Judge Richard Posner of the 7th Circuit Court of Appeals, who has lately emerged as a persuasive critic of the U.S. patent system, believes patents are stifling innovation in this country, conferring unwarranted power on inventors who spend very little money to develop their creations. The one industry Posner exempts from this general rule is the brand-name pharmaceutical business, which he described in the Atlantic as “the poster child for the patent system.” He gave three reasons why drug companies need patent protection: New drugs cost millions of dollars to develop; drugmakers don’t get to earn money from their inventions for the entire life of the patent because it takes years of post-patent testing to bring a new product to market; and it’s cheap to copy drugs once someone else has invested heavily in developing them. Without patents, Posner wrote, drug developers would never recoup their costs.
The great thing for plaintiffs about claims under the Securities Act of 1933 (as opposed to the Exchange Act of 1934) is that you usually don’t have to show that defendants intentionally misled investors. The Securities Act carries strict liability for factual misstatements in offering documents, so plaintiffs get to slip under the high bar for establishing fraud.
There’s a new entry in the category of no-brainers: A holder of Barclays American Depository Receipts has brought the first of what is sure to be a string of Libor-related securities fraud class actions. The 47-page complaint, filed by Wolf Haldenstein Adler Freeman & Herz in federal court in Manhattan, asserts that Barclays and its former CEO, Bob Diamond, and outgoing chairman, Marcus Agius, lied to shareholders when they failed to disclose the bank’s manipulation of reports to the authorities who calculate the daily London interbank offered rate (or Libor), a benchmark for short-term interest rates.
If you’re already inclined to suspect governments of overreaching, boy will you hate the plan San Bernardino is contemplating.
More than four years after the Financial Accounting Standards Board first proposed a stringent new standard for corporate disclosure of litigation loss contingencies, it voted Monday to drop the effort, citing increased scrutiny of litigation exposure by the Securities and Exchange Commission and the Public Company Accounting Oversight Board. The accounting rulemaker’s decision has to be considered a relief for public corporations, many of which have bitterly opposed the FASB’s litigation disclosure proposals as a gift to plaintiffs’ lawyers.
The New York Times had a great front-page story on Sunday about corporations contributing to politically active non-profits in order to shield their campaign contributions from public view. That’s not a revelatory thesis – I’ve written about a suit by campaign-spending reformers to force such non-profits as Karl Rove’s Crossroads GPS to disclose corporate donors – but the Times dug deep for examples of specific corporate contributions, such as the $3 million that Aetna gave to the U.S. Chamber of Commerce, which was initially described in a regulatory filing as a “lobbying expense.”
Jennifer Barker of Louisville, Kentucky, insists she has never downloaded a pornographic movie from the Internet and has certainly never infringed anyone’s copyright through illegal porn downloading. So you can imagine her dismay when, according to a complaint filed Thursday by her lawyers at Henry & Associates, Barker was contacted in May by a woman asking her to settle an illegal porn-downloading claim that had been asserted against her in Florida. Barker was told that Internet records indicated she had downloaded several titles from the website X-Art, and that if she didn’t pay up she’d be subject to hundreds of thousands of dollars in judgments and would be publicly revealed as a porn downloader. When Barker refused, according to the complaint, she was harassed about the supposed claim, with messages left on her personal and work phones.
Remember the vicious fight between plaintiffs’ lawyers in competing New York and Delaware derivative suits against Bank of America’s board? In April, plaintiffs in the federal case in New York reached a proposed $20 million settlement with the defendants, which prompted their Delaware Chancery Court rivals to scream that the New York lawyers were settling on the cheap after an inadequate investigation. They attempted in both Delaware and New York to block the deal, arguing that the derivative suit should be worth as much as $500 million, but failed to enjoin the settlement. On Thursday, plaintiffs’ lawyers in the New York case filed a motion for preliminary approval of the $20 million deal.
Oh, the ironies of megabillion-dollar securities class action litigation!
Last Friday, shareholders filed their response to summary judgment motions by Bank of America and its executives in a class action claiming BofA failed to tell shareholders about Merrill Lynch’s escalating losses and sky-high executive bonuses before BofA bought Merrill in 2008. As you would expect, the shareholders and their lawyers at Bernstein Litowitz Berger & Grossmann, Kaplan Fox & Kilsheimer and Kessler Topaz Meltzer & Check spend considerable time rebutting defense arguments that, as a matter of law, shareholders weren’t injured by BofA’s alleged disclosure lapses. Those arguments, the plaintiffs’ lawyers said, have already been rejected in U.S. District Judge Kevin Castel‘s class certification decision in February.
If you’re reasonably literate about the financial crisis, you probably know that the credit rating agencies have slipped through the carnage like a cat walking away from a knocked-over vase. With their opinions on publicly offered mortgage-backed securities protected by the First Amendment, Standard & Poor’s and Moody’s have won dismissals of the vast majority of MBS investor claims against them in state and federal court, despite powerful evidence from congressional investigations that they worked with underwriters to confer investment-grade ratings on securities backed by dreck. With one possible exception, the only surviving cases against rating agencies involve claims by investors in private placements, who have successfully argued that private ratings aren’t protected free speech.