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Legal Emergencies

ModifiedLawyers get lots of calls from clients with emergencies.  That little tidbit should not surprise anyone.  After all, when a situation first arises, most business people would rather negotiate a solution than ask someone to help them.  Therefore, almost anytime someone calls an attorney about a potential litigation matter, they have often exhausted all of their other options.

Many of the so called emergencies, however, are entirely preventable.  A typical scenario is that a small company, Smallco, hires a contractor, Con, to do a job.  The job can be almost anything – the graphics design for a brochure, broker a deal to sell company real estate, develop a smart phone app, or even conduct an Internet marketing campaign.  Everything goes well for a while; Smallco cuts checks, and Con appears to do the work.  But, somewhere along the way, Smallco asks Con how the project is coming along, and when it will be done?  All of a sudden, Con starts making additional demands: “I’m not turning over my valuable intellectual property until I get the payment that we agreed on!”  And naturally, Smallco never agreed to the deal that Con is attempting to “enforce.”

Smallco tries to work something out with Con, but Con is adamant.  No work product until he receives the “agreed” payment.  And, naturally, there is no contract and only a few scant emails to prove that anything was agreed to, and naturally, the key terms are never mentioned anywhere.  That’s when a lawyer gets a call, and that’s when the bad news come out.  The case can be litigated, and probably even won – after all, juries are known for their ability to see through complicated situations and find the truth.  But, it will be expensive – in many cases, a lot more than the case is worth.  Then the lawyer steps in and attempts to negotiate a resolution.  Under the obvious threat of litigation, sometimes Con backs off, and sometimes the whole mess ends up in court.

No doubt, every Smallco runs into its fair share of Cons.  However, many of these run-ins can be avoided.  Following the steps below can help your company steer clear of at least a few Cons.

1. Seek Out Someone Highly Recommended:  The Internet is more than just a way to find a great new restaurant.  See if there is a site that specializes in providing ratings for the type of person you seek to hire.  If you are looking to hire an attorney, look on Avvo.  Freelancer, elance, and odesk have ratings for software developers and web developers – as well as lots of other types of professionals.  And, of course, you should look over your prospective contractor’s LinkedIn page.  A professional with no client recommendations or endorsements indicates a person who 1) does not care about the Internet (there are a few still out there), or more likely 2) is too green to have garnered any recommendations or endorsements or 3) is not worthy of recommendations or endorsements.

As powerful as ratings services and resume services (like LinkedIn) are, and we wholeheartedly endorse their use, there is no replacement for working your own network.  Do you know other business owners that have hired someone for the same type of job that you are about to hire someone for?  Ask them!  Even direct competitors will usually give honest advice about contractors they have worked with.  And a business person that is likely to do business with you again is not going to give a recommendation for someone they really do not believe in.

2. Get a Resume and Contact Prior Employers:  This step, which is recommended by every reputable HR professional, entails asking your potential contractor for his resume (or portfolio, or curriculum vitae), going down the list of previous jobs, projects, engagements, etc., and contacting everyone on it.  Some of the contractors prior engagements will likely be willing to speak with you, and you should listen to what they say very carefully.  If the feedback comes back mostly negative, then your potential contractor is likely a bad apple.  Congratulate yourself – you just dodged a potential “Con” situation, like the one discussed above.  In addition, you can verify that your contractor actually has done what he said he did; i.e., did Joe Smith hold the title of Executive Vice President when he worked for you?  No – he actually worked as a sales representative on the East Coast?  Very good to know.

If your contractor gets good recommendations, and his resume checks out, then you are probably dealing with a trustworthy person.  If you restrict your dealings to only trustworthy people, the probability that you will run into a Con drops to extremely low levels, and the probability that you will experience a blowup like the Smallco fiasco described above is very small.  However, to guard against honest misunderstandings (which do happen), you can take the additional step of memorializing your agreement into a contract as set forth below to ensure that misunderstandings are kept to a minimum.  However, if you are dealing with an untrustworthy person, you should realize that any contract will be extremely difficult to enforce.  Therefore, the steps required to determine that a person is trustworthy are essential before you consider entering into a contract.  Again, a contract is an important step, and you should not skip it.  But dealing with a trustworthy person is just as important.

Once you determine the person is trustworthy, and is skilled enough to take on your job, the last step is:

3. Memorialize the Agreement:  This is the first and only step for which you will need to engage an attorney.  The attorney will need to capture the actual agreement of the parties, and ensure that your interests are protected.

It goes without saying that a trustworthy person will have no problem actually signing a document that memorializes what she agreed to do.  A few things to keep in mind, especially with software and web developers, is to address intellectual property.  For example, the Agreement should set forth that a web developer is entitled to use trademarks and copyrights of your company only while performing work for you, etc.

If the value of the Agreement is substantial, such as $1,000,000 or more, you should consider an arbitration clause as part of the agreement.  There are a lot of advantages to arbitration – in particular, arbitration provides privacy, greater certainty (as you can restrict appeal), and the  knowledge that your case will be decided by experts in the field you are operating in.  However, the parties must pay the arbitrators, which can easily run $90,000 or more.

Finally, in appropriate circumstances a fee-shifting provision can be useful as well.  However, there are many cases where a fee-shifting provision actually benefits the other party far more, so take care with this.  It should also be noted that in many jurisdictions one-way fee shifting provisions are automatically applied bi-laterally.  See, for example, First Citizens Bank v. Reikow, 177 Wn. App. 787, 799 (2nd Div. 2013).  In other jurisdictions, a reasonableness standard is applied.

Even if you follow all of the above, you will not eliminate emergencies entirely.  Legitimate disputes will still occur.  However, if you limit your dealings to trustworthy persons, and you use a contract to ensure that everyone is actually agreeing to the same thing, the likelihood that any particular engagement will devolve to an emergency is extremely low.

Plaintiff Gets to Present Damages Calculation Despite Missing Deadline / Unfair Competition Claims Dismissed

Nanochem Solutions v. Global Green Products, Case No. 10-5686, Slip Op. (N.D. Ill. Sept. 10, 2013)(Hart)

At issue in this opinion are (1) a motion in limine, and (2) a motion for summary judgment, both filed by defendant Global Green Products.

In their motion-in-limine, Global Green sought to block Nanochem from introducing any damages calculation at trial because it had originally claimed damages based on a reasonable royalty, but shifted to lost profits at the very end of the case.  In fact, it had never unveiled its damages calculation (as required by Rule 26(a)(1)) until it responded to Global Green’s motion-in-limine.  Nonetheless, as the date for the final pre-trial order has not yet been set, the Court determined that Global Green was not prejudiced, and therefore, Nanochem will be allowed to present its damages calculation.

Also in their motion-in-limine, Global Green claimed that the damages calculation presented by Nanochem is not a legally proper way to calculate lost profits.  The Court essentially ruled that the proper venue to raise this issue is a rule 50 motion for JMOL.  In addition, Nanochem will be able to revise its damages calculation (if needed) in the final pretrial order, in jury instructions, and in trial briefs.

Global Green had better luck with its motion for summary judgment.  In particular, Global Green challenged count VI (unfair competition based on the Lanham Act) and VII (unfair competition based on Illinois law), and was successful in having both dismissed.  The mark asserted by Nanochem (A-5D) was determined to be descriptive; i.e., not distinctive, and without secondary meaning (otherwise referred to as acquired distinctiveness).  Under longstanding precedent – no distinctive mark (acquired or inherent), no cause of action for unfair competition.  Accordingly, the Court granted summary judgment on both claims.

Facebook’s Motion for Summary Judgment Denied

Timelines v. Facebook, 11-CV-6867, Slip Op. (N.D. Ill. Apr. 1, 2013)(Darrah)

Back in 2011, Timelines sued Facebook for trademark infringement based on Facebook’s new timeline feature.  Facebook moved for summary judgment, and Judge Darrah has now denied Facebook’s motion – this case is set for trial on April 22, 2013.

In particular, Facebook attempted to establish that Timelines mark was (1) generic, (2) merely descriptive without any showing of secondary meaning, (3) fair use, and (4) non-use of “timelines” as a trademark.  The Court rejected all of these defenses.  Highlights are:

  • The Court indicated that the Timelines’ registered mark is entitled to a presumption of validity.
  • Facebook’s survey, which showed that 68% of respondents felt that “Timelines” was generic, was insufficient to establish genericness at summary judgment.
  • Timelines has more than a thousand users, which can indicate a sizable group for which the mark would indicate a source.
  • Timelines also contended that its mark was merely suggestive, and the Court found this to be an issue of fact.
  • The Court also determined that Facebook did not establish, as a matter of law, that it not use the term “Timelines” as a trademark, and therefore, Facebook’s non-use and fair use defenses failed at the summary judgment stage.

The trial should make for an interesting show.

Cisco v. Innovatio: First round a Draw

 Cisco Systems v. Innovatio IP Ventures, 12-CV-427 et al. Slip Op. (N.D. Ill. Feb. 4, 2013)(Holderman)

After Innovatio filed numerous suits against commercial and quasi-commercial users of Wi-Fi for allegedly infringing seventeen patents, three of the most prolific manufacturers of Wi-Fi products (Cisco, Motorola, and Netgear) filed suit in the Northern District alleging, among other things, violations of the RICO Act, unfair competition, intentional interference with prospective advantage, and unclean hands.  The manufacturers also alleged that Innovatio, which received its patents from former IEEE member Norand, was required to license its patents on RAND (reasonable and non-discriminatory) terms, and brought actions for breach of contract and promissory estoppel.  Finally, the manufacturers brought counts attempting to invalidate Innovatio’s patents.

Judge Holderman completely eliminated the manufacturer’s offensive case – the RICO, unfair competition, intentional interference with prospective advantage, and unclean hands claims were completely wiped out by the Noerr-Pennington doctrine.  However, Judge Holderman also held that the manufacturers contract claims could proceed.  If the manufacturers are able to prevail on any of their contract claim, Innovatio will be likely be left with minimal damages claims against the three manufacturers (instead of the millions of customers of the manufacturers), who will likely still attempt to invalidate the patents-in-suit.

Finally, it should be noted that this was an exceptionally brave and risky move by the manufacturers who brought this suit.  If they should lose, they will likely have waived any defense they might have had against claims for indemnification by their customers.  Given estimates of between 100,000 and 1,000,000 commercial and quasi-commercial hotspots in the United States, and Innovatio’s claimed license fees of $2500 per location, the manufacturers could have assumed up to $2.5 B in liability.

Ashland Inc. Sues Centralia Oil Change Shop for Trademark Infringement & Counterfeiting

Ashland, Inc., which owns the well known brand Valvoline, has sued Specialty Lube, Inc., a Centralia oil change shop, as well as its owner for trademark infringement, unfair competition, unjust enrichment, trademark dilution, and deceptive business practices.  Apparently, Ashland sent investigators to Specialty Lube twice, and found that the oil which was placed in their cars, which was supposed to Valvoline was a counterfeit instead.

The Case Number is 13-CV-95 (S.D. Ill).