Supreme Court: The Term in Review (2013–2014) Part 2 of 2
Articles,  Blog

Supreme Court: The Term in Review (2013–2014) Part 2 of 2


– QUESTIONS OF JURISDICTION AND
STANDING, ABSTENTION AND VENUE, HIGHLIGHT THE IMPORTANT
ROLE THE JUSTICES PLAY IN DEFINING HOW THE LOWER
FEDERAL COURTS FUNCTION. THERE ARE SEVERAL OF
THESE DECISIONS THIS TERM, AND SOMETIMES, THE QUESTIONS
BRIEFED BY THE PARTIES BELIE THE IMPORTANCE
OF THE FINAL DECISION. SUZANNA, YOU THINK ONE OF
OUR FIRST CASES DID THAT. – I DO. THE CASE ISLEXMARK INTERNATIONAL V.
STATIC CONTROL COMPONENTS,
AND THE SIMPLE QUESTION
BEFORE THE COURT WAS WHETHER STATIC CONTROL HAD
STANDING TO SUE LEXMARK FOR FALSE ADVERTISING
UNDER THE LANHAM ACT. THERE’S A SPLIT IN THE CIRCUITS, AND THE COURT WAS GOING
TO DECIDE, AND DID DECIDE, THAT ANALYTIC FRAMEWORK
FOR STANDING. THERE WAS NO QUESTION THAT STATIC HAD STANDING
UNDER ARTICLE 3, BUT LEXMARK ARGUED
THAT STATIC LACKED PRUDENTIAL STANDING
TO BRING THE LAWSUIT. – SO, EVAN, HOW IS
PRUDENTIAL STANDING DEFINED? – WELL, THE COURT CITED ONE
OF ITS EARLIER DECISIONS IN WHICH IT HAD SAID
THAT PRUDENTIAL STANDING IS NOT BASED IN ARTICLE 3, AND WHILE IT DIDN’T EXHAUSTIVELY
DEFINE PRUDENTIAL STANDING, NONETHELESS, IT CITED 3
BASIC PRINCIPLES OR STRANDS OR WHATEVER YOU WANT
TO CALL THEM, ONE OF WHICH IS
THE GENERAL PROHIBITION ON A PERSON RAISING ANOTHER
PERSON’S LEGAL RIGHTS, ALSO KNOWN AS THE PROHIBITION
AGAINST THIRD-PARTY STANDING. A SECOND ONE WOULD BE THE SO-CALLED PROHIBITION
AGAINST GENERALIZED GRIEVANCES. AND THEN THE THIRD WOULD BE
THE SO-CALLED ZONE OF INTERESTS, A REQUIREMENT– THAT IS
TO SAY, THE REQUIREMENT THAT A PLAINTIFF’S COMPLAINT FALL
WITHIN THE ZONE OF INTERESTS THAT’S ARGUABLY PROTECTED
BY THE STATUTE IN QUESTION. HERE, THE COURT FOUND THAT
STATIC’S SUIT DID FALL WITHIN THE ZONE OF INTERESTS THAT WAS
PROTECTED BY THE LANHAM ACT. – THAT’S WHERE THE DECISION
BECOMES SO MUCH MORE IMPORTANT THAN THE ORIGINAL
QUESTION BRIEF. THE COURT SAID THEY
DECLINED TO ANALYZE THE ZONE OF INTEREST AS A
PRUDENTIAL STANDING ISSUE; INSTEAD, THEY SUGGESTED IT WAS
A QUESTION NOT OF STANDING, BUT OF WHETHER CONGRESS
CREATED A CAUSE OF ACTION. INDEED, THEY SUGGESTED THAT THE WHOLE IDEA OF
PRUDENTIAL STANDING, THE NOMENCLATURE IS MISLEADING. THEY TURNED WHAT USED
TO BE A STANDING ISSUE INTO ESSENTIALLY A MERITS ISSUE. – YEAH. THE COURT
ALSO SAID IN DICTA THAT THE PROHIBITION AGAINST
GENERALIZED GRIEVANCES IS COMPELLED BY ARTICLE 3 AND THAT IT’S NOT A MATTER
OF PRUDENTIAL STANDING. – AND SO WITH THAT,
I THINK THIS CASE SUGGESTS THAT 2 OUT OF THE 3
PRUDENTIAL LIMITATIONS ARE NO LONGER PRUDENTIAL. ONE OF THEM IS A STATUTORY
QUESTION NOW AND THE OTHER, AS EVAN
JUST POINTED OUT, IS A CONSTITUTIONAL QUESTION, AND I THINK THIS IS PART
OF A 20-YEAR TREND OF THE COURT MOVING WHAT
USED TO BE PRUDENTIAL LIMITS AND TURNING THEM INTO EITHER CONSTITUTIONAL
OR STATUTORY QUESTIONS. – I’D POINT TO THE THIRD THERE, AND THAT’S THE PROHIBITION
AGAINST THIRD-PARTY STANDING. I DON’T SEE THE COURT
AS ELIMINATING THAT. THERE’S TOO MUCH
CASE LAW ABOUT IT OVER TOO LONG A PERIOD OF TIME. IN FACT, THERE’S A FOOTNOTE IN
THIS CASE THAT SPECIFICALLY SAYS THAT THE ISSUE OF THIRD-PARTY
STANDING WAS NOT RAISED AND WAS NOT BEING
ANALYZED BY THE COURT. – THANK YOU. A SECOND STANDING CASE
AROSE IN OHIO. THE SUSAN B. ANTHONY LIST,
AN ANTI-ABORTION ADVOCACY GROUP, SUED IN FEDERAL COURT
SEEKING AN INJUNCTION AGAINST THE ENFORCEMENT OF
AN OHIO LAW THAT MADE IT A CRIME TO UTTER A FALSE STATEMENT CONCERNING THE VOTING RECORD OF
A CANDIDATE OF PUBLIC OFFICIAL. THE SBA HAD SAID THAT
REPRESENTATIVE STEVEN DRIEHAUS HAD VOTED FOR
TAXPAYER-FUNDED ABORTION WHEN HE VOTED FOR THE
AFFORDABLE CARE ACT. THE OHIO ELECTIONS COMMISSION
FOUND PROBABLE CAUSE THAT THE GROUP HAD
VIOLATED THE LAW. THE SBA CLAIMED THE LAW VIOLATED
ITS FIRST AMENDMENT RIGHTS. DRIEHAUS WITHDREW HIS
ADMINISTRATIVE COMPLAINT AFTER HE LOST THE ELECTION, BUT SBA MAINTAINED ITS
ACTION FOR INJUNCTIVE RELIEF, CLAIMING THAT IT WOULD
WANT TO MAKE SIMILAR STATEMENTS
IN THE FUTURE ABOUT OTHER CANDIDATES
WHO VOTED FOR THE ACA. SO DID THEY STILL HAVE
STANDING TO SUE, EVAN? – THE SUPREME COURT SAID YES. THE COURT HELD UNANIMOUSLY THAT
SBA HAD SUFFERED INJURY IN FACT. THAT WAS SUFFICIENT TO SATISFY
BOTH THE STANDING AND RIGHTNESS. THE QUESTION IN THIS
TYPE OF CASE IS WHETHER THE PLAINTIFF STILL FACES A
CREDIBLE THREAT OF ENFORCEMENT. AND THE COURT SAID THAT
THERE WAS A 3-PART TEST FOR DETERMINING THAT. ONE, DOES THE PLAINTIFF
INTEND TO ENGAGE IN CONDUCT THAT’S ARGUABLY AFFECTED BY
A CONSTITUTIONAL INTEREST? NUMBER 2, IS THE PLAINTIFF’S
CONDUCT ARGUABLY PROHIBITED BY THE LAW IN QUESTION? AND NUMBER 3, IS THE THREAT
OF ENFORCEMENT SUBSTANTIAL? THE COURT ANSWERED YES TO
ALL 3 OF THOSE QUESTIONS HERE. THE SBA PROPOSED TO ENGAGE
IN POLITICAL SPEECH, WHICH IS AFFLICTED WITH THE
CONSTITUTIONAL INTEREST. ITS SPEECH WAS COVERED
BY THE STATUTE, AND THE THREAT OF
ENFORCEMENT WAS SUBSTANTIAL, ESPECIALLY GIVEN THE FACT THAT THE COMMISSION HAD
ALREADY FOUND PROBABLE CAUSE TO CONCLUDE THAT SBA
HAD VIOLATED THE STATUTE. – NOW LET’S TALK ABOUTSPRINT
COMMUNICATIONS V. JACOBS.
IT’S ABOUT ABSTENTION UNDER THE YOUNGER DOCTRINE
IN CIVIL CASES. THE YOUNGER DOCTRINE REFERS TO THE COURT’S 1971 DECISION
INYOUNGER V. HARRISIN WHICH THE JUSTICES
HELD THAT WHEN THERE’S PARALLEL PENDING
STATE CRIMINAL PROCEEDING, FEDERAL COURTS MUST REFRAIN FROM
ENJOINING THE STATE PROSECUTION. OVER THE YEARS,
THE COURT HAS EXPANDED THE YOUNGER DOCTRINE
TO CIVIL CASES, BUT HAS BEEN CAREFUL
TO CABIN THAT EXPANSION. SO, SUZANNA, HOW SHOULD THE
COURTS MAKE THAT DECISION? – WELL, THE COURT SAYS HERE THAT FEDERAL COURT SHOULD
ABSTAIN UNDERYOUNGERIN ONLY 3 KINDS
OF EXCEPTIONAL CASES. FIRST ARE ONGOING STATE
CRIMINAL PROCEEDINGS; THE SECOND ARE STATE CIVIL
ENFORCEMENT PROCEEDINGS, QUASI-CRIMINAL PROCEEDINGS; AND THE THIRD ARE CIVIL
PROCEEDINGS THAT IMPLICATE THE STATE’S ABILITY TO PERFORM
ITS JUDICIAL FUNCTIONS. – AND HOW DOES THAT APPLY
TO THE FACTS IN THE SPRINT CASE? – HERE, THE IOWA UTILITIES
BOARD HAD RULED THAT SPRINT INCORPORATED
HAD TO PAY ACCESS FEES TO WINDSTREAM IOWA
COMMUNICATIONS. SPRINT FILED SUIT
IN STATE COURT TO GET REVIEW
OF THE BOARD’S DECISION AND THEN FILED SUIT IN FEDERAL
COURT, CLAIMING PREEMPTION. BUT THE FEDERAL COURT ABSTAINED UNDER THE AUTHORITY
OFYOUNGER V. HARRIS.THE SUPREME COURT RULED
THAT, NUMBER ONE, THE STATE COURT REVIEW
OF THE BOARD PROCEEDING WAS NOT CRIMINAL IN NATURE. SO THAT’S THE FIRST POINT
THAT SUZANNA MENTIONED. NUMBER 2, IT DIDN’T
INVOLVE ORDERS THAT WERE MEANT TO PRESERVE
THE COURT’S ABILITY TO CARRY OUT
THEIR OWN FUNCTION, SO THAT WAS THE SECOND
POINT YOU MENTIONED. AND THEN THIRD,
THE ACTION WAS INITIATED BY SPRINT AND NOT BY THE STATE, AND THERE WAS
NO STATE ACTOR WHOEVER PERFORMED AN INVESTIGATION
OR LODGED A FORMAL COMPLAINT, SO THAT’S STRIKE 3. – OK. NOW, WE HAVE 2 PERSONAL
JURISDICTION DECISIONS. THE FIRST ISDAIMLER V. BAUMAN.INDAIMLER,RESIDENTS OF
ARGENTINA SUED DAIMLER IN THE U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT
OF CALIFORNIA UNDER THE ALIEN TORT STATUTE AND THE TORTURE VICTIM
PROTECTION ACT. THEY CHARGED THAT THEY
AND/OR THEIR RELATIVES WERE VICTIMIZED IN ARGENTINA BY A COLLABORATION BETWEEN
MERCEDES-BENZ ARGENTINA, A SUBSIDIARY OF DAIMLER,
AND ARGENTINE SECURITY FORCES. JURISDICTION OF THE LAWSUIT WAS PREDICATED ON THE
CALIFORNIA CONTACTS OF MERCEDES-BENZ USA,
ANOTHER DAIMLER SUBSIDIARY. DAIMLER ITSELF IS
INCORPORATED IN DELAWARE AND HAS ITS PRINCIPLE PLACE
OF BUSINESS IN NEW JERSEY. SO THE QUESTION FOR
THE COURT WAS WHETHER THE DUE PROCESS CLAUSE OF
THE 14th AMENDMENT PRECLUDES THE DISTRICT COURT FROM
EXERCISING JURISDICTION OVER DAIMLER IN THIS CASE, GIVEN THE ABSENCE OF ANY
CALIFORNIA CONNECTION TO THE ATROCITIES,
THEIR PERPETRATORS, OR THE VICTIMS DESCRIBED
IN THE COMPLAINT. SO, SUZANNA, HOW DID THE COURT
ANSWER THAT QUESTION? – WELL, LET ME GO BACK TO
THE DISTRICT COURT FIRST. THE DISTRICT COURT
HAD FOUND THAT THERE WAS GENERAL PERSONAL
JURISDICTION OVER DAIMLER BASED ON THE SUBSIDIARY’S
ACTIVITIES IN CALIFORNIA, AND THE COURT OF APPEALS
UPHELD THAT JUDGMENT. BUT THE SUPREME COURT REVERSED,
AND THE COURT SAID THAT GENERAL JURISDICTION
REQUIRES MUCH MORE THAN JUST EXTENSIVE ACTIVITIES OR
DOING BUSINESS IN A STATE. THE TEST IS NOT WHETHER DEFENDANTS’ CONTACTS
WITH THE FORUM ARE IN THE ABSTRACT
CONTINUOUS AND SYSTEMATIC, BUT WHETHER THEY ARE
SO CONTINUOUS AND SYSTEMATIC THAT THE CORPORATION IS,
QUOTE, AT HOME IN THE FORUM AND THAT REQUIRES
MUCH MORE THAN JUST DOING A LOT OF
BUSINESS IN THE STATE. – IN LAW SCHOOL,
WE ALL HEARD A LOT ABOUT THE MINIMUM CONTACT STANDARD FROMINTERNATIONAL SHOE
V. WASHINGTON.
WHY ISN’T THAT THE STANDARD FOR THE PERSONAL
JURISDICTION HERE? – WELL, YOU HAVE TO REMEMBER
THE DIFFERENCE BETWEEN SPECIFIC JURISDICTION
AND GENERAL JURISDICTION. THE COURT HERE EMPHASIZED
THAT INTERNATIONAL SHOE FURNISHES THE TEST
ONLY FOR EXERTIONS OF SPECIFIC JURISDICTION WHERE THE DEFENDANTS’
CONTACTS WITH THE STATE ARE SUBSTANTIALLY RELATED
TO THE FACTS UNDERLYING THE PLAINTIFF’S CASE. IN THIS CASE, THE COURT IS
REAFFIRMING THE APPROACH TO GENERAL JURISDICTION
THAT IT SET FORTH IN THE GOODYEAR-DUNLOP
TIRES OPERATIONS CASE, WHERE IT SAID THAT A DEFENDANT’S
CONTINUOUS ACTIVITY IN A STATE WHEN IT’S UNRELATED TO THE
PLAINTIFF’S CAUSE OF ACTION DOESN’T NECESSARILY
SUBJECT IT TO JURISDICTION. – THANKS. IN OUR SECOND PERSONAL
JURISDICTION DECISION,WALDEN V. FIORE,
THE QUESTION WAS WHETHER ACTIONS BY
A DEA AGENT IN GEORGIA TOWARDS RESIDENTS OF NEVADA CREATED PERSONAL
JURISDICTION OVER THE AGENT FOR A SECTION 1983 SUIT
IN A NEVADA DISTRICT COURT. SO, EVAN, DID THEY? – NO. THE DEFENDANT WALDEN
HAD CONFISCATED A LARGE AMOUNT OF MONEY
FROM FIORE AND HER PARTNER AT THE ATLANTA AIRPORT,
BELIEVING IT TO BE DRUG MONEY. IN FACT, FIORE AND HER PARTNER
WERE PROFESSIONAL GAMBLERS, AND THIS WAS THEIR
TRAVELING BANK. THEY RETURNED HOME TO NEVADA AND EVENTUALLY GOT THE
MONEY BACK FROM THE DEA, BUT THEY SUED WALDEN
ON A NUMBER OF GROUNDS. THE DISTRICT COURT
DISMISSED THE CLAIM FOR LACK OF
PERSONAL JURISDICTION, BUT THE APPEALS COURT REVERSED,
AND THE SUPREME COURT HELD THAT WALDEN LACKED THE
MINIMUM CONTACTS WITH NEVADA THAT WERE NECESSARY TO ASSERT
SPECIFIC JURISDICTION CONSISTENT WITH
THE DUE PROCESS CLAUSE. – THIS CASE IS IMPORTANT
BECAUSE IT CLARIFIES ONE OF THE COURT’S EARLIER
CASES,CALDER V. JONES.FIORE HAD ARGUED
UNDERCALDER V.JONESTHAT BECAUSE THE EFFECTS
OF THE AGENT’S ACTIVITIES WERE FELT IN NEVADA, THE NEVADA
COURT HAD JURISDICTION, AND FIORE ARGUED THAT THE COURT
HAD FOUND THE EFFECTS TEST SUFFICIENT IN THE 1984 CASE
INCALDER V. JONES,BUT THE COURT
DISTINGUISHEDCALDER,LIMITING IT AND CATALOGING
A NUMBER OF ACTIONS THAT WERE TAKEN BY CALDER THAT
CREATED SUFFICIENT CONTACTS, SO I THINK THE EFFECTS TEST IS
GOING TO BE HARDER TO SHOW NOW. – YEAH. THE COURT REALLY
EMPHASIZED THAT THE RELATIONSHIP BETWEEN THE FORUM STATE AND
THE DEFENDANT HAS TO ARISE FROM CONTACTS THAT THE
DEFENDANT HIMSELF CREATES WITH THE FORUM STATE, AND THEY CAN’T JUST ARISE
FROM CONTACTS WITH PEOPLE WHO LIVE IN THE FORUM
STATE, AND IN PARTICULAR, NOT JUST CONTACTS
WITH THE PLAINTIFF. – NEXT, WE HAVE 2 COMPANION
DECISIONS DEALING WITH THE AWARDING OF ATTORNEY’S
FEES IN PATENT CASES. THESE AREOCTANE FITNESS V.
ICON HEALTH AND FITNESS
ANDHIGHMARK V. ALLCARE
HEALTH MANAGEMENT SYSTEMS.
SO, SUZANNA, WHAT ARE THE
EFFECTS OF THESE DECISIONS? – UNDER THE RELEVANT STATUTE,
35 U.S.C., SECTION 285, COURTS ARE ALLOWED
TO AWARD ATTORNEY’S FEES TO THE PREVAILING PARTY
IN PATENT CASES ONLY IN SO-CALLED
EXCEPTIONAL CASES. NOW, THE FEDERAL CIRCUIT HAD
INTERPRETED “EXCEPTIONAL CASES” TO MEAN THAT FEES COULD ONLY BE
AWARDED IN 2 CIRCUMSTANCES– EITHER IF THE ATTORNEY ENGAGED IN MATERIAL INAPPROPRIATE
CONDUCT IN LITIGATION OR IF THE LITIGATION WAS BOTH
OBJECTIVELY UNREASONABLE AND SUBJECTIVELY
BROUGHT IN BAD FAITH. SO INOCTANE,THE SUPREME
COURT HELD THAT THAT FORMULATION WAS TOO RIGID AND THAT IT CONSTRAINED
THE DISTRICT COURT’S DISCRETION. IT SHOULD BE IN THE DISTRICT
COURT’S DISCRETION TO AWARD FEES WHENEVER IT FINDS THAT
THE CASE IS EXCEPTIONAL. THE PREVIOUS STANDARDS
STILL APPLY, BUT THE COURT HAS TO APPLY THEM
ON A CASE-BY-CASE STANDARD UNDER THE TOTALITY
OF THE CIRCUMSTANCES. – THEN IN THEHIGHMARKCASE,
THE SUPREME COURT SAID THAT DISTRICT COURT RULINGS
ON ATTORNEY’S FEES UNDER SECTION 285
ARE TO BE REVIEWED ON AN ABUSE OF
DISCRETION STANDARD. BUT IN A FOOTNOTE,
THE COURT EMPHASIZED THAT THE MERE USE OF THE ABUSE
OF DISCRETION STANDARD DOESN’T NECESSARILY PRECLUDE
AN APPELLATE COURT FROM CORRECTING LEGAL
OR FACTUAL ERRORS THAT ARE MADE
BY THE DISTRICT COURT. – NOW, A THIRD DECISION
INVOLVING ATTORNEY’S FEES, BUT THIS TIME,
FOCUSING ON THEIR EFFECT, RATHER THAN WHEN
THEY CAN BE GRANTED. THE DECISION IS TITLEDRAY HALUCH GRAVEL COMPANY
V. CENTRAL PENSION FUND.
HALUCH WAS SUED BY VARIOUS
UNION BENEFIT FUNDS UNDER COLLECTIVE
BARGAINING AGREEMENT FOR CONTRIBUTIONS THEY CLAIM
HALUCH SHOULD HAVE MADE. CENTRAL PENSION FUND WAS AWARDED LESS THAN THEY REQUESTED
IN A DISTRICT COURT AND FAILED TO FILE A NOTICE
OF APPEAL WITHIN 30 DAYS OF THE DISTRICT COURT’S
DECISION ON THE MERITS. BUT IT DID FILE
A NOTICE TO APPEAL WITHIN 30 DAYS OF THE DISTRICT
COURT’S LATER RULING ON ATTORNEY’S FEES AND COST. THE COURT OF APPEALS RULED THAT
THE FUND’S APPEAL WAS TIMELY, BECAUSE UNDER THE COLLECTIVE
BARGAINING AGREEMENT, ENTITLEMENT TO ATTORNEY’S
FEES WAS PART OF THE MERITS. BUT, EVAN, DID THE JUSTICES
AGREE WITH THIS? – NO. THEY UNANIMOUSLY
DISAGREED. THE COURT CITED
ITS 1988 DECISION INBUDINICH V. BECTON,
DICKINSON & CO,
IN WHICH THE COURT HELD THAT
A DECISION ON THE MERITS IS A FINAL DECISION WITHIN
THE MEANING OF SECTION 1291 OF THE FEDERAL
JUDICIAL CODE. EVEN IF THE AWARD OR
AMOUNT OF ATTORNEY’S FEES FOR LITIGATION IS
STILL TO BE DETERMINED, THE ISSUE INHALUCH
WAS WHETHER IT OUGHT TO MAKE A DIFFERENCE IF
THE UNRESOLVED CLAIM FOR ATTORNEY’S FEES IS
BASED ON A CONTRACT THEORY INSTEAD OF A STATUTORY THEORY OR IN ADDITION TO
A STATUTORY THEORY. THE JUSTICES SAID IT REALLY
DOESN’T MAKE A DIFFERENCE BECAUSE A RULE OF FINALITY
THAT WERE TO DISTINGUISH BETWEEN FEES CLAIMED BASED
IN WHOLE OR PART ON A CONTRACT AS OPPOSED TO THOSE BASED IN
WHOLE OR PART ON A STATUTE, THAT ANY SUCH RULE
WOULD LACK OPERATIONAL CONSISTENCY
AND PREDICTABILITY. – TO UNDERSTAND OUR NEXT
DECISION, YOU HAVE TO KNOW 3 THINGS ABOUT SECURITIES
FRAUD CLASS-ACTION SUITS. FIRST, THE PLAINTIFFS
HAVE TO PROVE THAT THEY RELIED ON
THE DEFENDANT’S FRAUD IN THE TRANSACTION THAT
LOST THEM THE MONEY. SECOND, TO BE CERTIFIED
AS A CLASS ACTION, COMMON QUESTIONS OF LAW
OR FACT MUST PREDOMINATE OVER THE INDIVIDUAL ONES
OF CLASS MEMBERS. THE PROBLEM HERE IS THAT
IF EACH MEMBER OF A CLASS HAD TO PROVE RELIANCE, A CLASS
COULD NEVER BE CERTIFIED. THE THIRD THING YOU NEED
TO KNOW IS THAT IN 1998, IN A DECISION TITLED
BASIC V. LEVINSON,
THE COURT CREATED WHAT IS CALLED THE FRAUD ON THE
MARKET PRESUMPTION. THIS PRESUMPTION IS
BASED ON THE NOTION THAT IN AN EFFICIENT MARKET,
THE PRICE OF A SECURITY REFLECTS ALL KNOWN
PUBLIC INFORMATION. SO THE PLAINTIFF IS
PRESUMED TO HAVE RELIED ON THE DEFENDANT’S
FRAUDULENT PUBLIC STATEMENT IN BUYING OR SELLING
THE SECURITY. HOWEVER, THE PLAINTIFF
STILL NEEDS TO PROVE THE PRESUMPTION APPLIES
IN ITS CASE BY PROVING THAT THE MISREPRESENTATION
WAS PUBLIC, IT WAS MATERIAL, THAT THE MARKET WAS EFFICIENT, AND THAT THE PLAINTIFF’S
TRANSACTION TOOK PLACE BETWEEN THE TIME
THE ALLEGED FRAUDSTER MADE THE MISINTERPRETATION AT THE TIME IT WAS
REVEALED TO BE FRAUD. LATER, AT THE MERIT STAGE
OF THE CLASS ACTION, THE DEFENDANT COULD
REBUT THE PRESUMPTION BY PROVING THAT EVEN
IN AN EFFICIENT MARKET, THE DEFENDANT’S PARTICULAR
MISREPRESENTATION DID NOT AFFECT
THE STOCK PRICE. THAT IS, THERE IS NO
SO-CALLED PRICE IMPACT. OK. WITH ALL OF THAT IN
MIND, LET’S TALK ABOUTHALLIBURTON V.
ERICA P. JOHN FUND.
EVAN, WHAT WERE THE
QUESTIONS RAISED HERE? – HALLIBURTON REALLY WANTED
THE BASIC DECISION OVERRULED. HALLIBURTON ARGUED THAT A NUMBER OF INTERVENING
EVENTS MADE BASIC UNSOUND. THEY ARGUED THAT RESEARCH
ON SECURITIES MARKETS AND SUBSEQUENT COURT DECISIONS
ON CLASS CERTIFICATIONS HAD REALLY UNDERMINED THE
BASIC RATIONALE OF BASIC. BUT THE COURT DECLINED
TO OVERRULE THAT CASE. THE MAJORITY SAID THAT THOSE
DEVELOPMENTS DIDN’T RISE TO THE LEVEL OF
SPECIAL JUSTIFICATION, WHICH IS NECESSARY TO OVERRULE A MATTER OF STATUTORY
INTERPRETATION. THE MAJORITY POINTED OUT THAT CONGRESS HAS BEEN
ACTIVE IN THIS AREA, PASSING A NUMBER OF LAWS RELATING TO SECURITY SUITS
AND CLASS ACTIONS. BUT THEY’VE NEVER, YOU KNOW, SOUGHT TO OVERRULE
THE RULE OF BASIC. – BUT WHAT THE COURT DID DO
WAS TO ALLOW DEFENDANTS TO INTRODUCE EVIDENCE
OF PRICE IMPACT AT THE CERTIFICATION STAGE
IN THESE SECURITY CASES AND NOT HAVE TO WAIT UNTIL
THE CLASS IS CERTIFIED AND YOU REACH
THE MERIT STAGE. THE COURT REASONED THAT THE
FRAUD ON THE MARKET THEORY WAS REALLY JUST AN INDIRECT WAY OF SHOWING THAT THERE
WAS A PRICE IMPACT, AND SO IT MADE SENSE
TO ALLOW THE DEFENDANT TO DEMONSTRATE THAT THERE
WAS NO PRICE IMPACT, THAT THE MISINTERPRETATION
HAD NO EFFECT. IF THERE WAS NO PRICE IMPACT,
THEN EACH PLAINTIFF WILL HAVE TO PROVE INDIVIDUAL
RELIANCE IN SOME OTHER WAY, WHICH MEANS THAT INDIVIDUAL
QUESTIONS WILL PREDOMINATE, AND THAT MEANS THE CLASS
CAN’T BE CERTIFIED, SO IT MAKES SENSE TO ALLOW
THAT EVIDENCE AT THIS POINT. — THANKS. LIKEHALLIBURTON,
THE COURT WAS UNANIMOUS IN DECIDINGMISSISSIPPI V.
AU OPTRONICS.
THE COURT DECIDED THAT A
STATE CANNOT FILE A SUIT AS THE SOLE PLAINTIFF UNDER THE CLASS ACTION
FAIRNESS ACT, OR CAFA, WHICH INCLUDES A CLAIM
FOR RESTITUTION BASED ON INJURY SUFFERED
BY ITS CITIZENS. “SUCH A SUIT DOES NOT CONSTITUTE A MASS ACTION UNDER
CAFA,” THE COURT SAID. SO, EVAN, WHAT WERE
THE FACTS HERE? – MISSISSIPPI SUED
COMPANIES THAT MANUFACTURE LCD DISPLAYS–THAT IS,
LIQUID CRYSTAL DISPLAYS, ALLEGING THAT THE COMPANIES HAD
FORMED AN INTERNATIONAL CARTEL TO RESTRICT COMPETITION
AND TO RAISE PRICES. THE STATE FILED
THE SUIT IN STATE COURT AND CLAIMED THAT
THE COMPANY’S ACTIONS VIOLATED 2 DIFFERENT
MISSISSIPPI LAWS. THE COMPANIES FILED NOTICE TO REMOVE THE CASES
TO FEDERAL COURT, ARGUING THAT THE CASE
WAS EITHER A CLASS ACTION OR A MASS ACTION WITHIN
THE MEANING OF CAFA. BOTH THE DISTRICT COURT
AND THE FIFTH CIRCUIT RULED THAT IT WAS A MASS ACTION FILED ON BEHALF OF
100 OR MORE PEOPLE. BUT THE SUPREME COURT
DIDN’T SEE IT THAT WAY. – NO, NO. THE COURT
HELD THAT BECAUSE MISSISSIPPI WAS THE
ONLY NAMED PLAINTIFF, THE SUIT WAS NOT
A MASS ACTION UNDER CAFA. JUSTICE SOTOMAYOR
WROTE FOR THE COURT, AND SHE SAID THAT A HUNDRED
OR MORE PERSONS IN CAFA DOESN’T INCLUDE UNNAMED
REAL PARTIES AND INTERESTS. IF CONGRESS HAD MEANT THAT,
THEY WOULD HAVE SAID IT. THEY WOULD HAVE
USED BROADER LANGUAGE, AS THEY DID IN VARIOUS
OTHER SECTIONS OF CAFA. AND SHE POINTED OUT THAT IF THERE WERE NO OTHER
PARTIES IN THE SUIT, THE LANGUAGE
THAT REQUIRED THAT ALL THE CLAIMS JOINED INVOLVE
COMMON QUESTIONS OF LAW OR FACT WOULDN’T
MAKE ANY SENSE. FINALLY, SHE SUGGESTED THAT EXPANDING THE DEFINITION
OF MASS ACTION IN THE WAY THAT
THE DEFENDANTS WANTED HERE WOULD LEAD TO
A LOGISTICAL NIGHTMARE, INCLUDING SUCH THINGS
AS TRYING TO FIGURE OUT WHICH OF THE
PLAINTIFF’S CLAIMS SATISFIED THE
JURISDICTIONAL MINIMUM. – SO IT SOUNDS LIKE
THIS CASE REALLY MATTERS IN CLARIFYING WHAT IS
A MASS ACTION UNDER CAFA. I MEAN, IF THE CASE HAD
COME OUT THE OTHER WAY, THEN ANY SUIT THAT WOULD BENEFIT
A LARGE NUMBER OF PLAINTIFFS WOULD BE DEEMED
A MASS ACTION. AND THE COURT SAYS INSTEAD,
IT’S NOT THOSE WHO BENEFIT, BUT THOSE WHO ARE ACTUALLY
PART OF THE LAWSUIT. – THAT’S EXACTLY RIGHT. – SOMETIMES THE COURT’S
DECISIONS ARE SUBTLE, COMPLICATED, AND NUANCED,
AND OTHER TIMES, THEY’RE MEANT TO SEND A
STRONG AND CLEAR MESSAGE. OUR NEXT DECISION,ATLANTIC MARINE
CONSTRUCTION COMPANY V.
U.S. DISTRICT COURT FOR THE
WESTERN DISTRICT OF TEXAS,
IS ONE OF THE LATTER GROUP, AND THE MESSAGE HERE IS THAT
RULES ON VENUE MAY NOT BE USED TO CIRCUMVENT VALID FORUM
SELECTION CLAUSES AND CONTRACTS. ATLANTIC MARINE IS
A VIRGINIA COMPANY THAT CONTRACTED WITH THE J-CREW
MANAGEMENT COMPANY IN TEXAS FOR WORK ON A
CONSTRUCTION PROJECT. THE CONTRACT HAD A VALID
FORUM SELECTION CLAUSE THAT SAID ANY DISPUTES WOULD
BE LITIGATED IN VIRGINIA. BUT WHEN A DISPUTE AROSE, J-CREW FILED AN ACTION
IN FEDERAL COURT IN TEXAS. ATLANTIC MARINE MOVED THAT
THE ACTION BE DISMISSED UNDER 28 U.S.C.,
SECTION 1406(A), AND FEDERAL RULES OF
CIVIL PROCEDURE 12(B)(3). ALTERNATIVELY, IT ASKED
THAT THE CASE BY TRANSFERRED TO THE EASTERN DISTRICT OF
VIRGINIA UNDER SECTION 1404(A). EVAN, HOW DID THE COURT RULE? – IT AGREED WITH ATLANTIC
MARINE ON THE RESULT, BUT IT DID NOT AGREE WITH
MOST OF THE REASONING. 1406(A) ALLOWS TRANSFER WHEN A CASE IS FILED
IN THE WRONG DIVISION, AND RULE 12(B)(3) ALLOWS
A DEFENSE TO CLAIM RELIEF BY PLEADING IMPROPER VENUE. THE COURT SAID THAT NEITHER
OF THOSE SECTIONS APPLIED BECAUSE VENUE IS
ONLY WRONG OR IMPROPER IF IT’S INCONSISTENT
WITH THE VENUE STATUTES. IT’S NOT WRONG OR
IMPROPER JUST BECAUSE IT’S INCONSISTENT WITH A
FORUM SELECTION CLAUSE. – BUT HERE’S WHERE THE COURT
SENT THE MESSAGE. IT SAID THAT THE FORUM SELECTION
CLAUSE COULD BE ENFORCED UNDER SECTION 1404(A),
WHICH ALLOWS A COURT TO TRANSFER VENUE FOR THE
CONVENIENCE OF THE PARTIES OR WITNESSES TO ANY DISTRICT
IT COULD HAVE BEEN BROUGHT OR WHERE THERE’S CONSENT, AND IN FACT, THE COURT
SAID THAT THE TRIAL COURT SHOULD ORDINARILY
TRANSFER THE CASE WHEN THERE’S A VALID
FORUM SELECTION CLAUSE, UNLESS THERE ARE
EXTRAORDINARY CIRCUMSTANCES UNRELATED TO THE CONVENIENCE
OF THE PARTIES. – BUT DID IT DEFINE
EXTRAORDINARY CIRCUMSTANCES? – NO, IT DIDN’T,
BUT IT DID SAY THAT THEY HAD BE
RELATED TO PUBLIC POLICY BECAUSE ONCE THERE’S
A FORUM SELECTION CLAUSE, THE PLAINTIFF’S CHOICE OF FORUM
SHOULD BE GIVEN NO WEIGHT, SINCE THE PLAINTIFF HAD ALREADY
AGREED TO THE CHOSEN FORUM. SO BASICALLY, A FORUM
SELECTION CLAUSE IS ALMOST ALWAYS GOING
TO BE DISPOSITIVE. – COULD I JUST ADD HERE
THAT THE COURT ALSO SAID THAT WHEN A PARTY VIOLATES
A FORUM SELECTION CLAUSE, THE ENSUING TRANSFER OF VENUE
UNDER 1404(A) DOES NOT CARRY WITH IT THE ORIGINAL VENUE’S
CHOICE OF LAW RULES. CHANGES OF VENUE USUALLY DO, BUT THE COURT SAYS THAT
IN THIS SITUATION, SUCH A RULE WOULD ENCOURAGE
FORUM SHOPPING BY THE PLAINTIFF. – THANK YOU. THERE ARE NO QUESTIONS,
SO NOW, LET’S TAKE A LOOK AT SOME FEDERALISM AND SEPARATION
OF POWERS DECISIONS. GENERAL, WOULD YOU AGREE
THAT THIS CLAUSE NOW IS NOT MOSTLY USED TO
DEAL WITH EMERGENCIES ARISING FROM
CONGRESSIONAL ABSENCE? THAT MOST MODERN PRESIDENTS, AND I SAY THIS SORT OF GOING
BACK TO PRESIDENT REAGAN, PRESIDENTS OF BOTH PARTIES, ESSENTIALLY HAVE USED THIS
CLAUSE AS A WAY TO DEAL NOT WITH CONGRESSIONAL ABSENCE BUT WITH CONGRESSIONAL
INTRANSIGENCE, WITH A CONGRESS THAT SIMPLY DOES
NOT WANT TO APPROVE APPOINTMENTS THAT THE PRESIDENT THINKS
OUGHT TO BE APPROVED? – IT IS HARD TO BELIEVE THAT AFTER MORE THAN 200 YEARS
AND HUNDREDS OF DECISIONS, THERE’S ANY PART OF
THE U.S. CONSTITUTION THE SUPREME COURT
HASN’T ADDRESSED, BUT THAT HAPPENED THIS TERM
WHEN FOR THE FIRST TIME, THE JUSTICES INTERPRETED
THE PRESIDENT’S POWER TO MAKE RECESS APPOINTMENTS. NORMALLY, THE PRESIDENT
MUST OBTAIN THE ADVISE AND CONSENT
OF THE SENATE BEFORE APPOINTING AN OFFICER
OF THE UNITED STATES, BUT UNDER ARTICLE II,
SECTION 2, CLAUSE 3 OF THE CONSTITUTION,
“THE PRESIDENT SHALL HAVE POWER “TO FILL UP ALL VACANCIES
THAT MAY HAPPEN “DURING THE RECESS OF THE SENATE
BY GRANTING COMMISSIONS WHICH SHALL EXPIRE AT THE
END OF THEIR NEXT SESSION.” NOW, THE EXTENT OF THIS
AUTHORITY WAS CHALLENGED IN A CASE TITLED
NLRB V. NOEL CANNING.
DURING A 3-DAY SENATE
RECESS IN 2012, PRESIDENT OBAMA
APPOINTED 3 MEMBERS OF THE NATIONAL
LABOR RELATIONS BOARD. LATER THAT YEAR,
THE NLRB ORDERED PEPSI-COLA DISTRIBUTOR
NOEL CANNING TO EXECUTE A COLLECTIVE
BARGAINING AGREEMENT WITH THE LABOR UNION AND TO MAKE EMPLOYEES
WHOLE FOR ANY LOSSES. NOW, NOEL CANNING
CHALLENGED THE RULING ON THE GROUNDS THAT
THE APPOINTMENTS THE PRESIDENT HAD
MADE WERE INVALID BECAUSE THE 3-DAY
ADJOURNMENT WAS TOO BRIEF TO TRIGGER THE RECESS
APPOINTMENTS CLAUSE. SUZANNA, HOW DID THE
COURT DECIDE THIS ONE? – ACTUALLY, THEY HAD 3–
THEY ADDRESSED 3 QUESTIONS. FIRST, HOW LONG DOES A
RECESS HAVE TO BE IN ORDER TO TRIGGER THE RECESS
APPOINTMENTS CLAUSE? THE SECOND IS,
DOES THE CLAUSE APPLY TO BOTH INTERCESSION RECESSES– THAT IS, BETWEEN
SESSIONS OF CONGRESS– AND INTRA-SESSIONS
RECESSES– THAT IS, WITHIN ONE
SESSION OF CONGRESS? AND THE THIRD QUESTION
IS ABOUT THE VACANCY, WHETHER THE VACANCY HAS
TO OCCUR, HAS TO ARISE DURING THE RECESS,
OR WHETHER IT CAN BE A VACANCY THAT AROSE EARLIER BUT THE POSITION IS STILL
VACANT DURING THIS RECESS. IN ORDER TO ANSWER THESE
QUESTIONS, THE COURT LOOKED AT NOT ONLY THE ORIGINAL
INTENT OF THE FOUNDERS, BUT VERY IMPORTANTLY,
AT THE HISTORICAL PRACTICES OF PRESIDENTS AND CONGRESSES AS THESE QUESTIONS HAVE
COME UP SINCE THE FOUNDING. THEY ENDED UP WITH
A 4-PART HOLDING. FIRST, THEY HELD THAT AS TO INTER-
AND INTRA-SESSION RECESSES, THE CLAUSE APPLIES
TO ALL OF THEM. ANY KIND OF RECESS,
THE CLAUSE APPLIES TO. BUT, AND THIS IS THE SECOND
PART OF THE HOLDING, IT ONLY APPLIES TO
SUBSTANTIAL RECESSES. AND THE COURT SAID THAT A SUBSTANTIAL RECESS HAS TO
BE MORE THAN 3 DAYS LONG, AND USUALLY, IT HAS TO BE
MORE THAN 10 DAYS LONG, UNLESS THERE IS SOME SORT
OF NATIONAL EMERGENCY, IN WHICH CASE A RECESS
OF BETWEEN 3 AND 10 DAYS COULD TRIGGER THE CLAUSE. THIRD, THE RECESS
APPOINTMENTS CLAUSE APPLIES TO ALL VACANCIES, WHETHER THEY
ARISE DURING THAT RECESS OR WHETHER THEY AROSE EARLIER BUT ARE STILL OPEN
DURING THAT RECESS. THEN FINALLY, THE COURT HELD THAT BECAUSE THE SENATE
WAS DURING THIS TIME HOLDING PERIODIC PRO-FORMA
SESSIONS EVERY 3 DAYS, THAT MEANT THAT THE SENATE
WAS NEVER IN RECESS FOR MORE THAN 3 DAYS. 3 DAYS IS TOO SHORT
FOR IT TO TRIGGER THE RECESS APPOINTMENTS
CLAUSE, WHICH MEANT THAT THE PRESIDENT COULDN’T
MAKE THOSE APPOINTMENTS. THE APPOINTMENTS WERE INVALID; THEREFORE,
THE BOARD’S DECISION AGAINST NOAH CANNING
WAS INVALID. – THANKS, SUZANNA. NOW, ERWIN, THERE WAS A
CONCURRENCE IN THE JUDGMENT. TELL US ABOUT THAT. – JUSTICE SCALIA WROTE THE OPINION CONCURRING
IN THE JUDGMENT, JOINED BY CHIEF JUSTICE ROBERTS
AND JUSTICES THOMAS AND ALITO. THESE JUSTICES WOULD IMPOSE
MUCH MORE SIGNIFICANT LIMITS ON THE PRESIDENT’S RECESS
APPOINTMENT POWER. THESE JUDGES SAID THAT THE
RECESS APPOINTMENT POWER APPLIES ONLY FOR
INTERSESSION RECESSES, NOT FOR INTRA-SESSION RECESSES. THESE JUDGES JUST SORT OF SAID,
LIKE THE DC CIRCUIT DID, THAT IT MUST BE VACANCIES THAT
OCCUR DURING THOSE RECESSES. JUSTICE SCALIA, WRITING
FOR THESE JUSTICES, SAID, “THE HISTORICAL RECORD
IS AT BEST AMBIGUOUS, “AND IT SHOULD NOT
BE ABLE TO BE USED TO IGNORE THE TEXT
OF THE CONSTITUTION.” I THINK WHAT THESE JUDGES
WERE CONCERNED ABOUT IS THAT MAJORITY HAD TAKEN
A NARROW POWER OF THE PRESIDENT AND GIVEN THE PRESIDENT
MUCH MORE AUTHORITY TO UNDERMINE THE
SENATE’S RESPONSIBILITY FOR APPROVING
PRESIDENTIAL NOMINATIONS. – WHAT’S THE
IMPLICATION OF THIS? – I THINK THERE’S AT LEAST ONE INTERESTING POLITICAL
IMPLICATION, WHICH IS THAT THE SENATE CAN
PREVENT RECESS APPOINTMENTS BY SIMPLY HOLDING PRO-FORMA
SESSIONS EVERY 3 DAYS. – IF THE SENATE DOES THAT,
THAT MAY LEAD THE PRESIDENT TO INVOKE ANOTHER
CONSTITUTIONAL PROVISION THAT’S NEVER BEEN INVOKED
AND NEVER BEEN CONSTRUED. THERE’S A PROVISION IN ARTICLE II, SECTION 3
OF THE CONSTITUTION THAT SAYS IF THE HOUSE
AND THE SENATE CANNOT AGREE AS TO A RECESS, THE PRESIDENT
MAY CALL A RECESS OF CONGRESS UNTIL SUCH TIME
AS THE PRESIDENT CALLS CONGRESS
BACK IN SESSION. SO IF CONGRESS DOESN’T
GO INTO RECESS, THE PRESIDENT WANTS TO
MAKE RECESS APPOINTMENTS, HE MIGHT INVOKE THAT
PROVISION, AND THAT COULD LEAD TO CASES WE WILL
TALK ABOUT IN THE FUTURE. – WELL, I THINK IT’S ALSO
IMPORTANT TO NOTE THAT THIS CASE WAS IN SOME SENSE
A WIN FOR THE PRESIDENT. SOMETIMES IT’S
PORTRAYED AS NOT, BUT REMEMBER, THE DC CIRCUIT
AND THE DISSENTING JUSTICES WANTED TO NARROW A PRESIDENT’S
RECESS APPOINTMENTS MUCH MORE THAN THE
MAJORITY ENDED UP DOING. – WITH OUR NEXT DECISION, WE GO FROM ISSUES OF HIGH
CONSTITUTIONAL PRINCIPLES TO MORE MEAT-AND-POTATO
QUESTIONS OF FEDERALISM, ALBEIT IN A COMPLEX
STATUTORY CONTEXT. THE OPINION CAME DOWN ASCHADBOURNE & PARKE LLP
V. TROICE,
BUT IT ALSO REPRESENTS
2 OTHER CASES GRANTED CERT WHICH ASKED THE SAME QUESTION. TROICE AND OTHERS
BOUGHT BANK CDs, IN PART BECAUSE THEY WERE
TOLD THAT THOSE INVESTMENTS WERE OR WOULD SOON BE BACKED BY HIGH-VALUE INVESTMENTS
IN THE BANK’S PORTFOLIO, INCLUDING SOME PUBLICLY
TRADED SECURITIES. IN FACT, IT WAS A PONZI SCHEME. THE MAIN PERPETRATOR WAS
EVENTUALLY CONVICTED OF SECURITIES FRAUD AND SENTENCED TO
110 YEARS IN PRISON AND SUBJECTED TO FORFEITURES
AND FINES TOTALING $12 BILLION. SO TROICE AND OTHER PLAINTIFFS
BROUGHT STATE LAW CLASS ACTIONS AGAINST SOME OF
THE PERPETRATORS. SOME OF THE CASES WERE
BROUGHT IN FEDERAL COURT, AND OTHERS WERE REMOVED
FROM STATE TO FEDERAL COURT. IN THE END, A SINGLE JUDGE IN THE NORTHERN DISTRICT OF
TEXAS HEARD ALL THE ACTIONS. NOW, THAT COURT DISMISSED
THE SUITS FOR VIOLATING THE SECURITIES LITIGATION
UNIFORM STANDARDS ACT OF 1998, WHICH PROHIBITS PLAINTIFFS
FROM MAINTAINING A CLASS ACTION BASED ON THE STATUTORY
OR COMMON LAW OF ANY STATE IN WHICH THE PLAINTIFFS
ALLEGE A MISREPRESENTATION OR OMISSION OF A MATERIAL
FACT IN CONNECTION WITH THE PURCHASE OR SALE
OF A COVERED SECURITY. NOW, “COVERED SECURITY”
IS DEFINED AS ONLY SECURITIES TRADED
ON A NATIONAL EXCHANGE. SO, SUZANNA, WERE THESE SUITS
PROHIBITED UNDER SLUSA? – NO, THEY WERE NOT. THE SUPREME COURT SAID THAT
THE STATUTE DOESN’T APPLY AND THE PLAINTIFFS CAN GO
FORWARD WITH THEIR SUITS IN EITHER STATE
OR FEDERAL COURT. JUSTICE BREYER’S
OPINION SAID THAT THE PRIMARY QUESTION IN THE CASE
WAS THE MEANING OF THAT PHRASE, MISREPRESENTATION OR OMISSION
OF A MATERIAL FACT IN CONNECTION WITH THE PURCHASE
OR SALE OF A COVERED SECURITY. AMD THE COURT SAID THAT
THE CONNECTION BETWEEN THE PURCHASE OR SALE
AND THE SECURITY HAD TO BE TIGHTER THAN
IT WAS IN THIS CASE. IT WASN’T ENOUGH THAT
THE MISREPRESENTATION WAS THAT THE CDs WOULD
BE SOON BE BACKED BY PUBLICLY TRADED SECURITIES. – AND THE IMPLICATIONS
OF THE DECISION? – I THINK BECAUSE THE COURT NARROWLY INTERPRETED THE
STATUTE, THERE’S GOING TO BE MORE STATE SECURITIES CLASS
ACTIONS BASED ON STATE LAW. – I THINK IT’S IMPORTANT TO
REMEMBER, THOUGH, THAT THIS IS A CASE JUST ABOUT PRIVATE
SUITS UNDER THIS STATUTE. THIS DOESN’T APPLY TO CRIMINAL
OR CIVIL ENFORCEMENT ACTIONS BROUGHT BY THE SECURITIES
AND EXCHANGE COMMISSION. THEIR SECURITIES FRAUD IS
DEFINED MORE BROADLY, AND SECURITIES WOULD INCLUDE
THESE CERTIFICATES OF DEPOSITS. – THANK YOU. WE’LL BE RIGHT BACK TO
TALK ABOUT BANKRUPTCY. – THE COURT DECIDED A NUMBER OF IMPORTANT BANKRUPTCY
DECISIONS THIS TERM, INCLUDINGEXECUTIVE BENEFITS
INSURANCE AGENCY V. ARKISON,
WHICH WAS ANTICIPATED
AS AN IMPORTANT FOLLOW-UP TO THE COURT’S DECISION INSTERN V. MARSHALL
A COUPLE OF TERMS AGO. I RECENTLY HAD A CHANCE
TO TALK ABOUTARKISONAND THE COURT’S OTHER
BANKRUPTCY DECISIONS WITH PROFESSOR
MICHELLE HARNER FROM THE UNIVERSITY OF MARYLAND FRANCIS KING CAREY
SCHOOL OF LAW. MICHELLE, AS ALWAYS,
IT’S GREAT TO SEE YOU, AND I REALLY THANK YOU FOR
BEING HERE TODAY TO TALK WITH US ABOUT THE 3 BANKRUPTCY
DECISIONS THIS TERM. I’D LIKE TO START
FIRST WITH THE CASE THAT MOST PEOPLE
WAITED FOR ALL YEAR, AND THAT’SEXECUTIVE BENEFITS
INSURANCE AGENCY V. ARKISON.
I THINK THAT THIS CASE
WAS SO HIGHLY ANTICIPATED BECAUSE ITS POTENTIAL IMPACT NOT
ONLY ON THE BANKRUPTCY SYSTEM BUT ON THE MAGISTRATE SYSTEM BECAUSE IT CALLED INTO QUESTION
BANKRUPTCY JUDGES’ AUTHORITY TO HEAR CERTAIN TYPES OF CLAIMS
EVEN WITH THE PARTIES’ CONSENT AND TO ENTER FINAL
JUDGMENTS ON THESE CLAIMS. THE ISSUE WAS SET UP BYSTERN V.
MARSHALL
BACK IN 2011. CAN YOU DESCRIBE THE ISSUE
A LITTLE BIT MORE FOR US? – ABSOLUTELY. THIS
CERTAINLY WAS A SEQUEL TOSTERN V. MARSHALL.INSTERN V.MARSHALL,
WHAT YOU HAD WAS THE SUPREME COURT DECIDING
THAT EVEN IF THE STATUTE– SO HERE, IT WOULD BE 28
U.S.C., SECTION 157(B)– DESIGNATES A CLAIM AS CORE, WHICH MEANS THE BANKRUPTCY
COURT COULD DECIDE IT BY FINAL JUDGMENT, IF THE BANKRUPTCY COURT LACKS
CONSTITUTIONAL AUTHORITY TO DECIDE THAT TYPE OF CLAIM, IT SIMPLY CANNOT
RENDER A DECISION. SO YOU HAD THIS SITUATION
WHERE 157(B) LISTS A WHOLE SET OF DIFFERENT
TYPES OF CLAIMS AS CORE, INCLUDING COUNTERCLAIMS,
WHICH WAS AT ISSUE AT STERN, AND FRAUDULENT TRANSFER CLAIMS,
WHICH IS WHAT IS AT ISSUE IN THE CURRENT
SUPREME COURT CASE. WHEN THE BANKRUPTCY COURT LACKED
CONSTITUTIONAL AUTHORITY TO RESOLVE THAT TYPE OF CLAIM, THE CIRCUIT COURT
SPLIT ON WHAT HAPPENS. COULD THE BANKRUPTCY
COURT DO ANYTHING? COULD IT ENTER PROPOSED FINDINGS
AND CONCLUSIONS OF LAW, OR DID THAT MATTER SIMPLY HAVE
TO GO TO THE DISTRICT COURT? – SO WHAT DID THE COURT
DECIDE ABOUT THIS? – YOU KNOW, IT’S INTERESTING. IT CERTAINLY
WASN’T ANTICIPATED, BUT I’VE HEARD SO MANY PEOPLE
SAY THEY WERE RELIEVED BECAUSE, AS THE COURT HINTED
TO INSTERN V. MARSHALL,IT WASN’T CHANGING
THE LANDSCAPE MUCH, BUT THERE WAS ALSO, I THINK, A GREAT SENSE OF DISAPPOINTMENT
ABOUT THE DECISION, PRIMARILY BECAUSE IT LEFT
SEVERAL OPEN ISSUES. BUT WITH RESPECT TO WHAT THE
COURT DID IN THE ARKISON CASE, IT BASICALLY SAID THERE’S
NO STATUTORY GAP IF YOU HAVE A CLAIM DESIGNATED AS CORE
UNDER SECTION 157(B). BUT THE BANKRUPTCY COURT LACKS
CONSTITUTIONAL AUTHORITY TO DECIDE THAT TYPE OF CLAIM. WE SIMPLY INVOKE THE
SEVERABILITY PROVISION OF THE STATUTE. WE TAKE IT OUT OF 157(B).
WE DROP DOWN TO 157(C), WHICH TALKS ABOUT CLAIMS
THAT ARE NOT CORE. SO THE COURT SAID HERE, WHEN THIS FRAUDULENT
TRANSFER CLAIM DROPPED OUT OF SECTION 150(B), BECAUSE IT WAS A,
QUOTE, “STERN CLAIM,” THE BANKRUPTCY COURT STILL
HAD AUTHORITY UNDER 157(C) BECAUSE IT WAS NOT CORE AND IT RELATED TO
A CASE UNDER TITLE X1, SO THE COURT COULD ENTER
PROPOSED FINDINGS OF FACTS AND CONCLUSIONS OF LAW. THAT’S HOW
THE DISTRICT COURT TREATED THE BANKRUPTCY
COURT’S ORDER. AND IT ALSO PREVIEWED,
ON THE DE NOVO BASIS, THE ISSUES THAT HAD BEEN TIMELY
AND SPECIFICALLY OBJECTED TO BY EXECUTIVE BENEFITS,
SO NO PROBLEM. – RIGHT AFTER THE DECISION, I CERTAINLY READ WHAT
THE COURT DECIDED, BUT I THINK I READ MORE
ABOUT WHAT IT DIDN’T DECIDE. AND…I THINK YOU’RE RIGHT. PEOPLE WERE, LIKE,
WAITING FOR MORE. WHAT ARE THOSE ISSUES, AND WHAT DO YOU THINK
IS GOING TO HAPPEN? – I THINK THE
DISAPPOINTMENT CAME FROM THE LACK OF RESOLUTION
OF THE CONSENT ISSUE. RIGHT NOW, IF YOU
LOOK AT 157(C), NOT ONLY CAN A BANKRUPTCY COURT ENTER A PROPOSED FINDINGS
AND CONCLUSIONS ON NOT CORE CLAIMS, BUT ALSO IF
ALL OF THE LITIGANTS CONSENT, THE BANKRUPTCY COURT CAN
ENTER A FINAL JUDGMENT. THERE WAS A SPLIT
IN THE CIRCUITS, AND THERE STILL IS A SPLIT
IN THE CIRCUITS WITH THE NINTH CIRCUIT HOLDING
THAT CONSENT OF THE LITIGANTS, EVEN IMPLIED CONSENT,
IS SUFFICIENT TO ALLOW THE BANKRUPTCY COURT TO
ENTER FINAL JUDGMENT. BUT YOU HAVE THE FIFTH, SIXTH,
AND SEVENTH CIRCUITS SAYING, “NO. THIS IS A STRUCTURAL
ISSUE UNDER ARTICLE III, “AND CONSENT, EVEN CONSENT
OF ALL THE LITIGANTS, DOES NOT RESOLVE THAT
CONSTITUTIONAL ISSUE.” AND SO WE HAVE THIS
UNANSWERED QUESTION WITH HUGE IMPLICATIONS, BECAUSE AS YOU REFERENCED
EARLIER IN YOUR COMMENTS, IT ALSO AFFECTS THE
MAGISTRATE SYSTEM HERE. – SO WE’RE GOING TO HAVE
INTERESTING FEW YEARS COMING UP, I THINK, – WE WILL. BUT FORTUNATELY, THE SUPREME COURT GRANTED
CERT ON THE SEVENTH CIRCUIT,WELLNESS INTERNATIONAL
V. SHARIF
CASE. THAT WILL POSSIBLY GIVE US
MORE GUIDANCE ON CONSENT BECAUSE THAT IS ONE OF
THE ISSUES IN THAT CASE. – WELL, LET’S MOVE ON
TO THE NEXT CASE, AND THAT ISCLARK V. RAMEKER.THE PETITIONERS IN THIS
CASE HAD FILED CHAPTER 7, AND THEY HAD CLAIMED AS EXEMPT
A RETIREMENT FUND THAT ONE OF THEM HAD
INHERITED FROM A PARENT. AS A CONSEQUENCE,
IF IT WAS EXEMPT, IT WOULDN’T BE AVAILABLE
TO PAY CREDITORS. THEY RELIED ON A STATUTE
THAT EXEMPTED RETIREMENT FUNDS THAT WERE KEPT IN CERTAIN
KINDS OF ACCOUNTS. WHAT DID THE SUPREME COURT SAY ABOUT THESE KINDS OF
INHERITED RETIREMENT FUNDS? – WHAT THE SUPREME COURT DID, AND IT WAS ACTUALLY
SOMETHING DONE IN ALL 3 OF THE CASES
BEFORE THIS TERM, IT TOOK A VERY CLOSE LOOK
AT THE STATUTE AT ISSUE. SO WE’RE DEALING WITH SECTION 522(B)(3)(C)
OF THE BANKRUPTCY CODE, WHICH SAYS A DEBTOR CAN EXEMPT
FROM A CREDITOR’S REACH, QUOTE, “RETIREMENT FUNDS
THAT ARE EXEMPT FROM TAXATION UNDER THE
INTERNAL REVENUE CODE.” THE COURT DISPENSED WITH THE SECOND PART OF THAT
REQUIREMENT VERY EASILY BECAUSE THE INHERITED IRA
IS A TAX-EXEMPT ACCOUNT UNDER THE PARTICULAR PROVISIONS
OF THE IRC REFERENCED IN THE EXEMPTION STATUTE
OF THE BANKRUPTCY CODE. SO THE WHOLE DECISION TURNED
ON THE TERM “RETIREMENT FUNDS.” THE COURT SAID IT’S NOT DEFINED
BY THE BANKRUPTCY CODE, SO LET’S LOOK AT
ITS PLAIN MEANING. AND THE COURT SAID USUALLY,
WE THINK OF RETIREMENT FUNDS AS FUNDS YOU SET ASIDE
FOR WHEN YOU STOP WORKING. THERE WERE 3 CHARACTERISTICS
OF THE INHERITED IRA THAT THE COURT FOUND
TOOK IT OUT OF THAT TYPE
OF SAVINGS ACCOUNT. FIRST, THE HOLDER OF
THE INHERITED IRA COULD NOT INVEST
MORE MONEY IN THE FUND. SECOND, THE HOLDER WAS
MANDATED BY STATUTE TO WITHDRAW FUNDS EVEN IF SHE
DIDN’T REACH RETIREMENT AGE YET. AND FINALLY, THE HOLDER
OF THE INHERITED IRA COULD WITHDRAW THE ENTIRE
AMOUNT AT ANY POINT, SO IT WAS HARD TO SAY SHE WAS SAVING THAT FOR
HER RETIREMENT YEARS. BECAUSE OF THAT,
THE COURT SAID THE STATUTE SIMPLY DOES NOT
ALLOW YOU TO EXEMPT IT, AND IN DOING SO, THOUGHT ABOUT
THE BALANCE CONGRESS STRUCK BETWEEN ALLOWING A DEBTOR
A FRESH START WITH THE EXEMPT PROPERTY AND ALSO MAXIMIZING VALUE
FOR CREDITORS FROM THE ESTATE’S ASSETS. – SO THE PRACTICAL
IMPLICATIONS OF– – HERE IT’S REALLY
INTERESTING BECAUSE BOTH THE LOWER COURT BELOW
AND THE SUPREME COURT RECOGNIZED THE DIFFERENCE
BETWEEN AN INHERITED IRA THAT A SPOUSE RECEIVES FROM
HIS OR HER HUSBAND OR WIFE AND ROLLS INTO HER OWN IRA
AS A RETIREMENT FUND AND AN INHERITED IRA
FROM A NON-SPOUSE THAT YOU SIMPLY HAVE
TO HOLD IN THAT FORM. THE LATTER, NOT EXEMPT; WHEN YOU ROLL IT INTO YOUR
OWN ACCOUNT, CERTAINLY, EXEMPT. – SO IT’S SOMETHING
FOR FINANCIAL PLANNERS TO TAKE A NOTE OF, FOR SURE. – ABSOLUTELY. – LET’S MOVE ON TO THE
FINAL CASE,LAW V. SIEGEL.THIS CASE INVOLVES SOME
VERY EGREGIOUS BEHAVIOR BY A CHAPTER 7 DEBTOR WHO CLAIMED A FRAUDULENT SECOND
MORTGAGE ON HIS HOME. BETWEEN THE $75,000
HOMESTEAD EXEMPTION, THE FIRST MORTGAGE,
AND THE SECOND MORTGAGE, THE TRUSTEE COULDN’T
SELL THE HOME TO RECOUP ANY MONEY
TO PAY TO DEBTORS. THE TRUSTEE, AFTER MONTHS AND $500,000 OF ATTORNEYS’
EXPENSES AND LEGAL EXPENSES, PROVED THAT THE SECOND
MORTGAGE WAS FRAUDULENT. THE BANKRUPTCY COURT
THEN SURCHARGED THE $75,000 HOMESTEAD EXEMPTION SO THAT THE TRUSTEE COULD
RECOUP SOME OF THE EXPENSES. WHAT WAS THE BANKRUPTCY COURT’S
REASONING IN DOING THIS, AND DID THE SUPREME COURT
AGREE WITH IT? – IT’S INTERESTING.
YOU HAD A BAD ACTOR HERE, AND THE BANKRUPTCY COURT
TRIED TO REMEDY HIS CONDUCT BY SAYING BECAUSE THE SURCHARGE
ON THE EXEMPT PROPERTY WAS TO COMPENSATE THE
ESTATE FOR AN ACTUAL LOSS, IT WAS AN APPROPRIATE REMEDY UNDER THE BANKRUPTCY CODE’S
SECTION 105, EQUITABLE POWERS. THE SUPREME COURT COMPLETELY
DISAGREED AND SAID WHAT YOU HAVE HERE ARE 2
SECTIONS, AGAIN, OF THE CODE WE HAVE TO THINK
ABOUT CAREFULLY. YOU HAVE SECTION 105 THAT
SAYS THE BANKRUPTCY COURT CAN ISSUE AN ORDER THAT IS
NECESSARY OR APPROPRIATE TO IMPLEMENT THE
PROVISIONS OF TITLE 11. BUT YOU HAVE SECTION 522(K)
THAT SPECIFICALLY SAYS EXCEPT FOR ONE CIRCUMSTANCE, YOU REALLY CAN’T USE
EXEMPT PROPERTY TO PAY ADMINISTRATIVE EXPENSES. TRUSTEE’S FEES ARE ADMINISTRATIVE EXPENSES,
GENERALLY, SO THE COURT SAID
YOU CAN’T DO IT, AND YOU CAN’T USE 105
TO GET THERE. WE SAW THE COURT REALLY
RECOGNIZING A LIMITATION ON THE BANKRUPTCY COURT’S
EQUITABLE POWERS. – SO JUST REAL QUICKLY,
DO YOU THINK THIS CASE HAS ANYTHING TO SAY FOR THE BANKRUPTCY COURT’S
GENERAL AUTHORITY UNDER 105? – I THINK IT’S CONSISTENT WITH THE PRIOR CASE LAW
FROM THE SUPREME COURT. I THINK IF THE BANKRUPTCY
CODE IS SILENT OR THERE IS AMBIGUITY
IN THE CODE, SECTION 105 HELPS
A BANKRUPTCY COURT ISSUE A NECESSARY OR
APPROPRIATE ORDER. BUT IF YOU HAVE AN EXPLICIT
PROVISION UNDER TITLE 11, THE SUPREME COURT IS
GOING TO BE VERY LIMITING IN WHAT THE BANKRUPTCY
COURT CAN DO. – THANK YOU VERY MUCH. I REALLY APPRECIATE, AGAIN,
YOU BEING HERE TODAY, AND I HOPE WE GET
TO TALK AGAIN SOON. – THANK YOU. – AND FINALLY, PATENT AND
COPYRIGHT DECISIONS THIS TERM RESULTED IN ONE COMPANY
GOING OUT OF BUSINESS AND ANOTHER BEING
FORCED TO PAY DAMAGES FOR ITS MARKETING
OF A CLASSIC MOVIE. PROFESSOR JOHN THOMAS OF
GEORGETOWN UNIVERSITY LAW CENTER CAME BY OUR STUDIOS RECENTLY
TO TALK ABOUT THOSE AND OTHER DECISIONS
IN THIS AREA OF THE LAW. PROFESSOR THOMAS,
THANK YOUR FOR JOINING US. LET’S GET STARTED RIGHT OFF WITH THEMEDTRONIC
V. MIROWSKI
CASE. MEDTRONIC BROUGHT A
DECLARATORY JUDGMENT ACTION AGAINST MIROWSKI, ASKING
THE COURT TO DECLARE THAT ITS PRODUCTS DID NOT INFRINGE
ON MIROWSKI’S PATENT. AS THE PLAINTIFF, MEDTRONIC WOULD NORMALLY HAVE
HAD THE BURDEN OF PROOF, BUT BECAUSE MIROWSKI
WAS THE PATENT HOLDER, WHO USUALLY HAS THE BURDEN
OF PROVING INFRINGEMENT IN A PATENT INFRINGEMENT CASE, THE QUESTION BEFORE
THE COURT WAS, WHO HAD THE BURDEN OF PROOF IN THIS PATENT LAW
DECLARATORY JUDGMENT CASE? AND THE COURT DECIDED THAT
MIROWSKI, THE PATENT HOLDER, HAD THAT BURDEN. CAN YOU EXPLAIN THE RELATIONSHIP
BETWEEN THIS DECISION THIS YEAR AND THEMEDIMMUNECASE
BACK IN 2009? – RIGHT. A FEW YEARS AGO, THE SUPREME COURT ISSUED
ITS OPINION INMEDIMMUNE,AND THAT CASE HELD THAT UNDER
THE DECLARATORY JUDGMENT ACT AND UNDER THE CONSTITUTION, A CASE OR CONTROVERSY
EXISTED FOR AN INDIVIDUAL THAT WAS PAYING LICENSE FEES
UNDER AN AGREEMENT. THIS ALLOWED THE PATENT LICENSEE TO HAVE ITS CAKE
AND EAT IT, TOO. IT COULD PAY THE ROYALTIES AND BE SAFE FROM CHARGES
OF INFRINGEMENT, BUT ALSO BRING A
DECLARATORY JUDGMENT ACTION SEEKING THAT THE PATENT
BECOME INVALID. SO THE COURT’S REASONING IN
BOTHMEDIMMUNEANDMEDTRONICWAS ANIMATED BY THIS
NOTION THAT LICENSEES ARE THE INDIVIDUALS
MOST INTERESTED IN HAVING PATENTS STRUCK DOWN, AND THEY OUGHT NOT TO
BE MUZZLED IN ANY WAY. SO THEMEDTRONICCASE
ALLOWS PARTIES TO BRING DECLARATORY JUDGMENTS
SEEKING PATENT INVALIDITY AND NOT HAVE TO FACE THE BURDEN
OF PROVING NON-INFRINGEMENT; RATHER, THE PATENTEE IS
STILL PUT TO ITS PROOFS. SO THE POLICY GOALS
ARE THE SAME. – NOW, WE’RE DISCUSSING
THIS CASE IN THE CONTEXT OF OTHER PATENT
AND COPYRIGHT CASES, BUT WE MIGHT JUST AS
WELL BE DISCUSSING IT IN THE CONTEXT OF A CIVIL
PROCEDURE DISCUSSION. ISN’T THAT RIGHT? – RIGHT. THE JUDICIAL
OPINION MOSTLY FOCUSES ON THE CIVIL
PROCEDURE ASPECT. THE COURT WAS PARTICULARLY
CONCERNED THAT IF THE LOWER COURT’S
HOLDING HAD BEEN UPHELD, THE JUDGMENT WILL NOT
HAVE PRECLUSIVE EFFECT, AND SO THEREFORE, YOU WOULD
STILL HAVE TO HAVE, IN FUTURE,
INFRINGEMENT CASES. THE COURT MOSTLY LOOKED AT IT
THROUGH A CIVIL PROCEDURE LENS, BUT THERE IS A NOD
TO THE PATENT POLICIES THAT WE JUST DISCUSSED. – OK. LET’S TAKE A LOOK
AT ALICE CORP. ALICE CORP. HELD
PATENTS FOR SOFTWARE THAT ALLOWED THE USER
TO MANAGE RISKS BY FACILITATING THE EXCHANGE OF FINANCIAL INFORMATION
BETWEEN PARTIES USING A COMPUTER SYSTEM AS
A THIRD-PARTY INTERMEDIARY. NOW, USING THIRD-PARTY
INTERMEDIARIES HAS BEEN GOING ON
FOR MANY YEARS, BUT THOSE WERE HUMAN,
NOT COMPUTER INTERMEDIARIES, AND THEY WERE USED TO MANAGE
THE RISK OF NONPAYMENT. THAT’S A BUSINESS PRACTICE THAT GOES BACK, I GUESS,
HUNDREDS OF YEARS, RIGHT? THE COURT HELD HERE THAT
ALICE CORP.’S PATENT WAS NOT VALID
BECAUSE ALL IT REALLY DID WAS PATENT AN ABSTRACT IDEA. RIGHT? SO THEY DIDN’T
DECIDE THIS CASE ON THE BASIS OF
THE PATENT ACT, THOUGH. HOW DID THEY DECIDE THIS? – THEY DIDN’T CONFORM TO
A TIGHT STATUTORY READ. SECTION 101 OF THE PATENT ACT ALLOWS AN EXPANSIVE ARRAY
OF THINGS TO BE PATENTED, BUT THERE ARE
JUDICIAL EXCEPTIONS. THE COURTS HAVE LONG HELD
THAT ABSTRACT IDEAS, NATURAL PHENOMENA, AND LAWS
OF NATURE CAN’T BE PATENTED. THE COURT HERE
WAS WILLING TO SAY THAT DRESSING UP THIS
PATENT, THIS IDEA, IN THE CLOTHING OF
A COMPUTER SYSTEM, MAKING IT LOOK MORE TECHNICAL,
WASN’T ENOUGH FOR IT TO GET OUTSIDE THE
PROHIBITED DOMAIN OF THIS COMMON LAW ABSTRACT IDEA
EXCEPTION TO PATENTING. THIS IS THE FOURTH CASE
SINCE 2010, I BELIEVE, IN WHICH THE COURTS HELD THAT
A PATENT CLAIM WAS INVALID BASED ON JUDICIAL EXCEPTIONS
TO PATENTABILITY. IS THAT IMPORTANT?
WHY IS THAT IMPORTANT? – IT IS IMPORTANT. THE FEDERAL CIRCUIT,
THE COURT OF APPEALS THAT’S TASKED WITH DECIDING
MOST PATENT CASES, HAS ARGUABLY PRESIDED OVER
A STEROIDS OR A GO-GO ERA OF THE PATENT SYSTEM WHERE VIRTUALLY ANYTHING
COULD BE PATENTED. THE SUPREME COURT HERE
HAS CONTINUOUSLY STRESSED THEIR CONCERN ABOUT PATENTING
FUNDAMENTAL SCIENTIFIC KNOWLEDGE AND ALSO BUSINESS TRANSACTIONS,
LIKE INSURANCE OR MARKETING. SO THIS IS A STRONG AND
CONTINUOUS AND UNWAVERING VOICE FROM THE SUPREME COURT THAT SOME THINGS
OUGHT NOT BE PATENTED. – CAN YOU SEE ANY LIMITS ON
THESE JUDGE-MADE EXCEPTIONS? – THE EXCEPTIONS THEMSELVES–
ABSTRACT IDEAS, NATURAL PHENOMENON, LAWS
OF NATURE–ARE PRETTY OLD. THEY’VE BEEN AROUND
FOR A LONG TIME, BUT THEY’VE INTERPRETED
MORE NARROWLY IN THE PAST. AGAIN, HERE, THE COURT
WAS WILLING TO SAY, USING THE ART OF
A PATENT DRAFTSMAN, DRESSING UP PATENTS TO MAKE THEM
LOOK MORE LIKE HARD TECH RATHER THESE BASIC IDEAS
IS NOT ENOUGH. WE’RE GOING TO SEE PAST THAT AND SAY THAT THESE THINGS
AREN’T PATENTABLE. – HOW DOES THIS CASE AFFECT
PATENT PROTECTION FOR SOFTWARE? – THE SUPREME COURT
DECLINED TO SAY THAT ALL SOFTWARE
WAS NOT PATENTABLE, BUT IT’S GOING TO BE
MUCH MORE DIFFICULT TO GET A SOFTWARE PATENT,
AND THAT AFFECTS BOTH PENDING APPLICATIONS
AT THE PATENT OFFICE, BUT ALSO ISSUED PATENTS THAT ARE OUT AND MIGHT BE
SUBJECT TO CHALLENGE. ESSENTIALLY, UNLESS THERE IS
A TECHNOLOGICAL IMPROVEMENT, AN IMPROVEMENT TO
THE COMPUTER ITSELF RATHER THAN JUST USE
OF A GENERAL COMPUTER, YOU CAN’T GET A PATENT. – LET’S TAKE A LOOK
ATPETRELLA V. MGM.ALTHOUGH THE COPYRIGHT ACT
HAS A STATUTE OF LIMITATIONS THAT REQUIRES CIVIL ACTION
TO BE BROUGHT WITHIN 3 YEARS AFTER
A CLAIM IS ACCRUED, IT ALSO HAS A SEPARATE
ACCRUAL RULE THAT ALLOWS THAT WHEN A DEFENDANT HAS
COMMITTED SUCCESSIVE VIOLATIONS, EACH INFRINGING ACT WILL
RESTART THE STATUTE. SO PAULA PETRELLA INHERITED
THE COPYRIGHT TO THE SCRIPT FOR THE MOVIE “RAGING BULL” FROM
HER FATHER, WHO CO-WROTE IT. ALTHOUGH THE MOVIE
WAS RELEASED IN 1980, PETRELLA SUED MGM IN 2009
FOR COPYRIGHT INFRINGEMENT AND SOUGHT MONETARY
AND INJUNCTIVE RELIEF LIMITED TO ACTS
OF INFRINGEMENT OCCURRING ON OR AFTER JANUARY OF
2006, 3 YEARS EARLIER. MGM MOVED FOR SUMMARY JUDGMENT UNDER THE EQUITABLE
DOCTRINE OF LACHES, AND THE COURT DECIDED THAT
LACHES COULD NOT BE USED WHEN THERE’S A
STATUTE OF LIMITATIONS AND FOUND PETRELLA’S
CLAIM WAS TIMELY. NOW, WILL THE DISTINCTION
THAT THE COURT MAKES BETWEEN LEGAL AND
EQUITABLE RELIEF HERE HAVE MUCH EFFECT ON HOW
JUDGES DECIDE FUTURE CASES? – THIS CASE IS A BIG
WIN FOR COPYRIGHT OWNERS BECAUSE COPYRIGHT TERMS
LAST A LONG TIME, BUT THE COMMERCIAL VALUE OF A
WORK TENDS TO BE PRETTY SHORT. SO THIS WOULD ALLOW
INFRINGEMENT SUITS TO BE BROUGHT EVEN IN
THOSE CIRCUMSTANCES. THE OPINION LEAVES
THE LOWER COURTS IN THE SITUATION THEY
WERE LEFT IN AFTER EBAY. NORMALLY, THE PRACTICE WAS
TO ENJOIN INFRINGEMENT AND THEN LET THE PARTIES
WORK OUT THE DEALS OF HOW THE WORK COULD BE EXPLOITED
OUTSIDE OF THE COURTROOM. BUT HERE, THE COURT
SAID THAT ALTHOUGH THE CIRCUMSTANCE OF LACHES
WOULDN’T BAR THE CLAIM ENTIRELY, IT MAY LIMIT THE ABILITY
OF THE COURT TO GRANT AN INJUNCTION AS A FORM
OF EQUITABLE RELIEF. SO THE COURTS MAY
FIND THEMSELVES NOT GRANTING INJUNCTIONS AND
SUPERVISING JUDICIAL DAMAGES, AWARDS, ROYALTY PAYMENTS THROUGHOUT THE TERM
OF COPYRIGHT. – ALL RIGHT. AND THERE WAS ONE MORE SORT
OF BIG CASE,ABC V. AEREO.THE COPYRIGHT ACT OF 1976
GIVES COPYRIGHT OWNERS THE EXCLUSIVE RIGHT TO
PUBLICLY PERFORM MATERIAL, COPYRIGHTED MATERIAL. AEREO WAS A COMPANY
THAT USED, I THINK, A DIME-SIZED ANTENNA TO
ALLOW MOBILE DEVICE OWNERS TO WATCH BROADCAST PROGRAMMING ALMOST SIMULTANEOUSLY WITH
THE TIME IT WAS BROADCAST. AND AEREO ARGUED THAT IT
WAS PROVIDING A TECHNOLOGY TO ALLOW ITS MEMBERS
TO ACCESS REMOTELY WHAT WAS BEING BROADCAST
FOR PUBLIC CONSUMPTION. IN OTHER WORDS, IT WAS
NOT ITSELF PERFORMING THE COPYRIGHTED WORK PUBLICLY. BUT THE COURT DISAGREED
AND DECIDED THAT AEREO WAS VIOLATING THE TRANSMIT
CLAUSE OF THE COPYRIGHT ACT. SO IS THIS A PRETTY NARROW
TEXTUAL DECISION? – NOT AT ALL, IN MY OPINION. I THINK THAT THE COURT
ENGAGED IN A BIT OF CREATIVE STATUTORY
INTERPRETATION, SAYING, FOR EXAMPLE, THAT THESE
ANTENNAS PERFORMED THE WORK. I THINK THAT THE COURT SAW SOMETHING THAT
LOOKED LIKE CABLE TV, BUT THAT WAS SKIRTING
THE USUAL PAYMENTS THAT CABLE TELEVISION
PROVIDERS HAVE TO MAKE. ALSO, IT FABRICATED AN ELABORATE
RUBE GOLDBERG DEVICE SOLELY FOR THE PURPOSE OF GETTING AROUND
THE COPYRIGHT ACT. – AEREO CEASED DOING BUSINESS
AFTER THIS DECISION. SO WHAT DO YOU THINK
WILL BE THE EFFECT ON OTHER FUTURE TECHNOLOGIES, AND HOW ARE
THEY SUBJECT TO… WHAT HAPPENS TO THE CLAIMS
OF COPYRIGHT INFRINGEMENT OF FUTURE TECHNOLOGIES
AS A RESULT OF THIS CASE? – THE COURT SAID,
AS IT OFTEN DOES ON HIGH-TECH INTELLECTUAL
PROPERTY CASES, THAT IT WAS RATIONING
A VERY NARROW DECISION. BUT STILL, IT HAD A FAIRLY
BROADENED CONSTRUCTION OF TERMS THAT WOULD BRING IN TECHNOLOGIES UNDER THE MANTLE
OF INFRINGEMENT. NONETHELESS, THIS MAY NOT
IMPACT CLOUD COMPUTING OR CLOUD-BASED
INFORMATION SERVICES AS MUCH AS SOME HAVE FEARED. CLOUD COMPUTING TENDS
TO INVOLVE THE STORAGE OF INDIVIDUALS’
SPECIFIC FILES, YOUR FILES. THE TECHNOLOGY THAT WAS
DISCUSSED HERE DIDN’T. THAT MAY BE
A SALIENT DISTINCTION THAT MIGHT STILL SAVE
THE CLOUD, BUT WE’LL SEE. WE’LL SEE WHAT THE FUTURE
TECHNOLOGIES BRING US AND WHAT FUTURE CLAIMS OF COPYRIGHT INFRINGEMENT
RESULT IN. – GREAT. PROFESSOR THOMAS,
THANKS FOR JOINING US. – THANK YOU FOR HAVING ME. – THAT’S OUR PROGRAM
FOR THIS YEAR. I THANK OUR FACULTY FOR
THEIR THOUGHTFUL DISCUSSION. WE HOPE YOU FOUND THE PROGRAM
USEFUL AND INTERESTING. ONCE AGAIN, PLEASE FILL OUT
THE EVALUATION FORM FOUND ON THE PROGRAM’S WEBPAGE
AND SEND IT TO US. I’M JOHN COOKE. FOR EVERYONE HERE AT THE
FEDERAL JUDICIAL CENTER, THANK YOU FOR WATCHING.

Leave a Reply

Your email address will not be published. Required fields are marked *