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Copyright Infringement Trial? Fagettabout It!

Copyright Infringement Trial? Fagettabout It!

Not long ago the Computer Lawyer published an article that made the case on how rare copyright trials have become.  The article had an appendix listing cases that had been dismissed in favor of the defendant either on the pleadings or summary judgment. The bottom line was that judges are inclined to look at the works at issue in a copyright case early on, make a decision on similarity or dissimilarity, and end the case long before it has the chance to get to a jury.

Two cases decided by the Massachusetts federal district court thus far this year show that, for better or worse, this trend in alive and well in Massachusetts.  In McGee v. Andre Benjamin Massachusetts U.S. District Court Judge David Woodlock found that Cartoon Network’s Class of 3000 television series did not infringe an animated serial work titled The Music Factory of the 90’s.  The Music Factory had been pitched to The Cartoon Network in long-form outline describing the plot and style.  Judge Woodlock compared the works at issue and found that the plaintiff failed to establish sufficient similarities to proceed with a copyright claim.  No jury, no trial – case dismissed.

In Greenspan v. Random House the plaintiff claimed the book, The Accidental Billionaires: The Founding of Facebook: A Tale of Sex, Money, Genius, and Betrayalinfringed the copyright in his book, Authoritas: One Student’s Harvard Admissions and the Founding of the Facebook Era.  U.S. Magistrate Robert Collings found that there was evidence of access and of “probative similarity” (probative similarity being the first part of the two-part test for copyright infringement), but that Greenspan could not prove The Accidental Billionaires was “substantially similar” to Authoritas.  No jury, no trial – case dismissed.

You were expecting an actal copyright infringement trial?  Fagettabout it!

 

Hair Color Formulas and Salon Client Contact Info Not a Trade Secret, Says Superior Court Judge

Hair Color Formulas and Salon Client Contact Info Not a Trade Secret, Says Superior Court Judge

When I think of trade secret cases I tend to think of “high end” stuff: secret manufacturing processes, software algorithms, chemical or biological secrets, maybe even the formulas for Coca Cola or Kentucky Fried Chicken.  The truth, however, is more mundane, as shown by a case decided by Judge Nicholson in Barnstable County. In this case, which was dismissed in favor of the defendant hair stylist on summary judgment, the court held that a hair salon’s hair color formulas and customer contact information were not trade secrets.   This was an easy case, since the stylist knew many of her clients socially outside the salon and there was no employment or secrecy agreement other than an employee handbook, which is a weak basis on which to make a trade secret claim. After all, how many employees read handbooks? The judge also ruled that the hair color formulas belonged to the stylist who had developed them for the salon’s clients, not the salon, since there was no agreement to assign the formulas to the salon.  I find this latter rationale suspect, since “inventions” created within scope of employment and while on the job typically belong to the employer.  However, I question whether the color formulas qualify as trade secrets in the first place.  Case closed.

Esalon, Inc. v. Isolde Hoffman

 

 

Copyright and Innovation: Hanging on to the Past

Copyright and Innovation: Hanging on to the Past

“The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.”

Hunter S. Thompson

_________________

As the battle between online music companies and copyright owners has raged in the courts during the last decade many of us have wondered what was going on behind the scenes.  How did the record companies and publishers assess the threat of digital music to their industry?  Why did they react as they did? What effect did their decisions have on innovation and investment in online music companies?

Professor Michael Carrier, Professor of Law at Rutgers School of Law in Camden, has tried to answer some of these questions by conducting  interviews with a range of influential people in the music industry — people who witnessed these events and decisions as they unfolded.  He presents his results in a cutting edge law review article published on SSRN in early July: Copyright and Innovation: The Untold Story.  This paper, which is forthcoming in the Wisconsin Law Review, is an inside look at these issues, through the eyes of 31 “CEOs, company founders, and vice-presidents from technology companies, the recording industry, and venture capital firms.”  Of course, we can’t know the extent to which the opinions expressed by these individuals reflect reality. The battle between the labels and digital music companies is far from concluded, and it’s possible that these individuals were grinding their own particular axes, even in the semi-anonymous context user by Professor Carrier.* However, it has the ring of truth, and I discount it very little, if at all. Hunter Thompson must be nodding agreement from the grave.

*The interviewees are identified in the study, but specific quotes are not attributed to specific individuals. 

After providing some background information on the seminal 2000/2001 Napster case, and more recent legal issues associated with online copyright law, Professor Carrier presents the results of his interviews with record labels executives, artists and venture capitalists.  At the heart of his paper is the question of how the record industry confronted their own version of the “Innovators Dilemma” –  the “dilemma” that an industry faces when it is confronted by an alternative technology (the so-called “disruptive technology”) that is less expensive and threatens to replace the status quo. Resist, adapt or some of each?  These are the choices the record industry — no stranger to change throughout the late 20th century — was faced with by peer-to-peer technologies.  However, this time the change went far deeper than it had in the past. How did they react?

Perhaps not too surprisingly, the answer does not do the labels proud.  According to Professor Carrier the labels were completely blind-sided by digital music downloads, and they reacted defensively.  Prof. Carrier quotes record label officials who described Napster as “terrifying,” and “devastating.” A “sudden shock to the system” that the labels “were not prepared for.” Although the record industry waged a massive, all-out legal war against Napster and services such a Kazaa, LimeWire, Morpheus and BitTorrent, as well as suing thousands of individuals, they have been unable to put the genie back in the bottle. By failing to strike a licensing deal with Napster in 1999/2000 the record industry forced file sharing to go underground, where it grew tremendously and eventually overwhelmed the labels.

Not surprisingly, the decision-makers within the record labe are portrayed unfavorably.  These record company “tech gurus” turned out to be “old-school marketing people that had just come up through the ranks as enforcers.”  They behaved as “irrational actors.”

Prof. Carrier paints a graphic picture of the extent to which the record labels were caught flat-footed. The labels didn’t view consumers as their customers, but rather viewed retailers, such as Walmart and Tower Records, as their customers.  According to Prof. Carrier, one label spent $1 billion on trucks to distribute their CDs.  The major labels were different because “they had trucks.”  “No one else could put a CD in every record store in the country on the day of release.”

The labels were also confounded by the maze of copyright rights they were forced to deal with. The layers of copyright ownership are notoriously complex, and the labels had difficulties getting “all the stars to line up.”  In many cases the labels themselves didn’t know “who owns what,” since older contracts were “vague or unclear.”  In other instances, where the labels could identify the rights holders, they couldn’t find them.

Corporate inertia and self-interest played a major role in the labels’ reaction to digital downloads. Record labels often are part of large conglomerates, and the sheer size of the companies made it hard to adapt. Record company officials were always “discovering the Internet anew,” and “having to start from scratch.” Some in the recording industry viewed digital downloads as a “passing fancy” that they could survive by burying their heads in the sand. “Bonus inertia” discouraged the adoption of new business models: “incumbent senior executives whose bonuses are at risk and who have bosses to report to” are not “willing to take the career risk of being wrong.” In what appears to be the ubiquitous “I’ll be retired before the sh*t hits the fan” attitude, the industry suffered from “ignorant people just hanging on” who concluded they would be retired before the technology threatened their market positions and jobs.

Of course, the lawyers that work for the lables come in for scathing criticism.  “Most labels are run by lawyers,” quotes Prof. Carrier.  These lawyers focused on worst-case scenarios instead of business decisions that might exploit opportunities.  The following is a quote from the paper:

Lawyers at the labels historically drove the digital agenda. There was no one there with a truly entrepreneurial spirit. Zero, zilch, zingo, nada. No one there whose entire initiative was not to hang on to the past.

Prof. Carrier’s interviews include venture capital investors, many of whom took a pass on digital downloads after Napster.  He notes the critical role that venture capital has had in funding countless technology companies, listing examples such as Amazon, Apple, Facebook, Google and Microsoft.  However the labels’ litigation strategy created “a wasteland with no music deals getting done.”  “The graveyard of music companies was just overflowing.”  The Napster decision led to a “lost decade.”  To the extent the record labels were attempting to destroy the necessary “fertilizer” for the new online music industry — VC investment — it largely succeeded.

The ultimate beneficiary of this strategy was Apple’s iTunes service.  Napster cleared the way for iTunes to establish a dominant position, locking the music industry into “the Apple ecosystem.”  Apple launched the iTunes Music store in April 2003, and within seven years there had been 10 billion downloads.  Illegal downloads from Napster seeded the success of Apple’s iPod, and the iPod prepared the market for Apple’s legal iTunes store.

There is much more in Professor Carrier’s law review article than I have been able to discuss in this brief summary. It tells a familiar and sad story. Examples of the “innovator’s dilemma” surround us today.  It is obvious in computing (where it seems to be a constant), life sciences, the automotive industry and environmental sciences. Perhaps it is not an overstatement to say that, in this era of rapid technological and scientific advances, it is present in every industry. Human nature being what it is, the “status quo” often will fight a new paradigm, rather than adapt to it. The future is cloudy, and often that strategy will pay off. For the record industry, at least so far, it hasn’t.

Copyright and Innovation: The Untold Story

Procedural Errors During Trial Cause Trade Dress Defendant to Forfeit Rights on Appeal

I’ve written before about waiver.  As I said back in July 2008, the “one thing that scares the bejesus out of trial lawyers is waiver.”  Waiver is a constant risk in litigation, but nowhere is it more of a risk than during trial.  Failure to object to improper jury instructions, or failure to follow the proper procedure required for judgment as a matter of law (“JMOL” in lawyer parlance) can constitute a forfeiture, and preclude the right to raise the omitted issue on appeal.

To make matters worse, these potential waivers come when the fog of war is at its worst: after days or weeks of sleep-deprived trial stress the lawyers have to file a written motion for JMOL just before the jury is handed the case. A lawyer may know that the failure to do this will forfeit the right to raise the missed issue on appeal, but at that point the lawyer is frantically preparing for closing argument and dealing with the countless issues that come up at the end of trial, and the motion may be forgotten or not thoroughly prepared.  However, filing the correct pre-verdict motion is not the end of the matter. FRCP 50 requires that the motion be renewed within 28 days after the court enters judgment.  However, a post-judgment JMOL motion cannot raise an issue that was not presented in the prejudgment motion.

Belk v. Meyer Corp., decided by the 4th Circuit in May, is a classic example of JMOL forfeiture. The case involved a claim of trade dress infringement of high end cookware.  Following a jury trial the plaintiff obtained a judgment for over $1.2 million.  On appeal to the 4th Circuit the defendant attempted to raise a potpourri of errors committed by the trial judge, but the 4th Circuit held that most of them had been forfeited based on the defendant’s failure to file a timely post-judgment JMOL motion.  In its lengthy opinion the 4th Circuit provides a detailed tutorial on  what lawyers must do under FRCP 50 to avoid forfeiting rights on appeal.  However, it’s too late for the losing party in this case.

Belk v. Meyer Corp

Inevitable Disclosure Doctrine Fails Again in Massachusetts

Can an employer prevent a former employee from working for a competitor in the absence of a non-compete agreement and with no evidence the employee has violated the former employer’s trade secret or confidentiality rights?  You would think not, but a couple of cases — infamous in the annals of non-compete law  — have imposed a non-compete in these circumstances.  The case cited most frequently on this issue is PepsiCo v. Redmond, a 1995 case in which the 7th Circuit affirmed a preliminary injunction ordering the former employee of PepsiCo to cease working for a competitor for six months, despite the fact that the employee did not have a non-compete agreement.  Another high profile case prohibiting an employee from working for a competitor, even in the absence of a non-compete agreement, is Bimbo Bakeries USA, Inc. v. Botticella, decided by the 3rd Circuit in 2010. In these cases the employee does have non-disclosure/trade secret agreements.  The employer’s argument, based on these, is that the employee will  “inevitably” disclose the former employer’s trade secrets or confidential information in the course of working for a competitor.

However, cases where the courts have accepted this theory without evidence of actual misappropriation are almost as rare as hens teeth, and Massachusetts U.S. District Court Judge Denise Casper recognized this when she denied the former employer a preliminary injunction in U.S. Electrical Services v. Schmidt in June of this year.

Inevitably, plaintiffs in these cases argue that a preliminary injunction is essential to prevent the former employee from disclosing trade secrets.  After all, the employee, who presumably knows the former employer’s inner-most secrets, is now working for a competitor.  How can the employee be expected to resist?  And, if the secrets were disclosed, how would the former employer prove that?  Too risky, the former employer argues.

However, that argument usually fails, as it should when a non-compete agreement is absent.

Judge Casper said as much: “none of the authorities cited by [plaintiff] stand for the proposition that allegedly inevitable future misuse of trade secrets is by itself sufficient to establish a violation of either common law or statutory obligations regarding trade secrets.”  The law does “not show that a party may rely solely on inevitable future conduct, rather than conduct that has actually occurred, to establish a likelihood of success on the merits of a trade secrets appropriation claim or a breach of confidentiality claim, as [plaintiff] seeks to do here.”

In other words, a plaintiff must have proof that trade secrets have been  disclosed, not that they might be disclosed in the future.

Despite the strong policy against imposing an injunction based on an “implied covenant not to compete,” and the poor track record held by plaintiffs in these cases, employers keep on trying.  It appears that intermittent reinforcement — the rare but occasional win by a plaintiff based on this theory — is enough to keep the hope of such judicial relief alive in the face of bad odds.  After all, a plaintiff may think, why not try, I may get lucky!

By the way, it’s my opinion that the plaintiff made a mistake filing this case in federal court, where the judges have less experience with this area of law and generally are more protective of employee job security.  It’s not always the case that a non-compete case (or, in this case a quasi non-compete case) will have a better chance of success in Massachusetts state court, but I believe the odds favor it.

U.S. Electrical Services v. Schmidt