Connecticut Business Litigation Blog : Connecticut Business Lawyer & Attorney : N. Kane Bennett : Aeton Law Partners LLP : Hartford, Middletown, Glastonbury

A lawsuit relating to online copyright infringement of synthesizer software using “peer-to-peer” networks was filed recently in Connecticut District Court.  The case is captioned reFX Audio Software, Inc. v. Does 1-89.  The complaint alleges that certain individuals and Connecticut residents committed acts of copyright infringement through the use of a common “peer-to-peer” (“P2P”) file transfer protocol known as BitTorrent.  

A common tactic in mass copyright infringement lawsuits is the use by plaintiffs of “tracking software” which identifies the internet protocol addresses (“IP Addresses”) that were allegedly used to commit acts of software piracy. 

By way of background, Internet service providers, (i.e., Comcast, Cox, etc.) provide the account holders with specific IP addresses from which users can access the Internet.  In these lawsuits, attorneys bringing the lawsuits allege that each IP address is unique and is therefore linked to a specific user account. In order to identify the allegedly infringing users, reFX hired a Connecticut attorney to file a motion with the court, asking to conduct discovery in order to learn the identities of the account holders.  If granted by the court, the attorney for reFx will issue a subpoena to each of the Internet providers requesting that they turn over information (typically name, address, telephone number) for the account holder.  

On March 20^th  Judge Janet Hall granted Plaintiff’s motion for leave to take discovery in the reFX Audio case.  As a result, certain Internet providers have now sent letters to cable customers and account holders notifying them of the pending lawsuit.  Typically, Internet providers will wait 60 days to allow  the account holders to seek legal counsel prior to providing the court-ordered personal information.

If you have received a letter from your Internet provider identifying your IP address as having participated in the alleged copyright infringement of reFX software, read here from our earlier post on the issue for next steps and to consider if you need to hire an attorney to represent you. 

We already have received calls in response to this lawsuit.  Many callers have read or been told to ignore these letters.   Each circumstance is typically unique in these cases, and there is no one size fits all defense.  Do not assume that ignoring the letter will result in the problem going away.  While it is true that in some cases ignoring the letter is an appropriate response, it many other cases the risks are too high to simply ignore the problem.  Once you are fully informed of all of your options such as, filing motions to quash, settling or compromising the claim, defending the action, or ignoring it,  you can then decide the proper cost/benefit for your case.

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Many Connecticut business owners have agreements (so called "non-compete agreements") in place with their employees concerning competition or solicitation. When an employee leaves a company, business owners have to decide if they should try to enforce the non-compete agreement by filing a lawsuit or engaging an attorney. Here are 5 factors to consider:

1. Is the contract reasonable? I have reviewed hundreds of these agreements, and they are all different (even the agreements I draft). There are various legal and factual requirements that you will need to satisfy for enforcement of non-compete or non-solicitation contracts. However, in general, the first question you have to ask is whether the contract is reasonable in light of the business you are in and purpose behind the specific contractual terms.

For this reason, it is always a good idea to have an attorney draft your agreement specifically tailored for your legitimate business concerns. Getting a form template online and applying it to your business may seem like a cost effective approach, but what happens when you really need to enforce your agreement?

2. What are you trying to protect? Generally speaking, it is easier to convince a court to stop a departing employee from taking your customers or manufacturing process than it is to stop the employee from working for a competitor. For example, the chances of successful enforcement increases if your contract was drafted to protect customers the employee was working with as opposed to trying to stop the employee from working in any type of role for a competitor. Additionally, courts are much more likely to entertain an injunction for protection of legitimate confidential information.

3. Are you worried about creating a standard for other employees? Employees that leave always talk to the employees that stay behind. It is a fact of life. In addition, word gets around about the details of any settlement involving non-competes. Why? Well, for one, everyone wants to know whether a business will actually seek to enforce their contracts. If a company continually declines to enforce their non-compete agreements, other employees may get the idea that the same rule will apply. 

4. What are the risks involved?  It may be difficult to know the full extent of the risk posed by a departing employee. However, it is important not to underestimate the risks. I have seen circumstances where a business loses only one small client at first, but suffering major loses many months down the road. Some questions to consider: (1) have you lost clients or are you in danger of losing clients; (2) is there a danger of the employee disclosing or using legitimate confidential information; (3) what did the employee have access to while at work (i.e. client lists, trade secrets, and financial information); and (4) was there an exit interview conducted and return of confidential information verified.

5. Litigation costs v benefits. I ask clients to make a business decision by weighing the risks (see # 4) versus the costs involved. Litigation costs are dependent on a number of factors. Some examples of factors that impact litigation costs include (1) the nature of the dispute; (2) the strength of the contract; (3) the ability of the departing employee to defend the case; (4) the lawyer defending the case; and (5) the type of action you decide to bring.

These are only some of the many factors a business should consider when confronting a decision on enforcement of a non-compete.

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When deciding whether to hire an attorney to seek enforcement of a non-compete agreement in Connecticut, a business should consider the available remedies or damages.  The following are the basic remedies or damages for breach of a typical non-compete agreement in Connecticut.

1. Injunctive relief.  Injunctive relief basically means a court ordered act or prohibition against an act.  For example, when seeking to enforce a non-compete or non-solicitation agreement, your attorney will request that the court issue an order preventing the employee from working for a competitor.  If there is a non-solicitation clause in the contract, the attorney will ask the court to issue an order to prevent the departing employee from soliciting or "stealing" clients.  The court will only issue such an order if the agreement meets a series of factual requirements.   Essentially, the restrictions in the agreement must be reasonable in relation to protecting legitimate business interests.  

2. Actual losses.  In some situations, a business will have no measurable losses and will need to resort to injunctive relief only.  However, in other instances, a business will have provable loss of business from breach of an agreement.  The traditional rule for breach of contract is to measure the damages or losses to the business and not the gains of the departing employee or competing business.  A typical example would be the loss of incremental profits from losing a customer arising from the improper conduct of the departing employee.  In Connecticut, a business must prove these damages with reasonable certainty and not guesswork.  

3. Disgorgement of profits.  In certain circumstances, a business could win an award that disgorges (or takes away) the ill gotten gains or profits of the departing employee.  For this type of damages, the focus is on the profits of the departing employee.  

4. Attorney's fees.  The traditional rule requires each party to pay their own attorney's fees. However, if the employment contract has a provision that covers an award of attorney's fees, a court may award attorney's fees incurred in enforcement of the non-compete.

5. Punitive or multiple damages.  In a standard breach of contract case, punitive, exemplary, or multiple damages are not available.  However, if the conduct involved provides the basis for a violation of some other statutory or common law, a business may recover some type of extra contractual damages.  An example would be if the breaching conduct also provided the basis to prove a willful violation of Connecticut's Uniform Trade Secrets Act.

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Imagine you are a subcontractor hired to work on a project for the State of Connecticut in 1994.  You did not deal with the State at all in your contractual dealings.  You were hired by a general contractor to do a small part of a large building project.  Next, you priced your work, completed it, and got paid.

Now, fast forward 12 years.  Without any notice to you (some defendants claimed they had no notice of issues) of any problems for 12 years, the State of Connecticut knocks on your door with a lawsuit seeking over 15 million dollars from more than 20 defendants, including your company.

When you receive this lawsuit, you might immediately conclude that the lawsuit is time barred by the statute of limitations for breach of contract and negligence.  You might even ask your attorney, and your attorney probably would agree that the statute of limitations for your work has long expired. Nothing to worry about, right?  WRONG.

Here is the case:  State of Connecticut v. Lombardo Brothers Mason Contractors, et al.  In this case, the Supreme Court of Connecticut upheld the ancient doctrine of nullum tempus occurrit regi, or "no time runs against the king."  The king is the State of Connecticut.  The court noted that nullum tempus is "a common-law rule that exempts the state from the operation" of time based statutes, such as statutes of limitation and repose. In short, the 12 year passage of time does not matter because the state is like the king.        

The state filed its lawsuit against more than 20 contractors in 2008 for over 15 million dollars in alleged damages caused by faulty construction and water leakage at the University of Connecticut law library.   The work was completed in 1996.  The state immediately began to notice problems with water leakage.  This was not a hidden defect case.  The State knew right away, and did not bring a lawsuit for damages for 12 years.  The state sought recovery for breach of contract, negligence, and product liability.  

None of this mattered as the Supreme Court found that nullum tempus has been alive and well in Connecticut since at least 1879 and traceable all the way back to English common law.  The court deemed it "well established and clear-cut."  Maybe so, but clarity to the court does not make it any less shocking to contractors and their attorneys.  The court also noted that if someone wants the common law of Connecticut changed, that is the job of the legislature.  

Nothing like a 15 million dollar lawsuit to remind you that our law is largely based on English common law....

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In a typical business deal,  the parties negotiate over essential terms such as price, payment, deliverables, indemnification, warranties, etc.  Once you work out all the important details, the parties put together a written contract with the essential terms in it.   If a lawyer is involved, the contract also will include a bunch of so called boiler plate clauses.  The boiler plate clauses are the 10 or 12 clauses that appear at the end of a contract.  

Many times the boiler plate clauses get overlooked because the parties typically say "these clauses are in every contract."  Ignoring these provisions can be a costly mistake if the relationship breaks down and a lawsuit becomes necessary.  In fact, when parties finalize a business deal they do not anticipate how these clauses might impact litigation down the road.

Two of these clauses that frequently get overlooked are known as "choice of law" and "forum selection" clauses.  This post will focus on forum selection.  I will address choice of law in the next post.  

Forum selection clauses typically govern the location and venue where the parties can file a lawsuit arising out of any dispute subject to the contract.  The provisions vary.  Parties usually negotiate over the location, but often times the exclusivity of the location gets overlooked.  Some examples might require the parties to file a lawsuit:

• in only one location, such as Connecticut or Massachusetts (exclusive)
• in only one court, such as Hartford Superior Court in Connecticut (exclusive)
• in multiple locations or courts (non-exclusive)

The forum selection clause might also include a waiver of any defenses to personal jurisdiction and consent to the chosen location.  The laws in each state vary on enforcement of forum selection clauses.  However, for the most part, if a party cannot avoid enforcement of the contract based on other defenses (such as fraud, durress, coercion, etc), courts tend to enforce these clauses.  

Every business deal raises different concerns, but it is important to analyze these clauses with the potential scenarios that might occur.  For example, sometimes, these clauses carry no particular concern, such as in a dispute between two companies in the same state.  However, there are many scenarios where this simple boiler plate clause becomes problematic to one side, and very favorable to the other.  This is especially so in the case of an exclusive forum.  

Take for example a clause that requires all lawsuits to be filed in Connecticut state court .  If you are a Connecticut business, and you expect that you might have to file a lawsuit, this could be an important advantage to you.  It might eliminate the possibility and expense of an out-of-state opponent filing a motion to dismiss based on jurisdiction.  You might also avoid the need to hire an out-of-state law firm. 

On the other hand, in some circumstances, a Connecticut business might want to file a lawsuit in another location where the out-of-state defendant resides.  This may become important to more easily enforce a judgment or attach assets.  Additionally, in some circumstances, you might want to get an injunction enforced by a court where the defendant resides.  

This post only touches upon some of the possible concerns with forum selection clauses.  The take away here is that you should never ignore these clauses.  You might not be able to solve all your concerns by negotiation of these terms, but forum selection should always be factored into decision making.  

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 Connecticut Updates Its Data Breach Statute by Attorney David Benoit.

A month after Vermont made substantive amendments to its Security Breach Notice Act to address a number of consumer protections, Connecticut followed suit on June 12^th with a similar amendment to Connecticut General Statutes Sec 36a-701b to include a notice to the State’s Attorney General.

Going into effect on October 1, 2012, Connecticut’s amended breach notification requirements will now include an obligation to notify the Connecticut Attorney General’s office pursuant to a new subsection (b)(2):

“If notice of a breach of security is required by subdivision (1) of this subsection, the person who conducts business in this state, and who, in the ordinary course of such person's business, owns, licenses or maintains computerized data that includes personal information, shall not later than the time when notice is provided to the resident also provide notice of the breach of security to the Attorney General.”

Regarding when notice is to be made (both to the Connecticut resident and the Attorney General), the statute allows the notifying party a reasonable amount of time to accommodate delays resulting from law enforcement and company-led investigations meant to: (i) determine the nature and scope of the data breach, (ii) identify the individuals affected by the breach, and (iii) restore the reasonable integrity of the data system.

Additionally, subsection (c) was amended to clarify that the state’s notification requirements are applicable only to personal information of “a resident of this state.” 

Furthermore, pursuant to Section (g), failure to comply with the statute will continue to be deemed an unfair trade practice under Connecticut’s Unfair Trade Practices Act (“CUTPA “), however, enforcement is still limited to the Attorney General with no private right of action.

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What To Do If You Receive a Copyright Infringement Letter From Your Internet Service Provider (ISP)

If you’ve recently received a copyright infringement letter from your Internet service provider, you’re not alone.  Recently, there’s been a rise in the number of copyright infringement lawsuits filed across the country involving alleged copyright infringement or “piracy of content” via peer-to-peer (P2P) and file sharing services such as BitTorrent and The Pirate Bay.  A recent report has identified over 220,000 individuals as having been sued since mid-2010 in mass BitTorrent lawsuits, many of them based upon alleged downloading of copyrighted works. 

Typically, plaintiffs involved in these cases file suit against a series of “John Does” alleging the illegal downloading of images, blockbuster movies and oftentimes, adult-themed videos.  In their complaints, plaintiffs will often include a list of Internet protocol (IP) addresses that were used to engage in the illegal transfer of copyrighted materials.   

How will a plaintiff get my name and contact information?

Through the use of court-ordered subpoenas, plaintiffs will request the Internet Service Providers (ISPs) (i.e., Comcast, Verizon, Cox, Time Warner) to turn over the individual names and contact information of the Internet account holders associated with the IP addresses that were identified in their complaint.  Oftentimes, the ISPs will file motions to quash the subpoenas (motions asking the court to relieve them from having to turn over the requested information).  If an ISP does not file a motion to quash, or the court rules in favor of the plaintiff, the ISP is then ordered to produce the requested information.    Before it turns this information over to the plaintiff, the ISP will send a letter to the account holder that unless such individual takes legal action, the ISP will provide the plaintiff with their name and contact information.

What should you do if you receive a letter from your ISP?

1)      Don’t panic, but don’t ignore the letter either.  More likely than not, you have a few weeks to make a decision.  Use this time to learn more about your options and your situation.  Learning more about the facts of the case will shed more light on the types of options that you have.  Ignoring the letter won’t make it go away and could limit your chances of success.

2)      Don’t reach out to the plaintiff or its attorney.  You should not contact the plaintiff or plaintiff’s counsel without assistance of a copyright attorney to help you.    Plaintiffs’ counsel often will harass and threaten Internet subscribers who reach out and identify themselves in an attempt to plead their case as to why they were wrongly targeted.  I compare this situation to the well-known carnival game: Whac-A-Mole.  Plaintiffs’’ counsel is likely to make an example out of you in order to coerce the others if you come forward and identify yourself.  

3)      Educate yourself. More likely than not, the letter you received from your ISP came from their legal department.  The letter is likely to provide some basic facts about the case, including the title of the litigation, the name of the plaintiff and the location of the federal court that the case is being in.  Sometimes, the  letter isn’t entirely accurate as to your specific situation – these are typically form letters and may incorrectly identify you as a defendant when you aren’t an actual party to the lawsuit.  This is an important fact to find out because it will determine what judicial rights and options you have to prevent your information from being disclosed.  

4)      Prepare a list of valid reasons why you’re not at fault.    By educating yourself about the specific facts of the case, importantly, the facts concerning what the copyrighted material was, when it was downloaded and by what means, you are likely to be in a better position to provide evidence to your attorney as to why you may have been mistakenly targeted.  Reasons such as using an unprotected wireless network, having multiple tenants in an apartment building share a single IP address, or being out of town on the day and time of the alleged infringement have been determined to be valid reasons in various jurisdictions for not being liable.         

5)      Speak to an experienced attorney.  In addition to the shock of receiving a letter from the ISP, you may be faced with the fear or worry of being publicly harassed or exposed due to the sensitive or adult-themed nature of the illegally downloaded material.  These factors can significantly interfere with your ability to objectively assess your options and plan the most effective course of action.  You should consider working with a copyright infringement attorney that has experience counseling clients in similar situations.  An experienced attorney can help you decide what your best options are and develop a game plan that will increase the odds of a favorable result.  

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 David Benoit presents his fourth post as a guest blogger on the topic of Intellectual Property for Connecticut Start-Up companies.  In his fourth installment, he focuses on the need for entrepreneurs to protect their client’s most important assets: client personal information.  

In addition to implementing best practices with respect to a company’s own IP, start-ups need to be as mindful in taking adequate safeguards to ensure that any client IP that is being collected, stored, manipulated or distributed is not being used in a manner that will expose the start-up to liability.  Client IP most often includes “NPI” (nonpublic personal information) and includes personally identifiable financial information and any lists, descriptions or other groupings of consumers derived using personally identifiable financial information.  Unauthorized disclosure or access of personally-identifiable customer data typically results in financial liability (i.e., regulatory fines, penalties and legal fees) and reputational liability (i.e., damage to goodwill that the startup has worked hard to build). 

Knowing which IP safeguards to implement and what steps need to be taken if an IP breach occurs requires a thorough understanding of the ever-changing, multi-jurisdictional laws and regulations applicable to the start-up’s business.  This could include federal regulations, state- and industry-specific requirements surrounding the collection, storage, deletion and distribution of sensitive customer or end-user data.  Utilizing the services of a privacy attorney who understands not only your business, but also your client's, is important to implementing best practices.  

Having an understanding of these regulations and standards, such as the Children’s Online Privacy Protection Act (COPPA), the Health Insurance Portability and Accountability Act (HIPAA), the Health Information Technology for Economic and Clinical Health Act (HITECH Act), Gramm-Leach-Bliley Act (GLBA) the Fair Credit Reporting Act (FCRA), the Fair and Accurate Transactions Act (FACT Act) and the Payment Card Industry Data Security Standards (PCI DSS), is extremely important to minimizing liability exposure.  Furthermore, knowing how to use customer IP without overstepping boundaries requires a well-written privacy policy, terms of service and other applicable data use agreements.

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 Intellectual Property Series – IP Portfolio Building Increases Chances of Investment

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