by Lee Gesmer | Apr 5, 2012 | Copyright, DMCA/CDA
I’ll be reading this decision, issued today, more carefully in the next day or two, but my first impression is that it’s a win for supporters of the DMCA safe harbor statute based on various legal rulings, and a loss for Youtube based on the really dumb behavior of Youtube’s founders. Of course, these guys didn’t know, back in 2005, that seven years later the courts would be judging whether they were aware that they were hosting copyrighted videos. If they had known, they might not have emailed each other comments like these:
- “[W]e need views, [but] I’m a little concerned with the recent [S]upreme [C]ourt ruling on copyrighted material”
- “[S]ave your meal money for some lawsuits!”
- “concentrate all of our efforts in building up our numbers as aggressively as we can through whatever tactics, however evil”
- “our dirty little secret . . . is that we actually just want to sell out quickly”
And there’s more like that. Ouch!
In the future companies with Youtube-like businesses will, one hopes, not create evidentiary grist of this sort for content owners to use in lawsuits against them. So, this case may turn out to be a great lesson for the online industry (careful what you say), and an expensive lesson for Google, which will likely have to add some dollars to the $1.65 billion it paid for Youtube in 2006.
Second Circuit decision in Viacom v. Youtube
by Lee Gesmer | Apr 4, 2012 | Noncompete Agreements
Here is an unusual spin on Massachusetts non-compete law. As best I can understand the facts (which require a bit of “between the lines” reading) Trillium sued Cheung, a former employee of Trillium. Cheung had, it appears, released an employee from a non-compete agreement without company approval.
Trillium’s suit asserted breach of fiduciary duty to the company.
A trial ensued, but at the outset the judge observed that if the underlying non-compete agreement had not been enforceable the release had caused no harm to Trillium, and hence there had been no legal wrong committed by Cheung. In other words, the trial involved a concept that lawyers dislike greatly: a “trial within a trial.” (Think Russian nesting dolls). Here, the two trials involved the question of whether the non-compete was enforceable and, if so, whether Cheung acted illegally by releasing the employee from the agreement.
The trial began with a jury proceeding, during which the jury was asked to decide the second of these issues first – whether Cheung had improperly given the employee a release from the non-compete. However, in an odd twist the parties agreed that the judge, not the jury, would rule on damages. Before doing so, however, the judge addressed the second issue (which, one would think, should have gone first), held that the non-compete agreement was unenforceable, and concluded therefore that Trillium had suffered no damages. Case over.
The Appeals Court found several problems with this outcome, and sent the case back for a new trial. First, the judge failed to describe the legal standard he had applied to determine the enforceability of the non-compete agreement. The Appeals Court had no way of reviewing a trial judge’s decision if he failed to state, on the record in open court or in a written decision, the legal grounds for his conclusion. Making matters even worse, the Appeals Court indicated that the trial judge had heard evidence developed during the jury trial which contributed to his conclusion that the non-compete was unenforceable, but he failed to describe these facts so that the Appeals Court could review them and determine if the trial court had correctly applied the legal grounds to them. The Appeals Court had no record upon which is could review the ruling on the law or the facts.
This case illustrates a crucial aspect of legal proceedings that we sometimes take for granted, but which somehow got lost in this case. The Appeals Court observed that as far back as 1923 (and likely long before 1923) the Massachusetts Supreme Judicial Court noted “the underlying principle that a judge must set forth the legal grounds on which he makes his legal determination . . . the court shall specify with particularity the grounds on which his mind rests in reaching his conclusion. The parties thus are advised of the exact foundation for the action taken by the judge.” Without this information, there is no basis for appellate review.
Of course, when a case is decided by a jury things proceed a bit differently – a jury renders a verdict with no explanation of its grounds, and that decision is inviolate, so long as the judge properly instructs the jury on the law and follows the rules of evidence (more or less).
But, phase two of this case was a judge case, not a jury case, and why the judge didn’t explain the factual and legal bases for his decision is something of a mystery. The trial took place in early 2009 and now, three years later, the parties will have to undergo a retrial. However, it will still be a “trial within a trial” – as the Appeals Court stated, “we remand the matter for a new trial on the issue of damages, which shall include determination of the predicate issue of enforceability of the [non-compete] agreement.”
Trillium v. Cheung
by Lee Gesmer | Mar 23, 2012 | Noncompete Agreements
Noncompete opinions from the Massachusetts Superior Court are few and far between, so the two decisions that have been issued so far this year — one from Judge Peter Lauriat sitting in the Suffolk Business Litigation Section (BLS), the other from Judge Thomas R. Murtagh in Middlesex Cournty — are worth noting. Both judges are respected judicial veterans, and each decision illustrates a legal principle basic to this controversial and often confusing area of law.
The more note-worthy of the two cases is Judge Lauriat’s decision in Grace Hunt IT Soutions v. SIS Software, LLC. There are relatively few ways to wriggle out of a non-compete, but one that should be near the top of every lawyer’s list is the question whether there has been a “material change” in the employment relationship since the non-compete agreement was signed. If so, a “pre-change” non-compete may be unenforceable. In this case the court found that there had been such a change, and therefore it denied a motion for preliminary injunction to enforce the non-compete covenant against the defendants. Of course, what constitutes a “material change” can vary, depending upon the eye of the beholder, which in a preliminary injunction context is the judge. In this case Judge Lauriat concluded that a 20% cut in salary was enough of a change to satisfy this standard. Also, the employees had signed the non-compete with a company that had subsequently been acquired, and the acquiring company was attempting to enforce the non-compete agreement. Judge Lauriat seemed to put some weight on the fact that the new employer had asked the employees to sign new non-competition agreements after the acquisition, implying that the new employer had thought the employment relationships had materially changed, requiring new agreements.* Preliminary injunction denied.
*Sometimes an acquisition alone will void a non-compete. That was not the case here, likely because the employment agreements permitted assignment. However, many agreements do not include assignment clauses, preventing the post-acquisition employer from enforcing a non-compete agreement signed with the pre-acquisition employer. See the discussion of L-3 Communications v. Reveal Imagining at this prior post (non-compete agreement signed not assigned as part of a sale to current employer was not enforceable).
The second of the two decisions illustrates more of a cookie-cutter approach to the enforcement of a non-compete covenant. In this case, A.R.S. Services v. Baker, the plaintiff, a company disaster restoration field, asked the court to enforce a one year non-compete provision against an employee who had resigned from the plaintiff’s firm . It appears that the only argument Baker could make against enforcement was that his former employer had asked him to engage in “a fraudulent act involving moral turpitude,” and that this was a “material breach” of the non-compete agreement, rendering it unenforceable. It is true that a material breach by an employer can invalidate a non-compete covenant. However, this case appears to have involved little more than an internal disagreement between Baker and the employer over a cost estimate to rebuild a home. The judge didn’t buy it – quite rightly, if the evidence in support of this assertion was as weak as the decision suggests. This case was “plain vanilla.” Preliminary injunction allowed.
Grace Hunt IT Soutions v. SIS Software, LLC
A.R.S. Services v. Baker
by Lee Gesmer | Mar 16, 2012 | General
You know all those used music stores you used to love to go to back in the day when you bought music on CDs? You could browse through used CDs and buy them for less than retail. Maybe you still do (kudos to Deja Vu Records in Natick, Mass.). Of course, you can do the same thing online.
The founders of Massachsetts-based Redigi figured, why can’t we create a marketplace that will allow people to do the same thing with their digital music files? Or, as Redigi puts it: ” Sell your old songs legally – The world’s first used digital music marketplace – Buy used music insanely cheap”. However, in starting this business Redigi may have run smack into the disconnect between the U.S. copyright statute and digital media. And, it has been forced to defend against a full-on assault by the RIAA (in the form of its apparent designee, Capitol Records).
Redigi’s service launched in October 2011, and by reason of the sheer chutzpah of its business model the copyright industry (the usual ragtag collection of lawyers, industry types, bloggers, reporters and hangers-on) was soon debating the legality or illegality of its service. By early November Redigi was holding a “roll over and die” letter from the RIAA. By early January 2012 Capitol had filed suit against Redigi in the Southern District of New York.
Issue was joined quickly when Capitol filed a motion for preliminary injunction seeking, in effect, to shut Redigi down and end the case with a single, crushing legal blow. The district court denied the motion, so Redigi remains alive for now. However, the case is on a fast track – Capitol and Redigi have waived a jury trial, and the parties will be filing summary judgment motions this summer. The case is likely to be resolved before the end of the year, at least in the trial court.
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by Lee Gesmer | Nov 10, 2011 | Arbitration
One of the risks of electing to resolve a dispute in arbitration is that, apart from a few narrow exceptions, the decision of the arbitrator is non-appealable. This can be very hard on the losing party, who believes the arbitrator completely misapplied the law or, in the terminology of the courts, “manifestly disregarded” the law.
Affymax believed it was faced with such a situation when an arbitration panel ruled in favor of Otho-McNeil-Janssen on certain issues in a complicated patent dispute. Affymax challenged the panel’s decision, and the federal district court reversed part of the arbitration panel’s award.
Wrong, said Chief Judge Easterbrook of the 7th Circuit Court of Appeals in Affymax, Inc. v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., decided on October 3, 2011: “Manifest disregard of the law” is not a ground on which a court may reject an arbitrator’s award. The First Circuit, where I practice, has made this clear as well. See Ramos-Santiago v. United Parcel Service, 524 F.3d 120, 124 n.3 (1st Cir. 2008) (“manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the Federal Arbitration Act”).
