For years, patent litigators have complained that the U.S. Court of Appeals for the Federal Circuit has set too rigid a standard for fee shifting in patent cases. On Wednesday, the U.S. Supreme Court sounded ready to go to the other extreme and give district judges broad latitude to determine when an attorney fee award is justified.
The cases have been seen as a vehicle for curbing abusive patent litigation and drew amicus curiae briefs from the likes of Apple, Google and Facebook, which urged the high court to give more discretion to trial judges.
Harness Dickey partner Rudolph Telscher argued in Octane Fitness that his client should not have to prove a competitor’s suit was both objectively baseless and brought in bad faith to recoup the millions it spent defending a “meritless” case. But he had a difficult time articulating what should be considered exceptional, with several justices challenging his contention that any “meritless” or “unreasonably weak” suit would qualify.
“Don’t you have to add something to meritless?” Justice Antonin Scalia asked. “I mean, every time you win the summary judgment motion, that’s a determination that the claim is without merit, isn’t it?”
But Justice Stephen Breyer cited with apparent approval a lengthy list of factors that the U.S. Department of Justice says should be considered alone or in combination, including willful infringement, litigation misconduct, inequitable conduct before the PTO, and the assertion of frivolous claims and defenses.
“Do you want to add to that list or subtract?” Breyer asked Assistant Solicitor General Ramon Martinez.
“You want to add ‘et cetera,’ right?” Scalia suggested.
Even before turning to Highmark, Breyer suggested that with all those factors to consider, deferring to the district judge’s evaluation would be important. The court could remand the case and say “it’s up to you, district judge. You’re the expert on litigation. You decide.”
Sidley Austin partner Carter Phillips argued for Icon Health that Congress deliberately set a high standard for fee shifting, intending only that it prevent “gross injustice.”
But Breyer said that lets “brilliant” patent attorneys—he did not use the word “trolls”—use the threat of multi-million-dollar litigation to shake down tens of thousands of defendants for nuisance value settlements.
Phillips protested that that’s “a very small slice of the problem of litigation.”
“Of course it may be a small slice of litigation, but it is a slice that costs a lot of people a lot of money,” Breyer replied. “If I do run across that small slice why cannot I, the district judge, say, I’ve seen all these things, taken together they spell serious injustice and, therefore, I’m shifting the fees, OK?”
Hogan & Hartson partner Neal Katyal carried that theme into Highmark, arguing that the Federal Circuit should not throw out a fee award unless the trial judge abused his or her discretion. The issue is “how reasonable was this argument at this particular time, in this particular case, with these particular parties, with this particular patent,” he argued, and those are factual questions best left to the district judge.
Justice Ruth Bader Ginsburg noted that handing more discretion to trial judges would cut both ways in future cases. “If the district court denies fees, there would be slim to no chance of getting that overturned on appeal?” she asked Katyal, who agreed.
Arguing for Allcare, Finnegan, Henderson, Farabow, Garrett & Dunner partner Donald Dunner said that the dispute really boiled down to the reasonableness of his client’s claim construction, which is a matter of law and should be reviewed de novo. “We had no factual issues in this case,” he argued.
The 82-year-old Dunner was making his first appearance at the Supreme Court, but as the dean of the patent bar he was accorded a lot of deference of his own. Describing the stakes in Section 285 hearings, Dunner said he’s handled two cases where fees ran as high as $30 million.
“Well, you’ve got to stop charging such outrageous fees,” Roberts joked.
“That’s the way it used to be with you, Your Honor,” Dunner replied.
>> Preservation Survey: William Hubbard, a law professor at the University of Chicago, has released a report on a survey addressing e-discovery preservation costs, and included the information in his package of comments regarding the proposed amendments to the Federal Rules of Civil Procedure. The survey was commissioned in 2011 by the Civil Justice Reform Group, said Mark Behrens, of Shook, Hardy & Bacon, who turned Law Technology News on to this survey.
Hubbard’s team collected data from 128 companies, “of all sizes and from a broad range of industries.” The survey “generated conservative estimates of costs that are solely attributable to preservation obligations,” explained Hubbard, who noted that among the largest companies, estimated costs were more than $40 million per company, per year. The survey also found that five percent of litigation matters account for more than half of all litigation hold notices issued; that both large and small companies face similar preservation burdens; and that both large and small companies face similar preservation burdens. You can read his materials here.
>>Evangelist: Robert Owen, partner at Sutherland Asbill & Brennan (and president of the Electronic Discovery Institute) was among those filing comments. Over the last year or so, Owen has been crusading on behalf of the defense bar, and encouraging the community to get their two cents in. “There is an urgent need for rule-based preservation reform because the current law poses many problems for clients, practitioners, and courts,” he told the committee. “I argue for adoption of a clear, tightly written, national rule on preservation that will decisively displace the negligence culpability standard of Residential Funding because the explosive growth and dispersion of data has rendered negligence an unfair measure of culpability,” he wrote.”Rule 37(e) should unambiguously predicate the issuance of a sanctions order on a showing of intentional, bad faith destruction of discoverable material, and I join many others in arguing that “willful” is a dangerously unclear term, that the (B)(ii) exception should apply only to tangible things, and that the (e)(2) list of factors should be omitted from the rule.”
Want more reading? Norton Rose Fulbright’s David Kessler and Alex Altmanexplain how the defense bar has been “relatively quiet” about the pending amendments
>> On the Marquee: Steven Bennett joins the masthead at Park & Jensen on March 1—the new firm name will be Park Jensen Bennett, and the New York shop focuses on white collar defense, securities litigation and complex commerical litigation. Bennett has been a partner at Jones Day, in its New York office. The founding partners served together as federal prosecutors in the Southern District of New York, the firm’s website notes. Bennett will be the ninth attorney at the firm. He received his J.D. at New York University, and has been a contributor to Law Technology News.
>> Rapid Growth: A new survey from LexisNexis predicts that “the cloud is posed for rapid growth among independent attorneys” this year. The LN survey found that almost 40 percent of lawyers in small firms said they are already using the cloud; half said they would more likely use the cloud, and 72 percent said their firm is more likely to go to the cloud in 2014. LN polled 279 lawyers in firms up to 20 attorneys. But the news isn’t all shiny: there’s still security concerns (only 41 percent believe confidential data stored in the cloud is safe; and 59 percent are skeptical about security from hackers and data leaks).
>> Disappointing numbers: Decidely distressing news from The National Association of Women Lawyers about Its eighth annual survey on retention and promotion of women in law firm. “On the surface, the findings will sound awfully familiar to anyone who’s been tracking the progress of women in recent years,” observed our colleague, Vivia Chen, in her blog, The Careerist, on The American Lawyer’s website. Men still dominate later equity partners; women make up 47 percent of associates, 38 percent of counsel, and 64 percent of staff attorneys, she notes. Women aren’t making equity partners because they are not as successful as males at developing new business for their firms and have a higher attrition rate. And within the Am Law 100, minority women represent only 2 percent of equity partners. Women also aren’t well represented on committees.
Yes, we all know that this is a complex and nuanced dynamic—many women lawyers, myself included, have no interest in Big Law’s golden grail. But it is utterly embarrasing for a profession that fights for justice for all to have such a dismal track record in our own house. We cannot stop working to ameliorate these dismal statistics. Women, across the board in legal, still make 17 percent less money than their male peers.The new survey found that even within Big Law, women partners typically earn 89 percent of what their male peers get paid.
As I’ve shouted before, this must be changed. I continue to challenge every law firm, corporate and vendor top dog to, in the words of Nike, “Just do it.” You have the power to start fixing this embarrassing problem. Start with the money. Now.
Monica Bay is the editor-in-chief of Law Technology News and a member of the California Bar. Twitter: @LTNMonicaBay @lawtechnews.
Last year, we celebrated (well, some of us did), the 500th anniversary of “The Prince,” Niccolò Machiavelli’s work of enduring genius. Contrary to his bad rap, Machiavelli is not a Dr. Evil, and “The Prince” is not a version of “Evil for Dummies.” Its lessons for GCs and for the executives they counsel are timeless.
No. 1: Heed selected advice from selected advisers. While the prince is the boss, he still needs advisers. But he drives the agenda, not them. So, Machiavelli writes that the prince decides from whom and about what he wants counsel, plus when he wants the advisers to offer it.
The group of advisers should be small; if not, the surfeit of advice amounts to no advice at all, with the good counsel lost in the cacophony.
Finally, the prince’s demeanor must encourage truth telling. This creates a virtuous circle from which “everyone may see that the more freely he speaks, the more he will be accepted.”
No. 2: Niccolò is not Tony. Machiavelli is no Tony Soprano. The mob boss from the HBO series lives in a universe that is self-contained and self-justifying. Its inhabitants brag that “I did XYZ because I could do XYZ,” which is a truly evil rationale.
Not so Machiavelli. Yes, he writes that parties can break a treaty but only “when the reasons for the original undertaking no longer pertain.” And because people are generally bad and conniving, they will, sooner or later, break their word and the prince will have “legitimate” reasons to abandon his promises in the treaty. As law professor Philip Bobbitt observes in “The Garments of Court and Palace: Machiavelli and the World He Made,” this reasoning undergirds international law, allowing the aggrieved party to disavow its obligations because the reasons for entering into the agreement initially have evaporated.
No. 3: If you treat others well, they will treat you well. Machiavelli invented human resources. Listen to his words from 500 years ago: “A prince must … show himself a lover of merit, give preferment to the able, and those who excel in every act.” That’s today’s Human Resources 101.
Who invented the suggestion box (aka incentivized ideas)? That’s right: Niccolò. “The prince should offer rewards to whoever … seeks in any way to improve his city or state.”
Is the company thinking of conducting a reduction-in-force after a merger? Follow Machiavelli’s advice on what a prince should do after taking over a city or a state: “[C]ommit all … cruelties at once, so as not to have them recur … whoever acts otherwise, either through timidity, or bad counsels, is always obliged to stand with knife in hand, and can never depend on the subjects, because they, owing to continually fresh injuries are unable to depend upon him.” Today’s translation: lawsuit after lawsuit.
Finally, he understood—just as today’s psychologists—that money is a weak and unreliable relative, resulting in temporary loyalty when times are good, but no loyalty when times turn bad. That’s Machiavelli, vice president of people development.
No 4: People are bad. Work with it. Not only are they bad but they “are ungrateful, fickle, desolators, apt to flee peril, covetous of gain.”
There is a before and after in the history of ideas. Pre-Machiavelli: Trust to innate goodness. It was a one-trick-pony strategy. Post-Machiavelli: Ditch the naïveté and embrace a complex world. Use a one/two punch: Yes, we must have good laws, but we also must have “good arms.” Yes, be a lion (it’s good for dismaying wolves) but also be a fox (that’s good for recognizing traps).
Today’s translation: Seek principled resolution of a lawsuit, but be willing to go to trial; work toward common ground on a deal, but never shy away from saying “no” to a proposal that is tempting but harmful in the long term.
And, here is Machiavelli’s bonus room: Creating the illusion that people perceive you in the way you desire is just as effective as if they actually perceived you that way.
The recent massive data breach at Target Corp. so far has saddled the retail giant with a $61 million tab—one that could rise in the future, the company said Wednesday.
An insurance payment left Target with only $17 million of net expenses from legal assistance, identity-theft protection and other services the company procured after the personal information of as many as 110 million customers was exposed to hackers during the holiday shopping season last year. But in its fourth-quarter earnings report, the Minneapolis-based retailer braced investors for the potential of more costs to come from the cyberattack.
Target didn’t estimate future breach expenses. The company, however, said the breach could have a “material adverse effect” on its results of operations in the following months and years. Its future costs could include expenses from litigation, government investigations and card reissuance, the retailer said.
Target’s Q4 report, which was the first such report since the retailer acknowledged the breach on Dec. 19, showed that the company posted a net profit of $520 million, a 46 percent drop from 2012.
Gregg Steinhafel, Target’s chairman, president and chief executive officer, said in a written statement that “results softened meaningfully” after the digital attack became public.
“As we plan for the new fiscal year, we will continue to work tirelessly to win back the confidence of our guests and deliver irresistible merchandise and offers, and we are encouraged that sales trends have improved in recent weeks,” he said.
Target’s earnings report came a week after the Credit Union National Association and Consumer Bankers Association reported that its members racked up more than $200 million on replacing payment cards after the data breach. The trade groups didn’t estimate money spent on addressing fraudulent activity, but adding in those expenses would make the total cost of the cyberattack “much higher,” according to the associations.
U.S. Attorney General Eric Holder Jr. has turned up the heat on Congress to pass legislation to create a national standard for notifying customers of data breaches, saying: “It is time.”
Citing last year’s massive data breaches at Target Corp. and Neiman Marcus Group Ltd., Holder said in a video message on Monday that lawmakers should make “a strong, national standard for quickly alerting consumers whose information may be compromised.” At present, 46 states and the District of Columbia, Guam, Puerto Rico and the Virgin Islands enforce differing standards for data breach notifications, according to the National Conference of State Legislatures.
“This legislation would strengthen the Justice Department’s ability to combat crime and to ensure individual privacy while bringing cybercriminals to justice,” Holder said. “My colleagues and I are eager to work with members of Congress to refine and to pass this important proposal.”
Holder gave few details on what he is looking for in the legislation. But he said the measure should facilitate law enforcement efforts to investigate data breaches and hold businesses accountable when hackers get access to customer information. The bill also should give companies “reasonable exemptions for harmless breaches” if they are acting responsibly, he said.
Sen. Tom Carper (D-Del.) has offered the Data Security Act in each of the past three Congresses. Sen. Patrick Leahy (D-Vt.), chairman of the Senate Judiciary Committee, has introduced the Personal Data Privacy and Security Act in each of the past four Congresses.
Under the Leahy bill, businesses generally would have to tell customers about a breach within 60 days of its discovery. If hackers targeted fewer than 5,000 customers, companies only would need to issue breach notification messages through the mail, telephone or email to those individuals affected by the breach. But if the breach affected more people than that, companies also would have to make public statements through the media.
The Carper measure wouldn’t specify when and how businesses should inform customers of breaches; it would leave those details to the Federal Trade Commission and other federal agencies.
John Mulligan, Target’s executive vice president and chief financial officer, said earlier this month that his company would welcome a single federal standard. Michael Kingston, senior vice president and chief information officer for Neiman Marcus, said he didn’t have an opinion on the creation of a national standard. But he urged “flexibility.”
Said Kingston: “I do think … these investigations, these events, are different and, on a case-by-case basis, need to be handled differently.”
The reality is that these businesses may have to worry about more than just the Fair Labor Standards Act (FLSA)—state labor laws may add even more complexity to wage and hour compliance regimes. J. Hagood Tighe, a partner at Fisher & Phillips, told CorpCounsel.com that there are several risk factors employers need to remain cognizant of if they want to avoid a potentially pricey lawsuit.
One possible risk, according to Tighe, is that “managers at the local level are perhaps tinkering with or changing time sheets to minimize their labor costs and reduce overtime.”
Cooking the books along with the burgers might seem like a good way for franchises to save a dime, but the reality is that not awarding overtime when it is legally due can end up costing much more money in the long run. “FLSA violations can get very expensive very quickly,” Tighe said. “It doesn’t take too many employees being paid improperly to get a million-dollar or higher liability.”
It’s not just federal wage and hour law that fast food management has to worry about—there is also the issue of state standards. And the state equivalents of the FLSA in some states, according to Tighe, contain longer statutes of limitations than the federal law does, giving disgruntled employees more leverage. He suggested that companies audit their employment records regularly to prevent problems before they happen.
Another problem for fast food and restaurant chains is the danger posed by the local delivery guy or gal. Usually when a delivery is made, customers have the courtesy to tip. However, some states require that the company put the fact that a gratuity is not included in writing, somewhere where the customer can see it. “There have been cases out there where people have tried to say the notice wasn’t adequate,” Tighe said. “It’s basically another claim that the company is keeping money that should otherwise be going to the employee.”
Tighe noted that work uniforms—a common sight at just about any fast food joint—may also prompt state or federal claims. Some states, he explained, have laws that require employers to pay for uniforms, but most do not. Employers in states that don’t require them to foot the bill often deduct the cost of the uniform from an employee’s paycheck. “If that’s a minimum-wage employee, that effectively reduces their pay below the minimum wage,” Tighe said, which poses a clear wage and hour threat.
Some companies may worry that if the franchise gets in hot water in the wage and hour area, the franchisor itself may also be at risk legally. “It has to do with how the franchisor manages their relationship with the franchisee,” said Tighe, who pointed out that the question of whether a joint employment or coemployment relationship can be formed between franchisor and franchisee involves a strange “catch-22.” Essentially, the more involved a franchisor is in the day-to-day workings of their franchisee stores and shaping their brand, the higher the risk of being imputed as a joint employer in a wage and hour suit.
But in most cases, he said, the franchisor will be dismissed from the claim early on, as it’s unusual to have such a strong legal relationship maintained between franchisor and franchisee beyond the initial stages of the matter when it comes to wage and hour claims.