Monday, February 19, 2018

No One Owns Anyone: Orly Lobel's New Book and Thoughts on Knowledge as a Transferable Property Right

Few scholars or commentators have advanced the study of non-compete agreements more than Professor Orly Lobel.

I've referenced her 2013 book, Talent Wants to Be Free, numerous times on this blog and even managed to cite it in a legal brief or two. Professor Lobel is a strong advocate of what she calls "knowledge flows." This is the idea that the migration of people from one firm to another, or to their own firm, can lead to a net societal gain in terms of innovation and technological development.

Her latest book, You Don't Own Me: How Mattel v. MGA Entertainment Exposed Barbie's Dark Side, is a much different read. But it is utterly fantastic, and you don't need to be an IP nerd like me to enjoy it.

The setting for the book is the biggest intellectual property dispute over the past 20 years (sorry, Waymo, you settled): Mattel's war on MGA Entertainment for its development of Bratz dolls to compete with long-time market leader, Barbie. The impetus for the legal battle centered on product developer Carter Bryant, who conceived the idea of the competing Bratz toys while on hiatus from his job at Mattel.

I will leave to the side the copyright and trademark issues that permeate the book, though by no means do I wish to discount them. The legal issues are fascinating. Mattel's claim over Bryant's creative work stemmed largely from the interplay of contract and intellectual property law, a narrow branch that doesn't receive nearly as much attention in the reported decisions: an invention assignment clause. Strictly as a matter of intellectual property law, there's no doubt Bryant would own his own ideas or conceptions related to Bratz. But to what effect did a contractual assignment of those inventions allow Mattel to claim them as its own?

We know how this story turns out. Mattel won the first trial, but lost in the Ninth Circuit. One of the tenets of the Ninth Circuit's opinion was decently simple: Mattel's invention assignment clause never mentioned "ideas," and the concept of Bratz was an idea Bryant had. The jury got bad instructions on his contract. On re-trial, MGA won. Eventually it recovered attorneys' fees. And a line in Judge David Carter's fee opinion (the Copyright Act permits a court to award fees to the winner) nicely sums up the case and its lasting impact:

"Mattel's claim posed a serious threat to the public's access to free and competitive expression; the possibility that Mattel ignored decades-old principles about the unprotectability of ideas in good faith is not an excuse and does not diminish the benefits society will reap as a result of MGA's successful defense."


Much can be written about this book, but it's a great page-turner and a courtroom drama of the highest order, not to mention a wonderful application of some difficult principles to some easily digestible facts. We all know Barbie dolls. And who among us hasn't had a great idea--whether explored or not--while off the clock?

But I want to focus on three points I took from the book.

First, lawyers.

Professor Lobel describes how MGA switched horses mid-stream in the case. Shortly before the second trial, MGA hired Jennifer Keller, who was not an intellectual property law expert and appears not to have commanded a whole lot of respect from Mattel. But it's clear she knew her stuff and knew how to command a courtroom. The book gives great examples of how she was able to connect with the jury in a way Mattel couldn't. It's not a stretch to say she was one of the deciding factors in swinging the resolution in MGA's favor.

This is a huge point for clients to consider. If a client is reading this, don't blindly hire a non-compete lawyer to represent you in a non-compete case. Hire a lawyer who is smart, relatable, and who has courtroom chops. She can learn non-compete law (it's not hard). But some pencil-neck who can recite cases poses a grave risk of losing a judge or jury. In fact, one of the worst courtroom attorneys I have seen is a self-described national thought leader in this field.

I tell this to clients. I know I can do a great job, because I am very comfortable in a courtroom, speak plainly, and have the testimonials from judges to prove I'm good. Being a strong advocate is far more than citing case law or applying some rules. It's knowing the facts and weaving them into a clean, clear story. Keller obviously did that way better than her counterparts.

Second, attorneys' fees.

The best part of You Don't Own Me is Chapter 11, where Professor Lobel recounts the aftermath of the long litigation battle. Reading this was somewhat like a trip down memory lane for me, though on a much grander and dramatic scale. Litigation like this almost never produces winners. Except, in many instances, the attorneys. At page 239, Professor Lobel suggests that Mattel's legal expenses topped $450 million and then she states "[i]t is possible that the litigators...were the ones who gained the most from the decade long battles." My only quibble with the book: she should have swapped the phrase "virtually certain" in lieu of "possible."

I am often skeptical that claims my clients face are driven by lawyers who gin up disputes with the idea that the litigation will enable them to meet some punishing billable hour requirement. They seize on their clients' raw feelings that they've lost people who are disloyal. And cases fueled by emotion lead to terrible decisions, not the least of which is the crucial decision to start a case.

Most disputes, on their face, aren't worth even the initial bills from counsel. Until we have a sounder fee-shifting mechanism in place, the specter of litigation cost will continue to smother these disputes. To give my readers an idea of what full-scale litigation war can cost, MGA's successful fee petition in the District Court resulted in an award of $105,668,073 in legal fees and $31,677,104 in costs.

Third, knowledge.

And by that I mean, knowledge as a property right. The central theme in You Don't Own Me concerns the ownership of ideas, specifically Carter Bryant's conception of the Bratz dolls. Non-compete cases are related, but different. They often concern the ownership of knowledge and collective work experience. To what extent is that an interest that can be restrained by contract?

To me, this seems slightly more esoteric than the ideas question that You Don't Own Me deconstructs. Ideas can be divorced entirely from one's day-to-day work, and jurors can grasp that because it's easily relatable (as long as a good lawyer is telling the story). Work experience is harder to disaggregate because it's, well, work. But the logic behind walling off that experience for its sake alone, and then restricting it through court, is really hard to justify.

The collective wisdom of work experience is, in my view, a natural right that is inalienable. A non-compete bolstered in its application only by this experience (and the inevitable use of that experience to benefit someone else) seems flimsy. Courts still seem to struggle to separate the notion of trade secrets from embedded knowledge. Even strong plaintiff's testimony is loaded with hypotheticals like "she might be able to..." It can play well or fall totally flat. The line between protected and unprotected knowledge may not be easy to draw. But we have to do a better job of at least trying to draw it.

Wednesday, February 14, 2018

Diversity Hiring as a...."Protectable Business Interest"

Just when I think there are few unexplored topics on here, I check my Google news alerts to see what new interesting non-compete stories pop up. And sure enough, we get a real doozy.

IBM has sued its former Chief Diversity Officer, Lindsay Rae McIntyre, who left to join Microsoft. The fulcrum of IBM's suit is plainly stated in its brief seeking a temporary restraining order:

"By taking the identical job at Microsoft, and bringing the highly confidential and competitively sensitive information she knows about IBM's diversity data, strategies, and innovations, McIntyre threatens to disclose and use IBM's valuable business secrets for the benefit of one of IBM's most significant competitors."

The TRO brief goes on--for fifty pages--to say basically the same thing. Workplace diversity is important. IBM is a leader. Microsoft is behind. Customers want diversity in employment. And that diversity leads to greater innovation.

Fair enough.

But is this really a business interest that a company can protect through a broad non-compete?

The concept of workplace diversity is no doubt important (and IBM is apparently very good at it), but wouldn't firms who are successful at recruiting and retaining diverse workforces want to publicize that fact? And wouldn't tech titans want to promote not only top talent that it brought into the fold, but how it was able to get them to the company in the first place?

The IBM filing also reveals a problem in non-compete suits that festers incessantly. It's one thing to identify a broad strategy (here, hiring and retention of diverse candidates) as "confidential." But it's then quite another to introduce evidence that disaggregates something specific from that which is in the public domain already.

This seems especially difficult when the claimed protectable interest concerns broadly stated hiring goals or achievements, at least some of which certainly get into the public domain. The position IBM asserts necessarily assumes a corporate culture that is on par with Microsoft (which its filing suggests is not the case at all) and assumes that the workforces are susceptible to having one crossover employee implement or replicate the same hiring tactics on diversity. And it further assumes that Microsoft will want to copy IBM altogether.

It is relatively unusual to see (sustainable) non-compete cases that involve a protectable interest you cannot directly monetize. Most involve sales executives or managers, or those who create and develop intellectual property or other consumable products. The interest in those actions has a direct nexus to sales and customer goodwill. In IBM's current suit against McIntyre, however, the reference to goodwill is starkly indirect--that is, good hiring practices create a good culture which ultimately strengthens the corporation's overall position in the market.

The interest IBM asserts also invokes the notion of "embedded knowledge"--the collective experience an employee brings to the new job simply by being an employee. That is, knowledge at a very high level is a transferable, natural right that a non-compete shouldn't be able to protect. Many corporations do, to be sure, and a great many attorneys feel right at home arguing that knowledge barriers are just fine and dandy. When those suits arise, and the case becomes one about embedded knowledge, it becomes awfully difficult for a court to deconstruct that abstract or collective knowledge gained from concrete secrets deployable somewhere else.

When that happens, sometimes it is easiest for courts just to pivot back to the most obvious, natural theme--one plainly obvious from the first five pages of IBM's own case. Do we really want to restrict an employee from leaving to help other organizations diversify their workforces? This one is a real head-scratcher.