Thursday, April 15, 2010

Red light for lighting designer's claims against former partner

PHA Lighting Design, Inc. v. Kosheluk, 2010 WL 1328754 (N.D. Ga.)

The parties compete in the lighting design business, creating lighting plans for commercial buildings. Kosheluk left PHA after 7 years to form Archiluce. Archiluce created a PowerPoint presentation for current and potential customers. It stated: “Richard Kosheluk's unique integration of lighting design and in-depth understanding of lighting technologies coupled with the detailing, design, and project management skills of his architectural practice has made for the successful implementation of many complex design projects while Partner at PHA. The selected project images herein were all designed and/or completed under his direction while at PHA Lighting Design.”

The presentation, just over 100 pages, then shows pictures of the lighting in many different buildings. These were PHA projects; Kosheluk was involved in them, though the extent of his involvement is disputed. The Archiluce logo appears at the bottom of every slide with a picture. Expanded project listings at the end include both pictured and non-pictured projects, and list the architect and the lighting designers, e.g., “Richard Kosheluk and Paul Helms, PHA Lighting Design.” The parties disputed the correctness of the identifications on some of the projects, with PHA arguing that Kosheluk didn’t list all the PHA people who actually worked on those projects.

When Kosheluk left PHA, he copied some of the photos he used in the presentation, as well as PHA’s master contact list and some of PHA’s “lighting cut sheets, expense reports, shop drawing stamp template, lighting fixture specifications, and proposals.”

PHA sued for state and federal false advertising, unjust enrichment, and statutory interference with property (the client lists and proposal/transmittal forms Kosheluk copied and took with him). Kosheluk counterclaimed based on his contract with PHA.

Kosheluk first argued that the Lanham Act claims were precluded by Dastar, but the court found it unnecessary to resolve PHA’s argument that Dastar only applies to goods and not to services (which I think is unlikely to be a winner as broadly framed as that, though I certainly believe there’s a place for false advertising claims of this type even after Dastar).

PHA argued that the statement that “[t]he selected project images herein were all designed and/or completed under [Kosheluk’s] direction while at PHA Lighting Design” was false, because the projects weren’t done “under his direction.” PHA claimed that lighting design is collaborative, and anyway Kosheluk did minimal work on a few of the projects. Additionally, Archiluce’s logo on the slides with pictures of PHA projects allegedly falsely implied Archiluce’s creation of/involvement in creation of the designs. And the failure to list all PHA lighting designers involved in certain projects was also allegedly false.

Kosheluk argued that there was no evidence of harm to PHA. PHA responded by arguing that the falsity of the claims showed a likelihood of confusion. The court didn’t think this was good enough, given that the presentation clearly stated that all the projects were done while Kosheluk was at PHA. Using the trademark confusion factors, PHA just didn’t provide sufficient evidence, even assuming that Kosheluk passed off PHA’s services as his own. There needed to be some evidence that the falsity was likely to confuse. (Despite the references to trademark, this is more a false advertising analysis.) Moreover, PHA failed to show harm. Even if PHA had established a causal connection between jobs Archiluce later got and the presentation, which it didn’t, it failed to show that it was in the running for those jobs, or that its sales have suffered, or that its goodwill has been tarnished. (More false advertising analysis! No nonsense about free riding or initial interest confusion!)

Given the result on passing off, you can guess how well the false advertising claims went. The claims about the presence of Archiluce’s logo and incomplete project listings weren’t ones of literal falsity, and there was no evidence of actual deception. At most, the logo and listings could be ambiguous or misleading. However, there was some evidence that at least some of the projects in the presentation weren’t done under Kosheluk’s direction, which counts as literal falsity.

Even presuming deception, materiality is still required. PHA argued that materiality was shown by the fact that the allegedly false statements basically made up the whole presentation. But PHA didn’t explain why consumers would care that the presentation didn’t properly list all the lighting design members for the expanded project listing, or why they’d care whether the projects were all done under Kosheluk’s direction versus having him “merely involved in the collaborative process that helped create them.”

Furthermore, there was the same problem of showing harm. Evidence that some of Kosheluk’s clients received the presentation before hiring his new firm didn’t show causation or harm.

The Georgia state-law deceptive practices claims were subject to the same analysis.

As for unjust enrichment and statutory interference with property (conversion), they were based on Kosheluk’s appropriation of PHA client lists and proposal and transmittal forms, which are letters given to clients laying out the scope of anticipated work along with price etc. and fax cover letters informing the recipient that certain documents are enclosed.

Kosheluk argued preemption. For preemption to apply, the court reasoned, PHA must actually have a claim to be preempted. (I’m not sure this is true, but ok.) PHA didn’t claim to own copyright in the information taken, nor did it claim that the information constituted trade secrets or a novel idea. Without a property interest, there was nothing to preempt. (I think a badly pled conversion claim based on copying should be preempted too, though.)

The Copyright Act may preempt a state law cause of action even when the subject matter at issue is uncopyrightable, as long as it falls within the subject matter of copyright. The client lists, proposal forms and transmittal forms were works of authorship fixed in a tangible medium, and were not the uncopyrightable ideas etc. excluded by §102(b). Since the property claims were based on Kosheluk’s copying, they looked a lot like claims covered by §106. Because the conversion claim depended on the idea that Kosheluk’s wrongful act of dominion was copying, rather than taking extant copies, there was no extra element.

However, unjust enrichment has an extra element: a benefit conferred on Kosheluk for which he equitably ought to compensate PHA. (I’m deeply suspicious that this ought to count as an extra element, especially since any copying that triggers a lawsuit will always involve some potential “benefit.” Like intent, generally recognized as not counting as an extra element, benefit ought to be considered something that might theoretically narrow the class of copying that generates liability but doesn’t create a cognizable difference from a copyright claim.)

Interestingly, however, the court concluded that Georgia’s Trade Secret Act preempted (precluded) recovery. The GTSA has a preemption section that “supersede[s] conflicting … laws.” Because Georgia has decided to protect some proprietary information—that held as a trade secret—and leave other information to the public domain, it would be inconsistent with the GTSA to allow recovery, on a lower standard than that required for trade secrets, for copying information that was concededly not a trade secret.

Kosheluk’s tangible copies had little value aside from the information they contained. The information, though not a trade secret, was of the type of intangible information that can be protected as a trade secret. Thus, allowing an unjust enrichment claim would subvert the purpose of the GTSA.

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