Businesses enter into contracts each and every day. Contracts are formed when customers make purchases, when suppliers deliver materials, or when contractors place orders. Contracts are a critical element when it comes to operating a business, and when contracts are not honored, disputes arise.

What Is Required to Form A Contract?

A contract requires five basic requirements, and if any one of the requirements is missing, no legal contract can be formed. The requirements for a contract include:

1. Parties Capable of Entering a Contract. The parties to the contract must be legally capable of entering the contract in the first place. This means that each party to the contract must be fully aware of what they are doing by entering the contract and must understand what the contract means. As a general rule, minors are not legally capable of entering into a contract due to their inexperience, nor are individuals who are considered insane capable of understanding what it means to enter a contract.
2. Offer and Acceptance. In order for a contract to exist, an offer to contract must be made by one party, and the offer must be accepted by another party. The offer must be clear and the acceptance must be definite and unqualified.
3. The parties must exchange something. Each party makes a promise to the other or gives something of value to the other party. The consideration does not necessarily have to be fair or proportional: one party could agree to pay a single dollar in exchange for a motor vehicle, and so long as both parties agree to that arrangement, it can be binding. Consideration could also take the form of not doing something, or foregoing something a party normally would do or has a legal right to do, such as waiving certain rights. This is sometimes referred to as “bargained for exchange” or “bargained for detriment”.
4. Legal Purpose. The contract must be for a legal purpose. To say this another way, the contract cannot violate the law. The parties cannot negotiate terms for the contract that break the law, or are illegal.
5. Mutual Assent. Both parties to the contract must have a meeting of the minds, meaning both parties have a similar understanding of what the contract means, and both agree to be bound by it.

If any of the above requirements is lacking, then it is unlikely that a contract has legally been formed. Furthermore, specific types of contracts might have additional requirements in order to successfully form a valid contract. For instance, for many types of contracts encountered in business, the contract must be made in writing, identifying key terms of the contract, and signed by both parties. For instance, California Civil Code Section 1622 notes that all contracts can be made orally, unless the contract is specifically required to be made in writing by law.

Additionally, certain states may impose additional requirements for a contract to be legally binding and valid, and these laws should be taken into consideration if a specific state’s laws govern the contract.

These elements are fairly straightforward, yet when a contractual issues do arise it can be very difficult for the parties to understand and navigate the legalities in contract law.  Please contact our office if you are facing a contractual issue, dispute, or simply have additional questions relating to contracts.

Not all trademarks are created equal.  Some trademarks are ‘stronger’ in the legal sense than others, meaning that some marks are easier to register and enforce than other marks.  Trademarks need to be unique, distinctive, and not easily confused with other existing trademarks when they are applied to a product or service in order to be registerable with the United States Patent and Trademark Office (“USPTO”).

Trademarks are intellectual property that are classified into one of four categories of marks, based on how legally strong they are. The categories, listed in increasing strength, include: generic marks, descriptive marks, suggestive marks and fanciful or arbitrary marks.

Generic Marks

Generic marks are the weakest category of marks, and are not registerable or enforceable against others who use them. Generic marks are commonly used phrases associated with goods or services. Generic marks can either be generic at the outset of their use or become generic through improper use over a prolonged period of time. For example, using the mark SODA for sweet carbonated beverages would be a generic mark as the public associates the term “soda” with sweet carbonated beverages; the mark is considered generic at the outset of its use in this situation.

Marks that were once valid trademarks can further be reduced to a generic mark if the unauthorized use of the mark goes unpoliced. Distinctive, suggestive or fanciful or arbitrary marks can turn into unenforceable generic marks if the public commonly uses the mark in association with a particular good or service, and the trademark holder fails to police the use of its mark for an extended period of time. Common examples of once valid trademarks turning into generic marks include ZIPPER, ESCALATOR and ASPIRIN.

Descriptive Marks

Registerability and enforceability of descriptive marks is hit-or-miss, and that is why they are considered to be fairly weak marks. These types of marks describe some aspect of the product or service that the mark is being applied to. Descriptive marks fall into two subclasses: merely descriptive, and distinctive. Merely descriptive marks are not registerable, as they merely describe the product or services that the mark applies to (i.e., an image of brooms, vacuums and dusters for a cleaning service). However, a notable exemption allows descriptive marks that acquire distinctiveness to gain trademark protection. Distinctive marks can gain distinctiveness through extensive use in commerce for a period of 5 years or more.

Suggestive Marks

Suggestive marks are fairly strong marks, as they suggest something about the product or service to which they are applied, but do not describe the product or service. Some examples of suggestive marks include RAVISHING for a cosmetic line (suggesting that the make-up will make the user look ravishing).

Fanciful or Arbitrary Marks

The strongest marks are ones that are fanciful or arbitrary. These types of marks are easy to register and enforce based on their uniqueness.

• Fanciful marks are marks that are created from imagination. They have no definition in the dictionary, are completely unique, and are unusual. An example of a fanciful marks would be CHEMZA for use with selling hats. It is a made up word, with no significance other than being used as a trademark for selling hats.
• Arbitrary marks are marks that generally are a known thing applied to a completely different thing or service. Good examples of arbitrary marks include the mark KITTENS for use with hair accessories or MAJESTIC for weight loss management services.

For more information on the strength/distinctiveness of your mark, how to register a trademark or should you need advisement in an intellectual property matter, please reach out to our office.

When one successful company merges with or acquires another successful company, the deal attracts a lot of attention, particularly when the players are big names in high-profile industries. The growth potential of each entity can be enormous.

But what can also be profitable are strategic “carve-outs,” which occur when assets are “scooped out” of an ailing company. You may be able to purchase just the piece of the company that you are interested in, or you may be able to buy the entire company and then sell off the assets that you don’t care to keep.

There is more inherent risk with carve-outs because you are dealing with something that is currently troubled financially. The flipside is that these assets often come at a reduced price.

When looking to purchase a carve-out, it is imperative to look at every piece of the company’s financial puzzle and be sure the asset can be turned around successfully. Thorough analysis is paramount.

Some of the questions you want to ask yourself:

-From the ground up, what problems did the asset or company face?

-What does the expense structure look like?

-How long will it take to make the necessary adjustments for the company or asset to become profitable?

-Is the risk worth the potential reward?

Just because an entire company or asset is not performing well doesn’t mean it is worthless. Perhaps the asset simply needs a shift in its business strategy or a minor restructuring of its finances to put it in the black.

When looking for a carve-out, the best bets are within industries that you have experience with or carry the potential for “synergy” with your current business. This can save a lot of money and make the deal more profitable in the end. For example, if you manufacture household goods, you would do best to purchase a product that can be easily integrated into your current operation. Because you are purchasing a troubled asset, it makes little sense to take more risks than necessary.

While companies seeking carve-outs usually look to their local competition, sometimes it makes sense to go beyond your own borders, too, particularly in today’s challenging economic climate. To stay competitive and to diversify in tough times, it may make sense to expand to a global market. Of course, that carries with it a whole host of added legal requirements.

If you are a company looking to “carve-out” a competitor’s assets, it is important to speak with an experienced attorney.

Anthony Spotora is a Los Angeles entertainment lawyer and Los Angeles business attorney. To learn more, visit Spotoralaw.com.

If you are serious about the music you create as a composer, you should be serious about music licensing.

Music is everywhere in the world of entertainment: Movies, television, radio advertisements and commercials. There is always a need for top-notch songs and artists.

“For an upcoming composer, licensing music is a vital step in growing a career,” said Anthony Spotora, a Los Angeles-based entertainment and business lawyer. “Licensing music means that your creation is not only protected from illegal use but can also bring a source of income and bigger name recognition. If the people behind a commercial or feature film like your composition, for instance, they will request a music license for the piece.”

While music licensing can be lucrative, it is important to become educated about the process and to receive adequate representation to secure the best deals for oneself.

There are several options for music licensing. One of the best-known options is to register and become a member of ASCAP, BMI or SESAC, which are also known as performing rights organizations (“PRO”).

Such companies collect millions of dollars annually for composers and publishers for so-called performance royalties, but you must be registered as a member to see this income.

“Performing rights organizations act as middlemen, essentially,” Spotora said. “When a song is  ‘performed’ – this includes usage in commercials, airplay, etc. – the user pays the PRO rather than the copyright holder directly. The copyright holder is then paid a royalty by the PRO.”

A separate option is to connect with a publishing company. The publisher will handle issues such as music licensing, collecting royalties and negotiating licensing figures. If your publisher works hard and is well-connected, it can generate serious income for you as a composer and catapult your career to new heights.

If you are a composer, it is important you understand how to properly protect your music as well as secure the most desirable music licensing deals. For questions about legal matters pertaining to music licensing, contact an experienced entertainment attorney.

Anthony Spotora is a Los Angeles entertainment lawyer and Los Angeles business attorney. To learn more, visit Spotoralaw.com.

In today’s economic downturn, more and more businesses may be looking to alter their business models. Such a plan for change is often referred to as a corporate turnaround strategy.

With revenue streams suffering, it can be difficult to figure out what to do when your business is experiencing such disappointment. But with the few tips below, it is possible to develop a plan that will help you identify problems and alter the course of your business for the better.

1. If your business is experiencing problems and feels like it is in freefall, the first step to take before you do anything else is to seek stabilization. Take a look at what assets are critical for the survival of both the company and its ownership and then protect and preserve those assets.
2. Next, you need to undertake a lengthy and comprehensive identification period. You need to get back to finding out what your business is all about. What are the core values that your company holds? Who are your main customers, and are you continuing to provide them with goods or services that they want? What do you really stand for? Have you gotten away from your business principles?
3. Once you have answered these questions, you need to make an honest list of the core problems with your business. Seek input from not only management, but staff, too. What processes are counterproductive? What uncritical functions need to be scaled back? Remove the excess. Perhaps layoffs need to take place. Perhaps entire departments need to be scaled back. If it doesn’t fit with the core values of your business, it probably needs to go.
4. Put together an implementation plan for making these changes. Provide specifics on how these changes will be implemented. Develop a timetable for taking certain steps. Eliminate the chance of chaos by carefully explaining how the restructuring will take place.
5. Now you are ready for the actual restructuring. It will be all-important to follow the specified steps in your implementation plan.
6. Review your restructuring plan periodically and make updates and tweaks as necessary.

Undertaking a corporate turnaround can be a complex and stressful process. If your business is looking to complete a turnaround, it may also be helpful to hire a consult or an experienced corporate attorney who can offer a fresh set of eyes.

Anthony Spotora is a Los Angeles business attorney, intellectual property lawyer and entertainment lawyer.  To learn more, visit Spotoralaw.com.

Intellectual property is a complicated aspect of law, to be sure. It encompasses, among other things, copyrights and trademarks, and is intended to protect a variety of “creations of the brain.”

Copyright does not protect ideas, rather, but original literary and artistic works, musical pieces, discoveries, inventions, logos, designs, architectural creations, photographs and the like. The term “intellectual property” wasn’t used until the 1800s, though the foundation for the legal protection of intellectual property began centuries ago.

Section 106 of the 1976 Copyright Act generally gives the copyright holder the right to the reproduction of his or her work, to distribute copies or recordings for sale to the public, to perform or display the work publicly and to take other similar actions. The law also details “fair use,” which allows the use of copyrighted material for news reporting, criticism and other special cases.

Intellectual property also includes trademarks. Trademarks are protected by a sign or other indicator that can help distinguish one service-provider or goods manufacturer from another. The sign or indicator can include one or more of the following: a logo, a word or phrase and images. They are protected by the Trademark Act of 1946.

A trademark is essential because it serves to identify a particular business as the source of the service or goods. Registration of a trademark provides federal protection and a bundle of rights; however, use alone can establish common law rights. Those who infringe upon these rights can be subject to penalties.

Trademarks are registered in most countries and are also classified by the International (Nice) Classification of Goods and Services into 45 Trademark Classes. Numbers 1 to 34 concern goods, while numbers 35 to 45 concern services. For a trademark to be registered, it has to be original and cannot be deceptive or similar to trademarks that have already been registered.

Copyrights and trademarks are an essential part of many businesses. And in today’s world, when the rights of creators are being threatened by so many advances in technology, it is important to protect your creations.

If you are looking to file copyright or trademark papers, or believe that someone else has stolen your work or trademark, it is essential that you hire an experienced attorney.

To learn more, visit https://www.spotoralaw.com/

Becoming an S corporation for United States federal income tax purposes can be a very enticing thing to do.

S corporations are unique in that they don’t pay federal income taxes. The incomes and losses are divided among the corporation’s individual shareholders instead. Unlike C corporations, S corporations are not double-taxed through the company’s profits and shareholder dividends, which is perhaps the most important part of S corporation status. Predictably, this can result in substantial income savings.

There are a variety of other benefits a corporation can gain from electing to be treated as an S corporation, including the ability to offset losses against taxable income from other sources. Also, some corporate penalties and the federal alternative minimum tax do not come into play for an S corporation.

It is important to note that while S corporations have many advantages, there are other operational matters that should be considered. Firstly, there are other costs associated to S-Corp election, such as filing an annual S corporation tax return and quarterly and annual payroll tax paperwork. Individual and corporate assets also need to be separated.

Regardless, S corporations are becoming ever-popular in the United States. There were about 725,000 in the United States as of the mid-1980s, yet these numbers grew to more than 3 million by the early 2000s. They are currently the number one type of corporate entity.

But the Internal Revenue Service has had ongoing problems with S corporations, only 25 percent of which are believed to be in compliance. The IRS in recent years has worked to increase the number of taxes collected for S corporations.

The complete S corporation rules are contained in Subchapter S of Chapter 1 of the Internal Revenue Code (sections 1361 through 1379). It is a good idea to consult an experienced attorney to learn the ins and outs, advantages and disadvantages, of becoming an S corporation.

To learn more, visit https://www.spotoralaw.com/.

There are a lot of challenges and unknowns when getting a new business venture off the ground. Am I ready for this launch? How long will it take me to recoup my capital? When will the customers begin rolling in?

If you are operating the business with a partner, one of the things that can save you a lot of headaches later on is putting together a partnership agreement. A partnership agreement clearly outlines each partner’s responsibilities and rights, therefore preventing disagreements in the future. It is not uncommon for disagreements between partners to sink new business ventures, destroy friendships and cause long, drawn-out legal battles.

A partnership agreement can be tailored to each venture’s specification, yet they all should include a section detailing each partner’s individual job duties. Consider life without a partnership agreement: If each party is under the impression that the other person is handling a particular task and it is not completed, the new business venture can crash before it has a chance to get off the ground.

“This legal document can minimize the number of risks that new business ventures face, creating a better chance for success,” said Anthony Spotora, a Los Angeles-based business and entertainment lawyer. “Included in the agreement are specifics on what authority each partner has when it comes to borrowing or lending money, buying supplies, executing lease agreements or entering other types of legal contracts.”

Perhaps certain business transactions can only take place with the consent of both partners. Perhaps Person A exclusively handles the purchasing of supplies while Person B exclusively handles the hiring of new employees. Whatever the arrangement, it is important to make the rules of the game clear to all.

The partnership agreement might also want to include procedures if one partner wants to leave or passes on, how profits will be shared, how an additional partner would be added, management responsibilities, how each partner contributes cash flow, management restrictions and other decision-making protocol.

Each state has a uniform business partnership law, but a partnership agreement can override this law to suit your particular needs. A partnership agreement is a small investment in time and resources that can often mean the difference between success and failure.

There is a lot to consider when putting together a partnership agreement so it is best to consult an attorney with experience in such matters.

To learn more, visit https://www.spotoralaw.com/

Your business has a great name, logo and slogan to stimulate brand recognition. Are those creations copyrightable?

One of the most common questions an intellectual lawyer gets asked relates to copyrighting a brand name, title or a logo. Is it possible to copyright those creations? The short answer is no, and in fact, brand names, short phrases, business names and slogans are explicitly excluded from protection; something that usually comes as a significant disappointment to businesses hoping to protect their identities.

The exclusion is actually quite wide and is applicable to any kind of a title, short ad expression, catch-phrase or name. Let’s say your forte was collecting and writing about recipes the great chefs of the world made famous. There are a lot of people who would copy those recipes and give them a whirl. Isn’t that a copyright violation? In the instance of labels, formulas, recipes and ingredient lists, the answer is they are not protected by copyright. However, the text with the directions, explanations and other descriptions may be eligible for copyright. Tread cautiously.

What about a person who wants to use a name in business/commerce? This is different. Business names, brand names and even slogans may be protected. Trademark law says those things are protected if and when they are used in commerce to make a product stand out from someone else’s. Just to throw a spanner into the works, trademark law also says you have exclusive rights to a trademark if you are the first user (under certain conditions). You would need to speak to an intellectual property lawyer about this to find out how it may apply to your circumstances.

In general, there is some trademark protection available automatically if you use your marks in commerce/business. But you still need to register a trademark federally in order to be covered nationwide.

Just to backtrack a bit, that bestselling cookbook about the world’s greatest chefs has recipes and formulas in it, and they aren’t protected by copyright or trademark law. If you want to protect them, you either have to consider that they are trade secrets, or patent them. To that end, you can only patent a recipe or formula if it is new and not just a combo of things already in existence. Drug makers pull that kind of stunt all the time by combining two existing drugs into one and calling it a new drug.

What about the recipe for Pepsi or Dr. Pepper? While these two drinks are recipes, their origin is a formula and is therefore a trade secret. That means they’re protected indefinitely just so long as no one exposes them. A patent would grant up to 20 years protection. If you don’t know if your product or other good may be copyrightable or qualify for a patent, ask an intellectual property attorney. Finding out now saves potential litigation grief later.

Anthony Spotora is a Los Angeles business attorney, intellectual property and entertainment lawyer.  To learn more, visit Spotoralaw.com.

The creative process that is so closely tied to the success of the entertainment industry often raises questions regarding ownership of creative works. While copyrights usually rest with the creator of a work, certain agreements can be made that transfer these rights to another party.

Generally, copyrights rest with the author or authors who originally create a work. However, the Copyright Act of 1976 contains a major exception, the “Work Made for Hire” Doctrine, which challenges the fundamental principle that copyright ownership lies with the individual who creates the work. In the case of a “Work Made for Hire,” the party for whom the work was completed is considered the author and thus holds the copyrights to the work created rather than the party who actually authored the work.

A Work Made for Hire is not, however, any work that you pay someone to create for you. In addition, it is not any work that you and a developer simply agree is a Work Made for Hire. Rather, “Work Made for Hire” is a specifically defined term in Copyright Law and applies only when certain conditions are met.

Disputes over what constitutes a “Work Made for Hire” often arise over two main issues: the distinction between an employee and a non-employee or independent contractor and whether or not the work in question qualifies as one or more of the nine categories outlined in the Copyright Act.

Section 101 of the Copyright Act defines a “work made for hire” as either:

1.  a work prepared by an employee within the scope of his or her employment; or

2.  a work by a freelancer (independent contractor) which is specially ordered or commissioned for use as a translation, as a part of a motion picture or other audiovisual work, as a contribution to a collective work, as an atlas, as a compilation, as an instructional text, as a test, as answer material for a test, or as a supplementary work such as a preface to a book, a forward or a musical arrangement, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

If the condition of category one is met, copyright ownership belongs to the employer unless an employment contract specifies that the creation of copyrightable material is not within the scope of employment. If the creation of the work falls outside the scope of employment then the employee, and not the employer, would have copyright ownership of the work.

If the conditions in category two are met, then the party hiring the freelancer would own the copyrights. If, however, these requirements are not strictly followed and the work falls outside the nine categories enumerated by the Copyright Act or a written agreement does not exist, then the freelancer would retain copyright ownership in the work.

Los Angeles intellectual property attorney, Anthony Spotora, commented, “It is the lack of a written instrument specifying the intended “Work-Made-for-Hire” relationship with independent contractors that commonly creates “Work-Made-for-Hire” copyright ownership issues. All too often, the intended owner seeks to argue that a “Work-Made-for-Hire” relationship was agreed upon, although it was stated only verbally. Subsequently, authorship of the work at issue ultimately winds up with its creator, rather that the intended owner. The second biggest misperception in freelance arrangements is that a written agreement specifying that a work is intended to be created on a “Work-Made-for-Hire” basis makes it so when, in fact, that is only the case if the work falls into one of the nine exceptions listed in Section 101 of the U.S. Copyright Act.”

Anthony Spotora is a Los Angeles entertainment lawyer and Los Angeles business attorney. To learn more, visit Spotoralaw.com.

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