Our Insights

Force Majeure Clauses Gain Prominence During COVID-19

The COVID-19 epidemic brought to the forefront a contractual concept known as “force majeure.”  The term “force majeure” is a French phrase that means “superior or irresistible force.”  In contract law, a force majeure clause excuses or delays a party from performing its contractual obligations under the contract due to unforeseen events or circumstances.  This often-overlooked term became the focus of countless businesses and nonprofits unable to comply with their contracts due to the outbreak of COVID-19.  As our nation deals with COVID-19 and other future outbreaks of disease, force majeure clauses need to be carefully analyzed to determine if they allow a party to escape its obligations.  New contracts should be carefully drafted to ensure that COVID-19 or other similar outbreaks continue to constitute a valid reason to terminate or delay a contractual obligation.

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Avoid the Pitfalls of Careless Contract Drafting

Each day millions of businesses, individuals, and non-profits make law that spells out their rights, duties, and obligations.  They do this by entering contracts.  A contract is an agreement between two or more parties containing legal obligations that carry the force of law.  It can be surprising how little attention is paid to contracts before signing them.  In some cases, parties enter multi-year agreements or incur thousands or millions of dollars in obligations without carefully reviewing the agreement. 

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California and Europe Lead the Way on Data Privacy – More States to Follow

You may have heard that the California Consumer Privacy Act (CCPA) went into effect on January 1, 2020.  The CCPA is the first major attempt by a state government in the United States to regulate the use of consumer personal information.  Following California’s lead, other states have started considering similar data privacy laws.  The CCPA has been compared to the European Union General Data Protection Regulation (GDPR) that became effective in 2018.  While the CCPA has some similarities to the GDPR, significant differences between the two laws mean that compliance with one of the laws will not necessarily equate compliance with the other.  It is important for businesses subject to either or both of those laws to be aware of what is needed to be in compliance.  Businesses not subject to California and European data privacy laws should nevertheless pay attention to data privacy concerns because it is likely similar laws will be passed throughout the country over the coming years.  Legislation is pending in several state legislatures, including Illinois, with similarities to the CCPA and GDPR. 

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Beware of Work-for-Hire Nuances

The term “work-for-hire” is often loosely used to refer to an agreement with an author, musician, or other independent contractor to create a copyrighted work.  “Work-for-hire” agreements are routinely entered for the purpose of vesting ownership of the work with the party paying for the work.  The term “work-for-hire” has a precise meaning under the U.S. Copyright Act, and if care is not used to properly draft the agreement, the partying paying for the work may not legally own all rights to the work. 

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Act Promptly to Respond to a Data Breach

If you own or operate a business or non-profit organization, then it is likely not a matter of if, but when, you will experience a data breach.  News stories proliferate of high-profile data breaches involving sensitive data of millions of people.  A recent data breach of a major online fundraising platform has had far-ranging implications, affecting countless individuals, businesses, and organizations throughout the world.  The costs to investigate the breach, notify all affected parties, and work with those parties to address the breach must have been staggering.  The same data breach laws that apply to large, multi-national IT providers also apply to small businesses and non-profit organizations.  If you experience a data breach, it is imperative that you act quickly to address the breach and comply with any applicable data breach notification laws.        

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Special Copyright Provisions for Certain Nonprofits

As discussed in our prior article, use of a copyrighted work by a nonprofit organization will not usually qualify as a fair use. However, several statutory provisions of the Copyright Act (17 U.S.C. § 101 et seq.) allow certain nonprofit organizations to use copyrighted works without obtaining the copyright owner’s permission. Most of those provisions have very technical requirements and apply to limited circumstances. Before relying on one of those provisions, the nonprofit organization should review all statutory requirements to make sure its use qualifies. One of the more useful provisions allows a nonprofit organization to perform a nondramatic literary or musical work at fundraisers. In order to qualify for this provision, no admission fees can be charged at the showing, those performing the work must do so at no charge, and all proceeds from the performance, such as donations, must be used exclusively for charitable purposes. 

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Group Exemption Letters to Become More Restrictive

Proposed changes to IRS group exemption letters could result in organizations needing to re-structure their operations or seek new exemption rulings from the IRS.  In Notice 2020-36 (available here), the IRS announced that as of June 17, 2020, it would no longer accept applications for group rulings under Rev. Proc. 80-27.  All applications for group rulings after that date would be decided under a new final revenue procedure or other IRS guidance.  Exempt organizations covered under a group letter should review the proposed changes and make plans now to comply with the changes once they become final. 

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IRS Announces Guidance for “Siloing” Separate Unrelated Businesses

One of the more significant changes made by the Tax Cuts and Jobs Act of 2017 was to require tax-exempt organizations to separately calculate unrelated business income tax for each unrelated trade or business.  Instead of offsetting all losses from all income attributable to all unrelated trade or business activities, organizations are now required to “silo” each trade and business and calculate unrelated business income tax for each.  The statutory text of the Act was silent about how to determine if an organization has more than one unrelated trade or business or how to identify separate trades or businesses.  The IRS previously issued guidance that allowed organizations to consider “all the facts and circumstances” in determining if it had multiple or separate trades or businesses.  This standard was vague and not very helpful to organizations seeking concrete guidance on making these determinations.

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Illinois Considering Data Privacy Law

Beginning with the EU General Data Protection Regulation (GDPR) in 2018 and continuing with the California Consumer Privacy Act (CCPA) in 2020, governments have become increasingly active in regulating how businesses use personal information of consumers. Legislation is currently pending before the Illinois General Assembly that would adopt a similar data protection framework for Illinois residents. Businesses that collect, store, or use personal information of Illinois residents should be aware that they may soon have new obligations to provide disclosures, respond to consumer requests about their data, and comply with other requirements. 

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Nonprofits and the Fair Use Defense

It is a common misconception that nonprofit organizations have special rights to use copyrighted works without permission. This misconception arises from the first fair use factor, which considers “the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes.”  As explained below, “nonprofit educational purposes” is very narrowly defined. Even if a use is actually included in “nonprofit educational purpose” the use may not qualify as a fair use if the other fair use factors weigh against fair use. While the law does not generally grant nonprofit organizations the right to use copyrighted works as a fair use, the U.S. Copyright Act does grant several statutory exemptions in limited situations.

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