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October Term, 2012

June 13, 2013

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

Patent Law—Patentability of Human Genes

Association for Molecular Pathology v. Myriad Genetics, Inc., No. 12-398 (previously discussed in the December 3, 2012, Docket Report)

Today, in a unanimous decision, the Supreme Court held in Association for Molecular Pathology v. Myriad Genetics, Inc., No. 12-398, that isolated DNA sequences are not patentable, while “complimentary DNA” molecules—molecules with non-coding DNA portions removed—are patentable. In doing so, the Supreme Court further clarified its long-held view that, under 35 U.S.C. § 101, “‘[l]aws of nature, natural phenomena, and abstract ideas’ are not patentable.” Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1293 (2012) (quoting Diamond v. Diehr, 450 U.S. 175, 185 (1981)).

The respondent, Myriad Genetics, identified and isolated two genes in the human genome, BRCA1 and BRCA2, that are linked to an increased risk of breast and ovarian cancer. After the discovery, Myriad obtained patents on the DNA sequences and portions of those sequences. In addition, Myriad obtained patents on corresponding cDNA or “complementary DNA” molecules for these genes. The cDNA molecules were created by first obtaining naturally created mRNA for the genes, and then using the mRNA to create DNA molecules with portions of the original DNA removed. The removed DNA portions (the “introns”) are not involved in the creation of proteins and are therefore referred to as “non-coding.”

The Court’s opinion, written by Justice Thomas, focused on previous cases applying the “laws of nature” exception to patentability. In Diamond v. Chakrabarty, 447 U. S. 303 (1980), the Court held that a specially designed bacterium capable of breaking down oil molecules was patentable because the bacteria did not otherwise exist in nature. In contrast, in Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U. S. 127 (1948), the Court held that a particular collection of nitrogen-fixing bacteria was not patentable, because each type of bacteria was naturally occurring. From these and similar cases, the Court concluded that Myriad could not patent the naturally occurring gene sequences, explaining that “Myriad found the location of the BRCA1 and BRCA2 genes, but that discovery, by itself, does not render the BRCA genes ‘new . . . composition[s] of matter,’ § 101, that are patent eligible.”

The Court likewise rejected a number of other arguments from Myriad. First, the extensive effort that Myriad put into discovering the location of these genes was not, by itself, sufficient to render them patentable. Nor was it enough that the U.S. Patent and Trademark Office had a practice of granting patents on identified genes. The fact that the isolated DNA molecules also differed slightly in their chemical composition from molecules in their natural state was also insufficient.

The Court did, however, distinguish the cDNA sequences created by Myriad. Because cDNA sequences generally do not occur naturally, the Court found Myriad’s patent claims on these molecules to fall outside the “laws of nature” exception.

Justice Scalia did not join the introductory portion of the opinion describing the biological processes relating to DNA.

Any questions about the case should be directed to Timothy S. Bishop (+1 312 701 7829) or Jeffrey W. Sarles (+1 312 701 7819) in our Chicago office or Charles A. Rothfeld (+1 202 263 3233) in our Washington office.

Motor Carriers—Federal Aviation Administration Authorization Act—Federal Preemption

American Trucking Associations, Inc. v. City of Los Angeles, No. 11-798 (previously discussed in the January 11, 2013, Docket Report)

Beginning in 2007, the Port of Los Angeles required any company that sought to transport cargo at the Port to enter into a standard-form “concession agreement.” Petitioner American Trucking Associations, Inc., sued to enjoin certain requirements of the concession agreement, arguing that they were preempted by the Federal Aviation Administration Authorization Act. The relevant provision of the FAAAA prohibits a State or political subdivision of a State from enacting or enforcing “a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). The Ninth Circuit held that two of the requirements—that companies affix a placard on each truck and submit a plan listing off-street parking locations for trucks not in use—were not preempted. The Ninth Circuit reasoned that these requirements did not have the “force and effect of law.”

Today, in an opinion by Justice Kagan, the Supreme Court unanimously held that “the placard and parking requirements are preempted as ‘provision[s] having the force and effect of law.’” Because the Port “forced terminal operators . . . to alter their conduct by implementing a criminal prohibition punishable by time in prison,” the Court rejected the Port’s argument that the concession agreement was simply “a private agreement made to advance the Port’s commercial and proprietary interests.” The Court explained that, “when the government employs such a coercive mechanism, available to no private party, it acts with the force and effect of law.”

“[G]iven the pre-enforcement posture of this case,” the Court declined to rule on ATA’s second argument—that, under Castle v. Hayes Freight Lines, Inc., 348 U.S. 61 (1954), the Port could not enforce other requirements of the concession agreement by revoking non-complying companies’ right to operate at the Port.

Although he joined the Court’s opinion, Justice Thomas filed a concurrence that questioned whether Congress has authority under the Commerce Clause to regulate the placards and parking arrangements for trucks using the Port.

The Supreme Court’s decision in this case is important to motor carriers because it clarifies the scope of the FAAAA’s preemption provision. The decision is also likely to affect the interpretation and application of preemption provisions of other federal statutes that include the phrase “force and effect of law.”

Any questions about the case should be directed to Richard B. Katskee (+1 202 263 3222) in our Washington office.

Interstate Compacts—Commerce Clause—Water Rights

Tarrant Regional Water District v. Herrmann, No. 11-889 (previously discussed in the January 4, 2013, Docket Report)

The Supreme Court held today in Tarrant Regional Water District v. Herrmann, No. 11-889, that the Red River Compact—an interstate compact entered into by Arkansas, Louisiana, Oklahoma, and Texas to govern the allocation and use of water in the Red River Basin—does not preempt Oklahoma water laws that restrict out-of-state entities from taking or diverting water from within Oklahoma’s borders. Mayer Brown represented the petitioner in this case.

To address increasing water needs resulting from expanding population and a long and costly drought, petitioner Tarrant Regional Water District (a Texas state agency responsible for providing water to north-central Texas) sought a permit from the Oklahoma Water Resources Board to draw Compact water from the Kiamichi River, just north of Texas’s border with Oklahoma. But Oklahoma has a number of laws that prohibit the exportation of water for use in another State. Recognizing that those laws would require it to deny Tarrant’s permit application, Oklahoma agreed to withhold a decision on the application while Tarrant challenged Oklahoma’s water embargo in court. Tarrant filed suit, arguing that the Red River Compact permits the signatory states to cross state borders to access a common pool of water. It also argued that Oklahoma’s refusal to grant the permit violated the dormant Commerce Clause. The district court and Tenth Circuit each rejected those arguments.

Justice Sotomayor authored a unanimous opinion affirming the Tenth Circuit’s decision. Because interstate compacts are interpreted as contracts, the Court began with the text of the Compact, but found that it was silent about any cross-border rights. Turning to other, general principles of interpretation, the Court identified three factors that led it to conclude that the Compact did not grant a right of access to water across state borders. First, the Court said that states are assumed not to surrender their sovereign control over water within their borders absent a clear agreement. Second, certain other interstate compacts that have granted cross-border rights have done so through express and unambiguous language, so the Court believed that the absence of such language in the Red River Compact suggests that the parties did not intend to grant cross-border rights. Third, because no state had sought cross-border access during the previous 27 years that the Compact was in effect and Tarrant itself had initially sought to purchase the water from Oklahoma rather than asserting a right of cross-border access, the Court thought that the parties’ course of conduct suggested that they did not believe the Compact to grant cross-border rights. The Court also rejected Tarrant’s Commerce Clause challenge because it read the Compact to allocate to Oklahoma the water that Tarrant seeks.

Today’s decision is significant for businesses that are involved in water management or have operations that are affected by other interstate compacts. In addition, the Court’s discussion and application of contract-law principles may influence lower courts’ interpretation of standard business agreements or other contracts.

Any questions about the case should be directed to Charles A. Rothfeld (+1 202 263 3233) in our Washington office or to Timothy S. Bishop (+1 312 701 7829) in our Chicago office.

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