Have you been struck by Strike 3?
If you've been accused of online piracy or illegal file sharing, you've likely heard of Strike 3 Holdings. The company, known for owning a range of adult entertainment brands, has gained significant attention for its aggressive legal strategy of targeting individuals who allegedly download or distribute its copyrighted content without permission. These lawsuits, which can be both alarming and confusing, are part of a broader trend in the digital age where copyright trolls, like Strike 3, purchase copyright registrations with the main intent of extracting settlements from alleged infringers, rather than to protect or promote the work itself. In a nutshell, companies like Strike 3 want you to infringe since they can make more from an infringer than from a legal purchaser.
What Is Strike 3 Holdings?
Strike 3 is a company that owns several adult entertainment brands, including Vixen, Tushy, and Blacked. As is common in the adult entertainment industry, illegal downloading is rampant, and copyright infringement is a common occurrence. Strike 3 actively monitors the internet for piracy and illegal distribution of its content, often using specialized tools and software to track unauthorized file sharing. If they identify an IP address that is involved in illegal downloading or distribution of their content, they will wait until a specific IP address has downloaded several works then take legal action in the form of lawsuits or settlement demands.
How Do Strike 3 Lawsuits Work?
Strike 3 typically files lawsuits for copyright infringement under the Digital Millennium Copyright Act (DMCA), a U.S. law that gives copyright holders the right to protect their works from unauthorized distribution online. Strike 3 utilizes advanced IP address tracking technology to identify individuals who are downloading or sharing files illegally. When a user downloads or shares content through peer-to-peer (P2P) file-sharing networks (e.g., BitTorrent), their IP address can be captured, even when a VPN is utilized. Strike 3 will track these IP addresses and monitor the illegal distribution of its copyrighted content until several works have been illegally used.
Once Strike 3 identifies an IP address involved in piracy, it will typically file a lawsuit naming the IP address as a “John Doe” defendant and issue a subpoena to the relevant Internet Service Provider (ISP), demanding that the ISP provide the name and contact information of the person associated with that IP address. ISPs are generally required to comply with these subpoenas if the proper legal procedures are followed.
Often the first time an individual becomes aware of the lawsuit is from a notice sent by their ISP informing the individual that their name is going to be disclosed to Strike 3. Once Strike 3 has the individual’s name it uses this as leverage to force a settlement or else Strike 3 will name the individual in the lawsuit and that information will become public knowledge.
What to Do If You Receive a Strike 3 Holdings Settlement Demand?
If you receive a settlement demand letter or are notified that you are being sued by Strike 3, you shouldn’t ignore it, but don’t panic. Strike 3 has filed over 10,000 lawsuits across the country since 2017, so you are not alone. Contact an attorney with experience in copyright law and dealing with copyright trolls such as Strike 3. An attorney can help you understand your legal rights, assess the validity of the claim, and help you navigate settlement discussions or defense strategies if a lawsuit has been filed.
If you don’t respond, Strike 3 may seek a court ruling in their favor, which could result in significant financial penalties that could be mitigated through settlement discussions. In many cases. In many cases, it is possible to negotiate a lower settlement amount than Strike 3 demanded. Your attorney can help you determine whether negotiating a settlement is in your best interest or if it's better to fight the case in court.
In Sum
A Strike 3 lawsuit or settlement demand can be intimidating but remember that they are based on copyright infringement, and there are legal protections in place to defend against unjust claims and methods to potentially mitigate damages. If you’ve been accused of pirating adult content, the best course of action is to seek legal advice, understand your rights, and avoid making hasty decisions. Whether you choose to settle or fight the claim, being informed is your best defense.
---
If you have been struck by Strike 3 do not hesitate to reach out to us. Go to https://long.law/intake to book a free consultation.
What Legal Protections Do You Have While Your Patent Application is Pending?
As an inventor, applying for a patent is a critical step to protect your intellectual property (IP). However, the patent process can take time, and many inventors wonder what protections they have while their application is still under review. More importantly, is it safe to share your invention with potential investors, collaborators, or manufacturers before the patent is finalized? Here’s a breakdown of the legal protections available and the associated risks.
1. Patent Pending: What Does It Mean?
Once you file a patent application with the U.S. Patent and Trademark Office (USPTO), your invention is considered "patent pending." This status signals to the public that you have a claim on the invention and that a formal patent may soon issue. While “patent pending” provides some deterrence, it is important to understand that no actual patent rights exist until the patent is granted. During this pending phase, you do not yet have the full legal authority to prevent others from making, using, or selling your invention.
2. Provisional Patent Application: Additional Leverage
If you filed a provisional patent application, this can buy you extra time to refine your invention or secure funding. A provisional application gives you a 12-month window to file a full non-provisional application while establishing an earlier priority date. Importantly, it allows you to label your invention as "patent pending" during this period. However, like the general patent-pending status, a provisional application alone doesn’t confer the ability to enforce your rights legally against infringers.
3. Legal Protections Against Copying
During the patent-pending phase, you **cannot sue for patent infringement** because your rights under the patent law are not yet established. However, you can take proactive steps to reduce the risk of someone else copying your invention:
- Use Non-Disclosure Agreements (NDAs): If you need to share your invention with investors, potential partners, or manufacturers, using an NDA can help safeguard your ideas. An NDA is a legally binding contract that prevents the recipient from disclosing or using your invention without permission.
- Marking Your Product as Patent Pending: While this marking doesn’t stop others from copying your invention, it can act as a deterrent, indicating that a formal patent might soon issue and create future liability for infringers. Falsely marking a product as "patent pending" when no application has been filed, however, is illegal under U.S. law.
4. The Risk of Public Disclosure
Publicly sharing your invention before a patent is granted presents several risks:
- Loss of Foreign Patent Rights: In many countries, disclosing your invention publicly (e.g., through marketing, public presentations, or sharing on social media) before filing a patent application can disqualify you from receiving a patent. This is because many countries operate on an "absolute novelty" requirement, meaning the invention must not have been publicly available anywhere prior to filing.
- U.S. Grace Period: Fortunately, the U.S. allows a one-year grace period from the date of public disclosure during which you can still file a patent application. But any disclosure before filing could still jeopardize your rights abroad.
- Increased Risk of Copying: Without enforceable patent rights, others may be tempted to copy your invention, especially if they believe they can act without consequence during the patent-pending phase.
5. Best Practices for Sharing Your Invention Before Patent Approval
If sharing your invention is necessary before your patent is finalized, follow these steps to minimize risk:
- Use NDAs: Ensure that all parties who will have access to your invention sign an NDA. This includes potential investors, partners, and manufacturers. NDAs create contractual obligations that protect your proprietary information, even in the absence of enforceable patent rights.
- Keep Detailed Records: Document the development of your invention and any disclosures you make. This can serve as evidence in case there are disputes about the ownership or originality of the invention.
- File Early: To avoid the pitfalls of public disclosure, file your patent application as early as possible, even if it’s a provisional application. This will give you the ability to claim the earliest priority date, which can be crucial in the event of competing claims.
Conclusion: Is It Safe to Share My Invention Before Patent Approval?
While "patent pending" provides some procedural benefits and public notice, it does not give you full legal protection until your patent is granted. Sharing your invention can carry risks, especially if it’s done publicly or without appropriate legal safeguards in place.
The best course of action is to always use NDAs, file for patent protection as early as possible, and carefully manage your disclosures. By doing so, you can mitigate risks and protect your innovation while your patent application is under review.
---
If you have more specific questions about your patent application or need assistance drafting NDAs or navigating public disclosures, feel free to reach out to our legal team for guidance tailored to your situation. Go to https://long.law/intake to book a free consultation.
Navigating New York’s Blue Sky Laws: A Guide for Entrepreneurs
If you're considering raising capital through a Regulation D offering, understanding New York’s blue sky laws is crucial. These state securities regulations are designed to protect investors from fraud while ensuring compliance for issuers. Recent modernization has made compliance easier, but the process still has specific requirements.
### What’s Changed?
New York recently simplified its requirements by eliminating the need for Form 99 and switching to electronic submissions via the Electronic Filing Depository (EFD). Now, only Form D and the associated filing fees are necessary. This change aligns New York more closely with federal and other state requirements, reducing the administrative burden for entrepreneurs seeking funding.
### Why It Matters for Your Startup
While these changes simplify the process, navigating blue sky laws still requires careful attention. Non-compliance can result in penalties or make future fundraising more difficult. For startups, the right legal strategy can streamline the fundraising process and minimize risks.
### Key Considerations
1. **Timely Filings:** Ensure Form D is submitted within 15 days of the first sale in New York.
2. **Electronic Submissions:** Use the EFD platform for faster, more efficient compliance.
3. **Consult a Lawyer:** Even with simplified requirements, blue sky laws can be nuanced. Seeking legal advice helps avoid costly mistakes.
Navigating these regulations effectively can pave the way for a successful capital raise, bringing your entrepreneurial vision closer to reality.
If you’re looking to raise capital for your business, talk to a professional. Even SAFE Notes are considered securities by the SEC and state agencies. Reach out to us for help at https://long.law.intake to set up your consultation with our Corporate Law team.
Understanding SAFE Notes Under Regulation D of the SEC Act
Simple Agreements for Future Equity (SAFEs) have become a popular method for early-stage startups to secure funding without immediately issuing equity. However, it's important for both issuers and investors to understand how these financial instruments are viewed under the Securities and Exchange Commission (SEC) rules, particularly Regulation D and other SEC exemptions. This question came up for a client recently, so it seems like a good opportunity to blog about it.
What Are SAFE Notes?
SAFE notes are investment contracts between a startup and an investor, designed as a simpler alternative to convertible notes. Under a SAFE, the investor provides capital to the startup in exchange for the rights to obtain equity in the company at a future date, usually triggered by a specific event such as an equity financing round, a sale, or an IPO. Unlike convertible notes, SAFEs do not accrue interest and do not have a maturity date. One significant advantage to SAFE notes are that the company does not require a valuation, since the SAFE note is based on how much is invested, not on the value of the shares. The share price and company valuation can be determined at a future date. This arrangement paves the way for friends and family investors, or angel investors, to invest smaller amounts at the pre-seed stage, and then benefit from a VC firm’s later valuation. It also prevents the possibility early investors overpaying or underpaying for shares.
While its true that SAFE notes themselves are very easy to prepare. It is important to understand that SAFE notes are still viewed by the SEC as a security, and is thus subject to SEC regulation, as well as state blue sky laws.
Regulation D and SAFE Notes
Regulation D of the Securities Act of 1933 is a set of rules that provides exemptions from the registration requirements for certain private placements of securities. This regulatory framework is critical for startups and investors utilizing SAFE notes, as it often governs the issuance of these financial instruments.
There are several key provisions within Regulation D that are relevant to the issuance and investment in SAFE notes:
Rule 506(b) allows issuers to raise an unlimited amount of capital from accredited investors (and up to 35 non-accredited, sophisticated investors) without public solicitation or advertising. Issuers must provide detailed disclosure documents to non-accredited investors.
Rule 506(c) permits issuers to openly solicit and advertise their offerings, provided that all investors in the offering are accredited investors and the issuer takes reasonable steps to verify their accredited status.
SAFE notes issued under these exemptions must comply with the specific requirements of Regulation D, including restrictions on solicitation, investor accreditation, and filing requirements with the SEC.
Understand that there are other exemptions as well. But as this is meant to be a short post, the true takeaway here is that SEC compliance is a requirement for SAFE note issuances.
Is the SEC likely to kick down your door and raid your office if you offer Uncle Kenny a SAFE note for $5,000 when he invested in your company at launch? Probably not. But, when Uncle Kenny’s SAFE note is inherited by Cousin Steve, and Cousin Steve needs cash and wants to know why he can’t get his money back, it is helpful to know that you have complied with all relevant laws when you issued the SAFE note. It’s also a good look for VC firms you are working with, if they know that your current investors were onboarded correctly.
It is important to remember that at the end of the day, the purpose of getting investments is to build a strong company. Strong companies comply with regulations.
Compliance and Considerations
To ensure compliance with Regulation D when issuing SAFE notes, startups must adhere to several important considerations:
Investor Accreditation: Startups must have a reasonable belief that all investors meet the criteria for accreditation, especially under Rule 506(c) offerings.
Form D Filing: Issuers must file a Form D with the SEC after the first sale of securities, providing essential details about the offering.
State Securities Laws: In addition to federal regulations, issuers must be mindful of the securities laws in each state where investors reside, which may require additional filings or compliance measures.
Information Rights: While not a requirement of Regulation D, providing information rights to investors can foster transparency and confidence, particularly for non-accredited investors involved in a Rule 506(b) offering.
Conclusion
SAFE notes offer a flexible financing tool for startups, but their issuance is not free from regulatory scrutiny. Compliance with Regulation D is essential for legally raising capital through SAFE notes, protecting both the startup and its investors. As with any legal financial instrument, consulting with legal counsel knowledgeable in securities law is advisable to navigate the complexities of Regulation D and ensure that all regulatory requirements are met.
This blog post provides a general overview and should not be considered legal advice. Each situation is unique, and the legal landscape is subject to change. For specific advice regarding your circumstances, set up a consultation with us to discuss. You can fill out our intake form HERE.
What is the Corporate Transparency Act and What Do I Need To Do To Comply?
Just in case small business owners and startups did not already have enough to do, the United States government passed the Corporate Transparency Act (“CTA”), which was enacted to combat money laundering, financial fraud, and other illicit activities that can hide behind anonymous shell companies. At its core, the CTA requires certain businesses to disclose their beneficial owners—the individuals who ultimately own or control the company—to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the U.S. Department of the Treasury. Below is a run down of what is involved in compliance. It’s a relatively light lift, but I think I can speak for most of my clients in saying that small businesses (like mine and yours) weren’t looking for more things to put on our “to-do” lists.
If you would like us to prepare this disclosure for your business, we’re happy to help. For current and former clients, contact us directly at info@long.law. New and prospective clients should go to https://long.law/intake to begin the client intake process and schedule a brief consultation.
Who Needs to Comply?
To determine whether your company must file a report under the CTA, you must first determine if it is a "reporting company" under the statute. There are two types of reporting companies, a “domestic reporting company” and a “foreign reporting company”.
A "domestic reporting company" means any entity that is "(A) a corporation, (B) a limited liability company, or (C) created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe." 31 C.F.R. § 1010.380(c)(1)(i).
A "foreign reporting company" means any entity that is "(A) a corporation, limited liability company or other entity, (B) formed under the law of a foreign country, and (C) registered to do business in any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe." 31 C.F.R. § 1010.380(c)(1)(ii).
However, there are exemptions for entities that operate in heavily regulated industries, such as banks, credit unions, and insurance companies, among others. Furthermore, the CTA exempts “large operating companies”, which it defines as companies that employ more than 20 full-time employees, maintain a physical office in the U.S., and filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales, as defined by the statute.
Domestic reporting companies created before January 1, 2024, and foreign reporting companies that became foreign reporting companies before January 1, 2024, must file their reports by January 1, 2025. Any entity that becomes a reporting company on or after January 1, 2024, must file a report within 30 calendar days after the reporting company has been registered to do business.
Key Requirements for Compliance
1. Disclosure of Beneficial Ownership: Eligible entities are required to provide FinCEN with information about their beneficial owners, including their name, birth date, address, and an identifying number from an acceptable document (e.g., a passport or driver’s license).
2. Reporting Updates: Any changes to beneficial ownership must be reported to FinCEN within a specified timeframe to ensure records are current.
3. Record Retention: Entities must maintain accurate records of the information provided to FinCEN for a certain period after the entity dissolves or terminates.
Penalties for Non-Compliance
Failure to comply with the CTA can result in significant penalties, including a $500 per day fine up to a maximum of $10,000. A willful failure to file a report or an intentional filing of inaccurate information is punishable as by up to two years imprisonment. A willful violation in combination with violations can result in up to ten years imprisonment.
Conclusion
The Corporate Transparency Act marks a new era in corporate governance and transparency, with a clear aim to enhance the integrity of the business environment in the U.S. While compliance may seem daunting at first, understanding your obligations and taking proactive steps to meet them can ensure that your business not only complies with the law but is also positioned to flourish in a more transparent market.
Please note that New York also passed a similar statute, the New York LLC Transparency Act, which was signed into law December 22, 2023 and goes into effect December 22, 2024.
Should you have any questions or require assistance with ensuring your business complies with the Corporate Transparency Act, current and former clients should contact us directly at info@long.law. New and prospective clients should go to https://long.law/intake to begin the client intake process and schedule a brief consultation.
Open Source Licenses: Fast Facts
For a software license to be certified as open source by the Open Source Initiative (OSI), it must meet the ten criteria set forth in the Open Source Definition. The Open Source Definition is a document created by OSI to maintain uniformity across the open source projects.
Most software developers rely on one of the most common OSI-certified open source licenses. These licenses possess variations making some more suitable for certain projects than others. This makes choice of license a strategic decision for a developer and their company.
First, it is important to understand the distinction between the two major categories of open source licenses: copyleft, and permissive. This level of classification refers to whether a modification of open source code is subject to the same license requirements as the original source code, and if so, to what extent. This may limit the user’s choice of license in their modification of a particular open source project.
Copyleft (More restrictive)
Any modifications to open source software under a copyleft license must be kept open source and may even be subject to the exact same license requirements as the original software.
Permissive (Less restrictive)
Modifications to open source software under a permissive license do not have to be kept open source and only require attribution to the original software.
When given a choice of which license, Companies largely prefer permissive licenses and they are among the most popular since there more freedom associated with software created under this type of license. Copyleft licenses, however, are preferable in circumstances where a developers wishes to promote development and improvement of their code by other developers.
Below are the five of the most popular OSI licenses, and some of their requirements/features:
GNU General Public License Version 3 (GPL v3)
Most Strict Copyleft License
User can do almost anything with the original code, but any modifications/uses must also be made available to others under the same GPL.
On any use or modification of the original source code must:
include a copy of the full license text
state all significant changes made to the original software
make available the original source code when you distribute any binaries based on the licensed work
include a copy of the original copyright notice
Allows the original developer the most control over their original code
Mozilla Public License 2.0 (MPL 2.0)
Least Restrictive Copyleft License
User can do almost anything with the original code, but must meet certain requirements to have choice of license
If user wants to distribute modifications made directly to the original code within the same file, the modification must:
Make the source code (including modifications) available under the same license as the original (MPL 2.0) and abide by the same restrictions
Provide notice of the MPL-License
If user wishes to distribute a modified code based on the original code, but keeps the modifications in a separate file, the user must:
Identify the MPL-licensed portions of the source code (including explicit notice that these portions are made available under the terms of the MPL)
Inform recipients how they can obtain the original source code
Operates as copyleft, but on a file level, allowing the user greater freedom of choice with respect to licensing their modifications, as long as they are kept separate from the original source code.
Apache License 2.0 (Apache-2.0)
Lowest Risk
User can do almost anything with the original code and has choice of license
On any use, or modification of the original source code user must include:
original copyright notice
A copy of the license
a statement of any significant modifications to the original code
A copy of the NOTICE file, if any, with attribution notes
Includes explicit patent grant
3-Clause Berkeley Software Distribution License (BSD 3- Clause)
Most Similar to MIT (but with stricter attribution restrictions)
User can do almost anything with the original code and has choice of license
On any use, or modification of the original source code user must include:
Original copyright notice
Full text of the license
Prohibits the use of the owner’s name for promotion of modifications/derivatives
MIT License (MIT)
Most Popular & Least Restrictive
User can do almost anything with the original code and has choice of license
On any use, or modification of the original source code user must include:
original copyright notice
copy of the license
Uses simple language that is easiest to understand
Small Businesses Will Be Required To Comply With The Corporate Transparency Act Starting In January 2024.
With little fanfare or media coverage, Congress passed the Corporate Transparency Act of 2020 (the “CTA”) as part of the William M. Thornberry National Defense Authorization Act for Fiscal Year 2021. Setting aside the very real question of why our republic names its defense spending bills after people, and at what point those bills will start being named after their corporate sponsors (e.g., The Home Depot National Defense Auth. Act for Fiscal Year 2027, or the Walmart National Security Act of 2028?), what does the CTA mean for business owners?
The primary change for entrepreneurs is that the CTA requires most U.S. businesses to report basic information about who owns those businesses. Those reporting requirements take effect in January 2024. Any domestic business entity, including corporations, LLCs, LPs, LLPs, PLLCs, business trusts and any other entity “that is created by filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe”, will be required to comply with the reporting requirements. Foreign entities registered to do business in any state or tribal jurisdiction are also subject to the same requirements.
Several entities are exempted from the reporting requirement. These are primarily companies that are already subject to similar requirements under other regulatory rule-sets, e.g., publicly-traded companies, banks, credit unions, municipal corporations, insurance companies, certain brokers and advisers, accounting firms, pooled investment vehicles, non-profits, and, most interestingly “entities that employ more than 20 employees, operate at a physical office in the United States, and filed federal tax returns demonstrating more than $5 million in gross receipts or sales.” In other words, the CTA is aimed at small businesses operating in the U.S.
The CTA applies to companies whether they are newly formed or already existing. For entities formed before Jan 2024, they must report by Jan 1, 2025. For newly-formed entities, they must file within 30 calendar days of receiving notice from the state of creation of the entity.
Reporting will require:
Entity’s full legal name
Trade names
A complete current address
The jurisdiction it was formed in or jurisdiction in which a foreign company first registers
Internal Revenue Service Taxpayer Identification Number and Employer Identification Number
As well as information about each beneficial owner and company applicant of the reporting company:
Full legal name
Date of birth
Current business or residential address
A unique identifying number from an acceptable identification document (i.e., passport, driver’s license, etc.)
This raises unique issues for companies in the cannabis industry, who are state-compliant by are technically operating an illegal business under federal law.
Small companies will now also have the added burden of having to plan for compliance with the CTA on an ongoing basis. Regulations like these have a tendency to expand over time, not contract, so expect that the reporting requirements will continue to grow.
The Long Law Firm intends to work with its clients to assist with compliance of the reporting requirements, and will price CTA reporting into its corporate formation package so that clients need not worry about running afoul of the CTA. Once we have more information about the form to be used for reporting, we will be reaching out to individual clients to handle.
Licensing Agreement Term Sheet: Fast Facts
Licensing is one of the many ways to commercialize Intellectual Property (IP) rights. When licensing use of your IP to another company, it is important to have in mind a predetermined set of conditions under which you are willing to grant the license. A licensing agreement should also always contain a description of the subject matter of the license. This description should include which IP rights/technology the licensor intends to license.
Some of the other essential terms of an IP licensing agreement are listed in the table below and shown as applied to the Sample Agreement:
Sample Agreement:
Foodstuff Manufacturer (Company A) grants Pizza Shop (Company B) an exclusive license to use Company A’s secret recipe Tomato Sauce. This license permits the use of Company A’s sauce only on pizza sold directly to consumers from Company B’s Pizza Shop locations within the state of New York for a period of three years. Company B shall pay Company A a monthly royalty of $2.00/per pizza sold using Company A’s sauce.
Essential Terms
Exclusivity
Exclusivity refers to whether or not a licensee has an exclusive license to use the technology within the scope of the other terms of the license.
In the example, due to the exclusivity, Company B is the only entity that can use Company A’s sauce on Pizza sold within New York during the designated period.
Generally non-exclusive licenses are far less attractive to licensees since the licensor could grant as many licenses as possible to similar companies within the same geographic area, decreasing the competitive value of the IP license to the original licensee. Exclusive licenses, however, should also be approached with caution, and appropriately limited so as to not pose any antitrust issues or unduly limit the licensor from developing their remaining interest in the IP.
Geographic/Territorial Scope
The geographic/territorial scope of a license limits the area in which the licensee is allowed to use the technology.
In the example, Company B can only use Company A’s sauce within New York State.
Craft your geographic scope carefully as licensing your technology to a Company for use within a larger geographic scope than they are currently operating in can limit your ability to license with other companies in those geographic markets.
Term of Use
The term of use of a license is the period of time over which the licensee has permission to use the technology.
In the example, Company B can use Company A’s sauce for a term of three years.
In deciding the term of the license, consider potential future licensing agreements, advances in technology, and the overall trajectory of your company, as well as that of the potential licensee.
Field of Use
The field of use is a limitation on which industry(s) a licensee can use your technology in.
In this example, Company B can only use Company A’s sauce on pizza sold directly to the public from it’s Pizza Shop locations. Company B cannot bottle the sauce and sell to grocery stores under this Field of Use limitation.
It is important to limit the field of use consistent with the needs of the licensee. Your technology could have applications in other fields, and you want to retain the ability to exploit these uses.
Royalties/Fees
Licensing agreements will also include a royalty fee schedule. This schedule will state the basis for determining the amount of royalties and how often they are to be paid out to the licensor. Licensing agreements often include provisions for the payment of a licensing fee which may include the costs associated with negotiating the licensing agreement.
In the example, Company B is to make a monthly royalty payment to Company A in the amount equal to $2.00/per pizza for each pizza sold using Company A’s sauce.
Royalties and fees are a highly technical business decision that should be determined in light of the value of the technology being licensed as well as the business model of the licensee.
This is just a starting point and there are many other terms that should be included like sublicensing permissions, maintenance requirements, remedies, termination, and confidentiality requirements.
If you would like to discuss your licensing term sheet with an attorney at The Long Law Firm, please go to https://long.law/intake to set up a free 30-minute consultation.
The Basics of Licensing
Overview
In the digital age, Intellectual Property (IP) is often a company’s most valuable asset. Understanding how to commercialize your IP can help uncover new potential revenue streams. The obvious way to gain value from Intellectual Property rights is by using them (i.e. using an invention you have created and patented within your business to increase output). Using IP rights often requires extensive efforts and investment. If your company is not in a position to take full advantage of your IP rights, there are still many other methods of monetizing these assets. One of the most prominent alternative methods of commercializing your IP rights is through licensing.
Licensing
Licensing is one of the most common ways that a company can take advantage of its IP assets or even the IP assets of another in order to more efficiently make use of their own. Licensing occurs when one party (the licensor) gives permission to another party (the licensee) to use the first party’s IP rights with respect to a particular IP asset. Usually, the licensor is paid a licensing fee (covering the cost of negotiating the license and other related fees) as well as royalties consistent with a royalty fee schedule negotiated as part of the licensing agreement.
Licenses are NOT a transfer of IP rights; ownership remains with the licensor. Licenses are simply a grant of permission to use these rights under a set of conditions laid out in a licensing agreement.
First, you should take inventory of your IP assets, ensure they meet the requirements for federal/state protection, and prepare a rough valuation of each of your respective assets.
Then, you should determine what form of licensing could prove most advantageous to your company.
There are two different scenarios that take place with respect to IP licensing:
“Out-licensing"- Giving another company permission to use your IP.
Example: Phone Charger Manufacturing Company A licenses use of Company A's patented Wireless Charging invention to Mobile Phone Company B for use within Company B’s Mobile Phones for a designated period of time and within a predetermined scope.
Here, Company A is out-licensing their invention to Company B.
“In-licensing”- Getting permission to use another company’s IP within your business.
Example: Motion Picture Producing Company X licenses the use of Company Z’s novel in Company X’s production of a film based on Company Z’s novel.
Here, Company X is in-licensing Company Z’s novel for use within Company X.
In determining whether to in-license or out-license consider the balance between what value your IP could bring to another company vs. what resources you would need to fully develop and use your IP yourself.
Next, once you have determined whether to in-license or out-license, you should draft a term sheet. In the case of out-licensing, a term sheet will detail the conditions under which you are willing to license your technology (IP) to another company. In the case of In-licensing you will likely be met with a term sheet drafted by the owner of the IP asset you are trying to license, but keep in mind what terms would make sense for you to get the most out of an in-licensing arrangement.
Some of the important terms of a licensing agreement are exclusivity, geographic scope, term of use, field of use, fees/royalties, termination, and the permissibility of sublicensing.
See Licensing Agreement Terms: Fast Facts for more information.
Finally, a licensor and potential licensee should consult with attorneys in drafting and signing a binding licensing agreement. It is important to ensure that the terms of a licensing agreement do have anticompetitive effects that could render the agreement void. It is also important to ensure that a potential licensing agreement does not conflict with any existing licenses.
To talk to an attorney at The Long Law Firm about your IP needs, complete an intake form to set up a free consultation at https://long.law/intake
N.Y. Adult-Use Cannabis Regulation Update!
Breaking news! In an interview of Axel Bernabe, the Office of Cannabis Management’s (“OCM”) Chief of Staff and Senior Policy Director, by John Schroyer of the Green Market Report, it was disclosed that the proposed regulations for adult-use cannabis are being prepared for passage at OCM’s Cannabis Control Board meeting scheduled for May 11, 2023. If the regulations are prepared in time for the May 11th meeting, then they are likely, although not guaranteed, to be published by the end of August this year. Mr. Bernabe projects that adult-use cannabis license applications should be opening a couple of months after the regulations are finalized.
We are likely to see the award of adult-use licenses to applicants as soon as this coming fall! OCM does state that these dates are tentative, but adult-use dispensary licenses are projected to be awarded after Labor Day. If you are someone seeking an adult-use cannabis license, do not delay in preparing yourself and your business for the application process. The proposed regulations currently published are likely to be as close to the final regulations that are to be released in May as possible, enough to rely on in preparing yourself for operation. Call our office today for guidance on your canna-business journey!
What To Do If You’ve Received A Cease And Desist Letter
Last one today, promise: I asked OpenAI to write a blog post about what to do if you receive a cease and desist letter. Here’s what the AI software returned. By the way, all good advice.
“If you receive a cease and desist letter, it can be a scary and intimidating experience. A cease and desist letter is a legal document sent by a person or company to another person or company, demanding that they stop a certain activity or behavior. It is important to take a cease and desist letter seriously and to understand the implications of ignoring it.
The first step is to read the letter carefully and understand what it is asking you to do. It is important to note that a cease and desist letter is not a court order, but it is a warning that legal action may be taken if the demands are not met.
Once you understand the letter, it is important to consult with a lawyer. A lawyer can help you understand the legal implications of the letter and advise you on the best course of action.
If the letter is asking you to stop a certain activity, it is important to comply with the demands. Ignoring the letter could result in legal action being taken against you. If the letter is asking you to do something that you believe is not legally required, you may be able to negotiate with the sender. A lawyer can help you negotiate a resolution that is acceptable to both parties.
Finally, it is important to keep a copy of the letter and any correspondence related to it. This will help you if the sender decides to take legal action against you.
Receiving a cease and desist letter can be a stressful experience, but it is important to take it seriously and to understand the implications of ignoring it. Consulting with a lawyer is the best way to ensure that you are taking the right steps to protect yourself.”
It is worth noting that I had also attempted a blog post on deciding whether to form an LLC or a corporation and OpenAI appeared to give blatenty incorrect information. So, to the extent you’re wondering, yes, I do proof read this stuff and attest that its essentially the same advice I would have given myself.
Over the next few months, I suspect I’ll be using OpenAI to continue to post useful information, and will be working internally to explore what else we can use this technology for.
GDPR predictions from ChatGPT
Here is another AI-written blog post, this time predicting developments in the GDPR for 2023. Comments, questions, cries for help are all welcome:
Human Prompt: Write a blog post about new developments in the GDPR for 2023.
OpenAI Response: “As the European Union’s General Data Protection Regulation (GDPR) enters its fourth year, the EU is already looking ahead to the next round of changes and updates. The GDPR was introduced in 2018 to protect the personal data of EU citizens and ensure that companies and organizations comply with data protection laws. Since then, the GDPR has been updated several times to keep up with the ever-evolving digital landscape.
The EU is now looking ahead to 2023 and the next round of changes to the GDPR. Here’s what we can expect to see in the coming years:
1. Increased Enforcement: The GDPR has already seen a significant increase in enforcement since its introduction in 2018. This trend is expected to continue in 2023, with the EU likely to increase the number of fines and other penalties for companies and organizations that fail to comply with the GDPR.
2. More Focus on Data Security: Data security is a key component of the GDPR, and the EU is expected to focus even more on this area in 2023. Companies and organizations will be expected to take additional steps to protect the personal data of EU citizens, such as implementing stronger encryption and other security measures.
3. Greater Transparency: The GDPR requires companies and organizations to be transparent about how they use and process personal data. In 2023, the EU is likely to introduce new rules that will require companies and organizations to provide even more detailed information about their data processing activities.
4. More Rights for Individuals: The GDPR already gives individuals a number of rights when it comes to their personal data, such as the right to access, rectify, and delete their data. In 2023, the EU is likely to introduce new rights that will give individuals even more control over their data.
The GDPR is an ever-evolving piece of legislation, and the EU is committed to ensuring that it remains up-to-date and effective. With the changes expected in 2023, companies and organizations will need to stay on top of their data protection obligations to ensure they remain compliant.”
Please Welcome Our New AI Overlords…
As an experiment, I asked ChatGPT, a well known AI designed to answer questions and explain the meaning of life to us humans, to explain the future Artificial Intelligence in the legal industry. Below is a message from our new robot overlords:
”The legal industry is one of the oldest and most established industries in the world, and it is no surprise that it is now being disrupted by the emergence of artificial intelligence (AI). AI is transforming the legal industry in a variety of ways, from automating mundane tasks to providing legal advice. In the near future, AI is expected to become an even more integral part of the legal industry, as it continues to evolve and become more sophisticated.
One of the most significant ways AI is transforming the legal industry is by automating mundane tasks. AI can be used to automate document review, contract analysis, and other tedious tasks that are traditionally done by lawyers. This allows lawyers to focus on more complex tasks, such as providing legal advice and representing clients in court. AI can also be used to provide legal advice, as it can analyze large amounts of data and provide insights that would otherwise be difficult to obtain.
AI is also being used to improve the efficiency of legal processes. AI-powered tools can be used to streamline the discovery process, as well as to automate the filing of legal documents. This can help reduce the amount of time and money spent on legal processes, making them more efficient and cost-effective.
Finally, AI is being used to improve the accuracy of legal decisions. AI-powered tools can be used to analyze large amounts of data and provide insights that would otherwise be difficult to obtain. This can help lawyers make more informed decisions and reduce the risk of making mistakes.
Overall, AI is transforming the legal industry in a variety of ways. In the near future, AI is expected to become an even more integral part of the legal industry, as it continues to evolve and become more sophisticated. AI-powered tools will continue to automate mundane tasks, improve the efficiency of legal processes, and provide more accurate legal decisions. As AI continues to evolve, it will become an even more important part of the legal industry.”
So, here it is. This is our firms’ first official instance of AI co-writing a blog post. In the future, I hope to experiment more with ChatGPT and other AI writers to explore what this new technology can really do for the firm and for its clients. I know a lot of lawyers are getting nervous about being replaced by robots, but I’m actually excited. We aren’t facing replacement by robots, we are facing increased efficiency, expanded access to justice, and a geniune increase in what lawyers can do for their clients. The lawyers that choose to stand still while the world evolves around them, yes, they will be replaced. But we are not among those lawyers. This firm was premised on adopting cutting edge technology to make a better law practice, and here is a fantastic opportunity to do so. So…. Off we go! Expect more AI generated blog posts in the near future. And feel free to send suggested topics to info@long.law.
Cheers!
Cease-and-Desist Letters: Necessary or Discretionary?
What is a cease-and-desist letter? Do I have to send a cease-and-desist before filing suit?
A cease-and-desist letter is a commonly used pre-litigation tool for protecting intellectual property rights. The purpose of a cease-and-desist letter is to assert your rights to your intellectual property and to put another party on notice that they are infringing on those rights. Typically, a cease-and-desist letter will request (or demand) that the recipient stop the infringing activity or face legal action. A cease-and-desist letter is not, on its own, a legally enforceable document; however, it may serve as evidence of notice and continued infringement should a lawsuit eventually be filed.
A cease-and-desist is, generally, not required prior to taking other legal action: whether a cease-and-desist is required or optional varies by jurisdiction. Sending a cease-and-desist before taking other action is advisable in most situations for a number of reasons: (1) it puts an infringer on notice of their infringing activity and the consequences of continued infringement, making further infringement an intentional act by the infringer; (2) it provides an opportunity to resolve any dispute amicably, and may even provide an opportunity for licensing your intellectual property to the infringer; (3) it demonstrates to courts that you attempted to resolve the matter with judicial efficiency in mind, i.e., without making unnecessary use of the court’s time and resources; and (4) it may avoid the costly, time-consuming process of litigation.
Cease-and-desists need not be combative in tone. Netflix made headlines in 2017 for a cease-and-desist it sent to the Chicago proprietors of a Stranger Things pop-up bar, which referenced themes from the show in politely (but clearly) requesting they cease infringing on the Stranger Things trademark. [1] The goal of a cease-and-desist is, after all, to protect your intellectual property by getting an infringer to stop the infringing activity: not every circumstance calls for heavy-handedness. Starting with a polite but direct request does not preclude you from taking a more contentious tone—or from filing suit—should the infringing activity continue.
Whatever the tone of your letter may be, a cease-and-desist should be sent promptly upon learning of infringing activity, as it is important to demonstrate that you are actively protecting your rights.
Do you believe another person or business is infringing upon your intellectual property rights? Contact us here to discuss sending a cease-and-desist letter and other ways to protect your rights.
[1] The Atlantic, Not a Regular Cease-and-Desist, A Cool Cease-and-Desist (Sept. 21, 2017).
Section 15 Declarations of Incontestability vs. Standard Trademark
What is an incontestable mark? What is a declaration of incontestability? Should I declare my mark incontestable?
Let’s start with the basics: what exactly is a trademark, anyway? A trademark is “[a] word, phrase, design, or a combination that identifies your goods or services, distinguishes them from the goods or services of others, and indicates the source of your goods or services.” [1] While you acquire certain rights to a mark when the mark is first put into use, registration “[p]rotects the trademark from being registered by others without permission and helps you prevent others from using a trademark that is similar to yours with related goods or services.” [2]
You can only protect your trademark on a national scale by registering your mark with the United States Patent and Trademark Office (“USPTO”)—absent registration, your mark may only be protected in your geographic area. What this means is that if you sell calculators under the registered trademark AweSum calculators, you can prevent others from selling similar products under a similar mark nationwide; however, you likely cannot prevent an antique automotive appraisal service from using a similar mark, since the product is a service rather than a good, and since the service falls into a different “class” than the product you are offering.
A mark may be registered on one of two federal registers as determined by the USPTO: the Principal Register or the Supplemental Register. The Principal Register provides greater protection for marks that have the requisite distinctiveness—this includes marks that are fanciful, arbitrary, suggestive, or inherently distinctive. The Supplemental Register provides less protection and is for marks that have not acquired the distinctiveness requisite to placement on the Principal Register. A mark placed on the Supplemental Register may be moved to the Principal Register once the mark can be shown to be distinctive.
| Strong Trademarks | |||||
|---|---|---|---|---|---|
| Fanciful | Invented words. They only have meaning in relation to their goods or services. For example, Exxon® for petroleum or Pepsi® for soft drinks. | ||||
| Arbitrary | Actual words that have no association with the underlying goods or services. Think of the term "apple." If an apple orchard tried to register the word "apple" as a trademark for the type of apples they grow, that trademark wouldn't be registerable. But, Apple® has been registered as a trademark for computers. Apple® for computers is unique. | ||||
| Suggestive | Words that suggest some quality of the goods or services, but don’t state that quality of the goods or services outright. Consider Coppertone® for sun-tanning products. The trademark gives the impression that using Coppertone® suntan oil will make your skin shimmer like copper. | ||||
| Weak Trademarks or Non-Trademarks | |||||
| Descriptive | Merely describe some aspect of your goods or services without identifying or distinguishing the source of those goods or services. They’re only registrable in certain circumstances, such as your trademark gaining secondary meaning through extensive use in commerce over many years. | ||||
| Generic | Merely the common, everyday name for your goods or services. As such, they do not indicate source and cannot function as trademarks. Therefore, generic trademarks are not federally registrable. | ||||
| Source: [3]. | |||||
Trademarks—even if on the Principal Register—may have their validity contested legally. Such challenges are often a response to a cease-and-desist letter: that is, a letter requesting that someone using a mark similar to or the same as yours cease using the mark in a way that infringes on your exclusive rights. To protect against legal challenges, the owner of a mark on the Principal Register may file a Section 15 Declaration of Incontestability. [4] An incontestable registration “is conclusive evidence (subject to certain statutory defenses) of the validity of the registered mark and its registration; the registrant’s ownership of the mark; and the registrant’s exclusive right to use the registered mark in commerce.” [5]
Continuous use of a mark for five years is required before a declaration of incontestability may be filed. Among other requirements, a Section 15 Declaration of Incontestability “must state that there has been no final decision adverse to the owner’s claim of ownership of the mark for the goods or services, or to the owner’s right to register or maintain registration of the mark[, and] must also state that there is no proceeding involving these rights pending in the USPTO or in a court.” [6] A fee of $200 per class of goods or services must be paid, as well.
The importance of a Section 15 Declaration of Incontestability for trademark owners is that the Declaration creates a presumption of a mark’s validity: in other words, the burden in a court proceeding will be on the other party to demonstrate that your particular trademark is invalid. This presumption may serve to expedite the resolution of—or altogether avoid—claims of invalidity in response to a cease-and-desist letter. At minimum, a Declaration puts the owner of a mark on more solid legal ground to defend against claims of invalidity.
Do you have intellectual property in need of protection? Have you received a challenge to your use of a particular brand or product name? Contact us here to set up a quick call with one of our attorneys.
[1] USPTO, Patent, Trademark, or Copyright.
[2] USPTO, Patent, Trademark, or Copyright.
[3] USPTO, Strong Trademarks.
[4] See 15 U.S.C. §§ 1065, 1115(b).
[5] LexisNexis, Trademark Registrations: Maintenance and Renewal.
[6] LexisNexis, Trademark Registrations: Maintenance and Renewal.
Overview of Looming Federal Data Privacy Legislation
The American Data Privacy and Protection Act (ADPPA), H.R. 8152
Executive Summary
The ADPPA would prohibit covered entities from engaging in at least eight practices:
Collecting, processing, or transferring social security numbers, except when necessary;
Transferring geolocation information to a third party;
Collecting, processing, or transferring biometric information;
Transferring any password, except to a designated password manager or if the transfer is solely for the identification of passwords being re-used;
Collecting, processing, or transferring known nonconsensual intimate images;
Collecting, processing, or transferring genetic information;
Transferring an individual’s aggregated internet search or browsing history; and
Transferring an individual’s physical activity information from a smart phone or wearable device.
Most of these restrictions can be waived through affirmative express consent of the consumer. The bill appears to have bi-partisan support yet was unable to pass in 2022. With a divided congress coming, passage may be even less likely in 2023. Yet, hope springs eternal. Many businesses believe that federal legislation would make navigation of U.S. privacy law significantly less complex, while also protecting consumers more effectively.
Background
On July 20, 2022, the House Energy and Commerce Committee voted 53-2 to advance the American Data Privacy and Protection Act (ADPPA), H.R. 8152, to the full House of Representatives. The ADPPA would create a comprehensive federal consumer privacy framework. Some commentators have noted the bill’s novel compromises on two issues that have impeded previous attempts to create a national privacy framework: whether to preempt state privacy laws and whether to create a private right of action. Both of these issues remain hotly contested as the bill moves forward.
Highlights
Covered Entities. The bill would apply to most entities, including nonprofits and common carriers. Some entities, such as those defined as large data holders that meet certain thresholds and service providers that use data on behalf of other entities (including covered entities, government entities, and other service providers), would face different or additional requirements.
Covered Data. The bill would apply to information that “identifies or is linked or reasonably linkable” to an individual.
“Sensitive” Covered Data. The ADPPA would also provide special treatment to “Sensitive” covered data, which includes information such as government-issued ID numbers (e.g., SSN), private communications, information relating to individuals under age seventeen, and several other categories., “Sensitive” covered data would also include several requirements applicable only to “large data holders” (based on revenues or collection/processing activity). General exceptions exist under the ADPPA for certain types of collection, processing, and transfer, as well as for certain smaller entities in terms of revenues or collection/processing activity.
Excluded data. “Covered data” under the proposed ADPPA does not include de-identified data, employee data, or publicly available information. This is significant, especially if federal preemption remains in the bill, as it would render unenforceable all employee-related requirements in the CCPA except for the obligation to maintain reasonable security measures and the private right of action for data breaches.
Duties of Loyalty. The bill would prohibit covered entities from collecting, using, or transferring covered data beyond what is reasonably necessary and proportionate to provide a service requested by the individual, unless the collection, use, or disclosure would fall under one of seventeen permissible purposes. It also would create special protections for certain types of sensitive covered data, defined as covering sixteen different categories of data. Among other things, the bill would require covered entities to get a consumer’s affirmative, express consent before transferring their sensitive covered data to a third party, unless a specific exception applies.
Transparency. The bill would require covered entities to disclose, among other things, the type of data they collect, what they use it for, how long they retain it, and whether they make the data accessible to the People’s Republic of China, Russia, Iran, or North Korea.
Consumer Control and Consent. The bill would give consumers various rights over covered data, including the right to access, correct, and delete their data held by a particular covered entity. It would further require covered entities to give consumers an opportunity to object before the entity transfers their data to a third party or targets advertising toward them.
Youth Protections. The bill would create additional data protections for individuals under age seventeen, including a prohibition on targeted advertising, and would establish a Youth Privacy and Marketing Division at the Federal Trade Commission (FTC). These additional protections would only apply when the covered entity knows the individual in question is under age seventeen, though certain social media companies or large data holders would be deemed to “know” an individual’s age in more circumstances.
Third-Party Collecting Entities. The bill would create specific obligations for third-party collecting entities, which are entities whose main source of revenue comes from processing or transferring data that they do not directly collect from consumers (e.g., data brokers). These entities would have to comply with FTC auditing regulations and, if they collect data above the threshold amount of individuals or devices, would have to register with the FTC. The FTC would establish a searchable registry of third-party collecting entities and a “Do Not Collect” mechanism by which individuals could request that all registered entities refrain from collecting covered data relating to the individual.
Civil Rights and Algorithms. The bill would prohibit most covered entities from using covered data in a way that discriminates on the basis of protected characteristics (such as race, gender, or sexual orientation). It would also require large data holders to conduct algorithm impact assessments. These assessments would need to describe the entity’s steps to mitigate potential harms resulting from its algorithms, among other requirements. The bill would require large data holders to submit these assessments to the FTC and make them available to Congress on request.
Data Security. The bill would require a covered entity to adopt data security practices and procedures that are reasonable in light of the entity’s size and activities. It would authorize the FTC to issue regulations elaborating on these data security requirements.
Small- and Medium-size Businesses. The requirements the bill would impose are significantly reduced for entities that fit certain criteria under what could be considered the “small business exception.” Businesses fall under the ADPPA’s small business exception if, for the prior three calendar years, they
did not exceed $41 million in average annual gross revenues, or
did not collect or process covered data of more than 100,000 individuals on average annually, or
did not derive more than 50% of their revenue from transferring covered data during any of the prior three calendar years.
This would exempt the business from having to respond to any consumer request (such as a request to produce a copy of the consumer’s data) and from having to hire a data security officer or data privacy compliance officer, as well as from other requirements. The proposed bill leaves room for the FTC to issue regulations providing more clarity on the full scope of this exception.
Enforcement. The bill would be enforceable by the FTC, under the agency’s existing enforcement authorities, and by state attorneys general and state privacy authorities in civil actions. The bill also would give the California Privacy Protection Agency authority to enforce the ADPPA in the “same manner it would otherwise enforce” California’s privacy law, the California Consumer Privacy Act (CCPA).
Private right of action. The bill would create a delayed private right of action starting two years after the law’s enactment, giving covered entities lead time to comply. After the two years is up, injured individuals, or classes of individuals, would be able to sue covered entities in federal court for damages, injunctions, litigation costs, and attorneys’ fees. Individuals would have to notify the FTC or their state attorney general before bringing suit. Before bringing a suit for injunctive relief or a suit against a small- or medium-size business, individuals would be required to give the violator an opportunity to address the violation. The bill also would render pre-dispute arbitration agreements or joint-action waivers with individuals under the age of eighteen unenforceable in disputes arising under the ADPAA.
Preemption. The bill would generally preempt any state laws that are “covered by the provisions” of the ADPPA or its regulations, although it would expressly preserve sixteen different categories of state laws, including consumer protection laws of general applicability and data breach notification laws. It would also preserve several specific state laws, such as Illinois’ Biometric Information Privacy Act and Genetic Information Privacy Act and California’s private right of action for victims of data breaches.
NYS Cannabis Delivery Could Be the Pinnacle of Jumpstarting Adult-Use Retail Sales
New York is likely going to see the start of adult-use cannabis retail sales via courier delivery prior to CAURD dispensaries opening their storefront doors.
The Office of Cannabis Management (“OCM”) announced the new retail delivery system during the November 21st Cannabis Control Board meeting. In a statement made to THE CITY, Aaron Ghitelman, a spokesperson for the OCM explained: “We are allowing adult-use retail dispensary non-storefront delivery as a means of jumpstarting adult-use cannabis product sales.”[1]
OCM’s delivery guidelines now permit[2]:
· Retail licenses to secure a warehouse from which to fulfill delivery orders while building permanent dispensary locations for up to one year;
· Customers to place orders online and by phone only – no in-person sales or pick-up from warehouse options available;
· Customers must pre-pay – no cash payments from the cannabis consumer to the delivery employee are permitted;
· Deliveries can be made by bicycles, scooters, or motor vehicles;
· Consumers must be at least 21 years old with valid identification upon sale and delivery;
· Businesses can have up to 25 full-time delivery staff per business, or the hourly equivalent.
See Conditional Adult-Use Retail Dispensary (CAURD) Delivery Guidelines, Office of Cannabis Management, last updated December 9, 2022.[3]
The new delivery guidance loosens the previous rule that required CAURD licensees to receive their storefronts from the State prior to beginning sales. Licensees are now able to acquire their own locations, provided that the location is approved by the State. Guidelines for the way in which these locations will be approved by the State has yet to be released. The very first businesses among the 36 licensed for CAURD dispensaries are expected to begin delivery sales in the coming weeks, as some licensees have already begun lease negotiations for the warehouse needed to make this delivery system a reality.
Some have opined that OCM’s move towards non-storefront delivery is in response to the Dormitory Authority’s struggle to provide license holders with access to real estate and financing.[4] New York State has yet to fulfill the promise of turnkey storefronts and millions of dollars in start-up loans to CAURD license holders. In fact, it has been reported that the State has only contributed $20 million of its $50 million promised to the Social Equity Fund. An additional $150 million is supposed to come from private investors by way of fund-raising steered by the Dormitory Authority in partnership with Social Equity Impact Ventures, a private investment firm. It remains unclear how much money the Social Equity Fund has raised or how many locations the Dormitory Authority has currently leased.
The Dormitory Authority’s struggle may be the “behind the curtain” reason that OCM has chosen to take a step back from their insistence that CAURD licensees receive their fully built retail storefront locations from the Dormitory Authority through the Social Equity Fund. The provisions regarding delivery not only allow licensees to deliver from warehouses, but it allows them the ability to build their own storefront in their own vision, given that the location complies with the coming regulations. In turn, this grant of independence may lessen the financial burden on the Dormitory Authority when they have less licensees needing State-provided retail storefronts.
Licensees embarking on the warehouse delivery grant of independence are facing new obstacles in their hunt for warehouses; few municipalities have yet to tackle the issue of cannabis zoning.[5] Some licensees have been siting warehouses in commercial districts, but commercial districts are insufficient for retail dispensary storefront locations. Not many municipalities have addressed the issue of where these canna-businesses will be housed in the grand scheme of their community, and many municipalities are looking for guidance on the issue. As zoning is left up to the Towns and Villages who opted into dispensaries and/or on-site consumption lounges, counties and the State have been hesitant to direct these smaller municipalities on how to solve the current zoning issues.
Whether the hurdle is completing the application process to receive the final go-ahead from OCM, negotiating a lease for a commercial warehouse to begin your CAURD retail delivery sales, or figuring out how to secure and build your own retail storefront in compliance with the State’s not yet released regulations (as well as your municipalities zoning regulations), professional advice would be of benefit to you. Having an experienced attorney in your corner can provide your business with the knowledge necessary to advance your head start in the legal cannabis industry. Call our office today for help along your canna-business journey!
[1] NYC Legal Weed Delivery Likely Approved Soon by Cannabis Regulator - THE CITY
[2] Marijuana delivery is now permitted in New York: Here’s what you need to know - silive.com
[3] https://cannabis.ny.gov/system/files/documents/2022/12/caurd-delivery-guidance.pdf
[4] New York Loosens Rules on Locations for Weed Dispensaries - The New York Times (nytimes.com)
[5] ‘A way to expedite’: New regulations in NYS to jumpstart retail cannabis | RochesterFirst
Issuance of the CAURD Licenses Enjoined in Five NYS Regions
On November 10, 2022, U.S. District Court Judge Gary L. Sharpe of the New York Northern District granted a preliminary injunction against the State of New York (“NYS”), the N.Y.S. Office of Cannabis Management (“OCM”), and Christopher Alexander as Executive Director of OCM (collectively the “Defendants”), enjoining the Defendants from issuing any cannabis licenses under the CAURD application program in the following geographic areas: Finger Lakes; Central New York; Western New York, Mid-Hudson; and Brooklyn during the pendency of the litigation commenced by Michigan-based Plaintiff, Variscite NY One, Inc., alleging a violation of the Dormant Commerce Clause.
Plaintiff Variscite NY One, Inc. filed a Motion for Preliminary Injunction and Temporary Restraining Order on October 4, 2022 against the Defendants arguing that the CAURD application program discriminates against interstate commerce. The court agreed, finding that the CAURD application requirements, specifically the rule requiring “significant presence” of the applicant in NYS and the rule requiring the justice involved individual have a NYS marijuana-related conviction, will have a discriminatory effect on out-of-state residents seeking a CAURD license.
The Norther District evaluated whether the discriminatory cannabis law was narrowly tailored to advance a legitimate local purpose, as that would allow this challenged law to survive scrutiny. Unfortunately, Defendants failed to make a showing that the challenged law was narrowly tailored. Plaintiff argued and the court agreed that Plaintiff would be irreparably harmed by being excluded from the NYS retail cannabis market, and that even if it could join at a later date, all advantages to early entrants in the market, such as access to customers who have not developed loyalty to other businesses, will have been claimed. Defendants argued that if the injunction is ordered, the 261 already State licensed cannabis cultivators who have already grown cannabis would face spoilation or diversion into the illicit market and would delay the enactment of the Cannabis Law and Regulations which will allow the illicit market to continue to thrive. Despite this, the court found that the Plaintiff would suffer more egregiously in the absence of the injunction as OCM had not yet begun issuing licenses and as they were not enjoined from issuing licenses to the eight other regions in NYS. Finally, the court found that there is no public interest served by maintaining an unconstitutional policy when constitutional alternatives are available to achieve the same goal.
The grant of this preliminary injunction does not enjoin OCM from issuing CAURD licenses in the following districts: Capital Region; Long Island; Manhattan; Mohawk Valley; North Country; Queens; Southern Tier; and Staten Island. In fact, in a Cannabis Control Board Meeting having occurred on November 21, 2022, OCM issued 36 CAURD licenses to applicants within New York City (excluding Brooklyn), Capital Region, Southern Tier, Mohawk Valley, Long Island, and North Country. Although the current litigation blocked the release of 63 CAURD licenses from the enjoined regions, OCM stuck to its word wherein these 36 CAURD dispensaries are projected to open for business before the new year.
In response to the injunction, OCM made its own motion requesting the modification of the preliminary injunction, or in the alternative, requesting a stay of the litigation pending appeal. OCM’s Director of Operations, Herb Barbot, submitted a supplemental declaration alongside the motion, arguing that because the geographic area covered by the injunction includes a significant amount of license applicants, the injunction is doing more harm than good when OCM only considers geographic locations after the applicant’s first choice in limited circumstances. OCM argues that the preliminary injunction should be narrowed to Plaintiff’s first geographic choice only, the Finger Lakes region. Further, OCM claims that the modification of the injunction is necessary to prevent manifest injustice specifically to the cultivators in the Central New York, Western New York, Mid-Hudson, and Brooklyn regions relying on the CAURD program. These cultivators will have immense difficulty selling their retail harvest product with the injunction as it currently stands.
The Plaintiff here has a chance to oppose OCM’s motion, and the Court will then decide whether to limit the preliminary injunction as requested. OCM has made known that if the Court does not modify the injunction, they will be appealing. We are standing by to see how this litigation will affect not only the currently enjoined regions and their CAURD applicants’ access to dispensary licenses, but also the already licensed cultivators and processors looking to pass their cannabis product down an incomplete supply chain. Inevitably, problems for current licensees and CAURD applicants will arise no matter the outcome of this litigation and having a skilled cannabis professional in your corner can make all the difference when navigating licensing obstacles. Give our office a call if you need guidance or support in your cannabis endeavors!
The Biden Announcement and What This Could Mean for Cannabis Nationwide
On October 6, 2022, President Biden announced three steps he is taking to end the government’s failed approach at cannabis reform.[1] First, President Biden pardoned all prior federal offenses of simple possession charges in an effort to help the thousands of people with cannabis convictions who may be denied employment, housing, or educational opportunities as a result. Second, he urges State Governors to take the same pardon action for State based convictions. Third, President Biden asks the Secretary of Health and Human Services and the Attorney General to review how cannabis is federally scheduled.
President Biden pardoning all minor federal cannabis possession convictions is a necessary step to right the wrongs created by President Nixon’s War on Drugs. This is a sign of good faith. It validates all of the prior expungement efforts focused on achieving this redress. The momentum created by this restitution will encourage a new era of acceptance for cannabis.
President Biden’s third step, in asking the Secretary of Health and Human Services to review the federal scheduling of cannabis, raises questions and concerns. Essentially, there are two ways this review could go: (1) cannabis can be re-scheduled, meaning it would be placed in Schedule 2 rather than Schedule 1 of the Controlled Substances Act; or (2) cannabis can be de-scheduled, meaning it is removed from the Controlled Substances Act altogether.
If the Secretary of Health and Human Services returns an opinion that results in cannabis being re-scheduled to Schedule 2 of the Controlled Substances Act, rather than de-scheduled, state-legal businesses would be offered little no relief from their current struggles operating in a legally gray area. Although re-scheduling cannabis is not likely to change the federal government’s tolerance of state-legal recreational cannabis businesses as they currently operate[2], every medical cannabis program would be required to evolve into licensed and regulated pharmacy programs. Dispensaries and other ancillary businesses selling medical product would be required to become a licensed pharmacy under strict DEA scrutiny. Re-scheduling would not eliminate the issues of Section 280E of the federal tax code, nor would it solve the dichotomy between federal and state law as states do not have the authority to establish their own regulatory policies on Schedule 2 substances.[3]
Some people argue that there is an upside to re-scheduling: that businesses would then be able to receive federal funding to conduct cannabis-related research, and they would have access to federal credit, banking, stock market trading, and interstate commerce[4]…but these perks only come with the businesses that applied for and were granted a Schedule 2 license, not state-legal recreational businesses operating in the same legally gray areas they are forcefully subjected to now.
The better option would be for the Secretary of Health and Human Services to return an opinion that encourages the de-scheduling of cannabis. The de-scheduling of cannabis would give cannabis businesses access to federal credit, banking, private research opportunities with federal oversight, and the States would retain their right to control their own cannabis laws. With cannabis de-scheduled, it would be regulated more akin to alcohol and tobacco rather than pharmaceuticals. De-scheduling cannabis would allow private companies to create original and proprietary formulas of cannabis product that could then be legally tested in FDA-approved controlled clinical trials.[5] Most importantly, de-scheduling cannabis solves the discrepancies between federal and state law precluding the current cannabis industry from truly blossoming.
The clear answer here is the one that would remove the federally illegal perimeter around state-legal cannabis businesses without imposing onerous DEA requirements and numerous other hoops to jump through. If we were to see cannabis become a Schedule 2 substance, we may witness an industry striving for equal access become yet another privilege for the wealthy when only the largest cannabis companies have the resources to receive Schedule 2 licensing. The answer is to de-schedule cannabis to create an open market managed by governmental regulation while allowing the current state-legal medical AND recreational cannabis programs to step out of the legally gray area precluding the market from booming.
Only time will tell whether cannabis will be re-scheduled or de-scheduled, and while you are navigating these gray waters that are the current cannabis industry, do so with a skilled professional behind you. Give our office a call if you have any questions regarding what your cannabis-related business can and cannot do in this current legal landscape.
[1] https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/06/statement-from-president-biden-on-marijuana-reform/
[2] https://www.brookings.edu/blog/fixgov/2016/05/27/clearing-up-misconceptions-about-marijuana-rescheduling-what-it-means-for-existing-state-systems/
[3] https://www.wikileaf.com/thestash/cannabis-schedule-2/
[4] https://mjbizdaily.com/pros-and-cons-of-rescheduling-marijuana/
[5] https://norml.org/marijuana/fact-sheets/how-to-end-marijuana-prohibition-with-regard-to-the-controlled-substances-act/#:~:text=By%20contrast%2C%20descheduling%20cannabis%20would,bringing%20such%20products%20to%20market.
What’s Next for Recreational Cannabis and How to Get There Faster
In a valiant effort to fulfill the promise of making legal purchases of cannabis available in New York State before the end of the year, the Cannabis Control Board and the Office of Cannabis Management have instituted surprising temporary emergency measures. Apparently, it takes longer than projected to create a revolutionary road to cannabis legalization designed to serve the individuals harmed and the communities destroyed by discriminatory enforcement of invidious laws.
Although we are celebrating the start of granting licenses for adult use dispensaries to legally sell cannabis, the final steps of opening legal consumer venues, the envisioned results, will not be substantially accomplished until at least mid-2023. In an effort to combat the delay, specific provisions have been implemented for the conditional adult-use cultivator[1] and dispensary licenses. The emergency measures include:
1. Allowing CAURD licensees to depend upon delivery to sell their product before being supplied with their storefronts by DASNY.
2. Directing adult-use cultivators, not just to grow, but to process, distribute and package consumer ready cannabis flower.
The dispensaries and cultivators are asked to follow the processor, distributor, sales, and delivery regulations to the extent possible. This temporary authority will expire on June 30, 2023.
As of November 21, 2022, 277 conditional cultivator licenses have been approved, and as of the same date, only 33 conditional processor licenses have been granted. There are simply not enough licensed processors or available purchase venues. The cultivators, who have additional tasks to perform, need employees to help with processing. Once the full number of CAURD licenses have been issued and there are not enough physical stores, the future store owner will need help making deliveries. The measures taken to reach the goal of legal sale under a revolutionary law are perhaps more difficult to achieve than hoped.
Advisors to justice people seeking priority points on their applications encouraged them to intern, take classes, and seek ways to gain experience. That opportunity still exists. If you are interested in a license or a job related to selling, packaging, processing, or delivering, you should check out some of the licensed cultivators who are surely looking to hire people willing to work for a temporary period, at least until June, or for as long as the emergency licensing systems are in force. A list of the growers and their locations is available here:
There is room for helping and benefiting from MRTA created activities.
[1]Consolidated Laws of New York, Cannabis Chapter 7-A, Article 4, Section 68-C (NYsenate.gov)