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Time to Exclude the IMD Exclusion – Institutions for Mental Disease

Some rules are borne out of the best of intentions, and the Institutions for Mental Disease Exclusion (“IMD exclusion”) bears the hallmarks of such a beginning. The IMD exclusion bars federal funding for care of patients between the ages of 21 and 65 who receive inpatient treatment in an IMD, a hospital, nursing facility or other institution with more than 16 beds that primarily treats those with mental illness. This provision came into being in 1965, primarily as a way to prevent dubious institutions from stocking up on mentally ill patients for the purposes of collecting federal funds en masse, but also to put the onus on states, rather than the federal government, to care for the mentally ill.

IMD Exclusion, Institutions for Mental Disease

In modern times, however, the IMD exclusion is arguably one of the larger impediments to expansion of mental and behavioral health treatment, particularly in the area of substance abuse disorders, where a brewing epidemic of opioid addiction demands a proportional institutional response. Not only does this exclusion apply to standard mental health institutions, a Center for Medicare & Medicaid Services (“CMS”) interpretation applies the exclusion to other facilities such as substance abuse treatment center. The irony is that states which have accepted the Medicaid expansion to cover a wide range of newly-eligible patients for mental and behavioral health disorders such as substance abuse find themselves stymied by a lack of appropriate facilities in which to treat them. The Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”) provides that covered individuals receive the same coverage for mental and behavioral health as for other medical and surgical benefits, yet medical and surgical facilities are not limited to a maximum of 16 beds, rendering much of the benefit of this law illusory.

The Medicaid expansion provides mental and behavioral health providers with a steady new flow of patients in dire need of assistance – so long as that inpatient treatment is provided in increments of 16. Substance abuse victims now have the coverage to receive the services they desperately need, and behavioral health providers now have more tools than ever to combat the problem. The obstacle in care comes in the limitation of the facilities.

Even an exception for behavioral health provider facilities for substance abuse treatment would provide significant relief, and CMS went so far as to allow eight states to include IMD benefits under Medicaid managed care programs for a period of ten years. Although this exception hasn’t been allowed recently, it at least provides a ray of hope that CMS can adapt regulatory policies to reflect a growing problem, understanding that it may be standing in the way of progress with draconian measures.

True parity can only be attained when mental and behavioral health facilities are free from the limitations imposed by the IMD exclusion. Until then, rather than protecting patients from unscrupulous institutions, this policy will only continue to hurt those who need real care.

© 2015 by McBrayer, McGinnis, Leslie & Kirkland, PLLC. All rights reserved.

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UPDATE: Ice Cream Recall Begets First Lawsuit

In April 2015, Blue Bell Creameries announced a full, nationwide recall of all its products.  It didn’t take long for a lawsuit to be filed.

On Tuesday, the first lawsuit seeking to hold Blue Bell liable for illness caused by listeria-contaminated ice cream was filed in the United States District Court, Western District of Texas. Plaintiff David Philip Shockley seeks unspecified damages in a negligence lawsuit. Shockley says that while living in Houston, Texas, in October 2013, he was hospitalized for respiratory failure and septic shock. Doctors diagnosed him with listeria meningitis with encephalitis and Shockley suffered brain damage. Shockley alleges he regularly ate single serving Blue Bell ice cream, provided by his employer.  In 2013, Mr. Shockley was 31 years old and was employed as a director and administrator at a nursing home/retirement community.

Blue Bell recently laid off or furloughed 37% of its workforce, as it grapples with the fallout from the recall and the challenges of getting its plants back into production. While this is the first lawsuit to come from the Blue Bell recall, it is unlikely to be the last. Judge Lee Yeakel is presiding over this suit.

Happy Memorial Day from the National Law Review!

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The National Law Review remembers those who have given their lives in service to this great country. We thank all miliary men and women who continue to protect the freedoms the fallen died defending. Please have a safe and happy Memorial Day!

  • the Team at the National Law Review

Three Steps to Leverage LinkedIn for Your Law Firm

I have yet to find an attorney who could not benefit from having their profile on LinkedIn. It’s the number one online network for white-collar professionals.

Whether you want to connect with non-competing attorneys, non-legal professionals, or potential clients, the demographics on LinkedIn speak for themselves:

  • The average age range of a LinkedIn user is 30 to 49

  • 44% of LinkedIn users report an annual income of more than $100,000

  • 50% of members have a college degree

  • 28% have a graduate degree

LinkedIn members are highly educated and affluent. Is this a demographic you would like to reach? For most attorneys, the answer is obvious.

The first step to using LinkedIn is to create a comprehensive profile. Use your entire bio in your profile and be sure to include your keywords in it. In other words, use the exact keywords that you believe prospects or potential referral sources would use to find an attorney with your skill sets.

For example, if you are a business attorney in Omaha it might sound like this:

“John Doe is a Omaha business attorney who works with small business owners and CEOs of mid-sized companies to create comprehensive operating agreements, buy-sell agreements and employment agreements. His Omaha business clients appreciate the fact that John is an attorney who has a strong business background, having owned and operated two different companies, including a high tech company with 25 employees.”

Next, go to the See Who You Already Know on LinkedIn page and import your email contact list. This makes it super simple to connect with people you already know who are also on LinkedIn. In addition, based on your contacts, LinkedIn will suggest relevant contacts for you to connect with on the site.

Then search LinkedIn Groups and join those where your clients and prospects are. Create content — blog posts, free reports, articles, etc. — that will attract their attention. You can also start your own group and invite contacts to join.

The key to utilizing LinkedIn effectively is to be involved and be consistent. You need to commit to investing at least 30-45 minutes every week to log in, post an update or a link to your blog, reach out to your contacts, answer any questions that are sent to you, and make yourself visible. Simply setting up a profile on LinkedIn will not lead to more referrals any more than a having a business card will automatically get you new business.

© The Rainmaker Institute, All Rights Reserved

Shaking Down the Thunder From the Sky: Notre Dame’s Challenge to the Contraception Mandate

For the second time in as many years, the Seventh Circuit has declined to grant Notre Dame’s request for an injunction exempting the university from the contraception requirements of the Affordable Care Act

As was true back in 2014, the court remained skeptical of the link between Notre Dame’s actions (filling out a form noting its religious objections to contraceptives and sending the form to its insurance administrator) and the resulting actions (the administrator then providing the contraceptives directly to the insured). Consequently, the court ruled that Notre Dame did not meet its burden of showing that its religious beliefs were substantially burdened by the contraceptive mandate. Judge Posner wrote the majority opinion, which Judge Hamilton joined while writing a separate concurrence.

The case was back before the Seventh Circuit following the Supreme Court’s vacating of the Seventh Circuit’s 2014 opinion with directions to review the case in light of the Court’s Hobby Lobby opinion. (Odd, then, that the Seventh Circuit’s decision does not begin discussing Hobby Lobby until page 18 and discusses the case for little more than a page in a 25-page opinion.) The court concluded in short order that Hobby Lobby had virtually no application in Notre Dame’s case: In Hobby Lobby, a private sector employer wanted to receive the accommodation afforded to religious organizations, whereas Notre Dame argued that the accommodation itself was insufficient to protect its religious beliefs.

As in the original opinion, Judge Flaum strongly dissented. He once again argued that the majority was inappropriately judging the sincerity of Notre Dame’s beliefs, something he believes was foreclosed by the Hobby Lobby decision.

Perhaps most noteworthy about this opinion is that—nearly 18 months after Notre Dame filed suit—the decision simply affirmed the denial of a preliminary injunction. As both Judge Posner’s majority opinion and Judge Hamilton’s concurrence note, the record is still barren of the kinds of facts that a trial will bring out—and that could allow Notre Dame to introduce more evidence of the religious burden the contraceptive provisions of the Affordable Care Act place on the school. Yet it seems likely that before that trial occurs, Notre Dame will again petition the Supreme Court to review the Seventh Circuit’s opinion. And given the Court’s willingness to weigh in on these issues, the thunderstorm shows no signs of letting up.

© 2015 Foley & Lardner LLP

New Chicago Affordable Housing Ordinance Means Greater Costs for Developers


The Chicago City Council recently passed an amendment to the existing Affordable Requirements Ordinance (the 2015 ARO), which will increase the cost to develop most affordable housing projects in Chicago.  With the passage of the 2015 ARO, developers must now provide on-site or off-site affordable housing in addition to the in lieu fees which makes it impossible for developers to circumvent the purpose of the affordable housing requirements mandated by the ordinance.  In addition, the 2015 ARO significantly increases the in lieu fees that developers must pay in order to satisfy the requirements of the ordinance.

The Affordable Requirements Ordinance was enacted in 2003 and revised in 2007 to expand access to housing for low-income and moderate-income households and to preserve the long-term affordability of such housing in the Chicago.  Housing is considered “affordable” if the sales price or rent for the housing unit does not total more than a certain percentage of a family’s household income.  To qualify for affordable housing, the household must make at or below a certain percentage of an area’s median income as established by the Department of Housing and Urban Development.

Before the 2015 ARO, developers could pay an “in lieu fee” in the amount of $100,000.00 for every affordable unit they elected not to include in their projects to completely satisfy the affordable housing requirements.

You can click here for a complete summary of the 2015 ARO.  It is a quick reference guide for anyone considering the development of residential projects in Chicago.


The 2015 ARO applies to residential projects that contain ten (10) or more residential units and satisfy one of the following requirements:

  • The project receives a zoning change that permits a higher floor area ratio, changes the use from non-residential to residential or permits residential uses on ground floors where that use was not previously allowed;

  • The project includes land that was purchased from the City of Chicago;

  • The project received financial assistance from the City of Chicago; or

  • The project is part of a planned development in a downtown zoning district.

Minimum Percentages of Affordable Housing

While there are certain exemptions, the 2015 ARO creates minimum percentages for affordable units in projects as follows:

  • Rezoning – In the case of a rezoned property, the developer is required to designate 10% of the units in the project as affordable housing (or 20% if the developer receives financial assistance from the City of Chicago).  Financial assistance from the City of Chicago includes grants, direct or indirect loans or allocation of tax credits to the development.

  • City Land Sales – Where the City of Chicago sells property to a developer and such property is subsequently developed for residential purposes or is incorporated into a residential housing project site in order to satisfy City of Chicago Municipal Code requirements, the developer must designate no less than 10% of the units in the project as affordable housing (or 20% if the developer receives financial assistance from the City of Chicago).

  • Existing Buildings | Zoning Change – Where there is an existing building that contains housing units at the time of an approved zoning change or an existing building that contains a mixed-use occupancy with use being residential at the time of an approved zoning change, only the additional housing units permitted under the rezoning are subject to the affordable housing requirements of the ordinance.  However, in the event the developer has received financial assistance from the City of Chicago, then the entire building is subject to the affordable housing requirements of the ordinance.

Additional Considerations for Affordable Housing Units by Project Location

Compliance with the ordinance will depend on the area where the project is located:

1.  Low-Moderate Income Areas 

  • For low-moderate income areas (designated by the City of Chicago Department of Planning and Development), a developer must provide at least 25% of the required affordable units on-site.

  • For the remaining 75% of the required affordable housing units, the developer has the option of satisfying the requirements of the ordinance by (a) establishing additional on-site affordable housing units; (b) paying an in lieu fee in the amount of $50,000.00 per unit; or (c) any combination of (a) and (b).

2.  Higher Income Areas 

  • In higher income areas (those areas that are not designated as low-moderate income areas), the developer must provide at least 25% of the required affordable units on-site or off-site.

  • For the remaining 75% of the required affordable housing units, the developer has the option of satisfying the requirements of the ordinance by (a) establishing additional on-site or off-site affordable units; (b) paying an in lieu fee in the amount of $125,000.00 per unit; or (c) any combination of (a) and (b).

  • All off-site units must be located within a two (2) mile radius of the residential housing project at issue and in the same or a higher income area or in a district zoned “D” (downtown district) under the City of Chicago Zoning Ordinance.

3.  Rental Units in Downtown Districts

  • In downtown districts and planned developments in a downtown district (zoned “D”), a developer of rental units must provide at least 25% of the required affordable rental units on-site or off-site.

  • For the remaining 75% of the required affordable housing units, the developer has the option of satisfying the requirements of the ordinance by (a) establishing additional on-site or off-site affordable units; (b) paying an in lieu fee; or (c) any combination of (a) and (b).

  • The in lieu fee is $140,000.00 per unit through and including the first anniversary of the publication date of the ordinance in the Journal of the Proceedings of the City Council of the City of Chicago.  The in lieu fee is increased to $175,000.00 thereafter.

  • All off-site units must be located within a two (2) mile radius of the residential housing project at issue and in the same or a higher income area or in a district zoned “D” (downtown district) under the City of Chicago Zoning Ordinance.

4.  Owner-Occupied Units in Downtown Districts 

  • In downtown districts and planned developments in a downtown district (zoned “D”), a developer of owner-occupied units (i.e., condominiums) may establish affordable housing in the following ways: (a) establishing affordable owner-occupied units as part of the residential housing project; (b) establishing off-site affordable owner-occupied units; (c) paying an in lieu fee; or (d) any combination of (a), (b) and/or (c).

  • The in lieu fees are the same as rental units in downtown districts; however, in the event the developer elects not to provide a minimum of 25% of the required affordable owner-occupied units either on-site or off-site, the in lieu fee shall be increased to $160,000.00 per unit through and including the first anniversary of the publication date and $225,000.00 per unit thereafter.

  • Off-site affordable owner-occupied units may be located anywhere in the City of Chicago, subject to the Department of Planning and Development’s approval.

In summary, the 2015 ARO has significantly increased a developer’s cost to develop residential units in the City of Chicago.  It also mandates that affordable housing units be built even if it is off-site.  It remains to be seen if these new laws will in fact inhibit developers from constructing residential projects in the City of Chicago.  To learn more about 2015 ARO and its implications for your business, contact a member of the Much Shelist Real Estate practice group.

© 2015 Much Shelist, P.C.
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Patent Safe Harbor Applies To Supplemental New Drug Applications

On May 13, 2015, the Federal Circuit confirmed in Classen Immunotherapies, Inc. v. Elan Pharmaceuticals, Inc. that the safe harbor provisions of 35 U.S.C. § 271(e)(1) can shield post-FDA approval activities from liability for patent infringement when the activities generated information that was submitted to the FDA to support a supplemental New Drug Application andCitizen’s Petition. However, the Federal Circuit remanded the case to the district court to determine whether other allegedly infringing activities, such as using the information to file a patent application, also were shielded by the statute.

The Claims At Issue

The patent at issue was Classen’s U.S. 6,584,472, directed to a method for accessing and analyzing data on a commercially available drug to identify a new use of that drug, and then commercializing the new use. Claim 36 (which depends from claim 33, which was canceled during reexamination) is representative of the asserted method claims, and claim 59 is representative of the asserted kit claims:

33. A method for creating and using data associated with a commercially available product, wherein the method comprises the steps of:
accessing at least one data source, comprising together or separately, adverse event data associated with exposure to or use of the product and commercial data regarding marketing, sales, profitability or related information pertaining to the product;
analyzing the accessed data to identify (i) at least one new adverse event associated with exposure to or use of the product, (ii) at leastone new use for the product responsive to identification of the at least one new adverse event, and (iii) the potential commercial value of the at least one new use for the product; and
commercializing the newly identified product information based upon the analyzed data.

36.  The method of claim 33, wherein the commercializing step comprises formatting the data relating to at least one new adverse event associated with exposure to, or use of the product, or documenting same, such that a manufacturer or distributor of the product must inform consumers, users or individuals responsible for the user, physicians or prescribers about at least one new adverse event associated with exposure to or use of the product.

59.  A proprietary kit comprising (i) product and (ii) documentation notifying a user of the product of at least one new adverse event relating to the product, wherein determination of the new adverse event is based upon the data provided by the method of claim 36.

Footnote 1 of the Federal Circuit decision states, “Because issues of validity are not before us in this appeal, we express no opinion as to whether the asserted claims cover patent ineligible subject matter in light of the Supreme Court’s decision in Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014).”

Procedural Background

Classen asserted U.S. Patent No. 6,584,472 against Elan, alleging that Elan infringed the patent by (i) studying the effect of food on the bioavailability of the FDA-approved muscle relaxant Skelaxin, (ii) using the clinical data to identify a new use for the drug, and (iii) commercializing the new use. In particular, after Skelaxin was approved, Elan conducted clinical studies on the effect of the drug when administered with or without food, and then submitted the results to the FDA when seeking approval of a supplemental New Drug Application (“sNDA”) to revise the labeling for Skelaxin and in a Citizen’s Petition proposing changes to the approval requirements for generic versions of Skelaxin. Additionally, Elan filed patent applications based on the new clinical data and sold kits with the revised label containing information derived from the data.

The U.S. District Court for the District of Maryland granted Elan’s motion for summary judgment of non-infringement, finding that Elan’s activities were “reasonably related to the submission of information” under the Federal Food, Drug, and Cosmetic Act (FDCA), and were therefore protected by the safe harbor provision of 35 U.S.C. § 271(e)(1). Classen appealed to the Federal Circuit.

The Federal Circuit Decision

The Federal Circuit decision was authored by Judge Lourie and joined by Chief Judge Prost and District Judge Gilstrap (of the Eastern District of Texas) sitting by designation.

On appeal, Classen argued that Elan’s activities are not exempt under the safe harbor because they involved merely “routine” post-approval reporting to the FDA, which the Federal Circuit held in its 2011 decision in Classen Immunotherapies, Inc. v. Biogen IDEC lies outside the scope of the § 271(e)(1) safe harbor.

This statute provides in relevant part:

It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs . . . .

In Classen v. Biogen, the court indicated that the safe harbor applies only to pre-marketing activities, and held that the safe harbor “does not apply to information that may be routinely reported to the FDA, long after marketing approval has been obtained.” However, a year later in Momenta Pharmaceuticals, Inc. v. Amphastar Pharmaceuticals, Inc., the Federal Circuit held that the safe harbor can shield post-approval activities from giving rise to liability for patent infringement where the information submitted to the FDA “is necessary both to the continued approval of the ANDA and to the ability to market the … drug.” Thus, it is not surprising that in this case the Federal Circuit noted that the statutory language does not “categorically exclude post-approval activities from the ambit of the safe harbor.”

Turning to the activities at issue, the Federal Circuit found that post-approval studies conducted to support an sNDA “serve similar purposes as pre-approval studies in ensuring the safety and efficacy of approved drugs.” Thus, the court reasoned, “As an integral part of the regulatory approval process, those activities are ‘reasonably related to the development and submission of information’ under the FDCA, 35 U.S.C. § 271(e)(1), and are therefore exempt from infringement liability.” The court  therefore concluded that the post-approval clinical trials, sNDA and Citizen’s Petition “clearly fall within the scope of the safe harbor.”

Although the Federal Circuit remanded to the district court to determine whether Elan’s activities related to “reanalyzing the clinical data to identify patentable information and filing patent applications are commercial activities outside the scope of the safe harbor,” and whether “selling Skelaxin with the revised label that contained the information derived from the clinical study” infringed the Classen kit claims, the court took it upon itself to “assist the district court in its analysis of infringement . . . [by] mak[ing] the following observations of the record:”

  • Filing a patent application is generally not an infringement of a patent

  • Filing a patent application is not commercialization of an invention, and so a method claim requiring commercialization is likely not infringed by Elan’s actions

  • Placing information submitted to the FDA on a product label generally cannot be an act of infringement.

Given these “observations,” it seems unlikely that the district court will find that Elan infringed the claims at issue.

The Wide Mouth of the Safe Harbor

This decision is one of many Federal Circuit decisions that broadly construe the safe harbor of § 271(e)(1). Indeed, less than one year after the court seemed to draw a bright line around the scope of the safe harbor that excluded post-approval activities, the court blurred that line in Momenta and now it has erased it further in this case.

The Commercial Value of Patent Applications

Although the Federal Circuit’s “observation” that filing a patent application generally is not an act of infringement may be correct, we question its suggestion that filing a patent application is not a commercial activity. To the contrary, filing a patent application can be an essential step of a commercialization plan, and can increase the commercial value of the invention. On the other hand, we would agree that it is unusual that a patent could be infringed by “commercializing … information,” as recited in the Classen patent.


U.S. Supreme Court’s Wynne Decision Calls New York’s Statutory Resident Scheme into Question

On May 18, the U.S. Supreme Court issued its decision inComptroller of the Treasury of Maryland v. Wynne. In short, the Court, in a five-to-four decision written by Justice Alito, handed the taxpayer a victory by holding that the county income tax portion of Maryland’s personal income tax scheme violated the dormant U.S. Constitution’s Commerce Clause.

Specifically, the Court concluded that the county income tax imposed under Maryland law failed the internal consistency test under the dormant Commerce Clause, because it is imposed on both residents and non-residents with Maryland residents not getting a credit against that Maryland local tax for income taxes paid to other jurisdictions (residents are given a credit against the Maryland state income tax for taxes paid to other jurisdictions).

The Supreme Court emphatically held (as emphatically as the Court can be in a five-to-four decision) that the dormant Commerce Clause’s internal consistency test applies to individual income taxes. The Court’s holding does create a perilous situation for any state or local income taxes that either do not provide a credit for taxes paid to other jurisdictions or limit the scope of such a credit in some way.

The internal consistency test—one of the methods used by the Supreme Court to examine whether a state tax imposition discriminates against interstate commerce in violation of the dormant Commerce Clause—starts by assuming that every state has the same tax structure as the state with the tax at issue. If that hypothetical scenario places interstate commerce at a disadvantage compared to intrastate commerce by imposing a risk of multiple taxation, then the tax fails the internal consistency test and is unconstitutional.

Although the Wynne decision does not address the validity of other taxes beyond the Maryland county personal income tax, the decision does create significant doubt as to the validity of certain other state and local taxes such as the New York State personal income tax in the way it defines “resident.” New York State imposes its income tax on residents on all of their income and on non-residents on their income earned in the state; this is similar to the Maryland county income tax at issue in Wynne.

“Resident” is defined as either a domiciliary of New York or a person who is not a domiciliary of New York but has a permanent place of abode in New York and spends more than 183 days in New York during the tax year. N.Y. Tax Law § 605. (New York City has a comparable definition of resident.) N.Y.C. Administrative Code § 11-1705. Thus a person may be taxed as a statutory resident solely because they maintain living quarters in the state and spend more than 183 days in the state, even if those days have absolutely nothing to do with the living quarters; this category of non-domiciliary resident is commonly referred to a “statutory resident.” As such, under New York’s tax scheme, a person can be a resident of two states—where domiciled and where a statutory resident—and thus be subject to taxation on all of their income in both states.

Although New York State grants a credit to residents for taxes paid to another jurisdiction, that credit is only for taxes paid “upon income derived” from those other jurisdictions. N.Y. Tax Law § 620. As such, New York State does not grant a credit for taxes paid to another jurisdiction on income earned from intangible property, such as stocks, because income earned from intangible property is not ‘derived from’ any specific  jurisdiction.

To illustrate using an example, suppose an investment banker is unquestionably a domiciliary of New Jersey and has an apartment, i.e., permanent place of abode, in New York that he uses only occasionally. Further, suppose that the investment banker spends more than 183 days in New York during a tax year by going to his office in New York on most workdays. In such a case, the investment banker is a resident of both New Jersey and New York and subject to tax as a resident in both states on his entire worldwide income. New York does not give a credit for taxes paid to New Jersey on income derived from intangible property, and thus the investment banker pays tax on this income twice, once to New Jersey and once to New York, clearly disadvantaging interstate commerce and resulting in double taxation.

This is not some hypothetical example. This is actually the fact pattern in In the Matter of John Tamagni v. Tax Appeals Tribunal of the State of New York, 91 N.Y.2d 530 (1998). In that case, the New York Court of Appeals (New York State’s highest court) held that New York State’s taxing scheme did not violate the dormant Commerce Clause and did not fail the internal consistency test. The validity of the Court of Appeals’ decision is seriously called into question under the Wynne case.

The Court of Appeals, relying upon Goldberg v. Sweet, held that the dormant Commerce Clause did not apply to residency-based taxes because those taxes were not taxing commerce, but rather a person’s status as a resident. However, the U.S. Supreme Court’s decision in Wynne not only repudiates the very dicta from Goldberg v. Sweet cited by the New York Court of Appeals in Tamagni, but the U.S. Supreme Court also determined that even if a state has the power to impose tax on the full amount of a resident’s income, “the fact that a State has the jurisdictional power to impose a tax [under the Due Process clause of the Constitution] says nothing about whether that tax violates the Commerce Clause.” After Wynne, it is clear that the dormant Commerce Clause applies to residency-based personal income taxes.

The second reason that the vitality of the Tamagni decision is in question is its application of the internal consistency test. The Court of Appeals held that even if the dormant Commerce Clause applied, the internal consistency test was not violated because the tax at issue was imposed upon a purely local activity and thus could not violate the Complete Auto tests. However, as discussed above, New York State’s lack of a credit for taxes paid to other jurisdictions mirrors the lack of a credit under Maryland’s county income tax scheme.

New York State taxpayers should be cognizant of the Wynnedecision and should consider filing refund claims if they have paid— or will pay—tax to New York State as a statutory resident (i.e., not as a New York domiciliary). One would expect the New York State Department of Taxation and Finance to be quite resistant to granting such refunds and likely to vigorously defend the existing taxing scheme.

It may be worthwhile to note that this problem of double taxation was acknowledged and addressed in an agreement executed in October 1996 by the heads of the revenue agencies of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. Under that agreement, the “statutory resident” state would provide a credit for the taxes paid by the individual on his or her investment income to his/her state of domicile. Unfortunately, that agreement was never implemented through legislation— maybe now is the time for that to be done.

Finally, a word about New York City: New York City imposes a personal income tax on residents, allowing no credit for taxes paid to other jurisdictions. However, New York City does not impose a tax on non-residents, making its personal income tax different than the Maryland county income tax. Thus, the constitutionality of the New York City personal income tax is not specifically addressed by the U.S. Supreme Court’s decision. However, similar to the New York State definition of resident, a person can be a resident in two different jurisdictions under the New York City definition of resident. As such, New York City’s personal income tax could be imposed twice on a person if the person is a domiciliary of one state and a statutory resident in another. Thus, the tax potentially fails the internal consistency test.

© 2015 McDermott Will & Emery

As Drones Hit the Sky Lawsuits Predicted to Fly

The rise of Unmanned Aerial Vehicles (“UAV”), also known as drones, is well-documented.  In fact, the global market for non-military drones has recently been estimated as a $2.5 billion industry that is growing at approximately 15 to 20 percent annually.  See Clay Dillow, Get Ready for ‘Drone Nation,’ Fortune, Oct. 27, 2014.  Companies large and small are heavily investing in drone technology and generating business capabilities based on their potential.

While some of the most highly publicized forays into drone usage include Fortune 500 shipping companies – such as Amazon investigating the potential use of drones for their delivery service – less publicized industries are ripe for drone operation.  These industries include agriculture, construction, energy, and mining.  Id.  All of which are industries in which it is easy to imagine the benefits of aerial data.

In fact, the Association for Unmanned Vehicle Systems International predicts that eventually 80 percent of the commercial drone market will relate to agriculture.  See Christopher Doering, Growing Use of Drones Poised to Transform Agriculture, USA Today, Mar. 23, 2014.  This is because a drone’s ability to assist farmers in identifying and analyzing insect problems, watering issues, crop yield, missing cattle, and fertilizing make for a natural union with the industry.

While some farmers may purchase and operate their own drones, it is expected that specialized companies will fill this demand.  One such company is goFarm LLC (“goFarm”)[1], a Michigan-based agri-data business – one of the few companies authorized by the Federal Aviation Administration to legally operate commercial drones in this arena.  GoFarm performs field surveys by drones operating at low altitudes that collect imagery in visible and non-visible bands to determine health of crops.  By analyzing hundreds or thousands of images, goFarm performs detailed assessments of the condition of entire fields and individual plants.

Whether such data is collected by end-user farmers or by specialized third-party companies such as goFarm, all individuals and companies involved need to be cognizant that with great opportunity also comes risk.

Beyond, the obvious risks of property damage that could result from wayward drones, many jurisdictions have, or are in the process of, passing legislation aimed at addressing privacy concerns.  The most recent example of such legislation comes out of Florida.  On May 14, 2015, Florida Governor Rick Scott signed a drone privacy bill into law.  This bill establishes a private right of action for people photographed in their homes by drones without their consent.  Some speculate that this legislation will trigger a wave of litigation.  See Carolina Bolado, New Fla. Drone Privacy Law Could Trigger Litigation Wave, Law360, May 15, 2015.

Legislation similar to that passed in Florida creates substantial risk to drone based companies, even those operating in rural locations typically associated with industries such as agriculture and mining. GoFarm’s Chief Technology Officer, Eric Silberg, explains that “when conducting their assessments, in order to ensure adequate coverage, inevitably pictures are taken of the areas directly surrounding the field goFarm operators are contracted to assess.  These pictures may include property that does not belong to goFarm’s customer, even if the drone never flies over land not belonging to the customer.  This extraneous data is removed during the analysis process, and is not available in any product.”  While companies utilizing drones for photographic purposes will need to alter their operations to comply with any local rules and regulations, inadvertent photographs could result in litigation exposure.

In order to protect themselves from privacy related claims, as well as other liability exposures, companies utilizing drones need to assess their insurance portfolios to ensure adequate coverage.  In particular, companies need to analyze the breadth of their liability policies, including the language of any potentially applicable exclusion contained therein – such as exclusions associated with aviation risk.  This analysis should be conducted with the help of an experienced insurance broker and/or insurance coverage counsel.

In the event that the company’s liability policies are deemed not broad enough to cover its contemplated operations, the company should investigate purchasing UAV coverage.  Given the relative infancy of the drone market, insurance companies are developing and releasing new products associated with drone activity at a breakneck speed.  Consequently, coverages and pricing will likely vary across carriers.  Risk managers should speak with their insurance experts to ensure that an appropriate and cost-effective insurance solution is identified and implemented.


© 2015 Gilbert LLP

Apple-Samsung Trade Dress Case Demonstrates Potential Value of Design Patents

A jury awarded Apple more than $1 billion in damages after finding that smartphones sold by Samsung diluted Apple’s trade dress and infringed Apple’s design and utility patents. After a partial retrial limited to determining the appropriate amount of damages, Apple still arose victorious with a $930 million award. Samsung moved for judgment as a matter of law and for a new trial. The district court denied those motions, and Samsung appealed. On May 18, 2015, the Federal Circuit upheld the jury’s verdict of design and utility patent infringement, but reversed the finding of trade dress dilution.

Trade Dress Claims

At issue on appeal was whether Apple’s purported registered and unregistered trade dress associated with its iPhone 3G and 3GS products is functional. Because trademark law gives the trademark owner a “perpetual monopoly,” a design that is functional cannot serve as protectable trade dress. Apple Inc. v. Samsung Elecs. Co., Ltd., No. 14-1335, slip op. at 7 (Fed. Cir. May 18, 2015). The standard is even higher when the owner claims trade dress protection over the configuration of a product, as opposed to product packaging or other forms of trade dress. Slip op. at 8. In fact, the court noted that Apple had not cited a single Ninth Circuit case finding trade dress of a product configuration to be non-functional. Id.

Apple claimed the following elements as its unregistered trade dress:

  • a rectangular product with four evenly rounded corners;
  • a flat, clear surface covering the front of the product;
  • a display screen under the clear surface;
  • substantial black borders above and below the display screen and narrower black borders on either side of the screen; and
  • when the device is on, a row of small dots on the display screen, a matrix of colorful square icons with evenly rounded corners within the display screen, and an unchanging bottom dock of colorful square icons with evenly rounded corners set off from the display’s other icons.

Slip op. at 9. “In general terms, a product feature is functional if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.” Id. (quoting Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n.10 (1982)). Because this case came to the Federal Circuit on appeal from a district court sitting in the Ninth Circuit, the Federal Circuit applied the Ninth Circuit’s Disc Golf test for determining whether a design is functional. Under that test, courts consider whether: (1) the design yields a utilitarian advantage; (2) alternative designs are available; (3) advertising touts the utilitarian advantages of the design; and (4) the particular design results from a comparatively simple or inexpensive method of manufacture. Slip op. at 10. Because this purported trade dress was not registered, Apple had the burden to prove its validity, which required Apple to show that the product features at issue “serve[] no purpose other than identification.” Id. (citing Disc Golf Assoc., Inc. v. Champion Discs, 158 F.3d 1002, 1007 (9th Cir. 1998)). The court of appeals applied those factors and found extensive evidence supporting Samsung’s claim that the alleged trade dress was functional. Slip op. at 12–14.

In addition to the unregistered product configuration discussed above, Apple also asserted a claim based on US Registration 3,470,983, which covered the design details in each of the 16 icons on the iPhone’s home screen framed by the iPhone’s rounded-rectangular shape with silver edges and a black background. Slip op. at 15. Although Apple enjoyed an evidentiary presumption of validity for its registered trade dress, the court again looked to the Disc Golffactors and found that Samsung met its burden of overcoming that presumption and proving the trade dress was functional and the registration invalid. Slip op. at 16. Because the court held Apple’s purported trade dress was functional, it vacated the jury’s verdict on Apple’s claims for trade dress dilution and remanded that portion of the case for further proceedings. Slip op. at 17.

Design Patent Claims

Apple fared better on its design patent claims. Here, Apple asserted three design patents directed to the “front face” (D’677 patent), “beveled front edge” (D’087 patent) and “graphical user interface (GUI)” (D’305 patent) of its iPhone products.

design patent claims - apple samsung

Samsung challenged the court’s claim construction and jury instructions for failing to “ignore[]” functional elements of the designs from the claim scope, such as rectangular form and rounded corners. Slip op. at 20. The court disagreed, finding that Samsung’s proposed rule to eliminate entire elements from the scope of design claims was unsupported by precedent. Id. Rather, the court found that both the claim construction and jury instructions properly focused the infringement analysis on the overall appearance of the claimed design. Id. at 21.

This victory was financially significant for Apple, as the court found they were entitled to Samsung’s entire profits on its infringing smartphones as damages. Like the district court, the court of appeals found that 35 U.S.C. § 289 explicitly authorizes the award of total profit from the article of manufacture bearing the patented design, rather than an apportionment of damages based only on the infringing aspects of the device (i.e., external features and not internal hardware/software). The court of appeals interpreted Samsung’s argument as imposing an “apportionment” requirement on Apple—a requirement the Federal Circuit previously rejected in Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1441 (Fed. Cir. 1998). Thus, Apple maintains a claim to at least a significant portion of the $930 million damages award in the case.

Summary and Takeaways

Ultimately, after holding that Apple’s purported trade dress covering elements of the iPhone’s overall shape, black-bordered display screen, and matrix of colorful square icons was invalid, the district court upheld the jury’s verdict that Samsung’s devices infringed Apple’s design patents relating to the iPhone’s overall shape, display screen, and matrix of colorful square icons. The image depicted in Apple’s now-invalid trade dress registration is below on the left. Figures from two of its still-valid design patents are on the right. Although the overlap in what was claimed in these different forms of intellectual property is readily apparent, Apple lost on one set of claims and prevailed on the other.

design patent apple samsung iphone

It remains to be seen how damages associated with the design patent claims differ from damages associated with the now-invalid trade dress claims. But this much is clear: the Federal Circuit has given a reason for companies to reevaluate the role of design patents in their intellectual property portfolios. The time and expense associated with obtaining design patents will not suit all products, but for the right product, they can provide a valuable method of recovery in litigation involving similar product designs.

USCIS Suspends Premium Processing for H-1B Extensions

USCIS has announced that it will suspend premium processing for all H-1B extension petitions between May 26, 2015, and July 27, 2015. It will use this time to implement the Employment Authorization for Certain H-4 Spouses and ensure that these applications for work authorization will be adjudicated in a timely manner.


Premium processing allows certain petitions and applications to be expedited. A decision or Request for Evidence (“RFE”) must be issued within 15 calendar days of filing the premium processing request. For this service, USCIS requires a $1,225 filing fee to be included with the petition.

USCIS will continue to process cases filed using premium processing prior to May 26, 2015. If an H-1B extension is filed under premium processing before May 26, 2015, but a decision is not issued within the 15-day period, USCIS will refund the premium processing fee. All other petitions are still eligible for premium processing.


Are Cosmetics Gaining Higher Congressional and FDA Scrutiny?

Currently, FDA regulates cosmetics to ensure they are not adulterated or misbranded, but does not have the authority to order cosmetic recalls or require adverse event reporting.  Senators Dianne Feinstein (D-CA) and Susan Collins (R-ME) seek to change that.

On April 20, 2015, they introduced the Personal Care Products Safety Act (S.1014). The Act, if passed, would modify Chapter VI of the Federal Food, Drug, and Cosmetic Act (FDCA) to strengthen FDA’s oversight of, and regulatory authority over, cosmetic products.

Title I of the Act (“Cosmetic Safety”) gives FDA authority to order cosmetic recalls, as well as require manufacturers to:

  1. Report adverse events,

  2. Label ingredients not appropriate for children,

  3. Post complete label information (including ingredients and product warnings) online, and

  4. Register their facilities with FDA.

In addition to this significant new authority over manufacturers, the Act also requires FDA to work with industry and consumer groups to annually select and review at least 5 ingredients or non-functional constituents.

The first 5 ingredients, if the law is passed, will be:

  1. Diazolidinyl urea

  2. Lead acetate

  3. Methylene glycol/methanediol/formaldehyde

  4. Propyl paraben

  5. Quaternium-15

Title II of the Act (“Fees Related to Cosmetic Safety”) outlines the costs associated with enforcement of the new standards. With an annual implementation cost estimated at $20.6 million, it is to be funded by annual fees from all registered owners or operators of cosmetic facilities engaged in manufacturing or processing in the United States.

The Act has wide industry support, including the Personal Care Products Council (a 600+ member company trade association), large cosmetics manufacturers, and consumer groups.  Since it was introduced, it has gained two co-sponsors, Senators Barbara Boxer (D-CA) and Amy Klobuchar (D-MN).

The Act is consistent with FDA’s current priorities related to cosmetics.  Two of these priorities have been reporting of adverse events (with the majority of issues seen in hair care products), and maintaining a distinct line between over-the-counter drugs and cosmetics, because cosmetics need not currently undergo the additional scrutiny that OTC drugs must.

More information on the Personal Care Products Safety Act can be found in Senator Feinstein’s statement upon its introduction.

Side view of hacker using multiple computers to steal data at table

Executive Order Provides Sanctions Aimed at Fighting Cyberattacks

On April 1, the president signed Executive Order 13694, which created a new sanctions regime for fighting cyberattacks. This creates opportunities for companies that are facing or may face cyberattacks. The Executive Order provides additional tools for victims of cyberattacks to punish the perpetrators by working with the government. The Executive Order creates framework to allow the government to take action in response to attacks on private companies and take all measures necessary to punish co-conspirators. The Executive Order also creates several issues that individuals and companies with international dealings should consider taking into consideration to avoid potential liability.

The Executive Order grants the Secretary of the Treasury authority to “block” the assets of anyone who conducts or aids “cyber-enabled activities . . . reasonably likely to result in, or have materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States . . . .” The Executive Order also grants the power to sanction any individual or entity that gives support to, assists in anyway, or sponsors such a cyber-attacker. The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) will work in coordination with other U.S. government agencies to identify individuals and entities that engage in prohibited cyber activities and designate them for sanctions. Persons designated under this Executive Order will be added to OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN List). U.S. persons are prohibited from engaging in most all transactions with designated individuals and entities named on the SDN List or entities owned by such designated persons. Additionally, designated persons sanctioned under the Executive Order will be blocked from entering the United States.

Given the growing nature of cyberattacks and the Executive Order’s potentially broad reach, individuals and companies with international business should consider taking steps to ensure their business partners do not meet the criteria of cyberattackers. For example, payments from persons designated as cyberattackers will be blocked by U.S. financial institutions and U.S. persons that engage in transactions with such persons could be subject to substantial penalties. Accordingly, U.S. businesses engaged in international transactions should consider updating their compliance programs and screening procedures to ensure they are not dealing with any persons designated on the SDN List, or that are owned 50 percent or more by such designated persons.

The Executive Order represents a turning point for the administration. It signals that the administration will take a more active role in fighting attacks that are often diffuse and difficult to investigate. Barnes & Thornburg has worked with the government to track down hackers who have levied corporate cyberattacks. In light of the Executive Order, there can be little doubt that the government will redouble its efforts to help victim companies, presenting opportunities for companies to work with the government in its efforts to track down and stop the perpetrators. This is good news for fighting cyberattacks.



bitcoin wide

Department of Justice Settles Virtual Currency Enforcement Action

The US Attorney’s Office in the Northern District of California recently settled an enforcement action against Ripple Labs Inc., a Delaware corporation providing virtual currency exchange services. According to the settlement agreement, Ripple Labs was not registered with the Financial Crimes Enforcement Network (FinCEN) as a money services business (MSB) pursuant to the Bank Secrecy Act of 1970 while engaged in currency trading, and lacked required anti-money laundering controls.

Ripple Labs is a virtual currency exchange service dealing in XRP, the second-largest cryptocurrency by market capitalization after Bitcoin. Between at least March and April 2013, Ripple Labs sold XRP in its exchange. During the time of the sales, Ripple Labs was not registered with FinCEN. In March 2013, FinCEN’s released guidance clarifying the applicability of registration requirements to certain participants in the virtual currency arena. Ripple Labs also lacked an adequate anti-money laundering program, and did not have a compliance officer to assure compliance with the Bank Secrecy Act.

The settlement agreement reached by Ripple Labs and the US Department of Justice (DOJ) called for a $450,000 forfeiture to the DOJ, as well as a civil money penalty of $700,000 to FinCEN. Ripple Labs agreed to cooperate with any DOJ or regulatory request for information. In addition, Ripple Labs agreed to operate its XRP exchange as an MSB registered with FinCEN and to maintain all necessary registrations. Ripple Labs also agreed to implement and maintain an effective anti-money laundering program, complete with a compliance officer and training program. Finally, Ripple Labs agreed to conduct a review of prior transactions for evidence of illegal activity, as well as monitor transactions in the future to avoid potential money laundering or illegal transfer activity.

U.S. Department of Justice Settlement Agreement (May 5, 2015)

musical notes

BMI Wins Summary Judgment of Copyright Infringement After Restaurant Owner Fails to Respond to Requests for Admission

Plaintiff Broadcast Music, Inc. (“BMI”), a music rights management organization that offers licenses to a massive catalogue of popular songs on behalf of copyright owners, brought suit for copyright infringement against the owners of the La Roue Elayne restaurant for unlicensed performance of live cover versions of eight songs in a single evening. This suit was part of a series of suits brought by BMI for copyright infringement against restaurants in Connecticut. The Court granted summary judgment in favor of BMI for copyright infringement, permanently enjoining further copyright infringement and awarding $6,000 in statutory damages and an additional unspecified amount for attorneys’ fees.

Drew Friedman, the only defendant who appeared in the case, had opposed summary judgment on the grounds that a fact issue remained as to whether he had sufficient control over the restaurant and the cover band to support vicarious liability for copyright infringement. Mr. Friedman claimed to have been cut out of the management and control of La Roue Elayne before the night in question. Interestingly, his failure to object or respond to BMI’s Requests For Admission (RFAs) doomed his opposition. Mr. Friedman never responded to RFAs asking him to admit or deny that he hired the offending cover band and that he had the right to supervise persons employed by the restaurant.

In fact, Mr. Friedman’s opposition failed to address the issue of the ignored RFAs and he never moved for leave to provide untimely responses. On that basis, the Court held that the RFAs must be deemed admitted pursuant to Federal Rule of Civil Procedure 36. The Court appeared reluctant to deem the RFAs admitted, but indicated that after a diligent search it failed to find any precedent for a sua sponte withdrawal of a represented party’s response to RFAs where the party failed to even acknowledge the existence of the request.

The case is Broadcast Music, Inc. v. The Hub at Cobb’s Mill, LLC. A copy of the Court’s Order is available here.

Maker’s Mark Defeats “Handmade” Class Action Lawsuit

Could consumers have plausibly believed that one of the country’s top-selling bourbon brands is “handmade”?  Not according to one federal district court in Florida, which recently dismissed a class action alleging Maker’s Mark deceived consumers by labeling its whiskey as “handmade.” The decision by U.S. District Judge Robert Hinkle comes on the heels of a California federal court’s decision not to dismiss outright a similar consumer class action involving Tito’s Handmade Vodka.  Compare Salters v. Beam Suntory, Inc., 14-cv-659, Dkt. 31, (N.D. Fla. May 1, 2015) with Hofmann v. Fifth Generation, Inc., 14-cv-2569, Dkt. 15 (S.D. Cal. Mar. 18, 2015)).  These divergent opinions suggest that courts are still puzzling over just how much credence to grant putative class claims based on allegedly deceptive liquor labels at the motion to dismiss stage, particularly under the U.S. Supreme Court’s decision in Bell Atlantic Corp v. Twombly, 550 U.S. 544 (2007).  In Twombly, the Court made clear that plaintiffs must include enough facts in a complaint to make their claim to relief not just conceivable, but plausible—or else face dismissal.

Salters, the Florida case, is part of a wave of recently filed class actions accusing alcoholic beverage producers of violating state consumer protection statutes.  In the typical case, as here, the plaintiffs claim to have purchased the brand in reliance on allegedly deceptive labeling and contend they would not have purchased it or would have paid less otherwise.  The Salters plaintiffs claimed they were damaged because Maker’s Mark sold “their ‘handmade’ Whisky to consumers with the false representation that the Whisky was ‘handmade’ when, in actuality, the Whisky is made via a highly-mechanized process, which is devoid of human hands.”

Judge Hinkle flatly rejected the idea that this could support a claim.  Citing Twombly, he noted that although whether a label is false or misleading is generally a question of fact, a motion to dismiss should be granted if the complaint’s factual allegations do not “render plaintiffs’ entitlement to relief plausible.”  The court observed that taken literally, all bourbon is handmade, because it is not a naturally occurring product; construed less literally, which was apparently the plaintiffs’ approach, “no reasonable consumer could believe” that bourbon could be made by hand, presumably without commercial-scale equipment, “at the volume required for a nationally marketed brand like Maker’s Mark.”  In any event, court found the plaintiffs’ claims implausible under any definition of “handmade,” writing:

In sum, no reasonable person would understand “handmade” in this context to mean literally made by hand.  No reasonable person would understand “handmade” in this context to mean substantial equipment was not used.  If “handmade” means only made from scratch, or in small units, or in a carefully monitored process, then the plaintiffs have alleged no facts plausibly suggesting that statement is untrue.  If “handmade” is understood to mean something else . . . the statement is the kind of puffery that cannot support claims of this kind.

The court appears to have concluded that when applied to a product as popular as Maker’s Mark, the word “handmade” is more an unactionable “general, undefined statement that connotes greater value,” like describing a bourbon as “smooth,” than a factual representation easily capable of being false or misleading.  Though this may pass the common sense test, it is less clear whether other courts will agree.  In the Tito’s case, for instance, the court declined to accept at the motion to dismiss stage an argument similar to the one that persuaded the Maker’s Mark judge, holding that “the representation that vodka that is (allegedly) mass-produced in automated modern stills from commercially manufactured neutral grain spirit is nonetheless “Handmade” in old-fashioned pot stills arguably could mislead a reasonable consumer.”

These cases highlight the need to carefully examine product labeling and advertising claims and consider whether consumers (or plaintiffs’ attorneys) could challenge them as untrue.  This is relatively simple when claims involve factual issues such as where a product is produced, but less so with words like “handmade,” which could arguably qualify as either non-actionable “puffery” or a quantifiable claim.

SEC Is Sued Again For Doing Nothing

Have you heard about a lawsuit filed earlier last week against the Securities and Exchange Commission due to its failure to respond to a petition asking the Commission to adopt political spending disclosure requirements?


But must the Commission act on the petitions that are submitted to it?  Rule 192 of the Commission’s Rules of Practice requires only that the Commission acknowledge receipt and give notice of any action taken by the Commission:

The Secretary shall acknowledge, in writing, receipt of the petition and refer it to the appropriate division or office for consideration and recommendation.  Such recommendations shall be transmitted with the petition to the Commission for such action as the Commission deems appropriate.  The Secretary shall notify the petitioner of the action taken by the Commission.

At least three fundamental requirements are absent from Rule 192.  First, the rule doesn’t require the Commission to take action.  Second, the rule doesn’t require the Commission to act promptly. Finally, the rule doesn’t require the Commission to explain its reasons for denying a petition. Indeed, Rule 192 falls far short of the requirements of the Administrative Procedure Act as explained by then Circuit Court Judge Ruth Bader Ginsberg:

Section 4(e) of the Administrative Procedure Act, 5 U.S.C. § 553(e), commands that “[e]ach agency shall give an interested person the right to petition for the issuance … of a rule.”  Section 6(a), 5 U.S.C. § 555(e), requires “prompt notice” in the event an agency denies such a petition.  Further, section 6(a) directs that when a denial is not self-explanatory, “the notice shall be accompanied by a brief statement of the grounds for denial.”

Ass’n of Investment Bankers v. Securities and Exchange Commission, 676 F.2d 857, 864 (1982).

One obvious issue for the plaintiff in this most recent lawsuit is whether judicial review is even available.  The plaintiff doesn’t allege that the Commission has actually denied his petition.  To the contrary, the plaintiff admits that “To date, the SEC has given no indication it is still considering whether to recommend the issuance of such a proposed rule, nor has it otherwise responded to the pending rulemaking petitions”.  The complaint cites WWHT, Inc. v. Federal Communications Com., 656 F.2d 807 (D.C. Cir. 1981) but that case involved an actual order denying a petition for rulemaking.

Even if the court decides that a failure to respond is tantamount to a denial, plaintiff will still have an uphill climb.  As Judge Edwards observed in WWHT, Inc. review is “very limited”.  The court will also have to grapple with the conundrum of how to conduct a review when there is no record.

© 2010-2015 Allen Matkins Leck Gamble Mallory & Natsis LLP

Employer’s Use of DNA Test to Catch Employee Engaging in Inappropriate Workplace Behavior Violates Federal Law

If someone continually, yet anonymously, defecated on the floor of your workplace, you’d probably want to use any and all legal means at your disposal to identify and discipline the perpetrator.  Your methods might include surveillance or perhaps some form of forensic or other testing to link the offensive conduct to a specific individual.  You would probably not be overly concerned that your efforts to rid the workplace of this malefactor might give rise to a discrimination claim, but is that really a safe assumption?


In a case exemplifying the gentility of labor-management relations, a Georgia federal court grappled with how far an employer may go in this situation.  In Lowe v. Atlas Logistics Group Retail Services, LLC, (N.D.Ga. May 5, 2015), the employer, Atlas Logistics Group Retail Services (Atlanta), LLC, which provides long-haul transportation and storage services for the grocery industry, discovered in 2012 that one or more employees had been using a common area in one of its warehouses as a lavatory.  As part of its investigation into this matter, the company retained the services of a DNA testing lab and requested cheek swabs from two employees it considered suspects so that it could compare their DNA with that of the mystery defecator.  After Atlas determined that neither employee was responsible for the unwelcome contributions to its workplace, the employees filed a lawsuit alleging that the company violated the Genetic Information Nondiscrimination Act (GINA) by requesting and requiring them to provide genetic information.

GINA prohibits discrimination on the basis of genetic characteristics and makes it unlawful for an employer to request, require or purchase genetic information with respect to an employee.

The Court Finds Atlas Violated GINA

The court held that Atlas’ argument that GINA only prohibited genetic testing that revealed an individual’s propensity for disease – which the test in this case did not do – was inconsistent with the statute’s text and legislative history as well as the applicable EEOC regulation.  In the court’s view, this argument “render[ed] other language in GINA superfluous.”  In particular, the court noted that the statute contained specific exceptions permitting certain testing that did not involve an individual’s propensity for disease, and if testing revealing a propensity for disease were the only prohibited testing, then those exceptions would not have been necessary.  The court further rejected Atlas’ argument that GINA’s legislative history demonstrated an intent to limit violations to testing that revealed a propensity for disease, explaining that although a group of senators favored this interpretation during the legislative debate, all of the evidence indicated that Congress chose to reject this view in favor of a broad construction.  Finally, the court held that an EEOC regulation listing eight examples of “genetic tests” did not support Atlas’ narrow definition of that term because the list included testing that also did not relate to one’s propensity for disease and, therefore, “would go beyond the scope of the statute” if the law were as narrow as Atlas claimed.


This case’s distasteful facts, which will undoubtedly remind many human resource specialists how coarse employee relations challenges often are in practice, should not distract employers that currently perform DNA tests from the fact that GINA may apply more broadly than some initially believed.  Although the decision should not have a significant impact on the narrow range of situations where workplace DNA testing is a legitimate practice, such as those involving health and safety concerns, it should serve as notice to employers investigating misconduct that they should find methods other than DNA testing to identify culpable employees.

©1994-2015 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

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