Of eBay, "Patent Trolls" and the Right to an Injunction
Patents. I wrote an article under the above title [link] which was published in the Boston Business Journal on April 28, 2006.
Supreme Court Weighes in on Joint Ventures and Price Fixing
Antitrust. While most people don’t know a lot about antitrust law, they do know that price fixing is illegal. And, if you asked them whether two large oil companies, such as Texaco and Shell, could form a joint company to sell oil throughout the western U.S. at a single price, they’d probably say that the “joint venture” was a technicality, and that it was no different than if Texaco and Shell got together and decided to sell gas at the same price individually.
Well, the Supreme Court would not agree. In Texaco v. Dagher [link] a case decided earlier this year, the operators of 23,000 service stations selling under the Texas or Shell brands of gasoline challenged the western states joint venture of the two giant oil companies for marketing gasoline, with the product still sold under both the Texaco and Shell brands but at the same price.
The Court held that such a joint venture is not “per se” illegal (illegal on its face and indefensible), because Texaco and Shell did not compete directly in the market, but participated jointly through their investment in the joint venture corporation. “As such, though [the joint venture’s] pricing policy may be price fixing in the literal sense, it is not price fixing in the antitrust sense,” wrote Justice Thomas.
This case is important law for joint ventures — it gives parties the confidence they need to price their products in the same manner as a single firm. However, the case leaves open the extent to which the Sherman Act’s ban on restraints of trade applies to joint ventures under the “rule of reason,” which looks at the competitive impact of the challenged practice.
Oral Argument in eBay v. MercExchange (updated)
Patents. Here is a summary of the oral argument before the Supreme Court earlier this week, in the eBay v. MercExchange case, discussed earlier in this blog. [link]
The summary of oral argument (which apparently gave no clear clues to the outcome) is on the excellent SCOTUSblog [link].
UPDATE (April 18, 2006):
Here is a link to the transcript of oral argument before the Supreme Court [link]
The argument contains a humorous exchange between Carter Phillips, counsel for eBay, and Justice Kennedy:
Phillips: [references “patent trolls” in his argument]
Justice Kennedy: Well, is — is the troll the scary thing under the bridge, or is it a fishing technique? I– I want —
(laughter)
No New Consideration, No Enforceable Noncompete
Noncompete Agreements. Clients frequently present the following issue: we have existing employees who have not signed noncompete agreements. We’d like to ask them to sign them. Any problem with that?
The knowledgeable lawyer then struggles with the following question: does the employee need to be given some consideration for the noncompete to be enforceable? Consideration is not an issue when an employee signs a noncompete at the beginning of employment, since the job itself provides the consideration. But when the employee already has the job, does the employer have to give the employee some new consideration? – a raise, a bonus, a promotion?
There is a line of Massachusetts cases suggesting that continued employment (for an at-will employee) is itself adequate consideration, but the rule is not as clear as most lawyers would like, and many lawyers are forced to equivocate on this issue. And, some states have clearly held that continued employment is not adequate consideration, adding to the uncertainty.
In a decision issued on February 2, 2006 in Metropolitan Removal Co. v. D.S.I. Removal Specialists, Inc. [click here for the decision] Superior Court Judge Peter Agnes, a well-respected judge in Massachusetts, held that a noncompete agreement was not enforceable where the employee did not receive new consideration. Citing no cases one way or the other, Judge Agnes noted that the employee “did not receive consideration in return for signing this agreement whether in the form of increased compensation, increased authority, or both. Neither his job title nor his job description changed after he signed the agreement.”
Massachusetts companies seeking to impose noncompete restrictions on existing employees should take note.
What Did You Say Your Trade Secrets Were?
Trade Secrets, Procedure. Warning: if you’re seeking discovery in a trade secret case in the Suffolk Business Litigation Session make sure that you have (a) provided the court with a detailed description of your trade secrets, and (b) filed a protective order that strictly complies with the Uniform Rules of of Impoundment.
For a recent decision making these points, written by Judge Allan Van Gestel in the Suffolk Business Litigation Session, click [here]. The decision, Tourtellotte Solutions, Inc. v. Tradestone Software, Inc., was featured on the front page of Massachusetts Lawyers Weekly last October. In a nutshell, the plaintiff asked for expedited discovery (in other words, the right to take discovery on a schedule faster than allowed in the ordinary course by the rules of civil procedure), so that the plaintiff could obtain evidence necessary to bring a preliminary injunction against the defendant. The plaintiff’s basic claim was that the defendant had engaged in “software misappropriation,” a term that Judge Van Gestel stated “sounds very much like trade secret misappropriation.”
The judge denied the motion, stating: “a detailed description of what is claimed to be a trade secret must be provided and a protective order of some sort needs to be worked out.”
Neither conclusion is surprising in the least. Many decisions in trade secret cases have held that the plaintiff must identify its trade secrets with particularity. The courts recognize that to permit the plaintiff to launch a “fishing expedition” into the defendant’s technology before identifying its trade secrets is fundamentally unfair. California has even codified this rule by state statute. What is surprising is when (as we have seen from time-to-time), a court does not compel a plaintiff to describe its trade secrets with particularity before commencing discovery.
On the subject of an acceptable protective order, Judge Van Gestel was offended that the protective order proposed by the plaintiff did not comply with the Uniform Rules of Impoundment, which require that a “sealed” filing (in other words, a filing in a sealed envelope that is segregated from the case file that is available to the public) be preceded by a motion and an affidavit explaining why the court should deviate from the standard procedure of making all documents filed with the courts available to the public. Because filing documents “under seal” requires the clerk’s office to go to the inconvenience of identifying and segregating these filings (with the concomitant risks of lost documents and inadvertent disclosure), the party seeking this exception must obtain the court’s permission before putting the court to this inconvenience. Lawyers requesting protective orders in the Business Litigation Session (which are standard in trade secret cases and many other types of business litigation) should keep Judge Van Gestel’s warning in mind. An example of a protective order referencing the Uniform Rules of Impoundment can be found here: [link]
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