EPA and Corps of Engineers Extend Comment Period for Revised Guidance on Identifying Waters Subject to the Clean Water Act

On May 2, 2011, the U.S. Environmental Protection Agency and the U.S. Army Corps of Engineers published proposed joint guidance (“Proposed Guidance“) describing how the agencies will identify waters regulated pursuant to Section 404 of the Clean Water Act (“CWA”).  The Proposed Guidance is intended to clarify and implement the Supreme Court’s decisions in Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers (“SWANCC”), 531 U.S. 159 (2001), and Rapanos v. United States, 547 U.S. 715 (2006).  The Proposed Guidance asserts that it is further intended to reaffirm federal jurisdiction over waters that currently lack clear protection under the law, and to provide clearer, more predictable guidelines to reduce uncertainty and delay for businesses and regulators.

The Proposed Guidance allows the EPA and the Corps to expand the universe of waters covered under Justice Kennedy’s Rapanos “significant nexus” text by allowing the use of a “watershed analysis” to aggregate similarly situated waters and wetlands within a watershed without requiring the kind of detailed site-specific analysis for individual adjacent wetlands required under the current Guidance.  The agencies acknowledge that the number of water bodies found subject to CWA jurisdiction will increase greatly under the new guidance.  The costs of such expansion of jurisdiction will be felt by the regulated community.

The comment period for the Proposed Guidance has been extended from July 1, 2011 to July 31, 2011 The Proposed Guidance would supersede existing guidance documents including the 2008 Bush Administration Guidance (the 2008 Guidance will remain in effect until the Proposed Guidance is issued).  After the Proposed Guidance is issued, the agencies will likely conduct a formal rulemaking process to further clarify the extent of the CWA jurisdiction.

Prejudgment Interest in Copyright Infringement Suit Tracks to Date of First Infringement – William A. Graham Co. v. Haughey

The U.S. Court of Appeals for the Third Circuit affirmed a nearly $20 million verdict in favor of a plaintiff-appellee, finding that an additional award of prejudgment interest should be applied from the date when a fraud that resulted in a copyright infringement began, not when the plaintiff discovered the infringement.   William A. Graham Co. v. Haughey et al., Case No. 10-2762 (3d Cir., May 16, 2011) (Smith, J.).

In 1991, Thomas P. Haughey left his position with The Graham Company, an insurance brokerage, to join USI MidAtlantic Inc., one of Graham’s competitors.  When Haughey left Graham, he took two binders containing hundreds of pages of text describing various types of insurance coverages, exclusions, conditions and similar matter.  The materials had been prepared by Graham employees and were protected by Graham’s copyrights.  From July 1992 until 2005, Haughey and employees at his new employer used the materials to prepare insurance coverage proposals for presentations to clients.

Graham did not discover the unauthorized use of its binder materials until November 2004.   In February 2005, plaintiff Graham filed a copyright infringement suit against Haughey and USI MidAtlantic.  The defendants argued that the Copyright Act’s three-year statute of limitations barred the plaintiff’s claims, but the district court rejected their argument.  The district court determined that the “discovery rule,” which tolls the limitations period until the plaintiff learns of the cause of action or with reasonable diligence could have done so, applied to the Copyright Act.  At trial, the plaintiff did not seek statutory damages, but instead sought actual damages in the form of the defendants’ profits attributable to the infringement.  The plaintiff argued that defendant USI MidAtlantic had earned $32 million in profits that was directly attributable to the infringement, with defendant Haughey personally earning $3 million from the infringement due to commissions.  The burden then shifted back to the defendants to prove that their revenues were attributable to factors other than the copyrighted work.  The jury found for the plaintiff, awarding more than $16.5 million against defendant USI MidAtlantic and nearly $2.3 million from defendant Haughey, representing about 70 percent of USI’s profits and 75 percent of Haughey’s profits.  Subsequently the court set aside the jury’s verdict, determining that Plaintiff had in fact been placed on notice of Defendants’ conduct as early as fall of 1991.  A second trial, limited to damages, resulted in a second jury verdict awarding $1.4 million in damages against defendant USI and $268,000 against defendant Haughey.

The parties appealed to the 3d Circuit (Graham I).  The plaintiff argued that the district court’s holding regarding notice was mistaken, while the defendants argued that the plaintiff had failed to prove a causal nexus between the defendants’ alleged infringement and profits.  The 3d Circuit ruled in Graham I that the plaintiff had effectively shown causation and that the district court had erred in finding that the plaintiff could have reasonably discovered the infringement before February 2002.  The 3d Circuit remanded the case to the district court for a determination of whether the defendants were correct in their argument that 70 percent and 75 percent apportionments of the defendants’ profits was “excessive.”  On remand, the district court rejected the “excessiveness” argument and reinstated the original jury verdict.

In their second appeal to the 3d Circuit (Graham II), the defendants argued that the nearly $20 million jury verdict “shocks” the judicial conscience and was improper.   The defendants further argued that the award of prejudgment interest dating from when the fraud allegedly began was improper, maintaining that such interest should only be applied from 2004, the date when the plaintiff allegedly discovered the infringement.  The defendants also argued that the district court’s tolling of the limitations period because of the “discovery rule” and USI MidAtlantic’s alleged concealment of the infringement should also toll the interest period.

The 3d Circuit disagreed, upholding the jury verdict and finding that use of the discovery rule to change the date of accrual and delay the onset of prejudgment interest would “warp its fundamentally plaintiff-friendly purpose” and would “give defendants additional incentive to conceal their tortious or otherwise illegal acts,” given that “a fraudster would owe no interest on his purloined cash until discovery of the theft, and would thus be allowed to benefit from an interest-free loan.”  The 3d Circuit also rejected USI’s arguments that its profits could be attributed to the expertise and hard work of its brokers, more than its use of the plaintiff’s copyrighted materials, noting that while it had some sympathy for USI MidAtlantic, “such sympathy is not, however, sufficient to justify overturning the jury’s verdict.”

Practice Note:   If a plaintiff overcomes the tolling of the statute of limitations based on the “discovery rule,” that rule has no effect on the date upon which prejudgment interest begins to accrue.  Prejudgment interest will accrue beginning on the date the infringement occurred, not the date when the plaintiff discovered the infringement.

Supreme Court Changes the Climate on Greenhouse Gas Suits

Yesterday, the U.S. Supreme Court issued its much-anticipated decision in American Electric Power Co. v. Connecticut, reviewing whether federal common law would support a claim that greenhouse gas emissions could give rise to a public nuisance claim that would warrant injunctive relief against future emissions. The Court concluded that the federal common law cannot support such a claim.

The plaintiffs, including eight states,[1] New York City, and three nonprofit land trusts, brought suit in the Southern District of New York against five electric power companies alleged to be the largest emitters of carbon dioxide in the United States. The complaint alleged that carbon dioxide emissions contributed to global warming and thereby constituted a nuisance under federal common law. The plaintiffs requested an injunction limiting emissions in the future. No monetary damages were sought. The district court dismissed the case, finding that the complaint presented a nonjusticiable political question. The Second Circuit reinstated the case, holding that the plaintiffs were not barred by the political-question doctrine and had stated a federal common law nuisance claim.

The Supreme Court, although equally divided,[2] first dealt with a preliminary issue, affirming that the plaintiffs had standing. In doing so, it relied without further discussion on its earlier decision in Massachusetts v. EPA, 549 U.S. 497 (2007). It then moved to the merits. The Court acknowledged that a federal common law for “subjects of national concern” exists and that this common law extends to environmental protection of air and water. But it bypassed answering whether that common law approach could extend to claims that carbon dioxide emissions are a nuisance, stating it was unnecessary to decide the issue because even if such a common law claim could theoretically exist, the Clean Air Act (CAA) has effectively “displaced” such federal common law claims.

In reaching its conclusion, the Court discussed several specific CAA features. First, it noted that in Massachusetts the Court had already concluded that carbon dioxide emissions are air pollutants subject to regulation under the CAA. Second, it concluded that the CAA “speaks directly” to carbon dioxide emissions from the defendants’ plants. In supporting this “speaks directly” conclusion, the Court focused on the Environmental Protection Agency’s (EPA’s) ability to regulate under CAA Section 111 stationary sources that “cause or contribute significantly to air pollution.” In addition, the Court noted that the CAA provides multiple avenues for EPA to enforce noncompliance with its regulations and that the CAA allows private parties to request EPA to set such industry rules, and that EPA’s response to such requests is subject to review in federal court.

Notably, the Court was clear that its displacement analysis did not depend on EPA exercising its regulatory authority and setting the emissions standards for carbon dioxide. The Court indicated that it is enough that EPA has been given the power to do so in the CAA. Thus, the Court expressly noted that if EPA declines to regulate carbon dioxide emissions under Section 111, the federal courts would still have no role in entertaining such nuisance suits, although the federal courts would have a role in reviewing EPA’s decision not to regulate. In dealing a substantial, and perhaps lethal, blow to such nuisance suits relying on federal common law, the Court nevertheless left unanswered whether such suits may remain viable under state law. The Court stated that it was a separate question whether the CAA preempts such state law claims.

The decision is a major win for those actually or potentially facing such federal common law nuisance suits. But in emphasizing the authority that the CAA apparently gives EPA to regulate greenhouse gas emissions, the decision will also affect the ability to challenge any EPA regulations issued in the future. In addition, by leaving open the possibility that state law claims may remain viable, yesterday’s decision will likely simply push such suits to be pled under state law. This will generate yet further litigation about whether the CAA is clear in preempting such state law claims, an analysis similar to, but with significant differences from, whether federal law claims are displaced.

Global Warming and Droughts Not New Information; Project Opponents Must Fairly Present Claims Before Filing CEQA Lawsuit

On May 19, 2011, the California Court of Appeal for the Fourth Appellate District upheld an Addendum to an Environmental Impact Report (“EIR Addendum”) over claims that the lead agency failed to follow statutory procedures for adopting a Water Supply Assessment (“WSA”) and that a supplemental EIR (“SEIR”) was required to analyze “new” environmental impacts related to drought and global warming.

Citizens for Responsible Equitable Environmental Development v. City of San Diego involved an Addendum to an EIR initially prepared for a 664-acre master planned community in the City of San Diego in 1994. The EIR Addendum addressed environmental impacts from the last phase of the master planned community — a 1,500-unit multi-family project (“Project”).

WSA Approval Procedure

Before the lead agency approved the Project, the City’s water department prepared a WSA, which was then approved by the City Council at the Project’s public hearing through a resolution certifying the EIR Addendum. The resolution did not specifically reference the WSA. The Citizens for Responsible Equitable Environmental Development (“CREED”) argued the California Water Code[1] required the City Council, acting as the water department’s legislative body, to approve the WSA in advance at a separate hearing because the Legislature deemed the coordination of water supply planning and land use planning too important to adopt as just an ordinary technical report supporting the EIR Addendum’s water supply analysis.

The Court of Appeal disagreed. Unlike many other jurisdictions that have a separate water agency governing board, the City’s water department is governed by the same entity (the City Council) as the lead agency; thus no separate hearing or resolution was required. The court held that requiring the same legislative body to hold two different hearings on the matter, or approve a WSA and CEQA document in different motions, would not enhance public review or local agency decision-making. Instead, it affirmed that the “purpose of CEQA is to inform government decision-makers and their constituency of the consequences of a given project, not to derail it in a sea of administrative hearings and paperwork.” (Long Beach Sav. & Loan Assn. v. Long Beach Redevelopment Agency (1986) 188 Cal. App. 3d 249, 263.)

Drought Not New Information

The City Council adopted the project despite then Governor Schwarzenegger’s drought declaration and a notice from the Department of Water Resources that it would be reducing water deliveries to the City due to the statewide drought and a separate court order to reduce water pumping from the Bay/Delta area to protect endangered Delta Smelt. CREED argued that the drought declaration and notice of reduced water deliveries occurred after the WSA was completed and therefore was the type of “new” information that required the City to process a SEIR, instead of an EIR Addendum.

The court dismissed CREED’s claim finding that CREED failed to satisfy its burden of proof to address all the information regarding available water supply, including the WSA’s references to water supply during multiple dry years. The court affirmed that it was proper for the City to rely on testimony from the City’s planning staff during the public hearings that the drought was only temporary and the City had adequate water supply to serve the project in the long term.

Global Warming Not New Information

CREED argued that the 1994 EIR contained no references to global warming and that the passage of state global warming laws, such as AB 32 and SB 97, revealed new information about the scientific link between global warming and human development activities. The court dismissed this claim because lead agencies may not require preparation of a SEIR unless “[n]ew information, which was not known and could not have been known at the time of [EIR] was certified as complete, becomes available.” (Cal. Pub. Res. Code § 21167(c).) The court found that by the time the EIR was certified in 1994, there was enough information available from various executive orders, international scientific panels, and the National Academy of Sciences demonstrating the link between global warming and human activities that an impact analysis could have been included in the 1994 EIR. Because the statute of limitations on the 1994 EIR had long since passed, CREED was time-barred from raising those issues in a legal challenge against the 2009 EIR Addendum, where public policy favors finality. The evidence that there was sufficient information about global warming in 1994 came from the City of Los Angeles’ 1990 lawsuit against the National Highway Safety Administration[2] and the U.S. Supreme Court opinion in Massachusetts v. EPA (2007) 549 U.S. 497, where the high court summarized the history of official government actions related to global warming from the 1970s to 2007.

Failure to Exhaust Administrative Remedies

During the six years the City reviewed the Project, CREED did not submit a comment opposing the Project when the Notice of Preparation was issued, the Draft EIR Addendum was circulated, community outreach hearings were held, the Planning Commission’s hearing was held or participate in the City Council hearings for the Project. Instead, hours before the City Council was scheduled to review the Project in a January 20, 2009 public hearing, CREED attempted to preserve its right to sue the Project approval in court by filing with the City Clerk’s office a two page letter with general allegations that the Project violated CEQA and referring to an attached DVD with 5,000 pages of general information about water supply, drought, global warming, and copies of previous EIRs around the state discussing water supply and global warming issues. The City Council postponed the hearing until February 17, 2009 for other reasons and only later discovered CREED had submitted the letter. During the month between the two letters, the Project’s air quality consultant provided a letter analyzing the Project’s greenhouse gas impacts.

Then, on the morning of the February 17, 2009 hearing, CREED filed a second two-page letter with an attached DVD with several thousand more general documents about global warming and droughts. CREED did not participate in the City Council’s hearing to elaborate on its comments. When the City refused to include the second DVD in the administrative record, the trial court judge denied CREED’s Motion to Augment the Record, finding that under the totality of the circumstances, CREED failed to fairly present its arguments to the City Council in a manner that the City could reasonably be expected to respond. CREED did not appeal the motion.

The CEQA statute prohibits judicial review “unless, the alleged grounds for noncompliance with [CEQA] were presented to the public agency orally or in writing by any person during the public comment period provided by this division or prior to the close of the public hearing…” (Cal. Pub. Res. Code § 21177(a).) Nevertheless, the Court of Appeals took the next step and found that CREED’s January 20, 2009 letter with 5,000 pages of exhibits was insufficient to exhaust the administrative remedies available to CREED even though it was submitted a month in advance of the City Council’s final hearing on the Project.

The court noted that “To advance the exhaustion doctrine’s purpose ‘[t]he “exact issue” must have been presented to the administrative agency….’ [Citation omitted] and “[T]he objections must be sufficiently specific so that the agency has the opportunity to evaluate and respond to them.” (Sierra Club v. City of Orange (2008) 163 Cal.App.4th, 523, 535-536.) The court held that CREED failed to satisfy the exhaustion doctrine because its letters only contain general, unelaborated objections. The letters did not contain the term “drought” or object to the content of the WSA. The letters made only general, unelaborated objections such as, “global climate change has been raised as a significant environmental issue that has been frequently analyzed in current environmental documents” and the “project will cause direct and indirect greenhouse-gas emissions that, when considered cumulatively, are significant.”

The court affirmed that “The City cannot be expected to pore through thousands of documents to find something that arguably supports CREED’s belief the project should not go forward. Additionally, CREED did not appear at either CEQA hearing to elaborate its position. It appears from CREED’s haphazard approach that its sole intent was to preserve an appeal.” The court noted that if Petitioners were not required to give specific objections so the agency has the opportunity to evaluate and respond to them, every project approval would be subject to litigation on new or expanded issues.

Significant Conclusions from the Case

The case is significant for a number of reasons.

First, for a developer or lead agency that wants to amend entitlements to respond to market changes, but is concerned that the state’s new global warming laws will automatically require an exhaustive SEIR, this case affirms that holders of post-1994 entitlements can likely amend their entitlements without an SEIR. The expedited EIR Addendum procedure is available where development project changes do not otherwise trigger new or more severe unmitigated environmental impacts compared to those disclosed in the original EIR, even where the original EIR contains no information on the project’s global warming impacts. With the passage of state and local legislation (SB 1185, AB 333, and possibly SB 208 later this year), the “life” of projects with vesting tentative maps, tentative maps, and parcel maps has been extended due to the economic downturn. There are likely more older, unfinished development projects whose build-out can be facilitated with an EIR Addendum.

Second, the opinion may improve the quality of the debate at public hearings on development projects because it discourages “stealth” legal attacks and encourages a clear discussion of the merits of a project. Project opponents who wait to the last day to submit a long list of CEQA based project objections risk losing their right to appeal on those grounds if the information is not presented in an organized manner that gives the lead agency a fair opportunity to respond. Even project opponents who submit documents a month in advance of a public hearing must be cautious to present the information in an organized manner that identifies the exact issue so the lead agency has a fair opportunity to respond to the specific issues raised. Furthermore, the risk of courts finding that a project opponent failed to exhaust remedies is likely greater where the project opponent is represented by legal counsel and fails to indentify the specific issues that are the basis for its claims. CEQA attorneys will therefore now need to identify carefully what specific evidence support their legal claims against a project.

Third, it may improve the quality of the response from lead agencies, resulting in better development projects. When specific objections to a project are made, the lead agency can better decide whether those objections have merit and either make necessary changes in the project or determine if there is other substantial evidence to rebut the claim. Where the objections do not have merit, the lead agency is assured it can rely on expert opinion from its planning staff during a public hearing.

Fourth, WSA findings that address the availability of water during multiple dry years can be used to reject claims that drought conditions trigger the need to prepare an SEIR.

Fifth, cities and counties that govern water supply departments without a separate governing board can approve a project’s WSA without conducting duplicative hearings or special approvals for the WSA. The WSA can be treated like any other technical report supporting a CEQA document.

Finally, the case affirms that CEQA petitioners who repeat the evidence in opposition to a project fail to satisfy their legal burden of proof when they do not address all the evidence in the record supporting the lead agency’s decisions. The court is not a forum to revisit debate over a project’s public policy merits, but instead is a forum to determine if the lead agency had any substantial evidence to support its findings.

American Electric Power v. Connecticut: The Dog That Did Not Bark

So, it’s that time of year again, campers. It’s the time when all the law nerds gather ’round expectantly and philosophize over the Supreme Court’s final opinions of the term.

And it’s no different here at the Appellate Record. We yield to no one in our lack of a rich inner life.

Lately, the talking heads were all agog about the American Electric Power opinion, how these global warming lawsuits were dead without an “activist court.”

It is astounding how much is written and how little is decided in some opinions. It’s as if the court gasps an audible “whoops,” and side steps the big issue, only to leave a muddy footprint there on the carpet to nevertheless show where it has been.

The recent case of American Electric Power v. Connecticut is just such a case. Like the famous dog from the Sherlock Holmes mystery, The Silver Blaze, the opinion is notable for what the Court did not say. Indeed, what the Court could not say.

American Electric Power v. Connecticut was one of a number of disputes from around the country where plaintiffs sued select emitters of greenhouse gasses for despoiling the planet with their CO2. (Query if long winded counsel could be joined as potentially responsible parties.)

Recall the prior Appellate Record post about how the Fifth Circuit got itself tied in knots and could not even review the issue of whether such a case presented a justiciable question–that is, plaintiffs picking a few corporations from among the billions of CO2 emitters on the planet and suing them for the nuisance of a warming earth to be caused in the future by omitting more CO2.

(Did you like the way I masked my own personal slant on that subject? Journalistic standards.)

So bow-tie-wearing lawyers like me everywhere were all a-quiver wondering what the Supreme Court would do with the first case that came along. Whack it on the noggin? Or stretch justiciability and allow it to proceed?

Answer: none of the above. Because eight is an even number and eight is all the judges they had.

The Second Circuit had found the case to be justiciable, and the Supreme Court deadlocked at four to four because Sonja Sotomayor, late of the Second Circuit, was recused.

Lacking a majority either way, the justiciability ruling contained in the Second Circuit’s terse little 139 page opinion was affirmed by default. And the court moved onto the question of whether there was a federal common law nuisance action given the EPA‘s move to fill the gap and regulate greenhouse gasses.

Answer: No.

But what about a state common law nuisance action?

Would it be preempted?

Who knows? That question was remanded.


Maybe. Depending upon which circuit (or state court) you ask.

Maybe not if you bring an odd number of judges next time.

So is there such a thing as a global warming nuisance claim? Ask the dog that did not bark.

Many years and many dollars from now.


Supreme Court Attempts to Clarify Bayh-Dole Act

The Supreme Court issued its much anticipated decision in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. et al. on June 6, 2011.  In a 7–2 decision, the Supreme Court determined that the University and Small Business Patent Procedures Act (“Bayh-Dole Act”) clarifies the priority of rights regarding ownership of patents arising from federally funded research.  In particular, the Court held that federal contractors do not gain automatic patent rights to federally funded inventions because inventors have the initial claim to ownership.

The Bayh-Dole Act allows for the transfer of exclusive control over many government-funded inventions to universities, nonprofit organizations and small businesses operating with federal contracts for the purpose of further development and commercialization.  The contracting universities, organizations and businesses are then permitted to exclusively license the inventions to other parties.  The federal government, however, retains “march-in” rights to license the invention to a third party, without the consent of the patent holder or original licensee, where it determines the invention is not being made available to the public on a reasonable basis—in other words, to issue a compulsory license.

The Court affirms the Federal Circuit decision that Stanford lacked standing to sue Roche because a Stanford researcher had assigned his rights to his invention to Cetus, a company who later became part of Roche.  The researcher had signed a visitor’s confidentiality agreement while working at Cetus, which stated that he “will assign and do[es] hereby assign” inventions to Cetus.  The Federal Circuit held that the visitor’s agreement superseded a copyright and patent agreement with Stanford in which the researcher “agree[d] to assign” inventions to Stanford.

On appeal, both Stanford and the solicitor general argued that the Federal Circuit decision would allow individual inventors to unilaterally terminate the exclusive rights of the university and other contractors.  However, the Supreme Court found that the position of Stanford and the solicitor general would move the inventor “from the front of the line to the back,” suggesting that inventors have the initial rights to their inventions and must explicitly assign any rights to an employer or a third party.

What ramifications does this decision have for federally funded inventions?

According to the Court, the Bayh-Dole Act merely gives contractors the right to “retain” ownership, which suggests that contractors must first obtain ownership.  Unfortunately, the issue of assignments was not before the Supreme Court.  The Federal Circuit interpreted the Cetus assignment where the inventors “will assign and do hereby assign” to be an explicit (present) assignment of future inventions, whereas the Stanford assignment, where the inventors “agree[d] to assign” inventions to Stanford, was a promise to hand over future inventions.

For now, companies may wish to ensure that their patent assignments explicitly state that inventors affirmatively assign their invention rights by incorporation of self-executing language.  Furthermore, it is advisable that employment agreements indicate that inventors are contractually obligated to and by their signature do assign their inventions to the company.

Reexamination Practice: One Size Does Not Fit All

Recently, there was a reexamination roundtable at the Patent Office last week where ideas for reexamination reform were proposed.  The Patent Office listened and took notes.  Relatively, it was a very productive meeting overall.  As the various speakers presented their comments to the questions posed by the Office, it was a clear reminder how everyone views reexamination differently:

  • Patent Owners who are trying to enforce their patents want a fair system that will not amount to a tool of delay and thin or meritless attacks on their patents;
  • Businesses and in-house counsel need a predictable system that can be used to challenge inferior patents and nuisance assertions;
  • Judges need to know that if a case is stayed pending reexamination, there will be a reasonably expedient final decision that can be used for the litigation;
  • Examiners need time and tools to help process unusually large and complicated reexaminations; and
  • The Patent Office needs clear rules that are fair to both sides, and can reach finality of a reexamination with special dispatch.

But right now we don’t have adequate metrics to know the situation, much less to measure progress.  What exactly does that mean?

Variation in Size and Complexity

For example, perhaps we should be tracking reexamination progress based on complexity:

  • Some reexaminations involve 5 claims.  Some involve 50 claims.  There is no reason why a 50 claim reexamination should take the same amount of time and resources as a 5 claim reexamination.
  • One reexamination may involve 4 grounds of rejection and another may involve 8.
  • One reexam request is 50 pages.  One is 2000 pages.
  • One reexamination involves several petitions.  Another involves no petitions.
  • One reexamination involves substantial claim amendments (including, adding new claims).  Another involves cancellation of claims.  Yet another has no amendments.

We could be counting claim volume as a metric, as opposed to just disposition of matters without regard to claim volume.  We could be tracking the disposition of petitions, pages of reexamination request, volume of SNQs, or any number of other metrics indicative of the size or complexity of a matter.

Variation in Timing – Especially due to Procedural Variations

Perhaps we should be tracking more information about pendency and measurement of time.  We should get more visibility into the timing of reexaminations at various stages.  Our current understanding of PTO statistics on reexaminations is that they often cite the time to NIRC.  That does not seem fair to the CRU, because the statistics do not seem to separate the amount of time in the CRU from the amount of time at the BPAI or the Federal Circuit.  That means that the pendency of reexaminations will scale with the numbers of appeals filed.  Perhaps the number in appeals is statistically strong or weak enough that this metric is a reliable indicator of pendency, but I do not see enough information to discern that.  And as the volume of cases increases, any change in appeal volume would change the statistical significance of past numbers.  Anyone with better insight and information is encouraged to send that to me and it will be posted if appropriate.

A Little More Data Would Go a Long Way

One size does not fit all when it comes to reexamination.  Of course, you cannot measure everything, but you also cannot manage what you do not measure.  A bit more detail in the figures would go a long way to measuring progress in the future.

Court Throws Out Antitrust Claims Against Netflix

In an April 29, 2011 opinion, the District Court for the Northern District of California granted defendant Netflix’s summary judgment motion against a putative class of plaintiffs comprising of individuals who subscribed to Blockbuster, Inc.’s online DVD rental services. See Order Granting Motion for Summary Judgment, No. M-09-2029 PJH, Dkt. No. 376 (“Order”).

Plaintiffs made no conspiracy allegations against Blockbuster, which was their subscription provider. Instead, the multidistrict litigation stemmed from a May 19, 2005 marketing/promotion agreement between Netflix and Walmart, pursuant to which Walmart allegedly exited the market allowing Netflix to enhance its dominant position in the market for DVD rentals, and to eventually raise its subscription prices. Plaintiffs claimed that the reduced competition in the online DVD rental market allowed Blockbuster, which now operated in a two-firm market, to also raise its subscription prices for DVD rentals to plaintiffs. Order at 2.

Plaintiffs’ key allegations were that (1) Blockbuster entered the market in late 2004; (2) Netflix dropped the price of its 3-out subscription plan from $21.99 to $17.99 in October 2004, in response to Blockbuster’s entry and never raised that price; (3) in May 2005, defendants entered into their allegedly illegal “promotional agreement” pursuant to which Walmart subsequently exited the market; (4) Blockbuster was charging $14.99 for its subscription plan prior to the challenged “promotional agreement”; (5) according to a Blockbuster executive, the $14.99 price was “not sustainable”; (6) Blockbuster had begun testing the $17.99 price in connection with certain of its subscription programs in advance of defendants’ announcement of their allegedly unlawful agreement; and (7) in August 2005, three months after the promotional agreement was announced, Blockbuster raised its subscription price from $14.99 to $17.99, the price being charged by Netflix.

The court initially had granted a motion to dismiss with prejudice based on the indirectness of the alleged injury, speculative nature of the harm and complexity of apportioning damages. Id. at 3 (relying on Assoc. Gen. Contractors of Cal. v. Cal. State Council of Carpenters, 459 U.S. 519 (1983)). Later, however, the court reconsidered its prior order and granted plaintiffs leave to amend to allege a direct and proximate causal injury.

In denying a second motion to dismiss, the court noted that plaintiffs’ revised theory of causation differed from their original theory in that “it now focused on Netflix’s ability to convert a competitive price into a supracompetitive price by refusing to compete in an unrestrained market, as well as Blockbuster’s ‘reliance’ on Netflix pricing in setting its own pricing.” Id. at 5 (emphasis in original). Combined with a number of new allegations, the court held that this new theory of causation was sufficient to get plaintiffs past the pleading stage. Nonetheless, the court continued to express concern about plaintiffs’ ability to satisfy the direct injury requirement and encouraged the parties to bring early summary judgment motions directed specifically to antitrust standing. Id. at 5-6.

At the summary judgment stage, and after discovery on the antitrust standing issue had been completed, plaintiffs no longer alleged that Blockbuster’s August 2005 price increase was a direct response to Walmart’s exit from the market. Instead, they argued that, in the but-for world, Netflix would have lowered its price to a true competitive level, and that because Blockbuster’s price derived from Netflix’s, Blockbuster would have followed suit by lowering its price, resulting in lower prices as of August 2005. The court determined that the only issue before it was, assuming Netflix would have lowered its price to the level alleged by plaintiffs, would Blockbuster “track” or “match” Netflix’s pricing.

Among other facts, evidence showed that Blockbuster believed that Netflix “defined” the maximum market price as early as 2003; that Blockbuster used Netflix’s then prevailing price as a baseline in setting its prices; that Blockbuster would not, and indeed did not, exceed Netflix’s pricing; and that each time Netflix cut prices, Blockbuster responded by cutting its price to undercut Netflix. Based on these facts, plaintiffs argued that had Netflix lowered its price below $17.99, Blockbuster would have followed and at least matched Netflix’s price. Id. at 9-10.

However, evidence also showed that Blockbuster considered a variety of factors in setting its prices, besides the price charged by Netflix, including its own financial condition, costs, price testing, product usage and research. Evidence also showed that, although Blockbuster had lowered its prices to compete with Netflix, its price of $14.99 was “temporary” and deemed “not sustainable”; that it believed it had “inferior services” compared to its rival; and that it had already begun a program of raising its prices to $17.99 for some subscriptions before defendants’ promotional agreement was announced. Id. at 10-11.

Concluding that there was no genuine issue of material fact present and that the only dispute was as to the legal effect to be given the undisputed facts, the court granted Netflix’s motion. Id. at 15. The court held that, even viewing all facts in the light most favorable to plaintiffs, they had failed to demonstrate that Netflix pricing truly set Blockbuster’s pricing “as a function of any interdependent market interaction, as opposed to simply a likely function of competitive dynamics of the market.” Id. at 14. At best, the court explained, “plaintiffs demonstrate only that Blockbuster pricing was set with reference to Netflix pricing. But, there is nothing to indicate that Blockbuster pricing – or its price increase in August 2005 – was in any way directly influenced or impacted by Netflix’s alleged anticompetitive conduct . . . .” Id. at 14-15 (emphasis in original).

Patent Owner Stay Motion Successful Based on Defendants’ Reexam Requests Filed on Eve of Markman

In Fifth Market, Inc. v. CME Group Inc, et al., (1-08-cv-00520, D. Del), the Patent Owner/Plaintiff (Fifth Market, Inc.) sued multiple Defendants on two patents (U.S. Pat. No. 6,418,419 and U.S. Pat. No. 7,024,387) in 2008.  Three amended complaints were subsequently filed, the last one on January 10, 2011.  The Defendants answered on February 7, 2011, asserting affirmative defenses and counterclaims to the thir amended complaint.  A Markman hearing was held on April 5, 2011 and on April 21, Patent Owner/Plaintiff filed a motion to stay pending reexaminations.  According to the Court’s order, the timing of events was this:

  • March 28 – Defendants’ counsel, Banner & Witcoff, files an ex parte reexamination request of the ’419 patent
  • April 1 – Defendants’ counsel, Brinks Hofer Gibson & Lione, files an ex parte reexamination request of the ’419 patent
  • April  4 – Plaintiff discloses that Defendant provided it a copy of a request for ex parte reexamination of the ’419 patent filed on April 1, 2011 by Defendants’ counsel Brinks Hofer Gibson & Lione; Plaintiff also discloses that it received a copy of a draft request for ex parte reexamination of the ’387 patent (and that Defendants informed Plaintiff that it would be filed by Defendants).
  • April 5 – Markman Hearing
  • April 15 – Plaintiff received a copy of the second ex parte reexamination request for the ’419 patent from Defendants’ counsel, Banner & Witcoff, that had been filed on March 28, 2011.
  • April 21 – Motion to Stay by Patent Owner/Plaintiff

The motion to stay was opposed by the Defendants; however, the motion was ultimately granted by Chief District Judge Sleet after the traditional three factor test was applied (state of discovery, whether a stay will simplify issues, and prejudice to nonmoving party).  The Order for the stay stated:

The court understands the plaintiff’s concern about the defendants’ timing and tactics.  The facts and procedural history of this case are interesting.

In particular, the Court found:

  • prior to the Markman hearing, Defendants had already filed two separate requests for reexamination of the ’419 patent and were “contemplating filing” a reexamination request of the ’387 patent;
  • no persuasive evidence of undue prejudice or clear tactical disadvantage to Defendants;
  • that the stay would simplify the issues in the case;
  • that both patents-in-suit may be before the Patent Office, and that numerous prior art challenges in the requests will simplify issues for the court for any claims that survive and streamline the litigation;
  • that although the trial date of March 26, 2012 was indeed set, discovery is not yet complete; and
  • that Plaintiff timely filed its motion within weeks of learning about the reexamination requests.

What is not clear from the record is why the reexamination request of March 28 was not known or served on Plaintiff sooner than April 15.  And the record shows that the reexamination request filed on April 1 was actually filed electronically on April 2, and was accorded an April 29 filing date due to a defect in the filing.  Regardless, this case shows yet another example of the fact-dependent analysis involved in decisions to stay litigation pending reexamination.

Specification Must Sufficiently Describe Claimed Invention to Show Possession of Claimed Subject Matter

Reversing a grant of summary judgment holding that patents covering claims to a beverage can and a method for making a beverage can were invalid for failure to satisfy the written description requirement and being anticipated, the U.S. Court of Appeals for the Federal Circuit concluded that under the “problem solution” analysis of Revolution Eyeware, the patent in issue satisfied the written descriptive requirement by providing multiple solutions to the stated problem and that a genuine issue of material fact existed as to whether a prior art reference inherently disclosed elements of the claims.   Crown Packaging Tech., Inc. v. Ball Metal Container Corp., Case No. 10-1020 (Fed. Cir. April 1, 2011) (Whyte, J., N.D. Cal., sitting by designation) (Dyk, J, concurring-in-part and dissenting-in-part).

Crown Packaging sued Ball Metal Container asserting infringement of two patents sharing a common specification that related to beverage cans that use less metal, based on the connection of the can end to the can body.   The district court granted Ball a summary judgment ruling of invalidity, finding that the patents in suit failed to satisfy the written description requirement and were anticipated under principles of inherency.   The district court found that the asserted claims cover driving a chuck either inside or outside of the reinforcing bead of the lid, but the specification only supports driving a chuck outside of the reinforcing bead at the end of the can, thus failing to satisfy the written description requirement.  Further, the district court found that a published Japanese patent application anticipated the asserted claims, with at least one claim limitation being inherently disclosed.  Crown Packaging appealed.

The Federal Circuit began the analysis by reviewing the written description requirement.  Citing Ariad Pharms., Inc. v. Eli Lilly & Co. (see IP Update, Vol. 12, Nos. 5  and 9) the Court noted that the test for the written description requirement is “whether the disclosure clearly ‘allow[s] persons of ordinary skill in the art to recognize that [the inventor] invented what is claimed.”  Put another way, the disclosure must convey that “the inventor has possession of the claimed subject matter as of the filing date.” Possession is shown by the specification disclosing what is claimed.  The Court noted that the originally filed claims are part of the specification and often satisfy the written description requirement.

The Court, distinguishing the enablement requirement from written description, agreed with Crown Packaging that the specification taught two different ways to address the problem of reducing metal usage in beverage cans and that the specification does not require the use of both methods in all instances.  Since the patents in suit teach two separate ways to save metal and the original claims show that Crown Packaging recognized that two independent ways to save metal were disclosed in the patent, the written description requirement was satisfied.

Turning to the issue of anticipation, the Federal Circuit found that the experts’ reports materially differed regarding the disclosure of the prior art Japanese patent application, thus summary judgment was  inappropriate in this case, as a genuine issue of material fact existed.

Judge Dyk dissented in part, writing that the patents should be invalid for failing to satisfy the written description requirement.   Judge Dyk found that specification did not teach the combination of elements found in the claims, and thus, the patents should be invalidated.   Judge Dyk wrote that Revolution Eyewear v. Aspex Eyewear requires “explicit disclosure of the embodiments in the claims.”  In his view, “[t]he fact that the claims are broad enough to cover such an invention or imply that the claims cover such an invention is not sufficient when the invention itself is not described either in the claims or elsewhere in the specification.”

Supreme Court Issues Decision Regarding “Cat’s Paw” Claims of Discrimination

In the recent case of Staub v Proctor Hospital, the United States Supreme Court addressed the so-called “cat’s paw” claim of discrimination under the Uniformed Services Employment and Reemployment Rights Act. In a cat’s paw case, the employee seeks to hold the employer liable for the discriminatory intent of a supervisor who was not the ultimate “decision maker” for the challenged adverse employment action. The Court’s holding in Staub now makes it easier for employees to establish liability in such cases where a biased supervisor has influenced someone else to take the adverse employment action. This case is sure to impact employers, as its holding potentially reaches beyond USERRA and into other types of federal discrimination cases.

Staub worked as an angiography technician for Proctor Hospital. He also served in the U.S. Army Reserve, and took leaves of absence from work in order to attend monthly drill. Staub’s immediate supervisor (Mulally), as well as Mulally’s supervisor (Korenchuk), were allegedly hostile towards Staub’s military obligations. Mulally issued Staub a corrective action for purportedly violating the hospital’s work rules regarding failure to remain in his work area whenever he was not working with a patient. The corrective action directed Staub to report to his supervisors when had no patients. A few months later, Korenchuk reported to the hospital’s vice president of human resources (Buck) that Staub had violated the corrective action by leaving the work area without notifying his supervisors. Buck relied on this report and, after reviewing Staub’s personnel file, made the decision to discharge Staub for failure to comply with the corrective action

Staub later sued the hospital in Federal court for wrongful discharge in violation of USERRA, claiming that his discharge was motivated by his obligations as a member of the Army Reserves. Significantly, that claim did not allege that the decision maker regarding his discharge (Buck) held a discriminatory motive. Instead, and pursuant to the cat’s paw theory, Staub claimed that supervisors Mulally and Korenchuk held discriminatory animus and that their actions influenced the discharge decision. The jury found in favor of Staub on this claim, but the Seventh Circuit Court of Appeals reversed. The Seventh Circuit held that since the decision maker conducted an albeit limited investigation of the facts, her decision to discharge Staub was not singularly influenced by the non-decision maker supervisors holding discriminatory animus. Staub then appealed to the Supreme Court, which reversed the appellate court’s decision.

Writing for the Court, Justice Scalia first noted that USERRA’s statutory language provides that an employer has violated the Act where an employee’s membership in the uniformed services is a “motivating factor” in the employer’s adverse employment action. Justice Scalia’s opinion pointed out that this language is similar to that found in another major Federal employment statute, Title VII of the Civil Rights Act of 1964 (which prohibits discrimination on the basis of race, color, religion, sex or national origin). The key issue for the Court was to define the term “motivating factor” within the context of a cat’s paw case where the decison maker was not motivated by discriminatory intent. The Court held that “if a supervisor performs an act motivated by antimilitary animus that is intended by the supervisor to cause an adverse employment action, and if that act is a proximate cause of the ultimate employment action, then the employer is liable under USERRA.” Thus, the adverse employment action must be both the intended consequence of the non-decision maker’s conduct, as well as proximately caused by that conduct. The Court noted that proximate cause requires only “some direct relation” between the supervisor’s conduct and the adverse employment action. This holding apparently rejects any rule that a decision maker’s independent investigation prior to taking the adverse action automatically precludes liability for the employer. However, the Court left open the possibility that an investigation which leads to reasons unrelated to the supervisor’s biased conduct, and which would justify the adverse employment action, would allow the employer to avoid liability.

The Supreme Court’s decision in Staub will almost certainly encourage more employees to pursue “cat’s paw” litigation. Also, because of the similarity in statutory language with respect to the requirement that unlawful discrimination be a “motivating factor” for an adverse employment action, it seems likely that this decision will be applied in Title VII as well as USERRA cases. However, while the Court’s decision has made it easier for employees to advance a cat’s paw claim, employers should keep several important things in mind. First, the employee still has the burden of proving that the non-decision maker supervisor engaged in conduct motivated by discriminatory intent. Second, whenever the employer receives information which could prompt the taking of an adverse employment action, an immediate and thorough investigation should be undertaken. A decision maker must review all the facts and interview all relevant employee witnesses in order to make an informed and proper judgment as to the proper action. Lastly, employers should make sure that all supervisors are trained with respect to equal employment opportunity and anti-harassment laws, and that the employer’s policies in these areas are up to date. These steps still provide meaningful defenses to reduce the likelihood that any adverse employment action can be challenged successfully.

Tax Court Disqualifies Plan for Not Adopting Required Amendments

Maintaining a retirement plan‘s qualified status comes with certain administrative burdens.  For employers, few burdens are more onerous than required plan amendments. Throughout the year, employers are informed that they need to adopt a plan amendment because of recent changes to the law.  Some amendments appear to lack a purpose.  After all, what is the worst that could happen if a plan’s compensation definition does not include the transportation fringe benefit, especially where participants are not offered transportation fringe benefits?  Recently, in Christy & Swan Profit Sharing Plan v. Commissioner of Internal Revenue, T.C. Memo 2001-62 (Mar. 15, 2011), the Tax Court explained the importance of adopting all required amendments.

In Christy & Swan Profit Sharing Plan, the Tax Court retroactively revoked a one-participant plan’s qualified status because it had not adopted timely amendments to comply with recent law changes.  In particular, the plan had not been amended to include qualified transportation fringe benefits in the definition of compensation, as required by the Community Renewal Tax Relief Act of 2000.  Additionally, the plan did not amend the definition of eligible retirement plan to include annuity contracts and eligible deferred compensation plans, as required by the Economic Growth and Tax Relief Reconciliation Act of 2001.  Instead of adopting these required amendments, the plan relied on a general “declaration” stating that the plan was amended by general reference to incorporate all statutory and regulatory amendments necessary to retain qualified status.  The Internal Revenue Service (IRS) notified the plan of its deficient terms and explained the options available under the audit closing agreement program under the Employee Plans Correction Resolution Program (EPCRS).  The plan’s sole participant, however, chose not to participate in EPCRS.

The arguments for and against plan disqualification, in this case, highlight the importance of maintaining a plan document that complies with all qualification requirements.  The argument against disqualification was that the plan did not need to be amended for statutory changes that would have no effect on its operation.  In other words, the plan claimed that the amendments had no meaningful purpose.  The argument in favor of disqualification was that the plan was required to satisfy the qualification requirements in form and in operation.  The plan’s failure to amend for statutory changes must be made in the context of what might have happened, not what actually happened, i.e., the employer may offer transportation fringe benefits in the future.

In granting summary judgment in favor of the IRS, the Tax Court unequivocally resolved the dispute by stating the following: “The requirements that a plan must satisfy for qualification under section 401(a) must be strictly met.  Vague, general references in plan correspondence to such requirements are insufficient.”

The Tax Court’s ruling reminds all plan sponsors of the importance of timely adopting required amendments.

Holyoke, Mass. Landlords Face Fines for Failing to Notify Tenants about Lead Paint

(Boston, Mass. – May 9, 2011) – A property management company and four owners of rental properties in and around Holyoke, Mass., face EPA penalties of up to $16,000 per violation for violating federal lead-based paint disclosure rules at properties in West Springfield and Holyoke.

According to a complaint filed by EPA’s New England office, Atlas Property Management of Holyoke and the four affiliated property owners are charged with 27 counts of violating lead-based paint disclosure requirements between Feb. 2007 and Nov. 2009 when they rented 11 housing units at 10 properties.

Specifically, the parties are charged with failing to give tenants required lead hazard information pamphlets, failing to include lead warning statements in leases, failing to include disclosure statements regarding lead-based paint or lead-based paint hazards, and failing to provide records or reports pertaining to lead-based paint or lead-based paint hazards.

The allegations are based on documents obtained from Atlas during a Sept. 2007 EPA inspection, as well as from the company’s responses to an Aug. 2009 EPA information request.  Atlas is based in Holyoke and manages more than 250 residential rental units.

The federal lead disclosure rule, a part of the Toxic Substances Control Act, helps ensure that tenants get adequate information about the risks associated with lead paint before they sign any lease obligating them to rent the unit. Infants and young children are especially vulnerable to lead paint exposure, which can cause developmental impairment, reading and learning disabilities, impaired hearing, reduced attention span, hyperactivity and behavioral problems. Adults with high lead levels can suffer difficulties during pregnancy, high blood pressure, nerve disorders, memory problems and muscle and joint pain.

Federal law requires that property owners, property managers and real estate agents leasing or selling housing built before 1978 provide certain information to tenants and buyers, including: an EPA-approved lead hazard information pamphlet called “Protect Your Family from Lead in Your Home;” a Lead Warning Statement; statements disclosing any known lead-based paint and/or lead-based paint hazards; and copies of all available records or reports regarding lead-based paint and/or lead-based paint hazards. This information must be provided to tenants and buyers before they enter into leases or purchase and sales agreements. Property owners, property managers and real estate agents each bear responsibility for providing lead disclosure information and must keep copies of records regarding lead disclosures for at least three years.

No Standing if Plaintiff’s Exclusive Rights Were Limited in Time

Evaluating ownership of a sound recording under both the Indian Copyright Act and U.S. Copyright Act, the U.S. Court of Appeals for the Eleventh Circuit upheld a district court’s grant of summary judgment to defendants in a copyright infringement action, finding that the plaintiff lacked standing to sue because the underlying agreement granted exclusive rights that were limited in time.   Saregama v. Timbaland, et al.   Case No. 10-10626 (11th Cir., March 25, 2011) (Marcus, J.)

Saregama asserted that hip hop producer Timbaland and other defendants infringed its sound recording copyright by digitally sampling a portion of the Indian song “Baghor Mein Bahar Hai” in the song “Put You on the Game.”   Saregama claimed ownership of the copyright in the sound recording through an agreement between Saregama’s predecessor and another company, which was governed by Indian law.   The agreement provided the plaintiff with exclusive rights in certain sound recordings for a two-year period.   The district court granted the defendants’ motion for summary judgment, holding that Saregama did not possess a valid copyright, as the agreement limited the plaintiffs’ exclusive rights to the sound recording to a two-year period.  Second, the district court determined that the defendants’ digital sample was not substantially similar to the plaintiff’s asserted work.

On appeal, the 11th Circuit affirmed the grant of summary judgment to defendants.   The 11th Circuit held that Saregama possessed only a two-year right to the sound recording, which had since lapsed, such that the plaintiff did not own a copyright as to possess the standing required to institute an infringement lawsuit.

Because the underlying work originated in India, the court first looked to the Indian Copyright Act to analyze the ownership issue.   Comparing the Indian Copyright Act with the U.S. Copyright Act, the court ultimately concluded that the result would be the same under either law.   While the agreement conveyed Saregama an exclusive right to certain sound recordings, that right was limited to two years. After those two years, the other company had the unambiguous right to allow third parties to record the song, although the plaintiff retained non-exclusive rights to the song.  Because the exclusive right granted to Saregama in the agreement became non-exclusive, the court explained that the plaintiff, at most, possessed a two-year exclusive license.  As such, Saregama did not possess the requisite exclusive rights to confer standing.