L-3 Communications Corp. v. Jaxon Engineering &
Maintenance, Inc., 2012 WL 1020516 (D.Colo.)
Plaintiff L3 alleged that its employees, including some who
left to be part of Jaxon, invented ways of testing measures that are supposed
to protect electronic equipment against EMP damage, and that these methods and
other business information were its trade secrets. Nonetheless, defendants departed and created
Jaxon to compete with L3. While still
employed by L3, defendant Randall White allegedly met with L3’s major customers
to convince them to support his new, competing business, and he used L3's
internal acquisitions systems to purchase equipment that would later be
diverted to the new business. In July
2009, though not yet in business, Jaxon obtained contracts from Serco, one of
L3’s major clients, allegedly as a result of collusion that prevented L3 from
bidding meaningfully.
L3 asserted many claims, most of which I’ll ignore. Defendants argued that the resulting Lanham
Act claim should be dismissed against individual defendants, as to whom there
were no allegations that they participated in statements promoting Jaxon,
because the Lanham Act doesn’t recognize imputed or aiding/abetting liability
for false advertising. Jaxon invoked
Electronic Lab Supply Co. v. Cullen, 977 F.2d 798 (3d Cir.1992), which was not
on point because it was about whether attorneys who sought an ex parte seizure
order in a Lanham Act case could be considered an “applicant” for a wrongful
order, thus subjecting them to liability under a different section of the
Lanham Act. The narrowness of the
wrongful seizure remedy stood “in sharp contrast to the relatively broad scope
of a Lanham Act false advertising claim under 15 U.S.C. § 1125(a).”
But the court wasn’t convinced by L3’s citation of Proctor
& Gamble Co. v. Haugen, 317 F.3d 1121 (10th Cir.2003), either. P&G
involved a long, complicated case about Amway’s liability for the acts of its
distributors. The 10th
Circuit suggested that it was proper to import into the Lanham Act “common law
concepts of agency, apparent authority, and vicarious liability,” and held that
Amway wasn’t responsible for acts of independent contractors under vicarious
liability principles. The case on which P&G relied, however, carefully
distinguished “aiding and abetting” liability, where liability is founded on encouraging a substantive offense, from agency
liability. The latter addresses who
should be held responsible for a substantive offense that has indisputably been
committed. Aiding and abetting
liability, which targets the wrong of encouraging another wrong, is largely
confined to securities fraud in the federal system, while agency liability is
common.
Following P&G,
the court held that agency liability is part of the Lanham Act, but not
aiding/abetting liability. Thus, L3’s
Lanham Act claims against employees would stand or fall based on the
sufficiency of allegations that they acted as agents of Jaxon in bringing about
the false advertising at issue.
The allegations here were insufficient. “L3's Lanham Act claims against the employees
of Jaxon does not allege, as an agency-based claim typically would, that an act
of false advertising by a subordinate permits liability to be escalated up the
chain to a person who allegedly authorized that act; rather, L3's theory of
liability seeks to push liability downward, exposing low-level employees in
Jaxon to liability for conduct engaged in by their superiors, for which they
had no alleged ability to control or direct.”
Though L3 argued that those defendants transferred L3’s trade secrets to
Jaxon with actual or constructive knowledge that Jaxon would misrepresent the
technology as its own, that only addresses aiding/abetting.
Defendants also briefly challenged L3’s allegations of
injury. The court found that a
reasonable inference from the allegations “is that Jaxon is only able to
compete with L3 for contracts by unlawfully exploiting L3's trade secrets, and
that if Jaxon were prevented from using such secrets, it would not be able to
advertise and bid for the same contracts as L3. This is sufficient, at this
early stage of the litigation, to satisfy the injury element of the claim.”
Unsurprisingly, the tortious interference claims also
survived as to the defendants identified as directly participating in the
bid-rigging.
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