Business Counseling

Any time someone makes a false statement in order to receive a payment from the Federal Government (like a Federal grant, for example), it’s called a “false claim.” The False Claims Act allows anyone who knows about the false claim to bring a lawsuit against the person who made it.

The person who made the false claim has to pay back three times the amount of the payment. The person who brings the lawsuit gets to keep from 15% to 30% of that money. Worse for the person who made the claim, this can mean permanent debarment from Federal grant awards.

Please visit the latest issue of Valley Business Front September [PDF link] for a case study on this topic.

And if you’re interested in learning more about grant management, join us at our next round of Shark Bites this month.

So you want a new logo for your business. That’s great! Instead of hiring a design firm, you decide to hold a contest so amateur designers near and far can propose logos. Maybe you’re even going through a website, such as 99designs.com. It seems like a win-win situation: your company gets a plethora of ideas that you wouldn’t get with one designer and amateur graphic artists get a piece for their portfolio and a chance at major exposure! What could go wrong?

Actually, a lot.

While at a very superficial level design contests seem like a good idea, any analysis or evaluation will start to turn any legal counsel’s stomach. Here are just a few issues:

1. It’s probably an illegal contest.

As profiled by my colleague Keith Finch in his latest article, running a contest opens a huge can of worms. And guess what?  Those rules apply to ANY contest, including one on logo design. Things get very complicated, especially if you’re working with a contest spanning multiple jurisdictions, as internet logo contests usually do. But wouldn’t a website whose sole purpose is to run logo contests do all of this for its users? I’m afraid not.

To run a contest legally, you’ll need to shell out thousands in legal fees for correct “Terms and Conditions” written in exactly the right size and type of font required by the contest-governing overlords; you’ll have to put up cash bonds in Florida and New York; you’ll need to obey state and national consumer gaming laws meant to protect consumers from not-so-honest award disbursement, and more. My hunch is that it’s more financially prudent to hire two or three designers.

2. You [probably] won’t own the copyright.

As lawyers, we see this ALL THE TIME: A company hires a designer/ design firm to make its logo or rework its branding. The designer creates an awesome logo. The company is thrilled. Both parties go on their merry way.

Guess what?

The company doesn’t own the logo.

But the company paid for it! Shouldn’t that mean it’s a work made for hire and the copyright automatically belongs to the company?

Actually, it doesn’t. A work made for hire only applies when the designer is an employee of the company. An independent contractor or freelancer is NOT. This situation is legally identical to picking a logo from a design contest. The designer is not an employee—and arguably not even an independent contractor—and therefore no transfer of copyright occurs. In this situation, you need a separate well-drafted copyright transfer agreement, which doesn’t come with most logo competitions.

This means that every time you use, print, copy, reproduce, or alter that logo, you’re committing copyright infringement. Why does this matter? Because at any time, that designer could decide he wants to invoke his rights and prevent you from using that design, and in essence hold you captive until you pay some sort of ransom fee. If he’s registered the copyright in the mark, there are even treble damages and attorneys fees you could have to pay. It’s big money that could cause a huge headache, just for forgetting to get a copyright transfer agreement signed.

3. The design could be a copy.

When we draft design agreements, we make sure there is a portion of the contract that ensures the deliverables are original, non-infringing works. This is because a client using the designs could actually be held responsible for an infringing logo created by a designer. This is a huge problem on logo contest sites, and there is no way to ensure localized design contests don’t run afoul of these rules as well.

We like to add indemnification clauses to our client’s designer agreements that make the designer responsible for indemnifying (e.g. paying for the cost) our clients’ legal fees or costs of defending a suit for copyright infringement if the deliverable’s design is misappropriated.
Even a quick look at design contests presents myriad issues. You’ll get more bang for your buck hiring one or even two designers to produce and design deliverables you need.  If you do decide to run a contest, make sure you talk to your friendly neighborhood attorneys who can ensure you’re not slapped with fines or even possible jail time for running an illegal lottery under federal and state guidelines. We’ll help you out!

UPDATE:  On August 22, watchdog group Truth in Advertising sent a letter to the Kardashian family media moguls  telling them that “they had found over 100 Instagram posts that were paid product placements without being marked as advertising. The Kardashians now have a week to take those posts down, or Truth in Advertising will notify the Federal Communications Commission, which in turn could open an official investigation.” via Variety Magazine.

If you’re an Instagram user, you’ve seen people raving about products from “Flat Belly Tea” to dating apps to protein powder.

Recently, there’s been escalating buzz about these endorsements, many of which violate FTC guidelines.  But with a growing contingent of businesses utilizing blogs and Intstagram (along with other forms of social media) to cross-promote products and services, the FTC is cracking down.  What do users need to know?

In the creative industry especially, Instagram is a platform for creating personal relationships with consumers.  YouTube and “Insta-fame” have created a new class of celebrity, spawning cult followings of users like Kayla Itsines,  thefatjewish, grav3yardgirl, and just about every former contestant on “The Bachelor.”  Regional clothing manufacturers and local “must-have” food stops have jumped on board, using the platforms as a way to cut through the fodder on Twitter and Facebook.

In promoting their own goods and services, account holders are usually fine to post away.  It’s when users begin promoting others that the waters become murky.

The FTC Endorsement Guidelines are a way to keep consumers safe from misleading promotions—even if the poster doesn’t realize they may be misleading!

In plain terms, the FTC says that “If your audience thinks that what you say or otherwise communicate about a product reflects your opinions or beliefs about the product, and you have a relationship with the company marketing the product, it’s an endorsement.” See the FTC’s Endorsement Guide.

This translates not only to “pay per post,” (which is a thing, apparently, according to all of the “get paid to post on Instagram!” bots that tag me) but to any sorts of products received for free or a significant discount in exchange for your “review.” Maybe you’re a beauty vlogger who receives free samples of makeup for use in your tutorials; maybe you run an Instagram fitspo account and you show a photo of your newest athletic gear, sent to you for free.  Maybe you received two $50 gift cards to from a company; one for yourself and one to give away! You’re receiving something valuable in exchange for writing about, talking about, or even just showing a photo of a product.  Therefore, you fall under the FTC’s guidelines.

So what’s a blogger to do? 

Make sure you are upfront in disclosing any products that were sent to you for free or that are paying you to post.  Many users use tags like “#sp”, “#sponsored,” or “#ad” to indicate that the post is promotional.  However, it is unclear if these are enough to indicate the nature of the relationship between you and the product.  While the requirements “clear and conspicuous” aren’t the most helpful to law-abiding posters, the FTC has made several bright line statements about what won’t  cover posters under the guidelines:

• A single disclosure on a blogger’s home page (must be on each post with promoted materials)
• A disclosure in the “description” portion of a vlog (must be in the video itself)
• A hyperlink to a general disclosure statement

To be safe, posters should  clearly state in every post that they received the product free or are being paid to post.  This means in your postings state what product, who you got it from, and how  you’re being compensated, e.g. paid to post, free products, deep discounts, etc.

Now go post away!

Long Island, Sign, Suffolk County, North Fork, New York, Bingo. Photo by CGP Grey used under the Creative Commons Attribution 2.0 Generic license.

Virginia law allows a not-for-profit charity to hold raffles and bingo games without a permit, if it grosses less than $40,000 per year from them. But there are still a lot of rules you have to follow. The Virginia Code requires that the proceeds of gaming be used only for ‘religious, charitable, community or educational purposes,’ and it specifically prohibits using them for ‘social or recreational activities.’ So you can’t use gaming proceeds to fund the ice cream social.

Please visit the latest issue of Valley Business Front August [PDF link] for more information about legal and illegal gaming.

And if you’re interested in learning more about gambling law in Virginia, join us at our next round of Shark Bites this month.