Litigation Archives - The National Law Forum

U.S. Supreme Court: Forced Transfers of Employees Without Loss of Pay or Rank Violate Title VII

Federal law prohibits employers from relying on certain protected statuses (race, color, religion, sex, or national origin) when making employment decisions. Lower courts have required employees suing employers to point to a materially adverse harm caused by the alleged employer discrimination. But is a forced transfer of an employee to another department—with no loss of pay or rank—an “adverse employment” decision? On April 17, 2024, the U.S. Supreme Court ruled 9-0 in the affirmative.

In Muldrow v. City of St. Louis, a female police sergeant alleged she was transferred from one job to another because she is a woman, in violation of Title VII. While her rank and pay remained the same in the new position, her responsibilities (moving from being a plainclothes intelligence officer to a more administrative role), perks (e.g., no longer having a take-home car), and schedule (fewer weekends off) did not. The District Court reiterated Title VII’s prohibition against basing employment decisions on a person’s gender, but further opined that because the female police sergeant did not demonstrate there was a “significant” change in working conditions producing “material employment disadvantage,” her discrimination claim failed as a matter of law. The District Court reached this conclusion because she suffered no “change in salary or rank,” and therefore, there was no harm and no foul. The U.S. Court of Appeals for the Eighth Circuit agreed, concluding that the plaintiff did not have a viable employment discrimination claim because her job transfer “did not result in a diminution to her title, salary, or benefits.”

Writing for a unanimous court, Justice Elena Kagan reversed the Eighth Circuit, ruling that an employee need not show “significant, serious” or “material” change in employment conditions to maintain a discrimination claim “because the text of Title VII imposes no such requirement.” More specifically, the Supreme Court reasoned that there is nothing in Title VII that distinguishes “between transfers causing significant disadvantages and transfers causing not-so-significant ones.” All a plaintiff need show in a forced discriminatory transfer case is that the transfer left the employee “worse off,” but not “significantly worse” as numerous federal appellate decisions have previously held.

The Hidden Dangers: Long-Term Effects of Mild Traumatic Brain Injury

Traumatic brain injuries can have life-changing impacts on a person’s life, and understandably so because they result from injuries to the brain either through a massive blow to the head or injury by a penetrative object into the brain matter.

However, not all types of traumatic brain injuries have quite dramatic symptoms, and a mild TBI (traumatic brain injury) is one such injury. They result from a relatively minor blow to the head or a jerking of the head, causing injuries to the brain tissue.

While most mild TBIs resolve in a few weeks, some can affect the victim’s life in the long term.

Symptoms of a Mild TBI

If you have suffered a blow to the head in an accident, you need to pay attention to your symptoms, as it can help you identify signs of a mild TBI, also known as a concussion. Symptoms like passing out briefly, headache, memory loss, confusion, loss of balance, sensitivity to light and noise, problems keeping balance, tingling in your fingers, etc., are indicative of a concussion.

However, other injuries can present similar symptoms, so it is best to have a doctor make that determination. Also, it is important to note that concussions can go undetected for days because they tend to have delayed symptoms.

Unfortunately, taking too much time before seeking medical attention for a mild TBI can introduce treatment gaps, which can result in complications when seeking compensation for the long-term effects of a concussion. A timely hospital visit helps create a link between an accident and symptoms that could show days after the accident. Which is why personal injury lawyers always insist on seeking medical attention even when you feel okay.

Long-Term Effects of a Mild TBI

While most effects of a concussion will be gone after 90 days of suffering an accident, and this is for cases of severe injuries, there are situations where the effects of an injury can last years or a lifetime. Common long-term effects of a mild TBI on a person’s life include:

LONG-TERM MEMORY LOSS

Memory loss is pretty common after a concussion. However, it involves losing a recollection of the few minutes before and after an injury.

In some cases, the affected person can start remembering things once forgotten. However, in severe cases, memory loss can impact a person’s life in the long term.

DEPRESSION

Many people will develop symptoms of depression after a concussion, usually as a result of chemical changes resulting from the brain injury. While most symptoms will disappear as the brain recovers, some people may have to live with the symptoms for an extended period.

In some cases, symptoms of depression won’t show until some time after other symptoms are gone.

COGNITIVE IMPAIRMENT

In most cases, the effect of a mild TBI on a person’s thinking and cognitive abilities resolves in a few months at most.

But there is no guarantee that your cognitive abilities will return to your pre-injury levels, especially with relatively severe concussions or injuries that went undetected for a long time.

Treatment and Support for Mild TBI

You may not need hospitalization after a TBI. Often, doctors focus on treating the symptoms and may prescribe cognitive and behavioral therapy to address the psychological and injury effects on a person’s mental well-being.

If the injuries resulted from an accident and another person’s negligence was to blame, you could consider talking to a personal injury lawyer to help recover damages.

Ninth Circuit Rules Against Apache in Dispute Over Sacred “Oak Flat” Site

On March 1, the U.S. Court of Appeals for the Ninth Circuit sided with a lower court decision denying an Apache interest group’s motion for a preliminary injunction against the transfer of copper-rich federal land to private company Resolution Copper.

Oak Flat, a piece of land that the Ninth Circuit acknowledges is “a site of great spiritual value to the Western Apache Indians,” has been at the center of the dispute largely due to the significant copper ore deposits it sits on. Through the Land Transfer Act, Congress directed the federal government to transfer the land to Resolution Copper, which would then mine the ore. Apache Stronghold sued the government, seeking an injunction against the land transfer on the ground that the transfer would violate its members’ rights under the Free Exercise Clause of the First Amendment, the Religious Freedom Restoration Act (“RFRA”), and an 1852 treaty between the United States and the Apaches. The Ninth Circuit disagreed, holding that Apache Stronghold was unlikely to succeed on the merits on any of its three claims before the court.

First, the Ninth Circuit found that under the Supreme Court’s controlling decision in Lyng. There, the Supreme Court held that while the government’s actions with respect to “publicly owned land” would “interfere significantly with private persons’ ability to pursue spiritual fulfillment according to their religious beliefs,” it would also have no “tendency to coerce” them “into acting contrary to their religious beliefs.” The Ninth Circuit also found that the transfer of Oak Flat for mining operations did not discriminate against nor penalize Apache Stronghold’s members, nor deny them an “equal share of the rights, benefits, and privileges enjoyed by other citizens.”

Second, Apache Stronghold’s claim that the transfer of Oak Flat to Resolution Copper would violate RFRA failed for the same reasons because “what counts as ‘substantially burden[ing] a person’s exercise of religion’ must be understood as subsuming, rather than abrogating, the holding of Lyng.”

Finally, the court ruled that Apache Stronghold’s claim that the transfer of Oak Flat would violate an enforceable trust obligation created by the 1852 Treaty of Sante Fe because the government’s statutory obligation to transfer Oak Flat abrogated any treaty obligation.

The case demonstrates the difficulty Tribes have in stopping major development projects on federal land on religious grounds.

States Sue the Biden Administration to Stop Loan Relief Plan

On April 9, 2024, seven states filed suit against the Biden administration in an attempt to block its new “SAVE” plan, an income-driven repayment plan that leads to eventual loan forgiveness. The case is pending in the U.S. District Court for the Eastern District of Missouri.

Plaintiff states claim that the plan is unlawful because it evades limits Congress imposed for income-based repayment plans and sets arbitrarily high thresholds that would effectively create a grant program for student borrowers. Plaintiffs allege that the US Supreme Court struck down a similar plan last year proposed by the Biden administration which would have cost taxpayers $430 billion. See Biden v. Nebraska, 143 S. Ct. 2355, 2362 (2023). The states allege that the plan violates the Higher Education Act of 1965 and subsequent amendments, which allows student-loan cancelation to occur only after a borrower pays 15% of their disposable income (which is defined as 150% above the poverty line) after 25 years.

The states further allege that the disposable income threshold would increase from 150% to 225% above the poverty line and that the plan would only require borrowers to pay 5% of their income for 10 years before loans are cancelled, “gut[ting] the statutory purpose of providing loans.”

Plaintiffs seek a declaratory judgment that the relief plan is unlawful and injunctive relief.

Putting It Into Practice: State attorneys general continue to challenge Biden regulatory actions through litigation (previously discussed here and here). Given the success they have achieved thus far, it will be interesting to see how this litigation develops. We will continue to monitor the case for developments.

Fourth Circuit Reverses $1 Billion Award for Vicarious Liability Claim for More than 10,000 Works

On January 12, 2021, the U.S. District Court for the Eastern District of Virginia awarded a group of music recording companies (the plaintiffs) a $1 billion verdict against Cox Communications (Cox). The Virginia court’s ruling found that Cox, an internet service provider (ISP), was contributorily and vicariously liable for copyright infringement committed by certain subscribers on its networks. The plaintiffs alleged that the ISP allowed the unauthorized downloading and distribution of more than 10,000 copyrighted works by Cox subscribers who had already received three or more notices of infringement. The district court in Virginia established that the “takedown” notices sent by the plaintiffs provided Cox with the requisite knowledge of its subscribers’ repeated infringement to substantiate their claim that Cox was contributorily liable, suggesting that Cox had sufficient specific knowledge of infringement to have done something about it.

The plaintiffs’ notice to Cox identified the IP address of the subscriber, as well as the time of infringement and the identification of the infringed work, which the plaintiffs argued was sufficiently specific knowledge for Cox to be able to identify the subscriber and to exercise its policy by suspending or terminating the infringing subscriber. This case proceeded to trial on two theories of secondary liability – vicarious and contributory copyright infringement. The plaintiffs argued that Cox failed to act on these known repeat infringers, and the jury found Cox liable for willful contributory infringement and vicarious infringement, ordering Cox to pay more than $99,000 for each of the infringed-upon works. Cox appealed the jury verdict.

On appeal, before the U.S. Court of Appeals for the Fourth Circuit, Cox raised several questions of law concerning the secondary liability for copyright infringement, as well as what constitutes a derivative work in the Internet Age.

Vicarious Infringement
The Fourth Circuit’s analysis first considered whether the district court erred in denying plaintiffs’ vicarious infringement claim. “A defendant may be held vicariously liable for a third party’s copyright infringement [if the defendant] (1) profits directly from the infringement and (2) has a right and ability to supervise the direct infringer.” See Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 930 n.9 (2005) (internal citations omitted). The Fourth Circuit found that the plaintiffs failed to establish the first element as a matter of law and thus found that the plaintiffs failed to establish that Cox was vicariously liable.

In reaching this decision, the Fourth Circuit turned to the landmark decision in Shapiro, Bernstein & Co., 316 F.2d 304 (2d Cir. 1963), a case on vicarious liability for infringing copyrighted music recordings. In Shapiro, a department store was sued for the selling of “bootleg” records by a concessionaire operating in its stores. The store had the right to supervise the concessionaire and employees, demonstrating its control over the infringement. There, the store received a certain percentage of every record sale, “whether ‘bootleg’ or legitimate,” giving it “a more definite financial interest” in the infringing sales.” Thus, the Shapiro court found that the financial gains were clearly spelled out from the bootleg sales and acts of infringement in Shapiro.

Next, the Fourth Circuit recognized that courts have found that a defendant may possess a financial interest in a third party’s infringement of copyrighted music, even absent a strict correlation between each act of infringement and an added penny of profits. See Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996). In Fonovisa, the operator of a swap meet allowed vendors to sell infringing goods, and the operator collected “admission fees, concession stand sales, and parking fees” but no sales commission “from customers who want[ed] to buy the counterfeit recordings at bargain-basement prices.” The Fonovisa court found that the plaintiffs adequately showed a financial benefit from the swap meet owner and the sales of pirated recordings at the swap meet, which was a draw for customers. Thus, the infringing sales “enhance[d] the attractiveness of the venue of the potential customers, finding the swap meet operator had a financial interest in the infringement sufficient to state a claim for vicarious liability.”

The Fourth Circuit established that Shapiro and Fonovisa provided the steppingstones of the principles of copyright infringement to the internet and cyberspace and that Congress agreed that “receiving a one-time setup fee and flat periodic payment for service” from infringing and non-infringing users alike ordinarily “would not constitute a financial benefit directly attributable to the infringing activity.” Ellison v. Robertson, 357 F. 3d 1072, 1079 (9th Cir. 2004) (internal citations omitted). The Court also reviewed other court precedents, including A&M Records v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001), to show that increased pirated music drew in users as a direct financial interest for vicarious liability., but also notes that courts have found no evidence of a direct financial benefit between subscribers of American Online (AOL) and the availability of infringing content.’’ Ellison, 357 F.3d at 1079.

Against this backdrop, the Fourth Circuit held that to prove Cox was vicariously liable, the plaintiffs had to demonstrate that Cox profited from its subscribers’ infringing download and distribution of the plaintiffs’ copyrighted songs, which – given the evidence at trial – it did not. While the district court found it was enough that Cox repeatedly declined to cancel an ISP subscriber’s monthly subscription fee, the Fourth Circuit found this evidence to be insufficient. Instead, the Fourth Circuit found that the continued monthly payment fees for internet service, even by repeat infringers, was not a financial benefit flowing directly from the copyright infringement. Cox established that subscribers paid a flat fee even if all of its subscribers stopped infringing. Recognizing that an internet provider would necessarily lose money if it canceled subscriptions only demonstrates that service providers have a direct financial interest in providing subscribers with access to the internet only. Thus, the Fourth Circuit held that vicarious liability demands proof that the defendant profits directly from the acts of infringement for which it is being held accountable.

To rebut this, the plaintiffs claimed that the jury could infer that subscribers paid monthly membership fees based on the high volume of infringing content. The Fourth Circuit rejected this argument and found that the evidence was insufficient to prove that customers were drawn to Cox’s internet service or that they continued the service because they were specifically drawn to the opportunity to infringe the plaintiffs’ copyrights. The plaintiffs further asserted that subscribers were willing to pay more for the opportunity to infringe based on Cox’s tiered structure for internet access – but the plaintiffs fell short in proving this claim because no reasonable inference could be drawn that Cox subscribers paid more for faster internet to infringe on the copyrighted works. Ultimately, the Court found that the plaintiffs could not establish a causal connection between subscribers’ copyright infringement and Cox’s revenue for monthly subscriptions. Thus, the Fourth Circuit held that Cox was not liable for its subscribers’ copyright infringement and reversed the district court’s ruling on this theory. The court vacated the $1 billion damages award and remanded the case for a new trial on damages, holding that the jury’s finding of vicarious liability could have influenced its assessment of statutory damages.

Contributory Infringement
The Fourth Circuit then examined the remaining issue of contributory infringement. Under this theory, “one who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another is liable for the infringement, too.” Cox argued that the district court erred by taking away the factual determination from the jury that notices of past infringement established Cox’s knowledge that subscribers were substantially certain to infringe in the future. Cox had contracted with a third party to provide copyright violation notices to users and asserted that it used these notices as their safe harbor under the Digital Millennium Copyright Act to alert violators and to terminate access to users who were repeat infringers. Despite this, the Fourth Circuit ultimately agreed with the jury’s finding that Cox materially contributed to copyright infringement occurring on its network and that its conduct was culpable.

Therefore, a three-judge panel found that Cox was liable for willful copyright infringement but reversed the vicarious liability verdict and remanded a new trial on damages. The Fourth Circuit held that because Cox did not profit from its subscribers’ acts of infringement, a legal prerequisite for vicarious liability, Cox was not liable for damages under the vicarious liability theory.

The Impact
The Fourth Circuit’s decision recognizes a new dawn breaking in copyright law, one that requires a causal connection between profit and/or financial gain and a defendant’s acts of infringement to prove vicarious liability in a copyright infringement claim under the Copyright Act. The plaintiffs attempted to bridge the financial gap between acknowledging access to infringing content through a monthly internet subscription and high-volume infringing acts. However, the Fourth Circuit found that this leap in logic was a step too far and reversed the award for vicarious liability for lack of evidence to find this missing connection between Cox subscribers and infringing plaintiffs’ content.

While this may be one route the courts may consider to reduce music piracy damages, it remains to be seen whether other courts will take this approach to determining that profit is the key element supporting other vicarious liability claims in cyberspace.

Department of Justice Ramps Up Investigations of Private Clubs that Received PPP Loans

As Varnum’s government investigations team has previously discussed, (link) the COVID-era Paycheck Protection Program (PPP) resulted in millions of businesses receiving emergency loans. The PPP’s hurried implementation, coupled with confusion among recipients over eligibility requirements, created an environment ripe for both fraud and the issuance of loans to ineligible recipients. Over the past few years, the Department of Justice (DOJ) has focused on fraud by among other things, opening civil investigations under the False Claims Act and bringing criminal charges against PPP loan recipients who misused loan proceeds on luxury items. But recently, the DOJ has shifted its focus to a new category of PPP recipients: social clubs that may have been technically ineligible for the loans they received.

The opportunity for improper loans to social clubs comes about because of a technical wrinkle in how Congress wrote the American Rescue Plan Act of 2021. In this Act, Congress made social clubs (i.e. golf clubs, tennis clubs, yacht clubs) organized under 26 U.S.C. § 501(c)(7) eligible for PPP loans. However, Congress incorporated an agency regulation that prohibited loans to “private clubs and businesses which limited the numbers of memberships for reasons other than capacity.” The result is that social clubs that limit their number of members for any reason besides capacity were technically ineligible for PPP loans.

In recent months, the DOJ has issued Civil Investigation Demands (CIDs) to clubs that it believes might not have been eligible for PPP loans. These CIDs are demands for documents and interrogatory answers and often relate to employment records, income statements, the membership admission process, prospective members’ applications, the club’s governance, and membership information. CIDs are expansive and the government can use the club’s answer in future civil or criminal proceedings.

Given the DOJ’s new focus, clubs should review their PPP paperwork now and consult with an attorney to determine whether their loan was properly issued. If the clubs find technical violations, proactively approaching the government through counsel may be beneficial. If a club receives a CID, it should immediately contact an attorney to begin preparing the appropriate response.

For more news on Paycheck Protection Program Fraud Enforcement, visit the NLR Criminal Law / Business Crimes section.

Federal Court Confirms Case Challenging Bank of America’s Fraudulent COVID Relief Program Can Proceed

In a significant step forward for consumer protection, the Northern District of California confirmed that claims that Bank of America’s (“BofA”) misled its customers with false promises to provide overdraft fee relief during the COVID-19 pandemic could proceed.

The litigation centers on allegations that BofA widely advertised a COVID-19 bank fee relief program to garner publicity and goodwill but, instead of honoring its promises, the Bank abruptly and quietly ended any relief just a few months into the raging pandemic. Instead of announcing the shutdown, BofA kept promoting the program when none existed. Plaintiffs and other Americans across the country, who were suffering significant financial hardship as a result of the pandemic, trusted the bank’s marketing, and incurred significant fees that the bank refused to waive.

Plaintiffs Anthony Ramirez, Mynor Villatoro Aldana, and Janet Hobson have lodged claims on behalf of a putative nationwide class and state subclasses. The Court’s denial of BofA’s motion to dismiss supports plaintiffs’ allegations that the bank’s continued advertisement of the defunct relief program was deceptive and unlawful, depriving consumers across the country of millions of dollars in promised fee refunds.

This decision bolsters consumer protection rights and reinforces the judiciary’s role in ensuring that big banks like BofA make good on their promises to financially struggling customers.

The case is Ramirez, et al. v. Bank of America, N.A., Case No.: 4:22-cv-00859-YGR in the United States District Court for the Northern District of California.

A copy of the order is available here.

Dictionaries and the Law – Hunting, Poaching, and the Right to Food

The Law Court’s recent decision in Parker v. Department of Inland Fisheries & Wildlife is fascinating—it is a rare instance when the Court has been called upon to interpret and apply a new constitutional provision. The Maine Constitution has had relatively few amendments, but in 2021 Maine voters approved a “Right to Food Amendment.” Parker involved a challenge to Maine’s Sunday hunting law prohibition under the new amendment.

As is relevant here, the amendment provides that “[a]ll individuals have a natural, inherent and unalienable right to food, including the right to … grow, raise, harvest, produce and consume the food of their own choosing” for certain purposes, including nourishment. It then enumerates limitations on this right, conditioning the right on the requirement that the individual not commit “trespassing, theft, poaching or other abuses of private property rights, public lands or natural resources.”

The question in the case was whether the Maine law banning hunting on Sundays infringes on this right. In an interesting ruling, the Law Court said it did not. After reaching the straightforward conclusion that the plaintiffs could present a justiciable claim given the State’s denial of their request for a Sunday hunting permit, the Court took up the merits—and in so doing, raised some intriguing questions.

First, the Court accorded the Sunday hunting statute a presumption of constitutionality—even though the statute predated the constitutional amendment. But why? Normally the presumption accords the Legislature credit for seeking to act in accordance with existing constitutional limits. That rationale, the Court acknowledged, did not apply. The Court instead suggested that there are other reasons for according this presumption, but relied on cases stating that facial constitutional challenges are disfavored because they lack robust factual records and pose the risk of overbroad rulings. Those concerns seem to go to the particular vehicle for the challenge, not the presumed validity of the enactment itself. Isn’t the right answer, then, to apply the appropriate standard for facial challenges rather than apply a presumption? That point is at least debatable.

Second, the Court’s analysis of the amendment’s language raises interesting interpretive questions. The Court concluded that the term “harvest” includes hunting. The Court buttressed this conclusion by citing several authorities, including dictionary definitions, its own prior precedent, and statutory definitions. Based on these authorities, the Court reasoned, the amendment does include a right to hunt. The Court then observed that this right is subject to express limitations, including that the right does not include engaging in “poaching.” Citing dictionary definitions only, the Court then reasoned that the term “poaching” includes any illegal hunting. Thus, the Court held that the right to hunt does not include the right to hunt on Sundays, because the Legislature has made hunting on Sundays illegal.

One could imagine a potential criticism—does the reasoning in Parker render the right to hunt under the amendment meaningless? If the amendment is meant to protect the right to hunt, but does not circumscribe any law that renders hunting illegal, does the amendment protect hunting at all?

There are arguable critiques of the Court’s reliance on dictionary definitions. Two definitions cited, from Merriam Webster’s Collegiate Dictionary and Webster’s II New College Dictionary, suggest a broad definition of the term that includes any illegal taking of game. But query whether that is the ordinary understanding of the term. Various dictionaries, including Merriam Webster and Cambridge, suggest a primary meaning of “poaching” that relates to illegality in the manner in which the game is taken—i.e., taking game while encroaching on the land of another. Indeed, the Court’s citation to Black’s Law Dictionary, which defines poaching as the illegal taking of game “on another’s land,” supports this ordinary reading. At the very least, the availability of a narrower common meaning suggests the need for careful reliance on dictionaries, including analysis of primary definitions and the word’s context.

As Justice Scalia and Brian Garner note in Reading Law, the availability of multiple meanings for common words places great importance on evaluating not just to dictionary definitions but also the word’s context to determine its most likely meaning. Here, there are multiple hints at the word’s meaning to be found in the amendment’s context. The amendment itself references poaching and “other abuses of private property rights, public lands or natural resources.” The reference to “other abuses of private property” renders a definition of “poaching” that requires some sort of trespass more likely. And broader context might suggest the same; as mentioned above, a reading of “poaching” that includes any law rendering hunting illegal seems (at first blush) to render the amendment circular, and thus meaningless at least in part—a result that is generally discouraged. Of course, there may be rejoinders, but Parker does not provide them.

As Parker illustrates, constitutional and statutory interpretation requires careful, contextual analysis, and it is incumbent on attorneys to equip the Court with thorough arguments. That’s what a good appellate brief—whether by a party or by an interested party filing an amicus—is for. But for now, Parker answers a narrow question under the Right to Food amendment, while leaving many other questions about its scope and application open.

For more news on State Constitution Interpretation, visit the NLR Constitutional Law section.

Regeneron v Novartis and Vetter: Walker Process Client Update

In an appeal that attracted a dozen amici, including the Department of Justice, the Federal Trade Commission, five states, and the District of Columbia, the Second Circuit gave the Walker Process antitrust doctrine a shot in the arm in a patent dispute related to pre-filled syringes (“PFSs”) used for injection of anti-VEGF biologic medicines into patients’ eyeballs (i.e., intravitreal injections).¹ Under Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965), patentees who obtain patents through fraudulent behavior or inequitable conduct can be liable under the Sherman Antitrust Act. In a complaint filed in the Northern District of New York, Regeneron alleged Novartis and Vetter committed a Walker Process violation by obtaining and asserting patents for PFSs. The Second Circuit held that the district court made a mistake by dismissing Regeneron’s suit because it focused on the functional similarities in the markets for anti-VEGF medicines in PFSs and vials. In reversing, the Second Circuit held that the correct approach must focus on an economic market analysis rather than a functional market analysis, and that Regeneron’s complaint plausibly alleged that anti-VEGF PFSs constituted their own economic product market. As the amicus interest signals, the decision may have significant implications, both for the blockbuster market for anti-VEGF medicines and, more broadly, for defining the markets for different pharmaceutical methods of administration.

In its complaint, Regeneron alleges that in 2005, it had contracted with Vetter, a company providing pharmaceutical filling services, to collaborate on a PFS for its blockbuster anti-VEGF product, EYLEA.² It alleges that its agreement with Vetter granted Regeneron ownership in any patent related to EYLEA PFSs. Id. Notwithstanding its agreement with Regeneron, Vetter later entered into a confidential agreement with Novartis to develop a PFS for anti-VEGF biologics, which are used to treat macular degeneration and other retinal conditions. Id. Indeed, both parties agree on the benefits of PFSs for patients and providers of anti-VEGF medicines—ease in administration, improved safety, and greater efficiency—compared to vials, which must be used to fill a separate syringe.³ Novartis has an anti-VEGF biologic, LUCENTIS, which Genentech markets in the United States.

Regeneron alleges that Vetter contributed to Novartis’s invention of U.S. Patent No. 9,220,631 (the “’631 Patent”) and that Novartis concealed Vetter’s contribution to inventorship from the PTO to avoid alerting Regeneron to its contractual violations. Id. Concealing inventorship from the PTO can constitute inequitable conduct and form the basis for a Walker Process claim. (Regeneron also alleges Novartis improperly withheld key prior art references from the PTO during prosecution.) Novartis’s resulting ’631 Patent specifically claims EYLEA’s active ingredient as a treatment for use in Novartis’s patented syringe.⁴ Regeneron contends that the defendants’ pattern of conduct delayed its entry into the PFS market, resulting in significant damages.⁵ Regeneron also alleges that, after the ’631 Patent issued, Vetter leaned on it in contract negotiations to enter a long-term deal and to agree not to challenge the validity of the ’631 Patent.⁶ Novartis sued Regeneron on the ’631 Patent in the ITC and the Northern District of New York in 2020, and there is a pending Federal Circuit appeal regarding the validity of the patent.⁷

The Second Circuit held that “the district court improperly concluded that Regeneron failed to plead adequately the existence of a distinct anti-VEGF PFS market because it… placed improper weight on the functional, rather than economic, similarities between anti-VEGF PFSs and vials.”⁸ Rather than look to the functional similarities in the markets for PFSs and vials (i.e., same drug, same medical condition), the Second Circuit held that the proper analysis was economic. That is, whether products are “reasonably interchangeable by consumers for the same purposes,” as assessed by examining “sufficient cross-elasticity of demand.”⁹ Regeneron’s complaint alleges that physicians transferred 80% of patients from vials to PFSs when they were offered for LUCENTIS. The Second Circuit found Regeneron’s allegation adequately pled a hypothetical monopoly market by pleading that the physicians’ switching behavior showed that a “small, but significant, price increase in the PFS version would not cause physicians to substitute the vial version for PFS.”¹⁰

Second, the Second Circuit held that the district court was wrong to decide that an antitrust market cannot be coextensive with a patent’s scope. Instead, “once an antitrust plaintiff has demonstrated that [1] a patent was obtained through fraud, it must [2] separately explain how the fraudulently obtained patent enabled the defendants to achieve market power within the relevant market.”¹¹ Regeneron’s allegations regarding inventorship and improperly withheld prior art satisfied the “fraudulently obtained” prong of the test.¹² Next, the Second Circuit found that Regeneron’s complaint adequately pled the “market power” prong, crediting Regenoron’s allegation that Novartis and Vetter attempted to use the ’631 patent to coerce Regeneron into a long-term exclusive PFS filling relationship and demanding other modifications to Regeneron and Vetter’s 2005 agreement.¹³

Why the Decision Matters

The Second Circuit’s decision stands out for two reasons. First, anti-VEGF biologics are a big business for innovator companies, biosimilar makers, and government payers. EYLEA’s total revenue for 2023 was nearly $5.9 billion.¹⁴ Roche, which through its subsidiary Genentech commercializes LUCENTIS in the US, reported $460 million CHF in 2023 revenue, down from approximately $1 billion CHF in 2022 after entry from two biosimilars, with more pending.¹⁵ Biosimilars referencing EYLEA are also pending FDA approval or in clinical trials.¹⁶ Government payers are naturally interested in age-related macular degeneration (AMD) medications: among Americans over 65, the CDC estimates that approximately 1.3 million have vision-threatening AMD, with another 10.9 million having milder AMD.¹⁷ Indeed, the state amici’s brief supporting Regeneron noted the states’ interest in the markets for AMD drugs.¹⁸

Second, and more broadly, a product’s presentation or method of administration—pill vs. liquid; standard vs. extended release; IV vs. subcutaneous injection—has major implications for patients, providers, and product lifecycle. Different methods of administration may expand a product’s commercial reach and, as this case shows, provide additional patent protection (and possibly market exclusivity). Antitrust scrutiny directed to narrowly defined markets for methods of administration—here PFSs—is noteworthy. The amicus brief from the DoJ and FTC makes clear that it is supporting neither side and “take[s] no position as to whether the complaint adequately pleads a relevant antitrust market or states an antitrust claim.”¹⁹ However, the Federal government’s amicus brief also stated that the district court erred in its decision, and the brief’s analysis of the proper market definition parallels the reasoning ultimately adopted by the Second Circuit^.20

This decision relates to a motion to dismiss under Rule 12(b)(6), where the court only looks for a plausible, well-pled complaint. Novartis will have its day in court at the summary judgment and trial stages, where Regeneron will owe a higher burden of proof. However, antitrust claims are powerful tools because they carry the monetary risk of treble damages as well as the possibility of scrutiny from regulators. These risks must be weighed, not just by outside counsel and CLOs, but by CEOs and boards of directors.

Footnotes

[1] See Regeneron Pharm., Inc. v. Novartis Pharma AG et al., No. 22-427, slip op. at 1 (March 18, 2024). As the Second Circuit explains, “[t]he products in question are prescription medications used to treat the overproduction of vascular endothelial growth factor (‘VEGF’), a naturally occurring protein that, if overproduced, can lead to various eye disorders and, in some cases, to permanent blindness.”

[2] Slip op. at 9

[3] Id. at 8-9

[4] See ’631 Patent at Claim 12

[5] See slip op. at 10-11.

[6] Id. at 13-14.

[7] Id. at 15-16.

[8] Id. at 19.

[9] Id. at 20-21 (citing Brown Shoe Co. v. United States, 370 U.S. 294 (1962) and United States v. Am. Express. Co., 838 F.3d 179 (2d Cir. 2016)).

[10] Slip op. at 26; see, e.g., Am. Express, 838 F.3d at 199 (small but significant non-transitory increase in price (“SSNIP”) may demonstrate that the proposed market is relevant market).

[11] Slip op. at 30(citing Walker Process, 382 U.S. at 177).

[12] Id. at 30-31.

[13] Id. at 31-32. In addition to reversing the district court’s decision on the antitrust claim, the Second Circuit reversed the court’s dismissal of Regeneron’s claim for tortious interference with contract as time barred, crediting Regeneron’s equitable estoppel arguments.

[14] “Regeneron Reports Fourth Quarter and Full Year 2023 Financial and Operating Results,” Feb. 2, 2024, https://investor.regeneron.com/news-releases/news-release-details/regeneron-reports-fourth-quarter-and-full-year-2023-financial (last visited March 20, 2024).

[15] “Roche Finance Report 2023,” at 16, https://assets.roche.com/f/176343/x/3b1fb647e2/fb23e.pdf (last visited March 20, 2024).

[16] See, e.g., “New and Upcoming biosimilar launches,” at 6 https://www.cardinalhealth.com/content/dam/corp/web/documents/Report/cardinal-health-biosimilar-launches.pdf (last visited March 20, 2024).

[17] See “Prevalence of Age-Related Macular Degeneration (AMD), at Table 1, https://www.cdc.gov/visionhealth/vehss/estimates/amd-prevalence.html (last visited March 20, 2024).

[18] See Brief of Amici Curiae Nevada, District of Columbia, Illinois, Louisiana, Minnesota, and New Mexico as Amicus Curiae in Support of Plaintiff-Appellant, Regeneron Pharmaceuticals, Inc., Case 22-427, Dkt. 106 at 2.

[19] See Brief for the United States and the Federal Trade Commission as Amici Curiae in Support of Neither Party, Case 22-427, Dkt. 90 at 1.

[20] Id. at 12.

Lawsuit Challenges New USCIS Fee Rule

Significant increases to U.S. Citizenship and Immigration Services (“USCIS”) filing fees are set to go into effect on April 1, 2024. However, a lawsuit filed in U.S. District Court for the District of Colorado may delay that implementation. The plaintiffs in the lawsuit, the ITServe Alliance (a group that represents technology companies), the American Immigrant Investor Alliance, and a Canadian investor, have asked for a preliminary injunction to stop the planned fee increases.

As previously reported, the fee rule would require employers to pay 70% more for H-1B petitions, 201% more for L-1 petitions, and 129% more for individuals on O-1 petitions. One of the more controversial aspects of the new rule requires a $600 Asylum Program Fee to be charged to certain petitioners who are filing an I-129 Petition for Nonimmigrant Worker or an I-140 Immigrant Petition for Alien Workers, which are common forms employers use when filing employment-based nonimmigrant and immigrant visa petitions.

The lawsuit argues three things:

1. The fee rule was promulgated without following proper rule making procedures;

2. The fee rule doubles immigrant investor fees through the EB-5 program in violation of law. Specifically, the USCIS imposed new fees on immigrant investors and regional centers without completing the fee study that Congress required as part of the EB-5 Reform and Integrity Act of 2022; and

3. The asylum-related fee “arbitrarily and without legal justification” shifts the burden to certain employers to fund the government’s handling of asylum cases.

The full complaint can be accessed here.

As of today, the fee increases are scheduled to go into effect on April 1.

Category: Litigation

U.S. Supreme Court: Forced Transfers of Employees Without Loss of Pay or Rank Violate Title VII

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