The 127th installment of Blawg Review arrived right on time this morning.  It fairly crackles with useful dope on voir dire.  You know — that thing where you ask questions to detect the potential jurors who, if you don’t smoke them out, will sabotage your case.

Anne Reed offers the "17 Best Tips for Voir Dire".  Four stars.  Blawgletter says check it out.

Barry Barnett

Our feed sometimes snaps and pops.

Adam Liptak writes with wit, incision, and elegance.  So today we happily feature his NYT article on former federal judge Michael B. Mukasey — "Nuance and Resolve in Rulings by Attorney General Nominee".

Mr. Mukasey comes across as a bit of a hard-ass but a fair one.  He adores George Orwell — he of Animal Farm — and reveres Justice Robert Jackson — he of the Nuremberg trial and of cabining executive power.

Like President Bush, Mr. Mukasey doesn’t appear to dwell on "nuance".  But, unlike the nominator, the nominee does recognize its utility, even its occasional necessity.  And he looks unlikely to tolerate further cuckolding of the Justice Department.  So still we say — Call Us Crazy, but We Like Mukasey.

Barry Barnett

Bulldog, bulldog, bow-wow-wow.

According to the Washington Post and the WSJ, affiliates of Kohlberg Kravis Roberts and Goldman Sachs have called off their deal to acquire Harman International Industries for $8 billion. 

The parties signed an Agreement and Plan of Merger as of April 26, 2007.  Harman anticipated a closing by year-end.  But, now, KKR and Goldman stand to walk away after paying a $225 million termination fee.

Can they?  Legally, Blawgletter means.  Let’s look at the papers.

Section 6.03(a) of the APM gives KKR and Goldman an out if a "Company Material Adverse Effect" occurs before closing.  It provides:

Section 6.03 Conditions to Obligation of Parent and Merger Sub to Effect the Merger. The obligation of Parent and Merger Sub to effect the Merger is further subject to the fulfillment or waiver by Parent and Merger Sub of the following conditions:

          (a) The representations and warranties of the Company set forth in this Agreement (other than the representations and warranties set forth in Section 3.02 and Section 3.11(b)) shall be true and correct (disregarding all qualifications or limitations as to “materiality”, “Company Material Adverse Effect” and words of similar import set forth therein) as of the date of this Agreement and as of the Closing Date as though made on the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, have a Company Material Adverse Effect. The representations and warranties of the Company set forth in (i) Section 3.02 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date) and (ii) Section 3.11(b) shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on the Closing Date.

As we read the language, it means that KKR and Goldman may skip out on the merger if (a) Harman made false reps or warranties in the APM unless (b) the untrue reps or warranties "would not, individually or in the aggregate, have a Company Material Adverse Effect."

So now we need to examine the definition of CMAE.  Section 3.10(c) provides:

        (c) As used in this Agreement, any reference to any fact, circumstance, event, change, effect or occurrence having a “Company Material Adverse Effect” means any fact, circumstance, event, change, effect or occurrence that, individually or in the aggregate with all other facts, circumstances, events, changes, effects, or occurrences, (1) has or would be reasonably expected to have a material adverse effect on or with respect to the business, results of operation or financial condition of the Company and its Subsidiaries taken as a whole, or (2) that prevents or materially delays or materially impairs the ability of the Company to consummate the Merger, provided, however, that a Company Material Adverse Effect shall not include facts, circumstances, events, changes, effects or occurrences (i) generally affecting the consumer or professional audio, automotive audio, information, entertainment or infotainment industries, or the economy or the financial, credit or securities markets, in the United States or other countries in which the Company or its Subsidiaries operate, including effects on such industries, economy or markets resulting from any regulatory and political conditions or developments in general, or any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism (other than any of the foregoing that causes any damage or destruction to or renders physically unusable or inaccessible any facility or property of the Company or any of its Subsidiaries); (ii) reflecting or resulting from changes in Law or GAAP (or authoritative interpretations thereof); (iii) resulting from actions of the Company or any of its Subsidiaries which Parent has expressly requested or to which Parent has expressly consented; (iv) to the extent resulting from the announcement of the Merger or the proposal thereof or this Agreement and the transactions contemplated hereby, including any lawsuit related thereto or any loss or threatened loss of or adverse change or threatened adverse change, in each case resulting therefrom, in the relationship of the Company or its Subsidiaries with its customers, suppliers, employees or others; (v) resulting from changes in the market price or trading volume of the Company’s securities or from the failure of the Company to meet internal or public projections, forecasts or estimates provided that the exceptions in this clause (v) are strictly limited to any such change or failure in and of itself and shall not prevent or otherwise affect a determination that any fact, circumstance, event, change, effect or occurrence underlying such change or such failure has resulted in, or contributed to, a Company Material Adverse Effect; or (vi) resulting from the suspension of trading in securities generally on the NYSE; except to the extent that, with respect to clauses (i) and (ii), the impact of such fact, circumstance, event, change, effect or occurrence is disproportionately adverse to the Company and its Subsidiaries, taken as a whole.

Sheesh!  Who writes this prose?  James Joyce?

But let us soldier on.  The important parts appear, to us, to involve the limitations on what constitutes something that "(1) has or would be reasonably expected to have a material adverse effect".  The first key limitation excludes developments "(i) generally affecting the consumer or professional audio, automotive audio, information, entertainment or infotainment industries, or the economy or the financial, credit or securities markets".  Presumably that axes the recent turmoil in credit markets. 

The other significant restriction carves out stuff "(v) resulting from changes in the market price or trading volume of the Company’s securities or from the failure of the Company to meet internal or public projections, forecasts or estimates".  So that may knock out Harman’s recent disappointing earnings report as a CMAE.  But the same clause "strictly limit[s]" the carve-out "to any such change or failure in and of itself" and states that the exceptions in the carve-out "shall not prevent or otherwise affect a determination that any fact, circumstance, event, change, effect or occurrence underlying such change or such failure has resulted in, or contributed to, a Company Material Adverse Effect".  We suppose that means that a failure to meet projections doesn’t amount to a CMAE unless the "underlying" cause of the failure does.

Ready to put it all together?  Okay.  Here we go.

1. KKR and Goldman have the right to terminate the APM (upon payment of $225 million) if Harman misrepresented something or breached a warranty in the APM unless the misrepresentation or warranty breach would not have a CMAE.
2. A false rep or warranty doesn’t have a CMAE if it results (a) from a general industry downturn or problems in the credit or securities markets or (b) from a reaction to Harman’s failure to meet projections, except that the "underlying" reasons for the disappointing results may otherwise reflect a CMAE.

Who has to prove a CMAE?  We would imagine the burden rests on KKR and Goldman.  But can they simply point to a misrepresentation or breach of warranty and require Harman to show that it "would not . . . have a Company Material Adverse Effect"?  We don’t know offhand, but we do expect a fight over that very issue.

Barry Barnett

A parse, a parse, our kingdom for a parse.

Neurontin(R) ranks 44th among the Top 50 Drugs.

Brand name drugs cost a lot more than generic versions of the same (or bioequivalent) chemical compounds.  At retail pharmacies alone, consumers save over $8 billion annually by purchasing generics.  Hospital buys add billions more to the savings.

But brand name drugs benefit from patent protection.  A generic manufacturer thus can’t safely get its product to market unless it beats the patentee’s infringement claims.

A case that the Federal Circuit decided yesterday illustrates the process.  Warner Lambert, Pfizer, and Godecke hold a patent for gabapentin, the active ingredient in Neurontin(R), which treats cerebral disorders such as epilepsy.  The drug companies sued several generic outfits after they filed Abbreviated New Drug Applications with the Food and Drug Administration, seeking permission to market generic gabapentin.  The Judicial Panel for Multidistrict Litigation centralized the cases in the District of New Jersey.  The district court issued several rulings, including construction of claim terms in the gabapentin patent and an order granting summary judgment of noninfringement.

The Federal Circuit upheld the claim constructions but reversed the summary judgment.  The court concluded that the patentees’ expert evidence raised a fact issue as to whether samples of the generic product satisfied a limitation on the parts per million of chloride in the generic drug.  The question of fact precluded summary judgment on noninfringement.  In re Gabapentin Patent Litig., No. 06-1572 (Fed. Cir. Sept. 21, 2007).

The upshot?  As a press release tells it:

Pfizer said the ruling will allow the company to seek a judgment of infringement and, if successful, pursue full compensation for the damages it suffered due to the 2004 at-risk launch of generic versions of Neurontin.  Prior to such launch, Pfizer’s sales of Neurontin were more than $2 billion a year, and the patent does not expire until 2017.

Blawgletter guesses that Pfizer, et al., hope to recoup profits they lost as a result of generic competition.  With a gabapentin market now totaling $2.8 billion a year, their recovery could run into the hundreds of millions if not billions.

How you feel about the Big Pharma victory in Gabapentin probably turns on whether you favor strong enforcement of patent rights or, instead, put more weight on the losses to consumers from suppression of generic competition.  But you may also want to consider that, before 2004, as much as 90 percent of Neurontin sales went to "off-label" uses.  And that in 2004 Warner Lambert pleaded guilty to charges that it marketed Neurontin for such uses and paid more than $430 million in fines.

Barry Barnett

We mix up a fresh batch of Blawgletter almost every day.

The Federal Circuit yesterday reversed a preliminary injunction that barred a patent holder from threatening potential infringers with litigation.  GP Industries, Inc. v. A Gutter Solution, LLC, No. 07-1087 (Fed. Cir. Sept. 20, 20007).

The patent holder, Eran Industries, sent letters in which it vowed to take "all necessary steps to stop the infringement" of its patent rights and accused companies of engaging in "criminal" and "racketeering" activity by using Eran’s intellectual property.  The district court preliminarily enjoined Eran from "communicating" similar "information" to customers, distributors, contractors, and others.

The Federal Circuit vacated the injunction because, it held, the evidence didn’t show that Eran acted in "bad faith".  The court noted that bad faith requires a finding that the patent holder asserted "objectively baseless" claims and concluded that the evidence didn’t support such a finding.  Nor had the district court found objective baselessness.  The panel accordingly determined that the district court abused its discretion.

Blawgletter marvels at the court’s overweening concern about a patentee’s "right to inform potential infringers of a patent and potentially infringing activity unless the communication is made in bad faith."  Slip. op at 7.  The court set a high threshold for bad faith, concluding that accusations of "criminal" and "racketeering" activity don’t amount to it so long as the patent holder has some objective basis for believing that infringement of a valid patent may have occurred. 

We regret that the court said nothing to discourage verbal bomb-throwing in the guise of protecting patent rights.  To us, as to the district court, the deliberate use of inflammatory language to frighten businesses objectively signals an improper motive and ought to require the inflamer to justify using it — say, by showing a prima facie case of criminality instead of hiding behind a presumption of a good faith basis for validity and infringement.

Barry Barnett

Sow the wind, reap the whirlwind.

Copyright 2007 Barry Barnett

The Fifth Circuit yesterday reversed a fraud verdict and rendered judgment against the plaintiffs.  The case involved claims by insurers against a chiropractic clinic and others for inflating insurance claims.  Although "deeply shocked and saddened by the [defendants’] dishonest practices", the court found insufficient evidence that the insurers actually relied on medical claim submissions in paying claims or that the "disgorgement" damages award reflected actual overpayments to the defendants.  Allstate Ins. Co. v. Receivable Finance Co. LLC, No. 05-10265 (5th Cir. Sept. 20, 2007).

Barry Barnett

Our feed wishes you a happy Friday.

Nathan Koppel at the WSJ reports that a federal grand jury indicted Melvyn Weiss yesterday on charges relating to paying securities purchasers to serve as class representatives.

The indictment comes after former partners at Milberg Weiss Bershad Hynes & Lerach agreed to plead guilty to making "secret payments" to people who succeeded in representing classes of securities buyers.  The pleaders include David Bershad, William Lerach, and Steven Schulman.  The firm split three years ago.

Also yesterday, the editorial page of the WSJ gloated about the fall of the mighty Mr. Lerach while today celebrating its hope to preserve the sanctity of the attorney-client communication privilege for criminal suspects.

Barry Barnett

Our feed loves its job.

Blawgletter saw a recent headline about American companies’ welcoming of federal regulation.  We got the gist that the businesses now prefer the feds to pass nation-wide rules because the U.S. agencies demand less of them than many states do.  And federal preemption doctrine protects them from liability for transgressing state mandates.

The tragic killing this week of Iraqis by a North Carolina contractor, Blackwater, appears to have resulted from an extreme case of U.S. preemption.  The Coalition Provisional Authority, which disbanded in June 2004 when it turned over "sovereignty" to an Iraqi government, exempted Blackwater not only from U.S. military regulations but also from Iraqi law.  As the Washington Post reports, the CPA’s special dispensation made the contractor "untouchable".

The WSJ today glorifies preemption not as a way to protect consumers but as a device for reining in trial lawyers.  The op-ed piece, "Trial-Lawyer Kowtow", urges Congress to prevent "state juries" from "second-guess[ing] FDA scientific decisions" because otherwise new drug-labelling legislation would deliver "a high dose of steroids for the plaintiffs bar."

Blawgletter tries to to avoid hyperbole, but we don’t see a material difference between preempting Iraqi law, on the one hand, and overriding the laws of the 50 United States, on the other.  Both sacrifice individual accountability in the name of uniform laxity.  And both cost lives.

Barry Barnett

Send not to know for whom the bell tolls.