This is a relatively new legal subject, so there isn’t much law out there.  In December, 2011, a Pennsylvania federal court answered this question in the negative.  In the case of Eagle v. Morgan, Linda Eagle, the founder of a company, Edcomm, had developed a significant LinkedIn presence closely connected to Edcomm. In 2010, Edcomm was purchased.  In 2011, she was terminated and Edcomm took over her LinkedIn account. She sued Edcomm.  Shortly thereafter, she regained control of her LinkedIn account and refused to return it to Edcomm. Edcomm counterclaimed against her in her lawsuit, contending that by regaining control of the LinkedIn account and refusing to return it to Edcomm, she had misappropriated Edcomm’s trade secrets.  She moved to dismiss Edcomm’s misappropriation claim. With little analysis, the court dismissed the claim, stating that the LinkedIn contacts on the Eagle/Edcomm account were “generally known . . . or capable of being easily derived from public information.”

In March, 2012, a Colorado federal court came to a different conclusion. In Christou, et al. v. Beatport, LLC, a nightclub company sued an ex-employee for stealing the company’s MySpace “friends” list.  The ex-employee moved to dismiss the lawsuit, arguing that a MySpace “friends” list couldn’t be a trade secret.  The court denied the ex-employee’s motion, holding that a company’s MySpace profiles and friends list can be a trade secret because, online, a MySpace profile contains a lot more information than just the “friend’s” name.  It gives the owner of the profile the “friend’s” personal information, including interests, preferences, and contact information that can have commercial value. It allows the “friend” to be contacted and advertised to.  This information goes beyond what is publically available. Duplicating all the information available from the “friends” list would be time-consuming and costly. The public can see the names of the company’s “friends” online, but the public does not have all the other information that the company gets by virtue of having these “friends.”  

In September, 2014, another federal court held that LinkedIn contacts could be a trade secret.  In Cellular Accessories For Less, Inc. v. Trinitas, LLC, a company sued an ex-employee who had left to form a competing company and taken his LinkedIn contacts with him. The ex-employee moved for dismissal of the lawsuit.  The court denied his motion, holding that the LinkedIn contacts that he had developed while working for his former company could be the company’s trade secret. The company had encouraged the employee to develop LinkedIn contacts during the employment.  The court said that the LinkedIn contacts may – or may not – have been viewable by other LinkedIn users; the ex-employee’s motion papers did not say whether the contacts were publically viewable.  Since they may not have been publicly viewable, they could be the company’s trade secrets.  

There you have it. What do you think?

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The Sharon Academy v. Massachusetts Bay Insurance Company, et al., Vermont Superior Court, Docket No. 442-7-13 Wncv (Feb. 25, 2015).

Relevant Facts:

Student goes on a study-abroad program in India (“Program”) sponsored by a Vermont school (“School”). The program is run and managed by a coordinator (“Coordinator”), and has both U.S.-based and Indian national employees in India.  Shortly after arriving, the student claimed that she was sexually assaulted by one of the Indian national employees of the program. Eventually the student files a lawsuit against the school and the coordinator in Vermont (“Underlying lawsuit”).  The underlying lawsuit alleges that the school and the coordinator were negligent in hiring and supervising the Indian national who (allegedly) assaulted the student. The school refers the claim to its insurer (“Insurer”). The insurer denies coverage under both a primary CGL policy and an umbrella policy. The insurer contends that the alleged assault occurred in India, which is not within the “coverage territory” of the CGL policy. Therefore, there is no coverage under that policy or under the umbrella. The school then sues the insurer for breach of contract and bad faith and, in the alternative, sues its insurance broker for failing to procure coverage. The school moves for summary judgment against the insurer, requesting a determination that the underlying lawsuit is covered. The insurer cross-moves for:  1) a determination of no-coverage, 2) to strike the school’s bad faith claim, and 3) for a determination that if it is required to cover the underlying lawsuit, it can choose defense counsel, rather than having to retain defense counsel of the school’s choosing.  The court granted the school’s motion, finding that the underlying lawsuit is covered under both the CGL and umbrella policies; that the insurer breached the policy by refusing to defend; and that the insurer must reimburse the school for reasonable defense costs incurred to date. However, the court rules that the insurer can retain defense counsel of its own choosing.

Here is a brief review of the court’s decision:

The primary CGL policy:

The court begins by citing and quoting cases that stand for the long-standing principles that if the claims in the underlying suit might be covered by the policy, the insurer must provide a defense, and that any ambiguities in the policy will be construed in favor of coverage.

The court notes that the policy includes a sexual molestation endorsement that includes the disputed “coverage territory” language. The sexual assault alleged in the underlying lawsuit describes injury that comes within the endorsement. The issue is whether the assault occurred within the “coverage territory.”  “Coverage Territory” in the endorsement is the United States, but also “all other parts of the world if the injury or damage arises out of the activities of a person whose home is in the U.S. but who is away for a short time on the insured’s business.” Thus, more specifically, the issue is whether the alleged assault arose out of the activities of a person whose home is in the U.S. but who was in India on the school’s business.  

Acknowledging that the “coverage territory” term of the policy has apparently not been litigated in Vermont and has been little-litigated elsewhere, the court concludes that there is coverage because the alleged sexual assault arose out of the student’s activities, and she lives in the U.S. but was in India for a short time on the school’s business.  

The court then rejects the insurer’s argument that the “coverage territory” definition above refers only to the alleged assaulter, i.e., the Indian national employee of the program.  The insurer argues that it was the assaulter’s, and only the assaulter’s, activities that specifically “caused” the alleged harm to the student, and that he, as an Indian national, is not within the coverage territory.  The insurer argues that, notwithstanding the allegations in the underlying lawsuit, the program's U.S.-based employees did not cause the student's harm.  The insurer argues that the phrase “arises out of” must be narrowly construed to mean “causation,” and that the assaulter – not the school, nor the program or its U.S.-based employees, nor the coordinator – is the only person who actually “caused” the student’s harm.  The court disagrees. It finds that the phrase “arises out of” is a broad term that includes much more than “causation.” The policy could have used the term “causation” instead of “arising out of,” but didn’t. The policy could have defined “arising out of,” but didn’t.

Because the court concludes that the student is a covered person, it does not address the school’s argument that its teachers/employees – who are alleged in the underlying lawsuit to have been negligent – are covered persons.

The umbrella policy:

The court notes that the umbrella policy contains two separate endorsements that exclude coverage for sexual molestation. But one of the endorsements (the 12/05 endorsement) contains an exception, which exception provides that the exclusion does not apply if there is coverage for sexual molestation in the underlying insurance (which, as explained above, the court found there was). The court rejects the insurer’s argument that only the endorsement without the exception (the 01/07 endorsement) should apply because that endorsement has a later date on it. The court finds that the two competing endorsements in the umbrella policy create an ambiguity that is to be construed against the insurer. The court rejects as unreasonable the insurer’s argument that the long string of numbers on the bottom of each page of the policy, including the two exclusionary endorsements, would inform the policyholder (the school) that the endorsement with the exception is overruled by the one without the exception because the latter one was added into the policy later. The court finds that the typical policyholder would not understand that an endorsement containing a string of numbers ending in “07” means that the endorsement is added later – and therefore invalidates – an endorsement containing a string of numbers ending in “05.”

Thus, the insurer must provide coverage for the school, and is in breach of the policy.

Defendant Coordinator:

The court agrees with the insurer that there is a fact dispute over whether the coordinator was an employee of the school, and therefore covered, versus whether she was an independent contractor. Therefore, the court denies summary judgment to the school on this issue.

The School’s Bad Faith Claim:

The court denies the insurer’s request that the school’s bad faith claim be stricken.  The court finds that the insurer’s behavior in this case could amount to bad faith. The court will allow the school to have discovery on this issue.

The School’s Defense Costs To Date:

The court agrees that, because the school was entitled to coverage all along, the insurer is liable to the school (but not to the coordinator – at least yet) for reasonable defense costs incurred to date.

Choice of Defense Counsel:

The court finds that although the insurer must provide a defense, it can do so with independent counsel of its own choosing, not the school’s existing, or preferred, defense counsel.  It relies on a 2011 Vermont superior court decision, Northern Ins. Co. v. Pratt, from another judge (now a Vermont federal judge) for this decision.  The Vermont Supreme Court has not yet addressed the issue of whether an insured can choose its own defense counsel, at the insurer’s expense, where there is a coverage conflict between the insured and the insurer.

Note that the court’s analysis under the CGL policy is different from the main argument that the school made. The school pointed out that the underlying complaint alleges that the school’s teachers/employees were negligent in hiring and supervising the Indian national who allegedly assaulted the student. The school argued that these persons were covered under the “coverage territory” definition in the policy because they were based in the U.S. Instead, the court found coverage based on the activities of the (allegedly assaulted) student in India. The school did cite to the court one case (Spears v. Nationwide) that construed this same “coverage territory” language in a situation where the insured’s employee was in the Ukraine and was the victim of an automobile accident there. In that case, the court found that the employee – the accident victim herself – was covered because the accident arose out of her activities. In this case the court did not cite Spears as support for its conclusion.  

Disclosure: the author of this article represents the insurance broker in this case.


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Alleged “patent troll” strikes out for second time in its efforts to have the Vermont Attorney General’s “unfair patent enforcement” lawsuit adjudicated in federal court.

In May 2013 the State of Vermont sued MPHJ Technology Investments, LLC for alleged consumer fraud arising from its numerous “cease and desist” letters sent to Vermont business and non-profit entities, claiming patent infringement and demanding licensing fees.  Since then, the parties have been disputing which court system the case should be heard in.  The Vermont federal court has, once again, “remanded” the case against MPHJ back to Vermont state court.

Vermont initially sued MPHJ in state court.  MPHJ “removed” the case to federal court, arguing that the case was about patent law and therefore belonged in federal court.  The federal court “remanded” the case back to state court, agreeing with the State that the case was not about MPHJ’s patents or about patent law, but only about the legality of MPHJ’s campaign of sending cease and desist letters into Vermont.

In its most recent attempt to obtain federal jurisdiction, MPHJ argued that, after the State filed its original Complaint against MPHJ, Vermont passed its “Bad Faith Assertions of Patent Infringement” law (i.e., the “anti patent troll” law) and that the interim enactment of this law gave MPHJ new grounds for federal court jurisdiction.  In response, the State and the federal court disagreed, pointing out that the State never attempted to incorporate that new law into its Complaint in this case.

Indeed, it is not clear that there would be federal jurisdiction even if the State had incorporated the new anti-troll law into its Complaint.  The Jan. 12, 2015 order from federal judge William Sessions concludes that this lawsuit is a matter for state (and not federal) court because the State’s case is not about the validity of MPHJ’s patents (which would give rise to federal court jurisdiction), but, instead, only about the legality of MPHJ’s activities in seeking to get Vermont businesses and non-profits to pay it licensing fees under Vermont consumer protection laws.  As it did the first time (and lost), MPHJ might attempt to appeal this most recent order to the federal appeals court.

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Assuming Vermont's GMO labeling law survives a court challenge, beginning in July, 2016, all producers of food products sold in Vermont that contain genetically modified ingredients will be required to label the products as containing GE ingredients (unless the GE component is below 1 percent of the total weight of the product). The label must be “clear and conspicuous” and must be no smaller than the size of the words “Serving Size” on the “Nutrition Facts” label required by federal law.

There will be three (3) labeling options: “Produced with Genetic Engineering”; “Partially Produced with Genetic Engineering”; and “May be Produced with Genetic Engineering.” Producers can use the label “Partially Produced with Genetic Engineering” if the product contains less than 75 percent GE material by weight. Producers can use the label “May be Produced with Genetic Engineering” only if the manufacturer does not know, and cannot reasonably determine in good faith and with due diligence, if the ingredients are genetically engineered. The Vermont Attorney General can determine whether a producer has used good faith in using this option. A producer is exempt from the labeling requirement if it obtains sworn affidavits from its suppliers that the ingredients are not genetically engineered or GMOs.

Retailers who sell raw commodities that contain or are the product of genetic engineering (e.g., raw corn in the produce section at the supermarket) must also label the product at the point of sale.

Producers/retailers are free, if they wish, to include a disclaimer that the U.S. Food and Drug Administration does not consider genetically engineered food to be materially different from non-GE food.

In addition to having to label their products, as described above, producers of food products containing GE ingredients cannot use the word “natural” or words of similar import (e.g., “all natural” or “naturally made”) on the product.

There are significant exceptions to the law. Pure meat and dairy products are completely exempted, as are alcoholic beverages. Food intended for immediate consumption (e.g., restaurant food, deli food, take-out, etc.) is also exempted. Also, food products containing small amounts of GE ingredients that are only used as processing aids do not need to be labeled. Lastly, also exempt are products that have been certified as “organic” or GE-free by an organization acceptable to the Vermont Attorney General (e.g., the Non-GMO Project).

The Vermont Attorney General is empowered to investigate and enforce the law.

Compliance with this law could be extremely challenging for both national and local food producers, for a variety of reasons. For national food producers, compliance with the law could mean: a) labeling ALL of their products nationwide just to comply with the Vermont law, even though Vermont constitutes only a tiny subfraction of the national market share; or b) specially-labeling the package on products intended exclusively for the Vermont market (if it is even feasible to do so), or c) changing their distribution systems to keep non-labeled products out of the Vermont market. Some observers have wondered whether some national producers will simply no longer ship their products into Vermont, rather than create special packaging and distribution just for the tine Vermont market.

For small or local producers, it could be an extreme hardship to: a) determine if their ingredients are genetically engineered, and/or then b) attempt to source only non-GE ingredients for their products. In addition, what if a national producer relabels its product to comply with Vermont law, but then a neighboring state passes a GMO labeling law with different labeling requirements than Vermont's? How many different state-specific packages would a national producer have to make for a single product?

Of course, the constitutionality of the law is currently being challenged in federal court by food manufacturers, and a decision in the lawsuit is pending.


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In a significant decision issued on Friday, July 18, 2014, involving a retail store, the Vermont Supreme Court has abolished the old premises liability distinction between “business invitees” (i.e., customers) and licensees (other visitors).  The Court has now formally adopted a general negligence standard of reasonable care applicable to both types of visitors.  The case is Demag v. Better Power Equipment, Inc., 2014 VT 78.  

This case involved a visitor who was on the defendant’s business premises not as a customer, but as a vendor providing a service to the business.  He fell into a storm drain in the business’s parking lot because the drain cover had been dislodged by a snowplow.  The owners of the business claimed not to know that the storm drain cover had been dislodged.  The visitor sued the business.  The trial court classified the visitor as a “licensee” (i.e., not a customer) – as opposed to an “invitee” (i.e., a customer) and granted summary judgment to the business, reasoning that the business owed a lower standard of care to a licensee.  In other words, because the visitor was a licensee, the owners owed him no legal duty to be aware that the storm drain cover had been dislodged and posed a danger to him.  The Vermont Supreme Court reversed, ruling that there should no longer be any distinction in Vermont between a licensee and an invitee.  

In 99% of cases, this decision will generally not affect retail or business establishments, because, with respect to customers, they were already held to the higher standard for “invitees.”  However, sometimes the person who is injured in or around a business establishment might be a vendor.  In such cases, the business establishment can no longer argue that it has a lower standard of care because the vendor was a “licensee.”  The legal standard will now be the same regardless of whether the plaintiff is a customer of the business or a vendor.  Obviously, this decision has implications for business establishments.  While vendors who are injured while on another business’s premises will typically be covered by their own employer’s workers compensation insurance, they can still bring a claim against the business establishment for negligence.  This decision will potentially make their claim easier to prove.

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The Vermont legislature has passed a bill that mandates effective July 1, 2016, the labeling of food that contains – or might contain – genetically modified organisms (GMOs).  The Governor signed the bill on May 8.  Although two other states have passed GMO labeling bills (Connecticut and Maine), Vermont’s bill is a first-in-the-nation bill because it does not contain a “trigger” clause, as the Connecticut and Maine laws do.  The trigger clause in Connecticut’s and Maine’s laws means that those laws do not take effect until some other state’s labeling law goes into effect first.  The idea behind including a trigger clause is that it reduces the likelihood that the enacting state will be sued by the food industry because, by definition, it will not be the first state to mandate labeling.  The absence of a trigger clause in the Vermont bill has now made Vermont a lawsuit-target, and the bill raises a host of issues that could make it hard to defend in court.

The Vermont bill specifically acknowledges that the federal FDA does not consider GMO foods to be materially different from non-GMO foods.  This could be a problem in defending the law.  If the federal government does not consider GMO foods to need labeling, why should Vermont single out such products for separate treatment?

The Vermont bill asserts that scientific research is mixed on the safety of GMO foods and that GMO foods present potential health risks.  Many would say that such a statement is false and anti-science:  there have been numerous peer-reviewed, reputable scientific studies showing no safety concerns from GMO foods, and no scientifically-valid studies to the contrary.  Thus, many would say that to imply that there is real scientific disagreement over the safety of GMO foods is like saying that there is genuine scientific disagreement over the reality of global climate change. 

The Vermont bill requires foods to be labeled either:  “produced with genetic engineering,” “partially produced with genetic engineering,” or “may be produced with genetic engineering.”  Many food producers, especially small ones, including small, Vermont craft food producers, may simply not know, and may not easily be able to tell, whether their products contain GMO ingredients.  Thus, they will be forced to “stigmatize” themselves with a label that says, “may be produced with genetic engineering.” 

The labeling mandate in the Vermont bill extends not just to food manufacturers, but also to retailers, both supermarkets and to Vermont “mom and pop” grocery stores.  In the case of unpackaged agricultural products that are or might be grown from GMO seeds, the retailer must label the display shelf or bin with the words “produced with genetic engineering.”   This may constitute a hardship for small Vermont food stores.  And supermarket chains operating in Vermont are certainly not going to like it, either.

The Vermont bill contains exemptions for meat and dairy products.  While the proponents of the bill argue that this makes the bill less vulnerable to legal attack, it could work the other way around.  Critics could argue in court that the bill is flawed because it singles out a favored and politically powerful Vermont industry – dairy farming – for exemption from a labeling requirement that everyone else is required to follow.

The debate on Vermont’s bill has focused on whether GMO foods should be labeled.  But included in the bill is a prohibition on the use of the terms “natural” on GMO foods.  This provision was not the subject of any significant public debate, and, again, could create problems for the law in court.  Hundreds if not thousands of processed foods on Vermont supermarket shelves tout themselves as “natural,” and the federal Food and Drug Administration (FDA) has declined to prohibit such labeling.  Why should one state be allowed to prohibit such labeling?  Will national food producers change their labels for one state?  Should they have to?  

The Vermont Attorney General has predicted that Vermont almost certainly will be sued, and that defending the law in court could cost Vermont taxpayers millions of dollars.  Worse, if Vermont loses the lawsuit, it could end up paying the other side’s attorneys’ fees as well, which could add up to $8-10 million dollars.  For a state of only 600,000 residents, and a much smaller number of taxpayers, that could mean each Vermont taxpayer ponying up real money cash.  Proponents of mandatory GMO labeling point to surveys that show a large percentage of Vermonters favoring such labeling.  But did those surveys ask whether the respondent favored mandatory labeling if it meant that she – and every other taxpayer – might have to reach into her wallet to support the law?  Especially when considering that Vermont has a mixed track record in defending its laws when they are attacked as unconstitutional or contrary to federal law – such as the Vermont law in the 1990s that mandated the labeling of dairy products from cows injected with bovine growth hormone.  That law was struck down.  Proponents of labeling argue that consumers have a right to know.  But is this about a “right to know,” or is it instead about attempting to stigmatize GMOs out of existence through fear?

There are other potential consequences besides an expensive lawsuit from the food industry.  Vermont is a small state with a miniscule consumer base.  Will hundreds or thousands of food producers agree to separately label their products exclusively for the Vermont market, because of this law, or will they simply decide to “write Vermont off” and not sell their products in Vermont? 

Lastly, as a practical matter, did the Vermont legislature think through what effect this law have on the thousands of small Vermont craft food producers who simply don’t know whether their products contain ingredients that may be derived from GMOs?  If you can’t be certain that your product contains no such ingredients, apparently you will be forced to label it as “may be produced with genetic engineering.”  And what if these local producers are simply unable to source their ingredients from non-GMO sources?  Simply put, this cannot be good for Vermont craft food producers and, by association, the Vermont economy.  Forcing them to label their products as possibly containing GMOs could kill off many of these good, homegrown industries.

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In a significant legal decision with a connection to Vermont’s farming community, the United States Court of Appeals for the Federal Circuit has affirmed that organic farmers cannot obtain a judicial declaration to prevent Monsanto from suing them in the future for violating its patents on seeds.  The Federal Circuit court is the court of appeal for all patent cases, below only the U.S. Supreme Court.  The court said that the farmers do not have “standing” to seek such a declaration against Monsanto because they are themselves in no danger of being sued by Monsanto for “inadvertent” infringement of Monsanto’s seed patents.

Monsanto owns a number of patents on transgenic crop seeds – seeds that are genetically engineered to survive the spraying of herbicides to control weeds in the crop fields.  Farmers who purchase Monsanto’s GMO seeds must agree not to harvest the seeds from the resulting adult crops and use the harvested seeds for planting without Monsanto’s permission.  In effect, when a farmer purchases Monsanto’s patented GMO seeds, he or she is agreeing to use the seeds – i.e., Monsanto’s patented technology – for one-time use.  Monsanto has a history of suing farmers who harvest and replant its seeds.  Because Monsanto owns the patents on the seeds, their use without Monsanto’s permission constitutes patent infringement.

A large group of organic farmers and anti-GMO organizations, including Chittenden County state senator David Zuckerman, who owns an organic farm in Hinesburg known as Full Moon Farm, Inc.,  Northeast Organic Farming Association of Vermont (NOFA), and Rural Vermont, filed suit in federal court in New York in March of 2011.  They sought what is known as a “declaratory judgment” – an anticipatory legal ruling that Monsanto’s GMO seed patents are invalid and that Monsanto should be barred from suing them if their crops are inadvertently pollinated by crops grown in nearby fields with Monsanto’s GMO seeds.  “Inadvertent” pollination can occur if, for example, corn plants grown in a field using non-Monsanto seeds are pollinated by corn pollen blown in on the wind from a nearby field of Monsanto corn.  The non-Monsanto corn plants that are inadvertently pollinated by Monsanto corn pollen then produce seeds that contain Monsanto’s GMO technology.

In deciding whether to grant a declaratory judgment, the question before the New York federal court was: were any of the organic farmer plaintiffs in actual danger of having to face a patent infringement lawsuit by Monsanto if their crops were inadvertently pollinated?  The court said no.  True, Monsanto has a history of suing farmers who use harvested Monsanto seeds for replanting.  In fact, as recently as May, the U.S. Supreme Court in a 9-0 decision sided with Monsanto against a farmer in Indiana. The Court held that Vernon Bowman’s harvesting and replantation of Monsanto soybeans was patent infringement against Monsanto.  In this case, however, Monsanto made public that it had no intention of suing organic farmers whose crops might be inadvertently pollinated by Monsanto corn.  In response to Monsanto’s statement, the plaintiffs demanded a blanket promise from Monsanto never to sue them.  The New York federal court concluded that, because the plaintiffs were not in any real danger of being sued by Monsanto, they had no legal standing to seek a declaratory judgment that Monsanto cannot sue them.

Indeed, the court stated that the plaintiffs’ demand for a blanket promise from Monsanto never to sue them was an attempt to create a legal controversy where none existed.  The court dismissed plaintiffs’ argument that they felt threatened by Monsanto’s refusal to give a blanket promise never to sue them.  The court characterized plaintiffs’ arguments as “baseless” and “groundless” and their tactics as “not to be tolerated” and “unacceptable.”  The court further stated that plaintiffs’ demand of a blanket promise from Monsanto “was clearly intended to be used as a prop in this litigation,” and a “transparent effort to create a controversy where none exists.”  The court therefore dismissed the lawsuit.  Not content, plaintiffs appealed to the Federal Circuit.

The Federal Circuit court affirmed the dismissal, agreeing with the lower court that the plaintiffs had no standing to ask for a declaratory ruling when they were in no real danger of being sued by Monsanto, although the Federal Circuit’s language was not as critical of the plaintiffs was as the lower court’s.  The Federal Circuit pointed out that the plaintiffs’ alleged fear of a lawsuit from Monsanto was “too speculative.”

So, was the lawsuit by the organic farmer-plaintiffs merely an effort to attract attention to their anti-GMO, anti-Monsanto cause?  If so, is that a proper use of the court system?

This blog was originally posted on The IP Stone by Walter Judge on June 25. Click here to see the original post. 

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An important federal appeals court has determined that a Connecticut court has jurisdiction over a Canadian citizen whose only act in Connecticut was accessing information on a computer server located in Connecticut.  In MacDermid, Inc. v. Deiter, 702 F.3d 72 (Dec. 26. 2012), a Connecticut-based company, MacDermid, Inc., sued its former employee, Deiter, a Canadian citizen who worked from Canada, in federal court in Connecticut for misappropriation of MacDermid’s trade secrets.  MacDermid alleged that Deiter sent confidential company information from her company email account to her personal email account.  The lower court dismissed the case, saying that Connecticut courts did not have jurisdiction over Deiter because she never set foot in Connecticut and only used a computer terminal in Canada.  MacDermid appealed.  The U.S. Court of Appeals for the Second Circuit, in New York, reversed, holding that it was proper for a Connecticut court to exercise personal jurisdiction over a Canadian employee of a Connecticut company because, even though she was located in Canada and physically interacted only with a computer in Canada, she “used” a server in Connecticut.


MacDermid is a chemical company located in Connecticut.  Dieter, a resident of Ontario, Canada, worked for MacDermid’s Canadian subsidiary.  The email system for both MacDermid and its Canadian subsidiary is located on a server in Waterbury, Connecticut.  Just before Dieter was about to be fired, she forwarded what MacDermid claims is confidential information from her MacDermid email account to her personal email account.  In doing so, Dieter accessed MacDermid’s email server in Connecticut, even though she did so while located in Canada and physically interacting only with her computer terminal in Canada (albeit a company computer).  MacDermid sued Dieter in Connecticut for trade secrets misappropriation, and Dieter moved to dismiss, arguing that Connecticut courts did not have jurisdiction over her, as she had never left Canada.  The issue was whether the Connecticut “long arm” statute gave Connecticut courts jurisdiction over someone outside of Connecticut, and whether such jurisdiction would be constitutional.  One section of the “long arm” statute gives Connecticut courts jurisdiction over someone who “uses a computer” or “a computer network” located in Connecticut.  Therefore, the issue became whether accessing email via a server located in Connecticut constituted “using” a Connecticut computer or network.


The lower court dismissed the case because it found that Dieter had not “used” a Connecticut computer or Connecticut computer network, but had only sent email from one computer in Canada to another computer in Canada.  The Second Circuit court disagreed.  It concluded that “using” a computer or network may involve more than just the act of physically interacting with a computer.  While Dieter had physically interacted only with her terminal in Canada, she had “used” MacDermid’s network in Connecticut by accessing it electronically when she sent an email from her company account to her personal account.  The Second Circuit pointed out that the “long arm” statute does not require that user be located in Connecticut, but only that the computer or network – i.e., the thing that is “used” – be located there.  In other words, the “long arm” statute extends to people who access Connecticut computers or networks remotely.

But, having determined that Connecticut’s “long arm” statute extended to Dieter, the Second Circuit still had to determine whether exercising jurisdiction over Dieter would be  constitutional.  It found that it was.  The court found that Dieter knew that, in using MacDermid’s email system, she was accessing a server in Connecticut.  Even though Dieter would have to travel from Ontario to Connecticut to defend herself in the lawsuit, that would not be an unreasonable burden on her.  Furthermore, according to the court, Connecticut has a significant interest in interpreting its misappropriation laws.  The Second Circuit concluded that it was proper for Dieter to be sued in Connecticut for the wrong she was alleged to have committed.


While this decision was based on Connecticut law, the Second Circuit federal appeals court covers New York, Connecticut, and Vermont.  Moreover, it is considered an important authority on commercial law.  So its analysis on personal jurisdiction could be persuasive in other courts.


The lesson here is that if you think you are safe from suit in a particular state in the U.S. just because you access a computer from the comfort of a faraway state – or even, as in this case, another country – you might be gravely mistaken.

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics
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We previously discussed the troubling issues of:  a)whether your company’s insurance policy(ies) actually provides coverage for claims of IP infringement, and b)which of your policies is the one(s) you should be looking to for possible coverage when you get sued for infringement.

And for a great discussion of insurance coverage for IP infringement claims generally under the “Advertising Injury” clause of a standard commercial general liability policy, see Dan Graham’s article in the DRI insurance coverage newsletter.

This week we’ll get more specific:  a claim that was found by one California appeals court to be covered under a standard commercial general liability policy, and one that was found by a different division of the same appeals court not to be covered – both under the very same “advertising injury” clause of the policy.

In Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc., Charlotte Russe, a clothing retailer, requested its insurance company, Travelers, to defend it in a lawsuit brought by Versatile Entertainment, Inc. (Versatile v. Charlotte Russe – the “underlying lawsuit”).  Versatile is a manufacturer of “premium” clothing marketed under the brand “People’s Liberation.”  In the underlying lawsuit, Versatile alleged that Charlotte Russe had harmed the People’s Liberation “brand” of “high-end” and high-priced clothing by offering Versatile’s clothing for sale at deep discounts and at “close-out” prices, amounting to a “fire sale.”

Charlotte Russe’s request that Travelers defend it in the underlying lawsuit was based on the “Advertising Injury” clause in the Travelers’ policy issued to Charlotte Russe.  Travelers denied Charlotte Russe’s request.  Because of the disagreement between Charlotte Russe and Travelers, Travelers filed a separate lawsuit requesting a judicial determination of whether it was required to provide coverage to Charlotte Russe (Travelers v. Charlotte Russe – the “coverage lawsuit”).

Travelers Policy Defines Advertising Injury
In the Travelers policy, “Advertising Injury” was defined in several ways.  One of the definition of “Advertising injury” was, “injury . . . arising out of . . . material that . . . disparages a person’s or organization’s goods, products, or services.” In the coverage lawsuit, Travelers contended that Versatile’s allegations against Charlotte Russe in the underlying lawsuit did not amount to a claim that Charlotte Russe had “disparaged” the People’s Liberation brand.  A retailer’s mere reduction of a product’s price is not, argued Travelers, a disparagement of that product.  In order to satisfy the definition of “disparagement” under the policy, Travelers argued, Versatile would have to be alleging the elements of the tort of trade libel under California law against Charlotte Russe.

Trade Libel Not A Requirement for Committing Disparagement
Trade libel, in turn, requires the publication of an injurious false statement about a company or its goods or services.  The trial court in the coverage lawsuit agreed with Travelers’ position on the meaning of the term “disparagement” and granted summary judgment in its favor – meaning that Travelers had no obligation to defend Charlotte Russe in the underlying lawsuit.  Charlotte Russe appealed from this decision.

The California appeals court reversed, holding that Company A’s publication of an injurious false statement against Company B or Company B’s goods or services (i.e., the definition of trade libel) is not a requirement for establishing that Company A may have committed “disparagement” under the insurance policy.  In other words, reading the allegations in the underlying lawsuit, Charlotte Russe may have “disparaged” the People’s Liberation brand of clothing by implication, by selling the clothing at “fire sale” prices.  The gist of the underlying lawsuit, said the court, is that Versatile was accusing Charlotte Russe of impliedly telling the world that the People’s Liberation brand of clothing is not a premium, high-end line, which, according to Versatile, is false. According to the court, that is disparagement.  Lastly, the court said that there was nothing in the language of Travelers’ policy that said the definition of “disparagement” is equal to the legal definition of trade libel.  Accordingly, the appeals court reversed the trial court, and held that Travelers was required to defend Charlotte Russe in the underlying lawsuit.  Travelers appealed this decision to the California Supreme Court, but its petition for appeal was denied.

Sister Appeals Court Comes to Opposite Conclusion
A little more than three months later, a different panel of the same California appeals court came to exactly the opposite conclusion in the case of Hartford Casualty Ins. Co. v. Swift Distribution, Inc.  In this case, the issue was whether Hartford had to defend its insured, Swift, in a lawsuit brought by Gary-Michael Dahl.  Dahl sells an item called the “Multi-Cart.”  Swift started advertising and selling an item called the “Ulti-Cart.”  Swift’s advertisements made no mention of Dahl or the “Multi-Cart.”  Dahl sued Swift for patent infringement, trademark infringement, unfair competition, trademark dilution, and misleading advertising (Dahl v. Swift – the “underlying lawsuit”).  Among other things, Dahl alleged that Swift’s advertisements for the Ulti-Cart “disparaged” Dahl’s Multi-Cart by implication.  Swift requested that its insurance company, Hartford, defend it in the lawsuit brought by Dahl.  Swift requested coverage under the “Advertising Injury” clause of the policy.

The definition of “Advertising Injury” in the Hartford policy was exactly the same as the definition in the Travelers policy in the Travelers v. Charlotte Russe case, above.  Hartford refused Swift’s request, arguing that Dahl’s allegations in the underlying lawsuit against Swift weren’t covered under the policy.  To settle the dispute – just as Travelers had done against Charlotte Russe – Hartford filed a coverage lawsuit against Swift.  That is, it sued Swift for a judicial determination of whether it had a duty to defend Swift in the underlying lawsuit.  While Hartford’s coverage lawsuit against Swift was pending, Dahl and Swift settled the underlying lawsuit.

In Hartford’s coverage lawsuit, Swift alleged that Dahl’s claims in the underlying lawsuit came within the definition of “Advertising Injury.”  The trial court ruled in Hartford’s favor, finding that, on the undisputed facts, which, in this case, were:
a) the allegations in Dahl’s complaint against Swift in the underlying lawsuit, and
b) the terms of the Hartford policy issued to Swift, there was no “disparagement” by Swift.  Swift appealed.

Insurer Does Not Have to Provide Coverage
This time, the California appeals court – again, a different division of the very same appeals court that found coverage in the Travelers v. Charlotte Russe case – affirmed the trial court’s decision of no insurance coverage.  The appeals court here found that Dahl’s underlying lawsuit did make a variety of allegations that Dahl and its product, the Multi-Cart, were harmed by Swift’s infringements, by its unfair competition, and by its false and misleading advertising.  Nevertheless, the court found that Swift’s advertisements did not actually disparage – i.e., express an “injurious falsehood” about – Dahl or the Multi-Cart because the advertisements never mentioned Dahl or the Multi-Cart.

Swift then argued that in the underlying lawsuit Dahl had alleged that Swift’s advertisements referred to Dahl’s Multi-Cart by implication.  The court found that even if this were true, Swift’s advertisements mentioned only its own product, the Ulti-Cart.  Regardless of whether Swift’s conduct might constitute trademark infringement and unfair competition against Dahl and the Multi-cart, Swift’s advertisements did not disparage Dahl or the Multi-Cart.

Therefore, the appeals court held that, because Swift’s advertisements had not disparaged Dahl or the Multi-Cart, Dahl’s underlying lawsuit did not come within the Advertising Injury coverage clause of Hartford’s policy issued to Swift, and Hartford was not required to defend Swift in the underlying lawsuit.

Notably, the appeals court in Hartford v. Swift said that its sister court’s decision in Travelers v. Charlotte Russe was wrong.  It said that discounted pricing (which was the operative allegation in the Versatile v. Charlotte Russe lawsuit) is not “disparagement.”  It said that discounted pricing is not the same thing as the publication of an injurious false statement.  The language used by the Hartford v. Swift court in expressing its disagreement with its sister court is about as clear and strong as one finds in court opinions.

Swift has appealed the coverage case to the California Supreme Court, which has not yet decided whether it will hear the case.  I’m guessing the Supreme Court will take the case now that two California appeals courts have come to opposite results in interpreting the same clause in a standard insurance policy.

The lesson here is that claims against you or your client of patent infringement, trademark infringement, unfair competition, trademark dilution, and/or misleading advertising might not constitute “disparagement” under your insurance policy.  If you sell a product, especially one that competes with other similar products on the market, you need to purchase your insurance carefully, and look for policies that will cover you for the types of claims you might face:  infringement- and unfair competition-type claims by your competitors, and products liability-type claims by the purchasers of your product(s).

In the coming weeks and months, we’ll check the status of the appeal in the Hartford v. Swift case and have more to say on insurance coverage issues for intellectual property infringement claims.

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics. You can find his original post here

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Misunderstood heroes. Space travel. Alien worlds. Humanoids. Greed. Imperialism. Violence. Exploitation. Intercultural war. Redemption. And Copyright Infringement?

Everyone’s seen the movie Avatar. How many people have read the book Bats and Butterflies? How many people have even heard of it? The author of Bats and Butterflies alleges that James Cameron’s Avatar is a rip-off.

Elijah Schkeiban, author of the book Bats and Butterfliesfiled a lawsuit against Cameron, author, director, and co-producer of Avatar, and Lightstorm Entertainment, Inc., Twentieth Century Fox Film Corporation, and Dune Entertainment LP.  Schkeiban alleges in his lawsuit that he created the Bats and Butterflies “franchise of products” in 1988 based on his script and novel of the same name.  He alleges that he registered the copyrights for the script and novel in 2000 and 2001. 

Schkeiban alleges that in 2005 he started shopping the script to various people in Hollywood, including an actor named Billy Zane. He alleges that Cameron’s Avatar copied Bats and Butterflies, and that the two stories are “substantially similar” in plot, sequence of events, characters, themes, moods, setting, and pace.  He alleges that Cameron and the other defendants therefore infringe his copyrights.  You can’t watch the movie Bats and Butterflies, to decide for yourself whether Schkeiban’s claims have merit, because the movie hasn’t been made.  But you could read the novel.

Anyway, the court dismissed his Complaint, noting (correctly) that the Complaint was missing an essential element of a copyright infringement claim:  it made no allegation whatsoever that Schkeiban gave or showed his script to Cameron or the other defendants, or that they had access to it. This was a fatal omission. 

Schkeiban then filed an “Amended” Complaint, in which he now alleged that when he gave his script to Zane in 2005, he asked Zane to give a copy of it to Cameron, and that Zane later told him that he had done so.  Again, the court dismissed the Amended Complaint.  The court noted that Schkeiban’s new allegation only alleged that Zane allegedly told Schkeiban that he (Zane) had given the script to Cameron.  This allegation simply wasn’t enough, the court said, to establish that Cameron actually saw the script. 

Schkeiban responded by filing a Second “Amended” Complaint.  In this third pleading, Schkeiban pointed out that Zane is an actor who had been in Cameron’s previous film, Titanic, and therefore was close to Cameron.  Schkeiban further alleged that he had had a telephone call with Zane in 2005 in which Zane assured him that he had given the Bats and Butterflies script to Cameron.  Otherwise, there were no changes from the previous Complaints.

Copyright Law Protects the Expression of Ideas
Before turning to the court’s final decision, a little about copyright law.  Many people who don’t work in intellectual property don’t realize that copyright law cannot and does not protect ideas.  It protects only the actual expression of those ideas. 

  • In literary works, such as novels or scripts, you can’t copyright what are called “scenes a faire,” meaning standard plots, scenes, characters, or themes. 
  • You can’t copyright plots, such as “boy-meets-girl, boy-breaks-up-with-girl, boy-reunites-with-girl, and boy-and-girl-live-happily-ever-after.” 
  • You can’t copyright scenes, such as “boy-meets-girl-in-a-dimly-lit-bar.” 
  • You can’t copyright characters, such as heroes, villains, victims, etc.
  • And you can’t copyright themes, such as “misunderstood and conflicted soldier in invading culture falls in love with a member of the invaded culture, switches allegiance, and leads the invaded culture in repelling his own culture.  This persistent theme in human literature is nicely explored in the Wikipedia entry for the film Avatar.   (Consider:  the novel Tarzan and the film Dances With Wolves.) 
In order for a court to find copyright infringement in a script or novel, there has to be almost exact copying of the actual mode of expression – i.e., the words and sentences.  Therefore, Schkeiban would have to show not only that Cameron saw or had access to his script, but also that Cameron literally or almost literally copied from it.

The Court’s Decision – Avatar Not “Substantially Similar” to Bats and Butterflies
The court again dismissed Schkeiban’s Second Amended Complaint, pointing out that this was Schkeiban’s third attempt to make out a copyright infringement claim.  The court noted that to prove copyright infringement, a claimant must prove: 

1. ownership of a valid copyright, and
2. copying by the alleged infringer (Cameron) of elements of the infringed work (Bats and Butterflies) that are original to that work. 

In turn, copying can be proven by showing that: 
1. the defendant had access to the infringed work, and
2. that the works at issue are “substantially similar.” 

The court noted that, even on his third attempt, Schkeiban’s effort to show that Cameron had access to Bats and Butterflies was vague.  But, even assuming Cameron had access, the court found that the elements of Bats and Butterflies and Avatar are not “substantially similar.” Bats and Butterflies is a fantasy work that involves a bullied human teenager, Joshua, who is magically transported to a planet and finds a war between bats and butterflies.  Joshua helps the butterflies defeat the bats and helps a caterpillar princess mature into a queen butterfly.  As we all probably know, Avatar involves a disabled war veteran/mercenary soldier who flies to a planet; through cloning technology is transformed into one of the native beings on that planet in order to spy on them; and eventually sides with the natives and helps them defeat the invading humans – his own people. 

Although both works involve humans who go to a distant planet and become involved in a war between two cultures there, the similarities end there, according to the court.  Schkeiban argued that his script and Cameron’s film were similar because both involved ideas of alien lands, deaths of family members, and battles between groups with competing interests.  The court found that the plots and sequences of events between the two stores are substantially different and that any similarities are merely general ideas, which cannot be copyrighted.  Similarities between Schkeiban’s hero, a bullied teenager, and Cameron’s hero, a paraplegic war veteran, are not copyrightable.  Any random similarities of plot scattered between the two stories are “scenes a faire.”  Both stories arguably involve themes of racism, genocide, imperialism, and environmentalism, but, again, themes cannot be copyrighted.  As a result, the court found that, after three attempts, Schkeiban could not prove copyright infringement, and dismissed his claim with finality (“with prejudice”).

Another note about copyright law:  In contrast to the standard “American Rule,” whereby each party in litigation pays its own attorneys’ fees, the copyright statute allows the prevailing party (here, Cameron, et al.) to recover its fees. After persuading the lower court to dismiss Schkeiban’s Complaint, the defendants moved for recovery of their attorneys’ fees.  The court denied their motion.

The court docket reveals that Mr. Schkeiban has filed an appeal to the U.S. Court of Appeals for the Ninth Circuit.   Bats in the Belfry?

Stay tuned.

*This article was originally posted to "The IP Stone" by Walter Judge on December 19, 2012. Read the original post here

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