CASE PREVIEW

The Jack Daniel’s bottle next to the VIP Products “Bad Spaniels” dog toy.

It is fair to expect Wednesday’s arguments in Jack Daniel’s Properties v. VIP Products to be heated, as the justices consider the possibility that protection for parodies requires an exception to traditional trademark protections.

The case involves a dispute between Jack Daniel’s (the largest American whiskey manufacturer) and VIP Products (the second-largest American dog toy manufacturer). VIP has a line of spoof products that parody famous brands. The toy in question was modeled on and closely resembles the distinctive square bottle in which Jack Daniel’s has marketed its whiskey since the 19th century – with the same size and shape and a label with a similar shape and font. The main difference is that instead of describing “Old No. 7 Tennessee Sour Mash Whiskey” manufactured by “Jack Daniel’s,” the toy refers to a “Bad Spaniel” that makes “Old No. 2 on your Tennessee carpet.”

Predictably enough, Jack Daniel’s sued VIP for trademark infringement and dilution. Finding a likelihood that consumers would confuse the “Bad Spaniels” toy with Jack Daniel’s, the trial court ruled in favor of Jack Daniel’s and barred VIP from continuing to manufacture the Bad Spaniels toy. The U.S. Court of Appeals for the 9th Circuit reversed on both counts. On trademark infringement (under the federal Lanham Act), the court of appeals concluded that VIP’s communication of a humorous message called for heightened scrutiny to ensure that trademark protection for Jack Daniel’s did not intrude on First Amendment values. On dilution (under the federal Trademark Dilution Revision Act), the court held that VIP was protected by an exception for “noncommercial” uses.

In its brief in the Supreme Court, Jack Daniel’s is scorching in its criticism of the 9th Circuit’s reading of federal trademark statutes. On the infringement point, Jack Daniel’s emphasizes that there is absolutely no basis in the text of the Lanham Act for requiring heightened scrutiny for parodies. Moreover, because the Lanham Act count for trademark infringement required Jack Daniel’s to prove that VIP’s product was confusing to consumers, there is no need for a First Amendment exception to the statute. Jack Daniel’s relies in particular on a Supreme Court decision that allowed the United States Olympic Committee to enjoin the “Gay Olympics” even without proof of confusion. At bottom, Jack Daniel’s contends, the First Amendment need not provide elevated protection for speech that is confusing.

Jack Daniel’s offers a similar argument on the dilution statute. Again, it contends, the text of the statute is clear, providing an exception limited to “noncommercial” uses. Here, because the use was labeling a product with a famous mark for the purpose of profitable sales, Jack Daniel’s characterizes the lower court’s conclusion that those sales were “noncommercial” as almost a ridiculous rewriting of the text.

VIP’s argument, supported by the weight of numerous academic amici, does not directly engage with the contention by Jack Daniel’s that the First Amendment is not called into play by speech that is confusing. Rather, it presents its own simple and straightforward argument about a “popular brand’s attempts to … weaponize[e] the Lanham Act.” For VIP, the key to the case is that the toy is a parody. Because it is a parody, VIP contends, traditional rules about likelihood of confusion are largely irrelevant – the parody wouldn’t work unless users associated it with the mocked brand. From that perspective, the 9th Circuit’s “heightened scrutiny” test makes perfect sense, because it leaves the necessary space for parodic comment on “iconic alcohol brands’ self-serious bombardment of consumers with advertising.” VIP’s perspective on dilution is much the same. In its view, the dilution statute would violate the First Amendment if it were read to apply to parodies that poked fun at the branded product.

I expect that some of the justices will spend a lot of time at the argument exploring exactly what they might want to say about how the federal trademark statutes must bend to accommodate the First Amendment. I may be wrong in my impression, but I suspect that at the end of the day a large group of justices will have little sympathy for the notion that the First Amendment compels protection for a parody likening Jack Daniel’s to canine excrement.

  States with pending noncompete legislation (as of March 17)

We are now up to 65 bills (two of which failed already) in 24 states, plus four in Congress.

Since last month’s update, 5 more states have joined the noncompete legislation frenzy, and a total of 20 new bills have been filed.

Reminder: Last year, there were 98 noncompete bills in 29 states, plus D.C. and seven federal bills. As previously noted, given that it’s still early in the legislative cycle (most sessions are two years, and only started this year), we are well on our way to surpassing last year’s numbers — despite the FTC’s proposed ban to wipe out all employee noncompetes and render all of this moot.

The state bills…

On the state side, there are now 65 noncompete bills in each the following 24 states (new states are bolded; states with dead bills are red/bold):

• Arkansas
• California
• Connecticut
• Florida
• Hawai‘i
• Indiana
• Iowa
• Maine
• Massachusetts
• Maryland
• Michigan
• Minnesota
• Missouri
• Nebraska
• New Hampshire
• New Jersey
• New York
• Oklahoma (pre-filed)
• Pennsylvania
• Rhode Island
• South Carolina
• Texas
• Utah
• West Virginia

Arkansas, with one new bill, wins for biggest reversal: Having made sweeping changes to strengthen its noncompete law in 2015, Arkansas now has a bill to reverse it all and hop on the ban-noncompetes bandwagon.

California, with three new bills, wins for state with the most bills with the least need:

• One bill would do two things: First, it would require that for the sale-of-business exception to the ban on noncompetes to apply, the seller must own at least a 10 percent interest. Second, it would narrow Labor Code § 925 (which allows employees to agree to non-California law and forum if they are in fact represented by counsel in the negotiation) to not apply “if the counsel is paid for by, or was selected based upon the suggestion of, the employee’s employer.”
• Another bill would make clear that a violation of California’s noncompete ban (Business and Professions Code § 16600) would constitute unfair competition, redressable under California’s Unfair Competition Law.
• The third bill would make a nonsubstantive, grammatical change to Business and Professions Code § 16600.

Florida wins for most surprising, with a new bill that would expand the 2019 limitation on specialist physician noncompetes by banning virtually all physician noncompetes except those for physicians (other than primary care physicians and pediatricians) earning at least $250,000 (similar to D.C.’s new law).

Iowa, with two new bills, again wins for most unusual:

• One bill would do three things: First, it would ban noncompetes for nurses earning less than 150 percent of the state or federal minimum wage. (This is, I think, the first bill to ban noncompetes for nurses based on an earnings threshold.) Second, noncompetes for nurses (above the wage threshold) would be void “unless the employer can show beyond a preponderance of the evidence” (that’s okay) “that there is a clear and inherent risk of unfair competition absent the noncompete covenant and the noncompete covenant was narrowly tailored to address the risk in restrictions to geographic area and duration of the noncompete covenant.” (That’s the unusual part.) What is a “clear and inherent risk” under a preponderance of the evidence standard? (I hope we never have to try to decipher it.) Third, the bill would add mandatory attorneys’ fees and lost wages as a remedy, as well as the possibility of treble damages and monetary penalties, for violations of the statute.
• The second bill is the same, except that it is not limited to nurses, i.e., it bans noncompetes for anyone earning less than 150 percent of the state or federal minimum wage and has the same standards, remedies, and penalties.

Maine, with one new bill, wins for most likely to violate the Contract Clause: The bill would ban noncompetes for veterinarians (who are not also owners of the practice) and would apply retroactively.

Massachusetts, with four “new” bills (all repeats from the last legislative session), wins for variety:

• One bill would ban all employee noncompetes. (As written, the bill would seem to apply retroactively, raising questions about its Constitutionality.)
• Another bill would ban noncompetes for physician assistants.
• The third bill would “clarify” that the meaning of “terminated without cause” can be “defined by the parties in the noncompete agreement . . . .”
• The fourth bill would ban noncompetes for veterinarians.

Michigan, with one new bill, wins for most comprehensive: The bill would add advance notice and posting requirements; ban noncompetes for low-wage workers (defined as less than $15/hour, less than 150 percent of the state minimum wage, or annual compensation less than $31,200 (adjusted annually for inflation)); make the requirements of the statute non-waivable; prohibit choice of law clauses that would eliminate the protections of the statute; impose fines for violations; and entitle employees to legal fees if the agreement is found to be unenforceable of reformed (like Washington).

Pennsylvania, with one new bill, wins for broadest healthcare practitioner noncompete ban with the narrowest impact: The bill would ban noncompetes for all healthcare practitioners (not just one group), but only if they are “dismissed” (which is undefined, but presumably means their employment was terminated without cause).

Rhode Island, with two new bills (four in total), wins for most bills per square mile:

• One bill would ban noncompetes (and nonsoliciation agreements) for physician assistants, except in the context of the sale of a business, in which case it would limit the duration to five years.
• The other bill would ban noncompetes (and nonsoliciation agreements) for advanced practice registered nurses, except in the context of the sale of a business, in which case it would limit the duration to five years.

Texas, with four new bills, wins for most efforts to protect the medical profession:

• One bill would ban noncompetes for physicians earning under $250,000 (like Washington, D.C.) and in the context of a sale of business.
• Two of the bills (one in the Senate and one in the House) would modify the rules applicable to the duration, geographic reach, and buyout options of physician noncompetes and expand them to include other “health care practitioners,” defined as dentist, nurse, or physician assistant.
• The fourth bill would place limitations on the use of noncompetes for psychologists and other licensed counseling professionals, including the right to buyout the covenant.

The federal bills…

We now have the text of the four pending federal bills. As a reminder, they are as follows:

(1) Senators Young and Murphy (along with the support of two other co-sponsors) filed the Workforce Mobility Act of 2023, again proposing a ban on all employee noncompetes (i.e., permitting sale of business noncompetes).

(2) Representative Scott Peters (along with the support of two other co-sponsors) filed the Workforce Mobility Act of 2023, which is the House version of the same re-proposed ban.

(3) Representative Claudia Tenney reintroduced her Ensure Vaccine Mandates Eliminate Non-Competes Act (the “EVEN Act”) “[t]o void existing non-compete agreements for any employee who is fired for not complying with an employer’s COVID-19 vaccine mandate, and for other purposes.”

(4) Senators Marco Rubio and Maggie Hansen reintroduced the Freedom to Compete Act. Like the prior versions, the bill would ban noncompetes for anyone not exempt under the Fair Labor Standards Act of 1938 (29 U.S.C. 201, et seq.) — the approach taken first by Massachusetts and later by Rhode Island.

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Resources to help

We know first hand how hard it is to keep up with the ever-changing requirements around the country. To help, we have created the following resources (available for free):

We also have a 50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF).

We hope you find all of these resources useful.

And please note that we are grateful for all of the input we’ve received over the years, and welcome any suggestions for improvements that you may be willing to share.

*A huge thank you to Erika Hahn for all of her extraordinary help in monitoring all of the bills filed around then country!