Property, intangible

a blog about ownership of intellectual property rights and its licensing

The Danger of Overreaching

drawing and specimen for plaintiff’s trade dress registration
Plaintiff Lauren Brenner started Pure Power Boot Camp, a military-style exercise facility. She hired the defendants and they decided to start a competing business called Warrior Fitness Boot Camp. The defendants behaved despicably; while still her employees they had one’s client/girlfriend promote Warrior Fitness to Pure Power customers (the “dating a client” part also against company rules), they stole documents from Brenner’s private office and personal computer, including business plans and customer lists, they stole and destroyed their own employment agreements with Pure Power, they disparaged Brenner to Pure Power clients, and, the coup de grâce, one of them successfully lobbied for the firing of a co-worker, then provoked a fight with Brenner leading to his own firing, leaving her in the lurch with only one trainer for two facilities and freeing him to go work at Warrior Fitness.*
With all that, though, Pure Power was less successful in its kitchen sink of claims than one might think. The two defendants who were former employees had employment agreements (well, one denied signing it, but since they were destroyed I guess we’ll never know). The Employment Agreement was broadly written, which ultimately meant that it failed to serve the plaintiffs’ needs because most of its restrictions were found unenforceable. This included the non-compete provision (10 years and no geographic limitation was unreasonable in scope), the non-solicitation provision (same), and the “best efforts” provision (no objective criteria for “best efforts”). There was a breach of the non-disclosure provision, but for zero damages because there was no proof that Warrior Fitness’s success was based on gaining the confidential information.
The agreement’s “intellectual property” provision also failed because it overreached. This provision stated that, as an employee of Pure Power:

You acknowledge that [Pure Power’s] obstacle-confidence courses and related environments, and the marketing thereof, embody and/or reflect inventions, discoveries, concepts, ideas, developments, improvements, methods, processes, know-how, trade secrets, designs, trademarks, … trade dress, textual and graphic material, and a distinctive overall look and feel (collectively, “Intellectual Property”). You agree that all such Intellectual Property, regardless of whether or not it is capable of patent, trademark, trade dress, trade secret or copyright protection, is exclusively owned by [Pure Power]. You shall not, during the course of your employment or any time thereafter, challenge [Pure Power’s] ownership of any Intellectual Property or the validity or enforceability thereof, nor shall you use any Intellectual Property in any competing business, or in any other way without [Pure Power’s] express written permission, during or after your employment with [Pure Power].

The problem is that under New York law, the terms of an agreement have to be “definite and explicit” but this provision was “impermissible vague, indefinite, and overbroad.” There were no durational limits, which meant that even if Pure Power went out of business the employees would be excluded from using the Intellectual Property. Further, the employees were not just prohibited from challenging the validity or enforceability of any intellectual property, but “cannot use any Intellectual Property … in any other way”: “It is impossible for the Court to uphold this provision without imposing its own conception of what exactly is meant by the vague and indefinite phrase: ‘in any other way.’”

But I think this is the most significant point:

Moreover, it is not simply the case that, in signing the Employment Agreement, Defendants agreed not to challenge the validity of an existing trademark or patent. Here, the provision applies to Pure Power’s alleged “Intellectual Property,” even if the alleged intellectual property is not “capable of patent, trademark, trade dress, trade secret, or copyright protection,” or even of definitions. This intellectual property provision, however, is vague and indefinite and cannot be said to promote predictable contractual relationships. Permanently barring an employee from challenging an employer’s alleged intellectual property—however vaguely defined—runs contrary to the important interest in permitting full and free competition in the use of ideas which are in reality a part of public domain. Plaintiffs have failed to explain what legitimate business interest they are seeking to protect or promote, through contract, beyond that already covered by state and federal intellectual property law, or why they are entitled to an additional layer of protection substantially restricting Defendants’ freedom to use and incorporate ideas and concepts relating to the United States military—ideas and concepts to which Brenner, of course has no special claim.

Thus, the agreement was written broadly to try to capture something greater than what we would traditionally consider “intellectual property,” but what that might encompass was too vague to be enforceable. That’s not to say that an employment agreement can’t prohibit behavior that might otherwise be perfectly permitted under the law, but it must do so in a way that is definite and is based on a legitimate business interest.
Although the employment contract was no help, the plaintiff was successful on a breach of the duty of loyalty under New York state law’s “faithless servant” doctrine. This resulted in a disgorgement of the former employees’ earnings while employed at Pure Power, starting at the time they first stole documents. There were also punitive damages for the willful conduct, for a total of about $250,000.

There was also a claim for infringement of the registered trade dress (plaintiffs’ facility pictured at top and defendants’ facility immediately above), which you can see had to go nowhere. Although the décor was considered inherently distinctive and nonfunctional, the plaintiff was actually trying to protect her ideas, concepts, and innovations with her infringement claim. But distilled down to just the “look and feel,” the defendants’ facility looked different and there was no likelihood of confusion.

Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, No. 08 Civ 4810 (THK) (S.D.N.Y. Sep. 12, 2011).

*IIRC, in New York if one is fired any non-compete becomes unenforceable.  Hmmmm.

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