Eagle v. Edcomm, a case about which I’ve posted before, resulted in what may be one of the first rulings on the merits of a thorny issue concerning social media: Who owns a social media account, the employer or the employee, if there is no written corporate policy on point? Judge Buckwalter in the Eastern District of Pennsylvania held that Linda Eagle’s LinkedIn account belonged to Eagle, who was the founder and President of Edcomm before she had a falling out with the company’s new management.
The facts about what happened to Eagle’s LinkedIn account were largely undisputed. After firing Eagle, the company accessed her account, changed its password, and locked her out of her account. Even after she regained her account, Eagle was unable to access emails sent to the account for a period of a few months. While Edcomm had control of the account, users attempting to view Eagle’s profile would see the name, picture, and credentials of Edcomm’s new President, Sandi Morgan.
Eagle filed suit, bringing both federal and statutory and common law clams; Edcomm filed counterclaims. In prior rulings, Judge Buckwalter dismissed some of Edcomm’s counterclaims and Eagle’s federal claims. Now representing herself pro se, Eagle took her remaining claims against Edcomm to trial.
For the purposes of social media law, one of the Court’s most significant rulings was the dismissal of Edcomm’s counterclaim for misappropriation. Edcomm contended that the account belonged to it, arguing that it had invested time and effort into its employees’ LinkedIn accounts. The Court disagreed, finding that Edcomm did not require its employees to set up accounts, nor did they dictate their precise contents. Furthermore, the Court noted that the LinkedIn User Agreement expressly states that the contract is between a LinkedIn user (here, Eagle) and LinkedIn. One wonders whether a corporate policy that stated that the account belongs to an employer would have trumped the user agreement.
Unfortunately for Eagle — whose husband died during the prosecution of this case after a long and difficult illness, further complicating her efforts to prosecute her case – the Court did not award her damages even though she had proved the necessary legal elements of most of her claims. Nor did the Court award her attorney’s fees (she was represented by counsel in earlier phases of the case*) under her claim for violation of Pennsylvania’s statute that prohibits the unauthorized use of her name, 42 Pa. Cons. Stat. § 8316. Eagle had not submitted evidence of the bills at trial and the Court did not accept the summary evidence of legal fees she provided post-trial. (While the Court had previously dismissed Eagle’s federal claims, such as a claim under the Computer Fraud and Abuse Act, it is worth noting that several state and federal statutes implicated in social media disputes allow parties to recover their attorney’s fees).
Eagle made an earnest effort to prove damages by someone who was unable to afford an expensive expert. She introduced the lay testimony of her business partner, Clifford Brody. Brody testified that 70% of Eagle’s sales were to existing clients, who were among her 4,000 LinkedIn contacts. He then computed 70% of Eagle’s historical average sales during the length of time she could not receive communications from her contacts, 3 months, to calculate her losses. This is not an implausible theory, but it was one that Eagle elicited through Brody without laying enough of a foundation through documentation, reports, and figures to satisfy the Court. Likewise, the Court noted that Eagle had generated great sales success in the past without LinkedIn; therefore, it had trouble accepting the proposition that LinkedIn was essential to historical sales. However, I suspect that such evidence was in the record, as much of LinkedIn’s customers were employees at overseas financial institutions who were early and heavy adopters of LinkedIn.
For Eagle and Edcomm, the battle is not yet over because other litigation is ongoing in the Southern District of New York, where both parties have claims and counterclaims arising from the takeover of Edcomm. Recently, Edcomm’s lawyer asked to be relieved from that case, stating that his firm had not been paid by Edcomm in some time. Meanwhile, Eagle and her former partners are continuing to build their new business, Global Bankers Institute.
In conclusion, one lesson of this case may be that courts are resistant to efforts to value each LinkedIn connection or Twitter follower in social media disputes. But another crucial lesson – one that has been emphasized by scores of bloggers and legal experts – is that even small to mid-sized companies need to consider and address the risks they face concerning social media through policies and procedures.
* Disclosure: I represented Eagle in an earlier phase of this case.
Federal Rule of Evidence 502(d) allows courts to issue orders that protect parties from inadvertently producing privileged documents. Yet, this tool, commonly known as a clawback agreement, remains remarkably underused.
A recent New York case illustrates its importance. In Brookfield Asset Management, Inc. v. AIG Financial Products Corp., 2013 WL 142503 (S.D.N.Y. Jan. 7, 2013), AIG’s counsel mistakenly produced draft Board minutes such that the redacted information was visible when the opposing party viewed the documents’ metadata. (This should serve as a reminder that a party’s double-check procedure may not be sufficient if a party merely looks at the images of the documents produced). Luckily for AIG, the Court – at its own urging – had suggested that the parties enter into a so-ordered a stipulation pursuant to Rule 502.
As a result of the clawback order, AIG was able to demand the return of the documents without having to undergo the embarrassment, expense, or uncertainty of litigating whether its review process had been reasonable.
It is not clear why Rule 502 orders are not more commonly used. Perhaps it is because the procedure is set forth in the Rules of Evidence, not the Federal Rules of Civil Procedure. In any event, it is an important tool that deserves more use by litigators in federal court.
A recent New York case demonstrates how powerful the FCPA can be for the SEC to attack bribery that has rather remote connections to the United States. In SEC v. Straub, et al., No. 11 Civ. 9645 (RJS) (S.D.N.Y. 2013), Judge Richard Sullivan denied defendants’ motions to dismiss, finding that false statements by foreign nationals to foreign auditors in connection with a cover-up of bribes to a foreign government were enough to confer jurisdiction when the company’s American Depository Receipts (ADRs) traded on United States securities markets.
This case arises from SEC charges against three executives of Magyar Telekom (a Hungarian telecommunications company), alleging that these individuals implemented a plan to bribe Macedonian officials in 2005-2006. Defendants moved to dismiss, claiming that, because their only direct contact with the United States was a series of emails routed through and stored on U.S. computer servers, the court lacked personal jurisdiction. Judge Richard Sullivan denied the motion on February 8, 2013. The court found that the defendants’ certifications to the company’s auditors allowed it to infer that the defendants knew or should have known that the false financial statements would be used to defraud U.S. investors.
Notably, Judge Sullivan rejected the argument that permitting jurisdiction here would create a per se rule in favor of jurisdiction over foreign defendants implicated in bribery on behalf of foreign issuers. The court found that such were concerns were “overblown” and based “its decision on a fact-based inquiry – namely, an analysis of the SEC’s specific allegations regarding the Defendants’ bribery scheme, Defendants’ falsification of Magyar’s books and records, and Defendants’ personal involvement in making representations and subrepresentations with respect to and in anticipation of Magyar’s SEC filings. Although Defendants’ alleged bribes may have taken place outside of the United States (as is typically true in cases brought under the FCPA), their concealment of those bribes, in conjunction with Magyar’s SEC filings, was allegedly directed toward the United States.”
Notwithstanding that rejection of a per se rule, it seems somewhat artificial to find that a representation to a foreign auditor should be enough to confer jurisdiction in the United States. Would the Court have ruled the same way merely based on a foreign national’s principal role in causing bribes to be made or engaging in a cover-up? What if the foreign national had lied to a U.S. law firm representing the company as opposed to a foreign auditor? Left unchecked, this principal of jurisdiction appears to have few, if any, discernible boundaries.
Judge Sullivan also found that the SEC satisfied the jurisdictional component of the FCPA itself. Here, the Court – correctly it seems – found that sending emails over the company’s servers in the U.S. was sufficient even if the defendants did not know where the company’s servers were stored.
Ultimately, on this case or other cases in this developing area of the law, the Second Circuit may be asked to provide some more clarity on the exercise of jurisdiction over foreign activity in the context of the FCPA.
Despite the amendment to the Local Rule 26.2 of the Southern District of New York, which creates a presumption that categorical privilege logs are acceptable, litigants have been slow to adopt categorical logs. Such logs would, at least in the first instance, replace itemized logs for particular categories of communications. This procedure can be particularly useful for communications as to which there could be a particular strong claim of privilege, such as internal communications at a law firm concerning a pending litigation.
Of course, some recipients of logs are reluctant to accept categorical logs due to a fear that the categorical description will obscure whether the documents are or are not privileged. As a case in point, in the long-running Chevron litigation, Magistrate Francis reviewed in camera the documents that were part of particular categories on a categorical log. While the category purported to describe documents that were compiled by counsel and which reflect counsel’s litigation strategies, in fact, they were press releases and news stories. Chevron Corp. v. Salazar, 11 Civ. 3718 (S.D.N.Y. Sept. 21, 2011). Judge Francis required the plaintiff to itemize the entries for particular categories.
This isn’t to say that categorical logs are bad. To be sure, even an itemized log can obscure information necessary to assess the strength of the privilege claim. And categorical logs are not the only way to limit the burdens of privilege logs. Recently, Judge Nathan issued an order in the Aereo litigation (see a prior post here) concerning the parties’ dispute whether documents held by outside counsel needed to be logged. The Court found that requiring an itemized log of all documents in the possession of outside counsel would be too burdensome. The Court proposed several options to minimize the burden, including a categorical log, excluding documents created post-litigation, and excluding purely internal communications by counsel. Ultimately, the Court required the parties to meet-and-confer first to determine if they could resolve the dispute. American Broadcasting Companies, Inc. v. Aereo, Inc., 12-CV-01540 (S.D.N.Y. Jan. 11, 2013). While it is not clear as of this writing whether and how the parties resolved the dispute, this decision reflects the inclination of courts to enable parties to consider ways to minimize the burden of preparing a log.
As I posted previously, the Second Circuit’s upcoming decision concerning the fate of startup Aereo will have a substantial effect on the future of digital copyright law and infringement claims. But the court’s decision is likely to be shaped by important questions about the role of appellate jurisprudence and respect for precedent.
The transcript from the oral argument reveals that, try as they may, the networks had great difficulty distinguishing the “Cablevision case,” Cartoon Network v. CSC Holdings, 536 F.3d 121 (2d Cir. 2008). In Cablevision, the Second Circuit found that Cablevision’s DVR technology did not violate the networks’ public performance rights under the Copyright Act.
In essence, Aereo was very, very careful to follow Cablevision to the letter even though it required the use of inferior and cumbersome technology. Aereo raised an initial round of funding of $21 million and recently closed on another round of $38 million to expand on its business model. It did so expecting that the Second Circuit would stick to its guns and protect Aereo by following the Cablevision decision.
The networks’ practical argument is that Aereo stands to profit without having to pay any cable licensing fees to them even though Aereo functions like a cable provider. Upon a review of the transcript, the most insightful question at oral argument came from District Judge John Gleeson, who asked if Aereo was akin to a company that organized its affairs in a particular way to avoid (not evade) taxes.
It is. But so what? There is nothing illegal or immoral about tax avoidance. And parties should be able to rely on appellate courts to consider issues carefully instead of changing their minds capriciously. But, on the other hand, the tax laws are not immutable. Investors anticipate that they may change. Indeed, investors can try to calculate the risk that they will lose their investment by incorrectly predicting future tax law changes. Or they can modify their business model to account for tax law changes. Significantly, the outcome of the tax consequences will be the result of Congressional efforts to weigh competing interests through legislation.
At bottom, if the Second Circuit believes that it interpreted the Copyright Act correctly in Cablevision, but that the Copyright Act may have unintended consequences, then it should uphold the trial court’s decision in Aereo, and invite Congress to re-visit the Copyright Act. This would be a far better result, and promote more respect for the law and our legal system, than a tortured effort to distinguish Cablevision. Ultimately, I believe that this is the most likely result. Time will tell.