Transcript Foley & Lardner LLP Legal Update

Foley & Lardner LLP Legal Update
January 14, 2015
Woodstock, VT
©2014 Foley & Lardner LLP
Hot Topics in Long Term Care
Compliance: OIG Work Plan and Other
Areas you Need to Be Thinking About
The New England Alliance
Mid-Winter Meeting
January 14, 2015
Woodstock, VT
Lawrence W. Vernaglia, J.D., M.P.H.
Chair, Health Care Industry Team, Foley & Lardner LLP
©2014 Foley & Lardner LLP
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60 Day Refund Rule
■ Section
6402(a) of the Affordable Care Act
established a new section 1128J(d) of the Act
entitled "Reporting and Returning of
Overpayments."
» CMS Proposed Rule: 2/16/2012.
» Follows: Twice proposed, but never finalized
related to Medicare overpayments. (March 25,
1998 (63 FR 14506) and January 25, 2002
(67 FR 3662) proposed rules.)
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60 Day Refund Rule
■ U.S.
v. Continuum Health Partners Inc. et al.,
case number 1:11-cv-02325, in the U.S.
District Court for the Southern District of New
York.
■ A.G. Schneiderman “Those Who Fail To
Return Funding That Isn’t Rightfully Theirs Will
Be Held Accountable.” (Press Release, June
27, 2014)
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OIG’s 2015 Work Plan
■ Released
on Halloween 2014
■ Fewer new initiatives than in prior years (19)
■ See also 2014 OIG
Work Plan (Jan. 14)
■ 5 Medicare
Nursing Home
initiatives for 2015
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Medicare Part A billing by skilled nursing
facilities
Describe changes in SNF billing practices from
FYs 2011 to 2013.
■ Prior OIG work found SNFs increasingly billed for
the highest level of therapy even though
beneficiary characteristics remained largely
unchanged. (See L. Rubin Presentation)
■ OIG also found that SNFs billed one-quarter of all
2009 claims in error ($1.5 billion in inappropriate
Medicare payments.)
■
(OEI; 02-13-00610; various reviews; expected issue
date: FY 2015)
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Questionable billing patterns for Part B
services during nursing home stays
■
OIG will identify questionable billing patterns associated with
nursing homes and Medicare providers for Part B services provided
to nursing home residents during stays not paid under Part A:
» Stays during which benefits are exhausted
» Stays where 3-day prior-inpatient-stay requirement is not met (which
may result from RAC denials/reactions).
■
A series of studies will examine several broad categories of
services:
» E.g., Foot care specifically mentioned.
» Congress directed OIG to monitor Part B billing for abuse during nonPart A stays to ensure that no excessive services are provided.
(Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000, § 313.)
(OEI; 06-14-00160; various reviews; expected issue date: FY 2015)
©2015 Foley & Lardner LLP
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State agency verification of deficiency
corrections
OIG will determine whether State survey agencies
verified correction plans for deficiencies
identified during nursing home recertification
surveys.
■ Prior review found one State survey agency did
not always verify that nursing homes corrected
deficiencies identified during surveys through
onsite reviews or by obtaining other evidence of
correction through onsite reviews or by obtaining
other evidence of correction
■
(OAS; W-00-13-35701; W-00-14-35701; various
reviews; expected issue date: FY 2015)
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Program for national background checks
for long-term-care employees
Section 6201 of the ACA requires HHS to carry out a nationwide
program for States to conduct national and State background
checks for prospective direct patient access employees of nursing
facilities and other long-term-care providers. The program is
administered by CMS. To carry out the nationwide program, CMS
has issued solicitations for grant awards. All States, the District of
Columbia, and U.S. territories are eligible to be considered for a
grant award. OIG is required under the ACA to submit a report to
Congress evaluating this program.
■ OIG will review procedures implemented by States for long-termcare facilities to conduct background checks on prospective
employees and providers who have direct access to patients and
determine the costs of conducting background checks.
■ Outcomes of the States' programs; whether the programs led to any
unintended consequences.
(OEI; 07-10-00420; expected issue date: FY 2015; ACA)
■
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Hospitalizations of nursing home residents for
manageable and preventable conditions
■
■
OIG will determine the extent to which Medicare
beneficiaries residing in nursing homes are
hospitalized as a result of conditions thought to be
manageable or preventable in the nursing home
setting.
2013 OIG review found that 25 percent of Medicare
beneficiaries were hospitalized for any reason in FY
2011.
» May indicate quality-of-care problems in nursing homes.
» Keys into Q of C FCA cases and “Worthless Services”
theories
(OEI; 06-11-00041; expected issue date:FY 2015)
©2015 Foley & Lardner LLP
Hot Topics in Long Term Care
Compliance: OIG Work Plan and Other
Areas you Need to Be Thinking About
Questions and Answers
Lawrence W. Vernaglia, J.D., M.P.H.
Chair, Health Care Industry Team, Foley & Lardner LLP
©2014 Foley & Lardner LLP
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Identifying Serial Whistleblowers
and Working With Relators
Lisa M. Noller
©2015 Foley & Lardner LLP
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False Claims Act
■ Title
31, Section 3729 et seq.
■ Imposes civil liability for “knowingly presenting
or causing to be presented a false or
fraudulent claim for payment or approval”
■ Also includes:
• Submission of false statements or records to support a
claim
• Knowing retention of an overpayment
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Qui Tam Provisions
FCA cases may be filed by private citizen whistleblower
(“Relator”) on behalf of the Government
■ Often disgruntled or recently terminated employees
■ Must have unique information – the allegations cannot
be based on publicly disclosed information unless the
Relator was the original source of the information
■ Relator entitled to 15-33% portion of recovery if
government intervenes; 25-50% recovery if no
government intervention
■
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FCA Actions are Growing
■ U.S.
government recovered
$4.959 billion last year
from false claims cases;
$13.3 billion over the last
four years
■ Whistleblowers initiated
647 new matters last year,
the most ever
© 2013 Seyfarth Shaw LLP
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Identifying Serial Whistleblowers
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Basics
■ Study the resume
■ Perform background checks
» Nexis
» PACER
■ Call phone numbers
■ Call references
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It May Be Obvious, But…
■ Google and
social media
are your friends
■ Don’t
be afraid
the applicant will know
you’re looking
■ ASK.
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Warning Signs
■ Short-term employment
■ Many
employers
■ Factual errors
■ Omissions
■ Old references
■ Inability or unwillingness to explain
■ Inexplicable geographic shift
■ Refusal to admit/deny prior whistleblowing
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Gut Checks
■ Second opinions can
be
valuable
■ United States v.
IHS:
hospital hired a brilliant
physician to fill a surgical
need . . . And paid $$$
when he filed his second
FCA case
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Encouraging a
Culture of Compliance:
How do you get employees
to report . . . to you?
©2015 Foley & Lardner LLP
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What Is a “Culture of Compliance”?
■ What
it isn’t
» Enron had a 64-page Code
» Extolled values of respect,
integrity, communication
and excellence
» Final resting place:
Smoking Gun, eBay
©2015 Foley & Lardner LLP
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What Is a “Culture of Compliance”
■ What
it isn’t
» “One and done”
» Requires ongoing
attention
» USSG mandates
regular risk
assessments
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What Does a “Culture of Compliance” Look
Like?
■ Commitment to
Organizational Justice
» Top executives, star performers and line workers
held to equal standards of conduct
■ Tone
at the Top
» What employees are really thinking when they hear
managers, administrators talk about compliance
■ Speak Up
Culture
» A little fear of the boss is not a bad thing; a fear of
telling the boss the truth is
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Does Any of This Really Matter?
■ Misconduct declines
and reporting increases in
companies with strong, compliant cultures*
» 88% of workers in companies with ‘weak’ cultures observed
misconduct v. 20% of workers in ‘strong’ cultures
» Ongoing misconduct is more likely to occur in companies
with ‘weak’ cultures
• 82% of misdeeds occurred repeatedly or part of a continuing
pattern
» 95%+ of employees who would recommend their company
as a good place to work said they would report misconduct
*Ethics Resource Center 2013 National Business Ethics Survey
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Does Any of This Really Matter?
■ The business
case for compliance
» Improved morale, employee engagement and
productivity
• Managers who demonstrate ethical behavior increase
their teams’ discretionary effort by 9%
• Highly engaged employees are 87% less likely to leave
the organization*
*CEB Compliance and Ethics Leadership Council
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Employees as Whistleblowers
■ Most employees
who witness misconduct at
work report it*
» 63% of employees who observe misconduct at work
reported what they saw
■ Almost all
who report go first to the company
» Of those who reported, 92% first reported to someone
inside the company
» 20% reported outside their company
» Only 9% reported to the government
*Ethics Resource Center 2013 National Business Ethics Survey
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The Sound of Silence
■ Why employees don’t
report
» Fear of retaliation is a significant factor
• 46% of employees at companies where retaliation is
believed to be tolerated do not report
• 72% of employees at companies where retaliation is not
believed to be tolerated do report
» Retaliation is a reality
• 21% of employees who reported misconduct
experienced some form of retaliation
• Culture of silence; pressure to be a team player
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The Sound of Silence
■ Factors other
than retaliation
» 28% said they resolved on their own; 38% said
someone already addressed the matter
» Resistance to conflict, confrontation
» Apathy, lack of confidence in outcomes
» Employees uncertain about the process
» Personal value judgments about misconduct
• Stealing property vs. internet misuse
• Loyalty dilemmas: harm to a colleague v the company
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Making it Safer to Speak Up
Implementing and Following a
Non-Retaliation Policy
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Making it Safer to Speak Up
■ Adopt
a clear, “zero tolerance” nonretaliation policy that is embedded in your
Code of Conduct, policies and training
■ Focus on
the “Mood in the Middle”
» Train line managers on how
to receive, respond to and
follow up on complaints
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Making it Safer to Speak Up
■ Transparency is
critical
» How do I report? What happens when I do?
• Third-party hotline; anonymity, web accessible
• Adopt a formal investigation process; make it clear to
reporter
■ Avoid the whistleblower
“black hole”
» Follow up and INVESTIGATE!
» Communicate back to the reporter– and the rest of
the company
©2015 Foley & Lardner LLP
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Communicating with
Whistleblowers
©2015 Foley & Lardner LLP
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Whistleblower Strategies
■ If
known, meet with the whistleblower to
understand the scope and seriousness of the
issue
■ Do not be afraid to conduct a thorough exit
interview
» To learn of concerns
» To “box out” later allegations
■ Thank the
whistleblower
■ Show respect and dignity
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Whistleblower Strategies
■ Without sharing details or
privileged
information, report back to whistleblower about
status of the review
■ How a whistleblower feels about the
Company’s seriousness toward the matter can
impact whether the whistleblower tells a
regulator or pursues litigation
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Whistleblower Strategies
■ Be
ready to move quickly with internal
investigation of the issue whether reported by
whistleblower or through government inquiry
■ Eliminate any argument the company did not
disclose the information in a reasonable time
or otherwise acted in bad faith
■ Make sure the scope of review is sufficient
©2015 Foley & Lardner LLP
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Who Should Investigate?
■
In-house personnel:
» HR issues (e.g., discrimination)
» Non-criminal, small exposure issues where privilege is less important
■
Outside counsel:
»
»
»
»
»
»
»
»
Criminal issues
High-stakes civil issues
Issues requiring insulation (e.g., Stevens)
Matters where executives, officers, directors involved
Preservation of privilege matters
Relationship with investigators/prosecutors
Credibility issues
Internal politics
©2015 Foley & Lardner LLP
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Whistleblower Strategies
■ The government continues
to reward
cooperation
■ This presents an opportunity to respond to an
inquiry responsibly and quickly
■ Avoiding a retaliation problem and remediating
any wrongdoing allows a company to tell a
positive story
©2015 Foley & Lardner LLP
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Questions ?
■ Lisa
M. Noller, Partner
Foley & Lardner LLP
312.832.4363
[email protected]
©2015 Foley & Lardner LLP
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Billing and Providing Therapy Minutes
& the False Claims Act
Lori Rubin,
Foley & Lardner LLP
©2015 Foley & Lardner LLP
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Agenda
1.
Introduction
2.
The False Claims Act (FCA)
3.
FCA application to therapy minutes
4.
Recent government enforcement
5.
Practices that draw gov’t interest
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Presentation Goals
■ Identify risk
areas
■ Reduce chances of government investigation
■ Reduce exposure to government and
whistleblower litigation
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Disclaimer
■
This presentation is meant to be an overview.
It does not cover the many nuances of
applicable law, and it cannot replace an
attorney’s analysis of the facts of a particular
situation.
■
This presentation does not contain any
attorney-client confidential or privileged
information. While it is partially informed by
Foley’s experience base, nothing in this
presentation relates to any particular Foley
client or clients.
©2015 Foley & Lardner LLP
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Agenda
1. Introduction
2.
The False Claims Act (FCA)
3.
FCA application to therapy minutes
4.
Recent government enforcement
5.
Practices that draw gov’t interest
©2015 Foley & Lardner LLP
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Introduction
■ Across the country,
the government is
investigating the billing and provision of
therapy minutes for alleged violations of
the False Claims Act (“FCA”)
■ Two FCA cases
involving therapy minutes
settled for $30M+ in 2014
■ At least two others settled (in the millions) in 2014
©2015 Foley & Lardner LLP
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Introduction
The gov’t has chosen to investigate, for example:
■ Therapy minutes provided or billed to hit and not
exceed minutes needed to hit each
reimbursement level (usually the highest level)
■ Presumptive placement of patients at maximum
reimbursement levels
■ Healthcare providers incentivizing contracted
therapy providers with percentage of revenue
arrangements
■ Employees compensated or evaluated based on
number of therapy minutes planned or scheduled
©2015 Foley & Lardner LLP
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Agenda
1.
Introduction
2. The
False Claims Act (FCA)
3.
FCA application to therapy minutes
4.
Recent government enforcement
5.
Practices that draw gov’t interest
©2015 Foley & Lardner LLP
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False Claims Act (“FCA”)
■
Prohibits persons and entities from knowingly presenting or causing to
be presented false or fraudulent claims for payment by the government
Elements:
■ Presenting or causing to be presented for payment by government
» Claim form submissions to Medicare, TRICARE, and even Medicaid
■
Knowingly
» Actual knowledge, reckless disregard, or deliberate ignorance
■
False or fraudulent
31 U.S.C. § 3729.
©2015 Foley & Lardner LLP
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FCA Elements (con’d)
■
Prohibits certain other acts when related to
presenting a false claim to the government
for payment such as:
» False records
» False statements
» Concealing or avoiding an obligation to pay
money to the government (“reverse” false
claims”)
» Conspiracy to commit an FCA violation
31 U.S.C. § 3729.
©2015 Foley & Lardner LLP
Anti-Kickback Statute (AKS) and the
Physician Referral Law (Stark Law)
■
The AKS prohibits persons from knowingly and
willfully paying or offering to make payments or other
remuneration in order to induce referrals of
individuals for items or services for which payment
may be made by a federal health care program.
■
The Stark Law prohibits physicians from making
certain referrals to entities with which they have a
financial relationship, unless certain
requirements/exceptions are met.
■
Claims in violation of the AKS and/or the Stark Law
may be considered “false claims” under the FCA
because they do not comport with Medicare rules.
©2015 Foley & Lardner LLP
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FCA Penalties and Damages
■
Civil penalties of $5,500 – 11,000 per false claim
» False claim = each request for payment, each false
statement, etc.
» Reduced penalties
• Sometimes only imposed for subset of claims sufficiently serious
• Sometimes reduced under 8th Amendment prohibition on excessive
fines
■
Treble damages
» Damages = all false claims submitted, OR
» Damages = all false claims submitted minus actual value of
medically necessary services received by beneficiary
» Double (not treble) damages for full cooperation and
provider’s self-disclosure within 30 days of knowledge of FCA
violation (before any criminal, civil, or admin action or any
known government investigation)
©2015 Foley & Lardner LLP
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Agenda
1.
Introduction
2.
The False Claims Act (FCA)
3. FCA
application to therapy minutes
4.
Recent government enforcement
5.
Practices that draw gov’t interest
©2015 Foley & Lardner LLP
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Typical Steps for Therapy Reimbursement
(slide 1 of 2)
■
Physician orders therapy (signing and dating the order)
» Physician signs to certify need where required
» In some instances, physician must later re-certify
continuing need
Qualified therapist evaluates patient and assembles
plan of care
■ Physician approves and signs plan of care where
required
■ Therapist provides therapy pursuant to plan of care
■
» Including any needed deviations (with approval where
required)
©2015 Foley & Lardner LLP
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Typical Steps for Therapy Reimbursement
(slide 2 of 2)
■
Therapist fills out MDS forms assessing patient condition
and progress at regular intervals (assessment reference
periods)
» Registered nurse must sign and certify that the assessment was
completed
» Each individual who completed portion of assessment must sign
and certify accuracy
» RUG levels are based on what is recorded on the MDS form,
predominantly the amount of therapy minutes provided during
the period and the number of therapy disciplines involved
» Claims are submitted to Medicare and other programs for
payment
» Medicare pays provider based on number of beneficiaries at
each RUG level
■
Physician visits patient at required regular intervals, where
required
©2015 Foley & Lardner LLP
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False Claims in Therapy Billing
■
Failure to follow government healthcare program
rules can trigger government interest that claims
may be “false”
■
Providers must follow certain of the rules in order
to lawfully receive payment from the government
» “Conditions for payment” must be met or risk FCA
exposure
■
The government often takes a broad view of
which rules are “conditions for payment,” for
which violations can subject providers to FCA
exposure
©2015 Foley & Lardner LLP
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False Claims in Therapy Billing
■
Likely considered conditions for payment (that
can trigger FCA liability):
» Lack of medical necessity
» No signed certification of need
» No signed re-certification of need
■
Possibly considered conditions of payment, but
proper outcome is probably that they aren’t:
»
»
»
»
Unsigned plans of treatment
Unsigned physician orders
Unsigned MDS forms
Physician failure to visit patient
©2015 Foley & Lardner LLP
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Agenda
1.
Introduction
2.
The False Claims Act (FCA)
3.
FCA application to therapy minutes
4. Recent
5.
government enforcement
Practices that draw gov’t interest
©2015 Foley & Lardner LLP
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Increased Enforcement
■ There has
been an increase in
government FCA enforcement in the
therapy context in recent years
■ Gov’t receives $8 for every $1 it spends
on health care fraud and abuse
investigations
©2015 Foley & Lardner LLP
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Increased Enforcement
■
OIG Report on Inappropriate Payments to SNFs
(2012):
» One-quarter of all SNF claims in 2009 – $1.5 billion –
were incorrect
■
OIG Report on Questionable Billing by SNFs (2010)
» From 2006 to 2008, SNFs increasingly billed at more
expensive levels of care
» For-profit SNFs were far more likely than nonprofit or
government SNFs to bill for expensive levels of care
» A number of SNFs had questionable billing practices
• Billed much more frequently than other SNFs for higher
paying RUGs
• Billed for unusually high lengths of stay
• May be routinely placing patients at higher than needed RUG
levels
©2015 Foley & Lardner LLP
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Enforcement:
■ RehabCare contracts with
SNFs and SNF
affiliates to provide their patients with
rehabilitation services
■ Three major settlements in 2014
involving RehabCare
» $30 million (RehabCare’s relationship with
Rehab Systems of Missouri)
» $3.76 million (LCS, CPS, ParkVista)
» $1.3 million (Episcopal Ministries to the
Aging)
©2015 Foley & Lardner LLP
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Enforcement:
■
$30 million settlement by RehabCare
» RehabCare provided services at 60 nursing homes
controlled by Rehab Systems of Missouri’s majority
owner
» RehabCare allegedly paid Rehab Systems of Missouri
upfront payment of $400,000 to $600,000 in
exchange for referrals for rehab services
» RehabCare allegedly allowed Rehab Systems of
Missouri to retain percentage of revenue generated
by each referral
■
In addition to the $30 million, RehabCare and
Rehab Systems agreed to restructure their
business arrangement
©2015 Foley & Lardner LLP
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Enforcement:
■
$3.75 million settlement by LCS, CPS, ParkVista
» Life Care Services (manager of SNFs)
» Care Purchasing Services (affiliate)
» ParkVista (SNF)
■
$1.3 million settlement by EMA
» Episcopal Ministries to the Aging (owner of SNFs)
■
Allegations from these cases included:
»
»
»
»
»
»
»
Presumptive placement at highest reimbursement levels
Minimum minutes provided to hit reimbursement level
Minutes beyond threshold for reimbursement level discouraged
Unnecessary therapy provided to increase reimbursement
Suspicious billing patterns
RehabCare was paid percentage of revenue generated (ParkVista case)
Free service of RehabCare employee (ParkVista case)
©2015 Foley & Lardner LLP
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Enforcement:
Extendicare has 251 senior care centers throughout the U.S.
and Canada
■ Two whistleblower cases brought against Extendicare
■ Extendicare and subsidiary ProStep settled with the
government in October for $38 million on allegations that:
■
» Nursing services were so deficient they were effectively worthless
• Insufficient number of skilled nurses for adequate care
• Substandard skilled nursing services
• Failed to follow appropriate protocols to prevent pressure ulcers or falls
» Billed Medicare and Medicaid for medically unreasonable and
unnecessary rehabilitation therapy services, particularly during
assessment reference periods, so it could bill Medicare at highest
reimbursement rate possible
■
Entered into a five-year chain-wide Corporate Integrity
Agreement with HHS-OIG
©2015 Foley & Lardner LLP
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Agenda
1.
Introduction
2.
The False Claims Act (FCA)
3.
FCA application to therapy minutes
4.
Recent government enforcement
5. Practices
©2015 Foley & Lardner LLP
that draw gov’t interest
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Practices that Draw Gov’t Interest (1 of 4)
» Documentation deficiencies
•
•
•
•
Physician written orders
Physician certifications and re-certifications
Plans of treatment
MDS forms
» Deficient medical directorship
arrangements
• Undefined job responsibilities
• No job responsibilities beyond normal patient
care
• No documentation of services
• No FMV assessments
• Unsigned contracts
©2015 Foley & Lardner LLP
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Practices that Draw Gov’t Interest (2 of 4)
 Presumptive placement of patients at
maximally-reimbursable RUG levels
 High numbers of patients being placed at
maximally-reimbursable RUG level
(ultrahigh)
©2015 Foley & Lardner LLP

Minutes billed at and not above minimum
for reimbursement level

Minutes seemingly billed in intervals
instead of precise billing

Billing for more minutes than actually
provided
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Practices that Draw Gov’t Interest (3 of 4)
 Selection of assessment reference
dates that maximize reimbursement
 Billing unskilled services as skilled
services
 Billing group therapy as individual
therapy
 Non-qualified individuals planning
or providing therapy minutes
 Deviations from patient plans of
care to hit minimum minutes for
different therapy disciplines
©2015 Foley & Lardner LLP
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Practices that Draw Gov’t Interest (4 of 4)
» Rewarding employees or contractors
in ways that may seem to incentivize
excessive provision or billing of
therapy minutes
• Incentives
o Targets
o Performance evaluation metrics
o Percentage revenue arrangements
o Other incentives
• Incentivizing:
o Increased minutes
o Greater lengths of stay
©2015 Foley & Lardner LLP
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Program for Evaluating Payment Patterns
Electronic Report (“PEPPER”)
Assists providers in identifying potential issues
■ Excel file containing hospital-specific data
statistics for target areas often associated with
Medicare improper payments (as determined by
CMS)
■
» Review three years of data statistics for each CMS
target area
» Compare performance to others in the state, MAC
jurisdiction, and country
» Compare data statistics over time to identify changes
in billing practices
» Pinpoint areas in need of auditing and monitoring
» Identify target areas where LOS is increasing
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Thanks for your time!
■ Presenter:
Lori A. Rubin
■ Foley & Lardner LLP
■ [email protected]
■ 202.295.4760
©2015 Foley & Lardner LLP
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Branding Basics In The Internet
Age for Long Term Care Facilities
January 15, 2015
Nicole E. Gage
[email protected]
©2015 Foley & Lardner LLP
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Trademarks
Trademark laws are intended to protect
consumers:
 Quality Assurance
 Single source
Properly selected, used and enforced they are a
valuable asset to businesses as well.
©2015 Foley & Lardner LLP
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What is a Trademark?
A trademark is any word, phrase, symbol, design,
sound, color, etc. that identifies the source of goods
and distinguishes that source from other sources.
■ A service mark serves to distinguish specific services
of one entity from the services of others.
■ Trade dress refers to the total commercial image of a
product– or place of business.
■ Trade name identifies the name of a particular
company or organization.
■
©2015 Foley & Lardner LLP
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Distinctiveness of Marks
■
The scope of protection afforded a particular mark
varies with its distinctiveness.
 In general, the more distinctive a mark, the greater
the scope of protection, so choose wisely…
©2015 Foley & Lardner LLP
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What Makes a Strong Mark?
 Arbitrary/Fanciful
KODAK (film); EXXON (oil);
APPLE (electronics)
 Suggestive
COPPERTONE (suntan lotion)
CHICKEN OF THE SEA (tuna)
 Descriptive
WINDOWS (software);MRS. FIELDS (cookies);
IPHONE (digital mobile device); MassGeneral
(hospital and health services)
 Generic
laptop, aspirin, apple (for apples)
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Strong Marks
■
Arbitrary/Fanciful – Strongest Marks
 Coined terms that have no other meaning except to serve as a mark
 Terms that have no meaning relative to the product/service offered
 Examples: Kodak, Apple (for computers)
■
Suggestive
 Do not explicitly describe, but rather suggest,
a characteristic or feature of the associated goods/services
 Examples: COPPERTONE (sunscreen), IVORY (soap)
These are the marks that offer the best protection at the
lowest long term cost.
©2015 Foley & Lardner LLP
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Marks that Require Time and $$
■
■
■
■
■
Descriptive marks (describing a quality or feature of
the goods/services)
Marks that are primarily surnames
Primarily geographically descriptive marks
Product configurations
Color, scent, sound
These type of marks may be protected but only if there is a
showing of “Acquired distinctiveness” such that the consuming
public perceives the descriptive term as a source identifier.
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Unregisterable Terms
■
Generic Marks – Not protectable
 Generic marks primarily refer to a genus of good/service not a source.
 Warning: A term once trademarked can become generic (e.g., aspirin,
escalator, thermos, shredded wheat). Avoid this by properly using and
policing your marks!
■
■
■
■
■
Deceptive Marks
Immoral/Scandalous/Disparaging Marks
Flag/Coat of Arms
Name or likeness of living individual without written
consent
Functional Marks
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Selecting a Trademark
■
CHOOSE a mark that is arbitrary, fanciful, or suggestive
(inherently distinctive).
■
CHOOSE a mark that is easy to pronounce and remember.
■
Do NOT choose a mark that is merely descriptive or
generic.
■
Do NOT choose a mark that has negative connotations in
foreign languages.
■
Do NOT choose a mark that may become passé in a few
years (at least do not invest heavily in such a mark).
©2015 Foley & Lardner LLP
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Ways to Obtain Stronger Trademark Rights
at the Right Price
■ Start
with an inherently strong mark.
■ “Families” of marks may offer stronger
protection so long as the other rules
apply.
■ Search marks before falling in love.
■ Choose which marks to protect:
 Short vs. long term use
 Key service or feature
©2015 Foley & Lardner LLP
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How Do You Acquire U.S. Trademark
Rights?
■ Proper
use in association with a product
or service:
 Common Law Rights
 Federal vs. State Registration
■ Federal
Intent-to-Use Application
 Establish national rights as of date of filing.
 Cannot be transferred without associated business until
use commences.
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Duration of Trademark
Potentially Forever…
 Must be sufficiently and properly used
 Must be policed
… but Registrations, unlike common law
rights, must be renewed every 10 years (and use
must be shown between years 5 and 6 in the U.S.).
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Don’t Throw It Away- Use It Correctly
■ Trademark should
be highlighted by display in
CAPITAL LETTERS, bold, italics or similar so it is
easily distinguishable from other words close in
proximity.
■ Use
proper trademark notice – banner and/or
appropriate symbol.
 Unregistered marks (including marks with pending applications) use TM
or SM.
 U.S. federally registered marks use ®.
 Use appropriate indications of third-party ownership when applicable.
©2015 Foley & Lardner LLP
84
Using Your Trademarks Properly
(cont’d)
■

■
DO adopt and use guidelines for trademark usage.
DO include typography, color, graphics,
placement, style, etc.
DO use the mark in a consistent manner.
 Review advertising, promotion, packaging routinely to ensure this
is done.
■
DO use trademark as an adjective (e.g., NEW
ENGLAND BAPTIST HOSPITAL® health care
services).
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Using Your Trademarks Properly
(cont’d)
■ DO
use your mark in association with the
relevant goods and/or services (on the actual
product whenever possible).
■ DO
make sure licenses are in place and
enforce proper trademark use and attribution
by licensees.
■ DO
correct improper use by others.
©2015 Foley & Lardner LLP
86
How to Use Your Trademarks Properly
(cont’d) – What Not to Do
■
A trademark should NEVER be used as a noun, verb,
plural or possessive as this will risk genericide.
■
If the mark is or may be descriptive, do NOT also use
the descriptive term(s) in a non-trademark sense in
promotional materials/advertising/white papers, etc.
■
Do NOT hyphenate, combine, abbreviate as this may
blur the trademark.
■
Try to avoid using two avoid two adjacent marks
 Use of house brand may be the exception.
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87
Enforcement
■
Acquiescence can lead to a loss of rights.
 Remember aspirin, thermos, escalator…
■
Monitor use by others.
■
Send cease and desist letters and follow-up.
■
License Property.
■
Educate.
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Internet: Rules Of The Highway
■
Be Truthful
 Make sure you can support any claims at the time of the
advertisement.
■
Be Fair
■
Be Transparent
 Clarifying language/disclaimers must be “clear and
conspicuous” -- in close proximity to claims even in the
context of a microblog or mobile device.
 Reasonable consumer standard.
 Substantial minority being mislead means the advertisement statement is misleading
©2015 Foley & Lardner LLP
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Effective Disclosure
FTC
■ FTC
Guidance on Effective .com Disclosures
(Revised March 2013)
 Incorporate information in the claim where feasible
 Necessary disclosures must be “clear and conspicuous”
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Effective Disclosures
Hyperlinks and Space Limitations
■ Hyperlinks
are generally discouraged
 Not appropriate for health or safety concerns
■ Rules
apply even in 140 character platform
 Some abbreviations acceptable other not
 Must be clear to audience
 Disclosure must be in each ad in series
©2015 Foley & Lardner LLP
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FDA Guidance
■
Platforms with space limitations- Risk and Benefit Information
for Prescription Drugs & Medical Devices (June 2014)
■
Internet/Social Media Platforms- Correcting Independent
Third-Party Misinformation About Prescription Drugs and
Medical Devices (June 2014)
■
Fulfilling Regulatory Requirements for Post Marketing
Submissions of Interactive Promotional Media for Prescription
Human and Animal Drugs and Biologics (January 2014)
■
Responding to Unsolicited Requests for Off-Label Information
About Prescription Drugs and Medical Devices (December
2011)
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Other Legal Issues In Social Media
■
Defamation
■
Privacy- right to; data; children; HIPPA
■
Employment Law
■
Trade Secrets
■
Physician-Patient Boundries
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Internet Myths
 It’s only temporary - Library of Congress archives information;
online archives generally available; and just because it can be
deleted does not make it intangible.
 It’s not commercial use - Social media posts by a company =
advertising.
 It’s protected free speech - Speech promoting a company is
“commercial speech… not “free speech”; funny does not always
equal parody .
 Users grant a company permission to use their content
when they participate in social media - Generally False. Be
sure to have clear and consented to Terms of Use before using User
Generated Content and to check third-party TOUs.
 Company is not responsible for others’ posts - A company
can be liable for posts by agencies, endorsees, and employees, as
well as liability if the conditions of the DMCA are not met.
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94
Engagement and Control
■ Education
■ Internal
Polices
■ External
Notice
■ Partnering
Communication
■ Proportionate
©2015 Foley & Lardner LLP
Response
95
Proactive Steps
 Register trademarks with social media sites (not only
your house mark, but each product and service mark).
 Monitor sites to detect negative, inaccurate and
misleading comments or intellectual property
infringements.
 Internal monitoring, third party monitoring, law firm
monitoring, Google alerts
 Monitoring for trademark infringement, dilution, counterfeit
sale of goods or services, defamatory speech, brand
tarnishment, impersonation of company employees and
false or misleading advertising (Monitoring companies
include MarkMonitor, Thomson, Corseach)
©2015 Foley & Lardner LLP
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Proactive Steps (cont’d)
 Revise existing licenses and include in future license
agreements restrictions that limit use of trademarks online,
particularly in the social networking context, and ownership of
URLs and Social Media handles.
 Develop policy and procedure for your business on what
employees can post (and what they CANNOT post) on behalf of
company.
 Establish authorization process for who is permitted to post on
behalf of company.
 Identify yourself and whether posting on behalf of business.
 Don’t defame competitors/share proprietary information.
©2015 Foley & Lardner LLP
97
Legal Basis for Claims of Social Media
Misuse?
DMCA/Copyright Infringement
■ Lanham Act/Unfair Competition
■
• Dilution, TM Infringement, False Association
■
Other grounds for claims:
•
•
•
•
•
•
•
©2015 Foley & Lardner LLP
Anti-Cybersquatting (ACPA)
UDRP proceedings
False Advertising
Defamation
Right of Privacy/Publicity
Child Protection Laws
HIPPA
98
Consequences to Consider






Enforcing one’s trademark on social media outlets
presents unique challenges for brand owners.
Many trademark infringements (misusage) are by
consumers who like you and your goods/services.
U.S. law requires a trademark owner to enforce its rights
against infringers or risk losing those rights.
Should trademark owners soften their enforcement
strategies with many well-intentioned infringers?
Cease and desist letters going viral (see, e.g.,
http://www.chillingeffects.org/notice.cgi).
Social media is forcing brand owners to think outside
the box of traditional intellectual property laws.
©2015 Foley & Lardner LLP
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Consequences to Consider

Many “innocent” infringers who are simply trying to spread the
word about your business will remove infringing or diluting
content when asked.

Many companies who typically wouldn’t consider rewarding
infringers have opted, in the social media context, to show their
appreciation to such fans and followers for their cooperation
with take down requests by providing them with product
samples or promotional items.

U.S. law permits free speech. You may not like what a Twitter
user has to say about your business, but some criticism cannot
be stopped.
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Thank You
Nicole E. Gage
Foley & Lardner, LLP
T +1 617 502 3216 | F + 1 617 342 4001
111 Huntington Avenue, 25th FL
Boston, MA 02199
[email protected]
©2015 Foley & Lardner LLP
101
Succession Planning
The New England Alliance
January 15, 2014
Jason J. Kohout
[email protected]
©2015 Foley & Lardner LLP
102
Goals for Succession Planning
•
Preserve the value of the business
» Value of good management and stable ownership
•
Opportunity for next generation
» Retain key non-family employees
» Groom key family managers
•
•
•
•
•
•
Retirement income / economic assets for older generation
Promote family harmony
Preserve legacy
Responsibilities to residents
Avoid estate (40% over exemption) and income tax (35%+)
Others?
102
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Constraints/Concerns
•
Difficult choices
•
•
•
•
Emotional attachment to business
Difference between equal and fair—treating children differently
Gift/bequest versus exchange
Unexpected Events
» Death of Owners / Management
Financing
• Regulatory Environment
• Business Stakeholders
•
» Vendors/Clients
Estate and Gift Tax
• Income Tax
• Planning and Time
•
» Preparation takes time and effort
103
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Planning Framework
Elements
Management
Control
Economic
Interests
Terms
CEO, President, CFO
Paid for Management Time/Expertise
Board of Directors Elected by Voting
Shareholders





Dividends received by Shareholders
Debt holders
Deferred Comp to Retirees
Current Salaries and Benefits
Other?
104
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Planning Framework -- Timeline
Element
Description
Current
Current Situation
Long-term
When current owners and
management are dead, who will own,
control, and manage the company?
Transition
What is the plan for getting from
Current to Long-term?
Unexpected Events
What if owner or management is hit by
a bus tomorrow?
105
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Framework
Elements
Current Transition
Management
Control
Economic
Interests
106
©2015 Foley & Lardner LLP
Long-Term
Unexpected
107
Management Transfer
•
Preparing Family Members for Management
» Create requirements for family members
» Setting expectations
» Timing
•
Effect on key employees
» Management changes can be threatening
» Create arrangements to provide security and incentives for
performance
» Define roles & expectations for family and non-family managers
» Add management if necessary
•
Unexpected Event
» Does the business currently have sufficient leadership?
107
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Transfer of Control
Separate control from ownership of stock
•
■
•
»
»
»
»
Recapitalization
Voting Trust
Shareholders Agreement
Defective Grantor Trust
»
»
»
»
Introduce independent directors
Hold serious board meetings & receive reports
Involve next generation
Prepared for unexpected death
If older generation has stake in business—best to
retain control
Make board of directors more formal
108
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Transfer of Economic Interests
•
Focus on what the older generation wants to keep
» Business ownership until death
» Diversified retirement assets
» Stream of payments from business (paid before
shareholders)
•
Gift/Bequest or Exchange
• Determine amount to gift
• Attorneys/accountants can give advice on how to best
avoid estate tax
109
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Ways to Retain Economic Interests
•
•
•
Retirement/Deferred Compensation Plan
Consulting Agreement
Distribution of ancillary assets
» Real estate (Collect rental income)
» Stock portfolio
•
Installment Sale
»
»
»
»
•
Sell company in exchange for promissory note
Payments on promissory note provide income stream
Future appreciation after sale is not included in taxable estate
Income tax due as payments are made
Grantor Retained Annuity Trust
»
»
»
»
»
Gift to a special trust qualifying for a “present value discount”
Parents receive cash flow (annuity for term of trust (15 years)
At trust termination, balance passes to children
Gift tax value reduced to “present value”
Potent leveraged gift opportunity
110
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111
Estate Tax Update
•
Basics
» 40% maximum gift and estate tax rate
» $14,000 annual gift exclusion
• $28,000 per couple
» $5.43 million gift and estate tax exemption
• $10.86 million per couple
» Indexed
•
Maximize tax-free amounts with discounting
»
»
»
»
»
Lack of liquidity Discount (25.0%)
Minority Discount (10.0%)
Non-voting Discount (5.0%)
Total Discount – 35.8%
$10.86 M becomes $16.9 M
111
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Strategic Succession Planning
Every situation is different
• Aim to keep management, control, and ownership together
•
» Closely-held businesses work best economically when owners are in
control and managing the business
» Avoid legal disputes
» Often, closely-held businesses tangle the management, control, and
ownership, leading to disputes.
» If there is separate management, control, and ownership, must have a
plan and legal agreements governing those issues.
•
Prepare for the unexpected
» Ownership/Management death
Good succession planning takes time
• Communication
• Don’t give assets away until you are certain you won’t need them.
•
112
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Pitfalls
•
•
•
Decisions based on the tax code
A reciprocal buy-sell agreement is not a
complete succession plan
Waiting
» Best time for succession planning is when
everyone is amicable
•
•
Not being prepared to sell to third-party
“Superman” or “Superwoman” Effect
113
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114
Real-Life Examples
•
•
•
•
#1:
#2:
#3:
#4:
One Owner; Single Child
One Owner; Multiple Children
Management Buyout
Two Business Partners
114
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115
#1: One Owner; Single Child
•
•
Father sole owner of business
Father has one child who will take over
business
115
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One Child Framework
Elements
Current Transition Long-Term Unexpected
Management Dad
Dad, Son
Son
?
Control
Dad
Dad
Son
?
Economic
Interests
Dad
Dad, Son
Son
Son
116
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117
Management
•
Preparation for Son
» Expectations of required education, training,
experience
» Timing
•
Key Employees
» Define roles
» Examine whether management needs to be added
» Address Compensation
117
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Control
•
New shareholder
» Requires Shareholder Agreement (Reciprocal Buy-Sell)
to maintain closely-held nature
•
Transition Timing
» If Dad has economic interest (not just stock), he should
be in control.
•
Prepare for Dad’s unexpected death
» Formalize Board
» Independent directors?
» Trustee?
118
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119
Transition Economic Interests
•
Gift
» Use annual gift exclusion
» GRAT
» Current gifts against exemption
•
Exchange
» Retaining Assets
» Deferred Compensation Plan for Dad
» Installment Sale
» Compensate Son in Stock
119
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120
#2: One Owner; Multiple Children
•
•
Dad is sole owner of business
Dad has three children:
» 2 Sons
» 1 Daughter
•
•
Daughter works in the business and would like
to take it over
Sons collect compensation from business, but
are uninterested in management
120
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121
Multiple Children Framework
Elements
Current
Transition
Long-Term
Unexpected
Management
Dad
Dad,
Daughter
Daughter
Daughter
Control
Dad
Dad
?
?
Economic
Interest
Dad &
Children
Dad &
Children
?
?
121
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122
Mixing Management, Control and
Economics
•
Children have very different management, financial, work,
and salary expectations
» Compounded when children have been employees for the
benefits.
•
Daughter will manage business
» Should Sons control the business?
• Daughter would be responsible to Sons; Sons decide compensation
• Could this be addressed with independent trustees or independent
directors.
» Should Sons be involved as shareholders?
• Even non-voting shareholders have rights and can sue
• Daughter’s compensation is money that cannot be distributed
Mixed families
■ Attitudes and expectations may change over time
■
122
©2015 Foley & Lardner LLP
Possible Solutions to avoid mixed
ownership
Sell business to third-party at Dad’s death
• Break-up Business
•
» Real estate, ancillary business assets to provide amounts for bequests
to Sons
•
Arrangement so that Daughter can buys Business from Dad’s estate
» Stock grants part of Daughter’s current compensation
» Daughter receives business in estate at some agreed upon discount
vis-à-vis Sons’ bequests
» Option Rights at Dad’s Death
• Daughter has right to buy Son’s stock for set price with promissory note
• Dad purchases life insurance to provide benefit to Sons
• Expectation that Sons will leave company payroll at some agreed-upon
time
•
Communication is important
123
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123
124
#3: Management Buyout
■ Company is
owned and operated by John
■ John’s children are not interested in operating
company; John wants best economic outcome
for him.
■ John may want to stay involved in business
■ Company’s manager, Susan, can operate
business; may be interested in owning
Company
124
©2015 Foley & Lardner LLP
125
#3: Management Buyout
Elements
Current Transition
Long-Term
Future
Unexpected
Management John
John,
Susan
Susan
Susan
Control
John
John
Susan
Susan?
Economic
Interests
John
Shared
Susan
Susan?
125
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126
Sale of Economic Interest
■
Major Constraint: Financing for Management
» Third-party (banks, professional lending)
» Third-party ownership (“silent” investment partner)
■
Seller-Financing
»
»
»
»
»
■
Installment sale with note
Gradual sale
New shareholder requires new shareholder agreement
Place deferred compensation requirement on Company, then sell
But seller is still subject to business risk
Convert some current compensation to equity grants
126
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127
Income Tax Issues
■
Owner’s tax treatment
» Redemption – perhaps deemed dividend
» Sale – capital gains, basis recovery
» Deferred comp. is treated as compensation (ordinary income)
■
Manager’s tax treatment
» Salary, stock grants, and deferred comp. treated as compensation (ordinary
income)
» Loans, stock options are not immediately taxable
■
Company’s tax treatment
» Compensation is deductible
■
Valuation
» Compensation arrangements with owner lowers value for sale income
■
Timing
» May be able to defer some income until later
127
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128
#4: Two Business Partners
•
•
•
•
Joe and Tom each own 50% of business
Joe and Tom each work full-time in the
business
Joe is 60; Tom is 50
Joe wants to retire but Tom does not
128
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129
#4: Two Business Partners
Elements
Current MediumTerm
Long-Term
Future
Unexpected
Event
Management J & T
J&T
?
Survivor
Control
J&T
?
?
Survivor
Economic
Interests
J&T
?
?
Survivor
129
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130
Alternatives for Joe to Leave Company
■ Buy-out Agreement
■ Separation of
salary and equity
■ Sale to third party
130
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131
Buy-Sell Agreement
•
Buy-sell Agreement
» Company and/or Tom buys Joe out upon Joe’s
retirement
» Sets the terms for sale
•
Structuring Buyout
• There are no easy legal answers – this is a negotiated
transaction (only negotiated in advance)
» Company’s ability to pay cash (internal or financed)
» Assessment of financial picture
» Consider Joe’s tax position in retirement; Company’s tax position
» Tom may be 55 when Joe retires—does he want to double-down?
131
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Provisions in Buy-Sell Agreement
■
Valuation
» Discounts
» Appraisal
» Formula
■
Additional payments
» Earn-out
» Does selling shareholder participate in gain from later thirdparty sale
■
Terms
» Installment sale -- length, rate
132
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133
Funding Buy-out
■ Third-party lenders
■ Third-party equity
■ Current earnings
■ Seller-Financing
(Promissory Note)
» Key: Can the business meet these terms?
133
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134
Separation of Management and Equity
•
Joe retains ownership and control in the Company,
but receives less because of Tom’s salary
» Joe still receives distributions
» Tom does not have to buy him out
•
Tom is paid a salary for his management time and
expertise
» Set by independent consultants
Disadvantage: Tom and Joe’s interests diverge
• If issues arise, then go to Buy-Sell Agreement.
•
134
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135
When to Sell the Company
Strategic buyer wants to (over) pay
■ Key man is available for the transition and no
family successors
■
» Family companies tend not to do well without family
member involvement in management
» Don’t wait too long; don’t leave company for
trustees/children to sell
■
Go to market once
» Aborted transactions cost money and take focus from
management
» Company needs to be prepared and preparation
requires effort
135
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136
Sale Preparation
•
3 years of “clean” earnings
» Distribute personal & investment assets
» Remove family members from payroll and benefit plans
• Buyers may not allow an adjustment for family member compensation
Set reasonable (market) salaries
• Clean up books and records
• Resolve any outstanding issues
•
» Regulatory Issues
» Environmental questions on real estate
•
State tax returns
» Voluntary Disclosure Agreements
•
Key contracts should be enforceable
» Formalize beneficial hand-sake agreements
» Review ability of other party to renegotiate in case of change of
management
136
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137
Questions
•
Jason Kohout
» (414) 319-7053
» [email protected]
137
©2015 Foley & Lardner LLP
Foley & Lardner LLP Legal Update
January 14, 2015
Woodstock, VT
©2014 Foley & Lardner LLP