Category: Biotech & Cleantech

Is Regulation of Greenhouse Gases Through the Clean Air Act Becoming “Too Big to Fail”?

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In a much-publicized decision in 2007, the Supreme Court ruled that the United States Environmental Protection Agency (USEPA) is authorized to regulate greenhouse gases (GHGs) through the Clean Air Act. Massachusetts v. EPA, 549 U.S. 497 (2007). A slew of recent cases have rejected plaintiffs’ attempts to assert common law claims for damages based on the consequences of past emissions of GHGs. The courts generally have found that USEPA has occupied the role of regulating GHGs, and challenges to the agency’s actions must be brought through the appropriate administrative channels. As the Supreme Court weighs whether to grant certiorari in the Coal. for Responsible Regulation, Inc., et al. v. EPA, No. 09-1322 (D.C. Cir. June 26, 2012), the case that addresses four USEPA GHG rules, the Supreme Court may have difficulty in changing course from the idea that GHGs should be regulated pursuant to the Clean Air Act.

Comer v. Murphy Oil et al., No. 12-60291 (5th Cir. May 14, 2013).

In the aftermath of Hurricane Katrina, Mississippi Gulf residents sued numerous energy companies, alleging that the defendants’ emissions of GHGs exacerbated the severity of and damage caused by the Class 5 hurricane (hereinafter Comer I). The claims ranged from public and private nuisance, trespass and negligence, to fraudulent misrepresentation and conspiracy. The district court dismissed Comer I with prejudice, finding that the plaintiffs had no standing to bring these claims and the claims were non-justiciable because they involved a political question.

Comer I became mired in technical details and procedures, and ultimately the plaintiffs tried to refile the case to bring an entirely new lawsuit, Comer II. The Fifth Circuit dismissedComer II because the plaintiffs brought the same claims they alleged in Comer I, and the district court had already dismissed those claims on the merits. The court applied the doctrine of res judicata, which bars parties from litigating the same claim a second time, and, consequently, Comer II was barred by the district court’s original dismissal in Comer I. Because Comer I held that plaintiffs have no standing to challenge GHG emissions through common law claims, it supports the idea that GHGs should be regulated through the Clean Air Act, rather than addressed through litigation.

Native Village of Kivalina v. ExxonMobil Corp. et al., No. 09-17490 (9th Cir. Sept. 21, 2012).

Kivalina is a village located on the far northwest shore of Alaska. The village had long been protected by the winter ice that persisted and protected the land mass itself. Due to melting icebergs and rising sea levels, the village land mass is eroding, and remains unprotected by the ice wall for much of the year. The village almost certainly will be either eroded into nothingness or inundated by the Arctic Ocean in the next twenty years. Kivalina sued a large group of energy companies, alleging that the GHGs emitted by them resulted in global warming and their village’s imminent destruction. Under a theory of common law public nuisance, the village sought damages to allow the relocation of the community.

The District Court held that political questions such as those raised by the allegations were not justiciable. Further, the court held the plaintiffs lacked Article III standing because they could not show that the named defendants likely caused the injuries, nor could the injuries be traced to an act of any of the defendants.

The Ninth Circuit agreed but expounded on the role of federal common law in pollution cases. The Court noted that federal common law has developed to fill gaps arising in cases of transboundary pollution and that those cases generally arise as nuisance claims. Despite its acknowledgement that nuisance claims can be used to regulate pollution, the Ninth Circuit explained that where a statute directly addresses the underlying issue, developing a federal common law was not necessary to address the issue. Accordingly, because the Supreme Court found that Congress acted through the Clean Air Act to address GHG pollution inMassachusetts v. EPA, filling the gap with federal common law (or public nuisance claims) was not necessary. Furthermore, the Ninth Circuit found that federal common law does not fill a gap solely based on the type of relief requested. In other words, the plaintiffs inKivalina sought damages rather than emission reduction, the latter being the type of relief afforded by the Clean Air Act. Although the plaintiffs’ requested relief was not available under the Clean Air Act, the Clean Air Act still displaced federal common law and prevented plaintiffs from seeking damages through a common law claim (such as public nuisance).

Consequently, Kivalina, like Comer, supports the idea that USEPA is charged with regulation of GHGs through the Clean Air Act.

Public Trust Doctrine Cases

Along a similar avenue, a number of public trust doctrine cases have been filed on behalf of children since 2011. In these cases, the plaintiffs allege that children’s futures are being affected by the lack of action to regulate GHGs, and they request that the various agencies cited in the lawsuits — primarily USEPA and Department of the Interior — take immediate action to reduce GHGs. These cases use the public trust doctrine as the basis of the complaint by alleging that the atmosphere is a common resource that must be managed for the public good and the agencies have failed to properly manage that resource. These cases have generally been dismissed for failure to state a claim for which relief can be granted.See Alec L. v. Perciasepe, No. 11-cv-2235 (D.D.C. May 22, 2013); Sanders-Reed v. Martinez, No. D-101-cv-2011-01514 (D.N.M. July 14, 2012); Alec L. v. Jackson, No. 1:11-cv-02235 (D.D.C. May 31, 2012); Loorz v. Jackson (D.D.C. April 2, 2012); Filippone v. Iowa Dep’t of Natural Resources, No. 2-1005, 12-04444 (Iowa Ct. App. Mar. 13, 2013); Aronow v. State, No. A12-0585 (Minn. Ct. App. Oct. 1, 2012).

In general, cases arising under the public trust doctrine face two challenges. First, the Supreme Court held in PPL Montana, LLC v. Montana, No. 10-218 (2012), that the public trust doctrine is a matter of state, not federal, common law and so a federal claim is not justiciable in federal court. Second, in AEP v. Connecticut, No. 10-174 (2011), the Supreme Court held that the role of regulating GHGs, and any consequence(s) of GHGs, has been occupied by the Clean Air Act and therefore challenges to the regulation of GHGs should be brought through the Clean Air Act rather than through a common law claim. Again, these cases are important for the future of GHG regulation because they affirm the agency’s role as the regulator of GHGs through the Clean Air Act.

Montana Envt’l Info. Center v. U.S. Bureau of Land Mgmt., No. cv-11-15-GF-SEH (D. Mont. June 14, 2013).

In another case affirming the role of the Clean Air Act in regulating GHGs, environmental groups claimed that the Bureau of Land Management (BLM) failed to adequately consider climate change, global warming, and the emission of GHGs in violation of the National Environmental Policy Act (NEPA) before approving oil and gas leases on federal land in Montana in 2008 and 2010. The environmental groups argued that BLM’s failure to follow NEPA procedures would result in emissions of methane gas from the oil and gas leases at issue. The release of methane gas would cause global warming and climate change, which would present a threat of harm to their aesthetic and recreational interests in lands near the lease sites by melting glaciers, warming streams, and promoting the destruction of forests through the proliferation of plagues of beetles.

The district court dismissed the lawsuit because the environmental groups lacked standing to bring the claim. The court found that the environmental groups failed to demonstrate that BLM’s alleged failure to follow proper procedure created an increased risk of actual, threatened, or imminent harm to their recreational and aesthetic interests in lands near the lease sites. Although the environmental groups had local recreational and aesthetic interests at heart, the court found that the effects of GHG emissions are diffuse and unpredictable, and the groups presented no scientific evidence or recorded scientific observations to support their assertions that BLM’s leasing decisions would present a threat of climate change impacts on lands near the lease sites. Furthermore, the environmental groups did not show that methane emissions from the lease sites would make a meaningful contribution to global GHG emissions or global warming. The court therefore found that the environmental groups failed to establish injury-in-fact and causation. As a result, the court foreclosed another potential avenue for litigating claims surrounding GHG emissions, and potential plaintiffs now seem to be left only with direct challenges to USEPA’s regulations (or lack thereof).

Conclusion

The Court would mark a dramatic shift if it moved away from these cases. By the time the Supreme Court has the opportunity to review climate change regulation again, the Obama administration may have set a “too big to fail” bar with its climate policies. Regardless of what happens in the future, however, as of today, the Court’s decision in Massachusetts v. EPA appears to have had a pronounced impact, acceding to USEPA the authority to regulate GHGs through the Clean Air Act, and denying common law remedies for impacts tied to climate change.

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Basic Guidelines for Protecting Company Trade Secrets

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Under the Uniform Trade Secrets Act (UTSA), “trade secrets” are generally defined as confidential proprietary information that provides a competitive advantage or economic benefit. Trade secrets are protected under the Economic Espionage Act of 1994 (EEA) at the federal level, and the vast majority of states have enacted statutes modeled after the UTSA (note that some jurisdictions, such as California, Texas and Illinois, have adopted trade secret laws that differ substantially from the UTSA; thus, businesses should research laws in the relevant jurisdiction(s).). Under the UTSA, to be protectable as a trade secret, information must meet three requirements:

i. the information must fall within the statutory definition of “information” eligible for protection;

ii. the information must derive independent economic value from not being generally known or readily ascertainable by others using appropriate means; and

iii. the information must be the subject of reasonable efforts to maintain its secrecy.

Trade secret theft continues to accelerate among U.S. companies, and can have drastic consequences. To combat this threat, Congress and certain state legislatures have recently enacted legislation to broaden trade secret protection. As a result, it is paramount that companies safeguard all proprietary information that may qualify as protectable trade secrets. This blog post explains some key trade secrets concepts, and offers pointers on how to identify and protect trade secrets.

(1) Determine Which Data Constitutes “Information”

The UTSA-type statutes generally define “information” to include:

Financial, business, scientific, technical, economic, and engineering information;

Computer code, plans, compilations, formulas, designs, prototypes, techniques, processes, or procedures; and

Information that has commercial value, such as customer lists or the results of expensive research.

Courts have similarly interpreted “information” to cover virtually any commercially valuable information. Examples of information that has been found to constitute trade secrets includes pricing and marketing techniques, customer and financial information, sources of supplies, manufacturing processes, and product designs.

(2) “Valuable” and “Not Readily Ascertainable” Information

To be protectable, information must also have “economic value” and not be “readily ascertainable” by others. Courts generally determine whether information satisfies this standard by considering the following factors:

Reasonable measures have been put in place to protect the information from disclosure;

The information has actual or potential commercial value to a company;

The information is known by a limited number of people on a need-to-know basis;

The information would be useful to competitors and would require a significant investment to duplicate or acquire the information; and

The information is not generally known to the public.

(3) Take Reasonable Measures to Maintain Secrecy

Businesses should implement technical, administrative, contractual and physical safeguards to keep secret the information sought to be protected. Companies should identify foreseeable threats to the security of confidential information; assess the likelihood of potential harm flowing from such threats; and implement security protocols to address potential threats. Examples of security measures might include restricting access to confidential information on a need-to-know basis, employing computer access restrictions, circulating an employee handbook that outlines company policies governing confidential information, conducting entrance interviews for new hires to determine whether they are subject to restrictive covenants with former employers, conducting exit interviews with departing personnel to ensure that the employee has returned all company materials and agrees to abide by post-employment obligations, encrypting confidential information, limiting access to confidential information through passwords and network firewalls, track all access to network resources and confidential information, restrict the ability to email, print or otherwise transfer confidential information, employ security personnel, limit visitor access, establish surveillance procedures, and limit physical access to areas that may have confidential information.

Conclusion

This blog post is intended to provide some broad guidelines to identifying and protecting company trade secrets. Most if not all companies have confidential information that may be protectable as a trade secret. But certain precautions need to be in place to ensure that the information is protectable. Because each company and situation is different, you should seek advice about your specific circumstances.

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Supreme Court – Being Unanimous Appears to be Part of the Justices’ DNA

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On June 13, 2013, the U.S. Supreme Court unanimously decided in Association for Molecular Pathology v. Myriad Genetics, Inc. that naturally occurring DNA segments are not patent eligible because they are products of nature and merely isolating such segments does not change their status for patent eligibility. However, complementary DNA (cDNA) is patent eligible because it is not naturally occurring.

Isolated DNA sequences – patent ineligible

In the third opinion since 2010 dealing with the scope of patent eligibility,1 the Court found that Myriad’s claims directed towards isolated DNA segments fell “squarely within the law of nature exception.” Slip op. at 13.  Myriad discovered an “important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention.” Slip op. at 12. The Court rejected the idea that isolation of DNA segments requires severing of chemical bonds, which creates a non-naturally occurring molecule. While Myriad may have expended a significant amount of research effort to discover the location of the genes of interest, effort alone does not render such subject matter patentable.

For landmark Supreme Court decisions regarding patent eligibility, please click here.

cDNA sequences – patent eligible

The Court noted that cDNA differs from isolated DNA segments and does not present the same obstacles for patent eligibility. Notable distinctions, according to the Court, are that cDNA’s creation results in an exons-only molecule, which is not naturally occurring. While acknowledging that the nucleotide sequence of cDNA is dictated by nature, the Court focused on the fact that creation of cDNA “unquestionably creates something new.” Slip op. at 17. cDNA is distinct from the DNA from which it was derived, and thus is not a product of nature. However, the Court noted that, in some instances, such as a very short segment of DNA having no intervening introns, the cDNA may be indistinguishable from the DNA. In such a situation, that cDNA is not patent eligible.

What the Court did not decide

The Court was careful to note that its decision did not implicate method claims, patents on new applications based on discoveries related to specific genes, or patentability of DNA in which the order of naturally occurring nucleotides has changed. Thus, the eligibility of methods of manipulating DNA, applications of knowledge learned from DNA segments, and manipulations of DNA sequences are questions still on the table.

Standing

An additional interesting aside is the Court’s approach to the declaratory judgment standing issue. The Court, in footnote 3, simply indicates that under all of the circumstances presented, the MedImmune standard had been met. Whether this opens the door to additional declaratory judgment actions in the future is uncertain.

Impact

This decision will likely not have a devastating impact on the patent portfolio of genetic diagnostic companies. These companies typically focus more on patents directed towards multi-gene products, methods, and cDNAs than on claims directed to isolated DNA sequences to protect their genetic tests. Nevertheless, should a company seek to assert a patent with claims directed to isolated DNA sequences, such an assertion will now be subjected to summary judgment motions based on the patent ineligibility of such claims.

In the long term, however, today’s decision will likely have a big impact on businesses engaged in developing chemical and biological therapeutics, with patents directed to isolated naturally occurring compounds. The Court has held that merely separating a segment of DNA from its natural surrounding is “not an act of invention.” How such analysis could be applied in the chemical and pharmaceutical arts remains to be seen. The Court’s opinion likely will be used to attack chemical and pharmaceutical patents directed towards naturally occurring compounds like proteins, antibodies, and other naturally occurring biomolecules. Whether such patents fall within chemical compositions or focus on the chemical changes, which result from isolation that the Court has suggested may be patentable, will likely be determined on a case by case basis.

Lastly, in an era of ever polarizing politics, it is fascinating to see that this decision, like most other recent U.S. Supreme Court decisions involving patents,2 is a 9-0 decision.  All of the current justices unanimously agree on what is the appropriate scope of patent eligibility.

1 Bilski v. Kappos, 130 S. Ct. 3218 (2010) and Mayo Collaborative Services v. Prometheus Lab., Inc., 132 S. Ct. 1289 (2012) are two unanimous U.S. Supreme Court decisions dealing with the patent eligibility of method claims.

2 See Bilski v. Kappos, 130 S. Ct. 3218(2010); Mayo v. Prometheus, 132 S. Ct. 1289(2012); Caraco Pharm. Lab., Ltd. v. Novo Nordisk A/S, 132 S. Ct. 1670 (2012); Kappos v. Hyatt, 132 S. Ct. 1690 (2012); Bowman v. Monsanto Co., No. 11-796 (2013).

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New Cybersecurity Guidance Released by the National Institute of Standards and Technology: What You Need to Know for Your Business

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The National Institute of Standards and Technology (“NIST”)1 has released the fourth revision of its standard-setting computer security guide, Special Publication 800-53 titled Security and Privacy Controls for Federal Information Systems and Organizations2 (“SP 800-53 Revision 4”), and this marks a very important release in the world of data privacy controls and standards. First published in 2005, SP 800-53 is the catalog of security controls used by federal agencies and federal contractors in their cybersecurity and information risk management programs. Developed by NIST, the Department of Defense, the Intelligence Community, the Committee on National Security Systems as part of the Joint Task Force Transformation Initiative Interagency Working Group3over a period of several years with input collected from industry, Revision 4 “is the most comprehensive update to the security controls catalog since the document’s inception in 2005.”4

Taking “a more holistic approach to information security and risk management,5” the new revision of SP 800-53 also includes, for the first time, a catalog of privacy controls (the “Privacy Controls”) and offers guidance in the selection, implementation, assessment, and ongoing monitoring of the privacy controls for federal information systems, programs, and organizations (the “Privacy Appendix”).6 The Privacy Controls are a structured set of standardized administrative, technical, and physical safeguards, based on best practices, for the protection of the privacy of personally identifiable information (“PII”)7 in both paper and electronic form during the entire life cycle8of the PII, in accordance with federal privacy legislation, policies, directives, regulations, guidelines, and best practices.9 The Privacy Controls can also be used by organizations that do not collect and use PII, but otherwise engage in activities that raise privacy risk, to analyze and, if necessary, mitigate such risk.

Description of the Eight Families of Privacy Controls

The Privacy Appendix catalogs eight privacy control families, based on the widely accepted Fair Information Practice Principles (FIPPs)10 embodied in the Privacy Act of 1974, Section 208 of the E-Government Act of 2002, and policies of the Office of Management and Budget (OMB). Each of the following eight privacy control families aligns with one of the eight FIPPs:

  1. Authority and Purpose. This family of controls ensures that an organization (i) identifies the legal authority for its collection of PII or for engaging in other activities that impact privacy, and (ii) describes the purpose of PII collection in its privacy notice(s).
  2. Accountability, Audit, and Risk Management. This family of controls ensures that an organization (i) develops and implements a comprehensive governance and privacy program; (ii) documents and implements a privacy risk management process that assesses privacy risk to individuals resulting from collection of PII and/or other activities that involve such PII; (iii) conducts Privacy Impact Assessments (“PIAs”) for information systems, programs, or other activities that pose a privacy risk; (iv) establishes privacy requirements for contractors and service providers and includes such requirements in the agreements with such third parties; (v) monitors and audits privacy controls and internal privacy policy to ensure effective implementation; (vi) develops, implements, and updates a comprehensive awareness and training program for personnel; (vii) engages in internal and external privacy reporting; (viii) designs information systems to support privacy by automating privacy controls, and (ix) maintains an accurate accounting of disclosures of records in accordance with the applicable requirements and, upon request, provides such accounting of disclosures to the persons named in the record.
  3. Data Quality and Integrity. This family of controls ensures that an organization takes reasonable steps to validate that the PII collected and maintained by the organization is accurate, relevant, timely, and complete.
  4. Data Minimization and Retention. This family of controls addresses (i) the implementation of data minimization requirements to collect, use, and retain only PII that is relevant and necessary for the original, legally authorized purpose of collection, and (ii) the implementation of data retention and disposal requirements.
  5. Individual Participation and Redress. This family of controls addresses implementation of processes (i) to obtain consent from individuals for the collection of their PII, (ii) to provide such individuals with access to the PII, (iii) to correct or amend collected PII, as appropriate, and (iv) to manage complaints from individuals.
  6. Security. This family of controls supplements the security controls in Appendix F and are implemented in coordinating with information security personnel to ensure that the appropriate administrative, technical, and physical safeguards are in place to (i) protect the confidentiality, integrity, and availability of PII, and (ii) to ensure compliance with applicable federal policies and guidance.
  7. Transparency. This family of controls ensures that organizations (i) provide clear and comprehensive notices to the public and to individuals regarding their information practices and activities that impact privacy, and (ii) generally keep the public informed of their privacy practices.
  8. Use Limitation. This family of controls addresses the implementation of mechanisms that ensure that an organization’s scope of use of PII is limited to the scope specified in their privacy notice or as otherwise permitted by law.

Some of the Privacy Controls, such as Data Quality and Integrity, Data Minimization and Retention, Individual Participation and Redress, and Transparency also contain control enhancements, and while these enhancements reflect best practices which organizations should strive to achieve, they are not mandatory.11 The Office of Management and Budget (“OMB”), tasked with enforcement of the Privacy Controls, expects all federal agencies and third-party contractors to implement the mandatory Privacy Controls by April 30, 2014.

The privacy families must be analyzed and selected based on the specific operational needs and privacy requirements of each organization and can be implemented at various operational levels (e.g., organization level, mission/business process level, and/or information system level12). The Privacy Controls and the roadmap provided in the Privacy Appendix will be primarily used by Chief Privacy Officers (“CPO”) or Senior Agency Officials for Privacy (“SAOP”) to develop enterprise-wide privacy programs or to improve an existing privacy programs in order to meet an organization’s privacy requirements and demonstrate compliance with such requirements. The Privacy Controls supplement and complement the security control families set forth in Appendix F (Security Control Catalog) and Appendix G (Information Security Programs) and together these controls can be used by an organization’s privacy, information security, and other risk management offices to develop and maintain a robust and effective enterprise-wide program for management of information security and privacy risk.

What You Need to Know

The Privacy Appendix is based upon best practices developed under current law, regulations, policies, and guidance applicable to federal information systems, programs, and organizations, and by implication, to their third-party contractors. If you provide services to the federal government, work on government contracts, or are the recipient of certain grants that may require compliance with federal information system security practices, you should already be sitting up and paying attention. This revision puts privacy up front with security.

Like other NIST publications, this revision will be looked at as an industry standard for best practices, even for commercial entities that are not doing business with the federal government. In fact, over the last few years, we have seen increasing references to compliance with NIST 800-53 as setting a contractual baseline for security. We expect that this will continue, and now will include both the Security Controls and the Privacy Controls. As such, general counsel, business executives and IT professionals should become familiar with and conversant in the Privacy Controls set forth in the new revision to SP 800-53. At a minimum, businesses should undertake a gap analysis of the privacy controls at their organization against these Privacy Controls to determine if they are up to par or if they have to enhance their current privacy programs. And, if NIST 800-53 appears in contract language as the “minimum standard” to which your company’s policies and procedures must comply, the gap analysis will at least inform you of what needs to be done to bring both your privacy and security programs up to speed.

1 The National Institute of Standards and Technology is a non-regulatory agency within the U.S. Department of Commerce, which, among other things, develops information security standards and guidelines, including minimum requirements for federal information systems to assist federal agencies in implementing the Federal Information Security Management Act of 2002.

2 See Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53,
Rev. 4 (April 30, 2013), http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf.

3 The Joint Task Force Transformation Initiative Interagency Working Group is an interagency partnership formed in 2009 to produce a unified security framework for the federal government. It includes representatives from the Civil, Defense, and Intelligence Communities of the federal government.

4 See NIST Press Release for SP 800-53 Revision 4 at http://www.nist.gov/itl/csd/201304_sp80053.cfm. Revision 4 of
SP 800-53 adds a substantial number of security controls to the catalog, including controls that address new technology such as digital and mobile technologies and cloud computing. With the exception of the controls that address evolving technologies, the majority of the cataloged security controls are policy and technology neutral, focusing on the fundamental safeguards and countermeasures required to protect information during processing, while in storage, and during transmission.

5 See NIST Press Release for SP 800-53 Revision 4 at http://www.nist.gov/itl/csd/201304_sp80053.cfm.

6 See Appendix J, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf. Appendix J was developed by NIST and the Privacy Committee of the Federal Chief Information Officer (CIO) Council.

7 Personally Identifiable Information is defined broadly in the Glossary to SP 800-53 Revision 4 as “Information which can be used to distinguish or trace the identity of an individual (e.g., name, social security number, biometric records, etc.) alone, or when combined with other personal or identifying information which is linked or likable to a specific individual (e.g., date and place of birth, mother’s maiden name, etc.). See page B-16 of Appendix B, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf. However, as stated in footnote 119 in Appendix J, “the privacy controls in this appendix apply regardless of the definition of PII by organizations.”

8 Collection, use, retention, disclosure, and disposal of PII.

9 See page J-4 of Appendix J, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf.

10 See NIST description and overview of Fair Information Practice Principles at http://www.nist.gov/nstic/NSTIC-FIPPs.pdf.

11 See pages J-4 of Appendix J, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf.

12 See page J-2 of Appendix J, Privacy Control Catalog to Security and Privacy Controls for Federal Information Systems and Organizations, NIST Special Publ. (SP) 800-53, Rev. 4 (April 30, 2013),http://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-53r4.pdf.

EEOC Files Two Genetic Information Nondiscrimination Act Lawsuits in Two Weeks

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The EEOC recently filed its first-ever lawsuit alleging a violation of the Genetic Information Nondiscrimination Act (GINA) – and subsequently filed its second GINA lawsuit one week later.

The first lawsuit settled, with a fabrics distributor paying $50,000 and agreeing to take other specified actions (i.e. posting an anti-discrimination notice, among other things) after the EEOC alleged a violation of GINA and the Americans with Disabilities Act (ADA). Specifically, with respect to GINA, the EEOC charged that the distributor violated the Act when it asked the woman for her family medical history in a post-offer medical examination, including questions relating to the existence of heart disease, hypertension, cancer, tuberculosis, diabetes, arthritis, and “mental disorders” in her family.

The second lawsuit remains pending and was filed against a nursing and rehabilitation center. The EEOC similarly charged that the center violated GINA when it requested family medical history in a post-offer, pre-employment medical examination. The second lawsuit also alleges violations of the ADA and Title VII of the Civil Rights Act.

dna (1)

According to the EEOC, GINA “makes it illegal to discriminate against employees or applicants because of genetic information, which includes family medical history; and also restricts employers from requesting, requiring or purchasing such information.”

As noted in both press releases, one of the six national priorities identified by the EEOC’s Strategic Enforcement Plan is for the agency to address emerging and developing issues in equal employment law, which includes genetic discrimination. As this recent EEOC action signals a focus on GINA issues, employers are encouraged to ensure their policies related to employee medical information and examination comply with the Act.

How Monsanto Applies to Nonagricultural Biotechnology

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The facts behind the Supreme Court’s recent ruling in Monsanto v. Bowman are simple enough. Farmers are able to buy soybeans containing Monsanto’s patented glyphosate resistance technology under a license that permits them to plant and grow one generation of crops. Vernon Bowman skirted this program, however, by purchasing commodity soybeans from a grain elevator knowing that the seeds would nonetheless likely contain the very same Monsanto technology. He then planted the seeds, raised crops, and saved seeds from these crops to plant new crops. The Supreme Court held that Bowman’s actions infringed Monsanto’s patents because unlicensed growth of the seeds was a new making of the patented invention. Consequently, the doctrine of patent exhaustion did not provide any defense as to these new seeds.

This was not a surprising result for the biotechnology industry. The idea that patent rights in seed progeny are not exhausted by the original sale of their “parents” was well established in the United States, and is even codified in the European Biotechnology Directive.

The Court left us with a relatively clear answer regarding the scope of patent exhaustion related to seeds. The use of the purchased, licensed seeds for consumption and/or processing cannot be interfered with by the original seller, as the patent rights on those individual (sold) seeds have been exhausted. The planting and cultivation (i.e., replication) of those seeds, however, can only be done under a license from the patentee. In other words, even though someone sells you a bag of seed, you have no right to plant and grow that seed without a license (although there may be a good argument that the license should be implied in appropriate cases).

So, where does Bowman leave us when it comes to determining the infringement or enforceability of self-replication biotechnology patents outside of the agricultural context? For other patented self-replicating (or easily replicable) technologies, the circumstances may present more complicated questions.

Biotechnology inventions such as cell lines, bacteria, and other living material often must exist in a condition of continuous self-replication simply to be maintained for any use. Vectors, plasmids, etc., replicate within cells, and from generation to generation within host cells, allowing for production of vastly more nucleic acid copies than initially used for transfection. Even small linear nucleic acids such as those used for primers and probes may be “replicated” to generate large quantities relatively easily using PCR or other methods in molecular biology. In each case, (cells, viruses, vectors, probes), something analogous to planting, watering, cultivating, is required. In view of the Bowman decision, the question persists as to whether such replication will be permitted or considered an unlicensed “remanufacture” or new making of the original, patented item.

In this regard, we note that Justice Kagan left open the possibility that the replication might be “a necessary but incidental step in using the item for another purpose.”[1] Certainly, the replication contemplated in this part of the opinion is that which must necessarily occur in connection with some authorized practice of the invention. Maintenance of culture cells, for example, where the cells are necessarily replicating only for the purpose of maintaining the culture during its authorized use or in preparation for such use is one example that seems to fit comfortably within this aspect of the Court’s opinion.  In other words, a license for multigenerational use of a cell line may be implied in these circumstances, even if it is not given expressly.

Other technologies may not present quite so simple an analysis. DNA vectors can be used for a variety of purposes, not all of which require replication. For example, vectors can be used as probes or markers, they can be used to transport sequences of interest for further manipulation, or they can be used as immunizing agents. None of these uses require or specifically contemplate replication. Of course, some vectors are used in contexts where replication is likely or assumed (e.g., transfection of cells or bacteria, generation of transgenic tissues or organisms). The consideration of vectors under Bowman will, therefore, likely depend more heavily on context, including the sales and licensing practices of the patentee.

Some commentators have characterized the Bowman holding as “limited to the facts,” pointing to the Court’s comment that “[o]ur holding today is limited – addressing the situation before us, rather than every one involving a self-replicating technology.”[2] Attempts to limit Bowman to its specific facts should be taken carefully. Indeed, the Court cut through much of the surrounding facts to reach its core holding – that replication is a new making of the patented invention and an infringement in the absences of a license. Accordingly, it does appear that the holding may address the most important “situation” for all self-replicating technologies, even if it does not address all of the context-dependent permutations of the facts involving self-replication technologies.

Consequently, assertions of “self-replicating” material turning otherwise innocent parties into patent infringers are simply not credible. To paraphrase the Court in Bowman, the soybeans Bowman took home from the grain elevator didn’t plant themselves, didn’t spray themselves with glyphosate, and didn’t otherwise cultivate themselves to produce the unauthorized crop. Similarly, in biotechnology, it is likely that unauthorized and infringing activity will quite clearly fit the Monsanto “situation” and be easily recognizable as infringement. For example, maintaining an initial cell culture in the hands of the licensee-purchaser, although it also involves replication, should be easily distinguished from distribution of the culture (or vectors, or phage, etc.) to unauthorized third parties.

Nonetheless, given the potential for unnecessarily complex analysis and possible confusion of courts, patent holders should carefully consider how their license provisions may be used to clarify not only express grant and restriction provisions, but also how the license may shape an understanding of how the invention works and its intended use. The dividing line between authorized and infringing activity will be influenced by context, and parties are well advised to define that context by the licensing contract and not rely on the bare contours of the doctrine of patent exhaustion. The license is the place where the parties involved, the patent holder and the licensee, have a chance to agree on what is authorized and what is not. It is also the place where the patent holder has an opportunity to shape future interpretations of what the practice of the invention encompasses and what it does not. An effort to be as comprehensive as possible in the positive, express grant of the license may be as important as the restrictions that are expressly stated. If, as is quite possible, the restrictions fail to contemplate the full scope of intended unauthorized activities, a grant of authorization that is more specific may allow a court to more accurately determine what is “necessary but incidental” to the authorized practice of the invention and what is not.

The Bowman decision provides the biotech community some much needed clarity regarding self-replicating inventions. Perhaps equally important, the Court displayed a keen sensitivity to the negative implications of an overly broad exhaustion doctrine. While there will undoubtedly be further development of the law as it is applied to different technologies, the fundamental ability to control self-replicating inventions at each generation through the grant or withholding of a license places authority where it belongs – with the patentee. And, by reducing the need for complex work-arounds, the clarified authority and more calibrated level of control provided by theBowman decision should facilitate licensing negotiations to the benefit of both parties.

This article was written by guest bloggers Christopher Jeffers, Ph.D., Carl Massey, Jr., Thomas F. Poché, Ph.D.

[1]Although the Court referenced the copyright statute, 17 U.S.C. § 117(a)(1), in conjunction with this “necessary but incidental” fact pattern, the statute actually considers only computer programs and states there is no infringement if “a new copy or adaptation is created as an essential step in the utilization of the computer programin conjunction with a machine and that it is used in no other manner.” From this, better language in the Bowmanopinion might have been “necessary and essential” or even “necessary and incidental.” 

[2] Bowman Op. at 10.

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Weighing Going Private or Sale to Carl Icahn, Dell Cuts off Info

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As Dell Inc. considers its future after a massive loss in value over the past decade, the question may fundamentally be this: are the company’s problems are the result of poor leadership or a relatively straightforward matter of shedding its stock obligations?

Two proposals are on the table. First, founder Michael Dell has proposed taking the company private by buying out the company’s stock for $24.4 billion through a private equity firm called Silver Lake. Second, business magnate Carl Icahn’s Southeastern Asset Management has offered to buy Dell for $12 in cash per share. Unfortunately, it’s not clear how the buyout negotiations are going.

An unquestioned leader in the personal computer industry in the 90s, Dell had lost some $68 billion in stock market value by 2010, reportedly due to a change in its customer base and inability to respond to Apple’s iPhone and iPad products. Sales at Dell continue to shrink, reportedly showing a 79 percent drop in a quarterly profit report filed last week.

As part of the buyout negotiations, Icahn sent a letter on seeking more detailed information from Dell, including data room access for a certain potential lender This week, however, a special committee of Dell’s board of directors sent Icahn a letter refusing access to that information until it can determine whether his offer is “superior” to Michael Dell’s.

Meanwhile, Dell insisted upon more information from Icahn — such as whether his offer is even serious. In its response, the committee specifically asked Icahn to make “an actual acquisition proposal that the Board could evaluate” as opposed to merely offering the board a backup plan in case Michael Dell’s proposal fails to move forward.

“Please understand that unless we receive information that is responsive to our May 13 letter, we are not in a position to evaluate whether your proposal meets that standard,” the special committee reportedly wrote in response to Icahn’s request.

The question on Wall Street is the same as Dell’s: Is the Southeastern Asset Management offer serious? Icahn reportedly already owns 4.5 percent of Dell’s stock, while Southwest, already Dell’s largest outside shareholder, owns 8 percent.

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Bipartisan Toxic Substances Control Act (TSCA) Modernization Bill, Chemical Safety Improvement Act, Introduced in Senate

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In a major breakthrough, bipartisan and broadly supported legislation to modernize the Toxic Substances Control Act (TSCA) has been introduced in the Senate. The Chemical Safety Improvement Act (CSIA), S. 1009,[1] was announced on May 22, 2013[2] by its chief Democratic and Republican sponsors, Senator Frank Lautenberg (D-NJ) and Senator David Vitter (R-LA). This client alert provides the political context for this remarkable development, and then explains the key provisions of the bill. It concludes with comments on the prospects for passage.

Political Context

Just weeks ago, Senator Lautenberg, a longtime champion of TSCA reform, had reintroduced his own comprehensive chemical safety bill, the Safe Chemicals Act (SCA), as described in our previous report.[3] The SCA targets many of the same aspects of TSCA as the CSIA does, but applies different, often more complex approaches. The SCA has obtained support only from the Democratic caucus, with 26 Democratic and 2 Independent co-sponsors. This one-sided support left the SCA with few prospects for passage by the Republican-majority House of Representatives, even assuming that the Democratic majority in the Senate could pass it.

Now, with Senator Lautenberg’s retirement next year lending more urgency to his quest for a viable TSCA modernization bill, the long-sought goal of bipartisan support has been achieved. As of this writing, the CSIA has been co-sponsored not only by a number of Democratic senators who had co-sponsored the SCA,[4] but also by eight Republicans,[5] as well as three more conservative Democratic senators who had not signed on to the SCA.[6] Since the original introduction, three Democrats and one Republican have co-sponsored the bill,[7] for a total of 19 co-sponsors (10 Democrats and 9 Republicans).

Initial reactions to the CSIA have been generally been very favorable, by both industry groups[8] and some NGOs.[9] Other NGOs have already announced their opposition, however.[10]

EPA has not commented publicly on the bill, although two former EPA officials in the TSCA office, Steve Owens and Charlie Auer, issued statements of support.[11]

There is no guarantee of passage, but never before have the prospects for TSCA modernization been more favorable.

Key Provisions

1. Overview

The CSIA would mandate that EPA determine, on a prioritized basis, whether chemical substances meet a safety standard under the intended conditions of use. If they are found not to meet the safety standard, EPA would have to regulate them. The CSIA would establish a prioritization mechanism; set a safety standard; require EPA to determine whether chemical substances meet that safety standard under the intended conditions of use, by deadlines set by EPA; authorize EPA to require testing when additional information is needed in order to complete that determination; and direct EPA to select risk management measures by taking costs and benefits into account, but not by requiring use of the least burdensome alternative.

In addition to these core provisions, the bill would make limited changes to the new chemical provisions; require reporting by processors; lead to identification of chemical substances that are actively manufactured or processed; revise confidentiality protections, including protection for chemical identities; expand preemption of state and local restrictions of chemicals; and update export and import reporting requirements.

2. Prioritization

The prioritization mechanism would classify a chemical substance as being a high priority or a low priority for a safety assessment and safety determination. With few exceptions, only chemicals classified as active (see below) would be considered for prioritization. Only high-priority chemical substances would continue on to safety assessments and determinations.

For the most part, there would be no statutory deadlines for completing the prioritization process, but EPA would have to make every effort to complete the prioritization of all active substances in a timely manner. A state governor or agency could recommend chemical substances for prioritization; EPA would have to complete its prioritization of those substances within 180 days. If EPA were to need additional information before prioritizing a chemical substance, it could ask the public to submit existing data, but it could not require testing. Lists of high- and low-priority substances would be made public.

3. Safety Assessments and Safety Determinations

EPA would conduct a safety assessment and then a safety determination of each high-priority substance. The safety assessment would be based solely on considerations of risks to health and the environment. EPA would have to establish a methodology for conducting safety assessments and would have to rely on the best available science. The methodology would have to be reviewed every five years and updated as necessary.

Upon completing a safety assessment, EPA would make a safety determination, i.e., determine whether or not the chemical substance meets the safety standard under the intended conditions of use, taking into account factors such as the range of exposure, the weight of the evidence, and the magnitude of the risk.

EPA could require testing if necessary for it to complete either a safety assessment or a safety determination.

There would be no statutory deadlines, but EPA would have to set its own deadlines for completing each safety assessment and safety determination. Those deadlines could vary for different chemical substances. If EPA found that it could not meet a deadline, it would have to explain publicly the reasons for extending the deadline. This innovative approach would subject EPA to deadlines that are likely to be realistic (since it would set them itself), but would avoid the sue-and-settle litigation over failure to meet statutory deadlines that has proven problematic under some other environmental statutes.

Proposed safety assessments and safety determinations would be available for public comment. Final versions would also be made public. Safety determinations would be subject to judicial review.

4. Safety Standard

The safety standard used for safety determinations would be a standard that ensures that no unreasonable risk of harm to human health or the environment will result from exposure to the chemical substance. Compliance with the safety standard would be assessed in light of the intended conditions of use, meaning the circumstances under which a chemical substance is intended or reasonably anticipated to be manufactured, processed, distributed in commerce, used, or disposed of.

This “unreasonable risk” standard would differ from the “unreasonable risk” standard currently in TSCA. That one mandates a weighing of costs and benefits of regulation, the chemical substance, and its alternatives. The CSIA “unreasonable risk” standard would not be a weighing of competing economic and social factors, but rather a judgment after evaluation of various aspects of risk to health and the environment. Among the factors that EPA would consider would be the subpopulations that would be exposed, the degree of exposure, and the protections provided by the intended conditions of use (such as use of engineering controls, protective clothing, or warnings). For example, presumably EPA could find that a chemical substance meets the safety standard under the intended conditions of use for occupational exposure but not for exposure to children.

5. Risk Management

If EPA were to find that a chemical substance did not meet the safety standard under the intended conditions of use, it would have to adopt risk management measures through rulemaking. EPA could consider a wide variety of options, such as labeling, quantity or use restrictions, or even phase-outs or bans, if appropriate. Unlike under current TSCA, EPA would not be constrained to select the least burdensome option.

EPA would evaluate the different risk management options in terms of costs and benefits. It would have to consider whether technically and economically feasible alternatives exist; the risks of those alternatives as compared to the risks of the chemical substance under the intended conditions of use; the economic and social costs and benefits of the preferred regulatory option and other options considered; and the economic and social costs and benefits of the chemical substance and its alternatives.

6. New Chemicals and Significant New Uses of Existing Chemicals

Under the CSIA, the current approach for premanufacture notifications (PMNs), significant new use rules (SNURs), and significant new use notices (SNUNs) would continue. The bill would codify some of EPA’s current administrative practices for review of PMNs and SNUNs. The authority for the current PMN exemptions, such as those for R&D, polymers, and low volume, would remain unchanged.

In evaluating PMNs and SNUNs, EPA would determine whether or not the new chemicals and significant new uses were likely to meet the safety standard under the intended conditions of use. If so, EPA would allow the review period to end and the PMN submitter to submit a notice of commencement of commercial manufacture or import (NOC). If EPA were to determine that a new chemical substance or significant new use would not be likely to meet the safety standard, it would have to impose restrictions in a manner similar to section 5(e) consent orders under current TSCA.

If EPA were to determine that it needed more information in order to make a determination about likelihood of meeting the safety standard, it could require the submitter to develop the information through testing. However, rather than require test results to be submitted before manufacture or the significant new use could commence, EPA could allow the submitter to file an NOC, begin commercial manufacture or the significant new use, and thereby generate income to pay for the testing. If the test results later created concerns for EPA, it could prioritize the chemical substance as a high-priority substance.

7. Testing

Unlike the SCA, the CSIA would have no requirements for submission of minimum information sets in specified circumstances. Instead, under the CSIA, EPA could require testing where it found that it needed additional data in order to complete a safety assessment or a safety determination, or to make a determination of likelihood of meeting the safety standard for a new chemical substance or a significant new use. It could also require testing to meet agency needs under another federal law.

EPA would have to explain its need for testing, including an explanation of why existing information could not be extrapolated to meet the need. Testing requirements would have to be tiered. There would be provisions to encourage alternatives to animal testing.

It would generally be easier for EPA to require testing under the CSIA than under current TSCA. EPA would not have to establish that a chemical substance may pose an unreasonable risk or meets certain volume or exposure levels, and it would not have to proceed by rulemaking. Instead, it could issue an order or enter into a consent agreement to require testing.

8. Reporting and Recordkeeping

EPA currently has authority to require processors to report information, but it rarely exercises that authority. The CSIA would require EPA to adopt reporting requirements for processors, although the requirements could differ from those for manufacturers.

The CSIA would address some of issues of nomenclature used for naming chemical substances on the TSCA Inventory. For example, individual members of statutory mixtures listed on the Inventory would be declared to be on the Inventory. EPA would be directed to continue using its Class 2 and carbon chain length nomenclature.

EPA would have to identify those chemical substances on the Inventory that are active, i.e., have been manufactured or processed within the past five years. It would do so by establishing a candidate list of proposed active substances, then requiring manufacturers and processors to report either the candidate list substances or other substances on the Inventory that they have manufactured or processed in the past five years. For chemical substances on the confidential Inventory, manufacturers and processors would have to reaffirm (but not resubstantiate) that the identities continue to be confidential. If no one were to reaffirm that a chemical substance on the confidential Inventory was still confidential, EPA could make that identity public. EPA would publish the list of active substances (or generic names of confidential active substances). With few exceptions, EPA would prioritize only active substances.

9. Confidential Business Information (CBI)

CBI would be protected from disclosure if certain requirements were met. Like the SCA, the CSIA would identify categories of information likely to be eligible for CBI protection or likely not to be eligible for CBI protection. New CBI claims would have to be substantiated. In most cases, previous CBI claims would not need to be resubstantiated.

Chemical identities could be protected as CBI, even if present in health and safety studies. Additional substantiation would be required, and a structurally-descriptive generic name would have to be made public. Chemical identities could be disclosed under prescribed circumstances, such as in a medical emergency.

Instead of setting fixed time periods for CBI protection, as under the SCA, the CSIA would allow CBI to be protected for the time period requested by the submitter, except where the submitter either withdrew the CBI claim or EPA otherwise learned that the claim could no longer be substantiated. In most cases, before releasing CBI publicly, EPA would have to notify the submitter and afford an opportunity to seek a court order barring release.

10. Preemption

Whereas the SCA would have allowed for virtually no preemption of state or local requirements, the CSIA would expand the preemptive effect of EPA actions as compared with current TSCA.

EPA testing requirements would continue to preempt new or existing state or local testing requirements. With limited exceptions, EPA rules, orders, and consent agreements under sections 5 or 6 for a chemical substance would preempt new or existing state or local restrictions or bans on the manufacture, processing, distribution in commerce, or use of that substance, as would a completed safety determination for the substance.

New state or local restrictions on the manufacture, processing, distribution in commerce, or use of a chemical substance would be preempted by EPA’s classification of a chemical substance as a high-priority substance or a low-priority substance.

State and local provisions relating to disposal of chemical substances, such as environmental monitoring requirements, generally would not be preempted.

A state or locality could seek a waiver of preemption if it could meet prescribed criteria. Waiver applications would be subject to notice and opportunity for comment, and waivers could be appealed to the D.C. Circuit.

11. Exports and Imports

Export notifications would only be required for chemical substances that EPA found under section 5 not to be likely to meet the safety standard under the intended conditions of use, or that a safety determination had found not to meet the safety standard under the intended conditions of use, or for which the U.S. was required by treaty to provide export notification. The latter provision refers to treaties which the U.S. has not yet ratified, such as the PIC and POPs Conventions.

Import certifications would be similar to those today, but would also require notification that an imported chemical substance was a high-priority substance or a substance for which the U.S. was required by treaty to provide export notification.

Prospects for Passage

No hearings on the CSIA have been announced, nor has a schedule for consideration been established. These are early days; some senators may still be evaluating the bill (for example, the Chair of the Environment and Public Works Committee, Senator Barbara Boxer, has not yet indicated whether she will support the bill).

Still, this bipartisan bill has fundamentally changed the prospects for passage of TSCA legislation in this Congress, which had been dim. It has effectively stopped any consideration of the SCA as a viable bill, although the SCA will serve as a touchstone for Democrats in evaluating whether to support amendments to the CSIA.

The House of Representatives remains unlikely to initiate its own TSCA legislation. However, if the Senate were to pass the CSIA with a large majority, including many Republicans, the House leadership would be likely to bring a companion bill up for consideration.

Some NGOs (e.g., the Environmental Working Group) have already announced their opposition to the bill, although others are taking a pragmatic approach of considering the CSIA as the best bill that has a realistic chance of passage.

Some Democrats are likely to seek to amend the CSIA, such as by adding statutory deadlines. Some Republicans may also want changes. Given that less than six months of the 113th Congress have passed, there is time for the Senate to consider the bill thoroughly, pass it or an amended version, and still have the House agree to what the Senate had passed. Another scenario, less likely but still possible with this breakthrough, is that both Houses would consider and pass the legislation within a short time. That is what happened with the Consumer Product Safety Improvement Act of 2008 and the Food Quality Protection Act of 1996. One thing is certain: it is important to stay tuned, because TSCA has suddenly become a hot topic on Capitol Hill.

[1] Chemical Safety Improvement Act, available atwww.bdlaw.com/assets/attachments/Chemical%20Safety%20Improvement%20Act.PDF.

[2] Senate Environment and Public Works Committee, Press Release, “Senators Lautenberg And Vitter Reach Groundbreaking Agreement To Reform Nation’s Chemical Laws; Bipartisan Legislation Would Protect Americans From Risks Posed By Exposure To Chemicals” (May 22, 2013),http://www.epw.senate.gov/public/index.cfm?FuseAction=Minority.PressReleases&ContentRecord_id=ccf8cd45-e41f-28bd-0252-9984333f7335.

[3] Beveridge & Diamond, P.C., “‘Safe Chemicals Act,’ First TSCA Reform Bill of 113th Congress, Reintroduced” (Apr. 16, 2013), http://www.bdlaw.com/news-1462.html; see also Beveridge & Diamond, P.C., “TSCA Modernization Proposals in Congress: Recent History and Prospects” (Feb. 25, 2013), http://www.bdlaw.com/news-1447.html.

[4] Senator Lautenberg is listed as the sponsor. Democratic co-sponsors include Senators Kirsten Gillibrand (D-NY), Richard Durbin (D-IL), Charles Schumer (D-NY), Tom Udall (D-NM), Robert Menendez (D-NJ), Tom Harkin (D-IA), and Patty Murray (D-WA).

[5] Senator Vitter is listed as a co-sponsor. Other Republican co-sponsors include Senators Mike Crapo (R-ID), Lamar Alexander (R-TN), James Inhofe (R-OK), Susan Collins (R-ME), Marco Rubio (R-FL), John Boozman (R-AR), John Hoeven (R-ND), and Lisa Murkowski (R-AK).

[6] Senators Mary Landrieu (D-LA), Joe Manchin (D-WV), and Mark Begich (D-AK).

[7] Democratic Senators Begich, Harkin, and Murray, and Republican Senator Murkowski.

[8] E.g., American Chemistry Council, Press Release, “ACC Commends Senators Lautenberg and Vitter for Bipartisan Leadership to Reform TSCA” (May 22, 2013),http://www.americanchemistry.com/Media/PressReleasesTranscripts/ACC-news-releases/ACC-Commends-Senators-Lautenberg-and-Vitter-for-Bipartisan-Leadership-to-Reform-TSCA.html/;American Cleaning Institute, Press Release, “Introduction of the Chemical Safety Improvement Act” (May 22, 2013), http://www.reuters.com/article/2013/05/22/aci-safety-act-reax-idUSnPNDC19227+1e0+PRN20130522.

[9] Environmental Defense Fund, Press Release, “A bipartisan path forward to reform U.S. chemical safety law; Hard-fought compromise legislation would better protect American families” (May 22, 2013), http://www.edf.org/news/bipartisan-path-forward-reform-us-chemical-safety-law. For a variety of NGO viewpoints, see Safer Chemicals Healthy Families blog, “Reactions to the bi-partisan Chemical Safety Improvement Act” (May 23, 2013), http://www.microsofttranslator.com/BV.aspx?ref=IE8Activity&a=http%3A%2F%2Fblog.saferchemicals.org%2F2013%2F05%2Finitial-reactions-to-the-bipartisan-chemical-improvement-safety-act.html.

[10] E.g., Environmental Working Group press release, “EWG President Ken Cook Weighs In On Senate Chemical Policy Reform Bill” (May 23, 2013), http://www.ewg.org/release/ewg-president-ken-cook-weighs-senate-chemical-policy-reform-bill.

[11] Senate Environment and Public Works Committee, “Top EPA Toxics Officials Under Obama & Bush Admins Hail Lautenberg-Vitter Bill to Reform Nation’s Chemical Laws” (May 23, 2013),http://www.epw.senate.gov/public/index.cfm?FuseAction=Minority.PressReleases&ContentRecord_id=d2553c0f-beb5-e270-2971-ff2b84a06e88&Region_id=&Issue_id=.

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Watt’s New? Michigan Energy Newsletter – May 2013

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New DTE Electric PPAs for Wind Energy

Two 20-year power purchase agreements (PPAs) between DTE Electric and Pheasant Run Wind, LLC and Pheasant Run Wind II, LLC received ex parte approval from the Michigan Public Service Commission (MPSC) on May 15, 2013. Each PPA is for 74.8 MW of wind energy for projects in Michigan’s Thumb region. Also approved was an option agreement wherein DTE Electric can purchase the Pheasant Run Wind II project. This option expires on March 31, 2014. These contracts resulted from unsolicited proposals from Next Era Resources on a timetable which would qualify for production tax credit benefits. The price in each PPA is “up to” $49.25 per MW hour (4.925¢ kWh). The average net capacity factor is estimated to be 43%. Geronimo Energy LLC attempted to intervene at the MPSC, arguing that its 100 MW Apple Blossom Wind Project in Huron County was a competing proposal that would pass through the same tax benefit. Its request that DTE Electric be made to undertake a competitive bidding process was rejected and its petition was denied.

Five Ethanol Plants in Michigan

Michigan has five corn ethanol refineries. In 2008 it appeared there would be six more, but ultimately the demand for ethanol in Michigan did not justify 11 facilities. The operating plants are in Riga Township, Albion, Caro, Marysville, and Lake Odessa. Generally they have 40-50 employees, each with a capacity between 50-60 million gallons per year. Total ethanol production in the state is approximately 240 million gallons per year.

Offshore Team Sails to Cleveland

Muskegon-based Andrie Inc. has been hired to assist in the development of an offshore wind energy project in Lake Erie. The company’s 90’ by 50’ jack-up barge recently traveled to Cleveland to assist in lake bottom sediment testing seven to nine miles offshore. A jack-up barge is a floating platform with long poles in each of the four corners that can be lowered into the water down to the lake bottom to secure the platform above the water surface. LEEDCo, a public-private partnership, is developing a 27 MW, five to nine turbine offshore project.

Energy Forum Update

Initial review and gap analysis of the information presented at the seven energy forums and on line is now being conducted. It is expected that the gap analysis will be complete by the end of May. The month of June will see an effort to fill in the gaps. By the end of June it is expected everything needed for reports will be in hand. Draft reports are targeted for the end of September, with public comment beginning as early as mid-October.

Nuclear Plant Off-Line Again

The Palisades Nuclear Power Plant in Covert has been shut down due to a water leakage issue in the Safety Injection Refueling Water Tank. The leak was estimated to be 34 gallons per day, with 79 gallons of slightly radioactive water having drained into Lake Michigan. A half-inch crack about the width of a thumbnail is believed to have been the source of the leak. Entergy Corporation, a New Orleans-based company, owns and operates the Palisades facility and has a 15-year power purchase agreement with Consumers Energy that will expire in 2021.

43 Degrees North @ Muskegon

The Michigan Energy and Technology Center has been formed by a consortium of companies to generate economic activity in the state. The founding members of the group include Consumers Energy, Energetx Composites LLC, Rockford Berge, Sand Products Co., and Verplank Dock Co. Initial affiliate members are Astraeus Wind Energy Inc. and Ventower Industries. The group will initially focus on two projects. The first is to enhance the infrastructure at the Port of Muskegon, the only deep water port on the Michigan side of Lake Michigan. In support of this project, Consumers Energy has made a commitment to allow access to its coal port at the Cobb generating plant, which will be idled within the next three years. The second project is a pilot program by Michigan State University to develop a virtual clean technology and logistics research center [MTEC @ MSU] to assist in developing clean energy technology, scaling up manufacturing, and transporting products.

Michigan Energy Fair Returns

The Great Lakes Renewable Energy Association will conduct the 13th annual Michigan Energy Fair in Ludington on June 7-8. The event will take place at the Mason County Fairgrounds. The program on Friday is intended for energy professionals, facility managers, and educators and will run from noon to 5 p.m. There is a $25 charge for the workshops. The Saturday events begin at 9 a.m., will be more oriented toward the general public, and are free. Energy Fair exhibits will provide information on solar, wind, energy efficiency, and other energy related topics.

Michigan Shorts

NextEra has ordered 59 1.7 MW wind turbines from General Electric for its Tuscola II project scheduled to be complete by the end of the year.  Tecogen has purchased the proprietary 5300 permanent magnet generation line as part of the liquidation of Danotek Motion Technologies of Canton.  The Great Lakes Renewable Energy Association has been awarded a $33,304 grant from the Michigan Energy Office to conduct a feasibility study of community solar in Michigan.  Ornicept, a startup with technology to study bird migration issues associated with wind turbines, has relocated to Ann Arbor.  Muskegon’s Wastewater Management System director has reported that six months of meteorological testing by Gamea Energy has confirmed average wind speeds are sufficient to support a viable wind energy project Ω The Michigan Public Service Commission has approved an opt out option for residential smart meters consisting of an initial fee of $67.20 and a $9.80 monthly fee.  NextEra has selected General Electric’s new 1.7-100 brillant wind turbine for its new Michigan wind farm project.  WindTronics LLC of Muskegon has ceased manufacturing its gearless wind turbine and ended operations.  Nexteers Sunsteer solar tracking system is manufactured in Michigan with 90 percent U.S. content and 50 percent Michigan content.

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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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