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Eighth Circuit

No Breach of Contract Where Company Disclosed Its Own Non-Public Information

by Paul Devinsky | Apr 14, 2022 | Trade Secrets

The US Court of Appeals for the Eighth Circuit affirmed a district court’s dismissal of a trade secret lawsuit against a consultant that allegedly failed to prevent its client from disclosing its own proprietary information during a call with a potential buyer. Protégé Biomedical, LLC v. Duff & Phelps Securities, LLC, and Philip I. Smith, Case No. 21-1368 (8th Cir. Apr. 4, 2022) (per curiam) (Erickson, J., dissenting).

Protégé entered into an agreement with Duff & Phelps to help Protégé find a buyer for its business. Under the agreement, Duff & Phelps received immunity from certain types of claims, its employees were shielded from individual liability and it owed no fiduciary duties to Protégé.

One of Protégé’s competitors, Z-Medica, was identified as a potential buyer. One of Duff & Phelps’s employees, Philip Smith, facilitated execution of the non-disclosure agreement (NDA) by a member of Z-Medica’s board of directors. Protégé assumed that the NDA would also bind Z-Medica and thus participated in conference calls with Z-Medica in which Protégé revealed non-public information. In Z-Medica’s view, however, the board member signed the NDA in his personal capacity and not as Z-Medica’s representative. As a result, Z-Medica used the information it received from Protégé to create its own competing product.

Protégé sued Z-Medica. After settling with Z-Medica, Protégé sued Duff & Phelps and Smith in state court for breach of contract, unlawful practice of law, negligence, breach of professional services and breach of fiduciary and principal-agent duties. Duff & Phelps removed the case to federal court on the ground that Smith, the only non-diverse defendant, had been fraudulently joined. The district court dismissed the case for failure to state a claim. Protégé appealed.

The Eighth Circuit first analyzed whether the case belonged in federal court. The Court upheld the district court’s determination that Smith was fraudulently joined. The Court stated that fraudulent joinder occurs when there is no reasonable basis in fact and law for the claims brought against the non-diverse defendant. Here, the Court found that there was no reasonable basis for Protégé to allege breach of contract against Smith since he was never a party to the contract between Protégé and Duff & Phelps. The Court found that Protégé’s unlawful practice of law claim against Smith also constituted fraudulent joinder because Smith never gave legal advice to Protégé. The Court noted that the contract immunized Smith from Protégé’s other claims and thus, without any viable claims against Smith, the case was properly in federal court under 28 U.S.C. § 1332.

Turning to the merits of the claims against Duff & Phelps, the Eighth Circuit affirmed the dismissal for failure to state a claim. The Court reasoned that Protégé’s breach of contract claim was predicated on an alleged failure by Duff & Phelps to prevent Protégé from disclosing its proprietary information. However, the agreement only made Duff & Phelps responsible for its own conduct, not for Protégé’s conduct. The Court explained that Protégé’s other claims failed for the same reason.

Judge Erickson [...]

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Eighth Circuit Defends Use of Term “Patent Troll,” Vacates Injunction against Infringement Defendant

by Paul Devinsky | Mar 24, 2022 | Patents

The US Court of Appeals for the Eighth Circuit vacated an injunction restraining defendants from engaging in certain allegedly harassing conduct because there was no evidence tying the defendants to the alleged misconduct and reassigned the case to a new district judge to obviate any doubts about the judge’s impartiality. Tumey v. Mycroft AI, Inc., Case No. 21-1975 (8th Cir. Mar. 4, 2022) (Erickson, J.)

Tod Tumey is a lawyer who represents Voice Tech Corporation in patent litigation against Mycroft AI, an open-source network focusing on voice assistance technology. Tumey separately sued Mycroft on his own behalf, alleging that Mycroft retaliated against him for representing Voice Tech by launching or inspiring a series of cyberattacks, hacking attempts and harassing phone calls (“heavy-breathing phone calls”) against Tumey, his law firm and his family.

Mycroft had publicized its involvement in the underlying patent litigation and shared negative views about “bogus patents” and “patent trolls,” including statements that it is “better to be aggressive and ‘stab, shoot, and hang’ them, then dissolve them in acid.” Mycroft posted on its blog links to Tumey’s “confidential correspondence,” as well as documents in the underlying patent infringement lawsuit. Mycroft also posted updates on litigation developments with headlines such as “Mycroft Defeats Patent Trolls … Again … For Now.” The company cautioned patent trolls to “stay away” from Mycroft because “You’ll get your ass kicked,” and posted that “Rather than pay the troll toll, we decided to accept the fight.” In the underlying patent litigation, Voice Tech moved for an order requiring decorous and civil conduct by the parties, including a request that Mycroft cease using the term “patent troll.” The district court granted the order, which Mycroft viewed as sufficiently narrow and limited in scope such that it was willing to comply with the restrictions rather than appeal.

In the case brought on his own behalf, Tumey sought a temporary restraining order or, in the alternative, a preliminary injunction to prevent the cyberattacks, phishing and harassing phone calls that he and his family were experiencing and for which Tumey believed Mycroft was responsible. Mycroft opposed the proposed temporary restraining order (TRO), arguing that there was no evidence to attribute any of the alleged conduct to Mycroft. Mycroft also submitted sworn declarations averring that no one associated with Mycroft was involved in cyberattacks or harassment. The district court set a teleconference on the “Motion for Temporary Restraining Order.” About an hour before the set time for the hearing, Tumey circulated to the court and counsel a new proposed order, now styled as a preliminary injunction (PI). At the hearing, Mycroft objected to converting the request for a TRO to a PI hearing. The district court overruled the objection and heard testimony from several witnesses, including Tumey and that of an expert retained by Tumey who testified that he had not found any forensic evidence to attribute any of the cyberattacks or harassment to anyone associated with Mycroft. When Tumey was asked about the results of the expert’s [...]

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Appeal Shuttered for Lack of Finality

by Paul Devinsky | Jan 27, 2022 | Trademarks

The US Court of Appeals for the Eighth Circuit held that it lacked jurisdiction under 28 U.S.C. § 1291 and therefore dismissed an appeal of a district court decision staying a federal action pending state court litigation between the parties. Window World Int.’l, LLC et al. v. O’Toole et al., Case No. 21-1108 (8th Cir. Jan. 7, 2022) (Loken, Colloton, Benton, JJ.).

Window World International owns registered trademarks for the marketing of exterior remodeling products, such as custom-made vinyl windows. Window World distributes products through 200 independently owned and operated franchisees, including Window World of St. Louis, Inc. and Window World of Springfield-Peoria, Inc., companies co-owned by James T. Lomax III (collectively, the Lomax parties). Window World sublicenses its franchisees to use its trademarks.

In January 2015, the Lomax parties and other Window World franchisees sued Window World in the North Carolina Business Court. The Lomax parties alleged that Window World failed to make franchise disclosures required by federal and state law. They also asserted claims of fraud and breach of contract. In April 2019, the Lomax parties sent letters to Window World customers making several misrepresentations about Window World’s product warranty. Window World commenced action in federal court, asserting causes of action under the Lanham Act for false advertising, trademark infringement, unfair competition and dilution of a famous mark.

The Lomax parties moved to dismiss for failure to state a claim or stay the federal action pursuant to the Supreme Court’s 1976 decision in Colorado River Water Conservation Dist. v. US, which held that the interests of effective judicial administration may lead a federal court to reject taking jurisdiction in a case involving a concurrent state proceeding. Window World opposed the dismissal and stay requests. The district court dismissed several of Window World’s claims but ruled that it had a plausible trademark infringement and unfair competition claim and denied dismissal as to those claims. The district court also stayed the federal action pending determination of the scope of the claims regarding the protected marks in the North Carolina litigation. Window World appealed.

The Eighth Circuit found that the issued stay order was neither a final order under 28 U.S.C. § 1291 nor a collateral interlocutory order that may be appealed. As a result, the Court dismissed the appeal for lack of jurisdiction. In doing so, the Court explained that an order staying civil proceedings is interlocutory and not ordinarily a final decision for purposes of § 1291. However, if the stay effectively ends the litigation, then the order is final and jurisdiction under § 1291 is proper. Here, the Court concluded that the lower court’s stay was not a final order because the order contemplated further litigation in federal court. Additionally, the stay was not a final order merely because it had the practical effect of allowing a state court to be the first to rule on common issues. Therefore, the Court concluded that the stay order was not appealable as a final order and dismissed the appeal.

When Pictures Aren’t Pictures: Real Estate Agent-Generated Floor Plans Are Outside Copyright Infringement Exception for Pictorial Representations

by Christopher M. Bruno | Aug 26, 2021 | Copyrights

Examining whether the Architectural Works Copyright Protection Act enacted in 1990 protects the creation of floor plans, the US Court of Appeals for the Eighth Circuit held that such technical drawings generated for practical, rather than artistic, purposes are not covered by a statutory exception that removes the right to control pictures, paintings, photographs or other pictorial representations of their work from architects. Designworks Homes, Inc. et al. v. Columbia House of Brokers Realty, Inc. et al., Case Nos. 19-3608, 20-1099, -3104, 20-3107 (8th Cir. Aug. 16, 2021) (Arnold, J.)

The facts of the case are relatively simple: In the course of selling designed homes, homebuilders hired real estate agents to generate floor plans for use in their listings. The designers of the homes registered copyrights in the homes themselves, then sued the homebuilders and their real estate agents for copyright infringement.

The issue for the Court was whether 17 U.S.C. § 120(a), a statute designed to limit the scope of copyright protection for architectural works, applied to the floor plans that the real estate agents developed. Section 120(a) excludes from the scope of a copyright in an architectural work “the right to prevent the making, distributing, or public display of pictures, paintings, photographs, or other pictorial representations of the work.” The district court held that the floor plans fell within Section 120(a)’s exclusion and, thus, were not covered by the copyright.

The Eighth Circuit disagreed. Employing numerous canons of statutory construction, the Court held that the functional floor plans were neither pictures nor “other pictorial representations” within the meaning of the statute. Drawing from 1990s dictionaries, the Court reasoned that although a floor plan could conceivably be a picture, context showed otherwise. For example, Congress used the phrase “technical drawings” elsewhere in the copyright statute; thus, had Congress intended to exclude them here, it knew how to do so. Moreover, the types of floor plans at issue here were—in the Court’s view—not similar to the other listed categories of items for which copyright protection had been curtailed as the plans did not have any artistic expression.

Practice Note: Not all hope is lost for the homebuilder or developer. Although the Eighth Circuit declined to expressly consider other defenses, it explained that there were others that very readily could apply, including the doctrine of fair use.

Initial Confusion? Relax, Eighth Circuit Has Your Number

by Paul Devinsky | May 20, 2021 | Trademarks

Addressing a novel issue regarding when confusion must occur for it to be actionable, the US Court of Appeals for the Eighth Circuit concluded that initial-interest confusion was a viable infringement theory. Select Comfort Corp. v. Baxter, Case No. 19-1113 (8th Cir. May 11, 2021) (Melloy, J.)

Select Comfort owns registered trademarks, including “SELECT COMFORT,” “SLEEP NUMBER” and “WHAT’S YOUR SLEEP NUMBER,” for adjustable air mattresses, which it sells online and in stores across the United States. Baxter sells competing air mattresses online and through a call center. Select Comfort brought a suit asserting trademark infringement, trademark dilution and false advertising theories against Baxter. Select Comfort alleged that Baxter used Select Comfort’s registered trademarks in an identical or confusingly similar manner to advertise Baxter’s mattresses and divert consumers to its website and phone lines instead of Select Comfort’s. Select Comfort also alleged that Baxter made false representations about its products and failed to dispel consumer confusion about the products. At trial, Select Comfort pointed to similar terms in Baxter’s online advertising text, graphics and domain addresses, in addition to examples of actual confusion about the products in Baxter’s call-center transcripts.

Earlier in the case, in connection with summary judgment, the district court found that the relevant consumers were sophisticated as a matter of law, and, citing Eight Circuit precedent, rejected application of a theory of initial-interest confusion. The district court instead instructed the jury that in order to prevail on its trademark infringement claim, Select Comfort had to prove likelihood of confusion at the time of purchase. Based on this limiting instruction, the jury rejected Select Comfort’s trademark infringement claims. Select Comfort appealed.

The Eighth Circuit reversed. The Court explained that the district court erred on the availability of an initial-interest confusion as an infringement theory. For trademark infringement claims, the likelihood of confusion test is a fact-intensive inquiry with many factors. However, circuit courts have not definitively agreed on when confusion must exist. Must confusion occur only at the time of ultimate purchase, or can it also exist during pre-sale? The theory of initial-interest confusion involves the latter scenario, namely, when confusion about a product’s ownership causes a customer to have initial interest in the product, even if there is no actual sale at the time of the confusion. Actionable initial infringement protects competitors from getting a free ride on the goodwill of an established mark if a consumer falsely infers an affiliation between the companies.

In the precedential 2010 Eighth Circuit case Sensient Techs. v. Sensory Effects Flavor, the Court neither rejected nor adopted the initial-interest/pre-sale confusion theory. Instead, it merely found that the theory did not apply where consumers were sophisticated (i.e., where they exercise a high degree of care in purchasing products, a factor weighing against likelihood of confusion). Here, influenced by Lanham Act amendments and other circuit courts, the Court addressed the issue previously left open: whether the initial-interest confusion may be actionable in the Eighth Circuit in cases where the jury is left to [...]

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