Written by Tammy A. Brown, Esq., Chair, Wendel Rosen LLP Employment Practice Group

This blog post provides some general guidance on employment issues that many California businesses are facing related to employment in light of the COVID-19 crisis, including the new federal laws on paid sick leave and paid family leave for taking care of children. As you consider the challenges and response strategies discussed in greater detail below, please know that Wendel Rosen is available to advise and answer the specific questions that you may have.

Staying Open / Essential Businesses

Essential Businesses

Essential businesses can stay open. See attached summary of essential businesses under California’s shelter-in-place executive order.

(a) Protecting Employees

Once a business determines that it can operate as “normal“ because it is essential, it should be aware of a few additional factors. The first obviously is to take reasonable steps to protect its employees from the virus, and thus protect against claims of negligence.  This means assessing how the business is vulnerable to exposure to and/or spread of the virus. This would likely include methods of performing job duties while maintaining social distancing, providing protective gear, and some kind of training. The latter may just be a talk or memo with some common sense pointers and reiterating what the CDC and State has said.

(b) New Federal Laws for Sick Leave, etc.

Employers with less than 500 employees will be subject to the federal laws providing for paid sick leave and emergency family medical leave.   Beginning April 2, 2020, employers with less than 500 employees will be required to provide paid sick leave and paid “FMLA” for circumstances related to the COVID-19 outbreak.   The emergency FMLA is for employees who are unable to work, including telecommuting, because their minor child’s school/daycare has closed because of the virus.   For more details, see section C below.

Non-Essential Businesses

Non-essential businesses can operate, but in different formats. This may mean office workers telecommuting, restaurants providing only take-out meals, and bars being allowed to sell bottles of alcohol on a pick-up basis.

(a) Issues for Employers with Employees Working at Home

Having employees work at home raises a number of issues for employers, especially if they do not have telecommuting policies in place. Briefly:

• • • Non-Exempt employees should be reminded to take their rest and meal breaks. It would be good to have the employees report on a daily basis their time (including clocking out for meal breaks) and confirming they took their rest breaks.
    • Employees should be reimbursed for expenses associated with requirements for working from home, such as internet costs and phone. It is common to reimburse employees $50-$75/month for these expenses.
    • Workers comp – injuries incurred on the job while working at home should be reported immediately as they are still subject to workers comp.
    • Protect confidential and proprietary information.
    • If an employee refuses to work from home for a reason that is not protected by law (e.g., telecommuting does not work with their reasonable accommodation), then the employee can be furloughed or terminated, though the employer should consult with legal counsel.

(b) Federally Mandate Sick Leave and Leave Associate with Child Care

Employers with less than 500 employees will be subject to the federal laws providing for paid sick leave and emergency family medical leave. See section C below.

LAY-OFFS AND TERMINATIONS

Many employers are laying off or terminating employees or reducing their hours. Issues to keep in mind:

Last Day Issues

If employees are terminated or laid-off for an indefinite amount of time, then the employer must pay the employee on their last day of employment all amounts owed to the employees (just like before).  This includes hours worked to date, premiums for missed meal and rest breaks, unused vacation/PTO, and reimbursement for expenses.  Sick leave, whether provided by state or federal law or the employer, is not a wage and therefore is not paid out at termination.  There are different rules applying to employees who earn commissions based on future events.

If employees are laid off with a definite return-to-work date (furloughed), they are to be paid regularly and do not need to be paid unused vacation/PTO.  The return to work date should be reasonable; if it is too far into the future, the Labor Commissioner will consider it a termination for final pay purposes.  There is no set rule for what is reasonable.

Mass Layoffs

Employers may be subject to state or federal WARN Act requirements for mass layoffs.  California has suspended the penalties associated with not complying with the state’s WARN Act, but it has not suspended the requirements relating to notice to employees and local authorities.  See section D below.  The notices and triggering events can be complicated and employers should consult with their attorneys.

Unemployment Benefits

Unemployment is available immediately to employees who are let go during the crisis (no one-week waiting period).  The weekly benefit amount is about 60-70 % of wages earned in the prior 5 to 18 months, up to a maximum of $1300.

Also, full-time employees who lose income because of reduced hours may be eligible for unemployment benefits even if they are still working.  These are called “partial benefits” by California’s EDD.  Partial benefits occur in two circumstances for full-time employees:

• • Who are laid off for no more than two consecutive weeks, OR
  • Whose gross earnings, when reduced by $25 or 25 percent, whichever is greater, are less than their weekly benefit amount.

A full-time employee is eligible for partial unemployment under the following conditions:

• • The employee becomes partially unemployed through no fault of his/her own; and
  • The employee works less than normal full-time hours because of lack of work; and
  • The employee’s normal weekly earnings are reduced by lack of work; and
  • The employee’s gross earnings, after deducting the first $25 or 25 percent of the total earnings (whichever is greater), are less than his/her weekly Unemployment Insurance benefit amount.

NEW SICK LEAVE / CHILD CARE LAWS

On March 18, 2020, President Trump signed House Bill 6201, the Families First Coronavirus Response Act (“FFCRA”). The law takes effect on April 2, 2020, and remains in effect until December 31, 2020. The FFCRA amends portions of the FMLA and also provides for paid sick leave in certain circumstances related to the current COVID-19 pandemic.  It applies to employers with less than 500 employees.

Employers will be “reimbursed” for these paid wages by a credit against the tax employer’s pay roll taxes for each calendar quarter in an amount equal to 100 percent of the qualified sick leave wages paid by the employer.

The Federal government will be preparing guidelines for employers, but, at the time of writing, no further guidelines have been issued.

Federal Sick Leave Law

Amount:  It provides for 10 days of sick leave to be paid by employers.

Employee Qualifications:  Paid sick leave is available for immediate use, regardless of how long an employee has been employed.

Reason for Sick Leave:

Self-care:  Employee is sick due to COVID-19 OR employee is quarantined due to COVID-19 (quarantine can be imposed by government or by the employee’s medical provider) OR the employee is experiencing symptoms of COVID–19 and is seeking a medical diagnosis.

Care of Others:  Sick leave is also available for employees caring for someone who is experiencing symptoms of COVID–19 and who is seeking a medical diagnosis OR the employee is caring for a minor child whose school or day care provider is unavailable because of COVID-19.

Pay:  For full-time employees, it is 80 hours; part-time employees receive the number of hours that the employee works on average in a two-week period.

Employees are paid at their regular rate of pay as determined by the federal Fair Labor Standards Act (FLSA) or at the minimum wage, whichever is greater, for uses associated with the employee (i.e., self-care or quarantine). Employees are paid at 2/3 of their regular rate of pay for uses related to care of another, including childcare.

Paid leave is capped at $511 per day and $5,110 in the aggregate for self-care or quarantine and is capped at $200 per day and $2,000 in the aggregate for care of another.

An employee may use paid sick leave under this law before using other leave, but cannot be required to.

Federal Emergency Family Medical Leave – Child Care

The new law provides for 12 weeks of leave related to having to care for a minor child because of school closure or unavailability of child care related to COVID-19.  The first two weeks are not paid by the employer (though the employee can take the sick leave described above), whereas the remaining 10 weeks are paid at 2/3 the employee’s salary, subject to caps.        

Employee Qualifications:  Employees must have been employed by the employer for 30 days or more prior to the requested leave.

Reason for Emergency FMLA Leave:  The leave is only for employees who are unable to work, or unable to telework, due to a need to care for a minor child if the child’s school or place of care has been closed or the child care provider is unavailable due to a public health emergency related to COVID-19.

This leave does not apply to employees who are not permitted to come to work because of a shelter-in-place order but are unable to work from home for some reason (such as they do not have internet or no phone).

Pay:  Employers must provide paid leave for each day of emergency leave taken after the initial 10 days, in an amount not less than two-thirds of an employee’s regular rate of pay, with caps at $200 per day and $10,000 total.

Employees may elect to substitute any accrued paid vacation, parental, medical or sick leave for unpaid leave; employers cannot force them to use this time.

Exceptions:  Employers with less than 50 employees if compliance would jeopardize the viability of the business as an on-going concern.  Also, certain healthcare providers and emergency responders are exempt.

Job Protection:  Like “regular” FMLA, the new law provides for job protection of employees using it.  There is a limited exception for employers of less than 25 employees where the employee’s position no longer exists upon return to work due to economic conditions or other changes caused by the coronavirus emergency, and the employer has made reasonable efforts to restore the employee to an equivalent position.

“Regular” FMLA is still available pursuant to its own terms.

LAYOFF ISSUES – WARN ACTs

California and the federal government have WARN Acts (Worker Adjustment and Retraining Notification) that require notices be given to employees and certain government agencies.  The California act applies in specific circumstances to employers with 75 or more employees.  If the employer has 100 or more employees, they must also comply with the federal WARN Act.  Employers should consult with an attorney because there are a lot variables.  Below is a general summary.

California WARN

Triggering event under California law:  Layoff of 50 or more employees during any 30-day period regardless of percentage of work force.

The California WARN Act requires employers to provide 60 days’ advance notice when they conduct a mass layoff, relocation, or termination. Usually, failure to provide 60 days’ notice can result in severe liability – up to 60 days of back pay plus benefits for all laid-off, relocated, or terminated employees, in addition to civil penalties.

On March 17, 2020, Governor Newsom suspended the provisions of California’s WARN act that impose liability and penalties. His executive order waives the 60-day notice requirement for the duration of the COVID-19 emergency. The order applies where COVID-19-related business considerations result in mass layoffs, relocations, or terminations that were not reasonably foreseeable as of the time that notice would have been required.

To qualify for the waiver of the 60-day notice requirement under the order, employers must:

1. give written notice to employees; the EDD, the local workforce investment board, and the chief elected official of the local city and county government;
2. give as much notice as is “practicable,” along with a brief statement of the basis for reducing the 60-day notification period;

for written notice given after March 17, 2020, include the following statement: “If you have lost your job or been laid off temporarily, you may be eligible for Unemployment Insurance (UI). More information on UI and other resources available for workers is available at labor.ca.gov/coronavirus2019.”

Federal WARN Act

The federal WARN act applies to employers of 100 or more and is still in effect, though it contains an exception for “unforeseeable circumstances.” Triggering events vary, but include plant closures , permanent or temporary shutdown of a single site of employment or facility (or operating unit within a single site of employment) that involves 50 or more employees during a 30-day period if the number of affected employees is at least 33% of the workforce.

Notice requirements are much the same as California’s.  In either case, attorneys should be consulted.

Today the Supreme Court agreed to decide an ongoing conflict, pitting a trademark registrant’s First Amendment rights against longstanding law precluding trademark registration of “disparaging” marks.

In This Corner: Trademark Law & the USPTO

Section 2(a) of the Lanham Act, precludes trademark registration of marks that are: immoral, deceptive or scandalous matter; or matter which may disparage …or bring them into contempt or disrepute….” Since World War II, the United States Patent and Trademark Office (USPTO) has relied on Section 2(a) to deny registration to such marks, but in December 2015, for the first time, the legality of Section 2(a) was called into question.

In This Corner: The First Amendment & The Slants

An Asian-American rock band, The Slants, sought to register its name, but the USPTO rejected the name as disparaging. The Slants appealed to a federal district court, which affirmed the USPTO’s decision, but when The Slants appealed to the Federal Circuit, the majority found that Section 2(a) was unconstitutional restraint of free speech under the First Amendment.

The Slants asked the Federal Circuit to order the USPTO to register its trademark, but the court declined. The USPTO issued guidelines, advising trademark applicants that any applications with potentially disparaging marks would be held in limbo until the issue was resolved.  Then the USPTO asked the Supreme Court to decide the issue.

In This Other Corner: The Washington Redskins

Meanwhile in June 2014 the USPTO deregistered the Washington Redskins’ trademark under Section 2(a). The Washington football team appealed, lost in federal district court and appealed to the Fourth Circuit. While that appeal is currently pending, the Washington team has asked the Supreme Court to intercede.

The Judges’ Score Card: Key Issues

The Slants, the Washington team and the Federal Circuit majority basically argue that trademarks equal free speech. They contend that Section 2(a) amounts to viewpoint discrimination and is subject to strict scrutiny  review, Section 2(a) fails to withstand “strict scrutiny” and is therefore unconstitutional. “Strict scrutiny” requires the USPTO to prove that Section 2(a) serves a compelling government interest, that it is narrowly tailored to achieve that interest, and that it is the least restrictive means for achieving that interest.

The USPTO, the two federal district courts, and the Federal Circuit’s dissenting opinion argue that trademarks do not equal free speech, and Section 2(a) is not subject to “strict scrutiny.” They contend that Section 2(a) does not prohibit any speech but instead denies the benefits of registration to private disparaging speech. In short, The Slants and the Washington team are entirely free to call themselves whatever they want, to publicize their names and use their names in commerce, but they are not entitled to the extra benefits conferred by federal trademark registration.

TKO or 12 Rounds?

While today’s grant of certiorari is only the beginning of the first round, recent Court decisions upholding hateful speech in other situations would tend to indicate that USPTO may be punching above its weight class and Section 2(a) might hit the canvas.

In a decision surprising absolutely nobody, on Monday the Supreme Court ruled that the U.S. Patent and Trademark Office (USPTO) could not refuse to register trademarks even if they are  “immoral or scandalous.”  The trademark at issue involved the use of the mark “FUCT [F-U-C-T]” for clothing and merchandise.

The Court held that the First Amendment right to free speech trumps Section 1052(a) of Lanham Act (Section 2(a)), which prohibits the use of “immoral, deceptive, or scandalous matter; or matter which may disparage….”

The Slants, the Washington Redskins and Free Speech vs. Disparaging Trademarks

The Court’s recent decision was merely the final domino to topple in the domino chain reaction that started back in 2010 when Simon Shiao Tam, the lead singer for an Asian rock band attempted to register “The Slants” as the name of the band.  The USPTO rejected The Slants’ application, finding it was disparaging to people of Asian descent.  Tam appealed, and the Federal Circuit Court ultimately held that the USPTO’s refusal to register the trademark violated Tam’s First Amendment right to free speech. The Supreme Court affirmed the Federal Circuit Court’s decision, holding that the disparagement clause of  Section 2(a) “violates the Free Speech Clause of the First Amendment.”

The Supreme Court’s Tam decision effectively rescued the Washington Redskins’ trademarks, which the USPTO was in the process of cancelling as disparaging to Native Americans.

The FUCT Trademark, and the Final Domino

The Slants and Washington Redskins’ trademarks addressed Section 2(a)’s prohibition of disparaging trademarks, but the FUCT trademark attacked Section 2(a)’s prohibition of “immoral or scandalous matter….”  When Erik Brunetti sought to register the mark FUCT for his clothing brand, the USPTO refused to register the mark, finding that “‘FUCT’ is the past tense of the verb ‘fuck,’ a vulgar word, and is therefore scandalous.”  Brunetti appealed, the Federal Circuit agreed that the mark FUCT is vulgar, but followed the Supreme Court’s Slants decision, holding that “the bar in Section 2(a) against immoral or scandalous marks is unconstitutional because it violates the First Amendment.”

Justice Kagan, writing for a 6-3 majority, held that “the Lanham Act’s prohibition of ‘immoral [ ] or scandalous’ trademarks violates the First Amendment.”  The Court noted that historically the USPTO would refuse to register a mark if the mark was “shocking to the sense of truth, decency, or propriety” or “giving offense to the conscience or moral feeling.”  The Court noted and did not disagree with the USPTO’s conclusion that the FUCT mark “flunked the test” and was “a total vulgar.”  However,  Brunetti brought a facial challenge, basically conceding that his mark was vulgar but arguing that the “immoral or scandalous” prohibition violated his First Amendment right to free speech.  The Supreme Court agreed that Section 2(a)’s prohibition of immoral and scandalous marks is unconstitutional.

As I wrote last year, the Court’s decision is likely to spur a race to the bottom, with certain businesses seeking to gain attention and market share via shocking, vulgar and/or scandalous trademarks from the USPTO.

[Thanks to Wendel Rosen business attorney Karen Balderama for this post.]

More than a year after legalization of recreational cannabis in California, the maturing California cannabis industry has seen an exponential increase in capital raising and M&A activity. Sophisticated investors and established companies are jumping in and making deals happen, infusing operators with capital and betting on even more growth if and when federal legalization occurs. Investors from Canada, where recreational marijuana is legal, are particularly interested in the California market. California cannabis companies are a popular target because they represent a foothold in the largest legal cannabis market in the world.

Before jumping in, however, investors should conduct thorough due diligence to uncover any potential landmines. The cannabis industry is unique in that many companies are emerging out of the illegal “black” or semi-legal “gray” market and may be operated by individuals who are not familiar with conventional business practices. Investors should be aware of the unique issues they will encounter when reviewing companies newly subject to complex and quickly evolving rules and regulations. In this environment, the potentially high upside is tempered by significant risk.

Investors who are new to the cannabis industry should be aware of the key areas that may require increased focus during the due diligence process. Along with my colleague, Rob Selna, I will be discussing these key due diligence issues and how investors can address them at the O’Cannabiz Conference in Toronto on April 27, with real-life examples from recent financing and M&A transactions.

1. Local and State Licensing

Without a local permit and state license to operate, a company cannot do business in the legitimate California cannabis market. While this sounds like a no-brainer, investors must ensure that any company they review has all the proper required state and local permits it needs to operate. Given the new and untested California licensing process, an investor must ask some basic questions, such as: If the company does not have a permanent license, is it in the process of obtaining one? Is there any risk that it can be denied a local permit or a permanent license?

2.  Capitalization and Corporate Records

One particular problem for cannabis companies, is that they may have been started and operated without legal help. While some disorganization can be accommodated, a company ready for investment or acquisition should have some level of basic corporate housekeeping. Due diligence questions may include: Have corporate actions been properly documented and approved? Is the company in compliance with its own articles of incorporation and bylaws? Are there risks of other “founders” coming out of the woodwork to claim ownership in the company?

3.  Tax and Financials

It’s common knowledge that cannabis companies are taxed heavily. Some companies may have come up with creative solutions to try to get around this, or they may have handled tax issues themselves without getting sound advice from accounting professionals. Questions to ask include:

• What banking arrangements, if any, does the company have in place?
• Has the company filed accurate tax returns?
• Has it paid all of its local, state and federal taxes?
• Is it at risk for an IRS audit?
• Could there be a large tax liability?

Like corporate records, companies also may have neglected to keep complete and proper financial records. Investors should engage accountants well-versed in the cannabis industry to review a target company’s tax returns and financial information so they understand the risks involved.

4.  Intellectual Property

After it obtains a license to operate, a company’s intellectual property (trademarks, trade secrets, patents, etc.) may be some of the most valuable assets that a cannabis company has. An investor should examine how well the company’s IP is protected, understanding that federal registration of certain intangible assets may not be available for an “illegal” business activity. It is also critical for investors to know whether any other parties (such as employees or partners) have a valid claim of ownership on the IP, or whether the company’s IP infringes on another party’s intellectual property.

5.  Business Operations and Agreements

Investors should carefully examine how the business has been operated to assess other possible risks. This bucket includes employment issues (such as proper classification of employees, wage and hour issues, etc.); lease agreements and other real estate matters; contracts with customers and suppliers; adequate levels of insurance coverage; adoption of and compliance with internal controls, policies and procedures; compliance with environmental laws; and compliance with other rules and regulations that may apply. Noncompliance in each of these areas could present a risk of liability to investors.

Ideally, once due diligence on a cannabis company is completed, there are no significant issues that present a heightened risk of liability. If there are issues, it is best to uncover these issues and address them early in the process. If the company presents too high a risk of liability, investors can negotiate better terms and demand certain protections, or they might decide to pass on a particular opportunity altogether.

[Thanks to Wendel Rosen environmental attorney Wendy Manley for this post.]

State Water Quality Permit

In 2017, the State Water Resources Control Board (State Board) issued a general permit for all cannabis cultivation to protect water quality (State Permit). Cannabis cultivation is broadly defined as “any activity involving or necessary for the planting, growing, pruning, harvesting, drying, curing, or trimming of cannabis,” including water diversions, preparing a cultivation site, or activities otherwise to support cannabis cultivation, and which discharge or could discharge waste to waters of the state. “Waste” includes any kind of pollutant that might reach surface waters or groundwater, such as nutrients in irrigation tail water and hydroponic wastewater. The State Permit is potentially far reaching, to include even indoor operations unless they meet certain conditions and file for a Waiver. See the State Permit here. 

Conditional Exemption

To be “Conditionally Exempt,” an indoor cannabis operation must occur in a structure with a permanent roof and a permanent, relatively impermeable floor (e.g., concrete or asphalt); discharge all wastewaters to the sanitary sewer in accordance with sanitary sewer system requirements; and implement “best practical treatment or control” measures or “BPTC,” which consist of numerous restrictions and express requirements for cultivation site development, fertilizer and pesticide use, activities in and around riparian areas and wetlands, water storage and conservation, among other things. Conditionally Exempt dischargers are also required to obtain the “Waiver.” In other words, “Conditionally Exempt” doesn’t mean you don’t have to do anything.

Outdoor cultivators who do not qualify for a Waiver as Conditionally Exempt are designated as either “Tier 1” (operations disturbing 2,000 square feet to one acre (43,560 square feet), or “Tier 2” (cultivating outdoors on more than one acre. In addition to BPTC, permittees must implement a monitoring and reporting program. 

Upcoming Workshops

Everyone in Cannabis cultivation, including indoor operators, should determine how the State Permit may affect their operations. Those planning to establish a new growing operation should examine the State Permit as early as possible, since site development and road building are subject to the State Permit, and there are numerous opportunities to organize the operation to minimize the costs and complications of implementing the BPTC measures. Those subject to the regional permits issued by the North Coast and Central Valley Regional Water Boards are expected to be transitioned to the State Permit this year.

Staff from the State Water Board will be available to describe the program and assist cultivators with permit applications and questions in two upcoming workshops co-hosted with other entities with oversight of the cannabis industry, including Cal Fish and Wildlife, Cal Department of Food and Agriculture CalCannabis, local planning departments, and CalFire. The workshops are in Laytonville March 26 (Mendocino County) and in Clearlake March 13 (Lake County). 

The State Permit is only one piece of the complex regulatory puzzle. For example, conditionally exempt cultivators may still need to apply for a water right to divert and use water.    

“Krümel Monster Muffins” by Xitu is licensed under CC BY-SA 4.0

Wendel Rosen attorney Bill Acevedo, who co-chairs the firm’s Food & Beverage Practice Group, posted a new blog at FoodLaw.com addressing the “confusion” in the marketplace regarding the use of CBD as an additive or ingredient in food and dietary supplements. 

Bill provides an overview of the way four nationally influential states are handling the issue due to the lack of direct enforcement by the FDA of its unequivocal regulatory prohibition of CBD use in food or dietary supplements.

You can read the full post here:

“C” is for “Confusion” When It Comes to CBD

2018 was a big year for the commercial cannabis legalization and provided some clues for what’s to come. The year started with California’s recreational market kicking off just as now-former U.S. Attorney General Jeff Sessions rescinded the Cole Memo. By year’s end, the number of states allowing medical and recreational cannabis rose to forty-four and ten, respectively.

Some major milestones for 2018 included:

• The introduction of the STATES Act, which would give states the power to regulate commercial cannabis within their own borders.

• California’s first full year of legalization.

• Canada’s national legalization of commercial cannabis.

• High taxes on cannabis businesses and less than expected tax revenue for many states and localities.

These topics are discussed in greater detail in an article by Rob Selna and myself published in mg Magazine, which you can read here.

Court Ruling on 280E

Another major legal development came in late 2018: after a long battle, a US Tax Court ruled that the IRS can continue prohibiting cannabis companies from taking standard business deductions based on Internal Revenue Code Section 280E. 

As discussed in a previous post, Section 280E prevents any trade or business that consists of trafficking in controlled substances from taking deductions or credits for business expenses other than the cost of goods sold. 280E has been a thorn in the side of attorneys, CPAs, accountants and business owners working in the cannabis industry for as long as cannabis companies have been filing their taxes. It has greatly increased the cost of doing business and has prompted even small cannabis companies to adopt complex corporate structures, including management and holding companies. Another tact has been to undertake extremely careful, and sometimes creative, bookkeeping in order to minimize the overly heavy tax burden.

Fed up with what it perceived to be unfair treatment, Harborside Health Center, a major cannabis retailer headquartered in Oakland, decided to take a stand against Section 280E. Unfortunately, a Tax Court didn’t buy their argument. On December 20, 2018, the court ruled that Harborside would have to repay business deductions, estimated to be tens of millions of dollars, that it took on its taxes between 2007 and 2012.

Harborside argued that 280E did not apply to their dispensary earnings because about two percent of revenue came from the sale of non-cannabis related products like clothing and lighters. Harborside relied on the language in 280E, which states that its restrictions shall apply to any trade or business that “consists of trafficking in controlled substances” to mean consists “only of controlled substances.” The U.S. Tax Court disagreed with this interpretation and held that the sale of non-cannabis products was “neither economically separate nor substantially different” from Harborside’s primary business in selling cannabis products. Harborside has said it will appeal the ruling, but for now, 280E’s ban on standard business for cannabis operators stands.

On August 15, 2018, plaintiffs filed a putative class action on behalf of advertisers who get less than they pay for when Facebook allegedly overstates its user numbers.

Facebook provides its advertisers with an approximate “Potential Reach,” an “estimation of how many people are in an ad set’s target audience.”  The lawsuit alleges that Facebook fudges the numbers.

The complaint alleges that the “purported Potential Reach among the key 18-34 year-old demographic in every state exceeds the actual population of 18-34 year olds.”  The lawsuit further alleges that Facebook also vastly overstates the number of total users.  For example, the lawsuit alleges that “Facebook asserted its Potential Reach was approximately 4 times (400%) higher than the number of real 18-34 year-olds with Facebook accounts in Chicago.”

Plaintiff Danielle Singer owns an online business that sells aromatherapy fashionwear and accessories, including scarfs, jewelry and essential oils.  She spent more than $14,000 on Facebook ads.  Her suit asserts claims on behalf of any person or entity who advertised on Facebook.com from January 1, 2013 to the present.

The complaint quotes three former Facebook employees (Confidential Witnesses 1-3) who allege that Facebook “did not give a sh—“ about the accuracy of its actual numbers, that it is only concerned that “advertising revenue not be negatively affected,” and that it had no interest in “stopping duplicate or fake accounts in calculating Potential Reach.”

The lawsuit admits Facebook’s “Potential Reach” includes a disclaimer that:

Estimates are based on the placements and targeted criteria you select and include factors like Facebook user behaviors, user demographics and location data.  They’re designed to estimate how many people in a given area could see an ad a business might run.  They’re not designed to match population or census estimates.  Numbers may vary due to performance reasons. (Emphasis in Pleading).

Citing data from the Pew Research Center, the plaintiff alleges that even this disclaimer is false, since Facebook claims to be estimating how many people “could see an ad,” but there simply aren’t that many people, much less that many Facebook users.

The lawsuit, filed in Federal Court in the Northern District of California, alleges Facebook violated California’s Unfair Competition Law and quasi contract claims, seeking restitution or disgorgement of profit.

It will be interesting to see what happens next;  whether: (a) this lawsuit quietly vanishes, with Facebook and Plaintiff/Plaintiff’s counsel reaching quick confidential resolution; (b) Facebook changes its posting regarding its Potential Reach, and/or (c) Facebook stands tall and defends its Potential Reach.

Last year I wrote about the United States Patent and Trademark Office (USPTO) taking the position that even when it lost, the other side had to pay its attorneys’ fees.

Today, the Federal Circuit Court issued a decision rejecting the USPTO’s position.  In a split decision, the Court found that the “American Rule [that parties only pay their own attorneys] prohibits courts from shifting attorneys’ fees from one party to another absent a ‘specific and explicit’ directive from Congress” and that the language relied on by USPTO “falls short of this stringent standard.”

In Nankwest, Inc. v. Matal,(E.D. Virginia 2016) 162 F. Supp.3d 540, the USPTO rejected a patent application and the applicant appealed the USPTO’s decision to a federal district court. The district court partially affirmed and partially denied the USPTO’s decision.  The USPTO filed a motion to recover its costs from the patent applicant, including its attorneys’ fees, but the trial court refused to award the USPTO its attorneys’ fees.  The USPTO appealed to the Federal Circuit, which reversed and awarded the USPTO its attorney’s fees, finding that even when the USPTO lost, it was entitled to recover its attorneys’ fees.

That decision was widely criticized and the Federal Circuit withdrew its earlier decision and reviewed the issue en banc. On July 27, the Federal Circuit issued its en banc decision that the USPTO cannot recover its attorneys’ fees from applicants that appeal USPTO decisions to the federal courts, even when the applicant loses: “The American Rule is a bedrock principle of this country’s jurisprudence” that “in the United States each litigant pays his own attorney’s fees, win or lose.”  So as it’s often been asserted, in litigation everybody loses except the lawyers.

Last year I wrote about the United States Patent and Trademark Office (USPTO) taking the position that even when it lost, the other side had to pay its attorneys’ fees.

Today, the Federal Circuit Court issued a decision rejecting the USPTO’s position.  In a split decision, the Court found that the “American Rule [that parties only pay their own attorneys] prohibits courts from shifting attorneys’ fees from one party to another absent a ‘specific and explicit’ directive from Congress” and that the language relied on by USPTO “falls short of this stringent standard.”

In Nankwest, Inc. v. Matal,(E.D. Virginia 2016) 162 F. Supp.3d 540, the USPTO rejected a patent application and the applicant appealed the USPTO’s decision to a federal district court. The district court partially affirmed and partially denied the USPTO’s decision.  The USPTO filed a motion to recover its costs from the patent applicant, including its attorneys’ fees, but the trial court refused to award the USPTO its attorneys’ fees.  The USPTO appealed to the Federal Circuit, which reversed and awarded the USPTO its attorney’s fees, finding that even when the USPTO lost, it was entitled to recover its attorneys’ fees.

That decision was widely criticized and the Federal Circuit withdrew its earlier decision and reviewed the issue en banc. On July 27, the Federal Circuit issued its en banc decision that the USPTO cannot recover its attorneys’ fees from applicants that appeal USPTO decisions to the federal courts, even when the applicant loses: “The American Rule is a bedrock principle of this country’s jurisprudence” that “in the United States each litigant pays his own attorney’s fees, win or lose.”  So as it’s often been asserted, in litigation everybody loses except the lawyers.