US Supreme Court Denies Certiorari in Direct Marketing Association v. Brohl

Supreme Court Direct Marketing AssociationThis morning, the US Supreme Court announced that it denied certiorari in Direct Marketing Association v. Brohl, which was on appeal from the US Court of Appeals for the Tenth Circuit. The denied petitions were filed this fall by both the Direct Marketing Association (DMA) and Colorado, with the Colorado cross-petition explicitly asking the Court to broadly reconsider Quill. In light of this, many viewed this case a potential vehicle to judicially overturn the Quill physical presence standard.

Practice Note: Going forward, the Tenth Circuit decision upholding the constitutionality of Colorado’s notice and reporting law stands, and is binding in the Tenth Circuit (which includes Wyoming, Utah, New Mexico, Kansas and Oklahoma as well). While this development puts an end to this particular kill-Quill movement, there are a number of other challenges in the pipeline that continue to move forward.

In particular, the Ohio Supreme Court recently decided that the Ohio Commercial Activity Tax, a gross-receipts tax, is not subject to the Quill physical presence standard. A cert petition is expected in this case, and could provide another opportunity for the US Supreme Court to speak on the remote sales tax issue. In addition, litigation is pending in South Dakota and Alabama over economic nexus laws implemented earlier this year. A motion hearing took place before the US District Court for the District of South Dakota last week on whether the Wayfair case should be remanded back to state court. If so, the litigation would be subject to the expedited appeal procedures implemented by SB 106 (2016), and would be fast tracked for US Supreme Court review. Tennessee also recently adopted a regulation implementing an economic nexus standard for sales and use tax purposes that directly conflicts with Quill that is expected to be implemented (and challenged) in 2017. While Governor Bill Haslam has praised the effort, state legislators have been outspoken against the attempt to circumvent the legislature and impose a new tax. Notably, the Joint Committee on Government Operations still needs to approve the regulation for it to take effect, with the economic nexus regulation included in the rule packet scheduled for review by the committee this Thursday, December 15, 2016.

All this action comes at a time when states are gearing up to begin their 2017 legislative sessions, with many rumored to be preparing South Dakota-style economic nexus legislation for introduction. While DMA is dead as an option, the movement to overturn Quill continues and the next few months are expected to be extremely active in this area.

© 2016 McDermott Will & Emery

Jevic Holding Corp.: Is The Supreme Court Now Ready To Strike Down Structured Dismissals?

Supreme Court Bankruptcy Structured DismissalsIn a prior post, we discussed the Third Circuit Court of Appeals’ decision in Jevic Holding Corp., where the court upheld the use of so-called “structured dismissals” in bankruptcy cases, and the Supreme Court’s grant of certiorari. On December 7th, the Supreme Court heard oral argument in Jevic.  The Court’s ultimate ruling will likely have a significant impact upon bankruptcy practice.

Under the Jevic structured dismissal, unsecured creditors received a distribution from a settlement reached between the official committee of unsecured creditors and secured lenders.  Wage priority claimants received nothing from the settlement, notwithstanding their senior position under the Bankruptcy Code.  The bankruptcy court approved the structured dismissal, and by extension the distribution provided for in the settlement, and the district court affirmed on appeal.  The Third Circuit also upheld the structured dismissal, holding that the bankruptcy court has discretion to approve structured dismissals except if there is a showing “that the structured dismissal has been contrived to evade the procedural protections and safeguards of the plan confirmation or conversion process.”

Jevic put front and center two competing concerns in bankruptcy.  On its face, the Jevic structured dismissal appears to conflict with the priority rules set forth in section 507 of the Bankruptcy Code, since junior creditors were paid while certain senior creditors were not.  However, the structured dismissal approved in Jevic also arguably maximized creditor recoveries, albeit in a way that skipped over certain senior creditors. The estate was administratively insolvent and without the structured dismissal, the case would have been converted to Chapter 7 and distributions would have been significantly reduced.

The questions posed yesterday to counsel for Petitioners and counsel for Respondents, as well as to government counsel as amicus curiae, were wide-ranging and pointed.  Justice Breyer questioned the statutory basis for the structured dismissal, noting that while no Code provision forbid it, no specific Code provision permitted it either.  Justice Kennedy looked for guidance on the “for cause” standard under section 349(b), which permits bankruptcy courts to modify the effect of dismissal orders.  Justice Sotomayor expressed concern that there was collusion in Jevic among senior and junior creditors to the detriment of other creditors.  Several Justices expressed concern with Respondents’ position that section 363(b) afforded sufficient discretion to the bankruptcy court to approve a distribution that was at odds with the Code’s priority scheme.  According to Respondents, Jevic presented the extraordinary circumstances required by section 363(b) to deviate from the absolute priority rule since no plan was possible and conversion to Chapter 7 would lead to little, if any, distribution.  Justice Sotomayor questioned Respondents’ position that Jevic was a rare case, and Justice Kennedy took a similar position, noting that it is not rare for there to be no prospect of a confirmable plan, a fact cited by Respondents in support of the Jevic structured dismissal.

Predicting the outcome of cases simply from oral argument is imperfect and notoriously dangerous.  Nonetheless, some commentators have opined that a sufficient number of Justices appear to be sufficiently concerned with the Jevic structured dismissal that the Third Circuit’s opinion is in peril.  If the Court reverses the Third Circuit, the question becomes how sweeping the Court’s opinion will be.

A reversal may well imperil so-called “gift plans”, where a secured creditor makes a payment to junior creditor (the “gift”) in order to obtain support for plan confirmation.  The gift allows the junior creditor to obtain a recovery at odds with the Bankruptcy Code’s priority scheme.  If the Court holds that the priority scheme governs all estate distributions, depending upon the scope of the Supreme Court’s opinion, gift plans may not be permitted.

In addition, if the Court rules that the section 507 priority scheme applies to the entirety of a bankruptcy case, such a holding would conceivably threaten the viability of orders that even Petitioners concede are customary in commercial reorganizations, such as wage payment orders and critical vendor orders.  Those represent instances where estate property is distributed in violation of the Code’s priority scheme, but in reliance on the so-called “Doctrine of Necessity,” where payments serve the overall goal of maximizing the debtor’s going concern value to create the possibility of greater distribution to creditors than does liquidation.

In fact, the Court seemed to struggle with how far its ruling should go, asking the parties what was the scope of the holding they wanted the Court to enter.  Counsel for Petitioners was careful to limit the scope of the holding so as to carve out common Chapter 11 practices, such as wage payment and critical vendor orders.  This was in contrast to counsel for the government who said that it was the government’s view that pre-plan distributions in Chapter 11 that violate the priority scheme “are not permissible under any circumstances unless there is consent of the impaired priority claimholder.”  Depending upon the scope of the Court’s opinion, regular and customary Chapter 11 practices, such as critical vendor motions and pre-petition wage motions, may no longer be permitted.

© Copyright 2016 Squire Patton Boggs (US) LLP

Supreme Court Determines that Seal Violation Does Not Mandate Dismissal

Supreme Court qui tam seal violationOn December 6, 2016, the Supreme Court of the United States decided State Farm Fire and Casualty Co. v. United States ex rel. Cori Rigsby and Kerri Rigsby. At issue was whether a qui tam relator’s violation of the seal requirement, 31 U.S.C. § 3730(b)(2), requires a court to dismiss the suit. In a unanimous decision, the Court concluded that violation of the seal does not mandate dismissal, affirming a lower court decision to deny the defendant’s motion to dismiss.

Section 3730(b)(2) requires qui tam complaints to be filed under seal for at least 60 days and provides that they shall not be served on the defendants until the court so orders. The purpose of the seal is to give the government time to investigate. In practice, the government often seeks numerous extensions while it investigates the conduct alleged in the relator’s complaint.

Justice Kennedy, writing for the Court, reasoned that the text of the False Claims Act (FCA) makes no mention of a remedy as harsh as dismissal. The Court also noted that the FCA was intended to protect the government’s interests, whereas mandatory dismissal would run contrary to those interests, as it would put an end to potentially meritorious qui tam suits. Although the Court made no definitive ruling as to what sanction would have been appropriate, it did note that dismissal “remains a possible form of relief,” while “[r]emedial tools like monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate.”

We previously wrote about this matter, here.

© 2016 McDermott Will & Emery

U.S Supreme Court Revisits Design Patent Damages

design patent appleOn December 6, 2016, the U.S. Supreme Court, in Samsung Electronics Co. Ltd., v. Apple Inc., 580 U.S. ____ (2016), unanimously ruled that in multicomponent products, the “article of manufacture” subject to an award of damages under 35 U.S.C. §289 is not required to be the end product sold to consumers but may only be a component of the product.

In 2007, when Apple launched the iPhone, it had secured several design patents in connection with the launch. When Samsung released a series of smartphones resembling the iPhone, Apple sued Samsung, alleging that the various Samsung smartphones infringed Apple’s design patents. A jury found that several Samsung smartphones did infringe those patents. Apple was awarded $399 million in damages for Samsung’s design patent infringement, the entire profit Samsung made from its sales of the infringing smartphones. The Federal Circuit affirmed the damages award, rejecting Samsung’s argument that damages should be limited because the relevant articles of manufacture were the front face or screen rather than the entire smartphone.

The Supreme Court reversed and remanded the case back to the Federal Circuit. In its unanimous opinion, the Court reasoned that for purposes of a multicomponent product, the relevant “article of manufacture” for arriving at a damages award (based on 35 U.S.C. §289) need not be the end/finished product sold to the consumer but may be only a component of that product. The Court determined that “The Federal Circuit’s narrower reading of the ‘article of manufacture,'” limiting it to the end product, “cannot be squared with the text of §289.” How to arrive at §289 damages? According to the Supreme Court, “Arriving at a damages award under §289 thus involves two steps. First, identify the ‘article of manufacture’ to which the infringed design has been applied. Second, calculate the infringer’s total profit made on that article of manufacture.”

This decision could have potential impact on future design patent infringement cases, especially when calculating infringement damages. It remains to be seen, what kind of guidance the Federal Circuit will provide in addressing the scope of the “article of manufacture” for multicomponent products.

ARTICLE BY Sudip K. Mitra of Vedder Price

© 2016 Vedder Price

Impact of Presidential Election on Key United States Supreme Court Cases

Supreme CourtAmerica’s next President will potentially have the authority to nominate more than one United States Supreme Court Justice before the end of his or her presidency. Notably, during the final debate, this subject of Supreme Court appointments by the President Elect was one of the six topics for discussion and was identified as one of the top issues among voters. Employers should take note because the Supreme Court may hear several cases in the upcoming term that could have significant implications for employers across the country with respect to (1) the enforceability of class action waivers, (2) pre-suit obligations of the Equal Employment Opportunity Commission (“EEOC”) in discrimination complaints, and (3) the issue of transgender rights.

(1) The Enforceability of Class Action Waivers in Arbitration Agreements

Following the Court’s ruling in 2011 in ATT Mobility LLC v. Concepcion1, where the Court in a 5-4 decision held that the Federal Arbitration Act preempted California from refusing to enforce class action waivers in consumer contracts, many employers have utilized waivers in arbitration agreements as a method of avoiding, or reducing, the risks of class or collective actions by employees alleging employment-related claims such as wage-and-hour violations and unlawful discrimination.

However, the safe haven apparently created under Concepcion has been under attack and led to inconsistent federal circuit court rulings applying its holding. Now, the Supreme Court has the opportunity to reconcile a split in the federal circuits regarding the enforceability of class action waivers in arbitration agreements. Because former Justice Scalia authored the Concepcion opinion, his replacement could impact its holding.

(2) EEOC Obligations with Respect to Discrimination Complaints

Recent discrimination cases have challenged aspects of the EEOC’s pre-suit obligations to investigate and attempt to conciliate discrimination charges before filing a lawsuit. Many judicial opinions have cited MachMining LLC v. EEOC2, a case in which the Supreme Court held that the EEOC’s statutory obligation to attempt conciliation with an employer as a prerequisite to a Title VII suit is subject to judicial review—although the scope of that review is narrow—and also established that form letters announcing the initiation and conclusion of the conciliation process alone do not satisfy the statutory obligation to attempt to facilitate conciliation with the employer.

In October 2016, the Supreme Court denied certification in EEOC v. Sterling Jewelers Inc.3, a matter of first impression in which the Second Circuit cited MachMining LLC v. EEOC in a decision permitting the EEOC to pursue a nationwide sex discrimination lawsuit on behalf of female retail store employees. Sterling Jewelers Inc.4 established that while a court may review whether the EEOC conducted an investigation into a formal charge of discrimination as a prerequisite for bringing an enforcement action under Title VII, it may not review the sufficiency of the agency’s investigation.

The case to watch is The Geo Grp. v. EEOC5, which is being docketed for review by the Supreme Court. The Ninth Circuit cited MachMining6 in a decision that allows the EEOC to litigate 19 sex discrimination claims despite the fact that the agency did not identify the alleged victims until after filing the lawsuit on the basis that MachMining7 permits the identification of a class of people as an alternative to identifying the individual alleged victims.

While many believe that the 2015 MachMining opinion could have potentially reversed the Ninth Circuit’s holding in Geo Grp., the Court (with a newly appointed Justice) could possibly walk back the limited judicial review permitted by the previous Court or establish a broader scope of judicial discretion in determining whether or not an attempt of conciliation with an employer took place in order to satisfy the EEOC’s statutory requirement under Title VII.

(3) Transgender Rights

In August, the Supreme Court stayed the Fourth Circuit Court of Appeals ruling in Gloucester Cnty. Sch. Bd. v G.G.8, keeping Grimm, an individual who was born a female, but identifies as a male, from using the boys’ restroom at school, while it decided whether it would take the case. On Friday, October 28, the Supreme Court announced it would in fact take up the issue. The Court’s holding on whether the U.S. Department of Education’s interpretation of the word “sex” is appropriate, as it relates to Title IX discrimination cases, could have wide ranging impact on litigation involving H.B. 2 from North Carolina and employers as they address transgender issues in the workplace.


1. ATT Mobility LLC v. Concepcion, 563 U.S. 333 (2011).

2. MachMining LLC v. EEOC, 135 S. Ct. 1645, 126 FEP Cases 1521 (2015).

3. Sterling Jewelers Inc. v. E.E.O.C., No. 15-1329; EEOC v. Sterling Jewelers Inc., 801 F.3d 96 (2nd Cir. 2016).

4. Id.

5. The Geo Grp. v. EEOC, No. 16-302; Arizona ex rel. Horne v. Geo Group, Inc., 816 F.3d 1189 (9th Cir. 2016).

6. MachMining LLC v. EEOC, supra.

7. Id. at 1648.

8. 136 S. Ct. 2442 (2016) (per curiam).

U.S. Supreme Court Denies Redskins’ Petition to Join SLANTS Case

Slants Case Supreme courtU.S. Supreme Court today, without comment, refused the Redskins’ Petition to join the SLANTS case challenging the U.S. Trademark Office’s ban on “offensive” trademarks. Since both cases involved a provision in Section 2(a) of the Lanham Act, the football team hoped to have both cases considered concurrently by the high Court. However, this now means that the outcome of the SLANTS case will have a huge impact on the Redskins’ appeal still pending before the Fourth Circuit. Although the team’s case will not be heard with the SLANTS case, it will have the opportunity to file amicus briefs in the proceeding.

See our previous post about this here.

©1994-2016 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Affirmative Action Policy Upheld By Supreme Court

affirmative action supreme courtRace may be taken into account when public universities and colleges admit students, ruled the U.S. Supreme Court today. For the second time, the Court was asked to decide whether the University of Texas at Austin’s admissions policy, which uses a variety of affirmative action factors to increase the diversity of its student population, violates the Equal Protection Clause of the Constitution. In a 4-to-3 decision (with Justice Kagan taking no part in the decision), the Court ruled that the race-conscious admissions program in question is lawful under the Equal Protection Clause. Fisher v. University of Texas at Austin, 579 U.S. __ (2016).

White Applicant Denied Admission Challenged Policy

Abigail Fisher, a white applicant who was denied admission to the University of Texas at Austin, sued the University alleging that its use of racial preferences in undergraduate admissions decisions is unconstitutional. She asserted that by including race in its admissions decisions, the University disadvantaged her and other Caucasian applicants.

The District Court in Texas that considered Fisher’s claims ruled in favor of the University, and the Fifth Circuit Court of Appeals agreed. Fisher appealed to the Supreme Court and in 2013, the Court kept her claims alive by sending them back to the Fifth Circuit so that the University’s admissions policy could be evaluated under the proper strict scrutiny standard. The Fifth Circuit reexamined the policy but came up with the same result, ruling in favor of the University. Fisher appealed to the Supreme Court again.

Court Finds Compelling Interest In Diversity of Students

In Fisher I, the Court ruled that the University’s affirmative action process, in which race was only one factor in assigning a numerical admissions score, needed to further a constitutionally permissible and substantial purpose or interest in order to meet the strict scrutiny standard. In today’s decision, the Court found that the University’s desire to provide its students the educational benefits that flow from having a diverse student body was a compelling interest sufficient to overcome the strict scrutiny standard.

Fisher had argued that the University failed to state more precisely what level of minority enrollment would constitute a “critical mass” at which time race would no longer need to be an admissions consideration. The Court rejected Fisher’s argument, stating that the educational benefits promoted by a diverse student body should not be reduced to pure numbers, especially in light of the fact that the University is prohibited from having a quota for minority student enrollment.

The Court also rejected Fisher’s assertion that the University had already achieved “critical mass” of minority enrollment, finding that the University had studied both statistical and anecdotal evidence that showed that race-neutral programs had not achieved its diversity goals. In addition, the Court rejected Fisher’s position that there were other workable race-neutral means of meeting the University’s educational goals.

University Must Continue to Evaluate Use Of Race In Admissions 

Although a slim majority of the Court upheld the University’s ability to use race as a factor in its admissions policy, the Court wrote that the University has a continuing obligation to satisfy the burden of strict scrutiny in light of any changing circumstances. It stated that the University must conduct periodic reassessments of its admissions program and continue to examine data to ensure that “race plays no greater role than is necessary to meet its compelling interest” in promoting the educational benefits advanced by diversity among students.

Three Justices Dissent

Chief Justice Roberts, as well as Justices Thomas and Alito, disagreed with their four colleagues in the majority. Justice Thomas wrote that “a State’s use of race in higher education admissions decision is categorically prohibited by the Equal Protection Clause.” Justice Alito separately wrote that the University had failed to show that its race-conscious plan was narrowly tailored to serve compelling interests so “[b]y all rights, judgment should be entered in favor of [Fisher.]”

Had Justice Antonin Scalia not passed away in February, he almost certainly would have voted along the lines of the dissenters. That would have resulted in an evenly divided court at 4-to-4. Justice Kagan did not participate because she had participated in the government’s part of the case when she was U.S. Solicitor General prior to being appointed to the Court. A 4-to-4 decision would have meant that the Fifth Circuit’s decision would stand, so the University would still have prevailed—but the decision would have had no precedential impact outside of the Fifth Circuit. But now, with Justice Scalia’s absence, the Supreme Court decision upholding the constitutionality of a race-conscious affirmative action plan is a precedential ruling that applies nationwide.

Affirmative Action in the Employment Context

Even though the Fisher case examined affirmative action in higher education admissions programs, the decision may have ripple effects in the employment context. By upholding the use of race-conscious affirmative action plans, the Court may have limited or foreclosed some constitutional challenges to affirmative action in employment policies as well. But race-based programs will still need to meet strict scrutiny standards to pass constitutional muster. Employers seeking a diverse workforce through the use of affirmative action plans will need to articulate the compelling interest that supports their use of race as a consideration in hiring, backed up by data and other evidence that no other race-neutral means are available to achieve the employer’s goal. As such, employers seeking to implement such policies should still proceed with caution.

Copyright Holland & Hart LLP 1995-2016.

Supreme Court: False Claims Act & Materiality Requirement

False claims act Supreme courtThe U.S. Supreme Court has rendered a unanimous decision in the hotly-awaited False Claims Act case of Universal Health Services v. United States ex rel. Escobar.  This case squarely presented the issue of whether liability may be based on the so-called “implied false certification” theory.  Universal Health Service’s (“UHS) problem originated when it was discovered that its contractor’s employees who were providing mental health services and medication were not actually licensed to do so. The relator and government alleged that UHS had filed false claims for payment because they did not disclose this fact and thus had impliedly certified that it was in compliance with all laws, regulations, etc.  The District Court granted UHS’s motion to dismiss because no regulation that was violated was a material condition of payment. The United States Court of Appeals for the First Circuit reversed, holding that every submission of a claim implicitly represents regulatory compliance and that the regulations themselves provided conclusive evidence that compliance was a material condition of payment because the regulations expressly required facilities to adequately supervise staff as a condition of payment.

The Supreme Court vacated and remanded the matter in a manner that represents a compromise view of implied false certification.

The Court recognized the vitality of the implied false certification theory but also held that the First Circuit erred in adopting the government’s expansive view that any statutory, regulatory, or contractual violation is material so long as the defendant knows that the Government would be entitled to refuse payment were it aware of the violation.

Instead, the Court held that the claims at issue may be actionable because they do more than merely demand payment; they fall squarely within the rule that representations that state the truth only so far as it goes, while omitting critical qualifying information, can be actionable misrepresentations.   Here, UHS and its contractor, both in fact and through the billing codes it used, represented that it had provided specific types of treatment by credentialed personnel.  These were misrepresentations and liability did not turn upon whether those requirements were expressly designated as conditions of payment.

The Court next turned to the False Claims Act’s materiality requirement, and stated that statutory, regulatory, and contractual requirements are not automatically material even if they are labeled conditions of payment. Nor is the restriction supported by the Act’s scienter requirement. A defendant can have “actual knowledge” that a condition is material even if the Government does not expressly call it a condition of payment. What matters is not the label that the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.

The FCA’s materiality requirement is demanding. An undisclosed fact is material if, for instance, “[n]o one can say with reason that the plaintiff would have signed this contract if informed of the likelihood” of the undisclosed fact.   When evaluating the FCA’s materiality requirement, the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive. A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular requirement as a condition of payment. Nor is the Government’s option to decline to pay if it knew of the defendant’s noncompliance sufficient for a finding of materiality. Materiality also cannot be found where noncompliance is minor or insubstantial.

Moreover, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. The FCA thus does not support the Government’s and First Circuit’s expansive view that any statutory, regulatory, or contractual violation is material so long as the defendant knows that the Government would be entitled to refuse payment were it aware of the violation.

The materiality requirement, stringently interpreted, and the fact that the First Circuit’s expansive view was rejected suggest that the game is far from over and that there still are viable defenses, facts allowing, to cases premised upon the implied false certification theory.

©2016 Epstein Becker & Green, P.C. All rights reserved.

Supreme Court Stryker/Halo Decision Makes it Easier for Courts to Award Enhanced Damages In Patent Infringement Cases

The recent Supreme Court decisions in the Stryker and Halo cases just made it easier for courts to award enhanced damages in patent infringement cases, discarding Seagate’s “objective recklessness” test.

The Seagate Test

In 2007, the Federal Circuit announced a test for enhanced damages whereby a plaintiff seeking enhanced damages had to show that the infringement of his patent was “willful.”  In re Seagate Technology, LLC,  497 F. 3d, 1360, 1371.  The Federal Circuit set forth a two-part test to establish such willfulness: First, “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent,” without regard to “[t]he state of mind of the accused infringer.” Id., at 1371. This objectively defined risk is to be“determined by the record developed in the infringement proceedings.” Ibid. “Objective recklessness will not be found” at this first step if the accused infringer, during the infringement proceedings, “raised a ‘substantial question’ as to the validity or noninfringement of the patent.” That bar applied even if the defendant was unaware of the arguable defense when he acted.Supreme Court Patent infringement

Second, after establishing objective recklessness, a patentee had to show by clear and convincing evidence the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.”Seagate, 497 F. 3d, at 1371. Only when both steps were satisfied could the district court proceed to consider whether to exercise its discretion to award enhanced damages. Ibid. 

Stryker / Halo Decisions Restore Courts’ Discretion to Award Enhanced Damages

The Supreme Court’s recent decision in the Stryker and Halo cases discarded the Seagate test and restored courts’ discretion to award enhanced damages.  The Court held “[t]he Seagate test is not consistent with §284.”  The relevant language of § 284 contains “no explicit limit or condition on when enhanced damages are appropriate, and this Court has emphasized that the “word ‘may’ clearly connotes discretion.”  So the Court found no explicit requirement for Seagate’s “objective recklessness” test.

The Court also found Seagate unnecessarily required a finding of “objective recklessness” even when wrongdoing was demonstrated by the facts of a case.  The Court also disagreed with Seagate’s requirement of a “clear and convincing evidence” standard for showing recklessness, and held that the proper standard for enhanced damages was a “preponderance of the evidence” — the same standard as for patent infringement determinations.

The Court explained that its decision did not contradict § 298, that failure to present advice to the court may not be used to prove willful infringement:

Section 298 provides that “[t]he failure of an infringer to obtain the advice of counsel” or “the failure of the infringer to present such adviceto the court or jury, may not be used to prove that the accused infringer willfully infringed.” 35 U.S.C. § 298. Respondents contend that the reference to willfulness reflects an endorsement of Seagate’s willfulness test. But willfulness has always been a part of patent law, before and after Seagate. Section 298 does not show that Congress ratifiedSeagate’s particular conception of willfulness. Rather, it simply addressed the fallout from the Federal Circuit’s opinion in Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F. 2d 1380 (1983), which had imposed an “affirmative duty” to obtain advice of counsel prior to initiating any possible infringing activity, id., at 1389–1390. See, e.g., H. R. Rep. No. 112–98, pt. 1, p. 53 (2011).

Consequently, nine years after Seagate, the Supreme Court has made it easier for courts to make a determination of enhanced damages.  Time will tell if this decision will spur additional patent opinion practice, such as prior to the 2007 Seagate decision.

ARTICLE BY Timothy Bianchi of Schwegman, Lundberg & Woessner, P.A.
© 2016 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

U.S. Supreme Court Allows Pre-Permit Challenges to Approved Jurisdictional Determinations

waters of the united statesIn a major new legal development for the Clean Water Act’s Section 404 wetlands permitting program, landowners can now challenge the federal government’s claim that areas targeted for fill are “waters of the United States” without first having to seek a permit to fill those waters, according to the Supreme Court’s decision issued on May 31st in United States Army Corps of Engineers v. Hawkes Co., Inc., No. 15-290 (U.S. May 31, 2016) (Hawkes). Until now, landowners could not immediately contest in court a determination by the Corps of Engineers (“Corps”) or the U.S. Environmental Protection Agency that jurisdictional wetlands, ephemeral drainages, vernal pools or any other types of “waters” existed on property targeted for fill. Instead, landowners had to first complete the Section 404 permitting process – a process that can take months or even years – before challenging the underlying jurisdictional determination, or proceed to fill the site without a permit and risk possible civil penalties of up to $37,500 per day, or even criminal prosecution. Under Hawkes, a landowner can now seek judicial review of the Corps’ formal assertion of jurisdiction without waiting for the conclusion of the Section 404 permitting process.

Unanimous Decision a Sharp Rebuke to the Corps and EPA

The Court’s opinion in Hawkes was unanimous (8-0), although some of the justices differed in their reasoning in support of the outcome. Nonetheless, at a time when the Court has been sharply divided on other issues, the unanimity of result in this case is a sharp rebuke to both the Corps and EPA.

At issue were plans by three mining companies to engage in the mining of peat, which is an organic material that forms in waterlogged ground. The companies applied for a Section 404 permit, and were told by the Corps that it would be very expensive and take years to complete the permitting process. The Corps issued an approved jurisdiction determination (“JD”) stating that the property contained jurisdictional “waters” by virtue of a “significant nexus” to a river, located some 120 miles away. The companies administratively appealed the JD within the Corps to no avail, and then sought judicial review in the federal district court. Following established legal precedent, the district court dismissed the case on the grounds that a JD does not constitute a “final agency action,” which is a prerequisite for judicial review under the federal Administrative Procedures Act. The 8th Circuit Court of Appeals reversed, holding that a JD was “final agency action,” and today the Supreme Court affirmed the 8th Circuit’s ruling.

Important Takeaways and Observations from Hawkes

  • The underlying merits of the challenge in Hawkes – whether the peat bog was jurisdictional under the Clean Water Act by virtue of its alleged “significant nexus” to a river 120 miles away – was not reached by the Supreme Court. Instead, under the posture of the case, the “waters” of the U.S.” determination will be returned to the District Court with instructions to hear the challenge to the JD, assuming the companies still wish to pursue their case.

  • The right to pre-permit judicial review of a JD applies only to “approved” jurisdictional determinations. These are the formal JD’s verified by the Corps (or the EPA in certain circumstances), which typically are based on extensive fact-finding by qualified experts following written guidance established by the Corps and EPA. These are distinguished from “Preliminary Jurisdictional Determinations” (“PJD’s”), which are also officially recognized as a basis for the issuance of a Section 404 permit, but which are not definitive declarations of jurisdiction by the Corps. Instead, PJD’s essentially operate as determinations by the Corps on the scope of jurisdictional waters that the landowner has agreed not to contest. The intent is to avoid a time-consuming, expensive and exacting jurisdictional determination and to instead move more quickly into the permitting process. It was the approved JD – not the PJD – that was the subject of the Supreme Court’s decision in the Hawkes case.

  • In order to challenge an approved JD, it still will be necessary for permit applicants to exhaust their administrative appeals within the Corps pursuant to the applicable Corps’ regulations (33 CFR Part 331) before they can file suit in federal court.

Implications of Hawkes

The Court’s decision in Hawkes is significant. Until now, the Corps and EPA held many of the cards in any proposed project that threatened to disturb or fill alleged “waters of the United States.” The landowner faced a Hobson’s choice of filling the potential “waters” and risking a civil or criminal enforcement action, or delaying project plans for months or even years while navigating the Section 404 permitting process. Now, in situations involving marginal claims of jurisdiction, the landowner has one more card to play – the opportunity to seek court review of an approved JD without waiting for the Section 404 permitting process to be completed.

© 2010-2016 Allen Matkins Leck Gamble Mallory & Natsis LLP