Category: Litigation

Italian Competition Authority Finds Abusive Conduct in Withholding Data and Internal Communications Praising Company Strategy

Posted on August 25th in the National Law Review an article by Veronica Pinotti and Martino Sforza of McDermott Will & Emery which highlights the dangers faced by a dominant market player that owns intellectual property rights or data that are essential for other companies to compete. 

On 5 July 2011, the Italian Competition Authority imposed fines of €5.1 million on a multinational crop protection company for having abused its dominant position on the market for fosetyl-based systemic fungicides in breach of Article 102 of the Treaty on the Functioning of the European Union.  In addition, the Authority issued an injunction restraining the company from such conduct in the future.

The Authority considered that the multinational was able to increase its prices for finished products on the downstream market while increasing the volume of its own sales, showing a high degree of pricing policy independence.

In making its decision, the Authority also took into account the fact that, in addition to its high market share, the multinational was the only vertically integrated manufacturer with significant financial capability and it owned certain research data required for the commercialisation of fosetyl-based products.  According to the Authority, these data are vital for accessing the market, given that they are indispensable for competitors seeking to renew marketing authorisations, because the current legislation restricts the repetition of tests on vertebrate animals.  The Authority noted that certain competitors that had joined a task force for the purpose of negotiating access to the multinational’s data were disqualified from renewal of their marketing authorisations and had to leave the market.  Refusal by the multinational to grant access to the data was therefore found to be abusive.

The Authority reviewed a number of the multinational’s internal communications that praised the results obtained in the fosetyl-based business in Italy, thanks to the strategy adopted by the company.  According to the Authority, these communications proved that the company was aware of the anti-competitive character of their conduct.

In the Authority’s view, the company’s conduct constituted a serious infringement and therefore deserved a very high fine.

Comment

The case highlights the dangers faced by a dominant market player that owns intellectual property rights or data that are essential for other companies to compete.  The case also illustrates the importance of the language used by businesses in their internal communications, given that internal communications are often used by the Authority when reaching a decision on potential infringements. Refusals to licence or grant access to market-essential data can only be made if there are objective grounds for doing so.  This is a difficult issue on which dominant companies should seek legal advice.

© 2011 McDermott Will & Emery

Asbestos Litigation Case Questions Safety in the Workplace

Recently posted in the National Law Review on  an article by C. James Zeszutek and David J. Singley of Dinsmore & Shohl LLP regarding an unsual case  in that the plaintiff worked as a technician servicing laboratory equipment and the alleged asbestos exposures occurred:

Although most would consider asbestos to be an old problem, limited to mainly the manufacturing and construction industries, asbestos has been incorporated into a myriad of products that had many and varied uses. Because asbestos was so pervasive, claims such as the one described below, occurring many years after the last occasions on which asbestos was used and arising from the use of sophisticated equipment in a laboratory, are still prevalent.

Dinsmore attorneys recently handled a premises liability case for a major minerals supply company. The case was unusual in that the plaintiff worked as a technician servicing laboratory equipment and the alleged asbestos exposures occurred into the 1990’s. This is in contrast to the typical asbestos case that usually involves exposure in heavy industry prior to 1980.

The plaintiff in this case initially worked as a technician for a manufacturer of laboratory instruments including thermoanalyzers. A thermoanalyzer is an instrument that allows the user to determine the amount of water in the sample being tested as well as certain other characteristics of the sample as the result of heating the sample to high temperatures. The thermoanalyzer at our client’s premises contained an asbestos paper separator between the “hot” portion of the instrument and the unheated side. The plaintiff testified that whenever he installed or performed service work on the thermoanalyzers, including the one at our client’s laboratory, he was exposed to friable asbestos from the paper separator as well as component insulation on vapor lines contained in the thermoanalyser. The plaintiff also contended that he was exposed to friable asbestos from an asbestos glove and asbestos pad that were provided with the thermoanalyzer. The plaintiff ultimately left his employment with the thermoanalyzer’s manufacturer and started his own business doing the same type of work, namely servicing various laboratory instruments, including thermoanalyzers. Significantly, the plaintiff alleged exposures at our client’s premises into the 1990’s. The plaintiff was diagnosed with mesothelioma, a rare type of cancer which is uniformly fatal and is, except in rare circumstances, a signature disease for asbestos exposure.

The plaintiff’s theory of liability as to our client was that because the thermoanlayzer in our client’s laboratory had asbestos in it, and further because the client had not provided a warning to the plaintiff regarding asbestos in the thermoanalyzers, that our client had breached its obligation to provide a safe workplace for tradesmen at its premises. As is typical in asbestos cases, it was not initially clear what theory of liability the plaintiff was pursuing. It was not until the plaintiff was deposed and additional discovery undertaken that it became apparent that the plaintiff was focusing on the alleged failure to provide a safe work place because of the asbestos containing components in the thermoanalyzer. The case was further complicated because it was filed in New Jersey, where the plaintiff lived, but our client’s premises were located in Pennsylvania. Thus, there was a question as to whether New Jersey or Pennsylvania law would apply. We argued that regardless of which state’s law was applied, as the premises owner, our client did not owe a duty of care to the plaintiff, an independent contractor, who was allegedly injured by the very piece of equipment on which he was hired to work.

The Plaintiff argued that the Olivo v. Owens – Illinois case, a New Jersey Supreme Court Case, required a premises owner to provide a reasonably safe place to work for tradesmen coming on to the owner’s premises, including an obligation to inspect for defective or dangerous conditions. The Olivo case was one in a series of cases in which the New Jersey courts were attempting to address premises liability in terms of a reasonableness standard as opposed to the traditional categories of trespasser, licensee, and invitee, all of which deal with the person’s status while on the premises. In Olivo, the New Jersey trial court granted summary judgment. The New Jersey appellate court reversed and held there were issues of fact regarding the degree of control the premises owner retained over the work, what safety information the premises owner provided, and what the premises owner told the contractor regarding the presence of asbestos on the premises. The Plaintiff argued that these were exactly the same issues in our case.

Dinsmore argued that Pennsylvania law applied (because the premises in question was in Pennsylvania) and in any event, Pennsylvania law was similar to that of New Jersey, namely, that a premises owner does not owe a duty of care to an independent contractor for dangers inherent in the work the independent contractor was hired to perform. Although the court did not overtly address the choice of law issue, it held that our client, the premises owner, did not owe a duty of care to plaintiff because the plaintiff was responsible for his safety on the equipment on which he was working. In granting our motion for summary judgment, the court focused on the premises owner’s lack of any supervision or control over the worked performed by the independent contractor. We also emphasized the independent contractor’s superior knowledge regarding the thermoanalyzer and its components.

Our Advice 

Facilities and equipment managers need to be alert that in facilities built or remodeled prior to the mid-1970’s, or equipment, even laboratory equipment, assembled prior to 1980 and where there was a need for thermal insulation, asbestos may still be present and care should be used in dealing with such equipment. Additionally, although waivers of liability, obtained from the tradesmen coming on the property may provide some legal protection, the facilities and equipment managers should make clear with the tradesmen, or the tradesmen’s employers, that they are being hired for their expertise and knowledge regarding the proposed work and that they are being relied upon to perform the work in a safe manner.

© 2011 Dinsmore & Shohl LLP. All rights reserved.

 

NYC Condo Refinance Collapses Because There Was No "Meeting of the Minds"

Recently posted in the National Law Review an article by Eric S. O’Connor of Sheppard Mullin Richter & Hampton LLP wherein  plaintiffs sought damages arising out of their attempt to refinance a mortgage loan with the defendant bank:

In Trief v. Wells Fargo Bank, N.A., Index No. 105280/09, — N.Y.S.2d — (Sup Ct, NY County, Apr. 4, 2011) (“Trief”), the plaintiffs sought damages arising out of their attempt to refinance a mortgage loan with the defendant bank (the “Bank”), for breach of contract and violation of New York’s Unfair and Deceptive Practices Act, N.Y. General Business Law (“NYGBL”) § 349. Justice Charles Edward Ramos granted the Bank’s motion for summary judgment on both counts. The parties actually proceeded to closing when plaintiff walked away from the refinancing of a luxury midtown condominium located at 15 West 53rd Street, New York, NY – seemingly over a $518.75 dispute.

The main lesson is that all parties, especially when communicating via more informal modes of communications like email, must clarify and confirm an “agreement on all essential terms” or else a valid contract will not be formed.

The facts – negotiation, informal communications, the exchange of standard loan forms, etc… – follow a seemingly common pattern. A mortgage consultant from the Bank filled out the refinance application on the Triefs’ behalf by telephone and then sent an e-mail attaching a Good Faith Estimate of Settlement Charges (the “GFE”). The GFE proposed a 5.125% interest rate and a standard provision indicating that the “fees listed are estimated – the actual charges may be more or less.” The cover email asked to “let me know if you would like me to lock you in for 60 days”, which Mr. Trief responded “sure.” After a small dispute about the rate, the Bank faxed a Conventional Commitment Letter (the “Letter”) to the Triefs confirming the rate and other details. Despite language in the Letter that “You must sign and return this commitment letter within that period to ensure receiving the terms specified”, neither party signed the Letter. At the scheduled closing, the Triefs refused to proceed because the Bank sought to charge them a rate lock extension fee of $518.75, which the Triefs claim was never negotiated or agreed to.

The main issue was whether a contract was formed. The Court explained the classic rules that a plaintiff must establish an offer, acceptance of the offer, consideration, mutual assent, and an intent to be bound. Kowalchuk v. Stroup, 61 A.D.3d 118, 121 (1st Dept 2009).  Mutual assent means a “meeting of the minds” and must include agreement on all essential terms. Id. The Court held that there was not a meeting of the minds on all of the essential terms of a final contract for refinancing. The two key pieces of evidence – the email from the Bank asking to “let me know if you would like me to lock you in for 60 days” and the standard GFE language that terms were subject to change – were only seeking an acceptance to lock in the rate for a fixed period of time, rather than a final agreement to refinance. Further, the Real Estate Settlement Procedure Act(“RESPA”) shows that the legislature did not intend for the GFE to bind a lender to a final loan agreement. See 24 CFR § 3500.7 [a], [g] (the “GFE is not a loan commitment. Nothing in this section shall be interpreted to require a loan originator to make a loan to a particular borrower.”).

Finally, the Court also rejected the Triefs claim under NYGBL § 349. A claim for violation of GBL § 349 is based upon consumer-oriented conduct that is materially misleading, causing a plaintiff injury. The Court held that the Triefs failed to even identify consumer-oriented conduct on the part of the Bank because private contract disputes, unique to the parties, generally do not fall within the scope of the statute. The Triefs failed to demonstrate injury because they refused to close on the loan refinancing and did not pay any fees to the Bank.
Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.

Hitting Non-Practicin Entities Where It Hurts

Recently posted in the National Law Review an article by Robert A. Gutkin and Jeff C. Dodd of Andrews Kurth LLP about the Federal Circuit affirmed a district court award of substantial sanctions against a Non-Practicing Entity (NPE) that had a business model of suing numerous companies for nuisance value settlements. 

 

 

The Federal Circuit Affirms an Award of Substantial Sanctions Against a NPE with a Business Model of Bringing Litigation To Extract Quick Settlements

 

Eon-Net LP v. Flagstar Bancorp, No. 2009 – 1308 (Fed. Cir., July 29, 2011) (Judges Lourie, Mayer and O’Malley)

 

In a July 29 decision, the Federal Circuit affirmed a district court award of substantial sanctions against a Non-Practicing Entity (NPE) that had a business model of suing numerous companies for nuisance value settlements. As the Court succinctly stated:

 

The record supports the district court’s finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar. At the time that the district court made its exceptional case finding, Eon-Net and its related entities, Millennium and Glory, had filed over 100 lawsuits against a number of diverse defendants alleging infringement of one or more patents from the Patent Portfolio. Each complaint was followed by a “demand for a quick settlement at a price far lower than the cost of litigation, a demand to which most defendants apparently have agreed.” Slip Op at 22.

 

We think that this is a potentially important holding because the Federal Circuit approved an exceptional case for enhanced sanctions based on the business model adopted by some NPE’s—suit followed by quick settlement at lower-than-litigation cost. As we discuss below, the Eon-Net LP case represents the latest in a string of judicial opinions providing defendants with additional ammunition against NPE’s pursuing “objectively baseless” litigation. However, the threat of sanctions may also lead NPE’s to be more difficult in their settlement demands and willingness to offer quick and early settlements.

 

Background

 

The case at issue involved three document processing systems patents, U.S. Patent Nos. 6,683,697 (“the ‘697 Patent”), 7,075,673 (“the ‘673 Patent”), and 7,184,162 (“the ‘162 Patent”) (collectively “the Patents”) owned by Eon-Net LP, a patent holding company formed to enforce various patents. The Patents are part of a larger patent family (“the Patent Portfolio”) originating with a parent patent application filed in 1991. Between 1996 and 2001, Millennium L.P., an Eon-Net related company, filed four lawsuits asserting various claims of the Patent Portfolio. After 2001, Eon-Net hired new outside litigation counsel, and the number of patent cases filed on behalf of Eon-Net and its related entities skyrocketed. By the time the district court in the present matter had issued sanctions against Eon-Net, more than 100 lawsuits had been filed, almost all of which resulted in early settlements or dismissals.

 

Eon-Net sued Flagstar Bancorp in 2005, alleging infringement of the ‘697 patent. The district court entered summary judgment of noninfringement in favor of Flagstar, finding that Eon-Net failed to adequately investigate its claims prior to filing suit, and finding that the claims were baseless. The district court also assessed Rule 11 sanctions in the amount of $141,984.70 against Eon-Net and its attorney.

 

After the Federal Circuit vacated and remanded both the summary judgment and Rule 11 decisions in 2007, Eon-Net LP v. Flagstar Bancorp, 249 F. App’x 189 (Fed. Cir. 2007), Eon-Net pursued the case (even adding new claims for infringement). But after receiving an unfavorable Markman decision on claim construction, Eon-Net stipulated to noninfringement. The district court subsequently granted Flagstar’s motion for attorney fees under 35 U.S.C. §285, finding that Eon-Net pursued baseless claims; the lawsuit was brought for the improper purpose of seeking a nuisance value settlement; Eon-Net destroyed evidence; and, Eon-Net’s litigation tactics were improper. Upon invitation from the district court, Flagstar renewed its prior Rule 11 motion. The district court reinstated in full the $141,984.70 in attorneys fees and costs against Eon-Net and its attorney for violation of Rule 11. The district court also found the case to be exceptional under 35 U.S.C. §285, and awarded Flagstar $489,150.48 in attorneys fees and costs after Eon-Net continued to litigate the case after remand.

 

The Federal Circuit Decision

 

The Federal Circuit upheld the district court’s claim construction, and affirmed the judgment of noninfringement to which Eon-Net had stipulated.

 

In reviewing the district court’s finding of an exceptional case under 35 U.S.C. §285, the Federal Circuit stated:

 

Indeed, “[l]itigation misconduct and unprofessional behavior may suffice, by themselves, to make a case exceptional under § 285.” Absent litigation misconduct or misconduct in securing the patent, sanctions under § 285 may be imposed against the patentee only if both (1) the patentee brought the litigation in bad faith; and (2) the litigation is objectively baseless (citations omitted). Slip Op at 17.

 

Eon-Net failed to show that the district court’s findings regarding the accused litigation misconduct were clearly erroneous. Eon-Net also failed to overcome the finding that its infringement allegations could only be supported by baseless claim construction positions.

 

Certainly Eon-Net’s behavior during the course of the litigation was egregious, as the court described in detail.1 But that alone would not have warranted our Client Alert, for the behavior giving rise to sanctions in any given case is based on the particular facts of the case. What caught our eye was the Federal Circuit’s condemnation of the business model of filing litigation to obtain a quick return through settlement:

 

Eon-Net’s case against Flagstar had “indicia of extortion” because it was part of Eon-Net’s history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation. Slip Op at 22.

Meritless cases like this one unnecessarily require the district court to engage in excessive claim construction analysis before it is able to see the lack of merit of the patentee’s infringement allegations…. Thus, those low settlement offers—less than ten percent of the cost that Flagstar expended to defend suit—effectively ensured that Eon-Net’s baseless infringement allegations remained unexposed, allowing Eon-Net to continue to collect additional nuisance value settlements. Slip Op at 23.

 

The Federal Circuit affirmed the finding that the case was exceptional under 35 U.S.C. §285, and was disturbed by the ability of an NPE, such as Eon-Net, to impose high costs on a company to defend against meritless claims, while at the same time the NPE faces little downside risk other than the loss of future licensing revenue.2

 

Potential Implications of Eon-Net LP

 

We stress that the Federal Circuit did not uphold sanctions merely because a NPE sought to enforce its patent rights. Rather, the Federal Circuit was clearly bothered by the ability of an NPE to exploit the “system” to extort nuisance value settlements while facing little downside risk.

 

Indeed, some NPE’s count on defendants to settle based on the inescapable fact that defense of even a suit on a bad patent is expensive. That cost is built into the architecture of patent litigation. As our colleague David Griffith chronicled in“Patents by the Numbers” in Andrews Kurth’s IP and Technology Developmentsthe median cost of defense in 2009 (as reported by AILPA) was $650,000 if less than one million was at risk, $2.5 million if $1 million to 25 million at risk – $2,500,000. In addition, the median time for an infringement case to get to trial was 2.5 years (2009 data from a report by PwC). While the rate of success was 38% in the 15 most active patent dockets (1995-2009) as reported by PwC (31% for NPE’s) if the patentee survives summary judgment motions and gets to a jury, its odds improve to a 75% win rate (according to the University of Houston Law Center’s patstats). Given these statistics, the temptation for any operating company faced with a lawsuit is to settle and move on with its business if the NPE’s offer of settlement is far less than the cost of defense. NPE’s count on that temptation.

 

The Federal Circuit stopped short of stating that business models like that of Eon-Net provide the sole basis for finding an exceptional case under 35 U.S.C. §285. However, the language of the decision does suggest that the business model may per se satisfy the “bad faith” element of the two part requirement for finding an exceptional case. This decision seems to be an attempt by the Court to try to level the playing field for patent litigation by increasing the downside risk for a NPE. Moreover, this case follows a string of other cases, including eBay (which held that irreparable harm would not be presumed in a preliminary injunction action even if infringement had been found) and MedImmune (which allows declaratory judgment actions to be brought under less stringent standards than the Federal Circuit had historically applied).

 

Just as importantly, we are seeing many other trends and techniques that defendants are starting to use to combat vexatious NPE litigation. Some defendants are finding success in obtaining venue transfers from courts thought to be more favorable to NPE litigation; others are using declaratory judgment actions; yet others are pursuing early summary judgments (by some accounts approximately 60% of patent cases are decided on summary judgment and patentee success at the summary judgment stage is only 12%).

 

Our firm also has had success strategically employing the re-examination to narrow or even eliminate patent claims from weak (or worse patents). Our success is consistent with some compelling statistics. Again our colleague David Griffith reported that the chances that PTO will grant an ex parte/inter partes reexamination application are greater than 90% (based on USPTO statistics as of March 2011). According to an AILPA 2009 report, the median cost of an ex parte reexamination was $10,000; for an inter-partes proceeding the median was $188,000. Moreover, according to USPTO statistics as of March 2011, in most cases claims were cancelled or modified:

 

ex parte reexamination (third party requested re-exam)

inter partes reexamination

All claims confirmed: 24%

All claims confirmed: 12%

All claims cancelled: 13%

All claims cancelled: 45%

Claims modified: 63%

Claims modified: 43%

 

The bottom line: defendants in NPE litigation should consider in the calculus of settlement not only litigation cost but also the trends and techniques favoring defendants over NPE’s, especially now that Eon-Net LP may encourage courts to shift the expenses of defense that NPE’s count on encouraging quick settlement—at least in the most abusive cases.

 

 

1. The court provided an extensive litany of Eon-Net’s sanctionable behavior throughout the course of the litigation, including: destroying relevant documents prior to the initiation of the lawsuit; flaunting the fact that as a patent enforcement company they did not believe they needed to have a document retention policy; refusing to participate in the claim construction process; lodging incomplete and misleading evidence with the court; submitting declarations contradicting deposition testimony; and, evidencing a general disdain and disrespect for the court process including statements made at a deposition by a party witnesses complaining that his deposition was “an inconvenience and a bother” and that he was “so sick of this stuff by now. I am so sick of this stuff, especially this haggling over stupidities and trivialities which is the name of the game in litigation.” Slip Op at 20.

 

2. The Federal Circuit also affirmed the Rule 11 sanctions, even though it was undisputed that Eon-Net’s counsel did examine portions of Flagstar’s website and reach a conclusion that it worked in a manner that infringed the ‘697 patent. “A reasonable pre-suit investigation, however, also requires counsel to perform an objective evaluation of the claim terms when reading those terms on the accused device.” Slip Op at 26. It was not clearly erroneous for the district court to conclude that Eon-Net’s claim construction position “borders on the illogical” and that “[t]he specification exposes the frivolity of Eon-Net’s claim construction position.” Id.

© 2011 Andrews Kurth LLP Traurig, LLP. All rights reserved.

http://www.natlawreview.com/article/fda-issues-draft-guidance-510k-device-modifications-new-emphasis-potential-impact-modificati

Recently posted in the National Law Review an article by  Sylvie A. Durham, Genna Garver and Dmitry G. Ivanov of Greenberg Traurig, LLP about a dismissed a lawsuit brought by noteholders under a New York law  indenture 

The U.S. District Court of the Southern District of New York dismissed a lawsuit brought by noteholders under a New York law indenture against the co-issuer of the notes and collateral manager for breach of contract because the noteholders failed to comply with the “limitation of suits” provision in the indenture.

The court stated that the allegation of the noteholders that they did not receive proper distribution amounts on the notes constituted an “event of default” under the indenture, and as such “falls squarely within the limitation on suits clause.” However, since the noteholders did not comply with all the contractual prerequisites for bringing a lawsuit set forth in the “limitation of suits” provision of the indenture, the court did not allow them to proceed with breach of contract claims against the co-issuer and collateral manager. However, the court did not dismiss the breach of contract claims against the indenture trustee based on the same “no-action” clause, since compliance with such clause “would require [noteholders] to demand that the [indenture trustee] initiate proceedings against itself to rectify the alleged error.”

A copy of the case can be accessed here.

 ©2011 Greenberg Traurig, LLP. All rights reserved.

Washington Court of Appeals Rules that Liability Insurer Defending under Reservation of Rights is not Entitled to Reimbursement in the Absence of Express Policy Language Expressly Reserving Such a Right

Recently posted in the National Law Review an article by Dana Ferestien of Williams Kastner regarding when a liability insurer provides a reservation of rights defense, is it ever entitled to reimbursement of defense costs paid if a court later determines that there is no duty to defend?

 

On July 25, 2011, the Court of Appeals addressed what had been an open question in Washington:

The coverage dispute arose from claims that Immunex had artificially inflated the price of prescription drugs. After litigation had been pending for several years and Immunex had already incurred substantial defense fees and costs, Immunex tendered the claims to National Surety, its excess liability insurer, for defense and indemnity. National Surety denied coverage for the claims, but agreed under a reservation of rights to provide a defense with the right to reimbursement if a court later determined that there was no duty to defend.

The King County Superior Court determined that there was no coverage and, therefore, National Surety owed no duty to defend Immunex. But the trial court also ruled that National Surety was obligated to pay Immunex’s defense costs until the date that the court confirmed the claims were not covered, unless National Surety could establish actual prejudice resulting from Immunex’s late tender. Immunex appealed the finding of no coverage, and National Surety cross-appealed the trial court’s determination that its ruling applied prospectively only.

After agreeing that there was no coverage for the underlying claims, the Court of Appeals affirmed that National Surety remained obligated for defense costs incurred up until the trial court’s summary judgment rulings unless National Surety could prove actual prejudice resulting from Immunex’s late tender. Relying upon Washington cases noting the broader scope of a liability insurer’s duty to defend, the court reasoned that “payment of defense costs for claims that are potentially covered is part of the bargained-for exchange between the insurer and the insured” and the reservation of rights defense provides an insurer with “the benefit of insulating itself from a bad faith claim and possibly coverage by estoppel.”

Notably, the court indicated that its decision may have been different had National Surety’s policy included express language reserving to the insurer the right to reimbursement in the event that it defends a claim under a reservation of rights and then obtains a court determination of no coverage. Whether the Court of Appeals would actually enforce such a provision remains to be seen. But liability insurers now should give careful consideration as to whether to include a reimbursement provision in policies issued to Washington insureds.

In reaching this outcome, the Court of Appeals rejected several arguments advanced by National Surety. The court declined to draw any distinction between instances where an insurer defends under a reservation of rights because Washington law is unresolved as to the meaning of policy language as opposed to instances where a claim involves unresolved questions of fact for which there may or may not ultimately be coverage. The Court of Appeals also rejected reimbursement based upon theories of unilateral implied contract or unjust enrichment. And the court declined to reach a different outcome because National Surety had yet to reimburse Immunex for any of its defense costs, explaining that such a result would improperly reward insurers who withhold defense costs payments.

© 2002-2011 by Williams Kastner ALL RIGHTS RESERVED

Wisconsin Supreme Court Delivers Win for Hospital Systems with Offsite Facilities

Posted on August 10, 2011 in the National Law Review an article by Craig J. Johnson, Kate L. Bechen, David J. Hanson and Robert L. Gordon   of Michael Best & Friedrich LLP regarding  a major victory for hospital systems with offsite outpatient facilities in Wisconsin.

Last month the Wisconsin Supreme Court provided a major victory for hospital systems with offsite outpatient facilities. Its decision in Covenant Health Care, Inc. v. City of Wauwatosa (2011 WI 80) reversed a Court of Appeals decision and held that an outpatient clinic owned by St. Joseph Hospital (the “Clinic”) constituted property used for the purposes of a hospital under Wis. Stat. § 70.11(4m)(a). As a result, Covenant Healthcare System, Inc., the sole member of St. Joseph Hospital and the owner of the real property on which the Clinic stands, was entitled to a refund of real property taxes paid on the Clinic’s property.

Background

Wisconsin. Stat. § 70.11(4m)(a) excludes from taxation real property used exclusively for the purposes of any nonprofit hospital. The statute specifies that the exemption does not extend to property that is used for commercial purposes or as a doctor’s office, or the earnings from which inure to the benefit of a member.

The Clinic is a five-story building located approximately five miles from St. Joseph Hospital.  Two of the Clinic’s floors are leased to medical providers as office space. The remaining three floors are used to provide outpatient services and include an Urgent Care Center that is open 24 hours a day, seven days a week and is capable of treating all levels of emergency room care, which generally limits its treatment of serious cases to the extent of stabilizing a patient for transport to a different medical facility.

The City of Wauwatosa took the position that the Clinic was in fact a doctor’s office and, therefore, assessed real property taxes on the Clinic. Covenant challenged this assessment as it applied to the Clinic’s three floors that were not used as office space for medical providers.  The Circuit Court ruled in favor of Covenant but the Court of Appeals reversed, holding that the Clinic was a doctor’s office. The Wisconsin Supreme Court reversed the Court of Appeals, ruling in favor of Covenant.

Ruling

The City of Wauwatosa maintained its position that the Clinic was a doctor’s office. The City also took the alternative positions that the Clinic was used for commercial purposes and that the property’s earnings inure to the benefit of Covenant. The Wisconsin Supreme Court held that Covenant had satisfied its burden of proving that each of the City’s assertions was incorrect.

Doctor’s Office

The Wisconsin Supreme Court considered seven factors that were previously laid out by the Wisconsin Court of Appeals in 1997 in St. Clare Hospital v. City of Monroe, which also considered whether a health care facility constituted a doctor’s office. The Supreme Court concluded that five of those factors weighed against the Clinic being considered a doctor’s office, and the remaining two were not determinative.

The five factors which persuaded the Supreme Court that the Clinic was not a doctor’s office were: (1) physicians practicing at the Clinic do not receive variable compensation related to the extent of their services; (2) Clinic physicians do not receive extra compensation for overseeing non-physician staff; (3) the Clinic’s bills are generated on the same software system as those of St. Joseph Hospital; (4) Clinic physicians do not have their own offices at the Clinic but instead have access to communal cubicle space; and (5) Clinic physicians do not own or lease the building or any equipment at the Clinic.

The two remaining St. Clare factors that weighed in favor of the Clinic being a doctor’s office were (1) the Clinic does not provide inpatient services and (2) most patients are seen at the Clinic by appointment and during regular business hours. However, the Court pointed out that advances in technology have allowed for more procedures to be performed on an outpatient basis than when St. Clare was decided. In addition, St. Joseph Hospital (as well as several other large area hospitals) has an outpatient clinic on its hospital grounds.  This hospital-based outpatient center has never jeopardized the tax exemption of St. Joseph Hospital despite only seeing patients by appointment during regular business hours. Therefore, the Court did not weigh either of these factors as significant in reaching its conclusion that the Clinic is not a doctor’s office.

Commercial Purposes

The Court interpreted the statutory prohibition against commercial purposes as being a prohibition against a facility having profit as its primary aim. In determining that the Clinic did not have profit as its primary aim, the Court cited the Clinic’s business plan as listing several goals beyond increasing profit margin, including promoting a greater faith-based health care presence. Further, the Court found that the Clinic serves a greater portion of Medicare and Medicaid patients than other Milwaukee and Wisconsin hospitals, indicating to the Court a focus other than profit.

Private Inurement

Finally, the Court determined that the language of the statutory prohibition against private inurement to any member does not contemplate a not-for-profit member of a nonprofit corporation. According to the Court, interpreting the statute to penalize Covenant’s corporate structure would be an unreasonable construction, and would end up requiring a nonprofit corporation to distribute its assets upon dissolution to unrelated nonprofit entities, rather than its actual member(s), in order to qualify for property tax exemption.

Conclusion

The earlier Court of Appeals decision in this case called into question the property tax exemptions of nonprofit hospital systems with offsite facilities. The reversal by the Wisconsin Supreme Court has provided some reassurance to Wisconsin’s hospital systems. Although the decision was based on facts unique to the Clinic and did not set bright line standards going forward, the Court confirmed that offsite hospital facilities can qualify as exempt under Wis. Stat. § 70.11(4m)(a), and provided guidance on what types of facts and organizational structures will be considered to qualify an offsite facility for exemption.

© MICHAEL BEST & FRIEDRICH LLP

Wisconsin Supreme Court Addresses Issues Concerning the Default Judgment Statute, the Direct Action Statute, and Personal Liability for Corporate Officers

Recently posted  posted in the National Law Review an article by Heidi L. Vogt and Jessica M. Swietlik of von Briesen & Roper, S.C. regarding the Wisconsin Supreme Court issued a decision in Casper, et al. v. American International South Ins. Co.

 Casper, et al. v. American International South Ins. Co., et al., 2011 WL 81

On July 19, 2011, the Wisconsin Supreme Court issued a decision in Casper, et al. v. American International South Ins. Co., et al., 2011 WI 81 (“Casper”) in which it addressed three issues: 1) the excusable neglect standard relative to default judgments; 2) whether an insurance policy must be delivered or issued in the State of Wisconsin in order to subject the insurer to a direct action under Wis. Stat. §§ 632.24 and 803.04(2); and 3) whether a corporate officer may be held personally liable for non-intentional torts that occur within the scope of employment.

The Casper case arises from a motor vehicle accident. Mark Wearing, a co-employee of Bestway Systems, Inc. (“Bestway”) and Transport Leasing/Contract Inc. (“TLC”), struck the Caspers’ minivan from behind, seriously injuring all five passengers in the Caspers’ vehicle.

Investigators learned that Wearing was under the influence of oxycodone, diazepam, and nordiazepam when the collision occurred. At the time of the accident, Wearing was en route to make a delivery for a Bestway customer. Jeffrey Wenham, the CEO of Bestway, had allegedly approved a driving route for Wearing on this particular delivery that required him to drive 536 miles through several states overnight. Wearing claimed he was told he would be fired if he did not complete the route as planned. However, Wenham had never met Wearing and the route that Wenham apparently approved was designed a year and a half prior to the accident. An expert hired by the Caspers opined that the route violated the hours of service requirements of the Federal Motor Carrier Safety Regulations (“FMCSR”) and was unsafe.

The Caspers brought suit against fourteen named defendants, including: Mark Wearing, his co-employers Bestway and TLC, Bestway’s CEO Jeffrey Wenham, and TLC’s excess insurer, National Union Fire Insurance Company of Pittsburgh PA (“National Union”). The appeals in this case stem from three orders issued by the trial court, all of which were affirmed by the court of appeals: 1) its order granting National Union’s request for a 7-day extension to file its answer and denying the Caspers’ motion for default judgment against National Union on the grounds that National Union had demonstrated excusable neglect; 2) its order granting summary judgment to National Union on the grounds that under Kenison v. Wellington Ins. Co., 218 Wis. 2d 700, 582 N.W.2d 69 (Ct. App. 1998) the Caspers could not maintain a direct action against National Union because its insurance policy was not issued or delivered in Wisconsin; and 3) its order denying Wenham’s motion for summary judgment on the Caspers’ claims for negligent training and supervision. The Wisconsin Supreme Court considered each of these issues separately, and affirmed in part, reversed in part, and remanded with instructions consistent with its decision.

The court affirmed on the first issue, holding that the trial court did not erroneously abuse its discretion by finding that National Union’s “lost in the mail” excuse amounted to excusable neglect such that granting an extension and denying the motion for default judgment was appropriate. The court noted that “although courts should be skeptical of glib claims that attribute fault to the United States Postal Service,” it was satisfied that a reasonably prudent person could neglect a deadline when correspondence gets lost, as was the case with National Union here.

Second, the court reversed on the direct action issue and thereby explicitly overruled Kenison. In doing so, the court acknowledged that the court of appeals properly applied Kenison as it lacked authority to ignore it. In Kenison, the court of appeals concluded that Wis. Stat. § 631.01 limited the application of the direct action statute, § 632.24, to insurance policies issued or delivered in Wisconsin. The Casper court disagreed. After carefully examining the plain language and the legislative history of Wis. Stat. §§ 631.01, 632.24, and 803.04(2), the court concluded that “Section 803.04(2) explicitly and § 632.24 by necessary implication are intended to apply to liability insurance policies delivered or issued for delivery outside Wisconsin, so long as the ‘accident, injury or negligence occurred in this state.’” Accordingly, the Caspers should have been allowed to maintain a direct action against National Union even though its policy was neither issued nor delivered in Wisconsin because the accident occurred in Wisconsin.

With regard to the third issue, the Wisconsin Supreme Court agreed with the lower courts that there are some instances where corporate officers like Wenham can be held personally liable for non-intentional torts committed in the course of employment. Both the trial court and the court of appeals had ended their inquiries there, finding that issues of fact existed regarding Wenham’s alleged negligent supervision and training of Wearing such that summary judgment was not appropriate on those claims. However, the Wisconsin Supreme Court considered and ultimately reversed on public policy grounds, holding that even if Wenham’s approval of the route that allegedly violated the FMCSR was a cause of the accident, “the results are so unusual, remote, or unexpected that, in justice, liability ought not be imposed.”

Justice Bradley issued an opinion concurring in part and dissenting in part, and Chief Justice Abrahamson joined in Justice Bradley’s concurrence/dissent.

©2011 von Briesen & Roper, s.c

Myriad Federal Circuit Decision Affirms Patentability of Claims to “Isolated” DNA but Methods Involving Only “Comparing” or “Analyzing” DNA Sequences Unpatentable and No Declaratory Judgment for Those Who Simply Disagree With Patent

Posted on Thursday, August 4, 2011 in the National Law Review an article by Thomas J. Kowalski and Deborah L. Lu of Vedder Price P.C.  about  long-awaited decision in the Association for Molecular Pathology v. Myriad Genetics, Inc. (“Myriad”).

On July 29, 2011, the Federal Circuit issued its long-awaited decision in the Association for Molecular Pathology v. Myriad Genetics, Inc. (“Myriad”).  The plaintiffs in Myriad are an assortment of medical organizations, researchers, genetic counselors, and patients who challenged Myriad’s patents under the Declaratory Judgment Act. The Federal Circuit Decision held that those parties who simply disagree with the existence of a patent or who suffer an attenuated, non proximate effect from the existence of a patent, do not meet the requirement for a legal controversy of sufficient immediacy and reality to warrant the issuance of a declaratory judgment and, thus, do not have standing to be a plaintiff. The Court could not see how “the inability to afford a patented invention could establish an invasion of a legally protected interest for purposes of standing.” However, with at least one plaintiff having standing, the Federal Circuit turned to the merits; namely, whether claims to “isolated” DNA and methods using that “isolated” DNA are eligible to be patented under Section 101 of the Patent Statute (35 U.S.C. § 101).

The Federal Circuit held that method claims directed to only “comparing” or “analyzing” DNA sequences are patent ineligible under Section 101 because they have no transformative steps and cover only patent-ineligible abstract, mental steps. However, the claim that recites a method that comprises the steps of (1) “growing” host cells transformed with an altered gene in the presence or absence of a potential therapeutic, (2) “determining” the growth rate of the host cells with or without the potential therapeutic and (3) “comparing” the growth rate of the host cells includes more than the abstract mental step of looking at two numbers and “comparing” two host cells’ growth rates and is eligible for patent protection. The steps of “growing” transformed cells in the presence or absence of a potential therapeutic, and “determining” the cells’ growth rates, are transformative and necessarily involve physical manipulation of the cells.

The Federal Circuit also held that isolated cDNA—DNA that has had introns removed, contains only coding nucleotides, and can be used to express a protein in a cell that does not normally produce it—while inspired by nature, does not occur in nature, and is likewise eligible to be patented under Section 101.

Most significantly, the Myriad Majority and Concurring Opinions concluded that isolated DNA molecules are patent-eligible under 35 U.S.C. § 101, and the Court reversed the previous holding by Judge Sweet of the Southern District of New York. Both the Myriad Majority and Concurring Opinions rely on U.S. Supreme Court precedent, and the Myriad Concurring Opinion states that claims to isolated DNA had previously been held to be valid and infringed by the Federal Circuit.

The distinction between a product of nature and a human made invention for purposes of Section 101 turns on a change in the claimed composition’s identity compared with what exists in nature. According to the Federal Circuit in Myriad, the US Supreme Court has drawn a line between compositions that, even if combined or altered in a manner not found in nature, have similar characteristics as in nature and compositions that human intervention has given “markedly different,” or “distinctive,” characteristics.

In reaching the conclusion that isolated DNA molecules are eligible to be patented under Section 101, the Myriad Majority Opinion focused on the fact that isolated DNA was cleaved or synthesized to consist of a fraction of a naturally occurring DNA molecule and therefore does not exist in nature. The Court stressed that isolated DNA is not the same as purified DNA. Isolated DNA is not only removed from nature, but it is chemically manipulated from what is in nature—in the human body in this case. Accordingly, isolated DNA is a distinct chemical entity from that which is in nature. The Myriad Concurring Opinion views isolated DNA as truncations that are not naturally produced without the intervention of man and can serve as primers or probes in diagnostics; a utility that cannot be served by naturally occurring DNA.

The Myriad Majority and Concurring Opinions reject the Solicitor General’s “child-like simpl[e]” suggestion that for determining patent-eligible subject matter the Court use a “magic microscope” test, under which, if one can observe the claimed substance in nature, for example, by zooming in the optical field of view to see just a sequence of fifteen nucleotides within the chromosome, then the claimed subject matter falls into the “laws of nature” exception and is unpatentable subject matter—including because an isolated DNA molecule has different chemical bonds as compared to the “unisolated” sequence in the chromosome (because the ends are different). Simply, according to the Myriad Majority and Concurring Opinions, isolated DNA is a different molecule from DNA in the chromosome.

The Myriad Majority and Concurring Opinions also give great deference to the grant by the United States Patent & Trademark Office (“USPTO”) of numerous patents to isolated DNA over approximately the past thirty years, as well as that in 2001 the USPTO issued Utility Examination Guidelines, which reaffirmed the agency’s position that isolated DNA molecules are patent-eligible, and that Congress has not indicated that the USPTO’s position is inconsistent with Section 101. The Federal Circuit thus held that if the law is to be changed, and DNA inventions are to be excluded from the broad scope of Section 101, contrary to the settled expectation of the inventing community, the decision must come not from the courts, but from Congress.

In contrast, the Myriad Dissenting Opinion sought to hold isolated DNA as unpatentable and compared isolated DNA with a leaf snapped from a tree. TheMyriad Majority Opinion addresses the Dissent’s analogy by making clear that a leaf snapped from a tree is a physical separation that does not create a new chemical entity, whereas isolated DNA is a new chemical entity as compared with DNA in nature.

Myriad provides the biotechnology community with an immediate sigh of relief. However, it is expected that parties to Myriad will likely ask the Federal Circuit to review its divided Decision en banc and that whatever the result from that request, appeal to the US Supreme Court will also be inevitable. We expect there is more to come and that the July 29, 2011 Myriad Federal Circuit Decision may be only one step toward an ultimate Court decision finally concluding that isolated DNA is indeed patent-eligible subject matter.

© 2011 Vedder Price P.C.

 

This (Retractable) Needle Is Going to Sting a Bit: Next Chapter in the Adventures of Post-Phillips Claim Construction

Posted on July 31, 2011 in the National Law Review an article by David M. Beckwith and Paul Devinsky of McDermott Will & Emery regarding how the U.S. Court of Appeals for the Federal Circuit addressed the claim construction tension between broadly drafted claims and the written description contained in the patent specification:

The U.S. Court of Appeals for the Federal Circuit addressed the claim construction tension between broadly drafted claims, and the written description contained in the patent specification, revealing a deep split among the panel members. Retractable Technologies, Inc. v. Becton, Dickinson Co., Case No. 07-CV-0250 (Fed. Cir,. July 8, 2011) (Lourie, J.) (Plager, J., concurring) (Rader, J. dissenting-in-part).

Retractable Technologies (RT) sued Becton Dickenson (BD) for infringing three patents related to syringes with retractable needle technology. Following an adverse jury verdict, BD appealed on multiple grounds, including a challenge to the claim construction of the term “body,” which the district court had determined could include a multi-part structure.

The Federal Circuit affirmed in part and reversed in part, specifically rejecting the district court’s broad claim construction the term “body.”  BD argued that the district court erred in ruling the syringe “body” is not limited to a one-piece structure, noting the specifications describes “the invention” as including a one-piece body.  In addition, the background section of the patent criticized prior art syringes that contain a two-piece body.  Finally, BD argued that claim differentiation does not apply in light of the written description’s limiting statements concerning the nature of the invention and the structure of the syringe body.

RT responded that the ordinary meaning of the term “body” should apply and is not limited to a one-piece body.  RT also argued application of the claim differentiation canon based on a dependent claim that included the limitation of a one-piece body.

Judge Lourie wrote for the majority of the panel, agreeing with BD that the claim term “body” is limited to a one-piece structure as described in the specifications. The majority noted that the specification indicates what was invented, holding that the claim language should not be interpreted to extend the invention beyond that set forth in the written description.  The majority also rejected RT’s claim differentiation argument as “weak” in the face of the language of the specification.  The majority noted that no dependent claim recited a non-one piece structure and concluded that the language of the specification that criticized two-piece structures was of greater significance than the dependent claim to a one-piece body.

Judge Plager, concurring, warned courts to turn a deaf ear to the siren song of giving claims wide scope.  In Judge Plager’s opinion, the written description requirement imposes an obligation to make full disclosure of what is actually invented and to claim that and nothing more.  As Judge Plager noted, “I have written elsewhere about the curse of indefinite and ambiguous claims, divorced from the written description, that we are regularly are asked to construe, and the need for more stringent rules to control the curse.”

In dissent, Judge Rader focused on the ordinary meaning of the term “body” and explained that since there was no special meaning provided by the patent specification to supplant the ordinary meaning of the term “body,” it was error to limit the construction to only a one-piece structure.  Rader wrote,  “In this case, neither party contends that ‘body’ has a special, technical meaning in the field of art, and thus claim construction requires ‘little more than the application of the widely accepted meaning of commonly used words.’”

Practice Note:  This decision reflects a fundamental division within the Federal Circuit on the importance of the written description as a limitation on claim scope, as compared to the view that the claim language itself should be of paramount importance in construction. Until there is either some post-Phillips en bancclarification or Supreme Court consideration of the issue, the outcome of contested constructions in such a circumstance may demand on the panel hearing the appeal.

© 2011 McDermott Will & Emery