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Recent Business Law Decisions From the Mass State Courts

Noncompete Agreements. Plaintiffs seeking to enforce noncompete agreements by means of preliminary injunctions have been up against it as of late. In Payson’s Trucking v. Yeskevicz (pdf file) Judge Peter Agnes denied the plaintiff’s motion, which was brought against a contracting party (as opposed to an employee), on the grounds (among others) that the agreement was too vague as to its geographic reach and in the identification of the plaintiff’s actual customers.

In Merchant Business Solutions v. Arst (pdf file) Judge Richard Connon denied a preliminary injunction against a former sales employee on the grounds that the geographical limits were too broad and that the plaintiff was seeking protection from ordinary competition (among other reasons). Both cases are worth reviewing, since the impression one takes away is that the pendulum has swung (yet again) in the direction away from enforcement of these agreements. A plaintiff simply needs better facts than the parties had here in order to obtain a preliminary injunction to enforce a noncompete agreement.

Derivative Shareholder Suits. When it turns out a company has made an operational mistake it can expect two lawsuits. The ubiquitous and much publicized class action and the less well-known derivative shareholder suit. The latter seeks damages on behalf of the corporation from the officers and directors who allegedly were involved in the wrongdoing. Often the two suits are coordinated by plaintiffs’ counsel,hoping that a squeeze play will bring the corporation to the settlement table that much sooner.

The standard response to the derivative suit is for the corporation to appoint a special litigation committee (SLC) to investigate the claims and recommend whether the suit should go forward or not. Without going into too much detail, this recommendation and the corporation’s decision implicate the so-called “business judgment rule” (read more about this rule here). Not surprisingly, the SLC typically recommends against bringing any claims against the officers/directors, and the plaintiff then accuses the SLC of bias in favor of the officers and board members. Therefore, it is of paramount importance that the SLC not only be independent, but that it not demonstrate any signs of bias in favor of the individuals whom it is investigating.

These issues are highlighted in Massachusetts Superior Court Judge John Agostini’s recent decision in Blake v. Friendly Ice Cream Corp. Judge Agostini held that the recommendation of the SLC appointed by the Friendly’s Board did not act independently, and ordered that the derivative case go forward. This case is an unusually extensive analysis of the law relating to special litigation committees and derivitive suits. For a discussion of some of the interesting and unusual facts underlying the case that do not appear in the decision, click here.

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Freeze-Out of Minority Shareholders. Majority shareholders in a close corporation cannot “freeze- out” a minority shareholder, that much is clear. The Supreme Judicial Court established the close corporation/fiduciary duty doctrine in 1975 in the case of Donahue v. Rodd Electrotype Co. Exactly what constitute a freeze-out is less clear than some might hope. However, the doctrine seems not yet to have reached its outermost limits.

In Brodie v. Jordan, the Appeals Court held that the majority had engaged in a freeze-out of the widow of a minority shareholder when the majority denied her a corporate office, rejected her request for financial and operating information, and stonewalled her efforts to obtain an appraisal of her stock. Of greatest interest in this case is the remedy the court provided to Mrs. Brodie: the Appeals Court affirmed the trial judge’s order that the majority purchase her shares at a price based upon an appraisal value provided by a court-appointed expert. As a dissenting judge noted, this is the first time an appellate court in Massachusetts has ordered such a remedy, thereby venturing, as the dissenting judge noted, “onto uncharted waters.”

Just another boring August afternoon in the Internet Age

First, Google wants to digitize every book ever written.

Now, YouTube wants to make available, for free, every music video ever created:

YouTube, which sprung out of nowhere a year ago to now claim over 100 millions views a day, is negotiating for rights to post current and archive music videos on its site, and said any commercial model it decides on will offer the videos free.

“What we really want to do is in six to 12 months, maybe 18 months, to have every music video ever created up on YouTube,” co-founder Steve Chen told Reuters. “We’re trying to bring in as much of this content as we can on to the site.” (continued)

Right. When will Westlaw or Lexis step up and make every law case ever decided available for free? Now that would be worth getting excited about.

Of iPods, Lock-Ins and the DMCA

As an ambivalent owner of an Apple iPod I’ve given a lot of thought to the fact that songs I download from Apple’s iTunes will not play on a portable device other than an Apple iPod. If I want to play my iTunes music collection on another manufacturer’s MP3 player, today or five years from now, I’ll be unable to play the tunes downloaded from iTunes. The Digital Millennium Copyright Act prevents competitors from reverse engineering the protection Apple embeds in these files, and therefore Apple has, in effect, a government enabled lock-in.

The only legal way around this restriction requires users to burn the iTunes songs to a CD and then import (rip) them back into iTunes as MP3 files. This eliminates Apple’s digital rights management (DRM) and “frees” these tunes, but what a hassle and disincentive to buy music from iTunes. Do I do this? Yes. Do I like it? Ah …. (If you’d like to gain a better understanding of how iTunes DRM works and how to avoid it, click here.)

Cory Doctorow has written a scathing editorial in Information Week discussing the policy and legal issues involved in Apple’s DRM program. A few choice quotes from the article:

Reverse engineering is a common practice in most industries. You can reverse-engineer a blender and make your own blades, you can reverse-engineer a car and make your own muffler, and you can reverse-engineer a document and make a compatible reader. . . . But [because of the Digital Millennium Copyright Act] the iTunes/iPod product line is off-limits to this kind of reverse-engineering.

Apple’s competition-proof music makes switching away from its product expensive for Apple’s customers. The world of consumer electronics changes quickly and you’d have to be a fool to believe that no one will ever make a superior portable music player to the iPod.

Steve Jobs really doesn’t care how many CPUs you play an iTune on, or whether you burn a playlist seven or 10 times. He wants you to get locked into iPods, . . .

Read the full article here before you download another tune from iTunes. You may conclude that you still have no choice, but at least you’ll have a better understanding of your predicament.

An Update on Google Book Search

University of California joins in.

The University of California is joining Google’s book-scanning project, throwing the weight of another 100 academic libraries behind an ambitious venture that’s under legal attack for alleged copyright infringement.

Link here for full story. For an earlier and in depth discussion of this issue click here.

"Fantasy Baseball" Decision

[Update:] Matt Mattari sent me a link to his article on this topic, which was published in the Harvard Journal of Law & Technology before the publication of the decision. Click here to read the article (pdf file).
Here is a link (pdf file) to the federal district court decision in the C.B.C. Distribution and Marketing Inc. v. Major League Baseball Advanced Media and Major League Baseball Players’ Association case, issued on August 8, 2006.

Quoting from the decision:

The court finds that the undisputed facts establish that the players do not have a right of publicity in their names and playing records as used in CBC’s fantasy games and that CBC has not violated the players’ claimed right of publicity. The court further finds, alternatively, that even if the players have a claimed right of publicity, the First Amendment takes precedence over such a right. The court further finds that the undisputed facts establish that the names and playing records of Major League baseball players as used in CBC’s fantasy games are not copyrightable and, therefore, federal copyright law does not preempt the players’ claimed right of publicity. Additionally, the court finds that the no-challenge provision of the 2002 Agreement between CBC and the Players’ Association and the provision of this Agreement which prohibits CBC from using players’ names and playing records after the expiration of the Agreement are unenforceable based on public policy considerations. The court finds, therefore, that declaratory judgment should issue in CBC’s favor. As such, the court will order the Players’ Association and Advanced Media to refrain from interfering with CBC’s fantasy games in the manner proscribed by this court’s decision.

The case contains a very extensive and thoughtful analysis of the issues, particularly the right of publicity and copyright issues. An appeal appears likely.