Time flies when you’re having fun: learning U. S. contract basics

June 8, 2020

Ideally, every person should understand the fundamentals of contracts, because they determine so much of how we interact with others.  A contract is actually a mutual promise to exchange benefits, or refrain from certain acts, in the future. Depending upon the law in your state, certain contracts or even individual contract sentences are written in a particular manner to be enforceable. A contract may also be oral or written, but some contracts must be written to be enforceable, such as those for certain real estate transactions.

Example, Company B promises to send Company A one hundred widgets within thirty days. However, Company A need not ever pay for these widgets. This is an agreement but not a contract. Why? Because the promises should be mutual, but Company A has no obligations whatsoever.

The initial section of a contract generally comprises the parties’ names, addresses and their expectations, as well as how each party will provide a benefit to the other. For example, in return for one thousand dollars from retailer Company A, Company B provides widgets, because company B has expertise in producing widgets. Definitions of at least some contract terms is usually necessary. For example, in a non-disclosure contract which subject matter is considered confidential. As another example, does the term ‘widgets’ include accessories that reversibly attach to widgets?

One section of a contract designates obligations and performances of each party to the contract. For example, in return for payment of $1,000.00 from company A, Company B must send 100 widgets to Company A (i) within thirty days from Company A’s request therefore, and (ii) in no more than two identical deliveries of the widget request. Not surprisingly there is a complementary section which memorializes consequences of failure to meet performance obligations. In this section the parties will agree upon which failures comprise ‘deal breakers’ for disengaging from the entire contract.

If there is a deal breaker, then the parties agree upon a section in which the remedies for what is known as a ‘major breach’ are designated. Examples include (i) money damages or (ii) a court ordering a party to perform a specific act or refrain from doing an act.  However, there should also be a procedure in the provisions which allows parties to leave a contract even if no deal breaker occurs. For example, a residential lease may require sixty-day notice to the landlord, while other contracts, such as advertising may automatically expire, or automatically renew after one year.

It is very important to obtain the dated signatures of the persons with authority to sign the contract. For example, in business each party should be sure that the person signing the contract has the authority to hold a company legally responsible for contract performance. It is also important to be aware of potential landmines. For example, there should be a contract provision stating that one excused obligation or performance does not excuse future similar failures to perform. There should also be a statement designating the state law governing the contract, as well as the geographic location in which a lawsuit should commence.  However, these are just a few provisions which should appear in contracts.

Please keep in mind that although the parties should understand the contract, only an experienced attorney should draft the actual document.

© 2020 Adrienne B. Naumann, Esq., all rights reserved. Ms. Naumann does not endorse or sponsor the advertisements at adriennebnaumann.wordpress.com.


It’s the claim preclusion stupid: Lucky Brand Dungarees v. Marcel Fashions

June 4, 2020

In Lucky Brand Dungarees, Inc., et al. v. Marcel Fashions Group, Inc., 590 U. S. ___ (2020) the United States Supreme Court [hereinafter the Court] held that new defenses could be raised in related litigation between the same parties if later claims were different from claims of an earlier proceeding. More specifically, the Court concluded that there was no common nucleus of operative facts when infringement claims from a proceeding lawsuit were directed at different trademarks at different times, although with identical parties.

A detailed knowledge of the litigation history is crucial to understanding the Court’s decision. During the 1980s Marcel Fashions [hereinafter Marcel] federally registered the trademark “Get Lucky” for clothing. In the 1990s Lucky Brand commenced using the mark “Get Lucky “as well as other marks including the word “Lucky” for these same products. In 2003 Marcel and Lucky Brand reached a trademark infringement settlement in which (i) Lucky Brand would refrain from using “Get Lucky” while (ii) Marcel would release Lucky Brand from infringement liability for Lucky Brand’s marks comprising the word “Lucky.”  In 2005 Lucky Brand commenced a second lawsuit in which Marcel counterclaimed that Lucky Brand continued to infringe Marcel’s mark “Get Lucky.” No other marks were at issue in these 2005 counterclaims for which judgement was entered in favor of Marcel.

In 2011, Marcel commenced a third lawsuit for trademark infringement by Lucky Brand. This time liability was based upon Lucky Brand’s marks comprising the word “Lucky,” but not for the phrase “Get Lucky.” Lucky Brand asserted as a defense that this claim was settled in 2003, and this settlement absolved Lucky Brand of infringement liability for marks comprising the word “Lucky.” Marcell contended that this defense should have been litigated in the second 2005 lawsuit, and because defendants failed to do so they could not raise it in the pending 2011 litigation.  Lucky Brand replied that the 2005 claims and 2011 claims differ from each other with respect to Lucky Brand’s conduct, timeline and theories of liability.  According to Lucky Brand, because Marcel raised a claim in 2005 only for “Get Lucky” then Lucky Brand could raise this settlement defense against a new claim for exclusively Lucky Brand’s remaining marks comprising the word ‘Lucky.’

The district court dismissed Marcel’s claims, but the U. S. Court of Appeals for the Second Circuit vacated and remanded based upon the doctrine of defense preclusion. The Court reversed and remanded the Second Circuit’s decision. The Court held that defense preclusion must satisfy the requirements for claim preclusion in this particular case.  Claim preclusion prevents parties from litigating issues which could have been raised and decided in a prior action.  Claim preclusion also requires that the claims in earlier and subsequent proceedings were identical to each other, or otherwise arose from the same nucleus of operative facts. In this instance, the 2005 claim was directed exclusively at trademark infringement of “Get Lucky.” In contrast, the 2011 lawsuit was directed exclusively to purported infringement by Lucky Brand’s marks comprising the work “Lucky,” but not including the term “Get Lucky.” Because these two lawsuits were directed to completely different marks and different conduct, there was no nucleus of operative facts between them. The Court also observed that claim preclusion generally does not bar claims which arise from events postdating the filing of an initial complaint, because these events often create new operative facts supporting a different claim.

© 2020 Adrienne B. Naumann, all rights reserved. Ms. Naumann does mot sponsor or endorse the advertisements at adriennebnaumann.wordpress.com


Peaches, peanuts and statutes oh my! Georgia v. Public. Resource

May 6, 2020

The United States Supreme Court [hereinafter ‘the Court’] recently held that annotations[1] to the official Georgia state statutes are not copyright eligible. As a result, Georgia, as well as other state government entities cannot prevent third persons from publishing government documents if these documents originated from a judge or a state legislature.[2]

This story began when Public.Resource.org [hereinafter ‘Public.Resource’] posted the official Georgia state statutes/code online to the public, along with code annotations. Georgia did not distribute the annotations to the public, although it did publish the official statutes without a fee. When Public.Resource publicly posted the annotations without Georgia’s permission, Georgia sued Public.Resource for infringement of the state’s copyright in the annotations. Public.Resource then sought a declaratory judgment that the entire Georgia official code, including the annotations, were not copyright eligible. The district court held that Georgia owned the copyright for the annotations because they were not enacted into law, and therefore Public.Resource had infringed this copyright. The Eleventh Circuit reversed and rejected the district court’s decision under the judicially created government edits doctrine.[3]

Before the Court, Georgia contended that under the government edits doctrine documents created by  government officials require force of law to be copyright ineligible.  However, in this case annotations to the official state statutes/code were written by private vendor LexisNexis Group under a work for hire agreement. Therefore, the annotations did not exhibit force of law, because they consisted largely of judicial decision summaries by a private vendor and not the judicial decisions themselves. Georgia further contended that under the Copyright Act the annotations comprise original works of authorship by LexisNexis Group, and therefore are copyright eligible. However, according to Public.Resource the correct question was whether the annotations were created by the state legislature and its commission in their capacities as government officials. Public.Resource also maintained that under the government edits doctrine, written works created by government officers during their duties are never copyright eligible.

The Court agreed with Public.Resource and affirmed the judgement of the Eleventh Circuit. The Court held that the correct inquiry under the government edits doctrine is whether the written work was created by a judge or legislator in the course of their government duties. The Court further held that its own precedent did not require that these written works exhibit force of law to be copyright ineligible.  Here a state commission comprised largely of legislators supervised the creation of the annotations. The state statutes, together with the commission’s annotations, are also prominently designated and otherwise referred to as Georgia’s official state code. Any other result would disadvantage citizens  whenever they need to know, for example, which published statutes are actually unconstitutional and unenforceable according to summarized judicial decisions.

©2020 Adrienne B. Naumann, Esq., all rights reserved. Ms. Naumann does not endorse or sponsor the advertisements at adriennebnaumann.wordpress.com.

[1] These annotations include summaries of judicial opinions construing corresponding statutory provisions, summaries of state attorney general opinions and related legal reference materials.

[2]  Georgia et al. v. Public.Resource.org, Inc., 590 U.S. ____ (2020).

[3] The Court created the government edits doctrine, in part by holding that judges could not assert copyright in work created in their capacity as judges. See Wheaton v. Peters, 8 Pet. 591 (1834); Banks v. Manchester, 128 U.S. 244 (1888); Callaghan v. Meyers, 128 US. 617 (1888).


Beware of whom you hook up with: Romag Fasteners v. Fossil

April 30, 2020

In Romag Fasteners, Inc. v. Fossil Group, Inc. et al., 590 U. S. __ (2020) [hereinafter ‘Romag’ and ‘Fossil’], the United States Supreme Court [hereinafter ‘the Court’] held that trademark owners in infringement lawsuits may receive lost profits without establishing willful conduct by the infringer. The decision also held that the Lanham Act does not require willfulness for such an award, and that the alternative interpretation conflicts with explicit mental state requirements for other remedies under the Act.[1]

This story begins after Fossil licensed Romag’s snap fasteners to place in leather products at Fossil’s associated manufacturer in China. Although Fossil invested in protection against counterfeiting for other vendors, it failed to do so for Romag’s fasteners. As a result, the Chinese facility produced leather goods with counterfeit fasteners displaying Romag’s mark.   After Romag sued Fossil, the jury concluded that Fossil and associated retailers infringed Romag’s trademark. However, the jury also concluded that Fossil did not do so willfully, and therefore Romag would not receive Fossil’s profits from counterfeit products. Upon a second appeal by Romag, the United States Court of Appeals for the Federal Circuit affirmed the district court’s decision to decline an award of profits.

Before the Court, Fossil contended that (i) the Lanham Act at 35 U.S.C. section 1117(a) (i) requires  willfulness for profits based upon the phrase “according to the principles of equity,” and (ii) thereby this section ushers in pre-Lanham Act decisions which required willful behavior. However, Romag contended that section 1117(a) by its own terms does not require willfulness for an award of profits due to  infringement.[2]  In contrast and as an example, the Act explicitly requires willfulness where someone dilutes a famous trademark under section 1125(c).[3] As another example, section 1114(a) — causes of action for infringement of registered marks —- does not expressly include a mental state requirement. Furthermore, “principles of equity” in section 1117(a) does not incorporate pre-Lanham Act decisions, because these decisions did not demonstrate a willfulness requirement for a profits remedy in a uniform or well established manner.

The Court vacated and remanded the Federal Circuit’s decision. In so doing it held that although the Lanham Act requires willfulness for remedies under other statutory provisions, section 1117(a)[4] does not expressly require willfulness for a profits award. The Court based this conclusion upon the Act’s plain language as well as the requirements of specific mental states for liability and remedies in other provisions of the Act. The Court also disagreed with Fossil that the phrase “subject to the principles of equity” indirectly ushers a willfulness requirement into 1117(a). Instead, if Congress had included a willfulness requirement under section 1117(a), it would have done so directly and consistently with other explicit state mental state requirements in the Act. The Court also observed that, in any event, pre-Lanham Act decisions solely support the generic conclusion that mental state is relevant for award of an appropriate remedy.

© 2020 Adrienne B. Naumann, Esq., all rights reserved. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumann.wordpress.com.

[1] The Lanham Act is the federal trademark statute in the United States.

[2] 15 U.S.C. section 1117(a) reads in relevant part:

.  .  . when. . . a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c). .  . shall have been established. . . the plaintiff shall be entitled.  .  . and subject to the principles of equity, to recover (1) defendant’s profits.  .  .  .”

[3] Trademark dilution is use by another party that (i) lessens the association consumer have with a well-known mark or (ii) otherwise tarnishes this mark. 35 U. S. C. section 1125(c).

[4] 15 U.S.C. section 1117(a) also refers explicitly to section 1125(a) which reads in relevant part: (1) Any person who uses in commerce any word, term.  .   . (A) likely to cause confusion .  .  .  (B).  .   . shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.”


Thryv is thriving! Thryv v. Click to-Call Technologies, LP

April 23, 2020

The United States Supreme Court [hereinafter ‘the Court’] recently held that timeliness of initial petitions under the inter partes review provisions [hereinafter IPR][1] of the America Invents Act cannot be appealed to a judicial court. Thryv, Inc. v. Click-to-Call Technologies, LP. et al., 590 U.S. ___ (2020)[hereinafter ‘Thryv’ and ‘Click-to-Call’]. In so holding the Court emphasized that one purpose of IPR is a more cost-effective alternative to conventional litigation, and to allow appeals of a decision to  commence an IPR would jeopardize this purpose.

This case began when the United States Patent Trial and Appeal Board [hereinafter ‘the Board’] commenced an IPR where Thryv challenged Click-to-Call’s patent. Although Click-to-Call maintained that Thryv filed its petition after the statutory deadline, the Board proceeded and ultimately cancelled thirteen of Click to-Call’s claim sentences.[2] Click-to-Call appealed to the United States Court of Appeals for the Federal Circuit [hereinafter ‘Federal Circuit’] which, after a previous remand, treated the timeliness issue as judicially reviewable. The Federal Circuit then concluded that the petition was untimely, vacated the Board’s decision and remanded for dismissal of the IPR.

Before the Court, Thryv contended that the text of  35 U.S.C. section 314(d)[3], as well as Cuozzo Speed Technologies, LLC v. Lee, 579 U.S. ___, 136 S. Ct. 2131 (2016),[4] confirms that the Board’s decision whether  to commence an IPR,  and even for reasons arising under other statute provisions, is final and non-reviewable.  According to Cuozzo, in this instance the question of untimeliness was closely tied to the application and statutes related to the “institutional decision;” consequently the Board’s decision to commence IPR was non-reviewable. In contrast, Click-to-Call maintained that appeal of an IPR commencement is prohibited under section 314(d) only where the question is whether a petitioner has a reasonable chance to prevail under section 314(a).[5] Click-to-Call also contended that the text of section 314(d) supports its position, because this text refers to “this section” and “this section” refers exclusively to section 314.

The Court vacated and remanded this case to the Federal Circuit. In so doing, the Court stated that  section 314(d) prevents an appeal of timeliness under section 315(b), and in a manner similar to Cuozzo which also addressed application of a statute other than section 314(a). The Court also stated that  section 314(d) does not limit the appeal bar to section 314(a), because Congress would have used language such as ‘reviewable under section 314(a)’ instead of ‘this section.’ Furthermore, it is clear that Congress drafted the IPR statute to entrust the decision whether to commence an IPR to the patent office. This result is distinguishable from that of SAS Institute, Inc. v. Iancu, 584 U.S. ___,128 S. Ct. 1348 (2018), because SAS Institute addresses judicial review of IPR proceedings, and not whether IPR should have commenced in the first instance.

[1] An inter partes review is an administrative process by which a patent challenger asks the U.S. Patent and Trademark Office [hereinafter ‘patent office’] to reconsider the validity of a patent.  The patent office must first agree to institute review after the patent challenger submits a petition.

[2] Claims comprise sentences at the end of a patent which designate the subject matter to be protected, and they do so in varying degrees of specificity.

[3] 35 U.S.C. section 314(d) reads in relevant part that the patent office’s “determination… whether to institute an inter partes review under this section shall be final and non-appealable.”

[4] In Cuozzo, a party contended that the Board should have refused to institute IPR, because the opposing party’s petition did not meet section 312(a)(3) requirement for patent challenges be identified with particularity. The Court disagreed and held that section 314(d) was sufficiently clear to overcome the “strong presumption in favor of judicial review” quoting Mach Mining, LLC. v EEOC, 575 U.S. 480, 486 (2015).

[5] Section 314(a) reads in relevant part that” The Director may not authorize an inter partes review …unless… there is a reasonable likelihood that the petitioner would prevail.”


BOOK OF (GENERIC?) BUSINESS: USPTO v. Booking.com

April 20, 2020

The U. S. Supreme Court [hereinafter ‘the Court’] will soon resolve whether an undisputedly generic term, combined with a domain name locator, is entitled to trademark protection in the United States.  United States Patent & Trademark Office v. Booking.com B.V., _____ U. S. ___ cert. granted Docket No. 19-46 (2020) [hereinafter ‘PTO’ and ‘Booking.com’].  Under current PTO guidelines, a generic term combined with a domain name locator is never protectable as a trademark or service mark because the locator, such as .com, merely designates an internet address.

When Booking.com originally applied for federal trademark registration, the examiner denied registration for the term ‘Booking.com’ because this term is generic.  The trademark appellate court affirmed, and so Booking.com challenged this decision in federal district court. In contrast to the trademark tribunal, the court found that Booking.com was descriptive, not generic, had acquired secondary meaning,[1] and the Fourth Circuit affirmed the district court.

Now before the Court, the PTO relies upon Goodyear India Rubber Glove Manufacturing Co. v. Goodyear Rubber Co., 128 U.S. 598 (1888) to oppose trademark registration of Booking.com. In Goodyear, the Court held that addition of a business designation such as ‘Company’ or ‘Inc.,’ when combined with the generic word for an actual product or service, does not create a protectable mark. According to the PTO, this decision is dispositive because a domain locator such as .com is completely analogous to a business entity designation. As such, recombination of a domain locator and a generic term such as ‘booking’ does not create a non-generic term.

The PTO further contends that reliance upon Booking.com’s survey evidence is wrong, because consumer recognition cannot turn a generic mark into a protectable mark. Otherwise, a party could register a specific generic term plus a domain locator, because this party invested significantly in advertising and promotion. This monopoly on a generic term would be an unfair advantage over business competitors who then could not use this generic term to describe their own products and services.

Booking.com maintains that Goodyear is not dispositive because it is superseded by the Lantham Act, because the Lantham Act incorporates a ‘primary significance test’ to determine whether a term is generic. Under this test if consumers associate a term with a specific source, and do not merely recognize the term for a general class of goods or services, then the term is descriptive and not generic. If the term is descriptive then it may be registered if there is evidence of secondary meaning, and which is provided the survey in this case. According to Booking.com, these particular surveys have been recognized as the standard for determining consumer preferences and were properly considered strong evidence in this case for trademark protection. [2]

Oral argument is scheduled in May 2020.

©2020 Adrienne B. Naumann, Esq., all rights reserved. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumann.wordpress.com.

[1] Under U.S. trademark law, a descriptive mark may obtain protection if there is evidence that consumers recognize that this   mark designates a source of goods and/or services. This recognition is known as secondary meaning and a descriptive mark describes a characteristic(s) of those goods and/or services.

 

[2] Booking.com also does not accept that the law of unfair competition is a commercially satisfactory alternative, because unfair competition law does not provide the substantial benefits of trademark and service mark protection.

 


Declarations of Independence? Google v. Oracle

April 13, 2020

In Google, LLC v. Oracle America, Inc., ___ U.S. ___ (2020), cert. granted Docket No. 18-956 (Nov. 15, 2019), the United States Supreme Court [hereinafter the Court] will resolve two commercially important questions. The first question is whether instructional source code known as declarations, as well as the organization of a computerized platform, in and of themselves are entitled to copyright protection. If they are so entitled, then the next question becomes whether copying of these features from the entire platform qualifies as fair use.[1] It is undisputed that Google copied declarations and organization of Oracle’s JAVA SE computer code into its own Android computer programs without a license.  Since then Android has become a commercially successful application in mobile phones.

In Oracle’s copyright infringement lawsuit, and after a remand from the Federal Circuit Court of Appeals [hereinafter ‘Federal Circuit’] the jury found that that there was fair use of Oracle’s declarations and computerized code organization. However, upon a second appeal the Federal Circuit reversed and concluded that there was no fair use as a matter of law, in large part because Google used these JAVA SE features for a commercial purpose in Oracle’s markets.

Now before the Court, Google provides several reasons why each of Oracle’s declarations and JAVA SE organization by themselves do not qualify for copyright protection. In part, Google contends that the declarations are merely “rote” instructions analogous to a short word or phrase in English, and therefore not copyright eligible. Google also contends that there is only one manner in which to write each declaration for a particular computerized function. Consequently, and as a matter of law, the tangible expression, i.e., Oracle’s declaration code, merges with the computer program function and does not qualify for copyright protection. Google also contended that the declarations comprised methods of operation and therefore were not eligible for protection under the copyright statute.

As for fair use, Google contends that the proper question is whether its new work transformed use of Oracle’s code, and that it did so because it became part of an entire new work, i.e., Android. Google further contends that it used only a small portion of Oracle’s work and created significantly more of its own new code for Android.

In part, Oracle’s copyright eligibility position is that there is no merger because the original authors selected from unlimited creative choices for (i) writing declaration code and (ii) organizing JAVA SE.  Furthermore, Google’s characterization of declarations as unprotected functional methods of operation is misplaced, because (i) the Copyright Act protects all computer code without exception, and (ii) even though computer code is always functional.  As to fair use because Google used Oracle’s declarations and JAVA SE organization to create a commercial superseding use in Oracle’s markets then this defense fails.  Oracle further observed that the amount of code Google copied is irrelevant, because this particular code was critical to Android’s success, and it was not merely a selection of trivial code without expressive value. Also significant is that Oracle found Google’s use non-transformative, because the copied code became part of Google’s Android product with the same purpose as in JAVA SE and with no modifications to the copied code.

Stay tuned for oral argument and the  Supreme Court decision!

[1] Fair use of a portion of an author’s original work comprises a defense to copyright infringement, and fair use generally applies to research or satirical works. One factor against finding fair use is whether a portion of a work is used for the copier’s commercial purpose in the original author’s or owner’s market.


Plain old run-of-the-mill threatened misappropriation

April 6, 2020

In a previous article I addressed judicial decisions which resolved threatened trade secret misappropriation under the inevitable disclosure doctrine. In this article I address decisions about threatened misappropriation generally. This category of misdeeds, unlike those under inevitable disclosure, is explicitly recognized as an actionable claim by the federal Defend Trade Secrets Act [hereinafter ‘the Act’].

One such case under for threatened misappropriation occurred in the procedural posture of a motion to dismiss. The Oneida Group, Inc. v. Steelite International USA, Inc. et al., 2017 U. S. Dist. Lexis 206717 (S. D. N. Y. December 15, 2017).  In this decision the court (i) denied a motion to dismiss a claim under the Act when the plaintiff provided numerous specific allegations of the defendant employee’s improper activities aimed at disclosure and use. In particular, the plaintiff alleged that the defendant former employee would not return his computer, retained access to plaintiff’s files after his departure, and was one of few persons with access to plaintiff’s confidential information such as customer-specific strategies. Furthermore, defendant Steelite began selling dishes with the plaintiff’s designs, often to plaintiff’s former customers, after the defendant employee left plaintiff’s employ for Steelite.

Not surprising however, many courts address threatened trade secret misappropriation exclusively in the context of a plaintiff’s preliminary injunction motion. In Executive Consulting Group LLC v. Baggot, 2018 WL 1942762 (D. CO. April 25, 2018), the court granted a preliminary junction to prevent trade secret use and disclosure by the plaintiff’s former employee who departed for plaintiff’s competitor.  The court concluded that the plaintiff was likely to establish threatened misappropriation on the merits where evidence showed that (i) the former employee forwarded confidential information to her personal e-mail account (ii) in breach of her employment agreement with the plaintiff. This confidential information included client lists, ongoing projects, and specific strategies for select clients.  The court also found irreparable harm where the full extent of damage to the former employer was impossible to ascertain.

In a factually similar case, the court granted a preliminary injunction where the defendant former employee had signed confidentiality provisions, but nevertheless downloaded plaintiff’s confidential profit and loss statements to his personal e-mail account. This same defendant resigned from plaintiff’s employ and opened his own competing business several days thereafter. Radiant Global Logistics, Inc. v. Furstenau, Jr. et al., 2019 WL 697004 (E. D. Mich. February 20, 2019.) (claims for threatened and actual misappropriation).

A significant win for former employers occurred at the appellate level In Fres-Co Systems USA, Inc. v. Hawkins et. al., 690 Fed. Appx. 72 (3d Cir. 2017). In this case, a former employee defendant appealed from an order granting a preliminary injunction to prevent disclosure and use of his former employer’s client list. The court held that there was irreparable harm from threatened misappropriation, because the employee’s previous and subsequent employment substantially overlapped in the same industry and same geographic area. However, because the record did not comprise information on the remaining preliminary injunction requirements, the appellate court remanded the case for resolving (i) likelihood of succeeding on the merits, (ii) balancing of equities and (iii) public interest.

© 2020 Adrienne B. Naumann. All rights reserved. Ms. Naumann does not sponsor or endorse the advertisements at adriennebnaumann.wordpress.com


Who’s the Pirate Here? Allan v. Cooper

April 2, 2020

In Allan et al. v.  Cooper et al., 589 U.S. ____ (2020), the United States Supreme Court [hereinafter ‘the Court’] held that Congress exceeded its constitutional authority when it enacted the Copyright Remedy Clarification Act [hereinafter ‘CRCA’].  The dispute focused upon the CRCA’s abrogation of sovereign immunity whenever private persons or entities sued a non-consenting state for copyright infringement. The Court unanimously held that there was no such abrogation, because the CRCA was not validly enacted under either Article I or the Fourteenth Amendment of the United States Constitution.

The litigation initially arose when Mr. Allan and the State of North Carolina entered into a venture where Mr. Allan videotaped and photographed the remains of what was originally a ship captured by a pirate named Bluebeard. Mr. Allan thereafter obtained copyright registrations for his videos and photos of the shipwreck. However, without his authorization North Carolina published portions of his registered works online, and despite a settlement agreement North Carolina continued to post and otherwise publish his works. North Carolina contended that it was protected by sovereign immunity from copyright infringement lawsuits by private parties.

However, the district court concluded that there was no sovereign immunity because the CRCA was a valid exercise of Congress’ power to protect property, such as, copyright registered works, under section 5 of the Fourteenth Amendment. The district court also held that the CRCA’s statutory abrogation of sovereign immunity was a proportional and congruent remedy for copyright infringement by a state. However, it also held that Congress had no authority to abrogate sovereign immunity under the intellectual property clause of Article 1.

On interlocutory appeal, the Federal Court of Appeals for the Fourth Circuit [hereinafter the “Fourth Circuit] reversed, because the record was unclear

  • whether Congress relied upon section 5of the Fourteenth Amendment, and
  • in any event the CRCA’s abrogation of sovereign immunity was not a congruent and proportional remedy for the asserted section 5 injury to property.

As a result, the CRCA was invalid and North Carolina was immune from copyright infringement liability.

The Court affirmed the Fourth Circuit, and in so doing it initially addressed sovereign immunity under the intellectual property clause of Article I. The Court stated that it previously resolved the same issue in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 626 (1999). In Florida Prepaid the Court held that Congress could not rely upon Article 1 to enact the Patent Remedy Act which also purported to eliminate sovereign immunity. It also distinguished Central Virginia Community College v. Katz, 546 U.S. 356 (2006) which held that the bankruptcy clause of Article 1 abrogated sovereign immunity. However, the Court distinguished this previous holding based upon the unique history of the bankruptcy clause.

The Court also relied upon Florida Prepaid to conclude that CRCA was unconstitutional under section 5 of the Fourteenth Amendment. As in Florida Prepaid, there was a sparse record of any pattern of intentional infringing conduct by states for works of private parties. Because of this sparse record, the remedy of completely eliminating sovereign immunity was not properly tailored to a limited abrogation which impinged upon the states in a less drastic and sweeping manner.

© 2020 Adrienne B. Naumann. Ms. Naumann does not endorse or sponsor the advertisements at adriennebnaumann.wordpress.com.


Inevitable Disclosure under the Federal Defend Trade Secrets Act

March 31, 2020

The Defend Trade Secrets Act is almost four years old, and not surprisingly there are now numerous several informative decisions which intersect with employment. The Act explicitly recognizes threatened misappropriation, although some decisions have relied upon state law to interpret this claim. While the Act does not explicitly recognize a claim for inevitable disclosure by a defendant, several courts have concluded that the Act implicitly recognizes inevitable disclosure as a variety of threatened misappropriation. Consequently, the inevitable disclosure doctrine has surfaced under the federal Act where state law recognizes inevitable disclosure, and two such states are Illinois and Minnesota.

In Illinois a court dismissed a claim under the Act with leave to amend where the plaintiff alleged that the defendant former employee would inevitably disclose trade secrets to his new employer. However, the court held that similar employment with a competitor dos not establish that the employee would inevitably disclose the trade secrets. Instead, this former employee could simply refrain from (i) contacting the plaintiff’s customers, and (ii) using plaintiff’s proprietary designs. Industrial Packing Supplies, Inc. v. Channell et al., 2018 WL 2560993 (N. D. Ill. June 4, 2018).

More recently in Illinois, a court granted an employee’s dismissal of his former employer’s misappropriation claim, where the employee lawfully possessed the alleged trade secrets. The court also denied that former employer’s motion for a preliminary injunction to prevent disclosure and use of these trade secrets. In doing so, the court held that mere solicitation of the plaintiff’s customers is not evidence of wrongful use or disclosure. The same was true even if the customers did in fact leave plaintiff and ‘joined forces’ with the defendant former employee. Packaging Corporation of American v. Croner, 2020 U.S.  Dist. Lexis 1845 (N.D. Ill. January 3, 2020).

In Minnesota, two competitors were each in the business of administering prescription drug plans.  When a high ranking executive left plaintiff’s employ for the competitor, the plaintiff moved for a preliminary junction to prevent disclosure and use of its trade secrets. The court initially stated that the degree of competition, similarity of employment, and the new employer’s efforts to prevent disclosure and use were the proper criteria for establishing inevitable disclosure. The court then concluded that there was no inevitable disclosure in this instance and denied a preliminary injunction because

  • there was no evidence that the employee had improperly taken trade secrets; and
  • the subsequent employer affirmatively phased in new projects to that the former employer’s trade secrets would not be used or disclosed.

Prime Therapeutics LLC v. Beatty et al., 354 F. Supp. 3d 957 (D. Minn. 2018).

However, the reader should be aware of a decision under the Act and state law in a Texas federal district court. In this case the plaintiff moved for a temporary restraining order to prevent disclosure and use of its trade secrets by a former employer. The court held that under Texas law if an employee possessing trade secrets obtains employment with a competitor, then there is threatened misappropriation if the employee is in a position to use these trade secrets. The court then granted the temporary restraining order, because irreparable injury is presumed from the threatened misappropriation. TFC Partners, Inc. v. Stratton Amenities, LLC et al., 2019 369152 (S. D. Texas January 30, 2019.)

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