Business and Technology Law

In New York, if a company terminates an employee and prohibits that employee from accessing personal information on a company computer, the company may find itself being sued for conversion. A recent decision by the New York Court of Appeals raises the possibility that by prohibiting a former employee from recovering private or personal electronic data from a company computer, the company might be sued for the tort of conversion. In making its decision, the court essentially recognized that electronic data is just another form of personal property protected by the law. Thyroff v. Nationwide Mutual Insurance, 2007 WL 844860 (N.Y. 2007), involved a Nationwide insurance agent who was terminated. The agent kept personal data and customer information on a company computer system, and after his termination, Nationwide denied him access to that information.

The Court of Appeals expanded the tort of conversion to encompass electronic data, reasoning that what was truly valuable about a document is its contents, not the medium of storage. If Nationwide had kept the agent’s personal papers or effects without permission, there would have been no question that the agent could have sued for conversion. The court recognized that more and more information is being stored electronically. Indeed, the court’s own opinion was drafted and stored on a computer system and distributed to the justices by e-mail.

The court treated the electronic data stored on Nationwide’s computer system as if it were a physical item, seeing no “reason in law or logic why this process of virtual creation should be treated any differently from production by pen on paper or quill on parchment.” The court noted that it was not deciding whether all forms of virtual information would fall within the scope of a conversion claim, but it is difficult to imagine what types of stored data might not be subject to a claim for conversion. When terminating an employee in New York, it is critical to recognize that an employee’s privacy rights and property rights may be affected. To avoid the possibility of a claim for conversion when a company terminates an employee, it may be a wise precaution to allow that employee, under supervision, to retrieve personal information stored on a company computer system.

In New York, if a company terminates an employee and prohibits that employee from accessing personal information on a company computer, the company may find itself being sued for conversion. A recent decision by the New York Court of Appeals raises the possibility that by prohibiting a former employee from recovering private or personal electronic data from a company computer, the company might be sued for the tort of conversion. In making its decision, the court essentially recognized that electronic data is just another form of personal property protected by the law. Thyroff v. Nationwide Mutual Insurance, 2007 WL 844860 (N.Y. 2007), involved a Nationwide insurance agent who was terminated. The agent kept personal data and customer information on a company computer system, and after his termination, Nationwide denied him access to that information.

The Court of Appeals expanded the tort of conversion to encompass electronic data, reasoning that what was truly valuable about a document is its contents, not the medium of storage. If Nationwide had kept the agent’s personal papers or effects without permission, there would have been no question that the agent could have sued for conversion. The court recognized that more and more information is being stored electronically. Indeed, the court’s own opinion was drafted and stored on a computer system and distributed to the justices by e-mail.

The court treated the electronic data stored on Nationwide’s computer system as if it were a physical item, seeing no “reason in law or logic why this process of virtual creation should be treated any differently from production by pen on paper or quill on parchment.” The court noted that it was not deciding whether all forms of virtual information would fall within the scope of a conversion claim, but it is difficult to imagine what types of stored data might not be subject to a claim for conversion. When terminating an employee in New York, it is critical to recognize that an employee’s privacy rights and property rights may be affected. To avoid the possibility of a claim for conversion when a company terminates an employee, it may be a wise precaution to allow that employee, under supervision, to retrieve personal information stored on a company computer system.

The issue of employee privacy rights in data stored on an employer’s computer is a difficult one. If an employee displayed framed family photos on her desk, an employer would not refuse to turn those photos over to the employee upon termination. These days, the employee is just as likely to keep such photos as jpegs or gifs on her PC at work, along with many other types of personal information, from correspondence to recipes. Allowing a terminated employee access to that computer after termination does present practical difficulties, and a business that chooses this method of avoiding liability for breach of employee privacy rights should implement safeguards to prevent the former employee from compromising company security or having access to trade secrets and other valuable business information.

A company could adopt a policy prohibiting employees from storing personal information on a company computer, though this may be impractical to enforce. A number of courts have held that an employee has no privacy expectation in workplace computer files where company guidelines and policy explicitly inform the employee that no expectation of privacy exists. See, e.g., Muick v. Genayre, 280 F.3d 741, 743 (7th Cir.2002); United States v. Simons, 206 F.3d 392, 398 (4th Cir.2000); Thygeson v. Bancorp, 2004 WL 2066746 (D. Or. 2004); Kelleher v. City of Reading, 2002 WL 1067442 (E.D. Pa. 2002). A company could adopt such a policy, which could be used as evidence that when the employee stored in the information, the employee was aware that she had no privacy interest in that electronic data and that the information no longer belonged to her.

It might also be helpful to require employees to acknowledge in writing that any information stored on a company computer belongs to the company and that they have no privacy interests in such information. The Thyroff decision did not indicate whether or not Northwest Mutual had such a policy in place. It is also not clear whether a court might conclude that whether or not there was a privacy expectation, the employee still had a property right in the information that could be enforced in an action for conversion. Nevertheless, a company’s litigation position would in all likelihood be strengthened by implementing and enforcing a policy regarding storage of personal data on company computers.

The Supreme Court’s decision in Scott v. Harris, 2007 WL 1237851 (U.S. 2007), may give appellate courts more freedom to decide issues on summary judgment that might previously have been left for resolution by juries. The factual scenario in Scott v. Harris would have made a fascinating episode of “Cops.” A Georgia county deputy attempted to pull over Harris after clocking him at 73 miles per hour in a 55 mile per hour zone. Harris instead sped away initiating a chase down mostly two-lane roads at speeds exceeding 85 miles per hour. Deputy Scott joined the chase in his patrol car and radioed his supervisor for permission to employ a PIT maneuver, where the pursuing vehicle pulls alongside the fleeing vehicle, makes contact with the fleeing vehicle’s side, steers sharply into that vehicle and then, by applying its brakes at the right moment, causes the fleeing vehicle to either spin out or exit the roadway. Deputy Scott received permission but decided not to employ the PIT maneuver, instead applying his push bumper to the rear of Harris’ vehicle. Harris lost control of his car, which ran down an embankment, overturned, and crashed, rendering Harris a quadriplegic. Harris filed suit under 42 U.S.C. § 1983 contending that Scott and others used excessive force in violation of his Fourth Amendment rights during the high-speed chase car chase. The District Court denied Scott’s summary judgment motion on his qualified immunity claim, and the Eleventh Circuit affirmed. The Supreme Court, in an 8-1 decision, reversed and held that as a matter of law, Scott’s attempt to terminate the case by forcing Harris of the road was reasonable, and he was therefore entitled to qualified immunity.

While significant with respect to Fourth Amendment jurisprudence, the decision in Scott v. Harris also signals a willingness on the part of the Supreme Court to allow appellate courts when presented with certain types of evidence (like video records) to decide factual issues as a matter of law. In this case, there was a videotape record of the car chase. The justices themselves reviewed the video and even posted it on the Supreme Court’s website for downloading. http://www.supremecourtus.gov/opinions/video/scott_v_harris.rmvb

In summary judgment practice, a court is tasked with viewing the evidence in a light most favorable to the nonmovant. Justice Scalia, writing for the court, concluded, however, that the videotape blatantly contradicted Harris’s version of the facts, such that no reasonable jury could adopt his version. It was therefore permissible for the appellate court to conclude, as a matter of law, that Scott did not act unreasonably. Of course, as Justice Stevens pointed out in his descent, both the district court and the Eleventh Circuit had seen the same videotape and reached different conclusions regarding whether the tape resolved the factual issues as a matter of law. In decrying their decision to resolve the factual issues themselves based on the video, Justice Stevens repeatedly referred to the justices in the majority as “jurors” in his strongly worded descent.

In future cases where video evidence is available, parties will be able to cite Scott v. Harris for the proposition that a court, and not a jury, is capable of deciding issues that were traditionally left for the jury to resolve, particularly where the video evidence contradicts the nonmovant’s version of the facts. As Justice Scalia stated, “when opposing parties tell two different stories, one of which is blatently contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.” Scott v. Harris, 2007 WL 1237851 at *4. This may be particularly significant on appeal, where at least five circuits have held that a federal appellate court has the authority to affirm entry of summary judgment on any ground presented by the record, whether or not the issue was raised, briefed, or argued in the district court. See Iverson v. City of Boston, 452 F.3d 94, 98 (1st Cir.2006); Cromwell Assocs. v. Oliver Cromwell Owners, Inc., 941 F.2d 107, 111 (2d Cir.1991); Reasonover v. St. Louis County, Mo., 447 F.3d 569, 578 (8th Cir. 2006); Bones v. Honeywell, Int’l, Inc., 366 F.3d 869, 875 (10th Cir.2004); Banner v. United States, 238 F.3d 1348, 1355 (Fed. Cir. 2001). The appellate review procedure approved in Scott v. Harris could allow an appellate court to decide a case as a matter of law based on video evidence where that evidence discredits the nonmovant’s version of events.

The deadlines for filing a notice of appeal in limited jurisdiction civil cases have been clarified by the amendments to the California Rules of Court that took effect at the beginning of 2007. In limited civil cases, decisions are appealed to the appellate division of the superior court and not to the Court of Appeal. If you want to appeal a judgment in a limited civil case, you need to be aware that the deadlines for appealing a decision in a limited civil case are significantly shorter than in unlimited civil cases. The appellate deadlines in appeals in unlimited jurisdiction cases have not changed. In civil appeals, a notice of appeal must be filed within 60 days of the date notice of entry is served by the clerk or by a party or, if no notice was served, within 180 days of the date the appealable judgment or order was entered. (CRC 8.104.) The rules regarding appeals in limited civil cases were previously not clear because the appellate rules had not been amended to reflect the unification of the municipal and superior courts. Courts usually pointed to former Rule 122(a), a 1964 rule for “Appeals from Municipal and Justice Courts in Civil Cases,” and applied that rule to appeals in limited civil cases.

The reorganization of the rules includes new rules specifically applicable to appeals in limited civil cases. Rule 8.751 provides that a notice of appeal must be filed on or before the earliest of (1) 30 days after the clerk mails a notice of entry, (2) 30 days after a party mails a notice of entry, or 90 days after entry of the judgment or appealable order. Under Rule 8.752, if a motion for new trial is filed, the time to file a notice of appeal is extended until 15 days after entry of the order denying the motion or denial of the motion by operation of law, but in no event may the notice of appeal be filed later than 90 days after the date of entry of the judgment. A cross appeal must be filed within 10 days after the trial court clerk mails a notification of the first appeal or within the time period otherwise prescribed by local rules. These short deadlines cannot be extended by the court or by agreement. When appealing in a limited civil case, these deadlines must be honored or your appeal will be dismissed for lack of jurisdiction.

Businesses haled into a Texas court should be able to argue, based on the Texas Supreme Court’s decision in Moki Mac River Expeditions v. Drugg, 2007 WL 623805 (Tex. 2007), that even if they did have contacts with Texas, such as e-mail communications or a website, the connection between those contacts and the subject matter of the plaintiff’s claim is too attenuated to support an exercise of personal jurisdiction. While many courts have seemed eager to exercise long arm jurisdiction on the basis of websites and other internet contacts, the Texas Supreme Court has bucked this trend by placing some strong new limitations on when it will be appropriate to exercise jurisdiction over an out-of-state business based on such contacts. The Druggs’ son was killed during a river rafting expedition in Arizona organized by Moki Mac, a Utah based river-rafting outfitter. The Druggs reviewed Moki Mac’s brochures and website and decided to send their son Andy on the expedition. After he was fatally injured, the Druggs filed suit in Texas for wrongful death due to Moki Mac’s negligence and for intentional and negligent misrepresentation. The lower courts denied Moki Mac’s jurisdictional challenge.

The Texas Supreme Court reversed, holding that a Texas court did not have jurisdiction over the nonresident company because its contacts with Texas were not substantially connected with the operative facts of the litigation. Moki Mac had not established continuous and systematic contacts with Texas. Accordingly, for Texas courts to exercise to exercise personal jurisdiction over Moki Mac, (1) Moki Mac must have made minimum contacts with Texas by purposefully availing itself of the privilege of conducting activities in the state, and (2) Moki Mac’s liability must have arisen from or been related to those contacts. The court noted that Moki Mac did purposefully avail itself of the privilege of conducting business in the Texas market by directly marketing to Texas residents, regularly advertising in Texas, soliciting Texas residents using direct-marketing e-mail campaigns, and establishing channels of regular communication with its Texas customers.

Nevertheless, the court concluded that because Moki Mac’s liability did not arise from its contacts with Texas and was not related to those contacts, there was no personal jurisdiction. The court explained that there must be a substantial connection between those contacts and the operative facts of the litigation. That connection did not exist in this case because the operative facts of the case focused on the guides’ conduct of the expedition and whether they exercised reasonable care in supervising Andy. Those events, which would be the focus of any trial, all took place in Arizona. While the contents of Moki Mac’s brochures and website might have had some connection with the operative facts that led to Andy’s death, the court found that this connection was not sufficiently direct to meet due process concerns. Under Moki Mac, businesses may be able to argue that websites, e-mail marketing, and other advertising in a state is insufficiently related to personal injury claims occurring outside the state to support an exercise of jurisdiction.

Businesses concerned about pending or potential patent infringement suits should pay careful attention to a case now pending in the Federal Circuit that may affect what strategies should be employed in dealing with infringement issues. The Federal Circuit has taken the unusual step of ordering an en banc hearing in In re Seagate Technology, LLC, 214 Fed. Appx. 997 (Fed. Cir. 2007), to address the scope of the attorney-client privilege waiver that may arise when a party sued for willful patent infringement raises advice of counsel as a defense. The court’s answers to these questions could radically alter how parties defend themselves in patent infringement cases.

Plaintiffs asserting an infringement claim often allege that the infringement was willful. If proven by clear and convincing evidence, treble damages may be awarded. As a defense to a claim of willful infringement, defendants often contend that they relied on legal advice before they engaged in any activity that might infringe on another’s patent rights. Seagate raised that defense in an infringement lawsuit in which the plaintiffs sought $800 million in damages. Courts have routinely held that raising that defense waives the attorney-client privilege with respect to the subject matter of the opinion on which the defendant relies. The district court in Seagate also held that this waiver extended beyond communications with counsel who gave the opinion to encompass communications with separate trial counsel and in-house counsel and also constituted a waiver of the work produce privilege.

Seagate asked the Federal Circuit to address whether a party’s assertion of the advice-of-counsel defense constituted a waiver of the attorney-client privilege with respect to that party’s trial counsel or waived the work produce privilege. In a footnote in In re EchoStar, 448 F.3d 1294 (Fed. Cir. 2006), the Federal Circuit stated that the privilege waiver does extend to advice given after litigation begins, and like the district court, a number of courts have relied on this dicta to support extending the waiver to communications involving trial counsel.

In an unusual move, the court itself raised a separate question of whether the court should re-examine the 24-year-old decision in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed.Cir.1983), imposing a fundamental duty of due care to avoid infringement when a company or party has notice of another’s patent rights. Courts have generally interpreted that duty as requiring a party to obtain a legal opinion on the validity of those patent rights before engaging in or continuing any infringing activity. The court appears to be concerned about the impact of imposing such a duty should it agree with the district court that relying on such an opinion as a defense to a willfulness claim waives the any privilege for work product and attorney-client communications after the infringement opinion was given. The case has generated a great deal of interest, and more than a dozen amicus briefs have been filed. Oral argument is set for June 7, 2007. The decision in Seagate will be of interest to any business that may face a potential patent infringement suit.

The United States Supreme Court has recently agreed to address the question of whether parties may contractually agree to alter the standard for reviewing arbitration awards. Because so many business contracts, software licenses, and other agreements now include provisions requiring the parties to submit their dispute to binding arbitration instead of filing a lawsuit, business should pay careful attention to this case, as the court’s decision will have significant implications. The court will decide whether the parties to an arbitration agreement have the freedom to contract for meaningful review of an arbitration award in a court. This will be particularly significant if the decision to agree to arbitration was premised on the availability of meaningful judicial review after an arbitration award has been made.

By statute, such review is not now available, and parties who consent to arbitration will find themselves at the mercy of the arbitrator, whose decision, as a practical matter, is unreviewable. Under the Federal Arbitration Act, which applies if an agreement containing an arbitration clause involves interstate commerce, an arbitrator’s decision may only be vacated, modified, or corrected by a court under very limited, rarely applicable circumstances. See 9 U.S.C. § 10 & 11. Indeed, under the FAA, an arbitration award will still be confirmed and converted into an enforceable judgment even if the award was based on clear legal or factual errors. See Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 994 (9th Cir. 2003) (en banc). Many states have enacted similar provisions limiting the scope of review of arbitration awards for agreements governed by state law.

In an attempt to avoid this potentially frightening result and create an opportunity for meaningful review of an erroneous arbitration awards, businesses have begun to include in their arbitration agreements provisions purporting to establish different standards under which an award will be reviewed. For instance, the parties to an agreement may specify that an arbitration award is reviewable for legal errors or must be supported by substantial evidence. It is not clear, however, that such provisions are enforceable. The Ninth and Tenth Circuits have held that parties may not expand the judicial review provisions found in the FAA, reasoning that allowing such an expansion would threaten the independence of arbitration. See Kyocera, 341 F.3d at 998; Bowen v. Amoco Pipeline, Inc., 254 F.3d 925, 936 (10th Cir. 2001). California courts have similarly held that under the FAA and the California arbitration statutes, an agreement to expand judicial review is unenforceable, though the California Supreme Court is currently considering the validity of those decisions. See Cable Connection, Inc. v. Directv, Inc., 53 Cal.Rptr.3d 318 (Cal. 2006). In contrast, the First, Fourth, Fifth, and Sixth Circuits have held that parties may contract for more expansive judicial review, concluding that the parties’ agreement with respect to arbitration must be enforced.

The Supreme Court has now granted certiorari in a case presenting the issue of whether such contractual provisions are enforceable. On May 29, 2007, the court granted the petition in Hall Street Assoc. v. Mattel, Inc., No. 06-989. The court will address the specific question of whether the Ninth Circuit erred when it held that the FAA “precludes a federal court from enforcing the parties’ clearly expressed agreement providing for more expansive judicial review of an arbitration award than the narrow standard of review otherwise provided for in the FAA.” The case will not be set for argument until the next court term, which begins in October 2007. In the meantime, businesses concerned about the limited reviewability of arbitration awards should still consider including clauses providing for expanded judicial review. Given that such provisions may be invalidated, however, businesses may want to re-examine whether they really want to agree to arbitration in the first place, knowing that an erroneous decision by an arbitrator may be the final word.

Companies attempting to measure their potential exposure for patent infringement should review a recent decision by the Federal Circuit. Business often calculate their exposure based on the concept of a “reasonable royalty,” and look at the terms on which the patent holder has previously licensed the technology. Such an established royalty is usually the best measure of potential exposure. In a case addressing the issue of damages in a patent infringement case involving the burgeoning field of genetically modified crop seeds, the Federal Circuit has expanded the definition of what constitutes a reasonable royalty. The court indicated that in calculating the ”reasonable royalty,” a court may also consider costs and charges beyond those that the patent holder has labeled as royalties, as well as other benefits received by the infringer as a result of using the patented technology. When assessing potential patent infringement damages, businesses should consult with counsel before attempting to assess how a damages award might be calculated.

This important case arose out of a seemingly prosaic set of facts involving a dispute between a farmer and a seed company. While Paris Hilton might view farming as part of “The Simple Life,” American agribusiness is actually a high-tech industry with complex legal issues. Indeed, Monsanto Company v. McFarling, 2007 WL 1502080 (Fed. Cir. 2007), is the third opinion issued by the Federal Circuit in a closely watched dispute between a farmer and Monsanto. Monsanto developed a system for weed control using genetically modified crops that are resistant to the effects of certain herbicides. When the genetically modified seeds are planted, farmers are able to spray the herbicide on their fields to kill the weeds while sparing the resistant crops, making weed control more efficient. Monsanto patented this technology.

When McFarling purchased genetically modified soybean seeds from Monsanto in 1998, he paid a license fee and signed a “Technology Agreement” that included a promise not to replant seeds that were produced from the purchased seeds or to supply those seeds to others for replanting. The terms of the Technology Agreement also included payment of a $6.50 “technology fee” per bag of seeds and required the farmer to purchase seeds from an authorized distributor. Despite this agreement, McFarling saved seeds from the 1998 crop and planted those seeds in 1999 and did the same thing in 1999, saving soybean seeds from that crop and planting them in 2000. The saved seeds contained the patented genetic traits, and McFarland did not pay any license fee for 1999 or 2000.

In a previous decision, the Federal Circuit held that McFarling infringed on Monsanto’s patent by saving seeds and replanting them. The court also previously held that the liquidated damages provision in the agreement between Monsanto and McFarling was invalid. At trial, the jury returned a damages verdict of $40 per bag of saved seed. Under 35 U.S.C. § 284, damages for patent infringement are to be adequate to compensate for the infringement and must not be less than a reasonable royalty for use of the invention. McFarling argued that because Monsanto had charged a $6.50 “technology fee” to licensees who purchased the seeds under its Technology Agreement, that fee constituted the established reasonable royalty for use of the technology and should be used as an upper limit on his potential exposure.

The court stated, however, that the technology fee was actually only part of the royalty being charged by Monsanto. By requiring a farmer to purchase seeds only from an authorized distributor, which would charge between $19 and $22 per bag of seeds, Monsanto had elected to impose an additional royalty, although it was not labeled as such. The court concluded that the total out-of-pocket cost to the farmer – the technology fee plus the cost of the seeds purchased from an authorized distributor – should be characterized as a royalty payment for purposes of calculating the reasonable royalty and damages. To decide otherwise would create a windfall for infringers, who would have a huge advantage over other farmers by paying only the technology fee without having to purchase seeds from distributors. The court also held that it was reasonable for the jury, in calculating damages, to consider the benefits Monsanto’s damages conferred on farmers such as McFarling, such as the savings on weed control measures.

By allowing courts to consider charges and costs beyond what a patent holder has labeled as a royalty or technology fee, as well as the economic benefits conferred on the infringer by the technology, the decision in McFarling may lead to higher damages awards in patent infringement cases. It will certainly make it more difficult for businesses concerned about infringement claims to calculate their potential exposure.

A recent U.S. Supreme Court decision sends a strong message – if you intend to appeal a decision, don’t wait around. If you miss the deadline, even a federal court won’t be able to fix the problem. In Bowles v. Russell, 2007 WL 1702870 (U.S. 2007), the Supreme Court held that federal district courts do not have the power to extend the deadline for filing a notice of appeal beyond the time period established in the Federal Rules of Civil Procedure. If the deadline is not met, the right to appeal will be lost permanently because appellate jurisdiction may not be changed by the courts. In making its decision, the Supreme Court overruled two precedents allowing courts to extend the deadline for invoking appellate jurisdiction in “exceptional circumstances.”

Bowles arose out of a habeas proceeding, but the holding applies in all civil appellate cases. After being given a sentence of 15 years to life for murder by an Ohio jury, Bowles filed a habeas corpus petition in the federal district court. This application was denied. Under Federal Rule of Appellate Procedure 4(a)(1)(A) and 28 U. S. C. § 2107(a), Bowles had thirty days in which to file his notice of appeal but did not meet this deadline. Subsequently, Bowles filed a motion to reopen the period during which he could file his notice of appeal pursuant to under Rule 4(a)(6) and 28 U.S.C. § 2107(c). These provisions allow district courts to extend the filing period for 14 days from the day the district court grants the order to reopen when certain conditions are met. The district court granted Bowles’ motion to reopen the filing period but instead of extending the time period by 14 days, as Rule 4(a)(6) and § 2107(c) allow, the district court gave Bowles 17 days to file his notice of appeal. Bowles filed his notice on the sixteenth day of that time period, within the time allowed by the district court’s order but after the 14-day period allowed by Rule 4(a)(6) and § 2107(c). The Sixth Circuit ruled that Bowles appeal was untimely and the Supreme Court agreed.

In a 5-4 decision written by Justice Thomas, the Supreme Court noted that filing a timely notice of appeal is “mandatory and jurisdictional.” If a notice of appeal has not been timely filed, there is no appellate jurisdiction over the case. The authority to extend the time for filing an appeal comes from 28 U.S.C. § 2107(c), which specifies only a 14-day extension of the time period. The Supreme Court made it clear that statutory time limits are jurisdictional. Only Congress has the power to determine the lower federal court’s subject matter jurisdiction, and appellate jurisdiction cannot be altered by court order. The Supreme Court stated that “because Congress decides whether federal courts can hear cases at all, it can also determine when, and under what conditions, federal courts can hear them.” As an example, the Supreme Court pointed to its own certiorari procedures, which recognize that the 90-day time limit for filing a petition is based on a statute. When a cert petition is not timely filed, the Supreme Court has repeatedly held that the failure to do so is jurisdictional.

The Supreme Court applied the same reasoning in holding that the time limits for filing a notice of appeal must be strictly enforced and cannot be varied by court order. Bowles argued that in any event, the court should recognize an exception with respect to appellate jurisdiction in his case, given that he relied on a federal court order in filing his late notice of appeal. The Supreme Court held that the federal courts did not have the authority to create an equitable exception to the statutes and rules governing appellate jurisdiction. In doing so, the court overruled Truck Lines, Inc. v. Cherry Meat Packers, Inc., 371 U. S. 215 (1962), and Thompson v. INS, 375 U. S. 384 (1964), two earlier U.S. Supreme Court cases applying a “unique circumstances” doctrine allowing for equitable relief from a jurisdictional deadline. The court overruled both decisions “to the extent they purport to authorize an exception to a jurisdictional rule.” The Supreme Court recognized that the result in this case might be harsh but stated that Congress could change the rules governing appellate jurisdiction if it wished to. Writing for the four dissenters, Justice Souter rejected the notion that the notice of appeal deadline was mandatory and jurisdictional and asserted that courts could allow for equitable exceptions to the appellate jurisdiction deadline.

In the wake of the Supreme Court’s decision in Bowles, even if a federal court issues an order extending the time in which to file a notice of appeal, businesses and individuals planning to appeal a federal district court decision should know they still have to meet the statutory deadline and cannot rely on the federal court’s order. Otherwise, there will be no appellate jurisdiction, and the right to appeal will be permanently lost.

Opinion text: http://www.supremecourtus.gov/opinions/06pdf/06-5306.pdf

Companies concerned about being sued in one jurisdiction and having the judgment enforced in another should pay attention to a recent Texas appellate decision making it easier to enforce out-of-state judgments in Texas courts. With more businesses finding themselves doing business in more jurisdictions, both in the United States and internationally, and courts having become more willing to exercise jurisdiction based on Internet contacts, this issue has become increasingly important.

It’s often tempting to ignore a lawsuit in another jurisdiction and count on your attorneys to make it unenforceable in places where you do have assets. For instance, Texas has previously recognized a number of circumstances when its courts will refuse to enforce a judgment entered in another state. In EnviroPower, LLC v. Bear Stearns & Co, Inc., 2007 WL 1412849 (Tex. App. – Houston [1st Dist.] 2007, n.p.h.), the court made it clear that one of the ways to avoid enforcement of an out-of-state judgment – claiming the judgment is “penal” in nature – may not work very well in Texas. If your company has assets in Texas, you should be aware that a judgment entered in another jurisdiction will now be easier to get enforced in a Texas court. The decision also highlights the dangers of discovery misconduct and establishes that the consequences of such misconduct may follow you from state to state, or at least to Texas.
The case arose out of a contract dispute between Bear Stearns and EnviroPower. Bear Stearns filed suit in New York state court for breach of contract and quantum meruit, claiming that EnviroPower failed to pay it for services performed and expenses incurred. EnviroPower apparently did not play nicely when it came to responding to discovery. In fact, the New York court found that EnviroPower intentionally withheld documents, and as a sanction, the court struck EnviroPower’s answer. The New York court then held an evidentiary hearing and entered a judgment awarding Bear Stearns $1.3 million in damages.

EnviroPower had assets in Texas, so Bear Stearns filed its New York judgment in the Harris County, Texas district court. EnviroPower filed a motion to vacate the judgment, which was denied. The Houston First District Court of Appeals rejected EnviroPower’s claim that the judgment was not enforceable. Under the Full Faith And Credit Clause of the federal constitution, a state must give the same force and effect to a judgment of a sister state that it would give its own judgments. Under Texas law, when a judgment creditor files an authenticated copy of a foreign judgment, this satisfies its burden of presenting a prima facie case for enforcement of the judgment, even where the judgment is taken by default. Texas courts recognize exceptions to this rule, however, when a judgment is interlocutory, when it is subject to further modification, when the rendering state lacked jurisdiction, when the judgment was procured by fraud or is penal in nature, or when limitations has expired under Texas Civil Practice and Remedies Code section 16.066.

EnviroPower argued that the New York judgment was not enforceable because it was based on “death penalty” discovery sanctions, which had the effect of allowing the plaintiff to basically take a default. Specifically, EnviroPower claimed that by striking its answer as a discovery sanction, the sanction for discovery misconduct was penal in nature and not enforceable in a foreign jurisdiction. Generally, the question of whether another state’s actions are penal in nature turns on whether the purpose was to punish an offense against the public justice of the state or to afford a private remedy to a person injured by the wrongful act. The Texas court noted that death penalty sanctions serve as a remedy for parties harmed by another party’s wrongful actions during litigation and as a deterrent to others who might abuse discovery procedures during litigation. Such sanctions are not designed as punishment for and deterrence of a wrong to society as a whole. While death penalty sanctions are obviously a “penalty” for the litigants involved, they are not “penal” sanctions for purposes of the Full Faith and Credit Clause. The decision in Enviropower may also have consequences in international commercial law situations, particularly international contract law disputes. In the future, litigants trying to avoid an out-or-state or international judgment will not be able to avoid the consequences of their discovery misconduct by claiming that a foreign judgment based on discovery sanctions is unenforceable.

Businesses operating in California may find themselves being sued for practices without any prior notice. In particular, if a company in California has gender-based pricing policies, it may now be sued for civil rights violations even if the plaintiff has not previously demanded equal treatment and been refused. As the California Supreme Court itself acknowledged, this ruling may encourage “shake down” artists who seek out discriminatory pricing practices and try to extort settlements from businesses. The court, however, was willing to accept this possibility absent any change in the law being made by the legislature. In the meantime, a company doing business in California should be aware that it may be subject to suit for discrimination without prior notice.

This particular case arose out of a supper club’s practice of giving admission discounts to women. Angelucci and other plaintiffs filed a complaint against Century Supper Club for violations of the Unruh Civil Rights Act and the Gender Tax Repeal Act of 1995. The plaintiffs alleged that they patronized the supper club on several occasions and were charged an admission fee higher than that charged to women. On some visits, men were charged $20 while women were admitted free. Plaintiffs sought statutory damages under Civil Code section 52(a) for discrimination. The supper club moved for judgment on the pleadings, contending that the plaintiffs could not recover under section 52(a) because they had not alleged that they asked the supper club to be charged the same rate as female patrons. The superior court agreed and entered judgment in favor of the supper club. The court of appeal affirmed, concluding that before a claim could be made for discrimination, the plaintiffs must have made an affirmative assertion of the right to equal treatment. In support of its ruling, the court of appeal stated that this requirement ensured that the statutes would only be used to redress genuine grievances and punish genuine misconduct.

In Angelucci v. Century Supper Club, 2007 WL 1557339 (Cal. 2007), the Supreme Court reversed, holding that to assert a discrimination claim for unequal treatment against a business establishment, it is not necessary to demand equal treatment and be refused. The Unruh Act, as amended by the Gender Tax Repeal Act, prohibits businesses from charging different prices on the basis of gender, and the court noted that these provisions are intended to protect each person’s inherent right to free and equal access to all business establishments. Section 52(a) authorizes individual actions against anyone that discriminates in violation of the Act. The language of section 52(a) does not include a specific requirement that a victim of discrimination must demand equal treatment and be refused before filing suit, nor does it establish any requirement that notice and an opportunity to cure be given before a claim may be made.

The court rejected the court of appeal’s reasoning that the plaintiffs were not denied equal treatment because the supper club never refused an express demand for equal treatment. According to the court, if such a rule were in place, businesses could continue to engage in discriminatory practices, and by making exceptions for patrons who happened to challenge the practices, the businesses could avoid being sued under the Act. That rule would also prohibit suits by persons who discovered that they had been treated unequally only after the fact. The court also made it clear that injury occurs when plaintiffs present themselves for admission and are charged the nondiscounted price. Because arbitrary discrimination is per se injurious, the plaintiffs in this case had standing to bring claims because they were victims of the discriminatory practice, even though they did not challenge the practice at the time. The court did note allegations in the record that the plaintiffs and their attorneys were “professional plaintiffs” who made their living by asserting technical violations of civil rights laws against businesses and extorting settlements. While recognizing the potential for abusive litigation, the court concluded that it was up to the Legislature to determine whether the statutory requisites for filing a claim should be altered. In the meantime, businesses should be aware that if they have discriminatory pricing policies in place, those policies may result in a lawsuit even if no one has previously challenged the policies.

Copyright issues can often arise in unexpected places – even in a karaoke bar. In Zomba Enterprises, Inc. v. Panorama Records, Inc., 2001 WL 1814319 (6th Cir. 2007), the Sixth Circuit addressed the interaction of copyright law and karaoke music. The defendant in Zomba does not seem to have thought about the possible effects of intellectual property law on its conduct, and it paid a heavy price for this omission. Businesses concerned about avoiding potential claims should instead consider ahead of time the potential intellectual property repercussions of conduct that might involve the protected rights of others.

The court in Zomba began its opinion by noting that while “countless people have lined up at various venues to perform their favorite songs with, and in front of, their friends,” few of the participants “with the possible exception of IP lawyers,” would ever even think about “the intellectual property regime governing karaoke.” Defendant Panorama Records certainly didn’t think about it. Beginning in 1998, Panorama manufactured and sold karaoke compact discs. Panorama hired musicians to record songs that at some time had been made popular by another artist. The discs contained a graphic element designed, to be viewed on a karaoke machine, which consisted of the text of each song’s lyrics. As the lyrics scrolled across a screen and the music, without vocals, played, karaoke participants could read the lyrics as they sang along. Panorama issued a new disc each month in a variety of musical genres. Each monthly “karaoke package” contained the top hits in that genre for the relevant month. Panorama apparently gave no thought to whether its karaoke packages might be infringing on the intellectual property rights of others.

The Copyright Act, however, affords protection to “musical works, including any accompanying words.” 17 U.S.C. § 102(a)(2). Plaintiff Zomba Enterprises publishes and holds copyrights to various songs, including music performed by pop music performers such as 98 Degrees, the Backstreet Boys, NSYNC, and Britney Spears. Zomba learned that Panorama’s karaoke packages contained unauthorized copies of some of Zomba’s songs. Zomba filed suit asserting thirty counts of copyright infringement – one count for each Zomba-owned musical composition that Panorama recorded and sold in its karaoke packages.

The Sixth Circuit rejected Panorama’s argument that its copying of Zomba’s songs should be considered “fair use” under the Copyright Act. Section 107 of the Copyright Act provides that “the fair use of a copyrighted work . . . for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright.” 17 U.S.C. § 107. In analyzing a fair use claim, a court is also to consider the purpose and character of the use, the nature of the copyrighted work, the amount and substantiality of the use in relation to the copyrighted work as a whole, and the effect of the use upon the potential market for or value of the copyrighted work.

The Sixth Circuit held that, in particular, a court assessing fair use should consider whether the use is transformative. A work is transformative and more likely to be protected by the fair use defense if it adds something new or alters the work with new expression or different character. In this case, Panorama’s hired musicians did not change the music or the words of the songs.

The court also rejected Panorama’s contentions that its use was transformative because, unlike the original songs, the karaoke packages could be used as a teaching tool and encouraged creativity. Panorama admitted, however, that karaoke is primarily a form of entertainment, and it was unable to produce any evidence that its discs had ever been used as a “teaching” tool. The court also noted that the end-user’s utilization of the discs was largely irrelevant to the fair-use analysis. According to the court, “Zomba does not challenge karaoke crooners’ renditions (atrocious or otherwise) of the relevant compositions, but rather Panorama’s decision to copy these songs onto CD+Gs and then distribute them without paying royalties.” Panorama’s use of the songs was commercial in nature, and the “creativity” of the karaoke performers did not change that fact.

Panorama also failed to prove its copying did not adversely affect the market value of Zomba’s copyrights. The court went on to conclude that Panorama’s copying was willful and sustained the district court’s award of $31,000 in damages per infringement plus attorney’s fees. For business concerned about copyright infringement, the decision in Zomba highlights the evolving law of copyrights and the limits of the fair use doctrine.

Full opinion: http://www.ca6.uscourts.gov/opinions.pdf/07a0242p-06.pdf

A recent Seventh Circuit opinion illustrated that even the judiciary may sometimes be insensitive (or at least oblivious) to copyright infringement on the Internet. In Central Manufacturing, Inc., v. Brett, 2007 WL 1965673 (7th Cir. 2007), the court denied relief to a plaintiff alleging that George Brett and his company were infringing on a trademark. The court’s opinion includes a number of links to materials on the Internet. As part of the court’s discussion of the famous “pine tar” incident in 1983 involving Brett, Billy Martin, and the Yankees, the court notes that the “whole colorful episode is preserved, in all its glory, on YouTube” and links to a YouTube video. Ironically, that You Tube link now leads to a page displaying the warning “This video no longer available due to a copyright claim by MLB Advanced Media.”

The law governing the privacy of e-mail and internet communications continues to develop. Attempts by the government to obtain access to e-mails and website information have recently raised these privacy issues. As discussed in the June 28, 2007 posting “Does the Constitution Protect the Privacy of Your E-mails?,” the Sixth Circuit’s decision in United States v. Warshak appeared to recognize that individuals and businesses may have protected privacy interests in the contents of e-mail communications. According to the Ninth Circuit in United States v. Forrester, 2007 WL 1952390 (9th Cir. 2007), however, this expectation does not extend to all information connected with electronic communications. According to the court, certain aspects of electronic communications – to/from address information, website addresses, and the amount of data transferred – do not raise Fourth Amendment or other privacy issues. While the decisions themselves deal with the government’s ability to access e-mail information, the implications of the rulings may affect how e-mail is dealt with by companies and individuals in both civil and criminal contexts.

In Forrester, the Ninth Circuit dealt with the constitutionality of certain computer surveillance techniques. The government indicated Forrester and Alba on one count of conspiracy to manufacture Ecstasy. As part of its investigation, the government employed various methods to monitor Alba’s e-mail and internet activity, including installing what the court described as a “pen register analogue” on Alba’s computer. The only data obtained were the to/from addresses of Alba’s e-mail messages, the IP addresses of websites he visited, and the total volume of information sent to or from his computer account.

Although decided after Warshak, the Ninth Circuit indicated that it was unaware of any other decisions by federal appellate courts addressing the constitutionality of such surveillance techniques. The court went on to hold that surveillance of e-mail and website addresses was conceptually indistinguishable from government surveillance of physical mail or telephone calls. The Supreme Court has previously held that while the contents of mail and phone calls are protected, the address and telephone number information is not entitled to protection because that information is voluntarily disclosed to third parties. Accordingly, the court held that the government’s monitoring of Alba’s e-mail to/from address information and website addresses was not a search for Fourth Amendment purposes.

In the wake of Warshak and Forrester, it appears that a consensus may be developing in the federal courts. Users have no reasonable expectation of privacy in the to/from addresses of e-mails, the IP addresses of the websites they visit, or the size of the e-mails they send or receive.

Full Opinion text –
http://www.ca9.uscourts.gov/ca9/newopinions.nsf/F0E09BB37A97D51A88257310004D1DAC/$file/0550410.pdf?openelement

The United States Supreme Court has adopted a revised version of its Rules of Court that are set to take effect on October 1, 2007. The new rules will affect any business litigating before the court. Companies, trade associations, and interest groups should pay particular attention to changes in the rules governing amicus briefs.

Business interests that are not parties to pending cases are often interested in the issues being dealt with by the court. Companies often participate in cases through trade associations or otherwise by filing amicus briefs. The court has been considering adding a requirement that the first footnote of an amicus brief indicate whether counsel or a party is a member of the amicus curiae or made a monetary contribution to the preparation or submission of the brief. The final version of the rule did not impose this sweeping disclosure requirement. Instead, under new Rule 37.6, the first footnote of an amicus brief must indicate whether a party or its counsel “made a monetary contribution to the preparation or submission of an amicus curiae brief in the capacity of a member of the entity filing as amicus curiae. Such disclosure is limited to monetary contributions that are intended to fund the preparation or submission of the brief; general membership dues in an organization need not be disclosed.”

The procedure for amicus filings have also been changed. Under the new Rule 37.2, amicus briefs in favor of or in opposition to granting certiorari, which formerly were due when the brief in opposition was due, must now be filed within 30 days after the case is docketed. In cases where a respondent waives its right to file a brief in opposition to the petition but the court requests a response, amicus briefs may be filed on the date such a response is due. Anyone filing an amicus brief is now required to notify the parties of their intent to file a brief at least ten days before that brief is due. This will give the respondent an opportunity to seek an extension of time to file its response so that it can address arguments advanced in the amicus brief. Amicus briefs on the merits must be filed within 7 days after the brief for the party supported is filed or, if the brief is in support of neither party, within 7 days after the date for filing the petitioner’s brief. Under this procedure, an amicus will have an opportunity to review the completed brief of the party it is supporting before filing its own brief.

All litigants in the Supreme Court will be affected by the new rules eliminating the old page limitation for briefs and petitions in favor of word count limitations. The new word count provisions found in Rule 33 are similar to those that have been used in the Federal Rules of Appellate Procedure since the 1998 amendments to those rules. Petitions for writ of certiorari and briefs in opposition to a petition may not exceed 9,000 words, while a reply in support of a petition is limited to 3,000 words. Amicus briefs in support or opposition to a petition are limited to 3,000 words. Briefs on the merits are limited to 15,000 words, with reply briefs on the merits limited to 7,500 words. Amicus briefs on the merits will be limited to 9,000 words.

The court has, for the most part, retained its strict guidelines for how petitions and briefs are to be formatted. Documents must now be in 12-point font for text and 10-point font for footnotes, instead of the former 11-point rule for all text. The court now requires that all documents be typeset in a “Century family” font, such as Century Expanded, New Century Schoolbook, or Century Schoolbook. All parties filing merits briefs, including amicic curiae, are required to transmit electronic versions of the briefs to the court.

The court has also shortened the briefing schedule at the merits stage. Under the old rules, a respondent’s brief was due 35 days after the petitioner’s brief. New rule 25 requires that brief to be filed 30 days after the petitioner’s brief, with any reply brief due 30 days after the respondent’s brief has been filed.

Complete Text of
the Revised Rules: http://www.supremecourtus.gov/ctrules/2007rulesofthecourt.pdf

Companies charged with patent infringement often make use of the federal Declaratory Judgment Act to attack the validity and enforceability of patents. In Benitec Australia, Ltd. v. Nucleonics, Inc., 2007 WL 2069646 (Fed. Cir. 2007), the Federal Circuit limited the circumstances under which such claims may be advanced. Specifically, the court has made it plain that an actual, substantial, and immediate controversy must exist before a claim for declaratory relief will be entertained by a federal court. If the initial claim for infringement is rendered moot by dismissal or otherwise, the counterclaim for invalidity will also, in all likelihood, be dismissed unless the party asserting such a claim can establish that a substantial, actual, and real controversy still exists.

Benitec and Nucleonics are both biotechnology companies involved in “gene silencing,” where disease-causing genes are “switched off” by a mechanism other than genetic modification. Benitec sued Nucleonics for infringing a patent related to RNA-based disease therapy. Nucleonics moved to dismiss the complaint, arguing that the court did not have jurisdiction because Benitec’s claim was based on Nucleonic’s development and submission of information to the FDA. Nucleonics asserted that no controversy had actually yet arisen, given that no new drug application had been submitted to the FDA and no competing product had yet been manufactured or marketed. Nucleonics also sought leave of court to amend its answer and add declaratory relief counterclaims alleging invalidity and unenforceability based upon alleged inventorship fraud. Benitec moved to dismiss its own patent-infringement claim on the grounds that the Supreme Court’s decision in Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005), expanded the pharmaceutical research exception to the patent laws, calling into question whether it did have a viable claim. The district court then denied Nucleonics’ request for leave to amend for lack of jurisdiction under the Declaratory Judgment Act.

The Federal Circuit affirmed the dismissal of Nucleonics’ counterclaims for declaratory judgment and in doing so, the court clarified the prerequisites for seeking declaratory relief. In large measure, the court’s analysis was prompted by the Supreme Court’s 2007 decision in MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007), where the Supreme Court disapproved the Federal Circuit’s previous use of the “reasonable
apprehension of imminent suit” test for determining declaratory judgment jurisdiction. The court noted that parties cannot invoke the Declaratory Judgment Act to seek what amounts to an advisory an opinion regarding “what the law would be upon a hypothetical state of facts.” Applying MedImmune, the Federal Circuit concluded that a party seeking declaratory relief under the Declaratory Judgment Act has the burden of demonstrating that when the claim is filed, there is a substantial controversy with sufficient immediacy and reality to warrant a declaratory judgment. The court did indicate that if a defendant had been charged with actual infringement of a patent, the substantial controversy requirement will be met.

While Nucleonics had been sued for patent infringement, Benitec’s subsequent dismissal of its claim proved to be Nucleonics’ undoing. The Federal Circuit made it clear that to seek declaratory relief, a substantial controversy must also continue throughout the litigation. Benitec properly dismissed its patent infringement claim because Nucleonic’s actions in developing and submitting information to the FDA prior to filing a new drug application were not a legitimate basis for asserting patent infringement. Under the Supreme Court’s decision in Merck, no infringement case would arise until after Nucleonics actually filed a new drug application with the FDA. The Federal Circuit ruled that “the fact that Nucleonics may file [a new drug application] in a few years does not provide the immediacy and reality required for a declaratory judgment.”

One judge dissented from the decision, asserting that “a different test for determining whether there is a case or controversy applies when the allegation of infringement is withdrawn during the course of litigation.” Specifically, the dissenting judge contended that under the Supreme Court’s decision in Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 98 (1993), if an infringement claim is mooted, an invalidity counterclaim should not be dismissed unless the patent holder demonstrates that there is no possibility of a future controversy with respect to invalidity. The Supreme Court may yet weigh in on this complex intersection of patent and declaratory judgment jurisprudence. In the meantime, the decision in Benitec will limit the circumstances under which a party charged with infringement will be able to assert a declaratory judgment counterclaim for invalidity.

Full Opinion Text: http://fedcir.gov/opinions/06-1122.pdf

Businesses providing services to consumers should be aware that if they intend to change the terms of a contract, they cannot do so merely by posting new terms on a website. The Ninth Circuit has recently ruled that posting modified contract terms on a website does not create an enforceable contract. Instead, it is necessary to give proper notice, such as mailing the new terms to the customer. Otherwise, the customer will not be bound by the modified terms. The court did not address whether the posted contract modifications could become enforceable if some means of electronic assent, such as a click-wrap agreement, were used.

Joe Douglas was a customer of America Online and received long distance telephone service from AOL. AOL sold its long distance business to Talk America, which continued to provide long distance service to AOL’s former customers. Talk America added four new provisions to the service contract, including additional service charges, a class action waiver, an arbitration clause, and a choice-of-law provision requiring application of New York law. Talk America posted the revised service contract on its website but did not otherwise notify its customers that the contract had changed. Douglas, who was unaware of the new terms, continued to use Talk America’s services for four years. When he learned of additional charges that Talk America had imposed under the new terms, Douglas filed a class action lawsuit against Talk America alleging causes of action for violations of the Federal Communications Act, breach of contract, and violations of California’s consumer protection laws. Talk America moved to compel arbitration based on the modified contract, and the district court granted the motion. Douglas petitioned the Ninth Circuit for a writ of mandamus.

The Ninth Circuit granted the petition and vacated the district court’s order compelling arbitration. The district court apparently assumed that because the new contract terms were available on Talk America’s website, Douglas was aware of them. The Ninth Circuit, however, found that even if Douglas had visited the website, “he would have had no reason to look at the contract posted there.” The court noted that parties to a contract have no obligation to check the terms on a periodic basis to determine if those terms have been changed by the other party. It is well settled that one party cannot unilaterally change the terms of a contract. To change the terms of a contract, the other party’s consent must be obtained. A revised contract is nothing more than an offer, which does not bind the parties until it is accepted. When an offeree is not aware of the new terms, it certainly cannot assent to them.

The court rejected the argument that by continuing to use Talk America’s services, Douglas had agreed to the new terms. The court made it clear that assent could only be inferred if Douglas had received proper notice of the proposed changes. While notification by mail of contract modifications might be enough, posting the new terms on a website was not sufficient to establish proper notice. The court did not address whether giving notice of the new terms themselves by e-mail or advising the customer by e-mail or regular mail to visit the website to see the new terms would constitute proper notice, though this seems sensible. It is also possible that a company could post a click-wrap form on its website, requiring the customer to indicate agreement with the modified terms before using additional services. The key appears to be making certain that each customer receives some sort of individualized notification of the new terms and some activity that is indicative of assent.

Full Opinion text: http://www.ca9.uscourts.gov/ca9/newopinions.nsf/1665312C85BA50868825731C00781F5D/$file/0675424.pdf?openelement

The Federal Circuit has held that federal patent law preempts state and local legislation intended to regulate the sale price of patented drugs. The court made it clear that the patent system is intended to create a market-based set of rewards for patent holders to promote innovation. State or local price regulation alters this system and therefore conflicts with federal law. While the decision dealt directly with drug patents, the principles established may give companies holding other patents additional protection from efforts by state or local governments to legislate how their products can be sold.

The District of Columbia City Council adopted legislation prohibiting any patented drug from being sold in the District for an excessive price. The operative section of the District’s Excessive Pricing Act states that “It shall be unlawful for any drug manufacturer or licensee thereof, excluding a point of sale retail seller, to sell or supply for sale or impose minimum resale requirements for a patented prescription drug that results in the prescription drug being sold in the District for an excessive price.” While not defining what constituted an “excessive price,” the legislation included a statement that a prima facie case of excessive pricing could be established by proving that the wholesale price of the drug was 30% higher than the comparable price in any high income country [defined as the United Kingdom, Germany, Canada, or Australia] where the product is protected by patents or other exclusive marketing rights. The law was challenged by the Pharmaceutical Research and Manufacturers of America and the Biotechnology Industry Organization, which contended that it was preempted by federal patent laws.

In Biotechnology Industry Organization v. Dist. of Columbia, 2007 WL 2189156 (Fed. Cir. 2007), the court held that the District’s law was preempted by federal patent law. The court first noted that while the District of Columbia is a federal territory, the general principles of preemption govern any conflict between District statutes and Congressional enactments. The court also indicated that there is no express provision in the federal patent statute that prohibits states from regulating the price of patented goods. In fact, the Federal Circuit has previously held that “the federal patent laws do not create any affirmative right to make, use, or sell anything.” Leatherman Tool Group, Inc. v. Cooper Indus., Inc., 131 F.3d 1011, 1015 (Fed.Cir.1997).

Nevertheless, the court concluded that a state or local law must yield to congressional enactments if it “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” The patent laws are intended to create an incentive for innovation, and the court concluded that the District’s legislation effectively changes federal patent policy within its borders. “By penalizing high prices – and thus limiting the full exercise of the exclusionary power that derives from a patent – the District has chosen to re-balance the statutory framework of rewards and incentives insofar as it relates to inventive new drugs.” The court held that because Congress intended a market-based framework to reward innovation, the District’s price regulation scheme would distort this framework and therefore conflicted with federal patent law.

The holding only applied to patented drugs. Nevertheless, the decision may provide a mechanism for other businesses holding patents to challenge state and local regulation that alters the market-based reward system that, according to the Federal Circuit, underlies federal patent law.

Full Opinion
Text: http://www.fedcir.gov/opinions/06-1593.pdf

The United States Court of Appeals for the Fifth Circuit has recently dealt with the intersection of the antitrust laws and cybersquatting. The dispute arose between a number of casinos operating in Tunica County, Mississippi and the owner of various domain names that could be used to advertise Tunica area businesses. The owners of the domain names claimed that the casinos refused to deal with her company in the hopes of driving down the value of the domain names so that the casinos could later acquire the names themselves. The Fifth Circuit made it clear that such a course of conduct could indeed violate the antitrust laws. The decision in Tunica Web Advertising, Inc. v. Tunica Casino Operators Association, 2007 WL 2297464 (5th Cir. 2007), is a reminder that companies acting to protect their domain names from competitors must consider the antitrust implications of their actions.

In November of 1999, Cherry Graziosi purchased the domain names “tunicamiss.com” and “tunicamississippi.com” from Network Solutions, Inc. for $140.00. Graziosi then leased the domain names to Circus Circus Mississippi, Inc. d/b/a Gold Strike Casino Resort. A user who entered either domain name was redirected to the Gold Strike Casino’s website. Graziosi later established Tunica Web Advertising, Inc. (“TWA”), which then acquired the domain name “tunica.com” from another company for approximately $20,000.00. TWA leased “tunica.com” to the Gold Strike Casino for $3000.00 per month. The Tunica County Tourism Commission (“TCTC”) sued Graziosi, alleging that she was a cybersquatter. The suit was settled, with Graziosi transferring the rights to “tunicamiss.com” and “tunicamississippi.com” to TCTC and TCTC relinquishing any claims to the domain name “tunica.com.”

In May of 2001, TWA made a proposal to the TCTC to lease “tunica.com” to all the Tunica County casinos collectively to advertise their businesses. Under the terms of the proposal, visitors to the domain would be redirected to the TCTC’s website, which already featured information about all the casinos. The proposal was referred to the Tunica Casino Operators Association (“TCOA”), a trade association formed by the Tunica casinos. At a meeting of the TCOA, none of the casinos agreed to TWA’s proposal. TWA later learned from a person present at the meeting that the casinos had entered into a “gentlemen’s agreement” not to do business with TWA. The apparent motivation for this agreement was to cause the value of the “tunica.com” domain name to decline so that it could later be acquired by the casinos themselves. Shortly thereafter, the Gold Strike terminated its existing relationship with TWA, and the casinos all turned down later proposals by TWA to advertise on a website TWA created using the “tunica.com” domain name.

TWA sued all the Tunica County casinos, the TCTC, and the TCOA in federal court alleging state and federal antitrust claims. The claims against the TCTC and TCOA were dismissed, and the district court granted summary judgment in favor of the defendants. The Fifth Circuit reversed the summary judgment order. The court concluded that there were triable issues of fact with respect to whether there was a conspiracy among the casinos. The casinos’ rejection of TWA’s initial proposal was not actionable because the proposal was made to them jointly. But the evidence of a “gentlemen’s agreement” not to do business with TWA and “tunica.com” was sufficient to survive summary judgment. In particular, the court pointed to evidence indicating that the casinos collectively hoped that if they did not do business with TWA, the value of the “tunica.com” domain name would decline and the casinos could buy it later. The court concluded that if TWA could substantiate these allegations, they would be enough to show either direct or circumstantial evidence of a concerted refusal to deal in violation of the antitrust laws.

The court also concluded that the casinos’ actions could constitute an illegal horizontal boycott that would be per se unlawful under the Sherman Act. Because the casinos are direct competitors of each other, an alleged agreement not to do business with TWA would clearly be a horizontal agreement. The court rejected the casinos’ contention that for a group boycott to be per se unlawful, at least one of the conspirators had to be a direct competitor. While direct competition with a victim is often part of a per se unlawful boycott, it is not an absolute prerequisite to a finding of per se illegality. The court concluded that to determine the applicability of the per se rule, the district court should analyze “(1) whether the casinos hold a dominant position in the relevant market; (2) whether the casinos control access to an element necessary to enable TWA to compete; and (3) whether there exist plausible arguments concerning pro-competitive effects.” The decision in Tunica Web Advertising certainly indicates that unrestrained battles over domain names can have significant antitrust consequences.

Full
Opinion Text: http://www.ca5.uscourts.gov/opinions/pub/06/06-60305-CV0.wpd.pdf