“Likelihood of Confusion” in Trademark Litigation

“Likelihood of Confusion” in Trademark Litigation

Man, I miss Dijonnaise.

It was revolutionary. Dijon mustard. Mayonnaise. Mixed together. In one bottle!

And the best part was the theme song, to the tune of Duke of Earl. Dij, dij, dij, dij-o-naise, naise, naise . . . Bet you can’t get that out of your head now.

Sadly, Dijonnaise was a flash in the pan. Maybe too many people asked, why not just put Dijon mustard and mayo separately, then put them together on the same sandwich?[1]

My response would be similar to that of Nigel Tufnel, lead guitarist for Spinal Tap. After showing off his amp with knobs that go up to 11, he was asked why don’t you just make 10 louder, and have 10 be the top number and make that a little louder?

“. . . These go to 11.”

Anyway, blended condiments are on my mind because I recently read Perry v. H.J. Heinz Company Brands, LLC, 994 F.3d 466 (5th Cir. 2021), also known as the “Metchup” case.

The court in that case held that Heinz’s fleeting use of “Metchup” as part of a promotional campaign for “Mayochup” and other branded condiment blends did not infringe on the plaintiff’s rights in the METCHUP trademark. (Trademark lawyers like to put the trademark in all caps, but I’m just gonna do it once.)

Besides containing some of the best deadpan judicial humor I have read in a long time, the Metchup opinion is also a good case study for understanding how courts decide “likelihood of confusion,” the key issue in most trademark lawsuits.

Even aside from trademark law, the Metchup opinion is a tutorial on how to write a humorous judicial opinion. Not a cringe-inducing attempt like what you usually see from a judge who should have just played it straight, but something actually funny.

The key is not to try too hard. Check out this understated introduction by Judge Graves:

Mr. Dennis Perry makes Metchup, which depending on the batch is a blend of either Walmart-brand mayonnaise and ketchup or Walmart-brand mustard and ketchup. Mr. Perry sells Metchup exclusively from the lobby of a nine-room motel adjacent to his used-car dealership in Lacombe, Louisiana. He has registered Metchup as an incontestable trademark. Though he had big plans for Metchup, sales have been slow. Since 2010, Mr. Perry has produced only 50 to 60 bottles of Metchup, which resulted in sales of around $170 and profits of around $50. He owns http://www.metchup.com but has never sold Metchup online. For better or worse, the market is not covered in Metchup.

Perry, 994 F.3d at 468.

This is how you do it. It paints a picture. It subtly indicates where this is going. And it doesn’t make light of a serious situation too much. I mean, sure, it pokes fun at Mr. Perry, but lightly, and no more so than he deserves.

This intro also sets up our first non-obvious trademark law lesson for non-trademark lawyers.

Lesson 1: Registration of a trademark isn’t that big a deal

Perhaps the most important and non-obvious thing to understand about trademark law is that trademark rights arise largely from use of a trademark, not registration of a trademark. Trademark lawyers probably say this to people at least ten times a week.

So in the Metchup case, Mr. Perry started to build his trademark rights the moment he started using Metchup as a mark to sell bottles of his special blend. When he later registered the trademark with the U.S. Patent and Trademark Office, affectionately known as the PTO, he acquired certain additional rights.

Bottom line: the mere fact that Mr. Perry owned a registration of the Metchup mark did not necessarily give him priority, and it did not necessarily mean that someone else’s use of “Metchup” would create a likelihood of confusion.

Like many trademark owners, Mr. Perry was probably very proud of his registration certificate for “Metchup,” but it’s only a piece of paper. His biggest problem was that his use of the trademark was miniscule. He produced only 50-60 bottles of Metchup and had only 34 documented sales. He never sold Metchup online. Id. at 468.

Enter Heinz, the global condiment behemoth. To promote Mayochup, its own mayonnaise-ketchup blend, Heinz held an online naming contest, and one fateful fan proposed “Metchup.” Heinz then posted mock-up bottles bearing various proposed names, including Metchup, but Heinz never sold a product labeled Metchup. Id. at 468-69.

This was Mr. Perry’s moment. He made a federal case of it, suing Heinz for trademark infringement in the Eastern District of Louisiana.

Lesson 2: You can get summary judgment on likelihood of confusion—sometimes

But it was not to be. The district court granted summary judgment for Heinz on the ground that Heinz’s use of “Metchup” and “Mayochup” did not create any likelihood of confusion with Mr. Perry’s Metchup.

A little background for non-lawyers and non-litigators: there are essentially three ways a key issue like likelihood of confusion can be decided in a lawsuit. First, on a motion to dismiss, where the judge decides the issue based purely on whether the plaintiff has pleaded a plausible claim. Second, on a motion for summary judgment, where the judge decides whether the evidence submitted by both sides presents any fact issue for a jury decide. Third, in a trial, where the jury decides (or the judge decides, if it’s a bench trial).

It’s possible to win a motion to dismiss a trademark infringement suit, if the court can see from the plaintiff’s own pleading that there is no likelihood of confusion. But it’s rare. In most trademark infringement lawsuits, the key procedural question will be whether likelihood of confusion will be decided through summary judgment or in a trial.

It is possible to get summary judgment on infringement, either for the plaintiff or for the defendant. It is also possible for the plaintiff to get summary judgment on likelihood of confusion. See, e.g., Epic Tech, LLC v. Fusion Skill, Inc., No. 4:19-CV-2400, 2021 WL 1599378, at *3-4 (S.D. Tex. April 23, 2021) (granting summary judgment on infringement to plaintiff based on the similarity of the marks coupled with the absence of any evidence in defendants’ favor on any other digits of confusion).

In the Metchup case, the Court of Appeals affirmed summary judgment for Heinz, the defendant. The court held that “no reasonable jury could conclude that Heinz’s use of Metchup in advertising or the sale of its own product, Mayochup, created a likelihood of confusion.” Therefore, Heinz was entitled to summary judgment dismissing the claim. Id. at 473.

But how did the court get there? Enter the digits.

Lesson 3: Some digits are more equal than others

To decide whether the defendant’s use of a trademark creates a likelihood of confusion with the plaintiff’s trademark, courts look at eight non-exhaustive factors. In the Fifth Circuit, we call the factors digits.

I don’t know why we don’t just call them factors. Someone should write a blog post on that.

Anyway, the digits of confusion are:

(1) the type of trademark (some types are stronger than others)

(2) the similarity of the marks

(3) the similarity of the products or services

(4) outlet and purchaser identity

(5) advertising media identity

(6) the defendant’s intent (this one can be tricky)

(7) care exercised by potential purchasers

(8) evidence of actual consumer confusion

Id. at 471.

The digits usually do not have equal weight. The last one—instances of actual confusion—can be an ace in the hole for the plaintiff. For example, if Mr. Perry had testimony from his good neighbors in Lacombe, Louisiana that they confused Heinz’s “Metchup” with Mr. Perry’s Metchup, that would be pure gold. That would make it almost impossible for Heinz to get summary judgment, meaning a jury would decide.

On the other hand, the absence of evidence of actual confusion doesn’t necessarily kill the plaintiff’s infringement claim. Many cases will not have any evidence of actual confusion. In most cases, the two key digits are the similarity of the trademarks and the similarity—or “relatedness”—of the products or services.

It’s easy to see why. There could be a likelihood of confusion where the trademarks have significant differences but the products are identical. Imagine a trademark that looks just like the Apple computer logo, except it’s an orange, used for computers. Apple’s lawyers would be all over that.

Conversely, you could have similar or even identical trademarks, but very different products, and have no likelihood of confusion. For example, people are unlikely to confuse APPLE as a trademark for computers with APPLE as a trademark for used car sales.

Similarity of the marks and similarity of the products. Those are the key digits.

Most of the time. In the Metchup case, not so much. The Metchup case was unusual, in that both the trademark—“Metchup”—and the product—a blended condiment—were identical, yet the court found no likelihood of confusion. Why?

First, the court noted that although both trademarks used the same word, the labels and bottles looked “nothing alike”:

Id. at 471-72. “The products’ distinguishable packaging mitigates against Heinz’s use of the word Metchup because the packaging differences make confusion less likely.” Id. at 472.

In addition to the differences in packaging, the huge differences in sales outlets and advertising were crucial. “Mr. Perry markets his products to the guests at his nine-room motel,” the court said, “Heinz to the shoppers at most every grocery and to online customers through an extensive web store.” “Sensibly speaking,” the court said, “Mr. Perry has no presence in Heinz’s market and Heinz no presence in his.” There was also the stark difference in advertising. “Mr. Perry does not buy print ads, issue coupons, enter his sauce in contests, or advertise Metchup on signage.” Id. at 472.

Plus, there was the lack of evidence of actual confusion. There was no evidence that “any consumer actually got confused by Heinz’s use of Metchup on a mock-up bottle or confused Heinz’s Mayochup with Mr. Perry’s Metchup.” Id. at 473.

I think this was really the key in the Metchup case. Remember, Heinz only used “Metchup” on a mock-up as part of a contest. If Heinz had actually named its product Metchup and put Metchup on the shelves of grocery stores across America—including Lacombe, Louisiana—the case might have come out differently. But Heinz’s fleeting use of “Metchup” as an example of a contest entry just wasn’t enough to create any likelihood of confusion.

Was there anything Mr. Perry’s lawyers could have done to avoid this conclusion? Suppose they hired an expert to do a consumer survey in Louisiana, showing random consumers a photo of Heinz’s “Metchup” mockup and asking, “who do you think makes this product?” And suppose a significant percentage of surveyed consumers said “oh, that’s the stuff Dennis Perry sells at that motel in Lacombe!”

In that case, it’s unlikely Heinz would get summary judgment. So why didn’t Mr. Perry do a survey?

Lesson 4: to survey or not to survey

Whether to hire an expert to do a consumer survey on likelihood of confusion is one of the key decisions in a trademark lawsuit. The benefit of survey is obvious. If an expert testifies that a significant percentage of surveyed consumers were confused, that suggests there’s a likelihood of confusion.

But there are two obvious reasons not to do a survey. First, it’s expensive. Second, the results probably won’t be good.

Think about it. The owner of a trademark always thinks his trademark is hot stuff. Ordinary consumers? Not so much. Based on the facts recited in the Metchup opinion, we can all guess how a survey would have come out. Hardly anybody was going to see Heinz’s Metchup bottle and think of Mr. Perry’s Metchup.

Mr. Perry did have an expert, though. Dr. Lucy L. Henke, a marketing professor with a doctorate in communication studies, testified that “the typical consumer would confuse Mayochup and Metchup due to visual and auditory similarities between the two names.” Id. at 473.

The court wasn’t buying it, especially when the expert “neither presented consumer survey data no provided an analysis of such data.” “Her testimony amounts to her personal opinion on the topic of actual confusion and does not address evidence where potential consumers were asked to offer their opinions or tested to see if they actually got, or were, confused by either Heinz’s use of the name Metchup in advertising or by it selling Mayochup.” Thus, the court said, her testimony “provides no evidence of actual confusion.” Id.

Ouch. The lesson for trademark litigators? If you’re going to have an expert testify on likelihood of confusion, that expert best come armed with a survey.

Otherwise, you’ll be playing ketchup.

_______________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.


[1] My crack research team informs me that you can buy “Maille Dijonnaise Sauce” on Amazon for $12.63 a bottle. 

How do you prove your employee electronically signed that agreement?

How do you prove your employee electronically signed that agreement?

Remember Dawn Davis, the paralegal? She left her job at a Dallas law firm and moved to the Austin suburbs with her two kids, hoping she would eventually make more money as a sales person for Paula Payne Windows.

I wrote about this typical scenario in The Problem With Non-Competes. But I need to update it.

My original fact pattern had Dawn’s boss giving her a stack of documents to sign on her first day. But that’s so, like, GenX. You can’t expect Gen Y to sign documents on paper. And Gen Z? You might as well expect them to answer their phones when you call.

No, today Paula Payne Windows has an automated onboarding procedure. They worked with a software developer to build an online-only hiring application. The app automatically sends a welcome email to the email address Dawn provided when she was recruited and interviewed.

The email provides a unique hyperlink that leads to an online account-registration page where Dawn creates a unique user ID and password and selects security questions. Dawn has to enter her ID, password, and security-question answer every time she logs in.

Once the account is set up, the program presents Dawn with several agreements, starting with an Electronic Disclosure Agreement in which Dawn consents to be bound by her electronic signatures on the agreements, as if signed in writing. She has to agree to this before going any further.

Once Dawn agrees that her electronic signature is binding, the app presents her with three additional agreements, including an Employee Confidentiality, Non-Solicitation, and Non-Competition Agreement. The program allows her to sign the agreements in any order, but all of the agreements have to be signed before the app allows her to complete the electronic onboarding process.

This onboarding app keeps an electronic record of each document the candidate electronically signs, assigning a unique identifier and timestamp to each signed document. Once the app records that information, there is no way to change it (absent some extraordinary measures).

Dawn, of course, is not about to say “sorry, I can’t agree to this non-compete.” She already quit her old job, her kids are registered at new schools, and she paid a security deposit at a new apartment. So she doesn’t say anything about it.

For the next few years, Dawn doesn’t even think about the non-compete. Turns out she has a knack for the window game, and she becomes Paula Payne’s top sales performer. She’s so good that a competitor, Real Cheap Windows, offers her more money to take over its sales department. Dawn accepts.

You know the rest. The lawyer for Paula Payne Windows sends Dawn a nasty gram, files a lawsuit, and asks the judge for an injunction enforcing the non-compete.

“This is unfair,” Dawn tells her lawyer, “I never agreed to any non-compete when I accepted the job.”

“Ok,” her lawyer says, “but did you sign it?”

No way, Dawn says. “I never signed that non-compete agreement with Paula Payne Windows, electronically or otherwise.” And she signs an affidavit swearing to that.

But the HR manager at Paula Payne Windows signs an affidavit detailing how the electronic onboarding app works. “There’s no way Dawn could have completed the onboarding process without signing the non-compete agreement,” she says. “Plus, the electronic records show she signed it.” “Someone very sophisticated would have to hack into the system to change a record,” the HR manager says, “and there is no indication that has ever happened.”  

Suppose you’re the judge in Paula Payne Windows v. Dawn Davis. Paula Payne Windows files a motion for partial summary judgment, asking you to rule as a matter of law that Dawn signed the non-compete. Dawn’s lawyer argues that her affidavit creates a fact issue for the jury to decide, precluding summary judgment.  

What’s your ruling?

If you would grant summary judgment for Paula Payne Windows, then you’ll like the Texas Supreme Court’s decision in Aerotek, Inc. v. Boyd, No. 20-0290, 2021 WL 2172538 (Tex. May 28, 2021). (Justice Boyd wrote a dissenting opinion.)

Aerotek was an employment discrimination case, not a non-compete case, and the agreement at issue was an arbitration agreement called an MAA. But the facts concerning the computerized onboarding process were essentially the same as what I outlined in my hypothetical.

If you know something about summary judgment procedure, you might be thinking “wait, this is all wrong, how does the employee’s testimony not create a fact issue?”

But there’s one thing I’ve left out: The Texas Uniform Electronic Transactions Act (TUETA), found in Chapter 322 of the Texas Business and Commerce Code.

Under the TUETA-lage of SCOTX

The purpose of TUETA is “to facilitate electronic transactions” consistent with “reasonable practices concerning electronic transactions and with the continued expansion of those practices.” Tex. Bus. & Com. Code § 322.006.

With some exceptions, like signing a will, the statute applies to most transactions, including business and employment transactions. See Tex. Bus. & Com. Code § 322.003.

Duke Ellington released “East St. Louis Toodle-O” in 1927. 80 years later Texas enacted TUETA. Coincidence?

Assuming TUETA applies, it has two major policies. First, if a law requires an agreement to be in writing, an “electronic record” satisfies the law. Second, if a law requires a signature, an “electronic signature” satisfies the law. Tex. Bus. & Com. Code § 322.007.

This makes sense in today’s digital world, but it doesn’t really answer our question. Dawn isn’t arguing that an electronic signature on the agreement is invalid, she’s arguing that she never signed the agreement. The question isn’t whether an electronic signature is valid, but how you prove someone electronically signed.

But TUETA touches this topic too. And that’s really what Aerotek was about. As the court said:

Once parties to a transaction have “agreed to conduct [it] by electronic means”, the Act provides a standard for attributing electronic signatures to them. Section 322.009(a) provides that an “electronic signature is attributable to a person if it was the act of the person.” That “may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.”

Aerotek, 2021 WL 2172538, at *5.

TUETA defines “security procedure” to include . . . well, you get the idea. Bottom line: “A record that cannot be created or changed without unique, secret credentials can be attributed to the one person who holds those credentials.” Id.

Aerotek offered detailed evidence that, if believed, was sufficient to satisfy this standard. But the trial court wasn’t having it. The trial court judge in Aerotek denied the motion to compel arbitration, impliedly finding that the employees did not sign the MAA. Id. at *3.

A little background on procedure: On a motion to compel arbitration, the trial court judge is the finder of fact. If there is conflicting evidence about whether the employee signed the agreement, the trial court judge decides. The trial court is free to disregard evidence it does not find credible. And the trial court’s decision will be upheld on appeal, unless the evidence “conclusively” establishes that the trial court judge was wrong.

The Texas Supreme Court does not make factual determinations (in theory), so Aerotek had the heavy burden of showing that the evidence before the trial court conclusively established that the employees signed the MAA.

The employees argued that the trial court judge was free to disregard the testimony of Aerotek’s witnesses and to credit the testimony of the employees, but the Texas Supreme Court disagreed, for several reasons.  

First, the employees conceded that they completed the computerized hiring application and electronically signed the documents included, except for the MAA. Id. It might have been different if the employees claimed they didn’t use the electronic onboarding system at all.

Second, Aerotek offered specific, detailed evidence showing that the employees must have electronically signed the MAA:

  • To enter the application, a candidate was required to create for himself a unique identifier, a user ID, a password, and security questions, all unknown to Aerotek.
  • The candidate was required to enter personal information and sign documents by clicking on them.
  • The application recorded and timestamped the candidate’s every action.
  • The application’s business rules made it so that the application could not be submitted until all steps were completed and all required signatures provided, including on the MAA.
  • Once a candidate submitted his application, Aerotek could not modify its contents.
  • Aerotek provided the signed MAAs marked with timestamps identical to those in its database records showing each Employee’s progress through the application.

Id. In short, the testimony from Aerotek’s program manager, Marsh, showed that “it was impossible to complete the hiring application without signing the MAA.” Id. at *6.

Third—and this is probably the key—Marsh’s testimony was uncontroverted.

Yes, the employees testified they did not sign the MAA, but that’s all they said. They did not offer any evidence disputing the points made by the program manager.

For example, “the Employees could have requested forensic tests of the hiring application to show that it did not operate as March described, but they did not.” Id. The employees were “free to seek discovery to discredit Aerotek’s evidence,” the court said, but “[t]hey chose not to.” Id.

TUETA-loo to signing employment documents on paper?

We can draw several practice tips from Aerotek.

First, if you represent employers who have employees sign agreements when they start—and who doesn’t, these days—you should recommend an electronic onboarding process. (I’m assuming software for this is readily available and doesn’t have to be custom-made.)

Aerotek shows us that not only is an electronic onboarding process adequate, it is in some ways superior to getting wet signatures on paper.

Think about it. Suppose Dawn Davis signs the non-compete agreement, you scan it in to the system, and the hard copy gets shuffled away to who knows where. Years later, the company offers a signed copy of the agreement as evidence. “Yes, that looks like my signature,” Dawn testifies, “but I’m quite sure I never signed that document.” Someone must have faked it, she says.

How is the employer going to refute that testimony? Maybe if they’re lucky, Paula Payne Windows has a witness who will testify, “I have a clear recollection of watching Dawn sign the agreement that day.” But even then, Dawn’s contrary testimony is still going to create a fact issue. See Ward v. Weaver, 34 S.W.2d 1093, 1094 (Tex. Comm’n App. 1931, judgm’t affirmed) (discussed in Aerotek).

An electronic process like the one in Aerotek avoids that problem.

Second, if you represent the employer in a lawsuit and the employee denies signing the agreement, offer specific testimony as close to the evidence in Aerotek as possible. You can use the bullet-pointed facts above as a checklist.

Third, if you represent an employee who swears up and down she never electronically signed that agreement, just offering the employee’s denial is not going to cut it (assuming the employer offers evidence like the testimony in Aerotek). You’re going to have to offer something more to discredit the employer’s evidence.

This may require some judgment calls. Do you really want to embark on an expensive forensic inquiry into the employer’s onboarding system just because your client says “I’m pretty sure I didn’t sign that”?

On the other hand, if the client is 100% certain she didn’t sign the agreement at issue, and if the issue is important enough—often it will be—then you may have no choice but to roll up your sleeves and get your hands dirty (electronically speaking).

Maybe Dawn should consider forensic investigations for her next job.

_______________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

Motions to Seal in Texas Trade Secrets Litigation

Motions to Seal in Texas Trade Secrets Litigation

If you’re a Texas litigator, like me, then you probably already know that filing documents in state court under seal can be kind of a pain. There’s this pesky Rule 76a of the Texas Rules of Civil Procedure.

Rule 76a reads like it was written by some real do-gooder types:

  • Court records are “presumed to be open to the general public.”
  • Sealing court records requires showing a “specific, serious and substantial interest” that outweighs both the “presumption of openness” and “any probable adverse effect that sealing will have upon the general public health or safety.”
  • You have to file a motion to seal that is “open to public inspection” and “post a public notice” at the courthouse.
  • The public notice must contain “a brief but specific description of both the nature of the case and the records which are sought to be sealed.”
  • The court must hold a public hearing on the motion to seal.
  • The sealing order must state the “specific reasons” for finding the required showing has been made.
  • A non-party—oh, I don’t know, like maybe, the press?—can intervene to oppose a motion to seal.
  • Anyone who participated in the hearing can appeal the ruling.

This is great, right? We can’t have a Ford Pinto situation where Big Corp seals the court records that show its product explodes on impact and kills unsuspecting consumers. Openness! Transparency! Sunlight is the best disinfectant! The public has a right to know!

That all sounds great, but for most practicing litigators, this just sounds like stuff from the movies.

In a typical lawsuit I handle, my client cares a lot about the case, as does the opposing party, but nobody else cares. So, when I file a sealing motion under Rule 76a and post a notice on the courthouse door, I know that no one is going to read that notice or show up at the hearing to contest the motion. Ronan Farrow just isn’t going to care about the confidential profit margins inside Jim Bob’s Valve Supply Shop.

So for me, Rule 76a is just a hoop to jump through, with no public benefit, and it’s kind of annoying. It’s not that big a deal, but it is one more thing my client has to pay for.

This is especially likely to be an issue in my focus area, departing employee litigation, because that kind of case usually includes claims between competitors regarding confidential information and trade secrets. If the point of the lawsuit is to try to protect my client’s trade secrets, the last thing I want to do is reveal the trade secrets in documents publicly filed with the court.

Enter TUTSA, the Texas Uniform Trade Secrets Act. While Rule 76a establishes a presumption of openness designed to protect the public’s right to know, TUTSA has a whole section designed to do the opposite. 

Specifically, Section 134A.006(a) of the Texas Civil Practice and Remedies Code commands that “a court shall preserve the secrecy of an alleged trade secret by reasonable means.” Then it goes on to say that “[t]here is a presumption in favor of granting protective orders to preserve the secrecy of trade secrets.” And the options available to the judge include “sealing the records of the action.”

But how do we square this more permissive sealing rule for trade secrets cases with the more restrictive Rule 76a?

Well, TUTSA itself tells us how. “To the extent that this chapter conflicts with the Texas Rules of Civil Procedure, this chapter controls.” Tex. Civ. Prac. & Rem. Code § 134A.007(c).

And just in case that wasn’t clear enough: “the supreme court may not amend or adopt rules in conflict with this chapter.” Id.

Well, that settles it. If a case involves alleged trade secrets, then a motion to seal is governed by the more flexible provisions of TUTSA, and the hoop-jumping exercises of Rule 76a don’t apply, right?

Not so fast. TUTSA only displaces Rule 76a where the two are in conflict. In HouseCanary, Inc. v. Title Source, Inc., No. 19-0673, 2021 WL 1711123 (Tex. April 30, 2021), the Texas Supreme Court held that TUTSA only displaces some of Rule 76a.

(If the name of the case sounds familiar, maybe it’s because I wrote about the substantive issues in HouseCanary in The Jury Charge in Texas Trade Secrets Litigation.)

Writing for the majority, Justice Busby explained that TUTSA partially displaces the substantive sealing standards of Rule 76a, but “does not provide a separate, self-contained pathway—independent of Rule 76a—for seeking and ordering the sealing of court records.” In other words, “Rule 76a provides procedures and standards for sealing court records that include trade secrets, while TUTSA provides standards for protecting secrets by means including sealing.”

So what does TUTSA displace and not displace?

Specifically, HouseCanary held that TUTSA replaces the Rule 76a presumption that court records are open with a presumption “in favor of granting protective orders to preserve alleged trade secrets, including those in court records.”

But HouseCanary rejected the argument that “TUTSA supplants all of Rule 76a and provides an entirely separate path to sealing.” “Showing a conflict between TUTSA and one part of Rule 76a does not displace the whole rule,” Justice Busby reasoned. “Those procedures include public notice, the prohibition against motions for reconsideration absent changed circumstances, and the right of appeal.”

But how do you give public notice without spilling the beans? Easy. “[H]olders of a trade secret can notify the public of the type of information they seek to seal without disclosing that information,” the court said.

This is perhaps the most important practical result for practicing litigators: even in a trade secrets case, if you want a sealing order you still have to post the public notice required by Rule 76a.

And you still have to show that less restrictive means than sealing entire records—such as redaction—would be effective to preserve the trade secrets. That’s because TUTSA “lists a sealing order as only one of several means of preserving a trade secret.”

Thus, TUTSA is not necessarily a free ticket to seal any document filed with the court that a party claims contains alleged trade secrets.

So, the upshot of HouseCanary is that if you want to file a document in Texas state court under seal, on the ground that it contains alleged trade secrets, then you should:

  1. File a motion to seal under Rule 76a.
  2. Cite the presumption of protection of trade secrets from TUTSA, Tex. Civ. Prac. & Rem. Code § 134A.006(a).
  3. Point out the presumption of openness in Rule 76a(1) does not apply (citing HouseCanary).
  4. Explain why less restrictive means, such as redaction, would not be adequate to protect the secrecy of the information. Tex. R. Civ. P. 76a(1)(b).
  5. Post the required public notice, including a “brief but specific description of . . . the nature of the case,” Tex. R. Civ. P. 76a(3), and a description of the “type of information” you seek to seal “without disclosing that information.” HouseCanary.
  6. Present your proposed sealing order at the hearing.
  7. Make sure your proposed order recites all the things required by Rule 76a(6) (except you probably don’t have to include “the specific reasons for finding and concluding whether the showing required by paragraph 1 has been made,” because under HouseCanary, that requirement is displaced by TUTSA).

Yes, this is kind of a pain, but no, you don’t have to reinvent the wheel every time you do it. I’m sure some helpful blogger will publish a form Motion to Seal soon.

And assuming nobody shows up at the hearing to oppose the motion, your motion will usually be granted.

But there’s still one problem. This procedure is all well and good for pretrial filings with the Court, but what about evidence at trial? In a trade secrets trial, there will be both testimony and exhibits that reveal the alleged trade secrets. Trials are generally open to the public.

So if you offer evidence of your client’s trade secrets, or fail to object when the other side does so, have you waived trade secrets protection?

This was also an issue in HouseCanary. Title Source argued that HouseCanary waived trade secret protection by offering exhibits containing the trade secrets and discussing them in open court.

But the Texas Supreme Court said these facts alone did not conclusively establish a waiver. The court reasoned that information does not have to be kept “absolutely secret” to maintain trade secret status. Only “reasonable measures” are required. Tex. Civ. Prac. & Rem. Code § 134A.002(6)(A). Whether secrecy has been lost is a “fact-intensive determination,” and publicly filing a document containing the trade secrets is just one factor to consider.

“Other relevant considerations include whether and when subsequent measures were taken to preserve the document’s secrecy, whether a competitor could readily ascertain the information, and whether the document was further published or disseminated outside court records.”

Thus, Title Source did not conclusively show that the exhibits lost their trade secrets status just because they were offered in a trial open to the public.

Dealing with trial exhibits containing alleged trade secrets is still a practical problem. But HouseCanary at least establishes that trade secrets status is not automatically lost just because an exhibit is admitted in the trial without a sealing order.

_______________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

Forensic Expert Fees as Actual Damages?

Forensic Expert Fees as Actual Damages?

Welcome to the final exam in Advanced Remedies: Departing Employee Litigation. Before we get to the exam question, let me remind you what we learned this semester about Texas law on expert witness fees:

“It is the general rule in Texas that expenses incurred in prosecuting or defending a suit are not recoverable as costs or damages unless recovery of those items is expressly provided for by statute, is available under equitable principles, or is expressly provided for by contract. The rule [applies] to attorney’s fees, costs of experts, and other expenses in preparation for trial.”

Shenandoah Assocs. v. J&K Props., Inc., 741 S.W.2d 470, 486 (Tex. App.—Dallas 1987, writ denied).

The fact pattern

With that in mind, here’s our hypothetical:

Dawn Davis is a sales person for Paula Payne Windows. One day Dawn warns Paula, the owner, that she is not going to send inflated bills to customers. The next morning, Paula walks into Dawn’s office and tells Dawn she’s fired. Dawn leaves her company-issued laptop on her office desk, packs up her personal belongings, and leaves.

A few days later, Paula finds out that Dawn has started working for a competitor, Real Cheap Windows. Paula calls up her lawyer who files a lawsuit against Dawn claiming she breached her confidentiality agreement and non-compete.

Paula’s lawyer also hires a forensic expert to examine Dawn’s laptop for evidence of wrongdoing. The expert finds no evidence of wrongdoing, but in the lawsuit the jury finds that Dawn breached her employment agreement.

Assume that Dawn’s employment agreement does not provide for recovery of expert witness fees.

That’s Scenario A. If Paula Payne Windows prevails on the breach of contract claim, can it recover the expert’s fees for examining Dawn’s laptop?

Now consider Scenario B. This time, Paula Payne hires the forensic expert after discovering that Dawn took the laptop home when she was fired. Dawn returns the laptop four days later. Does that change your answer? Remember, no fidgeting or looking away from your computer while you decide.

How about Scenario C: Assume the same facts as Scenario B, except this time Paula Payne specifically tells Dawn to leave the laptop in her office, even threatening to call the police, but Dawn walks off with the laptop anyway. Does that justify recovery of the forensic expert’s fees?

And finally, consider Scenario D: In addition to Scenario C, suppose the forensic expert conducts an extensive investigation and discovers that Dawn copied numerous confidential Paula Payne Windows files to a USB drive the night before she got fired. The expert’s fees for the investigation alone are about $22,000.

Assume the jury finds that Dawn Davis breached her employment agreement and finds actual damages of $22,000 based on the evidence of the expert’s fees. Should the court enter judgment awarding the $22,000?

And just to make it a little more interesting, suppose the jury also finds that Paula Payne Windows’ reasonable and necessary attorney’s fees through trial were $1.3 million. So if Paula Payne Windows gets the $22,000 in actual damages, it also gets the $1.3 million in attorney’s fees.

Under this last scenario, the answer is yes. Paula Payne Windows gets the $22,000 in expert fees as actual damages, plus a cool $1.3 million for the legal fees.

At least that’s what Dallas Court of Appeals said in a case with similar facts, Sandberg v. STMicroelectronics, Inc., 600 S.W.3d 511 (Tex. App.—Dallas 2020, pet. filed).

The Sandberg case

ST was a semiconductor company, not a windows company, and Sandberg, the employee, was a tax attorney and CPA. He signed an agreement that required him to promptly deliver all ST documents to ST on termination of employment. Id. at 519.

Sandberg became concerned that ST was cooking the books. He reported his concerns to ST’s management, telling them he would not sign tax returns and other documents he suspected contained incorrect numbers. ST’s HR manager, Quill, then met with Sandberg and told him to clear out. Id.

So far Sandberg sounds like a straight shooter he got canned because he wouldn’t vouch for fraudulent financials, right?

But then Sandberg made a series of unfortunate decisions.

During the meeting, Quill specifically told Sandberg he needed to return ST’s laptop without copying any files from it. But shortly after that meeting, Sandberg began downloading emails and other files onto three thumb drives. Id.

(Caveat: I’m just taking the facts stated in the opinion at face value. Who knows what actually happened.)

When Quill came back to conduct an exit interview, Sandberg handed over his security badge, keys, and company cell phone, but he refused to return the laptop. Quill threatened to call the cops, but Sandberg held firm and walked out of the building with the laptop. Id.

Quill then sent Sandberg an email telling him you’d better (1) return the computer by noon the next day, (2) not copy any files, and (3) certify that you have not copied any computer files. Id.

Sandberg did not comply. Instead, he copied more files from the computer to a thumb drive. Id. at 519-20.

When Sandberg did not return the computer, ST emailed him that he was terminated for cause and sued him. Sandberg eventually dropped off the laptop with ST’s receptionist four days after his termination, but without telling ST he had copied files and without providing the requested certification. Id. at 520.

The same day Sandberg returned the laptop, ST hired an expert to conduct a forensic examination of the computer to determine whether Sandberg had copied any files after his termination. The expert found that Sandberg had copied files to the three thumb drives. Id. 520.

This is starting to look worse for Sandberg, right? But wait, there’s more.

ST demanded that Sandberg turn over any files he had copied, but Sandberg did not turn over the thumb drives to ST until after the trial court ordered him to do so. The forensic expert then found that Sandberg had used some other computer to copy files, and that files had been deleted from one of the thumb drives. Id.

This looks pretty bad for Sandberg.

But ST’s trial counsel apparently had one major problem: damages. It does not appear that there was any evidence of actual damages other than the expert fees for the forensic examination.

That sounds like a case that should have settled, right?

Apparently not. ST claimed breach of contract and misappropriation of trade secrets, seeking as actual damages the fees it paid the expert for the forensic investigation, plus attorney’s fees, and the case went to trial.

(Remember the part about refusing to cook the books? Well, Sandberg asserted what we call a Sabine Pilot claim in Texas, but Texas courts have made it all but impossible to prevail on such a claim, and the court dismissed the claim, so I’m setting that aside.)

The jury found that yes, Sandberg breached the contract but no, he did not misappropriate trade secrets. The jury found actual damages for the breach of contract of $22,034.46 and attorney’s fees through trial of $1,346,658.79.

Look, I’m no math genius, but that’s an attorney’s fee award that is 61 times the amount of actual damages. More about that later.

The attorney’s fees were how much?

One of the issues on appeal was whether ST could recover the expert fees as actual damages. Sandberg cited the general rule that costs of experts and other expenses in preparation for trial are not recoverable. But ST argued that in this case, it could recover the expert fees not as litigation expenses, but as actual damages caused by Sandberg’s breach of contract.

The Court of Appeals agreed with ST and said the evidence of Sandberg’s conduct was sufficient to support the jury’s finding of actual damages. “The jury could find that, when Sandberg returned the computer four days later without certifying that he had not copied any files, ST had to have the computer examined to determine whether Sandberg had copied any files.” In other words, there was sufficient evidence that the forensic examination fees were the “natural, probable, and foreseeable consequence” of Sandberg keeping the computer and not returning it until four days later. Id. at 528.

Specifically, “[t]he jury could conclude that Sandberg’s taking the laptop computer with its confidential information home with him after he was terminated and not returning it for four days created a need for ST to know whether Sandberg had compromised the confidentiality of its data by copying it.” Id. at 529.

Thus, the Court of Appeals rejected Sandberg’s argument and affirmed the award of expert fees.

Oh, and Sandberg’s argument that awarding attorney’s fees of 61 times the actual damages was excessive and unreasonable? The Court of Appeals rejected that argument too. It said the relationship between the amount of attorney’s fees and the amount recovered is just one factor in assessing the reasonableness of the fees, and Sandberg failed to address the other factors.

Ouch.

Why the Sandberg opinion is scary for employees

I’ll be honest, this is a scary opinion, especially for a lawyer like me who often represents employees who are sued by their former employers for alleged violations of their employment agreements and misappropriation of trade secrets.

A lot of times the employee makes bad decisions about copying company files and returning company documents and devices. Sometimes these decisions are part of a deliberate scheme, other times they are totally innocent, and sometimes they are somewhere in between.

But regardless of the motive, it is a common scenario that the employee’s failure to comply with the employment agreement to the letter does not cause the employer any actual damages. “No harm, no foul,” is a common refrain when you represent employees in these cases.

As it should be. Contract law doesn’t care about the employer’s feelings. The purpose of contract damages in these cases is to compensate the employer for any cold hard financial harm caused by the breach, not to punish the employee for breaking the agreement.

The employer’s ability to recover forensic expert fees as actual damages shifts the balance of power significantly. Now, even a technical breach of the employee’s agreement could open up the employee to a claim for actual damages.

And a claim for actual damages for breaching the contract provides a basis for recovering attorney’s fees which, as we see in the Sandberg case, can easily reach a sum that is financially ruinous for most employees.

This is a problem.

On the other hand, maybe we don’t need to worry too much. The Sandberg case had some pretty egregious facts:

  • The HR manager specifically told the employee to return his laptop without copying any files from it.
  • After getting fired, the employee downloaded multiple company files from his computer to thumb drives.
  • The employee refused to return the laptop and left the building with it, even when the HR manager threated to call the police.
  • The employee failed to comply with the HR manager’s email demanding the laptop be returned the next day.
  • The employee copied more files from the computer to a thumb drive after bringing it home.
  • The employee failed to return the laptop for four days, without any reason.
  • The employee did not provide the requested certification that he had not copied any files.

There’s no way to know which of these facts were essential to upholding the award of expert fees as damages, but take away some of these facts, and the result could change.

Suppose the delay in returning the laptop was only one day. Would that justify sticking the employee with the entire cost of a forensic examination? Maybe not.

Suppose Sandberg immediately lawyered up, and there was some legitimate wrangling between the lawyers over a protocol for returning the laptop and preserving evidence, causing a delay of a week. Would that excuse the failure to return the laptop immediately? 

Or suppose the employee’s lawyer got the HR manager to admit under cross examination that the company would have hired the expert to do the forensic exam regardless of when the laptop was returned—a likely scenario in most cases. That would suggest a lack of causation between the delay in returning the laptop and the company incurring the expert fees.

Finally, there’s an odd fact about the Sandberg case that I’ve left out. Remember the opinion said Sandberg was a tax lawyer? Well, I looked him up and the curious thing is, he’s not just a tax lawyer. He’s also Board Certified in Civil Appellate Law.

That’s right, the employee defendant in Sandberg is a bona fide appellate lawyer. Wait until #AppellateTwitter hears about this.

And guess who represented Sandberg in his appeal to the Dallas Court of Appeals?

That’s right, Sandberg.

It appears the final exam in appellate law may have left out a key question: is it a good idea to represent yourself?

_______________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

Lawyer Lessons from Fly Fishing

Lawyer Lessons from Fly Fishing

This is an edited transcript of my interview with appellate lawyer Kendyl Hanks about lessons for lawyers (and others) from fly fishing. You can watch the video of the interview here.

Z: I’m Zach Wolfe. I’m here with Kendyl Hanks. Kendyl, welcome.

K: Thank you for having me.

Z: Thanks for joining us on the show. So, a lot of viewers probably already know Kendyl Hanks, the outstanding appellate practitioner in Texas, greenhouse gardener, dog lover, and all those good things. But you are also a fly-fisher.

K: I am. Yeah.

Z: We’re going to talk a little bit about fly fishing today and maybe how it applies to practicing law or maybe other things, but first, let me give you a chance to introduce yourself and talk a little bit about your law practice.

K: Sure. Thank you so much for having me. I’m a huge fan of your blog Five Minute Law. It’s always a good place to start, particularly like employment stuff, I’m always checking out your blog. I’m a shareholder with Greenberg Traurig in Austin. I have practiced in Texas and New York for the last about, I guess this year will be 20 years. I can’t believe it. Oh, I really can’t believe it. And I have had the good fortune to have an appellate practice, most times it’s in Texas, but I have cases throughout the country for some clients. We do a lot of test cases where we’re creating precedent, a lot of big cases, big verdicts, big judgments, things like that. And I was the daughter of a litigator and I love litigating, but I’m a huge fan of the appellate side. So one of my favorite things is to work with really talented trial lawyers, who I think live by the first principle of appellate law, which is the best strategy for winning an appeal is to win the trial. So, that’s a summary of my practice.

Z: I think that’s probably far too modest, and I know that because I experienced this firsthand. I remember one time I emailed you about this really interesting Texas Supreme Court case that came out, and then you emailed me back and you were like, yeah, that was my case.

K: Sorry.

Z: I should have known. But anyway, my favorite saying about trial versus appellate is “trial lawyers drive for show, and appellate lawyers putt for dough.”

K: [Laughing] I like that.

Z: But that’s golf. We’re going to talk about fly fishing now. But before I do that, you’re very popular on Twitter, and I thought, I’d go look at your Twitter profile.

K: Oh, gosh. Have I looked at that recently?

Z: It’s got three things. It’s got #AppellateTwitter, @LadyLawyerDiary, and #FlyFishing. So before we get to the fly fishing, what is #AppellateTwitter for people who don’t know?

K: I’m not a huge fan of social media, surprisingly. I’m not on Facebook. I actually found #AppellateTwitter because I was doing a program in Washington D.C. on recent developments in the U.S. Supreme court with some really wonderful panelists. A reporter from Bloomberg was live tweeting the program, and one of my colleagues said, they live tweeted your program. Now I gotta get on Twitter. So I got on Twitter and I think in the, in the description he had tagged #AppellateTwitter. I was like, oh my gosh, there’s this thing, appellate Twitter, this is amazing.

And, as I know you know, the Texas appellate community is very robust and close-knit community. We all sort of know each other and send each other business. And I saw a lot of those people on Twitter, which was sort of fun and a surprise. And we started talking about big cases, and trends in different courts, and fonts and spacing and footnotes and Oxford commas. I was like, I have found my people. So, appellate Twitter is just a wonderful community of people who sort of nerd out about law and support each other and send each other referrals. It’s a really great community, and I feel very lucky to have found it.

Z: Yeah, same here. And if anybody is not active on appellate Twitter, and you’re interested, go check it out for sure. Now how about this account called @LadyLawyerDiary?

K: Lady Lawyer Diary is an account that grew out of a hashtag, #LadyLawyerDiaries, which was basically a bunch of women who were connected through #AppellateTwitter. So it’s a lot of appellate lawyers, some professors, some in-house, a lot of law firm litigators, and we were talking about not so much appellate issues, although that’s kind of how we connected, it arose in the context of the #MeToo developments, Kozinski, and some of the other issues that were playing out a couple of years ago, and still playing out of course. The hashtag was taking off, and one of the things that we noticed, women in particular felt more comfortable talking about issues when they didn’t necessarily have to do so under their own name, for obvious reasons. There are a lot of fraught issues when it comes to sexual harassment, the pay gap, the lack of diversity, you know, traditionally, and it’s always been a challenge in the legal profession and in the courts.

So we, the group of us, not just me, a group of about a dozen or so of us started the handle as a forum. And we curate that forum, to start conversations, to facilitate discussions. We will post things for people who want to post anonymously. We do things behind the scenes that may not even reach social media, if it’s something particularly sensitive. And one of our co-founders testified before the Senate Judiciary Committee about reforms of the judiciary for reporting with respect to sexual harassment and things of that nature.

So we talk about diversity, inclusion, issues that affect women in the profession, and we try to do our best to promote women’s successes. Women, sometimes we can be really bad about tooting our own horn. And so we try to create a forum where we really encourage that. Like, if you’ve got a big success, a big promotion, and it’s something that’s not privileged, you can talk about it. We want to hear about it. And, and so we’d like to signal boost, things like that.

Z: Well . . . Kendyl, actually . . .

K: Actually . . . Tell me all about it, Zach, I want to hear all about it.

Be sure to follow!

Z: No. Okay. All right. Let’s get to the fly fishing this past summer, you published an article in the ABA Litigation journal called Fly Fishing Lessons. And it’s a great article. Everybody should go read it in addition to watching our fabulous interview, but I’m curious, what kind of feedback have you gotten about the article?

K: It’s been interesting. I’ve gotten a lot of emails from people, some who I’ve known before, and some I’d never met before, who read it and who were either anglers and they were like, wow, I’ve never made this connection, and you’re so right. Or people who are not anglers, but they’re litigators or appellate lawyers and they’re like, wow, now I want to go fishing, which I think is fantastic.

So, great feedback. I mean, we’ve all written a lot of articles and spoken on legal developments and big cases, and this is very different. This is a very personal, almost a thought exercise in some ways about how something that I’m really passionate about in my personal life, I’ve learned has a lot of lessons for my professional life, and I didn’t even really necessarily make that connection until I got deeply into this article, and I was thought, that’s something I do in my career that is also something that is great in fly fishing, or something I don’t do professionally that I really should be doing more of.

Z: Yeah. Well, we’re going to dig into that, but let me start with the most basic question, and I’ll confess, I don’t really fish.

K: That’s ok.

Z: What is fly fishing?

K: So fly fishing, there’s different kinds of fishing, right? I mean, if you there’s commercial fishing with nets, right? There’s spin cast fishing, which is you toss out a heavy lure and then you reel it back in and then you toss it back out. And a lot of spin casting, you might use a fake lure, or you might use a worm, for example, you know, your traditional sitting by the pond with a worm on a hook.

Fly fishing is a different setup. It is a rod that uses the weight of the line to push an artificial fly out onto either the surface of the water or to a spot where you can pull it down through the water. And the idea is that it mimics the food source of the fish, usually the food source. Sometimes if it’s salmon fishing, for example, you might not want necessarily a food source. You might just want to make the fish angry and territorial, so something really flashy and obnoxious. But usually fly fishing is known for trying to mimic the food source of what a trout or something else you might be fishing for is going to go for.

And so there’s a little bit more strategy for it. You’re not actually throwing the worm in the water. You’re trying to recreate a creature on or in the water that is so enticing to the fish that they want to come up and catch it. So it’s not so much tossing something into the water as it is learning how to control the line in the air and how to get this itsy bitsy tiny little thing, you know, 30 feet out into moving water.

Z: Sounds challenging. I can sense the connection to appellate law, but tell me, what’s your earliest memory of fly fishing?

K: My mother’s family is from Idaho, and she grew up fly fishing. Maybe I was nine or ten. Certainly before 12 or 13. When I was about 13, we took a pack trip, like an 11-day pack trip with mules and everything in Yellowstone. So it was before that. Copper Basin is this beautiful basin in Idaho. They have gorgeous streams full of trout and otters and all sorts of wildlife. And I was young enough that I still had a spin rod, and we would put salmon eggs on the spin rod, which is like Ambrosia for trout. So, if you’ve got fish in a river and you want to catch a whole bunch of trout, and this is one of these trips. It was long enough that , we had trout for breakfast, trout with eggs, then we had trout for dinner. So we were literally eating what we were catching.

And so I just got a little bored and my dad was fly fishing. It looked really cool. And I mean, I was catching tons of fish, but this fly fishing thing was really intriguing to me. And so I tried it out. I was terrible at it. I was like 10 and hardly had the coordination. But I sort of got hooked on it after that.

And then, by the time we took our Yellowstone trip, a year or two later—I think I posted this picture on Twitter once—I think my parents were worried about me getting lost in the forest. And so I was dressed in like head to toe bright yellow, right? I mean, I literally looked like a banana walking around Yellowstone park, but this is where I learned how to fly fish, up in Yellowstone, which now as an adult, I know is some of the most pristine and spectacular fly fishing in the world, which I couldn’t have appreciated as a child.

So those are my first memories, getting bored with regular fishing, with bait casting, with bait fishing and saying, you know, I really want to try that, even if I’m not good at it yet.

Z: I see. So you’ve been doing this a long time. Now in the article, you talked about issue spotting, which lawyers are familiar with. So tell us, how does issue spotting apply to fly fishing?

K:  I think one of the challenges in appellate law is there may be 20 things that you think the trial court did wrong. This was clearly a bad decision. The question is what are the issues that are going to make the difference in the case? What are the points of error, the issues on appeal, you can narrow this down to that are going to get the court of appeals’ attention, persuade them that you are right, and reach the result that you want, which is to win. Whether, you know, to reverse, if you’re the appellant, or affirm, if you’re the appellee.

In fishing, I think it’s easy to want to just sort of throw anything out there. It’s like, they want salmon eggs, right? Fly fishing is maybe not for you. You really have to understand your audience. What are you fishing for? Are you fishing for brown trout fishing for rainbows? Brookies? Are you saltwater fishing? Are you fishing for striped bass, what is the water like? What are the aquatic insects like? What is the air like? I mean, you need to understand the environment in which fish are making their choices and you need to understand why fish make their choices, right? So trout care about three things—food, shelter, and sex—and depending on what they’re doing at a particular moment, they’re going to care about different things. And that drives your choices in terms of what flies you might pick.

Choosing a particular kind of fly: Is it a wet fly that goes under the surface? Is it a dry fly that sits on top? Is it a big, huge, obnoxious fly? Is it a teeny tiny—I’ve got some here that are like, you can barely see, that’ll catch enormous fish, even though they’re super tiny.

The process that goes into choosing the right kind of fly for a particular environment and a particular audience, a particular kind of fish on a particular day on a particular river is very much to me, feels like the same process that goes into picking the right issues for an appeal, especially in a high court. So, when you’ve got discretionary review at the Texas Supreme Court, they’re not necessarily going to care about a court of appeals or trial court having done something that should have been different. They’re going to care about the important stuff, the things that are going to set precedent that matters in the state. So for me, it’s not so much translatable in a template way, it’s translatable in a process way, if that makes sense.

Z: Oh, I absolutely see the connection. Just like you might have your favorite flies that you like to fish with, you’ve got your favorite issues, but those may not be the issues that your court of appeals cares about.

K: Exactly. I’ve had plenty of days on rivers where there are some flies that are my favorite flies. I love these flies. They’re pretty, they’re cool. They’re easy to tie on. I know how they go in the air. I know how to get them on the water. But if it’s not what the fish wants, it is going to be pointless. There have been different kinds of flies and kinds of fishing that I’ve had to learn in order to be successful on different kinds of rivers and in different kinds of environments, because the stuff I’m used to and I get excited about isn’t necessarily what the fish gets excited about.

Z: In the article you also talked about the importance of assembling your own fly-fishing outfit. So one, what is the outfit, and two, why is it important to assemble it yourself?

K: When we say outfit, usually what we’re talking about is the rod and the gear-up that we’re putting together. Although there’s plenty of great fly-fishing outfits in terms of, I have my stuff that I go out in, all of which has tons of pockets, which is something that is woefully lacking generally in women’s wear. A lot of people, the first time they learn, there’s a lot that goes into actually putting a rod and a reel and a line and a fly together before you can get on the river. And you’re not going to have those skills the first time you’re introduced to it. So someone is going to show you how to do that. But a lot of people, they may go fishing four or five times in their life, like on a trip with some folks or whatever, and somebody will just hand them a rod that’s already set up right. And say, okay, go out on the river, cast it around, see if you can catch some fish.

I think there is great value in putting that setup, that outfit together yourself. Getting the line on the rod, learning the knots and to tie the line—the line is the weighted part—and you take the line and you attach it to a leader, and then you take a leader and you attach it to tippit, and understanding what those pieces are.

It is very similar to when I was a younger associate, before everything was electronically filed, we’ll walk down to the Dallas courthouse, meet the clerk, see what it is that they do with the document, have a conversation with people. And putting different pieces of a brief together and understanding their role in a brief. An introduction is different from a summary of argument, is different from a statement of facts, is different from a statement of jurisdiction. They have different purposes. They have different consequences if you don’t get it right. So putting together sort of your outfit when you’re getting ready to go fishing helps educate you a lot on how it all works, how it all comes together.

This is so nerdy, by the way, like I’m listening to myself talk and I’m thinking, oh man, I’m going to get so much hell for this.

Z: Yeah, but it’s nerdy in a good way.

K: I hope so. It is very nerdy.

Z: You mentioned pockets, let’s see the vest.

K: Oh, okay. So this is my, I have a bunch of vests because I share them with people when I take them out, but this is my personal vest, that I’ve had for gosh, 20 years maybe. So, as you notice, tons and tons of pockets, pockets everywhere, it’s lined with pockets literally, and it actually has a creel on the back, so if I wanted to keep a fish—I don’t, I do catch and release all the time now—but you can actually stick a fish in the back of your vest.

Z: I could wear one of those to court, and like you’d stick highlighters and flags in it.

K: Right. Everything’s right here, got these little grabber things that, you know, it’s wonderful. I love it.

Z: And you want to show us your hat as well?

K: Oh, my hat. So this is one of the things that I was thinking when I wrote about diversity and inclusion in the article, and it’s something, obviously I care a lot about with @LadyLawyerDiaries. There’s not a lot of gear out there for women. So it’s sort of like when Sarah Weddington argued Roe vs. Wade at the U.S. Supreme Court, there were no women’s bathrooms. She had to go to a totally different floor to find a women’s bathroom. The fly-fishing industry is sort of the same, it’s really geared toward men. And so we’re constantly having to adapt to men’s gear, like men’s shoe sizes and vests and waders. And one of the things recently is that some shops are realizing there are a lot of women out there who like to fly fish. And one of my favorite fly shops is the Taos fly shop in New Mexico. And they did this hat, it’s “fish like a girl”

Z: I like it. Nice.

K: It is utilitarian as well, because it’s, you know, you’re out in the sun, you’re out in the water and you can easily get badly burned up in the mountains. But being a woman and fly fishing, particularly when I was growing up, when I was younger and took a year off from college to go fishing, basically, there just weren’t a lot of women who were out there all the time like I was. That’s starting to change, but not fast enough for me.

Z: Yeah, and in the article, you talked about “fishermansplaining.”

K: It’s like mansplaining. Right.

Z: That sounds pretty self-explanatory.

K: So there’s actually a story about that, that I did not put in the article, but when I was about 14, we were on a raft trip in the middle fork of the Salmon River. You stand up on the bow of the boat, moving through rapids and you’re casting from side to side to side to side. And there was a guy, it was a big group trip, probably about 20 people, or so, and there was this guy who came over and he’s like, wow, you really should be doing it this way and that way and this way.

And he takes my rod away and he starts casting and he grabbed himself right here in the lip, like with the hook. And I thought to myself, I just don’t need men to explain to me how to do it. I will do it the way I want to do it.

So “fishermansplaining” is just one of those things where everyone has their own way of doing it, their own way of learning. There are some truisms about the physics of how a line works, but a lot of it’s about personal style. And, I love learning and from accomplished anglers, but it’s like someone who comes in and edits, not the substance of your brief, but the style. They want to change all of your em-dashes to commas and semi-colons and stuff like that. That’s like, you know, don’t tell me how to cast to my fish. If I ask, you can tell me, but it’s the same in mansplaining, right? Like if I don’t ask for your advice, I actually don’t need it.

Z: Yeah, the catching the hook on the lip kind of makes me think of, it’s like a lawyer being in court and the judge says, what’s the standard of review, and you say “the usual one.”

K: Oh yes. The usual one. What? No, is it regular? Is it strict scrutiny? No, it’s the regular one, or something like that.

You have to learn the fundamentals before becoming a master

Z: The regular one, right. Now, another parallel between the fly fishing and practicing law is you said something about needing to master the basics before you get creative. What did you mean by that?

K: So, like I mentioned, the physics of a line, so this is unlike spin casting, where you have something that’s weighted at the end. So you’re literally tossing the weighted thing into the water. And that pulls the line out. Fly fishing, it’s this very long line. You have to manage that line in the air in order to propel a virtually weightless thing dozens of feet away.

There are certain basic skills that you need to learn about how that works, like riding a bike, right? You need to learn how the pedals work. You need to learn how forward motion goes, how to stop. Same thing in fly fishing, but once you get the basic rhythms down, then it’s a lot more nuanced about what works for your body style, for your height, for your arm length, all of that stuff.

And getting creative, there are a lot of different ways of casting and a lot of different ways of keeping the line in the air, of laying it down on the water, and people have sort of different ways they adapt to their own form. And that’s the creative part. So it’s like art, right, in many ways.  You need to learn the basics of art before you can turn into a Picasso. I mean, not that I’m comparing myself to Picasso, but you know what I mean. Like you hear sometimes people say, oh, abstract art, like any 10-year-old could do that. Well, I mean, a lot of those masters they weren’t making abstract art as young artists. They were learning the fundamentals of art, and the medium, and the canvas, and all of that, before they started getting creative, if that makes sense.

Z: Yeah, and how would you apply that in an appellate practice?

K: You need to understand the court rules. You need to have a good, fundamental writing skill set. And I think a lot of us have voices as lawyers. I can read a brief and be like, I definitely wrote that brief. And I think a lot of people are like that. That was not necessarily the case when I was a younger lawyer, not just in things that were filed, obviously, which went through partners and things, but when I drafted them, I was so focused on just getting the argument, the law, the points, all of that out. I think as you grow as a lawyer, you sort of find your way of persuading that works with your voice, and that authenticity that’s specific to you in some ways, without making it about you. I think part of persuasion is finding a voice that is not just persuasive because it’s right, or it has a really good argument, but because it’s conveyed in a way that is persuasive to this particular audience, and compelling.

And fly fishing is like that. You can get the fundamentals down, like anybody can toss a line in the water and sometimes catch a fish, even if they have no idea what they’re doing, which is wonderful. I think beginner’s luck is a big thing in fly fishing, just like it is in litigation. But it’s not that one lucky hit, that fish that you managed to land, or that big case that you managed to win. It’s the consistency. It’s developing your practice and your voice and your skill sets so that you know your patterns, you know what battles to pick. Do those corollaries make sense?

Z: It makes a lot of sense. You could have the most creative legal argument in your case, but if you don’t understand the deadlines in the rules of civil procedure.

K: Yeah. I mean, if you just pop out into a local river and start taking fish home, you’re liable to get in a lot of trouble with the local fish and game. I mean, you need a license, there are limits to what kind of bait you can or can’t use, lures, there are regulations about barbless hooks. Flies that you buy have barbs on them, which make it harder for the fish to get off of them. And a lot of rivers that I fish require barbless. And if you don’t know any of that stuff, not only are you not operating correctly in the environment, you can actually get into trouble for it. So mastering the fundamentals is also about understanding the culture in which you’re working, and the rules that govern that culture, and being able to identify the most likely avenues for success.

Z: Can you cite unpublished cases in fly fishing?

K: Well, if fish tales count, then yes.

Z: Yes!

K: Although now nobody has an excuse anymore, because everybody’s got their phones and can take pictures. When I was growing up, 95% of the fish I caught, no one else ever saw them because I didn’t really walk around with a big camera. Maybe a guide took a picture, but everybody was like, I caught this 29-inch brook trout, which is not true, nobody is catching a 29-inch brook trout, you know what I mean? [I just fact-checked myself and indeed found an article pictures of the angler who caught a world-record 29-inch brook trout! So anything is possible.] Now we’ve got little phones. I can pull them out and take pictures. So yeah, everything gets published now, even if it’s technically unpublished.

Z: Right. It’s probably not as fun. Now in the article, you have a quote from Jeena Cho, and it says, “we know that when you’re in a stressed or fight or flight state, you are unable to access higher cognitive functions such as imagination.” What do you take away from that?

K: Well, first of all, Jeena is amazing. You know, she wrote the book Anxious Lawyer, and she writes a lot about mindfulness, mental health, and the legal profession. She’s just amazing, I love her. So I encourage anybody to look her up and read her stuff. What I take away from that is we, our chosen career is a very stressful one. Whether it’s family law, or criminal law, or business litigation with companies and employees and a lot of money on the line, it’s a lot of stress, a lot of pressure. Someone else is putting their future in some respect in our hands. And it’s a lot of stress. It’s not a coincidence that the legal profession has the highest incidents of substance abuse, depression, and suicide.

It takes a real toll. And I think that when you’re living in that constant stress place, it’s difficult to really sort of stretch your wings and get more creative about your practice. And so, Jeena’s talking about  mindfulness, and how important mindfulness is to take us out of that fight or flight sort of mindset, to give ourselves the space to be thinking in a much bigger and creative way, instead of like, Oh my God, I must win, here are the reasons why: X, Y, and Z. Trying to pull ourselves out of that and saying, okay, let’s think about this case big picture. It’s not just about whether, you know, who wins this particular case. It’s about where the law has been, where it’s going, what it’s going to mean for different industries.

Employing that sort of mindfulness to the process makes us better lawyers. I think it makes us more persuasive. I think it allows us to communicate to the court why a particular case is important and why their decision is important and why they should agree with us, of course. But it also, I think, makes our practice more enjoyable and more sustainable long-term. Because if you’re practicing out of a constant sense of fear of failure—what if I don’t get promoted, or what if I don’t make partner, or what if I don’t make this kind of money, and what if I lose my job—if those are the decisions, those are the fears that are driving our decision making, that’s a really hard way to live. And I’ve lived that way plenty, don’t get me wrong. I’ve learned the hard way that that’s not a good way to live. And so I try to be much more deliberate and sort of, you know, coaxing that mindfulness state out of my process in a way that I wasn’t as good at when I was younger.

Mindfulness. Good for fishing. And lawyering (?)

Z: What you just said is something that also comes across at the end of your fly-fishing article. And that was the thing that kind of caught me by surprise. You know, I could kind of guess some of the other parallels, but when you made that turn, that’s what really caught my attention. And especially this statement where you said “fly fishing teaches that embracing the process without judgment is plenty effective in achieving results.”

K: It’s so counterintuitive. We are so focused on quantifiable results and chalking up wins, and don’t get me wrong, those things are important. I have clients. Wins are important to them. You know, I’m a partner in a law firm. Those things are very important. But when those are the driving impulse, when we are so focused on results-oriented achievement, we lose the importance of the process that’s supposed to get us there. And I think that one of the things that fly fishing has really taught me is that if you invest in the process, the moments between the beginning and the end, and you engage in those moments in a meaningful way, you are inherently perpetuating positive results.  hey may not necessarily be the ultimate perfect result that you want, but you’re perpetuating good positive results for yourself, for your client, for your firm, for the legal system. And I think that when people get tunnel vision focused on one specific thing that must be, and anything else is failure, you’re just setting yourself up for that. Because that’s not the way our system is set up, and that’s not the way fly fishing works.

Z: Yeah. That was my number one takeaway from the article.

K: Was it? That’s interesting.

Z: I mean, just the idea, it’s somewhat counterintuitive, but when you’re not worrying as much about the results, but just enjoying what you’re doing, you actually tend to get better results.

K: Yeah. Enjoying what you’re doing and also just being mindful of what you’re doing, even when you may not really love it. There’s certainly, you know, briefs that I’ve written where I was like, I really, this is not my favorite part of the brief, I really don’t want to work on it. But being mindful of that particular piece of the brief, why it matters, what it advances, how it fits into the bigger picture, that investment in the process and enjoying that process, I think really yields results that are good.

Z: Agreed. Now, before we finish up, I do want to mention Project Healing Waters. Tell us a little bit about that.

K: Of course. Project Healing Waters is a national nonprofit that operates throughout the country, that serves men and women in military service in our armed services and veterans who have suffered physical injury or invisible injuries. We work with a lot of service people and veterans who have PTSD or depression, very serious physical injuries, brain injuries, things of that nature. And one of the really amazing things about fly fishing—and this is supported by scientific studies—is that the process of fly fishing, the physical movements, tying flies like that very detailed, small work with your hands, focused attention, it’s amazing for rehabilitation. And so Project Healing Waters operates throughout the country. We have programs for our participants, teaching them how to tie flies, to build their own rods, to fish, and then we even take them out fly fishing places.

We have a place up in Montana called Freedom Ranch where we will bring veterans. They stay in the lodge and they fly fish right there on the water. I personally did not serve, but most of the men in my family have served in the U.S. military. It’s something that I love doing, and fly fishing has been a wonderful thing for my own mental health. When I was struggling with depression, fly fishing was something that really sort of pulled me out of that a bit. And I love being able to share that with people. And so it’s just a way of giving back and it’s a wonderful organization. I would love for people to check it out. We have great fundraisers. We have trips that we sell at these fundraisers and fly rods and all sorts of stuff. So, check it out.

Z: Great. So, we’re doing this interview in February 2021. We’ve all been on some form of quarantine for almost a year, most of us. So I’m guessing that has kind of put a damper on the fly fishing.

K: I have not been fly fishing in over a year, and it’s driving me crazy. I am trying to plan, I don’t have a scheduled vaccination yet, so I don’t know, but, I’m going to try and assume that that happens by the summer. And I’m definitely gonna get a couple of trips in, I’m going to try to do one in the Rockies somewhere, probably Southern Colorado or somewhere in New Mexico where I have family, and then probably something on the coast, either the coast of Texas has some really great flats fishing or, maybe in Florida, I have some pals out in Florida. Maybe we’ll go out to the keys and do some bone fishing or something like that.

Z: That sounds great. Now, when you eventually get to go on one of these trips, does your dog, Molly, get to come with you?

K: Yeah. Oh, do you want to see Molly? Come here.

Z: Oh yeah.

K: Oh, good girl. She’s tired. She was napping. Here’s Molly.

Z: Sleeping on the job.

K: No, she does not. She gets bored. And we’re sort of out in relatively remote places. There’s coyotes and eagles, and Molly is of the size that an eagle could pick her right up. And I’ve actually been with her out in New Mexico, like on a walk, and a coyote came right in between me and her. She was about 15 feet in front of me and had I not pitched an absolute fit . . . So yeah, she’s not much of a fishing dog. You kind of need to have a bigger dog to survive the perils of that kind of wilderness.

Z: Makes sense. Well, Kendyl, this has been great.

K: Are we done already? That went so fast.

Z: Well, is there anything you want to add?

K: It’s such a treat to talk to you. Obviously, it’s something that I’m really passionate about, and I love sharing it with people, and it’s a real treat to be invited. Thank you.

Z: You’re welcome. Yeah. I mean, like I said, I have no experience with fly fishing, but it’s really fun hearing you talk about it,

K: But we’re going to have to change that.

Z: Well, yeah, maybe I’ll learn. We’ll see. All right. Thanks, Kendyl. K: Thank you.

________

Kendyl T. Hanks is an appellate shareholder with the Austin office of Greenberg Traurig. She has earned some professional recognitions, but none has made her feel more alive than disappearing into the mountains, messing about in a river, and catching these fish (which were promptly released).

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. He has never caught a trout, but Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

The Originality Requirement in Copyright Law

The Originality Requirement in Copyright Law

On April 9, 2021, Taylor Swift released the album Fearless (Taylor’s Version), her re-recording of her second album, originally released in 2008 when she was 18.

This was a big deal. I’m not really a huge Taylor Swift fan, but she’s undeniably talented, and my daughter was seven when the original Fearless album came out. So you do the math.

I also love the fact that the origin story of Fearless (Taylor’s Version) is found in the nuances of U.S. copyright law. If you want to understand why, check out this excellent lawsplainer thread from law school student “Mauv” on Twitter.

I can’t improve much on Mauv’s explanation, but it got me thinking about the originality requirement in copyright law, an issue I sometimes grapple with in my law practice. It’s a requirement that is easy to explain in theory, but often difficult to apply in practice, as we will see.

Copyright law protects original works of expression. We’re talking stuff like movies, artwork, sculpture, novels, musical compositions, poetry, and yes, recordings of pop songs.

This is not to be confused with trademark law, which protects source identifiers for goods or services—usually a word, short phrase, or logo. A trademark doesn’t have to be original or creative to function as a trademark; it just needs to create an association in consumer minds between a product or service and its source.

Copyright law, in contrast, is about protecting creativity. The copyright owner must create an original work of expression.

The originality requirement in copyright law

This doesn’t require any evaluation of artistic merit, which would be pretty subjective. And original doesn’t necessarily mean novel. As the U.S. Supreme Court held, the originality requirement “means only that the work was independently created by the author (as opposed to copied from other works), and that it possesses at least some minimal degree of creativity.” Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991).  

That’s a good thing for creators, because you could make a case that there’s nothing really new under the sun, especially in music. Did Beethoven invent the simple melody in Ode to Joy? Copland the folk melody featured in Appalachian Spring? Even the great Stevie Ray Vaughan borrowed plenty of blues guitar licks from Albert King.

You can always identify components of music taken from previous works. Most of the songs on Fearless, for example, use the same four chords as hundreds of other pop, rock, or country songs. And lyrically, Taylor wasn’t exactly breaking new ground: girl meets boy, boy lets down girl, girl grows up a little.

But you put those old musical cliches together in a new way, and that’s where the magic happens. There’s no question a Taylor Swift song meets the originality requirement.

At the other end of the spectrum, consider the old White Pages. It was basically just an alphabetical list of names and phone numbers. Sure, the author had to make some choices, like what typeface to use, how many columns, etc. But courts said we have to draw the line somewhere. So regardless of how much work may go into it, a utilitarian document like a phone book typically won’t meet the originality requirement.

A slightly harder case is a cookbook. The problem with claiming a copyright for a recipe is that you really can’t separate the idea of the recipe—the ingredients, quantities, how you prepare it—from the expression of that idea. And copyright law protects expression, not ideas.

So courts have said a recipe book will only receive copyright protection when it includes additional creative elements, like a story about how your grandmother used to bake these cookies when you were a child.

These are relatively easy cases. An original song is sufficiently creative, even if it uses elements from other songs. A list of phone numbers isn’t.

But there are other categories that fall somewhere in the middle. Take jewelry designs, for example.

The originality requirement applied to jewelry design

This has been an issue for a long time. In the Trifari case from 1955, the defendant claimed that the plaintiff’s article of lady’s costume jewelry was “devoid of originality” because many firms had previously made similar “cab” necklaces.

But the court rejected this argument, and in doing so stated a standard for originality of jewelry designs that applies to this day:

It is not the idea of the use of the cab which is the subject of the copyright but rather the author’s artistic expression which reflects a distinguishable variation from what had gone before. The copyrighted matter need not be strikingly unique or novel. All that is needed is that the author contribute more than a merely trivial variation, something recognizably his own

Trifari, Krussman & Fishel, Inc. v. Charel Co., 134 F. Supp. 551, 553 (S.D.N.Y. 1955).

So that takes care of the originality requirement for jewelry designs. We know the standard. All we have to do is apply it.

But of course, stating the standard is the easy part. Applying the standard is the hard part.

If you think it’s easy, take a look at these examples and, just for fun, make a list of the ones you think contain a sufficient spark of creativity to meet the originality requirement of copyright law.

How many did you get? The correct answer is five. Specifically, nos. 1, 2, 3, 5, and 8 are sufficiently creative. The other four are not.

If you’re saying yeah, well that’s just your opinion, man. Well, ok, but I have cites:

Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101 (2d Cir. 2001) (No. 1); Jane Envy, LLC v. Infinite Classic Inc., 2016 WL 797612 (W.D. Tex. Feb. 26, 2016 (Nos. 2, 4, and 6); Tacori Enterprises v. Beverly Jewelry Co. Ltd., 2008 WL 11338681 (C.D. Cal. Aug. 20, 2008) (No. 3);Van Cleef & Arpels Logistics, S.A. v. Landau Jewelry, 547 F. Supp. 2d 356 (S.D.N.Y. 2008) (No. 5); Protecting the Intellectual Property of Jewelry Designs (2018) (No. 7); Merit Diamond Corp. v. Frederick Goldman, Inc., 376 F. Supp. 2d 517 (S.D.N.Y. 2005) (No. 8); Todd v. Montana Silversmiths, Inc., 379 F.Supp.2d 1110 (D. Colo. 2005) (No. 9).

You cannot argue with the courts.

But seriously, of course these examples present close calls. Other judges could have easily ruled differently.

You might almost think that copyright law requires judges to draw lines that can seem arbitrary, but that this is an inherent problem, and perhaps one presented by every area of law.

And if you think these jewelry designs present close calls, wait until you consider copyright for distinctive logos.  

The originality requirement applied to logos

Logos are right at the border between copyright law and trademark law. Consider this well-known logo:

There’s no question this logo functions as a trademark. Just about anyone in the U.S. knows that logo means American Airlines. But is that “AA” logo creative enough to warrant copyright protection?

Probably not. According to the U.S. government, these are some examples of works not subject to copyright: “Words and short phrases such as names, titles, and slogans; familiar symbols or designs; mere variations of typographic ornamentation, lettering or coloring.” 37 C.F.R. § 202.1(a).

Still, some logos could be sufficiently creative to be more than “mere variations” of typographic, ornamentation, lettering, or coloring.

Here are some real-world logos for which companies sought copyright protection. If you’re scoring at home, make a list of which ones you think are original enough to warrant copyright protection:

How many are on your list? In this case, the correct answer is all of the above.

Surprised? Embarrassed you got it wrong?

Just shake it off.

_______________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation (and sometimes copyright litigation) at Zach Wolfe Law Firm. Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

Wolfe’s Pattern Jury Charge for Texas Non-Compete Cases

Wolfe’s Pattern Jury Charge for Texas Non-Compete Cases

Predicting the cost of litigation

Litigators usually wince when clients ask how much a lawsuit is going to cost. It’s kind of like asking “how much will it cost to invade Iraq?” You can’t control what other people do, and you don’t know how long the project will drag on.

For this reason, I’m going to start telling clients “on average, a lawsuit will cost you $10,000 a month until you settle.”

I think this gets the point across better than hemming and hawing about how the total expense is hard to predict. Of course, the $10,000 is just a rule of thumb. You can probably double or triple that for some law firms (you know the kind of firms I’m talking about). But the point is that the cost is largely a function of when the case settles.

And the case will settle, you can tell clients. It will not go to trial.

Ok, that’s a little too strong. But the vast majority of cases will settle before going to trial. We’re talking over 90%. Probably 95%. Maybe even 99%.

You get the point.

Why non-compete cases don’t go to trial

Trials in non-compete lawsuits are even more unusual. There are several reasons for this.

First, in many non-compete lawsuits there is a temporary injunction hearing in the first month or so. The judge’s decision at that hearing will often lead to the case settling, especially if the judge orders that the employee can’t work for the competitor that just hired her.

Second, most cases take at least a year to get to trial. Two years is more likely. Most non-competes expire in one or two years. You do the math.

Third, and this is where it gets a little more esoteric, in most non-compete lawsuits the key issue is enforceability of the non-compete, and that issue is typically seen as a “question of law” (whatever that means). A trial is not required to decide a question of law.

Notice these reasons had a lot of “many,” “often,” “typical,” etc. That’s because of course I’m generalizing. There are plenty of exceptions.

But as a general rule of thumb, non-compete lawsuits just don’t go to trial.

What happens when non-compete cases go to trial?

Of course, non-compete cases sometimes go to trial.

I had one of these a few years back. Some of you might remember my post where I talked about asking the owner of the company what he thought a reasonable time period for the non-compete would be, and he said “when hell freezes over.” That might give you a little insight into why the case went to trial.

When that happens, what are the questions that will go to the jury?

In most non-compete cases, there will be some dispute about whether the non-compete is enforceable as written. This was the subject of my very first blog post, What a Litigator Looks For in the Typical Texas Non-Compete.

Sometimes there will also be a dispute about whether the employee violated the non-compete as written. This is especially true when the non-compete prohibits solicitation of customers or employees. “Solicit” is a word built for factual disputes, which is why my Plain-Language Non-Compete doesn’t rely solely on the word.

But in many cases, it will be undisputed that the employee violated the non-compete—at least a little—as written. In those cases, the two key questions are:

(1) is the non-compete enforceable as written?

(2) if yes, what is the amount of damages caused by the breach?

(If the non-compete is unenforceable as written, there will be no damages. See Tex Bus. & Com. Code § 15.51(c).)

The second question will typically go to the jury (assuming there is admissible evidence establishing an amount of damages), and the standard breach of contract damages question from the Texas Pattern Jury Charge is probably adequate in most cases.

The first question is trickier. Does enforceability go to the jury?

In many non-compete cases, one side—or sometimes both—will move for summary judgment on whether the non-compete is enforceable as written. If the court grants summary judgment that the non-compete is or is not enforceable, then the issue won’t go to the jury (unless the judge changes her mind).

But what if nobody moves for summary judgment on enforceability, or if the judge denies summary judgment on the issue?

In that case, I say you need to submit enforceability to the jury, but I will concede this is more art than science. If you need ideas you can use Wolfe’s Pattern Jury Charge for Texas Non-Compete Cases:

I will also concede that you may get a funny look from the judge when you ask for a jury question on enforceability of the non-compete. “Counsel, isn’t that a question of law?”

And there it is, the “question of law” question. Be aware, there are dozens of Texas cases that say enforceability of a non-compete is a question of law. But those cases are largely wrong, for reasons I explain in Blown Call: The Thing Texas Courts Get Wrong About Non-Competes.

So the short answer to the judge is “no.” But you’ll have to explain.

Scenarios for submitting enforceability to the jury

There are several different ways the issue can arise.

Let’s say you represent the employer who is trying to enforce the non-compete against a former at-will employee.

DANGER! DANGER!

You must be careful in this situation. You might intuitively think that the burden is on the employee to prove unenforceability as a defense to the claim for breach of the non-compete. WRONG!

Take a look at Section 15.50(b) of the Texas Business and Commerce Code. If the non-compete is tied to a “personal services” agreement, e.g. the typical at-will employment agreement, then the burden is on the employer to establish that the non-compete meets the criteria specified in Section 15.50, i.e. that that the non-compete is ancillary to an otherwise enforceable agreement and is reasonable.

I think my smarter appellate lawyer friends will confirm that if a party bears the burden of proof on an issue, and if there is conflicting evidence on that issue, then the party with the burden of proof must submit a question to the jury on the issue. If it doesn’t, it waives the issue.

Sure, you could take a chance, not ask for a question on the issue, and then argue post-verdict that the enforceability of the non-compete is a question of law. And the trial court judge might agree with you. But if there was any evidence during trial that the non-compete was unreasonable, the judge would be wrong. And you’ve just given the employee a good issue to appeal.

Now let’s suppose you represent the employee in this situation. You don’t have the burden of proof on enforceability, so you can just sit back and watch the employer waive the issue, right?

I wouldn’t recommend that. The problem is that many Texas judges will incorrectly think that enforceability of the non-compete is a question of law, even though the statute is quite clear that the employer has the burden of proof on the issue.

If you represent the employee and you ask for a question on reasonableness of the non-compete, you may get it. And you may have a better chance with the jury on reasonableness than you do with the judge.

On the other hand, if the judge denies your requested question on enforceability, you’ve just bought yourself an insurance policy—in the form of reversible error—if the verdict and judgment go against you—assuming there is conflicting evidence on the issue.

That last proviso is important. If you represent the employee, you must be sure to offer evidence concerning the reasonableness of the non-compete.

For example, if it’s a three-year non-compete, ask your client “would the company’s confidential information still have any value after two years?” In most cases the answer will be no. If the geographic area of the non-compete is the State of Texas, ask your client “did your actual sales territory cover the whole State of Texas?” Again, the answer is probably no.

These are just examples, but you get the idea.

The last thing you want to do is blow it at trial after your client has spent $10,000 a month (or more) to get there.

_______________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

My Big Fat Texas Non-Compete Paper

My Big Fat Texas Non-Compete Paper

I had a dream. I had everything I wanted.

But it wasn’t a Billie Eilish song. It was finishing and publishing my non-compete paper, Wolfe on Texas Non-Compete Litigation -or- My Big Fat Texas Non-Compete Paper.

And now the dream is a reality. I released the “beta” version in connection with my webcast for UT Law CLE, Non-Compete Essentials in February 2021. (You can register to watch that great webcast here, by the way.)

Since then, I’ve cleaned up some errors (gasp!), inserted a short new section, and added some recent case cites. You can download the paper for free, but first the usual disclaimers.

Number one, I’m not your lawyer (unless you have a signed engagement agreement with my firm).

Number two, every situation is different, so you should not rely on my paper as legal advice, and if you’re not a lawyer, you should definitely consult with your own lawyer.

And number three, any opinions expressed in the paper are solely my own, not those of my law firm or clients.

Of course, you knew all that, but it doesn’t hurt to say it. See my Ethics Tips for Law Bloggers.

If you’re one of my regular Fivers, you’ve probably seen some of the content in the paper before, but I knew it would be valuable to consolidate my non-compete material in one place, which you can download here:

I hope you find it useful.

As big as it is, there is still plenty of room for expansion. There are plenty of Texas non-compete topics I have not yet covered in this version. Future versions will include sections on:

  • Non-competes for physicians (the Texas statute has special provisions for this)
  • Employee hardship as part of the “balance the equities” element of injunctive relief
  • Non-competes for insurance agents

And if there’s another Texas non-compete topic you’d like to see in a future version, what should you do?

Just let me know.

Duh.

_______________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

“It Never Hurts To Be Bold”: Karen Kaplowitz, Trailblazer for Women in the Law

“It Never Hurts To Be Bold”: Karen Kaplowitz, Trailblazer for Women in the Law

This week’s post is my interview of Karen Kaplowitz, who I first knew as a business development coach for lawyers. Turns out she was also a real trailblazer for women in law practice, as you will see. If you prefer to watch the interview in convenient video format, you can find it here on my YouTube channel, That Non-Compete Lawyer.

Z: I’m Zach Wolfe. I’m here with my friend, Karen Kaplowitz. Karen, welcome.

K: Thank you, Zach. Thanks for inviting me to have this conversation with you.

Z: You’re welcome. So, let’s start with what you do today, and that is you are the founder and owner and operator of The New Ellis Group.

K: That is true. The New Ellis Group is a business development strategy and coaching firm, which I started in 1997 when I was a practicing trial lawyer in Los Angeles. So, for the last 23 years, I have been the owner, operator, proprietor, chief cook and bottle washer of the New Ellis Group.

Z: And that’s actually how I first met you. You were doing some business development coaching for a firm that I formerly worked for, and we had a firm retreat and you gave some great tips. And so I’ve kept in touch with you and gotten lots more great tips over the years. But what led me to want to do this was I started hearing some of your stories about law practice, law school, all kinds of things. So we’ll come back to the New Ellis Group later, but first let’s go back in time. It’s the late 1960s, and a young Karen Kaplowitz is a student at the University of Chicago Law School. Now, people who are not lawyers might not realize this, that is one of the elite law schools in the country. So, you’re a student there. And there were not a lot of women students at that time. What was that like?

K:  I am a child of the sixties, which was a time, which was a lot like now in some ways. I started law school in the fall of 1968, the day after there were riots in Grant Park, in Chicago, in connection with the Democratic National Convention. It was a time of great political turmoil and crisis. Robert Kennedy had been assassinated that spring. Martin Luther King had been assassinated that spring. It was a time of chaos and violence and political upheaval. It reminds us a lot of what it’s like now, 50 years later. So, I’m about to celebrate my 50th law school reunion from the University of Chicago. But the struggle in those days, a lot of it had to do with the Vietnam War. And I was admitted to the University of Chicago Law School because of the Vietnam War. The University of Chicago saw that men were being drafted and decided that instead of having empty seats, they would accept women law students. My class, the class of 1971, was the first class at the University of Chicago Law School with 20% women law students. That’s how I got into law school. It was an economic decision on the part of the law school. So that’s where I fit kind of historically. And here we are, you know, 50 years later.

Karen Kaplowitz, lead plaintiff in Kaplowitz v. Univ. of Chicago

Z: When you started law school, what did you have in your mind that you wanted to do with that law degree?

K:  I wanted to be a civil rights lawyer. I wanted to change the world. I wanted to create more racial equity in particular. I was just beginning to think about gender equity. That wasn’t as much on the horizon in those days, but I thought I’d be a civil rights lawyer or a legal aid lawyer. I didn’t expect to end up in a commercial kind of law firm environment.

Z: Speaking of gender equality, what was the on-campus law firm interviewing like for women at the University of Chicago in the late sixties?

K: Well, so that was one of the surprises. You know, there we were, there were 30 women in my class and maybe 15 or 20 in the class ahead of us and the law school had accepted us, but law firms weren’t hiring women lawyers yet in any great numbers. And so one of the things women in my class encountered was a lot of really overt sex discrimination.  Law firms would show up and they’d just kind of blow off the women law students. And, you know, “we don’t really need to talk today.” “We’re not hiring trusts and estates lawyers this year.” “So there’s no point in our talking to you,” with the subtext, that the only reason we’d consider a woman would be for a trust and estates job. So that was pretty disconcerting. And we found to our dismay that when we took those experiences to the law school administration and said, this is what’s happening, please help us deal with it, the law school was pretty indifferent initially.

Z: And it turns out there was even a lawsuit, and there’s an opinion. People can actually read about this. And the case is called Kaplowitz v. University of Chicago [387 F. Supp. 42 (N.D. Ill. 1974)]. Now, would you happen to know the named plaintiff in that case?

K: Well, so when we experienced, when some of the women in our class experienced sex discrimination and the law school wouldn’t take action, one of my classmates who had just studied the new civil rights law, Title VII of the Civil Rights Act of 1964,  said, “you know, the law school is acting like an employment agency, and don’t we have rights to enforce a non-discriminatory environment against a law school as an employment agency?” Ultimately we filed a Title VII charge, and then a lawsuit, asking the federal court to require the law school to protect women from overt discrimination.

Z: Reading that case, it seemed like the law school had a very clear written policy of non-discrimination. So if that was the case, what did the law school do wrong?

K: What the law school did wrong was failed to take action. When it discovered through complaints filed by women law students, that there was actual overt discrimination taking place on its premises, in connection with the recruiting function, having a non-discrimination policy that’s not enforced was not, to our minds, a sufficient application of the spirit of the law involved.

Z: The federal district court judge agreed with the theory that the law school was acting as an employment agency as defined in Title VII. So that was a win. And then I want to read just a little portion of the judge’s opinion. He said: “Sex discrimination is a bane to both men and women in this society, and to the extent that it is practiced by the employers who use the University of Chicago Law School placement facilities, it is a particularly ugly scar on the legal profession. In this decade of heightened consciousness, it is disheartening to note the degree to which sexism flourishes. It is prevalent in both professional and non-professional careers and all the more odious because of the subtle manner in which it is practiced.” That sounds pretty darn good. So you had the right judge, right?

K: And the judge by the way, was named Abraham Lincoln Marovitz.

Z: So Judge Marovitz ruled in your favor?

K: In some ways. This case, Kaplowitz v. University of Chicago, is a landmark case because it is the first case interpreting the scope of the employment agencies’ section of Title VII broadly. So, from that standpoint, it was a win. But the judge at the end of the day told the women in my class that we needed to exercise our rights against employers directly against the employers, and that we could not require a law school to hold hearings to make determinations. So we lost that part of our case. And at that point we took the part we won and we called it a day.

Z: It definitely set a precedent. And I imagine that even though you didn’t get the relief you were asking for in the lawsuit, this must have had ripple effects in the law school community.

K: For sure. This year is my 50th law school reunion. And we’re expecting to be doing a panel at reunion weekend in the spring on 50 years of women at the University of Chicago Law School, students, faculty, and alumni. So yes, we made our mark, elicited a lot of commitment on the part of the Law School, more of a commitment to gender equity. And that was at the end of the day, what we really wanted to accomplish.

Z: Now on just a personal level, when I think back to when I was in law school, I was just like, okay, just keep your head down. Don’t cause trouble, don’t make anybody mad at you, get good grades, get a job offer. I would be terrified to take on the entire law school and, and, you know, have people think, oh, that guy’s a troublemaker. Did those thoughts go through your mind at the time?

K: Well, you know, I didn’t act on my own. I was one of about 15 women law students who confronted the law school over these issues. And there’s safety in numbers. This was an era of protest and commitment to civil rights. I honestly really never thought too much that it would have adverse consequences, and the opposite turned out to be true. Because I was a leader of that group, I had a lot of interaction with the faculty and with the administration of the law school. And the Dean of the Law School taught me an incredible lesson about professionalism. You know, the Dean never held it against me—that I knew about anyway—that I had confronted the law school in this way and challenged their policies, and he went out of his way to be helpful to me. So that was kind of an interesting lesson on the outcome of being bold and of being courageous. It didn’t hurt. It probably helped me in my career.

Z: That’s great. Okay, so you graduate from law school and you start doing civil rights law?

K: No, I actually ended up deciding that before I became a civil rights lawyer, I wanted to get some conventional experience in a big law firm. And I joined what was then the largest law firm in Los Angeles, O’Melveny and Myers, where I was recruited by a University of Chicago alum who was very committed to bringing in more women. And I was the third woman lawyer at O’Melveny and Myers.

I love L.A.

Z: So, I know what it’s like to be a brand-new lawyer at a firm with experienced lawyers who know what they’re doing, and you’re trying to figure out what to do. You had to do that while being just the third woman at the firm, right?

K: Well, what that meant though, was that there were people who mentored me, you know, like the lawyer who recruited me, he was a mentor to me. There were other people at that office in those days who cared about the idea of being more diverse. Warren, Christopher, who later became Secretary of State was a partner in the firm, for example. There were people of goodwill, in other words.

Z: That’s great. So back to the subject of civil rights, I understand there were issues early in your career with the LA County Women’s Jail. Can you tell us how did that come about?

K: O’Melveny and Myers absolutely supported lawyers doing pro bono work. And I took on a project to investigate and then challenge civil rights violations at the Los Angeles Women’s County Jail, along with the ACLU. I organized a group, there were about 25 lawyers involved, and we investigated civil rights violations. And then we brought a civil rights lawsuit against the Women’s County Jail. And this was all under the rubric of pro bono work at O’Melveny and Myers. That was a tremendous learning experience for me as a young lawyer.

Z: Was that the case where you had sort of a run in with the FBI, or was that another case?

K: No, ultimately, I didn’t have a run in with the FBI. I was a young lawyer. I was like a second year lawyer doing this civil rights work. And I made a really classical mistake of a young lawyer. My mistake was that one of the named plaintiffs in our civil rights case was a member of the Manson family, if you remember Charles Manson. So this woman who was an inmate at the Women’s County Jail was not one of the murderers. She was a burglar in the Manson family, and we included her as a named plaintiff in the case. And at the hearing, when we filed the lawsuit, there was a TRO hearing at which the County Counsel had to stop the rest of the hearing to explain to the judge that our plaintiff had just tried to escape from the Women’s County Jail and that she had a hacksaw blade, which he was sure must have been smuggled into her by one of her lawyers, pointing at me.

Now, the good news was the judge did not take seriously the idea that I had smuggled a hacksaw blade to this member of the Manson family, but my hearing on the TRO, you know, blew up, didn’t get too far. Fast forward a couple of years, and I get a call one day from the FBI. And the FBI is calling me around the time that Squeaky Fromme, another member of the Manson family, had tried to assassinate President Ford, and the FBI called to say, we got your name off a list that Squeaky Fromme had in her possession. And we’re calling to warn everybody whose name was on the list to be careful. And I said, if my name was on the list, it probably wasn’t an enemies list. I represented another member of the Manson family in connection with my civil rights case. So that was my contact with the FBI. The FBI was trying to protect me from a risk I probably didn’t have.

Z: When your named plaintiff escaped using the hacksaw, did she tie the bedsheets and climb out the window?

K: She didn’t escape, she attempted to escape.

Z: Oh, she attempted escape.

K: She attempted an escape and they confiscated her hacksaw blade.

Z: Got it. That’s just an amazing story. Now, you also had something early in your career involving the Beverly Hills Hotel?

K: Yes. So, you know, I’ve explained that I started my law career at O’Melveny and Myers, and I stayed there for three years. At the end of three years, I left and started a women-owned law firm in Los Angeles with two other women lawyers, one from Gibson Dunn & Crutcher, the other big firm in town, and the other from the State Attorney General’s office. And that was a law firm that was designed to handle civil rights cases. So, I started with an idea of civil rights, I went to O’Melveny and Myers for three years, and then I started a women-owned law firm to handle civil rights cases. And one of our cases was against what’s now probably still well-known, the Beverly Hills Hotel. Former President Trump had some alleged liaisons that took place at the Beverly Hills Hotel.

Well, in those days they had a bar called the Polo Lounge, and the Polo Lounge had a rule. The rule was a woman who was not escorted could not enter the premises. And the concept behind that rule was that if a woman was unescorted, she must be a prostitute. So, our law firm represented somebody, an unescorted woman who tried to patronize the Polo Lounge and was of course, escorted out. And we brought a lawsuit against the Beverly Hills Hotel on the grounds that that was sex discrimination. They couldn’t arbitrarily say an unescorted woman was not allowed on the premises. And we resolved that case quite quickly.

Beverly Hills, that’s where I want to be.

Z: So, you were at this women-owned firm in the mid-seventies in LA and you’re doing all kinds of different cases. This like sounds to me like basically a women’s version of LA Law. This has got to be made into a TV show.

K: We’ve been asked actually on several occasions to submit some information on our stories. One of my favorite stories I can share with you, in those days, was the lawsuit we brought against the California Court of Appeal. The court itself was advertising to hire a new deputy court clerk. And we had a client who had experience in the trial court level being a court clerk, who applied to become the deputy clerk of the court of the Court of Appeal. And the man who was the court administrator flatly turned her down, saying quite explicitly he would not hire a woman. So that was one of our very favorite cases. We brought a Title VII lawsuit against the California Court of Appeal itself. And again, the Court quickly settled that case because we kind of had them dead to rights. It was a pretty blatant act of sex discrimination.

Z: Now, again, in that case, you’re successful with the case, but did you worry about some kind of retaliation later on by, you know, judges or other lawyers who were not happy about this?

K: You know, we didn’t really worry about it. One of my law partners in those days had been in the State Attorney General’s office, and the offices of the California Court of Appeal were in the same office building as the Attorney General’s office. My partner knew justices on the California Court of Appeal. One day she was in the lobby of that building. One of the justices she knew well came over and started to give her a hug, and then he said, “oh no, I better not do that, you’re suing us”. So, you know, it was the right thing to do. It didn’t seem like it took a lot of courage to do it. It needed to be done. It was simply the right thing to do. And fortunately for us, we did not suffer any retaliation that I’m aware of.

Z: So then, I guess all good things must come to an end. You eventually leave that firm and you go to a bigger litigation boutique, is that right?

K: So after six years of our women-owned firm, my partners and I parted because we just had different interests. One of my partners became one of the most prominent family law attorneys in Los Angeles. I joined a twenty-five-lawyer litigation boutique and stayed there for close to 20 years.

Z: How did you end up becoming the marketing partner, in effect, for that firm?

K: When I joined the firm, I was of course used to running my own small firm and bringing in clients and managing client work. And that firm had a problem. The problem that my new firm had was that one lawyer, a very prominent trial lawyer, brought in most of the work in the firm, and that created a risk. That was a risk for everybody else because he was young and healthy. But if anything happened to him, if he got hit by a bus, the firm would have collapsed because there were 25 lawyers who mostly depended on a work he generated. So, I became initially really just the de facto go-to person to help any other lawyers in the firm who wanted to create more independence, wanted to create their own pipeline of clients and cases. So that’s kind of what I did, just to be a good team player and to fill a need.Over time, it became something I really enjoyed, which ultimately led me to start my consulting business.

Z: In addition to your consulting and helping people with business development, I know that you’re active in a number of nonprofit causes. I think one of those is Legal Momentum. Can you tell us a little bit about Legal Momentum, and what’s your involvement with them?

K: Legal Momentum is a women’s civil rights organization that was started 50 years ago. When I moved to the East Coast in 1998, after starting my consulting business, I began working on a pro bono basis for Legal Momentum and created what became known as the Aiming High Awards. The idea of the Aiming High Awards has been to recognize very powerful and successful business leaders who care about civil rights and would bring their companies and their business partners to an event to honor them and to support Legal Momentum. So, for the last 20 years, my core pro bono work has been raising money to sustain their work in women’s civil rights.

For example, one of the things that they are best known for is being an advocate for something called the Violence Against Women Act, VAWA. This is a law that was passed in 1994, which creates protection and has pumped literally billions of dollars into police departments and police programs to help support protection of women against domestic violence and other violence. So, that’s been a core part of what I’ve done on a pro bono basis. I don’t practice civil rights law anymore, but I found another way to contribute to the cause.

Z: And I think it was a few months back, I was able to watch these awards online. When is the next presentation of the Legal Momentum awards?

K: The next awards will be sometime this fall. We haven’t set the date yet. We will be honoring another group of people, including our Man of Distinction this year, the Chief Legal Officer and Secretary of Comcast, Tom Reid. And we’ll be honoring a group of people. I’ll be happy to let you know the date as soon as it’s set.

Karen is heavily involved in Legal Momentum’s “Aiming High” awards

Z: Great. I’m sure people will be interested in that. So, you become sort of the marketing guru at this previous firm, but then at some point you decide to move on from the practice of law to full-time consulting to help lawyers. What was that like, starting your own consulting business?

K: You know, it felt like a leap because I had practiced law for over 25 years and that was kind of the core of what I knew. It was a little bit scary to do that, but when I thought about what interested me and what I wanted to do, I kept thinking back to my mother’s experience. My mother had been an immigrant born in Eastern Europe who came to the United States speaking no English at age 13. And I thought, okay, well, it’s a little bit scary for me to leave my secure job as a partner in a very successful law firm in Los Angeles and start a business, but probably not nearly as scary as being an immigrant, coming to a strange country and not speaking the language and having no resources. So, you know, that’s, that was kind of my reference point. My mother was my reference point. So when I started my business, I called it The New Ellis Group, Ellis being a reference to my mother’s experience, being an immigrant at Ellis Island.

Z: What a great inspiration for the name. Now I have to ask you this. What did your mother think when she found out you were going to be the plaintiff in Kaplowitz v. University of Chicago?

K: I’ll tell you what my mother thought when I left O’Melveny and Myers and started my own law firm.  I don’t remember what she said about my lawsuit, but I do remember what she said about my leaving a secure job and starting my little law firm. She said, “are you crazy? Are you crazy? You went to the University of Chicago Law School, you have this fabulous job in a big law firm. And, you know, you get a paycheck.” I mean, you know, the paycheck in those days was probably $15,000 a year, but you know, that was a lot of money in the early seventies. And my mother was literally horrified, but she assured me that no matter what happened, she would always be there to support me.

Z: Well, that’s great. And that reminds me, what did the bank tell you when you went to get a loan to start your law firm?

K: Ah, yes. Well, so I had banked for the three years I was at O’Melveny and Myers at a bank called Security Pacific National Bank, which was later acquired by Bank of America.  I’d been a loyal and, you know, creditworthy customer of Security Pacific for three years. And when we started our women-owned law firm in 1974, we decided we needed a line of credit. So I went to my bank, Security Pacific, and I said, may I please have a line of credit? I don’t even remember if it was for $10,000 or $20,000, whatever it was, it was a modest sum of money. And they said, of course, we are happy to provide you with a line of credit, provided that you deposit an amount equal to the line of credit in the bank and do not touch it during the term of the line of credit. And I said, if I had whatever the amount was, $10,000 or $20,000, to deposit in your bank account, I wouldn’t need a line of credit. That would be enough for me. I need a line of credit because I don’t have $10,000 or $20,000 just lying around. They turned us down.

Z: But you started anyway.

K: We did start anyway.

Z: Good for you. Well, when I first heard the story about your lawsuit back when you were a law student, you told me “being bold, never hurts.” What did you mean by that?

K: I meant that I’ve been lucky in my life that when I’ve done things that you might’ve thought were bold, like bringing a lawsuit against the Law School, or leaving a secure job and starting a women-owned law firm, or starting a new business doing business development, coaching, and strategy, I’ve been lucky that those things turned out well. I may have shared with you a story.  As a young lawyer, I was aggressive, all the time, and had a lot of agendas, especially in the women’s rights arena. And about 20 years into my law practice, I ran into a judge before whom I’d appeared as a young lawyer, who had gone on to the Court of Appeal by that time. He was a very well known judge and I met him at some bar event or a cocktail party. And I said, you know, I want to share with you that I’ve mellowed, since you knew me as a young lawyer out there fighting the good fight in your courtroom. I’ve really mellowed a lot. And I’ll never forget his response. He said, “I’m sorry to hear that.”

Z: That’s great.

K: Yeah. So, I’ve been lucky. I’ve been lucky that the things that I’ve been passionate about and have advocated for and worked hard to accomplish, haven’t hurt me. That’s the good news. As I look back on 50 years of practicing law and look at, you know, this time period marked on one end by, you know, riots in Grant Park in Chicago and marked at the other end, by January 6th, the riots at the US Capitol, you know, I am saddened that more has not changed in these intervening 50 years, and that we are again, fighting to preserve our democracy, our rule of law, and I’m glad that I’ve had a small part in being part of a profession whose core commitment is to preserving the Constitution, preserving the rule of law, and preserving our democratic institutions. So, that’s kind of how I look back on these 50 years.

The name of Karen’s consulting company was inspired by her mother

Z: Well, I think “small part” might be a little bit of an understatement. That is quite a career of accomplishment. So thank you for sharing some of those stories with me and with our audience. Before we wrap up, I just want to get back a little bit to your current consulting practice. I know that I’ve gotten so much great input from you on business development issues. What would you say makes your consulting approach different from some of the other coaches who are out there?

K: Thanks for asking. I would say that the one thing that I try hard to do in my coaching work is to help people figure out how to identify their best opportunities and how to integrate what they do in the realm of business development and marketing into their everyday work. So it’s not an add on, it’s not an extra burden, it’s part and parcel about how they go about their everyday opportunities. It’s a real privilege for me to have worked with literally hundreds of partners in law firms around the country to help them build their practices. And I’m glad to have run into you, and glad to have had the opportunity to work with you and your former law firm, and appreciate this opportunity to talk to you about work, law, and life in 2021.

Z: Well, I was so happy to do it, and if you are a lawyer looking for coaching, I highly recommend Karen. And if you’re not ready to take that leap, at least check out Karen’s newsletter, which is called what?

K: Monday Monday.

Z: Monday Monday, a great song and a great newsletter. It comes out usually once every two weeks?

K: Every two weeks. Right. People can go to my website, newellis.com, and they can sign up.

Z: And I recommend people do that. It’s concise, it’s fresh, it’s right to the point. It’s worth a few minutes, every two weeks to check it out, if you’re a lawyer who cares about business development. Okay. Thank you, Karen!

K: Thank you so much.

_______________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

Disclaimer: Every case is different. Suing your elite law school in federal court may not achieve similar results.

When is a contract “unconscionable” under Texas law?

When is a contract “unconscionable” under Texas law?

When electric bills hit mailboxes next month, many Texans may wonder, does the law allow a consumer to get out of a contract if the result of enforcing the contract terms turns out to be really unfair?

The short answer is no.

But what if the result of the contract is really, really, really unfair?

Then the short answer is maybe. In that case the contract might be considered “unconscionable,” and therefore unenforceable.

Texas law recognizes the common-law defense of unconscionability, at least in theory. But how does Texas law define “unconscionable,” how do Texas courts apply that definition in practice, and how should they apply it?

Before we get to those questions, let’s set the goalposts.

On one end, everyone agrees, in principle, that you can’t get out of a contract just because the result turns out to be unfair.

Suppose I sign a contract with Bob the plumber to do some work on my historic Houston home for $2,000. I need the work done in two weeks because an inspector is coming. But in the meantime, a freak winter storm hits Texas, causing rates for plumbers to skyrocket. Bob could make $10,000 on other jobs instead of doing my job.

Sorry, Bob, you’re out of luck. It may be unfair to hold you to the contract, but it’s inherent in a contract that the parties take on the risk that the market rate could change. The shift in the market doesn’t make my contract unconscionable.

Several policies support this conclusion. First, freedom of contract. See Besteman v. Pitcock, 272 S.W.3d 777, 787-88 (Tex. App.—Texarkana 2008, no pet.) (“The high threshold a party must meet in proving unconscionability is based on a strong policy favoring the freedom of contract”).

My first scientific survey

Of course, there are some kinds of contracts people are not free to make: gambling, prostitution, selling illegal drugs, to name the usual suspects. But generally, private parties are free to agree on the terms of their contract, and courts aren’t going to second-guess whether those terms are “fair.” People who like economics and “free markets” really like this rationale.

A second, related reason for enforcing even unfair contracts is the principle that people should honor their agreements. Of course, this principle has deep roots in Judeo-Christian morality—it’s no accident that Anglo-American contract law uses the word “covenant”—and not only that, I would bet this principle is found among virtually every faith and culture.

There’s a third, less obvious, reason the law generally doesn’t like to get into whether a contract is fair or not. We could call this the “capability problem” or maybe “judicial economy.” If we allow people to get out of contracts just because they’re unfair, then the courts will be constantly clogged with such disputes, and it’s hard to decide what’s fair. Let’s call this the “pragmatic” rationale for not second-guessing contract terms.

Ok, so there are strong reasons for the principle that you can’t get out of a contract just because it’s unfair. But now let’s go to the other end of the football field.

Everyone agrees, in principle, that a contract term can be so grossly unfair that the law refuses to enforce it. The “pound of flesh” contract from The Merchant of Venice would fail today for this reason.

But even when the unfairness is purely economic, almost everyone agrees that there is some limit to how unfair a contract can be.

Let’s say I’m late to see the musical Memphis at the Hobby Center in Houston, and I can’t find a parking spot. I pull into a downtown parking garage and the attendant hands me a clipboard with a pre-printed parking agreement to sign. I’m in a hurry so I quickly skim through it, it seems fine, and I sign.

Assume I’m an educated, intelligent person—maybe I even have a law degree!—and  that there’s no disparity in “bargaining power” between me and the parking attendant. I’m free to say “no thanks, I’ll park somewhere else.”

After the show I hang around the stage door trying to get an autograph, and when I finally get back to the garage I find my car has been towed. It turns out the contract has a clause stating that if I’m late removing my car, the building owner can keep it as a late fee. Assume the clause is “conspicuous,” and that if I had read the contract more carefully I would have seen it.

Now, there may be some of you who say tough luck, counselor, a deal’s a deal. Cf. Allright, Inc. v. Elledge, 515 S.W.2d 266, 268 (Tex. 1974) ($100 limit of liability in month-to-month parking agreement was not void as against public policy).

But some of you also prefer Pepsi to Coke. I’m guessing that the vast majority of you would say no way, that clause is just too unfair. It’s so grossly one-sided that it should not be enforced.

In a word, it’s unconscionable.

The policy behind this unconscionability defense is perhaps a little harder to identify, but in short, it’s fairness. At some point, almost everyone agrees the policies favoring enforcement of unfair contract terms—freedom of contract, honoring one’s agreements, judicial economy—must yield when enforcement would be so grossly unfair.

But where is that point? How do we draw the line between a contract term that is merely unfair and one that is so one-sided that it should not be enforced? 

That’s the hard question. Let’s look at how Texas courts have tried to answer it.

Black letter law on unconscionability

Unconscionability is largely a “common law” defense, meaning law made by judges. (Article 2 of the UCC, Texas Business and Commerce Code Chapter 2, allows a court to refuse to enforce an “unconscionable” contract for the sale of goods, and the Texas Deceptive Trade Practices Act prohibits “unconscionable” consumer transactions, but the concept originated in common-law court decisions.) So let’s start with the case law.

Here are the general principles of unconscionability we can derive from the Texas cases:

  • A contract is unenforceable if, “given the parties’ general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract.” In re Poly-America, L.P., 262 S.W.3d 337, 348 (Tex. 2008).
  • “Unconscionability is to be determined in light of a variety of factors, which aim to prevent oppression and unfair surprise; in general, a contract will be found unconscionable if it is grossly one-sided.” Id.
  • “Unconscionability must be determined on a case-by-case basis in light of a variety of factors.” Besteman v. Pitcock, 272 S.W.3d 777, 787-88 (Tex. App.—Texarkana 2008, no pet.).
  • Unconscionability has “no precise legal definition.” Id.
  • An unconscionable contract is “basically” one that is “grossly one-sided.” Id. at 789.
  • A “disparity in bargaining power” can result in oppression or unreasonableness that is labeled “unconscionable.” Id.
  • A contract is not unconscionable “simply because it is foolish for one party and very advantageous to the other.” Instead, “a term is substantively unreasonable where the inequity of the term is so extreme as to shock the conscience.” Id. (quoting Anaheim Indus. v. GMC, No. 01-06-00440-CV, 2007 WL 4554213, at *9 (Tex. App.—Houston [1st Dist.] Dec. 20, 2007, pet. denied)).  
  • Texas courts sometimes distinguish between “procedural” unconscionability, which addresses “how did the parties arrive at the terms in controversy,” and “substantive” unconscionability, which asks “are there legitimate commercial reasons justifying the terms of the contract.” Ski River Development, Inc. v. McCalla, 167 S.W.3d 121, 136 (Tex. App.—Waco 2005, pet. denied).
  • “In other words, in deciding the fairness of a contract’s substantive terms, the court must also consider whether there were ‘procedural abuses,’ such as an unfair bargaining position between the parties at the time the agreement was made.” Id.
  • The party asserting unconscionability has the burden to prove both procedural and substantive unconscionability. Id
  • Factors in determining unconscionability include: the “entire atmosphere” in which the agreement was made, the alternatives available to the parties at the time, the “non-bargaining ability” of one party, whether the contract is “oppressive” or “unreasonable,” any “gross disparity in the values exchanged,” and any “gross inequality of bargaining power.” Id., citing Restatement (Second) of Contracts § 208.
  • The grounds for both procedural and substantive unconscionability must be “shocking.” Id.

So there you have it. Now you know how to determine if a contract is unconscionable or not.

Just kidding. No, of course you don’t. These are just general principles. They tell you almost nothing about how Texas courts actually decide whether any particular contract term is unconscionable. In other words, these generalities don’t help you predict whether a particular contract clause would be found unconscionable.

This is why law schools typically use the “case method.” In olden times, law school students primarily read “hornbooks” that summarized general principles of law derived from years and years of cases. But then someone figured out it was more instructive to read the key cases themselves, so students can see how courts apply the principles to specific facts.

But I digress. The question is how Texas courts have applied these principles of unconscionability.

In a perfect world, I would read hundreds of Texas cases before daring to hazard an answer, but I’m a blogger, not a law school professor, so I’ll just tell you the answer based on a sample. 

How Texas courts have applied the unconscionability defense

From dipping my toe in the Texas unconscionability waters, I can share a couple observations.

First, the vast majority of Texas cases that address the defense of unconscionability hold that the facts did not support the defense. If you research the issue, you’re going to read case after case where the court says sorry, this doesn’t rise to the level of unconscionability.

Second, it is hard to find any recent Texas Supreme Court case that found a contract unconscionable—outside of two very specific arenas.

One is arbitration agreements. See, e.g., In re Poly-America, L.P., 262 S.W.3d at 353. A lot of the cases addressing unconscionability are arbitration cases. Arbitration agreements are a special animal, so I’m just going to set this category aside.

The other category where the Texas Supreme Court has found a contract unconscionable in recent years is attorney fee agreements. See, e.g., Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 563 (Tex. 2006). Attorney fee agreements are also a special animal, because lawyers have ethical duties to clients that just don’t apply in an ordinary commercial or consumer setting. So let’s set those aside as well.

Outside of those two categories, you’re not going to find many Texas Supreme Court cases in the last 30 years finding contracts unconscionable—if any.

My second scientific survey

You can find some cases from the intermediate Texas Courts of Appeals holding that a contract term was unconscionable.

For example, in Ski River Development v. McCalla, the facts were like a scheme cooked up by Boss Hogg on The Dukes of Hazard. The Bakers were living in a trailer home heated by a stove. Deep in debt and desperate for money, they signed a 99-year lease of their land with the Davises. (Hmm, Jefferson Davis Hogg?) The lease provided for the Davises to pay the Bakers $3,000 per month for only 12 ½ years, and only $75 per month after that, while the Bakers agreed to pay the real estate taxes for the entire time. 167 S.W.3d at 137-39.

Those were just some of the facts, but you get the picture. The court said the evidence established “unfair bargaining positions, unfair terms, gross disparity in the value exchanged, no substantial benefit to the Bakers, shocking circumstances of the procurement of the lease, and shocking/gross lease terms.” Id. at 139.

Outside of extreme hard luck stories like that, most Texas appellate opinions that consider the defense find that the contract term at issue was not unconscionable. See, e.g., Besteman v. Pitcock, 272 S.W.3d at 789-90 (enforcement of written-notice provision of lease would not be unconscionable).

In short, Texas courts have set the bar extremely high for the common law defense of unconscionability.

Too high, in my opinion.

Is the common law bar too high?

For one thing, there seems to be too much focus on bargaining power. You can almost always say the party complaining about the unfairness of the contract terms had the right to just walk away. “Nobody put a gun to your head,” is the typical refrain.

That kind of argument confuses duress and unconscionability. Duress is already a contract defense. When we ask whether a contract is unconscionable, we’re already assuming the parties freely entered into the contract.

And while a gross disparity in bargaining power is an important factor, it’s not the only factor. In my view, unconscionability is also about the reasonable expectations of the parties based on the practical social context in which the contract is made—especially for consumer contracts.

Consider my hypothetical parking garage contract. There was no gross disparity in bargaining power, and I could have read the contract. Despite those factors not favoring unconscionability, two other factors made that agreement clearly unconscionable.

First, the forfeiture clause was way out of line with what a reasonable person would customarily expect a parking garage agreement to say. In other words, “unfair surprise.” In re Poly-America, L.P., 262 S.W.3d at 348.

Second, even if I could have avoided that surprise by reading the contract, there would still be a “gross disparity in the values exchanged.” Ski River Development, 167 S.W.3d at 136. Requiring me to forfeit an entire car for being five minutes late is just grossly out of proportion with the value of what the garage agreed to provide to me. In principle, it’s not that different from slipping in a clause saying “and I agree to pay building owner A MILLION DOLLARS!”

Keep in mind, I’m talking consumer contracts, not so much commercial contracts negotiated between two businesses. In most consumer settings, especially increasingly prevalent “click-wrap” agreements, the reality is that people just don’t read those agreements. The common law defense of unconscionability doesn’t seem to be keeping up with that reality.

Perhaps a legislative solution is needed. Or maybe . . . there already is one.

DTPA unconscionability to the rescue?

Remember when I mentioned the DTPA? That’s what we call the Texas Deceptive Trade Practices—Consumer Protection Act. Well, the DTPA generally prohibits an “unconscionable” action or course of action. And guess what. The DTPA definition of “unconscionable” is not the same as the common law definition.

(The DTPA’s “laundry list” of prohibited deceptive practices includes taking advantage of a disaster declared by the Governor or President by selling fuel or another necessity at an “exorbitant or excessive price,” Tex. Bus. & Com. Code § 17.46(b), but this post is about unconscionability, so let’s set that aside.)

The DTPA defines “unconscionable” as: “an act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.” Tex. Bus. & Com. Code § 17.45(5).[1]

In short, taking advantage of a consumer to a grossly unfair degree. That sounds pretty broad. Maybe DTPA unconscionability is better for consumers than common law unconscionability.

But don’t get too excited. As with common law unconscionability, Texas courts have set the bar high for DTPA unconscionability. The resulting unfairness must be “glaringly noticeable, flagrant, complete and unmitigated,” Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 677 (Tex. 1998), even though those words do not appear in the statutory definition. And when you look for cases applying DTPA unconscionability, it seems like most of the cases find that the facts did not support the theory.

My final scientific survey

Still, the bar for DTPA unconscionability is not insurmountable. There are cases holding that there was sufficient evidence to support a finding that the act or practice was unconscionable.

For example:

  • In Rice v. Metropolitan Life Insurance Co., 324 S.W.3d 660, 677-78 (Tex. App.—Fort Worth 2010,  no pet.), evidence that the insurance company represented that the policyholder had coverage and left plaintiffs with no opportunity to obtain coverage was sufficient to raise a fact issue on a claim for unconscionability under the DTPA.
  • In Century 21 Real Estate Corp., 890 S.W.2d 118, 127-28 (Tex. App.—Texarkana 1994, writ denied), the franchisors committed an unconscionable act under the DTPA by placing a second franchise in the franchisee’s area.
  • In Fort Worth Mortgage Corp. v. Abercrombie, 835 S.W.2d 262, 266 (Tex. App.—Houston [14th Dist.] 1992, no writ), it was unconscionable to cancel a mortgage protection policy and to substitute a policy with significantly reduced benefits.
  • In Franks v. Associated Air Center, Inc., 663 F.2d 583, 593 (5th Cir. 1981), the court held that an aircraft repair company’s charges for 80-113 hours of repair work were “grossly disparate” to the value the plaintiff received, considering another mechanic later fixed the same problem in one hour.

So, it is possible to prove unconscionability under the DTPA. Does that mean we will now see a wave of DTPA suits filed by Texas consumers who receive exorbitant electric bills they never would have expected?

I sure hope so.

_______________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm. Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020 and 2021.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.


[1] Before September 1, 1995, the DTPA’s definition also included an act or practice that “results in a gross disparity between the value received and consideration paid.” Although this “gross disparity” is no longer part of the statutory definition, it may still be evidence of unconscionability under the current definition. Ketter v. ESC Med. Sys., Inc., 169 S.W.3d 791, 800 n.6 (Tex. App.—Dallas 2005, no pet.).