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October Term, 2009

March 2, 2010

Today the Supreme Court issued two decisions, described below, of interest to the business community.

Subject-Matter Jurisdiction—Copyright Infringement

Reed Elsevier, Inc. v. Muchnick, No. 08-103 (previously discussed in the March 2, 2009 Docket Report).
The Supreme Court held today that a provision of the Copyright Act which requires authors to register their works before suing for copyright infringement, 17 U.S.C. § 411(a), is not a limitation on the federal courts’ subject-matter jurisdiction, but instead merely a “claim-processing rule” setting forth what a copyright holder must do before he or she may file a claim in court. As a result, the Court reinstated a class-action lawsuit over the rights to electronic reproduction of works that were originally licensed only for print media, even though resolution of the lawsuit may result in a court adjudicating the rights of authors who have not registered their copyrights.

The primary opinion, authored by Justice Thomas, holds that a statutory condition should not be construed as jurisdictional unless Congress “‘clearly states’ that [the] requirement is ‘jurisdictional.’” Slip op. 8. Because the relevant provision of the Copyright Act is not clearly identified as a jurisdictional limit, and because it is located in a different section of the Act than the provisions which grant federal courts subject-matter jurisdiction over copyright claims, the Court concluded that the registration requirement does not pose a jurisdictional bar to the adjudication of claims involving unregistered works. Justice Ginsburg wrote a brief concurrence, joined by Justices Stevens and Breyer, to further explain how the Court’s decision relates to its past rulings construing certain statutory requirements as jurisdictional.

The significance of today’s decision, the latest in a series of decisions holding certain statutory prerequisites to suit to be non-jurisdictional in nature, extends far beyond the copyright arena. Many statutes—including, for example, anti-discrimination statutes—impose certain prerequisites to suit. If the satisfaction of such a prerequisite is not jurisdictional in nature, then defendants may well have to assert the plaintiff’s failure to satisfy the prerequisite as an affirmative defense or else risk forfeiting the defense altogether.

Petroleum Marketing Practices Act—Constructive Termination and Constructive Nonrenewal Claims

Mac’s Shell Service, Inc. v. Shell Oil Products Company and Shell Oil Products Company v. Mac’s Shell Service, Nos. 08-240 and 08-372 (previously discussed in the June 15, 2009, Docket Report).

The Petroleum Marketing Practices Act, 15 U.S.C. §§ 2801 et seq. (PMPA), limits the circumstances under which a franchisor of an automobile service station may terminate or decline to renew a franchise. The Supreme Court held today that the PMPA does not permit claims for “constructive termination” or “constructive nonrenewal” by franchisees that maintain their relationship with the franchisor. 

In this case, franchisees of Shell Oil Company (Shell) sued Shell under the PMPA in response to two actions taken by Shell to increase the rent paid by its franchisees. First, Shell discontinued a program of rent subsidies. Then, as each franchisee’s lease agreement expired, Shell insisted on a new formula for calculating rent that resulted in higher annual rent payments for some franchisees. After the franchisees agreed to the lease renewals under protest, they claimed that the discontinuance of the subsidies constituted a constructive termination of their franchises and that the offer of new franchise agreements constituted a constructive nonrenewal of their franchises, in violation of the PMPA. After the franchisees prevailed in a jury trial, the First Circuit affirmed the constructive termination verdict but reversed the constructive nonrenewal verdict.

In a unanimous opinion by Justice Alito, the Supreme Court today affirmed in part and reversed in part. The Court held that, even assuming that the PMPA recognizes claims for constructive termination and constructive nonrenewal, those claims require that the franchisee actually sever its relationship with the franchisor. The Court explained that this interpretation is consistent with the text of the statute and with claims for constructive discharge and constructive eviction, which traditionally require an employee to quit and a tenant to vacate, respectively. The Court also noted that limiting the reach of the PMPA does not leave franchisees without remedies, both because they retain state-law remedies (such as suits for breach of contract) and because a franchisee that refuses to sign an objectionable franchise renewal agreement must receive written notice of the franchise termination well before the termination’s effective date, giving the franchisee time to seek protection under the PMPA.

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