Opinion
Case No. 05 CV 17817 J (JMA).
September 14, 2005
LISA M. CHAPMAN, ESQ., ERIN M. ADRIAN, ESQ., SILICON VALLEY LAW GROUP, San Jose, California, LINDA PETERSON, VICTORIA TAUS and PACE (incorrectly sued as "LEADS PACE"), Attorneys for Defendants.
DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR TEMPORARY RESTRAINING ORDER
I. INTRODUCTION
The Motion before this Court is an application for a temporary restraining order brought by Leads Club, Inc., (hereinafter "Plaintiff") a "business networking" company. Defendants Linda Peterson and Victoria Taus are former executive directors of Plaintiff's organization. Since leaving her position Ms. Peterson has not yet begun a new business venture or employment. Ms. Taus has begun to organize a business called PACE (Partnership Alliance Consortium Exchange) that will involve various small business networking activities. PACE is in the formation stages and no business has, thus far, been transacted.
Plaintiff erroneously and disingenuously refers to PACE in its TRO papers and Complaint as "Leads Pace," even though Ms. Taus' new business has never been called by that name.
By its Application, Plaintiff seeks to have this Court enforce a patently illegal covenant not to compete by enjoining Ms. Taus and Ms. Peterson from starting up and/or engaging in a networking business. Plaintiff falsely asserts that its employment contract with Ms. Taus and Ms. Peterson prevents them from being associated with any business that is the same or similar to Plaintiff's business for a period of five years.
Plaintiff also misleads with its claim that Defendants infringed upon its "Leads Club" trademark. Plaintiff does not own "Leads Club" as its trademark. Indeed, Plaintiff has expressly disclaimed its rights to the generic name "Leads Club" with the U.S. Patent and Trademark Office: The trademark registration by Plaintiff, on its face, states: "Disclaimer: . . . . . No claim is made to the exclusive right to use `Leads Club' apart from the mark as shown." [See Exhibit A to Complaint]
As more fully set forth in Section D, infra, even though Defendants are entitled to use the (not trademarked) term Leads Club, Defendants have not used it. Instead Ms. Taus has called her business PACE. Plaintiff further overreaches seeking a Court order to expand their asserted rights by preventing Defendants from employing a website with the title "leadsca.com" a domain name owned by Defendants and entirely beyond any rights of Plaintiff.
Plaintiff, in its proposed order, claims trademark protection for entire categories of items for which it does not have trademark rights. For example, Plaintiff demands that the Court enjoin Defendants' use "in any manner the LEADS CLUB trademarks and any other term or terms likely to cause confusion therewith, including LEADS PACE or leadsca.com as Defendants' domain name, directory name . . ."
Finally, Plaintiff seeks to enjoin Defendants' use of "Plaintiff's competitive method of doing business" and other undisclosed but alleged "trade secrets." Even assuming that Defendants have "stolen confidential member rosters," or have employed "trade ideas, concepts, procedures" as alleged by Plaintiff, none of the items identified by Plaintiff in its complaint and/or moving papers can be considered trade secrets. In fact, the member rosters for various chapters are posted on websites, as are manuals, promotional and marketing materials, chapter schedules, forms for monitoring chapters, resources and "how to" documents. (See Exhibits B through 1 to Taus Decl.) The public dissemination of materials is fatal to any trade secrets claim by Plaintiff.
Defendants deny that they have or have used any of Plaintiff's alleged "trade secrets." See Section C.3., infra.
Plaintiff is not entitled to prevent Defendants from working in their chosen professions, or to prevent Defendants from fair competition with Plaintiff. Nor is it entitled to enjoin the use of Defendants' business name, PACE, or its domain name www.leadsca.com. Nor is it entitled to an injunction for conduct that is not ongoing. Even assuming Plaintiff's allegations that Defendants used its logo on Defendant's PACE website were true, prior to the filing of this action, Ms. Taus dismantled her website for redesign. It was in operation a mere fifteen days.
Boiled down to its essence, Plaintiff's Application seeks to enjoin future and lawful competition by Defendants. Plaintiff's Motion should be denied in its entirety.
II. FACTUAL STATEMENT
A. Plaintiff's Business Model
Plaintiff was founded in the 1970's by Ali Lassen, the mother of Defendant's current President, Lisa Bentson. Plaintiff is a "business networking" business whose mission is to facilitate the exchange of business referrals among its membership, all of whom are business owners. Plaintiff's business model consists of local chapters whose weekly meetings are led by a local management team, with input and supervision by a "Chapter Consultant" who in turn reports to a regional Executive Director. Plaintiff charges a monthly membership fee for "members" who attend local chapter meetings, and pays a portion of that fee in the form of a "commission" to the Executive Directors. In addition to its local chapter meeting component, Plaintiff makes available to its members online and via U.S. Mail a variety of written tools which purport to enhance business development practices, including manuals and forms. Plaintiff maintains chapters throughout the United States and Australia. (Taus Decl, page 1; Peterson Decl., page 1.)
The average duration of a Plaintiff membership is approximately six months. (Peterson Decl., page 3, line 6.) As such, on an annual basis each Plaintiff membership has 150%-200% turnover in every calendar year.
B. Plaintiff's Business Difficulties
1. 2005 — A Pivotal Year
In the late 1990s, the then nacent networking industry seemingly exploded out of nowhere into a thriving multi-billion dollar industry. From its early origins in the 1970's as a marketing tool for unsophisticated small local service businesses, the industry morphed into an international business whose customers included both its historical clientele and sophisticated professionals with increasingly complex business networking needs. In response to that change, Plaintiff dug its heals into the sand. As if willing itself back to the pre-internet days of its formation in the late 1970's, Plaintiff ignored the opportunities presented by the internet and appeared intent on preserving the limited weekly meeting model as its sole business model. In short, Plaintiff failed to take stock of the changes in its industry, and refused to take any efforts to remain competitive and viable. Its Executive Directors, whose salaries were dependent on Plaintiff's ability to attract new members, did however take stock. A change appeared unavoidable. Apparently, Lisa Bentson was the only one who was and remains willing to deny the obvious: the business networking industry is a in state of rapid evolution, and in order to survive Plaintiff must change to reflect the needs of its customers. (Taus Decl., page 3, lines 1-17.)
In early 2005, it became grossly apparent to senior employees of Plaintiff and others that Plaintiff's failure to remain current with business trends was taking a serious toll on their business and attendant ability to generate an income. Plaintiff had failed to keep current with the proliferation of online activities and had not yet transitioned to accomodate the increasing popular blog type of communication. (Taus Decl., page 3, lines 1-3.)
Other organizations that catered to younger and more internet savvy business owners were capturing a greater portion of the business networking market, and many of Plaintiff's members had begun to reject the obvious limitations of the weekly meeting format and expressed a preference for more random and unstructured real-time networking events. Executive Directors, including Ms. Taus, had begun to propose other events in their territories, which Lisa Bentson rejected. As a result, membership declined and Plaintiff faced financial problems. (Taus Decl., page 3, lines 1-17.)
2. Plaintiff's Erroneous Solution: Change the Fee Schedule
Plaintiff's sole solution to shoring up its organization and increasing cash flow problems was to change to its longstanding membership payment plan. Lisa Bentson provided little advance warning of the change to the Executive Directors, many of whom later objected to the proposal and warned that members would resign with the new plan, and they would see reduced revenues. The new structure obligated members to pay by automatic debit. They could only pay by credit card or check if they made non-refundable payments six months or one year in advance. (Taus Decl., page 3, lines 20-27, page 4, lines 1-19.)
C. Members' Reactions: Complaints and Resignations
Almost immediately members complained that they did not have confidence in Plaintiff ability to safeguard the security of online banking operations necessary for the "automatic" debit option for fee payment, could not afford to pay by automatic debit and did not want to commit in advance to a lengthy membership. Many members complained in writing to Plaintiff and the Executive Directors, threatened to resign and/or resigned (including three chapters which unilaterally resigned), and Ms. Taus and Ms. Peterson both resigned. The new fee structure remains in place. (Taus Decl., page 3, lines 4-19; Peterson Decl., page 4, lines 1-25.)
D. Ms. Taus' and Ms. Peterson's Relationships With Plaintiff
Ms. Taus and Ms. Peterson were Executive Directors for Plaintiff for approximately three years. Their positions gave them exclusive rights to their territories, and their compensation was a commission equal to a percentage of monthly membership fees paid by members in their territories. (Taus Decl., page 2, lines 12-19; Peterson Decl., page 2, lines 5-25.)
E. Ms. Taus' and Ms. Peterson's Resignations in the Wake of the New Fee Structure Change
After Plaintiff unilaterally changed its fee structure in the face of intense opposition, Ms. Taus and Ms. Peterson individually decided that it was not in their their best interests to continue their employment with Plaintiff. They foresaw a substantial decline in membership in their territories due to the fee structure change, and an attendant reduction in their commissions. They both concluded that in the immediate future their employment with Plaintiff would not enable them, respectively, to earn sufficient levels of income to sustain a living.
After Ms. Peterson's resignation she contacted the webmaster who had worked on the northern California leads website (northerncaleadsclub.com) and asked her to shut it down, and had no subsequent involvement in the operation, maintenance or use of that cite. (Taus Decl., page 4, lines 21-28, page 5, lines 1-5; Peterson Decl., page 5, lines 5-13
F. Ms. Taus' and Ms. Peterson's Subsequent Lawful Business Activities
1. Ms. Taus' Pace Organization
After resigning from her position with Plaintiff, Ms. Taus began to explore other opportunities in the business networking field, and decided to form a networking business that would focus primarily on the internet. Her business, Pace, has never used the name "Leads Pace." Ms. Taus' Pace operation maintained a website for fifteen days, after which time she shut it down for reconstruction and to regroup in order to develop a more comprehensive business plan. Pace does not currently operate a website or have an email or telephone numbers/addresses and is not currently doing business. During its brief operational tenure, Pace did not conduct any business, enter into any contractual relationships, earn any revenues, solicit or gain any customers, provide any services, or sell any products or services. (Taus Decl., page 5, lines 7-24.)
2. Ms. Peterson's Lack of Involvement with Pace
Ms. Peterson has never been involved in the Pace organization briefly operated by Ms. Taus. That entity was and is owned and operated exclusively by Ms. Taus. Ms. Peterson has not yet launched a new business operation. (Peterson Decl., page 5, lines 15018.)
3. "Leads Pace": No Such Entity Exists
Defendants are not aware of nor have they had any affiliation with any business by the name of "Leads Pace", whether formal, informal or otherwise. (Taus Decl., page 5, lines 13-14; Peterson Decl., page 5, line 17.)
4. Defendants Have Not Misused Any Protected Trade Secrets
(a). Plaintiff Has Not Maintained the Confidentiality of its Alleged Trade Secrets: The Websites
Many of Plaintiff's Chapters and/or territories maintain a website accessible to members and non-members alike. Those websites are not maintained in a confidential manner and require no password or other screening device. The websites serve two separate purposes: they are a marketing tool used to attract new members and a convenient method of intra-chapter communications. Most websites include the contact information of their members, announce upcoming activities, and enable users to download, free of charge, Plaintiff's materials. Many of Plaintiff's officially sanctioned websites are replete with the materials for which Plaintiff seeks trade secret protection in its Motion. (Taus Decl., pages 6-10.)
5. Defendants Have Not Made Any Defamatory Statements Concerning Plaintiff
During the period when Ms. Taus and Ms. Peterson, in their capacities as Executive Directors, were interacting with Plaintiff's members concerning their complaints about the fee structure change, neither Ms. Taus and Ms. Peterson made any false statements about Plaintiff. Any statements made by them were instead their own honest and privileged opinions about the fee change. (Taus Decl., page 5, lines 2-5; Peterson Decl., page 5, lines 10-13.)
6. Defendants' Prompt Return of Plaintiff's Materials
Immediately after their respective resignations, Ms. Taus and Ms. Peterson boxed all material belonging to Plaintiff in their possession in preparation for returning them to Plaintiff. Any delay on their part in returning the materials was due to Plaintiff's refusal, for almost a month, to tell them where to send the materials. (Taus Decl., page 10, lines 10-13; Peterson Decl., page 5, lines 23-26.)
G. Defendants Have Not Violated Trademark Laws
The sole mark registered by Plaintiff is the "Ali Lassen's Leads Club" mark registered in 1987, to which a disclaimer that it does not include use of the term "leads club" is affixed. Plaintiff does not contend that Defendants have ever used its registered mark, and Defendants have not used that mark. (Taus Decl., page 5, lines 26, 27; Peterson Decl., page 5, lines 20-21.)
III. ARGUMENT
A. Plaintiff's Claim is Moot: Plaintiff's Failure to Establish Grounds for Injunctive Relief
An injunction is an equitable remedy, the basis of which has always been irreparable injury and inadequacy of legal remedies. Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982); Stanley v. University of So. Calif., 13 F.3d 1313, 1320 (9th Cir. 1994). In each case, a court must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief. Amoco Production Co. v. Village of Gambell, Alaska, 480 U.S. 531, 107 S.Ct. 1396, 1402 (1987).
When seeking preliminary relief such as a temporary restraining order or a preliminary injunction, all courts agree that a plaintiff must satisfy the general equitable requirements above by showing a significant threat of irreparable injury and inadequate legal remedies. Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987). However, applications for preliminary relief must meet additional criteria.
Courts use two different, but not inconsistent, tests to determine preliminary relief: the tradition test and the alternative test. Under the traditional test, a plaintiff must establish the existence of the following factors: a likelihood of success on the merits, the existence of a substantial threat that plaintiff will suffer irreparable injury if the injunction is denied, the existence of a threatened injury that outweighs any damage the injunction might cause to defendant, and that the injunction will not disserve the public interest. Raich v. Ashcroft, 352 F3d 1222, 1227 (9th Cir. 2003)
The alternative test allows Plaintiff to meet its burden by showing either: a combination of probable success on the merits and the possibility of irreparable injury; or serious questions as to these matters and the balance of hardships tips sharply in plaintiff's favor. Stuhlbarg Int'l. Sales Co., Inc. v. John D. Brush Co., Inc. 240 F.3d 832, 839-840 (9th Cir. 2001). The Court must also weigh whether the public interest favors issuance of the injunction. Southwest Voter Registration Ed. Project v. Shelley, 344 F.3d 914, 917 (9th Cir. 2003). Finally, there is a heightened standard in cases where the injunctive relief would disturb the status quo, and the movant must show that the factors weigh heavily and compellingly in the movant's favor before preliminary relief can issue. Chalk v. United States Dist. Ct. Cent. Dist. of Calif., 840 F.2d 701, 704 (9th Cir. 1988).
1. Plaintiff Has Failed To Establish That There is a Threat of Future Harm.
A prospective injunction is entered only on the basis of current, ongoing conduct that threatens future harm. Southwest Voter Registration Educ. Project v. Shelley 344 F.3d 914 (9th Cir. 2003); 2003 WL 22119858. Moreover, under California law, a plaintiff cannot receive an injunction for past conduct unless he or she shows that the conduct will probably recur. Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115 (9th Cir. 1999). For injunctive relief to be warranted, reasonable showing of sufficient likelihood that plaintiff will be injured again is necessary. Norman Bloodsaw v. Lawrence Berkeley Laboratory, 135 F.3d 1260 (9th Cir. 1998). A plaintiff must do more than merely allege imminent harm sufficient to establish standing, he or she must demonstrate immediate threatened injury as a prerequisite to preliminary injunctive relief. Los Angeles Memorial Coliseum Comm'n v. National Football League, 634 F.2d 1197, 1201 (9th Cir. 1980).
Plaintiff's moving papers focus exclusively on alleged past actions by Defendants, and fail entirely to demonstrate the existence of an immediate threatened injury. Plaintiff seeks to enjoin Defendants from the following duplicative categories: (1) using Plaintiff's trademarks and any other terms, such as Leads Pace or leadsca.com. which are likely to cause confusion between Plaintiff and Defendants business operations; (2) using the Leads Club trademark in connection with Defendants' goods or services, so as to create a likelihood of confusion, mistake or deception; (3) disseminating, using or distributing any website pages, advertising or internet code words or titles or other promotional materials, whose appearance so resembles the web site pages or trademarks used by plaintiff, so as to create a likelihood of confusion, mistake or deception; (4) engaging in any other acts or conduct which could cause consumers to erroneously believe that Defendants' goods or services are somehow sponsored by, authorized by, licensed by or associated with Plaintiff; (5) using and claiming ownership of the mark Leads Club or "leadsca" on the internet; or (6) engaging in any business that is in competition with Plaintiff.
As will be set forth in detail hereafter, Defendants have not done any of the allegedly wrongful acts attributed to them and no threat of future harm exists. Plaintiff's claims are moot.
B. The Franchise Agreements are Unenforceable and the Covenant Not to Compete is therefore Unenforceable as it clause violates Business and Professions Code Section 16600 and Established Public Policy
1. The Franchise Agreements are Unenforceable
The nature of the legal relationship between Plaintiffs and the individual Defendants is one of employer and employee. As a consequence of the same, any attempt to characterize that relationship as one of a franchisor and franchisee is erroneous.
2. Business and Professions Code Section 16600 Bars the Covenant Not to Compete.
Plaintiff falsely argues that "it is well-settled law that a contractual clause restricting a party's right to compete . . . will withstand scrutiny." To the contrary, it has long been established in California that non-compete provisions or covenants not to compete are invalid. California law forbids contracts that attempt to limit future employment opportunities, and specifically provides that employees are free to work for competitors, and/or form competing business entities. Business and Professions Code § 16600 provides in pertinent part: "Except as provided by this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." This section applies to both employees and independent contractors. Bosley Medical Group v. Abramson, 161 Cal.App.3d 284, 288, 207 Cal.Rptr. 477 (1984). In fact, a former employee may do business with a former employer's customers with whom he or she became personally acquainted and developed a business relationship while formerly employed. Moss, Adams Co. v. Shilling, 179 Cal.App.3d 1245 (1986); Avocado Sales Co. v. Wyese, 122 Cal.App. 627, 634 (1932); Theodore v. Williams, 44 Cal.App. 34, 37-39 (1919).
In Avocado Sales Co., the court held that a former salesman of a business is entitled to sell products to his or her former employer's customers by "making personal friends and acquiring a personal knowledge of his customers. . . ." ( 122 Cal.App. at 634.) The Avocado Sales Co. court quoted a New York decision for the proposition that "Equity has no power to compel a man who changes employers to wipe clean the slate of his memory." Id. (quoting Peerless Pattern Co. v. Pictorial Review Co., 147 App.Div. 715, 717 (1911)). Similarly, in Theodore, the court held that a laundry route driver could announce the name of his new employer to his former employer's customers by driving along his old route in a truck marked with his name and the name of the new employer. The driver merely used his personal knowledge of the route and its customers to make the announcement. Theodore v. Williams, 44 Cal.App.3d at 37-39.
The Moss, Adams Co. court relied on both of these cases and held that two public accountants could continue to provide professional services to former clients of their previous employer. The court held in pertinent part at page 129:
"Under the rule of Avocado Sales Co. and Theodore, the names of Moss Adams' clients services by Shilling and Kenyon during the year preceding their resignations were not trade secrets, because the clients became known through personal contact and provision of accounting services. Shilling and Kenyon could not be compelled to "wipe clean the slate of their memories."Moss, Adams, Co., 179 Cal.App.3d at 129. Here, the situation is analogous. Ms. Peterson and Ms. Taus were initially members and later employees of Plaintiff for, respectively, approximately 3 years. Throughout the course of those years associations they became personally acquainted with many people who used Defendants' networking services. Indeed, Ms. Peterson and Ms. Taus had established themselves as members of a community of business persons and professional networkers.
Both of the cases cited by Plaintiff, Ingrassia v. Bailey, 172 Cal.App.2d 117, 341 P.2d 370 (1959) and Hilb, Rogal Hamilton Ins. Services v. Robb, 33 Cal.App.4th 1812, 29 Cal.Rptr.2d 887 (1995), do not stand for the propositions for which they are cited. In fact, those cases affirm that § 16600 provides that contracts may not prevent employees from entering into competitive enterprises. In Ingrassia, a proprietor of a catering route leased the route, as well as a truck with which to operate it, to a driver, who signed an agreement not to solicit any customers on the route for a period of one year after termination of the agreement. Ingrassia, 172 Cal.App.2d at 118-119. Upon termination of the route, the driver immediately procured equipment and resumed servicing the route. Id. at 119. The court upheld the contract because it did not prevent the driver from engaging in the catering business, but rather prevented him from solioiting customers made known to him in confidence. Id. at 124.
The court in Hilb, Rogal and Hamilton also declined to enforce a non-compete clause. There, an insurance agency brought an action against a former employee seeking to enjoin the employee from using trade secrets, including customer identities, and to enforce a non-compete clause. Hilb. Rogal and Hamilton, 33 Cal.App.4th at 1816-1819. The appellate court reversed the trial court's grant of an injunction on the issue of trade secrets, holding that a former employee may announce his or her change in employment status to the former employer's customers and comply with instructions to move accounts or start new accounts with the new employer. Id. at 1821. The appellate court also upheld the trial court's denial of an injunction on the issue of the non-compete agreement, holding that the interim harm cause by prohibiting the employee from earning a living was significantly greater than would occur under a trade secret injunction, which would only limit the manner of competition. Id. at 1822. Finally, the court also noted that non-compete agreements are valid when used in conjunction with the sale or disposal of shares of a corporation. Id. at 1824.
In the instant case, Leads Club seeks to enjoin Ms. Peterson and Ms. Taus from engaging in a lawfully competing business, which is contrary to California law. Unlike Hilb, Rogal and Hamilton, the contracts between Leads Club and Ms. Peterson and Leads Club and Ms. Taus do not involve the sale or disposition of shares in a corporation. Thus, the non-compete agreements are invalid. Ms. Peterson and Ms. Taus may not be prohibited from forming a competing business. Moreover, Ms. Peterson and Ms. Taus have not unlawfully solicited Leads Club members for a new organization, but rather merely announced that they were leaving Leads Club, which is permissible under Avocado Sales Co., Theodore, and Moss, Adams. Even if Ms. Peterson and Ms. Taus did solicit members, free competition prevails in the absence of a trade secret customer list. Leads Club member lists are entirely public, and soliciting customers that are known to the public is not unlawful. Continental Car-Na-Var Corp. v. Moseley, 24 Cal.2d 104, 108-109, 148 P.2d 9 (1944).
See Decl. Victoria Taus, pages 6-10 and exhibits affixed thereto.
Furthermore, attempting to enforce an invalid covenant not to compete is actionable under Business and Professions Code § 17200. Application Group, Inc. v. Hunter Group, Inc., 61 Cal.App.4th 881, 906-907, 72 Cal.Rptr.2d 73 (1998). Plaintiff may not obtain a restraining order or injunction of any kind based on the non-compete clauses in the subject contracts, as those clauses are entirely invalid and unenforceable. Rather, it seems injunctive relief may be appropriate to prevent Plaintiff from attempting to enforce this illegal contractual provision as a means to harass defendants and prevent them from establishing their business.
3. Plaintiff's Interference with Contract and Prospective Economic Advantage Claim is Merely an Additional Attempt to Enforce the Illegal Covenant Not to Compete
Plaintiff's argument that Defendants have intentionally interfered with their contractual relations is simply another approach to prevent Defendants from forming a competing business. By Plaintiff's logic, any newly established networking organization would be intentionally interfering with its contractual relationships and prospective economic advantage by obtaining potential Leads Club members and offering an alternative to Plaintiff's current members. This is the essence of capitalism. Competition is encouraged because it forces businesses to constantly reevaluate and produce a better product in order to keep their customers. Not only is Plaintiff's argument of intentional interference logically flawed, it fails on legal grounds as well.
A cause of action for intentional interference with a contract lies where a party wrongfully interferes with another party's contract with a third party. Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 381. To prevail, a plaintiff must prove the following: (1) existence of a valid contract between it and a third party, (2) the defendant's knowledge of that contract, (3) intentional acts on the party of the defendant to disrupt the relationship, (4) actual disruption of the relationship, and (5) damages proximately caused by defendant's conduct. Blank v. Kirwan, 39 Cal.3d 311 (1985).
Plaintiff has not demonstrated the existence of any specific contracts that have been interfered with by Defendants, either wrongfully or otherwise. Plaintiff's Memorandum of Points and Authorities is little more than a reoitation of vague accusations. For instance, Plaintiff argues that "Defendants have and continue to intentionally and deceptively induce members of Leads Club to breach their contracts with Plaintiff and leave and move over to Defendants' Leads Club," and that "Defendants have used . . . blatant and flagrant lies about Leads Club and its officers." Those bombastic allegations are not supported by any actual facts, including facts concerning the manner in which solicitations were made, the dates the solicitations were made, and most importantly the identities of the Plaintiff's members who were solicited and evidence of "actual disruption" of any relationships.
As set forth in the Declarations of Victoria Taus and Linda Peterson, there is no causal connection between Plaintiff's business decline and the conduct of Defendants. The cause of Plaintiff's decline is its failure to remain competitive in the business development market niche by, among other things, implementing an aggressive online component to its business and meeting the current needs of its members with new programs, materials and related products. A second cause is the recently enacted fee structure change which has been rejected nationwide by its members. Moreover, Plaintiff's claim that its members have resigned is wholly consistent with the fact that the average life cycle of a membership is six months.
C. Plaintiff is Not Entitled To Injunctive Relief On The Trade Secrets Claim.
1. Plaintiff's Member Rosters are Not Trade Secrets
In order to restrict Defendants' use of materials or information Plaintiff must show that the subject materials or information is a trade secret as defined by the California Trade Secrets Act. Metro Traffic Control, Inc., v. Shadow Traffic Network (1994) 22 Cal.App.4th 853, 860; Scott v. Snelliing Snelling, Inc. 732 F.Supp. 1034, 1039, 1043 (N.D. Cal. 1990) (Applying California Law.). A trade secret is defined in pertinent part by Cal. Civ. Code 3426.1(d) as the following: "information, including a formula, pattern, compilation, program, device, method, technique or process, that: (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
Here, Plaintiff failed to take any efforts to maintain the secrecy of its materials and member rosters. That information is posted at numerous of Leads Club internet sites sanctioned by Plaintiff.
2. Plaintiff's Designation of Trade Secrets Is Insufficient.
Plaintiff defines the information which it contends is subject to trade secret protection as member rosters and "protocols and procedures . . . and proven operational business procedures." With respect to the latter category, Plaintiff's designation is insufficient.
A party seeking to protect trade secrets must describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies." Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 253, 67 Cal.Rptr. 19.) Plaintiffs vague reference to protocols and procedures fails to accomplish this threshold burden. Here, as in Diodes, Inc., Plaintiff's Complaint speaks in "innuendos" and the so called protocols and procedures are not described with any particularity. Plaintiff must allege ultimate facts showing the existence of a trade secret, and a simple allegation of a secret process is nothing more than a bare legal conclusion. Diodes, Inc. at 252.
Universal Analytics v. Mac-Neal Schwendler Corp. (1989) 707 F.Supp. 1170, 1177; Imax Corporation v. Cinema Technologies, Inc. 152 F.3d 1161 (1998).
3. Plaintiff Has Failed to Establish a Trade Secret Violation
Assuming, arguendo, that the definition of a protectable trade secret is suspended, Plaintiff has not introduced any evidence which establishes any theft by Defendants of anything belonging to Plaintiff. Defendants have returned all materials given to them by Plaintiff during the course and scope of their employment. Moreover, Plaintiff has failed to establish that Defendants have solicited its customers.
D. Defendants Have Not Violated Trademark Laws
In order to prevail on a claim for trademark infringement, Plaintiff must show (1) use and valid ownership of the trademark, (2) use by defendant of the same or similar mark in commerce, and (3) likelihood of confusion due to use of the mark by the alleged infringer. Levi Strauss Co. v. Blue Bell, Inc., 778 F.2d 1352, 1354 (9th Cir. 1985).
1. Plaintiff Does Not Own the Trademark it Claims has Been Infringed by Plaintiff
A cursory examination of the trademark registration cited by Plaintiff at page 12 of the memorandum in support of a temporary restraining order indicates that Plaintiff's registered trademark is "ALI LASSEN'S LEADS CLUB," not "LEADS CLUB" as is alleged by Plaintiff. In fact, the United States Patent and Trademark Office website printout for said trademark, attached to the complaint as Exhibit A, indicates that Plaintiff has in fact disclaimed the exclusive use of "Leads Club" as a trademark.
As used in trade mark registrations, a disclaimer of a component of a composite mark amounts merely to a statement that, in so far as that particular registration is concerned, no rights are being asserted in the disclaimed component standing alone, but rights are asserted in the composite; and the particular registration represents only such rights as flow from the use of the composite mark. Sprague Electric Co. v. Erie Resistor Corp., 101 USPQ 486, 486-87 (Comm'r Pats. 1954).
Obviously, Plaintiff cannot enforce a trademark it does not own. Plaintiff's blatant misrepresentation of its trade mark seems to be an attempt to skirt the intentionally narrow trade mark designation, broadening its trade mark to a more generic term, to prevent competition in the networking market.
2. There is no use of the alleged trademark by Defendants
Neither Ms. Peterson, Ms. Taus, nor Pace are using the Leads Club trade mark or service mark. Plaintiff attempts to show infringement on the Leads Club mark by claiming that Ms. Peterson and Ms. Taus have started a competing business called "Leads Pace." Leads Pace does not exist. Nowhere in any of the exhibits presented by Plaintiff is there anything called Leads Pace.
As evidence of the alleged infringement, Plaintiff submits Exhibit HH, a printout of the website at www.northerncaleads.com. This is the site maintained by Ms. Peterson when she was executive director of the northern California Leads Club region. The date this exhibit was printed, August 15, 2005, was shortly after Ms. Peterson's resignation as executive director. After her resignation Ms. Peterson directed the webmaster to shut down the site. Ms. Peterson never used the site as part of any competing venture. The fact that Plaintiff's northern California website does in fact display the registered Leads Club logo is not evidence that Ms. Peterson or Ms. Taus have infringed on the Leads Club trademark in forming a competing business.
Plaintiff also points to Exhibit GG, a printout of the website at www.leadsca.com. This was originally the website maintained by Ms. Taus as executive director of the Central California Leads Club region. Ms. Taus purchased the domain name and is currently the owner of the domain name. Upon her resignation, she changed the logos to read "PACE." The website was subsequently removed, and has since remained inactive. Thus, there is no evidence that Defendants are using the Leads Club trademark or any similar mark at this time.
3. There is no commerce.
Under 15 U.S.C. 1114(1), any person who uses in commerce a colorable imitation of a registered service mark, without the registrant's consent and in a way that is likely to cause confusion, is liable for service mark infringement. See also, Rodeo Collection, Ltd. v. West Seventh, 812 F.2d 1215, 1217 (1987). Commerce involves the exchange of goods or services. Black's Law Dictionary, 7th Ed.
In 555-1212.com, Inc. v. Communication House International, Inc., 157 F.Supp.2d 1084 (2001), the owner of internet website 555-1212.com, a registered trade mark, brought an infringement action against the owner of domain name 5551212.com. The court held that there was no trade mark infringement because the mere reservation of a domain name, without any commercial enterprise, was not infringing a trade mark " in commerce." Similarly, in Lockheed Martin Corp. v. Network Solutions, Inc., 985 F.Supp. 949 (1997), a registrar of internet domain names did not infringe on an aircraft manufacturer's trade mark because it did not use the mark in connection with sale, distribution, or advertising of goods or services.
In the instant case, no commercial enterprise has been established by Ms. Peterson, Ms. Taus or PACE. No money has changed hands and no goods or services have been exchanged. There has been no commerce as is required for trade mark infringement. Thus, there is no trade mark infringement to enjoin.
4. There is no Likelihood of Confusion Between the Leads Club Mark and the Mark Allegedly Used by Defendants.
The test for determining whether a likelihood of confusion exists is to ask if a "reasonably prudent consumer in the marketplace is likely to be confused as to the origin of the goods . . . bearing one of the marks." Dreamworks Prod. Group v. SKG Studio, 142 F.3d 1127, 1129 (9th Cir. 1998) (citing AMF, Inc. v. Sleekcraft Boats, 599 F. 2d 341, 348-49 (9th Cir. 1979). In AMF, Inc. v. Sleekcraft Boats, the court set forth several factors to be considered in determining whether a likelihood of confusion exists: (1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) defendant's intent in selecting the mark; and (8) likelihood of expansion of the product lines. AMF, Inc., 599 F.2d at pp. 348-349. The court need not consider all of these factors on a motion for a preliminary injunction if it determines that one of them is dispositive and shows that there is no likelihood of confusion. First Brands Corp. v. Fred Meyer, Inc., 809 F.2d 1378, 1384 (9th Cir. 1987) (difference in labels alone justified denial of preliminary injunction sought by manufacturer of yellow "F style" plastic jugs containing antifreeze against manufacturer of similar trade dress); Freixenet S.A. v. Admiral Wine and Liquor Co., 731 F.2d 148, 151-52 (9th Cir. 1984). Plaintiff's analysis of factors to determine the likelihood of confusion is wholly conclusory and to a large extent somewhat baffling.
(a). Strength of the Mark.
Plaintiff first argues that the Leads Club mark is a strong mark, but then goes on to demonstrate that little imagination is required in order to associate Leads Club with the services offered and that the mark is a descriptive mark.
Strength of a mark is measured on a continuum from arbitrary, inherently strong marks, to suggestive marks, to descriptive marks, to generic, inherently weak marks. Rodeo Collection, Ltd. v. West Seventh, 812 F.2d 1215, 1218 (1987). As noted in Plaintiff's papers, there are two tests used to measure the strength of the mark: imagination and need. Id. Under the imagination test, a mark that takes little imagination to associate with the service is descriptive and on the weak end of the continuum. Id. On the other hand, if it takes more than just a little imagination, the mark is suggestive, and a stronger mark. Id. Plaintiff argues that it takes little imagination to match up the mark Leads Club with a group formed for the purpose of developing business leads. This indicates that the mark is somewhat weak. Furthermore, if we look to the needs test, which examines whether or not the mark is necessary for competitors to describe their services, a competitor would almost certainly need to use the term "leads" to describe a group formed for the purpose of developing business leads, again indicating that the mark is weak. Surprisingly, after performing this analysis, Plaintiff concludes that the mark is inherently strong and confusion is eminent. This is contrary to logic. Based on both the imagination and needs tests, the Leads Club mark is fairly weak.
In fact, it seems more likely that the alleged trade mark, "Leads Club," is generic. A generic term is one that refers to the genus of which the particular product or service is a species. 512-1212.com v. Communication House International, Inc., 157 F.Supp.2d 1084, 1087 (2001). "Leads Club" is a broad term that describes all clubs formed for the purpose of developing business leads. Moreover, as noted above, a similar networking group would most certainly need to use the term "leads club" to describe its activities. Plaintiff cannot very well assert a trade mark to such a generic term, as it would essentially force all other potential networking groups out of the business by virtue of the fact that they would all be infringing on the trade mark!
(b). Similarity Between the Services, Similarity Between the Marks, and Actual Confusion.
Plaintiff spends little time analyzing the relationship between the services, the similarity between the marks, and evidence of actual confusion, presumably because there it little evidence on any of these factors. Plaintiff assumes that the services offered by Leads Club and PACE are nearly identical. Neither PACE, Ms. Peterson nor Ms. Taus have actually provided any services to anyone. The competing business is little more than an idea, and as discussed previously, Defendants may form a competing business under the laws of California. As for similarity between the marks, any similarity is largely a creation of Plaintiff, who has mistakenly identified PACE as "Leads Pace," most likely to further the argument of trademark infringement. Moreover, Plaintiff presents no evidence of any actual confusion between Leads Club and PACE or any other enterprise established by Ms. Peterson and Ms. Taus. Plaintiff merely makes the conclusory statement that "confusion will exist by any person who is searching for or researching Leads Club." There is no evidence whatsoever of actual confusion between Leads Club and a potential competing organization.
(c). Wrongful Intent.
Finally, Plaintiff attempts to argue that, because Ms. Peterson and Ms. Taus had wrongful intent in allegedly using the Leads Club mark, there is more evidence of a likelihood of confusion. However, once again, there is no evidence of wrongful intent. There is no evidence of any of the actions that Plaintiff claims demonstrate wrongful intent, including theft of Plaintiff's resources, members, confidential information, and the trade mark itself.
In short, the trade mark infringement alleged by Plaintiff simply does not exist. There has been no commerce in which the allegedly infringed trade mark has been used. In fact, Defendants have not used the Leads Club trade mark or any similar mark.
E. Plaintiff's Contentions of Unfair Competition and "Palming Off" Fail (responsive to Bentson argument VII)
Plaintiff argues that Defendants have and continue to use the Leads Club trademark to make their business appear to be affiliated with Leads Club. They further argue that this "passing off" or "palming off" of their services as those of Leads Club is in violation of California's Unfair Business Practices Act. Plaintiff is correct in that California Courts have held that one merchant shall not divert customers from another by representing what he sells as emanating from another. (MPA, 14.) However, there is no evidence that Defendants are trying to "palm off" any goods or services as those of Leads Club.
In support of its palming off argument, Plaintiff relies on Lanham Act §§ 3, 45; 15 U.S.C.A. §§ 1053, 1127; Cal. Bus. Prof. Code §§ 14206, 14230. These sections do not appear to have any relationship to the "palming off doctrine" asserted by Plaintiff. Rather, these sections define a "service mark" and describe the process for registration of a service mark.
Plaintiff makes two main arguments that Defendants are trying to palm off their services as those of Leads Club. First, Plaintiff argues that Defendants are using Plaintiff's exact logo. They are not. As discussed more fully in Argument D regarding the alleged trademark infringement, the website to which Plaintiff cites was maintained by Ms. Peterson when she was Executive Director for the Northern California Region of Leads Club. It was never used, nor will it be used, for any competing venture. Furthermore, the website has been removed in its entirety.
Second, Plaintiff argues that Defendants are using a similar mark on the website http://www.leadsca.com, and using the similar name "Leads Pace" so as to deceive the public that the entities are related. Again, they are not. The website at www.leadsca.com is no longer active, and has not been active since mid-August. Furthermore, Defendants are not using the name "Leads Pace." Plaintiff's assertion that the similar use of the term "leads" connotes an association between the two entities is irrelevant because the term "leads" is not even being used by Defendants.
Finally, no competing business has actually been formed. No goods or services have been exchanged or offered for exchange by Ms. Peterson, Ms. Taus or Pace. In order to state a cause of action for unfair competition, there must actually be competition. Defendants have not engaged in any competition with Plaintiff at this point. Thus, they could not possibly have gained any commercial benefit by palming off their services as those of Plaintiff.
F. Defendants have not Violated Defamation Laws
California Civil Code § 45 defines libel as ". . . a false and unprivileged publication by writing, printing, picture, effigy, or other fixed representation to the eye, which exposes any person to hatred, contempt, ridicule, or obloquy, or which causes him to be shunned or avoided, or which has a tendency to injure him in his occupation."
Actionable liable must include evidence of false and unprivileged comments that are disparage or cause damage to the Plaintiff. The difference between libel and trade libel lies in the fact that trade libel relates to a person's goods. Polygram Records v. Superior Court, 170 Cal.App.3d 543, 547-550, 555, 216 Cal.Rptr. 252 (1985).
Plaintiff claims that Ms. Peterson and Ms. Taus have and continue to make made defamatory remarks regarding Leads Club in the form of emails. Plaintiff cites as the basis for that contention an email of Ms. Peterson which states as follows: "I do not see that the leadership of Leads Clubs, Inc. is vested in the [b]est interest of its Executive Directors nor its Members. I do not have any confidence in the direction or decisions begin made by the leadership of Leads Club, Inc. . . . I do not foresee a viable future for Leads Club, Inc. given its current leadership."
1. Defendants Statements were not False and were instead Opinions.
The comments cited by Plaintiff as examples of libelle are mere honest opinions which Ms. Peterson and Ms. Taus were well within their legal rights to communicate. (See, e.g., Jensen v. Hewlett-Packard Co., 14 Cal.App.4th 958, 18 Cal.Rptr.2d 83 (1993).) An opinion is not a false statement. Id. Jensen v. Hewlett-Packard Co., 14 Cal.App.4th 958, 18 Cal.Rptr.2d 83 (1993) In Jensen, and employer supervisor prepared an evaluation of evaluated the work of an employee, stating that the employee and stated on his evaluation that he (the employee) needed to improve his on-the-job performance in certain respects. Id. The employee disagreed, and demanded that the evaluation be removed from his file, stating that it was false. Id. at 964. After an extensive investigation the employer declined to remove the evaluation, and on that basis the employee filed a claim for defamation. Id. The appellate court upheld the trial court's grant of nonsuit, stating that in order to give rise to liability for defamation, a publication must contain a false statement of fact. Id. at 968-9970. The court further held that a statement of opinion can never be "false," and is outside the meaning of libel. Id. at 970.
The emails submitted as exhibits by Plaintiff articulate Ms. Peterson's and Ms. Taus' reasons for leaving their positions ast Leads Club Executive Directors, as well as their personal opinions that the organization is no longer being run in an effective manner. Because those statements are Ms. Taus' and Ms. Peterson's opinions regarding Leads Club, they are not false and are thus not defamatory under Jensen.
2. Defendants Statements were Privileged
Civil Code § 478 provides that communications to a person interested therein by one who is also interested areis subject to a qualified privilege. The subject qualification is such that the communication will only remain privileged if it is made without malice.
While the Civil Code fails to offer any definition for the terms "a person who is `interested,'" courts have interpreted this section to mean that communications between partners, corporate officers, and members of unincorporated associations may be justified by the common interest of the group. Witkin, Summary of Calif. Law, 9th Ed., § 525. For example, in a situation where church members sued a pastor and two lay leaders for defamation based on defamatory and false statements in charges brought against them before the church membership, the common interest of the members of a church in church matters was sufficient to give rise to a qualified privilege to communications between members on subjects relating to the church's interest. Institute of Motivation v. Univ. of Ill., 114 Cal.App.3d 1, 8, 170 Cal.Rptr. 411 (1980) (citing Brewer v. Second Baptist Church, 32 Cal.2d 791, 197 P.2d 713 (1948)).
It is entirely feasible that Plaintiff's members are interested in the all aspects of the organization, including but not limited to the affairs of the organization, reasons why persons in positions of authority might choose to leave the group, fee structure changes, organizational changes that affect the membership at large, and related issues. Similarly, departing members of Plaintiff's chapters Defendant would surely be interested in utilizing the opportunity to share their thoughts and feeling about their resignations for the purpose (among others) establishing a future basis for communications. This is, after all, a business networking community. Any communications Ms. Peterson and Ms. Taus, as interested persons, had with other executive directors, chapter consultants, or Plaintiff's members, also interested persons, would thus be subject to qualified privilege.
Plaintiff is obligated to plead and prove that the statements made by Defendants were made with malice in order to defeat the qualified privilege. Plaintiff's only allegation of malice is a conclusory statement that Defendants acted with malice, "PETERSON and TAUS defamed LEADS CLUB and its services, intentionally and with malice, to mislead current LEADS CLUB members and to persuade the LEADS CLUB members to join LEADS PACE." Although allegations may be sufficient in a complaint, more than mere allegations of malice are required to support the award of injunctive relief.
3. Plaintiff has Shown no Evidence of Damages Resulting from Defendants' Statements
Plaintiff asserts that injunctive relief is appropriate because the trade libelliable in this matter arises out of Defendant's acts of defamation. In the same breath, Plaintiff also opines that the alleged disparagement by Defendants was made in such a manner as to imply business dishonesty, giving rise to an action for libel per se, which does not require allegations or a showing of special damages. Under Plaintiff's own supporting case, these positions are inconsistent. In Erlich v. Etner, 224 Cal.App.2d 69, 73 (1964), the court acknowledges that libel per se does not require a showing of special damages. However, in that case trade libel was alleged, and the court stated that a showing of damages was necessary. Id. "[T]he plaintiff must prove in all cases that the publication has played a material and substantial part in inducing others not to deal with him, and that as a result he has suffered special damages. . . . This means, in the usual case, that the plaintiff must identify the particular purchasers who have refrained from dealing with him, and specify the transactions of which he claims to have been deprived." Id. at 73-74.
Plaintiff makes the argument that trade libel is continuing to occur, and on that basis is obligated to allege special damages under Erlich. However, Plaintiff has presented no evidence demonstrating that it has suffered losses as a result of alleged defamatory statements made by Peterson and Taus. In its complaint, Plaintiff submits as exhibit "BB" examples of numerous resignations by its members. Not one of those letters indicates that the resignation was influenced by statements made by Ms. Peterson and/or Ms. Taus. Plaintiff has not identified a single person or chapter that has left Leads Club in order to join a competing enterprise initiated by Peterson and Taus. Other than self-serving declarations by Leads Club president Lisa Bentson, which are vague, conclusory, and sorely lacking in actual evidence, Plaintiff has not produced one iota of evidence that it was harmed by statements made by Peterson and Taus.
IV. CONCLUSION
For the foregoing reasons Defendants submit that Plaintiff's Motion for a Temporary Restraining Order should be denied in its entirety.