Northwest Business Litigation

No private right of action under Sarbanes-Oxley section 304, Ninth Circuit holds

In a case originating in the District of Oregon, the Ninth Circuit recently held there is no private right of action under Section 304 of the Sarbanes-Oxley Act, which provides for the forfeiture of bonuses and profits when corporate officers fail to comply with securities law reporting requirements.  In Diaz v. Davis, plaintiff asserted shareholder derivative claims against Digimarc Corporation and its officers and directors arising from accounting errors and a resulting restatement of earnings.  The Ninth Circuit is the first federal circuit court to address whether Section 304 creates a private right of action.

The Ninth Circuit also resolved an issue of subject matter jurisdiction in a derivative case.  While District Court Judge Ancer Haggerty correctly held that plaintiff had no claim under Section 304, the Ninth Circuit concluded that he erred in aligning the corporation with the plaintiffs, thereby eliminating diversity jurisdiction of the remaining state law claims.  Assessing the facts as of the date the suit was filed, the Ninth Circuit held there was antagonism between the derivative plaintiffs and the controlling members of Digimarc which required Digimarc to continue as a defendant.

Ater Wynne on the move to the Pearl

On December 15 Ater Wynne's Portland office will relocate to the new Lovejoy Building in the Pearl District, at NW 14th and Lovejoy St.  See details here.

Ater Wynne among Most Admired Companies in Oregon

Ater Wynne LLP is one of the top three professional services firms in Oregon, according to the Portland Business Journal.  See details of the 2008 Most Admired Companies award here.

U.S. Supreme Court again wrestles with Oregon punitive damages verdict

When it agreed to review the judgment in Philp Morris v. Williams for a third time, the U.S. Supreme Court asked whether the Oregon Supreme Court properly affirmed the punitive damages based on a state law defect in Philip Morris's proposed jury instructions.  Accounts of yesterday's oral argument indicate the justices are concerned that the Oregon court affirmed the judgment by applying state procedural rules in lieu of analyzing whether the damages were excessive under the federal Due Process Clause, as the Court had signalled in remanding the case in 2007. 

But by the end of yesterday's oral argument, it appeared that the Court may abandon the procedural question, and proceed directly to the ultimate issue:  did the $79.5 million award violate Philip Morris's due process rights?  Chief Justice John Roberts's suggestion that the Court may request additional briefing on the constitutional issue could mean no prompt ending to this 10-year-old litigation.

See this account of the hearing from the SCOTUS blog, and this from The Oregonian.  See our earlier coverage of the case here.

Egyptian Goddess and design patent infringement: The Federal Circuit quashes a judicial innovation

    For the past two decades, finding infringement of a design patent -- a patent protecting the ornamental rather than utilitarian features of an invention -- required satisfying two distinct tests.  However, a recent en banc Federal Circuit opinion in Egyptian Goddess, Inc. v. Swisa, Inc. has streamlined the infringement inquiry, and ostensibly returned it to its earliest Supreme Court roots.

    In 1871, the Supreme Court established what is known as the "Ordinary Observer" test for infringement in Gorham Mfg. Co. v. White.  Under this test, a finding of infringement requires that the design of an accused infringer’s article be "substantially the same" as a patented design.  A design is substantially the same if an ordinary observer, viewing either design as would a potential purchaser, would be led by their close similarities to mistakenly purchase one design believing it to be the other.  This design-based confusion over the identity of the article itself is similar to, but distinct from, that encountered in trade dress analysis, where design-based similarity leads to confusion as to the source of a product or service.

    More recently -- in 1984-- the Court of Appeals for the Federal Circuit introduced the so-called "Point of Novelty" test in Litton Systems v. Whirlpool Corp.  To satisfy this test, an infringing design must “appropriate the novelty in the patented device which distinguishes it from the prior art”.  This test prohibits finding infringement based solely on a combination of prior art elements incorporated into each of the patented design and the accused infringing design, unless the combination itself constitutes the "point of novelty" that distinguishes the patented design over the prior art.  The Supreme Court has never clearly endorsed the Point of Novelty test.

    In August of 2007, a panel majority of the Federal Circuit held in Egyptian Goddess that a finding of infringement requires applying both the Ordinary Observer and Point of Novelty tests.  Over a strongly-worded dissent, the majority then took the inquiry a new step farther, holding that a "point of novelty" must represent a "non-trivial advance" over the prior art.   The Federal Circuit swiftly granted en banc review of that decision.

    On September 22, 2008, the en banc Federal Circuit reversed the earlier panel decision.  In doing so, the Federal Circuit discarded not only the nascent "non-trivial advance" requirement, but also the old Point of Novelty as an independent test, calling it inconsistent with established precedent.  Instead, the court returned to the Ordinary Observer test established in Gorham.  In the court’s view, the hypothetical ordinary observer is deemed to compare and contrast the patented and accused infringing designs while utilizing the prior art as a "frame of reference" for the analysis.

     While not quite a "reset" to the pre-Litton days, we expect design patent infringement determinations will turn more on an "as a whole" evaluation following Egyptian Goddess, rather than focusing on small differences divorced from the overall design.  This may broaden the scope of design patent protection somewhat, but to what extent is still unclear.  The opinion also signaled the survival of key elements of the Point of Novelty test, as integrated into the Ordinary Observer test.  “If the accused design has copied a particular feature of the claimed design that departs conspicuously from the prior art, the accused design is naturally more likely to be regarded as…infringing."  Thus, an accused infringer will remain strongly motivated to locate and produce relevant prior art to refute the existence of such "conspicuous departures."  A point of novelty, by another name, may still remain.

U.S. Supreme Court to hear argument in Oregon punitive damages case

On Wednesday, the U.S. Supreme Court will hear oral argument in an appeal from the Oregon Supreme Court.  In Philip Morris USA, Inc. v. Williams, a Multnomah County jury awarded $79.5 million in punitive damages -- equal to 97 times compensatory damages -- to the widow of a smoker.  This is the third time the U.S. Supreme Court has considered the case; at issue now is whether the Oregon Supreme Court properly upheld the award based on a state procedural rule, instead of applying federal due process standards.

See our earlier coverage of the case here and here.  And see a preview of the argument from Cornell University Law School's Legal Information Institute here.

California wage laws may affect Northwest employers

Employers beware:  you may be required to comply with California wage and hour laws if your employees perform work in California.  On November 6, 2008, the Ninth Circuit Court of Appeals held in Sullivan v. Oracle, Corp. that California's Labor Code applies to work performed in California by nonresidents of California.

In Sullivan, the plaintiffs brought an action against Oracle seeking damages under California law for failure to pay overtime.  The plaintiffs were residents of Colorado and Arizona, and performed only a small portion of their work for Oracle in California.  The court engaged in a "choice of law" analysis to determine that California wage and hour laws should apply when residents of Colorado or Arizona perform some work in California.

Although the plaintiff employees were nonresidents of California, Oracle maintained its principal place of business in California.  It is not clear whether the court would reach the same result if the employer was located outside of California and the employees performed only a small portion of their work in California.