MA Noncompete Bill Deferred to Next Year

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Although the Massachusetts noncompete bill had made substantial progress since its introduction, many more pressing issues in need of urgent legislative attention took priority, leaving the bill stalled toward the end of the legislative session (ending today, July 31). It is thus now fair to report with certainty that the bill is dead for this legislative session.

Questions have already arisen about what will happen next year. The answer: it will likely be reintroduced, but with modifications based on input that had been solicited and received from many different quarters.

Recap of the bill’s progress through last session:

Two noncompete bills were introduced in December of 2008, one by Representative Will Brownsberger and the other by Representative Lori Ehrlich. The Brownsberger Bill would have aligned Massachusetts with California, banning employee noncompetes entirely. The Ehrlich Bill took a different approach, primarily imposing certain notice requirements and an income threshold so that employees earning under a certain amount would not be subject to noncompetes at all.

By the spring of 2009, the two reps had worked extensively together – soliciting input from many people, reflecting many divergent interests – to design a compromise bill that would balance the needs of employers large and small with those of the employees, from the most highly paid and sophisticated to the least.

Over the course of the next year, the two reps and others involved in the process (I was the lead drafter of and advisor on the original Ehrlich Bill and continued in that role for the compromise bill) solicited – and received – some extremely constructive suggestions for ways to improve the bill. As the process went on, it quickly became clear that for every change that might be made, someone might want the language back the way it was. By way of example, early on, a number of the people we heard from opposed the use of garden leave clauses. Based on what we were hearing, the garden leave option was removed. Later, as we heard from more people and as people came to understand the benefits of a garden leave option – and, in particular, that their use was not mandatory, it seemed likely that the garden leave clause would make its way back in.

While that education/investigation process continued, in March of this year, the bill was favorably reported out of committee and, on May 25, was submitted to the Judiciary Committee for its consideration. Most recently, it (along with various other bills) was attached to part of an economic development bill. Although the economic bill passed in the house, several of the attached bills – including the noncompete bill – were removed. As a result, the bill would not pass this year.

Future of the bill:

The bill has received a substantial positive response. Although reports vary as to the level of opposition, most of the opposition focuses not on the bill’s fundamental purpose, but rather, on certain aspects of the bill. Those aspects are primarily the $75,000 income requirement for someone to be bound by a noncompete and the ability for a former employee to recover legal fees. Accordingly, the bill will almost certainly be reintroduced in the next session with some modifications based on the input already received and other input still being sought.

Unfair Competition Basics: Mark My Words… Trademark Basics

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Trademark law is designed primarily to prevent consumer confusion with respect to the identification of the source of goods products.  As a general rule, any word, symbol, or combination of words and symbols used to identify the source of goods or products in commerce can potentially be protected under federal trademark law (the Lanham Act).  Unlike the protections afforded by copyright and patent laws, but like those afforded by trade secret law, trademark protection is potentially unlimited in duration.

The starting point for an analysis of whether a trademark will qualify for protection is to determine whether the mark is “distinctive.”  Trademarks range from fanciful and arbitrary, such as (respectively) Kodak and Apple (for computers), at the end of the spectrum deserving of the greatest protection and deemed “inherently distinctive,” to generic, such as aspirin (originally a trademark of Bayer), at the other end, receiving no protection. In the middle are suggestive and descriptive marks.

Descriptive marks are not inherently distinctive. As such, more must be shown to receive trademark protection.  Specifically, marks that fail to qualify as “inherently distinctive” can still receive trademark protection if they have acquired “secondary meaning,” i.e.,  consumers identify the mark with the source of the goods, not the good itself.

Once a term is determined to be distinctive, and therefore entitled to protection under the Lanham Act, the pivotal issue becomes “likelihood of confusion,” i.e., “whether the allegedly infringing mark is likely to cause consumer confusion.”  (This analysis excludes the concept of “dilution” of a “famous” mark; more on that another time.)

In the First Circuit (i.e., New England), likelihood of confusion is determined by a non-exclusive, eight-factor test.  The test is:

  • The similarity of the marks;
  • The similarity of the goods;
  • The relationship between the parties’ channels of trade;
  • The relationship between the parties’ advertising;
  • The classes of prospective purchasers;
  • Evidence of actual confusion;
  • The alleged infringer’s intent in adopting its mark; and
  • The strength of the mark.

If distinctiveness and likelihood of confusion are found, courts will usually enjoin infringing marks.

Employee Non-Compete Agreements and Job Creation: The Status of Law Reform a Year Later

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For those interested in the current status on the pending legislation to reform noncompete law in Massachusetts, the Boston Bar Association will be hosting a symposium on noncompete reform. The panelists will discuss the current law, proposed changes, and the policy behind each, after which the panel will open the floor to a questions and answers.

On the panel are:

To see the current noncompete bill, click here.

For more information, click here to view the Boston Bar Association’s event detail.

eBay Accused of Stealing Trade Secrets

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eBay has reportedly been sued by EPRT Ventures for $3.8 million. The claim appears to be not only that eBay supposedly infringes on certain patents, but that eBay misappropriated trade secrets disclosed to it on a purportedly confidential basis. The lawsuit is pending in the United States District Court for the District of Delaware. Read more at ECommerce Times.

Post-Employment Noncompetes?

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You are planning to terminate an employee or you have an employee who is in the process of resigning – or has already resigned. The employee is not subject to a noncompete, or maybe there is some question about the enforceability of his noncompete. Can you bind the employee to a noncompete? In a word (well, two words), quite possibly.

Noncompetition agreements arising from an employment relationship but entered into as or after employment ends are enforceable just like any other noncompetition agreement. As such, they are subject to the same requirements as any other noncompete. But, what makes them a bit different is the extra focus on the fact that there must be an appropriate ancillary transaction of which they are a part. The ancillary transaction requirement can be satisfied by many different types of transactions, including (as is most often the case) a severance agreement.

For those looking for legal support, here are some citations (from my book): Marine Contractors Co. v. Hurley, 365 Mass. 280, 288 (1974) (“Marine’s interest in protecting its accrued good will from possible incursions by Hurley is not weakened by the fact that it negotiated the agreement not to compete at the end of Hurley’s employment rather than at some earlier time.”); Richmond Bros. v. Westinghouse Broad. Co., 357 Mass. 106, 110–11 (1970) (noncompetition agreement signed near conclusion of employment was deemed void not as result of its timing, but, rather, on other grounds); Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716–17 (1961) (settlement of embezzlement claim); Majilite Corp. v. Abbott, MICV2008-00222-L2 (Mass. Super. Ct. June 5, 2008) (settlement of breach of fiduciary duty and other claims).

Social Media, the New World?

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Each time a new technology rolls out, legal decisions follow. Social media is the latest. Remember the cyberstalker? How about Facebook’s lawsuit against Power.com? Or the class action against Facebook over its privacy settings?

The latest twist involves a case filed in the United States District Court for the District of Minnesota, TEKsystems, Inc. v. Hammernick, No 0:10-cv-0081. It is being heralded as the beginning of a brand new type of lawsuit – a new world of litigation.

The case boils down to a claim by an employer that the employee’s use of a social media site (LinkedIn) violated the employer’s rights. Who owns the employee’s “connections” (or contacts)?  Can the employee “connect” (or communicate through LinkedIn) with certain individuals without violating the employee’s restrictive covenants (a noncompete and a nonsolicitiation agreement).

While it may be true that the case is the first to raise the issue of the proper balance of employer/emplee rights in social media, the underlying issue is really nothing new.

Does your company issue Blackberries, iPhones, or other smartphones? How about laptops with Outlook? How many employees limit the contacts stored on those devices to business-only contacts? The balance of rights in the information about the contacts has been a regular issue in many post-employment disputes – as has the substance of texts and emails to former customers and colleagues.

To be clear, lest you think that this is purely a technology issue, anyone remember the Rolodex? (For those who don’t, look at the picture above.) With a Rolodex, you couldn’t just take a copy of your contacts – you had to physically remove the cards with the information about the contacts you considered to be your own, or worse, take the entire Rolodex. 

So, do you need to “disconnect” from people on LinkedIn or “de-friend” people on Facebook, the answer lies less in the technology and more in the underlying state law of trade secrets and restrictive covenants.

This brings us back to where we started: Is Social Media a New World? No. It’s just another example of “what’s old is new again.” Just as you updated your policies to include computers, Blackberries, iPhones, etc., update them to address social media.

Trade Secrets Hollywood Style

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Lawsuits over trade secrets typically involve things like customer lists, formulas, manufacturing processes, etc. Can the location of houses for use as movie sets be a trade secret? Yep. Well, at least that’s the claim made by a company in Hollywood. (Here’s an article about it from Reuters: Trade-secret war over Hollywood set locations.) We’ll have to wait to see what the court thinks.

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