BFV Perspectives, Noncompete & Trade Secrets, | Jul 30, 2020

Trade Secrets Cases Can be a Barrel of Laughs

Many trade secrets cases are entertaining.  But a trade secrets case about comedians and comedy clubs?  Now that’s funny.

Harith Iskander v. Laugh Factory, Inc., Case No. LA CV-19-1076-MWF(JEMx) (C.D. Cal. March 17, 2020), involved a dispute between a Malaysian comedian and the Laugh Factory Comedy Club in Hollywood.  In 2016, the Laugh Factory sponsored the “Funniest Person in the World” contest.  The winner would receive a $100,000 prize and would participate in a comedy tour in the United States.  Mr. Iskander was invited to participate, and he was eventually selected as the winner.

The rules of the contest provided that the prize money would be paid to the winner in installments of $10,000, upon completion of trips to the United States for promotional performances.  Laugh Factory’s CEO had emailed the contestants, including Mr. Iskander, to tell them that the winner would have to make ten scheduled trips to the United States to allow Laugh Factory to assist the winner in becoming one of the biggest comedians in the world.

After he won the contest, Mr. Iskander proposed that an extended trip to the United States would qualify as multiple trips under the rules. In January 2017, he notified Laugh Factory that he was planning a trip to Los Angeles and that he considered the trip to be the first for purposes of the prize money.  He traveled to Los Angeles again twice later that year but he did not perform during those trips.  He did not make any more trips. He had been paid $30,000 in total, but not the full $100,000 grand prize. In May 2018, Laugh Factory demanded he refund $20,000 of the $30,000 in prize money he had been paid for promotional performances that never occurred during his trips to Los Angeles. 

Mr. Iskander and Laugh Factory had also discussed partnering to expand the Laugh Factory brand in Asia. However, they could not reach agreement on financial arrangements. In 2018, Mr. Iskander opened “The Joke Factory” comedy club in Kuala Lumpur.

Mr. Iskander sued Laugh Factory for failing to pay him all the prize money. Laugh Factory asserted counterclaims, including that Mr. Iskander had infringed on its trademarks and stolen its trade secrets and misused them in starting his comedy club.  Mr. Iskander eventually moved for summary judgment on Laugh Factory’s counterclaims.  This blog discusses the court’s ruling on Laugh Factory’s counterclaims for violation of the federal Defend Trade Secrets Act and California’s Uniform Trade Secrets Act.

The crux of Laugh Factory’s trade secrets claim was that Laugh Factory’s CEO had shared with Mr. Iskander how to operate a successful comedy club and that this information constitutes a trade secret.  The Court found this theory laughable.

Laugh Factory specifically alleged that during Mr. Iskander’s Los Angeles trips, he was taught everything about running comedy clubs that it had taken Laugh Factory’s CEO forty years to acquire and develop and that had never been revealed to a competitor, including 1) the design and layout of Laugh Factory’s comedy clubs; 2) the use of signage and promotions to generate sponsorship revenue; 3) common pitfalls that have cause comedy clubs to open and close; 4) examples of contracts with comedians and effective negotiating techniques; 5) financial data on the Laugh Factory’s income and profit; 6) employee handbooks; and 7) approaches to acquiring real estate.  The Court rejected Laugh Factory’s claim, finding that its alleged trade secrets were comprised of information that is generally in the public domain and therefore not “secret”. The Court further found that the information Laugh Factory characterized as its trade secrets was simply general business operation strategies and not the type of highly proprietary information that qualifies for trade secret protection. 

The Court also found Laugh Factory had not taken reasonable efforts to maintain the secrecy of its alleged trade secrets.  The Court pointed out that Laugh Factory did not require Mr. Iskander to sign a confidentiality agreement before it shared information with him regarding the inner workings of its clubs. There was also no evidence Laugh Factory required its employees to sign a non-disclosure agreement or to maintain confidential business records in a secure location.  The Court found Laugh Factory’s failure to protect its trade secrets was an additional reason to grant summary judgment on the trade secrets counterclaim.

Alleging someone stole trade secrets is no laughing matter.  But here, Laugh Factory’s trade secrets claims were so laughable they got booted off the stage at summary judgment.

BFV Perspectives, Noncompete & Trade Secrets, | Jul 30, 2020
Neal F. Weinrich
Neal F. Weinrich

Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.