eMedia Law Insider - Insight & Commentary on Internet Marketing & Online Media

The Houston Chronicle reported today the CFO of Francesca’s was canned because he posted information about the company on Twitter and Facebook.

We have discussed the legality of firing employees for their social media conduct in detail (part one and part two).  In short, in at will state like Texas, you can fire someone for a good reason, a bad reason or no reason at all except generally in three circumstances: (1) in violation of a contract; (2) in a discriminatory fashion against a protected class; or (3) in retaliation of an employee discussing their work activities with other employees. 

It was not clear in the article if the CFO had a contract.  It does appear, however, he was not engaging in protected activity.  Instead the company claimed in a release the CFO was terminated because he “improperly communicated company information through social media.”

The article sites the following:

On March 7, six days before Francesca’s announced its quarterly earnings, he wrote: “Board meeting. Good numbers=Happy Board.”

. . .

Before an earnings call last December, Morphis posted on Facebook: “Cramming for earnings call like a final. I thought I had outgrown that.” In January, he boasted to his friends: “Roadshow completed. Sold $275 million of secondary shares. Earned my pay this week.”

Francesca’s, a women’s clothing and accessory retailer, is a publicly-traded company which means the CFO does not have free reign to say whatever he wants. 

“The rules generally in regards to sharing of material, nonpublic information have not changed even in the age of social media,” Looper Reed & McGraw, P.C. securities lawyer Jeff Hopkins said.  “If a public company hasn’t filed information with the Securities and Exchange Commission to make it generally available, its management and employees should recognize that any disclosure to a select audience (even if that audience is a large Twitter following) is in violation of the rules.”

You can read more from the Wall Street Journal here.

The Houston Chronicle is reporting breaking news that Amazon has agreed to collect and more importantly pay sales taxes for sales made within Texas.  As a purchaser, I’m bummed.  But, as a father of two school children, it’s about time. 

This has been a hotly contested issue explained in more detail in my prior post from May of 2008.

Here’s the official statement from the Comptroller’s office.

(AUSTIN, TX and SEATTLE, WA) — Texas Comptroller of Public Accounts Susan Combs and Amazon.com, Inc. today announced an agreement that will lead to the creation of thousands of new jobs in Texas by the online retailer.

According to the agreement between the Comptroller of Public Accounts and Amazon, the Company plans over the next four years to create at least 2,500 jobs and make at least $200 million in capital investments in the state and will begin to collect and remit Texas sales tax on July 1, 2012. The agreement resolves all sales tax issues between Texas and Amazon.

“We thank Amazon for partnering with us to find a solution that works for our state,” said Combs. “This is an important step in leveling the playing field in Texas; however, Congress should enact federal legislation that will give states access to revenues that are already due, which would resolve this issue fairly for all retailers and all states.”

“Amazon looks forward to creating thousands of new jobs in Texas and we appreciate Comptroller Combs working with us to advance federal legislation,” said Amazon Vice President of Global Public Policy Paul Misener. “We strongly support the creation of a simplified and equitable federal framework, because Congressional action will protect states’ rights, level the playing field for all sellers, and give states like Texas the ability to obtain all the sales tax revenue that is already due.”

Will other states that want to keep distribution facilities and affiliated marketers follow?

 We haven’t discussed Google AdWord trademark cases much here lately.  For the most part, the courts had determined that using a trademark term to trigger an ad was a use in commerce.  Google has generally prevailed, however, because the trademark owners have had trouble proving consumer confusion.

The Fourth Circuit Court of Appeals may have provided trademark owners a little hope in its decision in Rosetta Stone v. Google yesterday.  Before we get to the specifics and you go off and file lawsuits against Google, know that you are probably not as famous or as well-funded as Rosetta Stone.  Most of the decision dealt with the use of the term Rosetta Stone in the text of the ads and not simply to trigger ads.  Nevertheless, the case provides some interesting thoughts on Google’s treatment of trademarks over the years and may re-open the floodgates to suits against Google.

You can read my post about the district court opinion here and here.

Pre 2004 (I know, way back then)

According to the opinion, prior to 2004, Google’s policy precluded both the use of trademarks in the text of an advertisement and the use of trademarks as keywords upon request of the trademark owner.  

In 2004

Google loosened its trademark usage policy to allow the use of third-party trademarks as keywords even over the objection of the trademark owner. Google later even introduced a trademark-specific keyword tool that suggested relevant trademarks for Google’s advertising clients to bid on as keywords. Google, however, continued to block the use of trademarks in the actual advertisement text at the request of a trademark owner. At that time, Google’s internal studies suggested the unrestricted use of trademarks in the text of an advertisement might confuse Internet users.

2009

Finally, in 2009, Google changed its policy to permit the limited use of trademarks in advertising text in four situations:

(1) the sponsor is a reseller of a genuine trademarked product;

(2) the sponsor makes or sells component parts for a trademarked product;

(3) the sponsor offers compatible parts or goods for use with the trademarked product; or

(4) the sponsor provides information about or reviews a trademarked product.

Google’s policy shift came after it developed the technology to automatically check the linked websites to determine if the sponsor’s use of the trademark in the ad text was legitimate.  This change in policy was used against Google to show it knew there was risk in infringement, but proceeded anyway.

Rosetta Stone sued Google claiming Google’s policies concerning
the use of trademarks as keywords and in ad text created not
only a likelihood of confusion but also actual confusion as well, misleading Internet users into purchasing counterfeit software, especially since 2009.   

Basic Trademark Law

To establish trademark infringement under the Lanham Act, a plaintiff must prove: (1) that it owns a valid mark; (2) that the defendant used the mark “in commerce” and without plaintiff’s authorization; (3) that the defendant used the mark (or an imitation of it) in connection with the sale, offering for sale, distribution, or advertising” of goods or services; and (4) that the defendant’s use of the mark is likely to confuse consumers.

To determine the whether there is consumer confusion for a direct infringement claim, there is a list of nine factors courts are generally suppsoed to consider.  The trial court focused on three: (1) defendant’s intent; (2) actual confusion; and (3) the consuming public’s sophistication.

The trial court then ruled on a summary judgment that all three “disputed” factors favored Google. The court of appeals said that perhaps there were sufficient factual issues that should be determined by the jury rather than through a summary judgment.  

Google argued its burden was lessened when they used the Rosetta Stone marks  for a nominative use.  A nominative use is one in which the defendant uses the plaintiff’s trademark to identify the plaintiff’s own goods, and “makes it clear to consumers that the plaintiff, not the defendant, is the source of the trademarked product or service.”  This usually applies to comparison or review sites. 

Google argued the use of the Rosetta Stone marks in the ad text was the same — it was clear the sites were not the official Rosetta Stone sites.   Rosetta Stone countered with evidence of purchasers who believed they were purchasing Rosetta Stone software on the sites of authorized resellers, but received counterfiet programs instead.  The court determined that raised a question of whether Google used the trademarked term in a way that caused confusion as to ”affiliation, connection or sponsorship.” 

In an interesting discussion about us, Google succesfully argued to the trial court it was entitled to summary judgment because Rosetta Stone users are sophisticated and should not be confused in light of the cost of the software and the type of audience interested in it.  The trial court inferred that Rosetta Stone consumers ”would tend to demonstrate that they are able to distinguish between the Sponsored Links and organic results displayed on Google’s search results page.”    The court of appeals said the inference may very well be correct, but there needed to be evidence to support it and perhaps a trial to prove it.

Functionality

The court rejected Google’s argument that the mark was more one of functionality.  The functionality doctrine is more commonly considered in the trade dress context.  Coca-Cola, for example, can’t get trade dress protection for a 12 ounce can because a 12 ounce aluminum can is a matter of function.  Coca-Cola can get protection in a red can with a large white mark going through it with white cursive writing.  That is a matter of trade dress and not functionality of the can.

The trial court, however, suggested Rosetta Stone, to trigger a keyword was functional.  The trial court wrote:

     The keywords . . . have an essential indexing func-
     tion because they enable Google to readily identify
     in its databases relevant information in response to
     a web user’s query . . . [T]he keywords also serve an
     advertising function that benefits consumers who
     expend the time and energy to locate particular infor-
     mation, goods, or services, and to compare prices.

The court of appeals nixed the functionality defense for search engine cases.  The court of appeals ruled functionality does not depend on how Google uses the trademark (to trigger ads), but on how the trademark owner uses it (to market language software).   

Contributory Infringement

In alarming news for Google, the court of appeals reversed the trial court’s dismissal of the contributory infringement claim.   Under contributory infringement, a manufacturer or distributor  intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorily responsible for any harm done as a result of the deceit.  It usually applied in the counterfeit market.

It is not enough to have general knowledge that some percentage of the purchasers of a product or service is using it to engage in infringing activities; rather, the defendant must supply its product or service to “identified individuals” that it knows or has reason to know are engaging in trademark infringement. 

Rosetta Stone argued the use of the trademark to trigger ads, a practice of which Google knew about and allowed, was sufficient to hold Google liable.  You could see how Google would be concerned about a negative ruling on this claim.   The court said that the trial court placed the burden on Rosetta Stone during the summary judgment proceedings rather than simply asking if there were fact issues that needed to be tried.  Unfortunately, for the rest of us, the court failed to state exactly what evidence Rosetta Stone presented other than its claim that triggering an ad could amount to contributory infringement.

Google does have a process that allows mark owners to complain and request the delisting of counterfeit makers.  That may be enough to ultimately prevail on this claim, but for now, a jury may have to decide this.  A similar program was sufficient for eBay to avoid a contributory claim by Tiffany’s, but that was only after a full trial.

Trademark Dilution

Finally, the court of appeals revived the federal trademark dilution claim. The Federal Trademark Dilution Act currently provides:

    [T]he owner of a famous mark . . . shall be entitled
    to an injunction against another person who . . . com-
    mences use of a mark or trade name in commerce
    that is likely to cause dilution by blurring or dilution
    by tarnishment of the famous mark, regardless of the
    presence or absence of actual or likely confusion, of
    competition, or of actual economic injury.

The court of appeals said that Rosetta Stone would need to prove its mark was famous when Google first began engaging in any allegedly diluting behavior.  If Rosetta Stone prevails, it may be entitled to an injunction.

What does it all mean?

The ruling is bad for Google, but not necessarily the end of a war.  The court of appeals simply sent the case back to the trial court allowing Rosetta Stone to prove its case — a still difficult hurdle.  As I mentioned before, most plaintiffs aren’t Rosetta Stone.  While Google will have to spend much more in legal fees to fight this and the likely copycat lawsuits, Rosetta Stone clearly invested a lot of money as well. 

Professor Goldman in his Technology and Marketing Law Blog wrote:

In this sense, the opinion reminded me of last week’s Viacom v. YouTube ruling–both opinions were soulless omnibus rulings that give superficial (but ultimately false) hope to plaintiffs while remanding the case to an almost certain defense win (just at a much higher cost).

He adds that the court of appeals was forced to fix some “cut corners” by the trial court.  By doing so, however, the court of appeals missed the big picture and only prolonged the eventual death of AdWords trademark suits.

It is clear this is a setback for Google.  The interesting part will be to see how trademark owners use this case for future suits against Google and competitors.

A few days ago the Associated Press ran an article about one job applicant who was asked to provide their Facebook login and profile.  The story then got a lot of legs getting including a local TV News from Fox-26TV here in Houston (video below).

While private sector employers can certainly demand to see your profiles, provide passwords, etc., I would advise against it.  In fact, there is risk in using the internet to screen applicants. 

The short version is that you learn certain facts that are not supposed to be considered in the hiring process such as age, religion, family and marital status.  You can’t unring that bell.  So, if someone were to make a discrimination claim, you can argue you did not consider these factors, but there will be no question that you knew them when you made your decision.  

I wrote a more detailed post here about the role of social media in the hiring process.  I have a longer CLE paper on the topic, too.  Send me an email if you would like the paper. 

Giving Up Your Privacy Keys for Work: MyFoxHOUSTON.com

UPDATED 3-27-2012

Since my original post, Facebook has come out and told prospective employers not to ask for passwords suggesting they may be able to sue.  I’ve often said anyone can sue, but I don’t really see Facebook suing for tortiously interfering with the agreement between Facebook and the user.  It presents an interesting academic discussion, but I don’t think it is a real threat.  Maybe the public pressure will be enough to prevent the practice.

My colleague Michael Kelsheimer of the Employer Handbook blog agrees that employers can probably get away with it, but maybe shouldn’t.

Minutes ago, a New Jersey jury convicted Dharun Ravi in the Rutgers webcam spying case.  You can read more details here or listen to my Friday radio interview with News92FM here.   

In sum, Ravi took a secret webcam video of his roommate engaged in a homosexual encounter.   Ravi tweeted the incident and scheduled another viewing when he suspected there would be another encounter in his room.   Tragically, his roommate committed suicide soon thereafter.  It sparked a national debate about online bullying.

Ravi was charged with invasion of privacy, tampering with evidence, hindering apprehension and bias intimitation which is more commonly known as hate crimes.  Ravi was found guilty of most counts including bias intimitation which means his sentence could be doubled. 

This is one of the first trials on New Jersey’s new criminal invasion of privacy statute which makes it worthy of attention.  It’s one of the first states that criminalizes the making of “sex tapes” without someone’s permission.  Title 2C of The New Jersey Code of Criminal Justice – 2C:14-9, states a person may commit a crime for invasion of privacy when there is:

(1) unprivileged exposure of intimate parts; or
(2) photographs, films, videotapes, records, or other reproduction on the image of another person’s exposed intimate parts or when engaged in an act of sexual penetration or sexual contact, without a person’s consent and under circumstances in which a reasonable person would not expect to be observed.

What would happen in Texas?

So what if this happened in Texas?   Texas has a claim for “Improper Photography or Visual Record” which makes it iillegal to ”photograph[] or by videotape or other electronic means record[], broadcast[], or transmit[] a visual image of another at a location that is not a bathroom or private dressing room without the other person’s consent; and with intent to arouse or gratify the sexual desire of any person.”   Texas Penal Code section 21.15.  

The Texas law requires an intent to arouse or gratify the sexual desire of another person which could have made prosecution of these facts in Texas difficult.   

Prosecutors may have tried to creatively use the ”Online Impersonation” provision found in Section 33.07  of the Texas Penal Code which became law in 2009.  Despite its name, it could be applied because of some very broad language.  It makes it illegal to ”without obtaining the other person’s consent and with the intent to harm, defraud, intimidate, or threaten any person, uses the name or persona of another person to . . . post or send one or more messages on or through a commercial social networking site or other Internet website, other than on or through an electronic mail program or message board program.” 

The law was meant to crack down on impersonators, but a plain reading of the statute could be used in this case because without the victim’s permission, the defendant posted his identifying information with the intent to “harm” him. 

Texas also has its own version of a hate crime law.   Article 42.014 of the Texas Code of Criminal Procedure allows for enhanced sentences if the jury determines the defendant “intentionally selected the person against whom the offense was committed  . . . because of the defendant’s bias or prejudice against a group identified by race, color, disability, religion, national origin or ancestry, age, gender, or sexual preference.” 

If the prosecutor could be creative to find a underlying crime, then the defendant in Texas could be subject to an enhanced sentence.   Of course, the family of the victim could have certainly brought a civil lawsuit to recover money, even if there are no applicable criminal statutes. 

 The defendant was also found guilty of tampering with the evidence for erasing, or trying to erase, text message and tweets.