by Lee Gesmer | Jan 12, 2008 | Antitrust, Courts, Patents
When I was a new lawyer, working at Howrey in Washington, D.C, the firm ‘s client, Litton Industries, was sanctioned in the amount of $10 million for discovery misconduct – the failure to produce relevant documents during discovery. But for the sanction, Litton would have been entitled to an award of its costs and attorneys fees in the litigation, which it had won. I suspect, however, that Litton (and Howrey) took this with good graces – Litton had been awarded $277 million in damages. See Litton Systems, Inc. v. AT&T, 91 F.R.D. 574 (S.D. N.Y 1981), aff’d, 700 F.2d 785 (2nd Cir. 1983).
Ironically, the documents in question (which were produced very late but before trial) were ruled inadmissible at trial, and therefore the defendant suffered no prejudice as a result of the late production.
Even though I was not involved in this case while at Howrey, this painful episode for the firm and the lawyers directly involved left a lasting memory upon my young and impressionable mind, and I recalled it as I read about the pickle in which a group of California lawyers have found themselves in the patent case Qualcomm v. Broadcom.
In the Qualcomm case a key issue was whether Qualcomm, which accused Broadcom of patent infringement, had participated in the Joint Video Team (“JVT”), a standards-setting body. Broadcom aggresively sought discovery from Qualcomm on its involvement in JVT, under the theory that had Qualcomm participated in this process, it would have been barred from suing companies which used the Qualcomm technology that was adopted as part of the standard.
Qualcomm denied participation throughout discovery, but Broadcom had a few documents which gave it reason to believe that Qualcomm had participated in JVT. However, while preparing one of their witnesses during trial Qualcomm’s attorneys searched the witnesses’ laptop computer for the first time, and discovered 21 emails that contradicted Qualcomm’s position in the case, but which had not been produced. Even then the Qualcomm lawyers tried to avoid producing these documents (questioning this witness in such a way that she would not disclose their existence), and only on cross-examination of the witness by Broadcom did the truth begin to emerge. To make a long story short, Qualcomm’s case disintegrated during trial, and after trial (which Qualcomm lost), Qualcomm performed a search of its employee’s email archives, only to discover that there were more than 46,000 documents, totalling over 300,000 pages, that Qualcomm had failed to produce.
One can only imagine the feelings of Qualcomm’s outside counsel as this problem was uncovered and the full extent of the problem emerged. At first they tried to coverup the nondisclosure, and when they finally admitted the true facts the lawyers knew that this problem would be pinned on them as well as on their client. Lawyers are responsible, to some extent, for their client’s failure to provide discovery, and the ball and chain fell heavily on Qualcomm’s outside counsel. In fact, the judge found that Qualcomm had intentionally withheld the documents, that this could not have occurred without assistance or deliberate ignorance by its outside attorneys, and that significant sanctions were appropriate. The outside lawyers were hamstrung in their ability to defend their actions, since Qualcomm would not waive the attorney-client privilege.
The judge ordered Qualcomm to pay more than $8.5 million to Broadcom, which amount represented Broadcom’s attorney’s fees and expenses. He also referred several of the Qualcomm lawyers to the California State Bar, for possible sanctions for ethical violations.
What does this case say to lawyers representing clients in the future? In today’s business environment every comany has electronic evidence. In the “old days” a lawyer had only to search her clients’ file cabinets and warehouses to find relevant evidence. In fact, in the Litton/AT&T case discussed above, the hidden evidence was sitting in the desk drawer of an AT&T employee during the entire case. Now, an outside lawyer knows that failing to properly review a client’s electronic files can result not only in financial sanctions against the client, but in serious sanctions against the lawyer as well. This case emphasizes the reality that lawyers must carefully oversee their clients’ electronic discovery, that they cannot rely exclusively on their clients’ assurances, and that they must be alert to any inconsistencies or hints that full production of evidence may not be taking place.
by Lee Gesmer | Jan 10, 2008 | Readings and Novelties
Xconomy has created a Google Map showing the location of each company they have covered in their first six months as a web magazine (125 so far, and counting). The pins are color-coded to indicate software, hardware, energy, life sciences, finance, media and nonprofit. Clicking on a pin on the large map embedded in the article (scroll to the bottom of the article) gives you the address of the company and the Xconomy stories about that company. Very cool ….
by Lee Gesmer | Dec 19, 2007 | Antitrust
We’re always warning our standards setting clients that U.S. antitrust laws are about more than just money – you can go to jail. After a while, it feels like these warnings lose their force. This recent press release from DOJ is a reminder that a violation of the antitrust laws is both a criminal and a civil violation:
An independent consultant and two executives of Dunlop Oil & Marine Ltd., a manufacturer of marine hose located in Grimsby, United Kingdom, pleaded guilty today and have agreed to serve record-setting prison sentences for participating in a conspiracy to rig bids, fix prices, and allocate market shares of marine hose sold in the United States, . . .
. . . Under the terms of their plea agreements, Whittle has agreed to serve 30 months in jail, Allison has agreed to serve 24 months in jail and Brammar has agreed to serve 20 months in jail. These are the longest prison sentences that foreign national defendants charged with antitrust offenses have agreed to serve in the Division’s history.
‘Nuff said. This is serious stuff. You have to wonder if these guys knew that they were playing with fire until it was too late.
by Lee Gesmer | Dec 18, 2007 | Miscellaneous
The First Circuit has published a complex decision involving copyright preemption of a state law claim for an accounting of profits between co-authors of a copyrighted work. The case, Cambridge Literary Properties, Ltd. v.W. GoebelPorzellanfabrik G.m.b.H & Co. KG (1st Cir. Dec. 13, 2007), has a tortured procedural history. In fact, the First Circuit issued an earlier decision in the case as far back as 2002.
The case is quite complex, and involves the chain of copyright ownership in the famous Hummel figurines designed in Germany in 1931 The fundamental holding is that the federal Copyright statute bars a state law action for an accounting of profits between co-owners (co-owners of a copyright work are have a duty to account to each other for profits) because the condition precedent for that claim — co-authorship status — is premised on copyright law, which has a three year statute of limitations. Here the co-ownership claim was barred by this statute of limitations.
First Circuit Judge Conrad K, Cyr, who recently assumed senior status on the First Circuit, wrote a strong dissent, calling the majority’s decision “unprecedented and potentially pernicious,” and arguing that the majority improperly interposed federal law to frustrate what was properly a state law issue.
This case addresses some very thorny issues involving the intersection of federal copyright law and state law claims, and will bear close scrutiny by litigants whose cases raise issues of federal preemption or state-federal jurisdiction.
by Lee Gesmer | Dec 13, 2007 | Minority Shareholder/Fiduciary Duty
Further to my post below, commenting on whether the enforceability of noncompete agreements in Massachusetts has been a major factor in Silicon Valley’s relatively greater success in attracting high tech start-ups, a review of recent Massachusetts noncompete cases shows how difficult it has become to enforce these agreements in Massachusetts. Judges appear to be leaning over backwards to deny preliminary injunction motions (which is where the real action lies in these cases). Here is a quick summary of several recent state court cases.
In Bank of America v. Verille, decided by Superior Court Judge Thomas A Connors in Norfolk County in August, the Court denied BoA a preliminary injunction to enforce a non-soliciation agreement (a close relative of noncompete agreements), on the grounds that the customers that followed the former employee to his new job signed affidavits to the effect that they were not solicited by him. To put this in context, many years ago I saw a Superior Court judge state from the bench that the line between “soliciting” a customer and the customer “following” an employee is so fine that she would presume that a customer had been solicited, even in the face of affidavits from the customer stating it had not been solicited. I doubt that this judge would draw the same inference today.
In addition, in the Verille case the judge questions whether the “goodwill” (that is, the “relationship”) with these customers belongs to BoA or to the former employee, a defense to noncompetes that has definitely gained tranction in Massachusetts in recent years, after being viewed as having dubious credibility many times in the past, except in instances where the employee had pre-existing relationships with the customers (not the case here).
In Edwards v. Athena Capital, decided by Judge D. Lloyd MacDonald in Suffolk Superior Court in August, Edwards brought suit to enjoin the enforcement of his noncompete agreement with Athena, his former employer. In other words, rather than wait for Athena to sue him, he forced the issue by bringing suit first. Judge MacDonald ruled in favor of Edwards, holding that the noncompete was overbroad (it overstated the areas in which the former employee could not compete, and was of unlimited duration). In the past, the Massachusetts courts have been willing to “redline” agreements of this sort to make them acceptable (for example, rewrite the time period), but here the Court ruled against Athena based, in large part, on Edwards’ overbreadth argument.
In Boston Software Systems v. Doherty, decided by Judge Gants in the Business Litigation Session in April 2007, the Court refused to impose a preliminary injunction upon a former employee of Boston Software that had entered into a noncompete agreement. Judge Gants questioned whether the “good will” at issue belonged to the employee or the former employer (the employee had returned to her pre-Boston Software employer after being terminated by Boston Software). He also found that Boston Software would likely be able to prove any damages at trial, and therefore was unable to prove the irreparable harm necessary for a preliminary injunction. The defendant “stole the thunder” of Boston Software by representing to the Court that she would not deal with any of Boston Software’s former customers during the one year noncompete period, would work outside Boston Software’s market area during that year, and would not utilize any of Boston Software’s confidential information. The Court accepted these representations, and included them in its Order.
Going back a little farther, to October 2006, Judge Allen Van Gestel, in the Suffolk County Business Litigation Session, denied the employer a preliminary injunction against its former salesperson/employee in Tyler Technologies, Inc. v. Reidy. In that case the noncompete agreement misidentified Reidy, the former employee, as a consultant, when in fact he was an employee. This error (admittedly somewhat bizarre), doomed the effort to obtain an injunction for reasons explained in the decision. Tyler’s argument that it was clear from the context and the relationship that the parties intended Reidy to be bound by the agreement, whether it referred to him as a “consultant” or an “employee” held no water. Judge Van Gestel defended his ruling by stating that “in reading the agreement so strictly the Court may seem to be overreaching,” but this was the former employer’s agreement, “for which it is wholly responsible.”
In Advanced Cable Ties v. Hewes, decided by Judge Jeffrey A. Locke, sitting in Worcester County in October 2006, the employer sought to enforce a noncompete agreement against its former employee, Hewes, relying on Hewes’ knowledge of the former employer’s trade secrets to justify enforcement. The judge could find no flaw in the agreement itself (it was reasonable in geographic scope and duration), and found that Hewes had been given access to proprietary manufacturing information. However, pointing to extenuating circumstances (Hewes’ new employer competed with only 10% of the former employers’ product line, and Hewes had changed jobs in order to work near a sick and elderly parent), the judge refused to bar Hewes from the competing employment. Instead, he issued an order that Hewes not work on the competing product line for the duration of the one year noncompete period.
It seems clear that, although there is no statute in Massachusetts prohibiting the enforcement of noncompete agreements (as there is in California), Massachusetts Superior Court judges have gotten the message: these agreements are to be enforced only where the contract is clear and enforceable, and where the equities demand it. Maybe someone whispered in their ears – exercise some discretion in these cases, or the legislature may ensure that you have no discretion at all.
