Tag: Litigation

California AG Leads Attack on Lead in Infant Formula

Fresh off a victory in the CA primary, California Attorney General Xavier Bacerra filed suit on June 7, 2018 against Nutraceutical Corporation of Park City, Utah and Graceleigh, Inc. dba Sammy’s Milk of Newport Beach, CA, alleging violations of California’s Proposition 65 and California’s consumer protection laws.

At issue are Sammy’s Milk Free-Range Goat Milk Toddler Formula, made by Graceleigh, and Peaceful Planet Toddler Supreme Formula, a rice formula made by Nutraceutical. The complaint, filed in Alameda County, CA, alleges that the levels of lead in both products result in exposures above the Provisional Total Tolerable Intake level for lead of 6 micrograms per day (“ug/day”) applicable to children 6 years of age and younger, as set by the U.S. Food and Drug Administration. A statement issued by the AG asserts that State testing showed that the products actually cause lead exposure between 13 and 15 times the maximum allowable dose under California law. The AG’s office also advised that both companies have voluntarily agreed to stop selling the products at issue in California.

Prop 65 Claims

Lead was placed on the Prop 65 list on two occasions: on February 27, 1987 for reproductive toxicity and on October 1, 1992 for cancer.

Nutraceutical said it intends to vigorously contest the suit, which it said lacks merit. The company has reported that its Toddler Supreme protein supplement’s ingredient levels comply with applicable laws and regulations and don’t pose any safety risk to consumers, based on an opinion from a former FDA toxicologist. An issue will be if the levels meet the safe harbor provisions for lead, which would preclude the requirements for a Prop 65 warning. Prop 65 safe harbors do not always align with FDA standards.  The no significant risk level (“safe harbor”) for a cancer warning regarding lead is 15 ug/day (oral exposure). The maximum allowable dose level (“safe harbor”) for a reproductive toxicity warning regarding lead is 0.5 ug/day.

Claims Under CA Consumer Protection Laws

The complaint further alleges that due to the excess levels of lead, the products are adulterated within the meaning of the California Sherman Food, Drug and Cosmetic laws and therefore violates the unlawful prong of CA Bus. & Prof. Code section 17200. The false and misleading statements  of the two companies are alleged to also violate  CA Bus. & Prof. Code sections 17200 and 17500 in the following ways:

  • With respect to Graceleigh, by asserting that its ingredients in Sammy’s milk are “selected for purity” and provide “clean nutrition.”
  • With respect to Nutraceutical, by asserting that its Peaceful Planet product is “CLEAN” and “PURE.”

The State has requested that the court award both injunctive relief and civil penalties (Prop 65 statute calls for $2500 per violation).

We will continue to follow this case and other actions in California related to the continued assault on lead contamination of consumer and children’s products.

 

©1994-2018 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
Read more on California legal updates on our California jurisdiction page.

Needless Gamble: Eleventh Circuit Uses Exceedingly Broad Language to Address Narrow Issue of Arbitration in TCPA Text Suit

In Gamble v. New Eng. Auto Fin., Inc., No. 17-15343, 2018 U.S. App. LEXIS 14608 (11th Cir. May 31, 2018) the Eleventh Circuit upheld denial of arbitration of a TCPA claim involving text messages offering a consumer a new auto finance contract. While the Eleventh Circuit used unnecessarily broad language–discussed below– the holding is actually quite narrow; calls made to offer a consumer a second finance agreement do not arise out of a first finance agreement for arbitration purposes. The panel’s decision to reach this narrow conclusion through the vehicle of broadly-worded analysis might mean trouble for defendants seeking to compel future TCPA cases to arbitration in the Eleventh Circuit, however.

The arbitration clause at issue  in Gamble required arbitration of any “claim, dispute or controversy whether preexisting, present or future, that in any way arises from or relates to this Agreement or the Motor Vehicle securing this Agreement.”  The contract also contained a separate provision with a separate signature line appearing below the signature line for the auto loan agreement relating to consent to receive texts.  This separate provision was not signed by Plaintiff.

Defendant apparently emphasized the unsigned text message consent provision as the crux of its legal position. By offering Plaintiff the right to opt-in to text messages in the contract–the argument goes–the resulting text messages must have arose out of that contract. That’s a terrible argument, of course, and the Eleventh Circuit made short work of it concluding roughly that “no agreement regarding text messages exists between the parties.”

Unfortunately the Court did not stop there–although it could have–and used unnecessarily broad language in passing on the dispute before it. For instance, the Court made the express finding that the Plaintiff’s claim “does not arise from any right implicated by the Loan Agreement nor from the parties contractual relationship.”  While that is undoubtedly true, the reason that is the case is because the texts at issue were unrelated to this contract and pitched a wholly different contract. Yet the Court’s failure to emphasize this critical fact makes it seem as if TCPA cases–which almost never arise from a right implicated in a loan agreement–are per se non-arbitrable.

Complicating matters further, the Court also emphasized, in seemingly gratuitous fashion, that TCPA claims arise “from post-agreement conduct that allegedly violates a separate, distinct federal law.”  Again, this is undoubtedly true, but that is not a predicate basis for denying arbitration–claims related to purported statutory violations are commonly compelled to arbitration, including by the Eleventh Circuit. See generally Walthour v. Chipio Windshield Repair, LLC, 745 F. 3d 1326 (11th Cir. 2014). And texts often arise out of contracts–such as where a consumer goes into default under the terms of a loan agreement resulting in text messages from a servicer seeking to collect. The loose language in Gamble needlessly implies, therefore, that claims related to such text messages are not subject to arbitration merely because the underlying right being enforced is a federal statutory right, rather than a contractual right. That’s an unnecessary–if not dangerous–implication, and surely not one that comports with the Congressionally-mandated policy favoring arbitration.

It remains to be seen exactly what district courts in the Eleventh Circuit do with Gamble, but one thing is for sure– Gamble just made defense efforts to compel arbitration of TCPA cases there a whole lot less certain. Care to roll the dice?

 

Copyright © 2018 Womble Bond Dickinson (US) LLP All Rights Reserved.
This post was written by Eric Troutman of Womble Bond Dickinson (US) LLP.

The Tail of a Dog with Two Hats: Fifth Circuit Upholds “Golden Share” Held by Creditor Affiliate

On May 22, 2018, the United States Court of Appeals for the Fifth Circuit issued its decision in Franchise Services of North America v. United States Trustees (In re Franchise Services of North America), 2018 U.S. App. LEXIS 13332 (5th Cir. May 22, 2018). That decision affirms the lower court’s holding that a “golden share” is valid and necessary to filing when held by a true investor, even if such investor is controlled by a creditor.

The backdrop of mergers and acquisitions leading up to this case need not be retold in detail to understand the holding’s significance, but some context is helpful. Franchise Services of North America, Inc. (“FSNA”), one of North America’s largest car rental companies, filed for chapter 11 bankruptcy without the required consent of its sole holder of preferred stock, Boketo, LLC (“Boketo”). Boketo was a minority shareholder that had invested $15 million in FSNA  making it FSNA’s single largest investor. Boketo is a wholly-owned subsidiary of investment bank Macquarie Capital (U.S.A.) (“Macquarie”), an unsecured creditor of FSNA’s by virtue of an alleged $3 million claim for fees incurred in connection with the aforementioned transactions. When Boketo invested $15 million in FSNA, it required FSNA to re-incorporate in Delaware and add a “golden share” provision to its corporate documents, i.e. Boketo’s affirmative vote of its preferred share was required for certain corporate events, such as filing bankruptcy. Nonetheless, FSNA eventually filed for chapter 11 in the Southern District of Mississippi without seeking Boketo’s consent, fearing that shareholder Boketo—controlled by creditor Macquarie—would not consent to filing.

Macquarie and Boketo filed motions to dismiss the case for a lack of corporate authority under FSNA’s amended corporate charter. In doing so, Macquarie donned two hats—that of a shareholder through Boketo and that of an unsecured creditor with a $3 million claim. FSNA asserted that Macquarie used Boketo as a “wolf in a sheep’s clothing” to equip a creditor with shareholders’ blocking rights under an allegedly unenforceable “blocking provision” or “golden share.” FSNA implied the tail had been wagging the dog—that Macquarie made the $15 million investment through Boketo to avoid the cost and inconvenience of trying to collect some portion of its $3 million claim in FSNA’s bankruptcy. The bankruptcy court denied Macquarie’s motion because case law and public policy forbid a creditor from preventing a debtor’s bankruptcy filing. However, it granted Boketo’s motion, given its status as a voting shareholder. The Fifth Circuit affirmed, and found FSNA’s theory that Macquarie chased $3 million with $15 million “strain[ed] credulity.”

FSNA’s various legal arguments each fell flat. First, FSNA sought a ruling that “blocking provisions” or “golden shares” (similar, but not identical, concepts), in general, are unenforceable under Delaware law. The Fifth Circuit declined to offer such an advisory opinion. Second, FSNA contended that even if Delaware law allowed these types of provisions, federal policy forbids them. This, too, failed to move the court, since the corporate charter did not eliminate FSNA’s ability to file bankruptcy. Instead, it specified which parties’ consent was necessary to authorize a bankruptcy filing, placing the decision with shareholders. Third, because authority to file bankruptcy is a matter of state law, FSNA argued that Boketo could not exercise its blocking right under Delaware law, and that Boketo had owed a fiduciary duty to facilitate the filing. The Fifth Circuit held that Delaware law, flexible by nature, allows a corporate charter to assign rights to shareholders that would ordinarily be assigned to directors/management, but declined to go so far as to determine whether such provision was valid under Delaware law. In addition, the court refuted FSNA’s fiduciary duty argument because only controlling minority shareholders owe fiduciary duties, and here, Boketo was a non-controlling minority shareholder. The court explained that the standard for minority control is a “steep one,” and that courts focus on control of the board—i.e., whether the minority shareholder can exert actual control over the company. While Boketo made a sizeable investment in FSNA, it only had the right to appoint 2 out of 5 directors and therefore could not exert actual control over the board. FSNA pointed to Boketo’s hypothetical ability to prevent bankruptcy as evidence of actual control, but the court distinguished such theoretical control from actual exertion thereof. The court keenly noted that FSNA defeated its own control argument when it filed bankruptcy without Boketo’s consent—if Boketo was a controlling shareholder, then once again the tail must have been wagging the dog.

Franchise Services highlights the potential for a creditor to essentially step into a shareholder’s shoes and assert shareholder rights pursuant to a corporate charter’s blocking provision or “golden share” by virtue of wearing two hats through a parent and subsidiary.

© 2018 Bracewell LLP.

This post was written by Logan Kotler and Jason G. Cohen of Bracewell LLP.

Patent Damages: How Many Essential Features in a Smart Phone?

On March 20, 2018, the public version of Eastern District of Texas Magistrate Judge Roy Payne’s March 7, 2018 order tossing a $75 million jury verdict obtained by Ericsson against TCL Communication was released.  Ericsson Inc., et al, v. TCL Communication Technology Holdings, Ltd., et al, Case No. 2:15-cv-00011-RSP, Doc. No. 460 (redacted memorandum opinion and order) (E.D. Tex. March 7, 2018) (“Order”).  Judge Payne’s order sheds important light on the damages analysis for infringement of patents covering features of smartphone technology and potentially provides lessons to future litigants seeking damages for smartphone innovations.

After a jury verdict finding infringement, Ericsson also won a damages verdict of $75M due to TCL’s ongoing and willful infringement of U.S. Patent No. 7,149,510 (“the ’510 patent”).  Ericsson contended that the ’510 patent covers smartphone functionality that allows a user to grant or deny access to native phone functionality to a third-party application, which is a standard feature in all Android smartphones.  After trial, TCL moved for judgment as a matter of law on infringement and damages, or in the alternative new trials.  Judge Payne indicated that he was going to uphold the infringement verdict, but ordered a new trial on damages.  Order at 1.

Ericsson’s damages case relied on two experts: Dr. Wecker and Mr. Mills.  Dr. Wecker analyzed a consumer survey that attempted to approximate the apportioned value of the patented feature in the accused products.  Mr. Mills determined a royalty rate based both on that apportionment and on a hypothetical negotiation between Ericsson and TCL.  Dr. Wecker determined that 28% of TCL customers would not have purchased a TCL smartphone if the smartphone did not have the patented feature in the ’510 patent.  This would have resulted in a loss of 28% of TCL’s sales and profits.  From this, Mr. Mills determined that the at-risk profit for TCL was $3.42 per device sold by TCL, which is the average profit per device for all accused devices, after a 28% loss rate discount.  Mr. Mills determined that during the hypothetical negotiation Ericsson would have recovered nearly all of the at-risk profit, likely obtaining a rate of $3.41 per device, but in any event would have secured no less than half of the at-risk profits, or $1.72 per product.  These rates would have justified a damages award ranging from $123.6M to $245M for damages across the life of the ’510 patent.  Mr. Mills further determined that the parties would have negotiated a lump sum payment discount for both pre-trial and post-trial infringement rather than a running royalty. Based on this expert testimony, the jury awarded Ericsson a $75M lump sum.

Judge Payne threw out the jury’s award for two reasons.  First, Judge Payne found error in Ericsson’s argument that TCL would have settled up front with a lump sum covering the entire royalty for the projected future sales of 111 million smartphones during the remaining life of the ’510 patent.  According to Judge Payne these products could not be part of the infringement base because they did not exist at the time of trial and could not have been adjudicated to infringe.  These future products could not be part of a damages order.  See Order at 12-14.

But the real meat of Judge Payne’s order is in his other justification for throwing out the damages verdict.  Judge Payne faulted Ericsson for painting the consumers’ choice of whether to buy a TCL phone as a binary decision based on the presence of the accused feature.  Judge Payne noted that the case originally had five patents and consumer surveys were done which noted that if each feature of three of the asserted patents was missing from TCL products, TCL would have lost 64% of its profits due to sales lost due to the absence of those features.  Judge Payne concluded that each of these features individually could not be responsible for a quarter of TCL’s profits per phone, and noted the following:

It is not difficult to see how this lost profit number quickly becomes unrealistic. Subtracting just three features covered by a mere three implementation patents would have allegedly cut TCL’s profit by more than half. The evidence from both sides suggested that there were at least a thousand implementation patents that might cover a TCL phone.  Regardless of the number, there is no dispute that a phone with an Android-operating system has many patented features, and that, according to Dr. Wecker’s survey results, consumers would likely find numerous features essential. According to Mr. Mills, any one of these allegedly essential features could independently be worth more than a quarter of TCL’s profit on the phone. By removing even three additional features covered by an implementation patent, on top of the features allegedly covered by the ’510, ’931, and ’310 patents, TCL would have lost all its profit (conservatively), according to Mr. Mills’ theory.

Order at 10-11 (emphasis added) (internal citations omitted).  Judge Payne faulted Ericsson for not considering that a consumer’s decision to purchase or not purchase a phone would be based on whether numerous features were included, not just the ones covered by the asserted patents, and that Ericsson’s theory would erode all of TCL’s profits.  See Order at 11.  The judge further noted that:

To conclude that any one of these features—simply because it is considered essential to a consumer—could account for as much as a quarter of TCL’s total profit is unreliable and does not consider the facts of the case, particularly the nature of smartphones and the number of patents that cover smartphone features.

Order at 11.  Put simply, Judge Payne found that a single feature could not possibly account for $75M in damages for TCL’s smartphones, particularly in view of the many other features that are subject to patent protection.  Judge Payne noted that both sides agreed that Ericsson possessed potentially at least a thousand patents covering features of TCL phones.  Order at 10.  To Judge Payne, it could not possibly be the case that each of these patents accounted for 25% of the profits made by TCL.

This decision underscores the importance of securing a defensible damages analysis, especially in the context of the multifaceted technology embodied in modern smartphones.  Judge Payne’s concerns in his non-precedential opinion seemed to flow largely from unstated anxiety relating to royalty-stacking that made the logical extrapolation of the experts’ rubric unreasonable and erroneous.  In this context, it will be interesting to see how Ericsson recasts its damages theory in the next round of this litigation. We will continue to follow this case to see the approach, as we fully expect a notice of appeal to the Federal Circuit from Ericsson.

 

©1994-2018 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

A Ruling of Epic Proportions: Supreme Court Upholds Employment Class Action Waivers

On May 21, 2018, the Supreme Court ruled in Epic Systems Corp. v. Lewis that employees can agree to: (1) arbitrate employment disputes; and (2) waive their right to resolve those disputes through class and collective actions. This decision represents an epic victory for employers and may limit an employer’s financial exposure in employment disputes.

In Epic Systems Corp., Epic Systems required its employees to sign an arbitration agreement that included a class and collective action waiver. Employees who signed the agreement thus agreed to resolve their employment disputes through individual arbitration and also waived their right to participate in or receive benefit from any class, collective or representative proceedings.

An Epic employee, Jacob Lewis, signed such an agreement with Epic. After his employment ended and despite the agreement, Lewis filed a class/collective action against Epic, claiming he and other Epic employees had been denied overtime wages in violation of the Fair Labor Standards Act (FLSA) and Wisconsin wage and hour laws.

Epic moved to dismiss the claim and to compel arbitration, citing the arbitration/class waiver agreement. The district court denied Epic’s motions, stating that the waiver was unenforceable because it interfered with employees’ right to engage in “concerted activities” for “mutual aid or protection” under the National Labor Relations Act (NLRA).

On appeal, the Seventh Circuit Court of Appeals agreed with the district court, becoming the first appellate court to agree with the National Labor Relations Board’s (NLRB) 2012 position in D.R. Horton (previously discussed here and here) that such waivers were unenforceable. As a result, employers in Wisconsin, Indiana and Illinois have been bound by this ruling since 2016.

In a 5-4 opinion authored by Justice Neil Gorsuch, the Supreme Court overturned the Seventh Circuit and ruled that the NLRA did not grant employees a right to class or collective actions, nor did the waiver of class rights violate any provision of the NLRA. According to the Court, the NLRA does not address class/collective action issues. Instead, the NLRA focuses on collective bargaining issues. In short, the Court gave its approval to arbitration agreements that require resolution of employment disputes on an individual basis.

Employers who currently use arbitration agreements with their employees should consult with legal counsel to ensure those agreements meet their needs and preferred outcomes. For employers who do not currently use such agreements, the Epic decision provides a perfect opportunity to implement such agreements. Before making changes to existing agreements, relying on such agreements going forward or implementing new agreements, employers should consult with legal counsel to discuss the potential benefits and drawbacks of arbitrating employment disputes. With the Epic decision, however, employers now know for certain that they have class action waivers at their disposal.

 

Copyright © 2018 Godfrey & Kahn S.C.
This post was written by Rufino Gaytán of Godfrey & Kahn S.C.

MURPHY V. NCAA: Supreme Court Update

It’s not every day that a Supreme Court decision gets covered not only in the pages of The New York Times, but also ESPN.com and Sports Illustrated. But Murphy v. NCAA (No. 16-476), which struck down the federal Professional and Amateur Sports Protection Act (PASPA) and opened the door (for now) to legalized sports betting across the country, is no ordinary decision. Beyond green-lighting a potential billion-dollar industry, the Court’s decision breathes new life into the anti-commandeering principle (once a favorite of states-rights conservatives and now suddenly popular on the Left) and highlights a divide among the justices with respect to the severability of unconstitutional statutory provisions. (We’re pretty sure it’s that last part that the sportswriters were interested in.) Because it’s a biggie, we’ll devote this entire missive to summarizing the Murphy decision, but we’ll be back tomorrow with summaries of the other decisions handed down this week.

Enacted in 1992, PASPA was borne out of a growing concern from legislators—most notably star basketballer and New Jersey Senator Bill Bradley—that if the trend of increased gambling extended to sports, it could have detrimental effects on young people and the integrity of the games. The Act made it unlawful for a State “to sponsor, operate, promote, license, or authorize by law or compact” a gambling or wagering scheme based on competitive sporting events. Just in case a State disobeyed, the law also made it unlawful for “a person to sponsor, operate, or promote” any sports-betting scheme pursuant to state law. However, PASPA did not make sports betting itself a crime, and was enforceable only by civil actions, which could be brought by the Attorney General, as well as sports leagues. It also contained a “grandfather” provision, permitting sports betting to continue in four states where it already existed, and it gave New Jersey—which was, at the time, considering proposals to legalize sports books—one year in which to legalize sports betting and benefit from the grandfather clause. But New Jersey dropped the ball on the one-year window. Nevertheless, two decades later the State decided to swing for the fences by enacting a law legalizing sports gambling, notwithstanding PASPA’s prohibition. After the major professional sports leagues and the NCAA successfully enjoined that legislative authorization, New Jersey called an audible and crafted a new law that did not technically authorize sports gambling, but instead repealed the existing state law prohibiting it. The NCAA and leagues sued again and the lower courts called New Jersey’s bluff, concluding that the repeal law violated PASPA in the same way a direct authorization of sports betting would. The State threw down its red challenge flag and the Supreme Court accepted the case for further review.

At the Supreme Court, one of our oldest and most storied legal rivalries was reignited: state vs. federal law. In the leagues’ corner, the well settled doctrine of federal preemption, long a staple of the playbook for arguing that federal law supersedes conflicting state law. On the opposite side, New Jersey placed its chips on the lesser known “anticommandeering” doctrine, which was once used to prevent the Feds from requiring States to enforce federal gun-control legislation and has been more recently touted by “sanctuary city” advocates who argue that States and municipalities are under no obligation to enforce federal immigration laws. Against the odds, the Supreme Court sided rather definitively with New Jersey, with seven justices agreeing that PASPA violated the anticommandeering doctrine, and no justice expressly disagreeing. (The dissenters were more miffed about severability than the Tenth Amendment.)

Writing for a majority including the Chief, Kennedy, Thomas, Kagan, Gorsuch (and mostly Breyer), Justice Alito acknowledged that “the anticommandeering doctrine may sound arcane,” but insisted that “it is simply the expression of a fundamental structural decision incorporated into the Constitution, i.e., the decision to withhold from Congress the power to issue orders directly to the States.” PASPA violates this principle, he concluded, because it “unequivocally dictates what a state legislature may and may not do.” Though the leagues and the United States argued that prohibiting States from enacting legislation is different from compelling them to enact legislation, Justice Alito rejected this argument with a Dikembe Mutumbo finger-wag, noting that the “distinction is empty.” Nor could the preemption doctrine save PASPA. Every form of preemption (express, conflict, field) is based on a federal law that regulates the conduct of private actors, not the States. The PASPA provision prohibiting state authorization of sports betting, on the contrary, “is not a preemption provision because there is no way in which [it] can be understood as a regulation of private actors.” It is, instead, a “direct command to the States,” which “is exactly what the anticommandeering rule does not allow.”

That left the second provision of PASPA, which prohibited “a person” from sponsoring a sports-betting operation, even if authorized by state law. This certainly would qualify as a preemption provision, in that it regulated private conduct, but Alito (now with a slimmer majority) concluded that the rest of the statute could not be severed from the unconstitutional authorization bar, because the provisions were meant to work hand-in-glove. “If Congress had known that the latter provisions would fall, we do not think it would have wanted the former to stand alone.”

It was the severability issue that sparked a volley of separate opinions. Justice Thomas first weighed in with a concurring opinion questioning the constitutional basis for the Court’s severability doctrine, which he considered to be in sharp tension with traditional limits on judicial authority. Because no party had raised the issue, Justice Thomas joined the majority opinion in full, but he called for a review of the severability doctrine was called for in some future case.

The dissenters also focused on severability—so much so that it’s not really clear they dissented from the majority’s anticommandeering holding. Though styled a “dissent,” Justice Ginsburg’s opinion (joined by Sotomayor) did not address the anticommandeering argument at all. Instead, she maintained that, even assuming that PASPA’s anti-authorization prohibition was unconstitutional, there was no reason “to deploy a wrecking ball destroying” the entire statutory scheme. Rather than strike down the entire statute, the dissenters would have severed the offending provision and permitted the rest of the law to effectuate Congress’s intent of “stopping sports-gambling regimes while making it clear that the stoppage is attributable to federal, not state, action.” Justice Breyer joined the opinion “in part,” but wrote separately to clarify that he concurred with the majority’s anticommandeering holding. Although he joined the majority opinion striking down the authorization bar, Breyer (like Ginsburg and Sotomayor) would have allowed the ban on private sponsoring of sports-betting schemes to remain in effect. As he explained, it is perfectly reasonable to assume that Congress intended that provision as an alternative means of achieving its goal of prohibiting the expansion of sports gambling. Because there was no constitutional impediment to its doing so through the private bar, Breyer would have preferred to hand New Jersey a “pyrrhic” victory.

Instead, the Court handed New Jersey—and other states that are betting on betting to shore up their coffers—a big win. That said, with the exception of Justice Thomas, every justice agreed that Congress could achieve its earlier goal of stopping sports betting through a direct ban, under the Commerce Clause. Given the stakes for the losers in Murphy—the NCAA, major sports leagues, and Nevada, among others—odds are good that there will be some serious lobbying for a direct federal ban. In legislation, as in sports, it ain’t over til it’s over.

 

© 1998-2018 Wiggin and Dana LLP
This post was written by Kim E. Rinehart, Tadhg A.J. Dooley and David Roth of Wiggin and Dana LLP.

PTO Releases Revised Guidance on Compliance with Mayo/Alice Rule

On April 19, the USPTO released a Memorandum from Robert Bahr, The Deputy Commissioner for Patent Examination Policy, that summarized the support required for a finding if a claim directed to a judicial exception to s. 101 eligibility under Step 2A of the Mayo/Alice analysis chart of MPEP 2106 – a natural phenomenon, an abstract idea or a product of nature [ ed. note “PAIN’]– contains an additional inventive concept that, taken alone or in combination, would not represent well-understood, routine, or conventional [“WRC”] activity. The Memorandum was prompted by the recent decision in Berkheimer v. HP, 881 F.3d 1360 (Fed. Cir. 2018).

At virtually the same time, Director Iancu released a Request for Comments on Determining Whether a claim element is [WRC] for the Purposes of Subject Matter Eligibility, and it pretty much repeats the factors listed in the Bahr Memorandum. For a detailed summary of the factual underpinnings that an examiner must make in order to support a rejection on the basis that a claim directed to a PAIN does not meet the inventive concept requirement because it is WRC, please refer to my post of April 20th.

I criticized the four factors outlined in the Memorandum/Request for using the s. 112 standard that that which is known to the art need not be set forth fully in the specification, as a blaze mark to guide examiners in determining whether the additional elements(s) in the claim are WRC. In other words, if the specification does not give the details of how to measure a biomarker, the examiner can use such facts to support a WRC finding. This relying on material not present in the specification is repeated in Factors 1, 3 and 4. I also criticized Factor 2 as permitting examiners to simply cite to “one or more court decisions discussed in MPEP 2106(5)(d)(2)” as noting the WRC nature of the additional element(s) in the claim, primarily due to the breadth of the summaries of the cases in this section of the MPEP.

The Revised Guidance in the May 8th Presentation (which is available as a slideshow from the PTO) takes these two criticisms to heart. It drops the reference to the value of a s. 112 analysis in Factors relating to the evidence of WRC provided by the specification, the disclosures in the prior art and the ability of the examiner to take official notice of the WRC, which usually will be based upon disclosures in the prior art.

The Revised Guidelines start out by stating that the examiner should conclude that a claim element(s) represents only WRC activity only if he/she can conclude that the element(s) is “widely prevalent or in common use in the relevant industry,” a conclusion that must be supported by factual determinations. Here is a quick run-down of the four “Options” that the examiner can use to demonstrate that a claim directed to PAIN does not contain more than elements that are WRC (These are mostly my words):

  1. Applicant makes a “statement against interest” in the specification or during prosecution that a claim element(s) is conventional, widely prevalent or in common use, or is a commercially available product.

  2. The examiner can cite to one or more court decisions as noting the WRC nature of the additional elements, as reported in MPEP 2106(d)(II). I criticized this as overly broad, especially in view of the fact that there is almost no case law involving diagnostic testing or methods of medical treatment. Interestingly, in Vanda v. West-Ward, the Fed. Cir. stated that the Mayo claims were diagnostic claims. This is a stretch – What condition did they diagnose? The recited patient had been treated with the drug before any sample testing was carried out. However, the revised guidelines make it clear that the additional element in the claim must be the same as the element addressed in the court case, as well as the fact that the case must be on the MPEP list. Vanda v. West-Ward should be added to this list.

  3. The examiner finds prior art publication(s) that demonstrate that the element(s) in questions are WRC, not just in existence at some point in the past. This should come from the prior art located in the search done by the Examiner or disclosed by Applicant.

  4. The examiner is permitted to take official notice of the WRC of the additional element(s) but only to be used when the examiner is certain thereof based upon his/her personal knowledge. For all but the most indisputable WRC, the examiner may be required to provide a declaration under 37 CFR 1.104(d)(2).

If more than one element is present, the examiner must show that the combination of the elements is WRC in the pertinent art. If the examiner cited to a publication not previously of record in response to an argument by applicant, the office action should not be made final.

Comments must be received by Aug. 20, 2018 by submitting them to Eligibilty2018@USPTO.gov.

 

© 2018 Schwegman, Lundberg & Woessner, P.A.
Read more updates on Mayo/Alice on the National Law Review’s Intellectual Property Page.

Ninth Circuit’s Decision Holds That Salary History Is Not a Defense to Equal Pay Claims

The federal Equal Pay Act (“EPA”) mandates equal pay for equal work regardless of sex.  Employers that pay men and women different wages for the same work are strictly liable for violations of the EPA unless they can show that one or more of four exceptions apply to explain the wage disparity. The four statutory exceptions are seniority, merit, the quantity or quality of the employee’s work, or “any other factor other than sex.”  The Ninth Circuit recently took up the question of the meaning of the fourth, catchall exception – “any factor other than sex” – in order to consider whether an employer may rely, in whole or in part, on an employee’s prior salary as a basis for explaining a pay differential in Aileen Rizo v. Jim Yovino.

Rizo was a math consultant who worked for the Fresno County Office of Education (“County”). After learning that comparable male employees were earning more for the same work, Rizo filed suit against her employer, alleging that its practice of calculating the salaries for newly hired employees based on their salary history violated the EPA. The County did not dispute that Rizo was paid less than her male counterparts, but it argued that basing her salary on past earnings was a lawful reason for the pay differential as it constituted a “factor other than sex” under the EPA.

On April 9, 2018, the Ninth Circuit sitting en banc rejected the County’s argument. The Court held that “prior salary alone or in combination with other factors cannot justify a wage differential.” Writing for the majority, Judge Reinhart stated that justification of a pay disparity based on “‘any other factor other than sex’ is limited to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.” The Court explained that the terms “job-related” and “business-related” are not synonymous and that an employer cannot explain a pay differential based on the benefit to the business as opposed to a legitimate work-motivated consideration.  Some examples of job-related factors identified by the Court included shift differentials, job hazards, physical job requirements, and training.  Unlike each of these things, past salary was not a “job-related” factor but rather, potentially, a business-related factor.

The Court further opined that permitting an employer to rely on historical pay information was inconsistent with the purpose of the EPA, which was to correct past pay discrepancies caused by sex discrimination.  “It is inconceivable,” wrote Reinhart, “that Congress, in an Act the primary purpose of which was to eliminate long-existing ‘endemic’ sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities….”  Thus, the majority concluded that relying on past salary in order to explain a wage differential was improper, even if it was only one of the factors ultimately considered.  Confusingly, the Court also noted that there could be instances in which past salary might play a role in individualized negotiations and declined to resolve whether past salary could be taken into account in such circumstances.  However, given the broad pronouncement against factoring past compensation into current salary considerations, it would seem unlikely that the current court would countenance such an exception.

In finding that past salary may never be considered, the Rizo decision overrules the Ninth Circuit’s prior ruling in Kouba v. Allstate Insurance Co. 691 F.2d 873 (9th Cir. 1982).  Kouba held that past salary could be one of the factors considered by employers in evaluating pay, as it was a “factor other than sex” permissible to justify pay gaps between men and women under the EPA.  Notably, four of the eleven judges on the panel concurred with the decision in Rizo, because salary history was the sole reason for the pay disparity, but separated from the majority on the issue of excluding salary history from consideration under any circumstance.  The Rizo decision has also exacerbated a circuit split on whether salary history may be considered, and to what extent.  While certain circuits have taken an approach similar to the concurring judges in Rizo, permitting it as long as it is not the sole basis for a pay disparity, the Seventh Circuit has held that salary history is always a legitimate factor other than sex.

While California employers are no longer entitled to inquire about past salary as part of the job application process as of January 1, 2018, in light of the Rizo decision, employers with operations in California, Oregon, Washington, Idaho, Montana, Nevada, Arizona, Alaska, and Hawaii may wish to take actions to ensure that any pay disparities are not based on salary history, such as not asking about salary history during the hiring process (even in states where this practice is not prohibited by law) and conducting pay equity audits.

 

©2018 Epstein Becker & Green, P.C. All rights reserved.
Read more on equal pay at the National Law Review’s Labor and Employment Page.

Federal Jurors Get 25 Percent Pay Hike

For the first time in 28 years, jurors in federal court will receive a pay hike of 25 percent. That means that for each day that a person sits as a juror in federal court, he or she will receive a check for $50, up from $40 that has been in effect since 1990.

President Trump signed the bill into law that takes effect May 7. The raise was included in a bill that provided the federal judiciary with $7.1 billion in discretionary spending, an increase of $184 million from the previous fiscal year, according to a news release from the U.S. Courts that provides support to federal courts across the country.

Jurors who serve in Cook County Circuit Court receive $17.50 per day for their service.

Federal court jurors in the Chicago area serve at the Dirksen U.S. Courthouse in Chicago’s Loop. They also receive reimbursement for travel (54.5 cents a mile) as well as a paid lunch at the Fresh Seasons Cafe, on the courthouse’s second floor.

“This is an excellent result and enables the Judiciary to fulfill its mission,” James C. Duff, Director of the U.S. Courts Administrative Office in Washington, D.C., said in a statement. “We are especially pleased that Congress recognized the critical public service provided by the citizens who serve on juries as well as the attorneys who represent defendants who can’t afford a lawyer.”

 

© 2018 by Clifford Law Offices PC.
This post was written by Robert A. Clifford of Clifford Law Offices PC.

Water, Water, Everywhere: The Clean Water Act

If it isn’t already, water should be on your mind this year.  The excitement of Scituate storm surge and coastal flooding aside, the region – and the U.S. as a whole – is facing a slew of legal developments that may change how citizens, businesses, and governments operate under the federal Clean Water Act and similar state programs.  In particular, the scope of Clean Water Act jurisdiction is in play following a pair of Supreme Court decisions, as is the potential delegation of permitting authority to Massachusetts and New Hampshire, two of only four states in which the EPA administers permitting under the National Pollutant Discharge Elimination System (NPDES).

Clean Water Act Jurisdiction

Since well before Samuel Taylor Coleridge penned those famous lines in the Rime of the Ancient Mariner – “Water, water, every where, / Nor any drop to drink” – people have worried about access to clean water.  It makes sense, then, that the Clean Water Act is one of our oldest environmental laws, with its origins in the Rivers and Harbors Act of 1899.  The Rivers and Harbors Act – the nation’s very first environmental law – imposed the first “dredge and fill” requirements, made it illegal to dam rivers without federal approval, and prohibited the discharge of “any refuse  matter  of  any  kind  or  description” into “any  navigable  water  of  the  United  States, or  into  any  tributary  of  any  navigable  water.”

The Federal Water Pollution Control Act of 1948, with major amendments in 1961, 1966, 1970, 1972, 1977, and 1987, largely superseded the Rivers and Harbors Act and resulted in what we know today as the federal Clean Water Act (CWA).  And although today’s statute is very different from its 1899 precursor, one thing has remained constant: an intense and lasting fight over the scope and jurisdiction of federal regulation.  Federal CWA jurisdiction is premised on the Commerce Clause of the U.S. Constitution, and prohibits (without a permit) “dredge and fill” activities and the discharge of pollutants into “navigable waters,” which the CWA defines as “the waters of the United States.”  But what, exactly, are “waters of the United States”?

The 1870 Supreme Court decision in The Daniel Ball held that waterways were subject to federal jurisdiction if they were “navigable in fact.”  But what has never been clear is the extent to which non-navigable waters, like certain tributaries to navigable waters or wetlands, constitute “waters of the United States” such that they are subject to federal regulation.

The Supreme Court Punts (Again)

The 2006 Supreme Court decision in Rapanos v. United States represented a key turning point in CWA jurisdiction, holding that certain remote wetlands are not subject to CWA jurisdiction.  But the decision was badly fractured, with no majority of justices agreeing on a single standard for determining what, exactly, constitute “waters of the United States” such that the CWA applies.  Minor chaos ensued, as regulators and courts applied varying interpretations of Rapanos in permitting decisions and enforcement actions.

In 2015, the Obama administration attempted to clarify the scope of CWA jurisdiction by promulgating a rule known as the “Waters of the United States” (or “WOTUS”) rule that attempted to define exactly which waters were regulated by the CWA.  That rule, which was based on Justice Anthony Kennedy’s “significant nexus” test in the Rapanos decision, was quickly challenged by 31 states, numerous industries, and landowner groups.  At bottom, challengers argued that the WOTUS rule represented significant federal overreach and extended CWA jurisdiction well beyond what the Commerce Clause allows. The numerous appeals were consolidated into a single Sixth Circuit case, National Association of Manufacturers v. Department of Defense (NAM), and in late 2015 the Sixth Circuit stayed the WOTUS rule pending resolution of legal challenges.

But on January 22, 2018, the Supreme Court unanimously held that federal District Courts – not appellate courts – have jurisdiction over challenges to the WOTUS rule.  While the CWA generally requires challenges to CWA rules to be brought in district courts, there are seven situations where courts of appeal have jurisdiction.  In this case, the government argued that the challenge should be heard in the courts of appeal, under CWA Sections 1369(b)(1)(E)-(F) which allow appellate courts to hear cases related to the approval of certain effluent limits or permits, respectively.  Petitioners, on the other hand, maintained that the case should be heard in federal district court in the first instance.  In a procedural victory for the petitioners, the Supreme Court held that the WOTUS rule does not qualify for direct appellate review under CWA Sections 1369(b)(1)(E)-(F).  Following this decision, future challenges to the WOTUS rule will be brought in federal district courts, potentially with divergent outcomes around the country.  Appeals of those decisions will move to the courts of appeals, where there is yet again the possibility for inconsistency.  The upshot is a longer litigation timeline – and continued jurisdictional uncertainty – before the Supreme Court will have another chance to address the appropriate scope of CWA jurisdiction.

In the meantime, the Trump administration is working on a replacement rule for the WOTUS rule that is likely to apply the less expansive jurisdictional test described by Justice Antonin Scalia in Rapanos.  Under that interpretation, only tributaries that are “relatively permanent, standing or flowing bodies of water,” and only wetlands with a continuous surface connection to a “water of the United States” are themselves “waters of the United States” subject to CWA jurisdiction.  And on February 6, 2018, EPA and the Army Corps of Engineers promulgated a rule delaying implementation of the WOTUS rule until February, 2020.  That action preserves the Rapanos status quo (such as it is) until EPA can craft a new rule.  Ultimately, it is likely that any WOTUS replacement rule will be challenged, and the Supreme Court will then have a chance to revisit its decision in Rapanos and redefine federal jurisdiction under the CWA, a process that could easily extend past 2020.

Defer much?

On February 26, 2018, the Supreme Court weighed in again on the Clean Water Act, this time by refusing to take up a challenge to a 2017 decision by the Second Circuit that upheld a 2008 EPA rule exempting water transfers from CWA permitting requirements.  Water transfers happen when water from one waterbody is diverted into another waterbody, such as diverting a stream into a nearby lake or reservoir. Drinking water systems have conducted water transfers for decades, and EPA has never required NPDES permitting for such transfers.  But in 2008, in response to pressure by environmental groups to require NPDES permits for water transfers, EPA adopted the Water Transfers Rule expressly exempting such transfers from NPDES permitting.

Environmentalists and states challenged the Water Transfers Rule, arguing that moving water from one waterbody to another requires a permit if the “donor” water contains pollutants that would have the effect of degrading the receiving water.  Both the Obama and Trump administrations defended the rule, arguing that it preserved long-standing practice and was justified by EPA’s ability to interpret CWA requirements.  Ultimately, the Second Circuit deferred to EPA and allowed the rule to stand.  In turn, the February 26 decision by the Supreme Court allows the Second Circuit decision to stand, thereby affirming the validity of the Water Transfers Rule.  The case was widely seen as a test for Justice Neil Gorsuch, who has expressed hostility to the deference doctrine and EPA regulations alike.  By declining to hear the case, the Court has deferred that test for another day.

Who’s in Charge?

Under a process known as “delegation,” states may assume permitting and other authority under the CWA.  To-date, 46 states have received such delegation from EPA, and all but Massachusetts, New Hampshire, Idaho, and New Mexico now administer their own NPDES permitting programs.  In the absence of delegation, EPA manages the Clean Water Act and NPDES program in those four states, which often overlap and may duplicate separate state law requirements.

New Hampshire is currently evaluating whether to seek CWA delegation from EPA, and has established a legislative commission to explore its options.  And as we have previously reported, Massachusetts has explored CWA delegation in the past, but those efforts largely fizzled out.  But both of these efforts may have new life: the EPA, under Administrator Pruitt, is very focused on “cooperative federalism” and with EPA seeking to slash its budgets, CWA delegation is likely on EPA’s radar as an action item over the next several years.  And, in late 2017, MassDEP Commissioner Martin Suuberg expressed strong support for CWA delegation, as has Governor Baker.  Whether delegation will become a reality for Massachusetts or New Hampshire is anyone’s guess, but regardless of the outcome 2018 is shaping up to be an interesting year for water law.

 

© 2018 Beveridge & Diamond PC
This post was written by Brook J. Detterman of Beveridge & Diamond PC.