The anonymity of the internet has made protecting intellectual property increasingly challenging by offering endless possibilities for infringers to sell counterfeit goods, in places ranging from the dark web to legitimate web-based storefronts, such as Amazon or eBay. One strategy that intellectual property owners can use to police the market and protect their brands is known as a “test buy,” also called a “covert purchase.” Similar to a sting operation by law enforcement, a test buy is an undercover purchase of goods that are believed to be counterfeit to identify and obtain evidence against the seller and others in the chain of distribution. Because of their furtive nature, test buys often require the concealment of the buyer’s true purpose, identity, and sometimes more. Covert purchases fall into a larger category of activity called “pretexting.” Pretexting refers to the use of subterfuge to uncover facts or evidence to bolster legal claims and includes an array of activities, such as test buys, secret recordings, internal audits and moles, and online deception. This article analyzes the ethics rules that apply to attorneys when they conduct test buys for a civil litigation and the case law in which courts have parlayed the ethics rules into an admissibility analysis for evidence obtained in a test buy. As discussed in detail below, there is a continuum of ethical conduct that litigators must account for when conducting a covert purchase.
When analyzing covert buys in the civil context, courts have been sensitive to the different ethical rules that come into play. While these tactics receive more leeway in criminal cases, they occur less often in the civil context, and thus, they receive greater scrutiny by courts. Douglas R. Richmond, Deceptive Lawyering, 74 U. Cin. L. Rev. 577, 605 (2005). There is an expansive toolbox of investigative techniques at a lawyer’s disposal, ranging from the harmless request for information to the creation of false personas. Steven C. Bennett, Ethics of “Pretexting” in a Cyber World, 41 McGeorge L. Rev. 271, 276 (2010). Four ethical rules are commonly invoked in the context of a test buy. They are American Bar Association (ABA) Model Rules 5.3, 4.2, and 4.3, and 8.4.
ABA Model Rule 5.3—Responsibilities Regarding Nonlawyer Assistance
ABA Model Rule 5.3 concerns the relationship between a lawyer and an investigator, and in relevant part, states as follows:
(b) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer; and
(c) a lawyer shall be responsible for conduct of such a person that would be a violation of the Rules of Professional Conduct if engaged in by a lawyer if:
(1) the lawyer orders or, with the knowledge of the specific conduct, ratifies the conduct involved . . . .
ABA Model Rules of Prof’l Conduct R. 5.3. Importantly, Model Rule 5.3 applies agency law concepts to ethical violations committed by third parties hired by an attorney. Rebecca Graves Payne, Investigative Tactics: They May Be Legal, But Are They Ethical?, 35 Colo. Law. 43, 44 (Jan 2006).
Model Rule 5.3 should give all attorneys pause when considering a test buy. An obvious benefit of hiring an investigator is that it creates distance between the investigation and the attorney’s role. See Will Hill Tankersley & Conrad Anderson IV, Fishing With Dynamite, 69 Ala. Law. 182, 191–92 (May 2008). Without hiring an investigator, attorneys likely face logistical difficulties, such as having to testify as a witness to authenticate evidence that they secured for their case. Marguerita B. Dolatly, Creating Evidence: Ethical Concerns, Evidentiary Problems, and Application of Work Product Protection to Audio Recordings of Nonparty Witnesses Secretly Made by Attorneys or Their Agents, 22 Rutgers Computer & Tech. L. J. 521, 545 (1996). This can lead to further complications with the ethical rules, such as whether an attorney can serve as a witness while still fulfilling his or her duties to a client. Id.
Put simply, attorneys using an investigator to conduct a test buy should proceed cautiously, given that they are ethically responsible for their actions. It is therefore recommended that an attorney hire an investigator who understands the boundaries of a lawyer’s ethical obligations or is knowledgeable about the subject matter of the investigation. See Payne, supra, at 49–50. This may require hiring former law enforcement officers, or in certain cases, other attorneys to make covert purchases. Id. One best practice is specifying in writing the criteria for a purchase so that an investigator and any reviewing court are aware of which investigative tactics an attorney requested. See Phillip Barengolts, The Ethics of Deception: Pretext in Investigations in Trademark Cases, 6 Akron Intell. Prop. J. 1, 16 (2012).
ABA Model Rules 4.2 and 4.3—Communications with Represented and Unrepresented Third Parties
ABA Model Rule 4.2 prohibits an attorney from “communicat[ing] about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter.” ABA Model Rules of Prof’l Conduct R. 4.2. In terms of dealing with unrepresented individuals, Model Rule 4.3 places an affirmative duty on an attorney to “make reasonable efforts to correct” an unrepresented person’s misunderstanding of a lawyer’s role in a matter. ABA Model Rules of Prof’l Conduct R. 4.3.
Three considerations come to mind with Model Rules 4.2 and 4.3 in the context of a test buy. First, although Model Rule 5.3 applies agency principles to the attorney–investigator relationship, there is no clear guidance whether using an investigator alleviates or affects an attorney’s duty under the Model Rules. See John K. Villa, The Ethics of Using Undercover Investigators, 28 No. 9 ACC Docket 86, 89 (2010). Second, an attorney must understand who a covert purchase would require an investigator to make contact with and whether those individuals are represented. This becomes a gray area when an investigator is dealing with low-level employees of a large corporate defendant. Id. Third, an attorney should take into account whether a covert purchase is occurring before or after litigation has commenced, because courts apply a stricter level of scrutiny after a case has been filed. See Payne, supra, at 49.
ABA Model Rule 8.4—Attorney Misconduct
Among other concerns, ABA Model Rule 8.4 addresses an attorney’s inherent duty to act honestly. The rule states that “[i]t is professional misconduct for a lawyer to . . . engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.” ABA Model Rules of Prof’l Conduct R. 8.4(c). In the well-known disciplinary opinion In re Conduct of Gatti, the Supreme Court of Oregon sanctioned an attorney who posed as a chiropractor to gather information from other doctors about an insurance case with which he was involved. 330 Or. 517, 521–22 (Or. 2000). In addressing Oregon’s version of Model Rule 8.4, the court held that Oregon law “does not permit recognition of an exception for any lawyer to engage in dishonesty, fraud, deceit, misrepresentation, or false statements,” including misrepresentation of identity or purpose. Id. at 532. This complete prohibition against misrepresentation produced significant backlash from law enforcement due to the chilling effect that it would have on other covert activities. Kathryn M. Fenton, Ask the Ethics Experts: Ethical Implications of Lawyer Participation in Undercover Investigations and Other Covert Activities, 16 Antitrust 79 (2002). In response to In re Conduct of Gatti, jurisdictions began creatively carving out exceptions to Model Rule 8.4 in their local rules to allow lawyers to engage in deceptive practices when it was necessary to prevent wrongdoing. Id.
Adaptive Changes in Response to the Ethical Rules
Given the implication of multiple ethical rules, and the effect of opinions such as In re Conduct of Gatti, jurisdictions have adopted modified ethical rules to reflect different views on covert activities. Nearly every jurisdiction has adopted a form of ABA Model Rule 8.4, but not all of them agree on its limits or enforceability. Oregon modified its version of ABA Model Rule 8.4 in response to the effects of In re Conduct of Gatti. The Oregon Rules of Professional Conduct Rule 8.4 still outlaws dishonest behavior by lawyers, except actions taken to “supervise lawful covert activity in the investigation of violations of civil or criminal law.” Or. R. Prof’l Conduct 8.4(b). ABA Model Rule 8.4’s language led some jurisdictions to limit deceptive behavior in civil litigation. For example, the Supreme Court of Colorado has imposed a complete ban on any sort of civil pretextual activity, regardless of whether a “noble motive” is involved. In re Paulter, 47 P.3d 1175, 1180 (Colo. 2002). Several other states, such as Florida, explicitly permit governmental lawyers to use undercover investigations, but they provide scant guidance when it comes to private attorneys using similar tactics. See Mary Nix & James R. Ray, Dissemblance in the Franchise Industry: The Art (and Ethics) of Deception, 33 SPG Franchise L.J. 525, 530 (2014) (citing Fla. R. of Prof’l Conduct 4-8.4(c)).
Alternatively, some jurisdictions have amended their ethical rules to accommodate particular pretextual behavior. For example, the Alabama State Bar Disciplinary Commission has issued a formal opinion through the Alabama State Bar Office of General Counsel that creatively interprets the ABA Model Rules to find that pre-suit investigational test buys are specifically permitted. See Tankersley & Anderson, supra, at 187–88 (citing Ala. Formal OCG Op. 2007-05 (2007) (pretext calling)).
While the ABA has formally addressed several pretextual activities, covert purchases are not among them. As a result, jurisdictions are left with three options: (1) accept ABA Model Rule 8.4 on its face and leave the issue to the judiciary, (2) address the issue via commentary to the rule on an ad hoc basis, or (3) draft their own rule on attorney misconduct. See Nix & Ray, supra, at 529–32. This has created a scattered ethical stance on test buys that remains today.
Case Law on Pretextual Conduct: Varied Views
Despite the differences among jurisdictions, there is a trend that courts that “handle a greater volume of infringement, counterfeiting, and deceptive trade practice cases seem to be more tolerant” of test buys and other prelitigation investigations. See Barengolts, supra, at 15 (2012). It is also noteworthy that courts have been more willing to consider evidentiary sanctions over disciplinary sanctions when pretextual investigations implicate potential violations of an attorney’s ethical obligations.
Midwest Motor Sports v. Arctic Sales, Inc.–Treading Lightly on Deception
Midwest Motor Sports v. Arctic Cat Sales, Inc., 347 F.3d. 693 (8th Cir. 2003), represents the restrictive end of the pretexting spectrum. In that case, Arctic Cat Sales (Arctic) hired a former FBI agent to investigate whether its business was suffering due to the revocation of a license to market its snowmobiles. Id. at 695. Before litigation, Arctic’s investigator, wearing a hidden recording device, visited competing businesses to gather evidence about which products they were promoting and displaying in their showrooms. Id. During one of these visits, the investigator spoke to the president of a competitor named A-Tech, whom the investigator knew was represented by counsel, and asked questions about Arctic’s line of snowmobiles. Id. at 696.
The Eighth Circuit sanctioned Arctic by excluding the secret recordings, finding that it violated Model Rules 4.2 and 4.8. Id. at 698. Evaluating the secret recordings, the court of appeals grappled with the fact that the ABA does not necessarily preclude the use of a secret recording device to gather evidence if the local jurisdiction’s laws permit it. Id. at 699. In the end, however, the court’s holding is summed up by the phrase “conduct that is legal may not be ethical.” Id. Using this tenet to affirm the sanctions, the court found that Arctic’s use of a private investigator to elicit harmful admissions covertly from the president of a competitor fell “squarely within Model Rule 8.4(c)’s prohibition of conduct involving dishonesty, fraud, deceit, or misrepresentation.” Id. at 700.
Apple Corps Ltd. v. International Collectors Soc.–Covert Buys Help Uproot Wrongdoing
On the opposite end of the spectrum, the court in Apple Corps Ltd. v. International Collectors Soc., 15 F. Supp. 2d. 456, 460 (D. N.J. 1998), issued one of the more liberal opinions on covert test buys. Here, the plaintiffs attempted to demonstrate that the defendants were infringing their intellectual property by selling stamps bearing the likeness of the Beatles. Id. at 458. The parties had previously agreed to a consent order that allowed the defendants to sell products using the Beatles’ likeness to a select club of people. Id. at 461. Suspecting that the defendants were abusing the consent order, the plaintiffs had asked a number of individuals, including one of their own attorneys, to call the defendants’ businesses and order a set of products from the sales teams that should have only been available to the selected buyers. Id. at 462–64. Each of the individuals used their actual names, but they concealed the fact that they were calling on the plaintiffs’ behalf. Id. All of the potential purchasers indicated that they were not members of the club, and all but two were able to purchase products in violation of the consent order. Id.
When the defendants requested sanctions for the plaintiffs’ covert conduct, the court refused and found no unethical conduct. Id. at 476. First, although the defendants had counsel, their sales representatives were not part of the “litigation control group” that the plaintiffs were prohibited from contacting without defense counsel present. Id. at 474. The court defined “litigation control group” to include “current agents and employees responsible for or significantly involved in the determination of the organization’s legal position in the matter whether or not in litigation.” Id. (citing N.J. R. Prof’l Conduct 1.13). Moreover, because the plaintiffs’ counsel and the other covert buyers were misrepresenting only their identity and purpose, but they were not seeking to uncover facts other than the underlying unpermitted sale of product, the investigation did not stray into sanctionable territory. Id.
The court ultimately decided that Model Rule 8.4 “cannot apply where lawyers and/or their investigators, seeking to learn about current corporate misconduct, act as members of the public to engage in ordinary business transactions[.]” Id. at 474. The court pointed out that criminal and civil rights attorneys frequently use similar tactics to gather evidence without being condemned or sanctioned. Id. Therefore, a “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.” Id.
Gidatex S.r.L. v. Campaniello Imports, Ltd.–Merging Admissibility with Ethics
An interesting opinion that analyzes both the admissibility and ethics of covert purchases is Gidatex, S.r.L. v. Campaniello Imports, Ltd., 82 F. Supp. 2d. 119 (S.D.N.Y. 1999). In Gidatex, the plaintiff sought to establish that the defendant was violating the Lanham Act by continuing to market its furniture brand after the expiration of a license agreement. Id. at 120. To collect this evidence, the plaintiff hired private investigators to visit the defendant’s storefront and warehouse on several occasions. Id. at 120–21. During their visits, the investigators found that the defendant was prominently displaying the plaintiff’s branding materials. Id. Additionally, although they never purchased any furniture, the investigators inquired of the defendant’s salespeople whether they could find furniture under the plaintiff’s brand. Id.
The U.S. District Court for the Southern District of New York denied the defendant’s request to exclude the evidence gathered by the investigators. Id. The court held that an attorney’s use of a private investigator is “an accepted investigative technique,” is not on its face deceptive, and there was no evidence that the defendant’s employees “were tricked or duped by the investigators’ simple questions” about purchasing the plaintiff’s furniture. Id. at 122. Moreover, the court found that the investigators merely posed as typical customers to “observe and record the manner in which [the defendant’s] employees conducted routine business.” Id. Interestingly, the court found that by limiting their inquiry to the sale of the plaintiff’s furniture, “[t]here was no risk that [the defendant’s] low level employees would disclose, or were even aware of, any information protected by the attorney/client privilege.” Id.
In addition, the court analyzed the admissibility of the evidence gathered by the investigators and the policy reasons behind admitting it. By denying the use of private investigators in infringement suits, the justice system would effectively “permit targets to freely engage in unfair business practices which are harmful to both trademark owners and consumers in general.” Id. at 123. The court admitted the covertly gained evidence because the “enforcement of 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 detection or proof.” Id.
Hill v. Shell Oil Co.–A Continuum of Permissible Conduct
Although the Hill v. Shell Oil Co., F. Supp. 2d 876 (N.D. Ill. 2002), case is a civil rights case, the court’s analysis of the covert purchase illustrates how a court may treat such evidence. The plaintiffs in Hill sought to prove that certain Shell-brand gas stations were engaging in discriminatory business practices against African-American customers. 209 F. Supp. 2d 876, 877 (N.D. Ill. 2002). Aided by their attorney, the plaintiffs performed several test purchases, during which African-American customers and white customers purchased fuel from the same pump, and only the African-American customers were asked to prepay. Id. The plaintiffs used concealed video cameras to record the transactions. Id.
Shell sought a protective order against the use of the videotapes, citing violations of Northern District of Illinois Rules 4.2 and 4.3. Interestingly, the court found that because the employees’ statements to the plaintiffs could create liability for Shell, the employees fell into the category of represented persons under Rule 4.2. Id. at 878–79. However, the court ultimately refused to issue a protective order because the interactions between the employees and the plaintiffs were not the type of conduct that would trigger sanctions under Rule 4.2. Id. at 880. In doing so, the court noted that there is a “discernable continuum” of conduct for conducting a test buy. Id. On the impermissible side of the scale are tactics meant to “trick protected employees into doing things or saying things they otherwise would not do or say.” Id. On the other end are activities that do not disrupt an employee’s normal routine, such as impersonating a customer seeking the same services that the general public would or videotaping employees during the “normal course” of business. Id. Finding that the plaintiffs made no real misrepresentations or attempts to trick the employees, the Shell court ruled that the plaintiffs’ actions were in the realm of “clearly permissible conduct.” Id.
Admissibility Analysis: Making Sense of the Varied Viewpoints
As mentioned above, there is a lack of uniformity in the treatment of evidence collected through covert activities. While guidance may exist in certain states, attorneys who need to gather evidence for litigation through pretexting may find themselves in a jurisdiction that has not addressed the issue. In that circumstance, an attorney should reflect carefully on the requirements of the test buy and consider them against the frequently discussed factors below where the case law and ethical rules intersect. After all, given how fact specific the opinions on covert buys have been, it is important to understand that there is a continuum of conduct that courts consider when weighing the propriety of a test buy.
Ethics and Admissibility Intersect
As seen in cases such as Gidatex, courts have assessed the admissibility of covertly obtained evidence by looking at the ethical nature of the attorney’s and investigator’s actions and the policy ramifications of admitting the evidence. For example, New York’s Professional Ethics Committee has issued the following advisory factors that dictate when evidence collected through covert activity is admissible:
- The investigation relates to a violation of civil or intellectual property rights and the lawyer believes in good faith that such a violation is taking place or will imminently take place.
- The evidence is not reasonably available through other, lawful means.
- The conduct of the supervising lawyer and investigator do not otherwise violate the ethical rules or applicable law.
- The dissemblance does not unlawfully or unethically violate the rights of third parties.
Villa, supra, at 86.
Although a handful of jurisdictions have enumerated factors, the general perception is that the admissibility of test-buy evidence largely turns on the facts that are relevant when assessing ABA Model Rules 4.2, 4.3, 5.3, and 8.4. See Barengolts, supra, at 15–16 (2012). In the cases discussed above, courts may assess the admissibility of the evidence rather than issue disciplinary sanctions despite analyzing rules of professional conduct. Yet the question remains, what should an attorney consider when tailoring a test buy to produce admissible evidence? Courts and scholars have frequently discussed the following factors.
The Attorney’s Involvement in the Test Buy
Although an attorney’s involvement in a test by appears less frequently as a factor in the case law, a lawyer’s personal involvement in a test buy may cause complications. As a best practice, a lawyer should create distance from a pretextual investigation and retain an investigator. See Barengolts, supra, at 16 (2012). One need look no further than In re Conduct of Gatti to see the type of disastrous results that can arise from an attorney’s personal involvement in an investigation.
Pre-Litigation Versus Post-Litigation Investigations
Generally, courts are more forgiving of evidence gathered covertly before litigation. For example, the Alabama State Bar Disciplinary Commission has issued a bright-line statement that Rule 4.2 “does not apply in a pre-litigation investigation because one cannot be a party until a lawsuit has been filed.” Tankersley & Anderson, supra, at 187. Nevertheless, the timing of an investigation is typically not dispositive when assessing the admissibility of test-buy evidence. For instance, the Gidatex court determined that although the investigation occurred during litigation, that factor alone was not enough to warrant sanctions under Rule 4.2.
The “Who” Matters
When performing a covert purchase from a larger company, who the buyer interacts with is a pivotal variable. The courts in Midwest Motors, Gidatex, and Hill were concerned with whether the investigator approached low-level employees or managers who might be considered a represented party under Model Rule 4.2. Midwest Motor Sports, 347 F.3d. at 693; Gidatex S.r.L., 82 F. Supp. 2d at 214; Hill, 209 F. Supp. 2d at 879. The ABA has issued an opinion specifically addressing when an employee is or is not considered to be represented under Model Rule 4.2. Phillip Barengolts, Ethical Issues Arising from the Investigation of Activities of Intellectual Property Infringers Represented by Counsel, 1 Nw. J. Tech. & Intell. Prop. 47, 56 (2003) (citing ABA Comm. on Ethics and Prof’l. Responsibility, Formal Op. 396 (1995)).
The suggested best practice here is to interact exclusively with salespeople or other “public-facing” employees rather than officers or managers who are “more likely to interact with counsel and/or bind the company with their statements and actions.” See Barengolts, supra, at 16 (2012). Otherwise, as seen in Midwest Motors, a court may be more likely to find that the communications with high-level employees are an impermissible communication with a represented party. 347 F. 3d. at 697.
How Much Deception Is the Right Amount of Deception?
The final and possibly most difficult factor is the amount of deception that investigators may use. This factor is also where courts appear to diverge the most. For instance, the Gidatex court had no issue with the plaintiff posing as potential customers, asking questions of the salespeople, and even secretly recording their conversations. Gidatex S.r.L., 82 F. Supp. 2d at 122. In contrast, the Gatti case created a precedent that no form of attorney misrepresentation is permitted by Rule 8.4. In re Conduct of Gatti, 330 Or. at 533.
Perhaps the most reasonable approach is that of the Apple Corps case, which analyzed the “materiality” of the deception by the plaintiff’s private investigator. Apple Corps Ltd., 15 F. Supp. 2d. at 475–76. Unfortunately, the court’s threshold of “material” conduct is vaguely defined as “grave misconduct . . . of such gravity as to raise questions as to a person’s fitness to be a lawyer.” Id. at 476 (citation omitted). Looking at the facts considered in cases such as Apple Corps, the suggested best practice is to limit the deception to the investigator’s identity and purpose. See Nix & Ray, supra, at 537. In fact, a good rule of thumb for civil test buys is to minimize direct contact and communication with the potential target.
Admissibility Turns on Public Policy
In addition to the factors considered above, courts such as the U.S. District Court for the Southern District of New York, in Gidatex, have introduced a policy aspect to the admissibility analysis of covertly obtained evidence. By considering policy concerns, the Gidatex court encouraged the idea that overly rigid enforcement of the ethical rules on private investigations can be harmful to the rights of intellectual property owners and the consumer. See Payne, supra, at 49. That said, there is certainly a limit to how far intellectual property owners may go to protect their rights, and public policy will not protect a party who uses unjustifiable tactics, such as hiring an investigator simply to dig up irrelevant dirt on an opposing party. Vincent Syracuse et al., Attorney Professionalism Forum, 88 N.Y. St. B. J. 57, 59 (Oct 2016). Accordingly, attorneys should be careful to observe both the policy and factual considerations when arranging a covert purchase.
The law on the ethical standards and the admissibility of evidence obtained through a test-buy purchase varies by jurisdiction and the tactics used by the gatherer. Courts tend to focus on an array of factors that tie into the ethical rules and favor the admission of evidence because of public policy considerations. Courts are seemingly less likely to sanction attorneys who conduct an overly zealous covert buy, instead choosing to exclude the evidence.
Despite the lack of consistency, courts are more likely to admit evidence from a test buy when attorneys take care to limit their direct participation in the purchase, minimize the misrepresentations to the seller, and carefully restrict the timing and target of the covert purchase. Taking precautionary measures to tailor an investigation and avoid crossing ethical lines will make obtaining admissible evidence easier. Covert purchases can be an effective method of discovering and uprooting infringement on intellectual property, but only if an attorney is mindful of the rocky legal landscape.
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