A competition and contract-centric lawsuit that pitted Hayley Paige Gutman against her former employer JLM Couture has come to a close. On Friday, a Delaware bankruptcy court – which has been overseeing JLM’s Chapter 11 proceedings – approved a settlement agreement between the wedding dress designer and the design company. In furtherance of the agreement, Gutman will pay JLM a sum of $263,000 and will regain the right to compete with JLM, including by using the Hayley Paige name (and corresponding social media handles) on bridal designs.
In particular, the lawsuit settlement releases Gutman “from all rights, restrictions, and/or obligations to JLM,” while also giving her exclusive ownership of the Hayley Paige-related intellectual property portfolio previously held by JLM, including a laundry list of trademark rights (and corresponding registrations), as well as copyright-protected assets like Hayley Paige brand lookbooks. And still yet, ownership of the various Hayley Paige social media accounts, which played no small part in the parties’ clash, will be owned and controlled by Gutman going forward.
The settlement comes just weeks after a New York federal judge issued a mixed ruling in the lawsuit that JLM first filed with a New York federal court back in December 2020, accusing the designer – who previously helmed the JLM-owned Hayley Paige brand – of trademark infringement and dilution, unfair competition, breach of contract, conversion, and breach of fiduciary duty, among other claims, and claiming exclusive rights in the “Hayley Paige” name and variations, thereof, in accordance with the terms of the employment agreement the parties first entered into in 2011.
In a May 8 opinion and order, Judge Laura Swain of the U.S. District Court for the Southern District of New York walked back on her previous grant of control of the “Hayley Paige” social media accounts to JLM Couture, holding that based on the framework set out by the U.S. Court of Appeals for the Second Circuit early this year, JLM failed to demonstrate a likelihood of success in establishing that it was the original owner or transferee of the accounts. And in fact, the evidence indicates that Gutman originally owned the accounts and never transferred them to her former employer.
Not a total win for Gutman, the court sided with JLM to an extent in her May 8 order, with Judge Swain finding that the noncompete clause in Gutman’s employment agreement with JLM was valid. Among other things, Judge Swain found that JLM “demonstrated that it has … legitimate interests warranting protection through enforcement of the [noncompete].” Additionally, the court held that the five-year duration of the noncompete is warranted, as while five years (from the end of Gutman’s employment with JLM) “is a significant period of time,” it is, nonetheless, “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. Gutman, whose persona was intimately tied to the eponymous brand.’”
THE BIGGER PICTURE: The years-long case is interesting, in part, due to its focus on ownership of and control over social media accounts. The U.S. Court of Appeals for the Second Circuit considered the issue of account ownership early this year, holding that “the analysis of social-media-account ownership begins where other property-ownership analyses usually begin – by determining the account’s original owner.” The next step, according to the Second Circuit panel, is to determine “whether ownership ever transferred to another party. 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.”
Reflecting on the Second Circuit’s opinion at the time, Haynes Boone’s Joe Lawlor, one of the attorneys representing Gutman, said, “Influencers and brands have been working under a cloud of uncertainty, because prior to today, no federal circuit court had provided a framework for determining competing claims to social media account ownership.” He stated that this is a particularly “vital decision and victory for the future of similar cases, which are certain to be prevalent in an age of increasing use of influencer and digital marketing.”
The case is JLM Couture, Inc. v. Gutman, 1:20-cv-10575 (SDNY).
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