Virginia Business Litigation Lawyer Blog

Does an employer have any sort of ownership interest in its employees' tweets or Twitter following? This very current social-media question may be tested in a lawsuit originally filed last July in federal court in California by PhoneDog, a South Carolina-based company that reviews mobile phones and services online, against former employee Noah Kravitz. An amended complaint in the case, filed on November 29, 2011, has attracted considerable media attention.

When Kravitz worked for PhoneDog as a product reviewer and video blogger from 2006 to 2010, he tweeted under the handle @PhoneDog_Noah and attracted some 17,000 followers for his comments and opinions on Twitter. When he left the company, he continued tweeting under the name @NoahKravitz. But he didn't create a new account with that name; instead, he kept the account (with all its followers) and just changed the Twitter handle to @NoahKravitz. Eight months later, PhoneDog sued Kravitz, alleging that his continued use of the account and his tweeting to his followers constitute a misappropriation of PhoneDog's trade secrets, intentional interference with prospective economic relationships, and conversion. Phone Dog said that it had suffered loss of advertising revenue as a result and that Kravitz "was unjustly enriched by obtaining the business of PhoneDog's Followers."

PhoneDog essentially claims ownership rights due to the fact that it directs its employees to maintain Twitter accounts and instructs them to tweet links to PhoneDog's website, thus increasing PhoneDog's page views and generating advertising revenue for PhoneDog. PhoneDog said in the complaint that since Kravitz now works for TechnoBuffalo, a competitor of PhoneDog, he is exploiting PhoneDog's confidential information on behalf of a competitor. PhoneDog is seeking $340,000 in damages -- $2.50 per month per Twitter follower for eight months. Although PhoneDog said in the complaint that "industry standards" peg the value of a Twitter follower at $2.50 per month, the company did not give a source for that estimate. Nor did PhoneDog attempt to distinguish between people who followed Kravitz because of his connection to PhoneDog and those followers who are merely friends of his or enjoy his commentary.

In my view, this would be a solid case if Kravitz was bound by a non-competition or non-solicitation agreement. The allegations are essentially that Kravitz took a list of 17,000 PhoneDog followers and is now soliciting business from them on behalf of a new company. Such conduct would normally violate a standard non-solicitation agreement. In the absence of a noncompete, the case is weaker but raises some interesting issues. It's not quite the same as the typical case involving theft of customer lists because, unlike in most of those cases, Twitter followers' identities are not private. Kravitz didn't need to assume control over the Twitter account in order to solicit business from those followers; doing so just made things easier for him. At a minimum, I think the intentional interference claim will stick. Kravitz should have started a new Twitter account and invited people to follow him there, not simply changed the name on the account. That's risky business.

It's clear that dances composed by choreographers can be subject to copyright as creative works, just like paintings or photographs. It's also clear that no matter how creative a football player's evasive "spin move" can be, neither he nor his team can copyright it so as to prevent others from using it without paying royalties. What about a series of yoga poses? Where does that fit into the world of copyright? Three cases now pending in the U.S. District Court for the Central District of California involve that question, and although the issue remains very much in dispute, the U.S. Copyright Office has taken the view that yoga exercises are more like athletic activities or health regimens, which cannot be copyrighted, and less like dance routines, which can be.

In the lawsuits, Bikram's Yoga College of India, based in California, and its founder, Bikram Choudhury, have sued three yoga providers for copyright and trademark infringement, contending that they have unlawfully used the specific movements and poses of Choudhury's brand of yoga, known as Bikram Yoga. Bikram Yoga, performed for precisely 90 minutes in a room heated to 105 degrees Fahrenheit, has become quite popular in recent decades. Bikram Yoga includes 26 poses, two breathing exercises, and a carefully scripted dialogue.

Greg Gumucio is a defendant in one of the cases, along with the company he founded, New York City-based Yoga to the People. Gumucio is a former student of Choudhury. According to the complaint in that case, Choudhury "created an original work of authorship consisting of a series of instructions and commands that accompany, and correspond to, each poster of Bikram Yoga." This "original work is recited in a precise manner," according to the complaint, and the sequence of poses received protection from the U.S. Copyright Office on several occasions. Gumucio and the other yoga studio owners, Choudhury said, had infringed upon the copyrights.

Gumucio and his company replied that "Choudhury has no intellectual property rights in any method or posture," and that "the alleged 'Bikram methods' are utilitarian systems, incapable of copyright or trademark protection." Further, Gumucio replied, "there are no 'Bikram postures,' and each and every one of the yoga postures (or 'poses' or 'asanas') used in Bikram Yoga classes was developed and recorded hundreds, if not thousands, of years ago, and are in the public domain."

The defendants received very recent support from the Copyright Office. On December 9, 2011, Laura Lee Fischer, Acting Chief of the Performing Arts Division of the Copyright Office, wrote an email stating that "the Registration Program of the Copyright Office reviewed the legislative history relating to section 102(a) of the copyright law, and in conjunction with senior management, determined that exercises, including yoga exercises, do not constitute the subject matter that Congress intended to protect as choreography. Thus, we will not register such exercises (including yoga movements), whether described as exercises or as selections and ordering of movements."

This view represented an about-face from the office's previous position, which was that even if several yoga poses or exercises were in the public domain, the order in which they were to be executed could be copyrighted. Although the office's position is not binding on the U.S. District Court, it appears more likely now that yoga practitioners will be able to go ahead with their routines without fearing a copyright lawsuit.

The online coupon industry, led by companies such as Groupon Inc., is growing rapidly, and it's still not clear which company or companies will end up the winners. With so much money potentially at stake, it's not surprising that firms are going to court to battle over their trade secrets. On October 24, 2011, Groupon filed a lawsuit in Illinois state court in Chicago, accusing two former sales managers of taking confidential trade secrets with them when they left Groupon for Google Offers, a website that competes with Groupon. Google developed the competing website after Groupon rejected its $6 billion merger offer last year.

The two men, Michael Nolan and Brian Hanna, both left in September 2011 to join Google. "In their new positions with Google Offers and/or Google, Hanna and Nolan will provide the same or similar services as they provided at Groupon," the complaint said. The two would "employ confidential and proprietary information that they learned while employed at Groupon," according to the complaint.

Trade secrets generally consist of commercial information that (1) derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other businesses which would benefit from its disclosure; and (2) is the subject of reasonable efforts by the business to be kept secret. As examples of the "confidential and proprietary information" that the two allegedly took with them to Google, the complaint cites Groupon's deal history with merchants, the way in which Groupon structured such deals, the way in which Groupon identified merchants to participate in the deals, and Groupon's in-house sales Wiki that provided information regarding Groupon's sales practices and strategies.

Nolan and Hanna are likely to downplay the value of the information they took with them to Google. They might argue, for example, that it is not difficult or complex to learn how to target specific merchants or types of merchants with coupon deals, or that Google already has sufficient knowledge of online markets to figure out on its own how to target merchants.

What kind of expense amounts to a "loss" under the Computer Fraud and Abuse Act (CFAA), and did a Virginia litigation-support company incur the required minimum of $5,000 in losses when it investigated an alleged breach of its computer systems, retaining the services of both an attorney and a computer forensics company to aid with the investigation? That was the issue recently before Judge T.S. Ellis III of the Eastern District of Virginia, who held that the investigative activities could support a CFAA claim, even if the expenses were not paid in cash.

The issue was particularly important to the plaintiff, Animators at Law, a graphics and technology litigation support company, because of the 13 claims it brought against two former employees and a competitor, all but the CFAA claim were based on state law, meaning that without it, there would be no basis for federal-court jurisdiction.

The CFAA provides for a civil action against anyone who intentionally gains access to a computer without authorization and obtains information from it. The CFAA has a minimum jurisdictional requirement of $5,000 in losses. Animators at Law claimed that its former employees conspired with a competitor to leave Animators' employment and join the competitor, taking with them confidential and proprietary information about Animators' services, projects, and clients.

When Ken Lopez, the president of Animators at Law, suspected that one of his company's laptops had been accessed without authorization, he brought in an outside company to engage in a forensic analysis of the laptop. Evidence produced during the litigation showed that Animators received services valued at $19,501.41 or more in connection with investigating the unauthorized access. However, Animators did not actually pay the contractor for its services, prompting the defendants to move for summary judgment on the basis that the $5,000 jurisdictional threshold had not been met. Animators countered that it provided services to the contractor in exchange for its forensic services, as a form of barter.

The court found that it "would be passing strange" if the contractor had spent over 60 hours analyzing Animators' data without any expectation of payment in some form. At a minimum, the court ruled, there was a triable issue of fact as to whether the services were provided on credit or in trade, given that there was an existing business relationship between Animators and the contractor. Because the CFAA does not require losses to be paid for in cash, this was sufficient to survive summary judgment.

Lacoste Alligator, S.A., which sells tennis shirts and other apparel with the distinctive green crocodile logo in high-end stores like Nordstrom and Saks Fifth Avenue, will get a chance to find out, through discovery in a lawsuit, which of its distributors (if any) have been selling its products to Costco and other warehouse stores without its express permission, in violation of its trademark rights and in breach of contract.

Lacoste, a Swiss company, is attempting to prevent its clothing from being sold in big-box and other unauthorized retail locations. The first problem facing Lacoste, however, was that although it believed that some distributor was making sales to those stores, it didn't know who it was. Accordingly, it filed a "John Doe" complaint in Arlington County Circuit Court on trademark-infringement, breach of contract, and other grounds, hoping to use discovery in the case to ferret out the identity of the distributor responsible for the unauthorized sales. After filing the "John Doe" suit, Lacoste promptly served a subpoena on Costco Wholesale Corp., trying to ascertain the source from which it was receiving Lacoste products for resale in its stores. Costco objected to handing over any documents, and Lacoste filed a motion to compel compliance with the subpoena.

Judge Joanne F. Alper overruled most of Costco's objections and held that Lacoste was entitled to the discovery subject to the entry of an appropriate protective order to prevent misuse of the information.

Costco had raised three objections to turning over the requested documents to Lacoste. First, Costco contended that the court lacked jurisdiction because it was pursuing a "John Doe" action without naming the defendant, a type of case that it asserted is permitted in Virginia only in uninsured motorist or "cybersmear" cases. Judge Alper, however, found nothing in Virginia law to bar the use of a "John Doe" suit in a commercial case like this one. Lawyers frequently use the "John Doe" lawsuit mechanism, in fact, when a defendant's identity is unknown.

Second, Costco contended that the identity of its suppliers is a protectable trade secret. The court agreed, but noted that trade secrets are not automatically insulated from discovery. Rather, courts should examine whether the desired information is relevant to the lawsuit and must consider whether the information can be disclosed while minimizing the risk of disclosure to third parties. Judge Alper found that the information was unquestionably relevant and that it could be disclosed within the confines of a protective order preserving its confidentiality.

The protective order also disposed of Costco's third argument: that the subpoena was overly broad and burdensome. The protective order limited Costco's obligation to comply with the subpoena to documents relevant only to the determination of John Doe's identity. Therefore, subject to the limitations provided in the protective order, the court ordered Costco to comply with the subpoena.

During discovery, an examining party has the power to compel the deposition of a corporate defendant's "managing agents." If the plaintiff's lawyer designates an individual to testify who is not an officer, director, or managing agent of the corporate defendant, the lawyer must resort to Federal Rule of Civil Procedure 45, which governs subpoenas issued to third parties. For that reason, there is often a lot of disagreement among litigants regarding whether a particular individual qualifies as a managing agent of the corporation. Another common point of contention is whether foreign managing agents must come to Virginia for their depositions.

In DuPont v. Kolon Industries, a trade secrets case involving alleged misappropriation of confidential commercial information relating to Kevlar, Judge Payne of the Eastern District of Virginia (Richmond Division) utilized a four-factor test to determine whether employees could be classified as "managing agents," adopting a test laid out in a 1996 Maryland case. Judge Payne wrote that courts faced with the issue should consider:

1. 1. the discretionary authority that the corporation vests in the employee;
2. 2. the employee's dependability in following the employer's directions;
3. 3. whether the employee is more likely to identify with the corporation or the adverse party in the litigation; and
4. 4. whether the employee had a certain amount of supervisory authority in areas relevant to the litigation.

Applying these factors to each of the eight Kolon employees whose depositions DuPont sought, the Court determined that at least five were managing agents and ordered Kolon to produce them for deposition in Virginia. Most of these employees were long-time employees of Kolon, which demonstrated to the Court that they had discretionary authority, that they followed Kolon's directions, supervised several employees or an entire department, and that they identified with Kolon rather than DuPont.

The Court noted that there are exceptions to the general rule that a defendant's deposition is to be taken where the defendant resides or maintains a principal place of business. Consideration of the following factors might lead a court to compel the deposition in Virginia, even for foreign defendants:

1. 1. location of counsel for the parties in the forum district;
2. 2. the number of corporate representatives a party is seeking to depose;
3. 3. the likelihood of significant discovery disputes arising which would necessitate resolution by the forum court;
4. 4. whether the persons sought to be deposed often engage in travel for business purposes; and
5. 5. the equities with regard to the nature of the claim and the parties' relationship.

Ultimately, Judge Payne determined that the third factor was the most significant factor in choosing Virginia over Korea due to the gamesmanship and conflict that had characterized the discovery process to date. The Court ordered the depositions to take place in Virginia so the Court could be on hand to resolve the anticipated disputes.

Recovering damages for copyright infringement may be difficult in situations where the infringing party is "dummy" or "shell" corporation with no assets that can be used to satisfy a judgment. Sometimes, however, there may be a parent corporation or other entity that may be held liable on a theory of "vicarious liability." As demonstrated by a recent decision of Judge Cacheris of the District Court for the Eastern District of Virginia, this doctrine may be utilized to pursue a contractor for the infringing activities of its subcontractor, even if the contractor knows nothing about the alleged infringement.

In Softech Worldwide, LLC v. Internet Technology Broadcasting Corp., Fedstore Corporation entered into a contract with the United States Department of Veterans Affairs (the "VA") to develop various software, including software relating to the Digital-Media-Architecture ("DMA") Pilot Project--a platform for scaling electronic media to various electronic devices. Fedstore subcontracted the work to Internet Technology Broadcasting Corporation ("ITBC"), who in turn hired the Plaintiff, Softech Worldwide, LLC, to perform various software services under the VA contract. Softech claims it performed these services from 2002 until early 2010, and that in early 2010, ITBC stopped making regular payments. Shortly thereafter, Softech claims it delivered the DMA source code and other proprietary information to ITBC at its request, and that ITBC refused to return the materials while continuing to use, maintain, and update Softech's products.

Softech sued both ITBC and Fedstore for copyright infringement and violation of Virginia's Uniform Trade Secrets Act. Fedstore moved to dismiss the case for failure to state a claim. Fedstore's position was essentially that the claims pertained to actions allegedly taken by ITBC, not by Fedstore. Softech responded that Fedstore should be held responsible under theories of contributory liability and vicarious liability.

Normally, to state a claim for copyright infringement, a plaintiff must allege both (1) ownership of a valid copyright and (2) copying of the original elements of the material by the defendant. However, even if a defendant does not itself copy the material, a defendant may be found liable for "contributory infringement" where it "with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another." CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d 544, 550 (4th Cir. 2004).

The Federal Rules permit knowledge of a defendant to be pled generally, and it is sufficient to allege that the defendant had reason to know. Here, although Softech did allege in its complaint that Fedstore infringed its copyrights "with full knowledge of Softech's rights," other allegations in the complaint (which must be accepted as true when ruling on a motion to dismiss) were that ITBC represented to the world--including Fedstore--that ITBC, and not Softech, possessed the copyright to the software. Therefore, the factual allegations were insufficient to establish knowledge of infringement and therefore insufficient to establish contributory copyright infringement.

The question then became whether Fedstore might be held liable on a theory of vicarious liability. To establish vicarious liability, a copyright owner must demonstrate that the vicarious infringer possessed: (1) the right and ability to supervise the infringing activity; and (2) an obvious and direct financial interest in the exploited copyrighted materials. "[L]ack of knowledge that the primary actor is actually engaged in infringing activity is not a defense where both elements are satisfied." EMI April Music, Inc. v. White, 618 F. Supp. 2d 497, 507 (E.D. Va. 2009). The court found that Softech did plead vicarious liability adequately. Softech alleged that Fedstore was a general contractor, which gave it the right and ability to supervise the infringing activities of ITBC, its subcontractor. Softech also alleged that Fedstore sought to sell the allegedly copyrighted software, which demonstrated a direct financial interest. Therefore, the court denied the motion to dismiss the copyright infringement claims, but granted dismissal of the trade-secret misappropriation claim on the ground that Softech failed to plead the requisite knowledge.

What is a trade secret? In Virginia, trade secrets generally consist of commercial information that (1) derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other businesses which would benefit from its disclosure; and (2) is the subject of reasonable efforts by the business to be kept secret. (The full definition is provided in the Virginia Uniform Trade Secrets Act itself, found at Va. Code § 59.1-336). Judge Bellows of Fairfax County Circuit Court recently had the occasion to consider the extent to which vendor and customer lists may qualify as protectible trade secrets.

Tryco, Inc. v. U.S. Medical Source, LLC involved a dispute chiefly between Tryco, a small business authorized to sell medical and dental equipment to the United States government, and former employee Brian Thomas, who had left Tryco to join U.S. Medical Source, LLC ("USMS"), a competing firm founded by his sister-in-law. Prior to leaving, Mr. Thomas cleaned out his desk and copied his personal files onto a flash drive. In the process, however, he also (inadvertently, the court found) copied two Tryco documents, one containing a list of buyer contact information and other providing certain information regarding Tryco's vendors. When accused by Tryco of stealing confidential information for the purpose of benefiting a competitor, Mr. Thomas promptly returned the entire flash drive, explaining that the copying was inadvertent and stating that he never copied the drive, never showed it to anyone at USMS, and never used it.

Tryco sued both Mr. Thomas and USMS for misappropriation of trade secrets. Tryco also brought claims for civil conspiracy under Virginia's business conspiracy statute, breach of fiduciary duty, and tortious interference. After four days of trial testimony, the defendants moved to strike Tryco's evidence as insufficient to state a claim. Judge Bellows agreed with the defendants the Tryco had failed to prove theft of trade secrets within the meaning of the Virginia Uniform Trade Secrets Act, and found in favor of the defendants on all counts.

In reviewing the trade-secret issue, the first question was whether the lists of contacts and vendors had "independent economic value." Tryco argued that the lists were extremely valuable as they enabled competitors to identify and contact its customers and suppliers, which otherwise would be difficult to obtain, and because they summarized confidential vendor-account information. While expressly recognizing the facial validity of Tryco's arguments, the court nevertheless discounted the value of the documents for a couple of reasons.

First, the list of contacts was outdated as it had not been updated since 2006. Only three of the eighteen listed names had continuing relevance. Outdated documents, the court held, provide no independent economic value if the information in them no longer have any value. Second, with respect to the vendor list, the court observed that "courts have repeatedly held that collections of numbers and/or letters, whose only value is to access other potentially valuable information, do not by themselves have independent economic value."

The next question in the trade secret analysis was to examine whether the documents were "not generally known to the public and not readily ascertainable." The court found that the documents failed this test as well. Noting that what constitutes "readily ascertainable through proper means" is heavily fact specific, the court found that Tryco failed to prove that the identities of internal contact people was not readily ascertainable. While the information would take some effort to obtain, it appeared that competitors could eventually obtain the information from a thorough search. Because the contact list contained information available in the public domain, the court held that the contact list was not a trade secret. The court specifically rejected the argument that the compilation of the information is what made it a trade secret.

Finally, the court found that the defendants did not misappropriate trade secrets because the copying was inadvertent. Under Section 59.1-336 of the Trade Secrets Act, a plaintiff must show that trade secrets were misappropriated "through improper means." Improper means include misrepresentation, breach of a duty, and inducement of a breach of a duty. Inadvertent copying does not meet this requirement. While Tryco had argued that the defendants breached fiduciary duties, violated the Computer Trespass Act, and engaged in statutory business conspiracy, the court rejected these theories as well and found no evidence of improper means.

In short, while vendor and customer lists may qualify as trade secrets in some instances, that will not always be the case. The lists must be current to be valuable, and mere compilations of publicly available information may not qualify for protection, despite the amount of work that went into creating the document.