., 2-15-cv-01554, 2017 WL 2813896 (E.D. Tex. Jun. 29, 2017).

7 In re Cray Inc., No. 2017-129, 2017 WL 4201535, at *5 (Fed. Cir. Sept. 21, 2017)

NORTHERN NEVADA L AWJournal

Listings

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Source: 2017 Book of Lists

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Listings

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PIONEERING EXCELLENCE IN LEGAL SERVICES Celebrating 70 Years

Still Climbing Still Pioneering Always Innovating #PIONEERINGINNOVATION Celebrating the 70th anniversary of its founding in 1947, Holland & Hart is a full-service law ďŹ rm that today has approximately 500 lawyers across eight states and in Washington, D.C. delivering integrated legal solutions to regional, national, and international clients of all sizes.

We serve clients in a diverse range of industries, including gaming, aerospace, energy and resources, food and beverage, and technology, communications, and media. For more information, visit www.hollandhart.com or on Twitter: @HollandHart.

Contact: Jim Newman 775.327.3014 jnewman@hollandhart.com 5441 Kietzke Lane, Suite 200, Reno, NV 89511 377 South Nevada Street, Carson City, NV 89703

www.hollandhart.com