National Article Profiles the Conkle Firm’s $6.2 million Judgment for Unpaid Sales Commissions

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Conkle, Kremer & Engel’s $6.2 million judgment against an electronics manufacturer is the subject of a feature article in the monthly publication of Manufacturers’ Agents National Association (MANA).  The article, Fallout From an Oral Contract, appears in the January 2014 issue of Agency Sales Magazine.

The article profiles Plaintiff Peter Reilly, a sales representative who was denied his commissions.  Author Jack Foster chronicles how CK&E lawyers Eric S. Engel and H. Kim Sim marshaled the facts and developed the law of the California’s Independent Wholesale Sales Representatives Contractual Relations Act to win a treble damages judgment for Mr. Reilly.

The Independent Wholesale Sales Representatives Contractual Relations Act is a little-known statute that requires a signed written contract containing specific terms in some commission agreements between manufacturers and sales representatives.  A willful failure to have a written contract that complies with the Act, or to account for and pay commissions as required by the written contract, can result in an award to the sales rep of three times the amount proved at trial, in addition to attorney fees.  In the Reilly v. Inquest case, the jury awarded the sales representative $2.1 million for unpaid commissions, which was trebled by the Court to more than $6.2 million.

The California Court of Appeal affirmed the award in full.  The Reilly v. Inquest Technology decision was unprecedented, because it is the first published decision to endorse the full scope of remedies available under the Independent Wholesale Sales Representatives Contractual Relations Act.

The Agency Sales Magazine article follows an article about Reilly v Inquest that appeared in the Los Angeles Daily Journal.

CK&E’s lawyers are well versed in issues affecting manufacturers and sales representatives.  CK&E lawyers litigate and resolve disputes over sales commissions and terminations, and use that knowledge to help manufacturers and sales representatives draft more effective contracts.  CK&E is a member of MANA and the Electronics Representatives Association (ERA).

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CK&E Attorneys Speak at ERA Owners Forum

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CK&E attorneys Eric Engel and Kim Sim were pleased to be invited to speak at ERA So Cal’s January 28, 2014 Owners Forum.  ERA is the international association of professional sales representatives and electronics industry manufacturers who use independent sales reps.  ERA’s member rep firms sell more than $40 billion annually in electronics products for thousands of manufacturers.

The ERA roundtable forum included lively and thoughtful questions and comments by business owners and managers, directed toward improving their ability to collect commissions owed for their sales representatives’ work promoting sales for manufacturers.  In addition to outlining important terms that should be included in written contracts, much of the discussion concerned the application of the Independent Wholesale Sales Representatives Contractual Relations Act, California Civil Code §§ 1738.10 et seq.  Under the Act, a manufacturer must have a signed written contract with the sales rep containing particular terms required by the Act, and the manufacturer must provide a written accounting with every payment of commissions.  When a manufacturer willfully fails to comply with the requirements of the Act, the sales rep is entitled to three times his or her unpaid commissions and other damages, plus attorney fees.

Eric Engel and Kim Sim were the trial attorneys in Reilly v. Inquest Technology, the first precedent in California that enforced the full remedy of treble damages under the Act.  In Reilly, application of the Act led to a $2.1 million jury verdict becoming a judgment for $6.2 million, plus attorney fees and interest.  ERA and its partner organization, Manufacturers’ Agents National Association (MANA), were important sponsors of the Act and similar legislation enacted in about 36 other states to protect the rights of independent wholesale sales representatives.  CK&E is proud to be able to help sales representatives create contracts that protect their rights to be paid for their services, and to help them enforce their rights when disputes arise.

 

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California Safe Cosmetics Act of 2005: A Sleeper That May Awake in 2014

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California has a well deserved reputation for extraordinary efforts to protect consumers.  While the goals behind the regulations may be laudable, California’s many requirements impose enormous burdens on companies doing business in the state, often with questionable public benefit.  Proposition 65 is a familiar example of a regulation that requires elaborate warnings, but does not actually regulate the use of any chemicals.

There are many other examples, including a “sleeper” called the Safe Cosmetics Act.  Enacted in 2005, the Safe Cosmetics Act was heralded by its supporters as a landmark law that would protect the health of millions of Californians who use cosmetics.  In reality, the Safe Cosmetics Act is just another glorified reporting statute, requiring manufacturers of cosmetic products sold in California to file with the California Department of Public Health (CDPH) reports of information that is already on product ingredient labels.

But the Safe Cosmetics Act takes the idea of the consumers’ “right to know” to an extreme by imposing a precautionary rather than risk-based approach.  Unlike Prop 65, the Safe Cosmetics Act requires manufacturers to report use of chemicals that are not just “known” to cause cancer or reproductive harm, but also chemicals that are “suspected” to cause cancer or reproductive harm.  In addition, the Safe Cosmetics Act does not recognize any “safe harbor” levels for reporting – any amount of a “suspect” chemical must be reported.  Finally, cosmetic products that contain a reportable chemical must be reported regardless of whether the likely mode of exposure to the chemical by use of the product differs from the route of exposure identified by the authoritative scientific body as a pathway likely to cause cancer or reproductive harm.  For example, a chemical that has only been identified as “suspected” of causing cancer or reproductive harm when ingested must be reported even if it is contained in a skincare product.

In future blog posts, we’ll address why the Safe Cosmetics Act could become much more significant to personal care products manufacturers beginning in 2014, the risks of liability to manufacturers posed by the Safe Cosmetics Act, and how manufacturers can know if their products contain the regulated  chemicals.  At Conkle, Kremer & Engel, we help our clients meet compliance requirements, despite constantly changing state and federal laws.  With proper counseling, clients can avoid potential liability and minimize disruption to their businesses.

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Navigating Civil Regulatory Issues: CK&E Presentation Highlights Key Regulations for Beauty Companies Doing Business in California

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Conkle, Kremer & Engel attorneys were featured speakers at the Beauty Industry West presentation “Navigating in Challenging Regulatory Waters:  Updates on California and Federal Compliance.”  About 150 entrepreneurs, consultants, executives and beauty industry professionals attended the event at the Crowne Plaza Hotel LAX in Los Angeles on October 15, 2013, which included a valuable networking session and a post-presentation Q&A.

CK&E’s presentation about legal regulatory issues for personal care product companies doing business in California included an overview of the California Organic Products Act (COPA), Proposition 65 (California’s Safe Drinking Water and Toxic Enforcement Act) and California’s Green Chemistry Initiative including the new Safer Consumer Products Regulations.  Conkle, Kremer & Engel’s materials from the BIW event, including the “Navigating Civil Regulatory Issues” presentation and its “Resource Guide for Regulatory Compliance,” are available for download on CK&E’s Regulatory Compliance web page.

Co-presenter Donald Frey, an industry veteran, regulatory expert and product development and innovation consultant, presented on key regulatory issues from the business perspective, including how to effectively deal with regulators. Mr. Frey has generously agreed to share his presentation, available for download here.

Among the questions and answers covered after the presentation were the addition of titanium dioxide (airborne, unbound particles of respirable size) to the Proposition 65 list of chemicals, responsible entities for purposes of compliance with the Safer Consumer Products Regulations, and the determination of organic ingredients under the National Organic Program standards.

Conkle, Kremer & Engel attorneys are frequent speakers at events of interest to the beauty industry due to their expertise in representing manufacturers, distributors, suppliers, retailers and salons in all aspects of their business, including the challenges of regulatory compliance.

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Conkle Kremer & Engel Presents Brand Protection in Brazil

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Daniel Advogados presenting at CK&E's Brand Protection in Brazil

Daniel Advogados presenting at CK&E’s Brand Protection in Brazil

Conkle, Kremer & Engel recently teamed up with its international correspondent lawyers from the Brazilian intellectual property firm Daniel Advogados, Andrew Bellingall and George de Lucena, to give a presentation about what companies can do to protect their brands in Brazil, including helpful information about doing business in Brazil.  Conkle, Kremer & Engel’s Mark D. Kremer emceed the event and moderated the informative Q&A that followed the presentation.

Brazil is the world’s fifth-largest country in the world in terms of land mass and population.  Brazil is also a founding member of BRICS – the acronym for the five major emerging economies of Brazil, Russia, India, China and South Africa.  Its growing middle class, stable currency, and high demand for its commodity exports have all made Brazil a very desirable place for companies to expand. And it does not hurt that Brazil will host both the 2014 World Cup and the 2016 Olympic games.

Kyle Baker shows his 3Expressions 3D Tablet innovation to John Conkle and George Mendonça de Lucena

Kyle Baker shows his 3Expressions 3D Tablet innovation to John Conkle and George Mendonça de Lucena

Because our clients’ intellectual property and brand protection needs extend beyond the U.S. border, Conkle, Kremer & Engel has established working teams with leading international intellectual property law firms around the world.  It is Conkle, Kremer & Engel’s mission to stay on top of developments in all foreign and domestic markets where our clients currently operate or look to expand.

Conkle, Kremer & Engel wishes to thank all those who attended the presentation, as well as our friends and colleagues from Daniel Advogados, Andrew Bellingall and George de Lucena.   We are pleased to be able to confirm that the presentation was approved by the State Bar of California for 1.0 hour of participatory MCLE credit for all lawyers and paralegals in attendance.  For all questions regarding MCLE credit, please contact Martinique E. Busino at 310-998-9100.

Slideshows from Brand Protection in Brazil:

Daniel Advogados – Doing Business in Brazil

Daniel Advogados – Combating Counterfeiting and Piracy in Brazil

Topics covered in the presentation and the Q&A session included:

Strategies for entering the Brazilian market

  • Exporting goods bearing the owner’s trademark
  • Doing business through a subsidiary
  • Licensing use of trademarks to an unrelated third-party
  • Joint ventures with Brazilian companies
  • Franchise agreements with Brazilian companies

 Protection of trademarks in Brazil

  • Best practices for brand protection
  • An overview of trademark prosecution and enforcement in Brazil
  • Procedures and delays at the Brazilian Patent and Trademark Office
  • Legal remedies available to intellectual property owners
  • Court procedures in Brazil for actions involving intellectual property
  • Registration of domain names in Brazil

The latest developments at the Brazilian Patent and Trademark Office regarding trademarks

  • Issues related to Brazil’s possible adoption of the Madrid Protocol
  • Adoption of multi-class and multiple owner applications

Combating counterfeiting and piracy in Brazil

  • Ramifications of intellectual property infringements, which are crimes in Brazil
  • Using criminal remedies and border control measures as intellectual property protection solutions

 

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CKE’s L.A. Daily Journal Article: Treble Damages for Breach of Oral Contract

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The article “Breach of Oral Contract, Treble Damages,” was published in the Los Angeles Daily Journal on August 13, 2013.  The article discusses the importance for manufacturers, distributors and sales representatives of the published decision of Reilly v. Inquest Technology, Inc., 2013 DJDAR 10164 (Cal. App. 4th Dist. July 31, 2013).  The Reilly decision is the first precedent in California to uphold a jury verdict and judgment of treble damages and attorney fees against a manufacturer who failed to pay all sales commissions owed to an independent sales representative.  Eric S. Engel and H. Kim Sim represented Peter Reilly, the sales representative, at trial in Orange County Superior Court.  They obtained a unanimous jury verdict awarding Reilly $2.1 million in unpaid commissions.  Using the Independent Wholesale Sales Representatives Contractual Relations Act, CK&E then obtained an order from Judge Frederick Horn multiplying the jury’s award by a factor of three, for a judgment of $6.2 million plus attorney’s fees and interest.  That judgment was fully upheld by the California Court of Appeal in its July 31, 2013 decision.  The decision provides a template for future cases seeking treble damages for breach of commission contracts made with independent sales representatives, and can serve as a guide to manufacturers and distributors who want to avoid exposure to such liability.

Click here for the full text of the article, “Breach of oral contract, treble damages”:  Reilly v Inquest Daily Journal Article

Click here for the full copy of the California Court of Appeal decision:  Reilly v Inquest Court of Appeal Decision, Case No. G046291 (July 31, 2013)

 

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CK&E’s Judgment of $6.2 million for Unpaid Sales Commissions Upheld on Appeal

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The California Court of Appeal has unanimously upheld the $6.2 million judgment that Conkle, Kremer & Engel won at trial for a sales representative who had been deprived of $2 million in commissions he had earned.

Peter Reilly was a retired electronics industry executive who agreed to use his extensive contacts in the industry to bring new business to a growing manufacturing company, Inquest Technology, Inc.  After Reilly was not paid commissions for the contacts that he brought to Inquest, he asked Conkle, Kremer & Engel for help.

Reilly-Inquest_Team

Reilly v. Inquest – Plaintiff’s Trial and Appeal Team

CK&E’s Eric S. Engel and H. Kim Sim were the trial lawyers who devised the case strategy.  Key to the strategy was establishing by discovery and summary judgment motion the intricate requirements to impose liability against Inquest under a rarely-used law called the Independent Wholesale Sales Representatives Contractual Relations Act of 1990, California Civil Code section 1738.10 (“the Act”).  The main attraction of the Act is that jury awards for willful violations are trebled by the court and attorneys’ fees are awarded to a successful plaintiff.  Few laws in commercial litigation impose a penalty of three-times actual damages – that is a greater multiplier than most permissible punitive damages awards.

CK&E was able to prove that the sales representative relationship that Reilly had with Inquest met the particular requirements of the Act.  At trial, a unanimous jury found that Reilly procured sales for which he should have been paid $2,065,702 in commissions, based on the testimony of Reilly’s damages expert Thomas Neches.  The trial court then applied the Act’s penalty of treble damages to award Reilly a $6.2 million judgment, plus attorneys’ fees and interest, to enter the Judgment for Peter Reilly against Inquest Technology on Jury Verdict.

Of course, the Defendants appealed the judgment.  On July 31, 2013, the Reilly v. Inquest Technology case led to the first published decision of a California Court of Appeal to uphold a judgment trebling damages and awarding attorneys’ fees under the Act.  Anthony Kornarens was the appellate lawyer for Reilly, with assistance by CK&E.  In a unanimous decision, the Court of Appeal determined that Reilly’s judgment of $6.2 million was well supported by the evidence presented at trial, and that Reilly’s claims for unpaid sales commissions were within the special protections of the Act.

Click here for the full copy of the California Court of Appeal decision:  Reilly v Inquest Court of Appeal Decision, Case No. G046291 (July 31, 2013)

Watch for our future posts about the Act, including how CK&E proved that Inquest’s owners were also liable for the full amount of the $6.2 million judgment even though they were not subject to the Act.

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Kirtsaeng Holds Copyright First Sale Doctrine Trumps Importation Rights

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The Copyright Act gives a copyright owner the exclusive right to sell copies of the copyrighted work. But once a genuine copy is sold, a lawful owner of that particular copy can resell or transfer what he bought without infringing the copyright – the copyright owner can no longer use the copyright to control the resale of that particular copy.  This copyright limitation has become known as the “First Sale Doctrine.”

A quirk in copyright law arose because the Copyright Act has a provision that prevents importation of a copyrighted work into the U.S. without the copyright owner’s permission.  (17 U.S.C. 602(a)(1)).  This ability of the copyright owner to prohibit importation seemed to conflict with the First Sale Doctrine when a copy is first sold outside of the United States.

In the 1998 decision Quality King Distributors, Inc. v. L’Anza Research, Int’l, Inc., the Supreme Court held that a copyrighted product manufactured in the U.S., but first sold in a foreign country, was subject to the First Sale Doctrine.  The result was that the copyright owner could not prohibit importation of the copyrighted product into the U.S.  But the question remained whether the First Sale Doctrine also applied to copyrighted works that were both manufactured and first sold outside the U.S.

In March 2013 the Supreme Court answered the question by applying the First Sale Doctrine regardless of where the copyrighted work is manufactured or first sold.  In Kirtsaeng dba Bluechristine99 v. John Wiley & Sons, Inc., the products involved were textbooks manufactured and first sold in Thailand by the copyright owner, then later imported into the U.S. for resale without the copyright owner’s permission.   In a split decision, the Supreme Court held that the Copyright Act requires that the First Sale Doctrine applies to authentic, unaltered products that were lawfully manufactured and first sold by the copyright owner in a foreign country as well as in the U.S.

The Kirtsaeng decision provides no protection for sale of modified, adulterated, pirated or counterfeit copies, regardless of where they were made or sold.  Nor does it insulate parties from participation in fraud, breach of contract, unfair competition or other wrongful acts that are independent of copyright protections.  Conkle, Kremer & Engel has long recommended that its clients take a multi-faceted approach to preventing and remedying product diversion and counterfeiting, so they are able to effectively address the problem no matter where and how the misconduct occurs.

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Starting a Fire: "Tris" Listing Increases Risks of Prop 65 Claims

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Tris / TDCPP is a common flame retardant additive used in the manufacture of polyurethane foam, resins, plastics, textile coatings and rubber. Tris / TDCPP is found in a wide variety of common products such as upholstered furniture and padding. California’s Office of Environmental Health Hazard Assessment (OEHHA) recently added the chemical Tris(1,3-dichloro-2-propyl) phosphate (chlorinated Tris or TDCPP) to its ever-growing list of chemicals “known to the State of California to cause cancer or reproductive toxicity.” As a result, Tris / TDCPP is now subject to Proposition 65, California’s Safe Drinking Water and Toxic Enforcement Act of 1986.

Prop 65 has a well-earned reputation as a “bounty hunter” statute, and is presently the subject of reform legislation, AB 227. This notorious “right to know” law does not ban any particular chemical from being used in products. In most cases it simply requires a generic warning label if a product contains chemicals found on the OEHHA’s Prop 65 list.

Because of the recent addition of Tris / TDCPP, products containing that chemical now must have a warning label in order to comply with Prop 65. Manufacturers and distributors who use outdated labeling and inadvertently fail to include the required warning are likely to be targeted by lawyers and claimants looking for violations on which they can capitalize. The penalties imposed by Prop 65 include fines as well as liability for the plaintiff’s attorney’s fees and costs.

Prospective Prop 65 plaintiffs are required to serve a “Notice of Violation” and wait at least 60 days before they can file a lawsuit. (California Health and Safety Code section 25249.7(d)) A review of the 159 Notices of Violation with respect to Tris / TDCPP served in the past 6 months reveals that just two law firms are actually behind the onslaught of Prop 65 notices regarding Tris / TDCPP:

  • The Chanler Group of Berkeley, California, through attorney Josh Voorhees and the firm’s “usual plaintiffs” (Peter Englander, Laurence Vinocur, Russell Brimer and John Moore) – 146 of the 159 Notices (92%).
  • Lexington Law Group of San Francisco, California, through attorney Mark N. Todzo and the firm’s plaintiff, Center for Environmental Health – 13 of the 159 Notices (8%).

The products identified in these notices have included foam-cushioned upholstered furniture, such as chairs, ottomans, stools and benches, foam-cushioned mattress toppers, back and seat cushions, car seats, and foam mats and pads for children and infants.

Manufacturers and distributors should promptly assess whether their products contain Tris / TDCPP. CK&E’s lawyers are experienced in helping clients take action to protect themselves from Prop 65 liability, and to help put out the fire if a Notice of Violation is delivered.

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Deal done? Maybe Not, if it’s a Copyright Sale

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Copyright ownership sales are generally controlled by ordinary state contract laws, but there are some limits when dealing with an agent of the copyright owner. In the recent case of MVP Entertainment v. Frost, a film producer offered to purchase the movie rights to author Mark Frost’s book, “The Match: The Day the Game of Golf Changed Forever.” The purchaser dealt with the attorney for the owner. In response to an email by the purchaser offering purchase terms, the attorney replied by email, “done . . . thanks!” Under many state laws that might have been enough to transfer ownership, but not so under copyright law.

The Copyright Act (17 U.S.C. § 204(a)) says that “transfer of copyright ownership . . . is not valid unless . . . a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.” An attorney is an agent, so the attorney’s email saying the deal is “done” should be enough, shouldn’t it? Not quite, said the California Court of Appeal in MVP, because the owner disputed that his attorney had the owner’s actual authority to sell the copyright. In other words, the attorney was not the “owner’s duly authorized agent” for that purpose.

But the purchaser claimed it was led to believe that the attorney had authority, which is a theory known as “ostensible agency.” Under California law, a property owner can be bound by the acts of another person (the “ostensible agent”) whom the owner “intentionally or by want of ordinary care, causes or allows” another (the purchaser) to believe had the owner’s authority. Contracts can be created by “ostensible agents” in many circumstances. But the MVP decision held that copyright transfers cannot be done by “ostensible agents.” Copyright law requires that the purchaser deal directly with the owner, or with an agent expressly and “duly authorized” to act on behalf of the owner, with the goal that copyright interests are not inadvertently given and there is no uncertainty about what rights were transferred.

The takeaway from MVP is, when buying copyrights it’s wise to get the owner’s signature.  CK&E lawyers routinely guide clients through transfers and licensing of intellectual property including copyrights, trademarks and patent rights. As well, when a client’s rights in intellectual property are threatened, CK&E lawyers respond with effective enforcement.

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