Category: Litigation

Illuminating the “Invisible Branch” – the Supreme Court

The National Law Review recently featured an article by Health Government Relations Team of Drinker Biddle & Reath LLP regarding the Supreme Court:

While Congress’ deliberations over policy dominate the news, the Supreme Court often flies under the radar of the American people, unless there is a major case before it. Many Americans are not well-versed in the Supreme Court’s dealings; in fact, a Pew Research Center political knowledge survey found that in July 2010 only 28% of Americans polled could correctly identify John Roberts as the Chief Justice of the Court. As much of the health policy world’s attention is focused on the Supreme Court due to the Affordable Care Act case (Department of Health and Human Services, et al. v. Florida, et al.), below is a refresher on Supreme Court procedure and why there will be months of silence from the Court between the oral arguments and the announcement of the Court’s decision.

First, a few Supreme Court basics. The Supreme Court’s term begins on the first Monday in October and lasts for a year. The Court is typically in recess from late June or early July until the end of the term in October. The current term began on Monday, October 3, 2011, and will be wrapping up business for this term over the next two months. The next term will begin on Monday, October 1, 2012.

Each week when the Court is in session, the Justices hold a conference. Only the Justices are allowed in the room, and as a testament to the collegiality of the Court, each conference begins with each Justice shaking hands with every other Justice. During conferences, the Justices review petitions for certiorari or, in other words, decide which cases the Court will hear. The Justices then review the cases heard previously that week. Each Justice, beginning with the Chief Justice and going in order of seniority (who has been on the court the longest), is given time to state his or her views and raise any questions without interruption. Each Justice, in seniority order, then casts a preliminary vote on the case. In the case of the health reform arguments, which were heard March 26-28, the Justices met in conference to discuss the case and cast their votes on Friday, March 30.

So, if the votes have been cast and an outcome decided, why has there been no announcement of a decision yet? What has been going on since March 30?

After the votes are cast, the Court must then produce documents that state the Court’s reasoning for deciding a certain way. If the Chief Justice is in the majority (generally an opinion five or more Justices join), he or she assigns who will write the opinion. If the Chief Justice dissents from the majority opinion, the senior-most associate Justice in the majority assigns the opinion. The Chief Justice or most senior Justice may choose to write the opinion him or her self. Likewise, the most senior Justice in the minority assigns who will write the dissenting opinion. Dissenting opinions carry no legal weight or precedent, but might lay groundwork for future cases. Additionally, any Justice may write a concurring opinion, and anyone can write a separate dissenting opinion should they agree with the ruling but for a different rationale. In the case of a tie vote, which might happen if there is a vacant seat or if a Justice recuses themselves from the case, the decision of the lower court stands. In this situation, the case is not considered to be binding precedent.

Once the opinions have been drafted, they are circulated to all the other Justices for comments and recommended changes. If a Justice in the majority agrees with the outcome expressed but disagrees with the argument in the drafted opinion, they may write their own concurring opinion or, at anytime before the Court’s opinion is handed down, they may switch their vote. In some controversial cases, the outcome of the case has actually reversed from what the original outcome would have been, due to Justices flipping their vote. Then once the draft has been revised, the opinion is signed by the author. Other Justices who are in agreement then “sign on” to the opinion, and the verdict is subsequently made public.

In regard to the timing of decision announcements, there are no rules other than it must be released by the last day of term (before the Court goes into recess in June or July). Unanimous or less contentious decisions generally take less time than cases on more controversial subjects. Given the weight and attention given to the health reform cases, a decision is not expected until late in the term, with most people predicting an announcement coming June 21st, 25th or 28th.

©2012 Drinker Biddle & Reath LLP

After Gupta’s Insider-Trading Conviction, What’s Next?

An article by David Deitch of Ifrah Law, After Gupta’s Insider-Trading Conviction, What’s Next?, published in The National Law Review:

Yet another shoe has dropped in the long-running investigation and the series of prosecutions arising from allegations of insider trading in the stocks of Goldman Sachs and other companies. In May 2011, Raj Rajaratnam was convicted of insider trading and ultimately sentenced to 11 years in prison. On June 15, 2012, Rajat Gupta, a former director at Goldman Sachs, was convicted in the U.S. District Court for the Southern District of New York on four of six counts of an indictment that charged him with a conspiracy that included feeding inside tips to Rajaratnam in September and October 2008 about developments at Goldman Sachs.

As with the trial of Rajaratnam, the key pieces of evidence against Gupta appear to have been wiretapped conversations. The four charges on which Gupta was convicted all related to trades in support of which the government presented recorded conversations as evidence (though the government played only three recordings in the Gupta trial). The jury acquitted Gupta of two charges arising from other trades for which the government presented no such evidence. The jury clearly was influenced by hearing Rajaratnam on the recordings referring to his source on the Goldman Sachs board – powerful evidence that gave increased persuasive power to the government’s reliance on phone records showing substantial contacts between the two men.

Rajaratnam has appealed his conviction to the U.S. Court of Appeals for the Second Circuit, and one significant issue he has raised is whether the government improperly sought authority to wiretap the conversations that were the cornerstone of his conviction. That ruling will be very significant, both because a decision in Rajaratnam’s favor is likely to result in a reversal of Gupta’s conviction as well, and because the Second Circuit’s ruling may have a major impact on the future ability of prosecutors to continue to use wiretaps against white-collar targets.

While Gupta is likely to receive a prison sentence for his conviction, it seems likely that he will receive a lower sentence that Rajaratnam, who engaged in the trades in question and reaped the benefits of those trades – estimated at trial to have generated $16 million in gains or in avoided losses from Rajaratnam’s fund. While prosecutors may seek a higher sentence based on acquitted conduct, Gupta’s advisory range calculated under the U.S. Sentencing Guidelines may be as much as eight years in prison. There is also a significant question whether Judge Jed Rakoff, who has expressed frustration with what he calls “the guidelines’ fetish with abstract arithmetic,” will sentence Gupta to a shorter term than the one calculated under the Guidelines.

© 2012 Ifrah PLLC

Trial Court’s New Role in Willful Patent Infringement Decisions

Matthew J. Kreutzer of Armstrong Teasdale recently had an article regarding Patent Infringements published in The National Law Review:

The United States Court of Appeals for the Federal Circuit appears to have made it more difficult to prove willful infringement of a patent. Such a verdict could lead to an award of treble damages and attorneys’ fees. In a case that focuses on that portion of the willfulness test that requires a finding of an objectively high likelihood of patent infringement, the appellate court held that the trial court, not the jury, should make that determination.

In Bard Peripheral Vascular, Inc. v. W.L. Gore & Assoc., Inc., on rehearing en banc, the Federal Circuit considered the nature of the objective inquiry of the test for determining willful infringement. To establish willful infringement a patentee must prove two elements: (1) the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent and if that threshold standard is satisfied; (2) that the objectively-defined risk was either known or so obvious that it should have been known to the accused infringer. It is the first element of that test that was at issue in the case noted herein.

The objective prong of the test is generally not met if the accused infringer relies on a reasonable defense of invalidity or non-infringement. Determining the reasonableness of the defenses can involve both questions of law and fact. The Federal Circuit concluded that the court, not the jury, is in the best position for making this reasonableness determination. This determination will be subject to de novo review on appeal, which means that the trial court’s decision will receive no deference from the Federal Circuit.

While each case is different, it would not be unexpected for the trial court and/or the Federal Circuit to determine that an accused infringer was not unreasonable if it believed the subject patent was not infringed or was invalid. Even if the accused infringer was wrong in the belief, the reasonableness inquiry offers more room to defend the willfulness of the actions taken. How trial courts handle this inquiry remains an open question, but it would not be unexpected for there to be separate proceedings to aid the court in its required determination. Because the trial court’s decision will receive no deference on appeal, trial courts may be more reluctant to find willfulness out of fear of being reversed.

© Copyright 2012 Armstrong Teasdale LLP

Supreme Court of Texas to Federal Circuit: Don’t Mess with Texas but Feel Free to Mess with Texas Patent Attorneys; SCOTUS May Weigh In on “Arising-Under” Jurisdiction

Recently an article about Texas Patent Attorneys by Adam Auchter Allgood and Paul Devinsky of McDermott Will & Emery appeared in The National Law Review:

In a 5-3 decision, the Supreme Court of Texas, while specifically stating that it is not bound by the holdings of the U. S. Court of Appeals for the Federal Circuit, has relied on the Federal Circuit opinions in Immunocept (IP Update, Vol. 10, No. 10)and Air Measurement (IP Update, Vol. 14, No. 8) in determining that the federal courts possesses exclusive jurisdiction for state malpractice claims “arising-under” underlying patent matters. Minton v. Gunn, 355 S.W.3d 634, 653 (Supr. Ct. Tex., Dec. 16, 2011) (Green, J.) (Guzman, J., dissenting, joined by Medina, J. and Willett, J.). This decision is now at the U.S. Supreme Court as the subject of a petition for cert.

Minton is only one of a series of cases to explore the “arising under” jurisdiction of the Federal Circuit. The statute 28 U.S.C. §1338, which provides the federal courts with exclusive jurisdiction for any civil action “arising under” federal law relating to patents, has come under extensive scrutiny lately by the Federal Circuit. In several cases in which attorney malpractice was alleged in connection with patent procurement or enforcement, Circuit Judge O’Malley has taken the opportunity to present her views on the limits of the jurisdiction of the Federal Circuit to hear such disputes which are grounded in state law. For example, Judge O’Malley has dissented from the dismissal of a petition seeking an en banc review of the 2010 precedential Federal Circuit opinion in Davis v. Brouse McDowell, L.P.A. (see IP Update, Vol. 13, No. 3), which found federal jurisdiction over a legal malpractice action involving missed deadlines in which no patent actually issued. Recent cases in which Judge O’Malley has aired her view on this jurisdictional issue include the following:

  • Memorylink Corp. v. Motorola, Inc., Case No. 10-1533 (Fed. Cir., April 11, 2012) (per curiam order) (O’Malley, J., dissenting from the denial of the petition for rehearing en banc)
  • Minkin v. Gibbons, P.C., Case No. 11-1178 (Fed. Cir., May 4, 2012) (Reyna, J. (O’Malley, J., concurring in the result and conceding that under controlling Federal Circuit case law, the Federal Circuit is compelled to hear the case; but explaining why, in her view, it is not “proper” to do so)
  • Landmark Screens, LLC v. Morgan, Lewis, & Bockius, LLP, Case No. 11-1297 (Fed. Cir., April 23, 2012) (Clevenger, J.) (O’Malley, J., concurring and urging en banc consideration of the jurisdictional issue)
  • Byrne v. Wood, Herron & Evans, LLP, Case No. 11-1012 (Fed. Cir. March 22, 2012) (per curiam) (O’Malley, J., concurring in the Court’s opinion on the malpractice claim that address the issue on appeal, while noting that controlling Federal Circuit authority “compels us to do so”; but also pointing out the “federalism considerations” that mitigate against doing so)
  • USSPS, Ltd. v. Avery Dennison Corp., Case No. 11-1525 (Fed. Cir., April 17, 2012) (per curiam) (O’Malley, J., joined by Mayer, J., concurring while voicing what she regards as “significant” federalism concerns that are raised by the Federal Circuit’s exercise of jurisdiction over “these purely state laws claims”)

While Judge O’Malley, a former federal district judge who presided over more than 100 patent and trademark cases, continues to follow the binding Federal CircuitDavis precedent, it is clear that she feels that it is an incorrect application of Supreme Court case law. Both state and federal courts are applying the four-part standard enumerated by the Supreme Court in 2005 in Grable, 545 U.S. 308, for the general “arising-under” jurisdiction of §1331 to the specific patent section of §1338. In Judge O’Malley’s view federal question jurisdiction, as discussed in Grable, exists if resolving a federal issue is necessary to resolution of the state-law claim; the federal issue is actually disputed; the federal issue is substantial; and federal jurisdiction will not disturb the balance of federal and state judicial responsibilities.

Malpractice cases involving patents usually are one of two varieties involving either patent prosecution errors or non-asserted defenses during infringement litigation. Judge O’Malley tends to disagree with the application of the third Grable factor since most of the issues underlying malpractice claims are case-specific, factual inquiries and require only application, not interpretation of federal patent law and would have little or no bearing on other cases. As to the fourth factor, Judge O’Malley asserts that malpractice cases do not implicate any underlying patent rights themselves. Any patent issue that is decided will only inform the state law standards of causation or damages and would not have binding effect on other patent cases.

The majority in Minton (as well as controlling Federal Circuit case law) however, rely on the argument that a “case within a case” exists in malpractice claims, since patent issues must be analyzed in order for the plaintiff to prove a proximate causal connection that the harm or loss would not have occurred without the attorney’s malpractice. The Minton Court (like Federal Circuit precedent) is based on the rational that litigants benefit from judges who are familiar and experienced with complicated patent rules and that there is a strong federal interest in the uniform application of patent laws.

Practice Note: With the Texas Supreme Court decision in Minton currently teed up before the U.S. Supreme Court, Judge O’Malley may find her desired Federal Circuiten banc review bypassed as the issue may receive direct consideration by the Supreme Court. Certiorari briefs are currently being filed with the Supreme Court (Docket No. 11-1118). On April 26, Memorylink also filed a petition for cert to the Supreme Court drawing on Judge O’Malley’s dissent in Memorylink v. Motorola, arguing that by asserting jurisdiction on state law malpractice claims, the Federal Circuit is disturbing the appropriate balance between state and federal courts.

© 2012 McDermott Will & Emery

California Court Enforces Waivers of Class and Private Attorneys General Act “PAGA” Representative Claims

The National Law Review recently published an article regarding PAGA Representative Claims written by Labor & Employment Practice of Morgan, Lewis & Bockius LLP:

Recent court decision represents significant development for parties seeking to enforce arbitration agreements containing class and representative waivers.

On June 4, a unanimous panel of the California Court of Appeal for the Second District upheld a lower court’s ruling compelling individual arbitration of a plaintiff’s wage and hour claims and dismissing both class and representative claims under the California Labor Code Private Attorneys General Act (PAGA). Iskanian v. CLS Trans. Los Angeles, LLC, — Cal. Rptr. 3d —, No. B235158, 2012 WL 1979266 (Cal. Ct. App. 2d Dist. June 4, 2012). In so ruling, the court (i) held that the U.S. Supreme Court’s opinion in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (Concepcion), preempted any California law prohibiting arbitration of certain claims; (ii) rejected a recent decision from the National Labor Relations Board (NLRB); and (iii) held that employees may validly waive their right to bring PAGA claims on behalf of others as part of an arbitration agreement.

Background

As a driver for defendant CLS Transportation, LLC (CLS), plaintiff Arshavir Iskanian signed a “Proprietary Information and Arbitration Policy/Agreement” providing that any and all employment-related disputes would be submitted to binding arbitration. The arbitration agreement contained a waiver of the right to bring claims on behalf of a class or as a representative of others.

Notwithstanding this arbitration agreement, Iskanian filed a putative class action complaint against CLS, alleging that the company failed to pay overtime, provide meal and rest breaks, reimburse business expenses, provide accurate and complete wage statements, and pay final wages in a timely manner. CLS moved to compel arbitration, which the trial court initially granted. Shortly after the trial court issued its order, the California Supreme Court issued its opinion in Gentry v. Superior Court (Circuit City Stores), 42 Cal. 4th 443 (2007), holding that class action waivers in employment arbitration agreements were unenforceable as contrary to public policy. On appeal, CLS’s initial motion to compel arbitration was reversed, and the case proceeded to litigation in Superior Court.

Soon after the U.S. Supreme Court issued its opinion in Concepcion, which overruled California law in regards to class action waivers in commercial contracts, CLS renewed its motion to compel arbitration. The trial court granted the motion, and a second appeal followed.

Gentry Overruled

On appeal, the court affirmed, holding that Concepcion overruled Gentry and rejecting the plaintiff’s “vindication of statutory rights” argument. Finding that a purported intent to vindicate statutory rights “is irrelevant in the wake of Concepcion,” the court held that “[t]he sound policy reasons identified in Gentry for invalidating certain class waivers are insufficient to trump the far-reaching effect of the [Federal Arbitration Act (FAA)].” Iskanian, 2012 WL 1979266 at *5. Thus, the court held that any California statute or policy prohibiting arbitration of certain claims is invalid, and that under the FAA, class and representative waivers should be enforced according to their terms “so as to facilitate streamlined proceedings.” Id.

Rejection of D.R. Horton

The court also rejected the plaintiff’s argument that a recent decision by two members of the NLRB in D.R. Horton, Inc., 357 NLRB No. 184 (2012), barred enforcement of class and representative waivers in employment arbitration agreements as a violation of Section 7 of the National Labor Relations Act (NLRA).

Finding several faults with the D.R. Horton decision, the Iskanian court declined to give any deference to the NLRB, noting that “the FAA is not a statute the NLRB is charged with interpreting.” Iskanian, 2012 WL 1979266, at *6. The court instead followed the Supreme Court’s binding authority in CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), that, unless the FAA is “overridden by a contrary congressional command,” then “agreements to arbitrate must be enforced according to their terms.” Iskanian, 2012 WL 1979266, at *7. Finding no such “congressional command” in the NLRA, the court rejected D.R. Horton. Id.

PAGA Waivers Enforceable

Departing from two prior decisions issued by other California Courts of Appeal, theIskanian court held that the representative action waiver of PAGA claims in the parties’ arbitration agreement was enforceable under Concepcion. The court compelled individual arbitration of the plaintiff’s PAGA claim, holding that “any state rule prohibiting the arbitration of a PAGA claim is displaced by the FAA.” Id. at *9. The court further held that California’s “Broughton-Cruz rule”—which bars arbitration of public injunctive relief actions—has been overruled by Concepcion. Accordingly, “the public policy reasons underpinning the PAGA do not allow a court to disregard a binding arbitration agreement. The FAA preempts any attempt by a court or state legislature to insulate a particular claim from arbitration.” Id. The court concluded that the plaintiff could not pursue representative claims against CLS.

Implications

The Iskanian decision, when coupled with another recent California opinion,Kinecta Alternative Financial Solutions, Inc. v. Superior Court (Malone), 205 Cal. App. 4th 506 (2012), which held that class allegations may be dismissed when a court compels individual arbitration, represents a significant development for parties seeking to enforce arbitration agreements containing class and representative waivers.

The Iskanian decision, however, creates a clear split in authority among California Courts of Appeal regarding the enforceability of PAGA representative action waivers. See, e.g., Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2d Dist. 2011) (holding that PAGA waivers were not enforceable); Reyes v. Macy’s, Inc., 202 Cal. App. 4th 1119 (1st Dist. 2011) (following Brown and refusing to compel individual arbitration of PAGA claims). This split may lead to California Supreme Court review, which means that the issue may not be resolved anytime soon.

While awaiting a final outcome, employers should carefully consider enforcement of arbitration agreements and the scope of waivers contained in such agreements.

Copyright © 2012 by Morgan, Lewis & Bockius LLP

Unpaid Internships: Free Today . . . Costly Tomorrow

An article by Rachel D. Gebaide and Melody B. Lynch of Lowndes, Drosdick, Doster, Kantor & Reed, P.A. was published recently in The National Law Review:

With the summer season approaching, college and high school students will be looking for opportunities to improve their resumes and gain valuable experience. The prospect of hiring a talented student – or someone transitioning between careers – who is willing to work for free is enticing to many employers.

In many cases, however, the unpaid aspect of the internship violates the Fair Labor Standards Act (FLSA). Lawsuits by unpaid interns to recover wages, including liquidated damages and attorney’s fees, although still uncommon, are on the rise.

Unpaid internship programs can be an appropriate method of providing training if they are designed properly and are primarily for the benefit of the intern and not the employer. However, to paraphrase this week’s Time magazine article titled “Hard Labor: Inside the Mounting Backlash Against Unpaid Internships,” employers are not entitled to free labor just because they slap the title “intern” on the position.

The U.S. Department of Labor uses the six criteria below to determine whether an unpaid internship falls outside the employment context covered by the FLSA.

  • The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees, but works under close supervision of existing staff;
  • The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the conclusion of the internship; and
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

We recommend that you evaluate your internship programs against these six criteria prior to extending offers of unpaid employment to prospective interns. Interns are unlikely to be exempt employees under the FLSA. As a result, if your internship program does not meet all six criteria, you should plan to pay interns at least minimum wage, currently $7.67 in Florida, and, when necessary, the applicable overtime rate for hours worked over 40 in a work week.

© Lowndes, Drosdick, Doster, Kantor & Reed, PA

Kansas Supreme Court Decision Declares Resale Price Maintenance Per Se Illegal Under State Antitrust Statute

The National Law Review recently published an article by Lawrence I. Fox, Megan Morley, and Joseph F. Winterscheid of McDermott Will & Emery regarding Resale Price Maintenance in Kansas:

The Kansas Supreme Court recently determined resale price maintenance isper se illegal under state law, becoming the latest state to reject the rule of reason standard mandated by the Supreme Court of the United States.  The decision serves as a reminder that although a supplier’s pricing policies may be permissible under federal law, they may nevertheless be subject to per se condemnation under certain state statutes.

On May 4, 2012, the Kansas Supreme Court announced that resale price maintenance (RPM) is per se illegal under Kansas law in O’Brien v. Leegin Creative Leather Products, Inc.  With this ruling, Kansas joined a growing number of states—including Maryland, New York and California—that have refused to follow the Supreme Court of the United State’s 2007 holding in Leegin Creative Leather Products, Inc. v. PSKS, Inc. that the legality of RPM should be assessed under the rule of reason.  The O’Brien decision therefore serves as yet another sobering reminder that suppliers need to be mindful that although RPM may be subject to rule of reason analysis at the federal level, it remains subject to per secondemnation at the state level in many states under state antitrust statutes

In O’Brien, the plaintiff, a purchaser of accessories, filed a class action litigation against Leegin Creative Leather Products, a manufacturer and retailer of Brighton fashion accessories and luggage (Brighton)—the same defendant involved in the U.S. Supreme Court’s landmark 2007 eponymous decision—alleging Brighton’s pricing practices violated the Kansas Restraint of Trade Act (KRTA).  These practices included calling for retailers to sell Brighton products at a “keystone” price determined by Brighton and for certain “heart store” retailers to sell Brighton products at a “suggested price every day, 365 days a year.”  Brighton did admit to investigating reports it received regarding alleged violations of the policy and, although not occurring in Kansas, it acknowledged refusing to deal with retailers that intentionally violated the policy.

Upon motion for summary judgment, the trial court held the plaintiff’s RPM claims should be evaluated under the rule of reason.  To determine that a rule of reason analysis is appropriate, the court invoked language from Heckard v. Park, 188 P.2d 926, 931 (1948), and Okerberg v. Crable, 341 P.2d 966, 971 (1959): “The real question is never whether there is any restraint of trade but always whether the restraint is reasonable in view of all the facts and circumstances and whether it is inimical to the public welfare.”  Using this standard, the court refused to grant summary judgment because it believed there was a genuine issue of material fact as to the reasonableness of Brighton’s pricing policies.  The trial court, however, still granted Brighton’s summary judgment motion after ruling the plaintiff would be unable to prove antitrust injury.

On the plaintiff’s appeal, the Kansas Supreme Court overturned the ruling of the trial court and declared that horizontal and vertical restraints of trade, including RPM, are per se illegal.  In reaching this decision, the Kansas Supreme Court examined the plain language of KRTA, federal antitrust rulings and past Kansas precedent.

First, the court looked at the statutory language of KRTA.  Section 50-101(d) provides “[a]ny such combinations are declared to be against public policy, unlawful and void.”  Section 50-112 states “[a]ll arrangements, contracts, agreements, trusts, or combinations … designed or which tend to advance, reduce, or control the price … to the consumer … are hereby declared to be against public policy, unlawful, and void.”  Because these statutes do not mention reasonableness, the court believed that this “clear statutory language draws a bright line” against the use of a rule of reason standard.

Second, the court briefly addressed and then dismissed the notion that federal antitrust rulings, such as Leegin, compelled a rule of reason analysis.  Citing a string of Kansas decisions, the court determined “that federal precedents interpreting, construing, and applying federal statutes have little or no precedential weight when the task is interpretation and application of a clear and dissimilar Kansas statute.”

Third, the Kansas Supreme Court looked at prior state cases to assess whether a reasonableness standard should be read into KRTA.  Three of these cases were decided under Kansas’s General Statutes of 1915 and Revised Statutes of 1923, which the court described as the “legislative ancestor[s]” of KRTA and which contained similar language to the present day statute.  In each of these cases, the Kansas Supreme Court held the vertical price-fixing agreements at issue were unenforceable and per se illegal.

In 1937, however, the state legislature enacted the Kansas Fair Trade Act (KFTA).  This statute both permitted contracts controlling resale prices and authorized private actions to punish deviations from these contracts.  Although the legislature repealed this statute in 1963, the Kansas Supreme Court examined whether the per se rule adopted in these pre-KFTA cases had been overruled while KFTA was in effect.  The only relevant cases decided during this period were the aforementioned decisions in Heckard and Okerberg, which did indeed adopt a reasonableness standard.

Analyzing these KFTA-era cases, however, the Kansas Supreme Court determined that this “reasonableness rubric” did not apply to alleged price-fixing agreements.  The restraints of trade at issue in those cases—non-compete covenants and requirements contracts—were “factually and legally distinct from vertical and horizontal price-fixing.”  Moreover, the court went on to state it would have to read unwritten elements into the unambiguous statutory language of KRTA to impose a rule of reason in price-fixing cases, which would require the court to impermissibly encroach on the legislative function.  The court concluded that if Heckard andOkerberg were before it today, it would not impose a reasonableness standard because the clear statutory language does not require it.  The Kansas Supreme Court therefore overruled the reasonableness standard adopted in Heckard andOkerberg and held that price-fixing violations are per se illegal under KRTA.

With the decision in O’Brien, Kansas is the latest state to reject the rule of reason standard mandated by Leegin for federal RPM cases when applying state antitrust statutes.  This decision serves as a reminder to suppliers that although their pricing policies may be permissible under federal law, these same policies may nevertheless be subject to per se condemnation under certain state statutes.  Any programs directed at affecting downstream resale prices must therefore be crafted carefully to ensure they are legally compliant at both the state and federal levels.

© 2012 McDermott Will & Emery

Pennsylvania Adopts Significant Tort Reform Eliminating Joint and Several Liability: Fair Share Act Signed into Law

The National Law Review recently published an article by Meredith N. Reinhardt of Drinker Biddle & Reath LLP regarding Tort Law Reform in Pennsylvania:

In our June 2011 Newsletter, we discussed the status of important pending legislation in Pennsylvania (the Fair Share Act) designed to eradicate the common law doctrine of joint and several liability.  As of the date of that article, the Pennsylvania House of Representatives approved the Fair Share Act (H.B. 1), and the Act was before the Pennsylvania Senate for consideration.  After extensive debate, the Senate ultimately approved a bill substantively identical to H.B. 1.

On June 28, 2011, Governor Tom Corbett signed the Fair Share Act into law, effective immediately.  The Fair Share Act, (42 Pa. Cons. Stat. § 7102), provides for proportionate share liability among joint tortfeasors and eliminates the common law doctrine of joint and several liability in all but a few limited situations.  Under the new law, each defendant is liable for “that proportion of the total dollar amount awarded as damages in the ratio of the amount of that defendant’s liability to the amount of liability attributed to all defendants and other persons to whom liability is apportioned under subsection (a.2).”  42 Pa. Cons. Stat. § 7102(a.1)(1).  Joint and several liability still applies where there is an intentional misrepresentation, an intentional tort, a claim under section 702 of the Hazardous Sites Cleanup Act, a violation of section 497 of the Liquor Code or where a defendant is liable for 60% or greater of the total liability apportioned to all parties.  42 Pa. Cons. Stat. § 7102(a.1)(3).

The Fair Share Act is a significant victory for product manufacturers, insurance companies and other businesses who are often hauled into litigation because of their “deep pockets” even if they might be only minimally liable.  Reactions from these groups has been overwhelmingly positive.  Pennsylvania Chamber of Business and Industry Vice President Gene Barr commented that the Fair Share Act “restores fairness and predictability to the state’s legal system, encouraging business investment and job growth.”1 The Chairman of the Insurance Agents & Brokers of Pennsylvania further praised the new law:  “The act is a win for consumers, businesses and the insurance industry, which all carry the financial burdens of such a litigious environment.”2

Conclusion

As a practical matter, passage of the Fair Share Act will likely decrease the frequency “deep pocket” defendants with minimal liability are brought into litigation.  Even if such defendants are joined in litigation, the Fair Share Act will reduce the possibility of inequitable judgments.  As time passes, product manufacturers, insurance companies and other business who are often co-defendants in various litigations will continue to see the benefits of this significant tort reform.

 

1 Press Release, Gov. Corbett signs Chamber members’ No. 1 lawsuit abuse reform priority (June 28, 2011) (on file with author and available at: http://www.pachamber.org/www/news/press_releases/2011/Gov%20Corbett%20signs%20Chamber%20members%20No%201%20lawsuit%20abuse%20reform%20priority.php)

 

2 Press Release, IA&B applauds Pennsylvania lawsuit-abuse reform (June 28, 2011) (on file with author and available at:  http://www.iabgroup.com/press_center/releases/2011/06_28_tort_reform.html).


©2012 Drinker Biddle & Reath LLP

NY City Bar White Collar Crime Institute

The National Law Review is pleased to bring you information about the inaugural White Collar Crime Institute, on Monday, May 14, 2012 from 9 a.m. to 5 p.m. in New York City, NY.

This excellent review of developments in criminal and regulatory enforcement has been organized by our White Collar Criminal Law Committee, chaired John F. Savarese of Wachtell Lipton Rosen & Katz. Our program will feature keynote addresses by Preet Bharara, United States Attorney for the Southern District of New York, and Eric Schneiderman, Attorney General of the State of New York. The panels on key legal and strategic issues will include senior government officials, federal judges, academics, general counsel of leading New York based corporations and financial institutions, and top practitioners in the field. We have crafted the program to maximize their value for white collar practitioners and corporate counsel.

Plenary sessions will focus on:
  • Providing perspectives of top general counsel concerning the challenges they confront in this new era of expanded corporate prosecutions
  • Discussions of the increasing importance of media coverage in these cases and its impact on prosecutorial decision-making.

Break-out sessions will address:

  • Techniques for winning trials
  • Ethical issues presented by white-collar corporate investigations
  • Trends in white-collar sentencing, and
  • The special challenges of handling cross-border investigations.

Otsuka v. Sandoz – Motivation Trumps Structure

An article by Warren Woessner of Schwegman, Lundberg & Woessner, P.A. about Otsuka v. Sandoz recently appeared in The National Law Review:

The recent decision of the Fed. Cir. in Otsuka v. Sandoz, App. No. 2011-1126, -1127 (Fed. Cir. May 7, 2012) continues the courts admirable work in defining obviousness post-KSR. This case revisits the standards involved in making out a prima-facie case of structural obviousness. What is particularly interesting in this decision is the weight – or lack thereof – that the court gave to evidence of therapeutic utility of the closest prior art compound. In fact, the court applied the fairly obscure maxim of patent law articulated forty years ago In re Steminski, 444 F.2d 581 (CCPA 1971). John L. White, in Chemical Patent Practice, summarized the holding of Steminski as part of his discussion of the “Hass-Henze Doctrine”:

“The [CCPA] concluded that because the characteristics normally possessed by members of a homologous series [e.g., differing by only one methylene group] are principally the same, varying gradually from member to member [e.g., methyl, ethyl, propyl, butyl, etc], chemists knowing the properties of one member of a series would in general know what to expect in adjacent members so that a mere difference in degree is not the marked superiority which will ordinarily remove the unpatentability of adjacent homologs of old substances. Contra, where no use for the prior art compound is known [citing Steminski].”

Sandoz was trying to invalidate an anti-schizophrenic drug, aripiprazole, marketed by Otsuka as Abilify. The court abbreviated its structure by referring to it as a 2,3-dichlorophenylbutoxy compound. Sandoz et al. were trying to invalidate the claim to this compound in US Pat No. 5,006,528 over an earlier patent that disclosed the 2,3-dicholorphenylpropoxy analog of Abilify (a butoxy compound). Not only is the prior art compound  a homolog of Abilify, but the prior art patent disclosed a laundry list of utilities, including “antischizophrenia agents”. Many other structurally more remote analogs were disclosed, and three others were discussed in detail in the opinion, but the appellant/defendants must have felt pretty confident, even though the district court ruled that the patent was unobvious.

No such luck! The Fed. Cir. discussed the “lead compound concept” at length and stated that: “Absent a reason or motivation based on such prior art evidence [of pertinent properties], mere structural similarity between a prior art  compound and the claimed compound does not inform the lead compound selection….See KSR [citation omitted] (‘A fact finder should be aware, of course, of the distortion caused by hindsight bias and must be cautious of arguments reliant upon ex post reasoning.’)” Slip op. at 18-19. In other words, structural similarity, taken alone is not sufficient to establish obviousness.

But wasn’t there data beyond the “naked” structure of the 2.3-dichlorophenyl propoxy prior art homolog? Citing Takeda, 492 F.3d at 1357 and Pfizer, 480 F.3d at 1361, the court fell back on the rule that the art worker must be motivated to use the teachings of the reference to achieve the claimed invention and had a reasonable expectation of success. The court focused on the generality of the prior art disclosure of utility and the primitive nature of this area of pharmacology prior to Otsuka’s invention of Abilify: “At the relevant time, there were no carbostyril compounds that were marketed as antipsychotics or were publicly known to have potent antipsychotic activity with minimal side effects.”So reasonable expectation of success probably carried the day (or the lack thereof), and the ‘528 patent remains valid. Apart from the revival of Steminski, I was heartened by the number of times that the court criticized defendants’ use of what the court(s) considered to be hindsight. For instance, defendants tried to argue that Otsuka’s advance involved “a short timeline”. The Fed. Cir. replied:

“The inventor’s own path itself never leads to a conclusion of obviousness; that is hindsight. What matters is the path the [POSA] would have followed, as evidenced by the pertinent prior art…the district court’s careful analysis exposed the Defendants’ obviousness case for what it was—a poster child for impermissible hindsight reasoning.”

Not just pretty words, beautiful ones!

© 2012 Schwegman, Lundberg & Woessner, P.A.