Category: Uncategorized

Aqua Products Sinks PTAB Decision in Bosch v. Matal

The odd title of this post arose from the fact that defendant Autel U.S., Inc. chose not to appeal its IPR win against Bosch that included invalidation of the claims in suit, and the refusal of the Board to enter an amended claim set proposed by Bosch. With Autel out of the picture, the PTO effectively represented the Board and Acting Director Matal was named as the defendant: Bosch Automotive Service Solutions, LLC v. Joseph Matal (Intervenor), Appeal no. 2015-1928 (Fed. Cir., December 22, 2017).

The technology claimed was directed to an improved device for transmitting data from the tire pressure sensor to the receiving unit in the vehicle, that was “universal” in that the user could check the data when working with different types of tires and receivers (U.S. Pat. No. 6,904,796).

In the IPR judgment, the Board found one set of Bosch’s proposed claims to be indefinite and one set to be obvious. The Fed. Cir. affirmed the Board’s ruling that the original claims were obvious but vacated the Board’s denial of Bosch’s contingent motion to substitute the amended claim set and remanded “for further proceedings consistent with this opinion.” Even though the Board had provided some rationale for why the first group of claims proposed by Bosch was indefinite, the Fed. Cir. ruled as to both claim sets that the Board had impermissibly placed the burden of establishing the patentability of both proposed  claim sets on Bosch, in contravention to Aqua Products.

“See Aqua Products, 872 F.3d at 1311 (‘Where the challenger ceases to participate in the IPR and the Board proceeds to final judgment, it is the Board that must justify any finding of unpatentability by reference to evidence of record in the IPR’).”

Although not argued by the parties, the Fed. Cir. ruled that proposed amended claims could be challenged under s. 112.

Perhaps the most important sentence in the opinion is in the Fed. Cir.’s discussion of the Board’s erroneous holding that it was Bosch’s burden to establish the unobviousness of the proposed claims:

“In its final decision, the Board concluded that it was ‘unpersuaded that Bosch has demonstrated that the proposed substitute claims are patentable’  over the prior art… [Citing an earlier Board decision] the Board stated that ‘[t]he patent owner bears the burden of proof in demonstrating patentability of the proposed substitute claims over the prior art in general, and, thus, entitlement to add these claims to its patent.’”

Of course, this suggests that a failure of the Board or of the challenger to meet this burden of proof to demonstrate unpatentability would entitle the patent owner to add the substitute claims. This decision, strongly affirming Aqua Products,  tilts the legal playing field, to favor the patentee, even as it requires more work by the Board.

The Fed. Cir.’s analysis of the original (affirmed) obviousness rejection contains a very thorough discussion of the secondary factors of commercial success, licensing and acclaim by the industry, that I won’t try to summarize, except to note that these remain very difficult to “prove up” in an obviousness dispute, particularly if the patented technology is complex.

© 2017 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

U.S. tax reform – retirement plan provisions finalized

The tax reform bill is done.  President Trump signed the bill on December 22, meeting his deadline for completion by Christmas.

While there is much to be said about the Tax Cuts and Jobs Act (the “Act”), the update on the retirement plan provisions is relatively unexciting.  Recall that when the tax reform process started, there was a lot of buzz about “Rothification” and other reductions to the tax advantages of retirement savings plans.  For now, that pot of potential tax savings remains untapped (perhaps to pay for tax cuts in the future).  Nonetheless, the Act that emerged from the Conference Committee reconciliation continues to include a section entitled “Simplification and Reform of Savings, Pensions, Retirement”. The provisions that remain are effective on December 31, 2017.

Recharacterization of Roth IRA Contributions.

Current law allows contributions to a Roth or Traditional IRA (individual retirement account) to be recharacterized as a contribution to the other type of IRA using a trust-to-trust transfer prior to the IRA-owner’s income tax deadline for the year.

Under the Act, taxpayers can no longer unwind Roth IRA contributions that had previously been converted from a Traditional IRA.  In other words, if a taxpayer converts a Traditional IRA contribution to a Roth contribution, it cannot later be recharacterized back to a Traditional IRA.  Other types of recharacterizations between Roth and Traditional IRAs are still permitted.

Plan Loans. 

The Act gives qualified plan participants with outstanding plan loans more time to repay the loans when they terminate employment or the plan terminates.  In these situations, current law generally deems a taxable distribution of the outstanding loan amount to have occurred unless the loan is repaid within 60 days.  The Act gives plan participants until their deadline for filing their Federal income tax returns to repay their loans.

Length of Service Awards for Public Safety Volunteers. 

Under current law these awards are not treated as deferred compensation (and, thus, are not subject to the rules under Section 409A of the Internal Revenue Code) if the amount of the award does not exceed $3,000.  The Act increases that limit to $6,000 in 2018 and allows for cost-of-living adjustments in the future.

That’s all folks!  Happy Holidays!

© Copyright 2017 Squire Patton Boggs (US) LLP

New Year’s Resolution Series – Ringing Your Post-Employment Covenants into the New Year

Many state legislatures spent 2017 tinkering with post-employment covenants.  Given the growing trend to legislate locally and the employee mobility issues that seem to nag every employer, we thought the New Year would be a perfect time to review and revisit your post-employment covenants. So for our multi-jurisdictional employers (which seems to be everyone these days), how do your post-employment covenants legally measure up?

Even California got into the act this year. Everyone (well, almost everyone) knows of the long-time California legislative non-compete ban (except in the context of a sale of business or equity). But did you know that as of 2017 California now regulates choice of law provisions in employment contracts? This new Labor Code provisionwas passed in an effort to stamp out the practice of some out-of-state employers who were using choice of law/venue provisions in the hope of applying some other state’s law to their California-based employees, thereby (they hoped) avoiding California’s non-compete ban. A review of that provision is in order for any employer hiring individuals in California.

Other states have gotten into the act by banning or regulating non-competes. Nevada, not known for its active employee mobility legislation, passed legislation this year governing non-competes, joining Colorado, Florida, Georgia, Illinois, and Texas, to name a few. New Jersey is also actively considering similar legislation.

And while Massachusetts tried but failed to pass statewide legislation, don’t overlook specific Massachusetts provisions addressing non-competes for Physicians, nurses, psychologists, social workers, and those in the broadcasting industry.

But don’t stop at a state law review. Remember: many states (and many state statutes) require an assessment of the reasonableness of post-employment covenants. The very best evidence of reasonableness is employer mindfulness regarding what agreements are truly necessary to protect some legitimate interest of the employer – and, most importantly, a deep dive into why they are necessary.

So here are a few action items to consider for your post-employment covenants resolution for 2018:

  • Where are your employees performing services for you? Do your post-employment covenants comply with the legislative mandates applicable in the various jurisdictions in which you have employees?
  • What impact, if any, do promotions have on your employees? Do they now have access to sensitive information, in addition to expanded job duties? If so, should they have new or different post-employment covenants?
  • How if at all has your business changed? Are you doing business in new locations or have you abandoned business in other locations?
  • Are post-employment covenants truly necessary – or will a solid proprietary rights agreement (and the applicable trade secrets law) provide the legal protection you really need?
  • Are you just as eager to recruit individuals bound by these agreements as you are to enforce your own? Have you considered the possible cognitive dissonance of such an approach?

We hope you have enjoyed our New Year’s Resolution Series and we look forward to a prosperous, productive and compliant 2018!

©1994-2017 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Tax Bill Causes Alarm for Some Charities and Tax-Exempt Organizations

The Tax Cuts and Jobs Act, which has been renamed the Amendment of 1986 Code, was signed into law by President Trump on December 22, 2017. Many are calling it the most sweeping overhaul to the United States tax system in decades. The Act positively impacts many sectors, including corporations with the significant reduction in corporate rates. In the case of tax-exempt organizations, however, the Act may have a significant negative impact.

Impact on Charitable Giving

An increase in the standard deduction amount for individual filers and the increase in the estate tax exclusion are predicted to cause a meaningful decrease in overall charitable giving. A higher standard deduction means fewer taxpayers will itemize deductions, reducing their incentive to make charitable donations. Only taxpayers who itemize their deductions receive a tax benefit from charitable contributions. The Tax Policy Center has estimated that before the Act, more than 46 million tax filers would itemize their 2018 returns, but with the passage of the Act, this number could drop to less than 20 million. In the short-term, donors are advised to consider making additional charitable contributions in 2017 since it is uncertain whether their charitable gifts will create a tax benefit in future years. Similarly, the doubling of the estate tax exclusion will reduce the incentive to make testamentary gifts to charities.

New Excise Tax on Executive Compensation Paid by Certain Tax-Exempt Organization; Medical Services Excluded

The Act imposes a 21 percent excise tax on most tax-exempt organizations (defined as “applicable tax-exempt organizations”) on the sum of compensation paid to certain employees in excess of $1 million plus any excess parachute payments paid to that employee (defined as a “covered employee”).

An applicable tax-exempt organization means any organization that:

  • is exempt from tax under Section 501(a) (such as Section 501(c)(3) charitable organizations),
  • is a Section 521(b)(1) farmers’ cooperative organization,
  • has income excluded from tax under Section 115(1) (this includes certain governmental entities), or
  • is a political organization described in Section 527(e)(1) for the taxable year.

A “covered employee,” is any current or former employee who:

  • is one of the tax-exempt organization’s five highest compensated employees for the current taxable or
  • was a covered employee of the organization (or any predecessor) for any preceding tax year beginning after December 31, 2016.

Compensation is referred to as “remuneration” under the new provision and is defined as “wages” for federal income tax withholding purposes. It also includes remuneration paid by related organizations of the applicable tax-exempt organization.

There are certain exceptions to the inclusion in remuneration under the definition including compensation attributable to medical services of certain qualified medical professionals and any designated Roth contribution.

The new Section 4960 is effective for taxable years beginning after Dec. 31, 2017. Year-end compensation planning, such as accelerating incentive compensation, should be considered to help avoid or reduce the 2018 excise tax. Calendar year taxpayers have only a few days to engage in this planning while fiscal year-end taxpayers may have a few more months to plan.

Separate Computation of UBTI for Each Trade or Business Activity

Certain tax-exempt organizations are subject to income tax on their unrelated business taxable income (“UBTI”). Under the current unrelated business income (“UBI”) rules, an organization that operates multiple UBI activities computes taxable income on an aggregate basis. As a result, the organization may use losses from one UBI activity to offset income from another, thus reducing total UBI. The Act requires tax-exempt organizations with two or more UBI activities to compute UBI separately for each activity. Accordingly, the losses generated by UBI activities computed on a separate basis may not be used to offset the income of other UBI activities. Under the new provision, a net operating loss deduction will be effectively allowed only with respect to the activity from which the loss arose. The inability to offset losses from one UBI activity against income from another may increase an organization’s overall UBI, but the lower corporate tax rate may otherwise reduce the amount of tax paid.

Provisions Affecting Tax-Exempt Bonds

The Act provides some welcome certainty for many tax-exempt organizations relative to tax-exempt bond financing. The House version of the Act had proposed an elimination of the ability of entities to issue “private activity bonds” Section 501(c)(3) bonds that are issued for the benefit of many tax-exempt Section 501(c)(3) organizations. This proposed elimination did not make it into the final bill. The Act does, however, adversely affect many tax-exempt organizations by eliminating their ability to undertake “advance refunding” transactions, where new tax-exempt bonds are issued to refinance existing tax-exempt bonds more than 90 days in advance of the redemption date or maturity date of such existing tax-exempt bonds.Under current law, tax-exempt Section 501(c)(3) organizations could undertake one “advance refunding” transaction, but the Act eliminates all “advance refundings” after Dec. 31, 2017.

Other Noteworthy Provisions

  • The Act imposes a new 1.4 percent excise tax on the investment income of private colleges and universities and their related organizations with at least 500 students and which have investment assets, including those of related entities, of at least $500,000 per student.
  • The existing income tax deduction for donations made in exchange for college athletic event seating rights will be repealed.
  • The charitable contribution deduction of an electing small business trust will be determined by the rules applicable to individuals, rather than those applicable to trusts.
  • The Act modifies the partnership rules to clarify that a partner’s distributive share of loss takes into account the partner’s distributive share of charitable contributions for purposes of the basis limitation on partner losses.
  • The top corporate tax rate for UBI is reduced to 21 percent.
  • The Act increases the annual limit on cash contributions to most public charities from 50 percent to 60 percent.
  • UBI will be increased by the amount of certain qualified transportation fringe benefit expenses for which a deduction is disallowed.
  • The Act repeals the deduction for local lobbying expenses which could impact Section 501(c)(6) rules.
  • The contribution limitation as to ABLE accounts is increased under certain circumstances.
  • The Act now allows for rollovers between qualified tuition programs and qualified ABLE programs.

The Act could have a significant impact on your tax-exempt organization.

© Polsinelli PC, Polsinelli LLP in California
For more Breaking Legal News go to the National Law Review.

Base Erosion Minimum Tax May Mean Change for Foreign Affiliates of US Multinationals

On November 16, 2017, we participated in a panel discussion at Tax Executives Institute’s (TEI’s) Chicago International Tax Forum regarding base erosion measures under the (then proposed) House and Senate tax reform bills. The House proposed a new 20 percent excise tax on most related-party payments (other than interest) that are deductible or includible in cost of goods sold or depreciable/amortizable basis. The Senate proposed a base erosion minimum tax on certain outbound base erosion payments paid by a corporation to foreign related parties. The conference committee has since submitted a conference report to accompany the Tax Cuts and Jobs Act that adopts the Senate’s proposed base erosion measure, with some changes. The base erosion minimum tax is equal to the excess of 10 percent of the modified taxable income of the corporation over an amount equal to the taxpayer’s regular tax liability reduced by certain Chapter 1 credits. The base erosion minimum tax could impact any multinational group in which foreign affiliates provide services, intellectual property, depreciable or amortizable property and other deductible items to related US corporations. It remains to be seen how the base erosion minimum tax will affect businesses in practice, and how countries with which the United States has a tax treaty will respond .

© 2017 McDermott Will & Emery
This article was written by Britt Haxton and Barry J. Quirke of McDermott Will & Emery.
For more on Tax, go to the Tax Practice Group page.

Tax Reform: It Happened, Now What?

The conference report on the tax reform bill (unofficially referred to as The Tax Cuts and Jobs Act) has now been approved by both the House and Senate.  As you may know, the conference report passed the house on Tuesday morning and was sent to the Senate.  During the Senate consideration on Tuesday evening, the Democrats raised a point of order against three provisions in the bill (the Senate Parliamentarian had ruled that these provisions violated the rules of budget reconciliation).  One of those provisions was the short title of the bill: The Tax Cuts and Jobs Act.  The Republican leadership moved to waive those points of order, which failed on a 51-48 vote (60 votes are required to waive a budget reconciliation point of order), and the three provisions were removed from the bill.  Very early Wednesday morning, the Senate approved the amended conference report and sent it back to the House for a final vote.  The House approved the amended version early Wednesday afternoon.  The final step for this bill is for the House and Senate to finish enrolling the amended version and to send it to the President for his signature.  This will not occur until after the first of the year in order to avoid potential sequestration (cuts) in spending for Medicare, Medicaid, and other government programs caused by increased deficits from the tax cuts in the conference report.

Trump tax reform

What Businesses Need to Know about the Tax Provisions

Effective for taxable years beginning after December 31, 2017, the conference report replaces the current corporate rate structure with a 21 percent flat rate on all corporate taxable income and fully repeals the corporate alternative minimum tax (AMT).  It also allows full expensing of business equipment for assets placed in service through 2022, with a phase-out (reduced by 20 percentage points per year) of that benefit from 2023 to 2027.  Business revenue offsets include:  new limits on the deduction for net business interest, repeal of the section 199 manufacturing deduction and the deduction for state and local lobbying expenses, and disallowance of like-kind exchanges other than for real property.  For pass-through businesses, the bill allows a deduction of up to 20 percent of certain pass-through income.  In addition, the bill moves the US from a worldwide tax system to a participation exemption system by giving corporations a 100 percent dividends received deduction for dividends distributed by a controlled foreign corporation (CFC).  One of the largest revenue raisers in the bill is a one-time deemed repatriation tax, payable over eight years, on unremitted earnings and profits (E&P) of a CFC at a rate of 15.5 percent for E&P held in cash and cash equivalents and 8 percent for E&P held in illiquid assets.

What Individuals Need to Know Now about the Tax Provisions

The conference report generally follows current law by maintaining seven individual income tax brackets and reduces the top individual income tax rate from 39.6 percent to 37 percent (lower than in either the House or Senate bills).  The bill includes a significant “marriage penalty,” while nearly doubling the standard deduction, repealing the current limitation on itemized deductions, and expanding the refundability of the child tax credit. The bill retains the deduction for unreimbursed medical expenses (and even offers an increased deduction for some taxpayers in 2017 and 2018) and leaves intact the current-law capital gains exclusion on the sale of a primary residence. Revenue offsets for individuals include repealing personal exemptions, retaining the individual AMT (albeit with higher exemption amounts), reducing the deduction for home mortgage interest – existing mortgages are grandfathered – and placing new limits on the ability of taxpayers to deduct state and local taxes. All of these individual tax changes expire after 2025.  While these changes may have significant implications for employee tax withholding, it will take the IRS some time to issue revised withholding allowance worksheets implementing the changes enacted in this bill.  No immediate action is required until the IRS reacts to the new law.

© 2017 Van Ness Feldman LLP
This post was written by Michael L. Platner of Van Ness Feldman LLP.

USCIS Issues Guidance on TN Nonimmigrant Status for Economists

On November 20, 2017, United States Citizenship and Immigration Services (USCIS) issued a policy memorandum clarifying that the TN definition of “economists.”

Background

On December 17, 1992, the presidents of the United States and Mexico, and the prime minister of Canada entered into the North American Free Trade Agreement (NAFTA). NAFTA created “special economic and trade relationships” between these countries. Under NAFTA, the TN nonimmigrant classification is available to Canadian and Mexican citizens to temporarily enter the United States to work in certain professional occupations. These professional occupations are laid out in NAFTA’s Appendix 1603.D.1. to D.3, and the minimum requirements for TN nonimmigrant status are codified in Section 214.6 of Title 8 of the Code of Federal Regulations. Pursuant to Section 214.6, the beneficiary of TN nonimmigrant classification must not only demonstrate that (1) he or she is a citizen of Canada or Mexico, but must also demonstrate that (2) his or her profession qualifies under the regulations, (3) the position he or she will occupy in the United States requires a NAFTA professional, (4) he or she has a full-time or part-time offer of employment with a United States employer, and (5) he or she has the qualifications to practice in the profession in question.

One of the professions delineated in NAFTA’s Appendix 1603.D1 to D.3 is that of an “economist,” which requires a baccalaureate or licenciatura degree. NAFTA does not provide a specific description of what an economist does, what professions would be considered economists, or the functions of an economist. This lack of guidance has resulted in inconsistent adjudications.

The Policy Memorandum

To provide guidance, USCIS issued a policy memorandum on November 20, 2017. This memorandum clarifies who qualifies as an economist, aligning its standards with those of the U.S. Department of Labor’s (DOL) Standard Occupation Classification (SOC) system—a federal statistical standard used by federal agencies to classify workers into occupational categories for the purpose of collecting, calculating, or disseminating data.

USCIS identifies two broad focus areas of economists: (1) microeconomics (the analysis of “the behavior of individuals and firms with the aim of understanding the relationships between supply and demand”) and (2) macroeconomics (the analysis of “aggregated indicators to determine how different sectors of the economy relate to each other”). According to USCIS, in addition to these two focus areas, “economists may apply economic analysis to issues in a variety of fields, such as labor, international trade, development, econometrics, education, health, and industrial organization, among other fields.” The SOC system defines an economist as an individual who conducts research, prepares reports, or formulates plans to “address economic problems related to the production and distribution of goods and services or monetary and fiscal policy.” Additionally, it states that economists may “collect and process economic and statistical data using sampling techniques and econometric methods.”

USCIS distinguishes that the SOC definition for economists specifically excludes market research analysts and marketing specialists. As such, “persons who are engaged primarily in activities associated with market research analysts and marketing specialists, as described in SOC and the Bureau of Labor Statistics’ Occupational Handbook (OOH), do not qualify for the TN nonimmigrant classification as an economist.”

USCIS recognizes that financial analysts and economists are related occupations and that there may be some overlap in job duties performed. However, USCIS also distinguishes that “financial analysts primarily conduct quantitative analyses of information affecting investment programs of public or private institutions,” as provided by the DOL’s SOC classification. As such, USCIS, in an effort to align with the SOC, has advised that since “economists and financial analysts are two separate occupations,” financial analysts do not qualify for the TN nonimmigrant classification as economists.

In light of this new guidance, employers may want to review the job duties of Mexican and Canadian citizens they intend to hire in the United States in the TN Economist category.

© 2017, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

BREAKING NEWS: Congress Sends Tax Cuts and Jobs Act to President Trump’s Desk for Signing

The Tax Cuts and Jobs Act (TCJA) has been passed by both houses of Congress and is now set to be signed into law by President Trump. The vote was 224-201 in the House with all the Democrats joined by twelve Republicans voting “no” and 51-48 in the Senate along party lines. Although the TCJA isn’t exactly great news for the renewable energy industry, it is far better than what was originally proposed in the House and Senate bills. Here are the main takeaways:

  • PTC Inflation Adjustment – The TCJA preserves the current 2.4¢/kWh PTC amount for wind with an annual inflation adjustment. The House bill would have reduced the PTC to 1.5¢/kWh with no annual inflation adjustment.

  • ITC Phase-out Schedule – The TCJA does not eliminate the permanent 10% solar ITC beginning 2023.

  • Continuous Construction Requirement – The TCJA does not include the statutory continuous construction requirement that was included in the House bill. Despite clarification from the House there was some concern as to whether the House bill would eliminate the four-year safe harbor that wind developers rely on under IRS guidance.

  • Orphaned Technologies – The TCJA does not include the ITC extension for orphaned technologies (e.g., fuel cell, small wind, micro turbine, CHP, and thermal energy) that were left out of the 2015 PATH Act. However, the Senate Finance Committee is proposing to include an extension for these technologies in its tax extenders package.

  • 100% Bonus Depreciation – The TCJA provides 100% bonus depreciation through 2022 for both new and used property. 100% bonus applies to property acquired and placed in service after September 27, 2017 with a transition rule permitting taxpayers to elect 50% bonus instead during the taxpayer’s first taxable year ending after September 27, 2017. This provides a big incentive to place projects in service this year in order to take advantage of depreciation deductions at the current 35% corporate tax rate.

  • BEAT Provision – The TCJA provides a Base Erosion Anti-Abuse Tax (BEAT) whereby a bank that makes 2% (or 3% for companies) of its deductible payments to a foreign affiliate is subject to the BEAT when those payments reduce its U.S. tax liability to less than 10% (12.5% beginning in 2025). The good news is that the TCJA provides that tax equity investors can use the PTC and ITC to off-set up to 80% of their tax liability under the BEAT. The bad news is that the 80% offset expires in 2025, so tax-equity investors in wind projects that generate PTCs over a 10-year time horizon could potentially have all of their credits clawed-back in the future.

  • Interest Deductibility – The TCJA generally limits the amount of interest that can be deducted to 30% of the business’s adjusted taxable income. In the case of partnerships, this limitation would apply at the entity level. Deductions that are disallowed are carried forward and used as a deduction in subsequent years. As we discussed in our blog post here on the House bill, this limitation could have an adverse impact on back leveraged transactions, which developers utilize to reduce their cost of capital and free up cash to invest in new projects.

  •  Corporate Tax Rate/AMT – The TCJA slashes the corporate tax rate from 35% to 21%, effective for tax years beginning after 2017, with no sunset. The TCJA does not include the corporate AMT that was in the Senate bill and which would have had a negative impact on projects generating PTCs after four years in operation. It remains to be seen whether the lower corporate rate will reduce demand for renewable energy credits among tax-equity investors in the market, which now have less tax liability to offset with credits.

© 2017 Foley & Lardner LLP
For more on Tax, go to the Tax Practice Group page.

2018 LMA Tech West Conference at Hotel Nikko in San Francisco

Registration is open for the 2018 LMA Tech West Conference on January 31 –February 1, 2018 at the Hotel Nikko. This premier marketing technology educational event will bring together more than 300 marketing and business development professionals from across the country for a day and a half of innovative programming and networking.

LMA Tech West Ad Square

Through a variety of session formats, including hands-on workshops, roundtable discussions, TED Talks and panel presentations, LMA Tech West is where some of the most innovative thinkers in our industry provide examples, inspiration and takeaways that attendees of all levels can apply to the challenges and opportunities we face in our roles, in our organizations and in the industry.

The programming for the 2018 conference will include the latest trends and issues affecting the legal marketing technology landscape in all stages of the legal sales cycle in areas such as social media, big data, artificial intelligence, experience management/lead management, CRM, web site, SEO, content marketing video, marketing automation and much more!

Learn more about the LMA Tech West Conference Agenda.

State AGs Think Opioid Class Actions will be the Next ‘Big Tobacco’ Settlement

At this point, it’s not really ground-breaking news that America has a problem with opioid drugs. By way of anecdote, when I became a federal prosecutor in 2011, the last heroin case that had been prosecuted in the Nashville U.S. Attorney’s office was in the early-1990s; although, to be fair, there were then lots of what we called “pill” cases involving opioids. When I left the office in 2017, at least half of the office’s major investigations were directly related to opioids–some pills, but mostly outright heroin or fentanyl/carfentanyl . In Nashville, Tennessee, OxyContin (which is an opioid-based painkiller) can be worth up to $1.25/milligram (mg). That means that just one 80mg OxyContin has a street value of $100. Price, is of course, a reflection of demand and demand, in this case, is driven by addiction.

That addiction is costing Americans a lot of money. The White House estimates that in 2015, over 33,000 Americans died from opioid related overdoses and that the economic cost of the opioid crisis was $504.0 billion, or 2.8% of GDP. To put that in some perspective, 2015 U.S. healthcare spending accounted for 17.7% of GDP, which means that Americans spent ~1/6 as much on opioids as they did on healthcare. State governments, often stuck footing the bill for indigent addicts because of increased law-enforcement activity and drug/medical treatment, are looking at the opioid manufacturers and distributors to help pay some of this cost.

Pharmaceutical Issues

In September, 41 state attorneys general announced serving subpoenas on 6 opioid manufacturers as part of a multi-state investigation into whether the companies engaged in any unlawful practices in the marketing and distribution of prescription opioids. The attorneys general are also looking into the distribution practices of 3 pharmaceutical distributors that account for the distribution of roughly 90% of the U.S. opioid supply. According the N.Y. State AG, opioid distributors alone make nearly $500 billion a year in revenue, but those numbers (perhaps as a result of the market response to the negative publicity generated by all of this) might not be as robust as they once were. Stock prices (many of these companies are privately held) for two of the manufacturers subject to the AG subpoenas have seen stocks nose dive by ~90% and ~75% respectively after both achieving all-time highs in 2015. Of course, the reason for those drops is likely non-singular, but the timing does perhaps signal the market’s appetite for risk.

So, obviously, if you are an AG looking to combat a public health disaster, going after the manufacturers of opioids (who, at least in 2015, had lots of money), much like the manufacturers of tobacco is pretty appealing. That said, there are some considerations that are likely to be major impediments in the effort to make this into a big tobacco settlement:

  1. Prescription pills are prescribed by a medical doctor. Unlike the pack of cigarettes bought at the gas station from a clerk whose only responsibility is to verify age, opioids are, ostensibly, ordered by someone with years of advanced medical training. Pinning all the responsibility (or even just “most of it”) on manufacturers and distributors alone will be a challenge.
  2. The success of the tobacco litigation was driven in no small part by the efforts of Richard “Dickie” Scruggs, the exceptionally well-connected Mississippi lawyer who spearheaded the class-action effort and coalesced all the states into letting him be the point-man for all negotiations. Much of what made Scruggs successful in that effort–1) the self-proclaimed advantage of home cookin‘; 2) the ability to wheel and deal in the Capital thanks to his access to then Senate Majority Leader, and brother-in-law, Trent Lott; 3) the close relationship with then Mississippi Attorney General Mike Moore (who, coincidentally, is advocating for the opioid suit, this time as a plaintiff’s attorney)–is unlikely to fly in today’s world given the guttural uneasiness associated with any of the tactics utilized by Scruggs, now a convicted felon for attempting to bribe a judge in a post-Katrina litigation, and overall discomfort with anything that smacks of nepotism.
  3. The stated goal of many of the proponents of the tobacco litigation was to put cigarette manufacturers out of business–this, of course, is a sentiment still voiced by some. But, no one is realistically seeking to litigate these pharmaceutical companies into the ground. While these companies manufacture opioids, they also research and manufacture drugs that help treat pediatric Crohn’s disease, multiple sclerosis and Parkinson’s disease, among others. Simply, even if there is a settlement in all of this, the reality is that the settlement is likely to contemplate the ability of these companies to continue to research and manufacture the next wave of pharmaceutical improvements.

©2017 Epstein Becker & Green, P.C. All rights reserved.

This post was written by Clay T. Lee of Epstein Becker & Green, P.C.

To learn more, check out National Law Review’s health law page.