Using the “P” Word: The Inside Scoop on Pretext Investigations Presented by:

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

2. 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. Overview • What is Pretexting? • The Rules • The Cases • Pre-Work Resources & Strategies • Approaches to Common Scenarios

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

5. The HP Debacle

6. 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. Pretext This led to… Resignation of HP CFO Felony criminal charges against HP former senior lawyer Felony criminal charges against former Chairwoman $14.5 million in civil fines SEC inquiry FCC investigation Congressional hearing

8. 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. 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. The Rules Rule 4.1: Truthfulness in Statements to Others A lawyer shall not knowingly (a) make false statements of material fact or law to a third person

12. The Rules Rule 4.2: Communication with Person Represented by Counsel 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

13. The Rules Rule 8.4: Misconduct 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;

14. The Cases

15. The Cases 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.

16. The Cases Apple Corps Ltd. v. Int’l Collectors Society, 15 F. Supp. 2d 456 (D.N.J. 1998)

17. Apple Corps. v. International Collectors • Pretext investigation to confirm compliance with consent decree – lawyers and non-lawyers posed as ordinary customers in phoning low-level sales reps to try to purchase product • Defendant moved for sanctions but court concluded no ethics violation occurred

18. Apple Corps. v. International Collectors • Sales reps did not fall within “litigation control group” • Purpose for no-contact rule is “to prevent situations in which a represented party may be taken advantage of by adverse counsel” and to “avoid artful legal questioning” not “to protect a corporate party from the revelation of prejudicial facts” • “RPC 4.2 cannot apply where lawyers and/or their investigators, seeking to learn about current corporate misconduct, act as members of the general public to engage in ordinary business transactions with low-level employees of a represented corporation.”

19. Apple Corps v. International Collectors • RPC 8.4(c) does not apply to misrepresentations solely as to identity or purpose and solely for evidence-gathering purposes • “The prevailing understanding in the legal profession is that a public or private lawyer’s use of an undercover investigator to detect ongoing violations of the law is not ethically proscribed, especially where it would be difficult to discover the violations by other means.”

20. The Cases Gidatex, S.r.L v. Campaniello Imports, Ltd., 82 F. Supp. 2d 119 (S.D.N.Y. 1999)

21. Gidatex v. Campaniello • Terminated sales agent for furniture maker 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 defendants’ salespeople • Defendants brought motion in limine to preclude tape recordings and testimony of investigators based on alleged violation of no-contact rule

22. Gidatex v. Campaniello • Purpose of rule is 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 were same as they would have made to any prospective purchaser

23. Gidatex v. Campaniello “ . . . enforcement of the trademark laws to prevent consumer confusion is an important policy objective, and undercover investigators provide an effective enforcement mechanism for detecting and proving anti-competitive activity which might otherwise escape discovery or proof.”

24. The Cases Sunrise Assisted Living, Inc. v. Sunrise Healthcare Corp., Civil Action No. 98-1702-A (E.D. Va. Apr. 9 & 28,1999)

25. Sunrise Assisted Living v. Sunrise Healthcare Investigator hired to acquire THE SUNRISE CLUB mark from assisted living facility Investigator falsely claimed that he wanted to obtain rights in mark for a sandwich  Under this pretext, deal was consummated Court held that transfer was fraudulently induced

26. Sunrise Assisted Living v. Sunrise Healthcare Court granted motion for summary judgment on fraud claim Defendants could not claim to be innocent principals and “accept the benefits of the [trademark purchase agreement] while disclaiming responsibility for the methods employed by their agent.”

27. Sunrise Assisted Living v. Sunrise Healthcare 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

28. The Cases Midwest Motor Sports, Inc. v. Arctic Cat Sales, Inc.144 F. Supp. 2d 1147 (D.S.D. 2001, aff’d, 347 F. 3d 693 8th Cir. 2003)

29. Midwest Motor v. Artic Cat • Defense counsel in franchise dispute hired a former FBI Special Agent to: • Pose as consumer (along with his wife or daughter) • Visit plaintiff and related entities • Make secret audiotape recordings • Litigation already commenced • Trying to elicit admissions in lieu of formal discovery

30. Midwest Motor v. Artic Cat • Senior level employee was recorded • Investigator actively sought admissions • Investigator did not merely act as investigator

31. Midwest Motor v. Artic Cat • Court awarded sanctions against defendant • Sanction was exclusion of evidence • Court opted not to sanction defense counsel because of unsettled nature of law

32. Midwest Motor v. Artic Cat District Court: “this Court . . . is 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.

33. Midwest Motor v. Artic Cat Eighth Circuit: “Arctic Cat's attorneys attempt to shield themselves from responsibility by ‘passing the buck’ to [the investigator] . . . . [L]awyers cannot escape responsibility for the wrongdoing they supervise by asserting that it was their agents, not themselves, who committed the wrong.”

34. Midwest Motor v. Artic Cat • 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

35. Midwest Motor v. Artic Cat Tip: STAY OUT OF SOUTH DAKOTA!

36. 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.

37. Local Knowledge… Northern District of Texas (Civil Action No. 3:08-CV-1268-L; Arisma Group, LLC vs. Trout & Zimmer, Inc, et al)

38. Local Knowledge… • Arisma sought return of covidien.com after Marksmen negotiated the purchase of the domain name for end-buyer Tyco Healthcare (re-branding as Coviden). • Arisma contended that Marksmen used fraudulent misrepresentations and inducements in making the purchase.

39. Local Knowledge… • In ruling against Arisma, Judge Lindsay found that Arisma had failed show a pecuniary loss and could not, therefore, meet the injury element of its fraud claims. • The Judge additionally noted that there is nothing fraudulent in Marksmen’s practice of acquiring domain names, which includes using pseudonyms and other companies such as Trout & Zimmer, in the acquisition process to protect the identity and safety of its clients, itself, and its employees.

40. Local Knowledge… "It is clear to the court that Marksmen is a company that specializes in acquiring intellectual property on behalf of an anonymous buyer …,” the judge wrote in his opinion and order. “The court sees no fraud in this arrangement …”

41. 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

42. So it’s all good, right?

43. Not So Fast! • Apple Corp is a decision about sanctions in federal court • Not an authoritative ruling that pretext investigations do not violate ethics rules • State disciplinary committee or State Supreme Court may see things differently

44. Not So Fast! • Gidatex is not an ethics disciplinary action but rather an evidentiary decision • Court specifically noted that “a court is not obligated to exclude evidence even if it finds that counsel obtained the evidence by violating ethical rules” • Not necessarily off the disciplinary hook

45. Best Practice Tips…

46. Challenges • Technology convergence • Hundreds of terabytes of searchable web data • New TLD’s • Locating Non-Patent Prior Art • Privacy issues

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

48. Pre-Work: Resources for a Fee • Business Directories • Archived News Databases • Search Reports • Watch Notices • Patent Index Databases

49. 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)

50. Pre-Work CONS • 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? PROS • Cost-savings • Speed • Control and Leverage • Confidentiality • Sometimes only limited info needed