ILLINOIS STATE BAR ASSOCIATION JANUARY 2019 VOL 58 NO. 2 Intellectual Property
The newsletter of the Illinois State Bar Association’s Section on Intellectual Property Law
Code Revision Commission Code Revision Commission v. Public.Resource.Org: Copyright of laws and public works v. Public.Resource.Org: 1
Copyright of laws and public Taming the trolls works 1 Podcaster sued for copyright BY PETER J. ORLOWICZ infringement for using music without permission When legislators write laws and United States Government….”2 The law 5 judges issue decisions, it is not usually has not been so clear, however, when state a controversial principle that the text of legislatures or governmental bodies have New federal government these laws and decisions are not protected incorporated copyrightable third-party ruling approves companies’ by copyright.1 In fact, section 105 of the standards or editorial material into the employment policies 6 Copyright Act specifically states, in part, official laws and regulations. Recently, the that “[c]opyright protection under this U.S. Court of Appeals for the Eleventh title is not available for any work of the Continued on next page Noncompetes: Consideration, peppered with confusion Taming the trolls 7 Intellectual Improbabilities™ BY PHIL SWAIN 10
[Q]: Have there been any money. The amount the troll demands has that they had were nothing like that. The developments on the measure nothing to do with the merits of the claim. patents involved keeping track of fleets of aimed at banning patent trolling in For example, I had a recent case with trucks and buses, which has nothing to do Massachusetts? a pretty well known patent troll called with order confirmation. Shipping & Transit. They sent a letter to This new statute would allow someone “The measure was designed to create my client then sued them over patents they who is the target of a letter like that to a cause of action against people who were claimed covered the concept of sending a make a civil claim for bath faith assertion the target of bad faith patent troll demands confirmation notice for something online, against these patents. If they succeed, they or letters. such as a retail transaction. would be entitled to damages. In the U.S., patent trolls often start by The vague concept of just sending a Massachusetts is late to the party—34 sending their targets a letter, accusing confirmation message, like when you out of the 50 states have already enacted them of infringement, including some order something from Amazon and they this kind of anti-patent troll legislation. details about their assertions, which are send back an email or a confirmation The Massachusetts bill was passed by the very vague, and threatening a lawsuit number—Shipping & Transit claimed to state legislature this past summer, but the unless the victim pays them a sum of have a patent on that. In reality, the patents Continued on page 4 Intellectual Property ▼ JANUARY 2019 / VOL 58 / NO. 2
Code Revision Commission v. Public.Resource.Org: Copyright of laws and public works Intellectual Property CONTINUED FROM PAGE 1 This is the newsletter of the ISBA’s Section on Intellectual Property. Circuit considered a version of this question The Code Revision Commission (acting Section newsletters are free to section members and published at in Code Revision Commission, State of on behalf of the state and its legislature) least four times per year. Section Georgia v. Public.Resource.Org., Inc., No. 17- argued that this republication infringed on membership dues are $30 per year. th 11589 (11 Cir. Oct. 19, 2018) and identified the state’s copyright and eventually sued To join a section, visit www.isba.org/ three factors to consider in determining for injunctive relief in the U.S. District sections or call 217-525-1760.
“whether a written work is attributable to Court for the Northern District of Georgia. OFFICE the constructive authorship of the People” Public Resource counterclaimed, seeking ILLINOIS BAR CENTER and not copyrightable as a result.3 The a declaratory judgment that the State of 424 S. SECOND STREET SPRINGFIELD, IL 62701 factors which the eleventh circuit identified Georgia could not hold a valid copyright PHONES: 217-525-1760 OR as characteristics of a document that in any part of the O.C.G.A. The district 800-252-8908 WWW.ISBA.ORG represent the law as constructively authored court found in favor of Georgia, concluding by the public are: that the annotations lacked the force of EDITOR Daniel Kegan 1. The law is written by particular law and, therefore, were not in the public
public officials who are entrusted domain. The district court also rejected PUBLICATIONS MANAGER with the exercise of legislative Public Resource’s defense of fair use. Public Sara Anderson power; Resource then appealed to the eleventh [email protected] 2. The law is, by its nature, circuit. INTELLECTUAL PROPERTY LAW authoritative; and SECTION COUNCIL Jonathan L. Phillips, Chair 3. The law is created through certain, The People as “Author” Mark D. Weis, Vice-Chair The eleventh circuit reversed, finding Margo Lynn Hablutzel, Secretary prescribed processes and deviating Christine Beaderstadt from these processes deprive it of “that the People are the ultimate authors of Aaron W. Brooks 4 John P. Kale legal effect. the annotations. As a work of the People the Daniel Kegan, Newsletter Editor annotations are inherently public domain Lewis F. Matuszewich Kenny Andrew Matuszewski, CLE Factual Background material and therefore uncopyrightable.”6 Coordinator Charles L. Mudd, Jr. Georgia’s official state code (the “official In reaching this conclusion, the court Phillip R. Van Ness code” or “O.C.G.A.”) includes not only acknowledged that the foundations of this Edward Yeh Hon. Carey C. Gill, Board Liaison statutory text enacted by the legislature, but rule were “generally implicit and unstated,”7 Melissa L. Burkholder, Staff Liaison Edward W. Huntley, CLE Committee also annotations that include commentaries, but emphasized the lengthy history and line Liaison advisory opinions from the state bar and of authority resulting from the U.S. Supreme attorney general, and other reference Court’s cases that establish, with respect to notes. Although the annotations are certain governmental works, the “author” considered part of the official code, the of the work should be treated as the general annotations do not generally carry the public when the work represents an exercise force of law.5The annotations were initially of the people’s sovereignty. In particular, prepared by Matthew Bender & Co., Inc., the court relied on Banks v. Manchester, an operating division of LexisNexis, in a Supreme Court decision that held state exchange for, in part, the exclusive right of court judges could not be considered the publication. However, final editorial control “author” of a judicial decision for copyright DISCLAIMER: This newsletter is for subscribers’ of the annotations rests with the Code purposes because judges receive a fixed personal use only; redistribution is prohibited. Revision Commission, a governmental public salary and can have no pecuniary Copyright Illinois State Bar Association. Statements or expressions of opinion appearing herein are body established by the Georgia General interest in the fruits of their judicial labors, those of the authors and not necessarily those of the Association or Editors, and likewise the publication Assembly, and the state of Georgia claimed even as the Supreme Court acknowledged of any advertisement is not to be construed as an copyright in the annotations (but not the that the issue was fundamentally a public endorsement of the product or service offered unless 8 it is specifically stated in the ad that there is such statutory text) in its own name. In 2013, policy question. The Eleventh Circuit approval or endorsement.
Public.Resource.Org (“Public Resource”), pointed out that other courts of appeals Articles are prepared as an educational service to a non-profit organization headed by Carl have extended the principle to apply to members of ISBA. They should not be relied upon as a substitute for individual legal research. Malamud, purchased a full set of the printed state statutes9 and municipal building codes 10 The articles in this newsletter are not intended to be O.C.G.A. for the purpose of republishing enacted into binding regulations, but not used and may not be relied on for penalty avoidance. the official code to the public, free of charge. to private listings of motor vehicle values11
2 or coding systems12 incorporated into or Georgia General Assembly must formally States government in 17 U.S.C. § 105. required by regulation,tax maps created vote annually to adopt the O.C.G.A. Rather, the rule in Banks as applied in by a county assessor’s office,13 or terms of as the official state code, including the Code Revision Commission “is concerned a restrictive covenant entered into by a annotations. Although the annotations do with works created by a select group of municipality.14 not purport to carry the force of law in the government employees, because only The eleventh circuit’s opinion strongly way that the statutory text does, the court certain public officials are empowered with asserted the role of popular sovereignty placed weight on the annotations being the direct exercise of the sovereign power.”17 in the principle that laws cannot be made an inextricable part of the code and Only those works which meet the three copyrightable because lawmakers and given the state’s approval and authority. factors identified by the Eleventh Circuit judges are acting as the People’s agents The court also noted that Georgia state would be uncopyrightable. Although the in drafting laws and decisions. As a courts favorably cite to annotations as eleventh circuit’s decision is not binding result, the people must be considered the authoritative sources on statutory meaning on Illinois federal courts, the analysis constructive author of such documents and legislative intent, and that the act of is based in federal copyright law, not in for purposes of copyright law, and any the legislature to adopt the code with its any substantive state law (other than the document that falls into this classification annotations transforms them into official factual circumstances surrounding the must be inherently in the public domain comments authored by the same body drafting and adopting of the annotations and not subject to copyright. With this that wrote the statutes, conferring special at issue in the case). Finally, municipalities principle established, the eleventh circuit significance and meaning on them in that incorporate third-party standards for identified three essential characteristics comparison to an unofficial annotated code building codes, fire protection, or other that “make the law what it is,”15 and thereby or interpretive document. Finally, the court areas into local ordinances may wish to would make a particular writing or work noted the process by which the Georgia consider the three factors in deciding noncopyrightable: legislature reviews and approves the how best to adopt the standards in a way The law is written by work of the Code Revision Commission that will be most easily accessible to the particular public officials who and adopts the code (with annotations) public.n are entrusted with the exercise as official is very similar (though not of legislative power; the law is, identical) to the legislative process for by nature, authoritative; and the enacting statutes, insofar as both houses General Attorney, United States Railroad law is created through certain, of the Georgia General Assembly must Retirement Board, Office of General Counsel. The statements and views expressed in this article are prescribed processes, the deviation vote on a legislative act which is signed entirely Mr. Orlowicz’s own, and do not represent from which would deprive it into law by the Governor. This process the views of the Railroad Retirement Board or the of legal effect. Each of these of bicameralism and presentment, the United States Government. attributes is a hallmark of law. court found, was an essential element of 1. See Wheaton v. Peters, 33 U.S. 591 (1834) (holding These characteristics distinguish lawmaking and the exercise of sovereign that the Reporter of the Supreme Court could not hold copyright in the written opinions of the Court) and written works that carry the power, which was present in the adoption Banks v. Manchester, 128 U.S. 244 (1888) (holding force of law from all other works. of the official code. that neither a state court judge nor the reporter who compiled the opinions were an “author” of the work Since we are concerned here with Because the annotations in the official under the Copyright Act). whether a work is attributable to code are authored by the right state 2. 17 U.S.C. § 105. 3. Code Revision Commission, State of Georgia v. the constructive authorship of the officials, in the right manner to exercise Public.Resource.Org, Inc., No. 17-11589 (11th Cir. People, these factors guide our sovereign power, and have authoritative Oct. 19, 2018), slip op. at *28. 4. Id. at *28. inquiry into whether a work is law legal significance, the court held that no 5. O.C.G.A. § 1-1-7. or sufficiently law-like so as to be part of the O.C.G.A. was copyrightable, 6. Code Revision Commission at *5. 16 7. Id. at *20. subject to the rule in Banks . and therefore reversed and remanded to 8. Banks v. Manchester, 128 U.S. 244, 253 (1888). In comparing these characteristics to the the district court with instructions to enter 9. Howell v. Miller, 91 F. 129 (6th Cir. 1898). 10. Veeck v. S. Building Code Cong. International, annotations in the O.G.C.A., the eleventh judgment for public resource. Inc., 293 F.3d 791 (5th Cir. 2002) (en banc). circuit concluded that the annotations 11. CCC Information Services, Inc. v. Maclean Hunter Significant Lessons Market Reports, Inc., 44 F.3d 61 (2nd Cir. 1994). possessed all three. Specifically, the court 12. Practice Management Information Corp. v. Am. identified the fact that the Code Revision The eleventh circuit’s decision should Med. Ass’n, 121 F.3d 516 (9th Cir. 1997), amended, not be interpreted to mean that all works 133 F.3d 1140 (9th Cir. 1998). Commission held final editorial control 13. City of Suffolk v. First American Real Estate of the annotations, provided highly of a state or local government employee Solultions, 261 F.3d 179, 193 (2nd Cir. 2001). are inherently non-copyrightable; in fact, 14. John G. Danielson, Inc. v. Winchester-Conant detailed instructions to LexisNexis for Properties, Inc., 322 F.3d 26 (1st Cir. 2003). what materials must be included and how the court took pains to distinguish its three 15. Code Revision Commission at *28. essential characteristics from the bright- 16. Id. they are prepared, and exercised direct 17. Id. at *38. supervision of LexisNexis during the line rule enacted by Congress against process. The court also noted how the copyright for any work of the United
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Taming the trolls CONTINUED FROM PAGE 1
governor vetoed it. examine those and compare them to prior these vague letters too. I’ve had a client art. The USPTO was issuing a lot of patents successfully use other state statutes, such [Q]: What was the reason behind that were questionable in terms of their as the Massachusetts consumer protection that veto? validity. statute, to fight back against these sort of bad The governor wrote a letter to the As it increased between the late 90’s and faith assertions. legislature on 10 August—it was pretty brief. the early 2010’s, more and more bad patents He said that the legislation is “not narrowly were being issued. Then, there was one troll [Q]: Is this something that should be tailored and is likely to have unintended that became very well known, called MPHJ dealt with at a national level? consequences for Massachusetts residents, Technology Investments—it was an entity There have been many attempts to reform companies and educational institutions. ” based in Texas - and they claimed to have a the patent system to address patent trolls, He went on to say that the legislature patent on the basic fundamental technique and some of those have already been enacted will go on to discuss this topic in a future for scanning documents and inputting them by the federal government, but nothing yet session and will draft a more focused into a computer as an email or loading them on a national level on these types of letters. solution. Beyond that, there was not really on the Internet. The patent didn’t cover The introduction of the America Invents an explanation as to why the governor anything like that broad basic concept, and Act [in 2011] has made it easier to combat was vetoing it. I would say this—I think it was obviously invalid, and MPHJ was patent trolls, as it introduced a procedure for that there were different groups who were sending letters to thousands of targets, often challenging patents at the USPTO. That has pushing for this, like a technology company small companies, demanding relatively small done more to slow the trolls down than these that was an especially frequent target of amounts, but enough to cause alarm. state statutes. trolls. But, there was another group that MPHJ was probably the worst offender We saw the peak of troll litigation three lobbied the governor, including universities of this bad faith patent assertion. It was just or four years ago, and it has begun to tail off and others, and they convinced the governor targeting any sort of business it could find, over the last few years. Partly because some that this was not narrow enough. I think as practically anyone would be involved in of the patents have been invalidated, part of one of the groups is called AIM—Associated scanning of documents onto a computer. A it is because trolls are seeing that these types Industries of Massachusetts—they were couple of states, Vermont being one of them, of tactics are not as successful, and people against this and convinced the governor to got involved and went after this troll and are finding ways to use the existing tools they veto it. argued that those who received these vague have to fend them off.”n letters should be protected. [Q]: Why is this problem being dealt The Vermont attorney general sued MPHJ [email protected] with now, and has it increased over and the state began working on legislature to © Copyright Black Knight Media, LLC and Foley the past few years? combat patent trolling. Vermont was the first Hoag LLP (originally published in IPPro Patents I would say the problem has increased one to actually pass it. magazine at 21, 11 December 2018).” Told to Barney over the past few years. Patent trolls have The battle between the Vermont attorney Dixon, Deputy Editor, Black Knight Media. become a bigger problem as technology, general and MPHJ eventually settled and 1. The 34 states that have enacted some sort of anti-bad computer, and software industries have resulted in MPHJ ceasing its actions. Other faith patent statutes are: Alabama; Arizona; Colorado; grown. There are many patents out there that Florida; Georgia; Idaho; Illinois; Indiana; Kansas; Ken- states began to follow what Vermont did, but tucky; Louisiana; Maine; Maryland; Michigan; Minne- can be asserted against these very complex each individual state changed their statute sota; Mississippi; Missouri; Montana; New Hampshire; systems, but a lot of the patents are either not North Carolina; North Dakota; Oklahoma; Oregon; somewhat. Currently, eight states have Rhode Island; South Carolina; South Dakota; Tennessee; valid or don’t cover what these patent trolls pending diverse legislation on this. Texas; Utah; Vermont; Virginia; Washington; Wisconsin; say they cover. and Wyoming. In addition to Massachusetts, there are The basic point in all of this legislation seven other states where legislation was introduced, but The patent troll business became is that if you can show that the demand was not signed into law: California; Connecticut; Iowa; successful, I’d say, starting in the late 90’s, Massachusetts; Nebraska; New Jersey; Ohio; Pennsyl- made in bad faith, and it doesn’t specifically vania. There are also eight states where no legislation and it has been continuing to increase up explain how the patent covers the targeted has been introduced: Alaska; Arkansas; California; until recently. Around that time a lot of Delaware; Hawaii; Nevada; New Mexico; New York; company or its activities, if it just has a vague and West Virginia. questionable and vague patents were granted explanation of what the infringement is, 2. The Massachusetts anti bad faith patent assertion because the prior art history searches being along with the threat to sue, then the victim legislation (proposed Chapter 93M) was opposed by the Associated Industries of Massachusetts, an association done by the U.S. Patent and Trademark is covered, [and can bring a claim for bad of over 4,000 Massachusetts businesses (employers), Office (USPTO) are not that effective in the faith enforcement]. originally a manufacturing association, which lobbies the Massachusetts legislature on behalf of the interests high technology industry. There just isn’t In Massachusetts there other statutes of its members, the business community at large, and for that much of a way for the Patent Office to that could be used to push back against economic growth and job. It appears to have a broad membership, and has lobbied frequently against statu-
4 tory changes that would affect businesses in Massachu- anything that might constrain their ability to prosecute ness group), and the Massachusetts High Technology setts. The anti bad faith patent assertion legislation was patent infringers could be a problem. Other Massachu- Council, apparently did not get involved in lobbying for also opposed by the Massachusetts Business Roundtable, setts business lobby groups which represent more of or against the anti-bad faith patent assertion legislation. and the Massachusetts Biotechnology Council. Along the start-up type companies who are often the target of with AIM, it is likely that the majority of members of patent trolls, including the Massachusetts National Fed- these groups were concerned that, as owners of patents, eration of Independent Business chapter (a small busi- Podcaster sued for copyright infringement for using music without permission
BY DAVID OXENFORD
It was news earlier this week that when they also require rights to reproduction involve associating that song in some a company that promotes poker was sued and distribution of the copyrighted songs permanent way with other content. In the by one of the major record labels and and the right to make derivative works—all video world, that is referred to as a synch publishing companies for the use of music rights given to copyright owners under the right—where the audio is “synched” to the in podcasts without permission. As we have Copyright Act. These rights are not covered video creating a single audiovisual work. written before, the use of music in podcasts by the public performance licenses, which Synch rights are not specifically defined by requires a license from the copyright holder only give the rights to make performances the Copyright Act. They have traditionally of both the musical composition and the to the public. What is the difference between referred to audiovisual productions, but recorded performance of the music (usually, these rights? the same concept is at play in the creation for popular music, a publishing company The public performance right is simply of a podcast, where the music is synched to and a record label). In this case, one of that—the right to perform a copyrighted other audio content to create the podcast. the first we’ve seen against a podcaster for work to the public (those beyond your circle In the Universal Music complaint against infringement of a copyright holder’s music of family and friends). Making a copy of a the podcaster, Universal complains that rights (though we have heard of other copyrighted work is a different right, as is the podcaster violated not just the public situations where cease and desist letters were the distribution of that recording. Both are performance rights of the copyright holders, sent to podcasters, or where demand letters triggered when the podcast is downloaded but also their rights to authorize the from copyright holders resulted in negotiated onto a phone or other digital device—the reproduction, distribution, and the derivative settlements), Universal Music alleges that the manner in which podcasts were initially works made from their copyrighted material. podcast company used its music and refused made available to the public. As we have This is all a long way of saying that to negotiate a license despite repeated written before (see, for instance, here and podcasters need to get permission for the attempts by the music company to get the here), by convention (and now by the use of music in their productions. Many podcaster to do so. Thus, the lawsuit was provisions of the Music Modernization Act), podcasters have commissioned original filed. making available music for on-demand works where they license from local As we have pointed out before, a streaming (where a listener can choose artists the recordings of music written and broadcaster or other media company that a particular song, or a set of songs that performed by those artists. Some online has performance licenses from ASCAP, will play in the same order all the time) services have recently begun to develop, BMI, SESAC and even GMR does not get has come to be considered to involve the licensing music for podcasts for set fees. But, the right to podcast music – nor do the rights of reproduction and distribution thus far, most of that music is not major label SoundExchange royalty payments cover (the “mechanical royalties” covered by the releases, but instead independent music. podcasts. These organizations all collect for MMA—see our articles here and here on the Right now, for major label releases, you need the public performance of music. While MMA). to get permission directly from the copyright podcasts may require a performance license The right to make a derivative work holders to use their music. The bottom line— (see our article here about how Alexa and is another right of the copyright holder. don’t use music in podcasts without getting other smart speakers are making the need A copyright owner must give his or her permission. n for such licenses more apparent as more permission before their work is modified and more podcast listening is occurring in some way. While that can involve the [email protected], Wilkinson Barker Knauer through streaming rather than downloads), changing of lyrics to a song, it can also LLP. Reprinted from AIPLA Newsstand, 29 Nov 2018.
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New federal government ruling approves companies’ employment policies
BY ALAN M. KAPLAN
To protect a company’s intellectual and working conditions. Discussions may of the adverse impact on protected rights and property, companies need to be mindful of or may not lead to a campaign by a union to the employer’s business justifications; or federal and state statutes and regulations as represent the employees. Therefore, could Category 3 – rules that are unlawful well as decisions by different government a prohibition on the use of a trademark because they prohibit or limit protected agencies. To protect intellectual property, interfere with an employee’s right to identify rights and the adverse impact on protected companies distribute written policies to and complain that Lyft has dangerous rights is not outweighed by the employer’s their employees in employee handbooks. driving and customer service rules? Could business justifications. Employment policies are subject to scrutiny the prohibition on the disclosure of “other When an employee or union complains by the National Labor Relations Board proprietary and confidential information” about an employment policy, a charge is filed (“Labor Board”), a federal agency which be so overly broad as to prevent an employee with a regional director of the Labor Board, enforces the National Labor Relations Act from disclosing his wages, hours and A regional director may dismiss the charge, (“Labor Act”), a giving employees the right working conditions to other employees and issue a complaint or submit the charge to to discuss their working conditions as well as even to his spouse and tax accountant? the General Counsel’s Division of Advice. the right to support and organize themselves Under the George W. Bush After review and analysis by the Division of as a union. administration, the Labor Board issued Advice, the general counsel will direct the Recently, Lyft, Inc. issued two policies its ruling in Lutheran Heritage Village- regional director to either dismiss the charge analyzed by the Labor Board. Section 11 was Livonia, 343 NLRB 646 (2004). The Labor or issue a complaint against the company entitled “Intellectual Property” and stated: Board found that policies were unlawful, alleging an unfair labor practice. You agree that you will not: Create if employees could “reasonably construe” In Lyft, Inc., Case No. 20-CA-171751, any materials that incorporate the them to interfere, coerce or restrain their Advice Memorandum (June 14, 2018), a Lyft Marks or any derivatives of the rights to discuss their wages, hours and regional director reviewed the charge filed Lyft Marks other than as expressly working conditions. The Labor Board under against Lyft and submitted the charge to approved by Lyft in writing. the Obama Administration followed the the General Counsel’s Division of Advice. Section 18 addressed confidentiality, as precedent in Lutheran Heritage and found Regarding the Intellectual Property policy follows: that many policies were unlawfully vague issued by Lyft, the General Counsel found You agree not to use any and overly broad and, therefore, could be the policy lawful under Category 1. The technical, financial, strategic interpreted by employees to prohibit their Division of Advice noted that employers or other proprietary and exercise of protected rights. “have a significant interest in protecting confidential information relating However, the Trump Administration’s their intellectual property, including logos, to Lyft’s business, operations Labor Board overruled Lutheran Heritage. trademarks and service marks” and that and properties, including User In Boeing Co., 365 NLRB No. 154 (2017), the such property may be worth millions of information disclosed to you Labor Board ruled that it will now evaluate dollars. Failure to police the use of marks by Lyft for your own use or for the nature and extent of the potential impact may be a “crippling blow to a company,” any purpose other than herein. on employees’ rights and, most importantly, and an employer wants to ensure that its You shall not disclose or permit evaluate the legitimate business justifications logo or mark is used in official publications disclosure of any Confidential associated with a policy. The Labor Board and not an employee’s social media site. Information to third parties. will determine whether policies fall within An employee’s use of the logo could be for The issue was whether both rules violated one of three categories: the employee’s personal gain and give the Section 8(a)(1) of the Labor Act. As noted Category 1 – rules that are lawful, because impression that the employee’s activities are above, the Labor Act protects employees’ the rules do not prohibit employees’ rights “condoned by the employer.” The Division of rights in discuss their working conditions. and no balancing is required or the potential Advice noted that employees may still engage The employees may be in unionized as well impact on protected rights is outweighed by in protected activities even if they may as non-unionized companies. Employees an employer’s justifications; not use Lyft’s logo or mark and that Lyft’s have the right to engage in mutual aid and Category 2 – rules that require an legitimate interests outweigh the employees’ protection by discussing their wages, hours individualized scrutiny requiring a balancing rights.
6 Regarding the confidentiality policy, the conditions.” Examining the rule, the Division order the employer to rescind the policy. Division of Advice stated that a category 1 of Advice stated that the words “other If an employer terminates an employee for rule includes prohibitions against disclosing proprietary and confidential information” violating an unlawful policy, the termination, customer information and trade secrets. refer to other types of “technical, financial itself, may be unlawful and the Labor Board They can be reasonably interpreted not to [and] strategic” information and not to will order the employee reinstated and prohibit or interfere with employees’ rights “employee information,” which is not made whole with a monetary award. In to disclose their terms and conditions of included in the policy’s list of information addition, if a union loses an election when employment. Category 2 rules are those protected from disclosure. In addition, the employer has an unlawful policy, the with general prohibitions, such as the use of according to the Division of Advice, Lyft’s question is whether the Labor Board will the words “other confidential information” drivers use on-line forums created by Lyft to order the employer and union to have a in Lyft’s policy. If a category 2 rule could discuss their working conditions. Therefore, second election. Therefore, all employers “reasonably be read to include information Lyft is not prohibiting the drivers’ exercise of should periodically review their employment about terms and conditions of employment, their protected rights. As a result, no finding policies to ensure that they comply with the … such a rule should be found unlawfully was made against Lyft and the charge was rulings of the Labor Board. n overbroad where the impact on employees’ dismissed. rights outweighs the employer’s legitimate Whether in employee handbooks or Alan M. Kaplan
Noncompetes: Consideration, peppered with confusion BY HON. JOHN C. ANDERSON
A postemployment restrictive A noncompete, like any agreement, must consideration has been given, the restrictive covenant must be supported by adequate be supported by consideration. Traditionally, covenant will not be enforced.5 consideration—generally characterized as once an Illinois court determines that “employment for a substantial period of consideration exists, the court does not What Is a Substantial Period of time.” But what is a “substantial period of question whether the consideration is Time? time”? May other forms of consideration be adequate. Indeed, it is said that “even The chronology of caselaw illustrates the substituted? Does it matter if an employee a peppercorn is good consideration.”1 problem’s evolution. One of the first cases quits or is terminated—with or without However, in the context of restrictive to squarely address this issue was McRand, cause? Appellate courts have been unable to covenants, Illinois courts depart from the Inc. v. van Beelen, where the first district held clearly answer these questions. traditional focus on the existence, rather that “continued employment for a substantial Suppose your client walks into your than the adequacy, of consideration.2 period beyond the threat of discharge is office and explains that he has been sued This departure results from the courts’ sufficient consideration for a restrictive by his former employer for violation of recognition that a promise of continued covenant.”6 Subsequently, courts struggled to a noncompete clause in his employment employment may be an illusory benefit define a “substantial” period. contract. Your client signed the noncompete where the employment is at will.3 Courts take From 1985 through the 1990s, courts a week after starting his employment and this approach because the moment after an held that periods of seven or eight months of then worked for the employer for 23 months. employee signs a noncompete, the employee employment did not constitute a “substantial Is the noncompete supported by adequate could be fired while having received period.”7 During that same era, a few consideration? The answer could depend on nothing in exchange for the execution of cases appeared where employment lasted the judge and court hearing the case. the restrictive covenant.4 Unless adequate closer to two years; courts concluded that those restrictive covenants were backed by
7 Intellectual Property ▼ JANUARY 2019 / VOL 58 / NO. 2
sufficient consideration.8 The fifth district, of continued employment to constitute cited Fifield’s proposition that two years in Total Health Physicians, S.C. v. Barrientos, adequate consideration.”13 Neither Diederich of employment is “adequate” and referred declared a noncompete was “no doubt” nor any other Illinois case since explained to Fifield’s “general [two]-year rule of supported by “valuable consideration”9 for why less than two years is necessarily t hu mb.” 17 After noting that the defendant’s less than two years of employment. While inadequate. employment was less than two years, the opinion does not specifically state the the third district then rejected the trial precise length of employment, it appears From Generally Sufficient to court’s factual findings as to the adequacy that the agreement was formed in 1984 Required of alternative forms of consideration and and, in July 1985, a lawsuit was filed. Thus, Then, inFifield v. Premier Dealer Services, reached a contrary conclusion based on the relationship in Barrientos must have Inc., the first district, without any analysis the hearing transcripts. The appellate court lasted less than 19 months. The rule began and while relying partially on Brown, also did not explicitly hold that alternative to emerge that a “substantial period” of declared that “Illinois courts have repeatedly forms of consideration besides two years employment had to be longer than eight held that there must be at least two years of employment could be acceptable, months, but not necessarily longer than 19 to or more of continued employment to but its reevaluation of the trial court’s 24 months. constitute adequate consideration in support findings suggests this possibility under While lawyers in the 1990s struggled to of a restrictive covenant.”14 Unfortunately, the right circumstances. Perhaps Prairie define a “substantial period” of time, the first neither Brown nor the other cited cases ever Rheumatology’s implicit takeaway is that district expressly rejected the existence of a established or identified such a bright-line two years is a bright-line rule—unless other calendar-based, bright-line rule in Woodfield rule. If anything, caselaw has established adequate consideration exists. Group, Inc. v. DeLisle, stating: that no bright-line rule exists. The Illinois While adequate consideration remained We do not believe [caselaw] limits Supreme Court denied a petition for leave unclear afterPrairie Rheumatology, federal the courts’ review to a numerical to appeal in Fifield, leaving a split among the district courts located in Illinois have formula for determining what appellate districts—and even a split among almost uniformly rejected Fifield and, constitutes substantial continued different panels of the first district. to a lesser extent, Prairie Rheumatology. employment. Factors other than Thus, within five years, caselaw went from They construeFifield as having incorrectly the time period of the continued saying two years is “generally sufficient,” to identified a bright-line rule of two years and employment, such as whether saying two years is “generally required,” to have concluded that the Illinois Supreme the employee or the employer finally holding that a minimum of two years Court would reach a contrary result.18 terminated employment, may is absolutely “required.” One federal judge even found that only 15 need to be considered to properly In Prairie Rheumatology Associates, months of employment constitutes adequate review the issue of consideration.10 S.C. v. Francis, the trial court conducted consideration.19 By the 2000s, the waters began to muddy. an evidentiary hearing on a motion for The most recent Illinois Appellate In Brown & Brown Inc. v. Mudron, the third preliminary injunction.15 Even though Court ruling on this issue, McInnis v. OAG district correctly observed that “Illinois the employed physician worked only 19 Motorcycle Ventures, Inc.,20 unsuccessfully courts have generally held that two years or months, the trial court found that other attempted to reconcile the cases mentioned more of continued employment constitutes forms of consideration existed in addition above. In McInnis, the plaintiff worked for adequate consideration.”11 Brown may be the to continuous employment. The trial approximately 19 months. The trial court, first Illinois case to expressly acknowledge court’s order reflects that alternative forms relying on Fifield, found that the employee that two years is typically sufficient. of consideration included the defendant’s did not work past the two-year requirement However, it does not appear that the Brown unique opportunities for expedited and, thus, consideration was inadequate. The court created a bright-line rule of two years. advancement and partnership per her appellate court affirmed in a 2-to-1 ruling. Even in his dissenting opinion, Justice employment agreement, the plaintiff’s However, the McInnis court endeavored to Schmidt appeared to have a similar take assistance to the defendant in the hospital walk the Fifield ruling back, stating that Fifield on the historical requirement, stating, “as a credentialing process, and the defendant’s leaves open the question of whether there general rule, two years or more of continued opportunities to make business and referral may be alternative bases of consideration employment will suffice.”12 However, nothing contacts. On these bases, and after weighing other than two years of employment. Indeed, in Brown suggests that less than two years the credibility of witnesses and other the McInnis court declared that Fifield “did would be necessarily insufficient. factors, the trial court determined that the not abolish a fact-specific approach to Next, in Diederich Insurance Agency, noncompete was enforceable as to seeing determining adequacy of consideration.”21 LLC v. Smith, the fifth district offered a certain categories of patients. TheMcInnis court also stated, consistent with more-narrow interpretation of the two-year The third district did not expressly adopt Woodfield Group, that “courts are not limited issue. In dicta, the court stated “in general, Fifield’s bright-line requirement of two to a numerical formulation.” But, in virtually there must be at least two years or more years.16 However, the court approvingly the same breath, the court seemingly rejected
8 the precedential value of Woodfield Group and agreed that “courts are not limited to a employee’s attack on the trial court’s finding on the basis that it “predated [the] holding numerical formulation”—although Fifield of a “fair question” regarding consideration in Fifield.” 22 Justice Ellis dissented, rejecting did not say that. was frivolous. the majority’s narrowing interpretation of Much of the discussion in McInnis Floundering toward the Illinois Supreme Fifield and further contending that Fifield was amounts to an effort to bend theFifield Court wrongly decided. ruling beyond its breaking point. Justice Until the Illinois Supreme Court Consequently, although the McInnis court Ellis certainly did not appear convinced of addresses this issue definitively, trial judges attempted to reel in Fifield, it exacerbated, these efforts. He argued thatFifield cannot be must determine whether these cases can be rather than cleared, confusion among distinguished and must be rejected. Likewise, read together, or whether they conflict. If lawyers and trial court judges. Indeed, most federal courts almost uniformly have rejected the former, the court is bound to follow an recently, in Avison Young-Chicago LLC v. Fifield. approach that harmonizes them.28 Justice Puritz, a federal judge expressly rejected the Ellis and a number of federal judges appear defendant’s argument that McInnis settled Escape to Federal Court? to believe that the cases are hopelessly the issue, stating McInnis “neither reconciles Returning to the hypothetical employee conflicted. Indeed, inMontel Aetnastak, Illinois law nor offers a persuasive reason to who worked 23 months, suppose the Inc. v Miessen, Judge Castillo determined apply the bright-line rule.”23 employee received no arguable consideration that Illinois law “does not … provide a clear The Illinois Supreme Court has yet other than continuous employment. rule to apply” and that the cases mentioned to consider the issue. It is worth noting, Pursuant to Fifield, the employee above are “contradictory holdings.”29 When however, that in Reliable Fire Equipment Co. automatically wins by working less than conflicts arise among the districts, the v. Arredondo,24 the court rejected a strict two years. Pursuant to Woodfield Group, circuit court is bound by the decisions of formulaic approach for determining whether the employer has a reasonable possibility the appellate court of the district in which it an employer has a legitimate business interest of success. So, what are lawyers, employers, sits.30 In the absence of controlling authority in enforcing a restrictive covenant. Indeed, and employees to do? If they are looking from its home district, a trial judge is “free the court observed that “[e]ach case must be for a better chance of certainty, they might to choose between the decisions of the other determined on its own particular facts” and consider litigating in federal court. appellate districts.”31 that a trade restraint “may be reasonable and What are state trial court judges to do? Thus, judges in the second, fourth, and valid under one set of circumstances, and On the issue of whether there is a bright-line fifth districts who legitimately perceive a unreasonable and invalid under another set minimum of two years to establish adequate conflict need not follow Fifield. Judges in of circumstances.”25 Although the basis for consideration, the answer is hopelessly the third district are in a slightly awkward the Reliable Fire ruling appears in a context unclear. Equally unclear is whether the court situation because Fifield arguably conflicts not involving adequacy of consideration, can consider alternative measures—beyond with Brown and because the Prairie much of the analysis in that case could, employment—to find consideration.Prairie Rheumatology court cited Fifield with arguably, be equally applicable. Rheumatology and McInnis both suggest approval—but for propositions on which The telephone game that other factors besides two years of Fifield does not stand. Trial judges in Cook Perhaps the most intriguing aspect of this employment could be enough. But neither County are in an extremely awkward issue is the appellate panels’ habit of citing court found that other factors were enough. position because they are faced with at least prior rulings for statements those prior While the first and third districts have three arguably conflicting cases in Woodfield rulings simply do not make. sent mixed messages, the second district has Group, Fifield, and McInnis—and all three To recap: largely avoided the question. An unpublished cases are equally binding on a Cook County The first district in Woodfield Groupheld case, Automated Industrial Machinery, Inc. trial judge. McInnis suggests that the most there is no magic numerical formula for v. Christofilis,26 rejected the plaintiffs’ request recent decision should be controlling, which determining adequacy of employment. that the court consider other factors beyond happens to be McInnis.32 However, McInnis The third district inBrown observed that length of employment. However, the court cites no authority for that proposition, two years is generally sufficient. did not state either way whether this was and the author is able to find none, save a In Fifield, the first district citedBrown for a viable legal argument. Instead, the court dissent.33 This “recent case controls” notion the proposition that two years is required, found that it was bound by the agreement’s is contrary to the principle that a decision by although Brown did not say that. express recitation of what constituted the appellate court can only be overturned In Prairie Rheumatology, the third consideration. Another unpublished case by the Illinois Supreme Court, and not by district cited Fifield for the proposition that from the second district, Paul Joseph Salon & another appellate panel.34 Petitions for leave two years of employment is adequate, and Spa, Inc. v. Yeske,27 involves an employee who to appeal to the Illinois Supreme Court were referred to Fifield’s “general [two]-year rule resigned two days before the two-year mark. filed and denied in bothFifield and McInnis. of thumb,” although Fifield did not say that. The appellate court, with little substantive Ultimately, only the Illinois Supreme In McInnis, the first district citedFifield discussion in its Rule 23 order, stated that the Court can determine whether Illinois
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law requires consideration in the form of F. Supp. 3d 900, 905-909 (C.D. Ill. 2015); R.J. O’Brien 1. See Mid-Town Petroleum, Inc. v. Gowen, 243 Ill. App. & Associates v. Williamson, 2016 WL 930628, *3 (N.D. “continued employment for a substantial 3d 63, 71 (5th Dist. 1993); Wadsworth v. Thompson, 8 Ill. Ill. 2016); Traffic Tech, Inc. v. Kreiter, 2015 WL 9259544, period of time” and what that period of time 423, 429 (1846). *5 (N.D. Ill. 2015); but see Instant Technology, LLC v. 2. Brown & Brown v. Mudron, 379 Ill. App. 3d 724, 728- DeFazio, 40 F. Supp. 3d 989 (N.D. Ill. 2014). must be (or if there is a set period at all). 29 (3d Dist. 2008). 19. See Montel Aetnastak, Inc. v. Miessen, 998 F. Supp. 2d Perhaps the court’s statements in Reliable 3. Id. at 728. 694 (N.D. Ill. 2014). 4. Diederich Insurance Agency, LLC v. Smith, 2011 IL App 20. McInnis v. OAG Motorcycle Ventures, Inc, 2015 IL Fire signal a preference for the Woodfield (5th) 100048, ¶ 13. App (1st) 142644, ¶ 32. 5. See, e.g., id. at 729. 21. Id. at ¶ 35. Group approach. Two other controversial, 6. McRand, Inc., v. van Beelen, 138 Ill. App. 3d 1045, 1055 22. Id. conflicting aspects ofFifield also might be (1st Dist. 1985). 23. Avison Young-Chicago, 2017 WL 5896887 at *5-6. 7. See Mid-Town Petroleum, Inc. v. Gowen, 243 Ill. App. 24. Reliable Fire Equipment Co. v. Arredondo, 2011 IL addressed—those being whether it makes a 3d 63, 71 (5th Dist. 1993); see also Creative Entertainment, 111871, ¶ 42. difference that the noncompete was signed Inc. v. Lorenz, 265 Ill. App. 3d 343, 350 (1st Dist. 1994). 25. Id. 26. Automated Industrial Machinery, Inc. v. Christofilis, 35 8. See, e.g., Lawrence & Allen, Inc. v. Cambridge Human preemployment or postemployment Resource Group, Inc., 292 Ill. App. 3d 131, 138 (2d Dist. 2017 IL App (2d) 160301-U. The court in Christofilis and whether the employee quit or was 1997); Agrimerica, Inc. v. Mathes, 199 Ill. App. 3d 435, expressly “acknowledge[d] that there is a possibility that 442 (1st Dist. 1990). our supreme court will reject a two-year bright-line rule in 36 terminated. 9. Total Health Physicians, S.C. v. Barrientos, 151 Ill. App. favor of a more fact specific approach.”Id. at ¶ 59. Another potential distinguishing 3d 726 (5th Dist. 1986). 27. Paul Joseph Salon & Spa, Inc. v. Yeske, 2017 IL App 10. Woodfield Group, Inc. v. DeLisle, 295 Ill. App. 3d 935, (2d) 170462-U. factor could be the nature of the work 943 (1st Dist. 1998). 28. In re Dominique F., 145 Ill. 2d 311, 324 (1991). 11. Brown & Brown v. Mudron, 379 Ill. App. 3d 724, 728- 29. Montel Aetnastak, Inc. v. Miessen, 998 F. Supp. 2d 694, (e.g., seasonal work, such as preparing tax 29 (3d Dist. 2008). 716 (N.D. Ill. 2014). returns). Yet another factor that could be 12. Id. at 730 (Schmidt, J., dissenting). Within weeks of 30. State Farm Fire & Casualty Co. v. Yapejian, 152 Ill. 2d the Brown decision, a different third district panel reached 533, 539-40 (1992). considered is the length of employment a somewhat contrary result in an unpublished case. See 31. See People v. Morgan, 307 Ill. App. 3d 707, 733 (4th relative to the length of the noncompete. Staniszewski v. Baxter, 3-07-211 (2008). In that case, Dist. 1999). Justice Lytton (who also authored Prairie Rheumatology) 32. McInnis v. OAG Motorcycle Ventures, Inc, 2015 IL Would two years of continuous employment opined that sufficient consideration existed immediately App (1st) 142644, ¶ 35. be sufficient consideration to support a five- upon the mere acceptance of employment that began 33. See Aleckson v. Round Lake Park, 176 Ill.2 d 82, 94-95 simultaneously with the execution of the noncompete, as (Harrison, J., specially concurring, joined by Heiple, C.J.) year noncompeteloyee is terminated without opposed to other cases that involved noncompetes signed (“Given the unitary nature of the Illinois appellate court after employment had begun. and the reach of its decisions, what circuit courts should be cause? Or with cause? 13. Diederich Insurance Agency, LLC v. Smith, 2011 IL doing is following the most recent appellate court decision In the interim, it is likely that conflicting App (5th) 100048, ¶ 15. on point. That is so even if the decision conflicts with a 14. Fifield v. Premier Dealer Services, Inc., 2013 IL App prior decision of an appellate court division located within decisions will continue to emanate from (1st) 120327, ¶ 19. the circuit court’s particular district. The geography is federal trial courts, state trial courts, and the 15. Prairie Rheumatology Associates, S.C. v. Francis, 2014 simply irrelevant.”). IL App (3d) 140338. 34. In re Marriage of Gutman, 232 Ill. 2d 145, 150 (2008). various appellate districts and divisions. n 16. Id. 35. Fifield v. Premier Dealer Services, Inc., 2013 IL App 17. Id. at ¶ 16. (1st) 120327, ¶ 17 (holding that it makes no difference 18. See, e.g., Industrial Packing Supplies, Inc. v. Channell, whether the noncompete is signed pre-employment or Hon. John C. Anderson Circuit Judge, 12th Judicial 2018 WL 2560993 (N.D. Ill. 2018); Avision Young- postemployment). Circuit of Illinois (Will County); Chairman, Illinois Chicago, LLC v. Puritz, 2017 WL 5896887, at *5 (N.D. 36. See id. at ¶ 19 (holding that it does not matter Supreme Court Rules Committee; LL.M., Duke Ill. 2017); Stericycle, Inc. v. Simota, 2017 WL 4742197, whether the “substantial period of employment” ends by University Law School; J.D., The John Marshall at *4 (N.D. Ill. 2017); Apex Physical Therapy, LLC v. resignation or termination); see also Brown & Brown Inc. Ball, 2017 WL 3130241, at *2 (S.D. Ill. 2017); Airgas v. Mudron, 379 Ill. App. 3d 724, 728-29 (3d Dist. 2008); Law School; M.B.A., Notre Dame University; M.S., USA, LLC, 2016 WL 3536788, *3 (N.D. Ill. 2017); Allied University of Illinois Springfield; B.S., Illinois State Waste Services of North America, LLC v. Tibble, 2016 University. WL 1441449 (N.D. Ill. 2016); Montel Aetnastak, Inc. v. Miessen, 998 F. Supp. 2d 694, 715-18 (N.D. Ill. 2014); Bankers Life & Casualty Co. v. Miller, 2015 WL 515965, [email protected] *4 (N.D. Ill. 2015); Cumulus Radio Corp., v. Olson, 80 Intellectual Improbabilities™ BY DANIEL KEGAN
Rapunzel Released. Suffolk Law School Neither Rain Nor Snow. The US criminal conspiracy related to drug dealing professor Rebecca Curtin prevailed against Trademark Office has started sending and violent crimes by individual members, applicant United Trademark Holdings, Inc’s trademark abandonment notices buy email, federal prosecutors obtained a jury verdict motion to dismiss the opposition. Applicant instead of postcards or paper notices. If for forfeiture. Defense attorney Joseph Yanny argues Opposer Curtin did not allege she you’ve changed email over the past ten years questioned, “If you were a law enforcement was a competitor in the doll and toy figure (and a grace half year), another good reason officer and you knew there was a gang industry or that she had any other “direct to consider updating your email contact with out there and they had emblems on that stake in using Applicant’s RAPUNZEL mark the USPO. identifies who they are, why in God’s name in a descriptive or generic manner. The Uncle Sam’s Motorcycle Club. Mongol would you want to take them off of them so Board found standing and denied Applicant’s Nation Motorcycle Club has lost its logo, ® you couldn’t know who they were?” Former motion. 4,730,806. Convicted of racketeering and MN Gov Jesse Ventura testified, Nov2018,
10 for the defense that he neither committed related trademark applications. Office, after rejections by the initial crimes nor was told to do so when he was Hi Appeal. The federal government examiner, two requests for reconsideration, a Mongol member in the 1970s. [Earthlink considers marijuana and cannabis illegal; and an Administrative Procedures Act 11Jan2019]. several states don’t, taxing it and collecting (APA) filed-but-unserved lawsuit, Am Famous Logos Fade. Over 150 substantial revenues. State authorized Airlines, Inc v Temple, 4:18cv843 (ND Americans were asked to draw ten famous (medical and recreational) marijuana retail TX, 12Oct2018), the Copyright Office has logos from memory as accurately as they stores can’t use the federal banking system. accepted for registration the American could. Results:remembered logo morph. Can a landlord who collects rent from its Airlines “flight symbol” logo. The Review
11 Intellectual Property ▼ JANUARY 2019 / VOL 58 / NO. 2
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