Today, the U.S. Supreme Court issued two opinions that will interest business trial lawyers.

In Global Crossing Telecommunications, Inc. v. Metrophones Telecommunications, Inc., No. 05-705 (U.S. Apr. 17, 2007), the Court upheld a Federal Communications Commission regulation that requires long-distance service providers to compensate payphone operators for processing customers’ "dial-around" calls.  (A dial-around call allows a customer to make a long-distance connection by entering a 1-800 number or other free access code.)  The Court concluded that sections 201(b) and 207 of the federal Communications Act authorized the FCC to enact the regulation and the payphone operators to sue in federal court for recovery of dial-around compensation.

In Watters v. Wachovia Bank, N.A., No. 05-1342 (U.S. Apr. 17, 2007), the Court addressed the authority of states to regulate national bank subsidiaries that engage in real estate mortgage lending activities.  The Court held that the National Bank Act and regulations under the Act preempt state law to the extent that they conflict.  States may regulate corporate formation, dissolution, and internal governance of subsidiaries but may not subject the subsidiaries to audits and surveillance under rival oversight regimes.

Barry Barnett

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The Los Angeles Times reports this morning:

The California Supreme Court handed workers a major victory Monday, in effect tripling the back pay they can seek if they are forced to work through meal and rest breaks required by state law.

The long-awaited decision affects hundreds of thousands of white-collar workers in industries such as retail, food service, insurance and banking who are called managers or assistant managers but who spend much of their day ringing up sales, stocking shelves or sweeping the floor alongside the workers they oversee.

Class-action lawsuits by employees seeking back pay for overtime and missed breaks have risen dramatically over the last decade, and lawyers predicted that Monday’s ruling would encourage more suits and possibly lead another attempt to change labor laws and regulations.

The report relates to Murphy v. Kenneth Cole Productions, Inc., No. S140308 (Cal. Apr. 16, 2007).

Barry Barnett

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The Department of Justice and Federal Trade Commission today issued a joint report on "Antitrust Enforcement and Intellectual Property Rights:  Promoting Innovation and Competition".  Blawgletter hasn’t studied the report just yet, but the DOJ press release summarizes some of the conclusions like this: 

• Antitrust liability for mere unilateral, unconditional refusals to license patents will not play a meaningful part in the interface between patent rights and antitrust protections. Antitrust liability for refusals to license competitors would compel firms to reach out and affirmatively assist their rivals, a result that is in tension with the antitrust laws;
• Conditional refusals to license that cause competitive harm are subject to antitrust scrutiny;
• Joint negotiation of licensing terms by standard-setting organization participants before the standard is set can be procompetitive. Such negotiations are unlikely to constitute a per se antitrust violation. The agencies will usually apply a rule of reason analysis when evaluating these joint activities;
• The agencies evaluate the competitive effects of cross licenses and patent pools under the rule of reason framework articulated in the 1995 Antitrust-IP Guidelines;
• Combining complementary patents within a pool is generally procompetitive. A combination of complementary intellectual property rights, especially those that block the use of a particular technology or standard, can be an efficient and procompetitive way to disseminate those rights to would-be users of the technology or standard. Including substitute patents in a pool does not make the pool presumptively anticompetitive­competitive effects will be ascertained on a case-by-case basis;
• The agencies apply a rule of reason analysis to assess intellectual property licensing agreements, including non-assertion clauses, grantbacks, and reach-through royalty agreements;
• The Antitrust-IP Guidelines will continue to guide the agencies’ analysis of intellectual property tying and bundling. The agencies consider both the anticompetitive effects and the efficiencies attributable to a tie, and would be likely to challenge a tying arrangement if: (1) the seller has market power in the tying product, (2) the arrangement has an adverse effect on competition in the relevant market for the tied product, and (3) efficiency justifications for the arrangement do not outweigh the anticompetitive effects. If a package license constitutes tying, the agencies will evaluate it under the same principles they use to analyze other tying arrangements;
• The agencies consider both the anticompetitive effects and the efficiencies attributable to a tie or bundle involving intellectual property;
• The starting point for evaluating practices that extend beyond a patent’s expiration is an analysis of whether the patent in question confers market power. If so, these practices will be evaluated under the agencies’ traditional rule of reason framework, unless the agencies find a particular practice to be a sham cover for naked price fixing or market allocation; and
• Collecting royalties beyond a patent’s statutory term can be efficient. Although there are limitations on a patent owner’s ability to collect royalties beyond a patent’s statutory term, see Brulotte v. Thys Co., 379 U.S. 29 (1964), that practice may permit licensees to pay lower royalty rates over a longer period of time which can reduce the deadweight loss associated with a patent monopoly and allow the patent holder to recover the full value of the patent, thereby preserving innovation incentives.

You can read a copy of the full 220-page report here.

Barry Barnett

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In his continuing efforts to educate the public, possibly as the result of a run-in with the authorities, Will Ferrell takes us to the horrific world of overbearing debt collectors.  You may view the video — starring Ferrell’s two year old landlord, Pearl — here.  Warning:  Contains language you don’t often hear from toddlers.

Barry Barnett

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The foregoing cases suggest that specific guarantees in the Bill of Rights have penumbras, formed by emanations from those guarantees that help give them life and substance . . . . Various guarantees create zones of privacy.

Griswold v. Connecticut, 381 U.S. 479 (1965).

Barry Barnett

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In a unanimous decision, the Supreme Court of California today chided a trial court for ruling on a motion for judgment on the pleadings before deciding whether to certify the case as a class action.  Fireside Bank v. Superior Court of Santa Clara County, No. S139171 (Cal. Apr. 16, 2007).

Fireside Bank sued Sandra Gonzalez to collect a deficiency on a car loan.  Ms. Gonzalez denied that the bank complied with state law requirements for a deficiency judgment and cross-claimed on behalf of a class of California borrowers who, like her, received defective notices from Fireside Bank.  She also moved for a judgment on the pleadings against the bank and, a little later, for class certification.  The trial court granted both motions on the same day.

The Court criticized the trial court’s sequencing, pointing to the danger that ruling on a merits issue before class members decide whether or not to opt out presents a danger of "one-way intervention".  Class members may join a case (or choose not to opt out) because they already know that they will win.  The Court held that the potential unfairness to defendants warrants postponing merits issues until after class certification.  The Court directed the trial court to vacate its ruling on the motion for judgment on the pleadings but also affirmed the certification order.

The decision, to Blawgletter’s eye, bucks a trend towards searching pre-certification scrutiny of merits issues.  Just last month, for example, the Fifth Circuit decertified a securities fraud case against Enron investment bankers because the court concluded that the plaintiffs didn’t state a cause of action.  (See post with opinion link here.)  And the Supreme Court of Texas often delves into the merits of defenses to determine whether or not they "apply" to class members.  See BMG Direct Mktg. v. Peake, 178 S.W.3d 763 (Tex. 2004) (reversing certification on ground that "voluntary payment" defense applies to class members’ claims).

The trend may simply reflect the fact that interlocutory review of class decisions has become common since rule changes in the 1990s.  But an appeals court can convert the criteria for class treatment into an opportunity to drill down until it hits the merits.  Blawgletter doubts that the extra layer of procedure and delay will often favor the plaintiff class.

Courts once recognized that delving into the merits before certification and notice poses risks for defendants as well as for plaintiffs.  The California decision today highlights that very point.  Appellate courts would do well to revive their former caution.

Barry Barnett

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The WSJ today reports that the Securities and Exchange Commission "is exploring a new policy that could permit companies to resolve complaints by aggrieved shareholders through arbitration, limiting shareholders’ ability to sue in court."  The change would allow companies that use public markets to sell their stocks and bonds to amend corporate bylaws to ban class actions and force individual arbitration of securities fraud claims.

The WSJ article refers to an interim report on November 30, 2006, by the Committee on Capital Markets Regulation.  (Press release here.)  Harvard Law Professor Hal Scott serves as Director of the CCMR, which says it aims to improve global competitiveness of U.S. capital markets.

Blawgletter notes that the arbitration recommendation appears under the heading "Shareholder Rights" and describes it as giving shareholders "the choice to decide how disputes with their companies should be resolved – through arbitration (with or without class actions) or non-jury trials." 

Both the heading and the description strike Blawgletter as a tad misleading.  A bylaw amendment would presumably apply equally to widows, orphans, and retirees, on the one hand, and to institutional investors, on the other.  The latter can protect themselves just fine, thank you very much, but the former can’t.  So the proposal would have the effect of throwing the little guy to the wolves and making corporate insiders even more insensitive to the welfare of those least able to stand up for themselves.

Barry Barnett

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