1. Using the “P” Word: The Inside Scoop on Pretext Investigations Presented by: Ken Taylor, CEO/President Marksmen

2. © 2008 Marksmen Inc. A Disclaimer By preparing this presentation, Ken Taylor and Marksmen are in no way purporting to render legal advice. This information is for reference purposes only and we make no guarantees, warranties, representations or other statements regarding its accuracy, completeness or applicability in any context. Ken Taylor and Marksmen disclaim liability arising from any form of reliance upon this presentation.

3. © 2008 Marksmen Inc. Overview 1. What is Pretexting? 2. The Rules 3. The Cases 4. Pre-Work Resources & Strategies 5. Approaches to Common Scenarios

4. © 2008 Marksmen Inc. Pretext The word has been in our language since 1501, from the Latin, praetextum, meaning “to disguise,” or literally, “to weave in front.” Pretext…

5. © 2008 Marksmen Inc. The HP Debacle

6. © 2008 Marksmen Inc. Pretext Did not operate under a pretext, but rather impersonated the targets of their investigation to obtain confidential telephone and bank records. Investigators hired by HP…

7. © 2008 Marksmen Inc. Pretext Resignation of HP CFO Felony criminal charges against HP former senior lawyer Felony criminal charges against former Chairwoman of the Board $14.5 million in civil fines SEC inquiry FCC investigation Congressional hearing This led to…

8. © 2008 Marksmen Inc. Pretext President Bush signed: H.R. 4709, The “Telephone Records and Privacy Act of 2006.” On January 12, 2007: - Which establishes criminal penalties for fraudulent or unauthorized acquisition or disclosure of phone records.

9. © 2008 Marksmen Inc. Pretext INTA Resolution –Endorses ethical and legal pretext investigations in trademark context. –Governments should not prohibit pretexting in trademark context. –At a minimum, recognize an exception for trademark investigations. NY Ethics Opinion –Pretext investigations generally raise ethical issues. –But recognizes exception for IP investigations

10. The Rules

11. © 2008 Marksmen Inc. The Rules The ABA House of Delegates adopted the ABA Model Rules of Professional Conduct in 1983. They serve as models for the ethics rules of most states. Before the adoption of the Model Rules, the ABA model was the 1969 Model Code of Professional Responsibility. ABA Model Rules Of Professional Conduct

12. © 2008 Marksmen Inc. The Rules To date, California, Maine, and New York are the only states that do not have professional conduct rules that follow the format of the ABA Model Rules of Professional Conduct. New York follows the predecessor ABA Model Code of Professional Responsibility, and California and Maine developed their own rules. State Adoption of Model Rules

13. © 2008 Marksmen Inc. The Rules Rule 4.1: A lawyer shall not knowingly Make false statements of material fact or law to a third person

14. © 2008 Marksmen Inc. The Rules Rule 4.2: In representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order

15. © 2008 Marksmen Inc. The Rules Rule 4.3: In dealing with a person who is not represented by counsel Lawyer shall not state or imply lawyer is disinterested Lawyer shall make reasonable efforts to correct misunderstanding concerning lawyer’s role Lawyer shall not give legal advice

16. © 2008 Marksmen Inc. The Rules (a) … A lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that the person's conduct is compatible with the professional obligations of the lawyer… (b) … A lawyer having direct supervisory authority over the non-lawyer shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer… Rule 5.3: With respect to a non-lawyer employed or retained by or associated with a lawyer:

17. © 2008 Marksmen Inc. The Rules Rule 8.4 It is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so, or do so through the acts of another; (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation;

18. The Cases

19. Scorecard: Pretexting generally accepted in the trademark context by a score of 10-2. Cases involve a “continuum” of behavior from acceptable to unacceptable. We can glean some general guidelines.

20. © 2008 Marksmen Inc. The Cases Early cases from NY district courts involving the use of investigators in an IP context include: Louis Vuitton S.A. v. Spencer Handbags Corp. Nikon Inc. v. Ikon Corp.

21. © 2008 Marksmen Inc. The Cases In Louis Vuitton S.A. v. Spencer Handbags Corp., the use of private investigators was allowed in providing evidence involving counterfeit handbags In Nikon Inc. v. Ikon Corp., investigators were employed to provide evidence of “passing off” In both instances, investigators acted under pretext to gather evidence, which the courts did not question ethically

22. © 2008 Marksmen Inc. The Cases Weider Sports Equipment v. Fitness First

23. © 2008 Marksmen Inc. The Cases Case did not involve intellectual property The plaintiff hired an investigator to pose as a consumer in pre-litigation contacts with a third party defendant Defendant contended that these contacts violated Rule 4.2 of the Utah Rules of Professional Conduct Defendant sought an order to exclude the evidence Weider Sports Equipment v. Fitness First, Inc.

24. © 2008 Marksmen Inc. The Cases “What becomes apparent is that Rule 4.2, as (the Defendant) would have the court apply it, is not a matter of ethics but becomes, in reality, a rule of political and economic power that shelters organizations, corporations and other business enterprises from the legitimate less costly inquiry and fact gathering process sometimes necessary to make a legitimate assessment of whether a valid claim for relief exists.” The Court denied the motion and stated:

25. © 2008 Marksmen Inc. The Cases Apple Corps. Ltd. v. International Collectors Society

26. © 2008 Marksmen Inc. The Cases Parties entered into a consent decree in a copyright infringement matter Plaintiffs brought a contempt motion after an investigation revealed potential failure to comply In order to determine compliance, plaintiffs’ counsel initiated an investigation Apple Corps v. International Collectors

27. © 2008 Marksmen Inc. The Cases Investigation included communications between plaintiff’s investigators and defendant’s sales representatives Communications “were limited to listening to recommendations” from sales people Did not inquire specifically about detailed subject matter of litigation Apple Corps v. International Collectors

28. © 2008 Marksmen Inc. The Cases Court concluded no ethics violation occurred New Jersey law is limited to prohibiting contact with an organization’s litigation control group, defined as current agents and employees responsible for or significantly involved in the determination of the organization’s legal position in a matter Apple Corps v. International Collectors

29. © 2008 Marksmen Inc. The Cases Court focused on reasons for no-contact rule: –“to prevent situations in which a represented party may be taken advantage of by adverse counsel,” and to “avoid artful legal questioning” It is not the purpose of the rule: –“to protect a corporate party from the revelation of prejudicial facts” Apple Corps v. International Collectors

30. © 2008 Marksmen Inc. The Cases The Court noted that some “misrepresentations” were made during contact, but only as to identity of caller and the reason for the call. Apple Corps v. International Collectors

31. © 2008 Marksmen Inc. The Cases The court concluded: –“[rule] cannot apply where lawyers and/or their investigators, seeking to learn about current corporate misconduct, act as member of the general public to engage in ordinary business transactions with low- level employees of a represented corporation. To apply the rule to the investigation which took place here would serve merely to immunize corporations from liability for unlawful activity, while not effectuating any of the purposes behind the rule.” Apple Corps v. International Collectors

32. © 2008 Marksmen Inc. The Cases Gidatex v. Campaniello Imports, Ltd.

33. © 2008 Marksmen Inc. The Cases Typical trademark case – terminated sales agent allegedly continued to use formerly licensed trademarks to attract customers, only to then sell other companies goods Plaintiff hired investigators to pose as interior designers and record conversations with defendant’s salespeople Gidatex v. Campaniello

34. © 2008 Marksmen Inc. The Cases Defendant sought to exclude evidence obtained through conversations between investigator and defendant’s sales clerks Evidence included investigator's testimony, reports and tape-recordings Sanctions also sought Gidatex v. Campaniello

35. © 2008 Marksmen Inc. The Cases Court denied motion to exclude/sanction –No ethical rules were applicable to the situation –Even if there were applicable rules, plaintiff’s attorneys did not violate them –Exclusion of evidence is not the proper remedy Court determined no-contact rule did not apply here Gidatex v. Campaniello

36. © 2008 Marksmen Inc. The Cases Purpose of rule to preserve attorney-client relationship Investigators did nothing more/different than an ordinary customer would do Contacted employees (sales clerks) were sufficiently low level that they would not know privileged information Statements made by employees are same as they would have made to any prospective purchaser Gidatex v. Campaniello

37. © 2008 Marksmen Inc. The Cases Given the nature of and policies underlying trademark and unfair competition law: - “These ethical rules should not govern situations where a party is legitimately investigating potential unfair business practices by use of an undercover [investigator] posing as a member of the general public engaging in ordinary business transactions with the target.” Gidatex v. Campaniello

38. © 2008 Marksmen Inc. The Cases However, the court also determined that the –“actions simply do not represent the type of conduct prohibited by the rules. The use of private investigators, posing as consumers and speaking to nominal parties who are not involved in any aspect of the litigation, does not constitute an end-run around the attorney client privilege.” Keep in mind that the court determined that technically a violation of The Ethics Rules occurred Gidatex v. Campaniello

39. © 2008 Marksmen Inc. The Cases Sunrise Assisted Living, Inc. v. Sunrise Healthcare Corp.

40. © 2008 Marksmen Inc. The Cases An investigator hired by Healthcare Corp. used a pretext in setting up a dummy investment company and falsely told the trademark seller (and senior rights holder for competing assisted living facilities) that he wanted to obtain rights in THE SUNRISE CLUB mark for a sandwich to be advertised and sold in restaurants in North Carolina Under this pretext the deal was consummated Sunrise Assisted Living v. Sunrise Healthcare

41. © 2008 Marksmen Inc. The Cases Court concluded that an agreement to transfer rights in the trademark THE SUNRISE CLUB to defendants -- which would have given them significant priority in use of the SUNRISE mark for assisted living facilities -- was fraudulently induced by a private investigator who lied about his principal and his purposes Sunrise Assisted Living v. Sunrise Healthcare

42. © 2008 Marksmen Inc. The Cases The court granted the motion for summary judgment of fraud, noting that defendants could not simultaneously claim to be innocent principals and - “accept the benefits of the [trademark purchase agreement] while disclaiming responsibility for the methods employed by their agent.” Sunrise Assisted Living v. Sunrise Healthcare

43. © 2008 Marksmen Inc. The Cases The court accordingly rescinded the agreement The court also compelled production of communications between the defendants’ counsel and their investigators, noting that any claim of protection under the attorney-client privilege or work product doctrine had been waived under the crime-fraud exception Sunrise Assisted Living v. Sunrise Healthcare

44. © 2008 Marksmen Inc. The Cases It is a common and ethical practice in the IP community for companies and attorneys to use investigators to act as a negotiator for trademark and other IP rights representing their client as an undisclosed principal (even if the investigators mask their identity). Please Note:

45. © 2008 Marksmen Inc. The Cases It’s best if the investigator asks if the IP is available and then makes the disclosure that it is being purchased for an unnamed principal without making any representations whatsoever about the future use of the IP. TIP:

46. © 2008 Marksmen Inc. The Cases Midwest Motor Sports, Inc. v. Artic Cat Sales, Inc.

47. © 2008 Marksmen Inc. The Cases Defense counsel hired a former FBI Special Agent to: –Pose as consumer (along with his wife or daughter) –Visit plaintiff and related entities –For the purpose of making secret audiotape recordings in anticipation of trial There was animus between counsel in the case –This fact seemed to bother the judge Midwest Motor v. Artic Cat

48. © 2008 Marksmen Inc. The Cases “[t]he duty of an attorney to his client demands nothing more than an honest effort to secure justice for such client; it does not permit, neither does it excuse, a resort to deception to procure for a client even that to which the attorney honestly believes his client is entitled.” The Court Stated: Midwest Motor v. Artic Cat

49. © 2008 Marksmen Inc. The Cases Court awarded sanctions against defendant Sanction was exclusion of evidence Court opted not to sanction defense counsel because of unsettled nature of law Midwest Motor v. Artic Cat

50. © 2008 Marksmen Inc. The Cases The Court was concerned: –About attorneys circumventing the formal discovery rules through surreptitious means to produce evidence that will be admissible at trial as admissions against interest of a corporate party. Such “going behind the back of one’s adversary” results in manifestly unfair trial practice that was meant to be avoided by the adoption of the Federal Rules….” Senior level employee was recorded Investigator actively sought admissions Investigator did not merely act as investigator Midwest Motor v. Artic Cat

51. © 2008 Marksmen Inc. The Cases Court also reminded of obligation when lawyer is contacting an unrepresented employee –Fully disclose representative capacity –State the reason for seeking the interview –Inform the interviewee of the right to refuse the interview Midwest Motor v. Artic Cat

52. © 2008 Marksmen Inc. The Cases Tip: STAY OUT OF SOUTH DAKOTA!

53. © 2008 Marksmen Inc. The Cases Since the Sunrise and Midwest cases, the use of investigators (operating under pretext) by attorneys, in both IP and non-IP cases, has been accepted.

54. © 2008 Marksmen Inc. The Cases Flebotte v. Dow Jones & Co., Inc.,

55. © 2008 Marksmen Inc. The Cases An employment age discrimination case Plaintiff claimed that he was not able to find work after being terminated by Dow Jones The court granted an ex parte discovery order to Dow Jones when they learned that the plaintiff offered massage services on the Internet Dow Jones hired an investigator using the pretext of a consumer to contact plaintiff and gather evidence, which included statements by Flebotte that he had been in business for 5 years with a clientele of over 30 regulars Flebotte v. Dow Jones

56. © 2008 Marksmen Inc. The Cases When this evidence gathering was challenged, the court cited Gidatex in its rejection, stating that it would be difficult if not impossible to discover the truth by other means. Flebotte v. Dow Jones

57. © 2008 Marksmen Inc. The Cases A.V. by Versace, Inc. v. Gianni Versace

58. © 2008 Marksmen Inc. The Cases Trademark infringement action against competitor with same last name Private investigator, posing as customer, sought to obtain evidence of infringement Defendant argued that investigation “invaded his privacy” Versace v. Versace

59. © 2008 Marksmen Inc. The Cases Court disagreed: “The Court rejects Alfredo Versace’s complaint that the use of a private investigator has caused an unfair invasion of his privacy. Gianni Versace’s investigator used a false name and approached….posing as a buyer in the fashion industry. The investigator’s actions conformed with those of a business person in the fashion industry… Versace v. Versace

60. © 2008 Marksmen Inc. The Cases ….Further, the courts in the Southern District of New York have frequently admitted evidence, including secretly recorded conversations, gathered by investigators posing as consumers in trademark disputes.” Versace v. Versace

61. © 2008 Marksmen Inc. The Cases Hill v. Shell Oil Company

62. © 2008 Marksmen Inc. The Cases African-American customers brought a civil rights action against Shell, alleging that Shell required only African- Americans to pre-pay for gas Plaintiffs used investigators to tape the interaction between people acting as customers and the Shell employees (and cited Apple Corp and Gidatex in their argument) Defendant argued that the communications violated the ethical rules for lawyers (citing Midwest) Hill v. Shell

63. © 2008 Marksmen Inc. The Cases Disagreeing with the defendant, the court held as follows: “Here we have secret videotapes of station employees reacting (or not reacting) to plaintiffs and other persons posing as consumers. Most of the interactions that occurred in the videotapes do not involve any questioning of the employees other than asking if a gas pump is prepay or not, and as far as we can tell these conversations are not within the audio range of the video camera… Hill v. Shell

64. © 2008 Marksmen Inc. The Cases … These interactions do not rise to the level of communication protected by [Illinois’s ethical rules]. To the extent that employees and plaintiffs have substantive conversations outside of normal business transactions, we will consider whether to bar that evidence when and if it is offered at trial.” Hill v. Shell

65. © 2008 Marksmen Inc. The Cases In reaching its decision, the court discussed acceptable versus unacceptable conduct: “Although Midwest Motor Sports is considerably more restrictive than Gidatex, we think there is a discernable continuum in the cases from clearly impermissible to clearly permissible conduct. Lawyers (and investigators) cannot trick protected employees into doing things or saying things they otherwise would not do or say… Hill v. Shell

66. © 2008 Marksmen Inc. The Cases …They cannot normally interview protected employees or ask them to fill out questionnaires. They probably can employ persons to play the role of customers seeking services on the same basis as the general public. They can videotape protected employees going about their activities in what those employees believe is the normal course. That is akin to surveillance videos routinely admitted.” Hill v. Shell

67. © 2008 Marksmen Inc. The Cases Other cases since Midwest where the courts rejected ethical challenges to the use of investigators under pretext include: Cartier v. Symbolix, Inc., 386 F. Supp. 2d 354 (S.D.N.Y. 2005). Design Tex Group, Inc, v. U.S. Vinyl Mfg. Corp., 2005 U.S. Dist. LEXIS 2143 (S.D.N.Y. 2005); Mena v. Key Food Stores, 195 Misc. 2d 402, 758 N.Y.S.2d 246 (N.Y. Sup. Ct., Kings County 2003);

68. © 2008 Marksmen Inc. The Cases And in one case… Phillip Morris USA Inc. v. Shalabi, 353 F. Supp. 2d 1067 (C.D. Cal. 2004) The court relied on evidence gathered by investigators under pretext without even considering ethical issues.

69. © 2008 Marksmen Inc. The Cases Distilled Limit contact to low level employees Pose as consumer when seeking information Record what is said in standard sales context Do not seek extended admissions Do not engage in elaborate deceptions

70. © 2008 Marksmen Inc. Challenges o Technology convergence o Hundreds of terabytes of searchable web data o New TLD’s o Locating Non-Patent Prior Art o Privacy issues

71. © 2008 Marksmen Inc. Best Practice Tips…

72. © 2008 Marksmen Inc. Pre-Work: Who, What, Where WHOWHATWHERE Attorney Junior attorney Paralegal Field Assets Online Research Phone Calls Physical Visits Office Home Third-party Site

73. © 2008 Marksmen Inc. Pre-Work: Free Resources Internet Search Engines Press Releases Online Cross-referenced Directories Pat2pdf.org Online Business Directories Secretary Of State Info (Most States) Online Industry Trade Sites DNS Look-up Online Yellow Pages Whois Records Sec Filings USPTO and other PTOs

74. © 2008 Marksmen Inc. Pre-Work: Resources for a Fee o Business Directories o Archived News Databases o Search Reports o Watch Notices o Patent Index Databases

75. © 2008 Marksmen Inc. Pre-Work: IT Resources Unrestricted Internet access Designated computer “Anonymizer” or other tools for surfing anonymously Going off network (e.g., with mobile broadband card)

76. © 2008 Marksmen Inc. Pre-Work CON’S Time and resources Inconsistent results In harm’s way? (HR concerns?) Expertise Infrastructure / Security teams Are you anonymous? Fact witness in litigation Unpredictable scope If/when to hand off? PRO’S Cost-savings Speed Control and Leverage Confidentiality Sometimes only limited info needed

77. © 2008 Marksmen Inc. Communication To do… √ STATE YOUR OBJECTIVE √ YOUR SOURCE OF CONCERN √ WHAT YOU ALREADY KNOW √ WHAT HAS OCCURRED TO DATE Checklist for information exchange with Investigator

78. © 2008 Marksmen Inc. State Your Objective o Learn First Use / ITU/ Abandonment Date o Scope of Use/ Ave. of Trade/ Channels of Distribution o Customers/ Suppliers/Component Manufacturers o Obtain software or product for physical examination o Locate Inventors/ Ex-employees

79. © 2008 Marksmen Inc. Your Source of Concern o Trade Journals o Client Notice o Tradeshow o Website / Signage/ Products o Hit On Search Report/Watch Notice o Received A Demand Letter

80. © 2008 Marksmen Inc. What You Already Know o File History o Business Profile o Scope Of Use/Misuse o Contact Info (Past or Present) o Government Filings/Grants to Universities o Inventors/Competitors/Customers

81. © 2008 Marksmen Inc. What Has Occurred to Date o Client Made Direct Contact o You Made Direct Contact (Anonymous or Not) o Sent/Received Demand Letter o Attorney Has Spoken With Opposing Counsel o Currently In Litigation

82. © 2008 Marksmen Inc. Ethical Questions 1. Observe employees engaged in normal business routines? 2. Ask questions about products/services as any other consumer? 3. Interview protected employees? 4. Trick employees into saying things they would not otherwise say? 5. Lie in response to direct questions?

83. © 2008 Marksmen Inc. Scenario 1: Clearance Situation: Trademark Search Report Identifies Potentially Problematic Filing or Use.

84. © 2008 Marksmen Inc. Scenario 1: Clearance Best Practices/Tips: o Managing client expectations o Utilizing the client o Investigative strategy o Multiple references o Handling international references o Managing investigator (meddling vs. supporting)

85. © 2008 Marksmen Inc. Scenario 2: Acquisition Situation: Third-party rights pose an obstacle to use or registration. Client desires a domain name that’s taken. Third-party patent rights presents a chance to get a “leg up” in litigation.

86. © 2008 Marksmen Inc. Scenario 2: Acquisition Best Practices/Tips: o Managing the budget o Managing client expectations o Cross-functional coordination o Strategic considerations/managing the investigator o Maintaining anonymity Metadata in documents? o Truth in transaction o Method of transfer (direct or “two-step” transfer) o “Seller’s Remorse”

87. © 2008 Marksmen Inc. Scenario 3: Litigation Situation Potential IP infringement or counterfeit is brought to your attention; your company has been accused of or sued for IP infringement

88. © 2008 Marksmen Inc. Scenario 3: Litigation Best Practices/Tips: o Managing client expectations o Investigative strategy/Managing the Investigator o Litigation v. Pre-Litigation o Counterfeits

89. We Investigate, Patrol and Negotiate IP Rights Worldwide