by Lee Gesmer | Jun 21, 2007 | Miscellaneous
It’s rare for a trade secret case to reach the First Circuit Court of Appeals. In fact, based on a Westlaw search only about five cases dealing with trade secret issues (except in passing) have reached the First Circuit in the last ten years. So, a trade secret decision from a court of that eminence is worth noting.
In Incase Inc. v. Timex Corp., Incase (a packaging design and manufacturing company based in Hopedale, Massachusetts), sued Timex after Timex commissioned Incase to design watch packaging for the secure retail display of Timex watches. After Incase designed the cases Timex bought some cases from Incase, but far fewer than had been discussed. Instead, Timex off-shored most of the manufacturing work to a Philippines company, using Incase’s designs and prototypes. The Philippine product was very similar to the Incase design.
An Incase employee stumbled across Timex watches displayed in the Philippine company’s package in a Target store.Miffed, Incase began a long and arduous litigation against Timex.After a trial in federal court in Boston before Judge F. Dennis Saylor, the jury found in favor of Incase on several claims, of which only the trade secret claim is of interest here. Judge Saylor, however, took the trade secret verdict away from Incase following the trial (yes, judges can do that), holding that Incase did not take reasonable steps to preserve the secrecy of their design. To wit, Incase never told Timex the design was confidential and never had Timex sign an NDA.
Clients often ask us to advise them on the tension between showing a confidential idea to a potential investor/customer/distributor who refuses to sign an NDA, and by doing so losing trade secret rights to the idea, or not revealing the idea at all and losing the commercial opportunity. This case shows that the risk of misplaced trust can be significant.
A careful study of this case also shows that seemingly still waters run deep in this area of business practice, and that businesses on either side of the transaction should be guided by competent counsel, lest they get caught in currents similar to those that snared both Incase and Timex.
by Lee Gesmer | Jun 20, 2007 | DMCA/CDA
I’ve written often about Section 230 of the Communications Decency Act (CDA), which protects “interactive computer services” as follows:
No provider or user of an interactive computer service shall be treated as the publisher or speaker or any information provided by another information content provider
And –
No provider or user of an interactive computer service shall be liable on account of —
(A) any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected
Put simply, this law allows web site operators to avoid liability for certain types of publications on their sites by people outside their control, and to police their sites as they wish.The most obvious example is any kind of bulletin or message board that allows comments by members of the public.The site operator is not the “publisher,” and therefore is not liable for tort claims, such as defamation.
The First Circuit Court of Appeals recently applied this law for the first time in this circuit, in the case of Universal Communication Systems, Inc. (UCS) v. Lycos, Inc. Lycos, the owner of the Raging Bull website, allows the public to discuss the fortunes of public companies.
In 2003, various posters (or possibly the same poster, operating under several different screen names) made disparaging and possibly defamatory comments about UCS on the Raging Bull UCS message board page. UCS sued these individuals under their screen names (in other words, as John Does), but also sued Lycos for publishing these comments. In other words, UCS sued the message board.
Lycos asserted the CDA in defense.After the District Court dismissed based on the CDA, the plaintiff appealed to the First Circuit, which published its decision early this year.
To no one’s great surprise, the First Circuit held that Lycos was protected by the CDA. The First Circuit rejected a variety of attempts by UCS to penetrate the protection of the CDA: that Lycos was not an “Internet service provider,” that the postings became Lycos’ “own” speech when it didn’t remove them after being notified of their existence by UCS, that Lycos had “constructed and operated” its web site so as to “contribute to the proliferation of misinformation,” and that Lycos had engaged in trademark dilution (the CDA does not protect bulletin boards from intellectual property claims, particularly trademark, trade secret and patent claims).
Lycos had the wind at its back in this case, but this is still an important precedent in understanding the CDA, and the application of this statute by the First Circuit.
by Lee Gesmer | Jun 19, 2007 | Technology
When I began to practice in the area of technology law area in the early 1980s one of the issues we often brought up with clients was the need to get clear ownership assignment of their technology. We wrote articles about this, spoke on the topic, and generally beat the subject to death in publications and seminars.
It’s surprising (but not too surprising) that seemingly sophisticated businessmen still don’t focus on this.
Two cases we recently settled are illustrative of this issue.
In the first case, a start-up company hired a part-time/consultant level programmer. He ultimately became an “employee,” but the company allegedly failed to fulfill some of the obligations in his employment agreement, and failed to treat him as an employee in all respects, raising an issue as to whether he truly became an “employee” for legal purposes. In any event, even under the best of circumstances, some of the programming he did occurred before he became an “employee.”
After the programmer left the company under unpleasant circumstances, he claimed ownership of the software. Following substantial and expensive litigation our firm was brought into the case and we successfully settled it shortly thereafter (based on the ongoing costs of the litigation and our assessment of the risks to our client). The settlement included a full assignment by the programmer, but it cost the client a great deal of money (for a start-up) in fees, settlement monies, and time away from the client’s core business. The client had a very strong argument that, regardless of the plaintiff’s status as a consultant or an employee, his actions had created an implied, unrestricted perpetual license. However, even if the client had won on this theory (after summary judgment motions and possibly a trial), there still would have been uncertainty over the client’s ability to transfer ownership of the software product, either through a direct sale of the software or a sale of the company. The legal uncertainties associated with this issue were what led to the settlement. The price: $200,000 for settlement alone.
In the second case a well-established client (new to our firm), experienced almost exactly the same situation. Here, the programmer had been “leased” to our client by a small employment agency. After the programmer quit, the agency (not the programmer) claimed ownership or co-ownership of the software developed by their employee. Our client had failed to enter into an agreement with the agency assigning ownership of work performed by agency employees to our client. The price, reached in settlement before suit was filed: $300,000 in settlement monies.
Between these two clients, this was $500,000 in wasted money, not to mention legal fees, costs and time away from their businesses, which adds substantially to this cost.
Remember: If you own a company that develops intellectual property, get a written assignment of ownership from everyone who develops intellectual property for you. The assignment should include copyright, patent and trade secret rights. It’s that easy.
by Lee Gesmer | Jun 6, 2007 | Miscellaneous
A few months ago I wrote a blog entry titled “Jury Trials In Massachusetts – “Not”
Today I received an email/promotion from the ABA promoting some IP books and treatises. The email also contained these statistics. Since they come from the ABA IP Litigation Committee, I give them a high degree of reliability:
Number of IP cases filed in 2002: 7,445
Number resolved by trial verdict: 140
That’s 1.9% of IP cases filed in 2002 resolved by trial verdict. The balance were either decided on summary judgment or settlement. Discouraging for lawyers who like to get into court, to say the least. No one can forsee the future, but it would surprise me if this trend reverses itself in the lifetime of anyone reading this post. Civil trials have become too expensive and too risky to “go the distance”. Society is rapidly coming up with ways to avoid trials in the commercial context: arbitration, mediation, better contracts and agreements to start with, higher sophistication among decision makers, and the realization that litigation is often a losers game for both side.
by Lee Gesmer | Jan 30, 2007 | Copyright
Bill Patry, Senior Copyright Counsel at Google (how’s that for a great job), emailed me and asked me to mention the publication of his new copyright treatise, Patry on Copyright.
I like the fact that Mr. Patry said this about his 5,800-plus page, $1500 treatise: “ The book is also chock full of wikipedia references, anecdotes, riffs on logic, congitive linguistics, etc. It is many books in one.”
Although I haven’t seen this treatise yet, I hope that it is a change from Nimmer on Copyright, which is so densely academic as to often be unusable by practitioners. Somehow, I doubt that we’ll ever see Nimmer referencing Wikipedia.
I would also add that it may be time for the intellectual property fathers of the 20th century, whose treatises have become so calcified and entrenched with the courts that it’s hard for anyone to compete with them, to make some room for the next generation. After all, Melville Nimmer died in 1985, and his treatise is now edited by his son, David Nimmer. Roger Milgrim (Milgrim on Trade Secrets) , Donald Chisum (Chisum on Patents) and Thomas McCarthy (McCarthy on Trademarks) are in their 60s. Bill Patry, by comparison, is only in his mid-50s. And, he has a blog. And, a sense of humor.
For some amusing repartee between Patry and readers of The Volokh Conspiracy, click here.
