Preempt . . . Preempt . . . Preempt

So, you bring claims for Idea Misappropriation; Unfair Competition; Breach of Oral Contract; Breach of Implied Covenant of Good Faith and Fair Dealing; Negligence; Misappropriation of Trade Secrets; Conversion of Trade Secrets; and Promissory Estoppel. All claims are based on the same set of facts. Any problems?

The Uniform Trade Secrets Act was designed, by the Commissioners, to “be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this Act among states enacting it.”  The general purpose has been stated as follows:

[T]o create a uniform business environment [with] more certain standards for protection of commercially valuable information, and to preserve a single tort action under state law for misappropriation of trade secret as defined in the statute and thus to eliminate other tort causes of action founded on allegations of misappropriation of information.

Other tort causes of action are the issue. One Federal Court judge has explained that finding something other than a trade secret and then applying other tort claims would destroy the general purpose of uniformity.

If the UTSA’s preemption provision only preempted claims of misappropriation of information that meets the statutory definition of a “trade secret,” the provisions purpose would be undermined. In every instance where a plaintiff could not meet the statutory requirements of the Uniform Act, the court would be forced to re-analyze the claim under the various common law theories. Such a result would undermine the uniformity and clarity that motivated the creation and passage of the Uniform Act.

Firetrace USA, LLC v. Jesclard, 800 F.Supp.2d 1042, 1048–49 (D.Ariz.2010). So, what does this all mean when I tell you my idea for a wrestling show, and then you do it without me?

 


An Indiana Appellate Court say PREEMPT. The Indiana Court followed a famous Hawaii case and found that the majority of jurisdictions applied the USTA's preemption provision as “abolish[ing] all free-standing alternative causes of action for theft or misuse of confidential, proprietary, or otherwise secret information falling short of trade secret status ( e.g. idea misappropriation, information piracy, theft or commercial information, etc.).” HDNET LLC v. North American Boxing Council2012 WL 3250551, 4 (Ind.App.) (Ind.App.,2012); BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 123 Hawai‘i 314, 235 P.3d 310, 319 (Haw.2010);  Hauck Mfg. v. Astec Indus., 375 F.Supp.2d 649, 655 (E.D.Tenn.2004)).

The UTSA is intended to foster uniformity in the definition of state laws, and a party may not read this design out of the statutory scheme under the guise of “plain language” or any other rule of construction.Posted by dennis l. hall at 4:08 PM No comments:

 

Federal Trade Secret Act Moves Forward

The Senate, this week, passed the Defend Trade Secrets Act (DTSA), sponsored by Senators Orrin Hatch and Chris Coons. This new law would open the federal courts to trade secrets litigation.

The new Trade Secrets bill provides remedies for trade secret misappropriation, including injunctive relief, compensatory damages, punitive damages, and attorneys' fees (in the event of willful or malicious misappropriation). It also allows plaintiffs to seek ex parte government seizure of trade secrets to preserve evidence before notifying the defendant of a lawsuit; but, the new Senate bill now states that this is only permitted in "extraordinary circumstances."

Trade secrets are now protected under state law: 48 states have adopted some form of theUniform Trade Secrets Act, which was published by the Uniform Law Commission in 1979 and amended in 1985.  Only New York and Massachusetts have not adopted the UTSA.

The proposed new federal law allows pre-suit seizure, unlike the uniform act. Its statute of limitations period is now also three years (a former version had five years) and it allows for the recovery of treble exemplary damages versus double under the uniform act.  The new federal law does not contain language preempting other causes of action that arise under the same common nucleus of facts.

Is a federal law needed? Would it encourage or confuse uniformity in trade secrets law? Would it discourage labor mobility? Will it help quell industrial espionage, especially from foreign sources? Can a "trade secret" be defined adequately? These issues present challenges to developing new statutory schemes in trade secrets.

dlh

 

Preempt . . Preempt . . . The Trade Secrets Acts is Strong

So, you bring claims for Idea Misappropriation; Unfair Competition; Breach of Oral Contract; Breach of Implied Covenant of Good Faith and Fair Dealing; Negligence; Misappropriation of Trade Secrets; Conversion of Trade Secrets; and Promissory Estoppel. All claims are based on the same set of facts. Any problems?

The Uniform Trade Secrets Act was designed, by the Commissioners, to “be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this Act among states enacting it.”  The general purpose has been stated as follows:

[T]o create a uniform business environment [with] more certain standards for protection of commercially valuable information, and to preserve a single tort action under state law for misappropriation of trade secret as defined in the statute and thus to eliminate other tort causes of action founded on allegations of misappropriation of information.

Other tort causes of action are the issue. One Federal Court judge has explained that finding something other than a trade secret and then applying other tort claims would destroy the general purpose of uniformity.

If the UTSA’s preemption provision only preempted claims of misappropriation of information that meets the statutory definition of a “trade secret,” the provisions purpose would be undermined. In every instance where a plaintiff could not meet the statutory requirements of the Uniform Act, the court would be forced to re-analyze the claim under the various common law theories. Such a result would undermine the uniformity and clarity that motivated the creation and passage of the Uniform Act.
800 F.Supp.2d 1042, 1048–49 (D.Ariz.2010).Firetrace USA, LLC v. Jesclard, So, what does this all mean when I tell you my idea for a wrestling show, and then you do it without me?

An Indiana Appellate Court say PREEMPT. The Indiana Court followed a famous Hawaii case and found that the majority of jurisdictions applied the USTA's preemption provision as “abolish[ing] all free-standing alternative causes of action for theft or misuse of confidential, proprietary, or otherwise secret information falling short of trade secret status (e.g. idea misappropriation, information piracy, theft or commercial information, etc.).” HDNET LLC v. North American Boxing Council  2012 WL 3250551, 4 (Ind.App.) (Ind.App.,2012);Hauck Mfg. v. Astec Indus., 375 F.Supp.2d 649, 655 (E.D.Tenn.2004)

The UTSA is intended to foster uniformity in the definition of state laws, and a party may not read this design out of the statutory scheme under the guise of “plain language” or any other rule of construction.

First Sale Doctrine: Reseller Wins

We all know John Wiley & Sons Inc.: textbooks. A bright Thai student studying at Cal saw what is taught in every good principles of economics class, that a price discriminator cannot succeed if the person who buys at a lower price can sell to someone who wants the good, but is only being offered, directly, a higher price. The Thai student is named Mr Kirtsaeng, and he sold Wiley textbooks first sold in Thailand in the United States for a substantial profit.

Different prices is the issue.

Wiley, like any good profit maximizer, claimed that Kirtsaeng’s importation and resale of the books was an infringement of the company’s exclusive right to distribute its copyrighted works under §106(3) of the Copyright Act. Wiley also asserted the Copyright Act’s import provision under §602.

The economic issue is simple: should copyright law give the copyright owner the right to price discrimination, which means, of course, more profits. The legal issue is a little more complex. 

The First Sale Doctrine was the obvious response, but the district court prohibited the student from raising the defense, rejecting its applicability to goods manufactured abroad.  The jury found Kirtsaeng liable for willful copyright infringement and awarded Wiley statutory damages of more than half a million dollars.

Luckily, Mr Kirtsaeng appealed. The Supreme Court noted that §602(a)(1) of the Copyright Act makes it clear that importing a copy of a work without permission violates the copyright owner’s exclusive distribution right under §106(3) of the Copyright Act.  But, there is that testy First Sale Doctrine also.

The First Sale Doctrine (17 U.S.C. § 109) provides that an individual who knowingly purchases a copy of a copyrighted work from the copyright holder receives the right to sell, display, or otherwise dispose of that particular copy. So, can one reconcile the First Sale Doctrine with the Import Restriction?

The big problem for the Supreme Court was Quality King Distributors v. L’anza Research International. There, the Supreme Court held that the first sale doctrine limited the scope of §602(a). A foreign distributor who re-imported copyrighted works, made in the US, could assert the first sale doctrine as a defense. The Quality King Court did not rule on whether the first sale doctrine would apply to works manufactured outside of the United States.

Wait. Quality King is about hair products, or, more specifically, their labels. The book case is  the first Supreme Court case about the first sale doctrine. That case involved a claim by a publisher that the resale of its books at discounted prices infringed its copyright on the books. Bobbs-Merrill Co. v. Straus, 210 U. S. 339 (1908). Bobbs-Merrill had inserted a notice in its books that any retail sale at a price under $1 would constitute an infringement of its copyright. The defendants, who owned Macy's department store, disregarded the notice and sold the books at a lower price without Bobbs-Merrill's consent. The Supreme Court said that the exclusive statutory right to "vend" applied only to the first sale of the copyrighted work:

"What does the statute mean in granting 'the sole right of vending the same'? Was it intended to create a right which would permit the holder of the copyright to fasten, by notice in a book or upon one of the articles mentioned within the statute, a restriction upon the subsequent alienation of the subject-matter of copyright after the owner had parted with the title to one who had acquired full dominion over it and had given a satisfactory price for it? It is not denied that one who has sold a copyrighted article, without restriction, has parted with all right to control the sale of it. The purchaser of a book, once sold by authority of the owner of the copyright, may sell it again, although he could not publish a new edition of it.

 Sell a book, and the owner of the copyright has lost control of its resale. Hair products? Well, they can have a copyright label. And their is that pesky import restriction.

The  Quality King went to the statute itself. It noted that the most relevant portion of § 602(a) provides:

"Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501. ... "

It refers to section 106. The Court explaints: "After the first sale of a copyrighted item "lawfully made under this title," any subsequent purchaser, whether from a domestic or from a foreign reseller, is obviously an "owner" of that item. Read literally, § 109(a) unambiguously states that such an owner "is entitled, without the authority of the copyright owner, to sell" that item. Moreover, since § 602(a) merely provides that unauthorized importation is an infringement of an exclusive right "under section 106," and since that limited right does not encompass resales by lawful owners, the literal text of § 602(a) is simply inapplicable to both domestic and foreign owners of L'anza's products who decide to import them and resell them in the United States.'

Solved. But, what about textbooks, produced abroad? In Kirtsaeng, the Court notes that the location of the manufacture of the copyrighted work is critical when interpreting §109(a) because the codification applies the first sale doctrine to a particular copy “lawfully made under this title.”  The Court concluds that the statute should be read to favor a non-geographical interpretation, and that “lawfully made under this title” means “in accordance with” or “in compliance with” the Copyright Act, and rejects the argument that the language applies to works made “in territories in which the Copyright Act is law.” First Sale rules, it seems.

And copyright owners cannot squeeze more profits.

Metatags and Other People's Marks

So. Let's put a competitor's mark on my site. Not referring to them, but embedded in metatags or by purchasing adwords. OK? or a lawsuit?

The classic metatag case is Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036 (9th Cir.1999). In Brookfield, in 1999, the Ninth Circuit concluded that the Lanham Act bars a defendant from including in its meta tags a competitor's trademark or confusingly similar terms. Brookfield, 174 F.3d at 1065.  But later, the Ninth Circuit allowed use of a competitor's trademarks in adwords.

First, Brookfield was a case mostly about the use of  "moviebuffs.com" as a web address by the Defendant when the Plaintiff had registered "MovieBuff" as a mark. The Defendant had used the tag line “The Movie Buff's Movie Store” prior to Plaintiff's use of MovieBuff. The 9th Circuit said that “The Movie Buff's Movie Store” and “moviebuff.com” are very different, so the argument did not fly. This is a lesson in building a family of marks, and another good story to follow. But, the Plaintiff went on and complained about meta tags, which are now irrelevant (live movie stores), but the case law lives on.

Brookfield reasoned that using another's mark in meta tags could result in what is known as initial interest confusion. They reasoned that web surfers looking for Brookfield's “MovieBuff” products who are taken by a search engine to “westcoastvideo.com” will find a database similar enough to “MovieBuff” so a sizeable number of consumers who were originally looking for Brookfield's product will simply decide to utilize West Coast's offerings instead.

The interesting thing about Brookfield is that it disclaimed source confusion. They reasoned that  consumers knew they were patronizing West Coast rather than Brookfield, but there was nevertheless initial interest confusion in the sense that, by using “moviebuff.com” or “MovieBuff” to divert people looking for “MovieBuff” to its web site, West Coast improperly benefitted from the goodwill that Brookfield developed in its mark. The use of another's trademark in a manner calculated “to capture initial consumer attention, even though no actual sale is finally completed as a result of the confusion, may be still an infringement.”

Initial interest confusion is the bane of the web, which is all about attracting surfers.In 2002, the Seventh Circuit agreed with Brookfield. N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1218-1224 (11th Cir.2008). Other courts have held that the use of a competitor's trademarks as metatags can create confusion and constitute trademark infringement. See, e.g.,  Suarez Corp. v. Earthwise Tech., Inc., Nos. C07-5577RJB, C07-2020RJB, 2008 WL 4934055, at *6 (W.D.Wash. Nov.14, 2008); Deltek, Inc. v. Iuvo Systems, Inc.  2009 WL 1073196, 8 (E.D.Va.) (E.D.Va.,2009).

Suddenly, in 2011, the Brookfield case was criticized by the 9th Circuit. They noted that modern search engines such as Google no longer use metatags but instead rely on their own algorithms to find websites. See McCarthy at § 25:69.” Network Automation, Inc. v. Advanced Systems Concepts, Inc.  638 F.3d 1137, 1146 (C.A.9, 2011). But initial interst confusion lives.

The Catch-22 here is that the use of metatags may not cause consumer confusion if they are ineffective. In the Ninth Circuit, a Court must do a complete analysis of the following factors in order to make the determination of whether there is a likelihood of consumer confusion (the Sleekcraft factors): The eight factors we identified in Sleekcraft were: “[1] strength of the mark; [2] proximity of the goods; [3] similarity of the marks; [4] evidence of actual confusion; [5] marketing channels used; [6] type of goods and the degree of care likely to be exercised by the purchaser; [7] defendant's intent in selecting the mark; and [8] likelihood of expansion of the product lines.”

Because this is a fact intensive analysis, a court case can  be expensive. If the use of metatags works, then it is more likely that the defendant will be found to have caused consumer confusion and be liable. Simply put, success in using metags is what could create liability.