Category: Litigation

Lawsuit Seeks to Overturn Trump’s SUNSET Rule

On March 9, 2021, the Center for Science in the Public Interest, Democracy Forward Foundation, American Lung Association, and other groups filed a lawsuit in the U.S. District Court for the Northern District of California against the U.S. Department of Health and Human Services (HHS) challenging the Agency’s “Securing Updated and Necessary Statutory Evaluations Timely” Rule (“SUNSET Rule”).

The SUNSET Rule mandates HHS to assess its regulations every ten years to determine whether they are subject to review under the Regulatory Flexibility Act (RFA).  If a given regulation is subject to the RFA, HHS must review the regulation to determine whether the regulation is still needed and whether it is having appropriate impacts.  Regulations will expire if the Agency does not assess and (if required) review them in a timely manner.  The complaint alleges that the rule exceeds the Agency’s authority and is arbitrary and capricious, as it obligates HHS to review regulations at a pace that the Agency will not be able to achieve, which will result in the elimination of regulations that structure the plaintiffs’ operations and businesses, delineate their obligations and rights, or protect their members and the populations they serve.

By way of background, the Trump Administration released notice of the proposed SUNSET rule the day after the 2020 election and scheduled it to take effect on March 22, 2021.  The lawsuit alleges that the Trump administration rushed the rule and did not provide the public with enough time to comment.

The Biden White House has called for a regulatory freeze on any last-minute regulations approved by the Trump Administration.  As a result, HHS has delayed several Agency rules so far.  Plaintiffs filed the lawsuit against HHS, as the Agency has not yet issued a stay in response to the White House’s announcement.  It is unclear whether the SUNSET Rule will be impacted by the Biden Administration’s regulatory freeze before it takes effect on March 22, 2021.

© 2020 Keller and Heckman LLP
For more articles on SUNSET rule lawsuits, visit the NLR Health Law & Managed Care section.

Legal Industry Updates: Law Firm Recognition, Attorney Hires and Exceptional Law Firm Pro Bono Work

Let’s dive into the latest coverage by the National Law Review on legal news, law firm updates, and noteworthy pro-bono and civic engagement by attorneys.

Law Firm Recognition & Honors

The National Law Journal recognized Robinson+Cole Managing Partner Rhonda J. Tobin on its list of 2021 Insurance Law Trailblazers. She was recognized for her 30 years of experience representing insurance companies in arbitration, litigation and mediation involving reinsurance and insurance coverage. Tobin has represented insurers in cases involving the September 11 attacks, the coronavirus pandemic and the #MeToo movement.

Tobin was the first woman to lead Robinson+Cole as a managing partner, and served on the firm’s Managing Committee for the last 12 years, and has been a chair of the firm’s Litigation Section for 13 years.

Kirkland & Ellis received eight awards at the 2020 Private Equity International (PEI) Awards. The annual PEI awards “showcase the firms that have, in the eyes of their peers, set the benchmark during the year.” The awards are chosen by readers of Private Equity International and subscribers of PrivateEquityOnline.com. The awards Kirkland & Ellis won include: Law Firm of the Year in Asia (Transactions), Law Firm of the Year in North America (Fund Formation), Law Firm of the Year in North America (Transactions), Law Firm of the Year in EMEA (Europe, Middle East and Africa) (Fund Formation), Law Firm of the Year in EMEA (Transactions), Secondaries Law Firm of the Year in Europe, Secondaries Law Firm of the Year in Americas and Secondaries Law Firm of the Year in Asia.

Blake, Cassels & Graydon LLP is one of Canada’s Best Diversity Employers 2021, receiving this exceptional recognition for the 11th time, which is more than any law firm in Canada. Blakes’ diversity initiatives include Diversi-Tea, a program that pairs diverse junior associates with mentors at the senior associate and partner levels, and workplace initiatives such as Black@Blakes, Women@Blakes and Pride@Blakes.

Blakes is also a part of the 30% Club, which strives to increase the number of women on boards of directors to 30 percent by 2022. In a statement, Blakes said, “We proudly stand with other Canadian business leaders as members of the BlackNorth Initiative (BNI) and their Law Firm Pledge, Law Firm Antiracism Alliance network, and Black Future Lawyers, among others, to support work focused on addressing systemic racism and improve the recruitment and retention of diverse legal professionals.”

Lawyer Career Changes

Capital markets lawyer Johnny Skumpija has joined Sidley Austin’s New York office as a partner in its Capital Markets practice.

“Johnny is a tremendously talented and versatile lawyer who has advised and worked with some of the biggest names on Wall Street and across corporate America,” said Ed Petrosky, global chair of Sidley’s Capital Markets practice and a member of the firm’s Executive Committee. “His well-rounded experience and skill set are impressive and will enhance our Capital Markets practice’s ability to serve clients and navigate complex transactions.”

Skumpija’s practice focuses on capital markets matters, financial institutions, public offerings and other equity financings. He also advises companies on disclosure, governance and general corporate matters.

Lindsay Clark recently joined Fasken Martineau DuMoulin LLP as Counsel in the firm’s Technology, Media and Telecommunications group (TMT) in British Columbia, Canada. In her practice, Clark advises companies on operational and corporate governance matters, commercial, licensing and IT agreements, and corporate structuring and planning.  Additionally, she assists clients prepare for and complete significant transactions, including venture financing and exit transactions.

“We welcome Lindsay to Fasken and to our TMT group, said William Westeringh, QC, Managing Partner, BC Region. “Lindsay’s broad experience advising companies and their founders and investors will help serve our clients in the ever-changing technology sector.”

Sarah Dunn Davis and Aileen Kim recently joined Ropes & Gray’s mergers & acquisitions practice as counsel in Boston and New York, respectively.

Davis previously worked as a vice president and senior counsel for a publicly traded global asset management company, focusing on cross-border investments and other strategic transactions. She also worked at Ropes & Grey as an associate from 2014 to 2015.

Kim’s practice focuses on representing private companies in divestitures, joint ventures, mergers and acquisitions and advising on corporate governance, disclosure issues and compliance matters. She represented Eli Lilly in its approximately $8 billion acquisition of Loxo Oncology, Inc. and its $1.1 billion acquisition of Dermira, Inc.

“Both Sarah and Aileen are a great fit for the type of complex work Ropes & Gray is known for handling,” said Chris Comeau, co-chair of the firm’s M&A practice. “Aileen’s experience guiding biopharmaceutical transactions strengthens our life sciences team, and Sarah’s return to the firm is welcome because she brings the combination of law firm and in-house perspectives to deals in a broad range of industries, including asset management, technology and life sciences.”

Law Firm Pro-Bono Efforts

A team of attorneys from Proskauer Rose including associates Tony Martinez, Robert Spiro, and Jordan Glassberg along with pro bono counsel Erin Meyer and paralegals Nina Leeds and Anna Brodskaya worked with a pro bono client of the firm, helping him apply for asylum through the USCIS (U.S. Citizenship and Immigration Services). Proskauer’s client is a gay man, who had suffered horrible violence that was not investigated or prosecuted in his home country, and who had fled to the United States as a result.

The asylum process in the United States is a difficult and time-consuming process, and the Proskauer team helped by drafting an affidavit describing their client’s past persecution, collected evidence in support of his assertions, and assisting him in asylum interview preparation.  The client was granted asylum by USCIS in February of 2021, and can now live safely in the United States.

Glassberg, one of Proskauer’s attorneys who worked on the case, said, “Being able to advocate for someone who was gravely mistreated through no fault of his own, and knowing that he can now live here in safety, is an experience that I am humbled and grateful to have been a part of.”

Lauren Connell, pro bono counsel with Akin Gump, received the Brooklyn Volunteer Lawyer’s Project (VLP)’s Pro Bono Leadership award at a virtual ceremony on March 4.  The award is in recognition of her work launching VLP’s Frontline worker initiative during the COVID-19 pandemic.  The initiative focused on honoring the work and sacrifice of 1199SEIU United Healthcare Workers East members by offering assistance in the preparation of important life planning documents, such as wills, health care proxies, powers of attorney and other important legal documents.

Connell says she was excited to partner with VLP on the project.  Per Connell: “We are happy to support a group that has been such a key part of the pandemic response and hope that our work will provide some measure of comfort and security in these uncertain times.”

Connell has worked on a variety of pro-bono matters for Akin Gump; including work representing refugees seeking asylum detained in facilities in Texas, working with separated families, and securing asylum for individuals in a variety of circumstances including refugees who had worked with U.S. and NATO forces in Afghanistan.

The Brooklyn VLP project works to involve attorneys and law firms in pro bono projects, with the overarching goal of making legal services available to low-income residents of Brooklyn.

Over 1,000 attorneys associated with Lawyers for Good Government (L4GG), a network of lawyers committed to human rights and equal justice sent a letter to the U.S. Senate in support of the confirmation of Vanita Gupta for Associate Attorney General, and Kristen Clarke for Assistant Attorney General for Civil Rights.  The attorneys who signed the letter support Vanita Gupta and Kristen Clarke’s record on Civil Rights, stated:, “Trump and his administration did damage to our institutions, and to repair that damage, we need people who have devoted their lives to fighting against injustice.”

Gupta has faced criticism from Senate Republicans for the language and rhetoric in her tweets, and for her positions surrounding law enforcement and drug decriminalization. The Judicial Crisis Network has launched a million dollar offensive to fight Gupta’s nomination, but if she is confirmed, she will be the first woman of color to be the associate attorney general.

Clarke is nominated for the Assistant Attorney General for Civil Rights, and is currently the president and executive director of the National Lawyers’ Committee for Civil Rights Under Law, which promotes fair housing and community development, economic justice, voting rights and more.

We’ll be back in two weeks with more legal news and updates.  Watch this space.

Copyright ©2020 National Law Forum, LLC

ARTICLE BY Eilene Spear and Rachel Popa of
The National Law Review / The National Law Forum LLC
For more articles on the legal industry, visit the NLR Labor & Employment section.

TIK TOK TIK TOK: Time Running Out For Preliminary Court Approval of Multimillion Dollar TikTok Privacy Settlement

On February 25, 2021, Plaintiffs’ Motion for preliminary approval of a $92 million settlement was filed in the ongoing multidistrict litigation, In Re: Tiktok, Inc., Consumer Privacy Litigation (Case: 1:20-cv-04699).  Shortly after the filing of the motion, objections were filed regarding the basis and terms of the settlement.  After a hearing on March 3, 2021, the Court requested a supplemental briefing from the parties explaining, amongst other concerns: how the parties arrived at the final $92 million figure; how they addressed differences between adult users and minor users for purposes of the settlement; and, an additional explanation as to why class members could not be notified of the deal through the TikTok app itself.

So, what’s the scoop?  Let’s backtrack first.

Recall that on August 8, 2020, the Panel on Multidistrict Litigation consolidated 10 pending class action cases against TikTok Inc.  Five cases in the Northern District of California, four in the Northern District of Illinois, and one in the Southern District of Illinois, as In Re: Tiktok, Inc., Consumer Privacy Litigation (Case: 1:20-cv-04699).  The multidistrict litigation has now expanded to 21 putative class actions against Defendants TikTok Inc., ByteDance Technology Inc., and foreign Defendants TikTok, Ltd. (previously known and sued as Musical.ly), and Beijing ByteDance Technology Co. Ltd.  All actions concern Defendants’ collection, use, and transmission of highly sensitive personal data via Defendants’ ubiquitous TikTok app.  Plaintiffs in the consolidated actions allege that Defendants’ conduct with, respect to the scanning, capture, retention, dissemination of the facial geometry and other biometric information of users of the app is in violation of multiple privacy statutes.  Plaintiffs also allege that Defendants use private information to track and profile TikTok users among other things, for ad targeting and profit.  In other words: this case is obviously a big deal in the world of data privacy litigation.

The operative Consolidated Amended Class Action Complaint, filed on December 18, 2020, alleges ten separate causes of action against Defendants, including, violation of the Illinois Biometric Information Privacy Act (“BIPA”), the Computer Fraud and Abuse Act (“CFAA”), the California Comprehensive Data Access and Fraud Act (“CDAFA”), the right to privacy under the California Constitution, and California Unfair Competition Law (“UCL”), among others.

In response, TikTok has argued that it does not and never has collected from its users any biometric identifiers or derivative information protected by law, nor has it ever shared U.S. user data with foreign government third-parties.  In support of its position that it has not violated BIPA, TikTok has asserted that its user video data is not used to identify anyone, as app users cannot tag or label faces in videos with a user’s real name or identity.

The objections that were recently filed include that the settlement does not account for serious conflicts between minor class members, nationwide class members, and Illinois subclass members, arising out of: (a) the minors’ abilities to disaffirm any arbitration agreement or class action waiver, and (b) TikTok’s statutory obligation to delete data collected about them. The objections also include that the proposed settlement value is unfair, unreasonable, inadequate, and is far below the net expected value of continued litigation.  Objectors also attack the notice plan as violating both Rule 23 and Due Process. Objecting Plaintiffs allege that the notice plan improperly relies on publication notice when direct notice should be via the TikTok app itself.  They also claim the notice plan fails to set forth the estimated claim value, and appears to be designed to suppress the claims and objections rates.

How will this all shake out?  Will the court ultimately be satisfied that the settlement is fair and otherwise meets the various requirements necessary for preliminary approval?  Supplemental briefs from the parties are due by March 23, and a status and motion hearing is set for April 6.

© Copyright 2020 Squire Patton Boggs (US) LLP

ARTICLE BY Zarish Baig of Squire Patton Boggs (US) LLP
For more articles on Tik Tok, visit the NLR Litigation / Trial Practice section.

What to Do When a Lower Court Disregards the Appellate Court’s Mandate on Remand

Imagine this: You litigate a case for years. Your opponent wins summary judgment. You appeal. The appellate court agrees that the summary judgment was erroneous and remands for trial. On remand, your opponent argues that the appellate court actually affirmed the dismissal of one the claims that was clearly remanded for trial. The lower court accepts that argument. What do you do?

You are facing the injustice of being denied the victory you just won in the appellate court. You know you can return to the appellate court again—someday—as of right. But if that return trip does not happen until after trial, you will waste substantial time and resources on the erroneously-limited trial.

Fortunately, appellate courts take this issue very seriously and will entertain interlocutory appeals to ensure that lower courts obey their commands. When an appellate court remands a case to a lower court, it issues a “mandate”—an order directing the lower court to take some specified action. Case law is clear that the mandate must be followed to the letter. In New Jersey, for example, the leading case on this issue, Flanigan v. McFeely, was authored by then-state Supreme Court Justice William J. Brennan less than a year before his elevation to the U.S. Supreme Court. Justice Brennan explained that “the trial court is under a peremptory duty to obey in the particular case the mandate of the appellate court precisely as it is written.” He further explained that “[r]elief from its [i.e., the mandate’s] directions, even though manifestly erroneous, can be had only in the appellate court whose judgment it is.”

A recent unpublished Order confirms that New Jersey appellate courts continue to take Justice Brennan’s words seriously. In 2019, in Deborah Heart and Lung Center v. Virtua Health, Inc., the appellate court reversed and remanded for trial claims by plaintiff, a charity cardiac hospital, that the defendants, a nearby competing hospital system and a number of its officials and physicians, had effected a “plan to put Deborah out of business” by bullying vulnerable cardiac patients to transfer to a more distant hospital in Pennsylvania instead of to Deborah. The appellate court held that: “Our review of the record reveals email exchanges, deposition testimony, and certifications suggesting defendants collectively worked to shutter Deborah.” It then stated its mandate, in relevant part, as follows: “Reversed and remanded as to Deborah’s claims against defendants for unfair competition and civil conspiracy limited to the identified patients.”

Despite the clarity of this language, the main defendant, Virtua Health, argued on remand that only the civil conspiracy claim had been remanded, and the dismissal of the unfair competition claim had actually been affirmed. And one of the individual defendants, Richard Miller, the former CEO of Virtua Health, argued that his dismissal had actually been affirmed in its entirety. The lower court agreed with both of these defendants and entered in limine orders excluding from trial all claims against Miller and the unfair competition claims against Virtua.

The plaintiff responded by making a motion for an interlocutory appeal. The Appellate Division granted that motion and summarily reversed the trial court, ordering that:

Appellant’s motion for leave to appeal is granted, and the orders of September 29 and December 4, 2020, are reversed summarily. In our opinion in Deborah Heart and Lung Center v. Virtua Health, Inc., et al., No. A-2307-17 (App. Div. July 16, 2019), we reversed the summary judgment granted by the trial court to defendant Richard Miller. We also reversed the dismissal of Deborah’s claims for unfair competition and civil conspiracy, limited to the identified patients, as to all defendants, including the Virtua defendants, and remanded the case for trial on those claims. As the trial court’s orders of September 29 and December 4, 2020 are inconsistent with our opinion and the terms of the remand, they are reversed and the case again remanded for trial of plaintiff’s claims of unfair competition and civil conspiracy, limited to the identified patients, as to all defendants.

In the New Jersey Appellate Division, only about 14% of motions for interlocutory appeal are granted. Most appeals (about 78%) are ultimately affirmed—usually after full briefing and arguments on the merits. The summary reversal of the lower court in Deborah v. Virtua shows that appellate courts continue to take the principle first enunciated by Justice Brennan seriously.

©2020 Epstein Becker & Green, P.C. All rights reserved.

ARTICLE BY Anthony Argiropoulos and Thomas Kane of Epstein Becker & Green, P.C.
For more articles on litigation, visit the NLR Litigation / Trial Practice section.

Steves v. JELD-WEN: 4th Circuit Affirms Divestiture in Private Antitrust Lawsuit

The recent decision of the U.S. Court of Appeals for the Fourth Circuit in Steves & Sons, Inc. v. JELD-WEN, Inc., 2021 WL 630521 (4th Cir. Feb. 18, 2021), is noteworthy for its affirmance of the trial court’s unusual grant of the equitable remedy of divestiture in a private antitrust suit brought by a customer challenging a merger of competing suppliers.  That challenge was brought under Section 16 of the Clayton Act, 15 U.S.C. § 26, and followed a merger consummated four years before the plaintiff’s complaint.

While divestiture is a commonly sought remedy in government enforcement actions brought by the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ), the Fourth Circuit observed that “private suits seeking divestiture are rare and, to our knowledge, no court had ever ordered divestiture in a private suit before this case.”  Steves & Sons, Inc., 2021 WL 630521, at *5; see also id. at *29 (noting that, while the Fourth Circuit had “not previously had occasion to speak on the issue of divestiture sought by a private plaintiff under Section 16 of the Clayton Act, . . . other courts have considered such requests, and none has yet encountered a case in which divestiture was an appropriate award,” and noting that “courts have been reluctant to order divestiture at the behest of a private plaintiff after consummation of the allegedly anticompetitive merger”) (Rushing, C.J., concurring).

If Section 16 divestiture becomes a more common feature of private antitrust litigation, the reasoning of the Steves & Sons opinion could have important implications for antitrust defendants and plaintiffs alike.  We consider some of the ramifications of greater judicial acceptance of such private divestiture challenges below.

Summary of Relevant Facts

The suit involved the market for “doorskins” – i.e., the molded paneled and textured covers placed on wooden doors and their frames.  That market was dominated by three primary competitors at the time of the merger in 2012:  Masonite, JELD-WEN, Inc. (JELD), and CMI.  These three dominant firms supplied doorskins to customers including Steves & Sons, Inc. (Steves).  The dominant suppliers had market shares of approximately 46% (Masonite), 38% (JELD), and 16% (CMI).  In 2012, JELD and CMI proposed to combine to form a single entity.  At the time, Steves did not object to the proposed merger, apparently because earlier in the year Steves and JELD had entered into a long-term supply agreement that contained certain limits on price increases JELD could charge Steve, as well as quality assurances.  DOJ, after consulting Steves as part of its investigation of the proposed merger, closed its investigation in September 2012.  The merger was consummated in October 2012.

In short order, notwithstanding JELD’s earlier promises to Steves, JELD began to raise the prices on its product and the quality of its product deteriorated.  Steves unsuccessfully sought to negotiate a contract with the only remaining supplier in the market, Masonite, but Masonite sought to raise prices, leaving Steves no option but to continue to obtain product from JELD.  In December 2015, Steves asked DOJ to reexamine the merger, which DOJ did, but once again closed its investigation without further action, in April 2016.  Steves initiated a lawsuit against JELD in June 2016, seeking to unwind the merger and to obtain damages.

The Fourth Circuit’s Affirmance of the Divestiture Grant

Following a jury trial, the trial court awarded Steves treble damages on its Clayton Act Section 7 antitrust claim.  In addition, the trial court took the unusual step of ordering divestiture of certain of the assets of the combined entity.  However, the Court held its order in abeyance pending the appeal before the Fourth Circuit, with  a view to assigning a special master the task of managing an auction for the divestiture.  The District Court, relying upon an approach approved in the classic Brown Shoe Co. v. United States, 370 U.S. 294, 309-10 (1962), declined to order immediate divestiture, noting that potential suitors might be reluctant to engage in a purchase pending the outcome of the appeal.

On appeal, the Fourth Circuit observed that “[d]ivestiture is the customary form of relief in Clayton Act § 7 cases because (among other reasons) it’s ‘simple, relatively easy to administer, and sure.’”  Id. at *5 (quoting California v. Am. Stores Co., 495 U.S. 271, 281 (1990)).  Notwithstanding the trial court’s unusual award of divestiture to a private litigant, Steves, the Fourth Circuit affirmed the trial court’s grant of this relief.  Specifically, the Fourth Circuit agreed that Steves had satisfied the requisite equitable factors to obtain divestiture.  The Court considered but ultimately declined to order a “conduct remedy” that, for example, could have ordered JELD to continue to supply Steves at fixed rates.  Although this might have offered a temporary remedy for Steves, the Court found it would not eliminate the future threat to Steves.  In addition, the Court reasoned that a conduct remedy would not address the broader anticompetitive market effects of the merger.  As the Court stated, “courts may fashion equitable remedies with that broader purpose in mind.  A remedy that helped only Steves wouldn’t promote competition in the doorskin market, conflicting with the principle that antitrust law protects competition, not competitors.”  Id. at *21.

After concluding that other equitable factors favored divestiture, the Court summed up concisely:  “this case is a poster child for divestiture.”  Id. at *24.  After all, the merger “resulted in a duopoly”; “[e]ach doorskin supplier is vertically integrated”; and “they’ve used their market power to threaten the . . . survival” of smaller independent door manufacturers, like Steves. Id.

The Fourth Circuit’s Rejection of the Defendant’s Laches Defense

Another notable aspect of the Fourth Circuit’s decision was its ruling on a laches defense JELD raised.  Given the passage of time between the merger’s consummation and the initiation of Steve’s suit (four years), JELD’s laches defense asserted Steves had waited too long to initiate its challenge to the merger.  The DOJ filed an amicus brief (a practice that increased in frequency during the Trump administration), arguing that a laches defense does not categorically foreclose divestiture, particularly in situations where (as in this case) Steves had cooperated with DOJ’s investigation.  DOJ also argued there was no evidentiary significance to the two occasions on which DOJ had reviewed the merger and yet declined to take any action.  Any number of reasons, DOJ noted, could have accounted for this decision, including simply limited resources.

The Fourth Circuit affirmed the trial court’s conclusion that JELD failed to satisfy the required elements of a laches defense:  (1) unreasonable delay by the plaintiff in initiating the lawsuit, and (2) prejudice to the defendant.  First, as to delay, Steves was on notice of the injury giving rise to its divestiture claim only as of 2014.  Only then, the Court observed, did Steves become aware that its access to doorskins – and hence the very survival of its business – was threatened.  Steves’ delay was also explainable by virtue of its good faith efforts to seek alternative remedies, including its cooperation with DOJ.  Second, having found no delay, the Court concluded there was no need to inquire further regarding the possible prejudice to JELD from Steves’ alleged delay.

Conclusion

Time will tell whether the Fourth Circuit’s affirmance of the trial court’s unusual divestiture ruling in a private suit will become a more common feature of private antitrust litigation.  What is certain, however, is that even in the context of government enforcement actions, laches defenses in post-consummation merger challenges will continue to have relevance.  Thus, for example, we can anticipate Facebook’s inevitable laches defense to the challenge the FTC and state Attorneys General have brought against Facebook’s acquisition of Instagram and WhatsApp.  After all, the FTC’s Facebook complaint filed in December 2020 challenges Facebook’s acquisition of Instagram in 2012 and WhatsApp in 2014, and seeks divestiture as an equitable remedy.  How courts should address private divestiture claims, however, is not straightforward.  On the one hand, the failure of the DOJ or FTC to halt a merger does not bar later attempts to unwind it.  On the other hand, where a merger investigation has been terminated on the condition that the parties make certain divestitures, later challenges to the merger or requesting additional divestitures might strike the merging parties as unfair.  The DOJ’s recently updated Merger Guidelines may offer helpful guidance to the courts in sorting out such challenges.

Copyright © 2021 Saul Ewing Arnstein & Lehr LLP, A Delaware Limited Liability Partnership. All Rights Reserved.

ARTICLE BY Justin C. Danilewitz and James A. Morsch of
Saul Ewing Arnstein Lehr

 

For more, visit the NLR Litigation / Trial Practice section

1  The authors are partners at Saul Ewing Arnstein & Lehr, LLP.  The views expressed in this article are their own, not the firm’s or the firm’s clients.

2 “DOJ weighs in on more antitrust cases, with mixed success,” Oct. 1, 2019, last visited Feb. 24, 2021

3 See Merger Remedies Manual, U.S. Dep’t of Justice, Antitrust Division (Sept. 2020), last visited Feb. 24, 2021.

Singapore Academy of Law Considers the Impact of Robotics and Artificial Intelligence on the Law

The Law Reform Committee (LRC) of the Singapore Academy of Law (SAL) established a Subcommittee on Robotics and Artificial Intelligence to consider and make recommendations regarding the application of the law to AI systems. The LRC is considering whether existing systems of law, regulation, and wider public policy remain “fit for purpose,” given the pace and ceaselessness of change of the AI field. The LRC published two reports in July 2020, one report in September 2020, and one report in February 2021:

  • “Applying Ethical Principles for Artificial Intelligence in Regulatory Reform”;
  • “Rethinking Database Rights and Data Ownership in an AI World”;
  • “Report on the Attribution of Civil Liability for Accidents Involving Autonomous Cars”; and
  • “Report on Criminal Liability, Robotics and AI Systems.”

This initiative is part of the report series on “impact of robotics and artificial intelligence on the law” to stimulate systematic thought and debate on these issues and discussions between policy makers, legislators, industry, the legal profession, and the public to adopt legislation in line with the evolution of AI. The remaining two reports of the series cover application of criminal law to the operation of AI systems and technologies, and attribution of civil liability for accidents involving automated cars.

This article examines each report and highlights issues currently under consideration that may impact industries in Singapore whose business models, operations, or products may rely on AI systems and/or robotics.

REPORT 1: APPLYING ETHICAL PRINCIPLES FOR ARTIFICIAL INTELLIGENCE IN REGULATORY REFORM

Report 1 by the Subcommittee identifies issues that law and policy makers may face in applying ethical principles when developing or reforming policies and laws regarding AI. The primary objective of this report is to advance a public discussion about how those ethical principles can be incorporated into the development of “fair, just, appropriate and consistent laws, regulations and ‘soft law’ measures that foster technological development that prioritises human wellbeing and promotes human dignity and autonomy.” Specifically, the report discusses the following ethical principles that should be relevant for legal reform for AI:

Law and Fundamental Interests

AI systems should be designed and deployed to comply with law and not violate established fundamental interests of persons protected by law — the two main issues with regard to liability of AI systems are the (i) lack of mental state of the relevant actor such as knowledge or intention attributable to a person and (ii) a “decision” by an AI system to act is the result of a long causation chain involving different actors at different stages of the system’s creation and deployment.

Considering AI Systems’ Effects

Designers and deployers of AI systems should consider the likely effects of reasonably foreseeable effects of AI systems throughout their lifecycle. It is possible that existing principles are sufficient and could be relied upon to fairly apportion liability. However, policy makers may require more tailor-made interventions by creating principles specific to certain scenarios.

Wellbeing and Safety

AI systems should be rational, fair, and without intentional or unintentional biases. It is necessary to assess AI systems’ intended and unintended effects against holistic wellbeing and safety metrics and minimize harm by considering factors such as human emotions, empathy, and personal privacy.

Risk Management to Human Wellbeing

It is imperative for designers and deployers of AI systems to properly assess and eliminate or control risks of the use of AI systems as a matter of safety and wellbeing. Policymakers will need to consider whether mandatory risk management standards need to be imposed, and if so, the form in which, and specificity with which, such standards are articulated.

Respect for Values and Culture

AI systems should be designed to take into account, as far as reasonably possible, societal values and cultural diversity and values in different societies in AI deployment. Taking into account societal values and cultural norms is especially important in effective AI systems.

Transparency

Designing AI systems to be transparent as far as reasonably possible and to enable discovery of how and why an AI system made a particular decision or acted the way it did. Transparency entails being able to trace, explain, verify, and interpret all aspects of AI systems and their outcomes insofar possible. The objective is to not only properly regulate AI but also to build trustworthy AI. One possible regulatory response to challenges involving tracing, explaining, and verifying different aspects of AI is to require mechanisms to be built into AI systems that, as far as reasonably possible, record input data and provide a logic behind decisions taken by the AI, very much like a plane black-box recorder.

Accountability

Holding appropriate persons accountable for the proper functioning of AI systems based on their roles, the context, and consistency with the state of art.

Ethical Data Use

Good privacy and personal data management practices to protect the personal data of individuals.

REPORT 2: RETHINKING DATABASE RIGHTS AND DATA OWNERSHIP IN AN AI WORLD

Report 2 by the Subcommittee identifies key data-related and intellectual property laws on databases and data ownership, especially those that relate to “big data” databases used for AI systems. Any deficiencies in laws on data or databases may have ripple effects on laws managing AI systems.

Databases

Existing Legal Protections

The Subcommittee analyses whether the protection of databases under copyright and patent law is adequate. Current protection in Singapore is limited to elements that meet the requisite level of originality (i.e., application of intellectual effort, creativity, or the exercise of a mental labor, skill, or judgment). In contrast, big data compilations do not have a single author; rather, they consist of automated data collected into raw machine-generated databases. The focus on the creative element excludes from protection valuable databases.

Recommendations

Introduction of a sui generis database right1 is not appropriate under Singapore law given the limited evidence of its effectiveness. The Subcommittee recommends that (i) copyright protection of computer-generated works be recognized and (ii) greater clarity as to how compilation rights apply for the copyright protection and how records of authorship of databases can be properly maintained.

Data Ownership

Current Status

The report reviews whether data collected by AI, whether as individual data or a combination of data elements, need to be granted property rights. Personal data is protected in Singapore under the Personal Data Protection Act (PDPA), but even if the data subject enjoys certain protection, he/she is not granted legal ownership of his/her data. Given the nature of data, there are fundamental difficulties—on grounds of jurisprudential principle and policy—to using ownership and property rights as legal frameworks to control data.

Merits of Granting Property Rights Over Personal Data

There are various arguments for granting property rights over data, such as providing a clear and coherent method to protect privacy and relying on existing property laws to provide established protection. Currently, data is protected through a mix of copyright, confidentiality, and privacy laws.

Recommendations

The report concludes that creating a property right for data is not desirable due to the conceptual challenges of data’s intangibility. Introducing particular rights or entitlement over personal data can be achieved by other means than ownership (e.g., data portability obligation under the PDPA). Specific data control methods can be implemented to protect individual rights as well as to support data innovation.

REPORT 3: ATTRIBUTION OF CIVIL LIABILITY FOR ACCIDENTS INVOLVING AUTONOMOUS CARS

Under consideration by regulators are questions regarding the attribution of civil liability when accidents or collisions involving autonomous cars occur and cause injury or death, even though it is hoped that autonomous vehicles will significantly reduce the number of accidents on public roads.

At present (i.e., for car accidents involving human drivers), Singapore law applies a fault-based negligence framework: the person most responsible for the accident is held liable (that liability then typically being covered by motor insurance).

For self-driving cars, many events leading up to an accident may stem from decisions made by the car’s autonomous features, with no human input or intervention whatsoever. As the car cannot be meaningfully held accountable and sued directly, it becomes important whether to attribute liability to either the car’s manufacturer, the manufacturer of the components that did not function properly, or the car’s owner or user.

Authorities in various overseas jurisdictions have taken recent steps to review and reform aspects of their laws to accommodate the arrival on public roads of, in the first instance, conditionally autonomous cars—where a human driver is still required to take back control if necessary.

To date, the approach in Singapore has been to introduce “sandbox” regulations to promote innovation in autonomous car technologies in Singapore rather than seeking to legislate now for future mainstream use. However, different liability frameworks presently used in other areas of law in Singapore (i.e., negligence, product liability, and no-fault liability) have yet to be applied to autonomous vehicles.

Negligence

Typically, negligence-based laws require the establishment of (a) a duty of care (foreseeability of harm), (b) a breach of that duty (standard of care), and (c) recoverable damage. However, failures of software present a challenge and render the question of breach much more complicated to resolve.

Product Liability

Such regime is focused on dangerous product defects and manufacturers’ failure to adopt reasonable product designs that mitigate foreseeable risks of harm—such regime is well developed in Europe but is less well developed than negligence in Singapore law. In Singapore, the committee considers that strict liability is likely to have an adverse impact on the availability and cost of insurance and have a risk of stifling innovation. In addition, for Singapore, moving to a novel strict-liability regime from one based on negligence may involve significant transition costs, even if it were limited to self-driving car accidents.

No-Fault Liability

No-fault liability simply requires that if the harm was suffered due to the accident, compensation for the victim follows as a matter of course. The relative simplicity of a no-fault liability regime makes it initially attractive as a means to address the conceptual problems that self-driving cars create. However, the requirements under the current law to prove certain legal and evidential issues should not be disregarded, and so completely abandoning them would change existing legal paradigms.

According to the committee, given Singapore’s long-established negligence-based liability regime and the potential transition costs entailed in adopting a wholly new model, the more productive approach may therefore be to retain the existing system but make targeted modifications to import the desirable features of product liability and no-fault liability, where appropriate. Given this, and the fact that no other jurisdiction has yet identified a comprehensive and convincing liability framework for motor accidents involving autonomous vehicles (regardless of their level of automation), a sui generis regime may be required for Singapore.

REPORT 4: CRIMINAL LIABILITY, ROBOTICS AND AI SYSTEMS

Attribution of criminal liability to a person generally requires both a wrongful act (or, in certain cases, omission) and a mental element on the part of the person carrying out the act. That fault element, also known as “mens rea,” may involve intention, wilfulness, knowledge, rashness, or negligence.

Autonomous robotic and artificial intelligence (RAI) systems are increasingly being deployed, which can raise challenges in attributing criminal liability and holding someone responsible where harm is caused. However, while criminal liability can be imposed on natural or legal persons—and thus on both humans and corporate entities—an RAI system is not a legal person on which criminal responsibility could be placed directly.

Therefore, questions arise as to (a) which aspect of the RAI system factually caused it to act the way it did (resulting in harm), (b) which party (or parties)—be that the system manufacturer, the system owner, a component manufacturer, or a software developer—was responsible for that aspect, and (c) whether that party could have foreseen or mitigated the harm.

For RAI systems, it is useful to distinguish between cases of intentional criminal use of (or interference with) the RAI system and those where nonintentional criminal harm is caused.

For Intentional Criminal Harm

Current legislation will be applicable and could be improved but may not drastically change.

For Nonintentional Harm

In Singapore, certain offences can be satisfied when a person is criminally negligent. However, even if some existing Singapore negligence-based offences in the Penal Code could be used for RAI systems, other type of harms might not fall within the existing framework. With more complex RAI systems, it may be very difficult (in some instances, practically impossible) to establish definitively the process by which the RAI system determined to take a particular action.

Therefore, the committee has considered other mechanisms to be implemented in Singapore for RAI criminal liability:

Legal Personality of RAI Systems

One possibility that has been debated is the creation of a new form of legal personality for RAI systems, such that criminal liability could be imposed directly on the RAI system itself. However, it is unclear, for example, how imposing criminal liability and sanctions on an RAI system directly would “punish,” “deter,” or “rehabilitate” the system itself. And if the objective is instead to deter or penalize those responsible for the RAI system, that could arguably equally be achieved through legal mechanisms that do not require new forms of legal personality to be created.

New Offences for Computer Programs

The new offences could target the creation of risk by developers or operators of computer programs through their rash or negligent creation or impose a duty on those with control over a computer program to take reasonable steps to cease harms that may result from computer programs after they manifest. This approach could allow courts to identify the persons criminally liable and the parameters of their duties. However, the contours of such offences remain uncertain, and such approach could deter innovation.

Workplace Safety Legislation as a Model

This is a model where duties are imposed on specified entities to take, so far as is reasonably practicable, such measures as are necessary to avoid harm. There is a focus on whether the relevant entity breached its statutory duty to take all reasonably practicable measures to avoid the harm. Ultimately, whether and when it is justified to place such an onus on those responsible for RAI systems is a policy judgment for lawmakers, balancing demands for accountability with the desire not to unduly stifle innovation and impede the societally beneficial development and use of RAI systems.

NEXT STEPS

The reports of the SAL are intended to encourage systematic thought and debate between various policymaking and industry stakeholders such that public policy on AI remains close to the commercial use of AI. If you wish to get in touch with policy makers, please contact us.

1 Sui generis database right is a right that exists in the European Union to recognize the investment that is made in compiling a database.

Copyright 2020 K & L Gates

ARTICLE BY Lucas Nicolet-Serra of K&L Gates
For more, visit the NLR Global news section.

Where The “Unspiked Rail” Bested A Future Supreme Court Justice

George Springmeyer had a storied legal career during the early years of the twentieth century as the District Attorney for Esmeralda County, Nevada and then the U.S. Attorney for the District of Nevada.  His service as District Attorney from 1906 to 1910 corresponded with the boom years of Goldfield, Esmeralda’s county seat.  In 1907, the county finished a beautiful stone courthouse which continues to serve as the county’s courthouse.  On a recent, hiking excursion to central Nevada, I stopped by the courtroom to take a look at where George Springmeyer tried all manner of cases in what was then the largest town in the state.

Walking into the courtroom, it was easy to picture the scene a century ago when George Springmeyer won a second-degree murder conviction of man named Antonini:

“Presently they filed back into the courtroom.  The spectators seated themselves with obvious anticipation.  The judge took his place between two lamps with twisted brass columns and red shades fringed with golden beads, which lent the courtroom something of an ornate Victorian parlor.”

Sally Springmeyer Zanjani, The Unspiked Rail: Memoir of a Nevada Rebel 147 (1981).  As can be seen from my photo, the brass columned lamps with gold beads still are still there (I don’t know when the Bighorn Sheep’s head was mounted).  The defense attorney was John Sanders, a Virginia immigrant, who would later serve for nearly two decades as a justice of Nevada’s Supreme Court.

George Springmeyer acquired the “unspiked rail” sobriquet as a result of his opposition to railroad interests.  The late Ms. Zanjani is Springmeyer’s daughter and the author of numerous books about Nevada’s colorful past.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP

ARTICLE BY Keith Paul Bishop of Allen Matkins Leck Gamble Mallory & Natsis LLP
For more, visit the NLR Litigation / Trial Practice section.

$15 Million Settlement in Post Cereal Lawsuit

On February 24, 2021, a California federal judge tentatively approved a settlement over nutrition-related claims for breakfast cereal whereby Post would establish a $15 million non-reversionary common fund to compensate a nationwide class of consumers who purchased Raisin Bran, Honeycomb, Honey Bunches of Oats, or Waffle Crisps, and Post would  also refrain from using claims including “less processed,” “no high fructose corn syrup,” “natural,” and “wholesome” on boxes of cereal where 10% or more of the calories come from added sugar.  An award for fees, costs, and expenses will be determined in a final hearing scheduled for June 23, 2021.

The same team of attorneys also filed proposed class action lawsuits in 2016 with a common lead plaintiff in the Northern District of California against cereals marketed by General Mills and Kellogg involving similar false-advertising claims.  As we previously reported, the case against General Mills was dismissed in June 2020, based on the judge’s finding that plaintiffs could not possibly have been misled because the amount of sugar in the cereals is clearly disclosed on the product labels.  Further, a settlement has not yet been reached in the class action lawsuit against Kellogg (subscription to Law360 required).

Although legal results are mixed, and complex issues surround the impact on health of added sugars in a single product and a product’s role in the total diet, nutrition claims that could imply the product is healthy seem risky for foods with added sugars.  Meanwhile, FDA has not indicated how it will act on a citizens petition (discussed here) requesting a regulation to establish disqualifying levels of added sugar that would prohibit the use of a “healthy” claim.

© 2020 Keller and Heckman LLP

ARTICLE BY Food and Drug Law at Keller and Heckman
Keller and Heckman LLP
For more, visit the NLR Biotech, Food, Drug section.

Recent Attorney-Client Privilege Cases Show The Risks Of Insurance Counsel Authoring Denial Letters

Claims of bad faith present unique challenges for insurers (and their counsel) with respect to attorney-client privilege: if the insurer’s state of mind is at issue, is the legal advice on which the insurer relied also at issue, thereby waiving the privilege? And if so, under what circumstances? The following addresses this issue in the context of a common practice for insurance counsel—authoring denial letters—and two recent holdings that should serve as warnings in this practice.

I.  Waiving Attorney-Client Privilege: Legal Advice vs. Insurer’s Coverage Decision

In cases involving claims of bad faith, courts are relatively clear that an insurer waives its attorney-client privilege when it expressly invokes the “advice of counsel” defense, which generally provides that “when an insurer’s actions are in conformity with advice given to it by counsel, the insurer’s actions are taken in good faith, and thus the essential element that an aggrieved insured must demonstrate in establishing insurer bad faith is nullified.”[1] However, courts are less united on whether a waiver occurs when the insurer receives advice from its attorney when making its coverage decision, but does not expressly assert the “advice of counsel” defense.

Most courts reject claims of waiver under these circumstances, recognizing the difference between (a) the attorney’s advice on the law and (b) the insurer’s ultimate decision to provide coverage or not. The latter is relevant to a claim of bad faith, but the former is not.[2] By contrast, some courts have held that under certain circumstances, the insurer waives its attorney-client privilege by relying on legal advice—even without actually invoking the “advice of counsel” defense. The Supreme Court of Arizona summarized the underlying rationale as follows:

When a litigant seeks to establish its mental state by asserting that it acted after investigating the law and reaching a well-founded belief that the law permitted the action it took, then the extent of its investigation and the basis for its subjective evaluation are called into question. Thus, the advice received from counsel as part of its investigation and evaluation is not only relevant but, on an issue such as this, inextricably intertwined with the court’s truth-seeking functions.[3]

II.  Insurance Counsel Authoring Denial Letters

This attorney-client privilege issue has recently spread to a new battleground, and one which is common practice for insurance counsel: authoring denial letters. To address waiver under these circumstances, some courts have continued the majority rationale by reinforcing the distinction between the attorney’s legal advice and the insurer’s ultimate decision whether to grant coverage.[4] However, two recent decisions should serve as warnings to insurers and their attorneys moving forward.

The first is Canyon Estates Condo. Ass’n v. Atain Specialty Ins. Co., in which the Western District of Washington held that the insurer’s outside counsel did not perform “a privileged task” when it authored and sent denial letters directly to the insured.[5] The court explained that Washington law enforces a presumption that “there is no attorney-client privilege relevant between the insured and the insurer in the claims adjusting process,” which the insurer may overcome “by showing its attorney was not engaged in the quasi-fiduciary tasks of investigating and evaluating or processing the claim, but instead in providing the insurer with counsel as to its own potential liability,” such as “whether or not coverage exists under the law.”[6]

Concluding that the insurer had not overcome this presumption with respect to the denial letters, the court explained that the attorney “clearly—and arguably, knowingly—engaged in at least some quasi-fiduciary activities, including the authoring of draft letters signed by [the insurer] and sent to [the insured] related to coverage and claims processing.”[7] Although drafting the denial letter surely involved legal questions regarding coverage, the court reasoned that “where the insurer’s attorney is involved in both quasi-fiduciary and coverage or liability capacities,” waiving privilege is likely to occur because “counsel’s legal analysis and recommendations to the insurer regarding liability generally or coverage in particular will very likely implicate the work performed and information obtained in his or her quasi-fiduciary capacity.”[8] Importantly, although Canyon Estates did involve claims of bad faith, the court’s reasoning offers no indication that the presence of such claims was essential to its decision. Indeed, the district court did not mention “bad faith” at all, which suggests that insurers and their attorneys could face privilege challenges even when the insured does not assert claims of bad faith.

The second warning is Travelers Prop. Cas. Co. of Am. v. 100 Renaissance, LLC, in which the Supreme Court of Mississippi held that an insurer waived its attorney-client privilege when its in-house counsel ghostwrote denial letters, which were then sent from the adjuster to the insured.[9] Initially, the insurer had denied the insured’s claim because it did not involve a covered “auto” under the policy.[10] The insured’s attorney then sent a lengthy legal analysis to the insurer’s adjuster, arguing that a particular Mississippi statute mandated coverage.[11] The adjuster was not an attorney, and therefore sought advice from the insurer’s in-house counsel, who then penned a letter (in the adjuster’s name) that reaffirmed why—under the policy and Mississippi statutes—coverage was not required.[12] Ultimately, the insured asserted claims against the insurer for bad faith, and sought a deposition of the insurer’s in-house counsel, along with emails between counsel and the adjuster.[13]

The Supreme Court of Mississippi concluded that the insurer waived its attorney-client privilege, explaining that “if the claims handler relied substantially, if not wholly, on in-house counsel to prepare her denial letter, the reasoning of in-house counsel should be discoverable.”[14] The court reasoned that although the insurer sent the letter “in an effort to explain its arguable and legitimate basis to deny the claim,” the adjuster’s testimony made clear that she did not actually understand the legal basis for the denial, and therefore the letter merely represented the attorney’s reasons for denying the claim—not the insurer’s.[15] According to the court, this meant that the attorney did more than just “act as legal counsel and give advice to [the adjuster] to include in the denial letter.”[16] Citing with approval the Supreme Court of Arizona’s decision in Lee, the court explained:

[A] litigant cannot with one hand wield the sword—asserting as a defense that, as the law requires, it made a reasonable investigation into the state of the law and in good faith drew conclusions from that investigation—and with the other hand raise the shield—using the privilege to keep the jury from finding out what its employees actually did, learned in, and gained from that investigation.[17]

Like in Lee, the heart of this decision is the rejection of any distinction between (a) the attorney’s advice on the law and (b) the insurer’s ultimate decision to provide coverage or not. Yet, whether the insurer can articulate that advice as well as its attorney should be immaterial to whether the coverage decision itself had sound legal basis—an issue which the dissent in 100 Renaissance underscored.[18] Without this distinction, privilege would seemingly be at risk in every case involving claims of bad faith (and perhaps even those without such claims) where legal analysis is at least a partial basis for the denial. And given the vast array of statutory, common law, and interpretive issues that inform each decision, this will be a frequent occurrence.

This leaves an insurer (and the adjuster in particular) with two choices: (a) try to interpret the law itself without help from legal counsel, or (b) ask the insurer’s attorney for legal advice, in which case their communications will be subject to discovery unless the insurer can sufficiently re-articulate the legal analysis. Thus, in either case, the insurer must be able to explain often-complex legal issues. The dissent in 100 Renaissance described this exact dilemma: “The majority thus appears to impose a requirement that in order to preserve the privilege, a claims handler must be able to explain legal arguments at her deposition—the same legal issues for which she sought advice in the first place.”[19] Not only that, these are also the same legal issues that the insured had to have its attorney explain, with which the insurer’s counsel then disagreed. As a result, not only must the insurer be able to articulate legal analyses, it must do so for issues on which legal professionals diverge. Indeed, both the majority and dissent in 100 Renaissance actually appear to acknowledge this, yet arrive at starkly different conclusions.[20]

[1] James M. Fischer, Should Advice of Counsel Constitute a Defense for Insurer Bad Faith, 72 Tex. L. Rev. 1447, 1461–62 (1994)

[2] See Aetna Casualty & Sur. Co. v. Superior Court, 153 Cal. App. 3d 467, 475 (Cal. Ct. App. 1984) (insurer did not waive privilege because it did not invoke “advice of counsel” defense, but instead “claim[ed] it acted as it did not because it was advised to do so, but because the advice was, in its view, correct; and it is prepared to defend itself on the basis of that asserted correctness rather than the mere fact of the advice. Such a defense does not waive the attorney-client privilege”); Botkin v. Donegal Mut. Ins. Co., 2011 U.S. Dist. LEXIS 63871, *19 (W.D. Va. 2011) (“There would be little point in retaining coverage counsel to issue an opinion if a party did not intend to rely on it. Likewise, if reliance always gave rise to waiver in this circumstance, no one would seek coverage counsel’s advice.”); Palmer by Diacon v. Farmers Ins. Exch., 261 Mont. 91, 110 (Mont. 1993) (“The attorney-client privilege applies unless the insurer directly relies on advice of counsel as a defense to the bad faith charge.”) (emphasis in original) (citations omitted)

[3] State Farm Mut. Auto. Ins. Co. v. Lee, 199 Ariz. 52, 60 (Ariz. 2000); see Tackett v. State Farm Fire & Casualty Ins. Co., 653 A.2d 254, 260 (Del. 1995) (when “an insurer makes factual representations which implicitly rely upon legal advice as justification for non-payment of claims, the insurer cannot shield itself from disclosure of the complete advice of counsel relevant to the handling of the claim”); but see Bertelsen v. Allstate Ins. Co., 796 N.W.2d 685, 703 (S.D. 2011) (finding that the Supreme Court of Arizona’s decision in Lee went “too far.”).

[4] See Liberty Corp. Capital Ltd. v. Palmetto Bluff Shooting Club, LLC, 2020 U.S. Dist. LEXIS 220654, *11 (D. S.C. 2020) (drafting denial letter does not waive privilege because “[b]ased on counsel’s advice, the client will always have subjective evaluations of its claims and defenses,” and therefore “insurer must take one step further and assert that its denial of the claim is objectively reasonable because it relied on the advice of counsel”) (citations omitted); Barnard Pipeline, Inc. v. Travelers Prop. Cas. Co. of Am., 2014 U.S. Dist. LEXIS 53778, *9 (D. Mont. 2014) (insurer’s attorney drafted denial letter, but “insurer has not asserted the defense of advice of counsel, and therefore has not waived the attorney-client privilege, simply because the insurer’s representative admits in response to a question on cross-examination that he/she listened to advice of counsel in deciding to deny an insured’s claim.”).

[5] 2020 U.S. Dist. LEXIS 10915, *4 (W.D. Wash. 2020).

[6] Id. at *2–3 (citations omitted).

[7] Id. at *4.

[8] Id. at *3–4 (citations omitted).

[9] 2020 Miss. LEXIS 409, *16–17 (Miss. 2020).

[10] Id. at *2

[11] Id

[12] Id. at *4–5

[13] Id. at *13–14.

[14] Id. at *22 (emphasis in original).

[15] See id. at *12 (“I don’t know. I’m not an attorney. I don’t know anything about statutes. That’s what we have General Counsel for. I deal with policy language, what’s in the policy.”).

[16] Id. at *18.

[17] Id. at *21.

[18] Id. at *27 (regardless of whether it can articulate legal analysis, “Travelers has already given its reasons for denying the claim. And the relevant question is whether Travelers had an ‘arguable or legitimate basis for denying the claim.’”) (citations omitted).

[19] Id. at *25.

[20] See id. at *16–17 (Majority explaining that adjuster’s “testimony also demonstrated a lack of knowledge of Mississippi UM law. She could not explain the origin or intended purpose of her citation of a nonexistent Mississippi statute in the denial letter.”).

© 2020 Dinsmore & Shohl LLP. All rights reserved.
For more, visit the NLR Litigation / Trial Practice section.

Dr. Seuss/Star Trek Mashup Boldly Goes to Ninth Circuit but Loses Fair Use’s Balancing Act

An author of Star Trek episodes teamed up with fellow Trekkies at ComicMix LLC to publish Oh, the Place You’ll Boldly Go!, an illustrated book that combined Star Trek characters with the stories of Dr. Seuss. Boldly used elements and illustrations from Seuss’s books Oh, the Places You’ll Go!, How the Grinch Stole Christmas! and The Sneetches and Other Stories. Dr. Seuss Enterprises, L.P., owner of the intellectual property in Dr. Seuss’s works, objected to the mashup book and sued ComicMix LLC for copyright and trademark infringement and unfair competition. The district court agreed with ComicMix that Boldly constituted a fair use of Seuss’s copyrights and granted summary judgment in ComicMix’s favor on the copyright claims. On appeal, however, the Ninth Circuit concluded that all of the statutory factors of the fair use defense weighed against ComicMix and reversed the district court’s copyright ruling, but affirmed the lower court’s trademark analysis

As explained by Dr. Seuss in Oh, the Places You’ll Go!, life is a great balancing act. Similarly, the test for fair use of a copyrighted work balances four statutory factors: (1) the purpose and character of the use, including whether the use is commercial or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work; and (4) the effect of the use on the potential market for or value of the copyrighted work. Applying these factors, the Ninth Circuit sent ComicMix packing.

First, the court analyzed the purpose and character of Boldly’s use of Seuss’s works, including whether Boldly was a transformative work. Although ComicMix asserted that Boldly was a parody of Go!, Boldly did not ridicule or critique Go!. Instead, Boldly focused on Star Trek characters and their adventures while evoking Go! by copying and repackaging Dr. Seuss’s “characteristic style” and illustrations. Consequently, Boldly was neither a parody nor transformative. Further, Boldly copied Go!’s illustrations, meaning, and message, and did so for a commercial purpose. The Ninth Circuit thus concluded that the first factor weighed definitively against fair use.

Illustration from Go! (left) and a “repackaged” illustration from Boldly (right)

Second, the creative and expressive nature of Seuss’s Go! weighed against a finding of fair use. The court noted that although the nature of the copyrighted work is usually not very significant in the fair use analysis, creative works like Go! are “closer to the core of intended copyright protection” than other types of works, such as informational works.

The third factor, the amount and substantiality of Boldly’s use of Go!, “weighed decisively” against fair use. Boldly used a substantial quantity of Go!—it copied nearly 60% of Go!, along with significant illustrations from two of Seuss’s other books, How the Grinch Stole Christmas! and The Sneetches and Other Stories. In fact, the court found that ComicMix deliberately and meticulously copied Seuss’s illustrations:

Excerpts from Go! (left) and Boldly (right)

In addition to a quantitative element, the third factor also has a qualitative component, which is often described as analyzing whether the copyist took the “heart,” or “the most valuable and pertinent portion” of the work. The Ninth Circuit held that Boldly had taken the heart of Seuss’s works. As an example, the court noted that ComicMix took the “highly expressive core” of Seuss’s Sneetches book by including illustrations of a machine from Sneetches on ten of Boldly’s twenty-two pages. In Seuss’s Sneetches, the machine is an integral part of the story because it can add and remove divisive heart-shaped symbols to and from the stomachs of Sneetches. Boldly copied minute details from the Sneetches machine; in fact, the illustrator stated that he “painstakingly attempted” to make the machines “identical.”

The machine from Sneetches (left) and Boldly (right)

The court concluded that ComicMix lacked justification for the substantial quantity and quality of its copying, especially considering that Boldly did not parody or transform Seuss’s works, and instead was a commercial exploitation.

For the fourth factor, the Ninth Circuit considered the potential market for, and value of, Seuss’s works. Seuss’s books have remained very popular and, for decades, Seuss authorized numerous derivative works. ComicMix planned to capitalize on Go!’s popularity during graduation season by scheduling Boldly’s publication “in time for school graduations.” Noting Seuss’s frequent collaborations and authorized licensing throughout the year, the court held that Boldly was likely to target and harm Seuss’s market for derivative works.

Because Boldly was an unauthorized and non-transformative work, ComicMix did not prevail on its fair use defense. Accordingly, the Ninth Circuit reversed the district court’s grant of summary judgment on Seuss’s copyright infringement claim.

Finally, the court affirmed the district court’s grant of summary judgment in favor of ComicMix on Seuss’s trademark infringement claim. The court held that dismissing the trademark infringement claim was proper because the use of Seuss’s registered and common-law trademarks (including in the title of Go!, the alleged “Seussian style of illustration,” and the claimed “Seussian font”) was not explicitly misleading. Under the Rogers test, the Lanham Act does not apply to the use of trademarks in an expressive work (like Boldly) unless the use is not artistically relevant, or if the use is explicitly misleading. Boldly satisfied the low threshold for artistic relevance, and the use was not explicitly misleading because Boldly listed the authors’ names on the cover and contained new expressive content.

The case is Dr. Seuss Enters., L.P. v. ComicMix LLC, 983 F.3d 443 (9th Cir. 2020).

© 2021 Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

ARTICLE BY Jessica L. Hannah of Finnegan
For more, visit the NLR Intellectual Property section.