Wednesday, April 20, 2011

Trademark Bullies and Insurance Coverage Against Infringement Claims

     Trademark Bullying occurs when trademark owners, especially large companies, file frivolous and abusive lawsuits, especially against smaller companies that are competitors.  The Patent and Trademark Office ("PTO") has said a trademark bully "could be described as a trademark owner that uses its trademark rights to harass and intimidate another business beyond what the law might be reasonably interpreted to allow." An epidemic of trademark bullying has occurred in the U.S., so much so that federal legislation has been passed and the PTO has undertaken surveys and studies to address trademark bullying and the litigation tactics of trademark bullies. The Trademark and Technical Conforming Amendment of 2010 directs the Secretary of Commerce to "study and report" to Congress on how small businesses are being harmed. 

     Many times the big company ("Bigco") will write the small company ("Littleco") a cease and desist letter, or just go ahead and file a lawsuit alleging all sorts of intellectual property infringement such as trademark, trade dress, service mark, unregistered trade name, domain name or just unfair competition or false advertising.  Many small companies have to capitulate even if they really have done nothing wrong because of the high cost of litigation.  Indeed, the American Intellectual Property Owners Association ("AIPLA") ran a survey in 2007 and determined that just the lawyer fees and costs of taking a trademark case to resolution has an average cost per party of $700,000.  Very few small and growing businesses have the capital to fight such a fight, regardless of whether they are right or wrong.  For these companies the prospect of defending themselves is simply out of the question.  



     What can such a company do?  The very first thing they need to do is check all of their insurance policies, because without even knowing it they might be covered by their existing or even an expired policy.  Most companies have a CGL or basic Commercial and General Liability Policy.  Almost all of these policies have some kind of coverage for what is called "advertising injury."  This means there is some kind of coverage for a claim made that some kind of marketing has caused harm.  Trademark infringement usually fits into the definition of advertising injury in a CGL policy.  Insurance companies have in recent years been writing form policies that do more and more to limit coverage for trademark claims, but that is not the end of the story, a full legal analysis must be done to determine the rights of the insured.  Personal, business or umbrella policies may also provide coverage for claims such as defamation, libel, slander or disparagement.  The disparagement claim might trigger a duty to defend an entire case under one of these kinds of policies. 

     It is a very technical and complicated legal analysis to determine whether your company is actually covered against a lawsuit.  It involves a full comparison of the allegations in the complaint or the cease and desist letter to the wording of the policy.  Most states including Georgia weight the analysis heavily in favor of the insured as to the duty to pay for a lawyer to defend the claim.  If ANY allegation triggers the duty to defend, the insurer has to defend all of the allegations.  Thus, although one of the allegations might be for trademark infringement, which might be excluded from the policy, other allegations, such as false advertising, might be covered.  It only takes one covered allegation for the insurer to have to pay to defend the case.  

     There is more good news.  Usually if the insurer takes up the defense it will do so under a "reservation of rights" which means that if certain facts come to light it has the right to not pay any damages or the right to come back after their money paid in fees.  This is often a reservation of the right to deny coverage if intentional infringement is discovered by the insurance company.  Usually the victim of a trademark bully has no intention whatsoever to infringe, so there is little to worry about.  However, because the insurer has reserved certain rights, it would be a conflict for the insurance company to be able to pick its own lawyers to defend the case.  This is another place where it is imperative to have an experienced intellectual property coverage attorney involved.  The insurance company will usually try to hire the cheapest lawyers they can find to handle the case, not a higher priced higher quality lawyer.  But in this situation, Littleco usually has the right to pick a more experienced and skilled intellectual property attorney, and the insurance company has to pay the fees.  There are also companies such as IPISC that sell insurance that will specifically covers intellectual property claims.  You can also purchase intellectual property coverage from some insurance companies as an endorsement to an existing CGL policy.  After a lawsuit is filed it is too late to get insurance for what has happened already. But if you are reading this and have not had the misfortune of getting hit with a trademark bullying lawsuit yet, it would be wise to consider making sure you are covered.



    If you get a lawsuit or a cease and desist letter from a bully, It is a mistake for the accused company to simply talk to their insurance agent or the insurance company directly without legal representation in the process of making a claim for coverage.  Often the insurance company will initially deny coverage and the insured has to have someone skilled to fight to get a legal defense covered.  Many times the agent will not be aware that there is coverage under the policy for intellectual property claims.  Other insurance companies are very willing to pay to defend claims when the policy requires it, but a claim has to made to find out.  Often the law on whether defense costs must be paid by the insurer is unsettled or murky and good, persistent lawyering could influence the decision.  We have had four cases in the past year where we were hired by the insured to review the case and the insurance and to guide the client through the claims process.  In each case eventually the defense was picked up by the insurance company, and we ended up being chosen by the client, with the approval of the insurance company, to defend the case.  One of these cases we settled recently for no payment to the plaintiff, and no change in the trade name of the client.  Only some adjustments to the advertising took place. So if you get bullied get the right lawyer to help you out.  It could save your brand, and save your company.   



Sunday, March 20, 2011

Failing to Trust the Public: The Process of Submission of the Enabling Amendment to the Georgia Constitution for the Restrictive Covenant Act Was Unconstitutional

1. Common Sense and the Law

"The Law follows common sense 99% of the time." This was and still is the mantra of The Hon. R Lanier Anderson, III, former Chief Judge of the Eleventh Circuit U.S. Court of Appeals. I had the incredible good fortune of clerking for Judge Anderson and he repeated this phrase often in his thick, Georgia red clay accent, prefaced by "My Granddaddy told me...." The Judge's father and grandfather practiced for life in Georgia, and with this mantra as his guide Judge Anderson has long been revered by judges and court personnel on the right, left, and center as an intellectual force on the court, and the very embodiment of Georgia's motto, Wisdom, Justice and Moderation. We were taught as clerks by the judge to use common sense in appraising the legal arguments of lawyers, and this gauge was an incredible way of framing the questions presented, and looking at the Law through that lens serves as a barrier against frothy arguments and the intellectual pretzels in which lawyers get tied. Sometimes I refer to this radar, this sense that the Law is based on the ordinary sense of right and wrong, as the Common-Sense-ometer. One of the manifestations of this in the common law is the reasonable person. The reasonable person is a legal fiction of the common law representing an objective standard against which any individual's conduct can be measured. Generally the reasonable person applies to tort laws and its duties, but the reasonable person is invoked throughout the law. Inherently, the reasonable person has a usual share of the common sense of a reasonable person.

2. The Background – How Did This Happen?

Recently I posted a blog entry questioning the legality of the ballot measure that proposed an amendment to the Georgia Constitution that would purportedly allow the Georgia Legislature to get the newly passed Restrictive Covenant Act past the scrutiny of the Georgia Supreme Court, which struck down a prior effort of the Legislature as an unconstitutional violation of Art. III, Sect. VI, Par. V(c) of the Georgia Constitution. It just seemed to me based on my own reading of the ballot that the language on the ballot made no sense.  Article III describes the legislative branch of Georgia. Section VI, entitled Exercise of Powers, is the provision that actually tells the Legislature what its powers are, what it can and cannot do. Paragraph V is entitled Specific Limitations. In the Constitution as of November 2010, there were only five of them. That is, there were only five specific limitations on what the Legislature expressly could not do.

One of those five limits was a problem for those seeking to allow the General Assembly to rewrite Georgia law on anti-competition covenants. The limitation that made the Restrictive Covenant Act likely to be a dead letter absent an amendment said "The General Assembly shall not have the power to authorize any contract or agreement which may have the effect of defeating or lessening competition, or encouraging a monopoly, which are hereby declared to be unlawful and void." Georgia's Supreme Court had made clear that not all restrictive covenants are invalid, only unreasonable ones. Nevertheless, over time Georgia became to be known as a tough state in which to make a noncompete stick against a departed employee, for several reasons. Admittedly, the case law was difficult and left employers in a zero sum game most of the time -- either their noncompete fit through the eye of the needle or it was illegal completely and left the employee free to do whatever he wanted as far as competing was concerned, so long as no other laws were violated (such as misappropriation of trade secrets).   Whether or not the Restrictive Covenant Act is a good idea or a bad one for business is beyond the scope of this blog entry.  The text of the Restrictive Covenant Act or the policy behind is not what has my hackles up.  Most recently I represented a company enforcing a noncompete against a former employer (successully, I might add, under Georgia common law).  What concerns me is that the ballot language raises so many red flags that it puts lawyers like us in a quandary in advising clients what they can and should with new contracts.  If the new Restrictive Covenant Act is at risk because of the ballot language, then we must caution our clients in being too aggressive with new contracts, lest the new law be overturned based on the ballot and these new contracts be measure under the old common law and held to be unenforceable. 

After posting my blog entry I followed up with some folks in the industry to see what they could tell me about how in the world the dreadfully vague and misleading language on the November 2010 ballot could have possibly legally enabled the passing of the Restrictive Covenant Act. No one knew for sure but said that the folks who had researched it had determined that the Georgia Supreme Court has no ability to review this. Confused and frankly, deeply skeptical, I attended the wonderful CLE recently organized by the Atlanta Bar Association on recent developments in employment law, which included a panel on the new covenant law. Again, the folks on the panel seemed to accept the new law as a fait accompli. Finally, however, I got a clue as to how folks seemed to all agree that the ballot language was totally misleading but that nothing could be done about it.

A gentleman at the seminar mentioned that although the ballot language had been criticized (to which a loud and knowing chuckle from the audience arose), in 1992 the Supreme Court had essentially ruled that the General Assembly can pretty much put whatever they want on the ballot just as long as the voter could figure out which of the amendments was which. A joke was made that said something like, as long as the voters knew they weren't voting on the price of a car wash last November, then nothing can be done. This seemed pretty cynical to me. At this point, my Common-Sense-ometer was starting to hit about 6000 rpms and just about overheated. You have got to be kidding me right? What about Due Process? What about the right to judicial review? What about the limits on Legislative Power?  What about the duty of the legislature to work honestly for the public good? Are you telling me that the ballot can contain language so foggy that no one knows what they are really voting on the Constitution to do, and that the Supreme Court cannot do anything about that? No way.

At the CLE Ben Fink mentioned that earlier in the day he had been on a panel at Home Depot in front of a room full of CFO and CPA-types and asked how many had voted last November. Almost all of them had. He asked how many of them thought they were voting in favor of stricter enforcement of non-competes, and only one raised a hand. That makes the hair on my arms stand up, much less the Common-Sense-ometer.  These were obviously reasonable people being polled. In this case, the reasonable man, the reasonable voter, had clearly been given a proposal that could not be understood based on the ballot language.

So, after the CLE I got online and finally did the legal research on the issue of what can be done regarding vague, misleading, or outright fraudulent ballot language regarding a vote on an amendment to the Georgia Constitution. I found the 1992 case and those that went before it. The language in these cases is frankly disturbing and a total violation of the Common-Sense-ometer. But it seems clear from the case law and the text of the Constitution that the present situation is not on point with those cases of the past and that a question of first impression is presented in this situation. Moreover, it appears that the holding of the line of cases relied upon in drafting the ballot language is so undeniably wrong that that the common law doctrine of stare decisis should be no impediment to a holding that this ballot language in November 2010 was unconstitutional. 

The point I will make is that, while the limits of judicial review might have reasonably prevented the Georgia Supreme Court from quibbling with the ballot language in prior instances of Constitutional amendments, in this case the amendment is to the very provision of the Constitution that lays out the five specific limits on the powers of the General Assembly. As a rule the General Assembly of a state has far greater power to act than the U. S. Congress because general powers to make the law are given. This "awesome" power of the Georgia Assembly has been cited (albeit wrongly, in my opinion) repeatedly in cases deferring on scrutiny of ballot language. None of those amendments, however, went to an area of law which the Constitution itself had specifically enumerated as one of the five powers that the General Assembly absolutely did not have. In other words, the one area where the people have specifically not given this "awesome" power to the General Assembly is in these five instances, and none of the prior cases dealt with ballot language aimed at one of these five instances.

If there were ever a portion of the Constitution that cries out for strict judicial scrutiny of the ballot language used to pass the amendment, it would be Article III. Section VI, Paragraph V. In essence, with a proposed amendment in which the legislature has decided that it should be able to “take back” one of the five powers taken away originally in the Constitution, there ought to be some ability under the express powers of judicial review to determine whether the ballot language was fair. These five specifically limited powers are those that have been taken away from the General Assembly. Inherently the legislative body will want to take these powers back.

In a special way, Article III, Section VI, expressly limits the General Assembly. This creates a conflict of interest between the legislature and itself that must be monitored by the judiciary.  It seems that the courts must carefully review any ballot language where the General Assembly is seeking to retake from the people a power that the Constitution specifically withheld from the legislature.  If so, then the language of that ballot is in deep trouble and a major monkey wrench exists with respect to the new law, which appears to have been enable by an ballot that viloated due process. 

3. Problems with the Language of the Constitution and What Exactly Must Be Voted On

    The Georgia Constitution sets out how it is to be amended. Article X of the Georgia Constitution establishes two ways in which the constitution can be altered, revised or amended over time, either via legislatively-referred constitutional amendments or constitutional conventions. Basically, a proposed amendment must be approved by 2/3rds of the membership of each chamber of the legislature, and then it must be voted on by the registered citizens. Proposed amendments are to be voted on during general elections of even-numbered years. A Georgia Constitutional Amendments Publication Board is charged with ensuring that the state's voters have adequate notification that an election is to occur on a proposed amendment(s).

      Article X, Paragraph II itself is sadly not a model of clarity as to exactly what has to be done and where. It says that a "proposal" by the General Assembly to amend must be made into a resolution and approved by two-thirds of each legislative house, and if passed it "shall be submitted to the electors of the entire state at the next general election which is held in the even-numbered years." Thus, the "proposal" must be voted upon, which implies that the proposed amendment need not be the same language as the actual amendment. However, in the next paragraph the provision says "If such proposal is ratified by a majority of the electors qualified to vote for members of the General Assembly voting thereon in such general election, such proposal shall become a part of this Constitution...." In other words, the plain language says that the proposal becomes part of the Constitution, not anything else. Thus, it would appear based on this language that if the "proposal" language is not the same as the "amendment" language there is a major problem as to what the Constitution says after the election. The language is plain as day that exactly what is ratified, the proposal, by the majority of the voters is what the Constitution now says.

The proposal voted on last November stated: "Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?" As set forth in the plain language of the Constitution itself "such proposal" becomes a part of the Constitution. Thus, the actual sentence above is part of the Constitution because it is the "such proposal" that we all voted on. Common sense says that this renders a ridiculous result because the language does not actually say much of anything and certainly does not clearly remove the specific limits set on the General Assembly to be unable to "Authorize any contract or agreement which may have the effect of defeating or lessening competition." Based on this plain reading of the document's language, the new law, The Georgia Restrictive Covenant Act, still must not run afoul of the limits on the General Assembly's power. No "such proposal" was voted on to remove the limiting language from Article III. 

     After noting that the proposed amendment to the Constitution must arise as "such proposal" in the General Assembly, the provision goes on to command that "a "summary" of "such proposal" shall be prepared by the Attorney General, the Legislative Counsel, and the Secretary of State and shall be published in the official organ of each county and, if deemed advisable by the "Constitutional Amendments Publication Board" in not more than 20 other newspapers in the state designated by such board which meet the qualifications for being selected as the official organ for a county." The Board referred to is set out as the Governor, the Lieutenant Governor, and the Speaker of the House. Then, it says "such summary shall be published once each week for three consecutive weeks. The language to be used in submitting a proposed amendment or a new Constitution shall be in such words as the General Assembly may provide in the resolution or, in the absence thereof, in such language as the Governor may prescribe. A copy of the entire proposed amendment or of a new Constitution shall be filed in the office of the judge of the probate court of each county and shall be available for public inspection; and the summary of the proposal shall so indicate. The General Assembly is hereby authorized to provide by law for additional matters relative to the publication and distribution of proposed amendments and summaries not in conflict with the provisions of the Paragraph."

      So, the Constitution provides for several actions that must be taken before the voters get to the secret ballot on election day. The "proposal" cannot go straight from the Assembly floor to the ballot box, it has to be summarized, and the summary has to be published, and it has to be available for inspection. The General Assembly has the authority to write the language in a "proposed amendment" that will be submitted for election. Notwithstanding that, however, "such proposal" "BECOMES a part of this Constitution...." Thus, it is clear that what actually goes into the Constitution, and by corollary whatever comes out, has to be in front of the voters on election day. Any case law, policy argument or intent to the contrary is simply wrong and is subject to be reversed based on the actual language of the Constitution. This is one argument that would torpedo the proposed change in the law.  I see no way around it; it is quite simple. It is not, however, the main problem I intend to address. 

4. The Donaldson Case Does Not Apply and Even if It Did, It Was Badly Wrong

       Now, what happened in 1992 that has some lawyers thinking that the legislature has a license to write whatever kind of ballot language it wants in the proposed amendment for the citizens to vote on? In Donaldson v. Dept. of Transportation, 262 Ga. 49 (1992), The Georgia Supreme Court declined to review the ballot language used to pass an amendment in 1991 having to do with the waiver of sovereign immunity to the extent of insurance. It seems clears from a careful analysis, however that the Donaldson case should not apply to the November 2010 ballot, and the subsequent amendment, because (1) neither the Donaldson case, nor the cases relied upon therein, deal with amendments to the five specifically limited areas in the constitution in which it was decided that the General Assembly has no power; and (2) the Donaldson case, to the extent it might apply to the current ballot provision and amendment, was wrongly decided and should not be accorded the privilege of stare decisis.

     The amendment at issue in 1991 withdrew the waiver of state sovereign immunity up to insurance limits. In 1988, an amendment was not ratified by the voters that withdrew the insurance waiver. In 1991 the General Assembly tried again with a ballot proposal that was more vague and misleading and the voters passed that language with a 53% vote. The ballot language was "Shall the Constitution be amended to provide that the General Assembly may authorize lawsuits against the state and its departments, agencies, officers, and employees and to provide how public officers and employees may and may not be held liable in court?" The plaintiff argued several things were misleading. First, the General Assembly already had the authority to enact a state tort claims act and to provide for waiver of sovereign immunity, so the question presented had already been answered. The plaintiff argued that the language would lead the average voter to believe that there was no current provision in the constitution to waive sovereign immunity and thus a yes vote would increase state liability rather than decrease it. Finally, the plaintiff noted that the ballot did not include terms such as "sovereign immunity." These are great points and if I were the Supreme Court the plaintiff would have won Donaldson.  It is worth noting that only one of the current Supreme Court justices was on the Court at the time and that was Justice Benham.  He dissented from the decision.

      According to the Donaldson Court, the plaintiff argued that the ballot language was affirmatively misleading and violated the voters' substantive due process right to vote, and thus the amendment was not actually "submitted" to the voters and was not properly ratified. The opinion in Donaldson is is very thin in its reasoning. First of all, the actual language of the Constitution that says "'such proposal" that is voted on "becomes a part of this constitution" is not analyzed at all. Perhaps the plaintiff did not bring up that argument, it is unclear. There is no doubt however, what the current language of the Constitution is as of 2011, and that language flatly says that "such proposal" as is voted on "becomes a part of this constitution."

      The Donaldson court noted that Georgia formerly had a statute from 1936 to 1962 that required the ballot language to enable the voter to "pass intelligently" on the proposed amendment. Since the statute was repealed, the Donaldson court states, this court has conducted only "a minimal review of ballot language if the state followed all of the constitutionally and statutorily required procedures for amending the constitution, including printing, publicizing, and distributing the amendment." In citing the 1962 repeal of the prior statute, Donaldson cites Sears v. State, 232 Ga. 547 (1974), which for some silly reason felt that it was "significant" that this statute about intelligence was repealed in 1962. What in the world does either the passage of or the repeal of a statute have to do with a question of constitutional law? Any legislature can codify constitutional principles into a statute, it happens all the time. By definition, therefore, the repeal of the same statute bears no relevance whatsoever as to whether the Constitution otherwise requires ballot language to be intelligible, to contain the actual language that is supposed to go into the Constitution, or to give the voter a common-sense understanding of what his vote is related to and what he is doing with that vote. Perhaps the Court felt that the fact that this statute was passed by the General Assembly at one time meant that they did not feel like the right of ballot review was in the Constitution.  That is of little consequence either, however.  It is the judiciary's job to say what the constitution says.  This reference and the reliance on it is baffling.

5. The Complexity of Some Constitutional Amendments is No Impediment to Reasonable Scrutiny of Ballot Language

     Donaldson goes on to say that the legislature should draft clear language about the purpose and effect of each constitutional amendment, but then states based on simple policy reasons why it believes that it should not review the ballot language in that particular case to determine if that happened (then it goes ahead and reviews it anyway, claiming it is not misleading, which is another notion totally lacking in common sense). First the Donaldson court states as a reason not to undertake review that “constitutional amendments are often complex,” Not a single amendment is cited here to give an example of a “complex” amendment. Yet the court hypothesizes that “any summary of the proposal may be subject to various interpretations, even the legislators who sponsor an amendment may not agree on the purpose and effect of a particular amendment.”  That statement is completely specious. It is hard to imagine legislators disagreeing about the purpose of their own bill.  Moreover, the question should not be whether another interpretation is conceivable, it should be whether the reasonable man with reasonable sense could understand the purpose and effect. In Donaldson, the answer was clearly no. Moreover,  when the issue is the legislature amending the constitution to take back specific powers that were taken away from the legislature in the first place, it is not too much of a burden to ask that, in order to fulfill due process and its other duties to the people, the General Assembly should make a plain and simple statement about the purpose and effect of the amendment.  It is also clear as a matter of common sense that, where that proposal is to amend a part of the Constitution that realate to specifically limited powers of the legislature, as opposed to the more General Powers at issue in Donaldson, the court should undertake a far more perspicacious review of the ballot than was done in Donasldon in order to protect the due process of the voters and uphold its Constitutional duty. 

Granted, the Georgia Constitution is a long document. My printing of it from the Secretary of State’s website is 86 pages long. There are complicated provisions about tax and finance, the lottery, dog and cat sterilization programs, disabled veterans homestead exemptions, the Board of Regents, and on and on. One can see from a common sense perspective that some amendments published in their entirety on the ballot would take forever to read, and so forth. It seems like it would be unworkable to force every voter to have to read the whole amendment at the time of the yes or no vote. (However, that is what the Constitution says, based on its plain language.)

    One can also see that there could be endless quibbling over the summary of the amendment put on the ballot. Needless to say, common sense dictates that some leeway go to the ballot drafters and that the ballot has to have a brief explanation in order to make the voting workable (if that is how the Constitution was written, which it is not). None of these concerns, however, are an excuse for the Supreme Court to wash its hands entirely of the process and allow no due process and reasonably honest review of the ballot language under any circumstances. The amendment at issue in Donaldson was not that complicated and the ballot language was obviously written in a way to obscure what was at issue and to elicit a "yes" vote from voters who did not know what they were voting on. Nothing in the law suggests that such a dramatic effort to get a ballot provision past the electorate should face no review for due process or public trust violations by the Supreme Court.

6. No Reason Exists for a Court to Decline the Constitutionally Mandated Judicial Review of Ballot Language Written by the General Assembly for a Law to Retake Powers Originally Limited by the Constitution itself

     The reasoning of the Donaldson court then went from bad to worse. Next it states that “Moreover, the court must trust the people and the political process to determine the contents of the Constitution. We must presume that the voters are informed on the issues and have expressed their convictions in the ballot box.” Here, common sense takes a real beating. The Court should be referring to the reasonable person, who in this instance is the reasonable voter. In this instance, the Court says that it must (for some reason, unexplained) assume that the reasonable voter has read the proposal for the amendment in the newspaper and made up his or her mind what to do upon getting to the polling place, and whether to vote yes or no. The Court then says it must assume that the reasonable voter can read the misleading language in the ballot, whatever it is, and then refer back to the prior reading of the newspaper, and remember what he or she thought about it before and to totally ignore and discount what the ballot says. The reasonable voter is supposedly assumed to have read the newspaper beforehand and when reading the ballot should in her inner monologue, think “Wait, this ballot says that it will enable the legislature to enact laws about whether the state can be liable to people, but I remember from reading the newspaper that what it says here is wrong, that what I am actually voting on to go into the Constitution is a revocation of the waiver of sovereign immunity.” Nonsense.

    It is obvious that this is not what happened last November, and it is not what happened in 1992. The General Assembly wrote both the 1992 and the 2010 ballot language as vaguely as possible in order to secure a "yes" vote from uninformed voters. The question presented in November might as well have been whether the General Assembly should be allowed to help people make money. When a roomful of CFOs and CPAs are hoodwinked by the ballot and have no idea what they are voting about, the people and the process are not trustworthy and there is absolutely no reason the Supreme Court has to sit back and watch this happen with no tools at its disposal to reject the ballot and the amendment. The very first statement in the Georgia Constitution, after the Preamble, is the due process clause, and states that “No person shall be deprived of life, liberty, or property except by due process of law." Art. I, Sec. I, Par. I.

The Donaldson court says it “must” trust the political process. What on earth this means, I do not know. First, the Supreme Court is a part of the political process. The Supreme Court judges in Georgia are elected, and do not serve for life like federal judges. They are subject to being voted out of office just like the General Assembly.

Second, the Constitution itself gives the courts the power of judicial review. It is well settled that “our Georgia Constitution also provides: "Legislative acts in violation of this Constitution, or the Constitution of the United States, are void, and the Judiciary shall so declare them."” Art. I, Sect. II, Par. V. Barrett v. Hamby, 235 Ga. 262, 267 (Ga. 1975).

Moreover, the Constitution states “All government, of right, originates with the people, is founded upon their will only, and is instituted solely for the good of the whole. Public officers are the trustees and servants of the people and are at all times amenable to them.” Art. I, Sect. II, Par. I. This kind of language is not contained in the federal constitution, but it cannot be overlooked here. In plain language, the people of the State of Georgia have stated that its Public Officers cannot do things that are dishonest or misleading and uphold their position as trustees of the people. They cannot lie to the people. The Supreme Court has noted this duty for public officials. “A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.” Malcom v. Webb, 211 Ga. 449, 86 S.E.2d 489 (1955). This honor applies not only to individuals but to the government itself, which is specifically referred to in this constitutional provision. Not only are the individual Public Officers trustees, but so are the bodies of government these individuals make up.

This public trust is most at risk in the process of manipulating elections. Under Georgia's system of government, the method of expressing the will of the people is by voting in a legally held election. Wheeler v. Board of Trustees, 200 Ga. 323, 37 S.E.2d 322 (1946).

The General Assembly is occupying a position of trust, and an effort to mislead the people, to abuse the process of law in amending the constitution, and to cynically seize back power that was already expressly taken away from them is most definitely a violation of this trust, a breach of the Public Officer’s duty to the people, and a violation of the constitution. The Supreme Court Justices are also part of that public trust, and thus, they are obliged not to stand aside while the process of law is abused and the electorate is manipulated in the very act of voting on an amendment to the Georgia Constitution. The very job of the Court is not to acquiesce in such a circumstance. These are not judges appointed for life, they are Public Officers who are trustees of the people and the people’s rights under the Constitution. The judicial “restraint” required of federal, unelected judges is not at issue here. There is a job to do, and that is to review these ballot provisions in light of the duties of not only the General Assembly, but also the Supreme Court, to be “trustees of the people.”

Moreover, it is important to note that this is not an instance where “judicial legislation” or “judicial activism” is an issue. No separation of powers issues arise here. Clearly the ballot language is not a statute or a law. Thus, it is not judicial legislation to review with reasonable, common sense scrutiny the ballot measures tied to amendments to the constitution to ensure that due process is followed and the public trust is upheld.

7. The Sears Case Points Out the Distinction Between the Present Situation and the Other Ballot Language Cases That Defer to the “Awesome” Power of the General Assembly, Power That Is Absent for This Amendment.

     One of the problems of the Donaldson opinion is that it relies heavily on the Sears v. State case, which also is a problematic opinion. However, it is clear, the Sears opinion is not on point with the current situation with the amendment to the specifically limited powers taken away from the General Assembly by Article I Section II.

     In Sears, the court was called on to decide whether a 1972 amendment to the Georgia Constitution was valid. In that case the question was the validity of certain State of Georgia bonds that were issued in 1974. In deciding this, the court was called on to decide whether to review the ballot language tied to an amendment authorizing certain ways the state could incur debt. In 1956, the Sears court noted, the constitution was amended to include the language now found in Article X that “The General Assembly, in the resolution, shall state the language to be used in submitting the proposed amendment.” The Sears court noted that “no limitations are placed by this provision on the power of the General Assembly to draft ballot language.” Of course, the power to draft that language is expressly limited by the due process clause and the fact that the General Assembly is the trustee of the people.

    The Sears court went on at length about how powerful the Georgia legislature is. “The inherent powers of our State General Assembly are awesome. Unlike the United States Congress, which has only delegated power, typically the state legislatures are given by the people the full law-making powers.” Moreover, the court asserted “The legislature is absolutely unrestricted in its power to legislate, so long as it does not undertake to enact measures prohibited by the State or Federal Constitution.” The Sears opinion notes that the power is set forth in “our Constitution." "The General Assembly shall have the power to make all laws consistent with this Constitution.” Of course, the General Assembly was specifically not given all powers for five distinct areas, including contracts that may lessen competition. Therefore, the awesome power Sears contemplates is totally absent from the specifically limited powers that the November 2010 Amendment 1 targets. Again, if any provisions cry out for judicial review, it is these provisions.

     Curiously, the Sears court saw fit to admonish the General Assembly for interjecting value judgments into the ballot. “Though we hold that the ballot language is not a proper subject for more than this minimal judicial review, we must note that to the extent to which the legislature describes proposed amendments in any way other than through the most objective and brief of terms, … it exposes itself to the temptation – yielded to here, we think – to interject its own value judgments concerning the amendments into the ballot language and thus to propagandize the voters in the very voting booth, in denigration of the integrity of the ballot.” Sears, 232 Ga. at 552. Of course, preventing the injection of these value judgments is just what the due process clause, and the public trust clause are all about. This is all the more important where the ballot deals with an amendment that is not part of the “awesome” inherent powers of the General Assembly.

     Finally, Sears states that “it is crucial that the 1956 Amendment calls for proposed amendments to be published in their entirety in designated newspapers of general circulation prior to the election. This is the method by which the voters should inform themselves of the contents and merits of the proposed amendments.” Again, a total lack of common sense from the court, at least based on 2011 standards. The reasonable voter today is not going to know these amendments from the newspaper and cannot be expected to maneuver around misleading, vague or fraudulent language in the ballots.

       Sears cites three cases from prior to the adoption of the 1936 “intelligent ballot” law to support the notion that the courts have no authority whatsoever to review the ballot language drafted by the legislature. To the extent that the gist of these cases is that the courts cannot or will not intervene because the voters are supposed to educate themselves about the proposed amendments by reading the newspapers, and there is nothing the courts can or should do about the veracity of whatever gets tossed onto the ballot, this is completely wrong, especially when these old cases are viewed through the lens of the current reality.

8. The Cooney Case that the Sears Court Relies Upon Does Not Apply Here and Should Not Be Relied Upon for Authority to Decline Review of the November 2010 Ballot Language

    The first of the cases cited by Sears was Cooney v. Foote, 142 Ga. 647 (1914). This proposed amendment dealt with the abolition of "justice courts" in certain Georgia cities. The Cooney case notes that the Constitution at that time provided for the publication of the "entire proposal to amend the constitution in one or more newspapers in each congressional district for two months previous to the time of holding the election was manifestly deemed a sufficient notice to the public at large of the exact provisions of the amendment, so that the people might advisedly cast their ballot of approval or disapproval of the proposed amendment." Now, first it must be noted that the publication requirement in the 1877 Constitution is different than it is today. Also, times are different. Perhaps in 1914 it did follow common sense to inform the voters of what the actual vote would do to the constitution by putting it in the newspaper. After all, back then the newspaper was the main source of information for everybody, before widespread use of the radio, or the invention of television, the internet and so forth. It might have been common sense in 1914 that the best and perhaps only way to give notice was to do this in the newspaper.

     The Cooney court then went on to state that the 1877 language for voting on amendments did not, in its opinion, require the entire text of the amendment to be on the ballot. This conclusion is very debatable, but made on totally different language than the Constitution of today. The 1877 language stated:

Paragraph I. Any amendment, or amendments to this Constitution may be proposed in the Senate or House of Representatives, and if the same shall be agreed to by two-thirds of the members elected to each of the two houses, such proposed amendment or amendments shall be entered on their journals, with the yeas and nays taken thereon. And the General Assembly shall cause such amendment or amendments to be published in one or more newspapers in each Congressional District, for two months previous to the time of holding the next general election, and shall also provide for a submission of such proposed amendment or amendments, to the people at said next general election, and if the people shall ratify such amendment or amendments, by a majority of the electors qualified to vote for members of the General Assembly, voting thereon, such amendment or amendments, shall become a part of this Constitution. When more than one amendment is submitted at the same time, they shall be so submitted as to enable the electors to vote on each amendment separately. (Emphasis added).

      The Cooney court was not deciding whether the information on the ballot was false or fraudulent, or so vague as to leave the voter completely in the dark. The plaintiff in the Cooney case was clearly nitpicking about the differences in the language in the amendment and what appeared on the ballot. Nevertheless, the 1877 Constitution appears to make clear that the amendment must be voted on. However, Cooney says "It was never contemplated that the entire proposed amendment should be printed on the ballot. It was within legislative discretion to adapt some formula by which the voter would express his assent or dissent to the proposed amendment. The formula prescribed was not intended for the purpose of informing the voter as to the full contents of the amendment. On the contrary, the formula was intended as the declaration by the voter of his approval or disapproval of the amendment which had been published in each congressional district."

      In other words, the Cooney court read the constitution to intend for the voter to read the paper and understand the amendment, and then go to the polls with that published language in mind and find the "formula" on the ballot referring back to the published language, and regardless of what the ballot said, to vote based on the memory of what the newspaper said. Cooney concludes "The formula written or printed on his ballot was but the legislative means of obtaining his expression upon the published proposal; and when he adopted the formula he indicated his vote upon the whole amendment which was submitted, and not a mere part." Where Cooney got the idea that it was never contemplated that the entire amendment would be on the ballot is unclear. This whole passage is written without any citations to any record or historical information. Perhaps Cooney formed it out of whole cloth. Perhaps the Cooney court was relying on the common sense of that era and that particular case. The Cooney case may be saying that in this case the ballot was pretty clear what was going on, many amendments to the constitution are really long and complicated, so we have to allow the legislature some room to provide the gist of this information to the voter.

      What Cooney did not say is that no matter what is on the ballot, and no matter how misleading it is, or vague, the courts have no discretion whatsoever to review what goes on that ballot in any way shape or form. Cooney especially did not make the statement that no review is possible where the amendment involves a change to the specific limited powers in Article I, Section II.

      Indeed, in laying the foundation for its ruling, the Cooney opinion quotes the 1877 Constitution, which contained the same provision of today of broad legislative power "The General Assembly shall have power to make all laws and ordinances consistent with this Constitution, and not repugnant to the Constitution of the United States, which they shall deem necessary and proper for the welfare of the State." It is this wide grant of general power that is specifically limited by the five narrow areas where the exact opposite is true, and in which the General Assembly does not have the power to make all laws it deems necessary and proper, which is in one instance the area of contracts that "may" restrain competition. In other words, the necessary and proper clause cited by Cooney does not apply to this situation, and therefore Cooney's reliance on the broad power of the clause does not apply either.

     Perhaps in 1914 the Cooney court could confidently presume that voters would be informed about what they were doing and the court could leave the burden on them to sort out the difference between the language on the ballot and what had been put in the newspaper. Today, however, that is not the case. Newspapers are dinosaurs. Most people do not read them. News and information comes from everywhere in staccato electronic signals. Today, it is not common sense to say that if the voters show up to the polls and the ballot language is totally uninformative as to the actual meaning of the vote, then that is on them. It's ridiculous and a complete deprivation of due process, not to mention a violation of the plain language of the constitution.

   Simply put, Cooney does not apply to the question asked today about the ballot for the noncompete law, because it is distinguishable on many fronts.

9. None of These Cases Follow the Constitution and They Make No Sense, Especially in This Instance

   The common sense problem of Donaldson, Sears, Cooney and the cases they rely upon, at least as things stand today, is that most voters that go to the polls clearly have not read the amendments and probably are finding out for the first time what the amendments are that they are deciding. In order to be constitutional and follow due process, and to uphold the commandment to be trustees of the people, the ballot language needs to make it reasonably clear what the action taken on the vote will do to the constitution. The notion that the real question is what is published in the newspaper and not what is on the ballot is ridiculous and totally devoid of common sense. Even if it were so, almost any voter, when presented with ballot language that essentially hides what the real action is that is being taken by the amendment, could become confused and could be misled into voting for something that does exactly the opposite of what they are thinking. To say, in a constitutional sense, that Georgia courts have no recourse but to say, "too bad, you should have read the papers" is preposterous and shocks the conscience.

    The second case cited by Sears is Goolsby v. Stephens, 155 Ga. 529 (1923). Obviously whoever stuck this cite into the opinion did not read Goolsby, because it has absolutely nothing to do with the constitutionality of false, vague or misleading language on a ballot under the Constitution. Finally, Donalsdon cites McLennan v. Aldridge, 223 Ga. 879 (1967). McLennan mostly quotes Cooney and adds nothing to the law. Simply put, to the extent Cooney is inapplicable to the questions presented today, neither is McLennan.

10. Even If the Donaldson Case Were Not Distinguishable It Would Not Be Entitled to Stare Decisis Privileges in the Matter at Hand.

     We have demonstrated several reasons the November 2010 ballot language situation can be distinguished from Donaldson and its predecessor cases on the question of judicial review of the ballot integrity. First, the amendments in those cases were not seeking to undo the specific limitations placed on the inherent powers delegated by the people to the legislature. Thus, those cases did not involve the conflict of interest between the legislature and itself when it is writing ballot language for the voters to decide on a proposed amendment that will retake one of the very few specific powers the voters previously ruled out of legislative power. Second, at least in 2011, it defies common sense, and any legal mandate against the judiciary, to assume that the reasonable voter had read the paper and the proposed summaries and is therefore “bulletproof” against being swayed by misleading or fraudulent language in the ballot in an era where newspapers are a thing of the past. Third, the laws of due process and the public trust of the government mandate language that is fair and reasonable from a common sense perspective, and there is no reason that the elected judiciary should abstain from doing its job, especially where the legislature seeks to take back power the people have taken away.

     What about stare decisis however? Suppose Donaldson is wrong. Should the policy of the common law to follow stare decisis force the Georgia Supreme Court to take a pass on any review of the language on the November 2010 ballot other than ensuring the procedures were followed in form and that the voters could tell which of the five amendments they were voting on regarding “competitive agreements.” After all, notwithstanding my rants about the difference between the awesome inherent powers delegated to the General Assembly and those five powers specifically taken out of the hands of the legislature, the Article for amending the constitution does not say that the process for amending any of the provisions of the constitution is different, even those provisions that specifically limit what the legislature can do.

    The argument goes that the bottom line is that in getting this amendment through the legislature and the electorate the General Assembly followed the procedures (arguably) and the language of the Constitution and Donaldson prevents judicial review of any ballot provision for any amendment based on whether the language was vague, ambiguous, misleading or totally false. Because Donaldson arguably says there is no judicial review, under the doctrine of stare decisis the decision is binding and this case is open and shut. Emphatically, I contend that Donaldson cannot be an impediment to the invalidation of this ballot language under the due process clause and the public trust placed in the hands of the General Assembly by the Constitution.

     Stare decisis is a legal principle by which judges are obliged to respect the precedents established by prior decisions. The words originate from the phrasing of the principle in the Latin maxim Stare decisis et non quieta movere: "to stand by decisions and not disturb the undisturbed." In a legal context, this is understood to mean that courts should generally abide by precedents and not disturb settled matters. This is a principle of the common law. Common law itself, by definition, develops over the course of time based on the precedents of the cases coming before the present. Of course, the application of stare decisis requires that the current situation be "on point" with the matter already decided. 

     In Georgia “very weighty considerations underlie the principle that courts should not lightly overrule past decisions. Among these are the desirability that the law furnish a clear guide for the conduct of individuals.” Eschen v. Roney, 127 Ga. App. 719 (1972). Even more importantly, it protects “the necessity of maintaining public faith in the judiciary as a source of impersonal and reasoned judgments. The reason for rejecting any established rule must always be weighed against these factors.” Id. Of course, as far as applying Donaldson to the November 2010 ballot provision goes, it is the need to maintain public faith that commands the rejection of stare decisis in this instance. The cynicism in the CLE room about the misleading nature of the ballot language and the obvious fact that the General Assembly had rigged the language to get a “yes” vote was palpable. At least two hundred officers of the court were present. The public trust demands that the ballot language that was used be struck down and that, if the General Assembly desires to give itself power over restrictive covenants, a power it has been strictly denied access to for over 100 years, then let them write clear proposal language that makes it obvious what is at hand in the election.  Instead of only one hand going up in the room full of postgraduate educated voters, almost all of them should go up, indicating that the voters understood what they were doing in the ballot box.  This is fundamental due process. 

     At any rate, there are two kinds of stare decisis, the first is precedent in the common law, which is at issue here. This kind of stare decisis “is subject to much greater flexibility in changing times.” Id., Hall, concurring. The other is judicial interpretation of a statute which then becomes an integral part of the statute and is subject properly to legislative change alone.

     Following stare decisis is not automatic, however. As the Georgia Supreme Court noted long ago, “Courts of final review are bound by the rule of stare decisis both as a canon of public good, and a law of self-preservation; nevertheless, where a grave and palpable error, widely affecting the administration of justice, must either be solemnly sanctioned or repudiated, the maxim which applies is Fiat justitia ruat coelum.” Ellison v. Georgia Railroad Co., 87 Ga. 691 (1891). “Let justice be done, though the heavens should fall.” Furthermore, as a Georgia court stated, quoting the great Oliver Wendell Holmes, “The law is forever adapting new principles from life at one end, and it always retains old ones from history at the other, which have not yet been absorbed or sloughed off. It will become entirely consistent only when it ceases to grow.” American Broadcasting – Paramount Theatres, Inc. v. Simpson, 106 Ga. App. 230 (1962). Ironically, the American Broadcasting case had to do with the application of defamation law to something shown on television. Therefore, the changing face of technology, the media, and the reasonable man’s behavior was at the heart of that case, just as the newspaper reading habits of the reasonable voter in the age of the decline of newspapers touches on this case. “The genius of the common law has been its ability to meet the challenges posed by changing circumstances.” Id. As Cardozo said “unique situations can never have their answers ready made as in the complete letter-writing guides or the manuals of the art of conversation.” Id.

   Thus, from my perspective, I doubt that the Donaldson, Sears or Cooney courts would have held as they did in their time and in those situations had they been sitting today, and were they called upon to rule about whether they could and should review the ballot language submitted to the voters last November. There are too many factors that line of cases relies upon that are absent here. First, as stated, the amendment here goes to one of the areas where the “awesome” power of the General Assembly is inapplicable. Second, the assumption that all of the voters have read the newspaper and are fully informed just does not hold water in 2011, if it ever did.

     Even so, however, the privilege of stare decisis has no business being applied to the reasoning in the Donaldson case as a general rule. The reason is that the Donaldson case does not make a lick of sense. There is no way in a state with a due process clause and a clause making the Public Officers the trustees of the people that the courts should avoid reviewing ballot language for proposed amendments to the constitution based on the notion that (1) amendments are complicated, (2) the people must be assumed to know what they voted on, and (3) the judges must sit back and trust the “political process.” Pushed to its logical conclusion, the General Assembly can lie to the people of the State of Georgia and the courts cannot do anything about it. The notion that elected judges cannot strike down such vague, misleading and false ballot provisions is totally bereft of logic and common sense. The notion that the reasonable voter should be expected to work around totally misleading ballot language crafted to hoodwink the public into an uninformed "yes" vote, and should be assumed to have full knowledge of the amendment referred to by that misleading language, is quite frankly ridiculous. The result of such an assumption is the show of hands or lack thereof by the CFO-types at the Home Depot seminar, nearly all of whom voted, and none of whom knew they were voting on the legislation of noncompetes, or that they were voting to make them more enforceable. Such an absurd result is the antithesis of common sense. Common sense dictates that the judiciary is called upon to be a check on the usurpation of power by the General Assembly through sham proposals and ballot language.

     Finally, the due process clause, the public trust doctrine, the call in the Constitution for government to be trustees for the good of the whole, and the fact that we elect our judges, mandates that these judges participate in their limited role in this political process of amending the constitution. Thus, in this instance, the November 2010 ballot language did not follow due process, and did not uphold the public trust. In such a circumstance, mere rubber stamping based on misguided notions of stare decisis will not maintain the public integrity of the judiciary and the rule of law. Instead, it will show that the Supreme Court does not care to do its job and enforce the Constitution itself.

     Indeed the law should follow common sense 99% of the time. The ballot in November 2010 made no common sense. It did not pass the smell test. The notion that there is nothing the Supreme Court can do about this wholesale failure to conduct a fair and reasonable election is ridiculous. It is the opposite that is the demand of justice.

                      

Saturday, February 19, 2011

Northern District Leaves No Stone Unturned in Refusing to Enjoin Korean Stone Bed Trademark Under First Sale Doctrine

Editor's Note:  This is a case I handled for the defense.  The word "jangsoo" in Korean means "longevity"  or "long life." The only two Korean furniture dealers in Atlanta have gotten into a dispute about the jangsoo mark.  According to Judge Batten in the District Court for the Northern District, the pending case Jangsoo Industry Co. Ltd. v. Jangsoo Furniture Land, Inc., Civil Action No. 1:10-cv-1225-TCB 2011 U.S. Dist. LEXIS 1421, (Decided February 11, 2011) may not survive much longer. The case involves a trademark for a Korean company that manufactures and sells stone beds, one of which is pictured. Some Koreans claim that studies show sleeping on heated stone beds (yes, stone, as in polished rock) provides numerous health benefits including but not limited to increased longevity. And for Koreans, the admiration of longevity has long been a mainstay of its ancient culture. Thus, to live longer an expensive stone bed with an electric heating element in it is just the ticket.

The Korean company Jangsoo Industry, Ltd. has numerous US trademarks covering Korean stone beds and variations of phrases with the word jangsoo in it. At one point, a furniture company owned by the Furniture Land owner had Jangsoo stone beds in its inventory that it bought from Jangsoo Ltd. in Korea.  That company dissolved and the owner started Furniture Land, bringing the old Jangsoo stone bed inventory on board.  In July, 2007 the Jangsoo Ltd. company entered into a deal with the defendant Jangsoo Furniture Land ("Furniture Land") to sell its stone beds and use its registered trademarks.  The parties executed a contract in Korean.

Pursuant to that agreement, Jangsoo Ltd. stone beds were purchased for sale, leaving Furniture Land with an inventory of Jangsoo stone beds bought from plaintiff Jangsoo Ltd. (as well as the beds already in inventory).  The parties dispute why and how, but they agree that the deal to purchase and sell Jangsoo stone beds fell apart in late 2007. The English translation of the Korean contract had a term in it that the contract "shall be valid and effective when [Furniture Land's] first year order amount is fulfilled" and that amount was $100,000.  Furniture Land only bought $28,000 in beds, claiming that they did not sell well.  The parties dispute whether the term about the contract becoming effective upon purchase of a certain amount was a condition precedent or subsequent.  Furniture Land bought no more beds from Jangsoo, but continued to sell the beds it had in inventory, and contends that it is still selling only that inventory and nothing else. 

After 2007, Jangsoo Ltd. gave exclusive distribution rights to a new company formed by the fellow who had previously sold the Jangsoo beds to Furniture Land which opened its own retail furniture store in Atlanta.  Jangsoo Ltd. and the new store, "Health Life," claimed that Furniture Land no longer had the right to sell Jangsoo beds or advertise the marks because the 2007 deal was over.  Furniture Land continued to advertise and sell Jangsoo marked beds and Jangsoo Ltd. and Health Life filed a trademark infringement lawsuit. Jangsoo also filed a motion for a preliminary injunction to stop Furniture Land from using the mark in advertising and selling Jangsoo marked goods.

One of the interesting issues raised in the opinion is the claim by Furniture Land that Jangsoo in Korean is a generic term that should not be protected by trademark.  According to Furniture Land, a court in Korea has ruled that Jangsoo is a generic term that cannot be protected for Jangsoo stone beds.  The local court stated that it did not have enough information to rule on that point and invited further discovery on the matter.  The fact that this term may be generic in Korean hints at the ubiquitous nature of longevity in the Korean Culture.  Fascinating.

Jangsoo claimed in its complaint and motion that Furniture Land was selling counterfeit Jangsoo items, but Furniture land countered with unrebutted evidence that the Jangsoo items it is selling are the remainder of the old inventory explained above, and that therefore Furniture Land is protected from an infringement suit by the "first sale doctrine."  The first sale doctrine states that the reselling of genuine trademarked goods does not constitute infringement.  Furniture Land claimed that it had not done anything to alter the goods it bought, so consumers therefore could not be confused -- the beds are the real thing and did come from Jangsoo Ltd.  With no evidence offered to show this to be untrue, the Court refused to grant the injunction based on the first sale doctrine, Furniture Land is apparently advertising and reselling real Jangsoo stone beds. 

Jangsoo Ltd. also brought a false advertising claim that the advertising of the Jangsoo mark created a false impression that Furniture Land was affiliated with the Jangsoo company.  However, Furniture Land countered that because it is using the mark in advertisements to sell real Jangsoo beds, the advertising is not false.  The court refused to enjoin that behavior either, siding with Furniture Land based on the current facts in the record. 


                     

Saturday, January 29, 2011

The New Georgia Noncompete Law: Was Amendment 1 to the Georgia Constitution Legal?

Georgia voters recently voted overwhelmingly to pass an amendment to the State's Consitution that gives the courts the duty to enforce most restrictive covenants on employees departing a company.  Lately, a lot of political rhetoric has been thrown around recently at the federal level about the United States Constitution.  The House of Representatives actually read the US Constitution on the Floor of the House as a symbolic gesture to those who believe that the actual wording of the Constitution is not being followed by legislators.  All of this has raised a question for me to which I must admit I do not know the answer (I hate when that happens).  How could the language of the recent Amendment possibly be legally tied to the actual law that had already been passed?  The Amendment said: 

"Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?"

The backdrop is that for years many Georgia lawyers and companies have been upset about what they saw as always shifting sands about how to draft restrictive covenants that would be able to legally tie down employees, business partners, shareholders, and franchisees from taking away business if things did not work out and they got a "corporate divorce."  Georgia became perceived as a state where it was hard if not impossible to enforce these restrictions on people, and other states around the South had laws that seemingly made it easier to draft an enforceable covenant, and if a bad lawyer drafted a bad covenant in those states, the judge could simply rewrite the restriction and water it down to where it was legal. 

That way, you see, the lawyer and client could never really screw up and get in big trouble for writing an unenforceable covenant.  If the lawyer went too far, the judge could reign her and the business in and change the language of the deal.  In Georgia it was all or nothing, if any of the language of the deal was wrong, the restriction was totally worthless and the dearly departed were free to do as they wished.  Two things to understand are that (1) lawyers really hate being wrong, moreso than most folks, and (2) lawyers have a big influence on what the laws are.  Of course, it was frustrating to try to write a restrictive covenant that was enforceable only to find out later that it did not pass muster. 

In 1990 a law was passed by the Georgia legislature to make restrictive covenants easier to enforce and to try to clarify what was a good covenant and what was a bad covenant.  However, based on one of the rights in the Georgia Constitution (which is not contained in the US Constituion) the courts struck down the new law as unconsitutional.  So, in order for the Georgia Legislature to get its way, it had to get the voters to amend the Constitution.  Supposedly, that happened last Novemenber.  What many may not have known was that the Legislature had already passed a law that was waiting in the wings to go "live" once the votes on the Amendment were counted.  That law makes it easier to enforec a covenant because if the lawyers screw up the judge can take out the bad language and enforce the part that works.  Laywers call that "blue pencilling."  (Why blue?  Who knows.  I edit with a red pen just like all my teachers did).

Still, did the Georgia voters know what they were voting on?  After all, as you can see below, none of the words that would have been a "heads up" to voters about what was really at stake in the Amendment appeared in the text.  The Amendment was about what lawyers call "restrictive covenants" that come in the form of "noncompetes," "nonsolicitations," "confidentiality agreements" "trade secret agreements" and the like.  They are called restrictive because that is what they do, they restrict someone from doing anything that might take value away from the old business.  However, as you can see for yourself, the words I just listed above, namely "noncompete" or "restrictive covenant" did not appear on the ballot.  Popular Libertarian radio personality Neil Boortz himself pointed out the vague and misleading language that was contained in the Amendment.

What is obvious is that the authors of the statute made their own policy choice that the law was good for Georgia, but they feared that if they "kept it real" and used the customery terms lawyers had used for the deals, the Georgia voters might not pass the Amendment to the Constitution necessary to legalize the law they had already passed.  So, restrictive covenants, noncompetes, nonsolicitations, confidentiality agreements, and the like became "competitive agreements."  Well, who in the world is against competitive agreements?  That sounds a lot more patriotic than "restrictive covenant" does it not?    

I have not really formed an opinion whether the new law is really good for business in Georgia, although I discussed some of the pros and cons in an earlier post.  I have been on both sides of these cases representing the companies in some cases and the not so dearly departed in others.  There are two sides to the debate and whether they are good depends on which side you are on in a corporate divorce.  Superlawyer and mensch Ben Fink discussed whether the new law is really good for business thoroughly in his recent blog post.  However, the way this Amendment went down raises a red flag in the libertarian in me.  I never followed the debate over the law, and I did not pay much attention to the politics surrounding it.  I saw the Amendment for the first time right before the election.  When I saw it, a red flag went up immediately in my mind.

The bottom line is that, other than in the Leglislature (And who follows that boring noise? Could you pass the sports page, please?), it seems like there really was no robust and public debate on whether this new law really was about "competitive agreements" or "agreements lowering salaries for salesmen" or "agreements making it harder to start a new company."  I still have not heard anyone explain how it was legal to pass the new law making noncompetes and nonsolicitation agreements much more enforceable based on the language of the Amendment Georgia voters had to pass last November.  How could the new law, called the Restrictive Covenant Act, come into law without the Amendment containing the words "restrictive covenant?" How could it pass without the words "noncompete," "nonsolicitation" and other words of customery usage that define the subject matter of the Amendment?  How could a constitutional amendment about the right to bear arms be passed without the word "gun" or "weapon" in it?  After all, Georgia courts for a century have labeled these agreements as impediments to the freedom of the people of Georgia to do what they want with their life, regardless of what their boss thinks. 

I am no scholar on constitutional law but in the legal world there is a concept in ruling on statutes that is called "void for vagueness."  Sometimes is a court decides that the way a law is written is too vague to figure out what it really wants people to do or not do.  So the court will strike down the law as void for vagueness.  It appears to me that this Amendment should be subject to a challenge as being void for vagueness.  If that happened the voters would have to go to the polls and vote on a more clear amendment that explained what the new law was about.  From this perch, that seems like the right thing to do.  What happened in November smacks of elitism -- a lack of trust in the Georgia people to make their own decisions based on reality.  Would Georgia's Founding Fathers countenance such a thing?  I do not think so. 

You may be wondering at this point why lawyers would support such a law if it might restrict them from the freedom to practice law as they see fit.  Well, the secret is that the new law does not apply to lawyers.  There is another law for lawyers, that says that it is illegal for lawyers to enter into noncompetes or nonsolicitations.  Pretty clever, aren't we?

"Perfect freedom is reserved for the man who lives by his own work and in that work does what he wants to do."

Samuel Taylor Coleridge

"The first sign of corruption in a society that is still alive is that the end justifies the means. "

Geroges Bernanos

Tuesday, January 4, 2011

The New Georgia Restrictive Covenant Act -- Does It Apply To Lawyers?

Something New, Something Blue

Georgia's business and legal community is abuzz with discussion about the new law on restrictive covenants passed by that very vaguely worded Constitutional Amendment the voters approved on election day in November.  The amendment's language was something along the lines of "Should Georgia reject socialism?"  Of course, the constitutional amendment was necessary due to Georgia cases that made it necessary to make a change to the Georgia Constitution to tighten the law on restrictive covenants.  The law now allows "blue penciling" of contracts, which means the judge can take out the part of the deal that is too broad and enforce the rest. 

A Very Tricky, Perhaps Lying, Ballot Proposal for the Amendment

When I read the amendment that was put on the ballot my first thought was "This cannot be legal, can it?"  After all, the amendment said nothing about restrictive covenants at all.  The actual language (I was slightly exaggerating above) was "Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?"   As set forth below, it is debatable whether the new law does make Georgia more or less competitive.  Moreover, "competitive agreements" does not exactly explain the issue.  People who say they know what they are talking about, however, tell me that apparently it is legal to put a misleading amendment on the ballot that is tied to a law that might actually do the opposite of what the amendment calls for. 

Is This Really A Good Thing?

Attached to that very vague amendment was a very long and detailed statute that had already been passed and was to become law upon the passage of the amendment in November (except that the legislature screwed up because the amendment did not become effective until January 1, 2011.  Get it?).  Georgia had become famous as being a very difficult state in which to make restrictions on employment enforceable.  Whether this was bad for business was debatable.  On the one hand, because it was hard to enforce noncompetes, it was hard to keep salespeople and other top workers from jumping ship for a better offer elsewhere.  The argument goes that companies would be hesitant to locate here because they might lose key people in Georgia's business environment.  On the other hand, it seems to be common sense that the salaries and income for these free agent salepeople and other key employees will go down as a result of the vastly easier ways to restrict employees from engaging in their field upon departure.  Also, it will be much more difficult for key employees to leave and start their own and perhaps better business.  The law clearly impedes start-up companies, because it is harder to leave and compete with your old company and is harder to come into town and hire salespeople and other key folks from existing competition. 

Have Lawyers Made Themselves Exempt from This Controversy

All of this, however, raises the question -- what about lawyers?  Does any of this affect this sacred profession?  According to at least one corporate lawyer, many of the partnership agreements for Atlanta's law firms contain  provisions that penalize departing partners in different ways for leaving and taking clients with them, even if these agreements do not expressly forbid competition.  The reason there are no straightforward noncompetes that prohibit practicing at all is because of Georgia Rule of Professional Conduct 5.6.  This Rule, which is quasi-statutory in nature (because the Georgia Supreme Court has the authority to govern the legal profession), states: 

Rule 5.6 -- A lawyer shall not participate in offering or making:

(a) a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement;

Comment
[1] An agreement restricting the right of partners or associates to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer. Paragraph (a) prohibits such agreements except for restrictions incident to provisions concerning retirement benefits for service with the firm.

This provision has been held in countless jurisdictions (most of them have the same language from the Model Code) to forbid noncompetes against lawyers, based on the public policy that clients must be allowed to choose their lawyer.  In arbitration when I argued that Rule 5.6 applied to a provision I was asked by the arbitrator "So are you saying we are special?"  I replied, "Well, I am not saying that, but the Supreme Court is saying that."  In fact, the courts say “[t]he history behind [Rule 5.6] and its precursors reveals that it's underlying purpose is to ensure the freedom of clients to select counsel of their choice, despite its wording in terms of the lawyer's right to practice. The RPC is thus designed to serve the public interest in maximum access to lawyers and to preclude commercial arrangements that interfere with that goal.”  Jacob v. Norris, 128 N.J. 10, 18 (N.J. 1992).  There is no case law in Georgia, and no Georgia Bar advisory opinion setting forth that Rule 5.6 prohibits such noncompetes in Georgia, however, every other state that has considered it has held that it does create such a prohibition, either in case law or through a bar opinion. 
 
In light of the rulings that Rule 5.6 prohibits "pure" noncompetes, law firms around the country have tried to chip away at the law by coming up with certain forfeitures that are incurred by departing partners rather than  total noncompetition clauses.  The most common term of these agreements calls for the departing partner to forfeit their capital contribution if she leaves and takes clients, or states that the departing partner loses compensation that would otherwise be due as a percentage of collections for time billed before the departure.  Almost every state has also ruled that these types of forfeiture provisions are illegal because they provide a financial disincentive against a departing partner from keeping clients when he leaves, which hampers the public policy of free choice of lawyers. 
 
The rationale behind the majority view is clear. "The purpose of [Rule 5.6] is to protect the public's right to select the attorney of their choice.” Lampert, Hausler & Rodman, P.C. v. Gallant, 19 Mass. L. Rep. 283 (Mass. Super. Ct. 2005), citing Anderson, 461 N.W.2d at 601; Jacob, 607 A.2d at 148; Cohen, 550 N.E.2d at 411; Spiegel, 811 S.W.2d at 530; see 2 Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering § 5.6:101 (1990). "Indirect financial disincentives may interfere with this right just as much as direct covenants not to compete. A provision offering financial disincentives may force lawyers to give up their clients, thereby interfering with the client's freedom of choice." Anderson, 461 N.W.2d at 601;  Jacob, 607 A.2d at 148; Cohen, 550 N.E.2d at 411; Spiegel, 811 S.W.2d at 530; Hillman, supra, § 2.3.3.2, at 32. This violates both the language and spirit of [5.6] by restricting the practice of law." Id.
 
What If Anything Does the New Restrictive Covenant Act Do for Law Firms Against Departing Partners?
 
Has anything in the new law addressed lawyers at all?  Not expressly.  Nothing in the law talks about lawyers specifically.  One could argue therefore, that the new law has no intent regarding lawyers because the law before it never mentioned lawyers, and Rule 5.6 has existed all along.  Nothing in the new law purports to amend, withdraw, or otherwise change Rule 5.6, so perhaps the law has remained exactly the same with respect to lawyers.  Of course, partnerships for doctors and accountants have been subject to restrictive covenants for a long time, falling into a "middle tier" of scrutiny between an employment contract and a contract for the sale of a business.  On the other hand, no case law exists construing Rule 5.6 and its interplay with other law on restrictive covenants.
 
Simply looking at the plain language in a vacuum, there is some language in the new law that changes the old law that arguably could apply to some lawyers.  For example, in the definitions related to limits on a sale of business, "Affiliate" is defined to include a "partner" of an entity that owns a controlling interest of an entity, defined as (1) 25% or more of that entity or (2) an interest being bought for $500,000 or more.  Thus, one could argue that the new law permits reasonable restraints on departing partners of a law firm if the partner owns at least 25% of the firm or is getting $500,000 or more for his or her shares.  This assumes that a departing partner is "selling" shares, however "sale" is very broadly defined.   
 
More ominous, the section related to post-employment nonsolicitation clauses defines "Employer" to include a partnership.  It defines "employee" to include any person "in possession of selective or specialized skills, learning, or abiliteis or customer contacts, customer information, or confidential information who ... has obtained such skills, learning, abilities, contacts or information by reason of having worked for an employer."  The law also applies to "key employees" which defines employees using similar language, among other things.  The law goes on to make nonsolicitations far more enforceable than the case law developed in Georgia, and allows the court to blue pencil away problematic terms of nonsolicitation clauses.  However, it does not explicitly define as an "employee" a partner of a partnership.  Therefore, a strong argument can be made that an equity partner of a law firm is not an employee.  On the other hand, non-equity partners, counsel, associates and other non-equity workers would clearly be employees of the partnership, and based on its language alone, subject to the law. 
 
Conclusion:  Lawyers Are Probably Still Immune to Restrictive Covenants
 
Overall, standing alone, the plain language of the new statute would clearly apply to partners who own more than 25% of the firm that are departing and thus transferring back to their old firm the regarding nonsolicitation agreements applies to any nonequity lawyers, and does not explicitly exclude equity partners.  Nevertheless, the statute does not expressly overturn Georgia Rule of Professional Conduct 5.6.  Moreover, the governance of the legal profession has traditionally been deemed to have been "turned over" to the Georgia Supreme Court, which raises the argument that the legislature would have to "take back" regulation of the legal profession in order to be able to modify, amend or overturn the Rule 5.6 that the Supreme Court has promulgated.  Nonetheless, although commentatore refer to the Rules of Conduct as a species of quasi-legislation, I could not find in a brief search anything that clearly gave this legislative authority away to the Supreme CourtFinally, if the legislature could repeal or amend Rule 5.6 and intended to do so, it could have made that clear by addressing it head on.  It did not attempt to do that.  Thus, a strong argument can be made that the new law does not apply to lawyers at all and that the law regarding restrictive covenants on lawyers in Georgia, such as it is, without any case law or bar opinions, remains the same as it was prior to the passage of the amendment and the statute.  On the other hand, no case law exists construing Rule 5.6 before or after the new law went into effect.  Firms seeking to enforce restrictive covenants will no doubt point to the new law in attempts to enforce these provisions in their partnership agreements.