Tag: Second Circuit

Facebook: Second Circuit “Likes” Employee Rights Under the NLRA

Employers should continue to proceed with caution before disciplining employees for their Facebook activity. In Three D, LLC d/b/a Triple Play Sports Bar and Grille v. NLRB, the Federal Appeals Court for Connecticut, New York and Vermont recently upheld a National Labor Relations Board decision that found that one employee’s “liking” another employee’s comments about the terms and conditions of their employment deserved protection under the National Labor Relations Act. The Court upheld the Board’s decision that terminating those employees was illegal.

In Three D, LLC, the employees of a sports bar had a discussion on Facebook about their employer’s alleged mishandling of their tax withholding. The exchange included both negative comments about their workplace and profanity. One of the employees joined into the conversation by writing a response, while another simply “liked” a co-worker’s statements. The employees happened to be Facebook friends with the bar’s owner’s sister, who told the owner about the post. The owner fired the employees, some of whom were interrogated about the posting and threatened with legal action before their termination. The Board found that this was illegal, and the Employer appealed to the Second Circuit.

In recent years the NLRB has been very open about focusing its efforts on the non-unionized workforce. Many employers assume that because they do not have a union, they do not have to worry about the National Labor Relations Act. However, the Act protects the rights of all employees-unionized or not-to engage in concerted activities for their mutual aid or protection. This includes talking together about their working conditions, wages, and even criticizing management. Interfering with that right may be considered an unfair labor practice.

Before the decision in Three D, LLC, the Board had held that the Act protected Facebook posts/conversations about working conditions. The Board did not make clear whether or not simply “liking” a post constituted enough employee participation to count as protected activity. Three D, LLC made clear that at least in Connecticut, Vermont and New York, such activity merits NLRA protection.

An Employer naturally wants to act when its employees post negative or obscene comments about their workplace or their supervisor on Facebook. It is a public forum that the Employer cannot control, and interesting messages can go viral. Three D, LLC does not change the law that Employers have an interest in preventing negative comments about their products or services and protecting their business reputation. An employee’s public communications may lose protection of the Act if sufficiently disloyal or defamatory. This can happen if the statements are not connected with an ongoing labor dispute or are made maliciously and with knowledge of their falsity. However Employers must tread carefully before disciplining employees for their social media use to air workplace grievances.

All in all, Employers should continue to take a close look at their actions in response to employee Facebook posts, even if they do not “like” it.

Article By Michael Colgan Harrington & Jennifer A. Corvo of Murtha Cullina

© Copyright 2015 Murtha Cullina

In Affirming a Preliminary Injunction Against Drug Companies, Second Circuit Finds Coercion in Product Hopping Scheme

In an earlier posting, I wrote about the lawsuit filed on December 10, 2014 by the Attorney General for the State of New York, People of the State of New York v. Actavis, PLC and Forest Laboratories, LLC .1  In that action, New York challenges on antitrust grounds plans by the defendant pharmaceutical companies to cease marketing the drug Namenda IR and substitute in the market-place a newer drug, Namenda XR.  Both drugs are used for the treatment of moderate to advanced Alzheimer’s disease.  Namenda IR and Namenda XR are the brand names for the drug memantine, and defendants have a monopoly for memantine in the United States. On May 22, 2015, the Second Circuit issued an Order affirming a preliminary injunction granted by the United States District Court for the Southern District of New York, enjoining Actavis and Forest Laboratories (“Forest”) from discontinuing the marketing of Namenda IR, and substituting its newer drug Namenda XR.2  The Second Circuit filed an opinion under seal concurrently with the issuance of its Order, allowing the parties to submit proposed redactions by May 26, 2015.  The court of appeals on May 28, 2015 issued a redacted version of its opinion.  At the time of my previous posting on the antitrust suit brought by New York against Actavis and Forest, the Second Circuit had not released it redacted version of its opinion.

In its opinion, the Second Circuit ruled that the district court did not abuse its discretion in granting a preliminary injunction, as sought by New York, precluding the defendants from implementing a marketing scheme known as “product hopping.”  This tactic was a means of maintaining the defendants’ monopoly in the memantine market and precluding competition by generic brands of that drug.  Of critical import to the court of appeals was that defendants relied upon consumer coercion, rather than persuasion on the merits of competing generics.  The coercive aspect of defendants’ marketing scheme violated section 2 of the Sherman Act.3  

The Second Circuit’s ruling in People of the State of New York v. Actavis, PLC and Forest Laboratories, LLC affirming the district court’s preliminary injunction is the first appellate decision to specifically opine on the antitrust implications of product hopping in the pharmaceutical industry.

Background

Forest holds a patent for its brand-name drug Namenda IR, with market exclusivity to expire on July 11, 2015.  On that date, Forest will no longer have market exclusivity for memantine.  Actavis and Forest issued several public statements regarding plans to withdraw Namenda IR from the market, ultimately announcing in June 2014 that Namenda IR would be available for sale until the fall of 2014.  Defendants indicated that upon withdraw Namenda IR from the market in the fall of 2014, its newer drug Namenda XR would be available as a substitute for the treatment of moderate to advanced Alzheimer’s disease.  Defendants took steps to notify physicians and caregivers of the discontinuance of Namenda IR and to contemplate switching from Namenda IR to Namenda RX.

Namenda XR has the same therapeutic effect as Namenda IR.  There is a difference between the two drugs regarding time-release.  Namenda IR is the immediate-release version of that drug, whereas Namenda XR is an extended-release version. Thus, consumers would take Namenda IR twice daily; in contrast, Namenda XR would be taken once daily.  Additionally, Namenda IR is in tablet form, and Namenda XR is in capsule form.

There are implications for generic drug competition in the market for memantine that arise from the marketing plans announced by Actavis and Forest.  In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the “Hatch-Waxman Act.”4    That statute provides for dual purposes. On the one hand, Congress allowed a manufacture of a generic drug to use an abbreviated process to obtain approval to market the drug from the Food and Drug Administration (“FDA”).  Provision for an abbreviated process was to encourage price competition from  generic drugs.  The generic drug manufacturer can file an Abbreviated New Drug Application (“ANDA”) provided that the generic drug is “bioequivalent” to a previously approved brand-name drug.  This regulatory approach allows the generic manufacturer to rely on scientific data previously submitted for the brand-name drug to seek approval to market the generic drug.  The ANDA process affords generic manufacturers considerable cost savings, and a shorted period of FDA review.  The other purpose under the Hatch-Waxman Act was to incentivize drug innovation.  To do this, Congress provided that the manufacturer of a brand-name drug can obtain an additional extension of up to five years to the patent term of the drug to compensate for regulatory delay when seeking approval from the FDA for the new brand-name drug.5  Additionally, under amendments to the Hatch-Waxman Act by the Food and Drug Administration Modernization Act of 1997,6 provision was made for six months of non-patent “pediatric exclusivity” for qualifying pediatric research conducted by the drug manufacturer.7

States have drug substitution laws that either mandate or allow the substitution of a generic drug for a prescribed brand-name drug, except where the prescribing physician, or consumer, indicates otherwise. A generic drug that receives approval from the FDA under the ANDA process may be “AB- rated” by the FDA when the generic drug is “therapeutically equivalent” to its brand-name drug counterpart.  A generic drug deemed AB-rated allows a pharmacy, under a state’s substitution laws, to substitute the generic drug for the more expensive brand-name drug.  State substitution laws complement the provisions under the Hatch-Waxman Act which liberalize the drug approval process for generic drugs, to lower drug costs by encouraging greater competition from generic drugs in the market-place.

In the antitrust lawsuit filed by New York against Actavis and Forest, the State Attorney General alleges violations of the Sherman Act8 and state antitrust laws.9  In the action, New York contends that the marketing practice of product hopping that the defendants intend to pursue will have dire consequences for competition from generic drugs for Forest’s Namenda IR that would have occurred upon the expiration of market exclusivity for Namenda IR on July 11, 2015.  This anticompetitive impact will arise, according to New York, as a direct result of defendants’ plans to stop marketing Namenda IR and “force switch” physicians and payors to use Forest’s newer drug Namenda XR prior to loss of market exclusivity for Namenda IR on July 11, 2015.10  New York argues that removal from the market of Namenda IR prior to the loss of market exclusivity for Namenda IR will thwart state substitution laws since generics for the drug Namenda IR will not have been AB- rated for the newer Namenda XR, critical to enable pharmacists to substitute a generic version for the newer drug Namenda XR.  New York contends that defendants’ scheme will thus extend the national monopoly that Forest has for memantine for the term of the patent it has for Namenda XR, to expire in 2029.

In its lawsuit, New York argues that there is no legitimate business justification for the product hopping scheme defendants intend to pursue.  In its amended complaint, the State insists that Manenda XR lacks any meaningful benefits compared with Namenda IR.11  New York accuses the defendants of erecting barriers to entry to thwart competition from makers of the generic form of the drug Namenda IR.  The State contends that steps to force switch the prescribing of Namenda XR would impact negatively on thealready “financially strapped”12 health care system, and on Alzheimer’s patients who “must bear…unwanted costs” and “unnecessary changes to their medical routine.”13

The Second Circuit’s Analysis            

On appeal, the Second Circuit ruled that the district court did not abuse its discretion in granting a preliminary injunction, enjoining Actavis and Forest from discontinuing the marketing of Namenda IR.  Applying a heightened standard under the law in the Second Circuit for review of a preliminary injunction, the court of appeals concluded that New York demonstrated a “substantial likelihood of success on the merits” of its monopolization and attempted monopolization claims under section 2 of the Sherman Act, and has made “a strong showing” that defendants’ conduct “would cause irreparable harm to competition” in the memantine drug market and to consumers.14

The Second Circuit wrote that monopoly power does not, in and of itself, raise an antitrust concern.  To establish a violation of section 2 of the Sherman Act, it must be proved that the defendant not only possessed monopoly power in the relevant market, but that it “willfully acquired or maintained that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”15  The court of appeals recognized that defendants’ patent on Namenda IR grant them a legal monopoly in the national memantine drug market until July 11, 2015.  Thus, the Second Circuit explained that the issue is whether defendants “willfully sought to maintain or attempted to maintain” that monopoly in violation of section 2.  Citing United States v. Microsoft Corp.16 the court of appeals embraced a rule-of-reason test to determine when a product change violates section 2.  It wrote that generally, courts question assertions that competition is harmed by a dominant firm’s product design changes.  Such design changes can benefit consumers and represent innovation and efficiency. Thus, the court explained that, to be anticompetitive, a dominant firm’s design changes are those that impede competition through means “other than competition on the merits.”17  Relying  on its analysis in Berkey Photo, Inc. v. Eastman Kodak Co.,18 the Second Circuit reasoned that product withdrawal or product improvement, standing alone, is not anticompetitive.  The court wrote that under Berkey Photo, when a monopolist “combines product withdrawal with some other conduct,” such that consumers are “coerced” rather than persuaded based on the merits, and to “impede competition,” such actions are anticompetitive.19  The court of appeals concluded that defendants’ plan to force switch Alzheimer’s patients from taking Namenda IR to the newer drug Namenda XR (for which generic Namenda is not therapeutically equivalent) would impede generic competition by thwarting state substitution laws for generics.  Defendants’ force switch scheme “crosses the line from persuasion to coercion and is anticompetitive.”20  

The Second Circuit agreed with the district court’s view that the pharmaceutical market is unique, and the critical role that state substitution laws play in facilitating price competition between brand-name drugs and generics.  Competition through state substitution laws “is the only cost-efficient means” for generic drugs to compete.21  The court of appeals explained that defendant’s plan to force patients to switch to Namenda XR would preclude generic substitution because generic Namenda IR is not AB-rated to Namenda XR.  The Second Circuit viewed defendants’ plan to force switch consumers to Namenda XR as a practice not based on competition on the merits.  As such, defendants’ scheme was exclusionary, with the anticompetitive “effect of significantly reducing usage of rivals’ products and hence protecting its own monopoly,”22 in violation of section 2 of the Sherman Act.  The court of appeals took note of the record before the lower court indicating the defendants’ own predictions on the effect of its plan to force switch consumers.  Such a scheme would convert, in defendants’ judgment, 80-100 of Namenda IR patients to Namenda XR prior to entry into the market by generic Namenda IR.  Thus, there would be virtually no meaningful market in which generics could compete based on price for Namenda IR.23  The court of appeals also took note of defendants’ own views regarding the very low prospects that consumers would revert back to the generic version of Namenda IR once they were forced to switch to Namenda XR and manufacturers were free to sell the generic version of Namenda IR.24

The Second Circuit rejected the defendants’ procompetitive justifications for its marketing scheme as pretextual.  Relying on the record before the lower court, the court of appeals wrote that there is ample evidence indicating that defendants’ stated intent was to erect barriers to thwart generic competition, and maintain a monopoly in the memantine market.  Defendants argued that their conduct is procompetitive since introducing a new product, like Namenda XR, enhances competition and encouraging product innovation.  The Second Circuit disagreed.  It wrote that while introducing Namenda XR may, standing alone, be procompetitive, there is no competitive justification for withdrawing Namenda IR.25

The Second Circuit also concluded that New York made a strong showing “that competition and consumers will suffer irreparable harm” in the absence of the preliminary injunction awarded by the district court.26

The views and opinions expressed in this article are those of the author, and cannot be attributed to the Office of the Inspector General for the District of Columbia Government.

ARTICLE BY Stuart Silverman of American University Washington College of Law
Copyright American University Washington College of Law

1  Amended Complaint, Case No. 14-CV-7473 (RWS) (S.D.N.Y. filed Dec. 10, 2014).

2 Case No. 14-4624 (2nd Cir. May 22, 2015)

3 15 U.S.C. § 2.  

4 Pub. L. No. 98-417, codified at: 21 U.S.C. § 355, 21 U.S.C. § 2201, and 35 U.S.C. §§ 156, 271, 282.

5 35 U.S.C. § 156.  

6 Pub. L. No. 105-115.

7 35 U.S.C. § 156; 21 U.S.C. § 355a.   

8 15 U.S.C. §§ 1 and 2.  

9   New York State General Business Law §§ 340-47; New York State Executive Law § 63(12).      

10 The district court’s preliminary injunction bars defendants from withdrawing Namenda IR until 30 days after July 11, 2015, the date when generic memantine will first be available in the market.    

11 Amended complaint, par. 78.  

12 Id. at par. 6.  

13 Id. at par. 100.  

14 Slip op. at 28.  

15 Id. at 29, quoting Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004) (internal quotation marks and citation omitted).    

16 253 F.3d 34, 58-60 (D.C. Cir. 2001) (en banc).  

17 Slip op. at 32.  

18 603 F.2d 263 (2nd Cir. 1979).  

19 Slip op. at 35-36.  

20 Id. at 37.  

21 Id. at 40-41. 

22 Id. at 40.                  

23 Id. at 39-40.  

24 Id. at 41-42.   

25 Slip op. at 47-49.  

26 Id. at 54.

Second Circuit Dismisses Suit Over FBI’s Wiretapping of Marital Conversations in Securities Fraud Investigation

Federal Bureau of Investigation (FBI) wiretapping played an important role in the wide-ranging insider trading investigation and subsequent trials of Galleon Group LLC principals and traders. During his criminal prosecution, former Galleon trader, Craig Drimal, unsuccessfully moved to suppress evidence obtained via an authorized wiretap of his cell phone because of a failure to minimize interception of calls with his wife. His wife, Arlene Villamia Drimal, is now pursuing civil claims against FBI agents for wiretapping her personal telephone conversations with her husband, but her claims have thus far been unsuccessful. On May, 15, the US Court of Appeals for the Second Circuit dismissed Ms. Drimal’s complaint without prejudice to repleading, finding that her conclusory pleading failed to state a claim under Title III of the Omnibus Crime Control and Safe Streets Act of 1968, which requires the government to “minimize the interception of communications not otherwise subject to interception.” The Second Circuit also found fault with the lower court’s assessment of the agents’ qualified immunity defense.

In connection with a federal criminal investigation, the US District Court for the Southern District of New York authorized a wiretap of Mr. Drimal’s cell phone, but stressed that monitoring must “immediately terminate when it is determined that the conversation is unrelated [to criminal matters].” FBI agents also were instructed to “discontinue monitoring if you discover that you are intercepting a personal communication solely between husband and wife.” Despite these instructions, agents allegedly monitored approximately 180 private marital calls between the Drimals that were unrelated to the investigation. Although the district court denied Mr. Drimal’s suppression motion in his criminal matter, it identified 18 calls that were “potentially violative” and observed that the agents’ failure to minimize monitoring of private calls was “inexcusable and disturbing.” Ms. Drimal brought her separate civil lawsuit following the conclusion of her husband’s criminal case with his entry of a guilty plea and subsequent sentencing.

At the district court level, the FBI agents unsuccessfully moved to dismiss Ms. Drimal’s complaint for failure to state a claim and on qualified immunity grounds. The Second Circuit reversed that decision, holding that Ms. Drimal’s complaint was insufficient because it merely stated, in a conclusory fashion, that the interception of marital calls violated Title III, without reference to a duty to minimize. The Second Circuit noted that Title III does not prohibit outright the monitoring of privileged calls. With respect to the agents’ qualified immunity defense, the court of appeals held that the district court should have evaluated each agent’s minimization efforts under an “objective reasonableness” standard based on the particular circumstances, rather than as a group. The Second Circuit vacated the lower court decision and directed dismissal of the complaint with leave to replead, stating that amending the complaint would not be futile.

Drimal v. Makol, Nos. 13-2963 and 13-2965 (2d Cir. 2015)

ARTICLE BY Emily Stern & Margaret J. McQuade of Katten Muchin Rosenman LLP

©2015 Katten Muchin Rosenman LLP

Second Circuit Finds that Entry-Level Audit Associates at Accounting Firm are Exempt from Federal Overtime Requirements

Sheppard Mullin Law Firm

In Pippins v. KPMG LLP, No. 13-889 (2d Cir. July 22, 2014), the Second Circuit Court of Appeals unanimously held that entry-level audit associates (“Plaintiffs”) at KPMG LLP qualify for the Fair Labor Standards Act’s (“FLSA”) “learned professionals” overtime exemption.  The Second Circuit explained that, while the closely-supervised employees were “the most junior members” of the KPMG accountancy team and did not “make high-level decisions,” their work still required sufficient knowledge and judgment to qualify for the exemption.

The FLSA exempts employers from paying overtime to workers whose “primary duty” is “the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.”  Such workers may qualify for the FLSA’s “learned professional” exemption provided that their work is: (i) “predominantly intellectual in character, and requires the consistent exercise of discretion and judgment”; (ii) in a “field of science or learning,” such as accounting; and (iii) of a type where “specialized academic training is a standard prerequisite for entrance into the profession.”

While the parties in Pippins agreed that accounting qualifies as a field of “science or learning” under the FLSA, the Second Circuit’s decision provides guidance for employers seeking to determine whether an employee’s position may meet the other two necessary elements for the learned professional overtime exemption to apply.

The “Discretion and Judgment” Prong

Noting the lack of guidance in the FLSA’s regulations expounding on the “discretion and judgment” prong, the Court held that, in the learned professionals context, employees need not “exercise management authority,” particularly where they work for firms that provide professional services to other businesses, such as KPMG.  Rather, “what matters is whether [employees] exercise intellectual judgment within the domain of their particular expertise.”  As applied to the field of accounting, the Court explained that accounting requires the consistent application of a “professional skepticism” throughout the process of collecting and analyzing data in order to ensure that audits expose potential financial irregularities or accounting improprieties.

The Plaintiffs maintained that they merely exercised simple “common sense,” made only “obvious” observations, followed strict templates and guidelines, and exclusively conducted routine work that was reviewed by supervisors before being assimilated into final audit reports.

However, the Court largely characterized Plaintiffs’ contentions as “confus[ing] being an entry-level member of a profession with not being a professional at all.”  Indeed, the Court observed that the existence of guidelines and supervision is characteristic of professional firms and organizations and is simply intended to provide training and ensure quality work.  The fact that junior professionals are subject to close supervision and must adhere to guidelines “does not relegate [them] to the role or status of non-professional staff.”  The Court further explained that employees can “exercise professional judgment when their discretion in performing core duties is constrained by formal guidelines or when ultimate judgment is deferred to higher authorities.”

With respect to Plaintiffs, the Court found that their use of templates, the specific guidelines they were required to follow and the supervision of their work, did not deprive them of the need to exercise professional skepticism throughout the auditing process.  In the Court’s view, the Plaintiffs were still required to exercise their specialized knowledge of accounting in order to determine when to deviate from such guidelines, or when to bring questions to superiors. “It is a hallmark of informed professional judgment,” the Second Circuit explained, “to understand when a problem can be dealt with by the professional herself, and when the issue needs to be brought to the attention of a senior colleague with greater experience, wisdom, or authority.”

The “Specialized Academic Training” Prong

With respect to the “specialized academic training” prong of the learned professional exemption, the Court held that “the requirement will usually be satisfied by a few years of relevant, specialized training,” and that “a bachelor’s degree in a germane field [often] suffices.”   By contrast, the Second Circuit observed that generic, non-specialized educational requirements, such as a requirement that an employee possess a general bachelor’s degree in “any field,” are insufficient to establish the prerequisite.  Finally, the Court explained that to determine whether the exemption applies, the educational prerequisites for entry into the particular profession must be customary.  Because the audit associates were generally required to either be eligible or nearly eligible to become licensed Certified Public Accountants (“CPAs”) and the “vast majority” of them possessed accounting degrees and could take the CPA exam, the Court held that the Plaintiffs work required specialized educational instruction.

Plaintiffs contended, however, that they did not meet the specialized academic training requirement because their job duties didn’t actually call on them to employ the knowledge they acquired in the course of their studies.  The Court acknowledged the potential merit of this argument in the case of  a well-educated professional who is never expected to draw on her education in practice.  However, the Court quickly dispatched the argument as it pertained to Plaintiffs, finding that the “average classics or biochemistry major” would not be able to adequately perform or fully understand the auditors’ work functions.

Conclusion

The Pippins decision offers greater clarity to employers in  applying the “learned professional” exemption.  The decision establishes that, even where low-level employees are closely supervised, regularly perform routine tasks, and follow established templates and guidelines, their work can still demand enough professional judgment to qualify them as learned professionals.

ARTICLE BY

Kevin J. Smith
Jonathan Sokolowski
Of:
Sheppard, Mullin, Richter & Hampton LLP