Social Media is a powerful marketing tool, and as its use becomes more widespread, courts grapple with legal issues regarding its use.  A recent decision by the Second Circuit, JLM Couture, Inc. v. Gutman, 24 F.4th 785 (2d Cir. 2022), held that a non-compete with a famous designer of bridal gowns was valid under New York law, and that plus the accompanying trademark assignment precluded her acting as an “influencer” on social media when she left the company.

Hayley Paige Gutman, known as Hayley Paige, is a bridal designer and social media influencer. She signed an employment agreement with JLM Couture, Inc., which was extended through 2022.  Together, Gutman and JLM have designed, manufactured, and marketed a successful line of bridal wear generating $220 million in sales of “Hayley Paige”-branded apparel.  Her employment agreement contained both a non-compete provision and a provision granting JLM rights over her name and trademarks.  She later left the company, and promoted other brands on both her social media accounts and at trade shows.

​The Second Circuit held that the covenant was valid under New York law, because it was generally reasonable, and because Gutman’s services were “special, unique or extraordinary.”  It also held that the assignment of Gutman’s name Hayley Paige, as well as associated trademarks, precluded any use on social media, especially to promote fashion products.  It accordingly affirmed the lower court’s preliminary injunction barring these actions under the Hayley Paige name.

​New York, like many states, has an anti-SLAPP statute, Civil Rights Law § 70-a, which allows for recovery of attorney’s fees and costs by defendants in cases “involving public petition and participation.”  A recent Appellate Division decision, Robbins v. 315 W. 103 Enterprises LLC, 164 N.Y.S.3d 823 (1st Dept. 2022), held that 311 phone calls made by the plaintiff complaining about construction at a neighboring site did not qualify, as they did not concern any public matter.  The defendant was represented by Steven A. Weg of Koffsky Schwalb.

In 2017, the defendants sued Robbins asserting claims for defamation based on five 311 calls he allegedly made to complain to the Department of Buildings (DOB) about defendants’ construction project next door. Plaintiff allegedly complained that defendants violated stop work orders, removed a posted DOB order, and caused damage to his property. The suit was discontinued.

​Robbins then brought suit under the New York anti-SLAPP law.  The Appellate Division affirmed dismissal of his case because he had failed to allege any connection between his 311 calls and the owner’s construction application or other attempts to obtain government approvals.  Instead, they were merely general complaints concerning the building construction next door, which did not involve matters of “public petition and participation.”

​The long-established rule in trademark law is that trademark rights are gained through use, not registration, and the first to use a mark in commerce has the senior rights.   One exception to that rule is an intent-to-use application, which if granted, and then followed up by use (which may be years later) and a registration based on use, grants the registrant priority as of the filing date. 

A recent Ninth Circuit decision, Lodestar Anstalt v. Bacardi & Company Limited (9th Cir. 2022), held there is another exception: a registration based on extension of a foreign registration under the Madrid Protocol, a treaty under which a foreign registration can be extended to result in a U.S. registration, and no use is required, although a bona fide intent to use the mark in U.S. Commerce is a requirement. 

The decision presents significant advantages to foreign trademark owners, who have not yet entered the U.S. market.  A registration obtained under the Madrid Protocol now immediately grants priority to the owner, and insulates it from charges of infringement.  And, once the owner commences actual use it can bring suit against users who entered the market after the registration.  

​The Federal Arbitration Act (FAA) validates agreements to arbitrate disputes, and the Supreme Court has read that broadly to establish a strong public policy in favor of arbitration, and to create a strong presumption in favor of arbitration where there are any doubts or ambiguities in an arbitration agreement.  But a recent Eleventh Circuit case, Calderon v. Sixt Rent a Car, LLC, 5 F.4th 1204 (11th Cir. 2021), held that the FAA only validates arbitration agreements that arise out of the contract of which they are a part.

While most agreements to arbitrate only require that the parties arbitrate disputes that arise out of the contract, there has been a recent trend by some companies to include broad arbitration provisions requiring arbitration of any dispute between the parties, and in some cases even with affiliate companies.  The Calderon decision, however, calls the validity of these broad provisions into question.

The Calderon Case
The plaintiff in Calderon used a popular website, Orbitz.com, to book a rental car in Florida from a rental company named Sixt Rent a Car.  The Orbitz website terms of use, to which the plaintiff had agreed, contained an arbitration clause to arbitrate any disputes that arise out of the services offered by Orbitz.  The plaintiff was satisfied with the Orbitz website and had no claims against that company.

He did, however, bring a claim against Sixt.  He signed a separate agreement with Sixt concerning the car rental, and that, notably, lacked an arbitration clause.  He alleged that he returned the rental car undamaged, but then was charged $700 for damage in an email sent thereafter.  He brought a class action suit for breach of contract and under Florida consumer-protection statutes.
Seeking to avoid suit, Sixt moved to require arbitration of the claims, relying not on its own contract (which lacked an arbitration clause) but on the Orbitz agreement.

Analysis
Since all arbitration is a matter of contract, the Eleventh Circuit first turned to the contractual language.  The Orbitz agreement required arbitration of any “Claims,” defined to include “any services or products provided.”  Sixt argued that such included companies marketing their services through Orbitz, but the Eleventh Circuit held that the better reading was that this only meant services provided by Orbitz, not services provided by vendors through its site.  Although it was not 100% clear, this was the better reading.

Sixt then invoked the Supreme Court’s holding that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983).  The Eleventh Circuit conceded that, if Moses H. Cone applied, it would indeed weigh in Sixt’s favor.

But the Calderon court held that the Moses H. Cone rule only applies to arbitration agreements within the scope of the FAA.  The FAA language validates a “ written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction.”  9 USC 2 (emphasis added).  The emphasized language focuses on disputes that “arise out of” the contract.  “[T]he Act’s—or more accurately, Moses H. Cone’s—strong pro-arbitration canon of construction applies here only to the extent that Marin’s lawsuit against Sixt ‘[aris[es] out of’ his contract with Orbitz.”

In prior cases interpreting similar contractual language, the phrase “arises out of” turns on “whether the dispute in question was an immediate, foreseeable result of the performance of contractual duties.”  The Calderon suit clearly failed this test, as it had little to do with the contractual relationship between Orbitz and the Plaintiff. 

Citing to a concurrence in a prior Ninth Circuit case, the Eleventh Circuit agreed that the FAA simply does not apply to an agreement which does not “arise out of” the contractual relationship.

Implications
Although this issue has in the past only rarely come up, more recently companies have sought to broaden arbitration far beyond the scope of a contract.  For example, in Revitch v. DIRECTV, LLC, 977 F.3d 713 (9th Cir. 2020), the Ninth Circuit dealt with a dispute between a customer against a satellite-television company that was a distant affiliate of the wireless service company with whom the customer agreed to arbitrate disputes.  The concurrence held that the FAA does not apply at all to that agreement.

These have been dubbed “infinite arbitration clauses” in a law review article, Horton, David, Infinite Arbitration Clauses, 168 U. Pa. L. Rev. 633, 643, 678–80 (2020), which discusses this new phenomenon and argues that the FAA does not apply where there is no nexus between the contract and the dispute.
It remains to be seen whether other courts will follow the Calderon court, but the plain language of the FAA seems to support its holding, as the FAA by its terms requires some nexus between the dispute to be arbitrated and the contract.

Other Enforcement Avenues
Even if the Calderon holding is accepted, there are two potential exceptions.  First, the FAA itself also validates “an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal [to perform].”  Once parties have a dispute, they can agree to submit that to arbitration, and that agreement will be binding, even if the original contract lacked an arbitration clause.  So, the limitation held in Calderon applies only to arbitration clauses in contracts that concern future disputes, not already-existing disputes.

Second, while the FAA does contain that limiting language, many states have their own arbitration statutes with language that differs from the FAA.  Florida, where Calderon arose, provides in its arbitration statute that “[a]n agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract.”  Fla. Stat. § 682.02(1).  That arguably would also exclude the dispute in Calderon, as the dispute between Plaintiff and Sixt was not “between the parties to the agreement,” which was only between the Plaintiff and Orbitz.

In contrast, New York law provides that “[a] written agreement to submit any controversy thereafter arising or any existing controversy to arbitration is enforceable.”  CPLR § 7501.  California law has almost identical language, providing that “[a] written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable.”  Cal. Civ. Pro. § 1281.  These provisions appear broader than the FAA, and arguably could validate an agreement that does not “arise out of” a contractual relationship.

Takeaways
For parties seeking to include arbitration clauses, particularly those used in standardized mass contracts, Calderon is a warning that the strong pro-arbitration policy of the FAA may not apply to validate that agreement, particularly as it related to disputes far afield from the contractual relationship.

Parties who seek to avoid arbitration should carefully review the relevant contracts and determine whether the dispute indeed “arises out of” the contractual relationship.  

In 2016, Congress passed the Defend Trade Secrets Act (DTSA), which creates a federal private civil cause of action for trade secret misappropriation.  “Misappropriation” is defined to include acquisition, disclosure or “use” of confidential information by one who knows or has reason to know that the information was derived improperly.

While acquisition and disclosure are straightforward actions that can give rise to liability, “use” is a more amorphous concept.  A recent Third Circuit decision, Oakwood Laboratories LLC v. Thanoo (2021), held that the term is to be construed broadly to include any commercially beneficial use.  The information need not necessarily be used for manufacturing a product; the Oakwood Labs. case involved use to advance basic pharmaceutical research.  Reversing the district court, the Third Circuit held that this “use” could constitute a misappropriation of the plaintiff’s trade secret.

This expands the rights of trade secret owners, if they secure their rights.  Conversely, parties involved in using what might be confidential information of others need to be more careful, as the potential for liability has been broadened.

The Oakwood Labs. Case
According to its Complaint, Oakwood Labs. is a technology-based specialty pharmaceutical company focused on hard-to-develop generic and quasi-generic, sustained-release, and small molecule injectable drugs.  It is involved in the “the research and development of sustained release injectable drugs involving microsphere systems.”  Through extensive research, Oakwood developed processes for manufacturing, testing, research, quality assurance, and regulatory compliance.  It takes extensive efforts to maintain these as confidential within its company.

In 1997, Oakwood hired Dr. Bagavathikanun Thanoo as a Senior Scientist responsible for product development, and required him to sign a non-disclosure agreement.  Thanoo worked on developing a generic version of a brand name drug used to treat endometriosis. 

Around 2013, Oakwood entered into discussions with another pharmaceutical company named Aurobindo Pharma USA Inc.  Subject to a non-disclosure agreement, it disclosed some of its trade secret information,.  After talks broke down, Aurobindo continued discussions with Dr. Thanoo.  It hired him, and “within months” came up with a competing product that closely tracked Oakwood’s technology.  Oakwood alleged that its proprietary information was used to jump start Aurobindo’s program, allowing it to achieve in months what otherwise would have taken years to develop.

The Decision
The district court dismissed three of Oakwood’s complaints.  The first two were dismissed for lack of sufficient detail (which the Third Circuit criticized).  The third amended complaint was dismissed for a different reason:  Oakwood's failure to allege misappropriation. According to the district court, Oakwood needed to “show that the Microsphere Project was replicated, that is, that the microsphere technology Aurobindo has been working on has been developed using Oakwood’s trade secrets.”
This was legal error, held the Court of Appeals.  The term “use” does not require that a trade secret be replicated in any way.  Because the term “use” is not defined in the DTSA, then ordinary dictionary definitions apply, and "use" is generally defined to mean “to employ for the accomplishment of a purpose” or to “benefit from.”

In the context of trade secret misappropriation, the term “use” is given broad meaning.  An oft-cited Fifth Circuit decision applying Texas law, Gen. Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444, 450-51 (5th Cir. 2007), which in turn relied on the Third Restatement of Unfair Competition, § 40, states that use includes:

any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant[.] ... Thus, marketing goods that embody the trade secret, employing the trade secret in manufacturing or production, relying on the trade secret to assist or accelerate research or development, or soliciting customers through the use of information that is a trade secret ... all constitute ‘use.’”

The Third Circuit embraced this broad definition in construing the DTSA.  “In accordance with its ordinary meaning and within the context of the DTSA, the ‘use’ of a trade secret encompasses all the ways one can take advantage of trade secret information to obtain an economic benefit, competitive advantage, or other commercial value, or to accomplish a similar exploitative purpose, such as “assist[ing] or accelerat[ing] research or development.”
Decisions such as Oakwood Labs. expand the scope of protection afforded to trade secrets, and are that much more reason for trade secret owners to take step to secure their rights.