Applying for a trademark registration in the US, you will need a US licensed attorney now

By Himanshu Joshi, for Legal Corner LLP. Himanshu is a final year student of NALSAR University of Law, Hyderabad.

(The views expressed here are not to be considered as legal opinion. You may not rely on this article as legal advice. You should reach out to me (chetana@legalcornerllp.com) if you are interested in applying for a US trademark registration or would like me to represent you in a Trademark related).

The United States Patent and Trademark Office (USPTO) amended the rules of practice in trademark cases. The following rules were changed and came in effect from 3^rd August, 2019:

1) Rules of Practice in filings pursuant concerning the International Registration of Trademarks, 2) Rules regarding Representation of Others before the United States Patent and Trademark Office 

The changed rule now states that – “it is now required by applicants, registrants, or parties to a trademark proceeding whose domicile is not located within the United States (U.S.) to be represented by an attorney who is an active member in good standing of the bar of the highest court of a state in the U.S.A”.

Why this rule? Will this rule affect me? 

A requirement that such foreign applicants, registrants, or parties be represented by a qualified U.S. attorney will instill greater confidence in the public that U.S. trademark registrations that issue to foreign applicants are not subject to invalidation for reasons such as improper signatures and use claims and enable the USPTO to more effectively use available mechanisms to enforce foreign applicant compliance with statutory and regulatory requirements in trademark matters. In the past few years, the USPTO has seen many instances of unauthorized practice of law (UPL) where foreign parties who are not authorized to represent trademark applicants are improperly representing foreign applicants before the USPTO. As a result, increasing numbers of foreign applicants are likely receiving inaccurate or no information about the legal requirements for trademark registration in the U.S., such as the standards for use of a mark in commerce, who can properly aver to matters and sign for the mark owner, or even who the true owner of a mark is under U.S. law. This practice raises legitimate concerns that affected applications and any resulting registrations are potentially invalid.

Foreign-domiciled trademark applicants, registrants, and parties to Trademark Trial and Appeal Board proceedings, including Canadian trademark filers, must appoint and be represented before the United States Patent and Trademark Office (USPTO) by an attorney who is licensed to practice law in the United States.

Changes Notified in Code of Federal Regulations and requirements for US based Attorneys
The USPTO revised the rules in parts 2, 7, and 11 of title 37 of the Code of Federal Regulations to require foreign applicants, registrants, or parties to a proceeding mandatorily be represented by an attorney, as defined in Section 11.1, of title 37 Code of Federal Regulations (CFR). In Section 11.1, that is, an attorney who is an active member in good standing of the bar of the highest court of a U.S. state (including the District of Columbia and any Commonwealth or territory of the U.S.) and who is qualified under Section 11.14 (a), 37 (CFR) 11.14 (a), to represent others before the Office in Trademark related matters.

U.S.-licensed attorneys representing any trademark filers must provide all of the following:
1) Name, postal address, and email address.
2) Statement confirming to their active membership in good standing of a bar of the highest court of a U.S. state, Commonwealth, or territory
3) Bar membership information (state, bar number if applicable, and year of admission).

(I am an attorney licensed to practice law in New York and District of Columbia.  Please email me at chetana@legalcornerllp.com for legal inquiries or if you wish to set up a free consultation)

Private Placement from the Issuer’s Perspective- Part 3 Steps to Making an Offer & a Lawyer’s Role

By Vivek Krisnaswamy, for Legal Corner LLP. Vivek is a final year student of NALSAR University of Law and will be graduating in 2021. 

The views expressed here are not to be considered as legal opinion. You may not rely on this article as legal advice. You should reach out to me (chetana@legalcornerllp.com) if you need advice and assistance with private offerings in the US so as to get legal advice that is specific to your business needs. 

How to make a Private Offer

The timeline for completing a private placement will vary depending on several factors but generally takes about 6-8 weeks to complete the first transaction. A lawyer would be able to explain the different factors that go into determining how long the process will take.‍

1. Launching the Deal: this is when a clear period of time is demarcated to conclude the buying process.
2. Negotiations: This process will take place from the beginning to the end of the discussions with the investor. Here the specifics of the agreement, like price, legal terms, etc. ironed out.
3. Information Gathering: The investor will do his due diligence – reviewing financial statements, meeting the management team, assessing the company, and then taking a closer at the industry.
4. Investment Risk Analysis: This process is very similar to how rating agencies grade public offerings.
5. Pricing: It is during this step that the rate of interest compensating the risk is determined. As mentioned in the previous article of the series, this could be decided very arbitrarily based on the risk taken on by the investors.
6. Rate Lock: This is when the investor and the company agree to lock-in interest rates based on the agreed upon spread and US Treasury rates.
7. Closing: This is the formal exchange of the securities and the capital offered by the investor.

As you can see the process is similar to obtaining bank financing.

The Lawyer’s Role

Because lawyers actually study how to go about these procedures, they know what details to pay attention to, and have the power to make sure that companies don’t lose their investors, while simultaneously protecting them from being cheated. Here is a list of some of the things that lawyers do for companies trying to make a private offering.

1. Independent Evaluation: Lawyers know how important it is for companies to get an objective un-biased valuation to determine the stock price before even launching the deal.
2. Business Plan/Marketing Document: They can help you create a plan that contains operational information, forward-looking statements, anticipated revenues, information about partners, directors, and any other details that an investor would ask for.
3. Investor Questionnaire: Once investors are identified (keeping in mind the solicitation restrictions), an investor questionnaire is prepared by the lawyer to confirm, self-certification by the investor, whether or not they are accredited, and other details.
4. Private Placement Memorandum (PPM): PPM is a full disclosure document (similar to a prospectus in an IPO) that contains amount to be raised, use of proceeds, risk factors, industry market analysis, description of management chain.
5. Subscription Agreements: These agreements are drawn up to confirm how many securities each investor is subscribing to.
6. Investment/Stock Purchase Agreement: This document is drafted after heavy negotiation and has many other miscellaneous agreements that go along with it depending on the jurisdiction that you are transacting in.
7. Revising Article of Incorporation: Most investors ask for certificates of designation of preferred stockholder rights, which can be issued only after the AoI are revised to reflect such changes.
8. Form D & other Forms: 15 days from the first sale, Ford D and all other necessary form in all states where the investors are located must be filed.

Other than these tasks, lawyers can also help you find investors, negotiate better terms, and actively safeguard your company before, during, and after the entire process of issuing private equity. For more information about how to make a private offering, feel free to contact us through out LinkedIn page.

If you have any questions regarding the incorporation process, please email me at chetana@legalcornerllp.com . I will be happy to set up a free consultation.

Private Placement from the Issuer’s Perspective- Part 2 Understanding the Regulatory System

By Vivek Krisnaswamy, for Legal Corner LLP. Vivek is a final year student of NALSAR University of Law and will be graduating in 2021. 

The views expressed here are not to be considered as legal opinion. You may not rely on this article as legal advice. You should reach out to me (chetana@legalcornerllp.com) if you need advice and assistance with private offerings in the US so as to get legal advice that is specific to your business needs. 

Rules under Regulation D

As we saw in the previous part of this series, transactions not involving public offerings do not require registration. This would save a company from having to a file documents – a description of the company’s properties and business and of the security to be offered for sale; information about the management of the company; and financial statements certified by independent accountants – to the SEC.

To qualify as a non-public offering, and fall under the safe harbour of section 4(a)(2), the conditions laid out in Rule 506(b), 506(c), or Rule 504, of Regulation D must be met:

Rule 506(b)

• Must not involve any general solicitation or advertising to market the securities.
• The company may sell to as many “accredited investors” as it chooses to and up to 35 other purchasers. “Non-accredited investors”, must be sophisticated, and have a deep understanding of and experience in financial and business matters.
• Investors must self-verify whether or not they are accredited investors.
• Companies, though allowed to choose what information to provide to accredited investors, must ensure to not violate any federal securities laws – free from false or misleading statements. Non-accredited investors should be provided with documents based on the guidelines in Regulation A (guidelines for registered offerings). All information provided to accredited investors must be provided to non-accredited investors as well.
• Companies must be available to answer all questions by prospective investors.

Under rule 506(c) of Regulation D, a transaction may qualify as a non-public offering even if the issuer engages in “general solicitation” and “general advertising” if:

• The issuer takes reasonable steps to verify that ALL potential buyers are “accredited investors.”
• These reasonable steps could be defined as reviewing the accredited investors’ documentation – W-2s, tax returns, bank statements, etc.
• The company/issuer can decide what information to provide to the potential investors as long as it does not violate anti-fraud provisions.

Apart from these two rules, a private offer of securities can also be made under Rule 504, which brings State Blue-Sky laws into the fold. Under this rule:

• General solicitation and advertising are permitted depending on state blue-sky limitations.
• Number of investors and their accredited status depend on state blue-sky laws – you may be allowed to have an unlimited number of investors and their accreditation may not be required.
• Investors must self-verify whether or not they are accredited investors.
• The company is not required to disclose any documents to non-accredited investors to claim the exemption, however it is suggested to provide all material information.
• Offerings in which an issuer sells up to (not greater than) $5 Million in securities in any twelve-month period are exempted. The two other types of offerings do not limit the amount of money that can be raised.

Anti-Fraud Provisions

Regardless of whether or not your offerings fall under the safe harbor of section 4(a)(2), all securities transactions are subject to the antifraud provisions of the federal securities laws. Meaning that any company or issuer will be held accountable for “false or misleading statements” that were made regarding respective company, the securities offered, or the offering. The company and its board are responsible for any such statements, whether made by the company itself or on behalf of the company; whether they are made orally or in writing.

These laws are enforced through criminal, civil and administrative proceedings. An individual or other private party may bring actions under certain securities laws as well. Further, if it is found that all conditions of the exemptions have not been met, buyers might be able to return their securities and obtain a refund.

State Blue-Sky Laws

In 1956 the Uniform Securities Act was passed, a model law providing a framework that guides states in the crafting of their own securities legislation. It forms the foundation for 40 out of 50 state laws today, and itself is often nicknamed the Blue-Sky Law. Subsequent legislation, such as the National Securities Markets Improvement Act of 1996, pre-empts blue sky laws where they duplicate federal law.

These laws are essentially state anti-fraud regulations (almost like an extra layer of protection) that require issuers to be registered and to disclose details of their offerings. Typically, Reg. D offerings are exempt from (full) registration requirements, but the issuer will still have to file a notice, pay a filing fee and assent to service of process in that state. Issuers generally have to complete these procedures within 15 days of their first sale in the state.

These laws require issuers to register in their home state as well as any other state in which they wish to transact.

If you have any questions regarding the incorporation process, please email me at chetana@legalcornerllp.com . I will be happy to set up a free consultation.

Private Placement from the Issuer’s Perspective- Part 1 The Basics

By Vivek Krisnaswamy, for Legal Corner LLP. Vivek is a final year student of NALSAR University of Law and will be graduating in 2021. 

The views expressed here are not to be considered as legal opinion. You may not rely on this article as legal advice. You should reach out to me (chetana@legalcornerllp.com) if you need advice and assistance with private offerings in the US so as to get legal advice that is specific to your business needs. 

What is Private Placement?

Private placement refers to the offering and selling of stock and bonds to a small group of pre-selected, “accredited investors”, rather than in the public market. It is an alternative to an initial public offering for a company seeking to raise capital for expansion. These investors could be banks, pension funds, mutual funds, insurance companies, or extremely wealthy individuals. As expert investors, “sophisticated investors” usually have more bargaining power and can easily acquire financial information from issuing companies before making a deal. Seeing as these investors can conduct due diligence themselves, the Securities & Exchange Commission does not provide them with the same level of protection awarded to the average investor, giving companies more freedom to choose what to disclose to potential investors.

How is it Regulated?

Investors receive sufficient disclosures and other protections from the rules and regulations laid out in the Securities Act of 1933, “the Act.” All securities in the United States have to register with the SEC or qualify for an exemption. Section 4(a)(2) of the Act exempts registration of transactions that do not involve a public offering. To be eligible for this exemption, the purchaser of the security must (1) have the required expertise in finance and business to be able to evaluate and bear the investment’s economic risk, (2) have the ability to acquire the information that is usually presented in a prospectus for a registered securities offering, (3) not resell securities to the public. If a company offers securities to even one person who does not satisfy these conditions, then said company would be in violation of the Act. For a better understanding of the requirements of all exemptions, one can refer to Rule 504, 506(b), 506(c), of Regulation D; Regulation S; or Rule 144A. It’s imperative to look through the act and decide under which category you would like to offer private securities with the help of a lawyer, to ensure that your company doesn’t accidentally violate the Act or any anti-fraud provisions.

Who is an Accredited Investor?

The definition of an Accredited Investor (AI) can be found under Rule 501 – any natural person with a net worth of at least $1 Million (excluding primary residence); OR has an income of at least $200,000 each year for the last two years ($300,000 combined income if married) and have the expectation to make the same amount this year. AIs are expected to be well informed, able to fend for themselves in the world of finance and business, and protect their interests. The definition did not consider the actual financial sophistication of the investor, and tests were based on the income of the potential investor.

On August 26, 2020, the SEC made several changes to this definition, that make it more inclusive by broadening its scope and including a new principle for determining who is worthy of the AI title. While there are many technical additions to the definition, the one that could be the most important change would be – “Add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order.” – because it shows that the SEC has accepted the general principle that “sophistication” can and should be one of the methods of determining who can become an AI.

When & Why is Private Placement Preferred?

Stock is usually offered privately by Companies looking for smaller amounts of capital from a limited number of investors. Start-ups, particularly those that are in the risky internet and fin-tech sectors, benefit from this set-up. Suppose a company chose to issue shares under Reg. D, then it would be exempt from many reporting requirements – saving the company time and money. By keeping the investor pool small and sophisticated, the company can afford to sell more complex securities, maintain private ownership, and control its annual disclosures with the SEC.

Considering the high risk, lower liquidity, and higher complexity of the securities being offered, it may not be easy to market private stock. These factors would also result in more demanding buyers. Higher rates of interest, collateral, or even for a higher percentage of ownership in the company are just a few things companies that offer private stock are willing to trade for a quicker issuing process, that allows them to remain private entities, and helps avoid the full glare of the public’s and SEC’s scrutiny.

If you have any questions regarding the incorporation process, please email me at chetana@legalcornerllp.com . I will be happy to set up a free consultation.

Choice of Law Clause in International Outsourcing Contracts: Some key considerations

By Harshvardhan Tripathi, for Legal Corner LLP. Harsh is a fourth year student of NALSAR University of Law and will be graduating in 2022. 

The views expressed here are not to be considered as legal opinion. You may not rely on this article as legal advice. You should reach out to me (chetana@legalcornerllp.com) if you are planning to consider incorporate or expand your existing business in the US so as to get legal advice that is specific to your business needs. 

With the growth of cross-border trade, more and more business entities are entering into international agreements. While negotiating terms of international contracts, customers and service providers must pay special attention to the choice of law clause. This clause assumes special importance because it specifies which governing law would regulate the legal relationship between the parties, determines their rights and liabilities under the legal regime and provides them legal remedies in case of a potential breach of the contract.

Generally, parties to the contract have autonomy and enjoy flexibility with respect to the naming the governing law of the contract, subject to some exceptions. Talking in the specific context of an international outsourcing contract between a US based entity or person and Indian entity or person, the parties are free to choose the governing law, except when the choice of law has no connection to either the parties of the contract or to the performance of the contract. However, notably New York allows the even non-domiciliaries of the state (which would include American citizens not from New York and other foreigners) to choose the NY local law to govern their contracts for transactions above $250,000. The conflict of law rules of India are well recognized by the India Courts and the judiciary generally enforces the choice of law decided by the parties in the contract, except in the rare circumstances where the chosen governing law violates India’s public Policy in some manner.

The parties must seek reliable quality legal advice while negotiating the choice of law clause to fully appreciate the legal implications and avoid future risks. In order to assess which legal regime would be best suited to regulate their contract, the parties must consider the following factors:

• Predictability: It must be remembered that legal systems prevailing in other jurisdictions might have divergent positions of law on the same issue. For parties about to choose a governing law, it is important to consider whether the legal system under consideration has followed a uniform standard or approach in dealing with a legal issue. This is essential because if the legal system is predictable, in case of a dispute arising, the parties can determine their legal positions and possible options under that legal system with reasonable certainty.

• Insulation: When parties decide upon their governing law of the contract, they accept the risk that any changes in this law will affect their rights and obligations. Depending upon the nature of the international contract, the parties need to negotiate a choice of law clause based upon the consideration that whether they are adequately insulated against such changes in the law. For instance in a case where the contract involves debt, the debtor would prefer a governing law that is more protective of its position while the creditor would want a governing law that ensures quick and effective enforcement. Hence, negotiation of governing law between parties should be done keeping in mind insulation from risk as an essential factor.

• Creditor Orientation: The public policy of legal systems is inclined more towards protecting the interests of either the debtor or the creditor; or it could be neutral. Depending upon which recourse is preferable to both in case of a potential insolvency, the governing law of the contract should be chosen reflecting either pro-debtor, pro-creditor or a neutral orientation.

• Nullification of transactions on formal grounds: Some legal systems have the approach of upholding the validity of a transaction when some formal requirements have not been satisfied. Other jurisdictions however, adopt a strict approach requiring complete compliance, and would not hesitate nullifying transactions based on lapse to meet the formal requirements. Governing law of the contract should be chosen keeping in mind this key factor of consideration.

• Ease of enforcement of judgments abroad: From a practical point of view, before choosing a governing law for the international contract, the overall record of enforceability of that legal system’s judgement in other jurisdictions should be considered. Judgements from certain legal jurisdictions have a higher rate of acceptability in foreign jurisdictions as compared to others. For parties looking to have a speedy and effective recovery of debts, effective enforcement of judgements becomes a priority, and the choice of governing law should reflect this priority.

• Extent of freedom of contract: Parties might want to consider the relative extent of freedom granted by different legal systems in allowing freedom of contract and choose the governing law of contract accordingly.

• Language: Parties to the contract must keep in mind that it is hard to conduct litigation or to know one’s rights and protect oneself when statutes, case law and court proceedings are in a foreign language. Hence ideally, the governing law of the contract should be chosen in a language familiar to the parties.

• Acceptability in the market: Certain governing laws are widely accepted in international markets due to their proven efficacy over the period of time, familiarity of concepts and wide range of legal authorities. A transaction can be strengthened by adopting a widely acceptable governing law of contact.

• Stability of the law: Before choosing a governing law of contract, parties must examine the extent to which that legal system adheres to the rule of law and whether it has sound and efficient legal infrastructure. This is an important indicator for a stable legal system alongside a uniform approach in the legal direction. The parties can substantially lower their legal risks by investigating the stability of a legal system before choosing their governing law of contract.

If you have any questions on choice of law, please email me at chetana@legalcornerllp.com . I will be happy to set up a free consultation.

Disgorgement proceedings in India: Takeaways from Liu v. SEC

By Akash Kumar Prasad, for Legal Corner LLP. Akash is a final year student of NALSAR University of Law and will be graduating in 2021. 

The views expressed here are not to be considered as legal opinion. You may not rely on this article as legal advice. You should reach out to me (chetana@legalcornerllp.com) for any legal advice that is specific to your business needs. 

In layman’s language, disgorgement implies legally mandated repayment of ill-gotten gains imposed on wrongdoers by the courts. The Black’s Law Dictionary defines disgorgement as ‘the act of giving up something (such as profits illegally obtained) on-demand or by legal compulsion’. To understand it more simply, let’s suppose that Mr. X makes a profit of Rs. 1000 in an illegal manner. The court can now direct Mr. X to ‘disgorge’ the amount of Rs. 1000. This recovery of the profit earned through illegal means is termed as ‘disgorgement’. In India, after the enactment of the Securities and Exchange Board of India Act, 1992, this process has been used to recover the unlawful and unethical profit made by the participants in the capital markets. Initially, it was considered to be an equitable remedy, but with the passage of time it has been observed that the understanding has shaken a bit.

In the securities market, to preserve the interests of the stakeholders, this tool has proved to be a potent tool for the regulatory authorities worldwide. Even though the concept of disgorgement finds a place in the SEBI Act, 1992, specifically speaking, Section 11B  of the Act (added by an amendment in 2013), it has been observed that the Indian regulatory authorities have not been able to enforce such powers smoothly due to the lack of clarity in the legislation itself and precedents thereof as to how the computation of disgorgement amount must be done. As a result, the courts and tribunals in India look up to the foreign judgements on the matter.

The Indian regulatory law has been influenced by the US securities law; hence any development in the US securities market becomes very pertinent to the Indian regulatory regime. Recently, the US Supreme Court, in the case of Liu v. SEC [2020], stated that the tool of disgorgement has its roots in the equity principles and that the disgorgement awards are an equitable remedy provided to the wronged investors. It further redefined the computation of the disgorgement amount. Considering the fact that the Indian securities regime takes inspiration from the US securities law, this has initiated discussions regarding its impact on the Indian disgorgement regime.

Takeaways from Liu v. SEC

The first and foremost significant point in the observation was acknowledging the tool of disgorgement as an equitable remedy rather than a punitive measure which should be computed on the basis of net profit earned i.e. the same must be meant to make better the wrong and not to punish the wrongdoer. The Court held: “A disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible” under 15 U.S.C. § 78 u (d)(5). Same principle was observed by the Securities Appellate Tribunal (SAT) in the case of Gagan Rastogi v. SEBI [2019] and Shadilal Chopra v. SEBI [2009].

Further, another important takeaway from the US ruling is the restitution of amount to the victims of the wrongdoing. It is often observed that the regulatory authorities disgorge the amount and then preach that justice is served. The US Supreme Court has deviated from this practice and held that the purpose would only be served if the amount would be restituted and not if the disgorged amount would be deposited in the government treasury. The court said that doing the latter would amount to a penalty and thus the restitution principle should be followed taking into consideration the number of stakeholders and passing appropriate orders to protect the interests of the victims. SAT in the case of Ram Kishori Gupta v. SEBI [2019] has observed similarly remarking “disgorgement without restitution does not serve any purpose” which further shows the influence of the US security jurisprudence on the Indian securities regime.

The US court further noted that mostly the entire amount from the wrongdoing is disgorged without deducting the legitimate expenses incurred during the wrongdoing. The same has been observed in Indian scenario too. The US court acknowledged the same and directed that the amount to be disgorged should be decided after taking into account the facts and circumstances of every case as then only it would mean that the remedy is truly equitable in nature.

Lastly, the court directed cautioned usage of the “jointly and severally liable” principle. As much as it acknowledged the necessity of its usage, it also directed that there must not arise a case wherein, a person is being asked to disgorge the amount, when actually such person is not in possession of the unlawful gains, thereby making it difficult for him to disgorge the amount.

Conclusion

The understanding of disgorgement is still at a nascent stage and it can be expected that the US ruling would throw some light on the development of the subject in India. It has definitely paved the way for formulating a mechanism and effectively execute the same while pronouncing the judgements. While it might be argued that Indian and US securities markets are different, the principles enunciated by the court form the basic structure and can help develop a better understanding of the subject, thereby showing Indian securities regime a way forward.  If you have any questions on choice of law, please email me at chetana@legalcornerllp.com . I will be happy to set up a free consultation.