Give a Man Cupcake Sushi, and He’ll Have Dessert for a Day; Teach a Man to Make Cupcake Sushi, and He’ll Rip You Off

Lori Shubert and her company Cupcake Sushi, LLC filed an interesting lawsuit against Santiago and his associates doing business as Sushi Sweets, for patent infringement, trademark infringement, misappropriation of trade secrets, common law trademark infringement, federal and state unfair competition, and trade dress infringement. Shubert claims to have invented a unique confectionery dessert cake: cupcake sushi. Shubert has apparently built a thriving business in Key West Florida.  According to the complaint, Santiago, a former licensee and employee of Cupcake Sushi, absconded with product, equipment and Cupcake Sushi’s trade secrets.

Shubert clearly had an interesting and appealing idea, and while she took some steps to protect it, she probably should have formed a more comprehensive plan at the outset.  As she pleads in her lawsuit she applied for a utility patent (14/487364), she allowed the application to abandon.  She also applied for and obtained a design patent (D789,025) but filed the application several years after she claims to have developed her product.  Even if this patent validly protects a later design, she left her earlier designs exposed. While she did register her CUPCAKE SUSHI name and logo (Reg. Nos. 4471750 and 4770652), she might have also tried to protect her products names and appearances.

Resources are always tight in start-ups, and it is easy to second guess the allocation (or lack thereof) to lawyers, as entrepreneurs always seem to have other fish to fry. Shubert probably could have done more and done it sooner.  Shubert did take a number of appropriate steps to protect herself, and if those rights have been violated, then hopefully she will be able to enforce them and this won’t represent the fish that got away.  However, a more comprehensive approach might have made enforcement like shooting fish in a barrel:

Shubert may have learned another important lesson about protecting confidential information.  A confidentiality agreement does not make a dishonest person honest. The most important steps in protecting confidential information is limiting disclosures to people who can be trusted.

Shubert may have to also have to face the fact that no matter how comprehensive your intellectual property protection, there will always be some way for other to compete.  Good luck to Ms. Shubert, but if things don’t work out, there are always other fish in the sea.

An Implied Contract Can Turn You “Inside Out” — Remember the Non-Confidential Disclosure Agreement

Denise Daniels has sued the Walt Disney Company in the Central District of California for breach of an implied-in-fact contract to compensate her for using her ideas in the movie Inside Out.  Daniels alleges that she relied on the custom in the entertainment industry “to provide ideas and materials to produces and studios in exchange for compensation and credit if such ideas or materials are later used.” She further alleges that “Disney-Pixar accepted the disclosure of the ideas in The Moodsters with an expectation that it would have to compensate Daniels if Disney-Pixar used this idea in any television, motion picture, merchandise, or otherwise.”

This case is a reminder that receiving information from a third party is risky business.  Even where there is no violation of any traditional intellectual property right such as a patent, copyright, trademark or trade secret, one can still find oneself in a lawsuit alleging an implied-in-fact contract to pay for the “idea.”

While an implied-in-fact contract — a contract where none really existed —  is well recognized legal doctrine, this case appears to present a new doctrine — implied-in-fact consideration.  While most cases enforcing rights in ideas require that the idea be both concrete and confidential, many of the aspects of Daniels’ idea appear to have been publicly available.   Her company, Moodsters Company, obtained a copyright registration (PA0001394057) on a pilot The Moodsters: Amoodsment Park Mixup, claiming a date of first publication of June 1, 2007.  There have been Moodsters websites, and Daniels and her company have of and on been trying to register various Moodsters trademarks for more than a decade.

If the Moodsters are as publicly available as it appears, what did Daniels bring to Disney-Pixar that wasn’t already available to anyone?  Is it possible that Disney-Pixar is in a worse position for talking to Daniels, than someone who just referenced her public domain materials.  The answer is clearly yes.  Not because Daniels is certain to win, but rather because even if Disney-Pixar is in the right, they now have to defend themselves.

Daniels reminds us that even in the absence of a confidentiality agreement, there is a risk receiving information from a third party.  Rather than expose oneself to the vagaries of an after-the-fact contract, you may be better served with an explicit contract spelling out your obligations (or lack of obligations) to the disclosing party.

Imagining the Perfect Confidentiality Agreement

The perfect confidentiality agreements is, in most cases, overkill and in any event probably never would be signed. Hundreds, if not thousands of CDAs, NDAs, and other secrecy agreements are signed every day, and the vast majority perform adequately for their purpose.  Rather than chase perfection, the parties should focus on avoiding mistakes.

From the Perspective of the Disclosing Party

Prevent disclosure and use.  The disclosing party should make sure that the agreement not only prevents disclosure but also use of the confidential information.

Define protected information. The definition of protected information should include anything that the disclosure is likely to disclose.  The disclosing party should resist requirements that could result in accidental forfeiture, such as requirements that the information be marked confidential or that oral disclosures must be confirmed in writing.

Define the time.  The duration of the receiving party’s obligations should be clearly defined, as should the period of time during which the disclosing party can disclose information under the agreement.

Have an enforcement plan.  If the party to the agreement discloses or uses the information, there is a breach of contract action.  However, if a rogue employee or contractor, who is not a party to the agreement, discloses or uses the information, what is the plan?  The agreement can provide a right of enforcement, or require the receiving party to enforce the agreement on the disclosing party’s behalf.

Unnecessary obligations.  While it is easier to get a reasonable agreement when the provisions are mutual, a disclosing party should not accept confidentiality obligations to the receiving party if it does not need to.

Disclosing Party Options.  Ownership. The disclosing party may want to control ownership of inventions inspired by the disclosed invention.  Non-filing.  The disclosing party may want to restrict the receiving party from filing patent applications on subject matter inspired by the disclosure.  No Export.  The disclosing party may want to prevent export of the information.  Choice of law.  The disclosing party may want to select law that will protect the disclosed information.  Choice of forum.  The disclosing party may want to select a forum that is convenient and reliable, No warranties.  The disclosing party may want to disclaim any warranties about the disclosed information.  No obligation.  The disclosing party may want to disclaim an obligation to deal further with the disclosing party.

From the Perspective of the Receiving Party

Define protected information.  The receiving party needs to precisely define the information that is subject to the confidentiality obligations,

Exceptions.  The receiving party should define exceptions to its obligations for information that is already in the public domain; information that the receiving party already had in its possession, and information that subsequently comes into its possession other than from a breach of duty to the disclosing party.

Define the time. The receiving party needs to know how long to maintain confidentiality, and how long the disclosing party can make disclosures that the receiving party has to protect.

Receiving Party Options.  Confidentiality. The receiving party may want some protection for its own information that it might exchange with the disclosing party.  No obligation.  The receiving party  may want to disclaim an obligation to deal further with the disclosing party.  Choice of Law.  The receiving party may want to know the law that applies to the construction and enforcement of the agreement.   Choice of forum.  The receiving party may want to limit where it can be sued to enforce the agreement.

Checklist for a Confidentiality Agreement

  1. Parties properly identified
  2. Definition of protected information
  3. Obligation not to disclose protected information
  4. Obligation not to use protect information
  5. Duration of obligation to protect protected information
  6. Duration of agreement (period of disclosures by disclosing party)
  7. Indemnity by receiving party for breaches by those to whom it discloses the protected information
  8. Representations by receiving party
    1. Ability to enter into agreement
    2. Agreements with third parties to ensure performance
  9.  Ownership of developments based upon disclosed information.
  10. Promise not to file filing patent applications on subject matter inspired by the disclosure.
  11. No Export of the disclosed information.
  12. Choice of law that applies to the agreement.
  13. Choice of forum where agreement can be enforced.
  14. Disclaimer of warranties regarding the disclosed information.
  15. Disclaimer of obligation to deal further with the other party.
  16. Boilerplate
    1. Assignability
    2. Severability
    3. Effectiveness of copies
    4. Integration
    5. Authority of Signatories

 

 

Promise to Arbitrate Claims “Arising Under” is Narrower than Promise to Arbitrate Claims “Relating to” Agreement

In Evans v. Building Materials Corporation of American, [2016-2427](June 5, 2017), the Federal Circuit affirmed the denial of a motion to dismiss a complaint for patent infringement and trade dress infringement.

Evans U.S. Design Patent No. D575,509 on a three-dimensional roofing model designed to be used by a seller of roofing products during a sales pitch.  He entered into an agreement with GAF under which GAF agreed to promote the product to GAF’s network of certified contractors, Evans agreed to sell the product at discounted prices to the GAF contractors and to pay GAF a percentage of sales.  The Agreement contained an arbitration clause for “any dispute or disagreement [that] arises under this Agreement.”

Evans sued alleging that after termination of the agreement, GAF made and sold infringing roofing models.  GAF moved to dismiss or stay pending arbitration, invoking the arbitration clause.  The district court found that 2009 agreement has expired, and thus did not apply, and alternatively, that the present dispute did not “arise under” the terminated 2009 agreement.

The Federal Circuit found GAF’s contention “wholly groundless.” The Federal Circuit said that the arbitration clause only reaches claims arising under the 2009 agreement. GAF conceded that under controlling Fourth Circuit precedent the focus is “whether the claims at issue have a direct nexus to the contractual obligations, and more specifically, whether the claims are ‘related to the interpretation and performance of the contract itself.’” The Federal Circuit noted that the “arising under” language was narrower than “relating to” — under which a claim may be arbitrable if it has a “significant relationship” to the contract, regardless of whether it arises under the contract itself.

What Would the Perfect Employee Agreement Look Like?

Lawyer’s strive for perfection in their , but time constraints, budgets, and other factors work against us.  Also, perfection is not always the same thing in every circumstance.  It is interesting, however, to contemplate, what perfection might look like

1. Confidentiality

One of the primary purposes of an employee agreement is to protect the confidential information of the employer, as well as the employers suppliers and customers.  The agreement should obligate the employee to protect all confidential information that the employee reasonable knows the employer regards as confidential, regardless of whether the information is marked confidential.

2. Non-Compete

While in some jurisdictions it may be possible to get an injunction against an former employee from competing with the former employer where it is inevitable that the former employee will disclose or use the former employer’s trade secrets, generally the only way to stop a former employee from competing is with a specific covenant not to compete.  Even with such a covenant, the protection is usually limited to instances where the departing employee had access to trade secrets or had contacts with customers.

While current employees cannot complete with their employer, they are generally permitted to prepare to compete.  However such preparation is something that an employer might be able to restrict by contract, for example requiring an employee refrain from making preparations to compete with the employer while still employed, or preventing an employee from working with current or former employees in preparing to compete with the employer while still employed.  The employer should also consider requiring employees to report any breach of the non-compete provisions, so that it gets timely notice of problems.

To facilitate enforcement of a covenant not to compete, the employer might require the employee to keep the employer advised of subsequent employers.  The employer should further obtain a consent of the employee to contact subsequent employers to advise them about their new employees obligations to the former employer.  Otherwise, the employer could face a claim of tortious interference from the former employee.

3.  Non-Solicitation

It’s bad enough when an employer loses a critical employee, but losing a group of employees can be devastating.  This can be addressed in part with carefully crafted covenant not to compete.  However, an employee can agree not to solicit his/her co-workers to work for a competitor,

4.  Assignment of Inventions

Aside from confidentiality, the critical function of employee agreements is to transfer employee inventions to the employer,  The agreement should require the employee to promptly disclose new inventions to the employer.  The agreement should also include a promise to assign inventions, as well as a present assignment of inventions. Employers should be careful, however, because some states restrict the inventions that an employer can require an employee inventor to assign.

The employer should include a specific consent by the employee to file a patent application on any invention made by the employee during the term of employment. The employer should also consider an agreement not to contest any patents that are obtained.  While the courts generally won’t entertain such attacks because of assignor estoppel, but the Patent Office will allow inventors to attack the patent through inter partes review.

To protect against the situation where an inventor is unwilling or unable to execute a subsequent assignment document, the employer might include a power of attorney, so that an officer can execute assignment document on behalf of the employee.

Particularly where an employee has a history of inventing, the employer should consider requiring new employees to identify previously made inventions that the new employee may claim do not belong to the inventor.

While copyrightable works prepared by employees in the scope of their employment are works-made-for-hire that belong to the employer, works prepared by employees outside the scope of their employment — even if they relate to the employer’s business — belong to the employee.  An employee agreement can of course change this result, and the employer should ensure that it obtains ownership or at least the right to use all of the works of its employees that relate to the business.

5.  Access to Computers

The Computer Fraud and Abuse Act (can corresponding state laws) provides some protection from disloyal employee’s misuse of the employer’s computer systems and data.  However, this protection hinges on whether or not the employee’s access to the computer system and data was authorized.  Since most employees are on some level authorized users. it is important for an employer to define what access is authorized, and what access is not.

6. Return of Employer Property and Confidential Information

The Employer should specifically require the return of any employer property and information by a specific date.  The failure of a departing employee to do so is surprisingly common, and gives the employer legal leverage over the departing employee.

7.  Publicity and Social Media Restrictions

Employee names and likenesses are often incorporated into the employer’s marketing, and the employer would prefer not to have to rework these materials every time an employee departs.  Thus, an employer should obtain the express consent of employees to use their names and likenesses in promoting the employer, and this consent should survive the termination of the employee’s employment.

For employees that are active on social media, the employer should consider imposing some restrictions on employee conduct on social media.  The employer might require that employees not associate the employer with their personal posts.  The employer might also require that the employee not comment about the employer, or at least comment negatively about the employer.

Occasionally, whether by design or by accident, an employee who is active on social medial becomes the official or unofficial voice of the employer.  The employer needs to consider what happens to the employer’s social medial presence when this employee leaves.  Does the employer get to take over the account? Does the employer have the user name and password?

Checklist

  1. Recitation of Consideration
  2. No impact on Status of Employment at Will
  3.  Confidentiality
    1. Protects Company information and that of customers and suppliers from disclosure or use.
    2. Regardless of whether marked “confidential.”
    3. Prevents export of information (if appropriate).
    4. Promise not to disclose confidential information of previous employers and other third parties
  4. Covenant to Not-to-Compete
    1. Appropriately limited in geographic scope or time.
    2. Protects confidential information and/or customer contacts.
    3. Includes preparations to compete while employed.
    4.  Competition/Competitors clearly defined.
    5. Guaranteed period of non-competition.
    6. Obligation to advise employer of subsequent employment
    7. Consent for employer to contact subsequent employers
  5. Non-Solicitation
    1. Appropriately limited to key personnel
    2. Appropriately limited as to duration
  6. Assignment of Inventions
    1. Appropriate definition of invention (consistent with state law).
    2. Requirement of prompt disclosure (of all inventions including those not subject to obligation to assign).
    3. Automatic, immediate assignment of inventions when made, as well as a promise to assign inventions.
    4. Power of attorney to execute confirmatory assignment on behalf of employee.
    5. Authorization to file patent applications on assigned inventions
    6. Identification of prior inventions not subject to assignment,
    7. Treatment of inventions made in period after termination of employment.
    8. Assignment of copyrightable works.
    9. Agreement to execute further documents to secure and enforce rights in assigned inventions
    10. Promise not to challenge validity of patents on assigned inventions
  7. Access to computers and data
    1. Access limited to activities that solely benefit employer and no other purpose.
    2. Acknowledgement that accessing computer system or data for any purpose other than for the benefit of the company is unauthorized.
    3. Acknowledgment of and consent to monitoring of computer usage, email, and company resources.
  8. Return of Employer Property
    1. Obligation to return all employer property
    2. Obligation to return/delete all employer data from personal computers and other electronic devices
    3. Obligation to turn over or destroy all physical and electronic files containing information belonging to employer
  9. Publicity and Social Media
    1. Consent to use name and image in advertising and promotion, even after the employee leaves.
    2. Restrictions on references to employer on social media, including in usernames or scree images on any social media.
    3. Requirement to turn over login information for any social media accounts officially or unofficially associated with employer.
  10. Representations from Employee
    1. Free to accept employment
    2. Not under any covenant not to compete (or identification of existing covenants)
    3. Not under any confidentiality agreement (or identification of existing agreements)
  11. “Boiler Plate” Provisions
    1. Choice of law.
    2. Choice of forum.
    3. Non waiver.
    4. Modifications must be in writing.
    5. Duplicates and Facsimiles of Agreement are effective.
    6. Integration.

 

 

 

 

 

The Right to Seclusion of Personal Facts vs. Public Opinon

Unhappy with the valuation determination by Zillow’s Zestimates a builder and related parties have initiated a class action suit against Zillow Inc. and Zillow Group, for class action complaint for (a) violation of the Illinois Real Estate Appraiser’s Licensing Act, (b) the tort of invasion of seclusion; (c) violation of the Uniform Deceptive Trade Business Practices Act and (d) for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.

The plaintiffs don’t like Zillow sharing its opion on the value of their properties, and want the courts to stop Zillow from sharing that opinion. Plaintiffs allege that Zillow is somehow invading their “seclusion,” but of course planitiffs don’t have to look at the Zestimates.

Zillow is not publishing private facts about plaintiffs, but rather Zillow’s opinion, based upon public information.  Does anyone have the right to stop another from forming an opinion, or expressing that opinion?  In the 1-5 star, thumbs up/thumbs down, swipe left/swipe right world in which we live, opinions are constantly being formed and expressed,  a person is entitled to secure in personal facts from prying eyes, but a Zestimate is not a personal fact of the property owner, it is a third party opinion the property owner does not own or control.

Plaintiff sets forth is claim as follows:

29.  Notwithstanding the above standards and laws, Zillow nevertheless unilaterally and willfully opted to disregard Plaintiffs’ and the Class’ right to seclusion by publicly disseminating appraisal/financial opinions relative to real property for the general public for review.

30. Here, at all times relevant, Illinois has recognized the tort of invasion of seclusion. Specifically, Illinois prohibits “[o]ne who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another or his private affairs or concerns, is subject to liability to the other for invasion of his privacy, if the intrusion would be highly offensive to a reasonable person.” Restatement (Second) of Torts § 652B (1977). Moreover, comment b to section 652B of the Restatement provides, in pertinent part: “b. The invasion may be * * * by some other form of investigation or examination into his private concerns, as by opening his private and personal mail, searching his safe or his wallet, examining his private bank account, or compelling him by a forged court order to permit an inspection of his personal documents. The intrusion itself makes the defendant subject to liability, even though there is no publication or other use of any kind of the * * * information outlined.” Restatement (Second) of Torts § 652B cmt. b, at 378–79 (1977).

31.  Zillow violated the Plaintiffs’ and the Class’ right to seclusion by: (a) intentionally gathering financial information relative to their real estate asset’s value without the express and advance consent of Plaintiffs and the Class; (b) by intentionally compiling that information so as to create a computer valuation tool (i.e. the “Zestimate”) in an effort to provide appraisal valuations relative to Plaintiffs’ and the Class’ property without the express and advance consent of Plaintiffs and the Class; (c) by intentionally and publicly disseminating the financial/appraisal information generated by the “Zestimate” tool relative to Plaintiffs’ and the Class’ real property on the internet for third parties to see without giving Plaintiffs and the Class the right to advance notice; and (d) by refusing to allow Plaintiffs and the Class the right to opt out of the public dissemination of the listing of their property and/or their financial/appraisal conclusions relative to same.

32. Because Zillow has improperly invaded the seclusion of Plaintiffs and the Class and shows no sign of ceasing their conduct, injunctive relief is necessary and proper.

33. Moreover, Zillow’s improper invasion of seclusion also creates an actual damages claim by Plaintiffs and the Class. For example, the improper “Zestimate” tool and its invasion on the seclusion of Plaintiffs’ and the Class’ appraisal/financial information has proximately caused the following injury: (a) a low “Zestimate” driving away potential buyers; (b) a low “Zestimate” causing buyers to harass sellers with the admittedly incorrect information that not be published; (c) a low “Zestimate” adding unnecessary expense relative to the sales process, including but not limited to paying bills/mortgages/taxes relative to the real property due to the increased time taken to sell the property; (d) in some cases, a low “Zestimate” forcing many sellers to hire brokers because of the confusion created by Zillow (therein adding additional and otherwise unnecessary expense to the sale of the property); and (e) in some cases, a low “Zestimate” causing property owners to withdraw their selling for sale altogether due to their inability to sell the property.

34. Further, upon information and belief, Zillow has publicly admitted that the “Zestimate” tool is flawed and confusing. Likewise, upon information and belief, Zillow has never taken the position that its valuation techniques have any similarity and/or foundation to the nationally recognized USPAP quality valuation standards.

35. Indeed, upon information and belief, Zillow has bragged that the confusion created via their admittedly flawed “Zestimate” tool creates marketing opportunities for “premier agents” of Zillow, i.e. real estate brokers who pay Zillow for seller leads. Specifically, Spencer Rascoof (the CEO of Zillow Group) has publically bragged on Twitter that the “Questions about the Zestimate are an opportunity [for real estate brokers who pay Zillow for seller leads] to get the appointment.”  A copy of the “tweet” is attached hereto as Exhibit 7 and is incorporated herein by reference.  In other words, Zillow has affirmatively and publicly embraced the fact that the confusing and inaccurate “Zestimate” tool is nothing more than an improper marketing ploy for Zillow’s premier agents to use in further invading the Plaintiffs’ and the Class’ right to seclusion.

36. Upon information and belief, Zillow does not allow any mechanism for Plaintiffs and/or the Class to cure and/or demand removal of their listing and/or the “Zestimate”. Rather, Plaintiffs and the Class are directed to go on a “wild goose chase” by sending e-mails to an unresponsive and unqualified employee wherein the “Zestimate” rarely (if ever) is removed and/or cured by Zillow.  Upon information and belief, Zillow’s refusal to resolve the confusion created by the “Zestimate” is purposeful in that Zillow has come to realize that their refusal to cure the “Zestimate” problem that they created will pressure the Plaintiffs and the Class to retain one of Zillow’s “premier” real estate brokers to resolve valuation issues and help them market the property.

37. For example, Zillow has publicly admitted that their “premier” real estate broker should therein use the flawed “Zestimate” as a way to establish a client/broker relationship with the confused Plaintiffs and Class: “anytime that someone [a property owner]… contacts you [the real broker relative to the “Zestimate”]….you have a live person on the other end of the phone that is interested in real estate….that’s not just a lead, that’s a smoking hot lead…and that’s where explaining how the “Zestimate” is calculated and what its strength and weaknesses are helps prove that value add [by you the real estate broker] to your client [the property owner]. I’ve had people come up to me at conferences basically saying ‘Please don’t make this “Zestimate” any more accurate.  I love it– because its an angle—it’s a way to start and establish a conversation, build that trust…’ all of those kinda fundamental steps you need to make and take when you first have a contact that you’re hopefully ultimately convert into a client.”  (Source YouTube: “Zillow Myth: The Zestimate Makes My Job Difficult”:    https://www.youtube.com/watch?list=PLuETP0dUuSkddPEb5uMh_uwvchL5P4do6&params=OAFIAVgX&v=kaNxLGB0ePE&mode=NORMAL&app=desktop) In sum, Zillow has publicly and effectively admitted that the “Zestimate” is a deceptive marketing ploy that Zillow’s real estate brokers can use to secure sell-side brokerage contracts with residential real property owners.

38. In other words, Zillow has publicly admitted that not only was their invasion upon Plaintiffs’ and the Class’ seclusion intentional, but that their “Zestimate” tool should be used to prey upon the Plaintiffs and the Class so as to force them to retain real estate brokers. As such, Plaintiffs and the Class request punitive damages in addition to the above forms of relief.

 

Lawsuit Attempts to Finish the Job that the Iceberg Started

Stephen Cummings has sued James Cameron for turning his life story into the hit movie Titanic.  Mr. Cummings claims that Leonardo DiCaprio’s character Jack Dawson “is based solely/wholly/only” on his life.  Cummings claims violation of Right of Publicity, Unjust Enrichment, Copyright Infringement; and Trespass to Chattels/Conversion, and seeks $300,000,000 and a 1% royalty in perpetuity for each of three counts.

According to Mr. Cummings: “EVERYTHING, which went into to film, ORIGINATED with only myself, including the vessel, -via only my own remarks, and about the vessel/incident of its sinking).”  While conceding that Cameron did photograph the vessel, but that these were mere tools “to tell only MY OWN, story.”

While it seems doubtful that Cummings will be able to sink this Titanic, it is important for creators to document their creative process to be able to establish their independent creation, because it seems as if every time there is a successful product or movie, there is someone claiming he or she thought of it first.

One Year of the Defend Trade Secrets Act

May 16, 2017 marked the first anniversary of the Defend Trade Secret Act.  What has the year taught us about this new federal cause of action for trade secret misappropriation? Here are the top 13 lessons from the first year of DTSA litigation:

#1 The threat is from within.  Like the scary story punch line – the call is from inside the house.  Most of the DTSA cases in the first year have involved former employees.

#2 The tools of espionage are mundane.  No need for James Bond’s Q here, the implements of trade secret misappropriation are as simple as emailing[1] the secrets to a personal email account,[2] loading up a flash drive, using drop box,[3] logging on the company systems,[4] or keeping a company lap top.[5]

#3.  The DTSA applies to continuing use of a Trade Secret taken before the Effective date.    The most frequently litigated DTSA issue in the first year is the application of the DTSA to trade secrets taken before the May 16, 2016, effective date.  Although this will diminish in importance with time, the cases hold that the DTSA covers the continued use after the May 16, 2016, effective date, of trade secrets obtained before the effective date.[6]  The DTSA does not apply to misappropriations only occurring prior to enactment,[7] and the courts will dismiss a Complaint under the DTSA unless and until the plaintiff can allege an act after the effective date.[8] Conversely the courts will allow amendment to add a DTSA claim where plaintiff can allege post effective date use.[9]

#4 The Courts are willing to grant preliminary injunctions based upon the DTSA.[10]  The Courts apply the traditional four-factor test for the grant of a preliminary injunction.  In evaluating the balance of hardships the fact that the injunction does not require more than compliance with federal and state law weights in favor of a preliminary injunction.[11]

#5.  The DTSA seizure provisions are not the exclusive ex parte remedy.[12]  The DTSA provided for ex parte seizure, which can be a helpful tool in investigating and combatting trade secret misappropriation.  However, the rules are complex, if not onerous.  In appropriate cases, it may still be faster and easier, and just as effective, to go old school and seek a TRO under trade secret.

#6  The Trade Secret Owner (obviously)doesn’t have to disclose its trade secrets in its Complaint to protect those trade secrets.[13]  Nor is there any heighted level of pleading required for a DTSA complaint.[14]

#7.  You shouldn’t count on the DTSA to stop your former employees from competing with you – that’s what non-compete agreements are for.[15]  In the absence of a non-compete provision, courts will restrict an individual’s employment only where the individual has stolen its former employer’s trade secrets and there is a high probability that the individual will “inevitably disclose” this information to its new employer.[16]

#8.  Choice of Law Can be More Important Than Ever.  According to 18 U.S.C. § 1836(b)(3)(A)(i)(II), the remedies available under the DTSA may depend on state law, in the words of one district court, forcing the court into the “choice of law bramble.”[17]

#9.  Defendants may attempt to hide behind the “whistle blower” provisions.[18]  Plaintiffs who live in glass houses should not throw stones.  Trade secret owners, like all prospective plaintiffs, should consider potential adverse consequences of bringing suit.  Is there something that the potential defendant could tattle about?

#10.  The DTSA is not significantly different from state law including the Uniform Trade Secrets Act.[19]  The DTSA was patterned on the UTSA, and while there are some differences, the similarities outweigh the differences.[20]  The courts may look to the UTSA in interpreting the DTSA.[21]  Although one court noted that although the UTSA is effective in 48 states, those laws “vary in a number of ways and contain built-in limitations that make them not wholly effective in a national and global economy.”[22]

#11.  Restrictions of injunctions against employees may not apply to contactors.[23]  Under the DTSA, the Court cannot grant an injunction that “prevent[s] a person from entering into an employment relationship,” and the Court can only place conditions on employment “based on evidence of threatened misappropriation and not merely on the information the person knows.” 18 U.S.C. § 1836(b)(3)(A)(i)(I).  There is no indication that “employment relationship” encompasses the role of an outside contractor.

#12.  The balance of hardships favors the trade secret owner where the injunction would merely require defendant to comply with federal and state law.[24]

#13.  The DTSA won’t help those who don’t help themselves.  Like the UTSA, the DTSA requires that the trade secret owner take some responsibility for securing the alleged trade secret.[25]

[1] Protection Technologies, Inc. v. Ribler, 3:17–cv–00144–LRH–WGC 2017 WL 923912 (D. Nevada. March 08, 2017); Henry Schein, Inc. v. Cook, 16-cv-03166-JST 2016 WL 3418537 (N.D. California. June 22, 2016).

[2] Chubb Ina Holdings Inc. v. Chang,  16-2354-BRM-DEA 2017 WL 499682  (D. New Jersey February 07, 2017);  Free Country Ltd, v. Drennen, 16 CV 8746 (JSR) 2016 WL 7635516 (S.D. N.Y. December 30, 2016);

[3] Free Country Ltd, v. Drennen, 16 CV 8746 (JSR) 2016 WL 7635516 (S.D. N.Y. December 30, 2016).

[4] Henry Schein, Inc. v. Cook, 16-cv-03166-JST 2016 WL 3418537 (N.D. California. June 22, 2016).

[5] Henry Schein, Inc. v. Cook, 16-cv-03166-JST 2016 WL 3418537(N.D. California. June 22, 2016).

[6] Allstate Ins. Co. v. Rote, 16–cv–1432, 2016 WL 4191015, at *1–5 (D. Or. Aug. 7, 2016) (granting preliminary injunction in DTSA case where the defendant left her job before the DTSA was enacted but remained in possession of alleged trade secrets after the DTSA’s enactment); Syntel Sterling Best Shores Mauritius Ltd. v. Trizetto Grp., Inc., 15–cv–211, 2016 WL 5338550, at *6 (S.D.N.Y. Sept. 23, 2016)(finding viable a continuing misappropriation claim that began pre-enactment because the DTSA defines misappropriation as the “disclosure or use of a trade secret” and the complaint alleged that the defendants “continue[d] to use” the trade secrets after the DTSA was enacted) (emphasis in original); Brand Energy & Infrastructure Services, Inc. v. Irex Contracting Group, 16-2499 2017 WL 1105648 (E.D. Pa. March 24, 2017) (denying motion to dismiss as to continuing misappropriation that started prior to effective date); High 5 Games, LLC v. Marks, 13-7161 (JMV) 2017 WL 349375 (D.N.J. January 24, 2017)(granting motion to amend to add DTSA claim).

[7] Champions League, Inc. v. Woodard, 2016 WL 8193292 S.D. New York. December 15, 2016 (Denying leave to amend complaint to add DTSA claim because it would be futile because the DTSA applies only to acts of misappropriation that occur on or after the May 11, 2016, date of the enactment of the Act); Avago Technologies U.S. Inc. v. Nanoprecision Products, Inc., 16-cv-03737-JCS 2017 WL 412524   (N.D. California. January 31, 2017)(granting motion to dismiss where all of the actionable conduct alleged in the Counterclaim occurred before the DTSA came into effect)..

[8] Dazzle Software II, LLC v. Kinney, 16-cv-12191 2016 WL 6248906 (E.D. Michigan August 22, 2016), (Dismissing DTSA Count with leave to amend upon discovery of conduct following effective date of the act). Hydrogen Master Rights, Ltd. v. Weston, 16–474–RGA 2017 WL 78582 (D.Del. January 9, 2017)(DTSA Claims dismissed without prejudice because (1) the complaint fails to allege any nexus between interstate or foreign commerce; and (2) because he DTSA, by its own terms, applies only to an act of misappropriation that occur on or after the date of the enactment, and the Complaint only contains a conclusory allegation of continuing use and disclosure.); M.C. Dean, Inc. v. City of Miami Beach, Florida, 199 F.Supp.3d 1349 2016 WL 4179807  (S.D. Florida. August 08, 2016)(granting motion to dismiss for failure to state a claim); Cave Consulting Group, Inc. v. Truven Health Analytics Inc., 5-cv-02177-SI 2017 WL 1436044  (N.D. California. April 24, 2017) (Dismissed although agreeing post enactment use would be sufficient); Chubb INA Holdings Inc. v. Chang, 16-2354-BRM-DEA 2016 WL 6841075 (D. New Jersey. November 21, 2016)(granting motion to file amended complaint alleging violation of DTSA.).

[9] VIA Technologies, Inc. v. ASUS Computer International, 4-cv-03586-BLF 2017 WL 491172  N.D. California, San Jose Division. February 07, 2017(Granting Leave to Amend Complaint to add DTSA claim after discover showed post enactment use.).

[10] First Western Capital Management Company v. Malamed, 6–cv–1961–WJM–MJW 2016 WL 8358549 (D. Colorado. September 30, 2016)

This leads the court into the “choice-of-law bramble,”

[11] Dish Network L.L.C. v. Ramirez, No. 15–CV–04712–BLF, 2016 WL 3092184, at *7 (N.D.Cal. June 2, 2016) (balance of hardships tips in favor of plaintiff seeking injunction when it would “do no more than require Defendant to comply with federal and state…laws”).

[12] Magnesita Refractories Company v. Mishra, 2:16-CV-524-PPS-JEM 2017 WL 365619  (N.D. Indiana, January 25, 2017); OOO Brunswick Rail Management v. Sultanov, 5:17-cv-00017-EJD 2017 WL 67119  (N.D. California, San Jose Division. January 06, 2017); Protection Technologies, Inc. v. Ribler, 3:17–cv–00144–LRH–WGC 2017 WL 923912 (D. Nevada. March 08, 2017).

[13] Mission Measurement Corporation v. Blackbaud, Inc.,  16 C 6003 2016 WL 6277496 (N.D. Illinois, October 27, 2016)(Denying motion to dismiss DTSA claim, noting trade secrets need not be disclosed in detail in a complaint alleging misappropriation for the simple reason that such a requirement would result in public disclosure of the purported trade secrets.).

[14] Chubb Ina Holdings Inc. v. Chang,  16-2354-BRM-DEA 2017 WL 499682  (D. New Jersey February 07, 2017)(Denying motion to dismiss DTSA for failure to state claim because complaint included sufficient “factual allegations to raise a right to relief above the speculative level” that Defendants did, in fact, use Plaintiffs’ trade secrets, and noting “there is no heightened pleading standard for a misappropriation claim.”).

[15] Free Country Ltd, v. Drennen, 16 CV 8746 (JSR) 2016 WL 7635516 (S.D. N.Y. December 30, 2016) (Granting in part plaintiff’s motion for a renewed TRO by prohibiting defendants from using or disseminating plaintiff’s confidential information, but denying plaintiff’s request that defendants be prohibited from soliciting its customers, noting New York law recognizes a specific means for plaintiff to protect information under such circumstances: a non-competition provision.).

[16] Free Country Ltd, v. Drennen, 16 CV 8746 (JSR) 2016 WL 7635516 (S.D. N.Y. December 30, 2016).

[17] First Western Capital Management Company v. Malamed, 6–cv–1961–WJM–MJW 2016 WL 8358549 (D. Colorado. September 30, 2016),

[18] Unum Group v. Loftus, 4:16–CV–40154–TSH  2016 WL 7115967 (D. Massachusetts. December 6, 2016)( Denying motion to dismiss, granting preliminary injunction despite argument that defendant’s actions were exempted under § 1836(b) of the DTSA, which provides immunity under any federal and state trade secret laws to individuals who disclose trade secrets in confidence to an attorney, “solely for the purpose of reporting or investigating a suspected violation of law.).

[19] VIA Technologies, Inc. v. ASUS Computer International, 4-cv-03586-BLF 2017 WL 491172  N.D. California, San Jose Division. February 07, 2017(Finding differences between DTSA and uniform trade secret act did not justify denying motion to add DTSA claim to trade secret suit).

[20] Kuryakyn Holdings, LLC v. Ciro, LLC 15-cv-703-jdp 2017 WL 1026025  (W.D. Wisconsin. March 15, 2017)(“The DTSA gives rise to a federal cause of action, but the parties agree that substantively the UTSA and DTSA are “essentially the same,”).

[21] Kuryakyn Holdings, LLC v. Ciro, LLC, 15-cv-703-jdp 2017 WL 1026025 (W.D. Wisconsin. March 15, 2017); Earthbound Corp. v. MiTek USA, Inc., 16-cv-1150, 2016 WL 4418013, at *10 (W.D. Wash. Aug. 19, 2016).

[22]  Adams Arms, LLC v. Unified Weapon Sys., Inc., 16–cv–1503, 2016 WL 5391394, at *5–7 (M.D. Fla. Sept. 27, 2016).

[23] Engility Corporation v. Daniels, 16–cv–2473–WJM–MEH 2016 WL 7034976 (D. Colorado. December 02, 2016).

[24] Dish Network L.L.C. v. Ramirez, No. 15–CV–04712–BLF, 2016 WL 3092184, at *7 (N.D.Cal. June 2, 2016) (balance of hardships tips in favor of plaintiff seeking injunction when it would “do no more than require Defendant to comply with federal and state…laws”).

[25] Raben Tire Co., LLC v. McFarland, 5:16-CV-00141-TBR 2017 WL 741569 (W.D. Kentucky, Paducah Division. February 24, 2017)(Noting that Raben Tire Co.’s complaint is entirely devoid of any allegations of how it protected the information in question from dissemination.).

Copyright is a Joke

There is an interesting case pending in the Southern District of California that answers the question: Are jokes copyrightable?  Robert Kaseberg for has sued Conan O’Brien for infringing his copyright in some jokes that he wrote and posted on his blog prior to Conan’s telling of very similar jokes.  Conan moved for summary judgment, which was granted as to one joke that was shown to be created before Kaseberg, and as to another joke that was shown to be sufficiently different.  However the court denied summary judgment  as to the other jokes, confirming that jokes are copyrightable, although the court agreed with O’Brien, that jokes are only entitled to “thin” copyright protection.  The Court said that there was “little doubt that the jokes at issue merit copyright protection,” however that protection was constrained by their subject matter and the conventions of the two-line, setup-and-delivery paradigm.  The Court explained:

Each joke begins with a factual sentence and then immediately concludes with another sentence providing humorous commentary on the preceding facts. Facts, of course, are not protected by copyright. Feist, 499 U.S. at 345. And although the punchlines of the jokes are creative, they are nonetheless constrained by the limited number of variations that would (1) be humorous (2) as applied to the specific facts articulated in each joke’s previous sentence and (3) provide mass appeal. This merits only thin protection. The standard for infringement must therefore also be some form of “virtual identity.”

The court found sufficient difference as to one joke, but as to the others, the court concluded there was a triable issue of whether the jokes were sufficiently similar.

You Don’t Have a Right to Use a Photograph Just Because its of You

Xposure Photos (UK) Ltd. sued Khloe Kardashian for posting a Manual Munoz photo of Kardashian to her Instagram account. While the complaint The Photograph is highly creative, distinctive, and valuable, a substantial part of the vault is the subject: defendant.

One would expect that the litigation will be setlled, but it is still a good reminder that you can’t post images merely because you want to.