Category: Litigation

From Federal Prosecutor to Law Firm Life: A Conversation with Grant Fondo on Business Development Strategies when transitioning from Public Service to Private Practice

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The National Law Review recently had to the opportunity to attend Thomson Reuter’s Legal Executive Institute’s 22nd Annual Marketing Partner Forum in Rancho Palos Verdes, California where Grant Fondo, Partner at Goodwin Procter, LLP participated on the panel event: Coaching for Success: Collaboration between Marketing & Professional Development to Deliver Training that Drives Revenue. This Panel focused on the intersection between business and professional development, exploring the potential impact partnership efforts can have on business growth.

On this panel, Grant spoke from his experience concerning his transition from Federal Prosecutor and former Assistant US Attorney of the Northern District of California to his work at Goodwin Procter.

Post-conference, Grant was kind enough to answer our questions concerning his career trajectory and gave us some insight from his unique experiences in the legal world.  Below are his answers to the questions posed by NLR.

1.  What were the considerations you took into account when choosing a law firm to join?

I was looking for a firm that was a market leader in the technology and white collar practice areas, a firm that I thought was on an upward trajectory, a firm that understood Silicon Valley, and that was collegial and believed in a collaborative work place.  I have been fortunate to work in collaborative places before, and that type of environment is the best fit for me.

2.  What role, if any, has your firm’s business development and marketing staff had in helping you grow a book of business?

I started from ground zero, so I needed help. I still need help, as this is a long-term process and I am still working toward my goals.  The staff has had an important role from day one, both in the context of internal and external marketing.  They helped me quickly integrate with many of my partners nationwide in my practice group, as well as outside of it, and helped me feel like part of the firm.  Externally, they worked with me to train me to be better at marketing, focus on the marketing efforts I enjoyed, and presented me with opportunities.  They also acted as a sounding board for different marketing events, provided guidance to improve my ideas, and helped me execute on those ideas.

3. What role, if any, has speaking engagements and / or thought leadership, played in helping you stay front of mind with existing or potential clients?

It has helped, but it is time consuming.  You have to be thoughtful about what events you speak at, in that not all speaking opportunities and topics are created equal.  When I returned to private practice, I wanted to focus on marketing I enjoyed, and pass on areas I disliked and was not good at.  Thought leadership is an area that lends itself to that type of philosophy.  My experience as a former federal prosecutor helps in certain areas of the law that intersect well with Silicon Valley clients. For example, there is a lot of concern here with privacy and government intrusion into and demands for company and customer data. This past year we teamed up with clients to file an amicus brief in the landmark smart-phone privacy and 4th Amendment case of Riley v. California.   I enjoy spending time on areas that also hit home for clients.  It also permits you to reach out to a client to let them know about the latest development, or after a meeting is over discuss a topic that is important to them but not necessarily the focus of today’s meeting.  Sometimes they call back a few days later with something new or interesting.

4. How did you form and maintain relationships with potential and current clients?

My partners have been good about introducing me to clients that need my expertise, and letting me further develop those relationships.  When you connect with a client, you want to foster that relationship in a way that is not intrusive or pandering.  I am fortunate in that Goodwin has a really interesting client base doing pretty amazing things, so there is always something to talk about or learn from your client.  Building relationships is also about focusing on what your client wants and trying to understand their perspective–if they want three quick bullet points on a topic so they are armed for their meeting with the CEO, you don’t give them a three page memo five minutes before that meeting.  I also like to develop the relationship on a more personal level.  I love to go fly fishing, and I have a client or two that share that passion.  Simply swapping photos and stories once in a while is a lot of fun, and hopefully has the added benefit of keeping me top of mind.

5. Did you take any affirmative action to meet attorneys from other practice groups within the firm?  Has this been an effective in generating referrals or helping you transition to private law practice?

I believe this is probably the most important thing a new partner can do.  During my first year I took advantage of every opportunity to fly back to Goodwin’s East Coast offices to meet my partners from all practice groups, and I still try to do it.  I also made similar efforts in California.  Getting to know my partners and associates has helped me in a number of contexts.  First, it made me feel more a part of the firm on a professional and social level.  I want to enjoy going to work — I certainly spend a lot of time there, and this helps.  Second, as my partners got to know me, it made me more top of mind if an issue came up. Goodwin genuinely strives to be collaborative, so by making the effort to get to know my other partners, it has paid dividends in getting phone calls about new matters or interesting cases.  Third, it allowed me to respond to client inquiries when I was not the right person.  Recently a client called me, and I was able to immediately direct him to my partner in another office with the needed expertise, because I had had gotten to know him during one of my trips back East.

6. Is there anything different you wish you had done earlier in your legal career to help you with practice today?

I wish I had become a federal prosecutor earlier.  It was an honor doing public service; I learned so much about being a lawyer, particularly a trial lawyer, and working as a team for a common goal.  I was fortunate in that I worked with a lot of really good prosecutors that were willing to share their time and knowledge.  I also wished I had focused my marketing efforts, rather than haphazardly engaged in marketing activities. I look back and realize I wasted a lot of time doing things that I did not enjoy and were ineffective.  I also wish I had made a better effort to keep in touch with people whom I genuinely enjoyed working with over the years.

7.  What are the advantages / disadvantages of working in a prosecutor role vs. in a private practice defense attorney role?

When I was a federal prosecutor, people immediately returned my calls.  There is no shortage of criminals, so I always knew I would have a new case next month.  Another benefit is you have the luxury of spending as much time as you want on a case, without worrying about bills.  In private practice, you are always thinking about your next case, and constantly balancing quality legal work with efficiency.  Also, when you represent a company or individual, government inquiries and prosecutions are immensely personal and unsettling, so there is more of a human element that factors into your representation.  I do think it helps to have been a prosecutor, because you can provide your client insight into how the process works, and the likely viewpoint of the prosecutor or regulator.  One disadvantage is the level of interest in what I do.  When I was a prosecutor, my friends and colleagues always asked what type of case I was working on, and what the criminals were up to—Ponzi schemes and drug cases are inherently interesting to most people.  Similarly, my kids thought I was pretty cool because I worked with federal agents with guns, met the President, and put bad guys away.  Now, my friends and kids rarely ask me what type of case I am working on.

ARTICLE BY

Eilene Spear
OF
The National Law Review / The National Law Forum LLC

US Supreme Court Holds that Juries Should Decide the Issue of Trademark Tacking

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In the first substantive trademark decision it has issued in a decade, the US Supreme Court, in  Hana Financial, Inc. v. Hana Bank, case number 13-1211 (January 21, 2015), affirmed the Ninth Circuit by holding that whether two marks may be tacked for purposes of determining priority is a question for the jury.

The case involved two organizations providing financial services to individuals in the United States. The Respondent Hana Bank had been operating under that name in Korea since 1991, and first began to advertise its services to Korean expatriates in the US in 1994. Advertisements for those services in the US first appeared in Korean and in English under the name “Hana Overseas Korean Club,” and included the name “Hana Bank” in Korean. In 2000, it changed the name of “Hana Overseas Korean Club” to “Hana World Center,” and in 2002 began operating a bank in the United States under the name “Hana Bank.” This latter enterprise was its first physical presence in the United States.

Petitioner Hana Financial was established in 1994 as a California corporation and began using that name and an associated trademark in 1995. In 1996, it obtained a federal trademark registration for a logo design incorporating the name “Hana Financial” for use in connection with financial services.

In 2007, Hana Financial sued Hana Bank alleging trademark infringement. Hana Bank denied infringement by claiming that under the tacking doctrine it had priority of use of the mark “Hana” for financial services in the United States. The trial jury found in favor of Hana Bank and the Ninth Circuit affirmed that decision on appeal. Since there was a split among the federal circuit courts as to whether tacking should be decided by juries or judges, the Supreme Court granted Hana Financial’s writ of certiorari.

So what is “tacking”? The general rule is that use of two marks may be “tacked together” for purposes of establishing priority of use when the original mark and the revised mark are “legal equivalents.” Marks are “legal equivalents” when they “create the same, continuing commercial impression” so that consumers “consider both as the same mark.” There is no dispute that the commercial impression that a mark conveys must be viewed through the eyes of the consumer. Thus, Justice Sotomayor, writing for a unanimous Court, stated that pursuant to long recognized doctrine, “when the relevant question is how an ordinary person or community would make an assessment, the jury is generally the decisionmaker that ought to provide the fact-intensive answer.” Accordingly, the Court held that when the facts do not warrant entry of summary judgment or judgment as a matter of law on the question of tacking, the question of whether tacking is warranted must be decided by a jury.

The lesson here for trademark owners is to ensure that archival records of your use of your marks over time are diligently maintained. This will help ensure that in the event the mark is changed in any way for purposes of modernization or otherwise, you have sufficient evidence to prove your earliest date of first use of the “legally equivalent” mark to defend against claims of infringement.

ARTICLE BY

Susan Neuberger Weller
OF
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Hospital Antitrust Skirmish Over Economist

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Antitrust law is designed to help the Davids of the world maintain a level playing field with the Goliaths. That objective was realized when Boise, Idaho-based hospital operator St. Alphonsus Health System, Inc. (“St. Al’s”) sued rival St. Luke’s Health System, Ltd. (“St. Luke’s”), to block St. Luke’s acquisition of the Saltzer Medical Group (“Saltzer”), one of Idaho’s largest and oldest independent medical groups.

St. Al’s argued that St. Luke’s acquisition of Saltzer would give St. Luke’s such a dominant market share of the adult primary care market in Nampa, Idaho that it could raise prices and block referrals to St. Al’s by having Saltzer steer patients to St. Luke’s. St. Al’s fears certainly seemed well-founded: Saltzer accounted for 43% of the adult primary care physicians, and about 90% of the pediatric physicians in the Nampa market. Since St. Luke’s accounted for about 24% of the primary care physicians in Nampa, the combined entity would have about 67% of the adult primary care physicians in Nampa.

The Federal Trade Commission (FTC) and Idaho Attorney General (AG) launched their own investigations and ultimately joined St. Al’s lawsuit. Things didn’t go well initially for St. Al’s as the judge refused to preliminarily enjoin the acquisition, concluding that St. Al’s was unlikely to suffer irreparable harm before a trial could be held in the case. St. Luke’s proceeded to complete the transaction.

However, in January 2014, after a bench trial, the judge concluded that the deal would have anti-competitive effects in terms of raising health care costs due to the increased negotiating leverage of the combined entity. The judge directed St. Luke’s to unwind the transaction, and divest itself of Saltzer’s assets. St. Luke’s has appealed to the Ninth Circuit. At oral argument, St. Luke’s contended that the trial court had failed to adequately consider the deal’s benefits.

Along the way, the trial court had an opportunity to decide a motion by the FTC and Idaho AG to exclude the testimony of St. Luke’s economist, Dr. Alain Enthoven, concerning the quality-related benefits of the acquisition. Saint Alphonsus Med. Ctr. – Nampa, Inc. v. St. Luke’s Health Sys., Ltd., No. 1:12-CV-00560-BLW, 2013 WL 5637743 (D. Idaho Oct. 15, 2013). A major thrust of the objection was that Dr. Enthoven had not read any of St. Luke’s physician service agreements (“PSA’s”), and therefore could not credibly testify as to “whether the acquisition creates the requisite integration to achieve the purportedly greatest benefits of integrated patient care.”

The Court denied the motion. After reviewing the facts shared in the decision, the argument seems like a stretch and we feel the Court reached the right result. As the Court observed, despite not having read the PSA’s, Dr. Enthoven interviewed six top executives from St. Luke’s and Saltzer, and reviewed thirty depositions. The Court believed this effort enabled Dr. Enthoven to testify credibly concerning the quality-enhancing benefits of moving away from the fee-for-service model of compensation and toward the quality-based model of compensation.

The judge also rejected the FTC’s contention that Dr. Enthoven was unqualified to testify regarding how the use of health information technology, such as electronic medical records, promotes higher quality care in light of Dr. Enthoven’s admission at his deposition that he was not a “healthcare IT expert.” Observing that Dr. Enthoven was testifying as an economist, not a programmer, the judge ruled that Dr. Enthoven was qualified to explain how various healthcare IT tools promoted higher  quality care even if he didn’t understand the mechanics of how those tools worked. This conclusion also seems correct, and not really a close call at all.

Do you agree with our conclusion that the Court made the right call in denying the motion to exclude Dr. Enthoven’s expert testimony?

ARTICLE BY

Joshua Fruchter, Esq.
OF
IMS ExpertServices

Expert Witness Soap Opera Plays Out in Federal Court as Daubert Motions Fail

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A federal magistrate judge has found himself at the center of a soap opera – literally.

As a battle brews between two Spanish-language television networks over copyright claims to the substance of their respective soap operas, Miami Federal Court Judge Jonathan Goodman has found himself faced with having to evaluate experts on telenovelas.

A telenovela, which combines the Spanish words for “television” and “novel,” is actually slightly different from a typical soap opera in that it has a limited run, or an end. Telenovelas are basically novels that play out on television and are popular throughout Mexico, Latin America, Europe, and Asia.

These are just a few of the factual intricacies that Judge Goodman found himself learning about as he attempted to rule on the admissibility of the telenovela experts that both parties offered in the recent U.S. District Court for the Southern District of Florida case of Latele Television, C.A. v. Telemundo Communications Group, LLC, et al. 

For plaintiff, expert Dr. Tomás López-Pumarejo, a Brooklyn College professor and author of a “pioneering book on television serial drama,” is expected to testify that after performing a detailed literary analysis of the two telenovelas in question, he found substantial and striking similarities between the two shows and “leaves – in my opinion – no doubt that [El Rostro de Analía] is a remake of [María María].”

Contradicting López-Pumarejo is expert witness Dr. Carolina Acosta-Alzuru, a University of Georgia professor and author of a book on Venezuelan telenovelas. Acosta-Alzuru is expected to testify that the dissimilarities between El Rostro de Analía and María María “in terms of core plot development, triangle structure, character design, telenovela subgenre, and qualitative characteristics of dialogue far outweigh the limited similarities in the triggering plot.”

Plaintiff, however, told the court that defendant actually hired the author of María María, which originally aired in 1989, to develop El Rostro de Analía and “that the copyright infringement is so obvious that the public and press have designated El Rostro as a remake or retelling of María María.”

However, according to one Mexican actress, the practice of remaking a successful telenovela from the past is not unusual. Adriana Llabrés, who stars on the telenovela Yo No Creo En Los Hombres, tells BullsEye that recreating a new telenovela from one that was previously successful is something that happens all the time, including on her own show, which has been remade twice.

“Most of the soap operas are remakes, and they have been for the past few years,” Llabrés explained to BullsEye. “The writer agrees with the director as to what they want to keep from the past versions based in accordance with the public’s perceived desires. They then may adapt the story to suit the tastes of the viewers.”

What allegedly appears to be different in this case is that while the original writer and new director may have collaborated, the original copyright holder was allegedly left out of the equation.

Considering all of this comparative television evidence and dissecting these two programs, however, will not be a task that Judge Goodman will need to undertake immediately, as he is faced with more than one Daubert motion. Goodman is the judge, not the jury; he is the gatekeeper, not the ultimate umpire on these issues.

The Daubert Decisions

In his December 15 Omnibus Order on Daubert Motions, Goodman explained that his role as gatekeeper “is not intended to supplant the adversary system or the jury’s role because, as Daubert explained, ‘vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.’”

Goodman found that both parties will have “ample opportunity” to cross-examine and attempt to impeach the other’s expert witnesses and that it would be inappropriate for the court to exclude either side’s telenovela expert.

“There is no doubt that the three Daubert motions all generate significant challenges to the proposed expert testimony,” Goodman wrote. “Nevertheless, the Undersigned deems the legal assaults to relate more to the weight of the experts’ opinions and to their credibility, rather than the threshold issue of admissibility.”

Specifically in addressing the qualifications of plaintiff’s expert Dr. López-Pumarejo, the court refuted defendants’ contention that Dr. López-Pumarejo offered only “impermissible legal conclusions” that are the “ultimate issue in the case” and based on the “insufficient methodology” by which he examined only a small percentage of the two telenovela scripts. Dr. López-Pumarejo’s conclusion that María María and El Rostro de Analía were “substantially similar” was formulated after he reviewed 33 episodes of the former and 53 episodes of the latter, totaling about 23 percent of the combined telenovelas’ aired content.

“This alleged deficiency may well generate fodder for fruitful cross-examination but the Undersigned views the objection insufficient to support a request to flat-out exclude his testimony,” Goodman wrote, citing Oceania Cruises, 654 F.3d at 1193- “in most cases, objections to the inadequacies of a study are more appropriately considered an objection going to the weight of the evidence rather than its admissibility.”

Goodman notes that he expects defendants to rigorously cross-examine Dr. López-Pumarejo about his failure to review even a quarter of the telenovelas’ materials and that it is this cross-examination that will provide “sufficient protection” to the parties and to overall fairness of the trial.

In the same manner, the court addresses plaintiff’s complaints and corresponding Daubert challenges to defense expert Dr. Acosta-Alzuru. The court notes that despite plaintiff’s claims that Dr. Acosta-Alzuru is unqualified as an expert, the professor has presented numerous lectures to U.S. State Department officials in Venezuela on her various studies of Spanish-language telenovelas and is the only expert who actually reviewed all 376 hours of the two TV shows, producing summary recaps and plot diagrams of each episode.

“The mere fact that she has not written a telenovela herself is insufficient to preclude her expert testimony, [nor is she] subject to exclusion as an expert merely because she is not a ‘literary expert’ or an expert on copyright infringement,” Goodman wrote. “Moreover, Acosta carefully addressed the existence of unprotectible scène à faire even though she did not use that specific term. Latele can certainly question her at trial about her unfamiliarity with the term, but it has not convinced the Undersigned that Acosta’s unfamiliarity with a few legal terms is reason enough to exclude her, especially given her substantial background in telenovela analysis.”

Cash and Clichés

A scène à faire, French for a “scene that must be done,” is a scene that is rather obligatory or necessary for the story or genre, and in copyright law, this term refers to a creative work that is unprotected because of this mandated or necessitated role.

Perhaps every romantic comedy has to have a love triangle, every action movie a chase scene, and every tragedy a tragic death. Copying such plot twists can be no copyright infringement.

However, the question for the Latele v. Telemundo jury will be whether or not the story is told differently. They will have full exposure to both sides’ expert testimony and perhaps hours of dramatic television ahead.

How much money Telemundo made as a result of El Rostro is also in dispute and subject to differing expert witness interpretations. Defendants retained CPA expert Ben Sheppard to refute the report of plaintiff expert Steven Berwick regarding the apportionment of Telemundo profits to the show and of the amount that would be attributable to the copyright-infringing portions thereof in the event that liability is, in fact, found.

Judge Goodman denied plaintiff’s Daubert motion to exclude expert witness Sheppard, citing similar reasons as stated above and saying that cross-examination and jury instruction shall cure any alleged deficiencies in the expert analysis. As for defendants’ omnibus motion in limine to exclude Berwick’s opinions, which was not a Daubert motion, the judge will decide in a separate order.

Defendants have until February 10, 2015, to fulfill plaintiff’s discovery demands.

When it comes to the copyright claims between two TV shows, do we even need experts to testify as to “substantial similarities,” or should we simply let laypeople and juries decide if two shows are too similar to have avoided copyright infringement?

ARTICLE BY

Ryan Thompson, Esq.
OF
IMS ExpertServices

Uber Argues That Its Drivers Are Not Employees

In a case pending in California federal court, Uber is arguing that its drivers are not employees. O’Connor et al. v. Uber Technologies, Inc. et al., No. 3:13-cv-03826 (N.D. Cal. filed Aug. 16, 2013). Uber drivers have sued the company in a putative class action that alleges that they were short-changed because they received only a portion of the 20 percent gratuity paid by passengers.

In response, Uber recently filed a motion for summary judgment that argued that its drivers are not employees because they do not provide services to Uber. Rather, Uber provides a service to its drivers, because drivers pay for access to “leads,” or potential passengers, through the Uber application, and therefore, like passengers, drivers are customers who receive a service from the company. Uber also argued that even if drivers are deemed to provide services to Uber, they do so as independent contractors, not employees. This is because, Uber contends, the company provides drivers with a lead generation service but does not control the manner or means of how they work, and therefore, Uber is in a commercial rather than an employment relationship with its drivers.

This is not the first and likely not the last of Uber’s legal troubles in California. Passengers have also filed a proposed class action over the 20 percent gratuity, and last week, San Francisco and Los Angeles District Attorneys have hit Uber with a consumer safety suit over how it screens its drivers. There will surely be more to come as we watch what happens with Uber in California.

ARTICLE BY

Rachel T. Segal
OF
Barnes & Thornburg LLP

Apple Gets Another Bite At $368 Million Verdict

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You don’t get two bites at the apple, it is sometimes said, but Apple Inc. is getting a second bite at defending itself against a massive damages award after the Federal Circuit Court of Appeals vacated a $368 million jury verdict in a patent infringement case.

The court vacated the award because it found that the plaintiff’s damages expert improperly relied on a model known as the Nash Bargaining Solution to calculate reasonable royalty damages.

Federal district courts have split on whether to allow expert testimony using the Nash Bargaining Solution, but the Federal Circuit held that the expert failed to establish the tie between the Nash theorem and the facts of this case.

The underlying issue in the case was whether two of Apple’s products — FaceTime, which allows secure video calling between Apple devices, and VPN On Demand, which creates a virtual private network from an iOS device — infringed four patents owned by VirnetX, a Nevada software and licensing company.

A jury in federal court in Tyler, Texas, concluded that all four patents were valid and that Apple had infringed them. It awarded VirnetX damages of $368 million.

Proving Reasonable Royalties

On appeal, the Federal Circuit upheld the jury’s verdict of infringement with regard to the VPN On Demand product but reversed and remanded aspects of the infringement verdict with regard to the FaceTime product.

The court then turned its attention to Apple’s challenges of the testimony of VirnetX’s damages expert. In a patent case, when infringement is found, a court is to award damages “adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.”

To establish a reasonable royalty rate in this case, VinetX’s expert offered three alternative methods of calculation. Apple challenged the admissibility of all three methods under Daubert, but over Apple’s objection, the trial court admitted the testimony.

On appeal, however, the Federal Circuit found problems with all three theories.

Smallest Salable Unit

The expert’s first theory was to apply a one percent royalty rate to the base. He derived the one percent rate from the royalty VirnetX typically sought in licensing its patents. For the base, he used what he called the “smallest salable unit” — the lowest sale price of each model of the iOS devices that contained the challenged features. With this theory, he calculated the total damages to be $708 million.

Apple argued that the expert erred by using the entire market value of its products as the royalty base without demonstrating that the patented features drove the demand for those products. The Federal Circuit agreed.

“The law requires patentees to apportion the royalty down to a reasonable estimate of the value of its claimed technology, or else establish that its patented technology drove demand for the entire product,” the court explained. “VirnetX did neither.”

The court went on to say that the expert “did not even try to link demand for the accused device to the patented feature, and failed to apportion value between the patented features and the vast number of nonpatented features contained in the accused products.”

The Nash Bargaining Solution

For both the expert’s second and third theories — each of which he used only with regard to FaceTime — he relied on the Nash Bargaining Solution, a so-called game theory developed in 1950 by John Nash, a mathematician and co-winner of the 1994 Nobel Prize in economics.

In his first use of the Nash theorem, the expert began by calculating the profits associated with the use of FaceTime. He did this based on the revenue generated by Apple’s addition of a front-facing camera on its mobile devices. He then determined that, under the Nash theory, the parties would have split this revenue 50/50. However, after accounting for Apple’s stronger bargaining position, he concluded that Apple would have taken 55 percent of the profits and VirnetX, 45 percent. That amounted to $588 million in damages.

For his second use of the Nash theorem, the expert assumed that FaceTime “drove sales” for Apple’s iOS products. Eighteen percent of all iOS sales would not have occurred without the addition of the FaceTime feature, he concluded. Based on that, he calculated the amount of Apple’s profits that he believed were attributable to FaceTime and apportioned 45 percent of those profits to VirnetX. That amounted to $606 million in damages for FaceTime.

Apple challenged both these theories, arguing that the expert’s use of the 50/50 split as a starting point was akin to the 25 percent rule of thumb for royalties that the Federal Circuit had rejected in earlier cases. Here again, the Federal Circuit agreed with Apple’s argument.

The problem, the court explained, is that the Nash theorem arrives at a result that follows from a certain set of premises. Here, the expert never tied his use of the theorem to the facts of the case.

“Anyone seeking to invoke the theorem as applicable to a particular situation must establish that fit, because the 50/50 profit-split result is proven by the theorem only on those premises,” the court said. In this case, the expert never did that.

Based on these conclusions, the court vacated the damages award and sent the case back to the district court for further proceedings.

Has an expert ever used the Nash Bargaining Solution, or other game theory, in one of your cases? If so, was the result positive?

ARTICLE BY

Robert J. Ambrogi, Esq.
OF
IMS ExpertServices

Court-Appointed Experts: The Future of Litigation?

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After black-market dealing for approximately two years in relative anonymity, the secretive Silk Road drug-dispensing site was targeted by U.S. federal authorities and was subsequently shut down. Its alleged owner and operator was arrested.

However, one lawyer and technology expert is claiming that the FBI is lying about how it found the Silk Road server that allowed authorities to seize the site as well as millions of dollars in cyber coinage. It is a complicated question of computer evidence, one which the courts may not be capable of fully understanding.

As the worlds of cybercrime, criminal law, economics, and evidence continue to collide, the technological war between law enforcement and crypto-criminals is requiring prosecutors to enter a new realm of trial advocacy and courtroom tactics – one in which tech experts and computer specialists are vital for judicial clarity and jury instructions.

At a time when iron bars and jailhouse walls can do little to stop crimes and communications from taking place over the intangible and worldwide web connections, stopping cybercrime is one thing, but explaining it to a judge or jury is a much different task.

From Drug Money to Bonafied Bitcoins

Earlier this month, after Silk Road 2.0’s alleged owner and operator, Blake “Defcon” Benthall, was arrested by the FBI, the defendant reportedly began tweeting, just hours after his arrest, from jail and requesting bitcoin donations. Many law enforcement officials didn’t even know what this meant or what the defendant was soliciting.

Bitcoin is a form of cryptocurrency that has garnered international recognition in the last couple of years after it was revealed to be the form of monetary tender used to purchase drugs from the original Silk Road website.

However, the currency also opened the eyes of legitimate businessmen, economists, and financial experts as well – some of whom believe that bitcoin and other cryptocurrencies could become the money form of the future. Our BullsEye blog examined the world of bitcoins in a March 2014 article entitled “What The #!$% Is Bitcoin?”

Three months after that article’s publication, the U.S. Marshal’s Service held an online auction and sold nearly 30,000 of the bitcoins it had seized from Silk Road. At the time, the value was approximately $18 million. They were purchased by American venture capitalist Tim Draper, who has just brought in former SEC Chairman Arthur Levitt as an advisor for his new bitcoin-investor platform rebranded as “Mirror.”

The FBI, however, claims that the auctioned bitcoins that Draper purchased represent less than a quarter of those seized from Silk Road and its alleged mastermind Ross William Ulbricht. Thirty-year-old Ulbricht, of Austin, Texas, is alleged to be the original Silk Road founder, who called himself “Dread Pirate Roberts,” named after the sword-wielding character in the movie The Princess Bride.

In a September 2013 interview with Forbes magazine, the libertarian-minded Dread Pirate Roberts is quoted as saying, “We’ve won the State’s War on Drugs because of Bitcoin.”

Ulbricht was arrested in San Francisco just days after the article was published. He was charged with money laundering, computer hacking, conspiracy to traffic narcotics, and attempted murder of witnesses. His federal trial is expected to begin in January in Manhattan.

The FBI said that it is holding on to the 144,342 bitcoins seized from Ulbricht’s computer until after the resolution of the criminal trial. Presumably, if Ulbricht is convicted and the seizure is deemed valid, the bitcoins will be auctioned off to the public. The approximate value of that cache of bitcoins is over $56 million today.

Cybercrime Confusing Courts

Expert witness and attorney Joshua J. Horowitz, however, claims in court documents released last month that the FBI is lying about how it accessed the Silk Road back-end server. In an 18-page declaration filed with the U.S. District Court for the Southern District of New York, Horowitz writes about “Nginx access logs,” “tarball mtimes” and “phpmyadmin virtual host site configurations,” claiming that he can show that the FBI could not have infiltrated Silk Road via the manner that it claims in the indictment and other court documents.

“[B]ased on the Silk Road Server’s configuration files provided in discovery, former Special Agent [Christopher] Tarbell’s explanation of how the FBI discovered the server’s IP address is implausible,” Horowitz states.

However, much of Horowitz’s technologically sophisticated declaration is unreadable and incomprehensible to an average attorney or jurist. With many of these issues being evidentiary in nature, the question of whether certain physical evidence is admitted at trial will be left up to one judge.

How will a federal judge – many of whom were middle-aged well before Steve Jobs and Steve Wozniak began tinkering away inside a garage in 1976 – be capable of ruling on these evidentiary issues based on court documents and legal arguments that are communicated in a specialized, seemingly foreign, language?

“The critical configuration lines from the live-ssl file are: ‘allow 127.0.0.1; allow 62.75.246.20; deny all;.’ These lines tell the web server to allow access from IP addresses 127.0.0.1 and 65.75.246.20, and to deny all other IP addresses from connecting to the web server.… Based on this configuration, it would have been impossible for Special Agent Tarbell to access the portion of the .49 server containing the Silk Road market data, including a portion of the login page, simply by entering the IP address of the server in his browser,” Horowitz writes, seemingly in an attempt to “dumb down” the explanation of the process.

While the Kentucky-born, Yale-educated U.S. District Judge J. Paul Oetken is very young compared to his life-appointed colleagues, to assume that the 49-year-old jurist (or even his law clerk) can understand even the basics of Horowitz’s argument is unlikely. In order for him to rule on these evidentiary issues properly, one would assume that technology experts will need to be hired by the courts to examine the specific allegations and pretrial disputes.

Unlike the decision to admit or deny expert witnesses in federal court, during which the judge must determine whether the witness is qualified enough to proffer evidence to the jury, the decision to entirely admit or deny the actual physical evidence that was searched and seized is solely up to the judge. In the case of the Ulbricht prosecution, one would assume that allowing the FBI’s evidence gathered from the Silk Road site to be admissible at trial would be far more critical than any other issues presented before the jury once the evidence is deemed admissible.

This will not be an easy decision for the judge.

“The active phpmyadmin configuration file contained in Item 1 of discovery contains the following lines: ‘listen 80; root /usr/share/phpmyadmin; allow 127.0.0.1;.’ These lines direct the phpmyadmin virtual host to listen on port 80, which is the standard port for web traffic, and also tells Nginx to serve files from the phpmyadmin folder. The absence of ‘deny all’ means that it would be possible for an IP address outside the Tor network to connect to the .49 server. However, an IP address outside the Tor network would have been able to access only the login page for phpmyadmin and the files contained in the phpmyadmin folder, not any part of the Silk Road market or even the login screen, as claimed in the Tarbell Declaration,” Horowitz explains further.

If Judge Oetken thinks this is confusing, just wait until the experts start explaining what a bitcoin is.

When it comes to complicated technological issues that are procedural in nature and that are therefore not intended for the jury, will courts now need to hire experts to explain and inform judges? Or do today’s judges really have no business making these highly specialized decisions on evidence?

ARTICLE BY

Ryan Thompson, Esq.
OF
IMS ExpertServices

Arizona Supreme Court Holds That The Uniform Trade Secrets Act Only Preempts Claims for Misappropriation of Trade Secrets, Not Other Confidential Information

In Orca Communications Unlimited, LLC v. Noder (Ariz. Nov. 19, 2014), the Arizona Supreme Court ruled that Arizona’s version of the Uniform Trade Secrets Act (the “AUTSA”) “does not displace common-law claims based on alleged misappropriation of confidential information that is not a trade secret.”  Orca, a public relations firm, filed suit against Ann Noder, its former president, for unfair competition after Noder left Orca to start a rival company.  Orca alleged that Noder had learned confidential and trade secrets information about “Orca’s business model, operation procedures, techniques, and strengths and weaknesses,” and that Noder intended to “steal” and “exploit” that information and Orca’s customers for her company’s own competitive advantage.  The trial court dismissed Orca’s complaint at the pleadings stage, concluding that the AUTSA preempts Orca’s “common law tort claims arising from the alleged misuse of confidential information,” even if such information is “not asserted to rise to the level of a trade secret.”  The court of appeals reversed in part, holding that the AUTSA preemption exists only to the extent that the unfair competition claim is based on misappropriation of a trade secret.

The Arizona Supreme Court considered the text of the 1990 AUTSA’s displacement provision, concluding that nothing in the language of the statute “suggests that the Legislature intended to displace any cause of action other than one for misappropriation of a trade secret.”  “If such broad displacement was intended, the legislature was required to express that intent clearly.”  The court assumed, but did not decide, that Arizona’s common law recognizes a claim for unfair competition.  Nor did it decide what aspects, if any, of the alleged confidential information in plaintiff’s unfair competition claim might fall within the AUTSA’s broad definition of a trade secret and therefore be displaced.  “That determination will not hinge on the claim’s label, but rather will depend on discovery and further litigation that has not yet occurred.

While the court acknowledged the split of authority among various states as to the preemptive effects of the Uniform Trade Secrets Act, it found that the “quest for uniformity is a fruitless endeavor and Arizona’s ruling one way or the other neither fosters nor hinders national uniformity.”  With its ruling, the Arizona Supreme Court joins courts in states such as Pennsylvania, Virginia and Wisconsin that have the narrowed the preemptive effects of the Uniform Trade Secrets Act.  Conversely, courts in other states including California, Indiana, Hawaii, New Hampshire, and Utah have held that Uniform Trade Secrets Act statutes should be read to broadly preempt all claims related to the misappropriation of information, regardless of whether the information falls within the definition of a trade secret.

ARTICLE BY

William B. Berndt
David L. De Bruin
Marcus D. Fruchter
Nicholas A. Gowen
Bradley P. Nelson
Steven A. Weiss
OF:
Schopf & Weiss LLP

Fifth Circuit Refuses Application of Bright-Line Test in FLSA Seaman Exemption Dispute

Proskauer Law firm

On November 13, 2014, the Fifth Circuit addressed the uncertainty stemming from its decision in Owens v. SeaRiver Maritime, Inc., 272 F.3d 698 (5th Cir. 2001), wherein the Court found that a plaintiff’s unloading and loading of vessels was considered “nonseaman” work subject to the Fair Labor Standards Act’s (“FLSA”) overtime requirements. Subsequent to that decision, plaintiffs have advocated for a broad application of Owens’s rule, and district courts struggled with Owens’s  application to what are often fact-driven cases.

The Fifth Circuit provided necessary clarity in Coffin v. Blessey Marine Services, Inc., No. 13-20144, 2014 WL 5904734 (5th Cir. Nov. 13, 2014), when it reversed the district court on an interlocutory appeal and held that vessel-based crewmembers tasked with loading and unloading vessels are seamen under the FLSA rendering them exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(b)(6). In so ruling, the Fifth Circuit limited its prior holding in Owens, by finding that the unloading and loading of vessels is not strictly “nonseaman” work, and that each individual and case must be analyzed under a facts-and-circumstances test. Significantly, in dicta, the Court intimated that the Department of Labor’s “twenty percent rule,” which states that an employee loses his seaman status when “nonseaman” work occupies over twenty percent of his time, is also not a bright-line test.

Plaintiffs are tankermen who lived and worked aboard Defendant’s vessels. Though the parties and the court agreed that most of Plaintiffs’ job duties were “seaman” work exempt from the FLSA’s overtime requirements, Plaintiffs filed suit alleging that their job duties related to the loading and unloading of vessels constituted “nonseaman” work for which overtime pay was owed. Plaintiffs and the district court relied on the Fifth Circuit’s prior holding in Owens, and the district court denied Defendant’s motion for summary judgment. The district court and the Fifth Circuit granted Defendant’s interlocutory appeal under 29 U.S.C. § 1292(b).

Following oral argument, the Fifth Circuit issued its decision, which disagreed with Plaintiffs’ and the district court’s interpretation and application of Owens. Importantly, the Fifth Circuit distinguished Owens and emphasized that the analysis under the FLSA’s seaman exemption is a fact-based and flexible inquiry not subject to bright-line, categorical rules. The Court reasoned that the analysis required the consideration of the character of the work performed and the context in which it is performed and not the consideration of where the work is performed or how it is labelled. Unlike in Owens where the plaintiff was a non-crewmember who was not tied to a vessel and who only sought overtime for land-based loading and unloading, the Plaintiffs in this case lived on Defendant’s towboats, and their loading and unloading duties undisputedly affected the seaworthiness of the vessels and were integrated fully with their other seaman duties. Therefore, considering the character and context of the work performed, the Court concluded that the Plaintiffs’ unloading and loading duties were seaman work, thus exempting Plaintiffs from the FLSA’s overtime requirements.  For these reasons, the Court vacated the lower court’s ruling and remanded the matter to enter judgment in favor of Defendant.

ARTICLE BY

Nicole A. Eichberger
Lindsey H. Chopin
OF
Proskauer Rose LLP

United States Supreme Court Round-Up: Key Opinions from 2013 to 2014 and Upcoming High-Profile Business Disputes

Andrews Kurth

The 2013–2014 term of the United States Supreme Court resulted in a wide range of decisions of importance to business. In this article, we highlight some of the key opinions and explore their likely impacts. We also preview a few of the high-profile business disputes the Supreme Court has agreed to hear next term.

Key Business Cases from the 2013–2014 Term

American Chemistry Council v. Environmental Protection Agency: Holding: The Environmental Protection Agency (EPA) reasonably interpreted the Clean Air Act to require sources that would need permits based on their emission of chemical pollutants to comply with “best available control technology” for greenhouse gases. Effect: The decision reinforces the Supreme Court’s previous recognition that the EPA has the power to regulate greenhouse gases as pollutants. However, portions of the decision strongly cautioned the EPA against overreach, stating that the agency may not “bring about an enormous and transformative expansion in [its] regulatory authority without clear congressional authorization.” These comments suggest that the Supreme Court may take a hard line when the Obama Administration’s other climate regulations eventually go to court.

Daimler AG v. Bauman: Holding: A foreign company doing business in a state cannot be sued in that state for injuries allegedly caused by conduct that took place entirely outside of the United States. Effect: Daimler makes it much harder for plaintiffs to establish general jurisdiction over foreign entities. The opinion re-characterizes general jurisdiction as requiring the defendant to be “at home” in the state, a circumstance that the Supreme Court suggested will generally be limited to the places where the defendant is incorporated or where it has its principal place of business. Moreover, the fact that a domestic subsidiary whose activities are imputed to the foreign parent may be “at home” in the state will not make the foreign parent “at home” in that locale for purposes of general jurisdiction.

Halliburton v. Erica P. John Fund, Inc.: Holding: Plaintiffs in private securities fraud actions must prove that they relied on the defendants’ misrepresentations in choosing to buy stock. Basic v. Levinson’s holding that plaintiffs can satisfy this reliance requirement by invoking a presumption that the price of stock as traded in an efficient market reflects all public, material information, including material misstatements, remains viable. However, after Halliburton, defendants can defeat the presumption at the class certification stage by proving that the misrepresentation did not in fact affect the stock price. Effect: While investors will continue to pursue class actions following large dips in stock prices, the Halliburton decision helps to level the playing field by providing defendants a mechanism to stop such suits at the class certification stage.

Lawson v. FMR LLC: Holding: Employees of privately held contractors or subcontractors of a public company are protected by the anti-retaliation provision of the Sarbanes-Oxley Act of 2002 (SOX). Effect: Following Lawson, there will likely be an increase in SOX litigation against public and non-public companies. Because many of the issues concerning the scope and meaning of SOX have yet to be resolved, lower courts will continue to wrestle with defining the parameters of the law. Questions left unanswered byLawson include whether the whistleblower’s accusation must be related to work he or she performed for the company and whether the contract with the public company must have some relation to public accounting or securities compliance.

Chadbourne & Park LLP v. Troice: Holding: The Securities Litigation Uniform Standards Act of 1988 (SLUSA) does not preclude state-law class actions based on false representations that the uncovered securities that plaintiffs were purchasing were backed by covered securities. Effect: SLUSA bars the bringing of securities class actions “based upon statutory or common law of any state” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with a purchase of sale of covered securities.” The statute defines “covered securities” to include only securities traded on a national securities exchange or those issued by investment companies.

U.S. v. Quality Stores: Holding: Severance payments to employees who are involuntarily terminated are taxable wages for purposes of the Federal Insurance Contributions Act. Effect: Employers should, under most circumstances, treat severance payments to involuntarily terminated employees as wages subject to FICA taxes. There are exceptions, however, and employers should therefore seek legal counsel to assist in determining the tax status of a particular severance arrangement.

Business Cases to Watch in the 2014–2015 Term

Integrity Staffing Solutions v. Busk: Whether time spent in security screenings is compensable under the Fair Labor Standards Act.

Mach Mining v. Equal Employment Opportunity Commission: Whether and to what extent a court may enforce the Equal Employment Opportunity Commission’s mandatory duty to conciliate discrimination claims before filing suit.

Omnicare v. Laborers District Council Construction Industry Pension Fund: Whether, for purposes of a claim under Section 11 of the Securities Act of 1933, a plaintiff may plead that a statement of opinion was untrue merely by alleging that the opinion itself was objectively wrong, or must the plaintiff also allege that the statement was subjectively false through allegations that the speaker’s actual opinion was different from the one expressed.

Young v. UPS: Whether, and in what circumstances, an employer that provides work accommodations to non-pregnant employees with work limitations must provide work accommodations to pregnant employees who are similar in their ability or inability to work.

As in recent years, the Supreme Court continues to grant review on more and more cases involving matters of concern to U.S. businesses. Andrews Kurth attorneys are available to provide further detail and guidance on the decisions highlighted here, and on any other issues of concern to your company that have reached the high court.

ARTICLE BY

Kelly Sandill
OF
Andrews Kurth