Doing business in the United States

A Q&A guide to doing business in the United States.

This Q&A gives an overview of the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.

To compare answers across multiple jurisdictions, visit the Doing business In... Country Q&A Tool.

This article is part of the multi-jurisdictional guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/resources/multi-jurisdictional-guides/dbi-mjg.

Robert Kovelman, Timothy Walsh, Philip R West and Lynda S Zengerle, Steptoe & Johnson LLP (Lex Mundi Member Firm)
Contents

Legal system

1. What is the legal system (civil law, common law or a mixture of both)?

The US has a common law legal system. The federal constitution takes precedence over all other laws and the courts can declare statutes, regulations and actions that violate the constitution invalid. The US is organised as a federal system of government. Therefore, the 50 states and the District of Columbia have their own local laws and state constitutions that apply within their respective territorial jurisdictions, provided they do not violate the federal constitution or federal laws.

 

Foreign investment

2. Are there any restrictions on foreign investment (including authorisations required by central or local government)?

There are various restrictions on investments in certain sectors, mainly involving:

  • Defence.

  • Commercial aviation.

  • Maritime industries.

  • Commercial fishing.

  • Power generation.

  • Banking.

  • Communications.

  • Broadcasting.

  • Mining rights.

Investments in these sectors are generally reserved for US citizens or for US-owned or US-controlled entities. Certain qualifying foreign investors are also required to file reports with federal government agencies under the:

  • International Investment and Trade in Services Survey Act 1976.

  • Agricultural Foreign Investment Disclosure Act 1978.

Individual US states may also have sector-specific reporting requirements.

In addition, certain review processes can be triggered based on the nature of the investment. For example, under the US National Industrial Security Program and Regulation, the Department of Defense can review foreign investments in companies or facilities that do work involving classified material. Also, under the Exon-Florio Amendment to the Defense Production Act of 1950, as recently amended by the Foreign Investment and National Security Act of 2007 (FINSA), the Committee on Foreign Investment in the United States (CFIUS) can review transactions that result in foreign persons acquiring control of an existing US business that may present a threat to US national security, which includes homeland security, effects on critical infrastructure (such as major energy assets) and critical technologies.

The CFIUS process normally involves a voluntary notification triggering a 30-day review, after which CFIUS can clear the transaction or institute a 45-day investigation to determine if it should recommend that the President block the transaction, although CFIUS can also ask parties to file a notification or initiate a review on its own motion. In the case of transactions that result in control of existing US businesses by a foreign government or entities controlled by them or acting on their behalf, the 45-day investigation is mandatory unless certain senior officials determine the transaction presents no threat to US national security.

 
3. Are there any exchange control or currency regulations?

There are no exchange control or currency regulations. However, there are reporting and other requirements for certain transactions under anti-money laundering laws.

 
4. What grants or incentives are available to investors?

The federal government does not generally give any grants or incentives to foreign investors. However, certain state and local governments provide some incentives to foreign investors to encourage investment. Additionally, the EB-5/million dollar investor visa was created to attract foreign investors who want to become lawful permanent residents in the US (see Question 8).

 

Business vehicles

5. What is the most common form of business vehicle used by foreign companies in your jurisdiction, and what are the main applicable formalities, rights, restrictions and liabilities?

The most common form of business vehicle established by a foreign company in the US is a corporation incorporated in Delaware.

Registration formalities

A certificate of incorporation must be filed with the Secretary of State of Delaware. The certificate is effective on the date of filing. A corporation also requires bye-laws and organisational minutes of the board of directors (board), however, these are not filed with the state and are not publicly available. A corporation is not active until it has issued shares.

Share capital

Delaware imposes no minimum or maximum share capital.

Non-cash consideration

Shares can be issued for property, goods and services provided to the corporation. There may be tax implications where shares are issued for non-cash consideration.

Rights attaching to shares

Restrictions on rights attaching to shares. Restrictions on rights can be imposed by:

  • The certificate of incorporation.

  • Bye-laws.

  • A separate shareholders' agreement.

A shareholder generally cannot be prohibited from transferring shares, but transfers can be limited by contract.

Automatic rights attaching to shares. There are no automatic rights attaching to shares. Rather, the rights, voting powers, designations, preferences, qualifications, restrictions and limitations relating to any class of stock must be included in the certificate of incorporation or in resolutions adopted by the board under authority granted to the board in the certificate of incorporation.

Foreign shareholders

There are no restrictions on foreign shareholders except in certain industries (see Question 2).

Management structure

A board elected by the shareholders manages a corporation. Officers appointed by the board are responsible for management of the corporation's day-to-day operations.

Management restrictions

There are no restrictions on foreign managers under the general corporation law.

Directors' and officers' liability

A director owes fiduciary duties to the corporation and its shareholders, and can be personally liable for any breach of these duties. The certificate of incorporation can eliminate or limit a director's personal liability for certain acts and breaches. Corporations usually indemnify their directors against certain liabilities and purchase insurance to cover claims against their directors or officers.

Parent company liability

A parent company generally is not liable for its subsidiaries' obligations. Similarly, shareholders are generally not liable for a corporation's obligations, however a court can, as an equitable remedy, revoke the limited liability status of the shareholders.

Reporting requirements

A corporation must file with the Delaware Secretary of State:

  • Certificates identifying:

    • any change in the corporation's name, registered agent or registered office;

    • any exchange, reclassification, subdivision, combination or cancellation of stock or rights of shareholders; or

    • any other changes to the corporation's certificate of incorporation.

  • An annual franchise tax report, which includes an annual report (or, for a foreign corporation doing business in Delaware, a foreign corporation's annual report).

If the corporation is qualified to do business in another state, it must comply with that state's reporting requirements. In addition, a public corporation must comply with the reporting requirements of the US Securities Exchange Act of 1934.

 

Employment

Laws, contracts and permits

6. What are the main laws regulating employment relationships?

Federal, state and local laws regulate employment matters. Employment contract matters are regulated at the state level. At the federal, state and local level, employment statutes generally fall into one of the following categories:

  • Labour relations laws. These include the National Labor Relations Act, the Taft-Hartley Act and state "right to work" laws. They protect the right to organise and join unions for the purpose of collective bargaining and regulating the collective bargaining process. The NLRA's scope also protects certain communications on social media regarding group activities relevant to employment.

  • Labour standards laws. The main federal labour standards statutes are the Fair Labor Standards Act and the Occupational Safety and Health Act. State laws also regulate employers in these areas as well as wage payment requirements. These cover:

    • minimum wages;

    • maximum hours;

    • child labour;

    • occupational safety and health.

  • Non-discrimination laws. The main federal non-discrimination laws are:

    • Title VII of the Civil Rights Act of 1964, including the Pregnancy Discrimination Act amendments;

    • The Equal Pay Act;

    • The Americans with Disabilities Act;

    • The Age Discrimination in Employment Act of 1967;

    • Genetic Information Nondiscrimination Act of 2008.

    These prohibit discrimination on the basis of stated criteria, such as:

    • Race and national origin;

    • religion;

    • sex;

    • disability and genetic information;

    • age.

    They also prohibit retaliation against an individual who:

    • opposes an employment action or practice reasonably believed to be unlawful; or

    • has filed an administrative charge or court action for employment discrimination.

States and many localities have comparable laws, often with greater protections than federal law. These laws typically prohibit discrimination on other bases, such as sexual orientation and marital status. Remedies may include reinstatement, back pay, future payments, compensatory damages, punitive damages in certain situations, and attorneys' fees.

  • Employee benefit laws. The primary federal laws that regulate employee benefits are the:

    • Employee Retirement Income Security Act (ERISA). This is the main statute governing employee retirement plans and welfare benefits;

    • Consolidated Omnibus Budget Reform Act (COBRA). This regulates the availability of health benefits to workers and families when such benefits would otherwise be lost;

    • Family and Medical Leave Act. This regulates the availability of unpaid leave, job protection and medical insurance for certain medical conditions of employees and family members, and leave for employees whose family members are called to, or have returned from, military service.

Many of these statutes have statutory counterparts in state laws, some of which provide greater protection than federal law.

Federal laws generally do not apply extra-territorially. Generally, US employers need not comply with US law abroad where the compliance violates the law of the foreign nation. However, several key non-discrimination laws apply to US citizens working for US employers abroad. US employment laws generally also apply to non-US citizens working in the US.

 

Contract requirements

7. Is a written contract of employment required, and if so, must it contain any particular language? Are any agreements and/or implied terms likely to govern the employment relationship?

A written employment agreement is not required unless the employee is represented by a union. For unionised employers, collective bargaining agreements (CBAs) are written. Other terms may be imposed by statute (see Question 6). A written contract of employment is most frequently used for employment of senior executives. Other than for individuals with contracts, employment is generally at will.

 
8. Do foreign employees require work permits and/or residency permits?

All foreign employees must obtain authorisation from the Citizenship and Immigration Services to work in the US. The two most common non-immigrant visas issued to foreign persons who have a job offer in the US are the L-1 and H-1B visas. Both can take from 15 days to four months to obtain. Legal fees for H-1B and L-1 visa petitions are about US$4,500 and US$3,500 respectively, excluding filing fees (as at 1 March 2012, US$1 was about EUR0.7).

A person with a pending immigrant visa petition who is in the US can usually apply for work authorisation. The legal fees are about US$750 and the application procedure takes about 90 days.

 

Termination and redundancy

9. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?

Except where a union is involved, employees are not entitled to management representation.

 

Agreements/implied terms

10. How is the termination of individual employment contracts regulated?

Labour relations and non-discrimination laws (see Question 6) prohibit, for example, the dismissal of:

  • An employee for engaging in statutorily-protected conduct such as union-organising or complaining about discrimination.

  • A disabled employee who can perform the essential elements of his position (with reasonable accommodation).

  • An employee for the purpose of interfering with his benefits entitlement.

Similarly, both statute and common law, mainly at the state level, identify other illegal grounds for termination. In many jurisdictions it is unlawful to dismiss an employee for engaging in conduct that furthers the state's public policy (most typically, reporting suspected wrongdoing to appropriate governmental officials). The remedies for dismissals that violate federal or state law are similar to those for violation of employment discrimination laws.

 
11. Are redundancies and mass layoffs regulated?

The Federal Worker Adjustment and Retraining Notification Act (WARN) and some state laws require employees to be given notice in the event of the closure of a facility or mass redundancies. In a unionised setting, CBAs usually specify the procedures to be followed in redundancy situations. Severance benefits may be provided in CBAs or in voluntary policies of larger employers.

However, most US employees who are employed by small employers or by employers without a CBA are generally not entitled to many benefits on termination. If an employer provides benefits in a reduction in force or layoff situation, or in a voluntary incentive termination program, any release of claims requires compliance with federal statutory requirements under the Older Workers Benefit Protection Act.

 

Tax

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of:

  • Avoiding penalties under the Internal Revenue Code.

  • Promoting, marketing or recommending to another party any plan or arrangement addressed herein.

Taxes on employment

12. In relation to employees, what constitutes tax residency in your jurisdiction?

A foreign employee is generally treated as a US tax resident if he:

  • Is lawfully admitted for permanent residence in the US.

  • Has maintained a "substantial presence" in the US.

A presence of 183 days or more in the US during a tax year is generally sufficient to constitute tax residency, although residency may be established with a lesser presence in a year if the employee is present in the US during either, or both, of the two previous years.

A US citizen is subject to US tax on his worldwide income without regard to residence.

An employee's tax liability is subject to any applicable double tax treaties.

 
13. What income tax or social security contributions must be paid during the employment relationship?

Tax resident employees

Income paid to an employee for services performed in the US is generally subject to federal income tax and certain employment taxes. Statutory federal income tax rates range from 10% to 35%. Generally, employers and employees must pay social security, Medicare and unemployment tax on payments made to employees for services performed in the US.

Tax is imposed at the following rates:

  • Social security tax. In recent years, this has been payable at 12.4% (6.2% by the employer and 6.2% by the employee) on the wage base (US$110,100). For 2011 and 2012, the employee portion of the social security tax is reduced to 4.2%.

  • Medicare tax. This is payable at 2.9% (half by the employer and half by the employee) on all wages, irrespective of the wage base.

  • Unemployment tax. This is payable solely by the employer. There is both a Federal tax and state unemployment taxes.

Non-tax resident employees

Payments by a non-US employer to an employee for services performed in the US can generally be exempt from US federal income tax under a double tax treaty (see Question 22) if:

  • The employee is present in the US for fewer than 183 days during the year.

  • The payments are made by, or on behalf of, a non-resident employer.

  • The payments are not borne by any US permanent establishment which the non-resident employer has in the US.

Social security and Medicare tax obligations can be reduced if a social security agreement exists between the US and the employee's or employer's jurisdiction. In the absence of a treaty exemption, a non-tax resident employee can be subject to the standard US statutory income tax rates on his US wages if the employee is treated as having a US trade or business.

Employers

See above, Tax resident employees.

Employers are generally required to withhold tax on wages paid to employees in the US.

 

Business vehicles

14. What constitutes tax residency in relation to business vehicles?

A corporation incorporated in the US is a tax resident of the US.

 
15. What are the main taxes that potentially apply to a tax resident business vehicle (including rates)?

A corporation incorporated in the US is subject to federal income tax on its worldwide income. The main tax is the federal corporate income tax. The statutory rate is generally 35% for net taxable income above US$10 million. Rates are generally between 15% and 34% for taxable income that is US$10 million or less. Corporate capital gains are generally subject to tax at the same rates as ordinary income.

 
16. How are the activities of non-tax resident business vehicles taxed?

A company not incorporated in the US is generally subject to federal income tax on its net income that is effectively connected with its US trade or business.

A non-resident company that is resident in a country with which the US has a double tax treaty is generally subject to US tax on its business profits attributable to its permanent establishment in the US.

A non-resident company's US source income from certain passive activities (for example, dividends, interest, rents and royalties) will generally be subject to US withholding tax if the income is not effectively connected with a US trade or business or, if a treaty applies, if the income is not attributable to a permanent establishment in the US and the withholding tax is not eliminated under the treaty (see Question 17).

Capital gains of a non-resident corporation that are not effectively connected with a US trade or business are not generally subject to tax.

 

Dividends, interest and IP royalties

17. How are the following taxed:
  • Dividends paid to foreign corporate shareholders?

  • Dividends received from foreign companies?

  • Interest paid to foreign corporate shareholders?

  • Intellectual property (IP) royalties paid to foreign corporate shareholders?

Dividends paid

A 30% withholding tax is payable on dividends paid to foreign shareholders, subject to the provisions of any applicable double tax treaty.

Dividends received

Dividends received by a US taxpayer from foreign companies are generally subject to tax at normal US federal income tax rates (see Question 15). A credit against US tax can be allowed for taxes withheld from the dividend distribution in the other country. In certain circumstances, a US-resident corporate shareholder can also be entitled to a foreign tax credit for taxes paid by the distributing company on the earnings and profits constituting the dividend.

Interest paid

A 30% withholding tax is payable on interest paid to foreign shareholders, subject to the provisions of any applicable double tax treaty.

IP royalties paid

If the IP is used in the US, a 30% withholding tax is payable on the royalties for that IP paid to foreign shareholders, subject to the provisions of any applicable double tax treaty.

 

Groups, affiliates and related parties

18. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)?

Interest expense deductions may be disallowed for certain types of interest paid by companies. A company is subject to these rules if it has both:

  • Excess interest expense (that is, the company's net interest expense exceeds 50% of the company's adjusted taxable income).

  • A debt-to-equity ratio that exceeds 1.5:1 at the end of the taxable year.

If these two tests are met, deductions for amounts of disqualified interest (that is, interest paid to a related person, or guaranteed by a tax-exempt organisation or a foreign person, if the interest is not subject to US federal income tax) during the taxable year are disallowed up to the company's excess interest expense.

Interest payments made by thinly capitalised entities can also be treated as dividend distributions or the return of capital if the entity's debt is re-characterised as equity under common-law debt-to-equity principles.

 
19. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?

A US shareholder of a controlled foreign corporation (CFC) must generally include as income its pro rata share of the CFC's "subpart F" income (a complex statutory tax regime). A non-US company is generally a CFC if, on any day during the foreign company's taxable year, US shareholders own more than 50% of either:

  • The total combined voting power of all classes of shares.

  • The total value of the company's shares.

Also, US persons who own any amount of the shares of a foreign company (other than a CFC) with passive assets (that is, assets that generate passive income such as dividends, rents or royalties), or passive income exceeding certain thresholds, can be subject to similar (or more onerous) rules.

 
20. Are there any transfer pricing rules?

Transactions between two taxpayers owned or controlled by the same interests, including transactions between US companies and their non-US affiliates, must be priced on an arm's-length basis and properly documented. Otherwise, the Internal Revenue Service can allocate income, credits and deductions between the parties to prevent the avoidance or evasion of tax or to reflect income clearly.

 

Customs duties

21. How are imports and exports taxed?

Imports and exports may be subject to certain non-income taxes, such as tariffs, depending on the type of goods and country of import or export.

 

Double tax treaties

22. Is there a wide network of double tax treaties?

The US has tax treaties with about 50 countries, including its most significant trading partners.

 

Competition

23. Are restrictive agreements and practices regulated by competition law?

Any agreement, contract, combination or conspiracy that unreasonably restrains trade among the states or with foreign nations is unlawful under federal anti-trust laws.

Violators can be subjected to criminal and civil penalties (including imprisonment) as well as liability in private actions for treble damages and lawyers' fees.

Almost every state has anti-trust statutes that are comparable to federal anti-trust laws. Many states also have anti-trust statutes that cover specific industries and particular practices, such as:

  • Bid-rigging.

  • Franchise terminations.

  • Below-cost sales.

Some restrictive agreements are presumed to restrain competition unreasonably, including those between competitors that:

  • Fix prices or output.

  • Allocate customers or markets.

  • Constitute group boycotts or concerted refusals to deal.

 
24. Is unilateral (or single-firm) conduct regulated by competition law?

Unilateral or single-firm conduct may violate US competition law if a firm engages in predatory pricing or certain types of exclusionary conduct to achieve or preserve a dominant position or monopoly power in a given market. Attempts to monopolise a market are also prohibited if there is a dangerous probability the attempt will succeed.

 
25. Are mergers and acquisitions subject to merger control?

Agreements to merge, to acquire stock or assets, and to form joint ventures are unlawful under US anti-trust statutes if their effect may be to substantially lessen competition or to tend to create a monopoly in any relevant market.

Acquisitions, mergers, and certain joint ventures above certain thresholds must be submitted for anti-trust review under the Hart-Scott-Rodino (HSR) Act and cannot be completed until that review process has finished. Filings normally must be made where the value of the transaction is US$50 million or more (a figure that is annually adjusted so that it is US$68.2 million as of 27 February 2012). The value of a transaction in most cases includes not only total consideration paid but also the value of voting securities, non-corporate interests and assets already held by the acquiring party at the time of closing.

Foreign-to-foreign mergers that cross the thresholds require HSR review unless they are exempt. The exemptions are complex but look to whether the transaction will confer control of an entity that has US assets or US revenues and whether those assets or revenues are above certain thresholds. Transactions involving certain types of assets (including foreign assets) or parties may also be exempt from HSR review if specified conditions are met.

 

Intellectual property

26. What are the main IP rights capable of protection?

Patents

Nature of right. A utility patent protects the structural and functional aspects of an invention. A patent owner can exclude others from making, using, offering to sell, selling and importing into the US a patented invention that is new, useful and not obvious. The invention can be a process, machine, manufacture, composition of matter or any new and useful improvement of any of these. Genetically engineered life forms, plants, computer software and methods of doing business can be patented. Importation of an unpatented article of manufacture into the US can also be prohibited if the article was made outside the US by a process covered by a US patent.

Protection. A utility patent application must be filed with the US Patent and Trademark Office (USPTO) and granted after an examination process for the patent to be protected. Royalties may be obtained before the patent issues if a third party makes, uses, offers for sale, sells or imports into the US the invention and the third party has actual notice of the patent application as published and the claims as published are substantially identical to the claims that eventually issue.

Enforcement. A patent owner can bring an infringement action in federal court and seek damages for the infringement and an injunction against future use of the patented invention (in the case of wilful infringement enhanced damages, costs and attorneys' fees may be available). Also, a patent owner can initiate a proceeding in the US International Trade Commission (ITC) to block the importation of infringing articles into the US.

Length of protection. Generally, protection lasts for 20 years from the earliest date to which the patent application claims priority. The patent term can be adjusted (guaranteed adjustment basis) to account for delays made by the USPTO in processing and examining the patent application. The patent term can also be extended under certain circumstances if the composition of matter or process of using the composition of matter was subjected to review by the Federal Food and Drug administration.

Trade marks

Nature of right. Any name, word, device, logo, slogan or combination of these which, when used in commerce, indicates the source or origin of goods or services is a trade mark. If the mark is distinctive, not merely descriptive, and non-functional, the trade mark owner can prevent others from using the mark or a similar mark in a way that is likely to cause confusion as to source, sponsorship or affiliation. In addition, the federal Lanham Act protects distinctive and famous marks from dilution. Some states also protect trade marks from dilution.

Protection. A trade mark must be used in commerce in the US to be entitled to protection. Registration is not required for trade mark protection, but federal registration, which involves an examination process, is advisable for the presumptions and rights afforded registered marks. In addition, an application for federal registration of a mark may be filed if there is an intent to use the mark. The mark must be used before it can be registered, but the registrant's priority to the mark is the date of the application. The protection of a trade mark is determined under pertinent federal or state laws.

Enforcement. A trade mark owner can bring an infringement action in federal or state court and seek an injunction and damages. In the case of wilful infringement, enhanced damages, costs and attorneys' fees may be available. Also, statutory damages may be available for counterfeiting. In addition, administrative procedures are available to oppose or cancel other registrations on various statutory grounds. Also, a trade mark owner can initiate a proceeding in the ITC to block the import into the US of products bearing infringing marks.

Length of protection. A trade mark is protected as long as it is used or not abandoned. A federal registration is for ten years as long as a statutory declaration of use is filed between the fifth and sixth years of registration and the registration can be renewed for ten-year periods.

Design patents

Nature of right. A person who invents and patents any new, original and ornamental design for an article of manufacture can exclude others from making, using, offering to sell, selling and importing it in or into the US. Utility patents cover the structure and function of an invention (see above, Patents), whereas a design patent covers ornamental appearance as an invention.

Protection. To be protected, a design patent may be sought by the same application process used to obtain a utility patent (see above, Patents) and, if allowed subsequent to examination, is issued by the USPTO.

Enforcement. The enforcement procedure and remedies available for the infringement of a design patent are the same as for utility patents (see above, Patents).

Length of protection. Protection lasts for 14 years from the date of grant.

Other design protection

Nature of right. Designs that are non-functional, distinctive and indicate origin may be protected under federal and state trade mark and unfair competition laws. Non-functional designs may also be protected under copyright law (see below, Copyrights).

Protection. Non-functional, distinctive designs must be used to be entitled to protection under trade mark and unfair competition laws. Certain such designs may be registrable as trade marks.

Enforcement. The enforcement procedure and remedies available for the infringement of non-functional, distinctive designs are the same as for trade marks (see above, Trade marks).

Length of protection. Protection lasts indefinitely, provided the design is used in commerce.

Copyright

Nature of right. Original works of authorship are protected as expressions fixed in a tangible medium. This includes literary, musical, dramatic, pictorial, graphic, movies and other audiovisual works, sound recordings and architectural works. The copyright owner has exclusive rights to reproduce, prepare derivative works from, distribute copies of, publicly perform and publicly display the copyrighted work. Certain original designs of vessel hulls are also protected by copyright.

Protection. Protection subsists automatically without formalities. Registration with the US Copyright Office is required for judicial enforcement.

Enforcement. The owner of registered copyright rights can bring a civil action in federal court for an injunction and damages, including statutory damages. Wilful infringement may allow an award of enhanced statutory damages and attorneys' fees. Also, a proceeding in the ITC may be initiated to block the importation of works infringing a registered copyright.

Length of protection. Protection lasts for the life of the author plus 70 years. In the case of an anonymous work, a pseudonymous work or a work made for hire, protection lasts for 95 years from the year of its first publication or 120 years from the year of its creation, whichever expires first. Protection for designs of vessel hulls lasts for ten years beginning on the earlier of the date of publication of the registration or the date the design is first made public when a vessel embodying the design is anywhere publicly exhibited, publicly distributed, or offered for sale or sold to the public by the owner of the design or with the owner's consent.

Confidential information

Nature of right. A trade secret is generally defined in the US as information, including a formula, pattern, device, compilation, method, technique or process, that derives economic value, actual or potential, from not being generally known by other persons who can obtain economic value from its disclosure or use, and is subject to reasonable efforts to maintain its secrecy.

Protection. Trade secret rights are available to the owner under state statute or common law. The Uniform Trade Secrets Act has been adopted by most US states.

Enforcement. Generally, the owner can bring a civil action to prevent actual or threatened disclosure or misappropriation of the trade secret or to pursue remedies for misappropriation that has already occurred. Other bases of claims for violation of trade secret may include breach of contract for a violation of a non-disclosure agreement. Among other remedies, the owner can be awarded damages for the misappropriation. In addition, the government can seek criminal penalties for economic espionage or theft of trade secrets.

Length of protection. Protection lasts for as long as the information is maintained in confidence and provides an economic advantage from being kept secret.

Mask works

Nature of right. A mask work is a series of related images representing the three-dimensional layout of a semiconductor chip product. The owner of a mask work has an exclusive right to reproduce the mask work and to import or distribute a semiconductor chip product embodying the mask work.

Protection. A mask work must be original and registered with the Register of Copyrights to be protected.

Enforcement. The owner of a mask work may bring a civil action in federal court and seek an injunction and damages. Statutory damages are available and a court, in its discretion, may award costs and attorneys fees.

Length of protection. Protection lasts for ten years from the first of the date on which the mask work is registered or the date on which the mask work is first commercially exploited anywhere in the world provided that registration is made within two years of exploitation.

 

Marketing agreements

27. Are marketing agreements regulated?

Agency

There are no specific federal laws regarding agency agreements. However, federal and state anti-trust laws must be complied with. Many states do require licensing of certain agents, for example, theatrical, employment/talent, booking, travel and insurance.

Distribution

Certain kinds of distribution agreements (for example, automobile, pharmaceutical, alcohol and tobacco and petroleum products) are regulated by federal and state laws. Distribution agreements are also subject to federal and state anti-trust laws.

Franchising

Federal and state laws can regulate certain kinds of franchising agreements and all franchise agreements are subject to federal or state anti-trust laws. In addition, persons who offer franchises and business opportunities to consumers may be subject to regulation by the Federal Trade Commission (FTC). The FTC Franchise Rule was revised in 2007, becoming mandatory in 2008. It pre-empts state franchising laws except to the extent the state laws are more restrictive. Such franchises and business opportunities may also be subject to state unfair competition and fraud statutes in addition to state franchise statutes.

 

E-commerce

28. Are there any laws regulating e-commerce (such as electronic signatures and distance selling)?

The Uniform Electronic Transactions Act (UETA), which has been passed into law in most states and other US jurisdictions, gives legal effect to electronic signatures, contracts and other transactional records, and does not require any particular technology to be used for an electronic signature. The federal Electronic Signatures in Global and National Commerce Act of 2000 has a similar effect in the few US jurisdictions where the UETA has not been enacted.

The Uniform Computer Information Transactions Act applies to licences and other contracts that involve the creation, use or distribution of electronic information.

The Controlling the Assault of Non-Solicited Pornography and Marketing Act 2003 (CAN-SPAM Act):

  • Prohibits various conduct relating to the transmission of unsolicited commercial e-mails.

  • Imposes requirements on the content of such e-mails.

  • Requires that recipients be provided an address to opt out from receiving further e-mails from a particular sender.

Some states have also enacted legislation relating to e-commerce. For example, the California Online Privacy Protection Act of 2003 requires website operators who collect personal information from Californian customers to post privacy policies and imposes requirements regarding the content of those policies.

 

Data protection

29. Are there any data protection laws?

The US has federal data protection and privacy legislation:

  • The Health Insurance Portability and Accountability Act 1996. This protects the confidentiality and privacy of personally identifiable health information.

  • The Children's Online Privacy Protection Act 1998. This imposes requirements of parental notice and consent on the collection, use and disclosure of personally identifiable information regarding children under 13 that is gathered on the internet.

  • The Financial Services Modernization Act 1999 (Gramm-Leach-Bliley Act). This imposes requirements on the handling of consumers' personal information by financial institutions.

  • The CAN-SPAM Act. This imposes certain data protection obligations for e-mails (see Question 28).

There is no cross-sectoral data protection legislation in the US. However, the FTC has brought complaints against companies alleging inadequate data protection measures, using its general authority under the FTC Act of 1914 to address unfair or deceptive trade practices.

In addition, many states have enacted data protection legislation. Most states (about 46) have enacted data security breach notification laws. A smaller but increasing number of states require entities to implement reasonable security measures for data. Some states have also passed laws containing data destruction requirements. Massachusetts now requires companies to encrypt the personal information of Massachusetts residents if that information is transmitted wirelessly or over a public network or if it is stored on a portable device (such as a laptop). Nevada requires companies doing business in the state to encrypt data that is electronically transmitted outside the secure system of the company or is stored on a data storage device that is moved outside the logical or physical control of the company. These sorts of requirements are likely to increase at the state level.

 

Product liability

30. Are there any laws regulating product liability and product safety?

Generally, persons who have been injured by a dangerous and defective product can sue manufacturers, distributors and retailers of that product under federal and state law for product defects, breach of warranty, breach of contract, fraud, misrepresentation, or tort law to recover damages.

State jurisprudence typically governs these laws, principally through common law, and in some states by code or statute. As a result, actions against domestic and foreign manufacturers under theories of "strict product liability" and "strict liability failure to warn" may be especially risky for defendants, depending on the state, because of excessive jury verdicts.

Claims can be brought by an individual plaintiff or a class. In a class action, a representative plaintiff brings a claim for damages on behalf of himself and all others who suffered similar harm. Any damages assessed, or settlement reached, would include relief for all of those persons in the class. Recently, the Supreme Court upheld a contract provision banning class actions and requiring individual arbitration in consumer disputes, potentially leading the way for other companies to avoid class action suits. In addition, some agencies have statutory authority to bring an enforcement action for the violation of its regulations, which is separate from, and sometimes in addition to, a plaintiff's suit. State reform laws have also been passed recently regarding punitive damages and joint and several liability. However, because such reforms must be passed on a state-by-state basis, a patchwork of divergent requirements continues to exist.

The manufacture, distribution, and sale of consumer products are governed by both federal and state authorities, such as the following:

  • The U.S. Consumer Product Safety Commission;

  • The U.S. Food and Drug Administration;

  • The U.S. Federal Trade Commission; and

  • The state attorneys general.

 

Contributor details

Robert Kovelman

Steptoe & Johnson LLP

T +1 310 734 3236
F +1 310 734 3237
E rkovelman@steptoe.com
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Qualified. California

Areas of practice. Intellectual property; copyright; patent; trade mark; patent and trade mark litigation.

Recent transactions

  • Sample Digital v. Pix System, LLC (C.D. Cal. 2011): represented Sample Digital in a patent infringement action against Pix System, LLC relating to media content collaboration throughout the production process.
  • Monster Cable Products, Inc v. Rockford Corp. (N.D. Cal. 2010): represented Rockford Corp. in a trademark and copyright infringement action relating to speaker wire components. Successfully negotiated full resolution early in proceedings.

Timothy Walsh

Steptoe & Johnson LLP

T +1 202 429 6277
F +1 202 429 3902
E twalsh@steptoe.com
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Qualified. District of Columbia; Arizona

Areas of practice. Anti-trust and competition; CFIUS; energy; pipeline.

Recent transactions

  • Advises companies on business practices and mergers and acquisitions.
  • Counsels clients on the Exon-Florio Amendment concerning foreign investment in the United States and the requirements imposed by the Committee on Foreign Investment in the US.
  • Acts as special regulatory counsel in transactions on CFIUS reviews.

Philip R West

Steptoe & Johnson LLP

T +1 202 429 6247
F +1 202 429 3902
E pwest@steptoe.com
W www.steptoe.com

Qualified. District of Columbia; New York

Areas of practice. Tax; international tax; IRS controversy and tax litigation; mergers and acquisitions.

Recent transactions

  • Counsels clients with regards to income deferral, foreign tax credit, transfer pricing, and tax treaty matters.
  • Assists clients with resolving controversies with, and obtaining rulings from, the IRS.

Lynda S Zengerle

Steptoe & Johnson LLP

T +1 202 429 8170
F +1 202 429 3902
E lzengerle@steptoe.com
W www.steptoe.com

Qualified. District of Columbia; US Supreme Court; US Court of Appeals for the District of Columbia

Areas of practice. Immigration; international regulation and compliance.

Recent transactions

  • Appointed to the Visa Policy and Processing Working Group, part of the Secure Borders Open Door Advisory Committee. 
  • Provided immigration-related advice and recommendations to DHS and DOS on efforts to maintain security while still extending a welcome to visitors to the US.
  • Appointed by the Secretary of Commerce to the Board of the congressionally created Corporation for Travel Promotion.

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