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The National Law Forum - Page 480 of 753 - Legal Updates. Legislative Analysis. Litigation News.

Data Privacy and Data Security; Two Sides of the Same Coin A Conversation with Patrick Manzo, Executive Vice President, Global Customer Service and Chief Privacy Officer of Monster Worldwide, Inc

The National Law Review - Legal Analysis Expertly Written Quickly Found

Cybersecurity is an important issue facing companies and legal departments across the country.  With high profile, and sometimes embarrassing, data breaches dominating news coverage, data security and privacy have become major concerns.  Patrick Manzo, Executive Vice President, Global Customer Service and Chief Privacy Officer of Monster Worldwide, Inc. will be speaking at the Inside Counsel SuperConference on May 12th, 2015 to give insight into these very important issues.  He will speak on a panel entitled: Cybersecurity Regulations: What you Need to Know.

Manzo says, “There is a drumbeat of data security issues permeating both the mainstream and legal press, and while individuals may have different levels of understanding and engagement, I’m sure that awareness of these issues is high.” There are differing perspectives and approaches on the issue– risk management and policy on one end of the spectrum, technical issues on the other–but importantly, the conversation is underway and there is cognizance at companies, at all levels, of the important of these issues.

Manzo believes a discussion of cybersecurity must consider both data security and data privacy.  He defines data security as, simply, knowing where your data is located, and who may access the data. Data privacy is predicated on data security and requires further understanding how personal data is being collected, processed (and by whom), and transferred, and the consistency of these practices with applicable laws, regulations, and the reasonable expectations of the relevant consumers.   Manzo says, “Data security and data privacy are two sides of the same coin, and we trade that coin for consumer trust.”

Since our modern world is so dominated by data, by its collection, its use, and its analysis, both companies and consumers realize that who we share information with and what they do with it is an important issue.  Manzo uses the term “good data hygiene” to describe what consumers and companies should work towards, and how it is both a company and a consumer’s responsibility to be aware of these issues.  Consumers would do well to acquire a basic understanding of what data they’re sharing and with whom, while companies, Manzo says, “need to be responsible stewards of consumers’ personal information.”

Manzo says, “Data security and privacy should be part of the DNA of a company.”

Data security and privacy are clearly not just IT issues anymore, but instead, Manzo says, “extend into all areas of an organization.”  From a company perspective, good data hygiene requires a strong command of data security and a robust privacy program.  Manzo also advocates that companies be transparent with consumers and customers about their data security and privacy practices.  Transparency requires a company to be aware of what data is being collected and from whom, and what is done with that data–who processes the information, if it is not done in house, and where the information is stored or transferred.  Beyond that, a company should have rules and policies in place to protect the information, and should incorporate data security and privacy into employee training, so that all employees are aware of the issues and concerns.

Manzo says, “Transparency allows you to be upfront and clear with consumers.  You can say, here’s what data I collect, here’s how I use and protect your data, and here’s what might happen to that data.”  Consumers, in turn, need to understand the data they are sharing and reasonably evaluate the attendant risks and benefits, and thereby make an informed decision about sharing their information.

However, it is not just between consumers and companies.  Legislation and regulation have a role to play as well.  “The Federal Trade Commission has a significant role to play in data privacy and security issues, and they have raised consumer and industry awareness of the responsibilities that go hand in hand with using personal information,” Manzo says.  Looking forward, legislation and regulation will play a major role in how companies manage data privacy and security. A clearer, more unified set of rules and laws governing data security and privacy practices, as well as breach notifications, likely enacted on the federal level, would be helpful for consumers and companies.

Right now, companies struggle with a patchwork of laws and regulations.  For example, Manzo says, “to respond to a breach, a company must first pull out a matrix of laws and regulations and determine which apply to the situation.  The patchwork of rules creates unnecessary complexity and slows breach response and notification efforts.”  Moving forward, Manzo says, “more unification of breach response and breach notification laws will be a benefit to consumers and industry.”

Our data soaked society is here to stay, and most have accepted that the risks of having our information available is outweighed by the benefits and the convenience it affords.  That said, more understanding, transparency, awareness and clarification can help consumers and companies move forward in this brave, new, information-saturated world.

You can find more information about the Inside Counsel Super Conference here.

ARTICLE BY

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

No One Told John Oliver About the America Invents Act: Last Week Tonight Stuck in 2012

The heady days of 2012 saw “Gangnam Style” dominate the U.S. music charts, Patricia Krentcil rocket to fame as the “New Jersey Tanning Mom,” and the New York Giants win the Super Bowl. That year also is the source of nearly all the statistics John Oliver cited on the April 18, 2015 edition of his HBO program Last Week Tonight during a very humorous but potentially misleading piece about abuses in the patent system.

John Oliver echoes complaints others have raised against the patent system, namely that (A) patent owners that don’t practice their patents shouldn’t be able to assert them; (B) patent owners enforcing their patents are extorting parties, including small businesses and end users, that lack the funds or capability to litigate; and (C) patents, especially software patents, are too vague, resulting in uncertainty as to what products or actions are encompassed. The solution to most of these problems, he posits, is the Innovation Act, H.R. 9, the latest version of which was introduced on February 5, 2015. Seemingly, John Oliver is unaware that the last several years have seen judicial action and legislation that address the costs of patent litigation and the vagueness of software patents. Whether these measures are sufficient without additional legislation is up for debate, but John Oliver’s hypothesis is weakened by his reliance on outdated and largely irrelevant facts and data.

In the interest of making sure that truth isn’t sacrificed for the sake of a few good laughs, the following points are worth noting:

1. Not every patent owner that licenses its patents rather than practicing them is a “patent troll.”

John Oliver, like many comedians and Congressmen, attaches the epithet “patent troll” to a broad class of actors, namely, any patent owner that asserts patents that it does not practice in the course of making something. John Oliver suggests that, because a subset of these actors engages in unfair or deceptive practices, the entire class should pay the price. This is at odds with most notions of fairness, as well as a system of property rights that has served the U.S. economy well since the Eighteenth Century.

Restricting patent rights to practicing entities would exclude some of the most innovative segments of U.S. society: universities, those that lack the capital to manufacture products that practice their patents, and even — famously — Thomas Edison. As the Government Accountability Office (“GAO”) found, “[h]istory is filled with examples of successful inventors who did not develop products based on the technologies they patented.” Perhaps for this reason, in April, the Association of American Universities and the Association of Public and Land-Grant Universities collectively announced their opposition to the Innovation Act legislation recently championed by John Oliver. In an economy as specialized as ours, it makes little sense to require every innovator to be a manufacturer or else risk relinquishing the rights to their innovations. Those that excel at innovation should be entitled to focus on doing so without diverting their attention.

John Oliver’s definition of “troll” would also sweep in financial backers of innovators who may have invested in a company that practiced its patents with the understanding that, even if that company’s business failed, its patent portfolio would have value. That value currently serves as a significant hedge against the substantial risk of investing in new, often unproven technology, and erasing it would inexorably reduce investment in innovation.

In a 2013 report, the GAO reached the conclusion that, when considering patent reform, “the focus on the identity of the litigant … may be misplaced.” Instead, the quality of issued patents was a more relevant concern, according to the GAO. As discussed below, Congress and the courts have taken significant steps to improve patent quality since the statistics John Oliver cites. These measures call into question the need for further legislation.

Any additional legislation, rather than punishing any patent owner that would license but not practice the patents it asserts, should target the behavior to which John Oliver actually objects. In fact, few would rush to the aid of “patent trolls” that send out non-meritorious demand letters to unsophisticated entities in hopes of extracting cost-of-litigation resolutions. But the Innovation Act would not affect these objectionable practices. It is worth noting that other legislation now pending in Congress, such as the Protecting American Talent and Entrepreneurship Act (“PATENT Act”), S.1137, and the Targeting Rogue and Opaque Letters Act (“TROL Act”), H.R. 2045, actually seeks to regulate these behaviors. The PATENT Act would penalize those who “engage in the widespread sending” of demand letters in bad faith, classifying demand letters of that kind as unfair or deceptive acts subject to redress by the Federal Trade Commission. The TROL Act includes similar measures. The Innovation Act, in contrast, would merely wag Congress’s finger at this behavior in lieu of imposing a sanction. While it may be the case that none of the bills pending in Congress go far enough to deter misleading demand letters, the PATENT Act and TROL Act are – unlike the Innovation Act – a first step toward cracking down on the true “patent trolls.”

2. Patent litigation is decreasing, and its costs are overstated.

Fueling John Oliver’s critique of the patent system are statistics that are dated and, in some cases, thoroughly debunked.

For instance, John Oliver claimed that patent litigation was trending upwards, citing various statistics and reports from 2011 and 2012. As discussed throughout this piece, developments since then have materially changed the patent litigation landscape. As a result, the number of infringement lawsuits in 2014 declined 18% from the previous year, according to Lex Machina. This statistic actually understates the true decline in filings. The America Invents Act of 2011 (“AIA”), Public Law 112-29, restricted the circumstances under which a patent asserter could join multiple defendants in one lawsuit. Whereas a given lawsuit before the AIA could have numerous defendants but still account for just a single lawsuit in the statistics that John Oliver cites, in most instances post-AIA, each defendant must be named in its own complaint. As a result, a much more accurate measure of the real amount of patent litigation today is the number of defendants sued:

Source: Lex Machina.

By this measure, it is clear that, since a peak in 2012, the volume of patent litigation has decreased significantly. It also seems that the rate of decrease is accelerating.

Moreover, the statistics John Oliver cites about the cost of patent litigation are misleading. He relies upon the 2011 study “Private & Social Costs of Patent Trolls,” by Bessen, Ford, and Meurer, for the proposition that lawsuits by non-practicing entities (“NPEs”) cost “investors half a trillion dollars” over twenty years. Serious questions have been raised in peer-reviewed journals and trade publications alike about the reliability of this study and these authors’ successive articles on this subject. For instance, three-fourths of the cost the study attributes to litigation come from licensing fees. Many would argue that this simply reflects practicing entities paying appropriately to avail themselves of patented innovations.

3. With the America Invents Act of 2011, Congress has already taken steps to reduce the cost of patent litigation.

At the least, John Oliver’s complaints about the cost of patent litigation are less pressing today given legislation implemented since the 2012 statistics he cites. For several reasons, including a concern for the cost of patent litigation, the America Invents Act of 2011 (“AIA”), Public Law 112-29, established inter partes review (“IPR”). Under this procedure, a petitioner (who may or may not be a defendant in an infringement action) can challenge the validity of a patent at the Patent Trial and Appeal Board of the U.S. Patent & Trademark Office (“PTAB”). IPRs proceed separately from any infringement action; in fact, lawsuits involving patents in pending IPRs are frequently stayed pending resolution of the IPR. The cost to litigate the validity of a patent in an IPR proceeding is far less than the cost of litigating in district court. By some estimates, attorney fees for a petitioner to take an IPR through completion can be as low as $200,000 , versus fees in district court estimated by AIPLA to run up to $3.6 million through discovery and $5.9 million in total.

Petitioners have achieved great success challenging patents in IPR proceedings. In the first two years of the procedure’s existence, the PTAB issued decisions on patentability in 66 IPR proceedings. Of these proceedings, there were six in which all claims — 148 claims in total — were deemed patentable, 10 cases in which only some claims were found patentable, and 50 cases in which all claims were found unpatentable. In other words, once an IPR was instituted, PTAB found all challenged claims unpatentable 73% of the time. 

McNamara and Driscoll, “Inter Partes Review Initial Filings of Paramount Importance: What Is Clear After Two Years of Inter Partes Review Under the AIA” (Oct. 21, 2014).

4. The Supreme Court has also recently addressed the costs of litigation.

Like Congress, the Supreme Court has recently taken measures that reduce the costs to defend against non-meritorious infringement allegations. Under 35 U.S.C. § 285, a district court may award attorney’s fees in patent litigation upon a finding that a case is “exceptional.” In Octane Fitness, LLC v. Icon Health & Fitness, the Court rejected the Federal Circuit test for “exceptional case,” which required a finding either of litigation-related misconduct that rose to the level of sanctionable offense or that the litigation was both “brought in subjective bad faith” and “objectively baseless.” Instead, the Court held, whether any given case is “exceptional” under the statute requires “case-by-case exercise of [the district courts’] discretion, considering the totality of the circumstances.”

This new framework has resulted in a marked change in the number of fee awards in patent litigation. In 2012, parties in district court patent matters moved for attorneys’ fees 124 times, prevailing at least in part 35% of the time. By 2014, the number of such motions had increased by 66%, to 206. These motions were granted at a similar rate — 37% — to the 2012 motions, resulting in an 85% increase in the number of granted motions for fees over this two-year span.

Source: DocketNavigator

5. The Supreme Court addressed vague software patents as well.

The Supreme Court’s 2014 opinion in Alice Corp. v. CLS Bank International struck a blow against what John Oliver decried as “vague software patents.” There, the Court clarified the requirements for subject-matter eligibility for patent protection under 35 U.S.C. § 101 and stressed that abstract ideas implemented using generic computers or components — the sort of vague claim language to which John Oliver objects — are not patentable.

Parties have used Alice potently and with increased frequency to challenge the validity of vague software patents. Nationwide, calendar year 2014 saw 50 challenges to the subject-matter eligibility of patents, more than double the number from the preceding year.

 

Source: DocketNavigator

Conclusion

Though entertaining, John Oliver’s April 18, 2015 critique about patent system abuse rests on stale, discredited statistics. He ignored legislative and judicial measures implemented in the past several years geared at ameliorating the bulk of the problems he identified. Based on data from the past several years, these efforts appear to have reduced or even eliminated the need for further patent reform. Of course, given that John Oliver launched his HBO program Last Week Tonight with a series of very funny advertisements apologizing for not getting to the week’s news immediately, perhaps it is understandable that he is only now getting to issues in the patent system from 2012.

Article By Michael T. Renaud, Jack C. Schecter,Robert J. Moore of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
©1994-2015 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Should There be a Legislative Solution to Disputed Indian Trust Applications?

Recent actions in Arizona and Indiana suggest that there is a new approach to local government opposition to Indian tribal applications for trust status of newly acquired land. The question has to be whether this is sound Indian Law policy, although the follow-up question seems to be whether the proponents even care.

The most shocking proposal is being sponsored by Arizona’s Senior Senator John McCain and Congressman Trent Franks to repeal a federal law enacted long ago as part of a land settlement negotiated with the Tohono O’odham Nation of Arizona. Specifically, the Tribe entered into an agreement with the federal government pursuant to which the Tribe would be compensated for the flooding of tribal reservation land with both cash and the right to construct a casino in the state on land not otherwise restricted for such a project.

The history of this dispute was summarized by Tribal Chairman Ned Norris, Jr. before the House of Representatives in 2013 as follows:

In 1986 the United States made a promise to the Tohono O’odham Nation when Congress enacted land and water rights settlement legislation, the Gila Bend Indian Reservation Lands Replacement Act, Pub. L. 99-503 (Lands Replacement Act) – legislation that the Department of the Interior has described as “akin to a treaty.” Tohono O’odham Nation v. Acting Phoenix Area Director, Bureau of Indian Affairs, 22 IBIA 220, 233 (1992). This settlement legislation was intended to compensate the Nation for the Army Corps of Engineers’ unauthorized destruction of the Nation’s Gila Bend Indian Reservation. Among other things, the United States promised in that settlement legislation that the Nation could acquire new reservation land in Maricopa County to replace its destroyed Gila Bend Reservation land (which also was located in Maricopa County). The United States also promised that the new land would be treated as a reservation for all purposes.

Following enactment of that federal law, the Tribe has moved forward to develop a resort/casino on newly acquired land on unincorporated land within Maricopa County in the Glendale-Phoenix area – commonly referred to as the “Glendale Project.” It has been opposed with multiple lawsuits filed by the State, local governments and even other Indian tribes.

The Tohono O’odham Nation has prevailed in every judicial determination rendered and is now constructing its resort/casino project. But there is new Congressional activity to prohibit the project and – in the process – change federal law for the sole purpose of stopping this single tribal project by unilaterally repealing critical parts of the Congressional Act settling an important dispute over federal flooding of tribal reservation lands.

The McCain-Franks bill has been favorably reported out of the relevant committees in the both the Senate and the House of Representatives. The legislation is not of general application; rather, it is written for the sole purpose of blocking the Glendale Project.

Indian gaming is conducted pursuant to a 1987 Supreme Court decision which led to enactment of the Indian Gaming Regulatory Act of October 17, 1988 (“IGRA”). Since that time, many local governments and citizen groups have opposed tribal gaming development on lands newly acquired in trust status. Those challenges properly have been grounded on the very clear requirements of IGRA which impose subjective standards for review and decision. To this end, the challenges to Glendale Project under applicable federal laws – including both IGRA and the Indian Reorganization Act of June 18, 1934 – have been unsuccessful. By all legal assessments, the Tribe is clearly within the law.

However, the Tribe is subject to Congressional action since the Indian Commerce Clause of the United States Constitution gives Congress plenary power over Indian affairs. And this legal fact is the foundation of the McCain-Franks assault on the project. Thus, what should be a dispute determined on the basis of existing law suddenly becomes a battle over whether Congress should legislate a final resolution in contradiction to existing law.

Let there be no doubt about the fact that Congress can terminate the Glendale Project, but the real question is whether it should do so through enactment of a dangerous precedent which likely would lead to other state Congressional delegations seeking “killer” federal legislation. And, the better question is whether this result is either necessary or advisable.

First, the Tohono O’odham situation is unique, in that the Tribe is pursuing an economic opportunity that is specifically tied to provisions of a federal land settlement statute. Reversing a key provision of that earlier legislation probably exposes the United States to a major Court of Federal Claims lawsuit for massive financial damages for the uncompensated taking of the tribal claims to the Glendale site that were legislated by the Gila Bend Indian Reservation Lands Replacement Act.

Second, how can this precedent be ignored when local politicians in other states propose similar legislative attacks on tribal projects that also are concededly legal under existing law? Rather than pursue claims on existing law, the door suddenly opens to outright statutory revocation of tribal rights.

And the scenario for the next such claim is coming from Indiana where state politicians are proposing federal legislation to block the Pokagon Band of Potawatomi Indians from expanding its casino empire from its reservation in the northern part of the state to newly acquired lands near South Bend. The tribe proposes to construct a $480 million project on lands that it claims qualify for gaming pursuant to specific provisions of IGRA. Whether the land does or does not quality for gaming has not been determined, but Indiana legislators do not want to take a chance on tribal success. Rather, they want immediate federal legislation blocking this single project without regard to legal or factual merit.

Other local groups are almost certainly watching these developments. If Congress blocks the Glendale Project, then there is no reason why it would not block others without regard to existing law. A political resolution of Indian trust applications would reverse many decades of established law. The precedent needs to be carefully considered.

Authored by Dennis J. Whittlesey  of Dickinson Wright PLLC

© Copyright 2015 Dickinson Wright PLLC

Is ‘Loss of Value’ Insurance Worth The Price For Student-Athletes, Universities??

Disability insurance policies are frequently secured by college football players, especially those who expect to be selected in the early rounds of the NFL draft. These policies are typically secured by the player in one or two forms. One option allows players to secure coverage to protect against “total permanent disability”. Such coverage would only pay the athlete in the event of a catastrophic, career ending injury. Alternative policies can protect the athlete against the potential “loss of value” tied to the player’s projected draft position. This type of insurance coverage provides a player protection in the event his projected draft position drops because of injury. Typically, the policy would make up the difference the projected bonus money and the actual contract amount secured by the player. Unfortunately, ‘loss of value’ insurance policies, may not be as easy to collect on as initially thought.

High-profile players, including 2015 NFL Draft’s No. 1 pick Jameis Winston, have secured the insurance expecting that if an injury causes their draft stock to fall, thus resulting in a lesser contract, they can collect on the policy to recoup some of the lost earnings. Jameis Winston’s premium for “loss of value” insurance was reportedly paid out of the Florida State University’s Student Assistance Fund (SAF). The SAF allows schools to “assist student-athletes in meeting financial needs that arise in conjunction with participation in intercollegiate athletics, enrollment in an academic curriculum or that recognize academic achievement.”

In addition to schools using the NCAA authorized Student Assistance Fund to pay insurance premiums for star athletes, the NCAA issued a waiver after the start of the 2014 football season creating a new avenue for college football players to secure loss of value insurance. While student-athletes had previously been able to secure the loss of value insurance only with their own funds or the use of SAF, purchasing the insurance became easier in October, when the NCAA began granting waivers to student-athletes, allowing them to purchase the insurance by borrowing against their future earnings to secure a loan from an established, accredited commercial lending institution, for the purpose of purchasing loss-of-value insurance. However, despite the increasing popularity of the loss of value insurance, no collegiate student-athlete has been able to collect on a policy, according to ESPN’s Darren Rovell. Former University of Southern California wide receiver Marqise Lee is currently experiencing the challenges of trying to collect on his policy.

Lee, once projected as a first round pick, purchased loss of value insurance in August 2013. He paid a $94,600 premium for $9.6 million in coverage. Lee believed that the coverage protected him if his draft position dropped and he signed a rookie contract worth significantly less than that the projected $9.6 million amount. Lee injured his left knee just two games into the 2013 season. As a result of the injury, Lee’s draft position dropped to the 39th overall pick in the 2014 NFL draft. Ultimately, he signed a contract with the Jacksonville Jaguars for $5.17 million. Lee filed an insurance claim and attempted to collect on the policy, but was unable to do as the insurance company raised a defense that Lee had misled with regard to pertinent medical information. In March 2015, Lee, along with a former USC teammate facing a similar issue, sued the insurance company over their failure to honor the policy.

Lee’s lawsuit highlights the potential challenges of collecting on loss of value policies. While the securing of insurance policies for student-athletes has indeed become a tool for universities to help keep star players remain in school and to temporarily forego the NFL, the possible issues related to collection are apparent. The University of Oregon utilized its SAF to purchase policies for its players, including cornerback Ifo Ekpre-Olomu. Ekpre-Olomu, once projected as a first round pick, likely will attempt to collect on his policy after an ACL injury in December 2014 caused him to fall to the seventh round of the 2015 Draft. The cornerback’s policy, which cost the University of Oregon $40,000, calls for a $3 million payout since Ekpre-Olomu late round selection was well after the coverage threshold of the first picks of the third round of the 2015 Draft.

All athletes that utilize the NCAA waiver to purchase insurance or universities that allocate SAF to purchase loss of value insurance will need to monitor Lee’s lawsuit and Ekpre-Olomu’s attempt to collect on his policy. If student-athletes continue to face difficulties collecting on their policies, both student-athletes and their universities will need to reconsider whether such policies are worth the cost.

Authored by Michael B. Ackerstein  and Gregg E. Clifton of Jackson Lewis P.C.

Jackson Lewis P.C. © 2015

Auto Insurers Again Seek Dismissal of In RE Auto Body Shop Antitrust Litigation

In early March, the auto insurer defendants in the In re Auto Body Shop Antitrust Litigation renewed their motions seeking the dismissal of plaintiffs’ action, this time directed at plaintiffs’ Second Amended Complaint. The insurer defendants urged the Court to dismiss the action with prejudice, maintaining that, despite three attempts, the plaintiff auto body shops have still failed to include sufficient facts to make their claim of conspiracy plausible.

The action, commenced well over a year ago as A&E Auto Body v. 21st Century Centennial Insurance Co. and subsequently transformed into a multidistrict litigation proceeding (In re Auto Body Shop Antitrust Litigation, MDL 2557) after similar cases were filed in a multitude of states, centers upon a claim that many of the leading auto insurers in the country conspired to reduce rates for the repair of damaged vehicles and to steer insureds away from auto repair shops that refused to accept lower reimbursement rates for their services. The cases were consolidated before Judge Gregory Presnell (M.D. Fla.) in late 2014, and in early 2015 Judge Presnell dismissed plaintiffs’ First Amended Complaint, finding that the plaintiffs had failed to plead an antitrust conspiracy with the degree of specificity required under Bell Atlantic v. Twombly, 550 U.S. 544 (2007).

In February, plaintiffs filed their Second Amended Complaint, seeking to cure the deficiencies in the complaint identified in Judge Presnell’s prior rulings. In March, the defendants filed several new motions to dismiss the action. One group of defendants (including State Farm, Allstate, Progressive and 21st Century) maintained that the plaintiffs’ allegations still failed to include sufficient factual support to plead an actionable antitrust conspiracy, which they described as the “crucial question” in the case. Claiming that the plaintiffs’ allegations demonstrated nothing more than “parallel conduct” towards the plaintiffs, not agreement, these defendants renewed their request to have the action dismissed as to them. Another group of defendants (which includes Hartford, Nationwide and Zurich American) went a step further, arguing that the plaintiffs had failed to allege any material facts specifically about them, despite Judge Presnell’s express instruction in his prior dismissal order in January (without prejudice, on that occasion) that plaintiffs provide detailed allegations about each defendant’s involvement in the alleged conspiracy. Finally, one defendant (Old Republic) filed a separate motion not only seeking dismissal, but sanctions as well, based on the claim that the plaintiffs had been put on notice by the Court that particularized allegations as to each defendant’s alleged conduct was required, and that plaintiffs’ failure to include any additional factual support for their claims against Old Republic was sanctionable conduct.

In late March, the plaintiffs filed an “omnibus” response to all of the defendants’ motions, arguing that dismissal of the case at this juncture was not warranted. Asserting that “the Second Amended Complaint complies in every respect with the Court’s [January] Order,” the plaintiffs urged the Court to permit them to proceed into discovery. Specifically, the plaintiffs maintained that the parallel conduct alleged in the Second Amended Complaint constitutes “circumstantial evidence of conspiracy” and that the Supreme Court has never expressly held how many “plus factors” supporting a claim of conspiracy are required to satisfy a plaintiff’s pleading obligations. Plaintiffs contended, therefore, that they are not required to “set out specific facts establishing the time, place or persons involved in the conspiracy” nor are they required to allege an “express agreement.” Instead, they maintained, their allegations of parallel conduct, coupled with their allegations about the defendants’ collective market share, motive to conspire and opportunity to do so are more than sufficient to meet their pleading obligations.

In early April, the auto insurers filed reply briefs responding to the plaintiffs’ contentions. Perhaps most significantly, those defendants that had argued that the Second Amended Complaint still failed to contain any significant allegations about their specific conduct noted that the plaintiffs’ response had failed to refute that assertion in any meaningful way (“Rather than simply admit that they failed to allege anything against the moving defendants under the Sherman Act…plaintiffs point to allegations against the other defendants….” emphasis in original).

The entire set of motions are now before Judge Presnell for consideration, with the defendants urging the Court to take a “three strikes, you’re out” approach to the plaintiffs’ case. Whether Judge Presnell will adopt defendants’ baseball analogy and dismiss the case, with prejudice, as to all or some of the defendants remains to be seen. What is certain is that this matter will continue to be a significant focus of attention for the entire auto insurance industry over the coming months. Stay tuned.

Authored by James M. Burns of Dickinson Wright PLLC

© Copyright 2015 Dickinson Wright PLLC

DaVita Agree to $495 Million Settlement in Alleged Medicare Fraud Lawsuit Filed by Qui Tam Whistleblowers

On Monday, May 4, 2015, DaVita Kidney Care, a division of DaVita Healthcare Partners, Inc. (DaVita), and one of the leading dialysis services providers in the United States, agreed to pay the U.S. Government $450 million for allegedly violating the False Claims Act (FCA) when it continuously discarded good medicine and then billed Medicare and Medicaid for it. DaVita also agreed to pay $45 million for legal fees.

According to the lawsuit filed in 2011 by two former employees of DaVita, between 2003 and 2010, when DaVita administered iron and vitamin supplements such as Zemplar, Vitamin D, and Venofer, vials containing more than what the patients needed were used and the rest was thrown away. For example, if a patient only needed 25 milligrams of medicine, DaVita allegedly used a 100 milligram vial, administered only 25 mg, and tossed the rest in the trash. Although before 2001, this practice was condoned by the National Centers for Disease Control and Prevention (CDC) in order to prevent infectious outbreaks caused by the re-entry of the same vial of medicine, the CDC subsequently changed it policies to outlaw this practice.

This FCA lawsuit alleging that DaVita misused and mishandled of medicine, and overbilled Medicare and Medicaid is not the first such allegation against DaVita, which is not a stranger to FCA lawsuits. In fact, DaVita previously settled two other lawsuits in which it allegedly violated the FCA. In October 2014, DaVita agreed to pay the U.S. Government $350 million for allegedly persuading physicians or physician groups to refer their dialysis patients to DaVita by offering kickbacks for each patient referred. And in 2012, DaVita agreed to pay $55 million to the federal government for overbilling the government for Epogen, an anemia drug. These lawsuits were filed by former employees who decided to come forward as whistleblowers and to help to uncover what they considered to be illegal practices by DaVita. Under the FCA, such whistleblowers can bring what is known as a “qui tam” lawsuit, which is brought by a private citizen to recover money obtained by fraud on the government. As an incentive to bring qui tam lawsuits, the FCA provides that qui whistleblowers receive between 15 and 30 percent of the amount of funds recovered for the government.

Provisions of the FCA make it unlawful for a person or company to defraud governmental programs, such as Medicare or Medicaid.

Posted by the Whistleblower Practice Group at Tycko & Zavareei LLP

© 2015 by Tycko & Zavareei LLP

The Texas Legislature Takes a “Texas Two Step” Approach to Indian Gaming

With new legislation introduced in Texas, it is an appropriate time to examine whether the Texas State Legislature is trying to do something for Indian Gaming or to Indian Gaming. The only certainty is that something is likely to happen! And, like the Texas Two Step, the legislative casino dance changes at the whim of the “leader” – which in this case is the Texas Legislature.

The overriding question is: What is happening here, and why?

For starters, it is important to understand two things: (1) the state’s three federally recognized Indian tribes do not share equal legal status and (2) the Legislature ostensibly has proposed to level the playing field so that all three enjoy an equal gaming opportunity. The three tribes are (1) the Texas Band of Kickapoo Indians in Eagle Pass, which is 143 miles southwest of San Antonio on the Rio Grande River and far from the Gulf Coast, (2) the Ysleta del Sur Pueblo Tribe – also known as the Texas Tigua Tribe, located near El Paso and far from the Gulf Coast, and (3) the Alabama-Coushatta Tribe of Livingston, 74 miles north of Houston and 76 miles northwest of Beaumont, and clearly much closer to the Gulf Coast and the hundreds of thousands of tourists annually traveling to the Gulf. Each of these tribes was recognized by a special Act of Congress.

Kickapoo was recognized by Congress through the Act of January 8, 1983, a federal law which imposed no restrictions on the Tribe’s right to conduct gaming. The Alabama-Coushatta and Texas Tigua Tribes were recognized through the Act of August 18, 1987, which restricted any tribal gaming to gaming activities that are lawful under Texas state law. The distinction between Kickapoo gaming opportunity and that available to the Alabama-Coushatta and Tigua becomes important under both the Texas state laws and, in turn, the federal Indian Gaming Regulatory Act of 1988.

It should be noted that the Alabama-Coushatta opened a casino in 2001 on its Livingston reservation that produced monthly revenues of an estimated $1 million for nine months. A federal court shut it down, and the facility has never reopened. Similarly, the Tigua Tribe operated a casino for a while, but it too was closed by court order. Since then, the Tigua gaming operation has been limited to a “sweepstakes” that the Tribe claims is legal under state law. In the meantime, the Kickapoo Tribe has been operating a Class II gaming facility on its reservation, but the State has refused to negotiate a Class III gaming compact.

The two “have not” tribes are the subject of state legislation that would remedy the situation. This would be accomplished by a bill introduced on March 12 by state representatives for districts in Houston and El Paso purporting to put all three Texas tribes on an equal footing. Indeed, the legislation has been touted in the press as “recognizing the gaming rights of all tribes in Texas.” It would do this by removing the restrictions of the 1987 federal law by extending the same rights to the two tribes recognized by that legislation to the level of rights enjoyed by the Kickapoo under the 1983 federal law. The bill sponsors’ stated intent is to amend the Texas Constitution to allow the Alabama-Coushatta and Tigua to engage in gaming on their tribal lands, and thus putting them on the same footing as the Kickapoo.

Within 24 hours of the introduction of the March 12 legislation, State Representative Joe Deshotel of Beaumont proposed to severely mitigate the pro-tribal benefits from the day-old legislation. The Beaumont politician introduced legislation proposing to authorize nine non-tribal “Las Vegas style” casinos to be located in counties on the Texas Gulf Coast. (As the reader will recognize, the sponsor’s hometown just happens to be in one of the counties that just happens to be on the Gulf Coast.)

The ostensible purpose of the new bill is far from the costs incurred by property owners in those designated counties during violent storms, such as hurricanes. However, its actual effect would be devastating to an Alabama-Coushatta gaming facility located far from the tourism mecca of the Gulf Coast. It is true that the Tigua and Kickapoo would benefit, but they almost certainly would lose destination casino traffic in light of the competing opportunity on the Gulf Coast.

The March 12 legislation looks great on paper. However, it looks much less so in light of the March 13 legislation. Moreover, current activity in the Legislature is even more troubling for tribal gaming. What initially seemed to be a fairly simple resolution is more complicated by recent statements by Texas legislators from Laredo, Houston, and Eagle Pass, as well as statements from anti-gaming lobbyists claiming a “clear majority” of lawmakers opposed to any expansion of gaming “even when times are hard.”

By Dennis J. Whittlesey of Dickinson Wright PLLC

© Copyright 2015 Dickinson Wright PLLC

SAFEs and KISSes Poised to Be the Next Generation of Startup Financing

In late 2013, startup accelerator Y Combinator unveiled its Simple Agreement for Future Equity (“SAFE”) investment instrument as an alternative to convertible debt. While SAFE templates appeared in different varieties, the purported goal was to create a standardized set of basic funding terms between startups and investors while deferring decisions about valuation, liquidation preferences and participation rights until later-stage rounds of financing. In mid-2014, another accelerator, 500 Startups, introduced a competing document, dubbed the Keep It Simple Security (“KISS”). Although investors were initially nervous about accepting either of the new investment forms, these alternatives to conventional notes (“note-alternatives”) have become an increasingly popular tool for investing in early stage companies.

Note-Alternative Securities

Security instruments are contracts where companies take cash or other consideration in exchange for an equity interest in the company. Common stock is the most basic type of security and allows stockholders to manage the company generally on a one-vote-per-share basis. Preferred stock is similar to common stock except it grants its holders additional rights over and above the common shareholders such a preferred treatment at a set price in the event of a liquidation of the company. Options and warrants give their holders the ability to purchaseequity at a fixed price at a specified time in the future.

Unlike equity, convertible debt begins as a loan that the company is contractually obligated to repay, but may convert into equity such as preferred stock upon the occurrence of a specified event or events. Before conversion, convertible debt typically accrues interest and has a maturity date for repayment. As the maturity date for this type of debt approaches, illiquid companies may be faced with the paradoxical choice of renegotiating the instrument, seeking an alternative source of funding, or going out of business.

In a class of their own, note-alternatives are short and flexible security agreements that are designed to be simple to understand, negotiate, and administer. Note-alternatives combine many features of the more traditional types of securities and are designed to give investors and entrepreneurs the benefits of traditional securities while attempting to remove their major frustrations. Note-alternatives are contractual rights to purchase the company’s equity at a future date, similar to warrants, but the conversion price remains undetermined until a later date. Like convertible debt, note-alternatives are a quick and simple way of providing companies with cash in exchange for the promise of future equity. A major difference is that note-alternatives generally do not accrue interest and do not have stated maturity dates.

A note-alternative is an agreement that — when the company raises additional money, is sold or undergoes an IPO — the note-alternative will convert into an amount of preferred stock based on the value of the company as determined in the new round of financing. Although there are variations on the terms, most note-alternative securities convert into a special series of preferred (or “shadow preferred”) that has the same features as the company’s other preferred stock except for its conversion price, liquidation preference, and dividend rate.

A Typical terms that may vary include avaluation cap or anuncapped note alterative, discounts on conversion and the rights of the shadow preferred. Valuation caps and discounts are both pro-investor provisions. A valuation cap sets a maximum conversion price, and a discount gives early investors a percentage discount off of the valuation price.

Pros and Cons for the Company

Note-alternatives are short, simple agreements which makes them more readily understandable to entrepreneurs who are often not experts in law or finance. Note-alternatives typically do not accrue interest or have a maturity date, which reduces the risk of the company facing an insolvency problem. Sales of common stock by the company will not necessarily trigger the note-alternatives to convert, which gives the company added flexibility in its capital structure. Until the note-alternative converts into stock, note-alternative holders typically have no management rights and do not share in any dividends that are paid. But perhaps most importantly, note-alternatives are not treated as debt on the company’s balance sheetNote-alternatives are also likely to receive similar tax treatment as convertible notes, but investors and business owners should consult their tax professional for individualized advice.

Despite their benefits, note-alternatives can also have drawbacks from the company’s point of view. In particular, delaying valuation can be problematic for the company’s founders because note-alternatives with a valuation cap have essentially the same effect as a full ratchet anti-dilution provision and may act as a ceiling to the next financing round. If the company is valued significantly lower in a future financing round than when the note-alternatives were issued, holders of the note-alternatives will be entitled to take a much greater percentage ownership upon converting. It is also unclear whether companies that raise money using note-alternatives would need 409A valuations, which govern certain deferred compensation to paid service providers.

Pros and Cons for the Investor

If a note-alternative includes both a valuation cap and a discount, the company’s founders bear almost all pricing risk stemming from the agreement. If a later financing round is issued at a low price, the note-alternatives will convert into preferred shares based on that lower valuation, adjusted for any applicable discount. But if the later financing round is issued at a higher price, the note-alternatives will convert into preferred shares based on their own valuation cap, not the higher valuation of the financing. Also, because most angels and venture capitalists are in the business of investing and not lending, investors may find psychological appeal in using note-alternatives instead of convertible debt.

However, note-alternatives also have several drawbacks for investors. The note-alternatives typically have no maturity date, so investors are unable to declare a default. Although the underlying purpose of convertible notes is that they will convert to equity, convertible noteholders still have some minimal comfort that they can declare a default if the company fails to raise an equity round of financing or pay off the loans as they come due. Note-alternative holders, on the other hand, have essentially no rights until a financing or sale takes place.

Implications

Note-alternatives are an entirely different type of security instrument, not a mere offshoot from the familiar forms of financing structures, and some investors may see note-alternatives as being too favorable to the company and providing too little protection for themselves. As a result, investors will need to be flexible and willing to learn the nuances of these new instruments if they are to continue using them as a regular part of their investment strategy.

Authored by Stephanie L. Zeppa and Andrew S. Kreider of Sheppard Mullin Richter & Hampton LLP.

Copyright © 2015, Sheppard Mullin Richter & Hampton LLP.

Join Thomson Reuters Legal Executive Institute for their The 5th Annual Law Firm CFO/CIO/COO Forum Early Bird Rate Ends 5-14!

The 5th Annual Law Firm CFO/CIO/COO Forum
Data Privacy, Security & the Globalized Law Firm

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The Thomson Reuters Legal Executive Institute proudly presents the 5th Annual Law Firm CFO/CIO/COO Forum on June 3, 2015 in New York City at the Crowne Plaza Times Square Manhattan.

Our program will address the twin specters of data privacy and cyber security and their impact on US and international law firms in 2015. Delegates will hear from non-legal industry CISOs and world-renowned cyber security experts on emerging threats and innovative strategies affecting modern day law firm operations. Come prepared with questions and ideas as you engage both thought leaders and peers throughout a series of collaborative discussions.

This year’s program highlights include:

  • Enemies at the Gate: Responses to Data Security Threats Across Industries
  • Red Corner: The Rise of Corporate Espionage & the Problem with China
  • From Russia with Love: APT28 and the Soviet Spector
  • Preparing for a Client Security Audit: A Peer-to-Peer Workshop
  • A Briefing on Data Security Concerns in the Cloud and Tablet Technology
  • And more

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Early Bird Discount: Save 15% when you enter CFO15 at checkout for individual registrations.  Expires 05.14.15

Group Discounts: Save 30% on when you register 2 or more delegates, please call 1-800-308-1700

Why You Should Attend

  • This is the only professional conference in existencedevoted to the unique cyber security concerns of law firms.
  • Stay Informed about the current threats to enterprise security at your firm from our elite faculty of thought leaders.
  • Network across industries as we welcome Chief Information Security Officers (CISOs) from numerous sectors to the Forum.
  • Gain Practical Takeaways for adoption at your firm or organization and build powerful connections with the premier thought leaders in the profession.
  • Be prepared to handle any future incidents at the completion of the Forum.
  • Did you know? Many law firm CIOs and security analysts believe that mobile technology and tablet technology will be the primary target of attacks in 2015. Our forum dispenses crucial advice on how to avoid falling prey to such forces.
  • Did you know? Many analysts believe international law firms will easily double their operation and insurance costs in 2015 as a result of increased data security attacks on US and Western businesses. Are you well-versed in the latest threats from Asia, Russia and beyond?
  • Did you know? The 2015 federal regulatory, legislative and enforcement landscape will force many organizations to thoroughly assess their current security infrastructure and comply with myriad new quality controls. Have you done your proper due diligence?

Can Business Owners Get Insurance to Cover Losses from Riots, Vandalism and Civil Unrest?

The recent civil unrest in Baltimore, just like the mayhem that took place in Ferguson, Missouri, last year, is a stark reminder that we live in troubled times. While the events that lead to such occurrences are varied, and the societal issues that influence them can be widely debated, one thing is clear – the damage and destruction left in their wake is devastating. Shops burn, glass storefronts are shattered, inventory is stolen and valuable property is otherwise vandalized. Luckily for business owners both directly and indirectly affected by these unfortunate events, they can and should turn to their business property insurers to cover what, in many instances, can be staggering losses.

First steps for obtaining coverage for losses from riots, vandalism and civil unrest

For any impacted business owner, the first step is to locate and review his or her business property insurance policy. Once the policy has been located, provide notice of any losses promptly. If the policy is written on a defined risk or peril basis, generally the covered risks or perils will include riots, vandalism, civil commotion, looting and malicious mischief. If the policy is written on a broader and more inclusive all-risk or all-peril basis, any risk or peril causing a loss will be a covered event unless otherwise excluded.[1] Provided that the events surrounding the period of civil unrest are covered perils, the policy should provide basic protection for direct physical damage or loss to covered property, as well as resulting business interruption loss and associated extra expense.

Look to coverage extensions that could apply and provide further coverage

In many instances, a business property policy will also contain a host of coverage extensions that can also be extremely valuable sources for recovery. The following is just a brief overview of some of these additional or supplemental coverages potentially available to impacted business owners.

  • Civil Authority Coverage: Coverage under this extension is provided for a business interruption loss due to an order of civil authority that prevents access to an insured location. Thus, if a curfew is imposed or the public is otherwise prevented by authorities from accessing a business area, resulting business interruption and extra expense coverage may be available. Importantly, coverage is not dependent on the policyholder actually sustaining damage to his or her own property. However, coverage under more restrictive policies will be conditioned on the order of civil authority being issued as a direct result of property damage within the vicinity of the insured location. Less restrictive policies will not contain such a condition and will allow for business interruption coverage whenever business is impacted by an order or civil authority regardless of the existence of property damage.
  • Ingress/Egress Coverage: Pursuant to this supplement, business interruption and extra expense coverage is provided when direct physical damage physically prevents ingress to or egress from an insured location. For example, if customers are physically unable to obtain access to a business because of surrounding physical damage – such as downed power lines – business interruption coverage may be available. As with civil authority coverage, actual physical damage to the policyholder’s own property may not be a prerequisite to coverage.
  • Attraction Property Coverage: Yet another example of a business interruption coverage source available even if there is no direct physical damage to an insured location is attraction property coverage. Under this extension, business interruption coverage may be available if locations neither owned nor operated by the policyholder, but which attract business to the policyholder, sustain physical damage. Examples of such attraction properties may include convention centers, sports venues, theme parks, restaurants, theaters and casinos.
  • Accounts Receivable Coverage: In the event that a policyholder sustains physical loss or damage to his or her accounts receivable records – resulting from an event such as a fire – coverage under this grant will generally be available for any shortfall in the collection of the impacted receivables.
  • Protection and Preservation of Property Coverage: In addition to providing coverage for the costs incurred for actions to temporarily protect or preserve insured property in the event of actual or threatened physical loss or damage, this coverage extension may also apply to fire department charges incurred for responding to a fire at an insured location and the costs incurred for restoring and recharging fire protection systems.

Takeaways for obtaining coverage

As stated above, when confronted with a loss, policyholders should be extremely diligent in providing notice to their carriers as soon as possible. Policyholders must also be mindful that their policies likely contain other time sensitive conditions. For example, a policy may contain a requirement that the policyholder provide a sworn proof of loss within 30 days following the loss. The policy may also provide that the policyholder only has a set amount of time in which to bring suit against the carrier for failure to pay a loss. Failure to abide by these conditions may provide the insurer with technical bases to avoid their coverage obligations.

Above all else, policyholders must not forget that the coverage that they purchase is an asset that can and should be called upon to respond in the event of a loss. A detailed review and understanding of that policy asset is necessary to fully maximize the coverage for which valuable premium was paid.

[1] Terrorism can be an excluded peril under some property policies. While the riots our country has recently witnessed would not ordinarily be thought of as terrorist events, policy definitions can be extremely broad. Fortunately, many policies will specifically exclude riots and related activities from their definition of terrorism.

Authored by: Adam K. Hollander of Barnes & Thornburg LLP

© 2015 BARNES & THORNBURG LLP