U.S. Supreme Court Archives - Page 2 of 3

President Obama Announces Merrick Garland as Nominee to United States Supreme Court

In a ceremony in the White House Rose Garden President Obama nominated Merrick Garland to replace Scalia’s on the United States Supreme Court. Garland would be the 113th justice, and he is a moderate circuit court judge who is well-respected by both Republicans and Democrats.

Finding Scalia’s replacement has already been contentious, but Garland is uniquely situated to handle the politics at hand. In the mid-90’s, Garland faced a lengthy political battle that delayed his confirmation for the United States Court of Appeals for the District of Columbia Circuit.

Obama has made it clear that he intends to fulfill his constitutional responsibility to nominate a Supreme Court Justice, despite calls that the decision wait for the next president. Obama, in an email to his supporters indicated three tenets in his decision-making process. He said he was looking for, “an independent mind, unimpeachable credentials and an unquestionable mastery of law” as well as an understanding of the limits of the court and that “justice is not about abstract legal theory, nor some footnote in a dusty casebook.”

Garland’s career has encompassed these tenets, as he used the law in emotional and difficult situations. In 1995, he coordinated the Justice Department’s response to the Oklahoma City Bombing, immediately arriving on scene. His hard work and dedication in that role helped cement his reputation and earned him respect on both sides of the aisle. In his formal announcement in the White House Rose Garden this morning, President Obama described Garland as:

More than just a brilliant legal mind. He is someone who has a keen understanding that justice is about more than abstract legal theory. More than some footnote in a dusty casebook. His life experience…informs his view that the law is more than an intellectual exercise. He understands the way the law affects the daily reality of how the law affects people’s lives in a big complicated democracy and rapidly changing times.

Garland, at 63, is an older nominee. As a centrist nominee he has been on the list of potential nominees for years. Obama has made it clear that he thinks the Senate should move quickly to consider the nomination, as Garland is a qualified and suitable candidate for the job. However, the nomination could be contentious, as Republican Senators have indicated an unwillingness to consider a candidate. Additionally, with the court being evenly split, Garland, if confirmed, would be the deciding vote on many issues.

The White house has created a twitter handle @SCOTUSnom to provide up-to-date information on the nomination process.

Article By Eilene Spear of The National Law Review / The National Law Forum LLC

U.S. Supreme Court Agrees to Review Obama Immigration Action Case

The U.S. Supreme Court agreed today to hear a case challenging President Barack Obama’s executive action on immigration. The Supreme Court will decide whether President Obama can proceed with plans to defer deportation and provide work authorization to millions of individuals currently in the United States without lawful status.

The Supreme Court granted certiorari in Texas et al. v. U.S. et al. today and indicated that it will take up an additional issue on whether the Obama administration’s action violates a constitutional clause that requires the president to faithfully execute the law (i.e., the Take Care Clause in Article II of the Constitution). The Court will hear arguments this April and a decision is likely to be issued this June, before the end of the Court’s current session.

In November 2014, the Obama Administration issued new policies allowing certain undocumented immigrants to apply for deferred action and work authorization allowing them to remain and work legally in the United States. These programs were to apply to certain individuals brought to the U.S. when they were under the age of sixteen (Deferred Action for Childhood Arrivals), and also to undocumented individuals who are parents of U.S. citizens or lawful permanent resident children (Deferred Action for Parents of Americans and Lawful Permanent Residents). Twenty six states filed suit to stop these policies from being implemented in December 2014. The United States District Court for the Southern District of Texas issued a preliminary injunction in February 2015, and, on November 9, 2015, the U.S. Court of Appeals for the Fifth Circuit affirmed the injunction. The Obama administration petitioned the Supreme Court on November 20, 2015 seeking immediate review of the Fifth Circuit’s decision

Article By Cynthia Liao of Jackson Lewis P.C.

U.S. Supreme Court Clarifies Procedures for Removal to Federal Court under Class Action Fairness Act

In a divided 5-to-4 opinion, the U.S. Supreme Court has held that defendants seeking to remove a case to federal court under the Class Action Fairness Act (“CAFA”) need only allege in the notice of removal an amount in controversy in excess of the $5 million threshold and need not attach evidence to the notice of removal proving the amount in controversy. Dart Cherokee Basin Operating Co., LLC v. Owens, No. 13-719 (Dec. 15, 2014).

Reversing the Tenth Circuit Court of Appeals’ decision, the majority opinion (authored by Justice Ruth Bader Ginsburg and joined by Chief Justice John Roberts and Justices Stephen Breyer, Samuel Alito, and Sonia Sotomayor) held that a notice of removal need not contain evidentiary submissions because the plain language of the removal statute itself requires only a “short and plain statement of the grounds for removal.”

Background

In the case below, the plaintiff, Brandon Owens, had filed a putative class action in Kansas state court alleging that defendants Dart Cherokee Basin Operating Company, LLC and Cherokee Basin Pipeline, LLC underpaid royalties they owed to Owens and the putative class members under oil and gas leases. The complaint failed to plead a specific amount of damages, seeking only “a fair and reasonable amount” of damages on behalf of Owens and the putative class members.

The defendants removed the case to the U.S. District Court for the District of Kansas under CAFA. In their notice of removal, the defendants alleged that the purported underpayments to the putative class members totaled more than $8.2 million, but defendants did not attach to their notice of removal any evidence to support the alleged amount in controversy. The plaintiff moved to remand the case, alleging that the defendants’ notice of removal was deficient because it failed to include evidence proving the amount in controversy exceeded the $5 million threshold under CAFA. The District Court granted the plaintiff’s motion to remand. A divided Tenth Circuit Court of Appeals subsequently denied defendants’ petition for review and petition for en banc review.

Supreme Court Decision

In the majority opinion, the Supreme Court noted the federal statute setting forth the requirements for a notice of removal (28 U.S.C. § 1446(a)) requires only that the notice contain “a short and plain statement of the grounds for removal.” The majority went on to note that, “[b]y design, § 1446(a) tracks the general pleading requirement stated in Rule 8(a) of the Federal Rules of Civil Procedure” and that the legislative history of § 1446(a) indicates the statute was intended to “simplify the pleading requirements for removal and . . . clarify that courts should apply the same liberal rules [to removal allegations] that are applied to other matters of pleading.”

The majority went on to explain that “when a defendant seeks federal-court adjudication, the defendant’s amount-in-controversy allegation should be accepted when not contested by the plaintiff or questioned by the court.” When the plaintiff does contest the defendant’s amount-in-controversy allegation, the majority held, “both sides submit proof and the court decides, by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied.” The majority concluded by stating that a notice of removal need only include “a plausible allegation” that the amount in controversy is met, and evidence to establish the amount in controversy is required only when the amount in controversy is contested by the plaintiff or questioned by the court.

Dissenting Opinion

Justice Antonin Scalia’s dissent (which was joined by Justices Anthony Kennedy and Elena Kagan, and joined in part by Justice Clarence Thomas) did not focus on the underlying question regarding the requirements for removal under CAFA. The dissent questioned whether the Supreme Court could even address the substantive issue in light of certain procedural and jurisdictional questions, and does not call into question the reasoning of the majority’s substantive holding.

***

The majority’s opinion resolves a prior split among circuit courts regarding a defendant’s burden when removing a case under CAFA. The law is now settled that a removing defendant need only make a good faith allegation in the notice of removal regarding the amount in controversy in order to meet its burden on removal. Only if the amount in controversy is challenged must a defendant offer evidence. Moreover, the majority made it clear that there is no presumption against removal jurisdiction in cases removed under CAFA, rejecting an argument often made by the plaintiffs contesting removal under CAFA.

ARTICLE BY

William J. Anthony

Jackson Lewis P.C.

United States Supreme Court Round-Up: Key Opinions from 2013 to 2014 and Upcoming High-Profile Business Disputes

The 2013–2014 term of the United States Supreme Court resulted in a wide range of decisions of importance to business. In this article, we highlight some of the key opinions and explore their likely impacts. We also preview a few of the high-profile business disputes the Supreme Court has agreed to hear next term.

Key Business Cases from the 2013–2014 Term

American Chemistry Council v. Environmental Protection Agency: Holding: The Environmental Protection Agency (EPA) reasonably interpreted the Clean Air Act to require sources that would need permits based on their emission of chemical pollutants to comply with “best available control technology” for greenhouse gases. Effect: The decision reinforces the Supreme Court’s previous recognition that the EPA has the power to regulate greenhouse gases as pollutants. However, portions of the decision strongly cautioned the EPA against overreach, stating that the agency may not “bring about an enormous and transformative expansion in [its] regulatory authority without clear congressional authorization.” These comments suggest that the Supreme Court may take a hard line when the Obama Administration’s other climate regulations eventually go to court.

Daimler AG v. Bauman: Holding: A foreign company doing business in a state cannot be sued in that state for injuries allegedly caused by conduct that took place entirely outside of the United States. Effect: Daimler makes it much harder for plaintiffs to establish general jurisdiction over foreign entities. The opinion re-characterizes general jurisdiction as requiring the defendant to be “at home” in the state, a circumstance that the Supreme Court suggested will generally be limited to the places where the defendant is incorporated or where it has its principal place of business. Moreover, the fact that a domestic subsidiary whose activities are imputed to the foreign parent may be “at home” in the state will not make the foreign parent “at home” in that locale for purposes of general jurisdiction.

Halliburton v. Erica P. John Fund, Inc.: Holding: Plaintiffs in private securities fraud actions must prove that they relied on the defendants’ misrepresentations in choosing to buy stock. Basic v. Levinson’s holding that plaintiffs can satisfy this reliance requirement by invoking a presumption that the price of stock as traded in an efficient market reflects all public, material information, including material misstatements, remains viable. However, after Halliburton, defendants can defeat the presumption at the class certification stage by proving that the misrepresentation did not in fact affect the stock price. Effect: While investors will continue to pursue class actions following large dips in stock prices, the Halliburton decision helps to level the playing field by providing defendants a mechanism to stop such suits at the class certification stage.

Lawson v. FMR LLC: Holding: Employees of privately held contractors or subcontractors of a public company are protected by the anti-retaliation provision of the Sarbanes-Oxley Act of 2002 (SOX). Effect: Following Lawson, there will likely be an increase in SOX litigation against public and non-public companies. Because many of the issues concerning the scope and meaning of SOX have yet to be resolved, lower courts will continue to wrestle with defining the parameters of the law. Questions left unanswered byLawson include whether the whistleblower’s accusation must be related to work he or she performed for the company and whether the contract with the public company must have some relation to public accounting or securities compliance.

Chadbourne & Park LLP v. Troice: Holding: The Securities Litigation Uniform Standards Act of 1988 (SLUSA) does not preclude state-law class actions based on false representations that the uncovered securities that plaintiffs were purchasing were backed by covered securities. Effect: SLUSA bars the bringing of securities class actions “based upon statutory or common law of any state” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with a purchase of sale of covered securities.” The statute defines “covered securities” to include only securities traded on a national securities exchange or those issued by investment companies.

U.S. v. Quality Stores: Holding: Severance payments to employees who are involuntarily terminated are taxable wages for purposes of the Federal Insurance Contributions Act. Effect: Employers should, under most circumstances, treat severance payments to involuntarily terminated employees as wages subject to FICA taxes. There are exceptions, however, and employers should therefore seek legal counsel to assist in determining the tax status of a particular severance arrangement.

Business Cases to Watch in the 2014–2015 Term

Integrity Staffing Solutions v. Busk: Whether time spent in security screenings is compensable under the Fair Labor Standards Act.

Mach Mining v. Equal Employment Opportunity Commission: Whether and to what extent a court may enforce the Equal Employment Opportunity Commission’s mandatory duty to conciliate discrimination claims before filing suit.

Omnicare v. Laborers District Council Construction Industry Pension Fund: Whether, for purposes of a claim under Section 11 of the Securities Act of 1933, a plaintiff may plead that a statement of opinion was untrue merely by alleging that the opinion itself was objectively wrong, or must the plaintiff also allege that the statement was subjectively false through allegations that the speaker’s actual opinion was different from the one expressed.

Young v. UPS: Whether, and in what circumstances, an employer that provides work accommodations to non-pregnant employees with work limitations must provide work accommodations to pregnant employees who are similar in their ability or inability to work.

As in recent years, the Supreme Court continues to grant review on more and more cases involving matters of concern to U.S. businesses. Andrews Kurth attorneys are available to provide further detail and guidance on the decisions highlighted here, and on any other issues of concern to your company that have reached the high court.

ARTICLE BY

Kelly Sandill

Andrews Kurth

U.S. Supreme Court Upholds Michigan’s Law Prohibiting Use of Race in College Admissions

On Tuesday, April 22, 2014, the U.S. Supreme Court issued an opinion that upholds a Michigan law prohibiting the use of race as a factor in admissions to public collegesand universities. In Schuette v. BAMN, Case No. 12-682 (argued Oct. 15, 2013) the high court reversed a Sixth Circuit Court of Appeals ruling that overturned the voter-enacted state constitutional amendment referred to as “Proposal 2” or Article I Section 26. Although the court’s 6-2 opinion stated “this case is not about the constitutionality, or the merits, of race-conscious admissions policies in higher education,” the decision is likely to influence other states to adopt similar constitutional bans on affirmative action in state-funded higher education.

Since 2003, Michigan has provided a venue for legal challenges to affirmative actionprograms in education. In that year, the U.S. Supreme Court reviewed the constitutionality of race-based admission policies of both the University of Michigan’s undergraduate college and its graduate law school. The outcomes of these cases were mixed. In Gratz v. Bollinger, 539 U.S. 234 (2003) the court struck down the undergraduate admission policy as a violation of the Equal Protection Clause of the U.S. Constitution’s 14th Amendment. In contrast, the court ruled in Grutter v. Bollinger, 539 U.S. 306 (2003) that the school’s more limited admissions policy for its law school was constitutionally permissible. Following those decisions, a number of states, including Texas, California, Oklahoma, Florida and Washington, have adopted constitutional amendments or other laws that prohibit affirmative action in school admissions and public employment.

In 2006, Michigan voters approved the following amendment to the state constitution by a margin of 58-42 percent: “The University of Michigan, Michigan State University, Wayne State University, and any other public college or university, community college, or school district shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.” In a 8-7 decision issued in November 2012, the 6th Circuit Court of Appeals held this language as unconstitutional because Proposal 2 placed “special burdens on minority interests” by targeting a program that “inures primarily to the benefit of the minority.”

In Justice Kennedy’s opinion, joined by Chief Justice Roberts and Justice Alito, the court considered whether authority existed to overturn a constitutional amendment adopted by a state’s ballot initiative. In order to do so, and based on the appellate court’s strong reliance on Washington v. Seattle School Dist. No. 1, 458 U.S. 457 (1982) the court would be able to overturn a ballot initiative that made it “more difficult for certain racial minorities than for other groups” to “achieve legislation that is in their interest.” This expansive reading, Justice Kennedy reasoned, could not conform to principles of equal protection because courts should not be required to declare which political policies serve the interests of a group defined in racial terms. Justice Kennedy cautioned: “…in a society in which those [racial] lines are becoming more blurred, the attempt to define race-based categories also raises serious questions of its own. Government action that classifies individuals on the basis of race is inherently suspect and carries the danger of perpetuating the very racial divisions the polity seeks to transcend.”

This significant decision upholds states’ rights to enact constitutional amendments by voter ballot initiatives. The broader implications of the Schuette decision are unclear. However, the outcome confirms public universities and government employers have a vested and ongoing interest in the changing shape of affirmative action policies.

Article By:

Of:

Barnes & Thornburg LLP

Supreme Court To Consider Employers’ Arguments Regarding Contraceptive Mandate

The United States Supreme Court will revisit the Affordable Care Act (“ACA”)requirement that most employers provide contraceptive coverage in employee health insurance plans. On November 26, 2013, the Court accepted two cases which center on the issue, each of which resulted in a different outcome. The ACA currently provides an exemption to certain non-profit religious organizations, but there is no such exemption for private employers.

The Supreme Court will now consider whether private companies should be able to refuse to provide employees with contraception coverage under their health plans on the basis of religion. Further, the Supreme Court may consider whether for-profit corporations may validly claim protection under freedom of religion.

In Sebelius v. Hobby Lobby Stores, Inc.^[1], the U.S. Court of Appeals for the 10th Circuit ruled that a requirement which forced Hobby Lobby to comply with the contraception coverage mandate violated the Religious Freedom Restoration Act, which protects religious freedom. Hobby Lobby is owned by David and Barbara Green, who have stated that they strive to run their company in accordance with their Christian beliefs. The Greens have no objection to preventive contraception, but only medication which may prevent human embryos from being implanted in the womb (i.e., “the morning-after pill”).

The 10th Circuit Appeals Court ruled in favor of Hobby Lobby based upon its decision in a previous case, Citizens United v. Federal Election Commission^[2]^, which held that corporations hold political speech rights akin to individuals. Taking this reasoning further, if a corporation can have political speech rights, then it should also have protection for its religious expression, according to the Court.

In Conestoga Wood Specialties v. Sebelius^[3], the U.S. Court of Appeals for the 3rd Circuit viewed the issue differently. The Court upheld the contraception coverage mandate based upon what it perceived as a “total absence of case law” to support any argument that corporations are guaranteed religious protection.

According to the ACA, contraceptive coverage provided by employers’ group health insurance plans is “lawful and essential” to women’s health; however, certain businesses assert that their religious liberty is more important. Ultimately, the United States Supreme Court will cast the deciding vote.

_{[1] Sebelius v. Hobby Lobby Stores, Inc., 723 F.3d 1114 (10th Cir. 2013).}

_{[2] Citizens United v. Federal Election Commission, 558 U.S. 310 (2010).}

_{[3] Conestoga Woods Specialties v. Sebelius, 724 F.3d 377 (3d Cir. 2013).}

Article by:

Brittany Blackburn Koch

Of:

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Supreme Court Declines Review of Intern Compensability Issue

While the compensability of time spent in internship programs continues to be an hotly contested litigation issue, the United States Supreme Court has declined an opportunity to provide clarity in this area, denying certiorari to a Florida medical billing intern whose claim was rejected last year by the Eleventh Circuit. Kaplan v. Code Blue Billing & Coding, Inc., 2013 U.S. LEXIS 8046 (U.S. 2013).

Perhaps multiple requests for high court review of an appellate decision will be necessary before the Supreme Court addresses the status of interns under the FLSA, as was required before the Court accepted review of the exempt status of pharmaceutical sales representatives.

Article by:

Noel P. Tripp

Of:

Jackson Lewis P.C.

Supreme Court to Consider Case on Patent Eligibility of Computer-Implemented Inventions

On December 6, 2013, the Supreme Court agreed to consider Alice Corp. v. CLS Bank International, a case concerning the patent eligibility of computer-implemented inventions. The Court will review a split decision issued by the en banc Federal Circuit in May 2013. In that decision, seven of 10 judges concluded Alice Corporation’s claims to computer-based methods for minimizing settlement risk in financial transactions, as well as claims to computer-readable media containing program code for performing such methods, constituted patent-ineligible subject matter under § 101. The judges split evenly, however, regarding the patent eligibility of Alice’s remaining claims to computerized systems for performing such transactions. Given the stark differences of opinion expressed by members of the Federal Circuit, it was widely predicted that the Supreme Court would step in to settle the dispute. The Court’s decision could have significant implications for the computer hardware and software industries, as well as for patent eligibility standards in general.

The Supreme Court is expected to hear arguments in early 2014, and a decision is expected by the end of the term in June 2014. The case number is 13-298.

Article by:

Kevin P. Moran

Richard L. Kaiser

Of:

Michael Best & Friedrich LLP

FTC v. Actavis, Inc.: Supreme Court Rules That Reverse Patent Settlements May Violate Antitrust Laws

On April 29, 2013, the Supreme Court declined to review a decision that had created uncertainty as to when a manufacturer’s customer loyalty program may violate antitrust laws. Most circuits considering the issue have found that companies can use loyalty programs or long-term agreements, as long as the rebates do not price the product below cost. The Third Circuit, however, found that a manufacturer’s customer loyalty program amounted to an unlawful “de facto exclusive dealing contract,” despite the above-cost price of the product. The Supreme Court’s decision to allow the Third Circuit opinion to stand raises many questions as to when manufacturers may use incentive programs and which legal standard will be used to analyze these agreements. Regardless of where a company is located, if the company’s products are sold within the Third Circuit (Pennsylvania, New Jersey, Delaware and the U.S. Virgin Islands), then that company may be impacted by this decision.

The case of ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Cir. 2012) cert. denied, ___ U.S. __, 2013 WL 673880 (U.S. Apr. 29, 2013), involved two manufacturers of heavy-duty truck transmissions. The defendant, a leading supplier of these transmissions in North America, signed long-term agreements with its customers. Those agreements provided incentives to its customers, offering rebates to those who purchased a specified percentage of their parts from the defendant manufacturer. The plaintiff, a competitor in the heavy-duty transmission market, brought suit, claiming that the defendant’s long-term agreements constituted illegal exclusive dealing contracts. After trial, a jury found that the agreements stifled competition and violated antitrust laws. The defendant sought to overturn the jury verdict, arguing that its agreements were lawful, because it priced its transmissions above cost. The U.S. District Court for the District of Delaware upheld the jury verdict, however, finding that there was sufficient evidence to conclude that defendant’s conduct unlawfully foreclosed competition. Defendant appealed to the Third Circuit.

On appeal, the defendant urged the Third Circuit to follow the First, Second, Sixth, Eighth, and Ninth Circuits, which apply a “price-cost test” when analyzing long-term agreements which offer above-cost rebates. Under the “price-cost test,” a company is not engaging in anticompetitive conduct if it prices its products above cost. Instead, the Third Circuit applied the “rule of reason” test and found that the customer loyalty program constituted a “de facto exclusive dealing arrangement.” Under the rule of reason, “exclusive dealing arrangements can exclude equally efficient (or potentially equally efficient) rivals, and thereby harm competition, irrespective of below-cost pricing.” Therefore, the Third Circuit upheld the District Court jury verdict, stating that defendant’s “conduct unlawfully foreclosed a substantial share of the HD transmission market, which would otherwise have been available for rivals.” The defendant then appealed to the Supreme Court, which declined to hear the case, allowing the Third Circuit’s decision to stand.

In refusing to consider the Third Circuit’s decision, the Supreme Court has failed to resolve a conflict in the circuits as to how long-term agreements containing rebates or other incentives will be analyzed by the courts. This conflict removes the predictability of a single “price-cost” standard applied across all circuits and creates uncertainty for manufacturers who wish to offer loyalty programs to their customers. In the future, manufacturers hoping to offer such programs may want to ensure that their agreements can withstand both the price-cost test and rule of reason analysis.

Article By:

Jason C. Hicks

Womble Carlyle Sandridge & Rice, PLLC

Supreme Court Hears Oral Argument in “Pay-for-Delay” Patent Settlement Antitrust Case

The National Law Review recently published an article, Supreme Court Hears Oral Argument in “Pay-for-Delay” Patent Settlement Antitrust Case, written by Jeffrey W. Brennan and Glenn Engelmann with McDermott Will & Emery:

On March 25, 2013, the Supreme Court of the United States heard argument on the issue of pharmaceutical patent settlement agreements between branded and generic drug companies that contain so-called “pay-for-delay” or “reverse payment” provisions. Federal Trade Commission v. Actavis, Inc., involves the Federal Trade Commission’s (FTC’s) appeal of the U.S. Court of Appeals for the 11th Circuit’s order affirming dismissal of an FTC charge that such an agreement was an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act. Proof that an agreement between competitors is anticompetitive under Section 5 (which only the FTC may enforce) and under Section 1 of the Sherman Act (for which there is a private right of action) is essentially the same. The Supreme Court’s ruling in FTC v. Actavis will almost certainly have major implications for the viability of FTC and private suits alleging that pay-for-delay settlements are anticompetitive, and for the level of antitrust risk facing companies that enter into such settlements.

Pay-for-delay challenges arise from settlements of patent infringement suits by branded drug patent holders against generic drug applicants under the Hatch-Waxman framework. Two provisions must be present for the theory to apply: a restriction on generic entry until a future date (even if the entry precedes patent expiration), and payment of money or other value by the brand to the generic firm. The payment typically is part of an ancillary agreement, such as a supply or co-promotion arrangement or IP license (coined a reverse payment because the plaintiff pays the defendant to settle). The FTC argues that this paradigm delays competition because it likely induces the generic to settle for later entry, or would have under exclusivity provisions if it won the lawsuit. The FTC finds the agreements presumptively unlawful and would put the burden on defendants to prove otherwise. Defendants counter that the patent conveys a right to exclude and that these settlements promote and accelerate competition, because they enable generic entry prior to patent expiration. Defendants assert that the burden should remain with the plaintiff to prove an anticompetitive effect.

The facts alleged in the FTC complaint squarely fit this paradigm. The settlement occurred in 2006. Solvay marketed branded drug Androgel. A formulation patent claiming Androgel expires in 2020. Generic drug firm Watson (now Actavis) had applied to the U.S. Food and Drug Administration for approval to launch a generic version of Androgel and certified that the generic product did not infringe Solvay’s patent and that the patent was invalid. Solvay sued Watson and another firm for patent infringement, then settled. The parties agreed that Watson would not launch its generic version of Androgel until 2015—five years prior to patent expiration—and that Watson would promote Androgel to a key customer source, urologists, and be compensated by Solvay for those services. The agreement thus contains both components of an FTC pay-for-delay paradigm: a time-restriction on generic entry and a reverse payment.

The 11th Circuit followed its own precedent in rejecting the FTC case under the “scope-of-the-patent” test. (The Second and Federal Circuits apply the same test.) Under that analysis, if the patent was not obtained by fraud, and the infringement suit is not a sham (i.e., objectively baseless), then a settlement does not violate the antitrust laws if its terms do not expand the exclusionary scope of the patent, such as by prohibiting generic entry even after the patent expires. Since the Solvay-Watson settlement provided for generic entry five years before patent expiration and did not otherwise allegedly fail the foregoing tests, the 11th Circuit affirmed dismissal of the FTC complaint. The Supreme Court likely accepted the case because of a circuit split on this issue. In 2012, in In re K-Dur Antitrust Litigation, in which the FTC was not a party, the Third Circuit reversed a district court and applied a legal analysis that rejects the scope-of-the-patent test and essentially adopts the FTC approach.

In the oral argument, the Justices directed a number of pointed questions and comments to each side. As noted, the government would put the burden on defendants to show that their agreement is not anticompetitive, arguing that “agreements of this sort should be treated as presumptively unlawful, with the presumption able to be rebutted in various ways” that do not include an assessment of the patent’s validity or of the strength of the infringement claim. Members of the Supreme Court expressed skepticism about that rule. Justice Kennedy responded, “[t]hat’s my concern, is your test is the same for a very weak patent as a very strong patent. That doesn’t make a lot of sense.” Justice Scalia said that to not evaluate the strength of the patent in assessing competitive effects is to leave out “the elephant in the room.” Justice Breyer remarked that the government proposes “a whole set of complex per se burden of proof rules that I have never seen in other antitrust cases,” adding, “I’m worried about creating some kind of administrative monster.”

Justices also had pointed comments for the companies’ counsel, particularly on whether it is appropriate to find that the patent has an absolute right to exclude even though it was being tested in court. The companies’ counsel argued that “the patent gives the patentholder the legal right to exclude” and that unless the patent is legally unenforceable, the patentholder is “entitled to monopoly profits for the whole duration of the patent.” Justice Sotomayor said “there is no presumption of infringement” by the generic product, “[s]o what you’re arguing is that in fact a settlement of an infringement action is now creating the presumption.” She added, “I don’t know why we would be required to accept that there has or would be infringement by the product that has voluntarily decided not to pursue its rights.” Justice Kagan remarked that “[i]t’s clear what’s going on here is that [the brand and generic firms are] splitting monopoly profits and the person who’s going to be injured are all the consumers out there,” and that under the companies’ proposed rule, the brand and generic firm will have the incentive “in every single case . . . to split monopoly profits in this way to the detriment of all consumers.”

The Supreme Court’s term concludes in June 2013, by which time a decision is expected.

Tag: U.S. Supreme Court

President Obama Announces Merrick Garland as Nominee to United States Supreme Court

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U.S. Supreme Court Agrees to Review Obama Immigration Action Case

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