Troy & Schwartz Attorneys-At-Law

On July 7, 2022, in In re Lana Grossa mode mit Wolle Handels-und Vertriebs GmbH, the Trademark Trial & Appeal Board (the “Board”) held that a mark utilizing the Italian word for yarn, Filati, could not be registered because the mark is generic and thus incapable of registration.

The opinion is instructive because it covers several matters pertinent to trademark registration that often take a backseat to the far more common likelihood-of-confusion registration issues.  This blog summarizes the take home points from Lana Grossa wherein the Applicant sought registration of the mark FILATI on the Supplement Register as a generic mark.

1.  Some Background on the Supplemental Register.

The Supplemental Register (“SR”) offers legal protections to a lesser extent than the Principal Register.  SR can thus be a viable alternative to registration on the Principal Register if an applied-for mark is rejected on merely descriptive/generic grounds providing the proposed mark passes a likelihood of confusion analysis by the examining attorney.  Indeed, examining attorneys may recommend that the original application be amended to a “Supplemental Registration” application if the applied-for mark is not rejected on likelihood of confusion grounds. One can also initially apply for registration on the Supplemental Register as did the FILATI mark Applicant but such an application will nevertheless be examined to see if it qualifies for such registration.   Additionally, a “Supplemental Registered” mark may later qualify for registration on the Principal Register if the registrant can establish that the mark has become distinctive in the minds of consumers.

2.  A Mark Comprising a Foreign Word Will Not Overcome Potential Registration Issues.

Over the years, the commentator has encountered clients who mistakenly believe that using a foreign word as a mark for service(s) or good(s) provided in the U.S will eliminate registration problems.   This assumption is a fallacy.  First, trademark applications require the applicant to provide a translation of the foreign word.

Second, under the doctrine of equivalents, the foreign equivalent of a registered arbitrary English word mark may result in a finding of likelihood of confusion.  For example, a proposed mark for MANZANA (Spanish for apple) as an arbitrary mark for computers would clearly not be registrable in today’s “Apple Brand” world.

Moreover, a merely descriptive or generic foreign word mark is no more registrable than its English counter-part. As the Lana Grossa opinion states:  “[A] word taken from a well-known foreign modern language, which is, itself, merely descriptive of a product or service will be so considered when it is attempted to be registered as a trademark in the United States for the same product.”   The doctrine is, however, to be applied only when it is likely that the ordinary American purchaser who is knowledgeable in the foreign language would stop and translate the foreign word into its English equivalent.  The FILATI mark applicant had argued that the mark was merely descriptive and eligible for registration on the SR.

As a result of various websites and publications accessible in the U.S. promoting a premier international Italian yarn (as “Filati”) event, the Board concluded that the relevant U.S. consumers, particularly those with knowledge of Italian, will translate the word “Filati” into “yarn.” As such, the word “Filati” is a generic term for yarn and cannot be registered on the Supplemental Register.

As discussed above, a merely descriptive foreign word may be registered on the Supplemental Register.  A merely descriptive mark is one which describes a desirable characteristic of the specified good/service.  For example, In In re Geo. A. Hormel & Co., 227 USPQ 813 (TTAB 1985), the Board held that the applied-for mark SAPORITO, an Italian word meaning “tasty,” was merely descriptive and ineligible for registration on the Principal Register.   Interestingly the SAPORITO mark was originally registered in 1973 on the Supplemental Register by a company other than Hormel.  Reg. no. 952,895.   In 1989, that same company was able to achieve registration on the Principal Registration by showing that the mark had acquired distinctiveness and recognition by the buying public.  Reg. no. 1573637 obtained under Section 2(F) of the Lanham Act.

3. The Stylized Lettering in FILATI Is Insufficient for Creating a Distinct Commercial Impression Separate and Apart from the Generic Word Itself.

Having found that the mark FILATI is generic, the Board next determined if the Applicant’s stylized drawing of the word mark is so distinctive that it is possible to disclaim the unregistrable components and still have a registrable mark as a whole.  Generic matter within an applied-for mark, whether the mark is to be registered on the Principal Register or the Supplemental Register, must generally be disclaimed. Here, the entire mark itself (i.e. (“Filati”) would need to be disclaimed.  Yet, an entire mark cannot be disclaimed.  TMEP § 1213.06 (2022).   The Board concluded that the FILATI mark does not create a distinct commercial impression separate and apart from the word itself.   As such the mark was not registrable on the Supplemental Register.  To understand the Board’s reasoning, compare the registered mark CONSTRUCT A CLOSET, where the stylistic rendering of the mark was found to be distinctive, with the unregistrable FILATI mark.

4. Take Home Points.

Trademark law is not as simple as it may seem as this decision shows.   This is why a trademark attorney should be consulted so that the registration risks can be understood and discussed.  Why spend a lot of money on building brand where legal protection may well not even be available?   Contact Susan Troy at 305-279-4740 for a complimentary consultation on your branding legal requirements.

 WE THANK YOU READING THIS BLOG AND HOPE YOU FOUND IT INFORMATIVE.  HOWEVER, THE CONTENT IS PROVIDED FOR INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE OR ANY  ATTORNEY-CLIENT RELATIONSHIP.

©2022

Troy & Schwartz, LLC

Where Legal Meets Entrepreneurship™

 (305) 279-4740

Just because a patent is granted does not mean that it will not be subjected to attempts to have one or more of its claims invalidated during the lifetime of the patent.   Such invalidation attempts by the defendants in a patent infringement lawsuit are not uncommon.  Grounds for invalidation include claim indefiniteness.  The public policy behind trying to prevent indefinite patent claims is that the public is entitled to know what the claim is really about. This blog discusses the recent opinion in University of Massachusetts, Carmel Laboratories, LLC  v. L’Oréal S.S., L’Oréal USA, Inc. by the Court of Appeals for the Federal Circuit (CAFC) where the court held that the patent claims were indefinite.  The opinion provides an excellent discussion of the type of analysis that goes into such a determination.

This is a long blog and hopefully instructive in its approach to explaining what went wrong for the patentee so that a similar mistake can be avoided by others during patent prosecution.

Some background information

A patent application examiner may reject a claim on the basis of indefiniteness.  Amendment of the claim by the applicant is an option to try to overcome the indefiniteness conclusion.  If an allegation of indefiniteness is made by the defendant during a patent infringement lawsuit, the court may engage in a process known as Claim Construction to determine what the claim is “really” saying or “not” saying.  In doing so, the court may refer to the patent’s specification to try and ascertain what the inventors were contemplating, how a particular word was defined, etc. and the prosecution history.  For a previous blog on the importance of the patent’s specification to claim construction, click here.   Generally, the court will rely on the plain reading of the claim.

The Questionable Claim in U Mass

A method for enhancing the condition of unbroken skin of a mammal by reducing one more of wrinkling, roughness, dryness, or laxity of the skin, without increasing dermal cell proliferation, the method comprising [1] topically applying to the skin a composition comprising a concentration of adenosine in [2] an amount effective to enhance the condition of the skin without increasing dermal cell proliferation, [3] wherein the adenosine concentration applied to the dermal cells is 10^-4 to 10^-7 M.

Can you see the problem with this claim?  First it says that a topical solution containing adenosine is applied to the skin but clause [1] does not recite the concentration of adenosine in this topical solution effective for achieving the result stated in clause [2].  Clause [3] with its “wherein” clause can be interpreted to mean that the amount of adenosine which ends up coming into contact with dermal cell falls in the specified range.  What is the actual adenosine concentration in the topical solution?  If clause [3] is intended to mean the resultant adenosine concentration in the dermis, was this concentration actually measured?  Furthermore, there are 2 objects intended for contact with the adenosine: the skin and the dermal cell.

The dermis is the skin layer under the outer epidermis layer.  Common sense would tell us that the topical solution would have to have an adenosine concentration greater than the amount of adenosine which ends up in a dermis cell for a number of physiological and structural skin reasons based on the topical solution’s absorption properties and the skin’s level of hydration and texture.   For example, the epidermis layer protects the dermis layer.  Anything intended for the dermis layer must first get through the epidermis layer. But what exactly is that concentration and why didn’t the claim just state “a topical solution having an adenosine concentration in the range of X-Y?”  Does clause [3] really refer to adenosine’s concentration in the dermis or is the clause the result of inartful drafting which has caused a big problem for the patent owner?

The CAFC’s Conclusion

The district court had relied on subjective determination precedent to conclude that the claim was indefinite because of clause [2] which focused on the topical solution’s effectiveness: “Indeed, the determination of whether the skin is enhanced provides a paradigmatic example of indefiniteness. Beauty after all, is ‘in the eyes of the beholder.’ ”

The Federal Circuit decided claim construction de novo because of the district court’s wrong approach to finding indefiniteness.  Upon appeal to the CAFC, U Mass contended that the “concentration” in the wherein clause is the concentration of adenosine in the dermis after it has entered the dermis.  In other words, to overcome an indefiniteness finding, U Mass would have to establish exactly what the suspect wording actually meant because the wording was ambiguous and not clear on its face.

The CAFC concluded that the claim was ambiguous about what clause [3] referred to:  “We first conclude that the relevant claim language, especially when viewed in the context of the whole claim, is not plain on its face, much less plain in supporting U Mass’s interpretation of it.”  Slip opinion at 8.  The court went on to emphasize the U Mass’s view of clause [3] is referring to something that has no existence before the application – that it refers to an adenosine concentration of the dermal layer after the adenosine particles per unit of dermal layer, after the adenosine particles have suffused into the dermis and thus already come into contact with the dermal cells.  Slip opinion at 10.   Therefore, the claim cannot be definite.

After the district court’s construction, U Mass had retained an infringement expert to conduct various experiments to assess the concentration as moles of applied adenosine in the dermis over liters of the dermis to “come up” with numbers within the range specified in the claim.  The CAFC emphasized that the expert’s methodology actually revealed an interpretation that would call for a rewrite of the wherein clause to say something like “wherein the adenosine permeating to the dermal layer results in a concentration of adenosine in the dermal layer of 10^-4 to 10^-7 M.   As such, the need for a departure from the natural meaning confirmed that U Mass’s asserted meaning is not plain.  Slip opinion at 10.

Next the court looked to the specification to see if it supported U Mass’s claim construction.  It did not.  Tellingly, the disclosure never implied that the invention included measuring adenosine concentrations beneath the skin surface after topical application. “U Mass has not shown that, even in this context, the specification makes clear that the inventors contemplated the adenosine concentration after exposure to the cells, rather than in a solution before application in the cells.”  Id. at 12.

The court also looked at the prosecution history, emphasizing that the histories resolve the ambiguity surrounding the meaning of “the adenosine concentration applied to the dermal cells” in the wherein clause. As with most patent applications, the prosecution history involved amendments to the original claims.  To overcome a prior-art rejection, U Mass imported a previous dependent claim which had only referred to an adenosine concentration with no mention of dermal cells into the preceding independent claim to create the problematic claim which now included the wording: formal “wherein the adenosine concentration applied to the dermal cells is …..” Slip opinion at 13.

The accompanying remarks made by the applicant are inconsistent with the “new wording” because they stated: “All [claims] are based on the application of certain concentrations of adenosine to the skin to achieve certain results.”   The applicants also stated that the amendment included no new matter suggesting that the invention was still and always was the topical solution at the specified concentration.  The new wording changed the scope and resulted in an indefinite claim. Interestingly, the examiner made the following comment in writing after accepting the amendment:  “the [i]nstant claims are directed to a method of enhancing the condition of unbroken skin . . . where the method comprises administering adenosine at a concentration of 10-4 M to 10-7 M, to the skin.” Slip opinion at 13.

According to the CAFC, U Mass’s amendments and comments clearly conveyed that U Mass had never veered from its pre-amendment reliance on the adenosine composition in the topical solution which had resulted in its two patents.  During prosecution, no mention had ever been of the materially different, unexplained notion of an adenosine concentration being determined after contact with the object (the dermis) of the topical solution.   Slip opinion at 14.   Even in its response to the examiner’s reasons for allowance, the applicants never communicated a disagreement with the examiner’s clear statement of what the language meant.

The CAFC reversed the district court’s claim construction of the wherein clause and vacated the court’s subsequent summary-judgement determination.  The case has been remanded for further proceedings consistent with the opinion.

Commentator’s Comments

This is a situation which seemingly could have been avoided.  The claims at issue in two related patents were not complicated.  The examiner made very clear that the adenosine was applied to the skin at the concentration range specified but somehow the claims ended up stating that the adenosine was applied to the dermal cells.   It is not clear why U Mass changed the wording in the amendment. Sloppy drafting?  Not carefully reading the new independent claims as whole?  Why didn’t the examiner mention anything about an incongruity between the amended claim and what the concentration range was referring to.  A few simple word changes could have resolved the ambiguity.

Patent prosecution can be a long, tedious process.  This case is a good lesson on how every aspect of the prosecution process must be monitored and the documents read and reread by both the patent attorney and the inventors.  An issued patent is in no way a guarantee that the patent will withstand scrutiny if push comes to shove in a court of law.   And if an amendment is made, make sure that it’s supported by the specification.   Remember, no new matter can be introduced in an amended specification.

                WE THANK YOU READING THIS BLOG AND HOPE YOU FOUND IT INFORMATIVE.  HOWEVER, THE CONTENT IS PROVIDED FOR INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE OR ANY ATTORNEY-CLIENT RELATIONSHIP.

©2022

Troy & Schwartz, LLC

Serving Entrepreneurs & SMBs Through Conscientious, Rigorous & Empathetic Legal Services

(305) 279-4740

As part of a new branding trend, a growing number of companies (e.g., Burberry London England) are trending towards using more austere logos, i.e., logos which are designed to blend in and not stand out.  The trend seems contrary to the very purpose of trademark law where trademarked brands and logos have traditionally derived their value from their ability to enable consumers to readily identify the source of a product sold in brick-and-mortar stores.   Moreover, the display of branded products in brick and mortar stores selling multiple brands is often the luck of the “space” and “shelf” location.  Accordingly, more intricate, readily-identifiable logos brands sold in physical locations such as department stores are often seen as an essential marketing tactic to make the brand standout amongst competing brands.

The blanding trend has largely been attributed to the digital economy wherein goods and services are advertised and increasingly sold across multiple trade channels including social media, websites, and billboards.   Brands viewable on-line are often clearer and immediately recognizable compared to their presentation in a bricks and mortar store where they may be surrounded by competing brands.   Even Google, Inc. has modernized its logo over the years; its current type face makes the logo look clean and modern.  Such brand modernization is viewed by blanding proponents as a way to scale in today’s rapidly changing business climate driven by technology.

The following is an illustration of blanding.

     !YAZOW!    YAZOW

If you are in the process of developing a new brand or considering updating your brand to a bland, what are the factors you should consider before you jump on the bland bandwagon?

1. For a new brand, would it be preferable to utilize a logo which stands out from the competition? Do you want to use a logo that looks a lot like the logos of other companies in your industry?
2. For an existing brand, is your brand associated with goodwill and immediate recognition in the relevant market? That is, have you demonstrated your commitment to building the original brand by your actions which made your brand stand out from the competition?  If yes, the time may be opportune to bland by dialing back on your brand’s uniqueness to better encompass your company’s current direction.  You should have a good understanding of the potential response to a change in a previously-held logo recognized and beloved by consumers.  Will the change inadvertently suggest that you’ve changed the nature of the good/service and not for the better?
3. If your brand is a registered trademark, will the bland still reflect the commercial impression of the brand as it was trademarked and used in interstate commerce? If not, the registered trademark status could be in jeopardy.   The brand owner may be able to rely on the legal doctrine of “tacking” in a later registered trademark procurement matter or infringement matter which allows the mark owner to “ ‘clothe a new mark with the priority position of an older mark’ ” providing the original brand and the bland are legally equivalent.  Click here for a previous blog on tacking.   The establishment of legal equivalency requires that the brand and bland marks “ ‘create the same, continuing commercial impression such that the consumer would consider them both to be the same mark.’ ”
4. For trademark registration maintenance purposes, will the bland mark meet the requirements for maintaining the mark’s status as a previously registered mark because they are legally equivalent?

Take-Home Points

1. Don’t rush into a bland brand without understanding the consequences. Be careful in particular about the potential loss of registered trademark rights in a prior logo or a stylized word mark.
2. Unless there is a commercial/marketing purpose for not doing so,  initially register the brand at least as a plain word mark with no stylistic elements claimed. The marks distinctiveness will thus rest on the word itself rather than any stylization of the word(s) or a logo. Changes, made in e.g., the font should not defeat the distinctiveness of the plain word mark from a trademark law perspective.  Many of the commentator’s clients file 2 applications – one for the plain word mark and one for a design mark which may incorporate the word mark.

WE THANK YOU READING THIS BLOG AND HOPE YOU FOUND IT INFORMATIVE.  HOWEVER, THE CONTENT IS PROVIDED FOR INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE OR ANY ATTORNEY-CLIENT RELATIONSHIP.

©2022

Troy & Schwartz, LLC

Where Legal Meets Entrepreneurship™

(305) 279-4740

On Feb. 24, 2022 in a 6 to 3 decision, the U.S. Supreme Court held that mistakes of law – and not only mistakes of fact – could protect copyright infringement lawsuit plaintiffs from losing their copyrights on grounds of inaccurate registrations.  The decision is a win for creators who own registered copyrights.  Remember, since 2019, copyright registration is an absolute requirement for commencing a copyright infringement lawsuit as the result of the Supreme Court’s decision in Fourth Estate Public Benefit Corp. v Wall-Street.com, LLC.

Background of the Lawsuit

In 2020 Unicolor, a fabric design company, sued fashion giant Hennes & Mauritz, LP (H&M) for copyright infringement of Unicolor’ copyrighted 2-dimensional fabric designs.  Unicolor’ registered copyright stemmed from its copyright registration for 31 separate designs allegedly included in the same unit of publication.  The Copyright Office’s regulations governing the submission of applications provides that a single application may cover multiple works only if they were “included in the same unit of publication.” The opportunity to submit multiple works in one application can save the applicant considerable filing fees.  H&M argued that Unicolor had failed this requirement by making some of the designs exclusively available to certain customers while offering the rest to the general public.  That is, the designs were not included in the same unit of publication.

The Relevant Statute

The Copyright Act includes the following statements under section § 411(b):

(1)  A certificate of registration satisfies the requirements of this section and section 412, regardless of whether the certificate contains any inaccurate information, unless—

(A) the inaccurate information was included on the application for copyright registration with knowledge that it was inaccurate; and

(B) the inaccuracy of the information, if known, would have caused the Register of Copyrights to refuse registration.

(2) In any case in which inaccurate information described under paragraph (1) is alleged, the court shall request the Register of Copyrights to advise the court whether the inaccurate information, if known, would have caused the Register of Copyrights to refuse registration.

The Decision

The Unicolor case involves interpretation of § 411(b)(1)(A), commonly referred to as a safe harbor provision.  The District Court determined that because Unicolor did not know when it filed its application that it had failed to satisfy the “single unit of publication” requirement, Unicolor copyright registration remained valid by operation of the safe harbor provision.  The Ninth Circuit disagreed and instead opined that the safe harbor provision only applied to good-faith mistakes of fact, not law.  Unicolor had known the relevant facts surrounding publication of the designs; its knowledge of the law (or lack   thereof) was irrelevant

The U.S. Supreme Court sided with the District Court by holding that 411(b)(1)(A) is applicable to both mistake of law and mistake of fact.  As such, lack of either factual or legal knowledge can be the basis for the application of the statute’s safe harbor provision.

In finding for Unicolor, the Court found that cases decided before § 411(b) was enacted “overwhelmingly” found that inadvertent mistakes in copyright registration did not invalidate copyrights.  The court also referred to the legislative history which suggested that § 411(b) was enacted to make it easier, not more difficult, for nonlawyers to obtain valid copyright registrations.  One of the goals behind the new section was to “improve intellectual property enforcement in the United States and abroad.” H. R. Rep. No. 110–617, p. 20 (2008).  Section 411(b) did so in part by “eliminating loopholes” that could be exploited to block otherwise valid copyrights.

H&R had argued that copyright owners would be allowed to avoid the consequences of an inaccurate application by claiming lack of knowledge.   The Court emphasized that courts need not accept the copyright owner’s claim that it was unaware of the relevant legal requirements.  For example, willful blindness may support a finding of actual knowledge on either the issue of law or fact, triggering the application of 411(b)(1)(B).

The Court’s opinion did not address section 411(b)(1)(B) which states: “the inaccuracy of the information, if known, would have caused the Register of Copyrights to refuse registration.  Section 411(b)(2) makes it clear that any decision concerning the validity of a registered copyright is not made by the court but by the Register of Copyrights.  This step is generally commenced upon the court’s grant of a defendant’s motion to Submit the Matter to the Register of Copyright and then submitting the matter to the Register of Copyrights. Based on Unicolor, the Register of Copyrights should only be involved if the court finds that the copyright registrant had knowledge of the facts and/or law associated with registration’s error(s).    In contrast to registered trademarks and patents, a federal court has no right to invalidate a registered copyright.  It’s up to the Register of Copyrights to determine what impact, if any, the misinformation had on the Copyright Office’s decision to register the copyright to the designated owner in the first place.

Take-Home Points

The decision helps bolster the validity of copyright registrations involving errors made by the applicant.  In the commentator’s opinion, applicants should not automatically assume that all errors are “excusable.”  Nevertheless, it’s still a good idea to ensure that all information presented in copyright registration applications is accurate to start with to prevent a situation where the defendant draws out the case by asserting the registration is invalid.  Also, where an attorney files the application on behalf of the applicant, will the attorney’s error be “excused” for errors of law?

On the other hand, defendants who think they can get away with infringement by trying to invalidate the plaintiff’s registered copyright in a future infringement lawsuit should think twice.  This approach is akin to a shoplifter blaming the retailer for not having shoplifting preventive measures in place.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  WE HOPE IT WAS INFORMATIVE.  HOWEVER, IT IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE!

Intellectual property law is a complex area of the law.  Contact us at 305-279-4740 for a complimentary strategy session on protecting your inventions, creative works, brands, and proprietary information through patents, copyrights, trademarks and trade secrets or our litigation services involving intellectual property disputes.   We represent both individuals and business entities.  Our mission is to serve innovators and creators in protecting the fruits of their hard work and ingenuity through our Client Services Creed:  Conscientious, Rigorous, Energic, Empathetic, and Diligent legal services. 

© 2022 by Troy & Schwartz, LLC

Several states including Delaware, Wyoming, and Nevada are popular states for incorporation and limited liability company formation for privacy and taxation reasons.  But what if the corporation or LLC will actually be transacting business in Florida and not in its state of incorporation/formation?

Under Florida law, such LLCs or corporations (known as foreign LLCs or corporations, collectively foreign entities) may not transact business in Florida until they obtain a certificate of authority from Florida’s Department of State.  Over the years, I have encountered several foreign entities that have not obtained this certificate even though they were clearly a business operating in Florida.  In one case, the entity could not file an breach of contract lawsuit until it had received its certificate of authority and paid a fine.

Both incorporation and limited liability formation in all states is relatively simple and typically carried out by a non-attorney.   As for Florida, the failure of the foreign corporation to early-on obtain a Florida certificate of authority is generally the result of unfamiliarity with the law by non-lawyers.

According to Florida law, both foreign corporations and limited liability companies must not transact business in Florida until it obtains a certificate of authority from the Department of State.   See §607.1501 of the Florida Corporations Statute and §605.0905 of the Florida Revised LLC Act.   Neither statute provides guidance as to what constitutes “transacting business.” Both statutes do, however, provide a non-exhaustive list of activities which do not constitute “transacting business” such as:

• holding managers’ meetings or members’ meetings (LLC) or board of directors/shareholders meetings (corporation);
• maintaining bank accounts;
• collecting on debts or enforcing mortgages;
• transacting business in interstate commerce;
• conducting an isolated transaction that is completed within 30 days and that is not one in the course of repeated transactions of a like nature;
• owning or controlling a subsidiary corporation or LLC incorporated in or transacting business in Florida;
• owning real estate or personal property located in Florida that produces no income (the statutes make a specific exception for income-producing property).

As for “transacting business,” the following activities are examples of transactions that likely require registration:

• Having a physical presence in the state such as a business office, warehouse, or store;
• Having employees or payroll in Florida;
• Applying for and obtaining a business license in Florida.

Are there any ramifications if a foreign entity needs a certificate of authority to transact business, but does not get one?  Legally, the entity may not file a lawsuit in a Florida court, and if a lawsuit is filed, the court may stay the proceeding until the unregistered foreign entity obtains a certificate of authority. The unregistered entity may, however, defend the lawsuit. In addition, any contracts executed by the unregistered entity are still valid, notwithstanding the lack of a certificate of authority. By transacting business in Florida without a certificate, the entity is deemed as a matter of law to have appointed the Secretary of State as the company’s agent for service of process.  Finally, the entity is liable to the Secretary of State for civil penalties for each year (or part thereof) that it operates without a certificate of authority.

Practically speaking, an entity that is conducting its business operations within Florida, entering into contracts executed in Florida with other Florida entities or Florida residents, and/or is earning money in Florida from Florida businesses/residents should register the foreign entity in Florida.  Florida banks and financial institutions may also prefer, even require, that the foreign entity be registered as a Florida foreign entity.

The forms for registering a foreign corporation or LLC are relatively straight forward.  Note that you must provide a Certificate of Existence, no more than 90 days old, from the original state of entity formation.  A Florida registered agent is required.  You are also required to list the date that your entity first started transacting business in Florida.  If you have been conducting business as a foreign corporation before obtaining a certificate authority, you may be responsible for any back Florida Corporate Income Tax and a penalty.

If you are registered corporation, you will be subject to Florida Corporate Income Tax based on Florida-specific adjustments for corporations doing business outside of Florida.  LLCs themselves do not pay income taxes, only their members do.  Florida is one of the few states which does not have a state income tax for individuals.  Accordingly, Florida LLC members will not owe state income tax on their LLC earnings.  Some states, but not Florida, impose a separate fee on LLCs for the privilege of doing business in the state.

Finally, note that the foreign corporation or LLC must have a name distinguishable from other companies already registered in Florida.  Otherwise, the registrant will be required to register an alternative name to use within the state for a foreign corporation/LLC Florida qualification action.

              THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL, THE CONTENT IS NOT LEGAL ADVICE & IS PROVIDED SOLELY FOR INFORMATIONAL PURPOSES. 

© 2022 by Troy & Schwartz, LLC