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For developments including new services, practices, and professionals to better serve our clients as well as our contributions to the legal and business communities, check out our News & Events section.

31 Oct 2014
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CONDO AND COOP RULES OF THUMB: SECURITY CAMERAS AND PRIVACY CONCERNS

We live in an increasingly security-conscious society.  It has become more and more common for condominium and cooperative buildings to have, at a minimum, security cameras posted in entrances and exits, elevators, and lobbies, but even then, there are occasionally unit-owners or shareholders who want more cameras and specifically, want cameras installed right outside their apartment doors.

Safety aside, what about an individual’s right to privacy?  Security cameras in a building’s common areas do not violate a right to privacy.  Under New York law, there is no common law right to privacy.  Instead, the right to privacy is governed exclusively by Sections 50 and 51 of the New York Civil Rights Law, which only provide a cause of action to an individual whose name, portrait, picture or voice is used for trade or advertising without that individual’s written consent.  Further, Article 250 of New York’s Penal Law imposes criminal penalties for “offenses against the right to privacy,” through eavesdropping, wiretapping, tampering with private communications, and unlawful surveillance, which is further defined as filming someone in a place where that person has a reasonable expectation of privacy.  While an individual absolutely has a reasonable expectation of privacy in his own home, in multi-unit buildings such as condos and coops, you do not have a reasonable expectation of privacy in shared or common areas, such as the lobby, stairwells, elevator and hallways.

The issue becomes murkier when the camera is owner-installed.  Each building has its own separate set of requirements, and authorization for anything in a coop or condo requires strict authorization within the building’s by-laws and rules.

Let’s say that you believe one of your neighbors has installed cameras that show activity beyond the hallway directly in front of their apartment and that those cameras may also record audio.  What can you do?  Verify whether or not the board initially approved the installation.  Hire a private investigator yourself or go to your building’s board and request that a private investigator be hired to issue reports detailing the cameras’ viewpoints and whether audio is being recorded.  If audio is being recorded, then your neighbor has violated the Federal Wiretap Act, which prohibits the intentional interception of any “wire, oral or electronic communication” in addition to Article 250 of New York’s Penal Law.  Finally, just as the board can provide authorization, so can they take it away and prohibit an action that was previously permissible.

24 Oct 2014
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FROM BUTCHER BLOCK TO OWNER’S TABLE: PROTECT YOUR CHEF’S BRAND FROM THE ACCIDENTAL FRANCHISE

You’re thinking about expanding your brand.  Perhaps you want to open new restaurant locations or create a product line.  Regardless of your method of expansion, you will, by necessity, be licensing your intellectual property.  One of the most common pitfalls in IP licensing is the unintended birth of a franchise, more commonly referred to as the accidental franchise.

Franchises are highly regulated in the U.S., on both the state and federal level.  A franchise, as defined by the Federal Trade Commission, involves three (3) elements:

  1. The franchisee has the right to use a trademark;
  2.  The franchisee must be required to pay royalties or fees to the franchisor/trademark owner; and
  3. The franchisor must impose substantial control/involvement/assistance in the franchisee’s business that uses the trademark.

 

The two most troublesome areas relate to payment and control.  In the “control” realm, certain items are almost certainly guaranteed to drive your license into the land of franchise, such as requiring the licensee to:  adopt particular business hours, follow certain HR policies, bookkeeping and accounting practices, undergo extensive advertising and marketing campaigns, follow site design or appearance requirements, production techniques, or use pre-prepared, detailed operating manuals.  Additionally, helping select site locations or materials sources can denote a franchise.  Limiting your control over the licensee’s business operation as much as possible will help you to avoid being deemed a franchise.  If a control provision is strictly necessary to protect your rights as the trademark owner, it stands a better of chance of not causing your arrangement to be considered a franchise.  If, however, the provision seems more of a day-to-day control over the licensee’s business, it will work against you.

In terms of payment, if you as the licensor require the licensee to purchase goods from you for resale at a higher price than the wholesale price, the franchise fee requirement will have been met and your license agreement will be deemed a franchise agreement.  How can you avoid the fee requirement?  For starters, by limiting the price of goods and materials to the bona fide wholesale price.  Another way is to limit the fees that a licensee is required to pay.  Be warned:  a nominally optional payment will be classified as a required payment if it is practically necessary for a successful business operation.  A commission-based relationship, in which the licensee does not make payments to the licensor, but rather, receives a commission as compensation successfully avoids the franchise label.  Also, while there are additional exemptions from federal law, they may not be available or applicable in a particular state.

Being aware of what constitutes a franchise and having a carefully prepared agreement can help keep your arrangement as a license, but where there is any question of whether the elements of a franchise are present, a prudent licensor should be sure to seek the advice of an attorney well-versed in federal and state franchise law.

22 Oct 2014
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FROM KITCHEN TO OWNER’S TABLE: PROTECTING YOUR INTERESTS AS A CHEF TURNED ENTREPRENEUR

Life as a professional chef is not an easy one.  However, those who gain themselves household recognition through hard work, experience and a little luck, may find the beginning of a new phase in their career:  using their brand to open their own restaurant.

For most in this position, the best way to proceed is through a strategic alliance with investors and/or experienced operators to carry the chef’s brand and vision through to a successful restaurant.  People with creative backgrounds and who provide service may not be used to thinking of bigger, global business details.  That said, it is especially important to find business partners who share your vision and work with you, not around you.  One of the biggest mistakes made by chefs at the outset is feeling that they do not have the leverage to protect themselves.  Remember that your brand is your leverage and always go into a negotiation prepared to protect your intellectual property.  An ideal agreement would provide that you, as the chef and brand-owner are licensing the use of your name and that you have a right to terminate the license.  The risk in not asserting your position from the beginning is that, in an effort to secure funding, you may agree to terms that are disagreeable, such as hefty interest rates, prohibitive non-compete clauses, and issues regarding ownership of intellectual property, to name a few.  If you fail to assert your value up front, in addition to feeling cheated and resentful of your partners, you may also lose the rights to your own name.

Yet, money is still the biggest cause of partner dissension and business failure.  Follow the advice of your accountants and financial advisors. Always make sure they have no conflicts and that they are solely representing your interests. Be sure you have enough of a cushion in the event that your business does not take off immediately.  It may also be wise to include a clause in your agreement calling for third party mediation in the event of a dispute between business partners.  This independent third party’s advice is nonbinding, and can help parties resolve disputes without having to resort to litigation, allowing for a less public and more graceful exit.  Perhaps most important, though, is not to rush into a business decision and to give yourself time to think over whether a particular business partnership is the right one for you.  In other words, shop around before making any decisions!

02 Oct 2014
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CONDO BOARDS AND THE RIGHT OF FIRST REFUSAL

A condominium unit owner has significantly more freedom to transfer and sell her unit than a cooperative shareholder, who is restricted by his board’s broad power to veto a proposed sale by rejecting the proposed buyer’s application.  At the same time, a condo board’s hands are not tied.  In lieu of a cooperative’s broad veto power, a condo board has a right of first refusal, through which a condo board can buy the unit being offered for sale.

So, why would a condo board want to block a sale to a third party?  First, if the buyer is known to be particularly litigious or has had financial difficulty in the past.  Another reason to block a sale is if the board wants the unit for use by the condo association itself, or as a new or larger apartment for a superintendent.  Lastly, if the board believe that the sale price is too low and will adversely affect the value of the other units in the building, it may exercise its right of first refusal to buy the property, flip the apartment to a third party purchaser and add the profit to the condo’s reserve fund.

As useful as this right may be, it is not always easy to execute.  The level of difficulty in exercising the right of first refusal depends on the governing documents, which usually define this right to allow a condo board to buy a unit with the same terms and conditions offered by a prospective buyer within a certain number of days after being notified of a pending sale.  A 30 day time period is also not uncommon, but some condos have as little as 5 days.  Additionally, the bylaws govern what type of vote is required before the board can exercise its right, and it is more common than not that the bylaws require a majority vote of the owners.  In and of itself, this requirement is not terribly daunting if the bylaws allow consent to be provided in writing.  However, if the bylaws require the board to first call a meeting before obtaining the majority’s consent, it may be difficult to meet the deadline.  Assembling non-resident unit owners on short notice takes time.  Ultimately, there is no black and white rule regarding when a board should exercise its right and buy an apartment, but if the issue is something that affects the building as a whole, such as a sale price below market value, it merits extra consideration.

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Guzov sends quarterly emails that highlight industry trends and updates to our News & Press.
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