The Virginia Business Litigation Blog

December 12, 2011

Virginia Limited Liability Company (LLC) Membership Interests Analogous to Partnership

The Virginia Supreme Court ruled on November 4, 2011, that membership in a Virginia limited liability company is comprised of two components–a control interest and a financial interest–and that only the financial interest is transferable by will when a member dies. Moreover, the court held that a devisee or assignee of a financial interest has no control interest in the limited liability company without becoming a member, just as a control interest in a partnership “cannot be bestowed on another by the unilateral act of a partner.”

The financial interest involves only the right to share in the company’s profits and losses and to receive distributions. It does not entail the right to participate in the management or control of the company’s affairs.

In 1991, the Virginia legislature enacted the Limited Liability Company Act, creating the limited liability company as a hybrid entity, similar in some respects to a partnership and in other respects to a corporation. The statute provides that the transferability of a member’s interest in an LLC should be similar to the transferability of a partner’s interest in a partnership. Last Will.jpg Under the Uniform Partnership Act, the transfer of a partner’s interest in a partnership entitles the transferee only to the financial rights, not the control rights.

December 5, 2011

Court Orders “De-Indexing” of Infringing Domain Names

by Lee E. Berlik

Chanel, Inc., which like many other luxury-goods companies has been constantly plagued by counterfeiters, has taken its legal fight against unauthorized knock-offs to a whole new level. On November 14, 2011, acting at Chanel’s request, U.S. District Judge Kent Dawson of the District of Nevada signed an order that not only prohibits hundreds of alleged trademark infringers from manufacturing or selling fake Chanel handbags, wallets, shoes, and the like – but also orders the defendants’ domain names seized and transferred to the Web hosting company GoDaddy, which would direct them to a page describing the seizure. The temporary restraining order also orders that the counterfeiters’ domain names be “de-indexed” by Google, Bing, Yahoo, and all social media websites, specifically mentioning Facebook, Twitter, and Google+.

Chanel, Inc. had filed suit against several websites for selling counterfeit versions of its merchandise. Chanel hired an investigative firm to purchase several items from three of the websites named as defendants in the lawsuit. The investigators then sent those items to a Chanel consultant who determined that the merchandise was not genuine Chanel. The consultant also examined other merchandise offered for sale on these websites and determined that none of the items offered were authentic Chanel products. The defendant websites were not authorized dealers of Chanel products and therefore were in direct violation of Chanel’s trademark rights.

Chanel’s trademark lawyers obtained this injunctive relief by, among other things, pointing out that counterfeiters use search engine optimization (SEO) just as legitimate companies do, and that it was necessary for the court to shut down their ability to use the Web to compete unfairly with Chanel. “Chanel does contend that it has the right to fairly compete for such search engine results space unfettered by unfair competition stemming from an illegal use of Chanel’s trademarks,” Chanel’s lawyers wrote in the underlying motion.

November 22, 2011

Parenting Blog Case Raises Motherlode of Trademark Issues

by Lee E. Berlik

If a blog is successful and gains name recognition among the public, with whom is the brand associated in the minds of readers, the publisher or the primary author of the blog? Apparently not a lot of thought has gone into this interesting question, as the New York Times did not apply for a trademark for its popular “Motherlode” parenting blog until its primary author, Lisa Belkin, left the Times to create “Parentlode” at The Huffington Post. Now it will be up to the courts to determine whether the Times has exclusive trademark rights to the “Motherlode” name and similar-sounding derivatives.

The New York Times Co. sued the Huffington Post and AOL, its parent company, on November 4, 2011, in U.S. District Court in Manhattan, seeking both injunctive relief and damages. NYT’s trademark lawyers argue in the complaint that the mark “Parentlode” is “clearly derived” from the Times’ established “Motherlode” trademark and that it was “intended to create an association with Ms. Belkin’s prior work” at the Times. According to the complaint, there is evidence that confusion already exists in readers’ minds between the “Motherlode” blog, which the Times is continuing to publish, and the new “Parentlode” blog at the Huffington Post. On Twitter, for example, someone wrote (incorrectly, the Times argues) that “The NYT’s Motherlode becomes HuffPo’s Parentlode.”

In her first “Parentlode” blog entry, Belkin referred to “Parentlode” as a “new name” that in a nonsexist manner includes fathers as well as mothers. The Times seized upon this statement and wrote that Belkin “clearly intended to create an association in the minds of readers between the two competing blogs, and further, [Belkin’s] reference to the ‘new name’ was a deliberate attempt to mislead readers into mistakenly believing it was the same blog, albeit with a slightly different name and location.”

November 15, 2011

Serta Seeks Declaratory Judgment of Non-Infringement

by Lee E. Berlik

Oleg Cassini was a French-born American fashion designer who created a wardrobe for Jacqueline Kennedy. Now, the company that he founded, Oleg Cassini Inc., finds itself embroiled in trademark litigation with Serta, Inc., over Serta’s decision to name a particular mattress model the “Cassini.”

The dispute arose when Serta unveiled a line of mattresses, to be sold exclusively at J.C. Penney stores, with names that were related to outer space. Among them were Gemini, Eclipse, Taurus, Moonscape, Nebula – and Cassini. Serta claimed that the name was inspired by Giovanni Domenico Cassini (1625-1712), an Italian-French astronomer and mathematician who was the first person to observe four of Saturn’s moons. When the Oleg Cassini company found out about the existence of products such as the “Serta Perfect Day Cassini Firm Twin Mattress Set,” it sent a cease-and-desist letter to the Serta company, declaring that it was “amazed” to see the Cassini name on the J.C. Penney website and stating that the mattress company does not have the right to use the “Cassini or Oleg Cassini” trademarks.

Serta responded by discontinuing the model immediately, but this was not enough for Cassini, the complaint contends. Cassini proceeded to demand that J.C. Penney ensure that no floor models (including close-outs) be sold under the Cassini name. In addition, Cassini threatened to sue for infringement if it did not receive “a reasonable offer of damages and a detailed plan for correcting the improper usage of the Cassini mark.” Instead of offering to pay damages, Serta filed a declaratory judgment complaint in the Northern District of Illinois seeking a judicial ruling of non-infringement.

November 7, 2011

New Hires at Google Accused of Using Groupon Trade Secrets

by Lee E. Berlik

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.

November 5, 2011

Broad Non-Compete Agreements Less Likely to Be Enforced Today than 20 Years Ago

by Lee E. Berlik

In Virginia, “non-compete” agreements are enforceable if they are narrowly drawn to protect the employer’s legitimate business interests, are not unduly burdensome on the employee’s ability to earn a living, and are not against public policy. While Virginia courts have recognized that from a public policy perspective, businesses should be able to protect their client base from ex-employees who may leave their employ but continue in the same line of business, what is less clear is exactly which post-employment activities can be restricted before a non-compete becomes overly broad and therefore unenforceable.

The Virginia Supreme Court shed a little more light on the answer to this question yesterday, when it disagreed with itself and overruled Paramount Termite Control Co. v. Rector, 238 Va. 171 (1989). Relying on the precedent set by that case, Home Paramount Pest Control Companies, Inc. (the successor-in-interest to Paramount Termite Control) sued a former employee for breaching the same non-compete provision that was upheld in the earlier case. This time, however, the court struck it down.

The provision at issue stated as follows:

October 31, 2011

Norfolk Sexual Harassment Case Settled On Courthouse Steps

by Lee E. Berlik

A Lincoln-Mercury dealer in the Virginia Beach area has settled a lawsuit filed earlier this year by a former employee who claimed that she was subjected to a campaign of sexual harassment by the dealership’s general manager.

On March 4, 2011, Carla Mercado, who worked as a car saleswoman until she was fired in March 2009, sued Lynnhaven Lincoln-Mercury Inc. for sexual harassment, discrimination and retaliation, asserting that Juan Lewis, the general manager, repeatedly groped her and made unwanted sexual advances and suggestions. On October 21, 2011, U.S. District Judge Raymond A. Jackson denied Lynnhaven’s motion for summary judgment and its partial motion to dismiss the complaint. Faced with having a jury decide the merits of Ms. Mercado’s claims, the parties mutually decided to settle the case on the courthouse steps, the day the trial was scheduled to begin.

According to the complaint, Lewis repeatedly made remarks of a sexual nature to Mercado on the job and asked her to have oral sex with him. On one occasion, according to the complaint, he told her that the only way she would get a promotion is if she performed that sexual act on him. At one time, the complaint reads, he forcibly kissed her. These comments and actions, Dance or Fight.jpg the complaint says, “were an integral part of Juan Lewis’s custom, business practice, and course of dealing with certain women at Lincoln-Mercury, while fulfilling his role as General Manager at the dealership.”

October 25, 2011

Descriptive Trademarks Can Be Difficult to Enforce, Discovers Timelines, Inc.

by Lee E. Berlik

Timelines, Inc., a small Chicago-based Internet company, has lost the first round of its legal efforts to obtain a court finding that Facebook infringed on its “Timelines” trademark when it announced its much-ballyhooed new feature, “Timeline.”

On Sept. 22, 2011, Facebook announced the “Timeline” feature, which will allow users to store and share their life events in chronological order on the site. Timelines, Inc., quickly filed a trademark infringement suit against Facebook, noting that it already has a registered trademark for the term “Timelines.” This mark refers, among other things, to a website that allows users to record and share events and contribute descriptions, photos, videos, geographic locations, and links related to events and people.

Arguing that there was a significant likelihood of confusion between its existing online product and the one just announced by Facebook, Timelines filed its lawsuit in order to avoid, in the words of the complaint, “being rolled over and quite possibly eliminated by the unlawful action of the world’s largest and most powerful social media company.”

October 17, 2011

Fraud Claim Knocked Out by Statute of Limitations for Negligence Actions

by Lee E. Berlik

A Swedish law firm has failed in its effort to sue a director of a former client for “misrepresentation” in Virginia federal court after the court ruled the claim was barred by Virginia’s two-year statute of limitations applicable to negligence claims. The law firm had conceded that it would be unable to maintain a cause of action for fraud under the laws of Virginia, and the court opted to analyze the viability of the claim as a negligence action.

The law firm, Andersson Gustafsson Advokatbyra KB, sued eSCRUB Systems, Inc., a Virginia company, and three people associated with the company, claiming that eSCRUB had failed to pay the firm’s legal bills after it hired the law firm in 2007 to help it resolve a dispute. The law firm alleged that John Packard, a former director of eSCRUB, committed fraud in that he breached a “continuing obligation to notify Andersson of the risks of non-payment it ran in performing services for eSCRUB.” The allegation was essentially that Packard was part of a scheme to induce the law firm to provide legal services to eSCRUB with the full knowledge that the company would never pay the firm’s legal fees.

In Virginia, negligence claims carry a two-year statute of limitations. Virginia follows the general rule that the event that starts the limitations clock ticking is the negligent act itself. There is no “discovery exception” that starts the clock at a later date, such as the date the plaintiff actually discovers that the alleged negligence occurred or that he has been damaged. Statutes of limitation can expire before a potential plaintiff even learns of the grounds for a lawsuit.

October 10, 2011

Copyright Troll Lawyer’s Tactics Criticized by Virginia Judge

by Lee E. Berlik

United States District Judge John A. Gibney, Jr., sitting in Richmond, Virginia thought so little of the well-publicized shakedown tactics of the new wave of “copyright troll” lawyers–in this case practiced by Richmond lawyer Wayne O’Bryan–that he took it upon himself (without any Defendant asking for it) to issue a show-cause order against the lawyer demanding that he explain why his conduct should not be punished with Rule 11 sanctions.

The subject of the lawsuit at issue is Gangbang Virgins, a pornographic film allegedly downloaded by 85 unnamed “John Doe” defendants using popular peer-to-peer network BitTorrent. The Court initially granted the plaintiff permission to issue subpoenas to Internet Service Providers to learn the identities of the people behind the accused I.P. addresses. Later, however, Judge Gibney was apparently moved by some of the letters he received from the John Doe defendants. Several of the defendants, for example, notified the Court that the plaintiff made harassing telephone calls to them as soon as their identities were revealed, asking for a payment of $2,900 to end the litigation.

What the Court found particularly troubling was the lawyer’s behavior after certain defendants filed motions challenging their inclusion in the case. Rather than proceed to argue the merits of the motions in court, he routinely dismissed them, apparently to ensure the Court did not actually rule on any of the motions so that he could continue to threaten others. That, the Court found, amounted to nothing more than a “shake down” and an abuse of the Court’s resources.

The VirginiaBusiness Litigation Blog