by Lee Gesmer | Jul 12, 2013 | Copyright
Why did a Boston affiliate of ABC file suit a major copyright infringement action against Aereo in Boston, rather than ABC itself? Or another major broadcaster, such as CBS, NBC or Fox?
On May 15th, in a post titled “Does Second Circuit Decision Determine Copyright Legality of Aereo “Antenna-Farm” System Nationwide?”, I discussed the fact that Aereo had filed a preemptive suit in the Southern District of New York. The suit asked the federal district court to enjoin the major broadcasters (ABC, NBC, CBS, Fox) from filing what Aereo called “duplicative-follow-on suits” or “do-overs.” Aereo was attempting to prevent the broadcasters from following it around the country and filing a new copyright infringement lawsuit in each circuit in which Aereo launched its service. Aereo argued that the opinion of the Second Circuit Court of Appeals in WNET v. Aereo, holding that Aereo’s retransmission of over-the-air broadcasts do not violate broadcaster copyrights, was binding nationwide on the plaintiffs in that case.
However, as I pointed out in May, even if that legal argument were to be successful, at best it would only be binding on the plaintiffs in that case. For example, while ABC was a plaintiff in New York and could, conceivably, be bound nationwide by the Second Circuit decision, Aereo could not stop a non–party, such as a local affiliate, from bringing suit in another district.
In fact, that is precisely the strategy the broadcasters have followed in Boston, the second market in which Aereo has released its service. The sole plaintiff in the Boston case is a local ABC affiliate station, WCVB–TV. The complaint emphasizes WCVB’s copyright rights in its original, local programming (Chronicle, CityLine, news and weather), shows in which WCVB, not ABC, owns the copyrights.
Now you know why a local affiliate sued Aereo in Boston.
(For the first post in a four-part series on the Aereo cases, click here).
by Lee Gesmer | Jul 12, 2013 | Antitrust
All antitrust cases are tried twice – once before the appeal, and once after the appeal. anon
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The district court decision in U.S. v. Apple presents about as clear a case of price fixing as one can imagine. Apple participated in a conspiracy with five of the “Big Six” publishers (an incestuous group based entirely in Manhattan) to raise prices for e-books above the $9.99 price charged by Amazon.
This was not subtle stuff—it was conduct worthy of the classic 19th century price fixers that led to enactment of the Sherman Antitrust Act in 1890. Secret meetings among competitors to figure out a way to stop the hated price-cutter (Amazon), a White Knight that facilitates the conspiracy to foil the price-cutter (Apple), and an industry with its feet deeply planted in tradition (book publishing) under assault from a new technology (e-book publishing).
The only thing that makes this price-fixing conspiracy different from those in the 19th century is the massive email trail that the parties left, making the government’s courtroom proof that much easier. At least the classic price-fixers had the sense to keep up a pretense of secrecy, and not leave a trail of writings that would be their undoing in court.
Despite loud criticism of the district court decision from some quarters (see, for example, Guilty of Competition, WSJ, subsc.), it’s difficult to imagine that this decision will be overturned by the Second Circuit or (as the Journal wishfully dreams), the Supreme Court. Horizontal price fixing is per se illegal, and Apple acted as the ringmaster for the price fixing in this case. If there is one thing that is certain in antitrust law (an exceptionally difficult area of law with a very high reversal rate), there is no justification for price fixing. Amazon may have had a 90% market share of the e-book market. Amazon’s 9.99 e-book price may have been below the wholesale cost it paid to the book publishers. The book industry and authors may have been suffering economic harm from Amazon’s aggressive pricing. Amazon’s pricing, along with the growth in e-books, may have threatened to disrupt the book publishing industry in ways never before seen in that industry.
However, under antitrust law none of this matters: the Apple/publisher conspiracy to force book prices above the Amazon price of 9.99 was per se illegal, and no “justification” is relevant.
In light of this, a curious question arises: where were the lawyers? Apple has 
a huge legal department, and surely some of the lawyers involved in this massive attempt to corral the “Big Six” book publishers and help them raise prices industry-wide had at least a rudimentary knowledge of antitrust law. Any lawyer who takes antitrust in law school, or studies the topic even casually, comes away remembering one thing: price fixing is per se illegal. The law tolerates no excuse.
Not surprisingly, there is no mention of legal advice Apple or any of the publishers received on the implications of their actions under antitrust law; after all, these communications would have been attorney-client privileged. It is possible that lawyers for Apple or the publishers were pulling their hair out warning their clients that they were taking terrible risks under the antitrust laws. It is possible that Apple and the publishers that joined in this conspiracy decided that the benefits of their plan outweighed the risks, although that is difficult to imagine. After all, given the large number of people involved, and the way the plan unfolded publicly, there was no chance that the plan could be kept “secret.” The result: a pre-trial settlement by all of the publishers and an embarrassing lawsuit for Apple (the full implications of which remain to be seen), were predictable.
And, business executives don’t often ignore their lawyers’s advice. One would think that attorney’s for one of the publishers would have warned it, and that the forewarned publisher would have mentioned this in one of its emails with Apple or the other publishers (which would not be privileged). However, in the 160 page decision, there is no hint of this.
So, the question remains unanswered, and puzzling: where were the lawyers?
This case may fall within the maxim that all antitrust cases are tried twice, but it seems unlikely. Perhaps, as some have argued, application of the per se doctrine in the context of this case (industry joint action to create a counterweight to a company with monopoly power) is bad economic policy.* But it seems unlikely that the courts will choose this case in which to deviate from over a century of antitrust doctrine.
*A counter-argument is that the Department of Justice under-reacted, and that it should have brought criminal charges under the antitrust laws, rather than merely civil charges.
by Lee Gesmer | Jul 9, 2013 | Contracts, Trade Secrets
A lot of non-disclosure agreements (NDAs) provide that if one party gives the other a document and expects it to be treated as confidential, the document must be marked “confidential.” Or, if the confidential information is communicated orally, the party that wants to protect it must notify the receiving party in writing within a specified number of days. (“Hey, the stuff we told at our meeting on Monday relating to our fantastic new product idea? That’s all confidential under our NDA”).
This was the situation in Convolve, Inc. v. Compaq Computer, decided by the Court of Appeals for the Federal Circuit on July 1, 2013. The NDA at issue in that case provided that to trigger either party’s confidentiality obligations “the disclosed information must be: (1) marked as confidential at the time of disclosure; or (2) unmarked, but treated as confidential at the time of disclosure, and later designated confidential in a written memorandum summarizing and identifying the confidential information.”
Big mistake. People sign agreements like this and a year later they have completely forgotten that they need to follow them. Or, employees come and go, the NDA is buried away someplace, and new employees are blithely unaware that they need to follow the terms of the NDA.
That’s what happened to Convolve. It had trade secrets relating to hard disk drive technology. It disclosed the secrets at a meeting, but it failed to follow-up and designate it confidential under the NDA. Its argument that the parties knew the information was confidential (even though it wasn’t designated), went nowhere with the CAFC:
Convolve contends the district court erred when it found that Compaq failed to protect the confidentiality of certain information because it failed to designate it as such pursuant to its obligations under the NDAs. Convolve asserts that the parties understood that all of their mutual disclosures were confidential, notwithstanding the marking requirements in the NDAs. … Convolve … contends that the parties’ course of conduct did not require a follow-up letter. … The plain language of the NDA unambiguously requires that, for any oral or visual disclosures, Convolve was required to confirm in writing … that the information was confidential. … The intent of the parties, based on this language, is clear: for an oral or visual disclosure of information to be protected under the NDA, the disclosing party must provide a follow-up memorandum. … Convolve argues that, regardless of whether the confidentiality of the trade secrets was confirmed in writing, … the parties understood their mutual disclosures were confidential, notwithstanding the NDA strictures. … [However], the NDAs do not appear reasonably susceptible to the interpretation Convolve urges.
Don’t put provisions like this in your NDAs if you want to protect your trade secrets or confidential information. Include a provision that everything you give to your business partner is confidential, and keep your options open. If something isn’t confidential, no harm done. If you think it is and the recipient disagrees, let the recipient prove it in court, should that become necessary. Better overkill than underkill.
by Lee Gesmer | Jul 7, 2013 | Employment
Note: If you are unable to view this document on your computer, please click here.
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by Lee Gesmer | Jul 2, 2013 | Employment, Noncompete Agreements
Two note-worthy decisions have emerged from AMD v. Feldstein, a trade secret case pending in federal district court in Massachusetts. At the heart of the case is the conduct of several AMD employees who left to work for Nvidia Corporation. Inexplicably, they copied and took with them huge amounts of AMD data, actions which earned them a preliminary injunction in the first of two opinions, dated May 15, 2013.
However, in the May 15th decision Massachusetts federal district court judge Timothy Hillman also addressed the thorny issue of what constitutes a “solicitation” in violation of a non-solicitation agreement, and specifically solicitation of employees (as opposed to customers) of the former employer.
The employee non-solicitation provisions in this case were fairly standard. For example, Feldstein’s provided that:
during [Feldstein’s] employment with [AMD] and for a period of one year following the termination of [Feldstein’s] employment, whether voluntary or involuntary, [Feldstein would] not hire or attempt to hire an employee of [AMD], or directly or indirectly solicit, induce or encourage an employee of [AMD] to leave his or her employ to work for another employer, without first getting the written consent of an Officer of [AMD].
However, just what kinds of behavior violate such a provision, and which do not?
Clearly, expressly asking or encouraging an AMD employee to leave AMD would do so (“you should leave AMD and come to work for Nvidia with me – you can make much more money there, and they have chair massages every day!”). But what if Feldstein, on his last day of work at AMD, tells another employee “I’m moving to Nvidia” and winks? What if, after he’s at Nvidia, he has lunch with a former co-worker at AMD and raves about how much he likes his new job, nothing more? What if, once Feldstein is at Nvidia a former co-worker at AMD approaches him and asks him questions about salary and working conditions at Nvidia, and whether there are any more job openings, and he does nothing more than answer these questions? What if Feldstein encourages an AMD employee to move to Nvidia, but the employee was unhappy at AMD, and was planning to leave in any event? The permutations are almost endless.
These examples pose perplexing problems for employers and employees alike, who must try to navigate a thin line between legal and illegal behavior.*
*As the Massachusetts Appeals Court stated in a case involving the alleged solicitation of customers, “as a practical matter, the difference between accepting and receiving business, on the one hand, and indirectly soliciting on the other, may be more metaphysical than real.” (Alexander & Alexander, Inc. v. Danahy, 1986).
There is not a lot of law to help sort out these issues. As Judge Hillman points out, “much of the case law on solicitation in Massachusetts deals with former employees soliciting customers from their former employers,” not soliciting other employees. However, he noted that “colleagues can generally be expected to have even closer personal relationships than do employees and customers; and wherever closer working relationships are, courts must bear in the mind the fact that solicitation can be quite subtle.”
Needless to say, the parties in the case took opposing views. AMD argued for something close to a “wink test”– if Feldstein says he is leaving AMD to work at Nvidia and winks at another employee he has solicited. The former employees in the case argued that AMD should be required to prove that they took “active steps to persuade” an employee to leave, and even then they were not soliciting if the person were planning to leave anyway.
Rejecting these extreme positions Judge Hillman formulated the following tests:
I will define solicitation as follows. Direct solicitation is what might be seen as traditional solicitation, encompassing any active verbal or written encouragement to leave AMD, even if not intended to harm AMD. Due to the personal relationships that develop between colleagues, liability for indirect solicitation requires a more context-sensitive inquiry. …subtle hints and encouragements … can constitute indirect solicitation. However, to preserve the public’s interest in free personal communications, such solicitation should only be found where the finder-of-fact is satisfied that the solicitor actually intended to induce the solicitee to leave AMD.
Given the paucity of precedent on indirect solicitation in Massachusetts, this decision may be the best guide to the law of employee solicitation in Massachusetts at present.* However, the definition of “indirect solicitation” is problematic: given that a former employee accused of indirect solicitation is unlikely to admit illegal intent, it may be very difficult for the former employer to prove the requisite level of intent in court. Absent overt encouragement in the form of testimony or “smoking gun” emails, what chance does the employer have of proving the “actual intent” required by this test? Under this definition “nudge, nudge, wink, wink” may be safe for the former employee.
*A caveat: this decision was issued by a federal court, not a state court. The decision may carry relatively little weight with a state court judge, who is not bound by federal court decisions on Massachusetts law. The state courts are the final arbiters of state law.
An obvious conclusion to be drawn from this case is that non-solicitation clauses (at least as applied to employees), are weak tea. A potentially more effective way of preventing an ex-employee from luring employees away to a competitor (in most states, but not all) is indirectly, through a non-compete agreement. Although non-competes have their own set of enforcement problems (see, for example, this recent post), they have fewer problems than non-solicitations.
I’ll be writing about the second important issue to emerge out of this case in a separate post.
AMD v. Feldstein (D. Mass. May 15, 2013)
