Trademark Infringement, Trade Secret Misappropriation, Copyright Litigation, Cyberlaw, and Online Defamation in California

[About the author: Scott Lesowitz is a Harvard Law School graduate and former Assistant United States Attorney based in Los Angeles, California. His e-mail address is scott@lawbylg.com, and his phone number is 323-452-9909.]

This website contains articles on a variety of topics related to intellectual property litigation and cyberlaw, including trade secret misappropriation, trademark infringement, unfair competition, false descriptions made in commerce, and defamation. This homepage provides a broad overview of litigation involving trademarks, trade secrets, copyrights, and online defamation.

As my law firm is in Los Angeles, the primary focus is on the law in California and in the Ninth Circuit Court of Appeals.

The Scope of Trade Secret Protections and What Constitutes Trade Secret Misappropriation

Traditionally, unless protected by copyright or patent, people are free to copy the ideas and creativity of others. However, trade secret law can provide an exception to that rule. Trade secret law provides protections for certain valuable information that is kept reasonably confidential.

The type of information that may constitute a trade secret is broad and includes, “a formula, pattern, compilation, program, device, method, technique, or process.” California Civil Code § 3426.1(d). However, not all information that the holder considers confidential or proprietary qualifies for trade secret protection.

There are three main requirements for information to constitute a trade secret. (1) The information must not be “generally known” to the general public or within the relevant business or industry. (2) The information must have actual or potential economic value that results from the information not being generally known. (3) The holder of the information must make reasonable efforts to maintain the secrecy of the information. California Civil Code § 3426.1(d).

Complete secrecy is not required. A business may share its trade secrets with those who need to know the information, such as employees or service providers, so long as there is an actual or implicit understanding that the recipient will keep the information confidential. The use of confidentiality and nondisclosure agreements are not always required, but it is generally a good idea to use them.

The violation of trade secret rights is called trade secret misappropriation. Trade secret misappropriation can occur through wrongfully (1) acquiring a trade secret, (2) disclosing a trade secret, or (3) using a trade secret.

A trade secret plaintiff who sues for trade secret misappropriation and wins may be entitled to monetary damages. This will generally be measured by the greater of the amount of money the plaintiff lost because of the misappropriation or the amount of profit that the defendant earned from the misappropriation. (The plaintiff generally cannot receive both because that would amount to a double recovery.) If neither of these can reasonably be calculated, the plaintiff might receive an award equal to a reasonable royalty rate for use of the trade secret. In egregious cases, the plaintiff may be able to receive compensation for attorneys’ fees and punitive damages. (The defendant may be able to receive attorneys’ fees if the plaintiff’s lawsuit is frivolous.)

Often in trade secret cases, the most important goal of the plaintiff is to receive an order from the court that the defendant may not use or disclose the trade secret. It is common in trade secret cases for the plaintiff to seek a preliminary injunction shortly after filing the lawsuit. If the judge grants the motion for a preliminary injunction, usually the judge will order that the defendant cannot use or disclose the trade secret until the case is fully resolved. Since the litigation process can be lengthy, whether a preliminary injunction is granted can be a very important issue.

Trademark and Trade Name Rights and Trademark Infringement Litigation

Trademark law pertains to marks that consumers tend to use to identify the producer or seller of goods or services. Trademark infringement may occur when someone uses the mark without permission in a manner that is likely to confuse consumers about who the seller, producer, or provider of goods or services is. It does not matter whether consumers know the identity of the seller, producer, or provider. It is sufficient that consumers assume that all products or services that contain or use the mark are from the same unknown source.

Trademark infringement may occur even when the infringed trademark has not been registered with the U.S. Patent and Trademark Office (USPTO). Trademark rights may accrue automatically through being the first to use the mark in commerce in a location. That said, businesses almost always should register their important trademarks as it helps protect trademark rights and can be helpful in numerous ways in trademark litigation. (That said, once again, if your trademark is not registered, you still may be able to sue for trademark infringement.)

To illustrate an example of trademark protection, both the brand name “Tide” and the Tide logo are protected by trademark law in relation to the sale of detergent. Infringement would almost assuredly occur if a seller labeled his detergent with either the word “Tide” or the Tide logo without authorization. It does not matter that the word “Tide” is just a single word that would not qualify for copyright protection. It does not matter whether consumers know that Procter & Gamble owns and produces Tide. It is enough that consumers assume that all detergents named “Tide” or that have the Tide logo are made by the same unknown company. The idea is that the law strives to ensure that consumers know what they are buying. Consumers should be able to assume that two boxes of laundry detergent with the same trade name come from the same source and are of the same quality.

(Please note that the same source of federal law protecting trademarks, the Lanham Act, also protects against false descriptions and false advertisements. A plaintiff may sue a competitor for making false descriptions and false advertisements regardless of whether trademarks were involved. 15 U.S.C. § 1125(a); U-Haul International, Inc. v. Jartran, Inc., 681 F.2d 1159 (9th Cir. 1982).)

If a plaintiff who brings a trademark infringement lawsuit is successful, the plaintiff may be entitled to monetary recovery and an injunction. An injunction may be more important than monetary damages. An injunction generally will consist of a court order that the defendant may not use the trademark. Importantly, a plaintiff may bring a motion for a preliminary injunction early in a case. If successful, the court may order the defendant not to use the disputed trademark until the case is resolved. A decision on whether to grant a preliminary injunction may be of great importance. Litigation can be lengthy. Even if a defendant ultimately wins a lawsuit, going months or years without using the trademark may cause permanent damage. (There are times when a plaintiff who obtains a preliminary injunction must post a bond that can be used, at least in theory, to compensate a defendant who ultimately wins the lawsuit.)

For monetary recovery, generally any plaintiff who can prove actual injury from the infringement will be eligible to recover the amount of the plaintiff’s actual damages. This is true even if the defendant did not willfully infringe the trademark. The types of actual damages that may be compensated are not limited to sales lost to the infringer. Actual damages may include things such as injuries to reputation and goodwill and the cost of corrective advertising. Skydive Arizona, Inc. v. Quattrocchi, 673 F.3d 1105, 1113 (9th Cir. 2012).

There is a split in legal authority regarding when a plaintiff may be entitled to recover the defendant’s profits earned from committing the infringement. California is in the federal Ninth Circuit Court of Appeals. Under Ninth Circuit authority, a plaintiff generally may only recover the defendant’s profits if the defendant willfully infringed the trademark. However, even in a case where the infringement was not willful, a court might be allowed to use the amount of the defendant’s profits as a means to measure the amount of loss that the plaintiff suffered. Adray v. Adry-Mart, Inc., 76 F.3d 984, 988 (9th Cir. 1995). (Remember, a plaintiff generally can recover its own damages even against an innocent infringer.) A plaintiff cannot recover both its own damages and the defendant’s profits to the extent that they overlap, and it would amount to a double recovery. For example, if the plaintiff’s damages consist of losing ten sales to the defendant, the plaintiff’s loss and the defendant’s profit would overlap, and the plaintiff generally could not recover both.

Since damages or profits from trademark infringement may be difficult to measure, an award may be increased by an amount of up to triple the amount of the damages or profits proven at trial. 15 U.S.C. § 1117. However, this enhancement may not be used as a penalty. It is not a substitute for the normal rules regarding the awarding of punitive damages.

In the case of counterfeit goods, the available remedies in litigation may be broader.

Trademark litigation often occurs in court, especially federal court. However, there are also disputes litigated within the U.S. Patent and Trademark Office’s Trademark Trial and Appeal Board (TTAB). For example, someone may file an opposition to another party’s trademark application. In fact, there are large companies that employ people to search the USPTO’s new registration filings to make sure that none of them would encroach on what they believe are their trademark rights. (They will not feel shy about sending a cease and desist letter asking the registrant to pull the application. At times, the recipient of the letter faces the dilemma of whether or not to call what may be a bluff, especially in the case of over-reach in interpretation of trademark rights.) Another example of a TTAB proceeding is a cancellation proceeding where someone seeks to cancel an existing trademark registration. In general, the TTAB’s decisions are important. Winning a TTAB fight will help a party’s position if there are future proceedings in court. However, except in certain unique circumstances, a court may disagree with the TTAB’s decision in trademark infringement litigation. If the court does disagree, the court’s decision is the one that ultimately matters.

Copyright Protection and Copyright Infringement (I am in Los Angeles, California, after all)

Copyright protection extends to “original works of authorship fixed in any tangible medium of expression.” 17 U.S.C. § 102(a). The Copyright Act specifies that protected “works of authorship” may include (1) literary works, (2) works of music , including any lyrics, (3) dramatic works, (4) choreography, (5) pictorial and graphical works as well as sculpture, (6) movies and other audiovisual works, (7) sound recordings, and (8) architectural works.

The requirement that the work be “original” merely means that the work was “independently created by the author “and that it “possesses at least some minimal degree of creativity.” Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340, 345 (1991). A work is not required to have artistic merit or require talent to create. A work might receive copyright protection even though it seems to have little novelty and to largely resemble other works.

Copyright protection accrues automatically. The author is not required to register the work with the U.S. Copyright Office. However, having a copyright registration at the time that the infringement occurs is required to receive certain forms of monetary relief and reimbursement of attorneys’ fees.

Exact or literal copying is not required for copyright infringement to occur. That two works are “substantially similar” is enough.

Copyright protection does not extend to facts. There may be copyright protection only if there is a meaningful amount of originality and creativity in how the facts are presented. Even then, the copyright protection does not cover the facts themselves. For example, no matter how original a food recipe may be, the ingredients to make the food and the steps needed to carry out preparing the food may not receive copyright protection. However, if the explanation of how to create the recipe is sufficiently original and creative, there may be thin copyright protection protecting against literal or near-literal copying. Marcus v. Rowley, 695 F.2d 1171 (9th Cir. 1983). To receive legal protection of the recipe itself, it must either be maintained as a trade secret (something that would be lost if the recipe were published) or it must pass the official patent process, which would require a sufficient degree of originality and usefulness.

Similarly, copyright protection does not extend to ideas. 17 U.S.C. § 102(a). Copyright protects only the original expression of the ideas. Similarly, copyright protection does not extend to procedures, processes, systems, or methods of operation. For these to receive legal protection, they either must constitute trade secrets or be the subject of a patent.

Unfortunately, it is often difficult to distinguish between non-copyrightable facts and ideas (such as a general plot to a story) and copyrightable expression, especially since literal copying is not required for copyright infringement but merely substantial similarity. This can make it difficult for people to predict whether their use of someone else’s materials or ideas are permissible or not. As the Ninth Circuit Court of Appeals has acknowledged, “We do not have a well-defined standard for assessing when similarity in selection and arrangement becomes ‘substantial’ and in truth no hard-and-fast rule could be devised…” Rentmeester v. Nike, Inc., 883 F.3d 1111, 1121 (9th Cir. 2018).

An example of courts struggling with alleged copyright infringement where factual and functional elements are present can be seen with computer programs. Computer programs may receive copyright protection that extends not only to literal copying of their source code, but also to the texts, sounds, and images that the user sees and hears. However, computer programs are largely functional. Therefore, copyright protection of computer programs that perform utilitarian functions tend to receive surprisingly thin copyright protection. See Lotus Dev. Corp. v. Borland Int'l, Inc., 516 U.S. 233 (1996); Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435 (9th Cir. 1994).

Possible remedies in copyright cases are similar to those available in other intellectual property cases. The plaintiff may be able to obtain an injunction. This includes a preliminary injunction prior to trial, where the judge orders the defendant to stop using the copyrighted material until the matter is resolved. The plaintiff may also receive monetary recovery that, depending on the case, could include compensation for damages suffered, the profits of the defendant, or statutory damages. The plaintiff may be eligible to receive an award of attorneys’ fees.

Online Defamation Litigation: What Constitutes Defamation and Whether Content Will Be Removed from the Internet

Three issues arise often in assessing whether to bring a lawsuit for defamation: whether the offending statements are false statements of fact, what level of constitutional or statutory protections the speaker receives, and whether a lawsuit can reasonably be expected to lead to removal of the false statements from the internet.

There Must Be a False Statement of Fact

False statements of fact are not protected by the Constitution. However, the Constitution protects speakers from defamation liability in certain situations. The two considerations in determining the amount of protection are whether the speech concerns a matter of public concern and whether the speech is directed at a publicly known figure.

At the highest end, if the speech concerns an issue of public concern regarding a public figure, the speaker may only be found liable for defamation if the speaker knew that the statement was false or acted with a reckless disregard for the truth. New York Times Co. v. Sullivan, 376 U.S. 254 (1964). Performing sloppy journalistic work or negligence is insufficient for a finding of liability.

If the speech concerns an issue of public concern, but the person being spoken about is a private figure, then the speaker cannot be found liable unless the speaker at least was negligent in making the statement. Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974). In practice, a speaker is much more likely to be found to have acted negligently than with a reckless disregard for the truth.

If the speech is not about a matter of public concern, it is controversial whether the Constitution allows for the plaintiff to obtain a payment of damages without a finding of at least negligence. The Supreme Court has chosen to leave the issue open, and the Ninth Circuit Court of Appeals seems to take the position that a finding of negligence is not required for a finding of liability when the speech involves a private matter. See Milkovich v. Lorain Journal Co., 497 U.S. 1, 20, n.6 (1990); Dworkin v. Hustler Magazine Inc., 867 F.2d 1188, 1196 (9th Cir. 1989). However, the Supreme Court of California has stated that for a plaintiff to receive damages in any defamation case, the speaker must have acted negligently when making the false statement, and this viewpoint is reflected in the Judicial Council of California model jury instructions. Brown v. Kelly Broadcasting Co., 48 Cal.3d 711, 747 (in bank, 1989); CACI 1704.

California law provides additional protections for certain categories of speech. Subject to narrow exceptions, statements made in legal proceedings or in carrying out official governmental duties are absolutely privileged, and the speaker cannot be sued. Cal.Civ.Code § 47(b).

There are additional categories of speech that receive qualified privilege. These include statements about a former or current employee to someone considering hiring the person, credit reports, and to most statements made in response to a request for information. Cal.Civ.Code § 47(c). A qualified privilege protects speech unless the speaker “was motivated by hatred or ill will towards the plaintiff or by a showing that the defendant lacked reasonable grounds for belief in the truth of the publication and therefore acted in reckless disregard of the plaintiff's rights.” Lundquist v. Reusser, 7 Cal.4th 1193, 1213 (1994). This level of “reckless disregard” is more than mere negligence, but less than “actual malice” under the constitutional test.

Removal of Defamatory Content from the Internet

If the person who brings a defamation lawsuit succeeds, and the jury or judge finds that the statements constitute defamation, the judge has the power to order an injunction. The judge may order that the speaker may not repeat the defamatory statements and that the speaker must remove any defamatory statements that he or she has posted on the internet. See Balboa Island Village Inn, Inc. v. Lemen, 40 Cal.4th 1141 (2007). Violating an injunction may constitute a contempt of court leading to severe penalties.

However, what happens if the defendant disobeys the court order and does not remove the offending content from the internet? Internet serv ice providers are not required to remove the offending posts. Hassell v. Bird, 5 Cal.5th 522 (2018). However, in practice many (but not all) internet service providers will remove a post if there is a judgment.

Finally, please take caution that California has a particularly strong anti-SLAPP statute that requires one who brings an unsuccessful defamation claim to pay the attorneys’ fees of the opposing parties in certain situations. Cal.Code.Civ.P. § 425.16.

IP & CYBER LAW UNLOCKED

Trade Secrets, Trademark, Copyright, Defamation, and Cyber Law.