Opinion

Alison Frankel

New worry for patent infringement defendants: antitrust claims

Alison Frankel
Sep 20, 2013 17:49 UTC

Patents are by their very nature anticompetitive. Patent holders, after all, enjoy a limited-time monopoly on their products, during which they and they alone are legally permitted to profit from their innovation. When antitrust claims rear up in the context of patent law, they’re almost always brought against patent holders that supposedly abused their monopoly power to stifle competition, whether by falsely asserting patents to scare off rivals or by refusing to license their technology. But a counterintuitive $113 million (before trebling) verdict Thursday by federal-court jurors in Marshall, Texas, shows that patent holders can successfully wield allegations of infringement to bolster their own antitrust claims.

The verdict came in an antitrust and false advertising case that Retractable Technologies brought against Becton Dickinson, its much-larger rival in the market for syringes, catheters and other disposable medical products. For more than a decade, Retractable has asserted that BD engaged in illegal tactics to squelch demand for Retractable’s superior products. The two companies reached an antitrust settlement in 2004, but a few years later Retractable returned to court with a new set of accusations. In addition to antitrust claims, the new suit included allegations that BD infringed Retractable’s patents on a safety syringe. The case tied the two sets of claims together with an argument that one of BD’s anticompetitive tactics was to flood the market with a cheaper knockoff of Retractable’s syringe.

The patent infringement and antitrust cases were eventually severed, which gave BD’s lead counsel at Paul, Weiss, Rifkind, Wharton & Garrison an opportunity to argue in a motion for partial summary judgment in the antitrust case that no federal court has ever countenanced antitrust claims based on patent infringement – which, by definition, increases competition by introducing additional products to the market. (Unfortunately, all of the briefing directly addressing this point is sealed, but you can get a flavor for BD’s argument in a motion for leave to file the summary judgment brief.) “To permit the jury to consider patent infringement as a form of anticompetitive conduct under the Sherman Act would break from precedent and directly contradict 5th Circuit law,” BD asserted. “No court in any jurisdiction has ever found that patent infringement is anticompetitive conduct for purposes of the antitrust laws. Rather, every court to have considered whether patent infringement can harm competition for antitrust purposes has rejected that claim as a matter of law.” In particular, BD pointed to the 5th Circuit’s 1978 ruling in Northwest Power Products v. Omark, which quoted an even older 5th Circuit holding that “patent infringement is not an injury cognizable under the Sherman Act precedent.”

But last month, U.S. Magistrate Judge Roy Payne said in a report and recommendation that BD was asserting too broad a reading of the case law. The 5th Circuit and other courts have held that infringement doesn’t constitute an antitrust injury, he said, but they have not ruled that infringement can’t be an element of anti-competitive conduct. Payne said he certainly wasn’t going to issue a sweeping decision that infringement cannot be the basis of an antitrust cause of action. In the “vast majority of cases,” he said, infringement does increase competition so it fails as an antitrust theory, but Retractable’s allegation was that BD infringed its patent as part of an anticompetitive scheme to reduce Retractable’s market share. “This court is not entitled to disregard the actual theories and evidence set forth by (Retractable) in favor of the abstract approach advanced by BD, especially in the context of a motion for summary judgment,” Payne held. Earlier this month, U.S. District Judge Leonard Davis adopted the magistrate’s recommendation and denied BD’s motion for partial summary judgment on Retractable’s infringement-based antitrust claims.

While the antitrust case was under way, Retractable’s severed patent infringement case went to trial. A federal jury in the Eastern District of Texas found that BD had infringed various valid Retractable patents in 2010. The Federal Circuit Court of Appeals partially affirmed and partially reversed the judgment of infringement in a 2011 decision that remanded some of the patent claims to the trial court. In any event, despite BD’s best efforts, the antitrust trial this month featured evidence that BD had misappropriated Retractable’s IP.

Don’t get too excited about JPMorgan’s admissions to the SEC

Alison Frankel
Sep 19, 2013 19:18 UTC

The Securities and Exchange Commission was pretty darn pumped about its $200 million settlement Thursday with JPMorgan Chase, part of the bank’s $920 million resolution of regulatory claims stemming from losses in the notorious “London Whale” proprietary trading. And why not? As George Cannellos, the co-director of enforcement, said in a statement, JPMorgan’s $200 million civil penalty is one of the largest in SEC history. The agency also showed that it’s serious about its new policy of demanding admissions of liability from some defendants. For those of us accustomed to the SEC’s “neither admit nor deny” boilerplate, it’s startling to see the words “publicly acknowledging that it violated the federal securities laws” in an SEC settlement announcement. So let’s permit Cannellos some chest-thumping: “The SEC required JPMorgan to admit the facts in the SEC’s order – and acknowledge that it broke the law – because JPMorgan’s egregious breakdowns in controls and governance put its millions of shareholders at risk and resulted in inaccurate public filings.”

Until the SEC changed its policy in June, enforcement officials had insisted that defendants wouldn’t settle with the agency if they had to admit liability because they feared the collateral consequences of their admissions in private shareholder class actions. JPMorgan is in the midst of fierce litigation with its shareholders, who claim the bank lied about its Chief Investment Office in public filings dating back to 2010. So you might assume that the bank’s SEC admissions seal their win, and now it’s just a matter of how big a check JPMorgan will have to write to settle the case.

But if you look closely at what JPMorgan actually admitted, you’ll see that the SEC settlement won’t be of much use to shareholders in the class action. Don’t misunderstand me: JPMorgan is extremely unlikely to escape from the private shareholder case without paying a lot of money. That’s not because of the SEC settlement, however. As I’ll explain, the bank’s lawyers did a very good job of tailoring JPMorgan’s admissions to the SEC to minimize their impact in the class action. In fact, I suspect that future SEC defendants are going to look at the JPMorgan settlement as a model for how to quench regulators’ thirst for blood without spilling a drop in parallel shareholder litigation.

N.Y. state appeals ruling opens courthouse door to foreign victims

Alison Frankel
Sep 18, 2013 20:06 UTC

In the last few months, the victims of supposed overseas human rights atrocities have begun to feel the impact of the U.S. Supreme Court’s ruling last April in Kiobel v. Royal Dutch Petroleum. As you know, the Supreme Court held that Alien Tort Statute cases cannot proceed in U.S. courts unless they have a significant connection to the United States. As a result, ATS claims by foreign citizens accusing international corporations of abetting torture and murder on foreign soil have since been dismissed against Daimler, Arab Bank, Rio Tinto and KBR. Some ATS cases have survived post-Kiobel scrutiny, as my friend Michael Goldhaber reported for The American Lawyer in August, and alleged victims can still assert claims under Other U.S. laws that specifically apply to conduct abroad. But without a doubt, Kiobel has extinguished the jurisdiction of U.S. courts over a wide swath of human rights litigation.

New York state courts, on the other hand, are ready and willing to hear the cases. Or, at least, that’s the implication of a comprehensive decision Tuesday by the state Appellate Division, First Department, that permits 50 Israeli citizens to proceed with claims that Bank of China is liable under Israeli law for facilitating bombings and rocket attacks in Israel by Hamas and Palestine Islamic Jihad. The state appeals court expressly broke with the 2nd Circuit Court of Appeals in holding that Israeli law should apply to the alleged victims’ claims because that’s where they were injured, rejecting the 2nd Circuit’s 2012 decision in a parallel terror-finance case that the laws of the defendant’s home jurisdiction should apply because those courts have the greatest interest in regulating the defendant’s conduct.

According to Robert Tolchin of The Berkman Law Office, who represents the plaintiffs in both the 2nd Circuit and New York state-court cases, the Appellate Division’s ruling opens the door to claims in New York courts by foreigners asserting the laws of their own countries against international defendants. “The Supreme Court in Kiobel knocked out the Alien Tort Statute, but here comes New York negligence law,” he said.

Want to ward off class actions? Follow Starbucks’ lead on class fees

Alison Frankel
Sep 17, 2013 19:31 UTC

This much is uncontested: In December 2008, Initiative Legal Group filed a wage-and-hour class action against Starbucks in federal court in Los Angeles. Lawyers at Initiative and, later, Capstone Law dedicated more than 8,000 hours to the case, which settled in May 2013 for $3 million. About 13,000 current and former Starbucks employees in California have made claims in the case, which resolves the coffee chain’s alleged failure to provide adequate meal breaks to workers when only two employees were on duty, as well as class assertions that Starbucks didn’t publish overtime rates on workers’ pay statements.

Lead class counsel Matthew Theriault and his colleagues believe they’re entitled to $4.2 million – roughly 90 percent of their total hourly billings for the effort they sank into the long-running case and the successful result they obtained for the class. Starbucks and its lawyers at Akin Gump Strauss Hauer & Feld are of quite a different mind. They contend that the $4.2 million request is “breathtakingly inflated,” considering that class counsel managed to win certification of only one of 13 alleged subclasses. Indeed, according to Starbucks, when you compare the $860 million valuation that plaintiffs lawyers initially put on their claims with the $3 million they ultimately recovered for the class, U.S. District Judge Gary Feess would be justified in awarding them absolutely nothing.

We can safely assume that a fair fee award to class counsel – which will be paid by Starbucks on top of the $3 million class settlement – lies somewhere between the extremes of zero and $4.2 million. But what’s much more interesting than the specific dollar amount Feess ultimately awards, and even more interesting than the arguments in support of and in opposition to class counsel’s fee request, is the mere existence of the fee dispute. As Theriault noted in class counsel’s brief, defendants in the vast majority of settled class actions do not contest fee requests by lawyers on the other side of the case. Instead, they agree in “clear sailing” provisions not to say anything when plaintiffs ask to be paid.

Big business, class actions and the Supreme Court: It’s complicated

Alison Frankel
Sep 16, 2013 19:40 UTC

It’s no secret that one of the most active and successful friend-of-the-court participants at the U.S. Supreme Court in recent years has been the U.S. Chamber of Commerce, otherwise known as the lobbying arm of corporate America. Last term, according to the website of the National Chamber Litigation Center (the U.S. Chamber’s legal wing), the group filed amicus briefs addressing the merits of 22 business-related cases before the Supreme Court. The Chamber was in the fray in all of the big cases involving class actions against businesses, including American Express v. Italian Colors, Amgen v. Connecticut Retirement, Comcast v. Behrend and, of course, Standard Fire v. Knowles. In all of those cases, the Chamber advocated positions that would make it tougher for claimants to file and litigate class actions; in three of them – Italian Colors, Comcast and Standard Fire – the Chamber and pro-business interests prevailed.

Given that record, I was surprised to see from the Supreme Court docket that the Chamber is sitting out one of this term’s major business cases, Mississippi v. AU Optronics, which will determine whether actions by state attorneys general to enforce state laws may proceed in state court or can be removed by defendants to federal court as mass actions under the Class Action Fairness Act. As you probably recall, last year the 5th Circuit Court of Appeals broke with the 2nd, 4th, 7th and 9th Circuits and held that the Mississippi AG’s antitrust suit against the LCD maker is a mass action because even though the AG is the only plaintiff, he’s actually seeking money damages on behalf of thousands of Mississippi residents. Mississippi’s AG, Jim Hood, successfully petitioned the Supreme Court to resolve the circuit split. AU Optronics wants to make Hood rue the court’s grant of certiorari. Its merits brief, filed earlier this month, argues that this case is the Supreme Court’s opportunity to unmask state AG parens patriae cases for what they really are: mass actions in all but name.

Last week, many of the usual suspects joined that argument in amicus briefs. The defense lawyers’ association DRI, as well as the American Bankers Association and Big Pharma’s trade group, told the justices that AG parens patriae cases permit those ever-wily plaintiffs lawyers to team up with state officials to evade Congress’s intention of forcing them to litigate contingency-fee class actions in federal court. (Allstate, which was the defendant in the case on which the 5th Circuit premised its AU Optronics holding, made a similar point in its amicus brief.) The Washington Legal Foundation and the National Association of Manufacturers, meanwhile, asserted that under constitutional protections for out-of-state defendants, Mississippi’s case should be litigated in federal court regardless of whether it’s a mass action. AG actions, as I’ve reported, are increasingly likely to be consumers’ only means of holding defendants accountable through litigation. If the Supreme Court decides that these cases must be heard in federal court, that’s a boon for big business.

Boards dodge bullet: Dela. justices retain limits on derivative suits

Alison Frankel
Sep 12, 2013 22:37 UTC

In July, the justices of the Delaware Supreme Court entertained oral arguments on a question the 9th Circuit Court of Appeals asked them to answer: Can shareholders maintain post-merger derivative claims against officers and directors whose alleged misconduct drove their company into a disadvantageous deal? In ordinary circumstances, shareholders lose the right to assert derivative breach-of-duty claims on behalf of the corporation when a merger ends their stock ownership. There’s only one exception to that rule of continuous ownership, under 30-year-old Delaware precedent, for sham mergers undertaken specifically to end the threat of liability against the board. But shareholders in a Los Angeles federal court case against Countrywide persuaded the 9th Circuit that the Delaware Supreme Court, in dicta in a separate but related Countrywide case, may have widened the exception. The federal appeals court asked the state court to clarify its position.

For corporate boards, there was considerable danger in this seemingly technical question. Corporate directors have duties to the companies they serve, but it’s exceedingly rare for companies to sue their own board members for breaching those duties. Shareholders are far, far more likely to bring breach-of-duty cases against directors, acting derivatively on behalf of the corporation. Merger announcements, for instance, are almost always followed by shareholder derivative suits asserting that the target company’s board didn’t get a good enough price. Derivative suits are very tough for shareholders to win, given Delaware’s deference to the business judgment of corporate boards, but they can be useful for leverage in settlement talks, especially when companies are eager to resolve M&A litigation and wrap up their deals. Corporations have leverage, too, however: If shareholders don’t settle derivative claims before deals go through, their cases are over because they no longer have standing to sue on behalf of the acquired corporation.

That delicate balance of power would shift if shareholders could continue to press their derivative cases after mergers go through, boosting the value of their cases and almost certainly guaranteeing more breach-of-duty complaints. Certainly, if the Delaware Supreme Court expanded the narrow exception permitting shareholders to maintain post-merger derivative claims, shareholders and corporate defendants would spend years in Chancery Court litigation to define the new borders of breach-of-duty litigation.

Posner on class actions: Minuscule damages shouldn’t doom cases

Alison Frankel
Sep 11, 2013 20:20 UTC

Reading opinions by Judge Richard Posner of the 7th Circuit Court of Appeals is like jumping waves in a calm ocean. You bob along in the buoyancy of Posner’s ideas until you turn around to face shore and wonder how you drifted so far from where you started. So it is in an 11-page ruling Tuesday, addressing whether a class of ATM users may be certified to seek statutory damages under the Electronic Funds Transfer Act for a tiny defendant’s failure to post stickers notifying users of ATM fees. As you know, these are more turbulent waters than they first appear, roiled by uncertainty about constitutional standing and appropriate classwide relief. Posner’s prose nevertheless carries you along so forcefully that you don’t even notice until you’re done that he has deposited you in a land where all the rules are Posner-made.

Okay, I’m exaggerating. But once again, the iconoclastic appellate judge has issued an important opinion on consumer class actions that reflects his vision, as an economic rationalist, of the potential efficiencies of resolving hundreds or thousands of individual claims with a single proceeding. He did it last month when, on remand from the U.S. Supreme Court, he and two 7th Circuit colleagues recertified a class of Sears washing-machine purchasers for the purposes of determining whether Sears is liable for a design that supposedly results in a moldy odor. Sears has called the ruling “judicial fiat.” In the new opinion, Posner and his fellow 7th Circuit panelists Daniel Manion and Diane Wood urge trial judges to use common sense in deciding whether to certify a consumer class seeking statutory damages, focusing on realistic solutions and not hypothetical problems.

The case is another in the spate of class actions filed against banks that supposedly failed to comply with the ATM law’s requirement that they not only notify users of add-on charges with an on-screen alert after users have begun their transactions but also provide advance warning of fees on the ATM machine itself. (That requirement has since been dropped in an amendment to the law.) Congress called for individual damages of between $100 and $1,000, but also anticipated class actions in which total damages could amount to $500,000 or 1 percent of the defendant’s net worth, whichever is less. In the class action before Posner, a class brought claims against the ATM operator Kore, which owned ATMs in two Indianapolis bars frequented by college students. U.S. District Judge Jane Magnus-Stinson of Indianapolis first certified the class based on 2,800 transactions at the two ATMs but later changed her mind for two reasons. With maximum classwide damages of $10,000 because of Kore’s small net worth, she said, class members might be better off suing individually for at least $100. She was also concerned that potential class members couldn’t be properly notified about a $10,000 settlement because it would cost so much to figure out who they were based on banking records.

Freeh corruption report reveals a way forward for BP oil spill deal

Alison Frankel
Sep 10, 2013 22:08 UTC

I’m on record as a skeptic of BP’s doomsday predictions about the impact of ballooning claims in its settlement with alleged victims of the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. I still don’t buy BP’s argument that future mass disaster defendants will shy away from group settlements because BP’s agreement was open to what the oil company contends is misinterpretation by claims administrator Patrick Juneau. Nor do I think the 5th Circuit Court of Appeals should permit BP to argue that the settlement it once asked U.S. District Judge Carl Barbier of New Orleans to approve should now be undone. BP is a sophisticated defendant ably represented by Kirkland & Ellis in the long negotiations that produced the settlement agreement proposed to Barbier in March 2012. The oil company says the deal has been warped by Barbier’s endorsement of Juneau’s overly expansive reading of the terms for business and economic losses. But it bargained hard for the language in the settlement agreement and should have to abide by the deal it struck.

Nevertheless, I’m troubled by the 98-page report on corruption within Juneau’s Claims Administration Office by former FBI director Louis Freeh. Anyone who believes in mass settlements should be. Freeh conducted a two-month investigation spurred by the resignation of a lawyer on Juneau’s staff. His report, released Friday, goes out of its way to exonerate Juneau, whom Freeh praised for setting a clear ethical tone and implementing written policies on ethics and conflicts. Freeh also recommended that the claims approval process continue under Juneau’s direction. That’s the good news for Juneau and the plaintiffs lawyers defending the settlement against BP’s attacks. The bad news: Freeh found copious evidence that corruption and conflicts have tarred some former members of Juneau’s staff.

The alleged wrongdoing detailed in the report ranges from venality – such as an attempt by Juneau’s self-described “general counsel,” Christine Reitano, to secure her husband a job with a company doing work for Juneau and an attempt by two other Juneau staff lawyers to capitalize on their work (and Juneau’s name) to win additional claims administration assignments for their outside company – all the way to the supposed crimes of fraud and money laundering. According to Freeh, a lawyer on Juneau’s staff named Lionel “Tiger” Sutton appears to have conspired with two outside lawyers, Jon Andry and Glen Lerner, to hide about $40,000 in referral fees routed through various vehicles from Andry and Lerner to Sutton. Freeh asserted that Sutton improperly “facilitated” claims by other clients of Andry and Lerner and expedited an $8 million award to one of Andry’s other law firms. The report also said that Sutton – who is married to Reitano – never bothered to tell Juneau that during his employment at the Claims Administration Office he was also receiving $10,000 a month as Lerner’s partner in a water reclamation company nor that Sutton is the co-owner of an oil rig services company with an active claim before Juneau’s staff. (Defense counsel for Sutton and Andry told the Associated Press that Freeh had made unfounded allegations about their clients.)

The unexpected afterlife of a Supreme Court wiretapping opinion

Alison Frankel
Sep 9, 2013 19:05 UTC

What do human rights advocates have in common with Barnes & Noble credit and debit card customers?

There’s no punchline response to that question (or at least none that I could think of). The answer instead lies in the U.S. Constitution’s strictures on who may bring a claim in federal court – and in the collateral consequences of the U.S. Supreme Court’s latest interpretation of standing, in a 2013 case called Clapper v. Amnesty International.

As you’ve probably guessed, that’s where the human rights advocates come in. After Congress passed amendments to the Foreign Intelligence Surveillance Act in 2008, the American Civil Liberties Union and outside lawyers from Proskauer Rose sued James Clapper, the Director of National Intelligence, on behalf of a group of U.S. lawyers, journalists and human rights groups who alleged that the FISA amendments violated their First and Fourth Amendment rights. The new law made it easier for the government to obtain permission to wiretap intelligence targets outside of the United States. The plaintiffs said their work required them to engage in international phone and Internet communications with likely targets of the stepped-up surveillance, and that the FISA amendments would permit the National Security Agency to access their communications illegally. They sought a declaration that the sweeping, warrantless wiretapping permitted under the new law was a breach of their constitutional free speech and privacy rights.

Sears, Whirlpool ask SCOTUS to eviscerate consumer class actions

Alison Frankel
Sep 6, 2013 20:57 UTC

Millions of American consumers over the last decade purchased high-end, front-loading washing machines with an unfortunate propensity to develop a moldy odor. The vast majority of those machines didn’t end up emitting the objectionable scent, or, at least, not noticeably enough to prompt their owners to register complaints with manufacturers and sellers of the machines. Nevertheless, lawyers representing washing machine buyers all over the country sued Whirlpool and other manufacturers in dozens of class actions claiming violations of various state consumer statutes. One of those consolidated cases, involving 10 class actions comprising about 4 million purchasers of Whirlpool washing machines, is one of the biggest class proceedings in American history. Consumers say – and appellate judges in two federal circuits agree – that they’re entitled to a classwide determination of whether the washing machines were defectively designed. Manufacturers, on the other hand, contend it’s impossible to lump consumers into classes because their individual experiences with the machines vary too widely.

When the U.S. Supreme Court opens its next term in October, one of the justices’ critical decisions will be whether to grant review of one or more of the three defective-washer cases that will be before them. Two of those cases have already attracted the high court’s attention. Last spring, it vacated class certification rulings from the 6th and 7th Circuit Courts of Appeal, asking the appellate judges to reconsider their rulings in light of the Supreme Court’s holding in Comcast v. Behrend. Over the summer, both the 6th and 7th Circuits recertified consumer classes, despite Comcast. Now, in an amicus brief in a third moldy-washer case before the Supreme Court, Sears and Whirlpool are arguing that under the reasoning the 6th and 7th Circuits used in those recertification opinions, there are virtually no limits on product liability class actions. Unless the justices take action, according to Sears and Whirlpool, American businesses face enormous new exposure to claims by consumers, including buyers who haven’t even suffered any ill effects.

The primary purpose of the amicus brief, which was filed last Friday by Mayer Brown as counsel of record for both Sears and Whirlpool, is to ask the Supreme Court to delay acting on a petition for certiorari by BSH Home Appliances, which sells Bosch and Siemens washers with an alleged mold problem similar to that of Whirlpool’s machines. In the BSH case, the 9th Circuit declined to review the trial court’s grant of certification to four statewide consumer classes. BSH’s lawyers at Jones Day want the Supreme Court to take up their case to determine not just whether a class can be certified without a classwide showing of injury but also whether the trial court erred in curtailing BSH’s challenge to the theories of the consumers’ experts. In their amicus brief, Sears and Whirlpool argue that their cases present a more appropriate vehicle for deciding the first (and more sweeping) question because they have detailed appellate records, including the 6th and 7th Circuit consideration of the impact of last spring’s Comcast ruling on consumer class certification.

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