roduct design may be granted trademark protection, termed “trade dress” under federal trademark law.  But one established limitation is that the design cannot be “functional.”  The Supreme Court has defined that to mean either (1) when the claimed design is essential to the purpose of the article or affects the cost or quality of the article, or (2) if protecting the design choice “would put competitors at a significant non-reputation-related disadvantage, meaning if it is competitively necessary to use the feature of the design in the relevant market.

A recent Third Circuit decision, PIM Brands Inc. v. Haribo of America Inc., 81 F.4th 317 (3d Cir. 2023) highlights the functionality bar.  The case involved a dispute over the design of a candy, specifically a wedge-shaped watermelon-flavored candy with red, white and green colors.  The plaintiff Pim Brands claimed trade dress rights in that design.  The Third Circuit rejected that claim, because the design was functional.

First, the Third Circuit noted that functionality is “not a high bar.”  So long as the design adds any advantage to the product (other than the reputational association with the trade dress owner), it is functional.  In the case of the candy, the shape and colors identified the flavor of the candy.  That rendered the design functional.
The functionality inquiry is whether the design is “as a whole functional,” as stated expressly in the Lanham Act.  15 U.S.C. § 1052(e)(5).  How should a court evaluate that when different aspects of the trade dress are asserted to render it functional. The Pim Brands decision sheds light on that question.

Pim Brands argued that the wedge shape should have been evaluated for functionality separate from the color scheme.  But the Third Circuit rejected that argument, since both the wedge shape and the color scheme served the same function: identifying the flavor.  So the two aspects – shape and color – should be evaluated together.
The Third Circuit distinguished its prior decision in Ezaki Glico Kabushiki Kaisha v. Lotte Int’l Am. Corp., 986 F.3d 250 (3d Cir. 2021), another candy case, where the plaintiff claimed trade dress rights in a design for cookies shaped into sticks and coated partly with chocolate.  The Third Circuit had held the design functional because the stick shape let it fit more cookies into each package, and dipping only part of the stick in chocolate helped people eat it without getting chocolate on their hands. 

The Third Circuit explained that in Ezacki Glicko, the two aspects performed different functions, and so were analyzed separately.  In Pim Brands, in contrast, the two features performed the same function.  In that circumstances, the Third Circuit held, the two aspects would be analyzed together.  

Ultimately, The Third Circuit concluded that the wedge-shaped, green-white-red colored candy, immediately brought to mind a slice of watermelon.  That identified the flavor as watermelon, rendering the design functional.  

Skaneateles Country Club (SCC) constructed 80 boat slips on Skaneateles Lake for the benefit of club members.  Olivia Cambs was a member who contributed an initial capitalization payment and entered into an Assignment Agreement, which “assign[ed] and transfer[red]” to her the “use and occupancy right with respect to one boat slip,” subject to certain express conditions. The parties later disputed whether this license was revocable at will by the club, or not.  

In Skaneateles Country Club v. Cambs,  --- N.E.3d ---, 2023 WL 6976508 (N.Y. 2023), the Court of Appeals sided with SCC.  Since the parties agreed this was a license, that meant that it was presumably revocable.  “A license is a revocable privilege given to one, without interest in the lands of another, to do one or more acts of a temporary nature upon such lands.”  Nothing in the agreement between SCC and Cambs indicated that the parties intended to deviate from that default law.
​
One judge dissented, pointing to the parties’ agreement, that seemed to indicate that Cambs held the right so long as she remained a member.

​The takeaway here is a perennial one: the importance of making clear in a written agreement the rights of each party.  Although the agreement did list certain circumstances under which Cambs could be terminated, she should have insisted that the agreement state that it could not be terminated except for the reasons stated. 

III\IA recent Second Circuit case, Pauwels v. Deloitte LLP, 83 F.4th 171 (2d Cir. 2023), involved an investment bank’s consultant who brought suit for misappropriation of trade secret and other claims.  Bank of New York Mellon Corp.  (BNYM) and its subsidiary retained Andre Pauwels as an independent contractor to work on an investment valuation project.  To facilitate his work, Pauwels developed the so-called Pauwels Model, a bespoke valuation tool that he used to evaluate BNYM’s potential energy-sector investments and to monitor existing ones. Pauwels shared spreadsheets derived from the Pauwels Model with various employees and executives at BNYM.  Pauwels later learned that BNYM had shared his spreadsheets with Deloitte without his consent, and that Deloitte used the spreadsheets to reverse engineer Pauwels’ model and was using it to service BNYM. 
​
The Second Circuit rejected Pauwels’ trade secret claim because he had failed to take reasonable steps to protect its confidentiality.  He claimed that he only shared the spreadsheets with a core group of individuals, who agreed orally to maintain them as secret.  But he admitted to sending them to other BNYM employees who gave no such assurances.  And even as to those who agreed, that was only an informal agreement, with no indication that they had authority to bind BNYM.  Finally, there was no indication that the proprietary spreadsheets had been password protected, encrypted, or expressly labeled as “confidential.”  For all these reasons, the trade-secret claim failed.

The Second Circuit did, however, sustain one possible claim: unjust enrichment.  Pauwels claimed that BNYM had paid only for his advice, not for his proprietary models.  Where the parties have a close relationship (such as the consulting agreement that Pauwels had with BNYM), the Court held an unjust enrichment claim may lie.  And, because Pauwels alleged that BNYM took more than it paid for and benefited, it could be held to have been unjustly enriched.  Notably, however, the Second Circuit did dismiss the unjust enrichment claim against Deloitte, since it had no relationship with Pauwels.

The Pauwels decision provides two important takeaways.  First, if one claims  “proprietary” interests in an idea or method, unless it is patented, it is only going to be protected by trade secret law.  And that requires significant efforts to maintain its confidentiality before it is shared with outsiders.  Pauwels would have been well advised to have BNYM sign a confidentiality agreement, and to protect the spreadsheets with passwords or encryption.

Second, Pauwels illustrates how in some cases, common law claims like unjust enrichment might be a backup for intellectual property protection.  While not as robust as trade secret protection (note that Deloitte was dismissed), an unjust enrichment claim might be a useful backup in litigation. 

A recent Southern District of New York decision, Dow Jones & Co., Inc. v. Juwai Ltd., No. 21-CV-7284 (PKC), 2023 WL 2561588 (S.D.N.Y. 2023) held that the use of U.S. based servers suffices to apply U.S. copyright law to the uploading of the content.

Dow Jones owns and operates multiple news publications, including The Wall Street Journal, Mansion Global Barron's, and MarketWatch.  It is the exclusive distributor of the content, and owns copyrights therein.  Juwai Ltd. is a Chinese company based in Hong Kong and Shanghai. Dow Jones’ Complaint alleged that Juwai reproduced without authorization over one hundred articles from The Wall Street Journal, MarketWatch, and Mansion Global. The articles were either reproduced verbatim on the website, or translated from the original into Chinese.   The Complaint charged copyright infringement and violations of the Digital Millenium Copyright Act.

Juwai moved to dismiss, arguing that as a Chinese company publishing a Chinese-language website it is beyond the reach of United States copyright laws.  Relying on State St. Glob. Advisors Tr. Co. v. Visbal, 431 F. Supp. 3d 322, 339 (S.D.N.Y. 2020), the Dow Jones court held that there must be a “plus factor” – some additional nexus of the website to the United States.  One such “plus factor” mentioned in dictum in State Street and alleged in the Dow Jones complaint is the causing of copies of the copyrighted content to be copied through loading to U.S. based internet servers. 

Dow Jones specifically alleged in its complaint that Juwai used a cloud service named CloudFront (an Amazon-owned company), a content delivery service (CDN) that boasts that it increases website responsiveness and speed by storing copies, or caches, of a website's content on “edge servers” located across the globe. Users accessing a CloudFront-supported website like juwai.com will likely receive their data from the closest edge server. Dow Jones alleged that the juwai.com website has been repeatedly traced to servers in Seattle and Chicago.   Since such allegations must be accepted
on a motion to dismiss, that sufficed to apply U.S.-based copyright law.

​The Dow Jones decision expands the reach of U.S. copyright law on the internet, since the use of U.S. based servers, at least as part of global CDN services, is ubiquitous.  Given that CDN’s tend to route content through the server nearest the user’s browser, the likelihood of content being copied to U.S.-based servers to provide content to U.S.-based browsers is very high.

It has become common in litigation to charge that one’s opponent has engaged in destruction of important evidence, termed “spoliation” of evidence.  A finding of wrongful spoliation can lead to sanctions by the court, which may include a negative jury instruction, preclusion of evidence or even loss in litigation by default.  But before any sanctions can be imposed, the court must find that the destruction took place when the party had a “duty to preserve evidence.”
​
When does that duty arise?  Clearly, once a party files litigation or is served with a complaint, it must preserve all relevant evidence.  Litigation hold letters are then appropriate.  But it is generally agreed that the duty can arise prior to the filing of a lawsuit, if certain facts come to the party’s attention.

A recent Massachusetts case, JFF Cecilia LLC v. Weiner Ventures, LLC (Mass.Sup.Ct. 2023) held that the duty to preserve arises once it is merely “possible” that suit would be filed and the evidence would be relevant to the case.  The case involved a dispute between partners in a construction project in Boston.  When problems arose, one party’s counsel sent a letter to the other side giving notice of a dispute between the parties under the agreement governing the project.   Six weeks later, the same counsel sent another letter including a settlement offer to defendants’ counsel, with a four-day deadline to reach an agreement.  Two weeks later, the first party filed a complaint.

The plaintiffs later filed a motion for spoliation sanctions after discovery revealed that defendants had deleted relevant emails and texts and had reset the contents of a cell phone when transitioning to a new phone without a backup. This occurred in the time between the initial notice letter and the filing of suit.

The trial court initially denied the motion, holding that before a duty to preserve evidence arose, it must have been “probable” that litigation would ensue.  The correspondence did not yet create such a probability.  But an appellate court reversed, holding that the correct standard is whether the defendants “knew or reasonably should have known that evidence might have been relevant to a possible action.”  On remand, the trial court found that this standard was met due to the correspondence, and ordered that the jury would be instructed that spoliation occurred, and could (although it would not be required to) conclude that the deleted emails and texts would be unfavorable to the defendants.

This legal standard is somewhat more expansive than usually cited in federal litigation, i.e., that a duty arises “when a party should have known that the evidence may be relevant to future litigation,”  Kronisch v. United States, 150 F.3d 112, 126 (2d Cir.1998), or when litigation is “reasonably foreseeable.”  Bistrian v. Levi, 448 F.Supp.3d 454, 468 (E.D.Pa. 2020).  New York state courts use a standard that requires preservation of evidence  “once a party reasonably anticipates litigation.” Gregorian v. New York Life Ins. Co., 211 A.D.3d 706, 710 (2d Dept. 2022);  VOOM HD Holdings LLC v. EchoStar Satellite L.L.C., 93 A.D.3d 33, 36 (1st Dept. 2012)

​The takeaway here is that whenever any kind of dispute arises which may result in litigation, it is prudent to preserve anything that might be relevant evidence.  Since a great deal of evidence is in the form of electronic documents and information, this can easily be done by copying these into an easily accessible location.