Lump Sum or Royalties?

Dear Rich: I'm trying to figure out whether to ask for a lump sum payment or royalties for a deal I am making. Is there some formula for figuring out what to ask for in terms of a lump sum? I've heard from someone that you multiply expected revenue for one year times four. Any help would be appreciated. Congratulations on your pending deal. Money in your mailbox -- what a great way to get paid. Except we guess that nowadays everybody has opted for direct deposit instead. And sadly, with everybody doing direct deposit, it's not so easy to simply drop your red state bank and walk over to the credit union and switch accounts as requested by our friends at Occupy Ocean Beach.
Right, you had a question. The Dear Rich Staff would never recommend one method of payment over the other because (1) if we recommended a lump sum and the licensed product was a much bigger success than you expected, you'd hate us, or alternatively (2)  if we recommended ongoing royalties and the sales were disappointing, you'd hate us. By the way, here's an article that explains the various types of royalties (per use, per item, etc.) and compares royalties to lump sums.
Why do some people prefer a lump sum payment? Without establishing a preference, we can tell you why some people prefer the lump sum. First, the licensor doesn’t have to be concerned with accounting or auditing records. Second, some licensors like the lump sum because they're not sure of the viability of the licensee or the long-term prospects for the product. Third, some licensors prefer lump sum payments for foreign licenses because of currency conversion rates. These rates -- which measure the foreign currency against U.S. currency -- may change dramatically, making your foreign royalty payments less valuable.
Why do some people prefer a royalty? The periodic payment of royalties rewards the licensor who has a successful product. So if it's a hit, you can quickly join the 1%. Getting paid royalties also may result in lower taxes, depending on how they're categorized on your tax return.
License or Assignment. A lump sum payment for a license is different from a lump sum payment for an assignment. A license may be limited in time, for example, for two or three years. Under an assignment, however, you lose ownership of your invention. The tax implications for the lump sum payment may be different for an assignment than for a license, as well.
Formulas for Evaluating Products. There are many formulas for evaluating product value although we've never heard of the "4X" system you describe (and we're wary of applying it). Such formulas are beyond the scope of our lowly blog and we recommend perusing a text such as this one.

Should I Give Gag-Givers Credit?

Cartoonist Jimmy Hatlo in a
Lucky Strike ad

Dear Rich: I write and draw a web comic involving a set of recurring characters. Sometimes I run a joke I'm working on by a couple of my friends, to see if the joke comes through clear, and, if not, how could it be improved. However, now everyone I know is starting to tell me their ideas for gags. Their contributions usually consist of either (a) suggesting a basic concept (man falls off horse) or (b) suggesting a change to my fleshed out joke (farmer falls off COW, dies, etc). In both instances, I am still the one laying out the panels, structuring the joke, coming up with the dialogue, drawing and coloring it. Being friends and all, I want to show my appreciation for their help by giving them credit on the individual strip, but I am worried that by putting his/her tag alongside mine, I am giving up sole control of my copyright on that strip. Is that the case? The Dear Rich Staff is wondering about jokes in which people fall off animals. We suppose that's an interesting niche although the idea of a farmer falling off a cow and dying seems sad to us. Maybe it could be funny if it was a zombie farmer, though frankly, we're not sure about all this "funny" zombie stuff. It must be tragic to be a zombie, worse than having dementia or even worse than being trapped on BART next to a woman iPhoning her friend about wedding invitations. Wait, here's a concept for a web comic strip -- a zombie wedding planner. Or did we see that movie?
Right, you had a question.  We doubt that you would need to share copyright with someone who gives you a gag for a comic strip. We think your contributors are providing concepts that are probably unprotectible under copyright because (1) the concepts are ideas, or, (2) the concepts constitute unprotectible short phrases. As we've written before, it's tough to protect gags and jokes. What's protectible is the manner in which you express your comic strip. If, however you are collaborating with someone and going beyond the basic gag idea -- say for example, discussing what the comic panels would consist of -- then you may be expanding into co-authorship and copyright co-ownership. So avoid going beyond a discussion of the basic gag. If you want to feel more secure, and if you're going to solicit ideas online, provide terms and conditions in which the contributor agrees to give up rights when submitting an idea.
A tip o' the Hatlo hat ... As for providing attribution, that's up to you. It certainly worked for cartoonist Jimmy Hatlo who encouraged readers to send in ideas and then gave the contributor a "tip o' the Hatlo hat" attribution.

Wants to Use Historical Photos in Book

Dear Rich, I have photos I want to use for a book I am writing. The photos were given to me by the photographers. As far as I know these photographs were never published. They photos were taken in various years including 1914, 1924, and 1965. The photographers are all now deceased. However, the people who gave me the photos were informed that I was writing a book about local history and were going to use the photos for research. Can I use these photos in my book? Do I need to try to contact the descendants of the photographers in order to get permission or can I just credit the source of the photographs? I also want to use a photo I found in a history book. The photo is a pre 1923 portrait of a local man. The caption for the photo reads “Courtesy of William B. Secrest, Fresno, California.” Secrest is the author of the book and owns the original photograph. Do I need to track down William Secrest or can I use the photo without permission since it is pre 1923? The history book was published in 2002. I would of course appropriately cite the photograph. We think you'll be okay to use all of the photos described, but it gets a little complicated.
The 1914, 1924, and 1965 photos. If the photos were never published and the photographers died before 1941, the works are in the public domain (Here's the official explanation). Otherwise, the unpublished photos will not become public domain until the author has been dead for 70 years. (Based on this rule, the 1965 photo could not be in the public domain.) Even though your one or more of your uses is likely to be unauthorized -- and an infringement --  we think that you will have a strong fair use argument, and we also think that the likelihood that the descendants of the photographer will learn of your use (or care) is slim. A commercial publisher may require that you indemnify the publisher if there is a problem. You may want to consult an attorney at that point.
As for the pre-1923 portrait. If the pre-1923 portrait was first published with authorization before 1923 it's in the public domain and you're free to use it. If it was first published after 1922 but before 1964, the photo is in the public domain if it wasn't renewed (and most were not). If the first publication was in 2002, and the author died before 1941, it is also in the public domain. (See, we told you it was complicated). As for the prolific California historian William B. Secrest, we think -- and we could be wrong -- that he owns the photo and lent it for use in the book. The "courtesy" he has extended is that he provided access to the photographic print. Was there a copyright notice associated with the publication in the 2002 book? That could also be indicative, though not decisive as to the photo's copyright status.

When Minor Children Own Stock in Small Business

Dear Rich: I own a small business. My children and I are stockholders. Since they are minor children, I presume, but am not certain, I can exercise any authority over their stockholder proxy at a corporate meeting. Does Nolo have any books are web links for information on this? This question is way far afield for the Dear Rich Staff. However, we work not far from knowledgeable corporate attorney and ultra-runner, Diana Fitzpatrick, who provided us with a helpful answer.
It all depends on how it's owned. Whether or not the parent can vote the stock held by a minor child depends on how the stock is owned or held by the minor. Minors can't purchase or open brokerage accounts because they can't enter into legally binding contracts until they reach 18 (or whatever the state law is for majority age). But they can own stock that they have received by gift or inheritance and may have all rights, including voting rights, with regard to that stock. If the minor has the voting rights then the minor could give a parent the proxy to vote those shares (provided proxy voting is allowed).
If you're in California ... If you're incorporated in California, take a look at Cal. Corporations Code Sec. 702 (d) which provides that shares standing in the name of a minor may be voted by proxy unless a guardian of the minor's property has been appointed and written notice of such appointment is given to the corporation.
Another possibility. If the stock is held in a custodial account under the Uniform Gifts to Minors Act or there is some other trust or fiduciary account set up, then the custodian or trustee or other fiduciary would have the voting rights for the stock. As you may be aware, parents often give stock to children under the Uniform Gifts to Minors Act. This allows the donor/parent to give the stock to the minor but the stock is held in a custodial account where the custodian (who can be the donor/parent) controls the account until the child reaches the age of majority. A custodian of stock held in accordance with the Act has sole voting authority over the stock held in the account.

Can We Use 1920s Quotes from New York Times?

Dear Rich Staff Member Is Interviewed
for Saturday Morning Today Show.

Dear Rich: In a book I am writing I have used several lengthy quotes from news articles from the New York Times dated in 1921, 1922, and 1923. Actually, what I am using is the NYT quoting some individuals--I am not actually quoting the NYT, if this constitutes a difference. If published, I doubt that the book will be a commercial blockbuster. Am I protected by 'fair use' laws using material from the NYT that was published before 1923? The Dear Rich Staff chose your question for Thursday because that's the day we get the Nielsen sales numbers from Author Central at Amazon. What a sad day that has become. And because we're so depressed, we look for questions that we think won't take much time to answer. So the short answer to your question would be yes, you can use any authorized pre-1923 publication in the U.S. (because it's in the public domain). The quotation aspect --  that is whether an interviewee's statements become part of the intervier's copyright -- is a more complex subject and we think this article does a great job of summarizing this prickly issue.

Honk if You Want to Register Your Bumper Sticker as a Trademark!

Dear Rich: I am in the midst of applying for a trademark and am confused about which category in the trademark manual my item falls.  The item is essentially a slogan (code 045) which is being printed onto bumper stickers (no code found) and also onto baseball caps and hats (code 025). The intent is to expand the list of goods sold that are branded with the slogan. The bumper stickers and caps are the two initial items I will be selling. Which category I should enter on the application? We think you'll have a hard time registering a slogan with the USPTO unless you can demonstrate that the slogan is associated with a product or service -- that is, a product other than caps or bumper stickers. For example, a slogan like the one shown above would be difficult to register, as would variants such as

• Honk if You Like Cheeses, 
• Honk if You Would Like to See My Finger, 
• Honk if You're Going to Run Me Over, 
• Honk if you Like Prune Tacos (our favorite), 
• Honk if You Like Peace and Quiet, 
• Honk if You Are Living a Life of Quiet Desperation, or 
• Honk if You've Never Seen a Gun Fired From a Moving Vehicle (scary). 

That's because these slogans are considered ornamental (they inspire, entertain, or amuse) or informational (they express a thought). To acquire registration they must create a consumer association with a product or service (for example, Honk if You Sell Car Horns for an applicant that sells car horns).
Honk If You Receive an Objection from A Trademark Examiner. Upon receiving an application for  a slogan, the trademark examiner will probably object on the basis of § 1202.03 or § 1202.04 of Trademark Manual of Examining Procedure or TMEP (excerpted below).

§1202.03 Refusal on Basis of Ornamentation Subject matter that is merely a decorative feature does not identify and distinguish the applicant’s goods and, thus, does not function as a trademark. A decorative feature may include words, designs, slogans, or trade dress. This matter should be refused registration because it is merely ornamentation and, therefore, does not function as a trademark ...
§1202.04 Informational Matter Slogans and other terms that are considered to be merely informational in nature, or to be common laudatory phrases or statements that would ordinarily be used in business or in the particular trade or industry, are not registrable ... 

It's on these basis, for example, that the slogan THINK GREEN was rejected as a trademark because it was merely a statement of environmental awareness. The slogan, HAIR COLOR SO NATURAL ONLY HER HAIRDRESSER KNOWS FOR SURE was registered because consumers associated the slogan with a particular product. The only way to overcome this objection is to show that consumers associate the slogan with your products or services.
Honk if You've Used the Wrong Classification Codes ... Also, you referenced code 045 in your question. Class 045 is for legal services (Honk If You Like Litigation) so we don't assume that's what you meant unless you've come up with a slogan for a law firm (Honk If You Like to Pay For Overpriced Associates).
Honk if You've Tried Copyright Protection. Finally, a bumper sticker slogan cannot be protected under copyright law as copyright does not protect short phrases. A short phrase can be protected in conjunction with an illustration or it may be protected in some cases, if it is taken from a larger well-known work, such as taking a line from a movie.

Will NDA With Foreign Company Prevent Theft?

(c) Sasha Stim-Fogel

Dear Rich: I have a patent pending here in the states but I want a Chinese company to manufacture my product. Unfortunately, I don't have any intellectual rights overseas. Will a nondisclosure noncompete agreement keep a foreign company from stealing my idea? Neither a nondisclosure (NDA) or  a noncompete will keep anyone from stealing your idea whether in the U.S. or abroad. Agreements don't prevent wrongdoing, they merely establish the rules in the event wrongdoing occurs. An NDA is no different. For example, your NDA may establish the location of the lawsuit, whether the winner gets attorney fees, whether arbitration is mandatory, or the ease with which you can get an injunction.
Back in the U.S.S.A. NDAs enforced in the U.S. usually have a predictable outcome. But once you leave American jurisdiction, the results of enforcement are not as predictable and the costs of enforcement are far more expensive. That increases the odds that your NDA will be breached and that a foreign manufacturer will duplicate molds, copy packaging and send knockoffs out the backdoor and into countries in which you have no intellectual property rights.
Separating the good from the bad. Most foreign manufacturers rely on their credibility and trustworthiness to keep getting new business. So your first goal is to do your homework and try to figure out which ones are reliable and which ones are opportunists. The resources, below, may help you.
Protecting secret stuff only. Keep in mind that a nondisclosure will only protect against the disclosure of confidential information. Once your patent is published, it is no longer confidential. So the only thing your NDA can actually protect is confidential information regarding manufacture, sales and distribution, and know-how needed to produce and distribute the patented item. A noncompete is typically aimed at preventing ex-workers from competing against you and that's not likely to provide much benefit. However, some provisions, in conjunction with your NDA -- for example, an agreement that the manufacturer will not manufacture or distribute your product without your authorization -- can be crafted to deal with your specific situation. A lawyer's assistance may be required. In summary, get an attorney to make sure the agreement provides the best dispute-resolution procedures.
After you've found the best choice. Your lawyer may include provisions that will help you in a foreign deal. Here are some things to consider.

• Jurisdiction. The only way to get a foreign manufacturer into a U.S. court—unless the company does substantial business in the States—is to include a provision in the NDA that requires the manufacturer consent to U.S. jurisdiction. This may prove difficult to negotiate (and to enforce), as foreign manufacturers are often hesitant about submitting to the U.S. judicial system. 
• Choice of law. Every country has laws as to how contracts are interpreted. You would want the NDA to be interpreted according to U.S. law.
• Arbitration. Arbitration is similar to litigation but with less formality and expense. You’ll usually benefit by agreeing to have disputes arbitrated. Hopefully, the manufacturer will agree to arbitrate the matter in the United States. If not, there are three popular (though expensive) spots for international arbitration: London (the London Court of International Arbitration), Paris (the International Court of Arbitration of the International Chamber of Commerce), and Stockholm (the Arbitration Institute of the Stockholm Chamber of Commerce). Also, if possible, your agreement should award attorneys’ fees to the victor in the arbitration.

Resources. These resources may help you sort out manufacturers in foreign countries:

•  U.S. Department of Commerce(DOC) and the U.S. Small Business Administration(SBA) are interested in helping the sales of U.S. goods overseas. If an inventor has a track record and the possibility of actually placing a product in the market (or already has a product and is seeking to market it overseas), the DOC and SBA offer assistance. 
• Check out the Department of Commerce site at the International Trade Association(ITA) or the DOC’s export information. 
• National Trade Data Bank has the most extensive and detailed statistical information on trade in specific products and countries. It is not free, but you can enroll for a free guest subscription and try it out. 
• The Federation of International TradeAssociations (FITA) has a website with many links, leads, and statistics that can be helpful for international businesses.