Speaking of Rodents and Labor Disputes…Disneyland Resorts

Even the workers at the Happiest Place on Earth occasionally find themselves in a labor dispute. Disneyland Resorts, which employ 2,100 workers, and UNITE HERE Local 11, which represents them, have been locked in negotiations for more than three years since expiration of the last contract. On May 25, 2011, Disneyland Resorts indicated it had enough and advised the Union that it considered the parties at an impasse and would implement the terms of its “last, best and final” offer. The Union disagreed that impasse was present and claimed that implementation of the employer offer at the Magic Kingdom would be in violation of federal labor law. In the event UNITE HERE decides to picket Disneyland Resorts, there is no word on whether Mickey Mouse will cross.


The Perils of Email: Navigating the Legal Risks

In 2011, the typical corporate user will send and receive more than 110 electronic messages a day (over 40,000 per year), according to the Radicati Group. The number of worldwide email accounts is projected to increase from over 3.1 billion in 2011 to over 3.8 billion by 2014, 25% of which will belong to corporate users. As technology continues to drive growth and expansion for businesses, greater volumes of communication will be handled via email.

Although electronic messaging makes communication easier, faster and less expensive, it also creates an extraordinary set of issues. Identifying these perils and developing procedures to avoid them is critical for every company.

Information Preservation and Hold Notices

Various federal, state and local laws, rules and regulations require corporations to retain electronic communications and other information. For example, Rule 17a-4 of the Securities and Exchange Act requires SEC-regulated companies to retain all communications sent and received for at least three years, the first two in an easily accessible place. NASD Rule 3110 requires members to preserve books, accounts, records, memoranda and correspondence, and under the Sarbanes-Oxley Act, emails can become part of the business records of a company that are to be retained.

But, even when it is not required by law, an email retention policy should be in place. For example, according to a 2008 study by Osterman Research, 66% of the organizations surveyed rely upon email, IM archives or backup tapes to support and defend the organization in litigation. This should come as no surprise. Under the Federal Rules of Civil Procedure, a party generally is entitled to any document – in “hard” or “soft” (i.e., electronic) copy – that “appears reasonably calculated to lead to the discovery of admissible evidence.” Knowing this, litigation battle lines are often drawn around electronically stored information (ESI) and allegations that evidence has been destroyed (or “spoilated”). Savvy lawyers know that ESI discovery costs can drive settlement negotiations, or at least, distract parties from the real issues in the case. It is important, therefore, to have a sound retention policy to help make retrieving data for both business and legal purposes less painful.

Information Retention Policies

The adoption and enforcement of a retention policy is the first step to managing ESI. To be worthwhile, retention policies should: 1) reduce the risk of loss of critical and/or confidential business data, 2) alleviate burdens during an investigation or a lawsuit, and 3) account for information that needs to be retained to advance the goals of the business units and is legally required to be retained by the administrative and regulatory entities to which the corporation reports. What this means is that information critical for business continuity should be backed-up, retained and stored in a sensible way for retrieval. In developing retention policies, management should consider the importance and usefulness of information that is not legally required to be retained against the potentially high costs of locating and producing the information if required to do so later.

Determining what information to retain should be a collaborative process that includes at least one member of the IT department, the legal department, the affected business unit or units and human resources. That team should appoint a leader, most likely a legal department member, who is charged with mastering all facets of the policy and assuming ultimate responsibility for implementing and supervising all of its requirements. In terms of litigation, one of the requirements should include the process for retrieval, taking into consideration the time, manpower and monetary expense needed to actually assimilate relevant information for review and production.

After the policy is implemented, an ESI task force should schedule periodic reviews to test the retention procedures in order to confirm that the scope of retention adequately meets the over-arching goals, and that record-purging and backup activities are occurring and are documented. Additionally, the task force should ensure that data on all servers, desktops, laptops, PDAs, etc. is accounted for in the regularly scheduled purging cycle. When financially feasible, periodic audits of the policy and the processes, with the assistance of a third party, can verify and enhance reliability and compliance.

A lot of effort goes into formulating an effective retention policy and adequately communicating its importance to all of the persons affected by it.  As one analyzes ways to improve and enforce the policy, one should be mindful to consider whether the policy includes certain characteristics as suggested by information management firm Iron Mountain’s Records Management Best Practices Guide. These include:

  • A sound and defensible record retention schedule that captures and reviews all records created by all business units.
  • Electronic records that are migrated into a digital archive equipped with efficient and effective tools for searching, discovery organization and retention management.
  • A retention program with components integrated into an internal audit process.
  • Appropriate disposal methods, based on the different record classes or media types employed by the end-users of the electronic media.

Managing the Litigation Hold

Information retention policies that are reasonable outside the litigation context may nevertheless result in the destruction of ESI that would be relevant in litigation and give rise to a claim of spoliation. A proactive approach to thwart such a claim should require strong lines of communication between management, IT and legal and a keen appreciation for determining the date at which the company may “reasonably anticipate litigation.” Indeed, courts have insisted upon the suspension of routine document retention and destruction policies at the moment a party reasonably anticipates litigation. At that instance, a litigation hold notice should be prepared and distributed to all key personnel.

Obviously, deciding what to retain for purposes of a litigation hold is as equally important as determining when to distribute the litigation hold notice. For this reason, it is recommended that the litigation hold notice be a joint effort between in-house and outside counsel, and include language broad enough to describe categories of information that may be relevant to both the defense and prosecution of any reasonably anticipated claim. The litigation hold notice should also clearly identify one or two people to whom all questions should be directed and describe which ESI storage devices are subject to the hold. In more significant litigation, counsel should also plan to meet and interview key custodians and summarize the efforts undertaken to preserve and collect documents and ESI. While the summary should be privileged, it is an important document that counsel may refer to in defending a claim challenging the integrity of the litigation hold. In short, a well thought out and executed litigation hold plan may save a bundle of money (both in legal fees and possible sanctions) in responding to allegations of spoliation or other nonsensical litigation gamesmanship.

Avoiding Sanctions

Spoliation is “the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” Courts have broad discretion to impose appropriate sanctions under Rule 37 of the Federal Rules of Civil Procedure when a party spoliates evidence in violation of a court order. However, in the absence of a court order, a party asserting a spoliation motion has the burden to prove spoliation occurred. As a general rule, that party should prove: 1) the party charged with destroying the evidence had an obligation to preserve it; 2) the records were destroyed with a “culpable state of mind”; and 3) the destroyed evidence was relevant to the moving party’s claim or defense.

While evidence of the third point may be under the control of the moving party, proving the first two points will usually require evidence within the possession, custody and control of the party against whom the motion is filed.

As with most prudent plans, the key is to be proactive. The first step to potentially avoid sanctions for spoliation is to initiate the litigation hold as soon as possible. Thereafter, one should immediately identify and modify retention policy features, systems and devices that, in routine operation, would destroy potentially relevant ESI. Then, one should send a notice to all personnel affected by the hold. Purging functions should be disengaged and protocols to overwrite backup media should be suspended. It is also important to be diligent and anticipate what employees will hide, destroy or alter ESI; one should guard against such tactics by interviewing key employees early and monitoring their use of company email and electronic document storage systems for signs of tampering, destruction or other troublesome behavior. An “Electronic Discovery Response Team” composed of management, IT personnel and legal counsel, should be assembled and should secure all storage media containing potentially discoverable data immediately upon receiving a request for production, and document all preservation efforts. In significant matters, consider retaining forensic experts to segregate, image and examine potentially discoverable electronic media both to meet early disclosure deadlines and to be in a better position to avoid abusive fishing expeditions.

Forensic Reviews

No discussion about ESI is complete nowadays without a reference to forensics. According to a November 2007 article in the American Bankruptcy Institute Journal entitled “Digital Forensics 101: Where to Find Critical Evidence,” authors Walt Manning and Michelle Campbell define digital forensics as a practice that “combines elements of law and computer science to collect and analyze electronic data in a way that could be admissible as evidence.” Forensic tools and techniques search every obvious and hidden space for stored data, and usually uncover evidence missed by even a diligent custodian’s review. Common places where stored data is overlooked in the data retrieval process can include computer hard drives, telephones, fax machine transaction records, USB “thumb” drives, optical media such as CD-ROM or DVD disks, backup media, online storage services, off-site archival services, shared network drives, external hard drives, cell phones or PDAs capable of containing email or text messages.

Through the use of forensic tools, techniques and experts, it is possible to: 1) recover deleted files or email messages; 2) recover fragments of data, even if a portion of the original has been permanently deleted; 3) identify and capture relevant data saved on external data storage devices; 4) capture and search data from cellular telephones and personal digital assistants; 5) capture and analyze instant messaging traffic; and 6) analyze internet history and recover images of websites visited. Given the particularly aggressive nature of some lawyers, and the evolving procedural guidelines for ESI discovery, effective internal policies should consider the ability to resurrect and unveil deleted and/or “hidden” ESI. The simple, but harsh, truth is that the days of total document destruction (i.e., shredding) are gone. The concept of “shredding electronic data” is a complex, often incomplete, process.

New Technology, New Threats

The internet and email have revolutionized the way individuals and businesses communicate with each other. As email and text-messaging increasingly become the primary forms of communication, the continued widespread use of email and texting in the corporate setting creates a whole host of interesting issues for companies and their lawyers. In litigation, for example, emails are an important component of discovery and often contain the proverbial “smoking gun.” The best defense is a good offense, which starts with a thoughtful analysis of the threats, backed by sound policies and practices that may ensure the proper use, retention and handling of emails and other ESI.

One Year Post-Bilski : How the Decision is Being Interpreted by the BPAI, District Courts, and Federal Circuit -§101 Case Summaries v. 2.0: June 28, 2010 – June 27, 2011

One year ago, on June 28, 2010, the Supreme Court issued its decision in Bilski v. Kappos. The decision held that the machine-or-transformation test is not the exclusive test for patent eligibility, and that the three traditional exclusions of natural phenomena, abstract ideas, and laws of nature still apply. Since that time, 182 decisions involving statutory subject matter eligibility have been issued by the USPTO’s Board of Patent Appeals and Interferences (“the Board”). District Courts issued 6 decisions in the past year that substantively addressed statutory subject matter under § 101, while the Federal Circuit issued 3 decisions on the subject. The day after Bilski issued, the Supreme Court denied cert in In re Ferguson, and just recently picked up Mayo Collaborative Servs. v. Prometheus Labs for review.

Following is a summary of each decision that substantively discusses statutory subject matter under § 101 – from the Board and the Courts. Although the Board decisions are not precedential, they offer insight into what patent practitioners can expect in their own appeals. Similarly, both reported and unreported cases from the District Courts and Federal Circuit are provided to round out the statutory subject matter landscape. Section (I) outlines Board cases where the claims were found to be statutory. Section (II) outlines Board cases where the claims were found to be non-statutory. Section (III) provides a look at activity in the Courts.

Some trends from the Courts worth noting:

(1)  The District Courts appear to be very strict when reviewing statutory subject matter – out of the 6 District Court decisions that addressed § 101, only 2 found that the claims at issue were patent-eligible under § 101.

(2) The Federal Circuit has offered some relief for patent owners. Out of the 3 Federal Circuit decisions that addressed § 101, 2 found that the claims at issue were patenteligible.

(3) The Supreme Court is staying close to the patent-eligibility issue, having granted cert in the Prometheus case on appeal from the Federal Circuit.

Some trends from the Board worth noting:

(1) The number of decisions where the claims were held by the Board to be nonstatutory under §101 significantly outweighs the number of decisions where the Board found that the claims satisfied §101. There are about 2.5 non-statutory decisions for every 1 statutory decision.

(2) It is not unusual for the Board to raise a §101 rejection on its own, even if patent eligibility was not a subject on appeal, and was not briefed.

(3) The Board still relies heavily on the machine-or-transformation test, although it does look at other factors as well. For most claims that satisfied the machine-or-transformation test, the Board has found them to be patent-eligible without further analysis.

(4) Although it is not an official test, the “mental steps” doctrine rings true – if the claims can be performed purely in the human mind, then they will be non-statutory.

(5) Even if the specification is silent as to whether a computer readable medium can be read on a signal, the Board will likely read a signal into a claim reciting a computer readable medium, rendering it non-statutory.

(6) The panel of judges assigned to a particular appeal matters. As can be seen from the following, several of the Board judges rarely find a claim patent-eligible, and often raise previously non-existent §101 rejections.

(7) There are no guarantees. Similar claims have been treated differently by different panels, and some BPAI judges appear inconsistent in applying the law to seemingly similar claims.

For a full review of §101 Case Summaries v. 2.0: June 28, 2010 – June 27, 2011 and the full text of this artilce please click here:

Restrictive Immigration Law Continues to Threaten Georgia’s Farming Industry

Georgia Peaches

Just days after part of Georgia’s immigration law, HB 87, went into effect, farmers in the Peach State are panicking over how they will find enough workers to harvest their crops—some of which are already starting to spoil. Although a federal judge granted a preliminary injunction enjoining two key provisions of HB 87 last month, the provision requiring employers to verify the immigration status of new hires (E-Verify) went into effect July 1. In an industry where 80% of workers are said to be undocumented—and few American citizens, legal workers or even convicted criminals are willing to step in to do the work—Georgia farmers are now speaking up about how future labor shortages will impact the state’s $1.1 billion industry.

According to the Georgia Fruit and Vegetable Association, nearly $300 million worth of crops are at risk if the state’s 11,000 empty agricultural jobs continue to go unfilled. Charles Hall, the Association’s Executive Director, said many farmers have already noticed a dip in migrant workers as of late May, with harvest labor down nearly 30-50%. Come fall, those labor shortages are likely to continue. According to Hall:

If something doesn’t happen soon, Georgia’s crops could suffer even more than they already have. Some fields of less valuable crops were abandoned in the southern region of the state because there wasn’t enough labor to harvest it, leading to concern about the economics of supply and demand.

Local farmer Drew Echols said that HB 87 is already hurting Georgia businesses. According to Echols, there are fewer Georgia-grown products on the shelves of Atlanta’s farmers markets, and the products that are available are slightly more expensive. “Ultimately it all goes back to the consumer,” Echols said. “People are only going to pay so much for a chicken sandwich at Chick-fil-A or a basket of peaches.”

But like many small business owners, Echols’s biggest concern is that the state is making immigration an employer problem. Many argue that undocumented immigration should be handled on the federal level through federal reform legislation, not with mandatory immigration laws that state businesses can’t afford. Jose Gonzalez of the Associated Industries of Florida complained that “mandating the costly and burdensome E-Verify system is tantamount to a new tax on Florida’s employers.”

The fact is, outside of a comprehensive immigration reform bill, E-Verify will hurt farmers in Georgia as well as small business in many states where employers are required to verify employees’ immigration status. Small businesses simply don’t have the resources or infrastructure to run the program and U.S. immigration law provides few legal channels for low-skilled workers. As the president of the U.S. Hispanic Chamber of commerce said, “Mandatory E-Verify at the state and federal level would stifle job growth by placing a disproportionate regulatory and costly burden on small business.”

Real immigration reform—reform that won’t stunt small businesses or hinder economic growth—needs to come from Congress in the form of a comprehensive bill that accounts for enforcement of our immigration laws in tandem with a program that legalizes our current workforce and fills the needs of our 21st century economy. Otherwise, we’ll have a patchwork of immigration laws that leaves rotting fruit and rotting businesses on the ground.

Photo by Les_Stockton.

June Proves To Be A Busy Month For ARB And Its Proposed Cap-and-Trade Program

June was certainly an interesting month for those following the progression of California’s Global Warming Solutions Act (“AB 32”), which requires that California cut greenhouse gas (“GHG”) emissions to 1990 levels by 2020. The “linchpin” of AB 32 is a proposed cap-and-trade program, a market-based approach to reducing GHG emissions in which the California Air Resources Board (“ARB”) sets a collective cap on GHG emissions and then allows under- and over-polluters to buy and sell credits among themselves. However, recent judicial and agency developments have altered the cap-and-trade landscape. At the very least, the cap-and-trade program, if it survives judicial review, will not begin in earnest until 2013 (instead of the planned January 1, 2012 start date).


(1) Association of Irritated Residents v. California Air Resources Board

In 2009, a citizen’s group, Association of Irritated Residents (“AIR”), challenged ARB’s adoption of the cap-and-trade program found in the AB 32 Scoping Plan (the Plan for compliance with AB 32), alleging that ARB failed to adequately analyze alternatives to the cap-and-trade program, thereby violating the California Environmental Quality Act (“CEQA”).

On March 18, 2011, Judge Ernest H. Goldsmith of the San Francisco County Superior Court agreed with AIR’s contention that ARB was in violation of CEQA. Judge Goldsmith found ARB had not adequately weighed or analyzed the alternatives to the cap-and-trade program when it adopted an implementation strategy for AB 32. Judge Goldsmith’s final order, including a writ issued on May 20, halted all rule-making activities related to the cap-and trade program until ARB complies with the requirements proscribed under CEQA. (For further discussion on this, please see prior article here.)

(2) District Court of Appeal Grants ARB’s Petition for a Writ of Supersedeas

On June 1, ARB appealed Judge Goldsmith’s final order to the First District Court of Appeal. ARB then filed a petition for a writ of supersedeas, which requested the Court confirm that Judge Goldsmith’s injunction on the implementation of the cap-and-trade program was automatically stayed pending the determination of the underlying appeal. On June 3, the Court of Appeal issued a temporary stay while it considered whether the lower court’s injunction was “mandatory” or “prohibitory.” (For further discussion on this, please see prior article here.)

AIR argued that Judge Goldsmith’s final order was both mandatory and prohibitory. The mandatory element, according to AIR, requires ARB to conduct an appropriate alternative analysis for the Scoping Plan. AIR argued that this part of the injunction may be automatically stayed pending the appeal. However, AIR argued the prohibitory element – the instruction in Judge Goldsmith’s order preventing ARB from continuing to implement and develop its cap-and-trade program – is not automatically stayed once an appeal is filed.

ARB argued that the lower court’s final order would force ARB to miss the first year deadline for completing the necessary rulemaking procedures as directed under the state’s Administrative Procedures Act, thereby eliminating its ability to timely implement AB 32 in accordance with statutory requirements. This injunction, according to ARB, results in improper interference. In the alterative, ARB argued, under a balancing of the harms test, the Court should grant a “discretionary” stay if an automatic stay is determined to be inappropriate.

On June 24, the First District Court of Appeal issued an order granting ARB’s petition for a writ of supersedeas. Pending the Appellate Court‘s consideration of ARB’s appeal, the San Francisco County Superior Court order requiring ARB to halt all development and implementation of the cap-and-trade program is stayed. This means ARB is permitted to continue to advance and finalize plans for the cap-and-trade program while the Appellate Court determines the merits of ARB’s appeal.

Ass’n of Irritated Residents v. CARB, Case No. A132165, in the California First District Court of Appeal can be found here.


(1) ARB Releases Supplemental Analysis of Scoping Plan Alternatives

While the Court of Appeal took into consideration the arguments regarding ARB’s petition for the stay, ARB pursued another course of action. On June 13, ARB released a revised and supplemental analysis of alternatives to the Scoping Plan (the “Supplement”). (The Supplement can be found here.)  The release began a forty-five (45) day public review and comment period. In addition, ARB has scheduled two public hearings for July 8 and July 15 to discuss the Scoping Plan.  ARB also formally noticed a hearing before the full Board for August 24, 2011.

The Supplement presents a revised analysis for five (5) proposed alternative measures to be potentially utilized in implementing AB 32’s Scoping Plan and is much more detailed than the original environmental analysis. The Supplement reassesses the following alternatives, which were included in the original analysis:

a.       A “no project” alternative (or taking no action at all);[1]
b.      A plan relying on a cap-and-trade program for sectors included in a cap;[2]
c.       A plan relying more on source-specific regulatory requirements with no cap-and-trade component;[3]
d.      A plan relying on a carbon fee or tax;[4] and
e.       A plan relying on a variety of proposed strategies and measures.[5]

This new analysis incorporates emissions projections that take into account current economic forecasts and already implemented reduction measures. All the alternatives discussed, excepting the no project alternative, would achieve 2020 target levels. According to the Supplement, ARB believes that the cap-and-trade program and the mixed strategy approach would have the best chance of success. Importantly, the Supplement not only includes a revised alternatives analysis, it also includes significant revisions to the amount of GHG emissions needed to reach 1990 levels by the target date.[6]

After the forty-five (45) day review period, ARB will consider and prepare written responses to the public comments received. This should discharge Judge Goldsmith’s determination that ARB violated CEQA by commencing the implementation of the Scoping Plan prior to adequately responding to comments.

At the August 24 hearing, which will be at the Cal/EPA headquarters in Sacramento at 9:00 a.m., the Board will then determine, in light of the comments, responses and revised environmental analysis, whether the selection of the cap-and-trade program was appropriate. Thus, the Supplement offers a shield to protect ARB regardless of the determination of the appeal. With the Supplement and the subsequent review process, ARB retains the ability to request Judge Goldsmith dissolve his final order and injunction as the agency would have remedied the violations noted in the final order and would now be in compliance with CEQA.

(2) ARB Delays Required Compliance with Cap-and-Trade Program Until 2013

On June 29, ARB Chairwoman Mary Nichols told lawmakers at the California Senate Select Committee on the Environment, the Economy and Climate Change that ARB is planning to “initiate” the cap-and-trade program on January 1, 2012 but not “start the requirements for compliance” until January 1, 2013. Nichols stated the decision came “in light of the importance of this regulation to the success of California’s climate change program and the need for all necessary elements to be in place and fully functional.” (Nichols’ full transcript can be read here.)  In conjunction with news of this delay, ARB will release a draft of regulations regarding offset protocols and allowance distribution within the next two (2) weeks.

In her testimony, Nichols stated that the postponement of the compliance date would not affect the stringency of the program or the total amount of GHG emissions that industries would be mandated to reduce by 2020. Specifically, Nichols believes, “It gives [ARB] 2012 to work our stress tests, go through any issues anyone might raise…and come up with answers.” In short, the delay will not extend the 2020 target date required by AB 32.

Under the delay, the quarterly auctions of emissions allowances that each large emitter in California must turn in would commence in the second half of 2012, and not in February 2012 as originally planned. Entities that emit more than 25,000 metric tons of carbon dioxide per year will begin trading credits at the end of 2012 to cover emission reduction obligations for 2013 and later.

The cap-and-trade program requires covered facilities to surrender allowances and offsets once every three (3) years. Under this newly announced delay, the original first three (3) year compliance period (2012-2014) will be shortened to two (2) years.

According to Nichols’ testimony, the decision to delay the compliance requirements came after Nichols conferred with the State Attorney General’s Office and experts on California’s disastrous attempt to participate in deregulated electricity sales, which lead to widespread fraud and rolling black-outs experienced by much of the State in 2000-2001. Despite Nichols assertion that the pending litigation was not a deciding factor, many commentators believe that a principal reason for the delay is to ensure compliance with CEQA.

In an emailed statement issued by ARB clarifying Nichols’ testimony, ARB spokesperson Stanley Young, stated: “ARB will be initiating all elements of the cap-and-trade program throughout 2012, including establishing a market infrastructure, developing market oversight mechanisms, conducting trainings, holding auctions and developing linkages with partners in the Western Climate Initiative. This will ensure that we have tested the program prior to moving into the first year of compliance. The only change is shifting the first compliance obligation to 2013.”

Josh Margolis, CEO of CantorCO2e, a Cantor Fitzgerald LP subsidiary that provides financial services to the environmental and energy markets, offers the following take-aways from Nichols’ statement, as determined through CantorCO2e’s interactions with ARB staff:

a.       The most significant change is excusing sources from the need to secure and retire allowances or offsets to account for 2012 emissions;
b.      There will be no 2012 allowances issued;
c.       There will be the same reduction obligation by 2014 as under the original schedule, but “[t]he reduction forced by the declining cap that was originally scheduled to occur over a three (3) year period will now occur over a two (2) year period;”
d.      An underdetermined number of auctions will happen in 2012;
e.       In the 2012 auctions, 2013 and future vintage allowances will be auctioned; and
f.       ARB will issue a statement this week that clarifies and answers many of the above items, and addresses other issues as well.

Some commentators see this delay as a potentially detrimental roadblock for the future of the cap-and-trade program.  Peter Asmus, a senior analyst at Pike Research, stated: “I think it’s a sign of a lack of faith in the whole cap-and-trade concept, which was also shot down at the federal level…[It] shows the push back on the environmental regulations is even occurring in California.”

However, not all are pessimistic. State Senator Fran Pavely (D), author of AB 32, had originally called this meeting to discuss the implications and consequences of Ass’n of Irritated Residents v. CARB. After the meeting, Pavely stated: “This modest delay in implementation is prudent. The one-year period will provide flexibility; allowing us to road-test market mechanisms to see how they will work, while ensuring that the greenhouse gas pollution reductions required by the program remain intact.”

Margolis is equally optimistic about the delay, as he believes it might have the effect of keeping more businesses in the California. According to Margolis, “Chairman Nichols has delivered an elegant solution that will keep the environment whole and have a minimal impact on sources.”

Again, only time will tell what the final determination of Ass’n of Irritated Residents v. CARB and the future of the cap-and-trade program as proposed by AB 32 will be. More updates to come…

[1] This alternative is based on “existing conditions.” In establishing this baseline, the Supplement reflects the current status of other Scoping Plan measures. This includes those already adopted by ARB under AB 32 or enacted independently by State Legislature. The Supplement estimates the no-project approach would fall 22 million metric tons of CO2-equivalent emissions short of the 2020 target reduction levels.

[2] This alternative looks at several examples of cap-and-trade programs enacted throughout the country and internationally. The Supplement identifies problems associated with these existing programs and offers ways California can avoid similar concerns. The Supplement also proposes an “adaptive management program” that would require ARB to monitor local air quality impacts and provide adjustments in order to deal with such impacts. This provision is probably included in response to AIR’s original challenge that the use of cap-and-trade could result in the concentration of emissions in low-income and minority neighborhoods.

[3] This alternative uses remediation measures that target specific sources of GHG emissions – including, but not limited to, oil and gas extraction plants, refineries, transportation sources, and cement plants. ARB states there is significant concern in implementing this alternative as it poses a substantial risk of emissions “leakage” or the relocation of these sources to other states.

[4] This alternative discusses examples of currently enacted fee programs and design considerations. ARB believes enacting a carbon fee or tax would be inefficient and potentially impossible. (In California, any tax must obtain a two-thirds (2/3) vote of the State Legislature and that any fee must be placed within the boundaries of California Supreme Court’s Sinclair decision and Proposition 26.) ARB has leakage concerns in regards to this alternative as well.

[5] This alternative proposes a mix of the three previous alternatives, not including the no project alternative.

[6] The original Scoping Plan estimated that the 2020 target level was 427 million metric tons of CO2-equivalent emissions (the 1990 level). Under a “business-as-usual” approach, which was assumed to result in 596 million metric tons of CO2-equivalent emissions, the Scoping Plan estimated a reduction of 169 million metric tons. However, with the economic recession and the reduction measures currently implemented, the Supplement states the current reduction needed to attain 2020 target level is now 80 million metric tons. The 2020 level under the same “business-as-usual” approach is estimated to be 507 million metric tons.

U.S. Supreme Court Extends “Public Concern” Test To Lawsuits Brought By Public Employees Under The First Amendment’s Petition Clause

The U.S. Supreme Court Has provided some much needed guidance on when public employers may violate their employees’ right to petition the government for redress of grievances under the First Amendment.  In order to prove that the government violated his rights under the Petition Clause of the First Amendment, a public employee must now show that his petition related to a matter of “public concern,” as opposed to a private employment grievance.  This standard is substantially the same as the test applied under the Free Speech Clause of the First Amendment.

Writing for six other justices in Borough of Duryea, Pennsylvania v. Guarnieri, Justice Kennedy explained that while courts should not presume that there is always an equivalence between the Speech Clause and the Petition Clause, there is “extensive common ground in the definition and delineation” of the rights protected by the respective clauses justified extending the same “public concern” test to both the exercise of free speech by public employees and their right to petition the government.

The public concern test was first developed to protect the “substantial government interest” in preventing government employees from “constitutionaliz[ing]” the employee grievance process. [and clogging the court system with internal government matters]. Because public employees could readily bring the same claim under either the Speech or Petition Clauses, the Court reasoned that adopting a lower standard for claims brought under the Petition Clause would provide public employees a “ready means…to circumvent the [public concern] test’s protections.” However, the Court explicitly stated that this analysis only applies when a public employee is acting in his capacity as an employee. Rather, “[w]hen a public employee seeks to participate, as a citizen, in the process of deliberative democracy, either though speech or petition, it is necessary to regard the employee as the member of the general public he seeks to be.”

The Court’s full opinion can be found at: http://www.supremecourt.gov/opinions/10pdf/09-1476.pdf  read more

Patent Reform is on the Immediate Horizon – New Options for Challenging Patents Before the USPTO

On June 23, 2011, the U.S. House of Representatives passed the America Invents Act (H.R. 1249), which follows in the wake of the Senate version, S. 23, approved on March 8, 2011. Although differences between the two bills will have to be reconciled before the proposed legislation can be signed into law by the President, Congress is poised to enact major reforms to the patent laws. After many years of debate and compromise, patent reform seems to be just steps from the finish line.

We focus here on two provisions relating to challenging patents before the U.S. Patent and Trademark Office, as currently set forth in the House bill.  First, inter partes reexaminations will be replaced with inter partes review proceedings. Second, the legislation will create post-grant review proceedings for the first time. Together, these proceedings will expand the options available to competitors who wish to challenge patents before the USPTO.

Both inter partes review and post-grant review will be adjudicated by a three-judge panel of the Patent Trial and Appeal Board (PTAB). The PTAB will be formed from and supplant the current Board of Patent Appeals and Interferences. As with current interference proceedings, inter partes review and post-grant review will involve filing motions (e.g., to amend claims) and provide for limited discovery. Thus, there are likely to be many procedural parallels between interferences, inter partes review and post-grant review. Additionally, inter partes reviews and post-grant reviews must be concluded within one year, extendable to 18 months in unusual cases.

Inter Partes Review

Inter partes review includes some significant differences from the current inter partes reexaminations. Like inter partes reexamination, inter partes review will permit a third party to challenge one or more patent claims as anticipated or obvious on the basis of prior art patents or printed publications. Unlike reexamination, which can be ordered at any time during the period of enforceability of a patent, a petition for inter partes review can only be filed after the later of: (1) nine months after the grant of a patent or a reissue of a patent; or (2) the termination of post-grant review, if a post-grant review has been instituted for that patent. The standard for commencing an inter partes review will be higher than that for ordering reexamination. Reexamination is ordered if there is “a substantial new question of patentability affecting a claim of the patent.” In contrast, inter partes review will be commenced upon a determination that “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged.” Thus, competitors will find it more difficult to mount challenges to patents under this provision of the law.

The legislation addresses the interplay between inter partes review and district court litigation, and it places constraints on the extent to which the proceedings will overlap. Inter partes review may not be instituted if the petitioner has already filed a civil action challenging the patent’s validity. However, a counterclaim by a defendant in a civil action may challenge the patent’s validity without barring inter partes review. Following a final decision in an inter partes review, a petitioner will be estopped from subsequently disputing a claim’s validity in litigation or before the USPTO on grounds that the petitioner “raised or reasonably could have raised” during the inter partes review. Settlement of the inter partes review proceeding will eliminate any estoppel, thus giving parties greater incentive to settle than under the current scheme. Thus, in a settlement context, the estoppel provisions underinter partes review are somewhat less onerous than under inter partes reexamination.

Finally, the legislation also provides for reexaminations that are instituted as the result of supplemental examination of the patent. A patent owner may request supplemental examination of a patent to have the Office consider, reconsider, or correct information believed to be relevant to the patent. In contrast to current law regarding reexaminations, this information is not limited to prior art patents and publications, and it may include, for example, information relating to an on-sale bar or experimental data relevant to the enablement requirement. If information presented in the request raises a substantial new question of patentability, the Director will order reexamination. Supplemental examination immunizes a patent against a later holding of unenforceability based on the same information provided during supplemental examination.

Post-Grant Review

As a supplement to inter partes review proceedings, the new legislation also creates post-grant review as a mechanism for challenging patents. Although there are many similarities between the two procedures, significant differences are present, and they warrant a closer look. Unlike inter partes review, a third party may challenge an issued patent on any invalidity ground by filing a petition within nine months after issuance or re-issuance of the patent. The broad grounds available for seeking post-grant review parallel those available for finding invalidity in a civil action in district court. For example, post-grant review will permit challenges based on lack of written description or lack of enablement, thus expanding the bases for attacking patents in proceedings before the USPTO. The USPTO will authorize a post-grant review upon a showing that “it is more likely than not” that at least one challenged claim is unpatentable. This standard is more stringent than the “substantial new question of patentability” standard for initiating inter partes reexamination under the current law. Alternatively, post-grant review may be authorized if a petitioner raises a novel or unsettled legal question that is important to other patents or applications. As with inter partes review, post-grant review cannot be initiated if the petitioner has filed a civil action challenging the validity of the patent. Additionally, a final decision in a post-grant review proceeding will create an estoppel on any ground that the petitioner “raised or reasonably could have raised” during thatpost-grant review.


The new legislation will give competitors greater options for challenging patents. Although it remains to be seen how effectively the USPTO will be able to handle the proceedings, given the one-year time constraint for concluding such proceedings, the existence of each option should be borne in mind both by patent owners who may seek to enforce their patents and by competitors who wish to eliminate the patents of others. As compared to civil litigation, post-grant review and interpartes review may prove to be attractive tools for challenging patents, particularly in view of the faster resolution and lower costs than typical district court litigation, the “preponderance-of-theevidence” standard of proof, and the broadest reasonable claim construction that are applied at the USPTO. Potential patent challengers will wish to stay informed regarding the patent landscape, so that they can timely file for post-grant review if desired.

Split Decision: U.S. Appellate Court Finds Health Reform Law is Constitutional

The Obama Administration enthusiastically embraced a legal victory yesterday  (June 30th) when, in a 2-1 split decision, a federal appeals court panel upheld a lower federal court decision finding that the federal Health Reform Law is constitutional.  Some observers quickly seized on the fact that one of the two votes upholding the Health Reform Law was a conservative Republican judge, Jeffrey Sutton, who once clerked for Supreme Court Justice Antonin Scalia.  The third judge, a Reagan appointee, dissented on the substantive issue, arguing that the Health Reform Law is unconstitutional.

The core question remains an extremely close one.  The three judges on the panel were not unanimous and the opinion itself gives some further indications that the matter could go either way when it is finally decided by the Supreme Court.   For example, Judge Sutton, who concurred in part and wrote the majority opinion in part, indicated that his opinion is just one step in the process – at one point he essentially refers to the appeals court as a “middle management judge” and then later goes on to observe that he is “[m]indful that we at the court of appeals are not just fallible but utterly non-final in this case…”

Whether today’s decision has any ultimate impact will turn on its persuasive power and, in particular, whether the logic of the opinion is deemed compelling by the Supreme Court of the United States.  Even before this case approaches the high court, several additional steps will occur. First, the challengers could request the Sixth Circuit Court of Appeals to re-hear the case en banc, although information posted on the lead challenger’s website indicates that this option will not be pursued and that the challengers prefer that the case proceed directly to the Supreme Court.  In any event, the Sixth Circuit decision is just the first of the three appellate court reviews; two other federal appeals courts are currently considering similar challenges to the Health Reform Law.  In contrast to the Sixth Circuit’s decision in which the lower court had already found the Health Reform Law to be constitutional, the other two circuits, the Fourth and the Eleventh, would have to reverse lower courts that have previously rejected the Health Reform Law as being unconstitutional.   If either of those circuit courts decides the opposite way of today’s decision, the odds will increase that the Supreme Court will take up the matter more quickly.   If the high court takes the case this fall, it could decide the constitutionality of health care reform just months before the 2012 election.