The Litigation Nation Podcast, hosted by Jack Sanker & Danessa Watkins, is a roundup of the most important and interesting legal developments happening right now, giving you an insider’s view to the legal system. If you haven't already, be sure to subscribe to Litigation Nation wherever you listen to podcasts, so you never miss an episode.
Luke Behnke: Welcome Litigation Nation. I'm your host, Luke Banky. Jack Sanger is unfortunately or fortunately, however you look at it busy with actual legal work this week. So it's just me. So for those of you who don't know, this is the show where we talk about the most interesting legal news of the past. Few weeks.
Luke Behnke: First up, Jack Daniels scores a big win in the Supreme Court, at least for those interested in feverishly protecting their trademarks. And the US Federal Trade Commission proposed a rule that would ban companies from requiring workers to sign non-compete provisions because this proposed rule would represent such a major change to business as usual.
Luke Behnke: And because Jack and I want nothing but the best for our listeners we reached out to our partner Jeff Glass, a labor and employee. Claimant expert here at Amon Davis. All that and more come in your way. Here's what you need to know. Quick follow up on the Jack Daniels Bad Spaniels story from episode 34, and some of you might also recall that I talked about this during a guest appearance on the Newsworthy Podcast back in May.
Luke Behnke: The Supreme Court ruled on Thursday, June 8th, in favor of Jack Daniels holding that the First Amendment did not protect a chew toy for dogs resembling a bottle of the famous whiskey from a lawsuit claiming trademark infringement. Justice Elena Kegan, writing for a unanimous court wrote quote, this case is about dog toys and whiskey.
Luke Behnke: Two items seldom appearing in the same sentence. Close quote. Suggesting that the court was at least somewhat amused by this dispute, but make no mistake, it was a very serious case. Trademark cases such as this one generally turn on whether the public is likely to be confused about a product source. In the bad Spaniels case, a unanimous three judge panel of the Court of Appeals for the Ninth Circuit in San Francisco said, as you might recall, the First amendment required a more demanding test when the challenged product was expressing an idea or point of view.
Luke Behnke: But Justice Kegan said, or wrote, I should say, there was no role for any threshold. First Amendment filter. Close quote in this case. Rather quote, the infringement claim here rises or falls on likelihood of confusion. Close quote, and this really is the crux of the matter, confusion about the source of a product or service.
Luke Behnke: Jack Daniels, of course, argues that this chew toy. Confuses consumers by taking advantage of Jack Daniels quote, hard-earned, good will close quote. Now, to be fair, the toy is about the same size and shape. As an ordinary bottle of Jack Daniels, the faux bottle follows the original in using a black label with a stylized white text and white border.
Luke Behnke: And the toy has the product named Bad Spaniels in a similar font and arch to those that you see on the Jack Daniels bottle. But it still begs the question, at least for me, do all parodies require permission from the owner of the parodied mark? Surely not, but where does this case leave us? Certainly this ruling puts manufacturers of parody products on notice.
Luke Behnke: Now, one of our partners here at Amon Davis, Laura Grebe, she's a trademark guru, has a thought on this. She posted an alert on LinkedIn and wrote, quote, the bottom line in the Supreme Court's decision is to look at the overall use of a design when faced with a potential parody defense to infringement. A parody use when also intended to act as a source identifier is still a commercial use and trademark.
Luke Behnke: Principles will more likely apply than principles of fair speech close quote. Now this is a podcast and we can't show you our dear listeners, a side by side comparison of the toy and a genuine bottle of Jack Daniels. But I can tell you that there are a bunch of similarities. So I'm not surprised that Jack Daniels won.
Luke Behnke: I am, however, a bit surprised that the decision was unanimous. One thing I do know is that trademark lawyers are going to be busy.
Luke Behnke: Next up, according to Reuters, the FTC Federal Trade Commission proposed a rule that would ban companies from requiring workers to sign non-compete provisions as well as some training repayment agreements. Which companies use to keep workers from leaving for better jobs? The agency said, according to the FTC chair, Lena Khan, non-compete agreements, quote, block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand close.
Luke Behnke: The agency estimated that if the rule goes into effect, Wages to US workers would rise by 300 billion per year, and an estimated 30 million Americans would have better career opportunities. Now, the rule, which could be months away from taking effect, would require companies with existing non-compete agreements to actually scrap them and inform current and past employees that they've been canceled.
Luke Behnke: Interestingly, the US Chamber of Commerce is considering suing. To stop the rule to discuss this with us in a bit more detail. Jeff, how you doing? Good, good. How are you? I'm great. And and thanks for for joining us. You're no doubt familiar with this proposed rule. So why don't you start by just telling us what a non-compete clause is and maybe more importantly what it isn't.
Jeff Glass: Yeah. So, and that, that is really important. The, a non-compete clause, it's usually in an employment contract. And it, it provides that the employee, after he or she terminates employment can't work in the industry or for a competitor. It's usually in a geographic territory, and it's usually for a certain amount of time.
Jeff Glass: So it's a complete ban on competitive employment. Now, that's a different thing than a non-solicitation clause. A non-solicitation clause keeps an employee from soliciting customers that they dealt with while they were with the former employer. And that's, that's more focused protection for the employer cuz it just protects the customer relationships.
Jeff Glass: You can also have nons solicits for employees, which are kind of important these days cuz everybody has a hard time attracting and retaining employees. So this FTC rule though, it would outlaw non-competes. That's the most, the, the broadest, most burdensome type of restriction. But it doesn't include non-solicitation clauses, which in my experience is frequently the.
Jeff Glass: The clause that really matters to companies, not
Luke Behnke: non-competes are I, I, I think one of those issues where you can go back and forth, you know, seemingly in perpetuity, right? Endlessly. There, there are great points on sort of both sides of this on the labor side of things, and then on the, you know, employer side of things.
Luke Behnke: What is your take on the FTCs rule? And do you think it matters whether the company requiring the non-compete agreement is, you know, a small mom and pop shop versus, say,
Jeff Glass: an Amazon? Probably what the FTCs, you know, worried about is like Jimmy Johns was a famous example several years ago. They were having their drivers.
Jeff Glass: Subject to non-competes. You know, these are people that make 10 bucks an hour and it just seemed abusive, like it's going overboard. And then just some people have a kind of a gut level feeling of unfairness when it comes to non-competes that stop you from working in the industry where you know how to, where you can get employment, right?
Jeff Glass: And you're banned from the entire industry, really. Even if I don't touch my former customers, even if I didn't take any information, I still can't work in the industry. That, that strikes people as unfair. So that's kind of the balancing act, I guess.
Luke Behnke: I think the argument might be better for those really big publicly traded companies for doing away with non-compete agreements.
Luke Behnke: I think it's different when you're talking about smaller you know, maybe mom and pop shops or even medium sized businesses. Because you know, that really is their, their livelihood, right? I mean, if they, if they make the decision to invest in an employee, train him or her up, and then he or she leaves and starts a competing business, you know, in the same footprint that mom and Pop are in, well guess what I mean, all you're doing is training someone to put you out of business.
Luke Behnke: You know, is that
Jeff Glass: good? You know, I can see how a small, a smaller company might find it, might think it's more important to be able to use. A non-compete clause because they might have a small sales force and a few key customers, whereas somebody like an Amazon or another huge employer, you know, Unless it's a senior executive in a very sensitive position, like what, what do they care, you know, if somebody just gets a job in the industry.
Jeff Glass: But like, you know, like I said, it's a key thing to remember the non-solicitation of customers and employees. That's not gonna, as I read the FTC rule, that's not gonna be regulated. And for my clients at least, you know, protecting the customers and the information and the employees is what they're most con they're most concerned about, not banning somebody from.
Jeff Glass: Working in the industry, what, what courts will look at, no matter what the document says, is they'll, the employer has to show that they have a protectable interest that allows them to restrict somebody's employment. Because you're usually supposed to have, you know, freedom of employment, but you're also supposed to be held to your contracts, right?
Jeff Glass: So when the court sees this type of contract, they're, they scrutinize it cuz it's a contract that limits you know, employment. And if you can show as the employer that you've got customer relationships that this employee developed because you were paying them to go out and do that and that these are, you know, good customer relationships, long-term repeat businesses involved, a court will generally enforce that and restrict the employee if it's reasonable.
Jeff Glass: You know, it can't be for too long, but So the argument for these clauses is that the employer really does have important interest to protect. And then the other one is confidential information. You know, if, if you're worried that the employee knows stuff and they shouldn't be able to use it to solicit customers or work for another company, those are protectable interests.
Jeff Glass: So I guess those are the arguments for these clauses is that they, employers have legitimate concerns and as long as they don't go overboard, courts will. Enforce, you know, these clauses, will this
Luke Behnke: impact non-disclosure clauses?
Jeff Glass: Here's it. It says that if a non-disclosure clause is so broad that it would effectively ban somebody from working in the industry, then that's considered to be a non-compete.
Jeff Glass: And that's interesting because if you look at most companies, non-disclosure clauses, They really cover everything under the sun cuz the companies think that if I just list all, you know, all financial information, all marketing information as protected, that's just gonna cover all my bases. And with this new rule, just one thing that I'm keeping an eye on is, you know, it does say if it's, if the non-competes, if the non-disclosure clause would have the effect of preventing somebody from working in the industry, a non-disclosure clause could be considered to be a non-compete clause.
Jeff Glass: So, Those really broadly drafted non-disclosure provisions, which I see all the time could be problematic if this rule takes effect.
Luke Behnke: So that, that's a good segue then to, to my last question for you. Are there things that employers can do to work with or around this rule, or are you just saying that, you know, you're not so sure that this rule will be as maybe influential or impactful?
Luke Behnke: As a lot of people are making it out to
Jeff Glass: be. Yeah. The main, in my experience for our clients, certainly the non-compete seems to be going out of fashion PR precisely because you can protect yourself with a good non-solicitation clause, good non-disclosure provision. So that's, that would be my advice to employers is, you know, Do you really need to non-compete if, if they have to stay away from your customers and can't use your information?
Jeff Glass: Usually the answer is no. So hopefully when this thing is, if this thing is passed and, and is upheld this rule our clients can still use non-solicitation and non-disclosure clauses to protect themselves. So, as I read this, it's, you know, it's not a, a total disaster for employers.
Luke Behnke: But we'll have, or maybe not as big of a boon to employees.
Jeff Glass: Yeah. I mean, yeah. Right. It's, it's, it's, it's a lot of states, Illinois, where, where I practice most of the time they, they put income thresholds for non-compete agreements and non-solicitation clauses. So, you know, legislatures everywhere are looking at the, these things. But so far the stuff we need to have, have out there to protect the.
Jeff Glass: The clients are, it's still available and enforceable unless you're in California or some really extreme jurisdiction. So, Jeff,
Luke Behnke: before we go if anyone needs to get in touch with you what can they do?
Jeff Glass: So I'm a partner of Amon Davis, so you can find me at amon davis law.com. The name's Jeff Glass, g l a s s.
Jeff Glass: And The email is jay glass amon davis law.com. I'd be happy to talk to anyone anytime about this stuff. Great. Well,
Luke Behnke: Jeff thank you for your time and your, your expertise. We really appreciate it.
Jeff Glass: Hey, thanks. No problem, anytime.
Luke Behnke: That's the show for today. You can find us wherever you get your podcasts, and if you have thoughts on any of these stories, as always let us know what you think. Until next time.