The Austin Under 40 Awards is a great local group that, in addition to raising money for local charities, nominates and awards certain Austinites that exemplify commitment to leadership in business and social awareness. The nominations period just ended, and we are proud to have our partner Stuart Hiserodt as co-chair of the nominations. Here he is discussing it on KVUE:
For some reason, the Texas Bar Journal asked me which blogs I read on a regular basis. I responded and lo and behold, they published it. I should warn those blogs to stand up an additional server or two to handle the additional traffic this will generate.
Let me stipulate on at the outset that this is not very sexy. Most normal people don't care about the
arcane distinction that we try to make in this post. However, most attorneys (by definition, not normal people) that write a lot of contracts and technology providers that sign a lot of contracts could find the distinction valuable.
The following is a common provision in the boilerplate of technology (and indeed, most) contracts:
"Neither party will be liable hereunder for penalties or for special, indirect, consequential or incidental losses or damages, such as damages for lost profits, lost or damaged data, failure to achieve cost savings, loss of use of facility or equipment, or the failure or increased expense of operations, regardless of whether any such losses or damages are characterized as arising from breach of contract, breach of warranty, tort, strict liability or otherwise, even if a party is advised of the possibility of such losses or damages, or if such losses or damages are foreseeable.
This provision flows from years of manipulation of contract language, which began with the case that all attorneys must read in the first few weeks of their Contracts course in law school: the famed Hadley v. Baxendale, 9 Exch. 341, 9 Ex. 341, 156 Eng. Rep. 145 - Court of Appeals, 1854. In that case the defendant failed to deliver a broken crank shaft to the repairman on time, so the repair man was late in getting the new crank shaft to the plaintiff and consequently, the plaintiff couldn't get his flour mill on line and sued for loss of profits for the down time. The 1854 court held that this type of damage was not readily foreseeable, was consequential (i.e. not a direct result of the breach) and therefore, speculative and non-recoverable in this instance.
So, are all lost profits non-recoverable? No, particularly when they are part of the thing the plaintiff had bargained for in the contract. Case in point is the 2007 case of Tractebel Energy Marketing v. AEP Power. As part of a highly complicated case with many issues, Tractebel sought to avoid paying AEP for the profits that it would have made had Tractebel fulfilled its commitment under a contract to purchase a minimum amount of power from AEP. The Court described consequential damages thusly:
"Lost profits are consequential damages when, as a result of the breach, the non-breaching party suffers loss of profits on collateral business arrangements. In the typical case, the ability of the non-breaching party to operate his business, and thereby generate profits on collateral transactions, is contingent on the performance of the primary contract. When the breaching party does not perform, the non-breaching party's business is in some way hindered, and the profits from potential collateral exchanges are 'lost'."
The Court then distinguished the lost profits in the Tractebel case by saying:
"By contrast, when the non-breaching party seeks only to recover money that the breaching party agreed to pay under the contract, the damages sought are general damages. *** But, in this case, the lost profits are the direct and probable consequence of the breach.The profits are precisely what the non-breaching party bargained for, and only an award of damages equal to lost profits will put the non-breaching party in the same position he would have occupied had the contract been performed. ***
AEP seeks only what it bargained for—the amount it would have profited on the payments TEMI promised to make for the remaining years of the contract. This is most certainly a claim for general damages."
Therefore, lost profits in this instance are general damages and recoverable. We have often thought that the general contract language excluding recovery for lost profits could potentially put the vendor in danger of having a defaulting purchaser say that they couldn't recover the entire contract price because part of it would obviously be profits that they lost. That probably wouldn't happen under the ruling in the Tractebel case but leaving that to the whim of the court is not good practice. For that reason, we try to add "amounts payable under this Agreement" to the usual litany (indemnity, breach of confidentiality, etc.) of things that are excepted from the limitation of liability to make it abundantly clear that these are recoverable.
OK, we'll try to make the next post sexier.
Here's the situation: You establish a Twitter, Facebook, LinkedIn, etc. account while you are 
employed and use the account to tweet, post, blog, etc. about your employer. Then your employer falls out of love with you and you are no longer employed. Who owns your followers on Twitter or your Facebook or LinkedIn account? That's a really good question and one that the courts are dealing with right now.
Rich Sanchez was an anchor on CNN and has a Twitter account with the handle: "richsanchezcnn". Rich was rendered unemployed because of some ill advised statements he made. So, does CNN own the account or was Rich popular with the Twitter followers because of his good looks and sex appeal or because he was on CNN? Should he have to change his handle? This was settled out of sight, so we don't know what happened there.
On another front, a company called PhoneDog LLC filed a suit against former employee Noah Kravitz. Noah tweeted while an employee of PhoneDog under the name "PhoneDog_Noah" but 
then changed it to "noahkravitz" after the break up. PhoneDog alleges that Noah's 17,000 followers are worth $2.50 per month for 8 months and are asking for a $340,000 judgment against our friend Noah. PhoneDog has, for the moment, survived a motion for summary judgment with the judge finding enough question of fact about "trade secrets" in the account to let the case go on for a little longer.
Then there's the strange case of Dr. Linda Eagle, who was one of the original founders of Sawabeh Information Services. As is the case sometimes, all the founders were fired and Sawabeh alleges that it owns Dr. Eagle's LinkedIn account and that she has somehow "misappropriated" her own account. As you know, most LinkedIn accounts (as was Dr. Eagle's) are in the employee's name alone and refers to the company in the employment history and in the connections established.
We have explored the issues of who owns clients of an LLC and whether a toxic ex-spouse might 
have some rights in a patent in a community property state, but this is an area of the law that is developing.
In most instances, this is probably not a huge issue but employers who want to have control over these accounts (and the wisdom of this should be evaluated thoroughly), should provide guidelines in the social media section of their employment rules. If stated clearly, there seems to be no reason why the employer would not be entitled to control and ownership of such accounts if they fall into the parameters set out in such policy. Otherwise, it's pretty gray.
Here is a couple of technology law related things that happened this week and they are only marginally connected.
1. Facebook sued a site called Faceporn in a federal court in California. They are aggressive about this. See here and here. Faceporn is in Norway but uses a .com website. They also have 250 users in California and 1000 users in the U.S. Faceporm failed to file an answer and 
Facebook moved for default judgment. The Court denied the motion, finding that it did not have personal jurisdiction over Faceporn in that personal jurisdiction requires more than "simply registering someone else's trademark as a domain name and posting a web site on the internet". Hence, no default judgment.
2. In a recent case in Massachusetts involving the claim of copyright infringement for an adult film, the judge wondered aloud in a Footnote 2 whether there was actually any copyright protection available for a pornographic product. A couple of cases had refused to provide such protection (beginning in the early days of Broadway, see Martinetti v. Maquire, 1867) but basically on the grounds that scant dialog and nude women were not a dramatic composition and therefore not entitled to copyright protection. A 1979 case allowed for such protection because found that the concept of decency and pornography is constantly changing and "denying copyright protection to works adjudged obscene by the standards of one era would frequently result in lack of copyright protection (and thus lack of financial incentive to create) for works that later generations might consider to be not only non-obscene but even of great literary merit". It seems incongruous that porn is not entitled to any copyright protection but cases as late as 1998 found that hard core porn that was "bereft of any plot and with very little dialog" was not entitled to injunctive relief against copyright infringement.
So, lack of personal jurisdiction just because you have a .com domain and a question raised about copyright protection for pornography. How do these affect technology and law? Well, the internet issue for personal jurisdiction will continue to develop over the years, copyright issues for any medium is a hot item in technology protection and any mention of porn lights up the search engines and gets us more readers. Reasons enough?
Suppose you are hard at work doing your lawyer stuff one day and you get this e-mail:
"Greetings Counsel:
I need your legal assistance. I provided a friend of mine Mr Philip Anderson a business loan in the amount of $350,000. He needed this loan to complete an ongoing project he was handling in 2009. Mr Anderson is well based in your city and the loan was for 24 months and interest rate of 7.85%. The capital and interest were supposed to be paid on April 15th, 2011 but Mr Anderson has only paid $50,000.
Please let me know if this falls within the scope of your practice so that I can provide you with the loan documents and any further information you need to know.
Thanks,
John .F.Chao"
You think "Whoopee! New business. Just what I need." At least that's what I thought today, when I got this very e-mail.
You should wait a minute. It's a scam. See here for a description. Apparently, this has been circulating for some time.
Here's how it works, courtesy of AvoidAClaim Blog:
"In this type of scam a lawyer is contacted to help an overseas lender collect on a business debt from a purported borrower in the lawyer’s jurisdiction. The fraudster will provide documentation about the loan. A retainer agreement will be signed, but the fraudster will delay in paying the retainer fee. Instead, the lawyer will be asked to deduct any fees from the debt payment.
When the lawyer has sent a demand letter (or sometimes, before any letter has been sent) a cheque will arrive. The lawyer will be asked to deposit the cheque in the trust account and wire the balance (after fees are deducted) to an overseas account. Of course, the cheque is fraudulent and the lawyer will be left with a shortfall in the trust account."
And then, sure enough, something that sounded too good to be true, was.
StartUp America is an initiative started in the White House in early 2011 to provide for the creation of .jpg)
resources around the country to facilitate in the creation and fostering of small companies. The Austin version of that launched yesterday as the seventh one of this variety in the U.S. Its website is here and it promises to provide much good information and valuable resources.
Give it a look.
Hard on the heels of the Doe v. SEC case discussed in the immediately preceding post, 
another case where anonymity is sought comes through the Northern District of California. In Art of Living Foundation v. Does 1 - 10, the plaintiff seeks the identity of one of the defendants in an action for copyright infringement, among other things.
The plaintiff is an international foundation that teaches the philosophy of Ravi Shankar, the spiritual leader, not to be confused with famed sitarist, Beatles confidant and Norah Jones' father of the same name.
One of the defendants goes by the online pseudonym of Skywalker and has been critical of the teachings of the Art of Living Foundation. In addition, Skywalker put one of the manuals used by the Foundation online. The Foundation sued Skywalker and others for defamation, copyright infringement, trade libel and misappropriation of trade secrets. The Foundation moved for a subpoena to Skywalker's blog host seeking Skywalker's identity. Skywalker, anonymously, through an attorney, moved to quash. The magistrate allowed the subpoena and Skywalker brings this appeal.
The magistrate applied the standard of Sony Music Entertainment Inc. v. Does 1 - 40, 326 F. Supp. 2d 556 (S.D.N.Y., 2004) and found that Plaintiff had alleged a prima facie case of copyright infringement due to the online publishing of the manual, the subpoenas were targeted to obtain information to identify the defendant, Plaintiff had no other means to identify Skywalker, without such identity, it would be prohibitively expensive to conduct discovery and even if Skywalker had engaged in protected speech, he had no expectation of privacy because "the First Amendment does not shield copyright infringement".
On appeal, Skywalker alleged that because his speech concerned a matter of public interest, the Court should apply the more rigorous standard used by Highfields Capital Management L.P. v. Doe, 385 F. Supp. 2d 969, 975-76 (N.D. Cal. 2005).
The Court of Appeals stated that the more rigorous standard in the Highfields case required (in addition to the factors considered by the magistrate) that the court balance "the magnitude of the harms that would be caused to the competing interests" by their ruling. The Court held that because of the nature of Skywalker's speech (i.e. more political, religious or literary rather than commercial), the Highfields approach balances the parties' interests better than the Sony approach. The Court also found that evidence of copyright infringement does not automatically remove the speech at issue from the scope of the First Amendment.
The Court found that, to the extent that Skywalker's anonymity facilitates free speech, the mere disclosure of his identity is itself an irreparable harm and that the plaintiff can continue its case, in view of the fact that Skywalker has been participating in the case through his attorney. The Court quashed the subpoena.
It is possible that the Court would have reached a different result if Skywalker had not removed the manual from his blog because of a DMCA take down notice or if Skywalker had not been actively involved in the lawsuit. In any event, Skywalker remains anonymous for a while.
The Securities and Exchange Commission thought that a particular individual was engaged in a 
"pump and dump" scheme, which is where bloggers, commentators, anonymous "experts" or others tout a small cap stock on line in forums, chat rooms, etc. and often with false or deceptive material and then when the price gets a bump as a result, the persons doing the touting sell the stock for a profit.
The SEC wanted the identity of the person behind jeffreyhooke@gmail.com and subpoenaed Google to get the information. Google notified the person and the person (using the clever pseudonym "John Doe") moved to quash the subpoena. The lower court denied the motion to quash and Mr. Doe appealed.
The Court found that Mr. Doe had made a prima facie showing that his First Amendment right of free speech was implicated and therefore, the burden shifts to the government to show: (i) the information sought was rationally related to a compelling governmental interest and (ii) the disclosure requirements are the least restrictive means of obtaining the desired information. The Court found that the government's interest in disclosure (being ancillary to a fraud investigation) trumped Mr. Doe's private interest in anonymity and that the information requested was the least restrictive means available.
Mr. Doe argued that the standard in Anonymous Online Speakers should be applied here instead of the Brock standard. The Court held that in Anonymous Online Speakers, there was no government interest at issue (i.e. it was between private parties) as there was in Brock and therefore the Brock standard should be applied, i.e. the government did not have to present evidence sufficient to overcome a summary judgment.
The Court overruled the motion to quash and John Doe is anonymous no more.
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