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Roundtable: Intellectual Property Litigation
2nd Quarter
Roundtable: Franchise & Distribution Agreements
3rd Quarter
Roundtable: Employment Law
4th Quarter
Roundtable: Criminalization of Non-Comliance: How do GCs protect their companies & themselves
• May 5, 2008
• June 30, 2008
• September 29, 2008
• November 24, 2008
• June 30, 2008
• September 29, 2008
• November 24, 2008
Jenna Foran • 860-757-6619 direct
jforan@amlaw.com
MODERATOR: When should general counsel hire outside counsel to handle an internal investigation, and how do general counsel and outside counsel determine what their relationship will be?
FINN: A major factor in determining whether to hire outside counsel is whether the investigation is in response to a government inquiry or arises out of an internal report or complaint. It is generally preferable to hire outside counsel to handle a government inquiry, as outside counsel likely possesses greater experience in dealing with government regulators and investigators. Once the decision to use outside counsel is made, the next critical step is to define the roles of in-house and outside counsel. The outside counsel draws on the institutional knowledge and guidance of in-house counsel. In-house counsel will have a better understanding of many of the business-related issues, a greater understanding of the relevant documents and the ability to help identify witnesses who have specific knowledge. In-house counsel is also generally well versed in any reporting requirements related to the results of an internal investigation. Thus, regardless of whether the ultimate decision is to retain outside counsel, in-house counsel's role remains critical to the investigation.
HERNANDEZ: The decision to bring in outside counsel depends on the nature and size of the problem. If, for example, we're talking about a teller stealing from the drawer, that's clearly something that general counsel or the assistant general counsel can look into. If, however, we're talking about a systemic problem that arises under a compliance program put in place by general counsel, this may create a perception that an investigation conducted by general counsel was flawed even where it is squeaky-clean. The ultimate test should be, “How will general counsel’s decision about whether or not to bring in outside counsel look on the front page of the Wall Street Journal several months down the road?” You don’t want people asking, “Oh my goodness, what was the general counsel thinking?” Once outside counsel is engaged, it is vital that the general counsel and outside counsel discuss critical issues and reach an agreement on questions such as: “What role, if any, will general counsel and its staff play?” and “To whom will outside counsel report -- general counsel, the board or an audit committee?” In short, early and sustained communication between outside counsel and general counsel is essential to establishing an effective, credible investigation.
GARBER: Inside and outside counsel must both have a clear understanding of the scope of the internal investigation. While it is difficult to predict the cost of an internal investigation with certainty because no one knows what facts the investigator will find, it is critical that outside counsel and inside counsel consult on costs and projected costs. Another thing that is very important -- and can’t be quantified -- is the trust factor. In many respects, particularly in significant cases, inside counsel is putting the company in the hands of this outside lawyer, and there has to be a tremendous amount of trust there. In-house counsel must hire counsel that he or she trusts.
HAMILTON: The more active in-house counsel is as a member of the senior management team, the more likely it is that their office is going to be involved in some way or another in the business activities or compliance mechanisms that were either ignored or subverted or avoided. Not just the fact of transparency, but also the appearance of transparency, is going to be important, especially if there are concurrent investigations by government agencies or prosecutors. Making sure that outside observers understand that the investigation is being conducted objectively and transparently will go a long way toward avoiding the kind of situation where the government insists on waivers of privilege -- which they will be more likely to do if they think they're getting stonewalled, or not getting the cooperation they need, or if somehow there's a circling of the wagons instead of really letting the chips fall where they may.
MIRENDA: The other player in the mix is the board. Inside counsel is not going to be the sole decision maker in every case. The larger the issue, the more potentially pervasive the conduct, the more senior the people who might be involved, the more the board is going to want to -- and need to -- have a say in the decisions about outside counsel.
GARBER: The choice of outside counsel could be one of the most important decisions that inside counsel makes -- particularly these days, when lawyers for companies are under increasing scrutiny and are increasingly being prosecuted. Prosecutors now regularly look at company lawyers as potential targets, both for substantive crimes that happen before the investigation and for actions taken during the investigation.
MODERATOR: How do counsel make sure that evidence is preserved?
FINN: This is critical. One of counsel's initial, and perhaps most important, roles is to preserve the evidence, including electronic evidence. This would include meeting with the IT department and immediately suspending any mechanisms that delete electronic information without regard to content. Counsel must also make sure that all paper documents are gathered and preserved. A problem that can be managed effectively can quickly become a problem that can’t be managed effectively because of the intentional or inadvertent destruction of evidence. Also, if the investigation is initiated as the result of a subpoena or a government inquiry, the evidence needs to be preserved to maintain credibility with investigators and prosecutors.
HERNANDEZ: These days there is almost always computer-generated evidence in the form of memoranda, letters and e-mails. Therefore it is essential to speak to the IT people early on and get a clear understanding of the type of electronic data that are generated in a given organization. It is critical that clear written directives be communicated to the right people to preserve that evidence.
HAMILTON: What is tough is figuring out the earliest date that you need to reach back to. Sometimes it's not that easy to know. In Zubulake v. UBS Warburg -- a labor matter, not a governmentally inspired investigation -- the court ultimately held the defendant responsible for preserving evidence in anticipation of litigation and found a date when the court thought it was reasonable that the employer could, or should, have anticipated the litigation. You're not going to know, going in, what that date is, and you may have to put a litigation hold in place that goes back quite a bit further than the events themselves.
GARBER: Substantive white-collar offenses are often difficult to prove. Process crimes, such as obstruction of justice, are less complicated. This is where many people, including lawyers, get into trouble. Prosecutors and agents are not happy when they see that someone, particularly a lawyer, has done anything improper to impede their investigation. The line between lawful defense tactics and illegal obstruction can be difficult to draw. Experienced outside counsel will take immediate steps to minimize the chance that a substantive investigation will turn into a prosecution for process violations. One of outside counsel’s first jobs is to sensitize corporate leadership to these issues. In my experience, this itself prevents a lot of problems. Key documents should also be preserved and employee interviews must be conducted properly.
MODERATOR: Other initial considerations?
MIRENDA: Where outside counsel is brought in, their role is clear: to represent the entity, not any individual. It's counsel's obligation to explain that to the CEO, to inside counsel and/or to the employees. The job of counsel for an individual is to represent their client. Sometimes the client’s interests coincide with those of the organization, sometimes they coincide with the interests of the board, and sometimes not.
HAMILTON: The engagement letter should spell out that the outside counsel has been hired to provide legal advice. There are a number of cases where regulators and/or courts have found that the firm wasn't being hired to provide legal advice -- that this could have been done by an accounting firm or somebody else. If there's a reasonable likelihood of litigation, it should spell that out. It may be hard to sell to senior executives and the board, but I think that when regulatory or law enforcement agencies are involved outside counsel needs to play a more central role. Frankly, inside counsel needs to be willing to let outside counsel assume the lead.
MIRENDA: As outside counsel representing an individual, your client’s risk of criminal exposure is always the first thing you evaluate. Are they likely to be in a prosecutor’s sights? Is there jail at the end of the story? Moving beyond that, evaluate employment-related exposure. Are they going to be able to continue in their job? What reporting responsibilities, Sarbanes-Oxley responsibilities, government compliance responsibilities did they have? Did they file certifications? Even where the individual may not have been personally involved in the underlying business practice at issue, incorrect or incomplete reporting can lead to exposure. Then there is the individual's personal standing. Sometimes reputation and legacy and other personal factors really matter to an individual. How does this person want to go out, if they're going to have to go out?
HAMILTON: It can be difficult getting somebody who is normally cooperative and collegial to understand that they cannot have any more conversations in the workplace on this topic, at least not without you present. Whether it's their best friend down the hall or their trusted assistant or anybody else, they have to be careful. They have to compartmentalize their work lives a little bit.
MODERATOR: At what point do you suggest that an individual you are interviewing get counsel of their own?
HERNANDEZ: Outside counsel represents the corporation. It is not uncommon for the person being interviewed to ask outside counsel whether they should have their own attorney. At that point the interviewee is asking for legal advice which, as counsel for the corporation, outside counsel is not allowed to offer. If the interviewee betrays any confusion about who outside counsel represents, bar and ethics rules require that outside counsel remind the interviewee that he does not represent her –- he represents the corporation.
GARBER: We're obligated at the beginning of an interview to advise the witness that we represent the company and not them individually; that we are conducting the interview to provide legal advice to the company; that the interview is privileged and confidential, but the privilege belongs to the company; and that we're not in a position to provide the witness with legal advice. Having provided those warnings, when I'm representing a company and interviewing a witness, it's my job to get the facts. It's not for me to evaluate whether that person may or may not be saying things that might get them into trouble.
MODERATOR: How do you handle somebody who says, “I want a lawyer and I'm not going to talk to you even if I have a lawyer”?
MIRENDA: If the internal investigation is not being done at the behest of the government, employers have a right to demand cooperation from their employees as a condition of their continued employment. Both outside and inside counsel really have to judge carefully how much pressure to apply. In my experience, coming in like gangbusters on day one and threatening all the employees with termination unless they cooperate has never led to a successful investigation, success being defined as gathering the information you need to supply good legal advice to the client. And adding the government into the mix changes the equation. It depends on the particular circumstances, but if inside or outside counsel are deemed to be acting at the direction of the government, the kinds of pressure they might otherwise be able to apply in an internal investigation could have consequences for any government prosecution. For example, in U.S. v. Stein (the KPMG tax shelter case), the federal judge dismissed indictments against 13 former KPMG executives in part because he concluded that prosecutorial influence over KPMG’s decision to stop paying their defense costs amounted to government interference with their constitutional right to counsel.
HAMILTON: The key, of course, is that you want to get to yes, and you want to get to yes by being honest and letting them know in a nonconfrontational way that the company has an obligation to investigate what happened and therefore they should be forthcoming. If the person is not stonewalling you entirely, but is willing to talk about who they are and how they came to the company and what they do for the company, you can get them talking about things that they can rattle off in their sleep -- and then you can bring them along.
MIRENDA: Individuals’ having their own counsel does not always (or even often) lead to obstruction. It's more likely to lead to lawyers’ being able to talk to each other about what the real issues are; understand people's concern; and address those concerns in such a way that the company can get the information it needs, understand what happened and deal with it appropriately.
MODERATOR: How do you deal with the fact that interviewees don't always tell the truth?
HERNANDEZ: Witnesses are only human, and they shade the truth, prevaricate and confabulate about all sorts of things -- both important and meaningless. Therefore it is critical when interviewing a witness to have all the relevant information, documents and e-mails -- and to corroborate, corroborate, corroborate.
HAMILTON: Frankly, I would also use some of the techniques that, I used as a prosecutor with cooperating defendants. Let them know how dangerous it is to lie, how that really is shooting themselves in the foot. Structure your questions as building blocks and make it more difficult for them to take a contrary position when you get to the key question. Especially if you've already conducted part of the investigation, let them know, “Look, out of every 10 questions, we know the answers to seven or eight. We're going to be asking you some questions that we already know the answers to, in part because we want to see if you're going to tell the truth about what you know about other matters.” I think some of these techniques can also be useful in this type of setting.
ROSS GARBER: The way outside counsel deals with employees is a big issue for the general counsel. Word will get out very quickly about how outside counsel is treating the witnesses. And I find that you usually -- not always -- get more from a witness by being kind to them, even when pressing them, rather than by being adversarial.
MIRENDA: Listen, listen, listen. You really need to listen to what witnesses tell and don't tell you, and how they look when they're telling you. There's no substitute for that.
MODERATOR: How do you structure an investigation when you know or suspect that an eventual prosecution may lead to a government request for waiver of the attorney-client privilege?
HERNANDEZ: There are no hard-and-fast rules on how to structure an investigation. It comes down to judgment. Many of these issues can be dealt with through effective communication -- which includes listening. While it is important to have a battle plan going into an investigation, it is also important to continually reevaluate one’s initial strategy in light of everything that you've learned during the course of the investigation. One has to be flexible enough to adjust his strategy going forward.
GARBER: I always inform the company that, given the current climate and government policies, it is possible that the company will be asked to -- and will -- waive the attorney-client privilege. Even so, every effort should be made to preserve the privilege. Also, limited waivers generally don’t work, so if the company waives the privilege as to the government, it should fully expect that the plaintiffs lawyers, and ultimately the public, will be looking at otherwise privileged information. With that in mind, all documents created in connection with an internal investigation should be created in a way that minimizes embarrassment to the company and its employees should they become public. Finally, any decision about waiver must be fully vetted, with the potential ramifications discussed. Companies should waive privilege only when absolutely necessary and as a last resort. In other words, waiver is rarely, if ever, appropriate. In my experience, there are almost always ways to satisfy the government without waiving the privilege.
FINN: Steps must also be taken to make sure that there is no inadvertent waiver. One of the ways you can quickly waive the privilege is by not being careful with the witnesses, many of whom want to be helpful and want to talk about the situation. You should remind them at the beginning of any interview not to discuss the investigation with anyone. Inadvertently waiving the privilege may have unintended consequences in the event of subsequent civil litigation, which is particularly likely in investigations dealing with violations of securities or antitrust laws.
MIRENDA: There are all sorts of potential waivers. If the company goes into bankruptcy, all of a sudden the privilege belongs to someone else -- who may have an interest in waiving it. If the company is acquired, the privilege belongs to the acquirer. Regulatory agencies, bank regulators, auditors, all sorts of folks may in the future make requests or have legitimate reasons to get behind legal advice that was provided in the context of an internal investigation. Outside counsel really has to take the long view. It's not enough for them to be thinking, “Does this memo have to be disclosed to the assistant U.S. attorney handling this case?” They should also be asking, “Is the board going to want to waive the privilege to try to reestablish company credibility with,” for example, “the consumer base or the public?”
GARBER: Requests for waiver are often indirect. A prosecutor won’t often say, “Will you waive the attorney-client privilege?” but might say, “Can I see the notes of interviews? Can I see interview memos? Can I see the internal investigation report?” Inexperienced prosecutors may not realize that by producing those documents a company would be waiving the privilege. Similarly, outside counsel may in many situations produce those documents to a prosecutor even without being asked, and might not realize that they're waiving the privilege.
HERNANDEZ: Preserving the attorney-client privilege has the ancillary benefit of, hopefully, preserving the corporation’s goodwill and standing in the business community. It is easy to underestimate just how disruptive an internal investigation can be to an organization, and you want to make sure that employees are not gossiping about it. The last thing XYZ Corporation wants is to have everyone from accounting wasting time down at the water cooler talking about how they met with this attorney and that attorney, and which questions were asked.
MODERATOR: The DOJ in December 2006 issued the McNulty Memo, revising guidelines to be used by federal prosecutors in deciding whether to charge a company criminally. It was meant to rein in what many saw as the routine use of requests for waiver of the attorney-client privilege.
HERNANDEZ: An important idea behind the McNulty Memo is that a corporation’s decision to decline to waive the attorney-client privilege is now only one of a number of factors that a prosecutor may consider when deciding whether it is being cooperative or not and whether it should be charged criminally. In some instances indictment is equal to corporate death. This aspect of the McNulty Memo places the corporation’s decision not to waive the attorney-client privilege on a more even footing with other factors, and prevents the prosecutor from basing her decision to charge a corporate entity on this factor alone. Further, it requires that assistant U.S. attorneys first get permission from higher-ups before asking a corporation to waive the attorney-client privilege.
HAMILTON: The McNulty Memo replaces the Thompson Memo of 2003, which allowed prosecutors more freedom with respect to requesting waivers of attorney-client or work product privilege and provided prosecutors with tools that a lot of people thought were excessive. This sparked a move to promote legislation in Congress to protect the attorney-client privilege and the McNulty Memo is a response to that. It creates two categories of attorney-client or work product privilege: Materials that are purely factual are Category I; for that you have to get the personal approval of the U.S. attorney. But for Category II, which is actual legal advice and attorneys’ opinions and mental impressions, you have to get approval from the deputy attorney general of the United States. There is literally one person in the country making that decision. That is going to prove to be fairly onerous, and I think over time there will be far, far fewer requests for waivers that get up that high.
FINN: In my view, the McNulty Memo altered the perception that prosecutors will routinely seek waivers. One of the perceived problems with the Thompson Memo was that the discretion it gave to prosecutors resulted in their pressuring corporations to waive the privilege. The McNulty Memo takes away the pressure, in a sense, by taking away prosecutors’ broad discretion to seek a waiver. I believe that while the Thompson Memo was in effect, if a corporation refused to grant a waiver, there was a sense that it and the attorneys conducting the investigation were not cooperating with the government. I believe the McNulty Memo has already removed the pressure of requiring waiver and the sense of noncooperation where a waiver is not given.
HERNANDEZ: I think the McNulty Memo impliedly recognizes that there are legitimate business reasons why a corporation may want to preserve the attorney-client privilege, independent and apart from the investigation itself or what is uncovered during the course of that investigation. It seems to recognize that, in short, a corporation should not be indicted or penalized based solely on the fact that it decided not to waive its attorney-client privilege. We're not there to keep the prosecutor happy. It is possible and desirable, however, through a clear dialogue with the prosecutor, consistent with the attorney-client privilege, to communicate that the corporation has legitimate, good faith interests in not waiving the privilege.
GARBER: I think people are now a lot more thoughtful about waiver issues, and also a lot more creative about ways to get the government the information it wants without waiving the privilege.
MIRENDA: I think the single most important reason for not waiving the privilege is that privilege is part of what allows counsel to get the information in the first place. We've all said communication is the key here -- communication with the client, the board, the prosecutor. Make sure you understand what it is that the person asking for waiver really needs. Then you can find a way, while still protecting the privilege, to satisfy that need. For example, if the prosecutor is looking for certain information, and cooperation is in your client’s interest, there are ways to convey that information without waiving the privilege.
FINN: The point is a good one in terms of understanding the policy behind the privilege. I believe that while the Thompson Memo was in force there was an erosion of the attorney-client privilege. One of the concerns in the defense bar about the Thompson Memo was that either there was pressure for the privilege to be waived or it was being waived to demonstrate cooperation or to get a reduced sentence. That had a negative impact on the gathering of information, which is, after all, the purpose of the investigation.
MODERATOR: The McNulty Memo also tells federal prosecutors that, with rare exceptions, they are not to consider a company’s advancement of attorneys fees when making a charging decision.
GARBER: Sooner rather than later the general counsel should talk with outside counsel about whether there’s an obligation to advance or indemnify fees, or whether the company wants to do it voluntarily. They should also discuss potential ways to structure representation for individuals. You never want one attorney representing two targets or subjects of an investigation, but to reduce costs it's common practice for one lawyer to represent multiple witnesses who are out of harm's way.
MIRENDA: The issue of attorney fee indemnification is part of something broader: the risk that prosecutors will infer something nefarious from the way a corporation organizes its defense, organizes an internal investigation, helps employees get counsel, pays for counsel, works with those counsel in some kind of common interest or joint defense arrangement. This is something we've had to deal with for decades.
HAMILTON: I think some prosecutors are more concerned about joint defense agreements than they necessarily are about whether or not a particular officer is having their lawyer’s fees paid.
MODERATOR: Should a company pay attorneys fees for an individual who is found to be guilty of wrongdoing?
FINN: First, the company has to determine whether it has a legal obligation to pay a specific individual’s attorneys fees. It may have an obligation under state law or a contractual obligation to indemnify particular employees. Indemnification may also be part of a collective bargaining agreement. Apart from any legal obligation, I think the individuals -- as well as the company and the investigation as a whole -- are well served where they're represented by counsel if need be. I think it's appropriate that a company be able to say to its executives or employees that require counsel that they will pay for counsel. But I don't believe there's anything improper about the company’s saying, “If we learn that a wrong was committed here, we reserve the right to seek reimbursement.” In other words, the company pays the fees so that the process is not interrupted; the individual employee’s rights and concerns are therefore addressed. The determination to stop paying fees -- as opposed to seeking reimbursement -- is fraught with danger because you don't want to strip the individual of representation if they cannot pay for it. I don’t believe that serves any beneficial purpose. In my view, the better practice is to seek the reimbursement.
HERNANDEZ: While declining to reimburse attorneys fees may have benefits or appeal in the short term, the corporation must consider whether doing so may have a chilling effect on the willingness of other corporate officers to be fully candid during the investigation. It could also have a long-term detrimental impact on corporate culture and morale, and may make it difficult for an organization to attract the highest quality corporate officers.
MODERATOR: How do counsel determine whether to disclose the results of an internal investigation that was initiated in house?
FINN: First, general counsel has to be particularly careful about whether or not the failure to disclose the results of an investigation could constitute a separate, independent crime. For instance, if a government contractor has to certify that they are not aware of any violation of government rules, in-house counsel cannot allow a certification to be made without revealing the results of the investigation. Another example: Under Sarbanes-Oxley, which requires certification of certain financial statements, general counsel cannot allow a certification to be made when he or she has learned of an impropriety with the financial statements or reporting, because this could constitute a new and independent crime.
GARBER: The bottom line is that any serious investigation is probably the most significant thing that will happen in a general counsel's career, and for that reason he or she has to take a very active role in making sure the situation is managed correctly and appropriately, and must choose outside counsel carefully.
opportunities for trademark and copyright infringement. As the world grows smaller, international efforts to protect trademark and copyright owners and to simplify intellectual property transactions have increased. How is the law responding to the demands of the digital age?
We’ve invited five noted practitioners to help us dissect some of the trademark and copyright issues of critical importance to general counsel. Joining us are Glenn Cunningham, partner in Shipman & Goodwin LLP in Hartford; Marina Cunningham, partner in McCormick, Paulding & Huber LLP in Hartford; Curt Krechevsky, partner in Cantor Colburn LLP in Hartford; Merton Thompson, partner in Burns & Levinson LLP in Boston; and Cynthia Johnson Walden, principal in Fish & Richardson PC in Boston.
MODERATOR: Let’s begin by taking a look at the issue of using competitors’ trademarks as search-engine keywords – which Google calls AdWords – and whether this constitutes trademark infringement.
WALDEN: You can sign up with Google or Yahoo or another search engine and purchase a keyword, a word that drives traffic to your Web site. You can purchase your competitor’s trademark as a keyword. The question is whether this constitutes trademark infringement under the Lanham Act, which governs trademarks. The courts have applied a two-step analysis: (1) whether the purchase and use of a keyword constitutes “use in commerce” and (2) whether the use of a keyword results in likelihood of confusion. Currently the courts are split on whether the purchase and use of a keyword constitutes use in commerce, and no court has yet found that it is likely to lead to confusion, although I think this is possible under an “initial interest confusion” theory. However, the more people become familiar with how Internet searching works, the more difficult it may be to make the likelihood of confusion argument successfully because people will know that you can buy a competitor’s mark as a keyword.
KRECHEVSKY: A company can be concerned about the use Cindy was describing, where search engines make trademarks of the general counsel’s company available for purchase by their competitors. A company can also be an advertiser and interested in having its ads appear when people are searching for their competitors. It is always important to think about it from both sides because most companies, of course, engage in advertising and marketing in addition to owning trademarks.
G. CUNNINGHAM: You can see why this can be such an annoying issue. When you are the general counsel, your clients are your businesspeople out in the field. They come to you and say, “Our direct competitor is out there using our trademark, on which we spent so much money, time and effort in building goodwill, and they purchased it on Google or Yahoo and they’re driving traffic to their sites and their products. Do something.” And we look at the state of the law and it’s, “Well, there may be something you can do, but right now it’s pretty unsettled.”
THOMPSON: It’s also important to know that you can manage this yourself to a large extent by getting your search-engine positioning strategy established and spending a little bit of money to promote your company by purchasing the keywords that relate to your own products -- and that will suppress all the bad guys.
KRECHEVSKY: One of the first things a general counsel can do is simply type in their brand name and see what comes up on all of the popular search engines. They might be surprised -- pleasantly or unpleasantly -- at the ads that are triggered.
M. CUNNINGHAM: Sometimes trademark owners search for their trademarks on search engines such as Google and Yahoo and their competitors’ sites come up before their own sites. The trademark owners then really need to investigate further to ensure that their trademarks are not infringed.
MODERATOR: Are we trying to fit new problems into an old statute – the Lanham Act?
M. CUNNINGHAM: That is why there is such a split in the courts.
THOMPSON: It’s really a new spin on an old problem. There’s nothing that stops your competitor from buying a billboard right outside your store and advertising their own wares. That’s basically what’s going on here, but there are a lot more ways to manipulate this system to intercept your competitors’ customers.
G. CUNNINGHAM: Google and Yahoo phrase the issue as one of product placement: “This is no different than going to the supermarket and seeing product X, your competitor, on the shelf next to your product Y. The fact that we’re doing that digitally -- what’s the big deal?” The problem is that there is a use. Whether it’s use in the Lanham Act sense or not, there is a use of a trademark that leaves you feeling uncomfortable and that there must be a remedy.
KRECHEVSKY: There have been some misguided attempts by states to police the purchasing of trademarks as triggers for advertisements. Under a recent law enacted in Utah, if you own a Utah state registration for your mark you can convert that into an “electronic registration mark” and any Web site that is accessible within Utah is not allowed to sell that mark as a keyword trigger for advertisements. The commentary on this law has been almost unanimous that this is an undue burden on interstate commerce and is almost certain to be held unconstitutional -- a point of view with which I agree. But it does show the level of controversy and the fact that some states are trying to do better by the trademark owners within their borders.
WALDEN: The distinction that I see with the billboard analogy is that with keywords you are literally buying someone else’s trademark for the specific purpose of trading on the goodwill associated with it. But is that actionable under the Lanham Act? Not necessarily. The question is, should it be? Do we need to modify the Lanham Act to address this unique situation -– or is the use of trademarks as keywords simply fair game in a world where consumers are increasingly savvy about Internet search engines?
M. CUNNINGHAM: The bottom line is that competitors are using somebody else’s mark to direct traffic to their own sites. Even if the competitor does not use someone else’s mark on their own Web site, the competitor is still benefiting from using someone else’s mark in AdWords.
KRECHEVSKY: Those in favor of this practice point out that we would not benefit from the enormous power of a search engine like Google or Yahoo but for their ability to monetize all of the information that they make available. So there are two sides to this, and it’s going to be some time before it gets settled.
M. CUNNINGHAM: We advise our clients to take advantage of whatever the state of the law is right now.
WALDEN: There are about a dozen federal district court cases out there in various stages of progress on this issue. I think everyone is waiting for a decision, based on a survey that proves the likelihood of confusion, that actually gets to the merits of the issue.
G. CUNNINGHAM: Cindy raises a good point. If you are the general counsel and your clients are saying, “You need to do something about this,” from a strategic standpoint you are going to have to sit back and look at what’s really going on out there in the marketplace: How big an issue is this for us? Do we do a survey and find out from the consumer perspective whether there’s an issue?
THOMPSON: The good news is that if there’s a really egregious misuse of the trademark, the Yahoos and Googles of the world are very responsible.
WALDEN: That’s right.
THOMPSON: They will take the advertisement down if there is a valid complaint.
WALDEN: The flip side is that marketing folks want to take advantage of this use: “Everyone else is doing it. Our competitors are doing it, so why can’t we? We’re losing out on a lot of additional revenue.” So general counsel really need to think about both sides of the issue. At the moment there’s no clear law that says you can’t do it, but that may be the case at some point.
G. CUNNINGHAM: We’re in the Wild West of trademark use in advertising because you’re right -- the marketing department comes in and says, “Let’s do it. There’s value there for us.” You do a cost-benefit analysis and you make a decision.
M. CUNNINGHAM: If you get sued or the law changes, you can always take it down.
G. CUNNINGHAM: That’s right.
MODERATOR: Let’s move on to the issue of cybersquatting –- registering an Internet domain name in bad faith for the purpose of selling it to its rightful owner. When do you advise clients to go after cybersquatters with the Uniform Dispute Resolution Policy, the UDRP, established by the Internet Corporation for Assigned Names and Numbers, ICANN, and when to sue in federal court under Section 43(d) of the Lanham Act?
THOMPSON: The UDRP and Section 43(d) are both very effective and the UDRP is quite efficient. If you have even a marginal case, you’re better off with the UDRP because their decisions are pretty heavily weighted toward the trademark owner.
M. CUNNINGHAM: The UDRP is to be used when it is a clear-cut case, where you have a mark and somebody else obtains a domain name that is extremely similar. The only possible recourse under the UDRP proceeding is getting that domain name. If one is seeking monetary damages, the UDRP is not appropriate.
G. CUNNINGHAM: If it isn’t just a dispute over a domain name, but a more traditional trademark dispute where you want remedies such as an injunction, monetary damages and the like, you may be better off going to federal court -- with all the baggage that goes along with that.
KRECHEVSKY: One of the other advantages to going the federal court route is that the UDRP requires that, in addition to the indicia of bad faith registration, there be some use of the domain name. There are plenty of situations where you believe you have a clear-cut case of cybersquatting, but no Web site has been put up so it’s difficult to meet the UDRP’s use element. The federal law does not require use. You simply have to show bad faith.
G. CUNNINGHAM: One procedure that’s available to trademark owners is to proceed in rem against someone who is holding a domain name they say is infringing upon their mark. The sole remedy you’re seeking is a court order transferring the domain name to you because you are the rightful possessor. You get into federal court, it’s fairly quick and it’s very helpful when you don’t know who the actual registrant is. You basically need to know where the registry for that domain name is, and that’s the venue. It’s also fairly inexpensive.
THOMPSON: You’re seeing fewer true cybersquatters out there now. Often companies will come and say, “I think I should own this domain. It’s a variation on my trademark.” You contact the registrar and it turns out that it’s a very large company that owns 400,000 domain names. They just aggregate domain names that get a predictable amount of traffic, and they place pay-per-view or pay-per-click or cost-per-thousand-views advertising on a so-called “parking page.” They’ll transfer the domain name to you right away as long as you can establish a trademark.
KRECHEVSKY: One situation that has developed within the last couple of years is domain name “tasting.” A domain name registrant has five days before they have to pay a registration fee, so you have individuals and companies that register anything under the sun that they think might have commercial value to someone else, keep it for five days and then release it. During that time they put up parking pages, so-called “search optimization pages,” which have links to other sites and advertisements. Even if only a fraction of one percent of the people looking for the legitimate trademark owner come to that page and click on something that generates maybe a fraction of a penny each -- but multiply that over thousands of hits and it amounts to significant revenue -- these tasters are able to generate significant income without having to invest in the domain names that they register. Verizon has been at the forefront of trying to get ICANN to close this loophole because in the view of many trademark owners it’s outrageous that tasters are able to generate money off of valuable brand names.
WALDEN: Where I’ve seen it come up a lot lately is as a typo of a company name. They will spell “coporation” or “copany” in a domain registration, for example. But since you could have thousands of typographical variations of the correct name, you could spend an inordinate amount of time trying to police this type of thing. The ultimate issue is whether there is going to be any legislative action to address the loophole.
KRECHEVSKY: From general counsel’s perspective, you take your top one, two, three brand names and think about all the top-level domains -- like .com, .net, .org -- plus all the country code top-level domains -- .us, .uk and so forth. Multiply that by all the typical typographical errors that people would enter in trying to find you, and you arrive at an enormous number of potential domain names that, if you had an infinite budget, you would want to purchase to prevent other people from making money off of them. Obviously no one has an infinite budget, and hard choices have to be made.
WALDEN: There is also a distinction to be drawn between a domain name incorporating your company name or a unique product name, where the use may lead to likelihood of confusion, and one incorporating a more minor mark or a descriptive mark, where the potential for confusion is diminished. In addition, a trademark search may identify many domains with no associated content -- which means there is no infringing use. In that scenario, the best course of action may be to monitor the site periodically, but otherwise do nothing.
KRECHEVSKY: There are over 200 countries in the world, and every one of them has a ccTLD, a country code top-level domain. Obviously Fiji and Botswana may not be at the top of anyone’s list in terms of caring whether someone has registered their brand name in combination with those ccTLDs. The challenge becomes where to meaningfully draw the line among domain names that you really ought to buy versus those that you just leave alone until you have to take specific action against them. When you see more activity than just a domain name registration per se, that will trigger a different response than just a passive registration.
WALDEN: You would obviously want to be aware of an infringer trying to trade on a mark, but you should also monitor domain registration by distributors or licensees. They may be trying to do the right thing by registering the domain name, but when they register it in their own name it could become problematic if the relationship later goes sour. Your enforcement policy should include monitoring who is registering trademarks and domains in foreign countries and making sure they all get assigned back to the company itself.
G. CUNNINGHAM: Remember that your own employees are your best investigators because they’re the ones who are in the trenches. They know what’s going on out there, they know where to look and they are an invaluable resource. General counsel should empower their employees, licensees and distributors to feel like they have a place to go when they see something improper in the marketplace. It’s in all of their best interests to be out there preserving and protecting your marks.
THOMPSON: Being aware of and proactive in monitoring your online presence can go beyond trademarks. You can have a corporate critic or gadfly or angry stockholder that you really want to keep off the first page of search results. If you’re active and savvy about managing how a search engine responds to certain queries, you can keep that roar down to a murmur.
MODERATOR: Yet another caveat is to make sure your advertising and marketing people aren’t violating copyrights.
M. CUNNINGHAM: Companies need to police themselves and set clear internal guidelines. You would be amazed to learn, when you get people around a table over pizza, what employees actually have done without even thinking of the ramifications.
WALDEN: Particularly in marketing. It is important to train people regularly because people come and go and new people may not be familiar with your policies. The goal should be to really make it institutional knowledge -- and a priority -- that people be aware of the trademark, copyright and patent issues when they are coming up with new products or packaging or marketing materials.
G. CUNNINGHAM: You give a tremendous amount of marketing collateral to your distributors, and you need to think about what happens if there is a business divorce at the end of the day by making sure you get all of your marketing materials back. Inevitably you see some of it out there a year or two later and it’s, “Wow, that’s a really interesting ad picture that looks very familiar.” And it turns out that it is interesting because it was yours and you didn’t get it back.
THOMPSON: Another best practice for corporate counsel is that if you’re administering a network, you want to have a network use policy that prohibits things like installing peer-to-peer file sharing software or downloading or sharing files that are copyrighted.
G. CUNNINGHAM: Yes. Look what happened to Pfizer this spring. An employee takes their laptop home; the employee’s spouse downloads peer-to-peer file sharing software. The employee plugs back into the Pfizer network and somebody on the outside connects and manages to take down files with Social Security numbers and personal identification information for thousands of Pfizer employees. How do you defend against that? I don’t know the answer, except to really let people know what can happen if they violate company rules.
THOMPSON: As you said, not only can it result in a copyright infringement, it can also result in a massive security breach of something that you may presume is secure.
M. CUNNINGHAM: And in the Pfizer case the breach was completely inadvertent. Can you imagine if one really intended to do harm?
WALDEN: Right.
MODERATOR: In 2003 the U.S. signed the Madrid Protocol, a treaty administered by the World Intellectual Property Organization, or WIPO, that permits a U.S. business to register its trademarks in the other 73 signatory countries by registering them in this country. Pros and cons?
M. CUNNINGHAM: The Madrid Protocol is a useful tool. However, it does have a number of restrictions. First, you need to have use in every country where you file -- and sometimes you do not have use in each and every country. Second, you cannot alter the description of goods, which is based on your registration in your country. Third, the registrations in member countries are based on the original registration, so if the original registration is successfully attacked, then all of the other applications are invalid. Thus, the Madrid Protocol is not always the right approach.
MODERATOR: So rather than saving money by filing once, you may end up filing separately and eliminating the initial cost savings.
M. CUNNINGHAM: There is definitely a savings up front on the filing fees. But then, if you have prosecution or any issues in any of the other countries, you still have to hire local attorneys to handle that. There are some savings, but not as much as many believe.
WALDEN: One thing that has come as a surprise is that if you get a provisional refusal in China, there is a very tight window for turning around a response. The deadline is about six weeks from the date the examiner’s objection is issued, but by the time the objection is processed by WIPO and you ultimately receive the notice of provisional refusal, you may end up with only a couple of weeks or less to address the issue. That is one big pitfall you really need to stay on top of. You do not need foreign counsel in each country to help file an application, but this also means you do not have local counsel informing you about any issues in advance of notification from WIPO. Another big cost savings can be achieved when recording assignments. According to WIPO, if you record an assignment in all 74 member countries the fee is roughly $150. But if you record that assignment separately in each of those countries, the cost could be up to $40,000. Assignments, name changes, mergers and licenses can all be centrally processed with a minimal fee.
G. CUNNINGHAM: There is a very interesting offensive litigation twist that I’ve seen post-Madrid. If you are thinking about opposing a mark that has gone through the Madrid Protocol, or canceling a mark or bringing an infringement action, one of the leverage points you have is that the other side will have to be thinking, “If we lose this action, we lose all the related applications and registrations. We’re going to have to go all the way back to square one and incur all of those additional costs.” So when you’re looking at all of the reasons why you may or may not want to go after someone and you see a Madrid Protocol application and registration, you think, “I’ve got some leverage on these folks.”
MODERATOR: In its 2003 Medinol v. Neuro Vasx decision, the Trademark Trial and Appeal Board developed a strict liability doctrine for accuracy in trademark registration. Failure to meet registration requirements is known as “committing fraud on the PTO,” the U.S. Patent and Trademark Office.
KRECHEVSKY: It’s not really fraud in the way that we normally think of somebody deliberately and intentionally misleading someone else. What it means here is that you have an absolute duty of 100 percent accuracy whenever you are making an allegation to the trademark office about use of your mark on all of the items and in all of the classes that you claim in your application or registration.
THOMPSON: Often clients are in a rush to get a registration, and perhaps they’re using the mark for three out of the four classes of goods that they’ve applied for. The temptation is to say, “Yes, we’re using it for all of those, because I’m sure we’re going to fill that in within a few months anyway.” If that doesn’t happen and you get caught, your entire registration is void based on fraud.
M. CUNNINGHAM: It’s not just one class that can be lost. You can have 30 different types of goods listed, and if you don’t use the mark on just one single good, your whole registration can be invalidated.
WALDEN: It could also be inadvertent. It could be that you asked someone to verify for you that it’s in use, and they don’t really understand what “use” means. It could be a completely good faith thing that nonetheless leads to a situation where a false statement was made on a material issue to the PTO.
M. CUNNINGHAM: We often deal not with in-house counsel or a trademark administrator but with CFOs or an employee who just inherited the job and wants to sign off on whatever you put in front of them without really reading our specific instructions and without checking that the mark is still used on every single good.
KRECHEVSKY: The question arises for general counsel -- am I sitting on a bunch of federal registrations that basically are not worth the paper they’re written on? The case law thus far is not promising about one’s ability to cure a problem that you are the first to detect. I think there should be an incentive created for trademark owners to fix errors they detect in their registrations, at least before those registrations have been asserted or challenged in administrative or court proceedings. There have been a couple of very recent TTAB decisions that suggest that, in the application context, you can delete and still preserve your application, that you’re not permanently vulnerable to cancellation. It’s not clear. I think there should be an equal opportunity on the registration side, too, but there’s no law to support that yet.
G. CUNNINGHAM: What that creates is a zero-sum game. If you’re in a litigation or pre-litigation posture, on the defense or on the offense, and you realize there’s an issue with the original application, suddenly your bargaining power has shifted tremendously one way or the other.
KRECHEVSKY: If you’re in an opposition and you’re the applicant and the opponent relies on certain registrations, inevitably you answer the opposition with a counterclaim to cancel the registrations for fraud, because it is a strict liability standard. So whatever the TTAB thought it was going to accomplish by putting people on notice that they’d better shape up, it has brought a lot more in the way of litigation costs.
MODERATOR: Is this policy too harsh?
M. CUNNINGHAM: On the one hand, it is a harsh policy. On the other hand, the law presumes that trademark owners know what they are using their marks on, so trademark owners have to be extremely careful not to jeopardize their own registrations. One piece of advice I give to my clients -- and they do not always take it –- is: do not file multi-class applications. If you have one mark that you want to register in five classes, file five separate applications so that if you make a mistake down the road on one of them, you do not lose the registration for all of your classes. Also, on renewal clients really have to be very careful to review what they are using the mark on, and that gives them an opportunity to remedy.
KRECHEVSKY: The trademark law itself contemplates that, over time, you may legitimately stop use on some of the items that you were originally using the mark on. So if the statute contemplates that things legitimately fall out of use, why should there be a harsher penalty because of this fraud doctrine?
MODERATOR: Let’s take up the issue of counterfeiting. Some observers estimate that as much as 10 percent of goods sold worldwide are fakes. Can anything be done to stop this?
THOMPSON: Virtually every manufactured good that you see on the market today comes from overseas, primarily China, and there are multiple opportunities for mischief along the way. Everybody has seen the knock-off Gucci bags, but run-of-the-mill consumer items are also being knocked off -- things like printer cartridges, batteries and razors -- and some of them are virtually indistinguishable from the genuine article.
M. CUNNINGHAM: Unfortunately the counterfeiters have moved from Gucci and Louis Vuitton bags to very sophisticated mechanical and electrical equipment, drugs, toothpaste, tires…
WALDEN: Baby formula.
M. CUNNINGHAM: And baby formula. It is very disconcerting and dangerous.
THOMPSON: Get the feedback from your marketing department or your salespeople that says, “Somebody returned a printer cartridge to us and it doesn’t work. We don’t think it’s ours.” That’s going to say, “I’ve got a problem. I need to investigate.” You want to find out how much it is costing you to have counterfeiters in the market with you and how much you want to devote to suppressing them. It’s a problem that’s not easily solved but that can be managed if you’re proactive.
G. CUNNINGHAM: You need to establish a relationship with your manufacturing partners such that there are incentives in place for them not to counterfeit and not to violate your rights. Know who you’re dealing with when you’re dealing overseas or, for that matter, in the U.S.
WALDEN: Part of the problem we’re dealing with in China and some other Asian countries is that until fairly recently it was societally acceptable to counterfeit. It was just something that people did to make money. So having the right language in the contract is certainly important. Recording your trademarks with customs is another weapon in the arsenal. Lining up good counsel in China to do the necessary legal maneuvers, which perhaps means conducting a raid and bringing a lawsuit, is important. This can be very expensive, and they may set up shop somewhere else next week, so it’s a very frustrating process.
G. CUNNINGHAM: Recording your registrations with U.S. customs is one of the most cost-effective things that general counsel can do because there you have a government agency that’s in a position to intercept imports before they spread out into the market. They are even receptive to specific training about what your genuine products look like and what a typical counterfeit or other infringement might look like.
KRECHEVSKY: If you are “fortunate” enough to have a counterfeiting problem that means you probably have a popular product. I have always looked at counterfeiting as a problem of control, but not necessarily elimination, because if the counterfeits dried up tomorrow and it wasn’t as a result of anything you did, you might want to start worrying about your job security.
MODERATOR: Unless we’re talking about counterfeit parts that you buy unintentionally to put into your product.
KRECHEVSKY: Be very cautious about buying from unauthorized suppliers. Sometimes, particularly if they’re under cost constraints, people are tempted to go to unauthorized sources that are offering a really good price. As in many other areas of life, sometimes a bargain that looks too good to be true … is too good to be true.
