Trade Secrets and IP Today

Tuesday, December 22, 2015

Anatomy of a Trade Secret Case

                We recently prosecuted a case on behalf of a firm client in the building materials business that resulted in a settlement with a value in cash and other considerations to the client of over $1.43 million. 

The client, CHRYSO, Inc. is based in Dallas, Texas, and manufactures and sells specialty chemical additives that improve the performance properties of plastic and hardened concrete, such as workability, set time control and strength gain, among other things.  Our client is the U.S. subsidiary of a French corporation.  They divide the U.S. into three regions for business purposes, and on January 12, 2015, the head of the eastern region abruptly emailed the President at 11:46 p.m. resigning, effective at midnight.  In the following days it emerged that he and other employees were going into business in direct competition with the client, and were going to be selling the admixtures of a direct competitor.   

                The sales manager had an employment agreement that included a noncompete, nonsolicitation, nondisclosure, and other terms.  The other side vehemently disputed the enforceability of the restrictive covenants.  It is important to note, however, that trade secret and computer fraud claims generally do not depend on the enforceability of a noncompete. Moreoever, the other employees that went with him, including an independent sales representative, did not have contracts and therefore had no restrictions.  Moreover, the manager was in possession of a company laptop and smart phone that he was refusing to return unless unspecified expenses were paid.  Immediately, several customers informed company management that they were “going with” the manager to the competition.  Obviously, this appeared to be a well-planned exit. 

We were retained and immediately wrote demand letters for the return of all information, that they cease competing and using company confidential information, and added “litigation hold” language to preserve all evidence.  Ultimately, a lawsuit was filed in federal court alleging 14 counts, including violation of the Computer Fraud and Abuse Act and the North Carolina Trade Secrets Act, seeking an injunction, actual and punitive damages, treble damages under the North Carolina Unfair Trade Practices Act, and attorneys’ fees.  Also, a Motion for Expedited Discovery was filed and argued, which the judge ultimately partially granted.  With our suggestion, the client retained top tier local counsel in North Carolina to assist with the case.

Before returning the laptop, the former manager deleted numerous files.  Immediately, forensic experts were hired to closely examine the activity on the laptop, what was missing, and what had been copied from the laptop.  We ascertained that much of the data had been removed to a hard drive and demanded the return of the hard drive.  While much of the data on the laptop was not recoverable, we were able to see the file names and what files had been copied to the hard drive.  Just prior to the hearing on the motion for expedited discovery, a copy of the hard drive image was produced, and a trove of evidence became available.  An expedited and intensive search using discovery and document management software revealed key information about the timing and sequence of the events, and what had happened.  We contended that this constituted “smoking gun” evidence of misappropriation, and although the Defendants denied it and denied liability, a mediation was discussed and scheduled. 
               Within a few months of filing suit, the parties mediated the case.  Before the mediation, with the client’s assistance, we prepare an extensive analysis of damages.  It was clear that the Defendants would not cease their activities and the evidence appeared to show that the departure had been in the works for nearly a year.  We made it clear that we had significant damages and that monetary value would be the key to a resolution before the mediation took place.  Fortunately, the Defendants were ably represented by counsel to advise them, apparently, of the lengthy and expensive process such a major lawsuit would entail and the risks associated with the case.  Moreover, the competitor appeared eager to resolve the dispute and avoid lengthy litigation. 

Ultimately, the parties were able to resolve the case by creating a combination of cash and other equivalents that had a cash value of $1.43 million for the Plaintiff.  Moreover, certain protections for remaining customers were put in place to add more value.  CHRYSO was willing to invest in an aggressive pursuit of its rights and thorough forensic work by an expert, to sift for key evidence and learn everything about what happened and how it had happened.  The clients dedication to aggressive investigation and litigation ended up saving them time and money.  Thanks to the quick settlement the client was able to recover far more than was spent on the litigation and move forward. 

Thursday, June 11, 2015

Eleventh Circuit Confirms Low Floor for Copyright in Laminate Flooring Case

       The Eleventh Circuit recently reversed a district court ruling that a design for    
laminated  flooring was not original enough to be copyrighted in Home Legend, LLC v. Mannington Mills, Inc., 784 F.3d 1404 (11th. Cir. 2015).
     The district court had granted summary judgment in favor of Home Legend, the accused infringer.  Both companies design laminate wood flooring which consists of wood fiber board with a decorative layer of paper glued on top. Mannington Mills copyrighted a design called "Glazed Maple" which consisted of a digital photograph of fifteen stained and supposedly worn wood planks.  The evidence showed that the design is actually raw wood modified to appear worn over 20-30 years to create a rustic look, using hand tools to gouge the wood and stain applied unevenly to show "wear and tear."  Then the planks were arranged and photographed.  After registering the copyright Mannington discovered that Home Legend was selling flooring it contends is "virtually identical" to the Glazed Maple design. 

      Home Legend argued that the copyright should be thrown out because it covered subject matter that was not eligible for copyright.  First, it argued that the design lacked the requisite originality to be considered an original work of authorship under Section 102(a) of the Copyright Act.  The Eleventh Circuit held that the floor design was original enough for copyright, noting that for purposes of copyright law originality only requires "independent creation" by the author "plus a modicum of creativity."  The district court found that the design merely depicted elements found in nature.  However, the Eleventh Circuit noted that the photographs were not merely of the raw wood grain, which would not be original, but consisted of raw wood that had been worked to resemble what the designers thought aged wood "might" look like.  Thus, the creative element necessary was present in the design.  Moreover, the court noted that the designers had specifically chosen certain planks and arranged them in a way they deemed most aesthetically worthy of an old rustic hardwood floor.  Thus, enough creative effort had been exerted to satisfy the originality requirement. 

      Home Legend also argued that the decorative paper image of maple was inseparable from a useful article, the wood flooring fiberboard to which it was attached.  Section 101 of the Copyright Act states that the design of a useful article is only copyrightable as a pictorial, graphic or sculptural work if the design incorporates features that can be identified separately from and are capable of existing independently of the utilitarian aspects of the article.  The court below had reasoned that neither the flooring nor the design layer would be marketable without the other, and thus it is inseparable.  The district court reasoned that a photo of a wood floor could only be sold attached to floorboard.  However, the court noted that separability means that the design is either physically severable from the utilitarian article or conceptually severable.  Here, clearly the paper designs glued onto the flooring are interchangeable with others, and therefore obviously physically severable.  It was also conceptually severable, according to the court, because the design could conceivably attached to something besides flooring, such as wallpaper.   

     The court concluded by noting that the copyright for the design is not that strong, because the features of each individual plank in the photo are not copyrightable because this merely shows the features of the underlying wood (although this seems at odds with the court's description of the creative work that went into working on each plank).  Therefore the design is a derivative work (the strongest protection is for a creative work, second is for a derivative work, and third is for a compilation).  Therefore only identical or near-identical copies infringe the trademark.  It would not be infringing to use similar efforts to create and aged maple design. 

     This finding however, provides cold comfort for Home Legend, because it apparently copied the design and infringed the copyright. 




Thursday, October 2, 2014

No Trade Secret For You: Courts Enforcing Written Notice Provisions in Non-disclosure Agreements to Deny Trade Secrets Claims

It's been a slow time in the Eleventh Circuit the past year for interesting decisions in intellectual property cases.  However, a couple of recent trade secrets opinions elsewhere have shown that courts are frowning on trades secrets cases where a non-disclosure agreement ("NDA") requires the party disclosing the alleged secret to give written notification of the secrets that have been disclosed and the disclosing party fails to give notice.  In both cases the plaintiffs claimed that the parties had "modified" the contractual requirement to notify the recipient of what exactly the trade secrets were that had been passed on in writing by their course of conduct, essentially claiming that everybody understood that what they were doing was supposed to be confidential.  In both cases the courts threw out that argument, because the written notice requirement in the NDA actually set forth the understanding of the parties.

The first case, Convolve, Inc. v. Compaq Computer Corp., 527 Fed.Appx. 910 (Fed. Cir. 2013) is important because it comes from the Federal Circuit, a court specializing in patent appeals and related IP claims, among other things.  There were patent infringement claims in the case that will not be discussed in this post.  Convolve is a company that specialized in technology involved in making computer disk drives locate files faster and more efficiently.  Convolve had been involved in discussions with  co-defendant Seagate Technology about licensing the technology to the defendants.  Seagate is a manufacturer of disk drives used in Compaq computers.  The parties executed an NDA that, among other things, required the party disclosing the purported trade secret orally to designate it confidential at the time of the disclosure and to give written notice within 20 days of disclosure clearly providing notice of what specific information was confidential.  Convolve had three meetings with Seagate to present and discuss the technology.   After the first meeting, both parties acknowledged in writing that any oral disclosure at the meeting was covered by the NDA.  However, Convolve neglected to do anything about the other two meetings, giving no written notice that anything was confidential or seeking Seagate's agreement of any confidentiality.  The deal never went through, and later Convolve sued Seagate and Compaq for allegedly taking and using its trade secrets and infringing two patents.

The district court granted summary judgment to the defendants on the trade secrets claims, finding that even if the supposed trade secrets had been disclosed at the second and third meetings, Convolve did not send a confirmatory memorandum following the presentations as required by the NDA.  On appeal Convolve admitted that it had not given written notice of the confidentiality under the NDA of anything said or seen at the meeting in question.  However, it argued that the parties understood that all of their mutual disclosures were confidential, and thus through the course of their conduct Convolve was not required to send a follow-up memorandum after the meeting in question.  The court rejected that argument, stating that it did not matter what the subjective belief of the plaintiff was about what was understood, there was a contract and Convolve had not followed it. 

This is a common position taken by plaintiffs in trade secret cases where they face the hurdle of an NDA requiring written notice, where no evidence of written notice exists.  Facing the hurdle of a contractual bar to any claims,  the plaintiff has to find some way around its failure to follow the contract.  Therefore, plaintiffs will commonly tout an argument of modification, waiver or estoppel based on some conduct among the parties during the transaction.  This usually involves a witness for the plaintiff claiming that they told the other side everything was confidential and that someone agreed verbally, or something to that effect.  This "he said, she said" testimony is designed to thwart summary judgment and get to a jury with some or all trade secret claims intact.

The second case, Big Vision Private Ltd. v. E.I. DuPont De Nemours, 1 F.Supp.3d 224 (S.D.N.Y. 2014), involved a similar fact pattern.  In that case the plaintiff Big Vision had entered into a possible development deal with DuPont involving a technology for digital printing that would allow banners to be recyclable.  Again, several meetings and trials of the product took place involving the two companies. The deal did not work out but ultimately DuPont produced such recyclable banners and Big Vision claimed that its technology had been used in violation of the NDA, among other claims.  Big Vision had signed an NDA requiring it to notify DuPont of any trade secrets in order to protect them from use or dissemination.  The court found that Big Vision had failed to properly notify DuPont under the contract. 

Just as in Convolve, the plaintiff tried to argue that the course of conduct of the parties had modified the NDA so that DuPont understood what trade secrets Big Vision wanted to keep secret and that DuPont had misappropriated.  The court rejected the argument, specifically citing the Convolve case. The fact that the plaintiff had a subjective belief that everything was confidential and that DuPont understood that would not be a breach of the agreement, if even DuPont had used secret material, because Big Vision did not follow the requirements of the NDA by communicating in writing what the specific information was that Big Vision wanted to protect. 

These cases are important because so many trade secret plaintiffs try a "kitchen sink" approach where two companies do business together if things do not work out and the "recipient" goes on to produce a product similar to what the two entities worked on.  It is important for a company that signs an NDA requiring written notice by the disclosing party to actually follow the contract and give the proper notice in order to protect itself.  For a company supposedly receiving secret information, it is important to have an airtight NDA that requires that any kind of exposure to information, written or verbal requires written notice so that the recipient is fully informed, and in case of a dispute it is not subject to the approach that "everyone knew it was confidential."  In cases where these written agreements exist and have not been followed, courts must be willing to grant summary judgment where it is clear that the disclosing party has ignored the agreement. 

Monday, June 24, 2013

Trademarks: No Writing Necessary for Trademark to Be Assigned to Another Company

     The Northern District of Georgia (Judge Thrash) Denied a Motion for Preliminary Injunction filed by the company Jomaps against D-Mand Better Products over the trademark for M-1, a mildewcide line of products dating back to the 1970s. Jomaps, LLC v. D-Mand Better Products, LLC; 2012 WL 5235533, (NDGA 2012).  Yours truly was counsel for the defense so I was actually there for the hearing, in a very interesting case.   

      Jomaps was the former owner of the M-1 brand, whose mark was registered in the mid-70s.  The owner of Jomaps had bought the brand from the family that had founded the brand and owned it for 30 years. The purchase was seller financed through a note.  Jomaps' owner ran into financial issues and was threatened with the prospect of giving back the brand to the seller, and ended up in litigation with the seller over a noncompete the seller had allegedly violated as well as the note payments.  D-Mand  was owned by Dennis Makowski, who ran Jomaps since its acquisition of the M-1 trademark in 2006.  D-Mand alleged that the owner of Jomaps had ordered that all of Jomaps' assets, including the trademark and brand for M-1, be transferred to D-Mand in the fall of 2010. 

     The evidence showed that Jomaps transferred $140,000 in payables it owed to various suppliers, and that D-Mand paid these bills.  It was also undisputed that the trade secret formula for M-1 was transferred to D-Mand.  All of the management of Jomaps and the key employees went with D-Mand, and D-Mand immediately ordered labels and other materials for continuation of the exact same products of the M-1 brand previously sold by Jomaps.  Moreover, Jomaps stopped operations, sold nothing, and did not file the paperwork or pay the fee to the Georgia Secretary of State to remain active and in good standing at all in 2011. Also, the owner of Jomaps personally signed a financing application for D-Mand to receive financing with its receivables as collateral, receivables transferred from Jomaps.  Finally, Jomaps had stopped advertising M-1, while D-Mand started advertising and promoting itself as the new seller of M-1, officially stating to the market that it was formerly Jomaps. 

     Despite all of this, there was no written transfer of the assets or any kind of purchase agreement.
D-Mand argued that Jomaps refused to put anything on paper.  Jomaps argued that it had only given "temporary permission" to D-Mand to use the mark through an oral license revocable at will.  In June 2011 the owner of D-Mand, and operator of Jomaps signed a transfer document which was filed with the USPTO making the transfer of the trademark from Jomaps to D-Mand a reality. 

      Jomaps filed suit in April 2012 claiming that it did not permit this transfer document and that it was done without Jomaps' owner's permission.  Its claims included trademark infringement and conversion of the mark.  D-Mand claimed that the unwritten transfer agreement was to transfer all of the assets of Jomaps and was not a temporary license, but a permanent transfer in consideration for the payment of the payables and other considerations.  More importantly, D-Mand relied on case law to argue that legally, the goodwill of Jomaps had passed to D-Mand, and therefore so had the trademark by operation of law, regardless of the nature of the verbal agreement or the lack of documentation. 

       For some reason, Jomaps argued that D-Mand's use of the M-1 mark was likely to confuse customers.  While likelihood of confusion is necessary to prove a trademark infringement claim under the Lanham Act, the facts were clear that only one company, D-Mand, was selling anything in the market called M-1.  Jomaps was a company that was no longer making or selling anything.

      What makes the case interesting from a trademark viewpoint is the fairly rare issue of when exactly a trademark is gone forever and a company cannot get it back in the case of a largely undocumented transfer.  Without any formal writings regarding the deal, the facts came down in many respects to a "he said, she said" situation over the duration and permanence of the sale or license of the trademark.  So the question became: Can a business "park" a trademark with another entity with consideration, without any written transfer or license, and then, after some period of time, take it back into the fold?   

       The legal question looks at a brand or trademark as an expression of the goodwill a product has acheved in the market.  Therefore, a brand is not a widget that can be moved around as easily as a tangible asset like a machine or other hard assets.  The brand stands for something, the people that make it, sell it, manage it and advertise it.  Therefore, despite the fact that no written corporate documents memorialized the transfer of the M-1 trademark, and without any written license, the court looked to a test of what in reality had happened with the brand.  A court looks to whether the management of the brand goes along with the trademark.  Is it manufactured, sold, managed, and advertised by the same people who did so under the previous company?

     In this case the answer was yes.  When Jomaps transferred M-1 to D-Mand, all of the people who had made, sold, managed and advertised the trademark moved with M-1 to D-Mand.  Jomaps stopped making any products, much less any mildewicides.  Even though there were no formal corporate legal documents executed between Jomaps and D-Mand to show the purchase and transfer of the trademark, in reality the goodwill that undergirds the trademark had moved completely from Jomaps to D-Mand, and there was clearly consideration for the transfer.  D-Mand had operated the M-1 brand and family of products exclusively for nearly two years before Jomaps demanded it back.  By then, the Court ruled, regardless of the factual dispute over what the two business people intended, it was too late to stop D-Mand from making and selling M-1 under the trademark that it had taken over.  The Court denied the Motion for an injunction, allowing D-Mand to continue making and selling





Tuesday, April 16, 2013

Comity is Not Funny: Changing Technology, International Abstention, and Courts Filling the Gap in Contracts

    Parties to contracts, Judge Posner said, are embarking on a "collective adventure."  When technology changes faster than the minds of contract negotiators and drafters, problems arise that courts have to solve.  Throw in the international context and you can have a big mess that judges and juries have to solve.  The term "international abstention" was coined by the Eleventh Circuit in the 1990s in an opinion drafted by Judge R. Lanier Anderson, III, and I happened to have the great honor of clerking for this thoughtful jurist at the time the case came through the court.  I also had the great opportunity to study International Business Transactions at Yale Law School for Professor Harold Koh, who lightened up that excruciating topic by borrowing from comedian Steve Martin.   He instructed us that "comity is not funny" at the beginning of his lecture on the great case of Hilton v. Guyot, the forebear of the international abstention doctrine.  This doctrine was distilled and formalized in international abstention test in the Turner v. Degeto Film case decided by the Eleventh Circuit in 1994. 

     The problem in the Turner case was based on the fact that two broadcasters had the right to broadcast the same library of television content from satellites to owners of satellite dishes at the same time.  Degeto Film represented German state broadcasters that, under German law, had a legal duty to broadcast a library of old MGM content to the entire German speaking public, which does not conform to sovereign boundaries. These broadcasts had to be in the German language.  Meanwhile, Turner Broadcasting had later acquired the same library to broadcast anywhere in the world the same content.  The same party was on the other side of both contracts, United Artists.  Thus, UA had sold the same rights twice to two different companies and had carved out the nature of the territories assigned to those rights.  What the deals had not contemplated was the incredible rise of satellite television, because they had been drafted with an older method of broadcast in mind.  The German contract, therefore, contained a term allowing for reasonable "overspill"  of the broadcast into territory over the edges of the agreement.  In the satellite era, however, in order to reach the entire German public, the overspill apparently reached half of Europe, including countries and areas that included much of the territory that Turner thought it had bought.  Add in the multi-lingual culture of Europe and one had the real challenge of two different libraries of content repeated in different languages to the same population on different channels.  Oops!

    This led to a dispute with international overtones.  Turner, sn American company, the pride of Georgia, owner of the beloved baseball team the Braves, had to fight for customers with the German government over a massive content portfolio.  The Germans ran to a local German court and sued for the right to show their programs to German speaking people all over Europe. One week later Turner filed suit in the federal court of the Northern District of Georgia, seeking an injunction stopping the German broadcaster from broadcasting in Turner territory outside German, which, by the way, was the whole planet Earth.  Both sides hired their Luftwaffe of lawyers to go into the trenches and win for money and country.  Meanwhile UA likely counted its money and its executives played golf in Los Angeles, drank fancy wine and ate delicious cheese. 

    Back in Atlanta, Judge Shoob issued an injunction against the German government's broadcaster from broadcasting into the Turner territory.  I am not exactly sure how said injunction was to be enforced and the thought of rich ambassadors wearing boxing gloves comes to mind.  An emergency appeal was made to the Eleventh Circuit, briefs were filed, and the matter was expedited for oral argument.  Meanwhile, I clerked in Macon, Georgia wondering what in the heck I had gotten myself into with this whole legal business, and dreamed of marrying the scion of a very rich family to help me pay off my loans and escape from some very questionable borrowing decisions.  However, once this tasty case came along I realized we had something important to do that actually mattered, an international legal incident that had a lot of money and sovereign pride at stake.  Of course, the doings in the chambers of a federal judge are confidential and I will not say how much, if any, I was involved in the case.  However, I think it is fair to say that when the case came through I immediately remembered that indeed, "comity is not pretty." 

    At the time the most clear and renowned notion of comity was laid out in the old case of Hilton v. Guyot, a turn of the century case in which the US Supreme Court deferred to the decision of a foreign court's ruling in a case involving domestic and international citizens.  These cases were fairly unusual back then, given the limitations on travel and interaction, so it is worth noting how trailblazing the Court was to reach this decision.  What the case did not go into is the various types of abstention such as Burford, Colorado River, etc. where courts decline jurisdiction due to other pending proceedings.  In the case law prior to Turner, there were two lines of cases in the Seventh and Second Circuits that were not mutually exclusive and perhaps pointed to the same ultimate conclusion.  However, the key in Turner in my opinion is the clear reference to "international abstention" and the reference to a three-pronged test to guide the Eleventh Circuit in future cases.  This was essentially a case of first impression in that Circuit and it was important to provide a clear and bright test for courts to come on the issue.  The test weighs three factors: 1.  international comity; 2.  fairness to litigants, and 3.  judicial economy. 

      One of the great annoyances I have had is the sloppiness and confusion of commentators referring to this type of abstention as equal to or based on Colorado River abstention. This overlooks the clear  elevation of the Hilton case to the front and center of the three-pronged test laid out in Turner.  Colorado River abstention is where one state judgment is deferred to in another state in the US.  That is why the term "international abstention" was employed to clarify when the test applies and what is at stake in international business and the global economy.  Comity, the highlight of the doctrine, is not a state to state matter.  It is an international matter.  Turner represents a subtle but meaningful and important nod to the international nature of the cases.  It was based and is focused on the critical principles of international justice, and comity resides at the front of the test.  When courts in other countries do their job in good faith, regardless of the outcome for the home team, courts in America should have the common sense to keep their noses out of disputes that would waste their time, cost money, and add nothing but controversy to the good business of international commerce. 

     Of particular interest in the Turner case was the confusion and lack of solutions in the underlying contract for the overspill problem.  This left the parties and the courts in a bind.  What is there to do where the contract offers no help?  In a real sense, this left the court to create out of cloth a remedy.  What this also did is create the real possibility of sore losers. 

    The German court used a sovereign doctrine called "supplemental interpretation" such that the court had to decide what parties would do that was reasonable.  In its decision, it allowed the Germans to broadcast for a higher royalty and set further hearings on the reasonable value of the royalty.  This made Turner mad but also was perfectly sensible.  The lower court in Georgia tried to step in but had no real police power to enforce its ruling in Germany.  The broadcasts were in Europe so enjoining them was really impossible.  The result was messy. 

     In weighing this idea of the supplemental jurisdiction the Eleventh Circuit wisely looked for scholarly advice on the notion of courts making such an involved decision about what to do with the parties and looked comparatively at the notion of "supplemental interpretation," a concept not part of the lexicon on its face in Georgia law.  However, what the Court laid out was that the courts had a familiar and very similar "gap-filling" function to fill up the holes of poorly written contracts, or those that led to unintentional consequences.  One of intellectual supports for this decision rests on a footnote quoting the well known Judge Posner out of the Seventh Circuit, as great a writer on business law as one will find.  Gap filling is a "stab at approximating" what the parties would have done had they foreseen what would happen.  This is what good faith and fairness are all about.  Clearly, the German court had done this.  The Eleventh Circuit stayed the case because the royalty hearing had not yet taken place, but suffice it to say the case was resolved.

    In summary, the unforeseen advance of technology had led to hilarious and
unforeseen problems in the case.  The proper analysis and application of civilized courts using fairness and good faith led to a speedy resolution of the conflict.  When one party did not like this result, comity saved the day and put an end to the comedy of human limits. 


Monday, March 4, 2013

The Walls Closing In on IP Torts: The State of Trade Secret Preemption In Georgia and Other States

     Lawyers love to put in as many counts as they can think of into a complaint. They throw everything they can think of against the wall and see if it sticks.  In Georgia and many other states, like Hawaii; New Hampshire, and Utah, if they make the case about a trade secret they may be hoisting themselves with their own petard (I love that phrase). That is because the preemptive reach of the Trade Secrets Act in Georgia is growing.  If the judge thinks a case is about trade secrets (even if a trade secret violation is not pled as a count) then the Trade Secrets Act may preempt any tort claims, making the case far more difficult to prove and win.  Lawyers must be careful about how they frame a case from the outset. A skilled trade secrets defender can make you regret you ever brought up that customer list your client is obsessed with.  I attended a great ABA seminar in Chicago last summer on Advanced Trade Secrets tactics that was an excellent practical skills course in how to thoroughly abuse plaintiff's trade secrets cases and make life miserable for amateur trade secrets practitioners.   And if you think you can do it yourself and make a trade secrets case, good luck with that.  Just saying.   

          The Uniform Trade Secrets Act with 1985 Amendments was the inspiration for the Georgia Trade Secrets Act of 1990 (GTSA), OCGA § 10-1-760 et seq. The GTSA stands out among most Georgia statutes for its preemption clause, OCGA § 10-1-767. The preemption clause states, “Except as provided in subsection (b) of this Code section, this article shall supersede conflicting tort, restitutionary, and other laws of this state providing civil remedies for misappropriation of a trade secret.” (emphasis added).  Many states have adopted the suggestions in the Uniform Act. Trade secrets on the civil side is currently a matter of state law, you cannot register a trade secret with anyone, you can only protect it from theft and file a state law claim to get one back from a thief and the damage done. 

One year ago, the Georgia Supreme Court reaffirmed in Robbins v. Supermarket Equip. Sales, LLC that when plaintiff's tort claims “rely on the same allegations as those underlying the plaintiff's claim for misappropriation of a trade secret,” it will be preempted by the GTSA, even if the theft is not of an "According to Hoyle" trade secret. (Robbins v. Supermarket Equip. Sales, LLC, 290 Ga. 462, 466, 722 S.E.2d 55, 58 (2012); ProNvest, Inc. v. Levy, 307 Ga. App. 450, 451, 705 S.E.2d 204, 206 (2010)). In so ruling, the GTSA exemption clause has been broadened to bar any relief to a trade-secrets-plaintiff even when the court finds that the alleged misappropriation was not of a true trade secret as defined in the GTSA. Unless the plaintiff’s claim falls under an exception to preemption, such as a contract claim, the GTSA’s remedies are the only ones available to a trade-secrets-plaintiff, and only to one who is able to successfully argue that what was taken was a trade secret.

This may seem counter intuitive. How can the relief offered by the GTSA apply only to misappropriations of trade secrets, while the preemption clause applies to trade secrets and non-trade secrets alike? The Court reasoned that if a plaintiff could, with the same allegations, get the same relief it would have received had what was taken qualified as trade secrets, it would undermine the exclusivity of the GTSA. The preemption clause gives plaintiffs only one bite at the apple, and they cannot rely on some other theory when that fails. Interestingly, a federal district court in Illinois came to the opposite conclusion only two months later, arguing that the literal language of the statute would not preempt common law theories such as unjust enrichment or fraudulent inducement when a applied to non-trade-secrets. Miller UK Ltd. v. Caterpillar Inc., 859 F. Supp. 2d 941, 947 (N.D. Ill. 2012).  Illinois and Wisconsin are staking out a different path unfriendly to a broad preemptive scope for the Trade Secrets Act.  They argue the plain language of the Act does attempt to broadly preempt claims like unjust enrichment that are often included in trade secret complaints.  In my opinion, if the unjust enrichment is related to allegedly taking money from former customers then it is about trade secrets and should be preempted.  Moreover, no breach of contract claims are preempted and you can get your damages that way. 

The fact of the matter is that few cases about an employee leaving or a business deal falling apart are only about a customer list, the secret formula or such things.  They are usually about some other forms of alleged lying, cheating, stealing or hurt feelings.  Having a trade secret, adequately protecting it, and proving the value of it are hard things to do and frankly there are not many of us lawyers that are highly specialized in trade secrets.  Those of us that are can shred most trade secret allegations, get the tort claims dismissed and kick your tail if you wander off the reservation.  Just saying.  Maybe I am sounding arrogant and grandiose here.  In fact, I know I am.  But it is based on experience and results, which makes it at least half true, in my opinion.  As always, if you think I missed something, drop me a line and I am always happy to revise a post. 



Wednesday, January 30, 2013

Fifty Shades of Shady: Copyright Piracy, Copyright Trolls, and Adult Video Entertainment

Fifty Shades of Shady: Copyright Piracy, Copyright Trolls, and the Bellwether Porn Trial

If you've ve been living under a rock, Fifty Shades of Grey was the latest world craze in the Female friendly pulp romance novel after the Twilight phenomenon.  Twilight's hook was a romantic vampire, leading to a world Vampire craze.  German to this blog is that in this craze the romantic protagonist is not a vampire, but a sex-obsessed but romantic and loveable S & M addict (Sadomasochism).  Apparently the book was so irresistable that new Fifty Shaeds book have flown off shelves and suddenly vidoes with explicit sexual content, notable S&M video with pulp plot and intimate explicit sex scenes aimed at women, has become somewhat legitimate.  Rumors of a baby boom and other signs of world peace have flared up, including a new market for what is commonly called porn.  Many men have never touched the book but thanked a higher power for seemingly universal consumption of this, uh, novel.  In fact it is likely this phenomenon that spurred said blogger's interest and the approval to write it. 


             Copyright law is designed to promote and give incentives to create new copyrightable material and make a market for the holders of copyrights. In Ashcroft v. ACLU, No. 03-0218 (2004) the Supreme Court struck down Congressional laws aimed at regulating access to sexually explicit internet films, holding that the laws did not do enough to protect the right of adults to consensually view explicit sex scenes. In other words, adults have the right to access and view x-rated films online or buy DVD's through the mail. Therefore, producers of sexually explicit material have the right to copyright and distribute this material over the internet. Thus, the widespread practice of free downloading of porn is illegal under the Copyright Act and could subject perpetrators to substantial civil penalties, and possibly criminal prosecution. Simply put, as a matter of federal law, it is wrong. But a staggering number of people are doing it, along with music and mainstream movies, which greatly dampens respect for copyright law and breeds a culture of the ridiculous belief that because "information wants to be free," so should downloading of creative material, including sexually explicit material, also be free. But in my opinion it is stealing. According to reports, illegal downloading is a major economic problem for the adult video industry.

            CNBC recently published an interesting series of articles about the adult internet and film business. It seems speculative (virtually none of the business involves public corporations) but it estimated this loose confederation of studios and websites as a $14 billion industry. A brief look at the dockets shows powerhouse Biglaw firms, with the whitest of white shoe reputations representing the megaproducers in big money cases. However, there is paltry writing in the Biglaw blogosphere about piracy of adult video, which involves smaller high volume instances of stealing by mostly individuals.
            The reality is that the volume is so high in the aggregate that piracy overwhelms the business, and Biglaw cannot make money off of it. So they must look elsewhere. Since the adult industry is embattled in the first place, it would behoove it to hire lawyers and inform them to hew carefully to a strategic plan that carefully protects their reputation. Many lawyers either don't know or aren't mature enough to do that on their own.


             Some minority of big money producers of adult content such as "Pink Visual" have taken action to go after illegal downloading through copyright enforcement means by obtaining ISP addresses associated with illegal downloading and filing volumes of "John Doe" lawsuits. These actions seem to be accompanied by a threatening lawyer's "nastygram" warning that it will shame the recipient by putting its name on the lawsuilt lest the ISP address owner pay a large settlement. Not surprisingly, these clumsy tactics have created a backlash as old ladies whose Wi-Fi has been trespassed get scary and abusive threats when they check their mail. One feisty allegedly innocent woman has fought back filing her own class action lawsuit against the alleged "copyright trolls," as they are called by pro-downloading media. Named plaintiff Jennifer Barker of Kentucky sued four California-based companies: Patrick Collins Inc., Malibu Media, K-Beech, and Third Degree Films, and London-based Raw Films in Barker and Hutchinson v. Patrick Collins Inc. et al. KYWD 3:12-cv-00372 (W.D.KY. filed July 7, 2012).

             Barker claims the porn distributors have "a new business model" which uses the court system to "extort" money from users of file-sharing sites who have never downloaded their videos.

            Forbes published an article highlighting the feats of an apparently proud attorney who allegedly self -describes as a "copyright troll" proclaiming that he has made millions writing these letters and gobbling up settlement money. Recently, the same lawyer was sued for "extortion" tactics in Liuxia Wong v. Hard Drive Productions, Inc. 4:12-cv-00469 (N.D. Cal. filed Jan. 30, 2012). The case has already settled.

            More ominously, judges have angrily thrown out such piracy lawsuits, swayed by concern that little effort has been done to ethically do the footwork necessary to weed out innocent victims of Wi-Fi trespass or hacking from the overwhelmingly guilty horde of young males committing piracy. See “A new record: 9,729 P2P porn pushers sued at once” ( Supposedly, in one instance, a particular anti-piracy lawyer filed 200,000 lawsuits against Bittorrent users. These chickens are coming to roost, however, as a judge for the District Court for the Eastern District of Pennsylvania ordered a bellwether trial to fight such cases in 2013. Forty-eight of the cases referred to the judge were named either Malibu Media, Inc. v. John Does or Patrick Collins, Inc. v. John Does. The judge selected five of the defendants for the bellwether trial, which will be going forward soon. This trial will set a huge precedent for the winner: either the adult industry or the free information supporters.

             The anti-piracy attorney mentioned above defends the scattershot tactics by saying that recurring fact patterns emerge from these cases defending the tactics. Of course they do. Innocent victims of trespass get scared to death and angry over threats giving ammunition to the copyright freeloaders, and the real perpetrators often lie or have no money to pay and elude collection. The proof and collection problems make it hard to profit quickly off anti-piracy or to deter it. At the same time while three or so corporate studios fight piracy, the vast majority fret over the backlash and the already precarious credibility of the business.


             The backlash against the studios working to protect their copyrights raises the question whether the adult content producers are getting the savviest legal advice from their counsel. The high volume, scattershot approach is what created the backlash. Lawyers ought to ask these clients ahead of time about the implication of a clearly foreseeable backlash. Perhaps there would be less liability to litigants fighting back if the attorneys worked harder to learn who the bad guys really are and avoided threatening the obviously innocent owners of ISP addresses. That is, learn who is actually doing the stealing rather than threatening everyone. This way, adult content copyright holders could make the case that they are not trying to harass innocent and naive owners of ISP addresses whose Wi-Fi has likely been trespassed.

     Moreover, although the case law is sparse, I know in Georgia that the Computer Fraud statute may be applicable for the trespass to wifi, although I have not researched it yet and am at the moment just throwing it out there.  Computer Trespass is part of the law and there is a private right of action.  I am not sure fully its application in this scenario but it could be an idea to find out who the trespasser is and they could well be liable to indemnify the IP address holder.  And voila, no scamming old ladies, no harassment, no black eye.  I have a lot of following up to do on this and will update as I learn more. 

             To be sure, not all ISP owners are innocent. Only those who have had people outside the home get on their Wi-Fi where there is no password would be innocent. The ISP address is property as well, and the owner has some responsibility to protect it. They may argue the kids got on it, but why don't they have a filter on the computer to which the kids do not know the password? Why doesn't the Wi-Fi have a any security? The owner might not know how, but the industry could use these communications in a positive way to explain this and further secure their property, which is the ultimate goal, instead of trying to get all of the unknowing to pay a big fee.

            Now, doing the right thing in all these instances makes the cases less profitable for the company and their lawyers. What the industry could do, in that case, is hire outside counsel under the old way of doing things. Instead of paying a cut of the winnings, pay the lawyer a retainer for a set amount of hours and cases filed that allows the lawyer to do right by their reputation. They can file a specified volume of cases with the ability to prosecute them the right way—a way that will not anger judges, the media, or alleged perpetrators. The lawyers can still make money and do the right thing.
            The industry needs to learn that slow, steady, and not “shady” wins the race on the balance sheet and in the court of public opinion. And for their sake, hopefully the next craze isn't back to vampires or on to robots.