“ In actual life, every great enterprise begins with and takes its first step forward in faith. ” — August Wilhelm von Schlegel
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Now that Christmas is over its time to start thinking about 2014, and that means New Year’s resolutions.
The guest post below was written by my partner Jonathan Draluck and published last month on Gesmer Updegrove LLP’s BostInno channel. Jonathan didn’t write this with New Year’s resolutions in mind, but it struck me as inspirational as we approach 2014. Maybe your New Year’s resolution will be, as he writes below, to conquer your personal fears and — “take the leap.”
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School is nice. Sometimes necessary. But no education beats the school of hard knocks. All the theory and fancy degrees in the world won’t get you anywhere unless you are willing to take what you have learned and add some elbow grease.
You may not even know what melts your butter unless you’ve had a first-hand glimpse outside the frying pan. Hot in the Boston venture capital scene two decades ago, my colleague Andy Updegrove worked on enough deals to pique his aptitude in technology. He began taking an interest in the computer standards being adopted by the government. He wrote about it and then rallied loyal readers who most assuredly had not given it much thought. He is now an expert on setting standards and represents more consortia than anyone. And my scientist friend Eric Buerger models synaptic transmission at a cutting edge biotech company which studies how alterations influence diseases of the central nervous system. Curious about the business and legal side, he offered up part of his FTE to keep colleagues sitting at the lab bench and allow himself time to consider other angles.
Then there’s the raw desire to enhance your skills. For example, educators have known forever that when you write the report or prepare the presentation, you absorb new material. So when two large pharmaceutical clients wanted to run clinical trials overseas, and medical device companies sought manufacturers, I tossed the readily-available templates and put pen to paper to come up with my own form contract. As I previously wrote, it’s amazing how targeted activities can actually help you gather intelligence.
There is also no substitute for taking on a risk. You show others that you’re hungry and you are. Indeed, “skin in the game” was one of the criteria that fellow MassChallenge judges used to assess the commitment of start-up entrepreneurs. For example, when she created SitterCycle, Helen Adeosun quit her job for the school system and decided to put her master’s degree from Harvard to the test. She kicked off a business to educate and certify nannies. Nick Dougherty, also a finalist, was fed-up with the technology available to patients at hospitals and hospices. Through bootstrapping [that is, self-funding], he developed an interactive platform for patients with aphasia, Verbal App. It puts traditional bedside call buttons to shame. And Sean Kevlahan shunned the cushy job opportunities that came knocking for his Ph.D in chemical engineering. He is now co-founder and CEO of Quad Technologies, whose product can isolate stem cells from blood, economically delivering them to researchers undamaged.
So you’ve had the exposure and desire and are perhaps ready to sacrifice a salary. But if there weren’t other ingredients, everyone would be doing it! While I don’t have the secret, I’ve witnessed the phenomenon.
You have to take the leap. A year ago, I wrote about unflappable curiosity and persistence among Israeli entrepreneurs who somehow muster the moxie against odds to shake down an industry or find a cure for the uncurable. Spreading your wings could also require chemical intervention. As my law professor warned, you are green until it’s high noon in the courtroom and you’re facing down your opponent. From this I’ve deduced that part of the equation for getting good may be adrenaline. I’ve unwittingly deployed it negotiating for the little guy against Goliath and in answering questions posed by the Syrian police about my Israel affinity. Of course, you may not happen upon it unless you’ve pre-positioned yourself (in my case, objecting to a one-sided contract proposal or being in Damascus in the first place). But each person knows where she might approach her comfort edge. Like the brilliant scientist who gets stage fright when speaking in public. Getting himself ready to compete with a pitch or, more importantly, attract an investor, may constitute the required jump.
I guess this is the long way to confirm what our parents already told us. You can achieve what you set out to do. But you now have tools that you didn’t have growing up – the exposure to figure it out and the maturity and drive to take it to the next level.
“The thing to fear is not the law, but the judge.” – Russian Proverb
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Viacom has filed its opening brief in its second appeal in Viacom v. Youtube. This long-running copyright case is establishing important precedents in the interpretation of the Digital Millennium Copyright Act (DMCA).*
*See this link for my most recent post on this long-runing case.
In its current appeal Viacom argues that the trial court judge erred in granting Youtube summary judgment following remand from the Second Circuit’s 2012 decision in this case.
The appeal raises many difficult and important issues in applying the DMCA, and it remains to be seen whether the Second Circuit will add clarity or confusion to this complex law. However, one element of Viacom’s argument jumps out instantly. Viacom’s brief includes a section titled “This Court Should Exercise Its Discretion To Remand The Case To A Different District Court Judge.” The text of the argument in support of this request, in its entirety, is as follows:
Given the protracted nature of this litigation (the case is now well into its seventh year) and the evident firmness of the district court’s erroneous views regarding the DMCA, this Court should exercise its discretion to remand the case to a different judge “to preserve the appearance of justice.” E.g., United States v. Robin, 553 F.2d 8, 10 (2d Cir. 1977). Reassignment would “not imply any personal criticism of the . . . judge,” nor would it “create disproportionate waste or duplication of effort,” given that the case has yet to go to trial. Scott v. Perkins, 150 F. App’x 30, 34 (2d Cir. 2005).
Well, that takes chutzpah! If the case is remanded to the district court for further proceedings and the case goes back to U.S. District Court Judge Louis L. Stanton he will be well aware that Viacom tried to have him bounced from the case. While Judge Stanton (who has almost 30 years on the bench and is pictured above) may try not to hold this against Viacom, he’s only human, and there’s no knowing to what extent this will subtly bias him against Viacom. After all, one of the most important rules of good lawyering is try to stay on the right side of the judge.*
*That’s why lawyers invariably laugh at every joke made by a judge in their case, and even (I have seen this) research the judge’s hobbies and make subtle comments about it. If the judge’s hobbies include professional baseball, you can be sure one of the lawyers will comment, “great (tough) game last night, Your Honor.”
Given the low likelihood that the request will succeed, was asking for reassignment a prudent risk for Viacom to take? I think not. For the Second Circuit to reassign a case on remand following summary judgment is rare, so this is a long shot for Viacom. As Justice (then Second Circuit Appeals Court Judge) Sotomayor observed in 2001, reassignment on remand occurs only where there are “unusual circumstances,” such as “substantial difficulty in putting out of his or her mind previously-expressed views or findings determined to be erroneous” or to “preserve the appearance of justice.” (Martens v. Thomann). The two cases cited by Viacom (U.S. v. Robins and Scott v. Perkins) are not to the contrary.
Viacom has made no effort to show that Judge Stanton falls under this narrow exception. The only “appearance of injustice” is that the judge has ruled against Viacom in two summary judgment motions. The majority of the judge’s rulings were upheld in Viacom’s first appeal, showing that the “appearance of injustice” is often in the eye of the person receiving the justice.
If anything, the fact that Viacom v. Youtube is a large, complex and long-lived case with which Judge Stanton is intimately familiar is good reason not to remand the case to a new district court judge.
Clearly, Viacom is fed up with Judge Stanton and wants to get out of his courtroom. However, it has taken a calculated risk with low odds in its favor. By asking that its case be reassigned in the event of a remand Viacom’s lawyers are more likely to have shot their client in the foot than to have advanced its cause.
“The FBI is an unindicted coconspirator in the massive racketeering case against Whitey.” – Kevin Cullen, Boston Globe, June 14, 2013
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I wonder if Martin Cruz Smith had Bulger in mind when he wrote this in 1981:
The FBI doesn’t conduct investigations, they pay informers. … Their informers are mental cases and hit men. Where the bureau touches the real world, suddenly you get all these freaks who know how to kill people with piano wire. Say a freak gets caught … he tells the bureau what it wants to hear and makes up what he doesn’t know. See, that’s the basic difference. A cop goes out on the street and digs up information for himself. He’s willing to get dirty because his ambition in life is to be a detective. But a bureau agent is really a lawyer or an accountant; he wants to work in an office and dress nice, maybe go into politics. That son of a bitch will buy a freak a day. … When their freaks are finished testifying, they move them and give them new names. If the freak kills someone else, they move him again. There are psychopaths that have been moved four, five times — totally immune; they’ve got better pardons than Nixon. That’s what happens when you don’t do the job yourself, when you use freaks.
*Techdirt is at or near the top of this lengthy list.
The Ingenuity 13 case has been dismissed, but on Tuesday the judge issued a withering sanctions decision in the case. Here is some of what he had to say.
The opening paragraph of the opinion sets the stage for the indictment that follows:
Plaintiffs have outmaneuvered the legal system. They’ve discovered the nexus of antiquated copyright laws, paralyzing social stigma, and unaffordable defense costs. And they exploit this anomaly by accusing individuals of illegally downloading a single pornographic video. Then they offer to settle—for a sum calculated to be just below the cost of a bare-bones defense. For these individuals, resistance is futile; most reluctantly pay rather than have their names associated with illegally downloading porn. So now, copyright laws originally designed to compensate starving artists allow, starving attorneys in this electronic-media era to plunder the citizenry.
Their litigation strategy consisted of monitoring BitTorrent download activity of their copyrighted pornographic movies, recording IP addresses of the computers downloading the movies, filing suit in federal court to subpoena Internet Service Providers (“ISPs”) for the identity of the subscribers to these IP addresses, and sending cease-and-desist letters to the subscribers, offering to settle each copyright infringement claim for about $4,000. …
After that dramatic introduction Judge Wright introduces the actors in the “porno-trolling collective,” and introduces their modus operandi:
Steele, Hansmeier, and Duffy (“Principals”) are attorneys with shattered law practices. Seeking easy money, they conspired to operate this enterprise and formed the AF Holdings and Ingenuity 13 entities (among other fungible entities) for the sole purpose of litigating copyright-infringement lawsuits. They created these entities to shield the Principals from potential liability and to give an appearance of legitimacy. … The Principals’ web of disinformation is so vast that the Principals cannot keep track—their explanations of their operations, relationships, and financial interests constantly vary. …
The opinion then presents the following graphic, in an attempt to untangle the “web of disinformation” (an enlarged version of this graphic appears in the opinion):
Incredibly, since 2010 this strategy has resulted in gross settlements approaching $15 million:
This nationwide strategy was highly successful because of statutory copyright damages, the pornographic subject matter, and the high cost of litigation. Most defendants settled with the Principals, resulting in proceeds of millions of dollars due to the numerosity of defendants. …
However, there was one small problem with these cases. It appears that the plaintiff forged the copyright assignment to one of the porn films:
The Principals stole the identity of Alan Cooper (of 2170 Highway 47 North, Isle, MN 56342). The Principals fraudulently signed the copyright assignment for [porn movie] “Popular Demand” using Alan Cooper’s signature without his authorization, holding him out to be an officer of AF Holdings. …
Every conspiracy needs a henchman, and in this story it is attorney Brett Gibbs:
The Principals ordered [attorney] Gibbs to commit the following acts before this Court: file copyright-infringement complaints based on a single snapshot of Internet activity; name individuals as defendants based on a statistical guess; and assert a copyright assignment with a fraudulent signature. The Principals also instructed [attorney] Gibbs to prosecute these lawsuits only if they remained profitable; and to dismiss them otherwise. …
. . . [attorney] Gibbs, even in the face of sanctions, continued to make factual misrepresentions to the Court.
The judge then assesses sanctions, the least of which is the approximately $40,000 in attorney’s fees which he doubled to over $83,000:
The Principals, AF Holdings, Ingenuity 13, Prenda Law, and [attorney] Gibbs are liable for [over $83,000 in attorney’s fees] jointly and severally, and shall pay this sum within 14 days of this order. …
[T]here is little doubt that that [attorneys] Steele, Hansmeier, Duffy, Gibbs suffer from a form of moral turpitude unbecoming of an officer of the court. To this end, the Court will refer them to their respective state and federal bars.
The Court will refer this matter to the United States Attorney for the Central District of California. The will also refer this matter to the Criminal Investigation Division of the Internal Revenue Service and will notify all judges before whom these attorneys have pending cases. For the sake of completeness, the Court requests Pietz to assist by filing a report, within 14 days, containing contact information for: (1) every bar (state and federal) where these attorneys are admitted to practice; and (2) every judge before whom these attorneys have pending cases. …
Ouch! A few weeks ago I posted about at case in which defendants angered a Massachusetts federal district court judge (“What Happens When You Get a Federal District Court Judge Really, Really Mad”). The California judge in the Ingenuity 13 case showed that, by comparison, the Massachusetts judge was throwing cotton balls.
Seriously, theses lawyers are in big trouble with the IRS (apparently they didn’t report their settlements as income), the courts and, worst for them, the U.S. Attorney’s Office. Since lawyers from the U.S. Attorney’s Office are the prosecutors that appear before federal judges, they are unlikely to disregard a federal judge’s request that they conduct an investigation to determine whether there are grounds for criminal prosecution.
As I reluctantly predicted last week, U.S District Court Judge Richard Sullivan has ruled that Redigi’s digital resale business is not protected by the first sale doctrine. His March 30, 2013 decision falls squarely in line with the arguments made by Capitol Records and rejects all of Redigi’s positions.
I have written quite a bit on this case (here and here), and there is nothing new or surprising in the court’s decision. The court described the issue before it as “the novel question . . . whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine.” In answering this question the court emphasized that because it is “a court of law and not a congressional subcommittee or technology blog, the issues are narrow, technical, and purely legal.” Indeed, the court hewed closely to the statute. It noted that “the plain text of the Copyright Act makes clear that reproduction occurs when a copyright work is fixed in a new material object.”* The court states that “put another way, the first sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce. Here, ReDigi is not distributing such material items; rather, it is distributing reproductions of the copyrighted code embedded in new material objects, namely, the ReDigi server in Arizona and its users’ hard drives.”
*This includes phonorecords, which are the “material objects in which sounds . . . are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” 17 U.S.C. § 101.
The court rejected Redigi’s claim that files on users’ computers are “migrated” to the Redigi server. It found that when a user downloads a digital music file it is “reproduce[d]” on a new phonorecord within the meaning of the Copyright Act. When that user moves the file to the Redigi server the “file has moved from one material object – the user’s computer – to another – the ReDigi server – [and therefore] an [unauthorized] reproduction has occurred.” The court rejected the argument that Redigi’s system is protected under copyright fair use, noting that Capitol does not (in this case) challenge the use of cloud-based storage lockers for personal use or convenience. “Capitol asserts only that uploading to and downloading from the Cloud Locker incident to sale fall outside the ambit of fair use. The Court agrees.”
The court concluded that Redigi is liable for direct, secondary, contributory and vicarious infringement.
According to Time magazine online, Redigi has a new and different technology that was not at issue in the case (Redigi 2.0) and plans to appeal the March 30th decision. However, here is where Redigi will find itself deep in the weeds of federal civil procedure, which presents a new set of problems. The case is not over, and among other things Redigi faces a trial on damages, which could be as much as $150,000 per infringement. We don’t know what Redigi’s sales volume is, but it’s hard to think that Redigi’s potential liability will not reach millions of dollars. However, unless an injunction is issued (the court’s opinion was not accompanied by an injunction), any appeal may have to await final judgment, which will incude damages (and potentially Capitol’s attorney’s fees). However, Redigi will not be permitted to initiate an appeal unless it firsts posts a bond in the amount of the judgment. Typically, a small start-up like Redigi can obtain a bond only by providing the bonding company a cash amount equal to the bond. It seems unlikely that Redigi has sufficient assets to afford a bond to cover a large judgment.
In addition, Capitol may seek leave of court to add as defendants the individual owners and employees of Redigi that exercised control over or benefited from the infringement. While Redigi could oppose such as motion as coming too late in the case, a decision would be at the discretion of the judge. As Capitol Records showed in its copyright suit against MP3tunes and Michael Robertson, Capitol is not above suing not only corporate infringers but their founders and owners. (See: The Record Labels Want My Minivan).* The philosophy of the record companies in many copyright cases may best be described as, “never kick a man when he’s down, unless that’s the only way to keep him there.” Capitol may be preparing to put on its steel toe boots in this case.
*In the MP3tunes case Capitol insisted on proceeding against Robertson even after Mp3tunes filed for bankruptcy.
According to the court decision Redigi consulted legal counsel before launching Redigi and engaging the recording industry in a test case. One can only hope that the attorneys Redigi consulted reminded Redigi of the Chinese proverb, “A piece of paper, blown by the wind into a law court, may in the end only be drawn out again by two oxen.”
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.
I’ve written before about how generous juries in the federal courts in the Eastern District of Texas (EdTX) are to patent plaintiffs. (link). After I wrote about this a year ago there was a feeling that this trend might be reversing itself. However, Johnson & Johnson’s $1.6 billion judgment against Abbott and i4i’s $200 million verdict against Microsoft last summer put an end to those thoughts.
So, when Apple, Sirius XM and others were recently sued for patent infringement in EdTX they quite naturally looked for a way out. Massachusetts, they told the Texas district court, was a far better choice, particularly when you considered the fact that that the patent owner, a non-practicing entity, had set up a Texas company shortly before filing suit, and located its business in the offices of its Texas lawyers.
But, it’s not that easy.
After the EdTX trial court refused to transfer the case to Massachusetts, Apple and its co-defendants filed a “mandamus” with the Federal Circuit. Mandamus is a rare procedural tool. Its a way to ask a court (typically an appellate court) to take an action that isn’t really an appeal (because the there is no final judgment), and no specific statute authority authorizing interlocutory appeal. I think it fair to say that fewer than one in a hundred lawyers has ever filed a “writ of mandamus,” (more likely fewer than one in five hundred). (more…)
Attached below is Judge Judith Fabricant’s lengthy decision in Hilb Rogal & Hobbs v. Sheppard, decided by Judge Fabricant in the Suffolk Business Litigation Session early this year. To my knowledge, this decision and order became publicly available only recently.
This restrictive covenant case is interesting in one unusual respect: it involves what some lawyers like to call “employee raiding” – a perjorative term that one sometimes hears when a large group of employees leaves to join a new firm. Here, the group was unusually large, consisting of 24 employees who resigned en masse, leaving Hilb Rogal & Hobbs (HRH) identical resignation letters and advising HRH to contact the same lawyer in the event any legal communications were necessary.
HRH filed suit and moved for a preliminary injunction, presenting Judge Fabricant with a complex set of facts (the employees did not all have the identical agreements), and factual variations in their circumstances.
The decision breaks no new ground in Massachusetts noncompete law, but it’s worth making a few observations about how the Judge approached the case:
Employees whose agreements were entered into in connection with a business that had been sold to HRH earlier were treated much more strictly than the “rank and file” employees, as one would expect given Massachusetts law.
The Judge viewed HRH’s claim of interference with contractual relations favorably, given that the new employer offered it’s prospective employees defense and indemnification for anticipated litigation arising from a breach of their agreements. Since employers are often asked to provide this sort of protection for new employees who fear litigation of this sort, this decision emphasizes that a decision to hold the employee harmless can backfire.
While the Judge was unwilling to say that agreements signed by employees as a condition of ongoing employment lacked consideration, she did treat this as an equitable factor that weighed against issuance of a preliminary injunction.
There is no discussion of “raiding” in the decision and order. In the past I’ve seen lawyers argue that the fact that the new employer hired a large number of employees should, of itself, give rise to some presumption of liability. However, to my knowledge no Massachusetts judge has ever recognized a cause of action for “raiding”. I don’t know if HRH made that argument in this case, but if it did Judge Fabricant did not address it.
Today, the Supreme Court agreed to decide this issue:
Whether an individual who used a false means of identification but did not know it belonged to another person can be convicted of “aggravated identity theft” under 18 U.S.C. 1028A(a)(1).
The case involves an illegal alien who was prosecuted for use of false identity papers. It must be hard enough to be arrested as an illegal alien, but much worse to discovery that your punishment will not be deportation, but rather indictment and trial for aggravated identity theft, a felony punishable with two years imprisonment with no probation allowed. Your defense: you may have purchased false identification in order to work, but you didn’t know that you were using another person’s social security number, as opposed to a purely fictitious SSN.
This is the situation that Ignacio Carlos Flores-Figueroa faced when the U.S. Court of Appeals for the Eighth Circuit held that the government was not required to prove that Mr. Flores-Figueroa knew that he was using another person’s ID, and upheld his two year sentence under 18 U.S.C. 1028A(a)(1). This was the second time that the Eighth Circuit had ruled this way on this issue.
Surprisingly, another federal appellate court saw it differently, and held that knowledge is an element of the crime. Thus, the Supreme Court was presented with a split of authority between the federal circuits which it has agreed to resolve.
Here’s the question, legal beagles and lovers of grammar and clear writing. The law reads:
[w]hoever, during and in relation to any felony violation enumerated in [§ 1028A(c)], knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person shall, in addition to the punishment provided for such felony, be sentenced to a term of imprisonment of 2 years.
The Eighth Circuit held that this law is unambiguous, and therefore it need not look beyond the language of the law to examine the legislative history and congressional intent. If held that “knowingly” only modifies “transfers, possesses, or uses”, and therefore the government is not required to prove that a defendant knew the means of identification belonged to another person (as opposed to a fictitious person).
In U.S. v. Villanueva-Sotelo the U.S. Court of Appeals for the District of Columbia saw the issue differently, holding that the law was ambiguous, thereby permitting it to review the legislative history and the congressional purpose of the law. Based on this review the D.C. Circuit Court concluded that the mens rea (knowledge) requirement extends to the phrase “of another person,” meaning that the government must prove the defendant actually knew the identification in question belonged to someone else.
One of the great benefits of the Suffolk Business Litigation Session (the BLS) is that the judges tend to write detailed opinions explaining their decisions. This tends to be less true elsewhere in the Superior Court. Recently-retired Superior Court Judge Allen van Gestel created a tradition of written jurisprudence while he headed the BLS, and his successors are keeping up the tradition. While these decisions are not published in an official reporter, and they are not binding precedent in the strict legal sense, they are often made available on the Internet, on legal search engines such as Westlaw and in the unofficial Mass. Law Reporter. In this way attorneys and the public are informed on how the BLS judges tend to see issues that come before them. And of course, any given judge is likely to be greatly influenced by a decision he or she has authored on a particular issue; there’s nothing better than citing a judge back to herself.
The extensive and detailed opinion in The National Economic Research Associates, Inc. v. Evans, decided by Judge Ralph Gants in early September 2008, shows that the new BLS judges are continuing Judge van Gestel’s tradition of written decisions.
In NERA v. Evans Judge Gants was asked to decide (on summary judgment) a claim that David Evans had violated a covenant not to compete with NERA, his former employer. The noncompete issues were decided under New York law (the choice of law specified in the contract), but a number of other non-contractual claims made by NERA were decided under Massachusetts law.
While Judge Gants’ detailed application of New York state law to the issue of the enforceability of a noncompete provision is of limited relevance (except in future cases where the BLS is required to apply New York law in this context), it is interesting to note that Judge Gants (who ruled that the case should proceed to a damages trial on NERA’s claim that Evans violated his noncompete contract) warned the parties that at trial, NERA would have to prove that the clients that followed Evans to his new job would have continued to have been clients of NERA had Evans stayed at NERA.
This is a potentially difficult burden on NERA, since it requires NERA to prove a hypothetical. Former NERA clients may be willing or able to testify at trial to what they would have done had Evans stayed at NERA. Judge Gants’ ruling on this issue illustrates why noncompete cases (regardless of which state law applies) are usually won or lost at the outset of the case, when the former employer seeks a preliminary injunction prohibiting the former employee from working for the new employer. Once that stage of the case is over the plaintiff/former employer will rarely pursue damages (as NERA did here) given the difficulty of proving damages.
Apart from his ruling on the noncompete contract under New York law, Judge Gants entered some interesting rulings “off the contract” under Massachusetts tort law.
Ruling on NERA’s claim of tortious interference with contractual relations against the new employer, Judge Gants held that the alleged interference must be “improper in motive or means.” The injured party must prove “spiteful, malignant purpose unrelated to the corporate interest.” Since the former employer was unable to provide any evidence of this sort against NERA, this claim was dismissed. While it seems that companies that hire an employee subject to a non-compete agreement are sued as a matter of course under this theory, Judge Gants’ decision shows how difficult it may be to establish liability. One way in which this can be accomplished is to show that the new employer induced or encouraged the former employee to steal trade secrets or confidential information from the former employer, but conduct of that sort is somewhat rare.
NERA also claimed breach of fiduciary duty against the former employee, who had been an officer of NERA, and therefore owed a fiduciary duty to NERA. However, Evans had gone no farther than to “prepare” for competition before leaving NERA, and under the SJC’s Augat v. Aegis decision this claim also was dismissed. Interestingly, Judge Gants held that the fact that the de minimus use of NERA funds by Evans, and his occasional use of NERA’s phones and computer to negotiate his departure from NERA, “fell far short of a breach of fiduciary duty.”
Judge Gants dismissed the former employer’s rather bizarre claim (Judge Gants politely called it “clever”) that Evans had usurped a corporate opportunity belonging to NERA by negotiating his own departure from NERA. As Judge Gants stated, “If ones own employment were to be considered a corporate opportunity, then no officer of a corporation would be free to leave his employment unless he first offered ‘the opportunity’ of his services to his current employer and his employer rejected the opportunity.”
Lastly, Judge Gants dismissed NERA’s M.G.L. c. 93A claim against Evans’ new employer, holding that the inducement of a breach of an employment agreement alone, without improper motive or means, fell short of the type of “immoral, unethical, opppressive or unscrupulous” conduct necessary for a violation of Chapter 93A.
(Note: An earlier decision by Judge Gants in this case is discussed here. In that decision Judge Gants ruled that Evans had not waived attorney-client privilege where, while he was using a NERA-owned computer and using an Internet-based email service to communicate with his attorneys, unbeknownst to him, temporary files containing those communications were stored on the computer.)
In the Medtronic v. BrainLab patent litigation in U.S. District Court in Colorado, Senior U.S. District Judge Richard P. Matsch has sanctioned Medtronic Navigation, Inc. and its lawyers $4.3 million, an amount which represents part of the attorney’s fees and costs incurred by BrainLab in defending this case. This order is a follow-up to his decision last February ordering that Medtronic be sanctioned, but not deciding (at that time) the precise amount of the sanction.
Unusual circumstances led to this disaster for Medtronic and its counsel. As many readers of this blog know, the judge, not the jury, determines the scope of the patent claims in patent litigation. This is done by the judge before trial, in what is often referred to as a “Markman hearing.” The name of the hearing is based on the 1996 U.S. Supreme Court decision in Markman v. Westview, which held that patent “claim interpretation” is the province of the judge, not the jury. After the judge determines the scope of the patent and the meaning of the claims, he or she instructs the jury accordingly, and the lawyers are expected to honor the judge’s rulings and tailor their case to the judge’s pre-trial claim interpretation.
So, what went wrong in the Medtronics case? Apparently, during the jury trial on infringement the lawyers for Medtronic (the plaintiff), argued outside of the scope of claim interpretation determined by the judge.
Making a federal judge angry is almost always a bad idea. This is especially true when the judge is 78 year old U.S. District Court Judge Maitch, who has been on the federal bench since Richard Nixon appointed him 34 years ago and seen it all. (Judge Maitch presided over the Timothy McVeigh Oklahoma city bombing case. ) After Medtronic lost its patent case, the judge wrote (earlier this year):
Upon reflection, this Court finds and concludes that the rulings on the claims construction issues adjudicated the fairly debatable issues in this case and that the manner in which plaintiffs’ counsel continued the prosecution of the claims through trial was in disregard of their obligations as officers of the court. The fairness of the adversary system of adjudication depends upon the assumption that trial lawyers will temper zealous advocacy of their client’s cause with an objective assessment of its merit and be candid in presenting it to the court and to opposing counsel. When that assumption has been contradicted by a trial record of conduct reflecting a winning is all that is important approach to the trial process, the court has a duty to redress this resulting harm to the opposing party.
The court continued:
Rather than accept that the claims construction rulings stripped the merits from this case, counsel chose to pursue a strategy of distorting those rulings, misdirecting the jury to a different reading of the claim language, and blatantly presenting the jury with a product to product comparison contrary to established law and the Court’s cautionary instructions. . . . Capping all of this was a closing argument that misdirected the jury’s attention from the focus of the case, carefully crafted to avoid the Court’s instructions. That argument distorted both the evidence and the law, misleading the jury . . . .
Concluding, he stated:
Throughout these proceedings Medtronic and [its] lawyers have demonstrated that when they are faced with adverse court rulings, they proceed undeterred, with only superficial observance of the court’s determinations. Such conduct supports the conclusion that after the Markman rulings, Medtronic’s primary objective in pursuing this litigation was to put economic pressure on its competitor in the market.
Medtronic is likely to appeal the sanction. However, its predicament is complicated by the fact that in addition to “advocacy abuse” during trial the judge found Medtronic’s case to be frivolous, and he awarded sanctions on independent statutory grounds.
What is puzzling about this case is how Medtronic was able to get away with its in-court behavior. One would expect defense counsel to object strenuously to plaintiff’s attempt to ignore the Markman ruling during trial. If Medronic’s counsel persisted, the trial judge should have taken them into his chambers (the place that everyone else calls an office) and read them the riot act, even going so far as to threaten to hold them in contempt if they violated his order. Why that didn’t happen here, and why this problem was allowed to progress as far as it did, is something of a mystery to those who weren’t present in the courtroom during trial.
The judge’s choice of the phrase “advocacy abuse” is also interesting. If you asked around you’d find that very few lawyers are familiar with this phrase. In fact, a Westlaw search shows that the phrase has been used on only a handful of occasions in U.S. case law.
While the court did find this to have been an “exceptional case” justifying an award of fees against Medtronic under 35 U.S.C. Section 285, and against its attorneys under 28 U.S.C. Section 1927 for “unreasonably and vexatiously” multiplying the proceedings, in the alternative it awarded fees against both Medtronic and its attorneys under the court’s “inherent authority,” a judge-made concept that provides that the courts may sanction litigations and attorneys for conduct tantamount to “bad faith.” One may be left wondering whether abuse of advocacy rises to the level of bad faith. Undoubtedly, an answer to this question will be provided on appeal.
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