The National Law Forum

Supreme Court Reinvigorates Effectiveness of Obtaining an Opinion of Counsel to Defend against Potential Enhanced Damages for Willful Infringement in Halo Electronics

On June 13, 2016, the U.S. Supreme Court again reversed a decision of the Federal Circuit—the Circuit specially designated to hear all patent appeals—this time, in articulating the test for determining whether to award enhanced damages for willful patent infringement in Halo Electronics, Inc. v. Pulse Electronics, Inc.¹ This is the third time in two years that the Court has reversed the Federal Circuit on remedies in high-stakes patent litigation.² In an opinion that harkens, in part, back to 1980’s patent law, Chief Justice Roberts and a unanimous Supreme Court held that parties who have actual knowledge that their activities may infringe another’s patent must subjectively believe that their actions are legal, and no longer can rely on theories of objective reasonableness first developed at the time of trial to avoid enhanced damages.

I. Opinions of Counsel at The Federal Circuit

The Halo Electronics decision expressly overruled a 2007 Federal Circuit case, In re Seagate Technologies, which had used a two-part test to determine whether the defendant willfully infringed. Under Seagate, courts first had to find that the actions taken by the alleged infringer were objectively reckless.³ Second, the Court had to find that the defendant acted in a subjectively reckless manner: that they actually acted in bad faith to infringe the plaintiff’s patent.⁴

The Seagate test created a situation where defense counsel could place the weight of their strategy on showing that the defendant’s conduct was objectively reasonable after the fact at trial. Under this test, it was sufficient to show just one scenario where it would have been reasonable to believe that the defendant’s conduct would not have fallen under the plaintiff’s patent, or that the patent would be invalid.⁵ This emphasis on what the defendant could have thought, rather than what it actually had thought, resulted in the prospect of enhanced damages becoming very difficult to obtain.⁶

Seagate itself represented a shift away from the Federal Circuit’s earlier test, established by Underwater Devices in 1983, which placed an “affirmative duty” on the defendant to obtain a competent opinion of counsel to avoid the threat of treble damages.⁷ Such an opinion of counsel represented the documented legal understanding of the defendant as to whether it believed the plaintiff’s patent was valid, and/or covered the defendant’s activities. A defendant relied upon the opinion of counsel to avoid a finding of willfulness if its actions were later deemed infringing.

To be competent, an opinion of counsel had to investigate the file histories of the patents to determine both their validity and their applicability to the defendant’s actions.⁸ Additionally, whether the opinion came from a licensed patent attorney, and the extent to which the attorney was affiliated with the defendant, also were considered in determining the competency of the opinion.⁹ The Federal Circuit made it clear that conclusory opinions made by affiliated in-house counsel, lacking in patent training and expertise, would not be deemed competent.¹⁰

The Federal Circuit’s shift away from Underwater Devices came with industrywide changes in the field of patent litigation.¹¹ With the rise in lawsuits pursued by non-practicing entities, the Federal Circuit recognized that many defendants lacked the resources to obtain a competent opinion of counsel every time they received a cease-and-desist letter from a patent holder. In this regard, the Halo Supreme Court also agreed with the Federal Circuit that the “affirmative duty” standard of Underwater Devices was inappropriate.

II. What Halo Electronics Means for Patent Defendants

The Supreme Court, in overruling Seagate, held that a showing of subjective recklessness nonetheless would be required for Courts to consider awarding enhanced damages.¹² By removing Seagate’s “objectively reasonable standard” prong, Halo Electronics has the effect of shifting the timeline in which the defendant must establish the reasonableness of its actions. Rather than permitting an after-the-fact showing of objective reasonableness through theories devised for trial, Halo Electronics places an onus on defendant to prove that it believed, at the time of its actions, that it did not infringe another’s patent, or that the patent was invalid.

The Court seemed most troubled by the idea that a truly malicious infringer could avoid treble damages under the Seagate test solely as a result of its trial lawyer’s creative trial presentation of what the defendant could have thought.¹³ Rather than provide defendants with beforehand and after-the-fact defenses, the Halo Electronics decision encourages defendants to be proactive. Although Halo Electronics reduces the number of options available to a defendant, the options that remain include a clear and safe path around the threat of potential enhanced damages by way of an opinion.

III. Halo Electronics Shields Patent Defendants Who Proactively Obtain an Opinion of Counsel

In some ways, Halo Electronics represents a shift back to the Underwater Devices era, with at least one critical difference. Underwater Devices made obtaining a competent opinion of counsel an affirmative duty for defendants in order to avoid enhanced damages. In contrast, the Halo Electronics decision rejected the notion of an “affirmative duty” as in Underwater Devices.

As Justice Breyer noted in his concurrence, Halo Electronics does not create any rigid affirmative duties akin to those in Underwater Devices.¹⁴ Instead, it implicitly holds that a competent opinion of counsel, though not necessary to avoid treble damages, nearly always would be sufficient to avoid them. By acting in honest reliance on documented, independent legal advice stating that the patents are either invalid or do not cover the conduct at issue, the defendant cannot act with the bad faith the Court requires. Thus, proactively obtaining a competent opinion of counsel can be a highly effective way to shield potential infringers from the threat of enhanced damages.

On a practical level, the up-front cost of obtaining an opinion of counsel pales in comparison to the cost of protracted litigation to determine the willfulness of the defendant’s actions. Ultimately, by relying on a competent opinion of counsel, a defendant can protect itself against the threat of enhanced damages well before trial at the pleadings or summary judgment stages. Moreover, the removal of enhanced damages also disarms a critical weapon plaintiffs could wield in settlement negotiations.

IV. Opinions of Counsel at Cadwalader

One area of practice of the Intellectual Property Group at Cadwalader specializes in advising clients regarding potential patent infringements and developing defenses once a client becomes aware of a potentially problematic patent. The IP Group has prepared hundreds of opinions of counsel in a diverse array of technologies, from electronics to pharmaceuticals and mechanical devices.

ARTICLE BY Dorothy R. Auth Ph.D. of Cadwalader, Wickersham & Taft LLP

_{¹ Halo Elecs., Inc. v. Pulse Elecs., Inc., 579 U.S. ___ (2016).}

_{² See Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744 (2014); Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014); see generally Ronald Mann, Opinion analysis: Where have I read this before? Justices tread familiar path limiting Federal Circuit control over remedies in patent cases, SCOTUSblog (Jun. 16, 2016, 8:04 AM), http://goo.gl/DzNlIC.}

_{³ In re Seagate Tech., LLC, 497 F.3d 1360, 1384 (Fed. Cir. 2007).}

_{⁴ “[Defendant’s] subjective beliefs may become relevant only if [plaintiff] successfully makes this showing of objective unreasonableness.” Id. Accord Prof’l Real Estate Inv’rs, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 61 (1993) (describing similar objective, then subjective, two‑part test determining when litigation is a “sham” for antitrust purposes); Octane Fitness, 134 S. Ct. at 1751-52 (refusing to further extend Prof’l Real Estate’s definition of “sham” litigation in context of patent litigation).}

_{⁵ “Under that standard, someone who plunders a patent—infringing it without any reason to suppose his conduct is arguably defensible—can nevertheless escape any comeuppance under § 284 solely on the strength of his attorney’s ingenuity.” Halo Elecs., 579 U.S. at ___ (slip op. at 10).}

_⁶ Id.

_{⁷ Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389 (Fed. Cir. 1983).}

_{⁸ Id. at 1390.}

_⁹ Id.

_¹⁰ Id.

_{¹¹ “Seagate, it would seem . . . would reflect the Federal Circuit’s directed response to patent trolls. . . .” Dov Greenbaum, In re Seagate: Did It Really Fix the Waiver Issue? A Short Review and Analysis of Waiver Resulting from the Use of A Counsel’s Opinion Letter As A Defense to Willful Infringement, 12 Marq. Intell. Prop. L. Rev. 155, 183 (2008).}

_{¹² Halo Elecs., 579 U.S. at ___ (slip op. at 10).}

_{¹³ Id. at ___ (slip op. at 9).}

_{¹⁴ “[C]onsulting counsel may help draw the line between infringing and noninfringing uses,” but it is not required. Id. at ___ (slip op. at 3) (Breyer, J., concurring).}

The Effect of “Brexit” on Tax-Qualified Plans

The decision by British voters in a June 23, 2016 referendum to leave the European Union has significantly affected both the equity and debt segments of international financial markets. As with other market dislocations, the decision has also affected US tax-qualified plans, since they invest in those markets as a source of funding and use corporate bond rates for a variety of derivative purposes. The effects differ, however, between defined benefit (DB) and defined contribution (DC) plans.

Potential Effects of Brexit on DB Plans

In the case of DB plans, Brexit potentially has implications for funding levels, lump sum payments, Pension Benefit Guaranty Corporation (PBGC) premiums, and financial accounting results—all of which are the responsibility of the plan sponsor (rather than participants).

Specifically, the vote has triggered a decline in interest rates—including corporate bond rates—that may have at least a short-term adverse effect on the funded status of many DB plans, since (i) corporate bond rates are the proxy used to determine the present value of liabilities for minimum funding purposes, and (ii) a decrease in rates triggers an increase in liabilities (present value inversely goes up as interest rates go down).

This effect will be mitigated somewhat, however, since DB plans generally can use a 25-year average of interest rates (with a 90% floor) for funding purposes, which tends to “smooth out” periodic spikes like Brexit. Still, if interest rates (which are already at historically low levels) decline further or continue to be depressed by the aftershocks of Brexit, more headwinds for DB plans seeking to improve their funded status will be created.

By contrast, DB plans must use a market rate of interest—that is, without “smoothing”—for lump sum, PBGC variable premium, and financial accounting purposes. As a result, any downward trajectory of interest rates triggered by Brexit will more directly affect DB plans for these three purposes. Thus, for example, the dollar amount of lump sums paid to employees will increase as rates fall (that is, lump sum present values grow inversely to interest rates).

This effect on the calculation of lump sum payments may be delayed somewhat, since most plans use a “look back” date for the related interest rates (such as the rate in effect two months before the start of the plan year in which the lump sum was paid). Nevertheless, if interest rates stay low or decline, these lower rates ultimately will roll into effect for lump sum calculation purposes. Plan sponsors that are otherwise so inclined may view this as an impetus to offer lump sum windows or annuity buyouts—sooner rather than later (and before any lower interest rates roll into effect). This is especially true of annuity buyouts, since insurance companies tend to use rates for premium calculations that are even more conservative (i.e., lower) than the corporate bond rates used under ERISA.

Similarly, the PBGC variable rate premium is essentially determined using the same rate as is used for lump sums, but without a lag. This will increase the liabilities that form the basis for determining the amount of the variable premium.

Finally, the use of spot fixed income rates for financial accounting purposes will have an adverse effect on a company’s balance sheet to the extent they trigger an increase in reportable plan liabilities. The impact will be much more pronounced than is the case with minimum funding considerations, since the use of spot rates does not allow the impact of currently falling rates to be offset by the prior year increases used in a “smoothing” approach.

Potential Effects of Brexit on DC Plans

In the case of DC plans, participants generally bear the primary risk (and reward) of their investment choices, as allowed by ERISA Section 404(c). Thus, they will bear the risk of both declining bond prices and more volatile financial markets generally. Plan fiduciaries may want to consider alerting participants to the issues raised by Brexit, the possible impact on plan investments, the advisability of staying the course in turbulent markets, diversification considerations, and any other Brexit-related issues relevant to participation in the DC plan, but should be careful to avoid providing specific investment recommendations or advice that may be subject to ERISA’s fiduciary obligations.

Conclusion

In the case of both DB and DC plans, the fiduciary responsible for selecting investments (such as an investment committee) should continue to monitor developments in the financial markets and react as appropriate, in light of the plan’s investment policy statement and the general fiduciary requirements of ERISA. Federal courts and the US Department of Labor have consistently stated that ERISA fiduciaries are not held to a standard of omniscience, but they are required to exercise “procedural prudence” in selecting and monitoring plan investments. This sort of prudence would include adhering to the processes and other mandates established in the fiduciary’s charter or other governing document.

California Will Resume Enforcement of The Requirement To Electronically Submit Certified Payroll Records

On July 20, 2016, California Department of Industrial Relations (“DIR”) issued a press release stating DIR enforcement of a contractor and subcontractor’s requirement to submit Certified Payroll Records (“CPRs”) using DIR’s online system will resume on August 1. DIR clarified that the requirement to keep CPRs has not changed. Previously, DIR suspended enforcement of filing CPRs electronically because of problems with the system and improvements. However, employers should have continued to maintain CPRs and the ability to file them electronically was operational. The key difference is now DIR will enforce the filing requirement effective August 1^st. See press release

ARTICLE BY Jonathan A. Siegel of Jackson Lewis P.C.

Cloud-Seeding – Make it Rain, Make it Stop: Monopoly on Weather?

They call it “cloud-seeding.” It’s a process by which clouds are injected with a chemical to induce rain. It sounds a little like science fiction, but it’s happening in California—where droughts are deadly—and in other states across the nation. As scientific weather modification becomes more common and weather contractors are brought in to induce climate change, we have to wonder: Might there one day be a monopoly on weather?

It is hard to imagine a commodity more in demand than the weather. Imagine a world where you could literally place an order for rain. The science known as “geoengineering” is an intentional, methodical intervention into the Earth’s natural climate system in order to bring about and counteract climate change. Cloud seeding has been used in Los Angeles County to battle the environmentally disastrous repercussions of drought, inducing much-needed rainfall. As a result, an approximate 15% increase rainfall has been estimated.

So how do companies hired to help with drought conditions literally “make it rain?” They use generators to shoot silver iodide into the clouds to produce more rain. It’s interesting to imagine the experiments conducted to test that model. However, many patents have been filed for weather modification systems of numerous varieties. If there are companies that know how to make it rain, you have to believe there are companies that know how to make it stop. Where rain might be needed to counteract detrimentally dry conditions in one region, like drought in California, dry conditions might equally be needed in another region to prevent damage caused by over-saturation—like flash flooding in Texas. Just as drought causes depletion of water reserves and spoilage of crops, too much rain can lead to excessive erosion, landslides, and sinkholes. Can weather contractors stop that as well? You bet – by seeding clouds with polymers that absorb aqueous solutions. You see, there’s an answer for everything.

These weather-defying acts are not without consequences, however. Study findings and weather contractors concur: rain inducement in one particular area can affect other areas in downwind regions. In other words, rain here may mean drought there. Flood-prevention here, may mean sinkholes and landslides elsewhere. Once you start tinkering with nature, the ripple effects are almost unpredictable. It would seem fiddling with the clouds in one area would require monitoring and likely more fiddling in neighboring regions. This is where we saw a potential weather conglomerate development. If it is possible to control all aspects, it could be possible for one conglomerate corporation to control weather everywhere. They might even create business by drumming up a drought in order to induce more orders for rain. Without competition, the sky is literally the limit as to what the Waldorf of Weather could charge for just one summer sprinkle. Then think about the military uses. Creating fog or heavy cloud cover over certain foreign regions to shield drones, heavy rains and winds over enemy campsites to prevent an invasion. Like many companies that now boast world market domination, initial growth for weather contractors might be spawned by the most profitable occurrence for most manufacturers of military-use products: a war.

While this type of growth may seem like pure speculation, cloud-seeding is happening now. Companies are being hired to both induce and stop rain, with the incumbent legal ramifications that must follow. We predict a growing need for geo engineering experts, as well as law firms to draft weather modification contracts, represent weather contractors in adverse weather liability suits, as well as ensure fair competition among the weather contractors.

ARTICLE BY Annie Dike of IMS ExpertServices

Are Your Anti-Harassment Initiatives Working? EEOC Says NO

It has been thirty years since the U.S. Supreme Court ruled that workplace harassment was a form of discrimination prohibited by Title VII of the Civil Rights Act of 1964. In a series of court and agency decisions since that time, we have been provided some guidance on what the courts and the EEOC expect employers to do in order to protect their employees from unlawful harassment, but never has the guidance been more clear than in a report the EEOC released in June.

The report is the result of an EEOC task force charged with examining workplace harassment and methods for preventing and addressing it. The report is clear – it’s time for a reboot of workplace harassment prevention and compliance initiatives. The report is rich with statistics and examples, and worth a read for the list of 12 harassment risk factors and recommendations. Pay particular attention to the section on training. The report unequivocally states: training should be conducted by qualified, live, and interactive trainers. In addition, the EEOC advises what we have long believed to be the case: in order to be effective, anti-harassment training should be delivered “live” with the top level of leadership present and participating.

So, we encourage you to take pause and inventory your anti-harassment initiatives. Is your current program effective and are your training dollars well-spent?

You can find a copy of the EEOC’s report here.

ARTICLE BY Christine McLaughlin of Godfrey & Kahn S.C.

Pokémon Go in the Workplace: Oh Look There’s a Pikachu!

Did you know that the world is now inhabited by creatures called Pokémon? (Or maybe they’ve always been there?) Some run across the plains; others fly through the skies; and some live in the mountains….and some, yes, some, are located right in your workplace.

Through the magic of downloading Pokémon Go to your smartphone, you too can see these creatures and catch them for some apparently critical scientific testing.

Employers not familiar with Pikachu, Charizard, and Lucario can rest assured – your employees are. In less than one week,Pokémon Go became the most downloaded smartphone videogame ever, and employers are clamoring for advice on how to deal with a workforce that already seems sufficiently and consistently distracted.

While employers may be used to seeing brief levels of high distraction during community events like March Madness, uncertainly surrounds this new obsession. And an obsession it seems to be: sometimes when you look around Manhattan, you think you are in the least threatening version of the Walking Dead. We even heard that someone just opened the first ever Pokémon-friendly hotel in Australia! And this may only be the beginning as “augmented reality”-based gaming technology will likely improve in the coming years.

So what should employers do in response?

The first thing we’d say is to keep some perspective. Before you do anything else, make a judgment call over whether you think the Pokémon Go craze will be short-lived – just a temporary blip on the employee-distraction radar, and if you think it will be, consider whether your planned reaction would really amount to an overreaction. Remember: everyone could not get enough of Angry Birds, Words with Friends, and Candy Crush. Is this just more of that? If so, perhaps a quick and friendly preemptive reminder to employees that working time does not mean training your Bulbasaur to fight a Charmelon. But if you think this is something different; something more serious, then a stronger communication/directive or an outright workplace ban may be in order.

The second thing we’d say is to consider converting this into an employee engagement opportunity. Determine whether embracing this latest fad rather than suppressing it will pay morale boosting dividends. There may be tremendous team-building and social engagement opportunities available, given the game’s team-based format. Further (and we never thought we’d write something like the following, but), consider whether incentivizing your employees to search for imaginary monsters is an effective employee wellness activity. (See: a more creative version of paying someone to walk 10,000 steps a day.)

Third, remind employees to play safely. This picture says it all. People are playing Pokémon Go while driving, and two men even fell off a 90-foot cliff in San Diego searching for Pokémon! The humorous and not-so-humorous Pokémon-related accident examples grow by the day. There have even been reports of employees leaning out of windows to get better reception and chasing Pokémon critters and nearly falling downstairs. And problems can and often will arise when employees encroach on another employee’s work space or enter dangerous workplace areas while playing. Employers therefore, should consider prohibiting their employees from playing the game on company premises or at least restrict it to certain areas and to certain times.

And the risk of an accident becomes even greater when employees operate company vehicles. Employers should remind employees that while the game creates an augmented reality, they live in plain old regular reality, so if they see an ultra-rare Articuno Pokemon in the center lane of the 405, ignore it and keep driving. At the same time, it’s not just the game-playing employee who creates the danger; often times, it is the game-playing civilian. So tell employees, like your delivery drivers, to be on the lookout for individuals not paying attention to their surroundings as they cross streets even if it seems ridiculously obvious that they should know this already.

Lastly, remind employees about your electronic use policies’ application toPokémon Go (or scramble to put some in place)! Within certain parameters, employers have widespread discretion to monitor employees’ internet use on employer-provided computers and devices, to track employees’ data usage on the company’s purchased bandwidth, and to block certain websites and traffic patterns. And this is no different when it comes to using employer-provided mobile devices where employees play Pokémon Go, or when employees are playing Pokémon Go in workplaces on work time. Employers therefore, should seize this opportunity to review existing acceptable use policies to ensure that the risks posed by this “phenomenon” are specifically addressed – and if your company does not have an electronic use or acceptable use policy, this is absolutely the time to get one in place. Some of the more immediate risks (beyond the loss of productivity) that should be addressed, include the following:

If using company-owned devices, a download of this app or any related app should be prohibited. Some of the Pokémon Go-related applications have been proven to contain malware and depending what is on the device, this may be creating a potential data leak (or even data breach) situation.
Depending on where employees might be wandering, they are recording what they see while playing Pokémon Go, and could create privacy issues or even create data breaches that may be reportable.
Registration using a company-provided email address should be prohibited. Collection of email addresses ofPokémon Go players have been reported to have been used in “phishing” involving the game and could put company information at risk.

Conclusion

In an age where technological innovation can negatively affect productivity by making it easier for employees to indulge in frivolous distractions (not to mention impact the overall quality of the labor pool when employers mistakenly hire candidates who have merely wandered into an interview in pursuit of an Ivysaur), employers can sometimes overlook the benefits of a tech-savvy workforce and the technology they have at their disposal. While employers should take steps to limit the employee distraction, safety, data breach and privacy-related concerns associated with Pokémon Go, they should also recognize the potential employee engagement opportunity that this novel game presents.

ARTICLE BY Michael S. Arnold, Cynthia J. Larose & Brent Douglas of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Celebrities And Snapchat Feuds: Are Recording Phonecalls Legal?

ARTICLE BY Kevin A. Falkenstein of Stark & Stark
COPYRIGHT © 2016, STARK & STARK

Telecommunication Leases: Battle Over Subleasing Rights

Telecommunication leases can be a unique animal due to the nature of the tenant’s use and business model. In negotiating these leases, the parties can run into difficulties negotiating the subleasing rights. Landlords are typically reluctant to agree to a tenant’s ability to freely assign or transfer. In the context of telecom leases, however, it may be worthwhile to consider why these rights, particularly subleasing, are so valuable to tenants and may even be beneficial to landlords.

The Business Model

Several tower companies act as operators and managers of the telecom infrastructure, in other words the “cell tower”, and are often not wireless carriers themselves. Therefore, for these tenants the ability to freely sublease becomes integral to the success of their business, the value of the tower, and the landlord’s ability to reap the benefits. The reason being is that carriers, both nationally recognized like Verizon and AT&T and smaller companies such as a local radio station, seek to sublease space on the tower for which to locate their telecom, wireless or broadcast equipment for the operation of their business. Unlike the standard sublease, the original tenant typically remains an active party, facilitating the operation and management of the tower as permitted under the lease. In this model, the carrier pays rent to the tenant under the sublease of the lease, and the landlord typically receives a base rent and often times a revenue share of the carrier rent or flat fee per carrier as additional rent from the tenant.

The Valuation of Tower Sites

The most desirable towers, aside from location, are those on which carriers can most efficiently install their equipment and become operable. Carriers don’t want to be held up while the tenant obtains written consent for the sublease from the landlord; when they want to locate, they want to locate immediately. Time is money! Carriers don’t want to worry if consent cannot be obtained for weeks or more because it got lost in the mail or the landlord is on vacation. Instead, the carrier may look for a different tower to locate on altogether eliminating both the tenant’s and landlord’s ability to benefit. Therefore, these desirable towers often become the most valuable since they sublease to multiple carriers. The benefit to the landlord is sustained lease term and base rent, since most telecom leases allow the tenant a unilateral termination right of some sort, and in addition, larger amount of revenue share payments or flat rate payments.

From a landlord’s perspective, however, landlords want to give careful consideration to the effect of such expansion rights, particularly on roof top towers as this expansion may undercut your ability to further lease other roof top space to other telecom users. Roof top agreements have become beneficial sources of revenue for building owners and a landlord will want to ensure that its roof top agreements provide the ability to manage and preserve these revenue rights, and of course roof top space for building’s tenants and occupants.

Subleasing Language

Does this mean a landlord should agree to free subleasing without conditions? Not necessarily. What it means is landlords should consider the impact that the ease of doing business on their tower will have on its attractiveness to carriers. Instead of requiring “prior written consent”, as an alternative, a landlord could seek “prior notice” or “notice” or even a “deemed consent” concept after “flag” notice and a brief period of time. In this alternative, the carriers are able to locate easily and quickly, yet the landlord is still aware of the additional carrier on the tower. Moreover, the landlord’s awareness of how many carriers are on the tower can be useful when it comes time to renegotiate the lease; with an understanding of the value of the tower based on the amount of subtenants present, the landlord may be able to negotiate a higher rent. With easier subleasing rights, it is important that the lease contain adequate installation and alteration provisions (along with insurance and indemnity provisions) to protect the building and its infrastructure and other tenants and occupants. Moreover, with these more liberal subleasing rights, revenue sharing should be investigated.

Consideration and Potential Benefits for Landlords

Landlord considerations to subleasing:

Less restrictions on subleasing is more attractive to the potential carrier/sublessee of the tenant;
More carriers increase the value of the tower benefiting the landlord’s ability to receive ongoing base rent, and an increase in revenue share or flat rates per carrier received;
“Notice” versus “consent” can be a satisfactory alternative to both parties, and one that still provides the landlord with knowledge of how many carriers are on the tower and ultimately how valuable it may be when negotiating rent in the future.

While each party will inevitably push and pull in different directions on the issue of subleasing, from a landlord’s perspective it may be worthwhile to consider why the tenant may be seeking these rights and how the landlord stands to benefit.

ARTICLE BY Samantha A. O’Malley of Sherin and Lodgen LLP

Chicago Adopts Paid Sick Leave Following Burgeoning National Trend

Late last month, the Chicago City Council unanimously approved a new paid sick leave ordinance requiring virtually every employer in the city to provide at least some paid time off to employees for sick leave purposes. Cook County’s Board of Commissioners is expected to approve a similar ordinance later this year. Chicago is not setting any trends by doing so — it is only the latest example of a nationwide trend to mandate that employers provide paid time off to employees to care for themselves or their families — a trend certain to continue and expand.

Although there is currently a patchwork of rules and regulations regarding paid sick leave across the country, Chicago’s ordinance is a fair representative of similar requirements in other states and municipalities. The ordinance, which will become effective on July 1, 2017, covers any employee based in and/or working inside Chicago’s city limits who works 80 or more hours within a 120-day period — essentially anyone taking home a paycheck on a regular basis. Employers must provide these workers the right to accrue and use up to five paid sick days (or 40 hours) per year, earned at a minimum rate of one hour for every 40 hours worked.

Further, workers must be allowed to roll over up to two and a half days (20 hours) of unused sick leave into the subsequent year — but employers can cap the total accrual amount at 40 hours, if they desire. Accrual of paid sick leave must begin on an employee’s first day of employment (or July 1, 2017, for existing employees — whichever is later), and accrual and use requirements are then measured from that date going forward. Employers may, however, restrict new employees’ use of paid sick leave until after they complete six full months of continuous employment.

Importantly, the Chicago ordinance does not require that employers create a separate paid sick leave scheme if they already maintain a general undifferentiated Paid Time Off (PTO) policy that meets or exceeds the required accrual rates. For example, if an employer maintains a PTO policy that provides accrual of PTO at a rate of two hours for every 40 hours worked, capping the total number of PTO days at 15, then the PTO policy exceeds the requirements. However, if PTO accrues at a rate slower than one hour for every 40 hours worked, the policy will need to be revised to meet the minimum requirements.

Sick leave may be used by employees to care for themselves or their families when they are sick, to receive medical care, including treatment, diagnosis, or preventive care, and if the employee or family member is the victim of domestic violence or sexual abuse. Employers must also give employees the ability to use their accrued sick time if the employer, or the employee’s children’s schools, are closed because of a public health emergency.

There are additional nuances to the law, some of which vary, depending on a particular workforce, including interplay with the Family and Medical Leave Act (FMLA) calculation of sick pay for tipped workers, and waiver of sick leave requirements in a collective bargaining agreement. Also, just as employers with PTO policies will want to ensure theirs is up to snuff in light of these new rules, employers without a PTO policy may want to consider adopting one to simplify their time-off benefit administration. As a result of these and other issues and trends across the country, employers should consult with counsel to ensure they are meeting or exceeding the minimum sick leave requirements in their places of work.

ARTICLE BY Bennett L. Epstein, John L Litchfield & Christopher G. Ward of Foley & Lardner LLP

To Be or Not To Be an Uber Employee: That Is [and will Remain] the Question

Federal judge probes deep on Uber’s proposed deal with drivers in 2 states as drivers in the other 48 sue, yet ride-sharing giant appears set to avoid trial on merits of misclassification issue

If you are waiting for an answer to the question of how workers in the “gig economy” should properly be classified, you probably should not hold your breath.

As the ride-sharing tech company Uber has grown into a megacorporation, on-demand workers have kept up a steady pace of lawsuits against it (and against its competitor, Lyft) on the theory that they are employees misclassified as independent contractors. While there is disagreement among courts, agencies, legal scholars and practitioners on the issue, most might agree on one thing: the traditional framework of employee vs. independent contractor does not account for today’s new tech-driven gig economy. Neither classification is a good fit for work performed on demand through a smartphone app that controls price and other operating standards. Yet a new, more fitting worker classification from Congress is highly unlikely. In effect, classifying workers in the gig economy will continue to present a legal quagmire for years to come.

From Uber and Lyft’s perspective, a legal quagmire (i.e., the status quo) appears to be the preferred course. After all, despite high litigation costs, the company has grown exponentially in recent years, expanding into 449 cities since it officially launched in 2011 and amassing a value most recently estimated at $68 billion. This success is attributable in part to Uber’s lucrative business model. The company avoids the costs of an employment relationship with millions of drivers while profiting from the service they provide via its smartphone app. It connects supply with demand (i.e., people who need rides) by providing a hassle-free platform for the transaction to take place. And by setting the price and imposing other usage requirements and “suggestions” for drivers using its app, Uber has developed a relatively uniform and reliable standard of service that has built brand trust from customers. On the flip side, it offers a relatively flexible means for almost anyone with a driver’s license and a car to earn additional income.

To maintain this advantageous operating model, Uber is trying to keep the misclassification issue from going to a jury. This means settling two class actions with some 385,000 California and Massachusetts drivers involving claims for business expenses and gratuities. Its proposed $100 million settlement to resolve both actions has been pending before the federal court in the Northern District of California since late April 2016. The court recently sent the parties scrambling to provide additional information which the court said it needs to determine whether the settlement is fair. To pre-approve the deal, the court has to conclude it is fair to all unnamed class members—i.e., all drivers in California and Massachusetts who have used the app since August 16, 2009. The court noted that a more probing inquiry is warranted here because the settlement seeks to (1) apply to drivers previously excluded from the class and (2) encompass claims not previously asserted in the case, but asserted and still pending in other lawsuits.

Under the settlement agreement, Uber would provide monetary and non-monetary relief, but it would not reclassify drivers. Specifically, Uber would pay out $84 million, and an additional $16 million if Uber’s future value (at its initial public offering) reaches 1.5 times its most recent valuation. Of the $84 million, $8.7 million would be taxable as wages. After shaving off sums for class administration, attorneys’ fees, and to compensate the named and contributing class members, the remaining fund would be split, with $5.5-$6 million going to Massachusetts drivers and $56-$66.9 million to California drivers. Drivers who drove the most would receive a few thousand dollars payout, while most drivers would receive a few hundred.

The settlement would not resolve the ultimate issue of whether Uber drivers are employees or independent contractors. Rather, it would allow Uber to continue operating in its current business model treating drivers as independent contractors. Yet at the same time, the settlement includes certain operational changes that would provide drivers with more job security than most at-will employees enjoy. For one, Uber agreed to write a comprehensive deactivation policy whereby it would only deactivate drivers from the app for sufficient cause, and it would share this list of reasons with drivers. Uber would also provide drivers with at least two advance warnings before they are deactivated from the app, with certain exceptions such as if a driver engages in illegal conduct. Uber also promises to provide the reason(s) for deactivation and develop an appeals process for drivers who believe they have been deactivated unfairly. Further, Uber agreed to recognize and fund a “drivers’ association” to enable dialogue between the company and its drivers. Uber also agreed to other measures such as providing more information about its rating system and making clear to customers that tips are not included in its fare price.

If the court denies approval of the settlement, this would be a major blow to the ride-sharing company. In the current proceedings, it would require Uber to offer more, else go to trial. The court’s refusal to approve this deal would also set a precedent for courts in subsequent class actions against Uber, such as one recently filed in Illinois federal court, where other judges may be inclined to take a similar approach to any proposed deal with other classes of drivers. Further, a finding that the proposed deal is not fair to unnamed class-members could embolden more drivers to sue and could tilt the scales in future settlement negotiations with other plaintiffs.

Even if the court in California approves this deal, Uber has a long road ahead. While this settlement may provide a temporary stopgap in California and Massachusetts, it creates an incentive for drivers elsewhere to sue. Less than two weeks after Uber proposed this $100 million settlement with the two states’ drivers, the company was hit with another putative class action – this time with drivers from the remaining 48 states. The new lawsuit filed in Illinois federal court likewise concerns worker classification and claims for tips, overtime, and expenses.

Meanwhile, Uber’s competitor Lyft recently achieved pre-approval of its settlement with California drivers in the federal class action of Cotter v. Lyft, Inc.—but only after it appeased the judge by increasing the value of the settlement from $12 million to $27 million. In addition to higher payouts for mileage reimbursements and other expenses, the settlement includes operational changes. Similar to Uber, Lyft agreed to changes that give drivers more job security, such as providing a finite list of reasons for a driver’s deactivation. Other changes give drivers more control over when, where, and for whom they drive, which makes the arrangement more reflective of a classic independent contractor relationship. The Uber court cited to Cotter in its recent order, and may continue to measure Uber’s proposed deal against this benchmark.

Uber’s implementation of arbitration clauses in its driver agreements should help it dodge a future of many more large-scale class actions by drivers of every other state. In Maryland and Florida, for example, two other attempted class actions with similar claims against Uber are going to arbitration. Even so, the classification of workers in the gig economy will remain a hot-button issue for the foreseeable future, and Uber seems poised to remain at the center of it.

ARTICLE BY Elizabeth Gotham of Honigman Miller Schwartz and Cohn LLP

The National Law Forum

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