Tag: supreme court

In Light of Supreme Court’s Spider-Man Case, Which Antitrust Precedents are Ripe for Overturning?

On June 22, 2015, the US Supreme Court in Kimble v. Marvel Entertainment LLC declined on stare decisis grounds to overturn a criticized intellectual property precedent on royalty payments. In both the majority and dissenting opinions, the justices said that their respect for precedent would have been less had it been one interpreting the Sherman Antitrust Act. These comments prompt the question: Which old and criticized antitrust precedent might be subject to reversal?

Kimble had a patent on a device that allowed a user to shoot webs—really, just pressurized foam string—from the palm of his hand. Kimble and Spider-Man’s owner, Marvel, reached an agreement that allowed Marvel to sell such toys in exchange for a lump sum payment to Kimble plus a 3% annual royalty that had no end date. After years of payments, Marvel discovered Brulotte v. Thys Co., a 1964 Supreme Court case that had read the patent laws to prevent a patent owner from receiving royalties for sales made after the patent’s expiration. The Court considered such arrangements illegal per se because they were attempts to extend the patent’s monopoly beyond the patent’s life. Relying on that precedent, Marvel convinced lower courts that its payments to Kimble should stop with the 2010 expiration of the patent.

Kimble asked the Court to overturn Brulotte and replace it with a rule of reason analysis. Six justices declined that invitation, saying the long-standing precedent was based on an interpretation of patent statutes that Congress could, but had declined to, amend and that contracting parties might have relied on. The dissent would have overturnedBrulotte because its rationale was based on now-discredited antitrust policy, not statutory interpretation.

Perhaps more interesting to antitrust practitioners, the two opinions discussed the lower level of respect for the Court’s antitrust precedents. As the majority opinion pointed out, Congress “intended [the Sherman Act’s] reference to ‘restraint of trade’ to have ‘changing content,’ and authorized courts to oversee the term’s ‘dynamic potential.’” As a result, the Court has “felt relatively free to revise our legal analysis as economic understanding evolves.” The dissent agreed, saying “we have been more willing to reexamine antitrust precedents because they have attributes of common-law decisions.”

Given that seeming-unanimity on the weakness of antitrust precedents, the next obvious question for antitrust lawyers is which antitrust precedents might be overturned. One candidate is the so-called baseball exemption. In 1922’s Federal Baseball Club v. National League, the Court found that the “business [of] giving exhibitions of base ball” did not constitute interstate commerce and so was not reached by the Sherman Act. Commentators and even subsequent Court opinions have termed the decision an “anomaly” (though refusing to overturn it).  Even retired Justice Stevens criticized the breadth of the exemption in a recent speech. In reaching this conclusion, Stevens relied on his experience on the Court, his early representation of the former A’s owner, and his work for Congress in the 1950s as it studied the exemption. Yet, while lower court decisions and The Curt Flood Act of 1998 have narrowed its scope, the exemption is still very much alive and has been used recently to cut short actions involving both the Cubs and the A’s. The Court could revisit the exemption yet again if it accepts the cert petition from the City of San Jose in the case involving the latest possible relocation of the A’s franchise.

Another candidate is the per se rule against tying, the only remaining vertical restraint to which the per se rule applies. In a tying arrangement, a seller agrees to sell one product (“tying product”) but only on the condition that the buyer also purchase a different product (“tied product”). Early Court cases applied the per se rule and described the arrangements harshly, saying they “serve hardly any purpose beyond the suppression of competition.” More recently, the Court has recognized that tying might be pro-competitive in certain circumstances. It has retained a rule that it calls per se; however, unlike per se rules against horizontal price fixing and the like, the tying per se rule requires proof of the seller’s power in the market for the tying product. If an appropriate case reaches the Court, it might complete the evolution of vertical restraints analysis and make all tying arrangements subject only to the rule of reason.

Finally, the Court’s 1963 Philadelphia National Bank opinion has faced severe criticism. In that case, the Court found that a merger that “produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms” is presumptively anticompetitive. While that presumption has been significantly weakened in the various iterations of the DOJ/FTC Horizontal Merger Guidelines, it still plays a role at least when the agencies challenge a merger in court. FTC Commissioner Wright has called it bad law based on outdated economics and has criticized its continued use by the agencies. DOJ Assistant Attorney General Bill Baer, on the other hand, has called the presumption a useful tool for the agencies when challenging mergers in court. Because so few merger cases go beyond the preliminary injunction standard, let alone all the way to the Supreme Court, this precedent might remain safe.

ARTICLE BY Steven J. Cernak, Gregory L. Curtner & William M. Hannay

© 2015 Schiff Hardin LLP

Supreme Court Decisions Raise Questions about Future Judicial Scrutiny of EPA’s Clean Power Plan

Two of the Supreme Court’s major, end-of-term decisions turn on the deference the Court gives to agency determinations of the meaning of ambiguous clauses in complex regulatory statutes, applying the familiar Chevron framework.  The Court’s less deferential applications of Chevron raise important questions about the deference courts might be expected to give to the scope of EPA’s exercise, in its Clean Power Plan, of its statutory authority to establish carbon dioxide emission reduction standards for existing fossil-fuel power plants under Section 111(d) of the Clean Air Act.

In King v. Burwell, the Court reviewed an Internal Revenue Service regulation that allowed tax subsidies under the Affordable Care Act for insurance plans purchased on either a federal or state-created “Exchange.”  In Michigan v. EPA, the Court reviewed EPA’s threshold determination under Section 112 of the Clean Air Act that it was “appropriate and necessary” to initiate regulation of hazardous air pollutants emitted by power plants, without consideration of costs at that initial stage of the regulatory process.

The outcome in each case depended upon the Court’s review of the regulatory context of the applicable ambiguous statutory clause.  Since the context of Section 111(d) of the Clean Air Act differs markedly from the contexts of the Affordable Care Act and Section 112 of the Clean Air Act, the outcomes in King v. Burwell and in Michigan v. EPA do not likely portend the outcome of future court challenges of the Clean Power Plan.  However, the Court’s application of Chevron deference in these two cases may portend a strikingly less deferential judicial review of EPA’s Clean Power Plan than might have been expected under the traditional two-part test of Chevron.

Under Chevron, courts examine first whether a regulatory statute leaves ambiguity and, if so, courts are directed to defer to a federal agency’s reasonable resolution of the ambiguity in a statute entrusted to administration by that agency.  All of the Court’s majority and dissenting opinions in King v. Burwell and in Michigan v. EPA (except for Justice Thomas’s lone dissenting opinion questioning the constitutionality ofChevron deference) confirm the applicability of the traditional Chevronframework.  What stands out in these cases is that the Court’s majority opinions do not defer to the agency’s resolution of ambiguity.

Chief Justice Robert’s opinion for a 6-3 majority in King v. Burwell grounds Chevron in “the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps.”  But, “in extraordinary cases,” the Court states that Congress may not have intended such an “implicit delegation.”  The Court holds the statutory ambiguity before it to be one of those extraordinary cases in which Congress has not expressly delegated to the respective federal agency the authority to resolve the ambiguity and, therefore, seemingly, zero deference is given by the Court to the applicable IRS regulation.  The Court explains that whether billions of dollars in tax subsidies are to be available to insurance purchased on “Federal Exchanges” is a question of “deep economic and political significance,” central to the scheme of the Affordable Care Act, such that had Congress intended to assign resolution of that question to the IRS “it surely would have done so expressly,” especially since the IRS “has no expertise in crafting health insurance policy of this sort.”  Eschewing any deference to the IRS interpretation, the Court assumed for itself “the task to determine the correct reading of” the statutory ambiguity.

King v. Burwell is the rare case in which the Court accords a federal agency zero deference in resolving statutory ambiguity under Chevron.  Notably, the Court left open how appellate courts should determine whether other statutory ambiguities similarly deserve less or no deference to agency interpretations.  The Court, perhaps, offered a hint by citing to its much quoted dicta in its 2014 decision in Utility Air Regulatory Group v. EPA that the Court “typically greet[s] … with a measure of skepticism, … agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy.”  Many commenters have opined, even before King v. Burwell, as to whether this dicta has implications for judicial review of the Clean Power Plan, which, it may be argued, has “deep economic and political significance” comparable to the Affordable Care Act.  However, EPA surely has longer experience, greater expertise and wider latitude in crafting policy under the Clean Air Act than the IRS has in crafting health insurance policy.  Given the Court’s strong precedent establishing that greenhouse gases are expressly within the scope of the Clean Air Act, appellate courts might distinguish King v. Burwell and apply traditional Chevron deference to the final Clean Power Plan.

Michigan v. EPA applies Chevron to EPA regulations under a different part of the Clean Air Act.  In this case, the Court reviewed EPA’s threshold determination, under Section 112 of the Clean Air Act, that it was “appropriate and necessary,” without regard to costs, to regulate hazardous air pollutants, such as mercury, from power plants.  The specific mercury emission limits imposed on categories of power plants were established during subsequent phases of EPA’s rulemaking under Section 112 based on EPA’s explicit consideration of costs.  Justice Scalia’s opinion for a 5-4 majority strikes down EPA’s determination that it could find regulation of hazardous air pollutants from power plants to be “appropriate and necessary” without consideration of costs.  The Court states it was applying the traditional Chevron framework, under which it would normally defer to EPA’s choice among reasonable interpretations of the  ambiguous and “capacious” statutory test requiring an EPA finding that regulation be “appropriate and necessary.”  But, the Court finds EPA’s interpretation of this test, as not requiring any consideration of costs, to “have strayed far beyond … the bounds of reasonable [statutory] interpretation.”  Michigan v. EPA may be the first case in which the Court has applied Chevron to find that EPA adopted an entirely unreasonable resolution of statutory ambiguity in its Clean Air Act regulations.

Justice Kagan’s dissent in Michigan v. EPA faults the Court for failing to give due deference under Chevron to EPA’s decision as to when in its regulatory process it gives consideration to the costs involved in regulating hazardous air pollutants from power plants.  While all nine Justices seem to agree that EPA must consider costs in its Section 112 rulemakings, and seem also to agree that EPA gave consideration to costs in later stages of its rulemaking, the dissent criticized the majority’s “micromanagement of EPA’s rulemaking,” emphasizing that EPA reasonably determined “that it was ‘appropriate’ to decline to analyze costs at a single stage of a regulatory proceeding otherwise imbued with cost concerns.”

It is difficult to predict whether, based upon King v. Burwell and Michigan v. EPA, appellate courts might narrow the deference accorded to EPA’s resolution of statutory ambiguities under Section 111(d).  Those ambiguities arise in a quite different context than those considered by the Court.  As one example, critics of the Clean Power Plan have argued that two different versions of Section 111(d) appear to have been signed into law, one of which critics claim should prohibit EPA from issuing regulations under Section 111(d) for sources of pollution already covered by other EPA regulations, such as hazardous pollutant regulation under Section 112.  EPA sharply disagrees with its critics and defends its interpretation of which statutory version applies and the scope of permissible regulation under either statutory text.  A related issue under the statutory version pressed by critics concerns whether the status of the hazardous air regulations under Section 112, during remand after Michigan v. EPA, should alter EPA’s analysis the potentially competing statutory provisions.  It remains to be seen what kind ofChevron deference courts will give to EPA’s reasoned interpretations of the different versions of Section 111(d).

Critics also point to purported ambiguity in Section 111(d) as to whether EPA may prescribe carbon dioxide performance standards based on so-called “outside the fence” measures, and whether those standards may be determined on an average state-wide basis, rather than for individual sources.  EPA’s resolutions of these and related programmatic issues have occasioned widespread commentary and may feature prominently in future court challenges to the Clean Power Plan.  Again, it remains to be seen whether the Court’s recent cases will influence the extent of Chevron deference given by appellate courts to EPA’s well-considered interpretation of its authority to craft the details of the Clean Power Plan under Section 111(d).

On one point, there should be little doubt.  Section 111(d) expressly directs EPA to consider costs in establishing performance standards reflecting “the best system of emission reduction.”  Unlike in Michigan v. EPA, EPA expressly addressed “costs” as a factor considered in its proposed rules.  EPA is expected to elaborate upon the costs (and benefits) of regulation in its final Clean Power Plan.  Michigan v. EPA should, therefore, be inapposite with respect to any possible challenges of the manner in which the Clean Power Plan addresses costs.

The applicability of Chevron deference is, of course, only one among many legal issues that could face the U.S. Courts of Appeals and, ultimately, the Supreme Court, if and when they review the Clean Power Plan.  The precise legal issues to be framed for the courts and the timing of litigation will not begin to come into focus until after the Obama Administration issues the final Clean Power Plan later this summer.  And, Congress could step in and alter the course of judicial review.  Stay tuned.

ARTICLE BY Mark L. Perlis of Covington & Burling LLP
© 2015 Covington & Burling LLP

Supreme Court to Again Review Higher Education Affirmative Action Case

In a week full of front-page news, the United States Supreme Court has agreed to again review the appropriateness of the University of Texas at Austin’s race-based admissions process in the case of Fisher v. University of Texas at Austin.

The Supreme Court first reviewed the school’s consideration of race as a component of its admission process almost a year ago and remanded the case back to the Fifth Circuit Court of Appeals for reconsideration.  Upon re-review the Fifth Circuit again held the University’s practice of using race a factor in its admissions decisions was constitutional. Fisher filed an appeal arguing the Fifth Circuit did not follow the Supreme Court’s direction when conducting the subsequent review.

While the ultimate outcome of this case will certainly impact affirmative action programs of institutions of higher education, its effects on other types of non-admissions affirmative action programs, such as though enforced by OFCCP, remains unknown.

ARTICLE BY Laura Mitchell of Jackson Lewis P.C.
Jackson Lewis P.C. © 2015

US Supreme Court Ruling Impacts Jail Operations

On June 22, 2015, the United States Supreme Court issued an important decision for all North Carolina counties operating county jails in which individuals are held detainees awaiting trial. In Kingsley v. Hendrickson, No. 14-6368, the Supreme Court, in a 5-4 opinion authored by Justice Stephen Breyer, ruled that in excessive force claims brought by pretrial detainees, the plaintiff need only show the force used against him was objectively unreasonable, not that the officer subjectively intended to injure him. This case is important because the court had never before articulated what standard applies to the excessive force claims of those individuals charged, but not yet convicted, of crimes. For private citizens not charged or convicted of a crime, the standard is one of objective reasonableness (someone being arrested). For prisoners who have been convicted of a crime, the standard is higher and requires the plaintiff to show the officer subjectively intended to cause the harm. As accused but not convicted individuals, pretrial detainees fall somewhere between these two categories, and the court determined the standard applicable to their excessive force claims should be the lesser showing of objective unreasonableness.

Kingsley involved the claims of Michael Kingsley, an individual who was arrested on a drug charge and detained in a Wisconsin jail. He failed to make bail, so he was housed in the jail waiting for his trial.  One day, an officer noticed a piece of paper covering a light fixture in Kingsley’s cell.  Kingsley was ordered to remove the paper, but he refused. The officers then handcuffed him and forcibly removed him from the cell. The parties disagreed over what happened next, with Kingsley claiming the officers slammed his head into a concrete bunk and the officers claiming Kingsley resisted their efforts to handcuff him.  Everyone agreed, however, that one officer deployed his Taser to stun Kingsley for approximately five seconds. The officers left Kingsley in the cell for fifteen minutes, then returned and removed the handcuffs. Kingsley filed a lawsuit alleging the officers’ use of force was excessive.  At trial, the jury found in favor of the officers, but Kingsley appealed, arguing the jury was instructed on an incorrect standard – that of subjective reasonableness.

The Supreme Court agreed. The divided court held a jury must consider whether the force was objectively reasonable, a determination that turns on the “facts and circumstances of each particular case,” taking into account the perspective of a reasonable officer on the scene, not with the 20/20 vision of hindsight. The jury should also consider the legitimate interests a jail has in maintaining internal order and discipline. But to find an officer liable for excessive force under the U.S. Constitution, a jury need not find an officer maliciously and sadistically intended to punish or injure the detainee. Rather, the question for a jury in a pretrial detainee’s excessive force claim is simply whether the officer’s use of force was objectively reasonable, without considering the officer’s intent. This will likely lower the bar for Plaintiffs bringing 1983 claims because the jury instruction for subjective reasonableness required them to prove the officer acted maliciously and sadistically, which is often very difficult to prove. Jurors should still be instructed that 20/20 hindsight can’t be used to decide this issue, but defendants may now have a harder time presenting these cases to juries.

ARTICLE BY Caroline P. Mackie & J. Nicholas Ellis of Poyner Spruill LLP
© 2015 Poyner Spruill LLP. All rights reserved.

U.S. Supreme Court Finds a Constitutional Right to Same-Sex Marriage: Implications for Employee Benefit Plan Sponsors

On June 26, 2015, the U.S. Supreme Court issued a historic decision in Obergefell v. Hodges, holding that the Fourteenth Amendment’s Due Process and Equal Protection Clauses require states to allow same-sex marriage and to recognize same-sex marriages performed in other states.  The decision comes exactly two years to the day from the Court’s decision in Windsor defining “spouse” to include same-sex spouses for purposes of federal law.

As a result of the Court’s decision, the existing 14 state bans on same-sex marriage are invalid, and same-sex spouses are entitled to all of the rights extended to opposite-sex spouses under both federal and state law.

From an employee benefits perspective, it appears thatObergefell may most significantly impact sponsors ofinsured health and welfare plans in states that currently ban same-sex marriage.  Employers and other plan sponsors in those states will be required to offer insured benefits to same-sex spouses because state insurance law will require that the term “spouse” be interpreted to include them.  Based on government guidance issued following the Windsor decision, it seems unlikely that the decision would have retroactive effect, though such claims are possible.

For sponsors of self-insured benefit plans, a question may exist as to whether Obergefell directly impacts a sponsor’s decision not to provide health coverage to same-sex spouses (because state law does not apply to such plans).  However, it would appear that there would be heightened risks under federal and state discrimination laws for plans that define “spouse” in a manner that is inconsistent with the federal and state definitions, particularly since the Court held that marriage is a fundamental right under the Constitution, and an ERISA preemption defense likely would be weaker in this new climate.

It is also noteworthy that, as a result of the Court’s decision, there will no longer be imputed income for state tax purposes with respect to employer-provided health coverage for same-sex spouses, allowing for consistent administration in all states in which an employer operates.  Since Windsor, there have not been federal tax consequences with respect to these benefits, but some states continued to impute income for state tax purposes.

Finally, with respect to federally-regulated benefits such as qualified retirement plans and Code Section 125 benefits (for example, flexible spending accounts), the Court’s decision does not necessarily warrant any change, since those plans have been required, since Windsor, to recognize same-sex spouses.  Of course, plan language should be reviewed for consistency with the decision, and employers in some states may find that there are new spouses seeking benefits under those plans.  There also will be some administrative and enrollment issues, similar to when Windsor was decided.

Employers, particularly those operating in states that currently ban same-sex marriage, should review their benefit plans and policies and consider whether any changes need to be made in light of Obergefell.  Some employers may also reconsider their domestic partner benefits programs now that same-sex couples have the right to marry and have their marriage recognized across the entire country.

We expect that there will be guidance from the U.S. Department of Labor and the Internal Revenue Service regarding the employee benefit plan issues that emanate from Obergefell, so stay tuned.

ARTICLE BY Roberta K Chevlowe of Proskauer Rose LLP

© 2015 Proskauer Rose LLP.

Supreme Court Fair Housing Ruling: Will Plaintiff Housing Victory Help Employers?

Today, in a 5-4 decision, the Supreme Court made clear that disparate impact discrimination claims are cognizable under the Federal Housing Act (“FHA”) despite the lack of explicit language authorizing such a cause of action. Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.

In the process of justifying its ruling, the majority opinion spoke generally about disparate impact and cited to several prior rulings applying disparate impact in the employment context. The Court’s broader guidance on disparate impact liability may be helpful for employers faced with disparate impact lawsuits.

Brief Primer on Disparate Impact Law

Sometimes referred loosely as “unintentional discrimination,” disparate impact claims arise when an employer’s (usually) neutral employment practice has a disparate impact against a group protected by Title VII. For example, in the criminal background context, the EEOC asserts that failing to hire employees based on prior criminal activity has a disparate impact against racial minorities. These lawsuits are largely statistical in nature.

In a Title VII disparate impact lawsuit, the initial burden is on the plaintiff to point to a policy or practice that causes a statistical disparity. If the plaintiff establishes impact, the employer must then show that the policy or practice is job related to the position in question and consistent with business necessity. Over the years, with varying degrees of success, plaintiffs have argued that the “job related and consistent with business necessity” defense is a high hurdle. The Supreme Court itself has struggled to properly define this defense.

Welcome Words from the Supreme Court

In the Inclusive Communities majority opinion, the Supreme Court found the FHA disparate impact defense to be “analogous” to the Title VII defense. The court went on to cite to language from employment discrimination precedent indicating that the “job related and consistent with business necessity” defense should not be an impossible hurdle for employers:

  • Quoting the seminal Title VII ruling Griggs v. Duke Power Co.: an employer may maintain a practice which is a “reasonable measurement of job performance.”

  • Citing Griggs again: “policies are not contrary to the disparate impact requirement unless they are artificial, arbitrary, and unnecessary barriers.”

  • Stressing that limitations on disparate impact claims are “necessary to protect potential defendants against abusive disparate-impact claims.”

  • “Were standards for proceeding with disparate-impact suits not to incorporate at least the safeguards discussed here, then disparate-impact liability might displace valid governmental and private priorities, rather than solely removing artificial, arbitrary and unnecessary barriers.”

In short, the Court has provided support for employers to argue that an employer meets the “job related and consistent with business necessity” defense if its practice is reasonable and “necessary to achieve a valid interest.”

The majority opinion also provided explicit instructions to lower courts:

  •  To be on guard for disparate impact lawsuits that might interject “racial considerations” into decision making.

  • To hold plaintiff’s to sufficient pleading standards: “a plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact.”

Time will tell if lower courts rigorously apply Inclusive Communities’ “safeguards” and “limitations” in the employment context. In the meantime, management attorneys will be doing their best to remind lower courts of the need to show restraint when evaluating disparate impact claims.

ARTICLE BY Paul Patten of Jackson Lewis P.C.
Jackson Lewis P.C. © 2015

Obamacare Survives in 6-3 Vote – Supreme Court Issues Opinion on King v. Burwell

This morning, the Supreme Court of the United States issued its final decision on King v. Burwell regarding the survival of Obamacare. The decision, issued by Chief Justice Roberts and joined by Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan, effectively allows millions of people to to keep the tax subsidies provided so they can afford health insurance.

The Affordable Care Act (ACA) explicitly states that the tax subsidies were provided for individals to purchase insurance through state-based changes. The Court was charged with determining whether they could be used to purchase insurance through the federally run Healthcare.gov marketplace as well. The creators of the law contend that the law’s intent is to make affordable care available to people across the country through both channels by providing a federal exchange where states did not establish one.

The Court agreed -federal government can subsidize health insurance premiums for residents of states that did not establish a state health insurance exchange. In the Court’s opinion, Chief Justice Roberts wrote “The combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral… It is implausible that Congress meant the Act to operate in this manner.”

Chief Justice Roberts reinforces the role of the Court – as an interpreter of the law, not its creator:

[I]n every case we must respect the role of the Legislature, and take care not to undo what it has done. A fair reading of legislation demands a fair understanding of the legislative plan. Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. (emphasis added)

This is a developing story. Please stay tuned for more updates and legal commentary.

SCOTUS Upholds Exchange Subsidies – King v. Burwell

Supreme Court Upholds Affordable Care Act Insurance Subsidies

Copyright ©2015 National Law Forum, LLC

Kimble v. Marvel – Supreme Court Sticks With Brulotte Rule on Royalty Payments

In a rather breezy opinion filled with Spiderman puns and references, Justice Kagan, writing for a 6/3 Court, affirmed that Brulotte v. Thys Co., 379 U.S. 29 (1964) controlled the outcome of this dispute over Marvel’s decision to halt royalty payments on a web-slinger toy that it had apparently agreed to make “for as long as kids want to imitate Spider-Man (doing whatever a spider can).” Slip op. at 2. (A copy of the opinion is found at the end of this post.)

The toy was patented by Kimble, and the patent expired in 2010. The ninth circuit affirmed the district court’s grant of S.J. confirming that, in accord with Brulotte, a patentee cannot receive royalties for sales made after his/her patent’s expiration. Cert. was granted and the Court affirmed that stare decisis was operable to keep Brulotte as controlling law, particularly since the dispute involved statutory interpretation – [as opposed to, e.g., first amendment rights?] – and that Congress had rejected attempts to amend the law.

I posted on the “back-story” earlier – see here– so a lot of repetition seems unnecessary, but the Court spent some time discussing various work-arounds to the Brulotte bar. These include deferred royalty payments, licensing non-patent rights and alternative “business arrangements,” that universities and other developers of early stage technology might use to temper the loss of patent protection prior to the generation of maximum income from the patented technology. Slip op. at 5-6. Nonetheless, as Justice Kagan wrote: “Patents endow their holders with certain superpowers but only for a limited time.”

Click here to read the Supreme Court Decision in Kimble v. Marvel

ARTICLE BY Warren Woessner of Schwegman, Lundberg & Woessner, P.A.
© 2015 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

A Look Ahead to The Supreme Court’s 2015-16 Term

As the Supreme Court winds down its 2014-15 term, the Benefits Law Advisor looks ahead to the ERISA cases and issues the Supreme Court may confront in its next terms. The Supreme Court’s recent ERISA jurisprudence has touched on issues such as remedies (CIGNA Corp. v. Amara and US Airways v. McCutchen), retiree entitlement to healthcare benefits (M&G Polymers v. Tackett), time-based defenses to ERISA claims (Tibble v. Edison Int’l and Heimeshoff v. Hartford Life & Accident Ins.), and the now-defunct “presumption of prudence” that lower courts had applied to ERISA plans’ decision to offer employer stock as an investment option (Fifth Third Bank v. Dudenhoeffer).

As of this writing, the Court has only granted certiorari in one ERISA case for next year’s term, Montanile v. Board of Trustees, No. 14-723, cert. granted Mar. 30, 2015. The Montanile case arose from the familiar situation where an ERISA plan seeks to recover medical benefits paid to an injured participant, after that participant receives a tort recovery for those injuries. Both lower courts granted summary judgment to the plan, with the additional proviso that the plan could impose an equitable lien (under the terms of the plan) on Montanile’s settlement proceeds, even if those monies have been dissipated.

In granting Montanile’s petition, the Court interprets, once again, the term “equitable relief” in ERISA §502(a)(3) – an issue the Court has addressed has repeatedly revisited. In particular, the Montanile case gives the Court a chance to address an open question from its equitable-remedies jurisprudence: is there an “equitable tracing” requirement that obligates ERISA plaintiffs to identify a specific sum of money that may be the subject of an equitable recovery?

The existence of an equitable-tracing requirement has been hotly debated since at least 2003, when the Court’s decision in Great West Life & Annuity v. Knudson firmly established that equitable relief under ERISA was limited to those forms of relief traditionally available in the courts of equity. Since Knudson, many ERISA defendants have successfully argued that equitable relief was only available where plaintiff could identify a particular asset or sum of money that could be made subject to a restitutionary recovery, constructive trust or equitable lien. As a result, the Court has struggled (in this author’s view) with how to apply traditional “tracing” rules, because the Court’s answer could have far-reaching implications both for plans seeking reimbursement, and for participants invoking ERISA §502(a)(3) for redress in fiduciary-breach claims or other violations of ERISA.

It seems that the Court is ready to answer that question in Montanile, judging from the question presented in the Court’s writ. Another similar case, Elem v. AirTran Airways, No. 14-1061 (cert. pet. filed Feb. 27, 2015). is pending before the Court on the participant’s petition.

Beyond Montanile, the Court has several other writ petitions pending, including three cases where the Court has invited the Solicitor of Labor to weigh in with an amicus brief. These cases include:

  • Smith v. Aegon Cos. Pension Plan – In this case, the lower courts dismissed benefits claims on grounds of improper venue. In doing so, the lower courts held that an exclusive-venue provision in the plan required the participant to bring his benefits suit in the specified venue. The Department of Labor (DOL) had submitted an amicus brief to the Sixth Circuit, arguing that venue-selection provisions ran afoul of ERISA’s goal of providing participants with ready access to the courts. The Sixth Circuit, however, rejected DOL’s position and enforced the plan’s venue provision. A Supreme Court decision on this issue would likely be significant, because many plan sponsors are using the plan document to “hard wire” certain defenses to benefits claims – for example, the Court’s recent Heimeshoff decision approved a limitations period established by the plan.
  • Gobeille v. Liberty Mut. Ins. Co. – This case presents a pre-emption question – specifically, whether ERISA pre-empts a Vermont law requiring healthcare payors (including ERISA plans) to submit certain claims data to the state. A split panel of the Second Circuit held the Vermont law was pre-empted because it imposed additional reporting requirements on those already imposed by ERISA. At the Court’s invitation, DOL filed an amicus brief opining that ERISA does not pre-empt the Vermont statute because it applies to non-ERISA entities, as well, and does not impose significant reporting burdens. The DOL brief added, however, that the Court’s review was not currently warranted, and suggested that “further percolation” of the issue in the appellate courts would be beneficial. Given that the Court’s last decision on ERISA pre-emption was over 10 years ago, the Court may nevertheless be signaling its readiness to take the case, and to issue further guidance on ERISA’s pre-emptive reach.
  • RJR Pension Inv. Comm. v. Tatum – The Tatum case arose from a dispute over plan fiduciaries’ decision to divert the plan of company stock, at a time when the stock was distressed. After the company stock recovered dramatically, participants asserted ERISA claims that plan fiduciaries had acted imprudently in selling the stock at a time when the price was down significantly. The Fourth Circuit held, among other things, that (1) the burden of proving loss causation shifted to plan fiduciaries, upon a showing that the fiduciaries had breached their duty of prudent investment; and (2) plan fiduciaries must show a hypothetical prudent fiduciary “would have” (as opposed to “could have”) made the same investment decision, where there was no evidence that the plan’s fiduciaries had undertaken robust deliberations before divesting the plan’s holdings in company stock. The Court invited the DOL to brief both issues. If the Court takes the case, its decision could be significant. On the former issue, a decision from the Court would resolve diverging lower-court decisions on whether the plaintiff bears the ultimate burden of proof (including loss causation), or whether the burden-shifting approach of trust law – requiring a trustee, upon a showing of a breach of duty, to demonstrate that the breach did not cause the loss – is more appropriate for ERISA cases. On the latter issue, a decision from the Court could provide much-needed guidance on the proper scope of judicial review of fiduciary decision-making.

Although the Court has taken no action yet on the petition, it may be worth watching to see whether the Court takes up the case of UnitedHealthcare of Arizona, Inc. v. Spinedex Physical Therapy USA, Inc., No. 14-1286 (cert. pet. filed April 24, 2015). There, the Ninth Circuit held that a claims administrator is a proper party defendant in a medical benefits claim, even though it otherwise had no obligation as the benefits payer. Because ERISA §502(a)(1)(B) only authorizes suit for “benefits due … under the terms of his plan,” the Ninth Circuit’s reading of the statute – which purports to make claims administrators liable for benefits in a manner not contemplated by “the terms of the plan” – clearly seems overbroad. If left unaddressed, the Spinedexdecision could ultimately prove counter-productive, in that it will inevitably raise costs for service providers, which in turn, will be passed along to the plans, and ultimately to the participants in the form of higher premiums, larger deductibles, or less-generous coverage.

The Supreme Court has demonstrated some enthusiasm for ERISA in recent years. The Montanile case represents a significant beginning to the Court’s ERISA work for the next term. Given the cases and issues before it, however, the odds are that the Court will consider more ERISA cases in the next twelve months.

This post was written with contributions from William H. Payne IV.

ARTICLE BY Charles F. Seemann III of Jackson Lewis P.C.
Jackson Lewis P.C. © 2015

The Supreme Court Takes the BIA to Task – Mellouli v. Lynch

Monday, in an opinion authored by Justice Ruth Bader Ginsburg, the U.S. Supreme Court brought a measure of hope to non-citizens facing deportation on the basis of certain minor criminal convictions. In Mellouli v. Lynch, the Court ruled that Moones Mellouli, a lawful permanent resident, could not be removed from the United States on the basis of his Kansas conviction for concealing unnamed pills in his sock.

The Court’s decision took the Board of Immigration Appeals (“BIA”) to task for routinely applying inconsistent standards in its decision-making. Under federal law, an individual is subject to removal from the United States on the basis of a state “drug-related” conviction if the controlled substance at issue appears on the federal government’s list of controlled substances. If the controlled substance is on the state list, but not on the federal list, the conviction does not render the individual removable from the U.S.

The BIA applied this standard to drug possession and distribution offenses, but with regard to drug paraphernalia-related offenses, the BIA applied a different standard, subjecting a far greater number of non-citizens to deportation. The BIA’s position was that state drug paraphernalia statutes relate to “the drug trade in general” and therefore relate to any and all controlled substances, whether federally listed or not. In Mr. Mellouli’s case, no controlled substance even figured as an element of the offense of which he was convicted. Yet the BIA ordered him to be deported and the 8th Circuit Court of Appeals denied Mellouli’s petition for review.

The anomalous result of the BIA’s inconsistent interpretations was that a non-citizen who was convicted of possessing a controlled substance not on the federal list would not face removal from the country, but a non-citizen convicted of using a sock to hold the very same substance, would indeed be removed from the country.

Countering the usual deference federal courts give to administrative agency legal interpretations, the Supreme Court properly took the BIA to task for its inconsistent, overbroad and careless reasoning. In so doing, the Court has articulated to those bearing responsibility for removing non-citizens from their homes and families in the United States, that they must exercise restraint and discipline in reaching their decisions.

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