Patent Exhaustion Rejected: Patented Seed Purchaser Has No Right to Make Copies

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The Supreme Court in Bowman v. Monsanto Co. ruled unanimously that a farmer’s replanting of harvested seeds constituted making new infringing articles.  While the case is important for agricultural industries, the Supreme Court cautioned that its decision is limited to the facts of the Bowman case and is not a pronouncement regarding all self-replicating products.

In a narrow ruling that reaffirms the scope of patent protection over seeds, and possibly over other self-replicating technologies, the Supreme Court of the United States held that a purchaser of patented seeds may not reproduce them through planting and harvesting without the patent holder’s permission.  Bowman v. Monsanto Co., Case No. 11-796 (Supreme Court May 13, 2013).

In this case, Monsanto had asserted two of its patents that cover genetically modified soybean seeds that are resistant to herbicide (Roundup Ready® seeds).  Monsanto broadly licenses its Roundup Ready® soybean seeds under agreements that specify that the farmer “may not save any of the harvested seeds for replanting, nor may he supply them to anyone else for that purpose.”  Vernon Hugh Bowman is a farmer who purchased soybean seeds from a grain elevator.  Bowman replanted Roundup Ready® seeds in multiple years without Monsanto’s permission.  The district court granted summary judgment of patent infringement against Bowman, and the U.S. Court of Appeals for the Federal Circuit affirmed.  Bowman appealed to the Supreme Court, which granted certiorari.

On appeal, Bowman heavily relied on the “patent exhaustion” doctrine, which provides that the authorized sale of a patented article gives the purchaser or any subsequent owner a right to use or resell that article.  Bowman argued that the authorized sale of the Roundup Ready® seeds exhausted Monsanto’s patent rights in the seeds, because “right to use” in the context of seeds includes planting the seeds and reproducing new seeds.

Patent Implications

Speaking through Justice Kagan, the Supreme Court unanimously affirmed the Federal Circuit’s decision that Bowman’s activities amounted to making new infringing articles.  The Supreme Court held that “the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission.”  Specifically, the exhaustion doctrine restricts a patentee’s rights only as to the particular article sold, but “leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item.”  The Supreme Court noted that if Bowman’s replanting activities were exempted under the exhaustion doctrine, Monsanto’s patent would provide scant benefit.  After Monsanto sold its first seed, other seed companies could produce the patented seed to compete with Monsanto, and farmers would need to buy seed only once.

In rebuffing Bowman’s argument that he was using the seed he purchased in the manner it was intended to be used, and that therefore exhaustion should apply, the Supreme Court explained that its ruling would not prevent farmers from making appropriate use of the seed they purchase—i.e., to grow a crop of soybeans consistent with the license to do so granted by Monsanto.  However, as the Supreme Court explained “[A]pplying our usual rule in this context . . . will allow farmers to benefit from Roundup Ready, even as it rewards Monsanto for its innovation.”

Tying the Supreme Court’s decision in this case narrowly to seed (as opposed to other self-replicating technologies), Justice Kagan noted that the decision is consistent with the Supreme Court’s 2001 decision in J.E.M. Ag. Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., in which the Supreme Court concluded that seeds (as well as plants) may simultaneously be subject to patent protection and to the narrower protection available under the Plant Variety Protection Act (PVPA).  PVPA protection permits farmers who legally purchase protected seed to save harvested seed for replanting.  However, reconciling the two forms of protection, Justice Kagan explained, “[I]f a sale [i.e., of a patented seed] cut off the right to control a patented seed’s progeny, then (contrary to J.E.M.) the patentee could not prevent the buyer from saving harvested seed.”

Other Self-Replicating Technologies

The Supreme Court’s decision in Monsanto is, of course, important for agricultural industries.  If extended to other self-replicating technologies, it may also prove important for biotechnology companies and others  that rely on self-replicating technologies, including, for example, companies that own patent rights over viral strains, cell lines, and self-replicating DNA or RNA molecules.  If subsequent cases extend the “no exhaustion” holding of Monsanto to these technologies, patent protection would extend to copies made from the “first generation” product that is obtained through an authorized sale.

However, the Supreme Court cautioned that its decision is limited to “the situation before us” and is not an overarching pronouncement regarding all self-replicating products.  The Supreme Court suggested that its “no exhaustion” ruling might not apply where an article’s self-replication “occur[s] outside the purchaser’s control” or is “a necessary but incidental step in using the item for another purpose,” citing computer software (and a provision of the Copyright Act) as a possible example.  As explained by Justice Kagan, “We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.”  In this regard, the Supreme Court particularly noted that “Bowman was not a passive observer of his soybeans’ multiplication.”  Instead, Bowman “controlled the reproduction” of seeds by repeated planting and harvesting.  Thus, the Supreme Court suggests that a purchaser’s “control” over the reproduction process likely will be a key inquiry in considering the patent exhaustion doctrine as it relates to other self-replicating technologies.  Of course, it remains to be seen how broadly lower courts will interpret the Supreme Court’s ruling.

Antitrust Implications

By holding that Monsanto’s restriction on replanting was within the scope of its patent rights, the Supreme Court effectively immunized that restriction from antitrust scrutiny.  Other court decisions have called into question other license restrictions viewed as going beyond the scope of patent protection as being potentially susceptible to an antitrust or patent misuse challenge.

The Supreme Court highlighted its application of the exhaustion doctrine last addressed in Quanta, which held that “the initial authorized sale of a patented item terminates all patent rights in that article.”  This boundary line conventionally demarcated the end of a patent’s protection and the beginning of a potential antitrust minefield.  Some commentators may interpret the Monsanto decision to push that line further out.  Importantly, however, the Supreme Court deemed the seeds at issue to be a “new product.”  So construed, Monsanto’s restriction on replanting did not affect the product’s use, as in Quanta and Univis Lens, but rather came within the well-settled principle that “the exhaustion doctrine does not extend to the right to ‘make’ a new product.”

The Supreme Court not only was doctrinally conservative in its Monsanto decision, it was also careful to explain that its holding is a narrow one.  Monsanto never exhausted its patent rights in the “new” seeds; indeed, it never truly “sold” them.  Rather, Bowman created new seed from seeds that Monsanto had sold.  The decision therefore may not portend a more general inclination to construe the scope of patent protection more broadly.  In fact, the Supreme Court went so far as to clarify that it could reach a different outcome were it presented with a different technology.

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Federal Circuit Fails to Clarify Software Patent Eligibility

Neal Gerber

In a highly-anticipated decision that was expected to clarify the test for eligibility of software patents under 35 U.S.C. § 101, in CLS Bank Int’l v. Alice Corp.,1 a divided en banc panel of the Federal Circuit upheld the lower court’s determination that the asserted method, computer-readable medium, and system claims are invalid. In doing so, however, the Federal Circuit further muddied the waters, “propound[ing] at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive of innovation.”2 In sorting through the 135 pages of seven different opinions in this decision, at least a few takeaways include: (1) the future of software patents remains uncertain for the time being; (2) until further development, the outcomes of future Federal Circuit cases regarding software patents will vary greatly based on the specific judicial panels deciding the cases; and (3) for now, parties filing and enforcing software patents should consider focusing their subject matter more heavily on system claims and the hardware used in those systems.

Background

At issue were patents directed to “a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate . . . ‘settlement’ risk.”3 Certain of the asserted claims “recite methods of exchanging obligations between parties,” others “are drawn to data processing systems,” and others are directed to “computer-readable media containing a program code for directing an exchange of obligations.”4

CLS Bank filed suit in the United States District Court for the District of Columbia against patent owner Alice Corp. seeking, in pertinent part, a declaratory judgment of patent invalidity under 35 U.S.C. § 101.5 The District Court granted summary judgment that the asserted claims are invalid as being directed to ineligible subject matter (i.e., an abstract idea).6 Alice Corp. appealed to the Federal Circuit, and a three-judge panel reversed the District Court and found all of the asserted claims to be patent eligible.7 The Federal Circuit granted CLS Bank’s petition for rehearing en banc.8

The En Banc Decision

In a one paragraph per curiam opinion, a majority of the en banc panel affirmed the District Court’s holding that the asserted method and computer-readable medium claims are ineligible and invalid under § 101, and because a majority could not be reached with respect to the asserted system claims, the District Court’s determination regarding those claims remained intact, rendering the asserted system claims ineligible and invalid under § 101 as well.9

None of the six remaining opinions garnered a majority of six of the ten judges that sat on the en banc panel.10Accordingly, as best stated by Chief Judge Rader, “though much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent.”11 Thus, the precedential effect of the Federal Circuit’s decision is limited to the asserted claims, with the remaining opinions simply providing insight into the Judges’ different, conflicting proposed approaches to determining patent eligibility.12

Judge Lourie Requires an Inventive Concept

Judge Lourie, joined by four panel members, advocated that a claim embodying an abstract idea is patent eligible under § 101 if that claim includes “additional substantive limitations”—which Judge Lourie termed an “inventive concept”—“that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.”13In other words, according to Judge Lourie, if a claim includes elements embodying an abstract idea, additional elements of the claim (i.e., those elements not embodying the abstract idea) must include an “inventive concept” for the claim to be patent eligible. With respect to claim directed to computer-implemented inventions, Judge Lourie asserted that “appending generic computer functionality to lend speed or efficiency to the performance of an . . . abstract concept does not meaningfully limit the claim scope for purposes of patentability. . . . [T]he requirement for computer participation . . . fails to supply an ‘inventive concept.’”14

Applying this approach to the asserted claims, Judge Lourie opined that the claims embodied “the abstract idea of reducing settlement risk by effecting trades through a third-party intermediary . . . empowered to verify that both parties can fulfill their obligations before allowing the exchange—i.e., a form of escrow.”15 He found that none of the elements of any of the claims in addition to those embodying the alleged abstract idea, including the structural elements of the system claims,16 include an “inventive concept,” and found all of the asserted claims to be ineligible and invalid under § 10117. Regarding the inclusion of computer functionality in the claims, Judge Lourie stated that “adding generic computer functions to facilitate performance provides no substantial limitation and therefore is not ‘enough’ to satisfy § 101.”18Judge Lourie largely disregarded the format of the claims (i.e., whether the claims were drawn to methods, computer-readable media, or systems), opining that “when § 101 issues arise, the same analysis should apply regardless of claim format.”19

Chief Judge Rader Focuses on Meaningful Limitations

Chief Judge Rader, joined in full by one panel member20 and in part by two other panel members,21 disagreed with Judge Lourie’s requirement of an “inventive concept,”22 and instead advocated that a claim embodying an abstract idea is patent eligible under § 101 if that claim includes “limitations that meaningfully tie that [abstract] idea to a concrete reality or actual application of that idea.”23 With respect to a claim directed to a computer-implemented invention, Chief Judge Rader opined that the claim is patent eligible “where the claim is tied to a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention, and the claim does not pre-empt virtually all uses of an underlying abstract idea.”24

Applying this approach to the asserted system claims, Chief Judge Rader found the system claims to be patent eligible, stating that “the claim covers the use of a computer and other hardware specifically programed to solve a complex problem. . . . The specific functions recited in these claims, which are integral to performing the invention, show that the . . . claims are directed to practical applications of the underlying idea and thus are patent-eligible.”25 Chief Judge Rader stated that the specification “explains implementation of the recited special purpose computer system” and “includes numerous flowcharts that provide algorithm support for the functions recited in the claims,” concluding that “[l]abeling this system claim an ‘abstract concept’ wrenches all meaning from those words, and turns a narrow exception into one which may swallow the expansive rule (and with it much of the investment and innovation in software).”26

Turning to the asserted method claims, Chief Judge Rader stated that the claims embody the abstract idea “of using a neutral intermediary in exchange transactions to reduce risk that one party will not honor the deal, i.e., escrow management.”27 He found the asserted method claims to be ineligible and invalid under § 101 because the recited steps were “inherent in an escrow and claimed at a high level of generality” and did not add any meaningful limitations to the claims.28 Because Alice Corp. conceded that the method claims and the computer-readable medium claims rise or fall together, Chief Judge Rader also found that the asserted computer-readable medium claims were ineligible and invalid under § 101.29

Judge Newman Defers to the Plain Language of the Statute

Judge Newman would abolish the judicially-created exceptions to § 101, and advocated that the Federal Circuit “abandon its failed section 101 ventures into abstraction, preemption, and meaningfulness,” and find that a claim is patent eligible if “the subject matter is within the statutory classes in section 101.”30 In other words, under Judge Newman’s approach, a claim is patent eligible if that claim recites a “process, machine, manufacture, or composition of matter,”31 and “claims that are ‘abstract’ or ‘preemptive’“ will be “eliminate[d] . . . on application of the laws of novelty, utility, prior art, obviousness, description, enablement, and specificity.”32 Applying this approach to the asserted claims, Judge Newman found all of the claims to be patent eligible.33 Judge Newman also called for the Federal Circuit to confirm a right of “experimental use of patented information,” which she believes would render it “no longer . . . necessary to resort to the gambit of treating such information as an ‘abstraction’ in order to liberate the subject matter for experimentation.”34

Interestingly, Chief Judge Rader, in his separately-filed additional reflections, seemed to agree with Judge Newman’s adherence to the plain language of the statute, stating: “I doubt innovation is promoted when subjective and empty words like ‘contribution’ or ‘inventiveness’ are offered up by the courts to determine investment, resource allocation, and business decisions. . . . [W]hen all else fails, it makes sense to consult the simplicity, clarity, and directness of the statute.”35

Judge Linn Calls for Congressional Action

Judge Linn addressed the concerns expressed by various Amici “regarding the proliferation and aggressive enforcement of low quality software patents,” opining that “broadening what is a narrow exception to the statutory definition of patent eligibility should not be the vehicle to address these concerns.”36 Rather, Judge Linn called for legislative action, asserting that “Congress can, and perhaps should, develop special rules for software patents.”

A Divided Majority Believes that the Asserted Claims Should Rise or Fall Together

As noted by Judge Lourie, a majority of the en banc panel agreed that, under the particular facts of this case, the asserted method, computer-readable medium, and system claims should rise or fall together. It is important to note, however, that the majority did not agree on why all of the asserted claims should rise or fall together.38 Judge Lourie and those joining his concurring opinion believed that the asserted claims should rise or fall together because they all fail to satisfy his inventive concept test. Judge Linn and Judge O’Malley, on the other hand, believed that the asserted claims should rise or fall together because, based on the record, all of the claims “are grounded by the same meaningful limitations that render them patent eligible.”39 Finally, Judge Newman simply stated that “patent eligibility does not depend on the form of the claim.”40 Since the majority did not agree on why all of the asserted claims should rise or fall together, the fact that they agreed that the claims should rise or fall together in this particular case has no precedential effect.

Implications

At the outset, it is important to note that Alice Corp. will almost certainly ask the Supreme Court to hear the case. The combination of the divided nature of this en banc decision, the arguably incompatible Federal Circuit precedent regarding § 101, and the potential impact on the patent system makes it likely that the Supreme Court will hear the case to (hopefully) provide clarity to courts, patent owners, and inventors. Judge Moore aptly summarized the potential impact of this case: “If the reasoning of Judge Lourie’s opinion were adopted, it would decimate the electronics and software industries. . . . There has never been a case which could do more damage to the patent system than this one.”41

In the meantime, during this period of uncertainty, when preparing a patent application directed to an invention implemented in software, the applicant should consider including as much computer hardware as possible in the specification (including the claims) without unduly limiting the invention, and then tying the central software steps and functionality of the invention to those hardware elements. The applicant should also consider including system claims that include the hardware elements and how they interact to perform the software functions within the central portions of the claims.

Additionally, a patentee asserting claims directed to software during litigation should consider only asserting system claims. Although the majority did not agree on the reason why the asserted claims should rise or fall together in this particular case (robbing the decision of any precedential effect), the majority nevertheless appears to believe that claims should rise or fall together. Since method and computer-readable medium claims are more likely to be found invalid than system claims according to this decision, a patentee may not want to risk system claims being found invalid simply because corresponding method and/or computer-readable medium claims are found invalid.


No. 2011-1301, slip op. at 6–7 (Fed. Cir. May 10, 2013) (per curiam). 

Id. at 1–2 (Newman, J., concurring-in-part and dissenting-in-part). 

Id. at 2–3 (Lourie, J., concurring) (citing CLS Bank Int’l v. Alice Corp., 768 F. Supp. 2d 221, 224 (D.D.C. 2011)). 

Id. at 3–4. 

Id. at 4 (Rader, C.J., concurring-in-part and dissenting-in-part) (citing CLS Bank Int’l, 768 F. Supp. 2d at 221). 

Id.

Id. 

The Federal Circuit granted the petition for rehearing en banc to address the following two questions:

a.     What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?

        b.     In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at all times be considered equivalent for § 101 purposes?
Id. at 4 (quoting CLS Bank Int’l v. Alice Corp., 484 F. App’x. 559 (Fed. Cir. 2012)). 

Id. at 6–7 (per curiam). Chief Judge Rader, Judge Dyk, Judge Lourie, Judge Moore, Judge Prost, Judge Reyna, and Judge Wallach determined that the asserted method and computer-readable medium claims are ineligible and invalid under § 101. Judge Dyk, Judge Lourie, Judge Prost, Judge Reyna, and Judge Wallach found that the asserted system claims are ineligible and invalid under § 101, while Chief Judge Rader, Judge Linn, Judge Moore, Judge Newman, and Judge O’Malley determined that the asserted system claims are patent eligible. 

10 Judge Taranto did not participate in the decision. Id. at 6. 

11 Id. at 1–2 n.1 (Rader, C.J., concurring-in-part and dissenting-in-part) (emphasis added). 

12 Note that Chief Judge Rader wrote separately to express his dismay at the outcome. Id. (Rader, C.J., additional reflections).

13 Id. at 17–22 (Lourie, J., concurring). Judges Dyk, Prost, Reyna, and Wallach joined Judge Lourie’s opinion. 

14 Id. at 27. 

15 Id. at 25. 

16 Id. at 34 (The “tangible devices . . . , including at least ‘a computer’ and ‘a data storage unit’” recited in the claims “cannot support any meaningful distinction from the computer-based limitations that failed to supply an ‘inventive concept’ to the related method claims.”). 

17 Id. at 26–29, 31, 36. 

18 Id. at 28. 

19 Id. at 33. 

20 Judge Moore filed a separate dissenting-in-part opinion, joined by Chief Judge Rader and Judges Linn and O’Malley, “to explain why the system claims at issue are directed to patent eligible subject matter.” Id. at 4 (Moore, J., dissenting-in-part). 

21 Judges Linn and O’Malley did not join in the portion of Chief Judge Rader’s opinion that found the asserted method and computer-readable medium claims to be ineligible and invalid under § 101. Id. at 1–2 (Linn, J., dissenting). Judge Linn filed a separate dissenting opinion, joined by Judge O’Malley, that found the asserted method and computer-readable medium claims to be patent eligible. Id. at 11–12. 

22 Id. at 5–11, 22 n.5 (Rader, C.J., concurring-in-part and dissenting-in-part). 

23 Id. at 16. 

24 Id. at 22. 

25 Id. at 31, 35. 

26 Id. at 31–32, 34. 

27 Id. at 39–40. 

28 Id. at 40–42. 

29 Id. at 39, 42. 

30 Id. at 11–13 (Newman, J., concurring-in-part and dissenting-in-part). 

31 35 U.S.C. § 101. 

32 CLS Bank Int’l, No. 2011-1301, slip op. at 4 (Newman, J., concurring-in-part and dissenting-in-part). 

33 Id. at 14. 

34 Id. at 9–10. 

35 Id. at 5 (Rader, C.J., additional reflections). 

36 Id. at 12–13 (Linn, J., dissenting). 

37 Id. at 13. 

38 Id. at 2 n.1 (Lourie, J., concurring). 

39 Id. at 1–2 (Linn, J., dissenting). 

40 Id. at 4 (Newman, J., concurring-in-part and dissenting-in-part). 

41 Id. at 2–3 n.1 (Moore, J., dissenting-in-part). Judge Moore explicitly requested that the Supreme Court provide guidance on this issue: “It has been a very long time indeed since the Supreme Court has taken a case which contains patent eligible claims. This case presents the opportunity for the Supreme Court to distinguish between claims that are and are not directed to patentable subject matter.” Id. at 3.

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ABA Aviation Litigation 2013 Conference – June 06, 2013

The National Law Review is pleased to bring you information about the upcoming Aviation Litigation 2013 Conference.

ABA Aviation Litigation

When

June 06, 2013

Where

  • The University Club
  • 1 W 54th St
  • New York, NY 10019
  • United States of America

Prominent industry insiders, including mass tort litigators, assemble for one day to share essential strategies and personal experiences on the best ways to handle mass disaster claims.

Attendees of this National Institute will:

  • Participate in the analysis of a mock aviation accident case
  • Review recent case law developments in leading aviation industry cases
  • Observe effective ways to present and cross-examine the causation expert from adept Aviation Bar attorneys
  • Watch TrialGraphix facilitate a mock trial; including case presentations and live deliberations

“Essential Functions” Under the Americans with Disabilities Act (ADA) Can Include Job Functions that are Infrequently Performed

Poyner Spruill

The Americans with Disabilities Act (ADA) requires covered employers generally to provide reasonable accommodations to qualified employees with disabilities. The ADA provides, however, that the employee must be able to perform the “essential functions” of the job with the accommodation, and that the accommodation cannot prove to be an “undue hardship” on the employer.

In the recent case of Knutson v. Schwan’s Home Service, the U.S. Court of Appeals for the Eighth Circuit held that a job requirement can be an “essential function,” even if the employee is not required to perform the function on a regular basis.

In this case, Mr. Knutson was a manager for Schwan’s Home Service, which delivers frozen food. Managers for Schwan’s are required to maintain DOT driving certification.  In March 2008, Mr. Knutson sustained an eye injury.  Because of the eye injury, Mr. Knutson was required to undergo a medical exam and be recertified.  In December 2008, an eye doctor refused to give Mr. Knutson a DOT certification or a waiver.  Schwan’s then gave Mr. Knutson 30 days to find a job within the company that did not require DOT driving certification.  Mr. Knutson was unable to find such a job within the company and was terminated by Schwan’s.

Following his termination, Mr. Knutson filed suit against Schwan’s pursuant to the ADA.  He argued that since he was able to successfully manage his terminal without driving a truck that maintaining the DOT certification was not an “essential function” of his position.  The evidence before the court showed that Mr. Knutson was DOT qualified at the time of his injury; he admitted to delivering product in his personal vehicle; and he testified that since November 2007 that he had driven a truck less than 50 times while working as a manager.

The court disagreed with Mr. Knutson and held that “essential functions” of a job are determined based on the written job description, the employer’s judgment, and the experience and expectations of all individuals working in the same position.  The Court of Appeals affirmed the trial court’s granting of summary judgment in favor of Schwan’s.

The court’s ruling in this case is good news for employers.  Employers should use this case as a reminder of the importance of having a carefully analyzed comprehensive written job description for all positions, clearly identifying essential functions of the position.  In addition, if essential functions of a position change over time, it is important to make appropriate revisions to the written job description for the position.

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Sixth Circuit Upholds Michigan Law Which Bars Schools from Collection Union Dues

Barnes & Thornburg

The 6th Circuit in Bailey v. Callahandecided Thursday, May 9, has vacated an injunction entered by the District Court and has upheld Michigan’s Public Act 53 which prohibits Michigan’s public schools from assisting in the collection of dues and service fees for unions. The Court summarized the Union’s First Amendment challenge to the statute in this way:

“Unions engage in speech (among many other activities); they need membership dues to engage in speech; if the public schools do not collect the unions’ membership dues for them, the unions will have a hard time collecting the dues themselves; and thus Public Act 53 violates the unions’ right to free speech.”

The problem with that, according to the majority opinion, is that this argument has already been rejected by the U.S. Supreme Court in Ysursa v. Pocatello Education Association, 555 U.S. 353 (2009). Moreover, the Court determined that Public Act 53 does not restrict speech and is not designed to specifically suppress speech by teachers’ unions. Finally, the Court, in two paragraphs, rejected the plaintiff’s equal protection argument.

The opinion incited a lengthy dissent from Circuit Judge Jane Stranch who contended that the majority “mischaracterizes the First Amendment interests at stake, glosses over key distinctions the Supreme Court requires us to observe, and averts its gaze from Act 53’s blatant viewpoint discrimination.”

With a 2-1 decision and a lengthy dissent on a Constitutional claim, one would think this is headed for an en banc determination by the full Sixth Circuit.

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Circuit Court Upholds Michigan Public Act 53: Public Schools Prohibited from Collecting Union Dues

Varnum LLP

Responding to a challenge to the constitutionality of Michigan Public Act 53, which prohibits public schools from collecting union dues from employees, the Sixth Circuit ruled that the act is constitutional. The result of this ruling is that, at this point, public schools are statutorily precluded from collecting dues for the union under any bargaining agreement that was entered into, renewed or extended after March 16, 2012.

The plaintiffs, who are school unions and union members, argued that the act violates their First Amendment and Equal Protection rights.  The district court, agreeing with the plaintiffs, had issued a preliminary injunction barring enforcement of the law.  The Sixth Circuit reversed the district court, dissolved the injunction and remanded the case “for further proceedings consistent with this opinion.”  It is unclear whether any viable challenge to the statute remains for the district court to address or whether dismissal of the claim is now in order.

The 6th Circuit ruled that Public Act 53 does not violate the First Amendment.  The plaintiffs argued that unions need membership dues to engage in speech and if the public schools don’t collect the union dues for them, the unions will have a hard time collecting the dues themselves.  Therefore, Public Act 53 violates the unions’ right to free speech.  The majority opinion stated that the First Amendment prohibits government from limiting the freedom of speech, but it does not give the right to use government payroll systems for the purpose of obtaining funds for speech.  The court concluded that Public Act 53 does not restrict speech.  It “merely directs one kind of public employer to use its resources for its core mission rather than for the collection of union dues.”

Similarly, the Court decided that the plaintiffs’ Equal Protection claim fails.  The plaintiffs argued that Public Act 53 violates the Equal Protection clause of the 14 Amendment because it applies only to unions that represent school employees and not to other public employers.  The court held that there is a legitimate interest in this classification.  That is, the Michigan legislature “could have concluded that it is more important for the public schools to conserve their limited resources for their core mission than it is for other state and local employers.”

It remains to be seen whether the Sixth Circuit’s opinion ends the debate or if there will be continued challenge.

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Timely Performance Management in Avoiding Family and Medical Leave Act (FMLA) Liability

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Managing the performance or conduct of an employee who has recently utilized leave under the Family and Medical Leave Act (FMLA) can be a legal minefield for employers.  If the poorly performing employee does not improve his or her performance upon return from FMLA leave, the employer may be hesitant to take further employment action against the employee for fear that the timing of the decision will create a risk of liability under state or federal leave laws.  A comparison of two recent court decisions serves as an important reminder that contemporaneously addressing and documenting performance or conduct issues as they occur can go a long way in protecting the employer from liability in a later FMLA retaliation claim.

In Benimovich v. Fieldston Operating, LLC, Case No. 11-CV-780 (S.D.N.Y 3-22-2013), the plaintiff, Galina Benimovich, took FMLA leave to undergo and recover from knee replacement surgery.  While on leave, the employer hired and trained a replacement.  When Benimovich learned that she had been replaced, she contacted the employer and offered to return from leave.  When the parties met a few days later to discuss the situation, the employer terminated Benimovich’s employment.

Benimovich subsequently filed a lawsuit against the employer alleging a variety of claims, including a claim that the employer had unlawfully terminated her in retaliation for exercising her FMLA rights.  The employer defended that its owners had actually decided to terminate Benimovich months before she took FMLA leave, but that they wanted to hire and train a replacement before firing her. The employer claimed its motivation to terminate Benimovich was poor performance, specifically inaccurate processing of payroll records, manipulation of time records, failure to issue accurate paychecks, and untimely payments to vendors.

The court denied the employer’s motion for summary judgment on the FMLA retaliation claim.  In allowing the case to go forward, the court noted that the temporal proximity between the leave and the termination was suspect.  However, the court also relied heavily on the fact that there was no written documentation substantiating Benimovich’s alleged performance problems or the owners’ decision to terminate Benimovich months earlier.  The court further noted that Benimovich’s performance was rarely, if ever, criticized.

Contrast the outcome in Benimovich with the analysis and decision of the Court of Appeals for the Eight Circuit in Brown v. City of Jacksonville, Case No. 12-1730 (8th Cir. 2013).  The plaintiff in Brown took FMLA leave from August 9, 2008 through October 18, 2008 to undergo hip replacement surgery.  A few months before going on leave, Brown received a written warning for insubordination.  Brown’s supervisors had also verbally counseled her regarding her performance on a number of occasions.

After returning from leave, Brown received another written warning for failure to perform her duties as purchasing manager.  Brown filed a complaint with the Equal Employment Opportunity Commission (EEOC), which led the City to conduct an internal investigation into Brown’s complaints.  The investigation revealed that Brown’s co-workers considered her to be a very negative presence in the workplace and felt they had to walk on “pins and needles” due to Brown’s attitude issues.  Additionally, the investigation revealed that Brown’s co-workers were able to adequately perform Brown’s purchasing duties during her absence.  The City concluded that Brown was creating a hostile work environment for her co-workers and terminated her employment for “failure in performance of duties” and “failure in personal conduct.”

Following her termination, Brown filed a lawsuit against the City alleging FMLA retaliation and a number of other discrimination claims.  On appeal, the Eighth Circuit approved of the lower court’s grant of summary judgment to the employer on Brown’s FMLA retaliation claim.  First, the court noted that the timing of Brown’s termination – eight months after returning from leave – did not raise an inference of discrimination.  Second, the court held that the undisputed evidence (which included written warnings) showed that Brown was warned about her poor performance prior to even going on leave.  Accordingly, the Court affirmed summary judgment in favor of the City.

There are a number of distinguishing factors that explain the differing outcomes in Benimovich and Brown – including the amount of time between the employee’s leave and termination.  Importantly, however, employers should also take note of the critical role that written warnings and performance counseling played in the Eight Circuit’s award of summary judgment to the employer.  The employer in Brown was able to justify its termination and avoid liability in a tricky situation because it had the written documentation and prior performance counseling to support its claim of poor performance.   Conversely, the employer in Benimovich was denied summary judgment because it had failed to document either the purported performance issues or the earlier decision to terminate.

No doubt, terminating or taking adverse employment action against an employee who has recently utilized legally protected leave rights is risky, and an employer should consult legal counsel before taking any such action.  However, these cases illustrate that proper documentation of performance and disciplinary issues is one of the most important preventative steps an employer can take now to reduce the risk of future liability.

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Seventh Circuit Addresses Obligations Regarding the Interactive Process under the Americans With Disabilities Act (ADA)

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A common scenario often faced by employers under the Americans with Disabilities Act (ADA) involves an employee’s request for time off as a reasonable accommodation. In Basden v. Professional Transportation, Inc., No. 11-2880 (7th Cir, May 8, 2013), the Seventh Circuit U.S. Court of Appeals provides guidance in this area. There, the court explained that the employer was not liable under the ADA, even though it failed to engage in the interactive process, because the employee failed to show that the requested accommodation (a 30-day leave) would have resulted in her ability to perform the essential functions of the job.

Employee Two Weeks Shy of Leave Entitlement

Professional Transportation, Inc. (PTI) provides 24-hour ground transportation services. Terri Basden was hired as a dispatcher in June, 2007. After numerous absences in 2007 and early 2008, she received a verbal warning for absences in March 2008 and a written warning for further absences in April 2008.

Basden provided doctors’ notes reflecting that she had been referred to a neurologist with a possible diagnosis of multiple sclerosis after emergency room tests showed brain abnormalities indicative of the disease. After several job transfers, Basden was granted a request for a part time position on May 1, 2008. She incurred additional absences in May which resulted in suspension. While on suspension, Basden submitted a request for a 30-day leave of absence due to “complications due to medical illness (MS).” PTI policy provides employees with one year of service may be eligible to take a 30-day, unpaid leave of absence. However, Basden had not been employed for one year. PTI denied her request for leave, and thereafter terminated Basden when she failed to return to work following her suspension.

Employee Could Not Show Leave Would Enable Her to Perform Essential Functions

Basden sued PTI, claiming that PTI violated the ADA by terminating her instead of accommodating her request for 30 days leave, that PTI failed to engage in the interactive accommodation process required by the ADA, and that PTI did not show that the requested leave was unreasonable. The district court granted summary judgment for PTI.

On appeal, the Seventh Circuit first observed that an employee’s request for an accommodation under the ADA requires the employer to engage in a flexible, interactive process to identify a reasonable accommodation. In this case, the employee requested a 30-day leave that, according to the employer’s policy, she would have been eligible for with two weeks’ additional seniority. The court noted that PTI’s response to this request, specifically, failing to engage in an interactive process, denying the leave, and terminating her, was not an appropriate employer response under the ADA.

However, the court held that PTI’s actions did not violate the ADA. The failure to engage in the interactive process is not an independent basis for liability under the statute, and in any event, such a failure is actionable only if it prevents identification of an appropriate accommodation. Thus, even if an employer fails to engage in the interactive process, that failure need not be considered if the employee fails to show that she was able to perform the essential functions of her job with an accommodation.

Here, PTI cited regular attendance as an essential function of Basden’s job. Yet, Basden did not demonstrate that she was able to come to work regularly at the time of her termination, or that her regular attendance could have been expected either following the requested leave or with any other accommodation. Therefore, the court held, summary judgment for PTI was appropriate on the ADA claim despite any shortcomings in PTI’s response to Basden’s request. (Basden also alleged violation of the Family and Medical Leave Act, which the court also affirmed summary judgment on because Basden had not worked for PTI for 12 months at the time of her leave request and thus was not eligible for leave under the statute.)

Identify and Document Essential Functions

Of course, employers should continue to comply with their obligations to engage in the interactive process. However, as this case suggests, the obligation to explore and provide accommodation does not necessarily extend to accommodations that are or would be futile and would not enable the employee to perform essential functions. This case highlights the importance of well-written job descriptions that clearly set forth essential job functions. An employer’s identification of and ability to prove essential functions of the job can be used to guide the interactive process and its obligations to provide accommodation under the ADA, and can play a key role in defending a lawsuit under the ADA.

False Marking Claims Must Be Pled with Specificity as to Intent

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The U.S. Court of Appeals for the Federal Circuit settled a split among the district courts when it held that false patent marking claims must be pled with particularity under Fed. R. of Civ. Pro. 9(b).   In granting the defendant’s petition for a writ of mandamus, the Federal Circuit held that the district court should have dismissed a false marking complaint for failure to plead, with particularity, the circumstances of defendant’s alleged intent to deceive the public.   In re BP Lubricants USA Inc., Misc. Docket No. 960 (Fed. Cir., Mar. 15, 2011) (Linn, J.).

The plaintiff had included in its complaint allegations that BP was a “sophisticated company” having experience applying for, obtaining and litigating patents.   Based on that categorization, the plaintiff claimed BP “knew or should have known” that the patent had expired.   The district court concluded that the complaint satisfied the requirements of Rule 9(b) because it had pled the who, how, what and when of the alleged fraud.  BP sought mandamus at the Federal Circuit.

The Federal Circuit clarified that in all cases sounding of fraud or mistake, Rule 9(b) requires the plaintiff to plead “with particularity the circumstances constituting the fraud or mistake.”   The Court noted that Rule 9(b) acts as a “safety valve to assure that only viable claims alleging fraud or mistake are allowed to proceed to discovery.   … Permitting a false marking complaint to proceed without meeting the particularity requirement of Rule 9(b) would sanction discovery and adjudication for claims that do little more than speculate that the defendant engaged in more than negligent action.” The Court stated that the district court erred in denying BP’s motion to dismiss because it expressly relied on the plaintiff’s general allegations that BP knew or should have known that the patent expired. The Court explained that a complaint must provide some objective indication to reasonably infer that the defendant was aware that the patent expired.  Accordingly, general allegations that the defendant is a “sophisticated company” and that it “knew or should have known” that the patent expired are insufficient under Rule 9(b).

The Court went further and provided exemplary allegations with which a court may reasonably infer an intent to deceive, “[alleging that a] defendant [had] sued a third party for infringement of a patent after the patent had, e.g., expired or made multiple revisions of the marking after expiration” may set forth facts upon which intent to deceive can be reasonably inferred.

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Replication without Human Intervention: Lessons from Monsanto v. Bowman

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Until now, the practicing of an invention needed some direct form of human action; someone was needed to “do something” to bring the invention into existence, as well as replicate it by making more (in the case of a physical object) or performing it again (in the case of a method). However, this may no longer be necessary in all instances. At least in the case of some biological technologies, once an invention has been created by a human, further human intervention may no longer be needed for replicating the invention. In these instances, does a patent owner lose the right to exclude future uses, sales, offers for sale or importations of such an invention?

In Monsanto v. Bowman, the Supreme Court is poised to bring some clarity to this question. Monsanto Company designs and manufactures herbicide-resistant soybean seeds and related technology. Monsanto sold patented seeds to farmers for growing and resale as commodity items to be used in such things as public-school lunches and animal feed. Such sales were made under license agreements that allowed the beans to be sold without any ongoing restrictions on the use of those beans.

Vernon Bowman is a soybean farmer. Bowman purchased these beans and replanted them as second-generation seeds, which were the products of seeds purchased from a licensed Monsanto technology distributor.

Monsanto sued Bowman for patent infringement, arguing that the beans were products of Monsanto’s patented herbicide-resistant seeds and that, by planting them instead of purchasing new seeds, Bowman violated the Monsanto Technology Agreement for the seeds. The U.S. District Court found that Bowman’s activities infringed upon Monsanto’s patent and awarded damages to Monsanto for violation of its patented technology. The Federal Circuit agreed and upheld the decision, holding that Monsanto’s patent covered both the original seeds and a product of the original seeds, such as those second-generation beans grown by Bowman.

Bowman appealed, arguing that, under the doctrine of patent exhaustion, Monsanto’s patent rights were exhausted upon its initial sale of the seeds that Bowman later purchased from the licensed distributor, and that use of progeny seeds is an expected use of the product. In response, Monsanto argued that in the case of self-replicating technologies, such as seeds that grow and produce more seeds, the patent extends to the underlying technology (i.e., herbicide resistance) and not only to the seed itself.

The important question raised in this case is whether an exception to the doctrine of patent exhaustion for self-replicating technologies is needed and/or warranted. While this question is clearly important to the biotechnology and agricultural industries, it also has the potential to significantly affect the software and robotics industries. For example, as robotics and artificial intelligence become increasingly sophisticated in their abilities to adapt and “grow,” it does not seem too outlandish to think that, one day, these may also become self-replicating technologies.

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