The recent litigation between designer Hayley Page and JLM Couture has brought to light significant issues related to contractual agreements, social media accounts ownership, and non-compete clauses. This case highlights why having a knowledgeable media and contract lawyer is indispensable. A media and contract lawyer plays a critical role in navigating these complex issues, ensuring that agreements are clear and enforceable, and protect personal brand rights.
Context
Ms. Hayley Page entered into an employment agreement on 2011. According to the employment agreement Ms. Hayley Page agreed to work as designer for JLM Couture, a company in the luxury bridal design and manufacturing industry.
Relevant to the litigation, the Agreement contained:
A Non-Compete Covenant
Section 9(a). Covenant not to Compete. Employee covenants and agrees that during the period of her employment with the Company, Employee shall not compete with the Company, directly or indirectly. For purposes of this Agreement, Employee shall be deemed to compete with the Company if she engages in, or is associated with (whether as an officer, director, shareholder, partner, employee, independent contractor, agent or otherwise), any person, organization or enterprise which engages in the design, manufacture, marketing or sale of: (i) bridal apparel, including bridesmaids, mother of the bride and flower girls and related items; (ii) bridal accessories and related items; (iii) evening wear and related items; and/or (iv) any other category of goods designed, manufactured, marketed, licensed or sold by the Company.
Section 9(c). The Employee covenants and agrees that she will not, directly or indirectly, during or after the term of employment disclose to any person not authorized by the Company to receive or use such information . . . any of Company's Confidential Information . . . . Confidential information means any financial information, marketing plans, . . . customer lists or other proprietary information of the Company or its affiliates.
An Exclusive Rights Clause.
Section 10(a). Exclusive Right to the Designer Name. The Employee hereby grants to the Company the exclusive world-wide right and license to use her name 'Hayley', 'Paige', 'Hayley Paige Gutman', 'Hayley Gutman', 'Hayley Paige' or any derivative thereof (collectively the 'Designer's Name') in connection with the design, manufacture, marketing and/or sale of bridal clothing, bridal accessories and related bridal and wedding items, including any and all good will associated therewith, throughout the Term (including any extension of the Term), plus a two (2) year period following the Term or any extension thereof, provided Employee has substantially participated in the design or creation of such clothing or related items during her employment by the Company.
An Intellectual Property Clause
Section 11. Designs and Intellectual Property. The parties
expressly agree that all designs, drawings, notes, patterns,
sketches, prototypes, samples, improvements to existing works, and
any other works conceived of or developed by Employee in connection
with her employment with the Company involving bridal
clothing,
bridal accessories and related bridal or wedding items, either
alone or with others, from the commencement of her employment by
the Company through the Term of the Employment Agreement and any
extensions thereof (collectively, the 'Designs'), are works
for hire, and ownership of any intellectual property arising from
or related to the Designs shall be the sole and exclusive property
of the Company . . . . If, for any reason the Designs, or any
portion thereof, are deemed not to be a work made for hire, then
the Employee irrevocably, absolutely and unconditionally assigns to
the Company (a) all of right, title and interest in and to the
Designs and/or any portion thereof (whether arising under copyright
law, trademark law, or otherwise), including to the extent
applicable, but not limited to, the exclusive rights enumerated in
l U.S.C. Section 106, and all extensions and renewals thereof, and
(b) all moral rights with respect to the Designs, including but not
limited to, any and all rights of identification of authorship and
any and all rights
of approval, restriction or limitation on use or subsequent
modifications relating to the Designs.
After entering into the referrer Employment Agreement, Ms. Hayley Page opened an account on Pinterest and an account on Instagram, both with the user name @misshayleypaige. According to her affirmations, she opened the social media accounts for personal reasons, inspired by a friend suggestion, and not to promote her employer products or services. Accordingly, she created both accounts using her personal Gmail account, cell phone number and personal Facebook page.
However, what began just as an account for some social and personal content evolved into one of the main channels of communication, used by Ms. Hayley Page and JLM to share content related to JLM products and commercial activities. Even though there was no written or express agreement between the parties, Ms. Hayley Page and other JLM employees started to maintain a continuous communication to post content, answer the audience question and reach out to public.
Around 2019, the relationship between the parties changed and in the course of contract negotiations Ms. Hayley Page changed the biography section of her Instagram account from "The Wedding Wardrobist – Revisited" to read "Personal & Creative Account", removed any references and links to JLM, changed the password of the account and, in on December of 2020, she informed JLM that she was resigning.
Thereafter, JLM filed a civil action for unjust enrichment, breach of contract, trespass and conversion, and requested a Preliminary Injunction. After the Preliminary Injunction was issued, the parties' relationship deteriorated further and JLM requested that the Court hold Ms. Hayley in civil contempt of the Preliminary Injunction Order. JLM's request was based on Ms. Hayley Page's activities on Instagram, including her announcements that she planned to reveal her "new brand name very soon" and reenter the bridal industry in August 2022.
In deciding the request, the District Court found that JLM offered clear and convincing evidence that Ms. Hayley Page failed to comply with the Court Order, which incorporated Ms. Hayley Page contractual obligation not to compete with JLM during the term of her Employment Agreement. Thereafter, the Court gave both parties access to the "Disputed Accounts" and prohibited Ms. Hayley Page from using the Disputed Accounts for any "non-JLM promotional purposes." In response to this, Ms. Hayley Page requested that Second Circuit Court to dissolve the injunction and JLM requested changes to strengthen it.
After a review was conducted, the Second Circuit Court order a full review JLM's likelihood of success considering the merits of their allegations. As a result of this, the District Court vacated its initial decision and Ms. Hayley Page recovered access to its social media accounts. Now, let's take a closer look to the analysis of District Court in regards to 3 main issues:
- Social media accounts ownership
- Work-for-Hire content in the context of this case
- Non-compete agreements validity
Social Media Accounts Ownership
The Court explained that to resolve the issues of this litigation, social media accounts were considered intangible property. Therefore, like any other kind of property, it was necessary to determine who was the initial owner and whether ownership was ever transferred to another party. Accordingly, "If a claimant is not the original owner and cannot locate their claim in a chain of valid transfers, they do not own the account."
Ms. Hayley Page proved ownership
According to the evidence in record, Ms. Hayley Page demonstrated that she owned the social media accounts. The court explained the she was the creator of the accounts and she had access to them not only because she was an employee of JLM. In particular, the Court highlighted that, according to Ms. Hayley Page submissions: a. she opened the account based on the suggestion of her friend, b. she linked the accounts to her personal Facebook account, and c. the initial posts on the accounts were of personal nature.
Instead, the record makes clear that Ms. Gutman herself opened the accounts, obtaining the rights to use the social media platforms to post information and communicate with others, in her own name using the @misshayleypaige handle, and that she was at least partially motivated to create the Disputed Accounts for her personal use even if she saw them as potentially useful in promoting Hayley Paige merchandise manufactured by JLM.
JLM allegations were insufficient
JLM argued that the social media accounts were expressly created to assist JLM in its advertising programs, and that it was the reason of the multiple discussions and exchanges between the parties regarding the content to be published. However, the Court noted that those facts by themselves were not enough to prove ownership or a later transfer of ownership by Ms. Hayley Page.
While the evidence of early discussions of use of social media
in advertising and the use of a handle that is a derivative of
names to which Defendant had just sold JLM commercial rights under
the Contract shows
that JLM's contention that the Disputed Accounts were created
for advertising purposes is not frivolous, JLM has failed to
demonstrate a clear or substantial likelihood of success on the
merits of its contention that Ms. Gutman created the Dispute
Accounts for JLM only. JLM's evidence does demonstrate that Ms.
Gutman used the Disputed Accounts to support JLM's advertising
efforts, as she was responsible to do under Paragraph 2 of the
Contract, but that later use is not dispositive of the question of
initial account ownership [...].
Work-for-Hire Allegations by JLM
JLM also argued that the social media accounts were ab-initio, works for hire, i.e. in the world of copyright law, property owned by JLM and not by their employee Ms. Hayley Page. However, the Court gave no much weight to this argument.
To address the JLM's argument, the Court reviewed the intellectual property clause of the Employment Agreement. According to the language of the contract all "designs, drawings, notes, patterns, sketches, prototypes, samples, improvements to existing works, and any other works conceived of or developed [...] in connection with [Ms. Hayley Page] employment with [JLM] involving bridal clothing" were works for hire and the exclusive property of JLM.
However, any of the works or materials listed in the Employment Agreement shared any attributes with the "Disputed Accounts". Therefore, it was clear that the social media accounts had not been contemplated as works for hire. Moreover, by its nature the social media accounts do not fit the definition of copyrightable materials.
Side note: The Court also noted that a close look to the Pinterest and Instagram websites terms of service reveals that neither company takes a position regarding ownership and the user represents it has rights or permission to post materials or create the account. Therefore, it is arguable to say that the matter could have been handled with contracts.
The Court noted, however, that JLM could have a legitimate claim on the content posted through Ms. Hayley Page social media accounts because creating such content and promoting it was within the scope of her employment relation and JLM's Employees Handbook.
JLM urges the Court to find that Ms. Gutman is estopped from claiming ownership of the Disputed Accounts because JLM reasonably relied on, and made investments in the maintenance and content of the Accounts based on its understanding that it owned the Disputed Accounts, which in turn was based on actions by Ms. Gutman that were consistent with her duties under her Contract, her requests for company support of the accounts, and her references to the accounts as JLM's or "ours". [...] JLM's argument fails, however, to identify "a clear and unambiguous promise" by Ms. Gutman on which it relied; this element is required to establish promissory estoppel
The Non-Compete Clause
Regarding the Non-Compete Clause in Ms. Hayley Page's Employment Contract, the Court reaffirmed the fundamental requirements for enforceability of non-compete clauses in New York and upheld the validity of the non-compete in this instance.
The Court explained that determining the reasonableness of a covenant not to compete requires the Court to "apply a three prong test," assessing whether a "restraint . . . (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public." BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388-89 (1999) (citations in original). "
The Court recognized validity in JLM's claims defending the non-compete clause. The Court explained that JLM had invested resources in developing the social media accounts and their employee commercial presence to promote its products. Therefore, it was reasonable and valid for them to defend the non-compete covenant. In other words, proof of joint sales and marketing efforts during the employment agreement term, indicates that JLM wants to protect its investment in building client relationships and to prevent Ms. Hayley Page from unfairly using her popularity and personal brand—developed during her employment—to compete against JLM right after leaving.
Regarding the duration and geographic scope of the non-compete covenant, the Court explained:
"The 'durational reasonableness of a non-compete agreement is judged by the length of time for which the [legitimate interest the employer seeks to protect] will be competitively valuable." Flatiron Health, Inc. v. Carson, No. 19-CV-8999-VM, 2020 WL 1320867, at *22 (S.D.N.Y. Mar. 19, 2020) (quoting Estee Lauder Cos. v. Batra, 430 F. Supp. 2d 158, 180 (S.D.N.Y. 2006)).
In this case, the Court concluded that five years from the end of JLM's employment relationship with Ms. Hayley was a reasonable amount of time, and no greater than is necessary for JLM to rebuild its brand, develop a new strategy and distance its products from Ms. Hayley Page, whose persona was intimately tied to the JLM brand.
Moreover, in regards to the scope of the non-compete covenant, the Court concluded that the prohibition was reasonable in scope and not overly burdensome on Ms. Hayley Page, because it still allows her to continue to use her talents as a designer of non-competing goods during the term of the non-compete covenant.
In conclusion...
The recent litigation between Hayley Page and JLM underscores the crucial importance of clarity and communication regarding social media accounts and ownership.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.