JLM Couture, Inc. v. Gutman

Background

This post-remand opinion addressed the preliminary injunction in JLM Couture, Inc.’s action against Hayley Paige Gutman. The Second Circuit had affirmed part of an earlier injunction order, vacated part of it, and sent the matter back for further proceedings concerning two issues: ownership and control of Gutman’s Instagram and Pinterest accounts using the handle @misshayleypaige, and the reasonableness under New York law of a contractual restriction on identifying Gutman as the designer of competing goods.

Gutman had worked for JLM under a contract that included restrictions concerning competition, confidential information, use of her designer name, trademarks, and designs. The contract also stated that certain designs and related intellectual property created in connection with her employment belonged to JLM. Gutman created the disputed Instagram and Pinterest accounts using personal information. The accounts initially contained personal material but later became important advertising and customer-service platforms for JLM’s products. JLM employees also participated in managing the accounts during parts of Gutman’s employment.

Account Ownership and Control

JLM sought sole control of the disputed accounts or, alternatively, continued shared access. Gutman sought sole control. To obtain this mandatory preliminary relief, JLM had to make a clear or substantial showing that it was likely to succeed on its conversion or trespass-to-chattels claims. Those claims required JLM to show, among other things, that it owned or possessed the accounts and that Gutman exercised unauthorized control over them.

The court concluded that JLM had not made the required showing. The evidence indicated that Gutman herself opened the accounts, used her own information, linked them initially to her personal Facebook account and email address, and created at least part of their early content for personal purposes. The court held that the accounts’ later use for JLM advertising did not establish who owned them when they were created. It also found that JLM had not shown a valid transfer of ownership to it later.

The court rejected JLM’s arguments that the contract’s work-for-hire provisions, the Employee Handbook, Gutman’s work during business hours, unjust enrichment, or estoppel established JLM’s ownership of the accounts themselves. The court distinguished ownership of the accounts from ownership or control of content posted on them, and stated that its account-ownership conclusions did not resolve the parties’ positions concerning the accounts’ handles, content, follower contacts, or related goodwill.

Because JLM failed to show a clear or substantial likelihood of success on the account-ownership element of its claims, the court dissolved in part the provisions that had given JLM control over the disputed accounts. The court ordered JLM to provide Gutman, through her counsel, with the current usernames, passwords, and other assistance needed for Gutman to obtain sole control by 5:00 p.m. Eastern Standard Time on May 15, 2024.

Restriction on Identifying Gutman as a Designer of Competing Goods

The contract provided that, if JLM filed an application to register the relevant trademarks, Gutman could not, for five years after termination of her employment, be identified publicly as the designer of goods competing with JLM’s goods or use her role as designer to promote those competing goods. The court applied New York’s three-part test for restrictive covenants: the restriction must be no broader than necessary to protect a legitimate employer interest, must not impose undue hardship on the employee, and must not harm the public.

The court found that JLM had legitimate interests in protecting the goodwill associated with product lines built around Gutman’s designer name and in preventing unfair competition by an employee whose design services and public role were unique and important to JLM’s leading product line. It found the five-year period reasonable in this context and found the worldwide scope reasonable because JLM’s business was worldwide.

The court also found the restriction reasonably narrow because it did not prevent Gutman from working as an uncredited designer of competing goods or from being the new name and public face of noncompeting goods. It limited only her being identified as the designer of competing goods and her use of her designer role to promote competing goods.

The court nevertheless shortened the period so that it ran through December 17, 2025, five years after Gutman’s resignation and last work for JLM, rather than extending five years from the later end of the contractual term. It therefore modified the preliminary injunction to continue the restriction through December 17, 2025.

Disposition

The court dissolved in part and modified in part the March 1, 2024, modified preliminary injunction. It dissolved the provisions giving JLM control over the disputed accounts and required JLM to provide Gutman with access information so she could obtain sole control. It modified the restriction concerning identification of Gutman as a designer of competing goods so that it remained effective through December 17, 2025.

The superseding injunction continued to prohibit Gutman from using the specified designer names, trademarks, confusingly similar marks, or JLM-related designs in trade or commerce without written permission from JLM’s chief executive officer. It also continued to prohibit certain commercial uses of those names and marks, including endorsements, advertising, and promotion. The case remained referred to Magistrate Judge Cave for general pretrial management.