You can try a patent infringement case, win a verdict awarding millions in damages, and prevail on appeal as to the other side's invalidity defense, but still lose the case because the U.S. Patent and Trademark Office later declares the patent invalid.

So held the Federal Circuit, by a 2-1 vote, on July 2, 2013. Fresenius USA, Inc. v. Baxter Int'l, Inc., No. 12-1334 (Fed. Cir. July 2, 2013). The majority, per Circuit Judge Dyk, ruled that, under Mendenhall v. Barber-Greene Co., 26 F.3d 1573 (Fed. Cir. 1994), the post-judgment outcome of the USPTO re-examination trumped the district court and Federal Circuit results because the judgment had not become truly final when the USPTO issued its invalidity finding.

Circuit Judge Newman dissented. He wrote:

My colleagues now hold that this entire litigation and decisional panoply is negated by the later decision of the Patent and Trademark Office of the issue of validity. My colleagues hold that the prior final adjudication by this court of validity and infringement is irrelevant, and that the later decision by the PTO overrides and displaces our prior adjudication, depriving the parties to that adjudication of their binding judgments.

This holding violates the rules of finality, for judgments of Article III courts are “final and conclusive upon the rights of the parties,” Gordon v. United States, 117
U.S. 697, 702 (1864);
Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 226 (1995) (same).

I respectfully dissent. 

Will the decision prompt district courts to stay cases pending the results of re-exam proceedings, fearing all their work will go for naught? Will the case go en banc?

What do you think? Let us know.

Hay HaulingAn opening statement in a recent trial started with this:

In 1975, when I was 16 years old, a friend who I played football with at Nacogdoches High School and I spent the summer hauling hay. We would drive out every day looking for farmers who were baling their hay and sometimes when they were cutting hay, so we would know where to come back to when it was time to haul it.

Randy had a three-quarter ton pickup truck. Randy Simpson was my friend, and we would work from early in the morning until late at night. We'd get maybe 15 cents a bale for picking up the bales as they would come out of the baler, putting them on Randy's pickup truck, driving them to the barn, and then stacking them up in the barn. It was hot, hard, dirty work, but it was great to work for ourselves, and it was good money to us.

One day when Randy dropped me off at home he was telling me in my driveway that some of his friends had told him about a wealthy farmer that had a hay elevator, electric hay elevator that would pull the bales up to the high loft. And he said his friends had talked to him about taking the hay elevator and selling it. He asked me what I thought about it. And I told him it wasn't something I was interested in.

When I was at home that night, watching TV with my dad, he must have overheard the conversation. And he said, son, [necessary pause] Randy doesn't have a dad at home. [Pause.] You need to tell your friend [pause] that you don't take people's property without paying for it.

That's what this case is about. It's about taking property that doesn't belong to you and not paying for it.

You might wonder: Did the case have anyting to do with farming or with hay?

No. It dealt with standard-essential patents on wireless telecommunications technology.

Did East Texas figure into the case at all?

No. The dispute pitted a Taiwanese company against  one from Canada.

Did the jurors get the point?

Would you have?

The story, by the way, had a happy ending. Randy chose the right path, without prompting. And the case settled. A win-win, you might say.

1998-134-4_newSnappy reclines. The Empire State Building looms in the mid-distance. Bitey consults his notes. He clears his throat.

Bitey:    The U.S. Supreme Court's summer break started last week, Snaps, and the time has come for us to look at the . . . uh . . . results of the 2012-13 Term for those commercial cases we love so dear.

Snappy:    Polonius said "brevity is the soul of wit." Please model yourself on that maxim.

Bitey:    You mean the guy who talked way too much? Hid behind a curtain? Said "very like a whale"? And took a Hamlet knifing that killed him?

Snappy:    You prove my point by missing it.

Bitey:    Ouch.

Snappy:    You do it to yourself, my dear Bitey.

Bitey:    Anyways, I count 15 Supreme Court cases that involved commercial issues — the kind of questions that tend to pit Company A against Entity B.

Snappy:    And how did Big Business do against the Little Guy?

Bitey:    Oh, quite well, Your Snappiness. I can tell because those nice liberterian people at the Cato Institute said they "went 15-3" in cases it briefed to the Court this Term! And Cato won all four of the commercial cases it weighed in on. Not to mention the U.S. Chamber of Commerce's National Chamber Litigation Center, which did almost as well, going 6-2.

Snappy:    Did Polonius say anything about the rich getting richer?

Bitey:    I think you mean Andrew Jackson, Snapster.

Snappy:    Not. Have you tallied the results of the 15 cases, pray?

Bitey:    Yes, indeed I have done that.

Snappy:    And?

Bitey:    By my count, big business won 10 ouf of the 15.

Snappy:    That sounds awful. But not horrific? Please tell me the details.

Bitey:    Okie dokie. Here goes. I put the pro-big biz outcomes in red and left the others in black.

Alien torts

Does the Alien Tort Statute, which Congress passed in 1789 to allow "any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States", cover a law-of-nations violation that occurs outside the U.S. (in Nigeria, say)?

No. The ATS will almost never apply to alien torts that take place in an alien nation. Kiobel v. Royal Dutch Petroleum Co., No. 10-1491 (U.S. Apr. 17, 2013) (Cato & Chamber win) (per Roberts, with Scalia, Kennedy, Thomas, and Alito joining; dissent per Breyer, with Ginsburg, Sotomayor, and Kagan joining).

Antitrust

Does the "state-action" doctrine, which bars federal antitrust claims, apply to a Georgia law that gave public hospital authorities the power to buy rival hospitals?

No. The Peach State statute did not make clear that Georgia cared not a fig if anticompetitive effects ensued from using the power in order to squelch competition. FTC v. Phoebe Putney Health Sys., Inc., No. 11-1160 (U.S. Feb. 19, 2013) (per Sotomayor, for a unanimous Court).

May a drug-maker pay a rival not to compete with it on sales of a drug so long as the payor has a patent that on its face gives it the right to stop the rival from competing?

No. Antitrust law may condemn the pact, and allow recovery of damages or other relief, if the deal unduly hurts competition. The bigger the payment to the infringer, the more likely the arrangement harms competition. FTC v. Actavis, Inc., No. 12-416 (U.S. June 17, 2013) (per Breyer, with Kennedy, Ginsburg, Sotoyamor, and Kagan joining; dissent by Roberts, with Scalia, and Thomas joining; Alito recused himself).

Arbitration

Does the federal Arbitration Act bar arbitration clauses that make winning a federal claim too costly for a sane person to pursue?

No. "Too darn bad", says the dissent. Am. Express Co. v. Italian Colors Restaurant, No. 12-133 (U.S. June 20, 2013). (Chamber win) (per Scalia, with Roberts, Kennedy, Thomas, and Alito joining; dissent by Kagan, with Ginsburg and Breyer joining; Sotoyamyor recused herself).

Bankruptcy

Does the bar to discharge in bankruptcy under 11 U.S.C. 523(a)(2)(A) of a claim for "defalcation while acting in a fiduciary capacity" require knowledge or reckless disregard of the improper nature of the bankrupt debtor's conduct?

Yes. You can't prevent discharge of a claim against a fiduciary unless you prove that the fiduciary had a bad intent. Bullock v. BankChampaign, N.A., No. 11-1518 (U.S. May 13, 2013) (per Breyer, for unanimous Court).

Class/Collective Actions

Must a plaintiff who alleges a fraud claim under the Securities Exchange Act of 1934 prove the "materiality" element of the claim in order to obtain class treatment of the claim on behalf of all fraud victims under Rue 23(b)(3) of the Federal Rules of Civil Procedure?

No. Because the answer to the materiality question will apply to all class members alike, Rule 23(b)(3) does not require a court to assess the evidence for and against a finding of materiality and instead defers the question to the summary judgment and trial stages of the case. Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, No. 11-1085 (U.S. Feb. 27, 2013) (Chamber loss) (per Ginsbrug, with Roberts, Breyer, Alito, Sotomayor, and Kagan joining; dissent by Scalia, with Kennedy and Thomas joining).

Does an arbitrator's ruling on whether the parties' contract permits class treatment of claims bind the parties under the federal Arbitration Act?

Yes. Even a dumb ruling by an arbitrator carries the day so long as he ties it somehow to the contract. Oxford Health Plans LLC v. Sutter, No. 12-135 (U.S. June 10, 2013) (Chamber loss) (per Kagan, for unanimous Court).

Does the mootness of a plaintiff's own claim under the Fair Labor Standards Act of 1938 also moot his effort to sue on behalf of others?

Yes. If offering to pay full damages and costs to the plaintiff in fact moots his claim — a matter of great dispute between the majority and dissenters — he cannot represent others in a collective action (or, presumably, in a class action). Genesis Healthcare Corp. v. Symczyk, No. 11-1059 (U.S. Apr. 16, 2013) (Chamber win) (per Thomas, with Roberts, Scalia, Kennedy, and Alito joining; dissent by Kagan, with Ginsburg, Breyer, and Sotomayor joining).

Did the plaintiffs' model that proved class-wide damages from Comcast's drive to thwart cable competition in greater Philadelphia prove class-wide damages?

No. The majority read the record to establish that the model did not match the anticompetitive conduct with the resulting harm in all 16 counties. (Blawgletter respectfully begs to differ.) Comcast Corp. v. Behrend, No. 11-864 (U.S. Mar. 27, 2013) (Cato & Chamber win) (per Scalia, with Roberts, C.J., and Kennedy, Thomas, and Alito joining; dissent by Ginsburg and Breyer, with Sotoymayor and Kagan joining).

May a plaintiff defeat removal of a class action case from state to federal court under the Class Action Fairness Act of 2005 by claiming that the amount in dispute falls below the $5 million threshold for removal?

No. The plaintiff cannot bind the absent class members before class certification. Standard Fire Ins. Co. v. Knowles, No. 11-1450 (U.S. Mar. 19, 2013) (Cato & Chamber win).

Copyright

Does the "first sale" doctrine of copyright law defeat claims against U.S. sales of copies that began life overseas? 

Yes. You can import into the U.S. books and copies of other works that someone lawfully made outside the U.S. Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697 (U.S. Mar. 19, 2013) (per Breyer, with Roberts, Thomas, Alito, Sotomayor, and Kagan joining; dissent by Ginsburg, with Kennedy and Scalia joining (Scalia only in part)).

Patent

Did Monsanto "exhaust" its right to stop infringement of its patent on a strain of soybeans when it sold beans that could produce infringing crops in the future?

No. The defendant's "blame the bean" defense did not persuade the Court. Bowman v. Monsanto Co., No. 11-796 (U.S. May 13, 2013) (per Kagan, for a unanimous Court).

Does U.S. patent law allow patents on tests that flag a patient's higher risk of getting cancer by detecting an abnormal gene sequence that influences the cancer risk?

No. You can't patent a law of nature or a process that simply uses a law of nature. Ass'n for Molecular Pathology v. Myriad Genetics, Inc., No. 12-398 (U.S. June 13, 2013) (per Thomas, with Roberts, Kennedy, Ginsburg, Breyer, Alito, Sotomayor, and Kagan joining; Scalia concurred in part and in judgment).

Securities

Does the "discovery rule" stop the five-year statute of limitations from running against the federal government on a civil claim for violation of the Investment Advisors Act?

No. Although private parties may invoke the discovery rule under federal securities law, the feds cannot. Gabelli v. SEC, No. 11-1274 (U.S. Feb. 27, 2013) (Cato & Chamber win) (per Roberts, for unanimous Court).

Trademark

Does a broad promise not to sue for trademark infringement and like state-law claims moot a claim for a judgment declaring the trademark invalid?

Yes. A covenant not to sue can remove any real risk of a lawsuit and therefore moot the dispute. Already, LLC v. Nike, Inc., No. 11-982 (U.S. Jan. 9, 2013) (per Roberts, for unanimous Court; Kennedy concurred, and Thomas, Alito, and Sotomayor joined him).

Snappy:    Thanks, Bitey. I learned a lot! But I get the feeling that plaintiffs did worse than the 10-5 tally suggests. Do you think so?

Bitey:    Absolutement, Snappers. Remember that Cato won all four of its cases, and the Chamber's NCLC lost only two out of eight. The wins will have wider impact than the losses.

The Cato angle reminds me of Inspector Clouseau. Without the humor.

If you have a claim under the Securities Act of 1933, you need to act promptly — within one year after you knew or should have known you had a claim and within three years "after the security was bona fide offered to the public" or "more than three years after the sale of the security." 15 U.S.C. § 77m.

Note the "and". Even if you could not have learned that you had a basis for a claim within the three-year period, if you sue after the three years expire, you lose. And if you reasonably could have discovered the claim within the three years but wait more than a year to file suit, you lose as well.

But the Supreme Court carved out an exception to the running of limitations under federal law if someone else filed a class action that covered your claim. So long as the class claim remained pending, the Court held, the limitations period went dormant for you. It stopped running.

That gave you time to decide what to do. If a court granted class treatment of the case, you could either remain a member of the class or "opt out" of it and pursue your own claim, either individually or with a group of others. If the court denied class certification, you would have to file your own case if you wanted to pursue a recovery.

The doctrine for class action "tolling" goes under the name "American Pipe", after the case that created the concept. Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974). But Am. Pipe and its offspring left open a question, at least in the context of claims under the Securities Act. Does it apply both to the one-year period and the three-year one?

The Second Circuit held this week that American Pipe tolling exists only with respect to the shorter time frame. The panel based its ruling on the distinction between a "limitations" period — which it deemed "procedural" — and a "repose" period — which it called "substantive". Congress enacted the three-year cut-off as a substantive deadline of "repose", thus making class members who sue within the one-year limitations period but beyond the repose due date unable to invoke American Pipe tolling. Police & Fire Retirement Sys. of the City of Detroit v. IndyMac MBS, Inc., No. 11-2998-cv(L) (2d Cir. June 27, 2013).

What does that mean to you, assuming you have a Securities Act claim? It means that you cannot count on a class action to extend your time for filing a claim. If you think you may want to opt out, you need to put the three-year deadline on your calendar and take action before the period expires.

Will the Second Circuit's ruling open the floodgates to opt-outs in Securities Act cases? It may in the context of people that have large claims. They will need to accelerate their decision-making on whether to opt out of a class case or stay in it. Because if they wait, they'll lose the flexibility they thought they had — before now.

 

Someone who uses a product that infringes a patent does what People Who Know call "direct" infringement. But what about the person who makes the product or sells it to the direct infringer? Does he get off scot-free?

Maybe. It depends on whether the seller "induced" the direct infringer to infringe.

An inducement claim requires that the seller know the patent exists and that "the induced acts constitute infringement." Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011).

What the heck does that mean? We know that a good-faith belief that the acts don't infringe the patent — usually because a lawyer opined to that effect – can defeat an inducement claim. You can't know that "the induced acts constitute infringement" if you believe the opposite.

But what if you believe the acts do infringe the patent but that for some reason the patent lacks "validity" — because, say, it doesn't involve patentable subject matter or makes only an "obvious" improvement over prior art?

The Federal Circuit ruled this week that in deciding guilt or innocence under an inducement theory of liability a jury may consider whether the defendant in good faith believed that the patent lacked validity. Commil USA, Inc. v. Cisco Systems, Inc., No. 2012-1042 (Fed. Cir. June 25, 2013).

One of the panel members dissented on that ground. We'll see if the issue goes en banc.

Wall Street wants freedom, lots and lots of freedom, to do again what it did in the years leading up to the near melt-down it went through in 2008. It desires liberty to buy and sell swaps and other exotic (derivative) contracts as it sees fit.

Two of Wall Street's proxies, the Investment Company Institute and the Chamber of Commerce, sued to block the Commodity Futures Trading Commission from enforcing new rules that aim to curtail the leeway financial behemoths have to destroy civlization as we know it. The D.C. Circuit said no. Inv. Co. Inst. v. Comm. Futures Trading Comm'n, No. 12-5413 (D.C. Cir. June 25, 2013).

Blawgletter won't bore you with the details, but we will highlight one point of dispute. The Wall Streeters urged that the CFTC should exempt derivatives that relate somehow to "risk management" instead of only those that qualify as "bona fide hedging transactions". As we have explained, the difference between bona fide hedging transactions and other kinds of derivative trades means the difference between insuring a house you own and trading in "financial weapons of mass destruction".

Bonus:    If you like this subject, see here, here, and here.

A 5-4 Supreme Court today ruled that the Constitution forbids the federal government from refusing to recognize same-sex marriages. United States v. Windsor, No. 12-307 (U.S. June 26, 2013).

Justice Anthony Kennedy wrote for the Court. Justices Breyer, Ginsburg, Kagan, and Sotomayor joined him.

Chief Justice Roberts and Justices Alito, Scalia, and Thomas dissented.

The decision capped a Term in which the Court tilted heavily in favor of big business, particularly on issues relating to class actions, employment discrimination cases, and alien tort claims. Justice Kennedy made the difference there, too.

Look for a review of the Term’s big commercial cases here next Monday.

The right to due process limits an award of punitive damages to, oh, about 10 times the amount of actual damages. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003).

Does the same 10x cap apply to a verdict falling within a range that Congress set by statute?

No, it doesn't, the First Circuit held today.

The ruling came in a copyright infringement case against Joel Tenenbaum, a serial willful down-loader of music files. Tenenbaum mounted a "fair use" defense. It fell flat. How flat? So flat that a tech blogger blasted the lawyers for "their dreadful handling of the case."

So flat that the Boston jury hit Tenenbaum with $22,500 per offense — well within the $750 to $150,000 statutory range. The First Circuit "d[id] not hesitate" in holding that the $675,000 award for stealing 30 songs passed constitutional must (under the fifth and fourteenth amendments' due process clauses). Sony BMG Music Ent't v. Tenenbaum, No. 12-2146 (1st Cir. June 25, 2013).

Blawgletter watched the oral arguments last year in Fisher v. Univ. of Texas, No. 111-345 (U.S. June 24, 2013). We came away thinking that UT's program for giving boosts to well-off minority applicants would crash and burn. Today it crashed. The burning will await its return to New Orleans, where the Fifth Circuit must now apply "strict scrutiny" to decide whether the program passes constitutional muster.

We do not plan to hold our breath.

Under Title VII, an employer’s liability for [racial] harassment [at work] may depend on the status of the harasser. If the harassing employee is the victim’s co-worker, the employer is liable only if it was negligent in controlling working conditions. In cases in which the harasser is a "supervisor," however, different rules apply. If the supervisor’s harassment culminates in a tangible employment action, the employer is strictly liable. But if no tangible employment action is taken, the employer may escape liability by establishing, as an affirmative defense, that (1) the employer exercised reasonable care to prevent and correct any harassing behavior and (2) that the plaintiff unreasonably failed to take advantage of the preventive or corrective opportunities that the employer provided. . . . Under this framework, therefore, it matters whether a harasser is a "supervisor"or simply a co-worker.

We hold that an employee is a "supervisor" for purposes of vicarious liability under Title VII if he or she is empowered by the employer to take tangible employment actions against the victim, and we therefore affirm the judgment of the Seventh Circuit.

Vance v. Ball State Univ., No. 121-556 (U.S. June 24, 2013) (affirming dismissal of Title VII claim on ground harasser did not supervise plaintiff despite her control over plaintiff's schedule and assignments).