Monday's antitrust ruling from the U.S. Supreme Court makes it easier for courts to toss out cases at the pleading stage. Litigators know that, under federal "notice pleading" standards, a complaint need not include an extensive recital of facts; a pleading that simply puts defendant on notice of the nature of the claims is sufficient. Bell Atlantic Corp. v. Twombly appears to impose a different standard for pleading a Sherman Act Section 1 combination in restraint of trade. It states that plaintiff must plead enough facts to plausibly suggest an actual unlawful agreement between the defendants. Such a standard is necessary, according to Justice Souter, to avoid expensive discovery on a claim that lacks merit.
Like the Weyerhaeuser case decided earlier this term, Twombly makes the road that much rougher for antitrust plaintiffs.
As recently as 30 years ago, the overwhelming majority of employee retirement plans were defined benefit plans. A defined benefit plan typically guaranteed a fixed monthly payment for the life of the retired worker. Currently, defined benefit plans are becoming rare outside the public sector. Most non-public employers instead offer a defined contribution plan. These plans make no guarantees about lifetime income. Instead, the employer simply makes (or allows employees to make) contributions.
This shift has received lots of media attention and policy-maker concern. One of those concerns is the impact on women, who tend to have fewer years in the workplace before retirement age and live longer afterwards, when compared to men. Working less years at typically lower wages reduces not only retirement savings opportunities with the employer, but also Social Security retirement benefits, which are based upon wages earned.
Oregon Senator Gordon Smith, along with bi-partisan co-sponsors, introduced a bill in the Senate that addresses one aspect of this problem. Among other retirement incentives, the bill provides special treatment for assets received as annuities (a guaranteed payment for life) from both qualified retirement plans, such as 401(k) or profit sharing plans, and non-qualified plans. Annuity payments from qualified plans are 10% income tax-free up to a limit of $2,000 annually. Annuity payments from non-qualified plans are 50% tax-free up to $20,000.
The bill also allows the tax-free purchase of longevity insurance, a special type of insurance policy that begins making life annuity payments when a person attains their life expectancy. Many retirees budget their retirement savings over their life expectancy. The insurance would guarantee an income stream for those individuals who live longer than their expected life span.
It's too soon to know whether this bill will become law, and what impact it will have if it does. But it's good news that policy makers continue to seek solutions for Americans' chronic inability to save for retirement.
This week the Ninth Circuit issued two opinions that apply longstanding legal concepts to novel, Internet-based disputes.
The first case addresses a clash between two federal statutes: the Fair Housing Act and the 10-year-old Communications Decency Act. The FHA prohibits, among other things, publishing discriminatory advertisements for housing. The CDA, meanwhile, states that a provider of an "interactive computer service" cannot be treated as a publisher of content provided by others. In Fair Housing Council v. Roommate.com, plaintiff claimed that Roommate.com, an online roommate matching web site, violated the FHA by publishing listings stating discriminatory preferences. Roommate.com argued that it was merely an Internet-based conduit for information provided by others, shielding it from liability
under the CDA. Judge Alex Kozinski disagreed, noting that the listings were in the form of questionnaires provided by Roommate.com, thus making Roommate.com responsible for the creation or development of the content and taking it outside of the CDA shield.
For further discussion of the CDA shield, see this Oregon Business Litigation blog item from November 2006.
In Perfect 10, Inc. v. Amazon.com, Inc., the issue was whether the Google search engine violates copyright law. In particular, do links on a Google search illegally facilitate access to a third party's images and web sites which infringe on plaintiff's copyright? The Ninth Circuit considered the legality of both thumbnail images from infringing web sites accompanying Google search results, and search results providing links to infringing web sites. Judge Sandra S. Ikuta wrote that the thumbnail images constituted "fair use" and did not infringe on plaintiff's copyright. But the court remanded the second issue to the district court, directing it to reconsider whether Google's links illegally assist users to access infringing sites.
Last week in Betz v. Trainer Wortham & Co., the Ninth Circuit clarified that "inquiry notice, and not merely actual notice, can cause the statute of limitations for securities fraud to begin to run." The court also adopted the "inquiry-plus-reasonable-diligence test." Under that standard, the court first determines when a plaintiff has "inquiry notice", i.e., has notice of facts "sufficiently probative of fraud - sufficiently advanced beyond the stage of a mere suspicion . . . to incite [him or her] to investigate." Once a plaintiff has inquiry notice, the court asks when the investor, in the exercise of reasonable diligence, should have discovered the facts constituting the alleged fraud. The answer to the second question determines when the statute of limitations began to run.
The Court noted that, under the inquiry-plus-reasonable-diligence test, the defendant bears a "considerable burden" of showing an untimely claim at the summary judgment stage. This means that a defendant is highly unlikely to obtain dismissal before trial of a securities fraud claim based on the running of the statute of limitations, if the plaintiff claims a delay in discovering the existence of the claim.
At the end of a month-long trial, the manufacturer of Splenda artificial sweetener settled the false advertising claim brought by the manufacturer of rival product Equal. As earlier noted here in the Oregon Business Litigation blog, the trial in Philadelphia addressed whether the advertising slogan "made from sugar, so it tastes like sugar" is false, in violation of the Lanham Act and state law.
The terms of the settlement were undisclosed -- it's unknown whether the ad slogan will change, for example. But defendant evidently saw the handwriting on the wall: settlement talks started in earnest when the jury, during its deliberations, asked the judge for a calculator and copies of expert reports on damages. The parties announced the settlement just before the verdict was to be read.
Courts must resist the impulse to narrowly interpret the standards for civil RICO liability. That's the message an en banc panel of the Ninth Circuit sent on Friday, as it reinstated a case in which the plaintiffs claimed that a marketing agreement between Microsoft and Best Buy formed the basis for a RICO claim. Odom v. Microsoft Corp. concerns allegations of a marketing arrangement under which Best Buy gave its customers CDs for trial subscriptions to the MSN service. Plaintiffs alleged that customers were charged for the MSN subscriptions without their consent, and that because the activity involved wire fraud it constituted a civil violation of the Racketeer Influenced and Corrupt Organizations Act.
Parsing the technical language of the RICO statute, the court held that, to state a viable claim, plaintiff need not plead that an "associated-in-fact enterprise" has an ascertainable structure separate from its "pattern of racketeering activity." The court consequently reversed the lower court's dismissal of the complaint. The court acknowledged a split among the circuits on this pleading issue, but asserted that it's bound by U.S. Supreme Court precedent to read the statute broadly in order "to effectuate its remedial purpose."
In a novel use of technology, U.S. Supreme Court on Monday annotated a written opinion with a video recording, posted for public viewing on its web site. In Scott v. Harris, the court ruled that police were not liable for injuries resulting from a car chase. Justice Scalia wrote that the plaintiff and the Court of Appeals had understated the danger posed by the high-speed pursuit, citing as proof a dashboard video from a police car. He added in a footnote: "We are happy to allow the videotape to speak for itself."
On April 30, 2007, the US Supreme Court reversed the Court of Appeals for the Federal Circuit in two potentially far-reaching patent cases.
In Microsoft v. AT&T, the high court narrowly interpreted the exported components language of 35 USC 271(f) as allowing the export from the United States to a foreign manufacturer of Microsoft's "golden master" Windows software, which when assembled into a computer-readable copy admittedly would violate AT&T's speech processor patent. Justice Ginsberg's majority opinion likened the software master to the "notes of Beethoven's Ninth Symphony," distinguishing the master from installable/executable copies thereof as "[s]heet music for Beethoven's Ninth." The analogy seems inapposite to this blogger, considering that the master included not only executable software copy build instructions but also every needed piece (component) of executable code. Indeed, as Justice Stevens' lone dissent points out, "the master disk is the functional equivalent of a warehouse of components... ."
Thus, the huge jury award in favor of AT&T and against Microsoft is likely to be reduced by the amount attributable to such foreign shipment or electronic dissemination of the otherwise infringing master software contents.
The Microsoft v. AT&T case by any reading reinforces the importance of strategic foreign patent protection to buttress domestic patent portfolios.
In KSR v. Teleflex, the high court tackled the non-obviousness requirement for patentability found at 35 USC 103. In a unanimous opinion, Justice Kennedy wrote that the Federal Circuit's so-called TSM (teaching-suggestion-motivation) test for obviousness was too rigidly enforced, and ruled that Teleflex's adjustable brake pedal and electronic throttle control patent was invalid under the "expansive and flexible" approach established in Graham v. John Deere. The opinion agreed the TSM test is helpful, but held that undue reliance thereon gave short shrift to other factors, such as the level of ordinary skill in the art, and whether the combination of prior art elements was inspired by market demand instead of entrepreneurial effort deserving of patent protection.
"Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, in the case of patents combining previously known elements, deprive prior inventions of their value or utility." Page 15 of the Opinion.
The upshot of KSR v. Teleflex? Doomsayers predict that the decision may have cut in half the value of US patent holdings, or that patents of combination will be much more difficult to obtain and enforce. Others say that fewer, stronger patents are a good thing and that ridding the world of dubious exclusions actually increases the economic value of true innovation.
This blogger believes that the rules remain substantially unchanged, and that, while patent application drafting and prosecution tactics might change some, deserving entrepreneurs should be undeterred by yesterday's Supreme Court rulings.