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USA
MetaBirkins NFT found to infringe Hermes trademark
22 März 2023
- Geistiges Eigentum
Summary
Artist Mason Rothschild created a collection of digital images named “MetaBirkins”, each of which depicted a unique image of a blurry faux-fur covered the iconic Hermès bags, and sold them via NFT without any (license) agreement with the French Maison. HERMES brought its trademark action against Rothschild on January 14, 2022.
A Manhattan federal jury of nine persons returned after the trial a verdict stating that Mason Rothschild’s sale of the NFT violated the HERMES’ rights and committed trademark infringement, trademark dilution, and cybersquatting (through the use of the domain name “www.metabirkins.com”) because the US First Amendment protection could not apply in this case and awarded HERMES the following damages: 110.000 US$ as net profit earned by Mason Rothschild and 23.000 US$ because of cybersquatting.
The sale of approx. 100 METABIRKIN NFTs occurred after a broad marketing campaign done by Mason Rothschild on social media.
Rothschild’s defense was that digital images linked to NFT “constitute a form of artistic expression” i.e. a work of art protected under the First Amendment and similar to Andy Wahrhol’s paintings of Campbell’s soup cans. The aim of the defense was to have the “Rogers” legal test (so-called after the case Rogers vs Grimaldi) applied, according to which artists are entitled to use trademarks without permission as long as the work has an artistic value and is not misleading the consumers.
NFTs are digital record (a sort of “digital deed”) of ownership typically recorded in a publicly accessible ledger known as blockchain. Rothschild also commissioned computer engineers to operationalize a “smart contract” for each of the NFTs. A smart contract refers to a computer code that is also stored in the blockchain and that determines the name of each of the NFTs, constrains how they can be sold and transferred, and controls which digital files are associated with each of the NFTs.
The smart contract and the NFT can be owned by two unrelated persons or entities, like in the case here, where Rothschild maintained the ownership of the smart contract but sold the NFT.
“Individuals do not purchase NFTs to own a “digital deed” divorced to any other asset: they buy them precisely so that they can exclusively own the content associated with the NFT” (in this case the digital images of the MetaBirkin”), we can read in the Opinion and Order. The relevant consumers did not distinguish the NFTs offered by Rothschild from the underlying MetaBirkin image associated to the NFT.
The question was whether or not there was a genuine artistic expression or rather an unlawful intent to cash in on an exclusive valuable brand name like HERMES.
Mason Rothschild’s appeal to artistic freedom was not considered grounded since it came out that Rothschild was pursuing a commercial rather than an artistic end, further linking himself to other famous brands: Rothschild remarked that “MetaBirkins NFTs might be the next blue chip”. Insisting that he “was sitting on a gold mine” and referring to himself as “marketing king”, Rothschild “also discussed with his associates further potential future digital projects centered on luxury projects such watch NFTs called “MetaPateks” and linked to the famous Swiss luxury watches Patek Philippe.
TAKE AWAY: This is the first US decision on NFT and IP protection for trademarks.
The debate (i) between the protection of the artistic work and the protection of the trademark or other industrial property rights or (ii) between traditional artistic work and subsequent digital reinterpretation by a third party other than the original author, will lead to other decisions (in Italy, we recall the injunction order issued on 20-7-2022 by the Court of Rome in favour of the Juventus football team against the company Blockeras, producer of NFT associated with collectible digital figurines depicting the footballer Bobo Vieri, without Juventus‘ licence or authorisation). This seems to be a similar phenomenon to that which gave rise some 15 years ago to disputes between trademark owners and owners of domain names incorporating those trademarks. For the time being, trademark and IP owners seem to have the upper hand, especially in disputes that seem more commercial than artistic.
For an assessment of the importance and use of NFT and blockchain in association also with IP rights, you can read more here.
Every employer should manage the risk of employee lawsuits. Many companies believe that they treat their workers well and that their employees are happy. As a result, they believe that they are not at risk of a lawsuit. But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.
Employers should proactively manage this risk instead of hoping lawsuits never come. Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive. It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations. But employers can take steps before a dispute arises to reduce the impact of a lawsuit. I discuss eight such steps below.
First, employers should consider purchasing insurance that may cover employee claims. In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance. These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit. They may also pay the employee the amount he or she demands or that a court awards. Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.
Second, employers should implement and enforce sexual harassment policies. Policies like these discourage the type of behavior that can subject a company to liability. But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.
Third, employers should seriously examine disparities in pay and job roles. If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination. Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination. Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.
Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court. Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them. Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less. But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.
Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue. Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job. But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination. Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.
Sixth, employers should ensure they make consistent decisions. If an employer allows one employee to work from home, other employees may want the same treatment. And if an employer lays one employee off, she may wonder why another employee did not meet the same fate. Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.
Seventh, employers should frequently consult a lawyer they trust when employment issues arise. Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.
And finally, employers should consider settling disputes with employees, even if they are meritless. No company wants an employee to take advantage of them. But lawsuits are often more expensive and a hassle than the cost of a settlement. Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.
Summary
Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.
Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?
- You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
- Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
- The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.
Is the Judgment Debtor Subject to Personal Jurisdiction?
Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.
The Separate Entity Rule
Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.
Bringing Assets into the Jurisdiction
Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.
Takeways:
- plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
- plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.
The COVID-19 pandemic’s dramatic disruption of the legal and business landscape has included a steep drop in overall M&A activity in Q1 2020. Much of this decrease has been due to decreased target valuations, tighter access by buyers to liquidity, and perhaps above all underlying uncertainty as to the crisis’s duration.
For pending transactions, whether the buyer can walk away from the deal (or seek a purchase price reduction) by invoking a material adverse change (MAC) or material adverse effect (MAE) clause – or another clause in the purchase agreement – due to COVID-19 has become a question of increasing relevance. MAC/MAE clauses typically allow a buyer to terminate an acquisition agreement if a MAC or MAE occurs between signing and closing.
Actual litigated cases in this area have been few and far between, as under longstanding Delaware case law[1], buyer has the burden of proving MAC or MAE, irrespective of who initiates the lawsuit. And the standard of proof is high – a buyer must show that the effects of the intervening event are sufficiently large and long lasting as compared to an equivalent period of the prior year. A short-term or immaterial deviation will not suffice. In fact, Delaware courts have only once found a MAC, in the December 2018 case Akorn, Inc. v. Fresenius Kabi AG.
And yet, since the onset of the COVID-19 pandemic, numerous widely reported COVID-19 related M&A litigations have been initiated with the Delaware Court of Chancery. These include:
- Bed, Bath & Beyond suing 1-800-Flowers (Del. Ch. April 1, 2020) to complete its acquisition of Perosnalizationmall.com (purchaser sought an extension in closing, without citing specifically the contractual basis for the request);
- Level 4 Yoga, franchisee of CorePower Yoga, suing CorePower Yoga (Del. Ch. Apr 2, 2020) to compel CorePower Yoga to purchase of Level 4 Yoga studios (after CorePower Yoga took the position that studio closings resulting from COVID-19 stay-at-home orders violated the ordinary course covenant);
- Oberman, Tivoli & Pickert suing Cast & Crew (Del. Ch. Apr 6, 2020), an industry competitor, to complete its purchase of Oberman’s subsidiary (Cast & Crew maintained it was not obligated to close based on alleged insufficiencies in financial data provided in diligence);
- SP VS Buyer LP v. L Brands, Inc. (Del. Ch. Apr 22, 2020), in which buyer sought a declaratory judgment in its favor on termination); and
- L Brands, Inc. v. SP VS Buyer L.P., Sycamore Partners III, L.P., and Sycamore Partners III-A, L.P (Del. Ch. Apr 23), in which seller instead seeks declaratory judgment in its favor on buyer obligation to close.
Such cases, typically signed up at an early stage of the pandemic, are likely to increase. Delaware M&A-MAC-related jurisprudence suggests that buyers seeking to cite MAC in asserting their positions should expect an uphill fight, given buyer’s high burden of proof. Indeed, Delaware courts’ sole finding of a MAC in Akorn was based on rather extreme facts: target’s (Akorn’s) business deteriorated significantly (40% and 20% drops in profit and equity value, respectively), measured over a full year. And quite material to the Court’s decision was the likely devastating effect on Akorn’s business resulting from Akorn’s deceptive conduct vis-à-vis the FDA.
By contrast, cases before and after Akorn, courts have not found a MAC/MAE, including in the 2019 case Channel Medsystems, Inc. v. Bos. Sci. Corp. There, Boston Scientific Corporation (BSC) agreed to purchase Channel Medsystems, Inc., an early stage medical device company. The sale was conditioned on Channel receiving FDA approval for its sole product, Cerene. In late December 2017, Channel discovered that falsified information from reports by its Vice President of Quality (as part of a scheme to steal over $2 million from Channel) was included in Channel’s FDA submissions. BSC terminated the merger agreement in May 2018, asserting that Channel’s false representations and warranties constituted a MAC.
The court disagreed. While Channel and Akron both involved a fraud element, Chanel successfully resubmitted its FDA application, such that the fraudulent behavior – the court found – would not cause the FDA to reject the Cerene device. BSC also failed to show sufficiently large or long-lasting effects on Channel’s financial position. Channel thus reaffirmed the high bar under pre-Akron Delaware jurisprudence for courts to find a MAC/MAE (See e.g. In re IBP, Inc. S’holders Litig., 789 A.2d 14 (Del. Ch. 2001); Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027 (Del. Ch. Apr. 29, 2005); Hexion Specialty Chemicals v. Huntsman Corp., 965 A.2d 715 (Del. Ch. 2008)).
Applied to COVID-19, buyers may have challenges in invoking MAC/MAE clauses under their purchase agreements.
First, it may simply be premature at this juncture for a buyer to show the type of longer-term effects that have been required under Delaware jurisprudence. The long-term effects of COVID-19 itself are unclear. Of course, as weeks turn into months and longer, this may change.
A second challenge is certain carve-outs typically included in MAC/MAE clauses. Notably, it is typical for these clauses to include exceptions for general economic and financial conditions generally affecting a target’s industry, unless a buyer can demonstrate that they have disproportionately affected the target.
A buyer may be able to point to other clauses in a purchase agreement in seeking to walk away from the deal. Of note is the ordinary course covenant that applies to the period between signing and closing. By definition, most targets are unable to carry out business during the COVID-19 crisis consistent with past practice. It is unclear whether courts will allow for a literal reading of these clauses, or interpret them taking into account the broader risk allocation regime as evidenced by the MAC or MAE clause in the agreement, and in doing so reject a buyer’s position.
For unsigned deals, there may be some early lessons for practitioners as they prepare draft purchase agreements. On buyer walk-away rights, buyers will want to ensure that the MAE/MAC definition includes express reference to “pandemics” and “epidemics”, if not to “COVID-19” itself. Conversely, Sellers may wish to seek to loosen ordinary course covenant language, such as by including express exceptions for actions required by the MAC or MAE and otherwise ensure that they comply with all obligations under their control. Buyers will also want to pay close attention to how COVID-19 affects other aspects of the purchase agreement, including seeking more robust representations and warranties on the impact of COVID-19 on the target’s business.
[1] Although the discussion of this based Delaware law, caselaw in other U.S. jurisdictions often is consistent Delaware.
The number of artists in the United States is significant. “Artists” as it is defined for immigration purposes at least. In fact, one of the most common visas is the O-1, also known as the Artist Visa. To be more precise, the O-1 visa is not reserved exclusively for artists, but for all those who can show extraordinary ability in certain fields, such as the arts.
The O-1 visa is destined for people who can demonstrate the following: 1) extraordinary ability in science, education, business, and athletics; or 2) extraordinary ability in the arts. This category is not limited to fine arts, performing arts and visual arts but includes any field of creative activity or endeavor. Photographers, designers, architects, writers and even hairdressers and chefs are all considered artists for immigration purposes and can qualify for an O-1 visa; or 3) extraordinary achievement in the motion picture or TV industries.
The difference among the three categories lies in the standard of proof. The most challenging cases are those for people with extraordinary ability in science, education, business, and athletics because they are reserved only for those who have risen to the very top of their field of endeavor, representing a very small percentage. A less stringent standard of proof is applied to those who try to make a case of extraordinary achievement in the motion picture or TV industries, where it is required that the O-1 visa beneficiary be outstanding, suggesting the beneficiary be well-known and exceptional. Finally, the category for people with extraordinary ability in the arts is the easiest to prove because a level of distinction is sufficient. To show distinction, beneficiaries need to present documentary evidence of their extraordinary ability in a specific field. To sum up, the art category is the broadest and the easiest to prove. As a result, it can be concluded that the United States, at least for immigration purposes, is an artist-friendly country.
There are further differences among the categories in the proof that needs to be presented to the United States Citizenship and Immigration Services (USCIS). More specifically, the first category, which is comprised of people with extraordinary ability in science, education, business, and athletics and grouped under the O-1A caption, is different from the other two (extraordinary ability in the arts and extraordinary achievement in the motion picture or TV industries), grouped under the O-1B caption.
To obtain an O-1A visa, the beneficiary is required to demonstrate that he or she has risen to the very top of his or her field by:
- Evidence that the beneficiary has received a major, internationally-recognized award, such as a Nobel Prize, or
- Evidence of at least (3) three of the following:
- Receipt of nationally or internationally recognized prizes or awards for excellence in the field of endeavor
- Membership in associations in the field for which classification is sought which require outstanding achievements, as judged by recognized national or international experts in the field
- Published material in professional or major trade publications, newspapers or other major media about the beneficiary and the beneficiary’s work in the field for which classification is sought
- Original scientific, scholarly, or business-related contributions of major significance in the field
- Authorship of scholarly articles in professional journals or other major media in the field for which classification is sought
- A high salary or other remuneration for services as evidenced by contracts or other reliable evidence
- Participation on a panel, or individually, as a judge of the work of others in the same or in a field of specialization allied to that field for which classification is sought
- Employment in a critical or essential capacity for organizations and establishments that have a distinguished reputation
On the other hand, to obtain an O-1B visa, the beneficiary will have to show:
- Evidence that the beneficiary has received, or been nominated for, significant national or international awards or prizes in the particular field, such as an Academy Award, Emmy, Grammy or Director’s Guild Award, or
- Evidence of at least (3) three of the following:
- Performed and will perform services as a lead or starring participant in productions or events which have a distinguished reputation as evidenced by critical reviews, advertisements, publicity releases, publications, contracts or endorsements
- Achieved national or international recognition for achievements, as shown by critical reviews or other published materials by or about the beneficiary in major newspapers, trade journals, magazines, or other publications
- Performed and will perform in a lead, starring, or critical role for organizations and establishments that have a distinguished reputation as evidenced by articles in newspapers, trade journals, publications, or testimonials.
- A record of major commercial or critically acclaimed successes, as shown by such indicators as title, rating or standing in the field, box office receipts, motion picture or television ratings and other occupational achievements reported in trade journals, major newspapers or other publications
- Received significant recognition for achievements from organizations, critics, government agencies or other recognized experts in the field in which the beneficiary is engaged, with the testimonials clearly indicating the author’s authority, expertise and knowledge of the beneficiary’s achievements
- A high salary or other substantial remuneration for services in relation to others in the field, as shown by contracts or other reliable evidence.
It is worth noting again that there are two subcategories with different standards of proof within the O-1B: more stringent for people in the motion and television industries (outstanding) and easier to prove for those in the arts (distinction).
With regards to the proof needed, an O-1 case needs to demonstrate and provide evidence through publications, awards, and recommendation letters.
In an O-1 Application, the Petitioner needs to be either a US employer or a US Agent. The first needs to be a person or a business that will exclusively employ the beneficiary. An employment contract or, at least, a summary of the terms of the oral agreement can provide sufficient evidence to demonstrate the employer/employee relationship. On the other hand, a US Agent can be in the relevant field and business as an agent and can file the petition without committing to exclusively employing the beneficiary. In these cases, it will be required to provide an itinerary of planned or proposed events.
The O-1 visa can be granted for the duration of the beneficiary’s participation in the event, up to three years, which can be extended for 1 year if the event is extended. That is, unless… the O-1 visa holder already satisfies the requirements to become a US permanent resident. Indeed, the O-1 visa provides an opportunity to lead to highly sought-after and coveted “Green Card.”
The 2017 Tax Cuts and Jobs Act (the “TCJA”), signed into law by President Trump on December 22, 2017, introduces sweeping changes in U.S. tax law, affecting businesses of all kinds. This Practice Note focuses on a few key provisions of the TCJA particularly relevant to non-U.S. manufacturing corporations with U.S. distribution subsidiaries. These changes in U.S. tax law may impact these companies operate now, as well as future plans for entering the U.S. market.
Federal Corporate Income Tax Rate
- Change: Most significantly, the US federal corporate tax rate has permanently been reduced from 35% to 21%. In addition, the corporate alternative minimum tax (which applied when higher than the regular corporate tax) has been repealed.
- Comment: The reduction of the headline U.S. federal corporate tax rate to 21%, which is a lower rate than in many of the home countries of non-U.S. corporations, will obviously benefit non-U.S. manufacturers with existing U.S. subsidiaries, and may influence those who sell directly into the U.S. (g., through independent distributors) to consider forming US subsidiaries and expanding their U.S. presence.
Interest Deductions
- Change: Under the TCJA, net business interest deductions are generally limited to 30% of “adjusted taxable income,” which is essentially EBITDA (taxable income plus depreciation and amortization deductions) for years 2018-2021 and EBIT (taxable income without adding back depreciation/amortization). Disallowed interest expense is carried forward indefinitely. Before the TCJA, interest was generally deductible when paid or accrued, subject to numerous limitations, including debt/equity ratios and taxable income. U.S. corporations – other than small businesses (average annual gross receipts under $25 million, on an affiliated group basis) – are subject to these limitations.
- Comment: The TCJA’s limitation on interest deductions are designed to protect the U.S. tax base. As a result, non-U.S. manufacturers with existing U.S. subsidiaries, and those planning to establish U.S. subsidiaries, may decide to reduce or limit the amount of debt in their U.S. subsidiaries.
Base Erosion and Anti-Abuse Tax (BEAT)
- Change: Under the TCJA, large U.S. corporations that are part of multinational groups are potentially subject to a new BEAT tax, which is essentially a minimum tax applicable to corporations that seek to reduce their US taxes by claiming large deductions for “base erosion payments” to non-US affiliates. The targeted deductions include royalties, interest and depreciation. However, and of particular significance to non-U.S. manufacturers, the version of the BEAT as finally enacted does not treat inventory costs (cost of goods sold) as base erosion payments. The BEAT generally applies to U.S. corporations that are part of multinational groups with average annual gross receipts of $500 million over the prior three-year period. The tax rate is five percent in 2018, 10% through 2025, and 12.5% thereafter.
- Comment: U.S. corporations with foreign headquarters that may be subject to BEAT may wish to revisit current practices as to purchase and sale of product, license arrangements and the provisions of back-office and other services between foreign parent and U.S. subsidiary.
Net Operating Losses
Net operating losses (NOL) from prior years generally can no longer be carried back to claim refunds. A U.S. company may use NOL carryforwards to offset only up to 80% of its taxable income (with unused NOLs carried forward into future years). Note that NOLs arising in tax years that began on or before December 31, 2017, will remain subject to the prior two-year carryback and twenty-year carryforward rule until their expiration and will also continue to be available to offset 100% of taxable income. As a result, a corporation with pre-TCJA NOLs may be viewed as more valuable than corporations with newer NOLs.
Foreign-derived Intangible Income (FDII)
- Change: The TCJA implements a new tax regime that provides a lower 13.125% U.S. federal income tax rate (rather than the new standard 21% rate) on “foreign-derived intangible income” for U.S. corporations. The special tax rate is effected by granting a 37.5% deduction for a C corporation’s foreign-derived intangible income. Foreign-derived intangible income is, generally, a portion of a C corporation’s income in excess of a threshold return derived from services performed for persons not located in the United States and from sales or licensure of property to non-U.S. persons for consumption outside the United States. The 37.5% deduction is temporary, and for tax years beginning after December 31, 2025, drops to 21.875%, resulting in a U.S. federal income tax rate of 16.406% (rather than the standard 21% rate) on foreign-derived intangible income for those years.
- Comment: FDII should encourage non-U.S. manufacturers to hold intellectual property (IP) in the U.S. and exporting from the U.S, rather than, for example, through a tax-haven entity that licenses the IP to a U.S. subsidiary. This may be particularly of interest to non-U.S. technology-based companies that seek to migrate to the U.S., as their principal market (whether for talent, sales or financing).
Of course, this Practice Note only provides a broad summary of certain highly technical provisions of the TCJA that we think are particularly relevant to non-U.S. manufacturing companies with U.S. distribution subsidiaries. Because they are new (and unclear in certain respects), many open questions remain on which we await further guidance. Please contact me in case you have any questions regarding these matters.
The eSports sector is growing rapidly as illustrated by the following figures:
In 2017, the eSports economy grew to US-$696 million, a year-on-year growth of 41.3%.
Brands invested $517 million in 2017, which is expected to double by 2020.
Worldwide, the global eSports audience reached 385 million in 2017, with 191 million regular viewers.
(cf. https://newzoo.com/insights/trend-reports/global-esports-market-report-2017-light/)
North America continues to be the largest eSports market with revenues of US-$257 million. There is also continual development of eSports in Germany, however. The professional soccer teams of VfL Wolfsburg and FC Schalke 04 have their own eSports teams (http://www.gameswirtschaft.de/sport/esports-fussball-bundesliga/), and the German eSports Federation Deutschland has recently been founded, with the Federal Association of Interactive Entertainment Software (BIU) as a founding member (http://www.horizont.net/marketing/nachrichten/ESBD-E-Sport-Bund-Deutschland-geht-an-den-Start-162957).
In areas where such a lot of money can be made, legal obstacles are never far away. Here, they comprise a wide range of all kinds of different topics.
The initial focus is on copyrights and ancillary copyrights. Soccer stadiums, buildings, and avatars may enjoy copyright protection just as much as the computer program on which the games are based. Another item of discussion is whether eAthletes are to be classified as “performing artists” in accordance with Section 73 German Copyright Act. In addition, the question arises as to who enjoys ancillary copyrights under Section 81 Copyright Act as organizer of eSports events and whether such organizers have the same domiciliary rights as the organizers of a regular sports event.
In terms of trademark and design law, it will have to be discussed to what extent products and brand images represent infringements of the Trademark Act and the Design Act. In the case of brands and trademarks in particular, the question will be to what extent they are design objects or indications of origin.
Finally, there will also be regulatory issues that need to be observed. In addition to the use of cheatbots and doping substances, the main focus will be on the protection of minors and the Interstate Broadcasting Treaty with its advertising restrictions.
In conclusion, one suggestion: keep an eye on the eSports movement! Companies that want to stay ahead of the curve, should deal with the aforementioned issues and all further questions in timely manner.
The author of this post is Ilja Czernik.
One of the commonly discussed advantages of international commercial arbitration over litigation in the cross-border context is the enforcement issue. For the purpose of swifter enforcement of foreign arbitral awards, the vast majority of countries signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
On contrary, there is no relevant international treaty of such scale for the enforcement of foreign court judgements. Normally, the special legal basis, such as agreement on judicial cooperation between two or more countries, needs to be relied upon in order to get a court judgment recognized and enforced in another country. There are quite many countries that do not have such an agreement with China. This includes, among others, US, Germany or the Netherlands.
Interestingly, however, recently the Chinese court in Wuhan enforced the US court judgement rendered by the Los Angeles Superior Court of California in the Liu Li v Tao Li and Tong Wu case. It did so despite the fact that there is no agreement between China and US providing for mutual recognition and enforcement of such judgements. The court in Wuhan found, however, that the reciprocity in recognizing and enforcing the court judgments between China and US was established because of an earlier decision of the US District Court of the Central District of California recognizing and enforcing the Chinese judgement rendered by the Higher People’s Court of Hubei in the Hubei Gezhouba Sanlian Industrial Co., Ltd et. al. v Robinson Helicopter Co., Inc. case.
Interestingly, similar course of action was taken earlier in 2016 when the Chinese Nanjing Intermediate People’s Court enforced the Singaporean judgement relying on the reciprocity principle in the Kolma v SUTEX Group case.
How much does it tell us?
Should we now feel safe when opting for own courts in the dispute resolution clauses in the China-related deals? – despite the fact there are no relevant agreements between China and our country? The recent moves of the Chinese courts are, indeed, interesting developments changing the dispute resolution landscape in a desirable direction and increasing the chances for enforcing the foreign commercial court judgements. Yet, as of today, one should not see them as the universal door-openers for the foreign court judgements in similar situations. Accordingly, rather careful approach is recommended and the other dispute resolution methods securing the safer way of enforcement, like arbitration, should be kept in mind. The further changes remain to be seen.
The author of this post is Monika Prusinowska.
Internationale Vertriebsvereinbarungen | 7 Lektionen aus der Geschichte von Nike
- Geistiges Eigentum
- Markenzeichen und Patente
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Italien
Indien 
The Protection of Community Design in the European Union
- Geistiges Eigentum
- Rechtsstreitigkeiten
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Europa
When is Amazon liable for trademark infringements on its Marketplace?
- e-Commerce
- Geistiges Eigentum
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Europa
-
Italien
Polen 
Italy – The „cross-market“ protection of well-known brands
- Geistiges Eigentum
- Markenzeichen und Patente
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Italien
Mexiko
Deutschland Schreiben Sie an Mattia
USA – How to Manage the Risk of Employee Lawsuits
26 September 2022
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USA
- Beschäftigung
- Rechtsstreitigkeiten
Summary
Artist Mason Rothschild created a collection of digital images named “MetaBirkins”, each of which depicted a unique image of a blurry faux-fur covered the iconic Hermès bags, and sold them via NFT without any (license) agreement with the French Maison. HERMES brought its trademark action against Rothschild on January 14, 2022.
A Manhattan federal jury of nine persons returned after the trial a verdict stating that Mason Rothschild’s sale of the NFT violated the HERMES’ rights and committed trademark infringement, trademark dilution, and cybersquatting (through the use of the domain name “www.metabirkins.com”) because the US First Amendment protection could not apply in this case and awarded HERMES the following damages: 110.000 US$ as net profit earned by Mason Rothschild and 23.000 US$ because of cybersquatting.
The sale of approx. 100 METABIRKIN NFTs occurred after a broad marketing campaign done by Mason Rothschild on social media.
Rothschild’s defense was that digital images linked to NFT “constitute a form of artistic expression” i.e. a work of art protected under the First Amendment and similar to Andy Wahrhol’s paintings of Campbell’s soup cans. The aim of the defense was to have the “Rogers” legal test (so-called after the case Rogers vs Grimaldi) applied, according to which artists are entitled to use trademarks without permission as long as the work has an artistic value and is not misleading the consumers.
NFTs are digital record (a sort of “digital deed”) of ownership typically recorded in a publicly accessible ledger known as blockchain. Rothschild also commissioned computer engineers to operationalize a “smart contract” for each of the NFTs. A smart contract refers to a computer code that is also stored in the blockchain and that determines the name of each of the NFTs, constrains how they can be sold and transferred, and controls which digital files are associated with each of the NFTs.
The smart contract and the NFT can be owned by two unrelated persons or entities, like in the case here, where Rothschild maintained the ownership of the smart contract but sold the NFT.
“Individuals do not purchase NFTs to own a “digital deed” divorced to any other asset: they buy them precisely so that they can exclusively own the content associated with the NFT” (in this case the digital images of the MetaBirkin”), we can read in the Opinion and Order. The relevant consumers did not distinguish the NFTs offered by Rothschild from the underlying MetaBirkin image associated to the NFT.
The question was whether or not there was a genuine artistic expression or rather an unlawful intent to cash in on an exclusive valuable brand name like HERMES.
Mason Rothschild’s appeal to artistic freedom was not considered grounded since it came out that Rothschild was pursuing a commercial rather than an artistic end, further linking himself to other famous brands: Rothschild remarked that “MetaBirkins NFTs might be the next blue chip”. Insisting that he “was sitting on a gold mine” and referring to himself as “marketing king”, Rothschild “also discussed with his associates further potential future digital projects centered on luxury projects such watch NFTs called “MetaPateks” and linked to the famous Swiss luxury watches Patek Philippe.
TAKE AWAY: This is the first US decision on NFT and IP protection for trademarks.
The debate (i) between the protection of the artistic work and the protection of the trademark or other industrial property rights or (ii) between traditional artistic work and subsequent digital reinterpretation by a third party other than the original author, will lead to other decisions (in Italy, we recall the injunction order issued on 20-7-2022 by the Court of Rome in favour of the Juventus football team against the company Blockeras, producer of NFT associated with collectible digital figurines depicting the footballer Bobo Vieri, without Juventus‘ licence or authorisation). This seems to be a similar phenomenon to that which gave rise some 15 years ago to disputes between trademark owners and owners of domain names incorporating those trademarks. For the time being, trademark and IP owners seem to have the upper hand, especially in disputes that seem more commercial than artistic.
For an assessment of the importance and use of NFT and blockchain in association also with IP rights, you can read more here.
Every employer should manage the risk of employee lawsuits. Many companies believe that they treat their workers well and that their employees are happy. As a result, they believe that they are not at risk of a lawsuit. But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.
Employers should proactively manage this risk instead of hoping lawsuits never come. Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive. It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations. But employers can take steps before a dispute arises to reduce the impact of a lawsuit. I discuss eight such steps below.
First, employers should consider purchasing insurance that may cover employee claims. In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance. These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit. They may also pay the employee the amount he or she demands or that a court awards. Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.
Second, employers should implement and enforce sexual harassment policies. Policies like these discourage the type of behavior that can subject a company to liability. But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.
Third, employers should seriously examine disparities in pay and job roles. If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination. Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination. Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.
Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court. Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them. Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less. But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.
Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue. Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job. But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination. Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.
Sixth, employers should ensure they make consistent decisions. If an employer allows one employee to work from home, other employees may want the same treatment. And if an employer lays one employee off, she may wonder why another employee did not meet the same fate. Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.
Seventh, employers should frequently consult a lawyer they trust when employment issues arise. Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.
And finally, employers should consider settling disputes with employees, even if they are meritless. No company wants an employee to take advantage of them. But lawsuits are often more expensive and a hassle than the cost of a settlement. Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.
Summary
Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.
Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?
- You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
- Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
- The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.
Is the Judgment Debtor Subject to Personal Jurisdiction?
Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.
The Separate Entity Rule
Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.
Bringing Assets into the Jurisdiction
Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.
Takeways:
- plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
- plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.
The COVID-19 pandemic’s dramatic disruption of the legal and business landscape has included a steep drop in overall M&A activity in Q1 2020. Much of this decrease has been due to decreased target valuations, tighter access by buyers to liquidity, and perhaps above all underlying uncertainty as to the crisis’s duration.
For pending transactions, whether the buyer can walk away from the deal (or seek a purchase price reduction) by invoking a material adverse change (MAC) or material adverse effect (MAE) clause – or another clause in the purchase agreement – due to COVID-19 has become a question of increasing relevance. MAC/MAE clauses typically allow a buyer to terminate an acquisition agreement if a MAC or MAE occurs between signing and closing.
Actual litigated cases in this area have been few and far between, as under longstanding Delaware case law[1], buyer has the burden of proving MAC or MAE, irrespective of who initiates the lawsuit. And the standard of proof is high – a buyer must show that the effects of the intervening event are sufficiently large and long lasting as compared to an equivalent period of the prior year. A short-term or immaterial deviation will not suffice. In fact, Delaware courts have only once found a MAC, in the December 2018 case Akorn, Inc. v. Fresenius Kabi AG.
And yet, since the onset of the COVID-19 pandemic, numerous widely reported COVID-19 related M&A litigations have been initiated with the Delaware Court of Chancery. These include:
- Bed, Bath & Beyond suing 1-800-Flowers (Del. Ch. April 1, 2020) to complete its acquisition of Perosnalizationmall.com (purchaser sought an extension in closing, without citing specifically the contractual basis for the request);
- Level 4 Yoga, franchisee of CorePower Yoga, suing CorePower Yoga (Del. Ch. Apr 2, 2020) to compel CorePower Yoga to purchase of Level 4 Yoga studios (after CorePower Yoga took the position that studio closings resulting from COVID-19 stay-at-home orders violated the ordinary course covenant);
- Oberman, Tivoli & Pickert suing Cast & Crew (Del. Ch. Apr 6, 2020), an industry competitor, to complete its purchase of Oberman’s subsidiary (Cast & Crew maintained it was not obligated to close based on alleged insufficiencies in financial data provided in diligence);
- SP VS Buyer LP v. L Brands, Inc. (Del. Ch. Apr 22, 2020), in which buyer sought a declaratory judgment in its favor on termination); and
- L Brands, Inc. v. SP VS Buyer L.P., Sycamore Partners III, L.P., and Sycamore Partners III-A, L.P (Del. Ch. Apr 23), in which seller instead seeks declaratory judgment in its favor on buyer obligation to close.
Such cases, typically signed up at an early stage of the pandemic, are likely to increase. Delaware M&A-MAC-related jurisprudence suggests that buyers seeking to cite MAC in asserting their positions should expect an uphill fight, given buyer’s high burden of proof. Indeed, Delaware courts’ sole finding of a MAC in Akorn was based on rather extreme facts: target’s (Akorn’s) business deteriorated significantly (40% and 20% drops in profit and equity value, respectively), measured over a full year. And quite material to the Court’s decision was the likely devastating effect on Akorn’s business resulting from Akorn’s deceptive conduct vis-à-vis the FDA.
By contrast, cases before and after Akorn, courts have not found a MAC/MAE, including in the 2019 case Channel Medsystems, Inc. v. Bos. Sci. Corp. There, Boston Scientific Corporation (BSC) agreed to purchase Channel Medsystems, Inc., an early stage medical device company. The sale was conditioned on Channel receiving FDA approval for its sole product, Cerene. In late December 2017, Channel discovered that falsified information from reports by its Vice President of Quality (as part of a scheme to steal over $2 million from Channel) was included in Channel’s FDA submissions. BSC terminated the merger agreement in May 2018, asserting that Channel’s false representations and warranties constituted a MAC.
The court disagreed. While Channel and Akron both involved a fraud element, Chanel successfully resubmitted its FDA application, such that the fraudulent behavior – the court found – would not cause the FDA to reject the Cerene device. BSC also failed to show sufficiently large or long-lasting effects on Channel’s financial position. Channel thus reaffirmed the high bar under pre-Akron Delaware jurisprudence for courts to find a MAC/MAE (See e.g. In re IBP, Inc. S’holders Litig., 789 A.2d 14 (Del. Ch. 2001); Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027 (Del. Ch. Apr. 29, 2005); Hexion Specialty Chemicals v. Huntsman Corp., 965 A.2d 715 (Del. Ch. 2008)).
Applied to COVID-19, buyers may have challenges in invoking MAC/MAE clauses under their purchase agreements.
First, it may simply be premature at this juncture for a buyer to show the type of longer-term effects that have been required under Delaware jurisprudence. The long-term effects of COVID-19 itself are unclear. Of course, as weeks turn into months and longer, this may change.
A second challenge is certain carve-outs typically included in MAC/MAE clauses. Notably, it is typical for these clauses to include exceptions for general economic and financial conditions generally affecting a target’s industry, unless a buyer can demonstrate that they have disproportionately affected the target.
A buyer may be able to point to other clauses in a purchase agreement in seeking to walk away from the deal. Of note is the ordinary course covenant that applies to the period between signing and closing. By definition, most targets are unable to carry out business during the COVID-19 crisis consistent with past practice. It is unclear whether courts will allow for a literal reading of these clauses, or interpret them taking into account the broader risk allocation regime as evidenced by the MAC or MAE clause in the agreement, and in doing so reject a buyer’s position.
For unsigned deals, there may be some early lessons for practitioners as they prepare draft purchase agreements. On buyer walk-away rights, buyers will want to ensure that the MAE/MAC definition includes express reference to “pandemics” and “epidemics”, if not to “COVID-19” itself. Conversely, Sellers may wish to seek to loosen ordinary course covenant language, such as by including express exceptions for actions required by the MAC or MAE and otherwise ensure that they comply with all obligations under their control. Buyers will also want to pay close attention to how COVID-19 affects other aspects of the purchase agreement, including seeking more robust representations and warranties on the impact of COVID-19 on the target’s business.
[1] Although the discussion of this based Delaware law, caselaw in other U.S. jurisdictions often is consistent Delaware.
The number of artists in the United States is significant. “Artists” as it is defined for immigration purposes at least. In fact, one of the most common visas is the O-1, also known as the Artist Visa. To be more precise, the O-1 visa is not reserved exclusively for artists, but for all those who can show extraordinary ability in certain fields, such as the arts.
The O-1 visa is destined for people who can demonstrate the following: 1) extraordinary ability in science, education, business, and athletics; or 2) extraordinary ability in the arts. This category is not limited to fine arts, performing arts and visual arts but includes any field of creative activity or endeavor. Photographers, designers, architects, writers and even hairdressers and chefs are all considered artists for immigration purposes and can qualify for an O-1 visa; or 3) extraordinary achievement in the motion picture or TV industries.
The difference among the three categories lies in the standard of proof. The most challenging cases are those for people with extraordinary ability in science, education, business, and athletics because they are reserved only for those who have risen to the very top of their field of endeavor, representing a very small percentage. A less stringent standard of proof is applied to those who try to make a case of extraordinary achievement in the motion picture or TV industries, where it is required that the O-1 visa beneficiary be outstanding, suggesting the beneficiary be well-known and exceptional. Finally, the category for people with extraordinary ability in the arts is the easiest to prove because a level of distinction is sufficient. To show distinction, beneficiaries need to present documentary evidence of their extraordinary ability in a specific field. To sum up, the art category is the broadest and the easiest to prove. As a result, it can be concluded that the United States, at least for immigration purposes, is an artist-friendly country.
There are further differences among the categories in the proof that needs to be presented to the United States Citizenship and Immigration Services (USCIS). More specifically, the first category, which is comprised of people with extraordinary ability in science, education, business, and athletics and grouped under the O-1A caption, is different from the other two (extraordinary ability in the arts and extraordinary achievement in the motion picture or TV industries), grouped under the O-1B caption.
To obtain an O-1A visa, the beneficiary is required to demonstrate that he or she has risen to the very top of his or her field by:
- Evidence that the beneficiary has received a major, internationally-recognized award, such as a Nobel Prize, or
- Evidence of at least (3) three of the following:
- Receipt of nationally or internationally recognized prizes or awards for excellence in the field of endeavor
- Membership in associations in the field for which classification is sought which require outstanding achievements, as judged by recognized national or international experts in the field
- Published material in professional or major trade publications, newspapers or other major media about the beneficiary and the beneficiary’s work in the field for which classification is sought
- Original scientific, scholarly, or business-related contributions of major significance in the field
- Authorship of scholarly articles in professional journals or other major media in the field for which classification is sought
- A high salary or other remuneration for services as evidenced by contracts or other reliable evidence
- Participation on a panel, or individually, as a judge of the work of others in the same or in a field of specialization allied to that field for which classification is sought
- Employment in a critical or essential capacity for organizations and establishments that have a distinguished reputation
On the other hand, to obtain an O-1B visa, the beneficiary will have to show:
- Evidence that the beneficiary has received, or been nominated for, significant national or international awards or prizes in the particular field, such as an Academy Award, Emmy, Grammy or Director’s Guild Award, or
- Evidence of at least (3) three of the following:
- Performed and will perform services as a lead or starring participant in productions or events which have a distinguished reputation as evidenced by critical reviews, advertisements, publicity releases, publications, contracts or endorsements
- Achieved national or international recognition for achievements, as shown by critical reviews or other published materials by or about the beneficiary in major newspapers, trade journals, magazines, or other publications
- Performed and will perform in a lead, starring, or critical role for organizations and establishments that have a distinguished reputation as evidenced by articles in newspapers, trade journals, publications, or testimonials.
- A record of major commercial or critically acclaimed successes, as shown by such indicators as title, rating or standing in the field, box office receipts, motion picture or television ratings and other occupational achievements reported in trade journals, major newspapers or other publications
- Received significant recognition for achievements from organizations, critics, government agencies or other recognized experts in the field in which the beneficiary is engaged, with the testimonials clearly indicating the author’s authority, expertise and knowledge of the beneficiary’s achievements
- A high salary or other substantial remuneration for services in relation to others in the field, as shown by contracts or other reliable evidence.
It is worth noting again that there are two subcategories with different standards of proof within the O-1B: more stringent for people in the motion and television industries (outstanding) and easier to prove for those in the arts (distinction).
With regards to the proof needed, an O-1 case needs to demonstrate and provide evidence through publications, awards, and recommendation letters.
In an O-1 Application, the Petitioner needs to be either a US employer or a US Agent. The first needs to be a person or a business that will exclusively employ the beneficiary. An employment contract or, at least, a summary of the terms of the oral agreement can provide sufficient evidence to demonstrate the employer/employee relationship. On the other hand, a US Agent can be in the relevant field and business as an agent and can file the petition without committing to exclusively employing the beneficiary. In these cases, it will be required to provide an itinerary of planned or proposed events.
The O-1 visa can be granted for the duration of the beneficiary’s participation in the event, up to three years, which can be extended for 1 year if the event is extended. That is, unless… the O-1 visa holder already satisfies the requirements to become a US permanent resident. Indeed, the O-1 visa provides an opportunity to lead to highly sought-after and coveted “Green Card.”
The 2017 Tax Cuts and Jobs Act (the “TCJA”), signed into law by President Trump on December 22, 2017, introduces sweeping changes in U.S. tax law, affecting businesses of all kinds. This Practice Note focuses on a few key provisions of the TCJA particularly relevant to non-U.S. manufacturing corporations with U.S. distribution subsidiaries. These changes in U.S. tax law may impact these companies operate now, as well as future plans for entering the U.S. market.
Federal Corporate Income Tax Rate
- Change: Most significantly, the US federal corporate tax rate has permanently been reduced from 35% to 21%. In addition, the corporate alternative minimum tax (which applied when higher than the regular corporate tax) has been repealed.
- Comment: The reduction of the headline U.S. federal corporate tax rate to 21%, which is a lower rate than in many of the home countries of non-U.S. corporations, will obviously benefit non-U.S. manufacturers with existing U.S. subsidiaries, and may influence those who sell directly into the U.S. (g., through independent distributors) to consider forming US subsidiaries and expanding their U.S. presence.
Interest Deductions
- Change: Under the TCJA, net business interest deductions are generally limited to 30% of “adjusted taxable income,” which is essentially EBITDA (taxable income plus depreciation and amortization deductions) for years 2018-2021 and EBIT (taxable income without adding back depreciation/amortization). Disallowed interest expense is carried forward indefinitely. Before the TCJA, interest was generally deductible when paid or accrued, subject to numerous limitations, including debt/equity ratios and taxable income. U.S. corporations – other than small businesses (average annual gross receipts under $25 million, on an affiliated group basis) – are subject to these limitations.
- Comment: The TCJA’s limitation on interest deductions are designed to protect the U.S. tax base. As a result, non-U.S. manufacturers with existing U.S. subsidiaries, and those planning to establish U.S. subsidiaries, may decide to reduce or limit the amount of debt in their U.S. subsidiaries.
Base Erosion and Anti-Abuse Tax (BEAT)
- Change: Under the TCJA, large U.S. corporations that are part of multinational groups are potentially subject to a new BEAT tax, which is essentially a minimum tax applicable to corporations that seek to reduce their US taxes by claiming large deductions for “base erosion payments” to non-US affiliates. The targeted deductions include royalties, interest and depreciation. However, and of particular significance to non-U.S. manufacturers, the version of the BEAT as finally enacted does not treat inventory costs (cost of goods sold) as base erosion payments. The BEAT generally applies to U.S. corporations that are part of multinational groups with average annual gross receipts of $500 million over the prior three-year period. The tax rate is five percent in 2018, 10% through 2025, and 12.5% thereafter.
- Comment: U.S. corporations with foreign headquarters that may be subject to BEAT may wish to revisit current practices as to purchase and sale of product, license arrangements and the provisions of back-office and other services between foreign parent and U.S. subsidiary.
Net Operating Losses
Net operating losses (NOL) from prior years generally can no longer be carried back to claim refunds. A U.S. company may use NOL carryforwards to offset only up to 80% of its taxable income (with unused NOLs carried forward into future years). Note that NOLs arising in tax years that began on or before December 31, 2017, will remain subject to the prior two-year carryback and twenty-year carryforward rule until their expiration and will also continue to be available to offset 100% of taxable income. As a result, a corporation with pre-TCJA NOLs may be viewed as more valuable than corporations with newer NOLs.
Foreign-derived Intangible Income (FDII)
- Change: The TCJA implements a new tax regime that provides a lower 13.125% U.S. federal income tax rate (rather than the new standard 21% rate) on “foreign-derived intangible income” for U.S. corporations. The special tax rate is effected by granting a 37.5% deduction for a C corporation’s foreign-derived intangible income. Foreign-derived intangible income is, generally, a portion of a C corporation’s income in excess of a threshold return derived from services performed for persons not located in the United States and from sales or licensure of property to non-U.S. persons for consumption outside the United States. The 37.5% deduction is temporary, and for tax years beginning after December 31, 2025, drops to 21.875%, resulting in a U.S. federal income tax rate of 16.406% (rather than the standard 21% rate) on foreign-derived intangible income for those years.
- Comment: FDII should encourage non-U.S. manufacturers to hold intellectual property (IP) in the U.S. and exporting from the U.S, rather than, for example, through a tax-haven entity that licenses the IP to a U.S. subsidiary. This may be particularly of interest to non-U.S. technology-based companies that seek to migrate to the U.S., as their principal market (whether for talent, sales or financing).
Of course, this Practice Note only provides a broad summary of certain highly technical provisions of the TCJA that we think are particularly relevant to non-U.S. manufacturing companies with U.S. distribution subsidiaries. Because they are new (and unclear in certain respects), many open questions remain on which we await further guidance. Please contact me in case you have any questions regarding these matters.
The eSports sector is growing rapidly as illustrated by the following figures:
In 2017, the eSports economy grew to US-$696 million, a year-on-year growth of 41.3%.
Brands invested $517 million in 2017, which is expected to double by 2020.
Worldwide, the global eSports audience reached 385 million in 2017, with 191 million regular viewers.
(cf. https://newzoo.com/insights/trend-reports/global-esports-market-report-2017-light/)
North America continues to be the largest eSports market with revenues of US-$257 million. There is also continual development of eSports in Germany, however. The professional soccer teams of VfL Wolfsburg and FC Schalke 04 have their own eSports teams (http://www.gameswirtschaft.de/sport/esports-fussball-bundesliga/), and the German eSports Federation Deutschland has recently been founded, with the Federal Association of Interactive Entertainment Software (BIU) as a founding member (http://www.horizont.net/marketing/nachrichten/ESBD-E-Sport-Bund-Deutschland-geht-an-den-Start-162957).
In areas where such a lot of money can be made, legal obstacles are never far away. Here, they comprise a wide range of all kinds of different topics.
The initial focus is on copyrights and ancillary copyrights. Soccer stadiums, buildings, and avatars may enjoy copyright protection just as much as the computer program on which the games are based. Another item of discussion is whether eAthletes are to be classified as “performing artists” in accordance with Section 73 German Copyright Act. In addition, the question arises as to who enjoys ancillary copyrights under Section 81 Copyright Act as organizer of eSports events and whether such organizers have the same domiciliary rights as the organizers of a regular sports event.
In terms of trademark and design law, it will have to be discussed to what extent products and brand images represent infringements of the Trademark Act and the Design Act. In the case of brands and trademarks in particular, the question will be to what extent they are design objects or indications of origin.
Finally, there will also be regulatory issues that need to be observed. In addition to the use of cheatbots and doping substances, the main focus will be on the protection of minors and the Interstate Broadcasting Treaty with its advertising restrictions.
In conclusion, one suggestion: keep an eye on the eSports movement! Companies that want to stay ahead of the curve, should deal with the aforementioned issues and all further questions in timely manner.
The author of this post is Ilja Czernik.
One of the commonly discussed advantages of international commercial arbitration over litigation in the cross-border context is the enforcement issue. For the purpose of swifter enforcement of foreign arbitral awards, the vast majority of countries signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
On contrary, there is no relevant international treaty of such scale for the enforcement of foreign court judgements. Normally, the special legal basis, such as agreement on judicial cooperation between two or more countries, needs to be relied upon in order to get a court judgment recognized and enforced in another country. There are quite many countries that do not have such an agreement with China. This includes, among others, US, Germany or the Netherlands.
Interestingly, however, recently the Chinese court in Wuhan enforced the US court judgement rendered by the Los Angeles Superior Court of California in the Liu Li v Tao Li and Tong Wu case. It did so despite the fact that there is no agreement between China and US providing for mutual recognition and enforcement of such judgements. The court in Wuhan found, however, that the reciprocity in recognizing and enforcing the court judgments between China and US was established because of an earlier decision of the US District Court of the Central District of California recognizing and enforcing the Chinese judgement rendered by the Higher People’s Court of Hubei in the Hubei Gezhouba Sanlian Industrial Co., Ltd et. al. v Robinson Helicopter Co., Inc. case.
Interestingly, similar course of action was taken earlier in 2016 when the Chinese Nanjing Intermediate People’s Court enforced the Singaporean judgement relying on the reciprocity principle in the Kolma v SUTEX Group case.
How much does it tell us?
Should we now feel safe when opting for own courts in the dispute resolution clauses in the China-related deals? – despite the fact there are no relevant agreements between China and our country? The recent moves of the Chinese courts are, indeed, interesting developments changing the dispute resolution landscape in a desirable direction and increasing the chances for enforcing the foreign commercial court judgements. Yet, as of today, one should not see them as the universal door-openers for the foreign court judgements in similar situations. Accordingly, rather careful approach is recommended and the other dispute resolution methods securing the safer way of enforcement, like arbitration, should be kept in mind. The further changes remain to be seen.
The author of this post is Monika Prusinowska.
