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 August 2010 | October 2010 | February 2011 | April 2011

The Morton Memo - JUNE 2011 

This issue concentrates on the use and protection of intellectual property and Internet legal issues.  eCommerce and Internet law are fascinating and constantly changing. Lately, much of our time has been spent on contracts, terms and conditions and privacy policies for companies selling goods online.  
The first article concerns the protection of trade secrets and the power of copyright law.  The second regards domain names and trademark registrations.  The third discusses the legal view of the use of social media by businesses. 
The Morton Memo is for you, so kindly email me those topics of interest to you.

>> Stolen notebooks = $23 Millon Judgment  

>> Domain plus trademark registration = big $$$

>> Social media can get you sued

stolen notebooks = $23 million judgement

Woman with binders

An employee quit his job and took a couple of binders of documents with him to his new job at a competing company.  This is a very common scenario; employees taking information or unique content with them when they leave a job.  They think that no one will know or care. 

 However, the outcome proved disastrous for the employee and his new employer.  More than 10 years later, the employee and his new employer were hit with a judgment of more than $23 million dollars for copyright infringement. 

 I tell my clients that copyright law is very strong and can provide powerful remedies for the owners of copyrights.  A recently published Federal case illustrates the strength of the U.S. Copyright Act and why one shouldn't steal documents or use misappropriated documents from another company.

 In William A. Graham Co. v. Haughy, a Federal appellate court upheld an award of damages of more than $19 million and more than $4.6 million in pre-judgment interest for copyright infringement.   The infringement in this case was for the theft and use of two binders of documents that had been prepared by the plaintiff in the case - an insurance brokerage.  The binders were used by the plaintiff's agents to sell insurance products. 

 An employee left the plaintiff's employment and took with him copies of the documents in the binders.  He gave the documents to his new employer, a competing insurance brokerage.  The new employer gave copies of the documents to its agents and used them for more than a decade before the plaintiff discovered the theft and use. 

 The plaintiff sued the competing company and its former employer.  Although there is a statute of limitations for copyright infringement, it does start to run until the copyright owner discovers, or should have discovered, the infringement.  The plaintiff sought profits earned by the defendants that were attributable to the use of the documents in selling insurance products.  This is a form of infringement called indirect infringement.  The plaintiff wasn't seeking damages for the value of the documents themselves but the profits that were attributable to their use.

 A jury found that the documents helped the defendants to attain tens of millions of dollars in profits in selling insurance.  The jury found that the portion of those profits attributable to the use of the documents was more than $19 million and added pre-judgment interest of $4.6 million.

 The lessons:  register your copyrights for all the documents, art and content that you create, and don't steal or use stolen property!

If you have any questions about copyright law, please contact us at or (760) 722-6582.

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                                                                                                     domain plus trademark registration = big $$$

Mouse with cloudSpeaking of big payoffs.  A client was recently contacted by a major corporation.  The corporation wanted to purchase a domain name that my client owned. After considerable negotiation, the client sold the domain for a seven figure sum.  The major corporation was commencing a major campaign and needed that domain.

My client had been using a tradename associated with the domain for more than three years.  The tradename was a phrase used in conjunction with my client's main trademark.  Even though it was not the main trademark, my client registered the tradename with the U.S. Patent and Trademark Office.

Although my client was not using the domain name, the client was using the registered tradename.  The major corporation apparently developed its major campaign around this phrase.  Since my client was using the tradename and had a registered the tradename, the big company had no choice but to pay substantial money to buy the domain (and the tradename with registration.

The lessons here are:

1. Buy domains.  If you are using a name to sell goods or services, buy the domains associated with it even if you don't use the domain.  Many companies will take advantage of a successful tradename by buying the domains associated with it and holding them hostage.  In my client's case, the major corporation did not do its homework and research the availability of the domain before developing its campaign.

2.  Register your trademarks/names.  If you are using name or logo as a brand or as a tagline associated with your brand, get a trademark registeration.  Even you do not do business outside the state, you can obtain a state registration which will protect you and strengthen your rights.  Plus, if you own a domain associated with the registered tradename, you have a strong right to keep ownership of the domain even if you don't use it.

If you have any questions about trademark law, please contact us at or (760) 722-6582.

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social media can get you sued

Finger touching like

Advertising laws are now being applied to social media. Any business with a Facebook account or is on Twitter must understand that those means of communication have legal consequences and must develop a social media policy for employees.

 I recently attended a great seminar that was sponsored by the Intellectual Property Section of the California State Bar regarding advertising law. Among the topics covered was social media as used by businesses.

 The Federal Trade Commission and the courts have held that advertising and unfair competition laws apply to the use of social media by businesses. Furthermore, CAN-SPAM, the Federal anti-spam email law also applies.

 Facebook has sued several business entities that spammed Facebook users. The courts held that Facebook had standing to use as an ISP under CAN-SPAM and that CAN-SPAM applied to communications on Facebook.

 The FTC recently sued a plastic surgery clinic in Florida for unfair competition. The clinic used various types of social media, including blogs, to create an Internet buzz. Employees provided comments on Facebook and fake customers reviews, among other things.

 The FTC sued on the basis that such practices were deceptive advertising. If an employee "Likes" his/her employer's Facebook page and provides favorable comments, and does not reveal that the he/she is an employee, then that is the same as writing a false customer testimonial. The business is liable under false advertising and unfair competition laws.

Furthermore, a company can be held strictly liable for the actions of its employees, even without knowledge of their actions.  For instance, one day, your manager decides to create a Facebook page for your company.  In a few hours, the page is created and your employees all go online to "Like" the company's page and write derogatory and false comments about a competing company.  Your company is liable for false advertsing and trade defamation even if you don't know about the employee's actions.  It can happen that fast and has happened to businesses, including major corporations.

 Lessons and call to action:

1.  Remember that social media in the commerical world has the same consequences as any other form of advertising.

2.  Any business that might get into any form of social media must have a social media policy that takes these legal issues into account.

For more information about developing an social media policy for your company, please contact us at or (760) 722-6582.


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