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Texas Anti-SLAPP Law: The Expanding Scope of the Texas Citizen’s Participation Act – Part 3

Go to Part 2 – In Practice

Go to Part 1 – The basics of the Texas Anti-SLAPP law

In part three we are going to deep dive into a specific case that has garnered a lot of attention-Schlumberger v. Rutherford which is currently on appeal to the Houston Court of Appeals (case number 01-14-00776-CV).

Schlumberger sued Rutherford, its former in-house counsel, for allegedly misappropriating intellectual property before leaving for a job with Acacia Research Group.  Schlumberger alleged it had forensic data proving that Rutherford copied filed onto a USB hard driver before removing it from her company laptop.  Rutherford denied it.

In the middle of the case, Schlumberger amended its petition to claim that Rutherford was the source of information for Acacia’s ongoing infringement suit against Schlumberger in federal court.  Schlumberger alleged Rutherford told Acacia to acquire patents she knew Schlumberger was allegedly violating.  In response, Rutherford argued Schlumberger was using the trade secret case as improper discovery tool and leverage in the separate patent infringement case.

Rutherford moved to dismiss Schlumberger’s claims under the TCPA.  She argued she was targeted by Schlumberger because she had exercised her right to association with Acacia, she spoke with Acacia about litigation strategies and for signing off on patent litigation.  Thus, Rutherford argued, Schlumberger’s claim against her was “based on, relates to, or is in response to [her] exercise of the right . . . to petition, or right of association.”

The TCPA defines “exercise of the right of association” to mean “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.” Tex. Civ. Prac. & Rem Code § 27.001(2).  The “exercise of the right to petition” is defined with reference to a specified list of communications that have a nexus to participation in government. Id. at § 27.001(2)-(4).

The trial court agreed finding Rutherford properly invoked the TCPA and therefore shifted the burden to Schlumberger to come up with clear and specific prima facie evidence of its trade secret claims.  The trial court found that Schlumberger failed to do so and dismissed the misappropriation, conversion, breach of fiduciary duty and violations of the Texas Theft Liability Act claims leaving only the breach of contract claim.  As a result, the court ordered Schlumberger to pay $350,000 in fees and $250,000 in sanctions.  Schlumberger appealed and Rutherford cross-appealed trying to get the breach of contract claim dismissed on the same TCPA grounds.

On appeal, Schlumberger is arguing the TCPA does not apply to this private commercial dispute citing the purpose of the act is “to encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law.” Tex. Civ. Prac. & Rem. Code § 27.002. In the brief Schlumberger argued:

As this Court has recognized however, untethering the TCPA’s “right to petition” and “right of association” provisions from its “larger public purpose” and the “generally recognized parameters of First Amendment protections” leads to an unreasonable and absurd expansion of the statute’s applicability. Cheniere Energy, 2014 WL 5011132, at *6 (noting that if the statute is not read in light of these considerations, “any communication that is part of the decision-making process in an employment dispute—to name just one example—could be used to draw within the TCPA’s summary dismissal procedures private suits implicating only private issues”).

Brief at 43.  Essentially, Schlumberger is arguing that if this ruling is allowed to stand that any communications made in the context of a lawsuit or any tortious interference claim would be subject to the TCPA.  Given the broad definition of the “exercise of the right of association,” it could be argued the TCPA applies to any cause of action that is “based on, relates to, or is in response to a party’s” joining another entity’s employment.

The particular facts of this case may make it the exception and not the new rule.  Schlumberger secured an ex parte temporary restraining order against Rutherford.  After deposing the people who signed the affidavits used by Schlumberger to obtain the restraining order, Rutherford argued the affidavits were misleading. Rutherford also argued that the state trade secret case was a ruse to obtain discovery and retaliate for the patent infringement cases in federal court.  Given the difficult in proving something is a trade secret, however, we may see this tactic more often requiring trade secret claimants to provide clear and specific prima facie evidence of the existence of a trade secret.

The case was argued on May 5, 2015, and it will provide another chance for the courts of appeal to determine the scope of the applicability of the TCPA.

Texas Anti-SLAPP Law: The Expanding Scope of the Texas Citizen’s Participation Act – Part 2

Part 2 – In Practice

Go to Part 1 – The basics of the Texas Anti-SLAPP law.

The exercise of the right to free speech on matters of public concern

             It is easy to see how this applies to your straightforward defamation case assuming the defendant engaged in the “exercise of the right of free speech” which means “a communication made in connection with a matter of public concern.” A “matter of public concern” is an issue related to:

  • health or safety;
  • environmental, economic, or community well-being;
  • the government;
  • a public official or public figure; or
  • a good, product, or service in the marketplace.

If the defendant who has been sued can show the allegedly defamatory speech was about a “matter of public concern,” then the burden shifts to the defendant to come up clear and convincing prima facie evidence of a valid defamation claim.  A lot of the litigation concerns whether the speech is a matter of public concern and whether the plaintiffs can provide the clear and convincing evidence to avoid dismissal.

What about the right to petition and the right to association? How broad are those?

            The Act also covers the right to petition and the right to association which greatly broadens its application as courts struggle with the definitions noting that only the “exercise of free speech” is limited to “matters of public concern.”  The TCPA defines “exercise of the right of association” to mean “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests.” Tex. Civ. Prac. & Rem Code § 27.001(2).  The “exercise of the right to petition” is defined with reference to a specified list of communications that have a nexus to participation in government. Id. at § 27.001(2)-(4).

Are internal emails matters of public concern and do they have to be?

            Earlier this year, the Dallas Court of Appeals held that the law did not apply to internal communications within a company about an employee’s performance because that was not a matter of public concern despite the claim by the employer (ExxonMobil) that the issues touched on matters of public safety.  See ExxonMobil v. Coleman, 2015 WL2206466 (Tex.App.—Dallas May 12, 2015), rule 53.7(f) motion granted May 29, 2015.  Of more interest is that ExxonMobil also moved to dismiss the claim because it argued it was engaged in the right of association.

            ExxonMobil claimed that the plaintiff failed to “gauge” one of the storage tanks and after an investigation ExxonMobil terminated him.  The plaintiff denied all wrongdoing and sued ExxonMobil and the employees who participated in the investigation for publishing defamatory statements about him during the internal investigation bringing the TCPA into a typical employment dispute.

            Both the trial court and the court of appeals held the TCPA did not apply and refused to dismiss the suit.  Despite the defendants’ efforts to claim it was a matter of public safety, the court found the investigation focused on job performance and not the results that could happen if the storage tanks were not properly maintained.  Therefore, the statements “involve nothing more than an internal personnel matter at Exxon” and therefore “were not a matter of public concern.”

            With regard to the right to the association, Exxon argued the communications were made between Exxon employees regarding issues in which they shared a common interest, specifically Coleman’s job performance and his compliance with the safety guidelines.  In response, the Court of Appeals wrote:

Although these commuinications seem to fall within the plain language of the Act’s definition of the exercise of the right of association, we decline to read the statute so broadly, concluding it would lead to absurd results.

Id. at *4.  The court then spent numerous pages explaining that reading the definition of the right to association in a vacuum without considering the purpose of the act would encompass any private communications between two people about any shared interest.  The court, therefore, reasoned the “public participation” had to apply to the defendant’s engagement in the right to association and the right to petition as well.

Can the right of association govern every corporate email?

            The court relied in part on the First Court of Appeals decision in See Cheniere Energy, Inc. v. Lotfi, 449 S.W.3d 210, 216–17 (Tex.App.–Houston [1st Dist.] 2014, no pet.). In that case, the plaintiff sued her former employer for wrongful termination and sued two former coworkers for tortious interference.   449 S.W.3d at 211–12.   The coworkers moved to dismiss the claim against them under the Act, asserting the plaintiff’s lawsuit was brought in response to their exercise of the right of association.  Id. at 212.   The plaintiff filed a response, but neither side filed any affidavit evidence.   With only the pleadings to go on, the trial court denied the motion to dismiss.  Id.  The court of appeals upheld the trial court’s ruling, concluding the coworkers failed to meet their burden to show they were entitled to dismissal because the limited allegations in the plaintiff’s pleadings did not show the coworkers had a communication, acted in furtherance of a common interest, or that the claim against them is related to their exercise of the right of association.  Id. at 214–15.

            Referring to the title of the Act, the court noted that the terms “citizen” and “participation” contemplate a larger public purpose.  Id. at 216.   It further stated the plaintiff’s lawsuit did not implicate the legislature’s express declaration of the purpose behind the Act, which indicates that a nexus is required between the communication and the generally recognized parameters of First Amendment protection.  Id.  “Otherwise, any communication that is part of the decision-making process in an employment dispute—to name just one example—could be used to draw within the [Act’s] summary dismissal procedures private suits implicating only private issues.”   Cheniere Energy, 449 S.W.3d at 216–17.

            Two members of the three-judge panel concurred, writing separately to emphasize that the Act did not apply to the plaintiff’s tortious interference claim against her coworkers.  Id. at 217 (Jennings, J., concurring).   The concurrence stated that, standing alone, the Act’s definition of the “exercise of the right of association” in section 27.001(2) appears to include communications that are not constitutionally protected and do not concern citizen or public participation.  Id. at 219.   The concurrence stated that reading section 27.001(2) in isolation would lead to absurd results and would “actually thwart any meritorious lawsuit for demonstrable injury in which a plaintiff alleges that two or more persons engaged in a civil wrong involving a communication.”  Id.  At a minimum, such a reading would add unnecessary delay and expense to a plaintiff’s lawsuit.  Id.

But, the Texas Supreme Court says don’t amend the Act.

            This decision followed the Supreme Court of Texas’s opinion in Lippincott v. Whisenhunt, __ S.W.3d __, No. 13-0926, 2015 WL1967025 (Tex. April 24, 2015).  In that case, the defendants allegedly made disparaging comments about the plaintiff, who was a certified registered nurse anesthetist contracted to provide anesthesiology services, in emails internally to the company.  The allegedly defamatory emails included allegations that the plaintiff represented himself to be a doctor, endangered patients for his own financial gain, and sexually harassed employees.

            The plaintiff sued for defamation, tortious interference with existing and prospective business relations, and conspiracy to interfere in business relations.  The defendants moved to dismiss all of the claims based on the TCPA.  The trial court dismissed all of the claims except for defamation because the plaintiff was able to provide prima facie evidence of the defamation claim, but not the others.

            The court of appeals reversed and remanded holding the act does not apply to “private” communications such as internal emails thereby reviving all of the plaintiff’s claims.  The Supreme Court ruled there is no requirement that the communications themselves have to be public.  Instead, the statute only requires that the communication be made in connection with a matter of public concern.

            With regard to whether the communications involved matters of public concern, the court wrote:

The allegations include claims that Whisenhunt “failed to provide adequate coverage for pediatric cases,” administered a “different narcotic than was ordered prior to pre-op or patient consent being completed,” falsified a scrub tech record on multiple occasions, and violated the company’s sterile protocol policy. We have previously acknowledged that the provision of medical services by a health care professional constitutes a matter of public concern. See Neely v. Wilson, 418 S.W.3d 52, 70 n.12 & 26 (Tex. 2013) (determining that the public had a right to know about a doctor’s alleged inability to practice medicine due to a mental or physical condition); see also TEX. CIV. PRAC. & REM. CODE § 27.001(7) (defining “matter of public concern” to include issues related to health or safety, community well-being, and the provision of services in the marketplace, among other things). Thus, we conclude these communications were made in connection with a matter of public concern.

Id. at *2. The court concluded that because the defendant had demonstrated the applicability of the act, the court of appeals had to consider whether the plaintiffs had met his prima facie burden of proof.

            In the decision the Supreme Court of Texas said that courts should not “judicially amend” the act by adding words that are not there.  Id. at *1.  The Dallas Court of Appeals considered the instruction from the higher court, but wrote:  “Although we are aware that in Lippincott, the supreme court cautioned against “judicially amending” the Act by adding words that are not there, we agree that the legislature could not have intended for section 27.001(2) to be read in isolation.  We conclude that, to constitute an exercise of the right of association under the Act, the nature of the “communication between individuals who join together” must involve public or citizen’s participation.”  ExxonMobil, 2015 WL 2206466 at *6.

Part 3 will look at the impending Schlumberger decision.

Texas Anti-SLAPP Law: The Expanding Scope of the Texas Citizen’s Participation Act – Part 1

Part 1 – The Basics of the TCPA and how it works

The Texas Anti-SLAPP law is known as the Texas Citizens Participation Act (the “TCPA” found at Tex. Civ. Prac. & Rem. Code at § 27.001, et seq.).

“If a legal action is based on, relates to, or is in response to a party’s exercise of the right of free speech, right to petition, or right of association, that party may file a motion to dismiss the legal action.”  Id. at 27.003(a).   A defendant invoking the TCPA must therefore show three elements by a preponderance of the evidence: (1) there is a legal action; (2) “based on, relates to, or is in response to”; and (3) one of the protected activities.

“[A] court shall dismiss a legal action against the moving party if the moving party shows by a preponderance of the evidence that the legal action is based on, relates to, or is in response to the party’s exercise of: (1) the right of free speech; (2) the right to petition; or (3) the right of association.”  Id. at 27.005(b).

The defendant has 60 days from the date of service of the pleading with the defamation claim to seek a dismissal.  Once filed, all discovery is stayed.  If properly invoked, to overcome a motion to dismiss, the claimant must “establish[] by clear and specific evidence a prima facie case for each essential element of the claim in question.”  Id. at 27.005(c).

Although “clear and specific evidence” is not defined, it certainly means a defamation plaintiff should be prepared to provide some evidence and a solid legal basis immediately after filing his claim because discovery will be very limited.  The Anti-SLAPP law in Texas allows for a defendant to appeal a decision immediately if the trial court does not dismiss the suit.  We’ll discuss more on the evidentiary standard later in the series.

If a defendant prevails on a motion to dismiss, Texas courts are required to award the defendant “(1) court costs, reasonable attorney’s fees, and other expenses incurred in defending against the legal action as justice and equity may require; and (2) sanctions against the party who brought the legal action as the court determines sufficient to deter the party who brought the legal action from bringing similar actions described in this chapter.”  Id. at 27.009(a).

As we will discuss in the next series, the Texas Anti-SLAPP law covers more than just your straightforward defamation suit, but the Texas Legislature has expressly said it “does not apply to a legal action brought against a person primarily engaged in the business of selling or leasing goods or services, if the statement or conduct arises out of the sale or lease of goods, services, or an insurance product, insurance services, or a commercial transaction in which the intended audience is an actual or potential buyer or customer.” This means it may not cover false advertising or business disparagement claims between businesses.

Section 27.010 also exempts “legal actions” seeking recovery for “bodily injury” from the Act, along with “statements made regarding that legal action.”

Despite these exemptions, we will see in the next part how the Anti-SLAPP law is being applied to more typical business commercial cases.

 

The Cards Hack the Astros – So What Law Applies? [audio]

In a developing story, The New York Times is reporting that the FBI is investigating the St. Louis Cardinals for hacking into the Houston Astros’ computer networks to steal the Astros’ internal baseball operation intelligence which is apparently working.

Quick aside:  click here to see highlights of last night’s win and the emergence of some of the Astros’ young stars.

The Astros’ GM responsible for the resurgence of the team used to work for the Cardinals. The two used to compete in the National League Central before the Astros moved to the American League West (I’m still getting used to that).

According to the NYT article:

Law enforcement officials believe the hacking was executed by vengeful front-office employees for the Cardinals hoping to wreak havoc on the work of Jeff Luhnow, the Astros’ general manager who had been a successful and polarizing executive with the Cardinals until 2011.

When Luhnow left St. Louis, he helped the Astros build their “Ground Control” database which mirrored a similar effort he helped lead when with the Cardinals.  This is all part of the sabermetrics / big data craze in professional sports.  It’s the reason that at the game I attended earlier this month, it seemed like the shift was employed on defense almost half the time.

Some leaked information was already published in an embarassing article on Deadspin which included some trade prospects and player evaluations.

The FBI claims the Cardinals used a master password list compiled by Lunhow and associates when they were with the Cardinals to guess their passwords on the Astros’ systems.  The FBI was able to determine the hack had been done from a computer at a home that some Cardinals officials had lived in.

Here’s more background and detail from The Washington Post.

So what are the legal issues?

We often advise clients who have been hacked to contact law enforcement authorities. When it is on a smaller scale or not as high profile, it is hard to get them to take action.  It is almost always better if you can get law enforcement to investigate and do the heavy lifting.

On the criminal side, you are looking at fines and up to five years in prison based on the statutes discussed below.

But, you can still resort to the civil courthouse.

The Computer Fraud and Abuse Act

The CFAA (18 U.S.C. § 1030) makes it illegal to access a data base without proper authority or to exceed one’s authority impairing the computer system or data accessed and was passed to address hacking.  Liability is premised on there being at least $5,000 in losses in any one-year period. The CFAA is primarily a criminal statute.

A plaintiff could make a civil claim under the CFAA to recover actual damages, injunctions or other equitable relief. A criminal conviction can result in fines and imprisonment.  On the civil side, plaintiffs sometimes struggle establishing the required $5,000 in a statutorily-defined “loss” to pursue a CFAA claim.

The CFAA defines “loss” as “any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring data, program, system or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.”  18 U.S.C. § 1030(e)(11).

Lost opportunities (like trades, or the value of the actual information) often do not qualify as the type of loss covered by the statute.  The loss usually results from costs of investigation and the expense to shut down the computer network.

ECPA and the SCA

The Electronic Communications Privacy Act (18 U.S.C. § 2510) and the Stored Communications Act (18 U.S.C. §§ 2701-12) are equally important sister statutes.  Generally speaking, the ECPA applies to electronic communications in transit and the SCA applies to communications stored on servers.  By gaining access to a database on the Astros’ servers, the perpetrators may be liable under the Stored Communications Act.

A plaintiff under the ECPA can recover a minimum award of $10,000 or $100 per day of violation — whichever is greater, or, actual damages, plus punitive damages, attorneys’ fees and costs.   Criminal violations can result in up to five years and fines up to $250,000 for individuals and $500,000 for organizations.

The SCA meanwhile, which is technically part of the ECPA, makes it illegal for anyone to “intentionally access[] without authorization a facility through which an electronic communication service is provided or . . . intentionally exceeds an authorization to access that facility; and thereby obtains, alters, or prevents authorize access to a wire or electronic communication while it is in electronic storage in such system.”

In addition to these statutes, there could be additional claims like RICO, breaches of contracts, wire fraud, trespassing and a myriad of state law claims.

The best revenge would be to rectify this dark moment in Houston Astros history from the 2005 NLCS (although the Astros won Game 6 in St. Louis before being swept by the White Sox in their only World Series appearance).

Maybe Springer, Correa, Altuve, Tucker, McHugh and Velasquez can get their recompense out of the courtroom.

Here’s my interview on Sports Radio 610 from this afternoon’s Triple Threat Show.

Who’s on First? Depends if Fair Use is on Second and Public Domain is on Third

Abbott and Costello’s “Who’s on First?” brings back memories of my seventh-grade talent show where I performed the routine with Brandon Berry at Atascocita Middle School.  I can’t remember if we won second or third place — there was stiff competition at AMS and someone with real talent actually won.

Capture-Who1It’s a good thing I did not record the performance and then try to monetize it on YouTube which luckily wasn’t around in 1987.

The people involved with the Tony-nominated play “Hand to God” have other concerns. The play has a scene where the lead does the routine using hand-puppets and now the heirs of William “Bud” Abbott and Lou Costello have sued for copyright infringement.  The lawsuit is here.

So Who, What and I Don’t Know are on defense? That’s Fair.

First you have to figure out if the plaintiffs own the copyright.  According to the lawsuit, the plaintiffs state the copyright was originally held by Universal Pictures Co. after the act appeared in Universal’s One Night in the Tropics film in 1940 pursuant to a work for hire agreement with the two actors.

Then, in 1984, Universal transferred its copyright of the audio/visual depictions from the movies back to the heirs.  Because of the lack of copyright protections for pre-1972 sound records, the plaintiffs admit the sound recordings were not subject to their federal Copyright Act, but the plaintiffs claim they have a New York “common law” claim.   (see the issues facing Sirius/XM in this regard)

The most likely defense will be that the use of the routine was fair use.  Fair use is an affirmative defense to a copyright violation.  Fair use is a factually-specific inquiry and there is no bright line test. Courts consider these four factors:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

Jokes and the dramatic arts have had some interesting fair use issues (the Jersey Boys use of Ed Sullivan and an entire production based on the sitcom Three’s Company for example)

According to The New York Times, the plaintiffs’ lawyer says there can be no fair use because “’Hand to God’ is using ‘Who’s on First’ not just to get laughs from the audience but also to get people to buy tickets.”

Why do I think fair use will ultimately prevail?  Because.  Maybe not Today or Tomorrow, but naturally the evidence will show that people are not going to the play just to see that one minute routine within the full production.  However, if the “The Hand of God” can use, why not everyone else which could have a big effect on the potential market for the copyrighted work.  Perhaps the unnamed right fielder should decide.

What about “I Don’t Give a Darn?” Is he in the Public Domain or at Short?

Just because the routine is available on YouTube does not mean it is in the public domain. As mentioned above, the copyright may cover just the script and limited recorded performances in the movies.  The routine has been done many times by many people.  It is not exactly clear who actually wrote the routine and Abbott allegedly performed the skit before he teamed up with Costello.

Plus, Abbott and Costello did not exactly follow a script when they performed it.  While I could almost recite it by memory, I know the version Brandon and I did was different than the one below.

This does not qualify the skit for “public domain” in the strict legal sense.  This article says some of the particularities about renewing the copyright to keep it alive may be challenged.  According to the lawsuit, the plaintiffs do license the routine for public performances, so they certainly have incentive to try and protect it.

So, who wins the game?

As usual, the lawyers will win.  I am now interested in seeing the play and have watched the Abbott and Costello video again, so maybe everyone wins and Who’s wife will come down and pick up the checks.

Start-Ups and the Law on Unpaid Interns – Annual Repost

It’s become an annual tradition to re-post this at this time of year.

As my Gray Reed colleague Michael Kelsheimer explains in a prior post on his Texas Employer Handbook blog, you have to be careful when using unpaid labor.

 

UNPAID INTERNS, VOLUNTEERS AND TRAINEES

Who, What, Why . . .
Who does it apply to: Every employer who has or intends to hire unpaid interns.
When must an intern be paid: All “employees” of a business must be paid at least minimum wage unless they are a “trainee” under the law, regardless of whether they are called an “intern.”  So, what makes a trainee? The United States Department of Labor (DOL) has established a six-factor test couched in terms of – you guessed it – training – to determine whether an unpaid intern should be considered an employee or trainee under the Fair Labor Standards Act (FLSA):
  • the training is similar to that which would be given in a vocational school (even though it includes actual operation of the facilities of the employer);
  • the training is for the benefit of the trainees;
  • the trainees do not displace regular employees, but work under their close observation;
  • the employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion operations may actually be impeded;
  • the trainees are not necessarily entitled to a job at the conclusion of the training period; and
  • the employer and the trainees understand that the trainees are not entitled to wages for the time spent training.
When can I hire an unpaid intern or volunteer: The six-factor test is primarily used in the, “for profit,” private sector. State and local government agencies and non-profit organizations can generally utilize interns or volunteers without an obligation to pay them under the FLSA. It is important, though, that the volunteers understand they are not to be paid for their time. Volunteer work at non-profit, religious, charitable, and civic organizations have specifically been cleared by the Texas Workforce Commission.
What about true student interns: Student interns are not evaluated differently by the DOL. They should easily meet the trainee test. That said, there are special rules for individuals who have completed a professional degree like physicians, attorneys, and therapists, generally allowing them to volunteer their time as they choose.
What do these factors really mean: The more an internship program can be structured around a classroom or academic type experience the better. It is better if the employer can provide the individuals with skills applicable to various employment settings, not just skills particular to the employer’s business. Essentially, the employer needs to provide the intern or volunteer with valuable training. Ideally, the training would make them more marketable in the open job market. The employer must pay any intern or volunteer that is used as a replacement for a regular employee or to reduce their workload. The intern or volunteer should receive more supervision than a regular employee.  If the employer would have to hire additional employees if the intern or volunteer were not performing certain work, the intern or volunteer would be considered an employee. Don’t rely on unpaid interns to do work of any real significance to your business. The work done by an unpaid intern should be secondary to their training. An intern that is hired by an employer on a trial basis with the expectation that they will eventually be hired full time will likely be considered an employee under the FLSA. Employers should indicate prior to the start of the internship that there is no guarantee or expectation of hiring the interns upon completing the internship. A written agreement indicating this is advisable. Employers should indicate prior to the start of the internship that there is no intention to pay the intern. A written agreement indicating that the intern will not be paid and does not expect to be paid is advisable.
What happens if I don’t follow the test: An employer violating the rule is subject to the same damages available to an employee who is not paid all of the wages they are owed. This may include minimum wage and overtime for all hours worked, plus an equal amount in liquidated damages for all interns over the past two or three years.
What about discrimination laws: It depends on whether the person in question receives “significant remuneration” for their efforts. The EEOC has stated that things like a pension, group life insurance, workers’ compensation, or access to professional certifications constitute significant remuneration. However, Courts have determined that things like academic credit, practical experience, and scholarly research do not constitute significant remuneration. Because this point is subject to interpretation, however it is best to treat all interns and volunteers as though they are employees with respect to discrimination laws.
Common Situations:
Required training: Safety First is ready to hire a new class of security guards.  The company requires that security guard trainees receive 40 hours of training prior to performing any regular work under their service contract.  According to their contract, the training is focused on “company practices, policies, and rules.” Does Safety First have to pay the trainee security guards even though they are not yet performing regular work?  Yes. These trainees would be considered employees because: (1) the employer is directly benefiting from their training, (2) the training is given to security guards who will work on contract, and (3) Safety First can only employ specifically trained guards.
Homegrown hiring: Maverick Finance hires interns each summer.  Maverick’s intern program is structured much like an academic program.  The interns do not do the work of regular employees and are heavily supervised.  The interns are not paid and are aware there is no guaranty of employment.  However, Maverick hires its first year analysts almost exclusively from the unpaid interns it has each summer. Does the FLSA require Maverick to pay these interns at least minimum wage? Probably.  Although Maverick substantially satisfies the six factor test, its practice of hiring analysts from the intern pool is likely enough to tip the balance against the company in the face of a DOL audit.
What should I do:
Good: Paying minimum wage to all interns probably is the safest bet. You avoid the risk of an audit of all your employment practices because of one dissatisfied intern that calls the DOL.  If you go the trainee route, be sure to meet all the factors.
Better: If you have true “trainees” taking into consideration all the factors, it makes sense to put that understanding in writing in a short half-page agreement outlining the factors. If you use volunteers, it makes sense to have them sign a one-paragraph agreement acknowledging their status as a volunteer without expectation of pay or other “significant remuneration” to avoid the possibility of an EEOC complaint.
Best: In addition to the items above, require that the trainees keep track of their hours so you have a record of how much they might be entitled to if the DOL audits and rules them employees. Be sure they do not work more than 40 hours to avoid increasing the risk to include overtime. Have the trainees and their supervisors keep a log of their activities so that there is no confusion regarding the type of work they did.

Does there need to be patent reform?

Regular readers know I am a fan of Last Week Tonight with John Oliver.  The show has done multiple segments relevant to our topics of discussion.  They recently did a segment on patent reform.

The guys over at Mintz Levin’s Global IP Matters Blog, suggest John Oliver’s information is outdated and that the proposed Innovation Act, H.R. 9, may not be the best solution writing:

Far from providing the solutions its proponents claim, that legislation would do little or nothing to limit the sending of bogus demand letters to unsophisticated targets in hopes of extracting nuisance value settlements – a practice that many decry as the most egregious example of patent abuse.  

Congress and the Supreme Court have taken steps to address some of problems with the patent litigation process and there has been some reduction in cases already.  We’ll monitor additional developments.

The State of Texas Gets in the Act

In typical Texas style, the Texas Legislature has decided it will take its own steps to protect Texas citizens.  SB 1457 passed the Texas Senate and is now being considered by the Texas House.  The bill allows the Texas Attorney General to recover fees from people who make “bad faith” patent claims to end users.

An end user means a “person that purchases, rents, leases, or otherwise obtains a product, service, or technology in the commercial market that is not for resale and that is, or later becomes, the subject of a patent infringement assertion due to the person’s use of the product, service, or technology.”

A communication is in a bad faith claim if it claims there is  an infringement and:

(1)  the communication falsely states that the sender has filed a lawsuit in connection with the claim;

(2)  the claim is objectively baseless because:

(A)  the sender or a person the sender represents does not have a current right to license the patent to or enforce the patent against the end user;

(B)  the patent has been held invalid or unenforceable in a final judgment or administrative decision; or

(C)  the infringing activity alleged in the communication occurred after the patent expired; or

(3)  the communication is likely to materially mislead a reasonable end user because the communication does not contain information sufficient to inform the end user of:

(A)  the identity of the person asserting the claim;

(B)  the patent that is alleged to have been infringed; and

(C)  at least one product, service, or technology obtained by the end user that is alleged to infringe the patent or the activity of the end user that is alleged to infringe the patent.

The remedy is expressly limited to the attorney general and does not create a private right. This proposal addresses the worst of the worst not apparently addressed by the federal proposal in the Innovation Act.

To Fire or Not to Fire for Employee’s Social Media Posts

After watching the firing of the digital communications manager for the Houston Rockets during their run through the playoffs (read the story here in the Houston Chronicle).  I figured it would be a good time to revisit the issue of firing people for their conduct on social media as previously discussed here in 2012.

Firing the Person In Charge of Social Media

As the Rockets were wrapping their series-clinching game five victory over the rival Dallas Mavericks, the Houston Rockets Twitter handle tweeted this:

Rocketstweet

Many thought it was in bad taste and the Rockets removed it and apologized.  The Rockets have been known to push the limits a little on social media including personal tweets from the Rockets General Manager.  Soon thereafter, the digital communications manager responsible for the tweet was fired.

I am assuming the digital communications manager is an at will employee, so there is not much of a legal debate about firing him for allegedly bringing ill will to the Rockets brand. Houston social media thought leader Brian Block suggests there may have been better ways to deal with the person running your official Twitter handle.

The harder issue is when the social media post is purely personal.

The NLRB Suggests You Think Twice

If someone said the boss was a “NASTY M***ER F***ER don’t know how to talk to people!!!!!!”  Followed by “F*** his mother and his entire f***ing family!!!! What a LOSER!!!!”  (No asterisks were used in the actual post, but this is a family blog), firing the employee seems like a no-brainer.

But, wait for it, . . . the post also said “Vote YES for the UNION!!!!!!!”  Now, we have protected concerted activity.  The NLRB upheld the administrative law judge’s decision that firing the employee for the profanity-laced rant violated the NLRA.  Essentially, if the rant is about working conditions, terms of employment or discussing even the possibility of unionizing, then it can be protected speech.  The NLRB says this is no different than two employees getting together in the lunch room to discuss the terms of employment and possibly unionizing.

I guess we should advise anyone that wants to talk trash about their employer to follow whatever crazy thing they want to say with “Vote YES for the UNION!!!!!!”  It may prevent you from getting fired — unless you are the official voice of the organization and you use a gun emoji.

In Related Local Houston News:  There is another interesting local story dealing with whether the individual or the company owns the Facebook account happening in a local bankruptcy court.  I provided some thoughts on how to protect the company account in the past.

Texas eMediaLaw Legislative Update: 2015

Kate bluebonnets

It’s Spring in Texas which means one of two things – the bluebonnets are out and in odd years, our legislature is back at work.  One makes me grateful to be in Texas and the other only meets every other year.  Here are a few bills we are watching this session:

Service of Process Via Social Media- HB 241

The Legislature is making another effort on this.

The bill provides:

Sec. 17.032.  SUBSTITUTED SERVICE THROUGH SOCIAL MEDIA PRESENCE.
(a)  If substituted service of citation is authorized under the Texas Rules of Civil Procedure, the court, in accordance with the rules adopted by the supreme court under Subsection (b), may prescribe as a method of service an electronic communication sent to the defendant through a social media presence.

(b)  The supreme court shall adopt rules to provide for the substituted service of citation by an electronic communication sent to a defendant through a social media presence.

It looks like the bill stalled in committee.

Codifying a fair reporting privilege – SB 627

The Legislature continues to show its disdain for defamation suits.  This time, they are considering a bill that would codify a sometimes-recognized common law fair reporting privilege.  The privilege allows for a fair reporting of public records and allegations as long as done in good faith.  It looks like this one may become law.

The bill provides:

(b)  This section applies to:

(1)  a fair, true, and impartial account of:

(A)  a judicial proceeding, unless the court has prohibited publication of a matter because in its judgment the interests of justice demand that the matter not be published; (B)  an official proceeding, other than a judicial  proceeding, to administer the law; (C)  an executive or legislative proceeding (including a proceeding of a legislative committee), a proceeding in or before a managing board of an educational or eleemosynary institution supported from the public revenue, of the governing body of a city or town, of a county commissioners court, and of a public school board or a report of or debate and statements made in any of those proceedings; or (D)  the proceedings of a public meeting dealing with a public purpose, including statements and discussion at the meeting or other matters of public concern occurring at the meeting; [and]

(2)  publication of allegations made by a third party regarding matters of public concern, regardless of the truth or falsity of the allegations; and

(3)  reasonable and fair comment on or criticism of an official act of a public official or other matter of public concern published for general information.

(c)  This section does not abrogate or lessen any other defense, remedy, immunity, or privilege available under other constitutional, statutory, case, or common law or rule provisions.

(d)  This section shall be construed liberally to effectuate its purpose and intent fully.

Civil Penalties for Frivolous Patent Claims – SB 1457

This bill also looks like it might be headed for passage.  The pertinent part of the bill states:

       Sec. 17.952.  BAD FAITH CLAIM OF PATENT INFRINGEMENT PROHIBITED.

(a)  A person may not send to an end user located or doing business in this state a written or electronic communication that is a bad faith claim of patent infringement.

(b)  A communication is a bad faith claim of patent infringement if the communication includes a claim that the end user or a person affiliated with the end user has infringed a patent and is liable for that infringement and:

(1)  the communication falsely states that the sender has filed a lawsuit in connection with the claim;

(2)  the claim is objectively baseless because:

(A)  the sender or a person the sender represents does not have a current right to license the patent to or enforce the patent against the end user; (B)  the patent has been held invalid or unenforceable in a final judgment or administrative decision; or (C)  the infringing activity alleged in the communication occurred after the patent expired; or

(3)  the communication is likely to materially mislead a reasonable end user because the communication does not contain information sufficient to inform the end user of:

(A)  the identity of the person asserting the claim; (B)  the patent that is alleged to have been infringed; and (C)  at least one product, service, or technology obtained by the end user that is alleged to infringe the patent or the activity of the end user that is alleged to infringe the patent.

The bill only allows for enforcement by the Attorney General and not private litigants.

We will keep on eye on these any other bills of note.

Will Net Neutrality Kill the Internet 3.0?

fcc_logoAs expected, the FCC passed the net neutrality rules today.  Other than spokesmen for the large telecoms (and perhaps some politicians who listen to that lobby), you don’t hear much reasoned opposition to net neutrality.

I have to admit that my views have been changing on the issue from a position of: (1) a solution in search of a problem; (2) to a desire to help make sure start-ups have a fair shake and access to the consumers; (3) to let the market take care of any ISP’s that throttle content; (4) to what about the people who don’t have more than one option for an ISP?

Now, I feel like we are at a Hobson’s Choice.  Do we trust the Government, or do we trust Big Business?  More precisely, who do we trust not to be a jerk in the future?

  • Do you think the likes of Comcast would throttle competitors’ content or force the big content providers into fast lanes leaving all start-ups back at dial-up speed?
  • Do you think the Government can stay at this minimally invasive level of regulation whereas before the Internet has thrived, at least in part, because of the lack of government regulation.

Leave it to the BBC Radio to have Mark Cuban on as a guest to provide additional interesting arguments as to why the new regulations are bad–by focusing on the future?  Listen here.  In effect, Cuban asks whether we want companies to be able to manage their networks as we start to see more driverless cars and online virtual reality applications.  Will the next new thing have to ask the government for permission to run online?

The regulations, as currently written, take a soft hand approach.  But, we should be vigilant to make sure they stay that way.  You know the story of the cooked frog, right?  If you put him in boiling water, he will jump out of the pot.  You put him in cool water and gradually turn up the heat, you will end up with a cooked frog.

For a good analysis prior to today’s release, read this.