Recent News & Info

Keep up to date with legal news and info from the Parsus Law blog


by Ju Park, Esq.

2012 continues to be a year of strong recovery for international mergers and acquisitions.  Foreign investors are looking for global opportunities, and many are turning to the United States for investment.  Recently, Chinese companies have acquired significant holdings in the US consumer goods and services sector.  For example, earlier this year, a Chinese conglomerate called Dalian Wanda Group completed its acquisition of the theater chain AMC Entertainment Group.  Companies are targeted for M&A transactions for a variety of reasons, including intangible assets such as know-how, market access, distribution channels, and technology or other intellectual property.  Additionally, acquirers are often able to offset the costs of the acquisition by the increased profits resulting from such intangible assets.  The AMC acquisition illustrates how intellectual capital and experience are valuable assets to foreign investors, and how cross-border transactions provide benefits to both parties as well as the larger economy.

AMC, one of the largest theater chains in North America at the time of its acquisition, offered the Wanda Group an immediate and obvious benefit in the form of access to the North American market, and AMC’s customers.  Also important to Wanda, however, was the extensive knowledge AMC had developed during the course of its cinema operations.  The US has a sophisticated theater industry, and lessons learned about consumers, marketing, and revenue streams provide an instant influx of expertise in high-level theater operations.  The Chinese theater industry continues to grow, and association with the Wanda Group will likely provide AMC with increased access to the Chinese market and distribution channels.  In turn, Wanda Group is likely to see a boost to its internal operations from increased access to AMC as a purchasing partner as well.  AMC is going to be in the market for a variety of goods and services ranging from concessions to content, and Wanda will be well-placed to become AMC’s primary supplier for such needs.  The increased revenue from supplying AMC could eventually offset Wanda’s outlay for the acquisition.  Wanda also plans to invest in and grow AMC’s US operations, which means that the entire US film industry could ultimately see a boost as a result of this acquisition.

Although the US economy has not yet recovered to its previous height, investors are still finding great opportunities.  Outbound Asian mergers and acquisitions have accounted for a significant amount of deal activity in 2012, which shows that our economy is continuing to globalize.  Experience, expertise and know-how are invaluable to companies seeking to grow, and businesses in the US have a lot to offer foreign investors in this aspect.  There are also many opportunities for the acquirers to decrease the overall cost of the acquisition through the use of broader distribution channels and newly-developed relationships, which results in great bargains and economic benefits to both acquirer and target.


by David Kim, Esq.

A strong brand is an important asset to a business, and can be critical in attracting consumers and establishing a unique identity.  A catchy name, logo, or slogan can help you stand out from your competitors, and positive connotations established by branding efforts can often mean the difference between failure and success.   These types of brand identifiers are protectable via trademarks, but most business owners don’t know that trade dress – the “look and feel” of a product or store – can be protected by a trademark as well.  Trademark protection for trade dress extends to the design, appearance, or even packaging of a product or service.

Trade dress protection can be pretty broad, and covers features such as size, shape, color, texture, graphics, or even certain business techniques.  Examples of trade dress protected by trademark include the Tiffany blue box, the shape of the Coca Cola bottle, and the 7-11 store color scheme.  In order to qualify for protection, though, trade dress must be both “non-functional” and “distinctive.”  The courts use various tests to ascertain whether trade dress satisfies these requirements.  In order for a court to find a product element to be non-functional, it cannot be essential to a product’s purpose or use, affect a product’s cost or quality, or put competitors at a significant non-reputational disadvantage.  For example, a glass bottle by itself is functional, but when you add design features such as a particular shape or texture, such features are likely to be considered non-functional by a court since they contribute little to the bottle’s functionality.  Colors also tend to be ripe areas for trade dress protection, as they are usually not integral to the function of a product.

Even though trade dress may satisfy the non-functionality requirement, it must also be recognizable to consumers in some way, or have acquired a secondary meaning in order to qualify for trademark protection.  The standards for distinctiveness differ depending on whether the trade dress in question is for package or product design.  Although packaging can be inherently distinctive, courts commonly agree that product design trade dress is almost never inherently distinctive.  It is up to a business to establish that consumers have come to associate the trade dress with the particular product or service in question.  Typically, if a business has used the trade dress continuously in commerce for at least five years, that is sufficient to establish a prima facie showing of acquired distinctiveness.  There are other ways to establish that trade dress has become distinctive, though, including consumer surveys and testimony, media recognition, and evidence of the expense and effort undertaken by the business to promote the trade dress.  Although establishing distinctiveness can be a heavy burden for a business seeking a trademark, courts are generally willing to recognize trade dress that is commercially recognized and associated with a product or service.

If a business has established unique trade dress associated with its branding efforts, it is important to protect the trade dress along with its other forms of intellectual property.   Developing a brand can take a considerable amount of effort and resources, and may take a prolonged period of time.  For many businesses, the brand will be the most important asset owned, and should be protected accordingly.


by David Kim, Esq.

Once the exclusive domain of basement-dwellers and geeks, video games have become a lucrative, multi-billion dollar industry.  Where gamers once had to make trips to shopping malls and arcade centers to plunk down quarters to play video games on giant cabinets, the mobile technology of today allows people to play games directly on their phones across a variety of social media.   With an estimated player base of 56 million people, social gamers are expected to spend over $6 billion on games by the year 2013.  These types of numbers are highly attractive to businesses, and social gaming is a fast-growing sector of the overall industry.  Naturally, competition is fierce, and developers often mimic the features and feel of popular games in an attempt to grab market share, a practice that dates back to the very beginning of the video game industry.

Historically, game developers haven’t devoted a substantial amount of time and resources to protecting IP, but developments in technology and law suggest the importance of a greater focus on IP rights.  A basic understanding of each type of protection, and how it could apply to a game, will be invaluable to game developers who want to maximize potential revenues from their creations.  Earlier this year, Zynga, a social network game developer that recently went public, sued another game developer, Vostu, alleging that Vostu’s games infringed on Zynga’s copyrights.  Such lawsuits are not uncommon in the social gaming industry, with Zynga itself having been sued a number of times over similar allegations.  In this lawsuit, Zynga asserted that it had obtained Federal copyright protection over various aspects of its games, and relied on these copyrights as its sole cause of action against Vostu.  The two parties settled the lawsuit, resulting in Vostu’s making a monetary payment to Zynga, and changes to some of Vostu’s games.  The settlement can be seen as a successful outcome for Zynga, and one example of why game developers should actively protect the IP in their games.

As with other types of software and technology, protection for IP in games is available in the forms of patents, copyrights, and trademarks.  Businesses tend to be the most familiar with trademarks, which are distinctive signs or marks used by a business for identifying its services or goods.  Trademarks are available at common law, State, and Federal levels, with trademarks registered with the United States Patent and Trademark Office protected across the entirety of the United States.   Because competitors will often try and mimic success, it can be to a game developer’s benefit to find a mark that it will be able to defend strongly.  Fanciful names tend to be more distinctive than descriptive ones, which means that holders of a fanciful mark will usually have greater success in preventing copycats from capitalizing on their fame.

In addition to trademarks, many games contain elements that are suitable for copyright protection.    Copyrights protect works of authorship in a tangible form, but do not protect facts, ideas, systems, or methods of operation.  Applied to software and to games specifically, a developer could copyright the artwork and designs of the game, the source code, and the game’s look and feel, among other aspects.  Once a work has been created in a tangible form, it is protected by common law copyright, even if the game developer doesn’t register it with any official body.  An official filing, however, can be invaluable to a developer, because it creates various presumptions as to the legality and validity of the copyright, and makes statutory damages and attorney fees available to a copyright holder in an infringement suit.  Additionally, the Digital Millenium Copyright Act offers some significant protections to game developers who are in compliance with its requirements.

Finally, despite common belief, games are often patentable.  Although trademark and copyright are more appropriate for protecting game content, developers may obtain patents on various aspects of the game, including technical aspects of a game platform, software processes and other functions, and game methods.  The important thing to remember with a patent is that ideas are not patentable, and in order to obtain a patent, there must be an invention of something that is new, useful, and non-obvious.  Game developers have been taking advantage of patents to protect things like the use of virtual currency in a game, ways of providing directions to characters, methods of rewarding players, and methods of calculating and adjusting game difficulty.  There are a number of hurdles to obtaining a patent, which can include cost, length of time required to obtain a patent, and lack of belief that the developers have created anything patentable.  Given the financial stakes, however, game patents may well be worth the time and resources required.

Protecting IP is an important, but often overlooked aspect of game development.  Developers work long and hard on perfecting games that they are proud to bring to market.  Too often, they neglect to add those crucial elements of protection that can prevent other developers from copying their work and innovations.  A well-developed and comprehensive IP strategy can mean the difference between reaping the financial rewards of developing a game, and seeing hard work lost in a sea of competitors.


by Jennifer Gentin, Esq.

A number of new employment bills making significant changes in California employment law have been signed by California Governor Jerry Brown. The new laws are effective January 1, 2012, unless otherwise indicated. These new bills could affect your business’ day-to-day operations and company Handbooks or policies.  We highlight what we believe to be the most significant new changes below:

Pregnancy Disability Leave (SB 299)

SB 299 prohibits employers from refusing to maintain and pay for group health insurance coverage for the duration of pregnancy disability leave, up to four months in a 12-month period.

The law also authorizes employers to recover insurance premiums from the employee if the employee fails to return from pregnancy disability leave, provided that the employee’s failure is not due to leave taken under the state Moore-Brown-Roberti Family Rights Act (CFRA), for a health condition that entitles the employee to pregnancy disability leave, or other circumstances beyond the employee’s control.

This bill requires that collective bargaining agreements of state agencies provide for continued insurance coverage for state workers on pregnancy disability leave.

This law will have a significant impact on employers because employees who are not eligible for federal Family and Medical Leave Act leave are eligible for pregnancy disability leave. Further, continued insurance coverage provided for pregnancy disability leave will not count against an employee’s right to continued benefits under the FMLA if she subsequently becomes FMLA eligible. The affect of the federal Health Reform Law on the new law is unclear at this time.

Organ and Bone Marrow Donor Leave (SB 272)

Under existing law, an employer must grant a leave of absence of up to 30 days in a one-year period to an employee who is an organ donor and up to five days in a one-year period to an employee who is a bone marrow donor. SB 272 provides that the days of leave are business days, rather than calendar days, and that the one-year period is measured from the date the employee’s leave begins and consists of 12 consecutive months.

This law clarifies that the leave of absence is not a break in the employee’s continuous service for the purpose of his or her right to paid time off. It provides that employers may condition the initial receipt of leave upon the employee’s use of a specified number of earned but unused days for paid time off, as well as upon a specified number of days of earned but unused sick or vacation leave, as under existing law.

Credit Reports (AB 22)

AB 22 imposes significant restrictions on an employer’s ability to obtain a credit report for employment purposes. It generally permits employers that are seeking to fill only specific, identified exempt positions to obtain and use credit reports to screen applicants or current employees. The use of the credit reports in other occupations generally is prohibited.

Further, employers will be required to provide the employee or applicant with a disclosure statement setting forth the specific basis permitting the employer to obtain a credit report.

Credit reports may be obtained only if the position to be filled falls into one of eight exempt categories:

Credit reports also may be obtained for employees of financial institutions subject to Sections 6801-6809 of the United States Code.

California employers should ensure that their practices for obtaining and using credit reports comply with this new enactment. If use of a credit report is permitted, the employer must provide the applicant or employee with a disclosure form that states the permitted basis for the credit check. Employers also should modify forms to ensure compliance with SB 909 (requiring background screening firms to provide subjects of their reports with a Disclosure and Request for Consent before a subject’s data can be sent outside the United States). Multistate employers should ensure compliance with the requirements of the federal Fair Credit Reporting Act and applicable state laws.

This new bill will limit the ability of employers to do credit checks as a screening tool for applicants. On the positive side, in this economy, this new bill will likely avoid discrimination against job applicants on the basis of a negative credit history.

Willful Misclassification of Independent Contractors (SB 459)

SB 459 imposes a civil penalty of between $5,000 and $15,000 for each violation on a person or employer that willfully misclassifies an individual as an independent contractor. Willful misclassification is defined as avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor. The penalty increases to between $10,000 and $25,000 for each violation if the person or employer has engaged in a “pattern or practice” of willful misclassification.

The law also subjects paid, non-attorney advisors to joint and several liabilities with the employer if they knowingly advise the employer to treat an individual as an independent contractor and the individual is not found to be an independent contractor.

This new bill increases the stakes for employers who willfully misclassify workers.

Wage Payment Details (AB 469)

AB 469 requires employers to provide to nonexempt employees, at the time of hire, a written notice indicating the following:

While most employers already provide the above-referenced information in various places such as pay stubs and workplace posters, employers will now be required to put it all in one notice given to new non-exempt employees.  The California Labor Commissioner will provide a template, but each notice will need to be unique for each employee.

The law also requires employers to notify employees in writing of any changes to the information in the notice, within seven calendar days after the time of the changes, unless the changes are reflected on a timely wage statement or other writing required by law..

The law increases penalties for wage violations, provides for employer restitution of certain wages to employees, and extends from one to three years the statute of limitations on collection actions by the state Division of Labor Standards Enforcement.

Employer Contract Requirements (AB 1396)

AB 1396 requires an employer that enters into an employment contract involving commission payments for services to be rendered within California to put the contract in writing and specify the method by which the commissions are to be computed and paid. The employer must give a signed copy of the contract to every employee who is a party thereto and obtain a signed receipt for the contract from each employee. The law also repeals existing law making an employer that violates this requirement liable in a civil action for triple damages.

The law is effective January 1, 2013, giving employers a full year to assure their commission agreements comply with the new law.

Use of E-Verify System (AB 1236)

AB 1236 provides that state agencies, cities, and counties cannot require private employers to use the federal E-Verify system to confirm the legal immigration status of workers they hire, except when required by federal law or as a condition of receiving federal funds.

E-Verify is a computerized system maintained and operated by the U.S. Department of Homeland Security, in partnership with the Social Security Administration. E-Verify allows employers to use the program, on a voluntary basis, to verify that the employees they hire are authorized to work in the United States.

Genetic Information (SB 559)

SB 559 amends the California Fair Employment and Housing Act (FEHA) to prohibit discrimination on the basis of genetic information. Genetic information is defined by the new law to mean information about any of the following:

The law similarly expands the categories prohibited under other antidiscrimination provisions in the California Unruh Civil Rights Act to include genetic information.

Gender Expression (AB 887)

AB 887 amends California FEHA to clarify that prohibited discrimination in employment and housing on the basis of sex or gender includes discrimination on the basis of a person’s gender identity and gender expression. The law defines gender expression as meaning a person’s gender-related appearance and behavior, whether or not stereotypically associated with the person’s assigned sex at birth.

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If you have any questions regarding any of these new laws and their implications, or wish us to revise your Employee Handbook, please contact Parsus LLP.

Understanding Venture Financing Terms

by Ju Park, Esq.

Despite a somewhat uncertain economic outlook, investment by venture capitalists for the year 2011 has remained steady.  Although the stock market may not be performing as well as desired, investors continue to look for good opportunities with start-ups and other private companies.  An infusion of cash can be just what a business needs for success, but term sheets from sophisticated investors often contain terms that can be confusing to entrepreneurs.  This article explains some of the common provisions found on financing term sheets.

Common vs. Preferred Stock

Most corporations are formed with founders and employees receiving common stock.  Venture investors, on the other hand, tend to demand preferred stock, which, as the name suggests, offers various preferences over common stock.  Preferences can include dividend, conversion, voting, liquidation, and redemption rights.  Preferred stock can be thought of as being “senior” to common stock in that preferred holders will generally get things first, or will have higher priority than common stock.  Corporations can have multiple “series” of preferred stock (typically designated by a letter, such as Series A, Series B, and so on), with each series having different rights depending on the terms negotiated by the series investors.  Just because a series of stock comes first in the alphabet doesn’t mean that it has priority over the other series, however.  As companies grow and attract larger investments, subsequent investors may demand preferential treatment for their particular series of stock.

Liquidation Preference

A liquidation preference is a standard way that venture investors will protect their investment in your business.  If the term sheet specifies that preferred stock will have a liquidation preference, it means that on a liquidation event (typically a sale of the company’s stock or substantially all of its assets, bankruptcy, or some other event whereby a company ceases to exist), the venture investor will recoup at least some of the money they’ve invested before the holders of common stock will see any money.   If a series of preferred stock has a “senior” liquidation preference, it means that it will be entitled to receive its liquidation preference before other preferred series.   Although liquidation preferences are commonly set at “1x,” which means that the investor will receive only the amount of their original investment, a “multiple” liquidation preference specifies that investors will receive more than the original investment (for example, a 3x liquidation preference means that the investor will receive three times their original investment).


A term that goes hand-in-hand with liquidation preference is whether the preferred stock gets to “participate” after receiving the liquidation preference.  Commonly thought of as a “double dipping,” participation rights allow a preferred stock holder to share the proceeds of a company sale with the common stock holders.  Participation works such that on the sale of a company, for example, the preferred stock will receive the full liquidation preference amount specified in the terms of their preferred stock, and will then share the remaining sales price pro rata with the common stock holders.  Participation tends to be an investor-favorable term, especially with a favorable liquidation preference.  These terms in conjunction can often mean that the preferred stock holders will receive a significant portion of the proceeds of any sale of the company.  As with liquidation preferences, participation rights can be “capped,” which is usually expressed as a multiple.

Cumulative Dividends

Dividends are a distribution of a company’s earnings, typically from the company’s profits.  Dividends are usually issued in the form of cash or stock, with most venture investment term sheets requesting “cumulative” dividends on the amount invested.  Most venture term sheets specify a five to eight percent cumulative dividend on the purchase price of the preferred stock.  Although it is rare for venture investors to require a company to make annual dividend payments of cash, they will often receive the cumulative dividends on a later sale of the company.   If, for example, the venture investor provided a $1 million dollar investment with a 5% cumulative dividend and a 1x liquidation preference, and the company was sold 5 years later, that investor would receive $1 million dollars (1x liquidation preference) + $250,000 (5% dividend of $50,000 for 5 years) before the common stock holders received any money from the sale.  Cumulative dividends tend to be uncommon in venture financings, and are often tied into liquidation preferences as a way for investors to require a minimum return on investment.

Antidilution Provisions

Antidilution provisions protect investors’ ownership stake in a company and are frequently designed to protect investors in the event that subsequent company financings occur at a valuation lower than their own.  Preferred stock holders will usually have the right to convert their shares of preferred stock into common stock at a certain ratio (typically 1:1 to start).  Antidilution mechanisms increase the conversion rate of preferred stock, so that the preferred stock holders will receive additional shares of common stock in order to protect their percentage ownership of the company.  The two most common antidilution provisions are “weighted average” and “ratchet” antidilution.

A “weighted average” antidilution term is more favorable to company founders and increases the conversion rate of preferred stock based on a formula that takes into account the overall effect of the proposed issuance of new stock in the company.  The formula factors in new price per share, old price per share, shares already outstanding, and shares to be issued.   “Ratchet” antidilution, on the other hand, increases the conversion rate of preferred stock based on the new price per share regardless of the number of shares being sold.  When the new price per share is lower than the old price per share, this method essentially reduces the price per share of preferred stock retroactively.  “Ratchet” antidilution favors investors heavily, and has fallen out of favor as a typical method of antidilution protection.


When faced with investment opportunities, entrepreneurs will often want to go by the industry “standard,” particularly when they are presented with a term sheet containing unfamiliar provisions.  There are a number of model documents that are promulgated by various groups that can help entrepreneurs assess a proposed investment.  Entrepreneurs should be aware, however, that “standard” transactions may not the appropriate fit for their company, and that despite what venture investors might suggest, there can be a significant amount of room for negotiation.  Entrepreneurs who are able to decipher the key provisions of a term sheet will be able to get a much better sense of the deal being offered, and will be able to negotiate on those provisions that are most important to them.