A multi-week jury trial in the Southern District of New York ended today with a verdict for the Securities and Exchange Commission against Sam Wyly and the estate of his brother Charles Wyly Jr.
The SEC alleged that the Wylys had used offshore trusts to make secret trades and that they received more than $550 million in profits as a result of the trades.

Shutterstock_129280403Hershey hosts.

If you find yourself this in the neighborhood of Hershey, Pennsylvania — the Sweetest Place on Earth — you may want to see if you can sneak into a two-hour discussion of "Current Issues in Multidistrict Litigation and Class Actions". The event kicks off the first full day of the Third Circuit Judicial Conference's 71st yearly meeting. It starts at 9:00 a.m. in the Hershey Lodge.

You actually have to register for the Conference. Nor does Blawgletter recommend crashing an event that is full of people who routinely send people to federal prison.

Impact of Hydrogen Peroxide, Wal-Mart, Comcast, and other developments in class actions.

But you couldn't keep me away, as I will appear as a speaker on a panel that will feature Senior Circuit Anthony J. Scirica as moderator.

You will recall that Judge Scirica wrote a blockbuster 2008 opinion, one that loosed a tide of challenges to class certification motions. The court's ruling in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir. 2008), set the stage for a case that I had the privilege to argue to the U.S. Supreme Court, Comcast Corp. v.  Behrend, 133 S. Ct. 1426 (2013).

Panelist members.

My fellow speakers will be John Beisner of Skadden Arps, Professor Stephen Burbank of the Penn law school, Elizabeth Cabraser of Lieff Cabraser, and Robert Heim of Dechert — a very distinguished group.

You may expect a lively airing of views but no fist fights.

You can't have everything.

Shutterstock_188646650

How not to defer.

Last month, Blawgletter pointed out that the Supreme Court had granted review in a case that may curb the Federal Circuit. We noted:

A rule that has applied in patent cases since 1998 may go the way of Chevy Cobalt ignition switches.

"Deference, I Don't Have to Show You any Stinkin' Deference" riffed on a line from The Treasure of the Sierra Madre (1948), in which Gold Hat, posing as a Mexican Federale, says "Badges, I don't have to show you any stinkin' badges."

The post reports on the latest in a long line of Federal Circuit rulings in which the court has taken the view that it can — must — review decisions about "claim construction" in patent cases de novo.

The Supreme Court today granted certiorari in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., No. 13-854 (U.S. Mar. 31, 2014). The cert. petition poses this question:

Whether a district court’s factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case), or only for clear error, as Federal Rule of Civil Procedure 52(a) requires.

You can see the SCOTUSblog page on Teva here.

What does it mean? Requiring the Federal Circuit to defer to district courts' rulings on claim construction issues that involve factual disputes would give more certainty to the results of trial court proceedings and lower the risks and costs of litigating patent cases.

We said a couple of weeks ago that "Blawgletter expects that the Supreme Court will take up the issue soon, maybe next Term. It should."

It did.

Today the Court curbed the Federal Circuit in another area — awards of fees to prevailing parties in "exceptional" patent cases. A finding that a case qualifies as an exceptional one permits but does not require the district court to make the losing party pay the other side's attorneys' fees. See 35 U.S.C. 285 ("The court in exceptional cases may award reasonable attorney fees to the prevailing party.") (with our emphasis).

Fee-shifting.

Since 2005, the court of appeal that handles practically all appeals in patent cases had felt free to overrule district courts' determinations of "exceptional" status without paying much heed to the lowers courts' discretionary calls. The court also required proof by clear and convincing evidence rather than by the more lenient preponderance of the evidence test.

In two cases, the Court ended the Federal Circuit's reign of too-often finding error.

In Octane Fitness, LLC v. ICON Health & Fitness, Inc., No. 12-1184 (U.S. Apr. 29, 2014), the Court unanimously held that "an 'exceptional' case is simply one that stands out from others with respect to the substantive strength of the party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Id. at 7-8. No longer do you have to prove almost the equivalent of sanctionable conduct.

The Court also ordered the Federal Circuit to apply the preponderance standard — not the much tougher clear and convincing test — for proof of exceptional status. Id. at 11-12.

In Highmark Inc. v. Allcare Health Mgmt. Syst., Inc., No. 12-1163 (U.S. Apr. 29, 2014), the Court (again 9-0) ruled that the Federal Circuit must apply the "abuse-of-discretion" test for all "exceptional" case status determinations. The Federal Circuit must therefore defer to district courts' determinations so long as they don't abuse their discretion in viewing the case as an exceptional one.

Does it matter? For "patent trolls"?

Both cases will likely lead to more fee-shifting awards by district courts and fewer reversals of those awards by the Federal Circuit. That matters in that it gives — some would say keeps — power in the trial court to reward or punish bad conduct.

Some people have quickly asserted that the Court's rulings spell bad news for "patent trolls" — companies that own patent portfolios but don't make anything with them, preferring instead to sue firms that do "practice" the inventions. But those not-very-smart folks should think again.

Many such non-practicing entities – a less hateful term — own high-quality patents. When they prevail, they now have a better chance of getting not only a reasonable royalty award and maybe an injunction but also millions of dollars in attorneys' fees.

Watch out infringers — it'll cost you even more now.

Shutterstock_175661123Boy, the Federal Circuit's sure lowered the boom on Seventh Circuit Judge Richard Posner in Apple Inc. v. Motorola, Inc., No. 12-1548 (Fed. Cir. Apr. 25, 2014).

Smartphone warfare.

The appeal dealt with Judge Posner's rulings as a trial court judge in the Northern District of Illinois phase of the titanic smartphone struggle between Apple and Motorola, which Google now owns. 

Apple good.

Judge Posner gave an unduly narrow reading of an Apple patent, the panel held, and that mistake led him to undervalue the reasonable royalty that the patent would fetch from a hypothetical licensee. He also erred in excluding damages testimony relating to another Apple patent. The expert could properly rely on another expert for an estimate of what a design-around would have cost Motorola, the court observed.

Motorola bad.

But he panel upheld Judge Posner's striking of a Motorola damages expert's testimony. It concluded that the expert failed to show that just one of the patents in Motorola's large portfolio accounted for 40 to 50 percent of the portfolio's value. The expert's "failure to tie the 40%-50% rate to the technological contribution of the patent to the standard-essential portfolio" made his opinion "inherently unreliable". Id. at 58.

Standard-essential patents can justify injunctive relief . . . but not in this case.

The court also held that the standard-essential nature of a patent — meaning that you can't comply with an industry standard without infringing the patent — does not per se prohibit granting an injunction against infringement. "[A]n injunction may be justified where an infringer unilaterally refuses a FRAND [which stands for fair, reasonable, and non-discriminatory] royalty or unreasonably delays negotiations to the same effect." Id. at 72. The court upheld the denial of an injunction on summary judgment against Motorola because Motorola failed to show that Apple had refused to make a FRAND deal.

When Blawgletter last reported a few weeks ago on the Supreme Court of Texas, we didn't think the Court could top its record of ruling against each and every plaintiff unanimously.

We feel dumb today.

The court issued five opinions, with no dissents, in which their honors ruled for the defendants without exception.

In only one of the cases did any of the justices put his or her name on the opinion. Per curiam — by the court — emblazoned all the rest.

What should we make of the fact that the court has lately uniformly and unanimously struck down any judgment that favored a plaintiff and upheld any in which the defendant prevailed?

You may want to consider filing your case if possible in another state or choose arbitration.

Not that long ago, the court convinced many sister supreme courts to follow its lead with the persuasiveness of its reasoning. The court at the time had a balance of Democratic and Republican members. See Balance on Texas Supreme Court = Most Influence.

European Union FlagsGet ready, folks, for a new wave of cases under the Racketeer-Influenced and Corrupt Organizations Act of 1970 — RICO, for short. The Second Circuit ruled this week that a case by the European Community and EC member states may proceed with a RICO case against RJR Nabisco for money laundering and worse. European Community v. RJR Nabisco, Inc., No. 11-2475-cv (2d  Cir. Apr. 23, 2014). Plaintiffs may now deploy RICO to reach conduct that occurs outside of the United States but that other laws cannot reach.

Morrison Presents No Barrier

The panel's decision reversed the district court's dismissal. The dismissal relied on the Supreme Court's sharp limitation of cases that attempt to apply federal law to conduct overseas. In Morrison v. Nat'l Australian Bank Ltd., 130 S. Ct. 2869 (2010), the Court upheld this ruling by the Second Circuit:

Something about a class of overseas people suing an Australian bank about securities fraud that emanated from the world's smallest continent.  They lost on subject matter grounds.  Seems the U.S. Securities Exchange Act doesn't reach so far.

See Morrison, 130 S. Ct. at ("When a statute gives no clear indication of an extraterritorial application, it has none.") (post here).

Some Predicate Act Statutes Say They Apply Overseas

The panel's reversal hinged on the fact that RICO deems violations of certain criminal statutes "predicate acts" and the fact that some of the predicate act statutes expressly allow extraterritorial application. The money laundering statute, for example, states that "[t]here is extraterritorial jurisdiction over the conduct prohibited by this section." 18 U.S.C. 1956(f). Because the EC plaintiffs alleged violations of that and other predicate act statutes that by their terms reach beyond our national borders, the largely European nature of the unlawful "enterprise" that engaged in the "pattern of racketeering activity" didn't matter. The panel held:

The claims of the Complaint asserting RICO liability for a pattern of violations of these predicates meet the statutory requirements for extraterritorial application of RICO. The district court erred in dismissing, as impermissibly extraterritorial, the RICO claims.

European Community, slip op. at 19 (foonote omitted).

Impact

Victims of foreign conduct that violates any of the dozens of statutes that RICO section 1961 defines as predicate act offenses will want to see whether the relevant statutes call for extraterritorial application. If they do, those victims will further want to look into whether the conduct overseas also satisfies the "enterprise", "pattern", and other requirements of RICO. That the victims suffered harm outside the United States may not matter under RICO. And for that reason RICO may have a rebirth of sorts.

A new decision by the Fourth Circuit underscores the public's first amendment right to know what happens in the course of a lawsuit in federal court. It's also a reminder that secret papers that you so confidently filed under seal may not stay that way. Shutterstock_187777886

The Case

Since 2008, the Consumer Product Safety Commission has published an online database of "reports of harm". The reports aim to alert consumers to dangerous products.

The CPSC gave notice to the maker of a product of the Commission's intent to disclose a report "that attributes the death of an infant to a product manufactured and sold by Company Doe." Company Doe v. Public Citizen, No. 12-2209, slip op. at 3 (4th Cir. Apr. 16, 2014). Company Doe — not its real name — filed suit in the District of Maryland to enjoin the CPSC from doing what it intended. The district court — "regrettably" in the phrasing of the main Fourth Circuit opinion as well as of the concurring judge — chose not only to grant the injunction but also to put under seal (and therefore keep from the public) just about everything relating to the case, starting with the plaintiff product maker's name.

The Ruling

The court spent 61 pages explaining how the district court went wrong. A few quotes capture the panel's unhappiness with their colleague's extreme measures to protect Company Doe:

  • "[I]t would be anomalous to conclude that the First Amendment right of access [to court records] applies to materials that formed the basis of the district court's decision ruling on a summary judgment motion but not the court's opinion itself." Id. at 42.
  • "[T]here is a more repugnant aspect to depriving the public and press access to docket sheets: No one can challenge closure of a document or proceeding that is itself a secret." Id. at 44.
  • "A corporation very well may desire that the allegations lodged against it in the course of litigation be kept from public view to protect its corporate image, but the First Amendment right of access does not yield to such an interest." Id. at 46.
  • "[W]e find no credible evidence to support Company Doe's fear that disclosure of the challenged report of harm and the facts of this case would subject it to reputational or economic injury, particularly in light of the fact that the district corut's entry of judgment in favor of Company Doe vindicated the company and its product." Id. at 48.
  • "We are not blind to the fact that a corporation's image or reputation may diminish by being embroiled in litigation against the government over the safety of one of its products. That is the nature of public litigation." Id. at 50.
  • The first amendment right to petition the government "does not provide for a right to petition the courts in secret." Id. at 51.
  • "But the public right of access under the First Amendment and common law is not conditioned upon whether a litigant wins or loses." Id.at 55.
  • "We therefore hold that, when a party seeks to litigate under a pseudonym, a district court has an independent obligation to ensure that extraordinary circumstances support such a request by balancing the the party's stated interest in anonymity against the public's interest in openness and any prejudice that anonymity would pose to the opposing party." Id.at 58.

The panel reversed the district court's ruling and remanded the case with instructions to unseal the record in its entirety.

 What It Means

Company Doe serves as a reminder that the first amendment and the common law both require open public access to the contents of courts' files. It also makes clear that the requirement applies to everything from the court's docket sheet to the parties' pleadings, motions, and supporting exhibits as well as to the court's orders and opinions.

Those of us who handle lawsuits don't often think about the presumption of openness. Judges routinely sign protective orders that allow the opposite — the filing of papers under seal and sometimes even without a description of what they consist of or the relief they seek. But if push comes to shove you'll have to justify the secrecy. Company Doe found that out the hard way.

GW Bridge

The George Washington Bridge.

Who has the better argument in the Bridgegate subpoena flap?

New Jersey Superior Court Judge Mary Jacobson on April 9 quashed subpoenas that a special investigative committee of the Garden State's legislature served on a pair of former high-level aides to Governor Chris Christie, Bridget Anne Kelly and William Stepien. Judge Jacobson explained her reasons in a 98-page opinion, saying many times that the committee had embarked on a "fishing expedition". The committee insists that it desired no such thing and acted in complete good faith.

You can read the ruling here. (Hat tip to Business Insider.)

The dispute may come down to whether the subpoenas should have asked only for documents that Kelly and Stepien prepared or received in the course of doing their official duties. The subpoenas instead sought ALL documents "regarding the reduction from three to one of the eastbound Fort Lee, New Jersey access lanes to the George Washington Bridge between September 9, 2013 through September 13, 2014." That, per the court's opinion, "would include contacts between Mr. Stepien and his family members simply discussing the lane closures in a non-official, purely personal way."

Judge Jacobson held that forcing Kelly and Stepien to turn over responsive documents would amount to requiring them to admit that the documents they produced "regard[ed]" the lane closures and thus would compel them perhaps to incriminate themselves, in violation of their right under the fifth amendment not to have to do that. But the legislators claimed that a lot of the documents in fact belonged to the State of New Jersey and that Kelly and Stepien could have no legitimate claim to withhold them, fifth amendment or not.

The court rejected that point — which strikes Blawgletter as a pretty good one — on the ground that just because the subpoenas asked for some materials "that may fall within the required-records exception is not a sufficient reason to order the defendants to comply with the overbroad subpoenas without a grant of immunity". "The court will not engage in redrafting the subpoenas, which are so facially overbroad that any 'judicial surgery' would be unworkable."

So. The court declined to narrow the subpoenas so that they asked only for materials that related to official duties and therefore belonged to New Jersey and not its two ex-employees.

What do you think?

Do federal judges protect their own?

Before Blawgletter suggests an answer, let’s look at the case that raises the question.

The Fourth Circuit upheld a summary judgment for E. I. DuPont de Nemours & Co., ruling that the South Korean plaintiff, Kolon Industries Incorporated, failed to raise a fact issue either as to DuPont’s “monopoly power” in the U.S. market for para-aramid fibers (e.g., Kevlar) or as to its “willful maintenance” of the monopoly power it did not have. Kolon Indus., Inc. v. E. I. DuPont de Nemours & Co., No. 12-1587 (4th Cir. Apr. 3, 2014) (http://www.ca4.uscourts.gov/Opinions/Published/121587.P.pdf).

The panel held, 2-1, that DuPont’s sub-60-percent-and-dropping share of the market didn’t give it “durable” power to control price or exclude rivals. The majority also agreed with the district court that Kolon did not present proof that DuPont’s exclusive supply agreements with customers foreclosed Kolon from gaining a “critical bridge” to a big market share big enough to sustain it as a viable competitive source of para-aramids.

The panel also concluded that Kolon’s delay in asking the district court to recuse himself — due to his participation as counsel for DuPont in an earlier lawsuit that involved patents on para-aramid fibers and financial interest in his old law firm — warranted denial of the tardy motion for recusal.

The panel separately vacated a trade secrets judgment for just shy of $1 billion against Kolon. The district court erred, the panel held, by refusing to let Kolon present evidence that DuPont disclosed some of the alleged trade secrets in the earlier lawsuit. It also ordered that the district court on remand must assign a new judge to hear the case going forward.

Those last two parts of the decision will not go in the law books. The panel chose not to publish the separate opinion. Kolon Indus., Inc. v. E. I. DuPont de Nemours & Co., No. 12-1587 (4th Cir. Apr. 3, 2014) (per curiam) (http://www.ca4.uscourts.gov/Opinions/Unpublished/121260.U.pdf).

The panel’s choice — splitting the case into two opinions, using the one it published to talk about the antitrust claim and forfeiture of the right to recusal of the trial judge, and dealing with the trade secrets case and removal of the judge who survived formal recusal in the non-precedential and unpublished one — suggests that their honors wished not to embarrass their colleague any more than they had to. We will leave to you what that implies about the question at the top of this post.

Shutterstock_546772Being obnoxious doesn't pay. Or does it?

In one six-month period, Rabbi S. Binyomin Ginsberg griped to Northwest Airline 24 times about "travel problems, including 9 incidents of [his] bag arriving late at the luggage carousel". Northwest, Inc. v. Ginsberg, No. 12-462, slip op. at 2 (U.S. Apr. 2, 2014). Mr. Ginsberg also "continually asked for compensation over and above our guidelines" and received "$1,925.00 in travel credit vouchers, 78,500 WorldPerks bonus miles, a voucher extension for your son, and $491.00 in cash reimbursements". Id. When Northwest fired him from its frequent flyer program, he brought a class action on behalf of himself and other firees for "damages in excess of $5 million" plus "injunctive relief requiring Northwes to restore the class members' WorldPerks status and prohibiting Northwest from future revocations of membership." Id. at 3.

Some might say that Mr. Ginsberg had gotten a lot out of his constant complaining. But he went too far in the class case, the Supreme Court held today, singling out one of his several theories. "Because respondent's implied covenant of good faith and fair dealing claim seeks to enlarge his contractual agreement with petitions, we hold that 49 U.S.C. 41713(b)(1) pre-empts the claim." Id. at 14. The Court thus reversed the Ninth Circuit and sent the case back to the district court. Id. at 14-15.

Writing for a 9-0 Court, Justice Alito pointed out that Mr. Ginsberg might have "vindicated" his "claim of ill treatment by Northwest . . . if he had pursued his breach-of-contract claim after its dismissal by the District Court." Id. at 14. That claim alleged that "the frequent flyer agreement did not actually give Northwest unfettered discretion to terminate his membership in the program". Id.

Photo credit: Robert Sarosiek/Shutterstock.com.