It Meant What It Says and It Said What It Meant, A Contract Must Be Enforced 100%. The "Plain Meaning Rule" in Contract Construction.

With apologies to Horton and Dr. Seuss, we embark on a discussion of how attorneys must be extremely careful to articulate all the aspects of a deal in an agreement and not depend on a court to bail them out by adding other elements even if the parties thought they had agreed on these elements but failed to include them in the agreement.

A recent case in New Jersey shines a bright light on this situation.  In Microbilt Corporation v. L2C, Inc., Superior Court of New Jersey, No. A-3141-09T3, Decided August 23, 2011 the Court examined and applied the common law rule of contract construction referred to a the "plain meaning rule" or the "parole evidence rule".  In this case, Microbilt contracted with L2C for L2C to:  "...perform credit evaluations on suitable applicants, reach conclusions about the credit-worthiness of those applicants and quickly (as defined herein) return those conclusions to [MicroBilt]..."  The contract defined "conclusions" as "...a score, attributes or a combination of the two...".

L2C began to perform but Microbilt asserted that L2C must also provide Microbilt the underlying data used to calculate the credit scores.  L2C disagreed but agreed to contact the provider of the underlying data, a company called eFunds Corporation.   But lo and behold, eFunds and Microbilt had some history.  It seems that, in the near recent past, Microbilt had sued eFunds for breaching a contract to provide Microbilt some data (sound familiar?) and eFunds had counterclaimed asserting the Microbilt had breached the agreement by disseminating the data in violation of the agreement.  This conflict was ongoing.  So, in the spirit of spurned lovers everywhere, eFunds told L2C not to even think about giving the underlying data to Microbilt.

L2C told Microbilt about eFunds' reticence and Microbilt sued L2C for breach of contract alleging that "the [contract was] breached because L2C knew it needed to supply the supporting data".  The present situation was based on a motion by L2C to dismiss for failure to state a cause of action.  The Court said that such motions were evaluated on the same criteria as a motion for summary judgment.  The Court reasoned that:

1.  "The interpretation of a contract is ordinarily a legal question for the court and may be decided on summary judgment unless there is uncertainty, ambiguity or the need for parole evidence in aid of interpretation"..

2.  "When the terms of a contract are clear, it is the function of a court to enforce it as written and not to make a better contract for either of the parties."

3.  "Absent ambiguity, the intention of the parties is to be ascertained by the language of the contract." and

4.  "If the language is plain and capable of legal construction, the language alone must determine the agreement's force and effect."

The Court found that there was no ambiguity in that L2C had agreed only to provide a conclusion and that a conclusion was a score, an attribute or a combination of the two and did not involve the underlying data.  Microbilt conceded that the language was not ambiguous but said that "...the parties also understood that the underlying data was to be provided as well...".  Court said, that may be so but it doesn't matter.  If the language is unambiguous, parole evidence (i.e. evidence outside the language of the contract)  may not be introduced or considered by the court.  Hence, the dismissal of Microbilt's complaint for failure to state a cause of action was upheld.

The rule applied here is a common law rule of statutory construction and is followed by Texas courts.  See Baldwin v. New, 736 S.W.2d 148 (1987).

So, word to the wise.  If you agree to it, write it down. Don't be left waiting on an egg to hatch.

UPDATE: Supreme Court Allows Autodesk "License" Decision To Stand.

You will recall that we reported on a case styled Vernor v. Autodesk, which held that because of some "magic words", the distribution of used software was subject to a license and was not a sale and consequently, could be prevented by Autodesk.

Mr. Vernor (actually one or more of the multitude of entities that filed amicus briefs in the lower court, see here) sought an appeal to the U.S. Supreme Court but the Supremes denied cert on Oct. 3.  This means that the ruling stands in the Ninth Circuit (Washington, Oregon, California, Arizona, Nevada, Idaho and Montana) and if the proper words are used, the "first sale" doctrine doesn't apply.

Because this makes the operation of e-Bay and others more difficult, look for further developments.

Winklevoss Twins Not Particularly Enamored With Legal System, Lawyers nor Results.

We have chronicled the saga of the Winklevoss twins in these pages before (see here, here, here and here) and frankly, we're a little embarrassed we have spent so much time on this.  As you will remember, the twins succeeded beyond most mere mortals wildest expectations when they settled their claim against mighty Mark for a portion of Facebook now estimated to be worth more than 9 figures.  That definitely made them a member of the one percent.  They then decided that they had been scammed and tried a number of times to set the settlement aside.  As indicated in the posts described above, they have been singularly unsuccessful in that endeavor.

They engaged the firm of Quinn Emanuel to pursue the initial law suit against Facebook.  The arrangement with Quinn Emanuel provided for a contingency fee based on the amount ultimately recovered through suit or settlement.  They signed an engagement letter that they had reviewed by independent counsel.  After the settlement with Facebook, the twins decided not to pay Quinn Emanuel the $13 million in legal fees that Quinn Emanuel claimed under the engagement letter.  Quinn Emanuel instituted arbitration in accordance with the engagement letter.  The twins sought a court order enjoining the arbitration proceeding.  That was denied.  An arbitration panel awarded Quinn Emanuel the $13 million dollars.  The twins appealed again to the New York Supreme Court seeking to set aside the award because of the law firm's alleged malpractice.  Denied again.

The Winklevoss twins entered into a settlement that made them even wealthier than they already were.  They then decided that they didn't like what they had agreed to and have set out to avoid anything relating to that settlement.  They are zero for career in that category.  I wonder if the law firm representing them in the matter against Quinn Emanuel asked for up front payment.  They would be guilty of malpractice on their own behalf if they didn't.

EA Sports - Your Likeness is "In The Game"!

EA Sports is a video game maker that annually produces a game entitled NCAA Football.  Ryan Hart was a college football player that played for Rutgers.  EA Sports incorporated Mr. Hart's likeness into several versions of its video games, including matching his height, weight, home town, commonly worn arm band and helmet visor and other matters that pretty much matched Mr. Hart and his playing style at Rutgers.  Mr. Hart filed a complaint seeking class action status for himself and other college football players similarly situated.

EA Sports filed a motion for summary judgment, alleging that EA's first amendment rights trumped any of the claims that Mr. Hart had, including New Jersey's recognition of a common law right to prevent unauthorized, commercial appropriation of names and likenesses.

The Federal District Court of New Jersey granted EA's motion and dismissed the complaint.  In a long and detailed decision, the Court discussed several likeness cases including those involving Paris Hilton on a Hallmark card, Edgar Winters and his brother portrayed as giant worms in a comic book and the band No Doubt.

The Court relied on principles of copyright law and found that the defendant's use of the image was "transformative" and as such, was entitled to First Amendment protection that trumped any damages that the plaintiff had experienced.  The Court conceded that EA licensed likenesses of pro football players and licensed colors and logos of college teams from colleges and paid for those, but refused to pay for likenesses of college players.  They further conceded that this might seem "unfair" (You think?) but that the unfairness of the situation did not give rise to a different decision.

The Court found that a player of the video game could alter the player's likeness and playing attributes but that was not what was transformative.  The transformative feature was EA's creation of the mechanism by which the virtual player could be altered.

So, EA Sports incorporates Mr. Hart's unaltered image in the game but provides a mechanism to alter it, so First Amendment rights triumph.  "It's In The Game"

This Week In Intellectual Property Lessons: Butters' "What What", Iron Mike's Tattoo and Ali's Catch Phrase.

What do South Park's Butters parody of "What What (In The Butt)", Mike Tyson's facial tattoo and Muhammad Ali's catch phrase have in common?  They all serve to illustrate some aspect of intellectual property law.

As you know, South Park is a cartoon featuring a group of foul mouthed kids and in which, no subject is taboo or sacred.  A rapper named Samwell did a video that went viral called "What What (In The Butt)". (Warning: Not exactly safe for work) The central group of foul mouthed kids in South Park convinced  Butters to do a version of that video to see if it would also go viral.  It did.  Samwell sued, alleging copyright infringement.  The court in Brownmark Films, LLC, v. Comedy Partners, 2011 U.S. Dist. LEXIS 72684 (E.D. Wis. July 6, 2011)  using a method deemed "irregular" (court's own words), considered an affirmative defense as a basis for a motion to dismiss for failure to state a cause of action.  Usually, affirmative defenses are considered only after the plaintiff have proved they have a viable case.  The court then found that "The South Park “take” on the WWITB video is truly transformative, in that it takes the original work and uses parts of the video to not only poke fun at the original, but also to comment on a bizarre social trend, solidifying the work as a classic parody."  The court also found that that "...South Park’s parody of the WWITB video falls squarely within the fair use protections afforded by the Copyright Act."  Therefore, fair use and a dismissal with prejudice.

We've all seen the offensive and extremely funny movies, Hangover and Hangover II.  Mike Tyson, former heavy weight champion of the world and famous pigeon lover was in both.  The tattoo on his face was featured prominently and in Hangover II, one of the actors ends up with an almost identical tattoo and this is shone on some of the advertisements for the movies.  The tattoo design was originated by a tattoo artist in Missouri and the artist retained all rights in the design.  He brought suit for damages for copyright infringement and for an injunction to stop the release of the film.  In a preliminary hearing, the judge found that the artist had a likelihood of success in the trial and stated that a copyright could exist in the medium of expression here (Mike Tyson's face).  The judge declined to issue an injunction against the release of the film by finding that damages would be sufficient remedy.  This ruling induced the parties to settle and while the settlement is confidential it is likely that as part of the settlement,  the movie company will alter the advertisements to obscure the similarities in the tattoos.

Muhammad Ali famously coined the phrase "Float like a butterfly, sting like a bee."  The smart people advising him got a trademark on the phrase.  Kobo, Inc. has been using the phrase as a part of its advertising for its electronic reader and using it prominently in several print advertisements.  Ali's licensing company has filed suit, alleging that this improperly suggests that Ali endorses the product and since he apparently has not been paid to do so, it is apparent that he doesn't endorse it.  This suit has been recently filed and its progress will be interesting.  Maybe not as interesting as the "Thrilla in Manila" or the "Rumble In the Jungle" but nonetheless interesting to us IP nerds.

 

Attorneys: Do You Have An Ethical Obligation To Inform Opposing Counsel Of Privileged Communications In Your Possession?

Once again, technology and law intersect.  Here's a typical scenario:  An employee sues his or her employer.  The employer copies the contents of the employee's electronic devices (computer, smart phone, etc) provided by the employer, as the employer is entitled to do, and transmits the contents to employer's counsel.  Employer's counsel examines the material and finds several e-mails to and from the employee and employee's counsel, some of which are marked "Attorney-Client Privileged" or something similar. 

Pop quiz, hot shot (can't get too many "Speed" references): Does employer's counsel have to inform employee's counsel that it has such communications?  After all, Rule 4.4(b) of the American Bar Association Model Rules provides: “A lawyer who receives a document relating to the representation of the lawyer’s client and knows or reasonably should know that the document was inadvertently sent shall promptly notify the sender.”  Case closed, right?  Not so fast.  The ABA in its recent ruling Formal Opinion 11-460 reasons that this provision is not applicable as the communication was not sent "inadvertently", as both parties to the communication meant to send it and it arrived at its intended destination.  The Committee also declined to hold that the rule "implicitly" covers this.

Having said that, the Committee went on to say that local rules, rules of discovery, local court cases, state codes of professional responsibility or other matters might indicate that disclosure should be made.  The Committee reasoned that if there was reasonable belief on the part of the attorney that disclosure was needed to comply with relevant law, the attorney could disclose it under Rule 1.6(b)(6), which permits a lawyer to “reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary ... to comply with other law or a court order".  This is true even if there is doubt about the legal obligation.  However, if no law or rule can reasonably be read to require a reporting obligation, then it can be disclosed by the attorney only through informed consent by the attorney's client.

We had previously noted in this blog that e-mails sent on company computers or networks may forfeit their attorney-client privilege and that attorneys that are aware that their clients are doing this have an ethical duty to inform them, so this is the other side of the coin.

Texas has not adopted Section 4.4(b) as part of its Code of Professional Responsibility so reference to other rules (such as the "snap back" provisions of Section 193.3(d) for the Rules of Civil Procedure) must be made.

Hey, nobody said this was easy.