Start-Ups

COVID-19 Relief

By Tyler Horowitz

While certain states have started to ease lockdowns and shelter-in-place limitations, the COVID-19 pandemic’s effects have taken a toll on many lives, communities, and small businesses. One of the many challenges this unprecedented situation has spawned is how small business will weather the economic downturn it has caused. This situation has been particularly dire for the entertainment industry and businesses that are in early start-up stages as well as early stages of financing.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) to provide emergency financial and health care assistance for individuals, families, and businesses affected by the coronavirus pandemic. On the financial side, the Small Business Administration (SBA) received funding and authority through the CARES Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide that have been adversely impacted by the COVID-19 emergency.

For those small and medium-sized businesses who are unfamiliar with, or haven’t applied to, the Paycheck Protection Program (PPP) or other similar state and federal relief programs, this post will provide a high-level overview of what such businesses need to know to pursue monetary relief.

Paycheck Protection Program

What is the PPP?

The CARES Act, in Section 1102, authorizes the SBA to temporarily guarantee loans in accordance with the terms and conditions of Section 7(a) of the Small Business Act. This relief program provides loans designed to incentivize small businesses to keep their workers on the payroll. Small businesses receive funds to pay for up to eight weeks of payroll costs including benefits, and the SBA will forgive the loan if all employees are kept on the payroll for that time and the money is only used for payroll, rent, mortgage interest, or utilities. Applicants are required to submit a good faith certification stating the following:

  • The loan is needed to support ongoing operations;
  • The loan will be used to retain workers, maintain payroll, and pay for mortgage, lease, and utility payments;
  • The borrower does not have a pending application for a similar loan; and
  • The borrower did not get a similar loan between February 15, 2020 and December 31, 2020.

 Who can apply?

A business is eligible for a PPP loan if the business has not more than 500 employees and if its principal place of residence is in the United States. A business’ principal place of residence is determined in accordance with the guidelines set out in the Code of Federal Regulations (“C.F.R.”) §1.121-1(b)(2). Similarly, PPP loans are also available to 501(c)(3) non-profit organizations with fewer than 500 employees and the self-employed, sole proprietors, and freelance and gig economy workers.

In order to qualify under the PPP, a business must have been in operation during the “Covered Period” of February 15, 2020 – June 30, 2020. The loan may be used to ensure that a business meets its payroll obligations as well as any costs related to family leave, sick or medical leave, insurance premiums, commissions, or rent that is incurred during the Covered Period.

How is the loan size determined?

The loan size is calculated on a case-by-case basis as follows and in accordance with the terms of 13 C.F.R. § 120:

  1. Add all payroll costs for all employees whose principal place of residence is in the United States.
  1. Subtract any compensation paid to an employee in excess of a salary of $100,000.00 annually and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000.00 annually.
  1. Calculate the average monthly payroll costs (divide the number from Step 2 by 12).
  1. Multiply the average monthly payroll costs, calculated in Step 3 above, by 2.5.
  1. Add the resulting number to any outstanding amount of an Economic Injury Disaster Loan (“EIDL”; discussed below) made between January 1, 2020 – April 3, 2020 and subtract the amount of any EIDL advance.

On April 24, 2020, the SBA issued further guidance on how to calculate maximum loan amounts for each type of applicant (available here).  

How to apply?

You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. A list of participating lenders as well as additional information and full terms can be found here. These loans are first-come, first-served and the Government will continue to make disbursements so long as Congress provides funding.

Economic Injury Disaster Program

The EIDL Program is another option for small businesses administered by the SBA under Section 7(b) of the Small Business Act.  EIDLs are lower interest loans of up to $2 million, with principal and interest deferment available for up to 4 years, that are available to pay for expenses had the pandemic not occurred (e.g., payroll and operating expenses).

To qualify for an EIDL, your business must have suffered “substantial economic injury” from COVID-19. EIDLs are based on a company’s actual economic injury determined by the SBA (less any recoveries such as insurance proceeds) but the amount of the loan may not exceed $2,000,000.00.

Loan parameters

  • The eligibility period commences January 31, 2020 and ends December 31, 2020;
  • Any small business (including sole proprietorships, with or without employees) with 500 or fewer employees;
  • The interest rate on EIDLs is 3.75% fixed for small businesses and 2.75% for nonprofits. The EIDLs have up to a 30-year term and amortization (determined on a case-by-case basis);
  • The money can be used for payroll, rents or mortgages, or other operational costs;
  • Up to $200,000 can be approved without a personal guarantee; and
  • No collateral is required for loans of $25,000 or less. For loans of more than $25,000, a general security interest in business assets will be used for collateral instead of real estate.

Emergency advance

The EIDL Program provides an emergency advance of up to $10,000 to small businesses harmed by COVID-19 within three days of applying for an EIDL. To access the advance, you must first apply for an EIDL and then subsequently request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on the payroll or pay business obligations, including debts, rent and mortgage payments.

Applications and more detailed information can be found here.

Snapshot differences between PPP and EIDL

TermsEIDLPPP
Maximum Loan Amount$2,000,000$10,000,000
Interest Rates3.75%, up to 30 years (2.75% for non-profits)   Any portion of the loan not forgiven will be treated as a two-year loan with a 1% fixed interest rate  
Forgivable AmountOnly $10,000 of the emergency advance is forgiven100% forgivable provided employees are kept on the payroll for eight weeks and the money is only used for payroll, rent, mortgage interest, or utilities
Approved UsesRent, payroll, accounts payable, and any other expenses that could have been met had the pandemic not occurredPayroll expenses, rent, mortgage interest and utilities  
Collateral and Credit Check RequirementsYesNo

Can I Apply to Both?

Yes! However, it is important to note that you cannot use funds from both loans for the same purpose.

For example, you can’t use both EIDL and PPP funds towards payroll.

Additional Resources and News

In addition to PPP and EIDL, private companies have lent support for members of the entertainment industry. For example, Sony Music announced a $100 million Global Relief Fund to support not only medical workers, but also creators, artists, and other partners in the entertainment community who have been impacted by COVID-19.  Similarly, Live Nation Entertainment’s Crew Nation Fund is currently providing financial support to music crews who have been directly impacted by suspended or cancelled shows.

Further, U.S. Senators Amy Klobuchar, Chris Coons, Tim Kaine, and Angus King introduced the New Business Preservation Act . This legislation would create a new $2 billion program at the Treasury Department that would partner with states to invest in promising start-up businesses in areas of the country that do not currently attract significant equity investment and who are particularly vulnerable to the current economic crisis as a result of COVID-19.

Cowan, DeBaets, Abrahams & Sheppard LLP will continue to provide updates on legal developments related to the present crisis and we are available should you need further guidance.

Top Five List: Protecting Your Podcast (and You)

By Scott J. Sholder

Although podcasts have been around in one form or another since the early aughts, their ubiquity and popularity has skyrocketed in recent years.  Apple, Spotify, Pandora, Google, and Stitcher, among other platforms, have changed the game when it comes to distribution, variety, and access.  Wildly popular programs like Serial, Pod Save America, My Favorite Murder, and The Daily have set the standard for content excellence across the news and mystery genres, while The Joe Rogan Experience, Comedy Bang! Bang!, WTF with Marc Maron, and Conan O’Brien Needs a Friend are leading the way in the comedy space.

If you want your dulcet tones to break into the digital airwaves and bring your audience information or entertainment and laughs (or maybe all three), you will of course need solid distribution and top-notch content.  But you also need legal protection both for you and for your content.  While podcasting may seem straightforward enough to not warrant the involvement of a lawyer, there’s more to it than you might think.  Here are five things to do to protect yourself and your content when entering the world of podcasting.

  1. Form a Company:  You may have already done this, but setting up a company, whether a corporation, partnership, or LLC, is a smart first step in becoming a content provider.  Apart from tax implications (which your accountant can explain to you), the corporate form creates a shield around you to protect your personal assets from certain forms of liability (for instance, breach of contract), limiting legal exposure to the assets of the company where it can be said that the company is the liable party.  The corporate form may not protect you from torts such as defamation and copyright infringement if you (intentionally or not) slip up in your individual capacity, but the company can still potentially absorb the exposure for torts it is deemed to have committed.  You may also want to use a corporation or LLC to hold your intellectual property (more on IP below) or “loan out” your services as talent, which can be helpful from a financial standpoint (again, talk to your accountant).  Setting up a company can be simple enough to be a DIY project but might become more complicated, requiring professional advice, depending on the arrangement you want and if you have multiple shareholders or members.  But it’s generally not that expensive and could save you headaches in the long run.  Once you’ve formed your company, make sure that you assign any existing contracts to the company (an attorney can help you with this as well), and that future contracts are in the name of the company – not your own name.

  2. Obtain Copyright and Trademark Protection:  To protect your original content, you should apply to register copyrights in that content.  While ideas and concepts are not copyrightable, the tangible expression of those ideas is, including scripts, sound recordings, skits or sketches, songs, and even, in some instances, individual jokes.  If the content is original to you (i.e., not simply copied from someone else) and is in a “fixed” medium of expression, you can apply to register your work with the U.S. Copyright Office.  The application process is more straightforward than the trademark process (discussed below) and the basic fees are reasonable; the bar to obtaining a registration is also pretty low in that “originality” for copyright purposes requires only minimal creativity, and it is far less likely that another copyright owner will challenge your application.  While it may seem onerous to register each episode of a podcast – especially if you release episodes more than once a week – there are ways to potentially streamline the process and keep costs down, and copyright counsel can be helpful in this regard.  Registering copyrights will also help you if your podcast one day moves into other media, such as television or a published book.

    Have a clever name for your podcast?  You should consider applying for a trademark registration.  If you offer goods or services (including entertainment services like podcasts) using a name, logo, or short phrase as a source indicator, you may be eligible for federal trademark protection through the U.S. Patent and Trademark Office.  Simply using the word, phrase, or logo “in commerce” is enough to give you some rights to enforce against infringers, but registration gives you more rights and enhanced damages if someone tries to rip off your mark.  It’s important to note, though, that there are filing fees and other expenses involved in applying to register a trademark (and in maintaining a trademark once it is registered), and during the application process other trademark owners have a chance to challenge your mark if they think it is too similar to theirs.  The application process is also more complex than applying to register a copyright and it is usually advisable to seek legal counsel to help ensure your mark is not “blocked” or otherwise rejected. 

  3. Obtain Necessary Licenses, Releases, and Permissions:  If you are using third-party content (playing audio clips or music, reading from a script or a book, etc.), you should make sure you have permission to do so from the owner of the copyright.  Despite popular misconceptions, there is no magic percentage that you can use without consequence (e.g., 8 measures of a song, 30 seconds of a comedy bit, 5% of a book) and the question of whether something is “fair use” is complex, gray, and extremely fact sensitive.  The best practice is to make sure you have a license (whether written or oral) to use content that is not exclusively yours or seek out content from royalty-free libraries or that can be used under Creative Commons licenses.  And when that content includes the voice or other identifying aspect of a third party, you’ll need to get that person’s permission as well, separate from the necessary copyright permissions.  A person’s voice is part of their “right of publicity” which is distinct from copyright and generally (with some exceptions) requires permission to use.

    If you have guests appear on your podcast, make sure they sign an appearance release that allows you to use their names and likenesses (e.g., voices) including for commercial, advertising, and promotional purposes and that releases you from liability for the ways in which guests’ names and likenesses are used.  While the best practice is to get written permission, you can also secure this consent verbally by having the guest read a brief script on air.  There are special considerations when dealing with minors that are beyond the scope of this article, and in such situations, it is best to consult a lawyer familiar with minor talent. 

  4. Vet Your Content and Read Your Contracts:  Related to number 3, if you are using third-party content (assuming you have permission), you should make sure that content doesn’t infringe anyone else’s rights.  Issues in the podcasting space, especially in comedy, usually arise in the context of defamation.  For example, if you source a clip of another comedian’s latest standup special and that comedian makes a defamatory statement about another identifiable person, you may be liable for re-publishing that defamatory statement.  The best practice is to review content before using it and consult a lawyer if you have concerns about any piece of content. 

    Also, if you sign any contracts, whether to acquire or license content, or for a third party to distribute or host your own content, read them before you sign them.  If you sign a contract you normally are bound even if you haven’t read it, so always understand what you are signing before you put pen to paper or fingers to keyboard.  When licensing third-party content, make sure you’re indemnified in case the person who provided you with the content didn’t have sufficient permission to do so, and when reviewing terms set out by hosting platforms, know who controls your RSS feed; typically, the host will control it for the period they host it, but unless your content is exclusive to one platform (for instance, Spotify), the platform should not own the stream or the content.  And note that in many jurisdictions, an email agreement is considered a binding contract – so be careful what you agree to via email.  Usually the best time to engage an attorney is when an offer is initially made to you – even if it takes the form of an email as opposed to a formal contract.  There are obviously more issues that may arise than just these, so don’t sign away your rights unknowingly!

  5. Get Errors and Omissions Insurance:  Many insurance companies offer E&O insurance for media and entertainment companies (such as AXIS Capital, AXA XL, QBE, and OneBeacon) and getting coverage is a smart idea particularly given how much litigation arises out of media and entertainment properties.  Media insurance policies often cover copyright and trademark claims, contract claims, defamation claims, and other risks that commonly arise in the media and entertainment space.  While this may seem like an unnecessary cost, especially for an individual or small business, those who make their living in media and entertainment should seriously consider it – and as the podcast business becomes more mature and sophisticated, insurance is increasingly being required in connection with certain forms of distribution.

Padmapper Case: Craigslist Permitted to Proceed Against Republishers of Its Content

Court suggests a "click" could constitute a writing for purposes of granting an exclusive license

In Craigslist Inc. v. 3Taps Inc. et al., the U.S. District Court for the Northern District of California refused to dismiss many of the claims brought by Craiglist against several republishers of its user content based in part on its broad terms of use, turning on whether user content was exclusive to the online classified ad company. This case highlights the importance of carefully crafted language presented to users when accessing a website that can be used to support copyright, trademark and computer fraud claims against competitors. Continue reading

CDAS Client 10X Management Featured in Bloomberg Businessweek

CDAS Partner Joshua B. Sessler’s client 10X Management is featured in a great story in Bloomberg Businessweek. 10X represents top freelance software programmers, pairing them with Silicon Valley companies, negotiating their salaries, and helping to manage their finances. Continue reading

Apple Inc. v. Superior Court of Los Angeles ex rel Krescent: California Struggles with the Digital Transition

Case Examines Applicability of Credit Card Act to Digital Transactions

In Apple v. Superior Court of Los Angeles ex rel Krescent, the Supreme Court of California examined whether online transactions fall within the scope of a 1971 credit card act that prevents retailers in California from requesting personal identification information. An important milestone in what is likely to be an extended wave of decisions in this area, the case explores the tension between consumer privacy concerns against measures to combat online transaction fraud within the framework of outdated legislation.
Continue reading

Trademark Law Basics, Part 4: How Do I Choose a Trademark?

This is part four of the CDAS Trademark Law Basics series. If you missed the previous installments, they are available at the following links: Part 1, Why Register a Trademark?, Part 2: Why Conduct a Trademark Search?, and Part 3: What to Expect During the Trademark Prosecution Process.

A trademark can be a word, logo, slogan, or design; it can even be a color, shape, sound or smell. However, it must be a “source identifier.” Under United States law, the exclusive right to use a trademark or service mark is granted solely to identify the source of goods and services. The ability of a mark to identify source is known as distinctiveness. Marks that are generic (like “Yellow Pages” for a business directory – or even former trademarks like “aspirin” and “escalator”) cannot be registered. Marks that are descriptive (like “Safari” for hats and jackets) cannot be registered on the Principal Register unless they have acquired a public association with the mark holder – in other words, they’ve acquired “secondary meaning” in the marketplace. Continue reading

Trademark Law Basics, Part 3: What To Expect During The Trademark Prosecution Process

This is part three of the CDAS Trademark Law Basics series. If you missed the previous installments, they are available at the following links: Part 1, Why Register a Trademark?, and Part 2: Why Conduct a Trademark Search?

The process of trademark prosecution involves you and your trademark attorney filing an application with the United States Patent and Trademark Office (PTO) and, if necessary, responding to challenges. It also includes maintaining your trademark registration for years to come. Continue reading

Amazon Defeats Apple’s False Advertising Claim in “App Store” Lawsuit

Name of Amazon’s Digital Storefront Found Not to be False Advertising

On January 2, 2013, the United States District Court for the Northern District of California rejected Apple, Inc.’s claim that Amazon.com, Inc.’s decision to name its marketplace for selling applications (“apps”) the “Amazon Appstore” was false advertising. The decision constituted a significant win for Amazon in its long-running dispute with Apple over Amazon’s right to use the term “app store.” Continue reading

Trademark Law Basics, Part 2: Why Conduct A Trademark Search?

This is part two of the CDAS Trademark Law Basics series. If you missed the previous installment, it is available here: Part 1, Why Register a Trademark?

Many small businesses apply to register without advice from an attorney. This is perfectly legal, but can be more costly than you think: the fees and costs associated with filing a PTO application can be wasted if your application is denied, opposed, or later challenged in court because of easily avoidable mistakes. With a little time and money up front, you can get off on the right foot. Before you decide to file, a trademark attorney reviewing a trademark search can assess whether your preferred mark appears likely to be available and to go unchallenged. Remember, if you can’t register the mark because someone else already has a registration for a similar mark (or for any other of the many reasons why a trademark might be rejected), you do not get your filing fee back! Continue reading