Is there really more to say? Five more tips for IP writers

Following the critical attention given to two earlier posts on the topic (here and here), I'm offering a further set of five tips for authors of articles, notes and book reviews on intellectual property law and practice.

1. Salamanders and axolotls. In the animal kingdom, the salamander occupies an unusual position: it is capable of reproducing both in its mature form, as a handsome beast, and in its immature form, as a somewhat charmless axolotl. We intuitively favour the former over the latter. So too with words, we favour the longer and more apparently mature form of words over their shorter, less impressive brethren. Thus 'transportation' is often used when 'transport' will do nicely; 'simplistic' is chosen over 'simple', and so on. The cautious writer will do two things: he will consult a dictionary and check that the long and the short words are synonyms conveying the same shade of meaning (which in some cases they are not), and he will ask whether it is not an act of kindness to his reader to select the shorter where possible.

2. False friends. Some words are so similar to one another that they surely must mean the same thing -- but they don't. Not just IP editors but others are familiar with the apparently random selection of 'credit', 'credibility, 'credence', 'credulence', credulity' and 'credulousness' on the assumption that each will neatly fill a gap in a sentence without the need to repeat an earlier-used (and very possibly correct) term.

3. Pompous legalese. Words frequently deleted from texts published in the Journal of Intellectual Property Law and Practice, and from all good IP journals, are ugly portmanteau terms such as 'aforementioned', 'aforesaid' and 'hereinbefore'. They may provide valuable guidance in licence agreements (though they can generally be avoided), but are out of place. Where you find them in contemporary legal writing, they are frequently a sign of (i) authorial pomposity, (ii) a student author trying to sound grown-up or (ii) inattentive editing.

A second form of legalese involves the irritating word "said", as in "the said trade mark" or "said plaintiff". Sometimes no trade mark or plaintiff has been "said" and the reader wonders if he has missed something. When I speak to contributors who pepper their offerings with "said", or correspond with them by email, they express themselves quite lucidly without the need to resort to "said", so I encourage them to do the same in their journal submissions.

A third form of legalese is a sort of pseudo-American atrophy which is achieved by dispensing with the definite article. American lawyers often use "Plaintiff", "Defendant" and similar terms without resort to what non-Americans may feel to be the common courtesy of a preceding "the"; that does not permit authors to reduce their word count by omitting this small but ubiquitous word where it seems to them to make their text sound more American.

4. Monsterlinks. The author is duty-bound to cite his internet-located sources and the reader expects to find them. The publisher's task is to find an effective, and ideally attractive, means of representing them on paper if he cannot publish electronically and conceal them within a hyperlink. Most readers struggle to type domain names accurately into their internet browsers when they consist of some 70 or 80 characters (which, in footnotes, often contain numerous microscopic punctuation symbols); above that figure, the reader may lose hope entirely. Where a link is made to an official database containing statutes, treaties, case law or office decisions, that database will generally be internally searchable and the reader may reasonably be expected to navigate it himself. The author should bear this possibility in mind before submitting his text.

5. Who is Sarah Palin? For some personalities of the past, fame is persistent and may be presumed. No writer, when making an allusion, need break off from his narrative to explain who Napoleon, King Midas or Cleopatra might be. Similarly, the comprehension of adjectives derived from genuine celebrities can be assumed (depending on the audience addressed): Aristotelian, Socratic, Faustian are good examples. The same cannot be said of many lesser celebrities for whom even iconic status may be temporary. In 2008-9 much was heard of Sarah Palin, but will a reader recognise her name or understand an allusion to it if they read in 2029 an article penned in 2009? The principle is clear: choose your cultural reference points carefully. This principle works in space as well as time: a person who is famous in one country may well be quite unknown elsewhere, as many a tourist can verify when coming across statutes and memorials respectfully erected to heroes of whom they have never heard.

Firecraft: the danger of estoppel following Trade Mark Registry proceedings

Authors: David Cran and Georgia Warren (Reynolds Porter Chamberlain)

Evans and another (t/a Firecraft) v Focal Point Fires plc [2009] EWHC 2784 (Ch), 10 November 2009

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpp237

The High Court granted summary judgment to the claimants in a passing off case because an earlier Intellectual Property Office (IPO) decision that the same claimants had an actionable claim for passing off against the same defendant, a decision which resulted in the invalidation of the defendant's trade mark under section 5(4)(a) of the Trade Marks Act 1994.

Legal Context

By section 5(4)(a) of the Trade Marks Act 1994 (‘TMA’), a trade mark shall not be registered if its use in the UK is ‘liable to be prevented by virtue of any rule of law (in particular, the law of passing off) protecting an unregistered trade mark or other sign used in the course of trade’.

The elements that must be proved to demonstrate passing off are:

* Goodwill attached to the relevant goods or services;
* A misrepresentation by the defendant to the public (whether or not intentional), for example one that leads, or is likely to lead, the public to believe that the goods or services offered by him were those of the claimant; and
* Damage to the claimant, for example, arising from the erroneous belief (caused by the defendant's misrepresentation) that the source of the defendant's goods or services is the same as the source of those offered by the claimant.

Cause of action estoppel applies where litigation has occurred previously in respect of the same subject matter, and was subject to a final and conclusive judgment. It prevents a party to that previous litigation from re-litigating the same claim.

Issue estoppel applies where a particular issue has previously been litigated and decided by a court as a necessary issue. If that same issue is relevant to subsequent proceedings between the same parties, it cannot subsequently be reopened for judgment.

Hormel Foods Corporation v Antilles Landscape Investments NV [2005] EWHC 13 (Ch) established that a person is barred by cause of action estoppel from attacking the validity of a trade mark in the High Court where that person had previously unsuccessfully attacked the mark before the IPO.

However, the Court of Appeal in Special Effects Limited v L'Oréal SA and L'Oréal (UK) Limited [2007] EWCA Civ 1 allowed a defendant to counterclaim for the invalidity of a trade mark in infringement proceedings despite having been unsuccessful in opposition proceedings in the registry, on the basis that there was no cause of action or issue estoppel.

Facts

Since 1991 the claimants had traded throughout England and Scotland in the manufacture, sale, and installation of stone fireplaces under the name ‘Firecraft’.

The defendant, Focal Point Fires plc, was a leading manufacturer of gas fires in the UK, making gas and electric fires since 1993. Around 2000, the defendant started to supply its fire range under the brand name ‘Firecraft’, having first instructed trade mark attorneys to establish whether it could use the name. The trade mark search came back clear and the defendant applied to register ‘Firecraft’ for various goods in class 11 including ‘gas fires; electric fires; fires simulating fuel effect’ in February 2000. The mark was registered on 1 September 2000.

The claimants claimed that they were not aware of the defendant's use of ‘Firecraft’ until May 2006. A request for invalidation of the defendant's trade mark was filed with the UK Intellectual Property Office (‘IPO’) in May 2007.

In November 2008 the claimants' invalidation application (on the basis of section 5(4)(a) of the TMA) came before an IPO hearing officer. The claimants successfully argued that they had an actionable claim for passing off against the defendants in relation to the ‘Firecraft’ mark as at the trade mark application date. As a result, the IPO held that the defendant's trade mark was invalid under section 5(4)(a). While the defendant did not appeal, neither did it stop trading under the ‘Firecraft’ name.

In March 2009 the claimants applied to the High Court for summary judgment on a claim for passing off against the defendant. The claimants argued that they were entitled to summary judgment as the IPO decision had established the defendant's primary liability for passing off. The claimants also argued that the defendant could not challenge the decision due to issue estoppel, cause of action estoppel, and/or abuse of process. As a result, the claimants submitted that all that the High Court needed to determine was the remedy to be granted (as the IPO hearing officer did not have the power to do so).

Analysis

The judge, Peter Smith J, agreed with the claimants' arguments that they were entitled to summary judgment on the basis of the IPO hearing officer's decision. He also agreed that the defendant was not able to challenge the decision due to cause of action and issue estoppel and because it would be an abuse of process.

As the judge noted, the claimants could choose to challenge the validity of the trade mark either before the IPO or in the High Court. However, the claimants' reliance on the IPO decision limited its choice of remedy as the IPO did not have the jurisdiction to grant an injunction or award damages. Consequently, the claimants only sought a declaration from the Court, rather than an injunction or damages. The judge noted that these matters remained open.

Even though the IPO decision concerned the existence of a cause of action for passing off 9 years earlier, at the time of the trade mark application, it did not follow that the claimants did not still have such a cause of action. Indeed, if there had been a sustainable argument on this point at the time of the IPO hearing, the defendant would have run it. The IPO would not have found the mark to be invalid if there was no continuing breach.

Cause of action estoppel
The judge rejected the defendant's argument that the IPO had only come to a decision on the validity of the trade mark and not in relation to establishing a cause of action in passing off. Clearly, the IPO could not have found that the trade mark was invalid under section 5(4)(a) without also establishing that a cause of action for passing off subsisted. In order to demonstrate this, the claimants would have had to adduce satisfactory evidence to demonstrate each of the three elements of passing off.

Issue estoppel
The defendant argued that the IPO was not a court of competent jurisdiction in relation to the relevant issues: its role was to manage the trade mark register and to adjudicate on any disputes arising from it. This being so, the defendant was not estopped from arguing passing off before the High Court. The judge disagreed. The IPO had determined whether the trade mark registration was invalid. To do so, it had to establish a subsisting cause of action for passing off as at the trade mark registration date. This was central to the IPO proceedings.

The defendant also argued that there could be no res judicata in a changing situation. Again the judge disagreed. The IPO had had to decide whether damage was likely to be caused to the claimants by passing off, which was akin to a quia timet test (a quia timet injunction restrains wrongful acts which are threatened or imminent but have not yet commenced). The IPO not only supported quia timet but also found damage to the claimants' goodwill at the trade mark application date. If the defendant had been able to demonstrate in the subsequent action that the circumstances had changed (eg the claimants had ceased trading), that would have been relevant. However, it appeared that they had not.

Abuse of process
The judge stated that the defendant's decision to provide limited evidence in relation to the IPO invalidity proceedings with a view to producing ‘better evidence’ in the High Court should be categorized as an abuse of process. Costs recovery in successful IPO proceedings was limited and the claimants had incurred substantial costs in establishing a passing off claim that they would not recover. The claimants should not incur further costs to demonstrate this again before the High Court. Further, it was open to the defendant to appeal the IPO decision in order to adduce further evidence, but it chose not to do so.

While the IPO registrar was powerless to prevent the further use of the mark by the defendant or to make an order for damages, the declaration as to invalidity meant that the defendant no longer had a mark which it could enforce against others. The defendant had underplayed the significance of the IPO decision.

The judge considered the two authorities on this area, Hormel and Special Effects. Special Effects made the position clear regarding opposition proceedings, but that did not arise here. Hormel dealt with an unsuccessful challenge to validity. The judge held that the converse of that judgment was equally true. It could not be right to allow a defendant to seek to re-run a successful adverse decision on validity against it.

Practical Significance

This decision highlights the possibility that, if a claimant succeeds in invalidity proceedings before the IPO, it can use that invalidity declaration to obtain relief in the High Court without the need for further evidence. In other words, it can opt for the cheaper route to establish passing off and obtain relief. However, it should be borne in mind that these claimants only obtained a declaration. While the option to seek an injunction and damages remained open to them, they would need to establish before the court that they should be awarded in the circumstances.

It is understandable that the defendant in this case believed the IPO proceedings dealt with the issue of invalidity only and so decided not to adduce extensive evidence on the passing off point. However, this case is a warning not to underestimate IPO proceedings and to submit all relevant evidence in support of your case as courts will ensure that parties that have had the opportunity to put their case before the IPO do not get a ‘second bite of the cherry’ in court. The case of Hormel suggests that this approach is not limited to passing off cases but may also apply in other circumstances where, having brought proceedings before the IPO, parties then look to bring a court action.

Ten more tips for IP writers

Following the interest stirred up by last week's post, "Ten helpful hints for IP writers", I've decided to add some more. Do let me know what you think about them.

1. Don't be passive, get active. "It was held by the court ..." sounds very grand, but "The court held ..." means the same thing and uses half as many words. Readers might be surprised to know how many contributors who cavil at what they consider an ungenerous allocation of words for an article will happily squander this allocation on sentences which are so full of passive verbs that they seem to run backwards.

2. Avoid confusing terminology. A major problem arises here when deciding how to refer to litigants in proceedings before the Office for Harmonisation in the Internal Market: the party filing an application to register a Community trade mark is rightly described as the applicant. If the application is successful, a party who challenges the registration before the Cancellation Division becomes the applicant for cancellation. If the application for cancellation succeeds and the trade mark owner seeks to challenge the decision of the Cancellation Division, he becomes the applicant for annulment before the Board of Appeal. If that application succeeds and is challenged before the General Court, the original applicant for cancellation becomes the applicant for annulment of the decision of the Board of Appeal.

An intelligent and observant reader may have no trouble following which party is which, even where each is described in turn as an "applicant" -- but it's simpler, where (for example) the first party is called Smith and the second is called Jones, to refer to them as Smith and Jones.

3. Be consistent, even if you're wrong. Some authors can't be sure whether to describe a work as "copyright" or "copyrighted", or whether to spell "trademark" as "trade mark" -- so they treat the reader to a smattering of each. If you stick to one formulation, the task of the editor is simpler since he knows what to look for. But don't think that all the editor needs to do is to select his "change all" feature and correct each unaccepted spelling: this has the unfortunate effect of additionally changing the correct spellings in the titles of books, articles and chunks of quoted text.

4. 'It' and 'This'. Very common words in the English language, 'this' and 'it' are loyal servants of the writer's meaning when properly deployed. However, when used at the beginning of a sentence, they can have the effect of throwing the reader back to the previous sentence, or sometimes the previous paragraph, to establish precisely what the 'This' or 'It refers to. The writer will always know, but the reader may not.

5. Sympathy. It is a rare author indeed whose interest in intellectual property law is so pure and detached that it enables him or her to analyse issues entirely dispassionately. We all intuitively side with the owner or the user, the retailer or the consumer, the proprietary drug company or its generic competitor, as we are bound to recognise if we are honest.

Before writing, however, the author should ask whether it is necessary for the reader to be made aware of the writer's sympathies. Will it enhance the reader's appreciation of the problem, or of a court's solution to it? Many writers subconsciously drop words such as "(un)fortunately" into their prose, thus giving the flavour of partiality to their dissection of a legal issue. Others opt for more emotive terms which indicate their preference ("pirate", "troll", "rapacious", "greedy", "purely innocent", "monopolist"). I would not say that personal sympathy has no part to play at all, but rather that (i) the writer should be aware of the extent to which he may be displaying it and (ii) it may be more honest to declare one's interest at the outset than to drip-feed it to one's readership.

6. Look front and back. When buying a new car, you can be sure that if the front is a Toyota, the back's a Toyota too. The same can't be said when receiving a new article. The front bit states the author's aims and the back bit should reflect them. However, sometimes a substantial period may elapse between an author commencing the write-up and later finishing it; much may have happened during that period too -- a new legislative proposition, an unexpected legal decision or a decisive technological development. Any of these events may have caused the author to shift the perspective of the article in the course of writing it.

The reader, if he starts reading at the end of an article, should be able to gather from the author's concluding comments what it was that the author set out to establish initially. If that can't be done, there is a mismatch between front and back. In such a case the author should either rewrite his statement of objectives so as to describe his target as that which he has indeed hit (this is usually the easier path) or should revise the end to match the beginning.

7. Mind how you cut and paste. Most of us take the facility of cut-and-paste for granted now, having forgotten the inconvenient aura of textual paralysis imposed upon our writings by the manual typewriter. It is not always appreciated that cut-and-paste, particularly when done at speed, is an art. When the editor reads "On the other hand" followed, some lines later, by "One the one hand", when he is puzzled by a footnote to a work which is described as "cited above" but which isn't, and when he finds an organisation referred to by its initials or acronym on the third or fourth occasion on which it is mentioned, indelicate speed-pasting is often the most plausible explanation.

8. Two authors, one voice. Where a piece is genuinely co-authored, rather than penned by the trainee whose name appears alongside that of the partner at whose bequest the work was written, someone should read through and see if the text, rather than the content, gives away the point at which one author has taken over from another. This spares the editor from wondering whether to employ the second person or the third (eg from "You should check the termination provisions before entering the licence" to "One must guard against inadequate descriptions of licensed know-how"), whether to favour the past over the present tense when the article oscillates between the two, what to about inconsistent uses of gender and how to refer to a piece of legislation which veers at random between "Copyright, Designs and Patents Act" and CDPA. Much of the enjoyment of the pantomime horse is derived from contrast between its apparent existence as a single entity and the reality that its activities result from two distinct and separate contributions. Neither JIPLP nor its fellow IP journals are in the business of backing pantomime horses.

9. Reading is harder than writing. That is why many writers, having completed their texts, immediately submit them for publication. Many contributors would be rewarded if they read their text through at least once before attaching it to the email and pressing 'send'. They will find many gems. Sentences which begin in the singular and end in the plural, sentences with no verb at all, bold statements that diminish into meek "perhapses" by the time they reach their end, clauses from which the crucial word "not" has been omitted, the occasional "public" shamelessly parading as "pubic" -- and even the mis-spelling of either their own name or of that of their affiliation. Many of these errors will not be revealed by a spell-check, since the substitution of one correctly spelled word by another, or the omission of a necessary negative, remain within the province of the vigilant human.

10. Break every one of these rules with a good conscience if, in doing so, you enhance the ability of the reader to understand and appreciate the point which you seek to communicate.

Formula One sponsor proves too slow off the grid

Author: Angus Bujalski (Michael Simkins LLP)

Force India Formula One Team Ltd v Etihad Airways PJSC and Aldar Properties PJSC [2009] EWHC 2768 (QB), 4 November 2009

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpp234

By delaying too long, Etihad Airways and Aldar Properties had waived their right to terminate a sponsorship agreement with Formula One team Force India, so their purported termination amounted to wrongful repudiation and they were liable in damages.

Legal context

Disputes over sponsorship agreements are comparatively rare, but this case gives some reminders as to what a sponsor should consider both when entering into a sponsorship agreement, and when managing the ongoing relationship with the team being sponsored.

Facts

Etihad Airways, the national airline of Abu Dhabi, and Aldar Properties (together, ‘Etihad') entered into a sponsorship agreement in April 2007 to sponsor a Formula One racing team, Spyker Cars NV (the ‘Team'). The sponsorship agreement contained numerous specific provisions aimed at protecting Etihad's brand. First, the Team undertook not to enter into any sponsorship deemed by Etihad to be in conflict with Etihad's main activities as an airline, so that Etihad would be the only airline to be associated with the Team. Secondly, Etihad had the right to approve the Team's livery. Thirdly, Etihad had the right to decide the name of the Team. Finally, although the Team was permitted to contract with additional sponsors, Etihad had the right to approve these sponsors, and the agreement recognized that ‘gambling and alcohol related sponsor agreements will only be considered favourably if they entail no branding on the Cars or Drivers’.

Seemingly as a quid pro quo for Etihad having negotiated a relatively modest sponsorship fee, a rather unusual clause granted the Team the right to source an alternative title sponsor for subsequent seasons. If the Team did so, Etihad had the option, among other things, to terminate the agreement.

In October 2007, Spyker sold the Team to Orange India Holdings Limited, which was owned by a consortium including Vijay Mallya. Mr Mallya's interests include United Breweries Group which, among other things, owns and operates Kingfisher Airlines and produces and sells alcoholic beverages including Kingfisher beer. In order to appeal to the Indian market, and following approval by the World Motor Sport Council, the Team changed its name to ‘Force India’. Etihad made no complaint at the time.

The Team changed the livery of its cars for 2007/2008 winter testing to include the Kingfisher logo. It was disputed whether Etihad had consented. The Team claimed that this was accepted provided that the words ‘Fly Kingfisher’ were not used, whereas Etihad claimed no approval was given.

On 14 January 2008, some 3 months after the acquisition, the Team emailed Etihad proposing to amend the sponsorship fees. Etihad replied on 27 January that it took the email to be notice of the Team's intention to exercise its right to source an alternative sponsor and that Etihad accordingly exercised its right to terminate the agreement.

The Team contended that Etihad's email of 27 January was a wrongful repudiation of the agreement by Etihad and demanded payment of all sums outstanding, plus future losses (including bonus payments relating to world championship points) amounting to at least $15 million.

Etihad counterclaimed that the Team was in breach of the agreement through the promotion of Kingfisher Airlines in its association with Mr Mallya, by using the Kingfisher logo, by changing the Team name and by using new livery. Etihad's email of 27 January, therefore, constituted an acceptance of the antecedent repudiation of the agreement by the Team on 14 January.

Analysis

Sir Charles Gray, sitting as a judge of the High Court, upheld the Team's claims and dismissed Etihad's counterclaim.

He rejected outright the notion that the acquisition of the Team by a consortium including Mr Mallya was made particularly to promote Kingfisher Airlines. He agreed with Mr Mallya's evidence that promotion would be done through sponsorship; indeed, United Breweries Group at that time also sponsored the Toyota team. In any case, any breach there might have been was clearly waived through the conduct of Etihad once it became aware of the identity of the owners of Orange India Holdings Limited.

The limited use of the Kingfisher logo in the new livery, together with the livery itself, was not a material breach by Force India of its obligations under the agreement, not least as ‘the appearance of a car during winter testing is far less important to the sponsors than its appearance during Grand Prix races’.

In any case even if these breaches, together with the change of the Team name, had been material, they were remediable. All the Team needed to do was to remove the Kingfisher logo and amend the livery for the rest of the winter testing and to rename the Team. It was up to Etihad to give notice asking the breaches to be remedied, but no such notice had been given.

In any event, Etihad had waived any breaches through its conduct. From the date the Team was taken over until the date Etihad purported to terminate the agreement, Etihad did not complain about the change of name, the use of the Kingfisher logo or the change of livery. Sir Charles Gray relied upon the decision in Tele2 International Card Company SA v Post Office Limited ([2009] EWCA Civ 9), which summarized The Kanchenjunga ([1990] 1 Lloyd's Rep 391):

The innocent party has to make a decision, because if it does not do so, then the time may come when the law takes the decision out of its hands, either by holding it to have elected not to exercise the right which had become available to it or sometimes by holding it to have elected to exercise it.

Here, he decided that Etihad had delayed too long. Further, in a meeting between the parties in December 2007, well after the Team name had been changed and the new livery unveiled, Etihad had led the Team to believe it was happy with the Team's performance of the agreement. This amounted either to an affirmation of the agreement, or to a waiver of any breaches.

On the facts, Sir Charles Gray found two reasons for such acquiescence: Etihad was in negotiations with Ferrari for alternative sponsorship and was adopting a ‘wait and see’ attitude towards the Team. Further, Etihad needed to placate United Breweries Group as Etihad needed to borrow one of Kingfisher Airlines' aircraft and did not want to ‘rock the boat’ by complaining of breaches of contract by the Team.

On this basis, the Team was entitled to damages for the wrongful termination of the agreement, including a bonus for coming second from last in the constructors' championship in 2008. The Team had gained points in the 2008 and 2009 seasons which, under the agreement, would result in a point bonus. This was all recoverable by way of damages.

There was, however, one small piece of good news for Etihad. The Team had secured alternative sponsorship with Kingfisher Airlines and Whyte & Mackay for the 2008 and 2009 seasons, which mitigated its loss. Because these sponsors are, respectively, an airline and a whisky producer, the Team would not have been able to agree these agreements had the Etihad agreement still been in force and such payments were deducted from Etihad's liability. Rather than the $15 million it claimed, the Team was entitled to damages of around $4 million.

Practical significance

Etihad had succeeded in getting many relevant protections into the drafting of the agreement, both in terms of anti-dilution and competition, and from preventing potentially damaging sponsors from sponsoring the Team. It had the power to approve Team names, livery, and sponsors, and in particular could prevent the Team from obtaining sponsorship from airlines or alcohol producers.

The real lessons to draw from this case, however, are not sponsorship-specific drafting points, but rather general lessons for parties on the operation of a commercial contract, specifically in relation to remedy of, and acquiescence to, breach.

If a party is permitted to remedy its breach before the counterparty can terminate, the innocent party must give notice of the breaches and allow the breaching party the opportunity to remedy the breaches. Even without a specific grace period set out in an agreement, if a breaching party is entitled to remedy any breach then it must be given the opportunity to do so, or any termination based on that breach will be ineffective.

The innocent party must also respond quickly to a perceived breach by a counterparty, even if this is to reserve the party's rights. A ‘wait and see’ approach can quickly get to the point where delay amounts either to waiver of the breach or affirmation of the contract.

Together, these illustrate the vital importance of communication between sponsor and team. A sponsorship arrangement is not a simple payment for services, but an ongoing relationship which requires the commitment and attention of both parties throughout the duration of the relationship.

Courts split on proof requirements for unauthorized access in computer fraud and abuse act cases

Authors: Robert B. Milligan and Carolyn E. Sieve (Seyfarth Shaw LLP, Los Angeles)

Citation: Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpp212

LVRC Holdings LLC v Brekka, 581 F.3d 1127 (Ninth Circuit, 15 September 2009)

The federal Ninth Circuit Court of Appeals, rejecting the reasoning of the Seventh Circuit Court of Appeals, joined a growing number of federal courts that have limited the use of the federal Computer Fraud and Abuse Act, 18 USC 1030 (‘CFAA’), in suits brought against former employees accused of wrongfully taking electronic data from a company's computer system before leaving the company. Rather than focusing on the employee's intent in taking the former employer's electronic data, the Ninth Circuit held that the employer is responsible for defining what constitutes ‘unauthorized access’ in violation of the CFAA. Without a showing that the employee exceeded the employer's prescribed access, employers at least in the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) cannot maintain CFAA claims against former employees in such factual scenarios. Employers who commonly asserted such CFAA claims may now be faced with pursuing solely state claims in state rather than federal court.

Legal context

Congress enacted the CFAA in 1984 as a criminal statute designed to protect government and financial institution computers against ‘hackers’. In 1994, Congress added section 1030(g), which allows victims who suffer damages or loss resulting from a violation of the CFAA to maintain a civil action against violators and recover compensatory damages and injunctive relief. In 2000, a federal trial court in the Ninth Circuit rendered the first decision allowing a CFAA claim where an employee accesses an employer's computers to obtain information the employee will purportedly use to benefit a competitor: Shurgard Storage Ctrs., Inc. v Safeguard Self Storage, Inc., 119 F. Supp. 2d 1121 (W.D. Wash. 2000). Since then, the CFAA has become a potent means for employers to obtain redress from rogue employees who take company information to benefit themselves or their new employers.

In LVRC Holdings LLC, LVRC alleged violations of sections 1030(a)(2) and (a)(4). Section 1030(a)(2) is violated when a person ‘intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains ... information from any protected computer if the conduct involved an interstate or foreign communication ... ’. Section 1030(a)(4) of the CFAA (18 USC1030(a)(4)) is violated when a person ‘knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value ... ’. These are the CFAA sections most applicable in cases involving employees accused of stealing their employer's proprietary information.

In addition to showing unauthorized access or access in excess of authorization, plaintiffs suing under sections 1030(a)(2) or (4) must show that the violation involved one of the five factors listed in section 1030(a)(5)(B). In suits involving former employees alleged to have misappropriated their former employer's proprietary information, the first factor under section 1030(a)(5)(B) is usually applicable. To meet that requirement, the former employer must show ‘loss to 1 or more persons during any 1-year period ... aggregating at least $5,000 in value’.

Facts

LVRC operated a residential treatment centre for addicted persons in Nevada. In April 2003, LVRC hired Brekka to conduct internet marketing and to interact with the company LVRC retained to provide email, website, and related services. When Brekka was hired, he owned and operated two consulting businesses that obtained referrals for additional rehabilitation services and provided referrals of potential patients to rehabilitation facilities. One business was located in Florida, where Brekka lived; the other was located in Nevada. LVRC's owner was aware of Brekka's businesses, though he said he was not aware of the full nature of their operations.

While Brekka worked for LVRC, he commuted between Florida and Nevada. In connection with his work for LVRC and his commute, he emailed to his personal computer documents he obtained or created in the course of his duties. LVRC and Brekka had no written employment agreement or confidentiality agreement, and LVRC had promulgated no guidelines prohibiting its employees from emailing LVRC documents to personal computers. In June 2003, Brekka obtained an administrative log-in for LVRC's website. With this access, he was able to monitor LVRC's internet marketing efforts.

In August 2003, LVRC and Brekka began discussions about the possibility of Brekka purchasing an ownership interest in LVRC. Shortly after, Brekka emailed to his personal email account and his wife's personal email account a number of LVRC documents, including a financial statement for the company, LVRC's marketing budget, and admission reports for patients. He also emailed to his personal email address a master admissions report containing the names of past and current patients at LVRC's facility. Ultimately, discussions regarding Brekka's potential ownership interest broke down, and Brekka stopped working for LVRC. He left the computer supplied to him by LVRC and did not delete any emails from that computer.

More than a year later, LVRC discovered that someone had logged into the LVRC website using Brekka's log-in information. LVRC notified the FBI and sued Brekka, alleging Brekka violated the CFAA when he emailed LVRC documents to himself and when he allegedly accessed the LVRC website after he left LVRC. LVRC then brought an action in federal court, alleging that Brekka violated the CFAA when he emailed LVRC documents to himself and when he continued to access the website after he left LVRC. In addition, LVRC brought a number of state tort claims.

The Nevada federal district court granted summary judgment in favour of Brekka, holding that LVRC had failed to establish a violation of either 1030(a)(2) or (4). The Ninth Circuit affirmed the district court's ruling.

Analysis

Consistent with the reasoning of various federal district courts and the Seventh Circuit, LVRC argued that, because Brekka accessed the company computer and obtained LVRC's confidential information to further his own personal interests, rather than the interests of LVRC, such access was ‘without authorization’ and violated the CFAA. However, the Ninth Circuit found no support for that argument in the CFAA's plain language and concluded that

‘[n]o language in the CFAA supports [plaintiff's] argument that authorization to use a computer ceases when an employee resolves to use the computer contrary to the employer's interest’.

The Court added that the plain language of the CFAA indicates that ‘authorization’ depends on actions taken by the employer, and

‘[i]f the employer has not rescinded the defendant's right to use the computer, the defendant would have no reason to know that making personal use of the company computer in breach of a state law fiduciary duty to an employer would constitute a criminal violation of the CFAA'.

Thus ‘a person uses a computer "without authorization" under sections 1030(a)(2) and (4) when the person has not received permission to use the computer for any purpose (such as when a hacker accesses someone's computer without any permission), or when the employer has rescinded permission to access the computer and the defendant uses the computer anyway’.

Because Brekka had permission to use his employer's computer while he was employed at the company, he did not access a computer ‘without authorization’ in violation of section 1030(a)(2) or section 1030(a)(4) when he emailed documents to his personal email address and to his wife's personal email address before leaving the company. The Court also found that Brekka did not ‘exceed authorized access’ when he emailed the documents because he was entitled to access those documents in the first place. Further, the Court held that LVRC's evidence failed to establish any factual dispute as to whether Brekka accessed the company website without authorization after he left the company.

In its opinion, the Ninth Circuit explicitly rejected the Seventh Circuit Court of Appeals' reasoning in International Airport Ctrs., L.L.C. v Citrin, 440 F.3d 418 (7th Cir. 2006) that an employee's authorization to access his employer's computer files terminated when he violated his duty of loyalty to his employer. Citing the dictionary definition of ‘authorization’, which ‘means "permission or power granted by an authority"’, the Ninth Circuit deduced that

‘"authorization" depends on actions taken by the employer’ and that ‘[n]othing in the CFAA suggests that a defendant's liability for accessing a computer without authorization turns on whether the defendant breached a state law duty of loyalty to an employer’.

The Ninth Circuit also indicated that its interpretation was appropriate based upon the plain language of the statute and given the care with which it must interpret criminal statutes (1030(a)(2) and (4) create both criminal and civil liability) to ensure that defendants are on notice as to which acts are criminal.

Nonetheless, the Ninth Circuit did not go so far as to define ‘unauthorized access’ to apply solely to outsiders who do not have initial permission to access the plaintiff's computer, as a number of federal district courts have ruled.

Practical significance

Since 2000, CFAA claims have become common where former employees have taken company electronic data for their personal benefit or other improper purpose. This is because the CFAA provides a basis for federal court jurisdiction (some companies prefer to litigate in federal court) and because it allows aggrieved employers a remedy without having to prove the information taken was a trade secret or misappropriated, or that an employment agreement was violated. So long as the employer could prove "unauthorized access" to a protected computer and the requisite loss (at a minimum, $5000), it could obtain a remedy under the CFAA, including immediate injunctive relief.

After LVRC Holdings LLC, an employer litigating in the Ninth Circuit will be unable to maintain CFAA claims against a former employee who transfers company information from its computer system for personal use or that of a competitor premised simply on allegations that the former employee acted ‘without authorization’ or ‘in excess of authorization’ when acting as the agent of a new employer or having taken the data in breach of a duty of loyalty to a former employer.

Instead, in order to maintain a CFAA claim, the former employer must identify what steps it took or policies it promulgated to define for its employees authorized and unauthorized access and demonstrate how the employee exceeded his or her authorization. Even then, if the employer provided the employee with general access to its computer network and did not have adequate network safeguards in place to protect sensitive matter, the employer may struggle to establish a violation of the CFAA.

After LVRC Holdings LLC, employers must ensure that they have clear computer usage policies that outline acceptable computer usage. It is crucial for employers to educate their employees concerning permissible computer usage. They should also be mindful of what access they provide their employees to key company data because they may not be able to maintain CFAA claims against employees who transmit such data for their personal use or other improper purpose if they were originally provided access to the data as part of their employment. An audit of computer usage policies and employee access to confidential data is highly recommended, to ensure that employers in the Ninth Circuit put themselves in the best position following this decision.

Ten helpful hints for IP writers

Having spent most of yesterday editing submissions that have been accepted for publication in forthcoming issues, I found myself making notes concerning some of the most frequent -- if not the most serious -- "crimes" committed by their writers. To encourage future authors of articles, current intelligence notes and book reviews not to follow their example, I have taken the liberty of listing ten of these points below.

1. "What's in a Name?" is the most cliched of titles for contributions relating to trade marks, trade names, company names, geographical indications and domain name disputes. If I never changed the titles, JIPLP would probably publish between 10 and 12 "What's in a Name?" features a year.

2. Mammoth titles. While a grand title may impress the typesetters, it is unlikely to do so with readers. I frequently receive submissions with titles that exceed 20 words. These are difficult to remember and more likely to be incorrectly cited in other people's footnotes.

3. "Obvious" and "of course". The more frequently these words are used, the more they are likely to annoy the reader. Sometimes they are used as an appeal to self-evident truth on the part of a writer who cannot be bothered to explain or justify a proposition. Further, a reader to whom the writer's points are not obvious may feel patronised and/or alienated.

4. Metaphors. Carefully deployed, a metaphor can be devastatingly effective. However, many colourful figures of speech do not translate well from one culture to another. Many readers of JIPLP employ English as a second or subsequent language and will construe an unfamiliar metaphor literally unless they are made aware of its intended meaning. Misunderstood military and sports metaphors can detract from the force of a piece of otherwise clearly-expressed reasoning (if a litigant "nails his colours to the mast", or if counsel "bowls the witness a googly", will the reader know what is meant?).

5. Footnotes are printed in smaller lettering than the principal text. This is because they provide source references and other data that will assist the curious reader to learn more but will not distract other readers from what it is that the author seeks to say. If you use footnotes as a means of continuing at the bottom of the page a piece of reasoning that starts in the main text, you do your reader a disservice.

6. "Introduction" and "Conclusion". The observant reader will have noticed that is highly unusual for any article in JIPLP to commence with a heading marked "Introduction" or to conclude with the heading "Conclusion". These terms are not incorrect when used as such, but their cumulative effect is boringly descriptive. In the physical world, we would not gain in understanding if every door we saw was marked with the word "Door"; however, were doors to be marked with words like "Private", "Danger: keep out", "Entrance", "Staff only" or "Canteen", we might benefit from such knowledge. I believe that the same can be said of headings in articles.

7. Irrelevant facts. Every item of information which assists the reader must be provided if he is to understand a legal proposition or follow the logic of a decided legal dispute. Conversely, every item of information which does not assist the reader is likely to distract him. The writer knows, even as he writes, what information is crucial and what is not; he provides the witty asides, the subtle allusions, the gratuitous tidbits that can make a piece of prose so enjoyable. The reader however will only know which information is relevant once he has finished reading -- by which time he may have been struggling to retain factual data which he assumed to be important but which was no more than a whimsical aside.

8. Padding. Take the following sentence: "It is significant to note, as may be apparent to the reader, that the feline mammal was occupying, in a sense, a wholly if not entirely sedentary position within the general context of what was, as could clearly be seen in this situation, a horizontally-spread woven textile floor-covering, as is sometimes -- but not always -- the case". This is just a drawn-out way of saying "The cat sat on the mat". If you think this is an extreme example, you are right -- but I have many examples of apparently sentences which have been subjected to vigorous editorial liposuction, to their benefit.

9. Terminology. If your jurisdiction employs unusual words or concepts, or if the judiciary, lawyers and clients converse with one another in Latin, please do not wait to be invited to provide an explanation. You can be sure that the editorial team, starting with me, will not allow any words or phrases to go into print if we cannot understand them.

10. Bad English. No author should feel any sense of shame or embarrassment in putting a submission before a friend or colleague who is more literate than he or she is, in order to weed out errors in spelling, grammar and syntax. Peer reviewers have often complained at the poor standard of the text they are evaluating, sometimes commenting that it distracts them from their principal task of judging the suitability of the content. Twenty or thirty years ago, a comment such as this would have been aimed mainly at foreign authors. This is no longer the case. Linguistic excellence among authors whose first language is not English, combined with a marked decline in English language skills in England itself, have produced the sad result that many of the worst offenders are native English speakers. Readers of JIPLP will never know how badly written the first draft of a submission is, but please make it easier for us to polish your prose into the finished article.

February JIPLP available online

The February 2010 issue of the Journal of Intellectual Property Law and Practice is currently available online to subscribers. You can view its contents in full here. The February Editorial, "Can IP save the day?", takes a look at climate change and the position of the IP community. It reads as follows:

Global warming, if you will excuse the pun, is one of the most heated topics of contemporary discussion, since it transcends all political, commercial, social, and cultural divides and it is possessed of an immediacy that makes it impossible to ignore. The Copenhagen talks of December 2009 led to frustration, recrimination, and to an Accord which made no specific mention of IP rights. Does that then mean that IP has no place on the agenda? The answer is probably that, while IP does indeed have a place on the agenda, the bad press which it has received may prevent it from contributing to the solution as fully as it might.

Decades of North–South debates and the quest for a new economic order have left an almost indelible image among many people of IP as a badge of affluence and privilege, and as a means of monopolizing wealth rather than of sharing it. This means that little or no attention is focused on its incentive functions.

To a small extent, IP might be said to act as an incentive to invent, to find a new way round an old problem, or to prevent the creation of a new one. More importantly, though, IP is an incentive to invest. Though the precedent of the past 200 years has no binding force, the story of the world since the inception of the Industrial Revolution has been one in which technological change has been commensurate with investment opportunities for the private sector rather than laudable sentiments expressed by the public sector. Contrast the 70 years of state-controlled and politically directed innovation policy in the former USSR with the free-range and often random growth of technology in the West and the result is startling. With the best intentions, the ability to control markets and to direct innovation for the public benefit, the intellectual output of the USSR was paltry in contrast and created far more environmental damage. Since a clean, sustainable, and safe environment is now demanded, it has effectively become a market to which IP investment can direct itself, given the opportunity.

Need we fear that clean technologies and green innovations will be captured by private sector piracy, with the result that the world is held to ransom? Emphatically ‘no’. Both the Paris Convention and, more recently, TRIPS, have embedded compulsory licence regimes in respect of patents which can ensure that no such monopoly is maintained—not that the compulsory licence regimes of individual nations have been frequently invoked during the century and a quarter in which they have been available. In any event, most technologies are not patented at all in most countries. Far from freeing up these technologies for use by all, the failure of technology proprietors in developed countries to extend their patent portfolios into less developed countries actually starves their patent systems at local level of the fee income that might be applied to improving the effectiveness of the patent system locally and in building a technology information base that might prove invaluable for local innovators.

It is not just patents that can help the environment, by creating incentives to invest in the development of fresh sources of domestic and industrial energy. Trade marks and certification marks can help too, by enabling the concerned consumer to identify organic, natural, and environmentally friendly products, as well as fuel-efficient ones. Design rights can stimulate the development of more ergonomically sound goods, and so on. But none of these rights will be able to help deliver its benefits if they are seen as bad news, part of an old economic order that is as much in need of replacement as the technology which has so polluted it.

So what can the IP community do? We must show that IP rights are not a necessary evil but a positive means of protecting investment and, through licensing, allowing the spread of its benefits. We must show ourselves amenable to pooled research and shared results, to cut unproductive duplication of effort and to split the responsibility for key R&D across a wider spectrum of players, whatever objections the competition and antitrust lobbyists may raise, and we must deliver the goods. If we can show that this unprecedented threat to our planet is a challenge to which we can rise, we will have offered more justification for the system than a thousand articles by learned apologists".