January 13, 2014
Last Friday, the Supreme Court granted certiorari in seven cases of interest to the business community:
Copyright Act—Right of Public Performance—TV Broadcasting
Section 106(4) of the Copyright Act of 1976 gives the owner of the copyright in an audiovisual work such as a television show the exclusive right to “perform the copyrighted work publicly,” which includes “transmit[ting] or otherwise communicat[ing] a performance or display of the work … to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.” On Friday, the Supreme Court granted certiorari in ABC, Inc., v. Aereo, Inc., No. 13-461, to determine whether a service that captures and retransmits broadcast television to subscribers over the Internet violates the right of public performance held by those who own the copyright in a television program.
When a subscriber logs on to Aereo’s website and selects a program to watch, a specific Aereo antenna is assigned to that subscriber and tuned to his or her desired program, which is then captured and streamed to the user over the Internet. Aereo subscribers can use the service to watch live television or they can schedule programs to be recorded for viewing later. District courts in California and the District of Columbia have enjoined the operations of FilmOn X, another online TV service similar to Aereo, holding that the FilmOn X service infringes television networks’ and broadcasters’ copyrights.
But in the decision below (712 F.3d 676), a divided Second Circuit panel refused to enter an injunction against Aereo. The court held that when a court assesses whether an alleged infringer is transmitting a copyrighted work “to the public,” it must determine the audience capable of receiving any particular transmission of that work. The majority thus concluded that Aereo’s service does not infringe the public performance rights of television copyright holders, because each individual transmission by Aereo uses a stream from a different antenna and is received by only one particular subscriber’s household.
The television petitioners argue that the Second Circuit’s reading of the statute improperly makes the question of infringement depend on the technical details of the system used to transmit a work. They contend that courts should instead adopt a functional view and conclude that a party is transmitting a work publicly if numerous members of the public receive a transmission of a copyrighted work from that party, whether via a single act of transmission or numerous individual ones. On this view, the petitioners claim, Aereo’s service infringes their copyrights, because Aereo transmits their television programs to large numbers of people without permission.
The outcome of this case will be tremendously important to the entertainment industry. Cable and satellite companies pay large fees to television networks and broadcasters to retransmit their programming, but could possibly avoid doing so if Aereo’s method of obtaining that programming were available to them. The networks also claim that Aereo’s business threatens the revenue that they receive from licensed services such as Hulu. As a result, some networks are reportedly contemplating ending free over-the-air broadcasting if Aereo prevails.
Absent extensions, which are highly unlikely, amicus briefs in support of the petitioners will be due on March 3, 2014, and amicus briefs in support of the respondent will be due on April 2, 2014. Any questions about the case should be directed to Donald M. Falk (+1 650 331 2030) in our Palo Alto office.
Patent Act—Inducing Infringement
Section 271(a) of the Patent Act imposes liability on a party who directly infringes a patent. Section 271(b), by contrast, renders liable one who indirectly infringes a patent by “actively induc[ing] infringement of [the] patent.” 35 U.S.C. § 271(b). On Friday, the Supreme Court granted certiorari in Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786, to determine whether a patent holder may assert a claim under Section 271(b) in cases of so-called “divided” infringement—when, as in this case, the defendant performs some steps of a patented method and actively induces its customers to perform the remaining steps, even though neither the defendant nor the customers alone perform all the patented steps. That is, the Court will decide whether a claim of induced infringement is available when no person has directly infringed the patent.
Akamai Technologies is the exclusive licensee of a patent that claims a method of structuring websites for efficient handling of internet traffic. Akamai brought this infringement action against Limelight Networks, alleging that Limelight had performed some of the steps of Akamai’s patented process and had instructed its customers to perform the remaining steps. A jury found that Limelight had infringed the patent via a “joint infringement” theory under Section 271(a), but the district court held that Akamai presented insufficient proof. On appeal, the Federal Circuit, sitting en banc, reversed on a 6-5 vote. Instead of resolving the case on a direct-infringement theory under Section 271(a), the majority decided the case under Section 271(b). The court held that an induced-infringement theory was cognizable where Limelight had actual knowledge of the patent, performed some of the steps, induced others to perform remaining steps, and—when combining its own conduct and the conduct it induced—all the steps of the patent claim were performed. 692 F.3d at 1318. Five members of the Federal Circuit dissented.
At the Supreme Court’s invitation, the Solicitor General filed an amicus brief for the United States, taking the position that the Federal Circuit’s reading of the Patent Act is incorrect; and urging the Court to grant review and reverse.
Because the Court’s resolution of this case will likely clarify the scope of liability for inducing patent infringement—particularly with respect to broad patents that claim complex technological systems and are unlikely to be directly infringed by any party acting alone—it should be of significant interest to a wide array of businesses.
Absent extensions, which are highly unlikely, amicus briefs in support of petitioner are due on March 3, 2014, and amicus briefs in support of respondent are due on April 2, 2014. Any questions about the case should be directed to Andrew J. Pincus (+1 202 263 3220) or Paul W. Hughes (+1 202 263 3147) in our Washington office or Donald M. Falk (+1 650 331 2030) in our Palo Alto office.
Patents—Claim Construction—Definiteness Requirement
Section 112 of the Patent Act provides that “every patent must conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention.” 35 U.S.C. § 112. This requirement ensures that the public is not “deprived of rights supposed to belong to it, without being clearly told what it is that limits these rights.” Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996). The Federal Circuit recently concluded that a claim is insufficiently definite only if it has no discernible meaning; that is, if ambiguity in the application is “insoluble” by the court. On Friday, the Supreme Court granted certiorari in Nautilus, Inc. v. Biosig Instruments, Inc., No. 13-369, to consider whether claim construction may remedy a claim that is facially indefinite.
Respondent Biosig Instruments holds a patent claiming a heart-rate monitor that purportedly improves on prior designs. Biosig brought a patent-infringement action against petitioner Nautilus, alleging that Nautilus infringed two of its claims. After claim construction, the district court granted Nautilus’s motion for summary judgment, concluding that the asserted claims were indefinite, and therefore invalid. But looking to the construction of the claim terms, the Federal Circuit reversed, holding that the claims were sufficiently definite.
This case is important both to businesses that defend infringement suits and to companies with patent portfolios. In resolving the extent to which claim construction may remedy a Section 112 indefiniteness challenge, the Supreme Court will provide important guidance with respect both to future claim drafting and to indefiniteness challenges brought in the course of litigation.
Absent extensions, which are highly unlikely, amicus briefs in support of the petitioner will be due on March 3, 2014, and amicus briefs in support of the respondent will be due on April 2, 2014. Any questions about the case should be directed to Andrew J. Pincus (+1 202 263 3220) or Paul W. Hughes (+1 202 263 3147) in our Washington office.
Lanham Act—Private Right Of Action To Challenge Labels Regulated Under Federal Food, Drug, And Cosmetic Act
The Lanham Act affords a private right of action to sue anyone who uses a “false or misleading” description or representation “in connection with any goods or services,” or who, “in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.” 15 U.S.C. § 1125(a). On Friday, the Supreme Court granted certiorari in Pom Wonderful LLC v. Coca-Cola Co., No. 12-761, to decide whether a private party may bring a Lanham Act claim challenging a product label regulated under the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq. This case is important to all businesses subject to labeling requirements under the FDCA (which regulates the labeling of food products, beverages, cosmetics, and prescription and over-the-counter medications). The Court’s decision will also be important to businesses subject to other federal labeling requirements, such as the USDA’s regulations under the Federal Meat Inspection Act and the Poultry Products Inspection Act, or the FDA’s regulations under the Federal Insecticide, Fungicide, and Rodenticide Act.
Pom Wonderful and Coca-Cola both produce and sell juices—the latter under the Minute Maid brand name. Minute Maid markets a juice labeled “Pomegranate Blueberry Flavored Blend of 5 Juices,” which is made from 99.4% apple and grape juices, with small amounts of pomegranate, blueberry, and raspberry juices. The product’s label features a picture of all five fruits and the words “Pomegranate Blueberry” in a larger font than the words “Flavored Blend of 5 Juices.” Pom, meanwhile, markets a juice labeled “Pomegranate Blueberry 100% Juice,” which is made up entirely of pomegranate and blueberry juices.
In 2008, Pom sued Coca-Cola, claiming that the Minute Maid product’s name and label violate the false-advertising provision of the Lanham Act (as well as California’s Unfair Competition Law and False Advertising Law) by misleading consumers into thinking that they are getting mostly pomegranate and blueberry juices rather than mostly apple and grape juices, which are cheaper.
The district court granted summary judgment to Coca-Cola, holding that Pom’s Lanham Act claim is precluded by FDA regulations for the labels on flavored-juice blends, with which the Minute Maid label complies. (The district court also held that Pom lacked statutory standing on its state-law claims.) The Ninth Circuit affirmed the dismissal of the Lanham Act claim, holding that “the FDCA and its regulations bar pursuit of both the name and labeling aspect” of that claim because allowing the claim would “undermine the FDA’s regulations and expert judgments.” Pom Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170, 1176-77 (9th Cir. 2012). The court explained that “[i]n extensively regulating the labeling of foods and beverages, the FDCA and its implementing regulations have identified the words and statements that must or may be included on labeling and have specified how prominently and conspicuously those words and statements must appear.” Id. at 1177 (citing 21 U.S.C. § 343(f), (i); 21 C.F.R. § 102.33(c), (d)). Allowing Pom to sue for false advertising under the Lanham Act for labels that satisfy FDA regulations would “risk undercutting the FDA’s expert judgments and authority,” the court of appeals concluded. Id. at 1177. The court therefore deferred to “Congress’s decision to entrust matters of juice beverage labeling to the FDA and … the FDA’s comprehensive regulation of that labeling.” Id. at 1178. The court of appeals vacated the district court’s ruling that Pom lacked statutory standing to pursue its state-law claims, however, and remanded for the district court to decide whether those claims are preempted by the FDCA—which the district court has now held them to be.
In its petition for certiorari, Pom contended that the Ninth Circuit’s decision conflicts with rulings of the Third, Eighth, and Tenth Circuits; that the decision improperly fails to apply the Supreme Court’s “irreconcilable conflict” standard, which requires courts to reconcile apparently contradictory federal statutes—i.e., find a way to apply both—whenever possible, rather than holding that one precludes enforcement of the other; and that the decision conflicts with Wyeth v. Levine, 555 U.S. 555 (2009), which held that the FDA’s approval of a warning label on a prescription drug did not preempt state-law failure-to-warn claims. At the Supreme Court’s invitation, the Solicitor General filed an amicus brief, recommending that the petition be denied. The Solicitor General agreed with Pom that the Ninth Circuit gave overly broad preclusive effect to the FDCA, but argued that there is no circuit split.
Absent extensions, which are highly unlikely, amicus briefs in support of the petitioner will be due on March 3, 2014, and amicus briefs in support of the respondent will be due on April 2, 2014. Any questions about the case should be directed to Donald M. Falk (+1 650 331 2030) in our Palo Alto office, Dale J. Giali (+1 213 229 9509) in our Los Angeles office, or Richard B. Katskee (+1 202 263 3222) in our Washington office.
CERCLA—Preemption Of State Statutes Of Repose
The Comprehensive Environmental Response, Compensation, and Liability Act provides that, under certain circumstances, a federal commencement date applies in the running of state statutes of limitations governing state causes of action. Specifically, the federal commencement date applies if the state commencement date is earlier than the federal commencement date, and if the case involves “any action brought under State law for personal injury, or property damages, which are caused or contributed to by exposure to any hazardous substance, or pollutant, or contaminant, released into the environment from a facility.” 42 U.S.C. § 9658(a)(1). The federally required commencement date is defined as “the date the plaintiff knew (or reasonably should have known) that the personal injury or property damages” were “caused or contributed to by the hazardous substance or pollutant or contaminant concerned.” Id. (a)(4)(A). By contrast to this more liberal federal “discovery rule,” most states have adopted statutes of limitations that begin to run when the plaintiff’s bodily harm or physical damage becomes apparent or ought reasonably to have become apparent to the plaintiff, without regard to whether the plaintiff knows of a causal connection between the injury and the allegedly hazardous substance at issue.
On Friday, the Supreme Court granted certiorari in CTS Corp. v. Waldburger, No. 13-339, to decide whether 42 U.S.C. § 9658 applies to state statutes of repose in addition to state statutes of limitations. While a statute of limitations bars claims after a specific period based on the date when the claim accrued, a statute of repose bars any suit that is brought after a specified time since the defendant acted—even if the period ends before the plaintiff has suffered or become aware of an injury.
CTS of Asheville operated a manufacturing plant in North Carolina where it used and stored toxic solvents. In 1983, petitioner CTS Corporation took over the plant’s operations. CTSC sold the property in 1987, and the unimproved portion of the property was later sold to a developer that built houses. Respondents, who purchased homes in the area, contend that their land and ground water are contaminated by toxic chemicals that CTSC left at the facility when it sold the property. In February 2011, they brought a North Carolina nuisance claim against CTSC. CTSC moved to dismiss the complaint, arguing that respondents’ nuisance claim was barred by North Carolina’s 10-year statute of repose.
The district court granted CTSC’s motion to dismiss. In North Carolina, a 3-year statute of limitations governs nuisance claims, and it begins to run once “bodily harm to the claimant or physical damage to his property becomes apparent or ought reasonably to have become apparent to the claimant.” N.C. Gen. Stat. § 1-52(16). A 10-year statute of repose also applies to respondents’ nuisance claim. The statute of repose provides that “no cause of action shall accrue more than 10 years from the last act or omission of the defendant giving rise to the cause of action.” Id. The district court held that § 9658’s plain language applies only to state statutes of limitations, and not to state statutes of repose.
The Fourth Circuit reversed, holding that § 9658 preempts North Carolina’s 10-year statute of repose. The court of appeals observed that the statute of repose at issue appears in a section of the North Carolina Code entitled “Limitations, Other than Real Property,” so it could be interpreted to fall under § 9658(a) because it was “specified in the State statute of limitations or under common law.” Further, the court concluded that the text of § 9658 is ambiguous as to whether Congress intended the phrase “statute of limitations” to encompass statutes of repose. After examining congressional intent and legislative history of the statute, the Fourth Circuit concluded that Congress was equally concerned with statutes of limitations and statutes of repose, and that Congress’s purpose in enacting CERCLA was remedial. The Fourth Circuit’s holding in this case is in accord with the Ninth Circuit’s decision in McDonald v. Sun Oil Co., 548 F.3d 774 (9th Cir. 2008), but is in conflict with the Fifth Circuit’s view in Burlington N. & Santa Fe Ry. Co. v. Poole Chem. Co., 419 F.3d 355 (5th Cir. 2005).
Because the Supreme Court’s resolution of this case will provide clarity as to the scope of § 9658’s federal trigger for state statutes of limitation and repose, it should be of significant interest to businesses facing potential environmental tort liability.
Absent extensions, which are highly unlikely, amicus briefs in support of the petitioner will be due on March 3, 2014, and amicus briefs in support of the respondents will be due on April 2, 2014. Any questions about the case should be directed to Tim Bishop (+1 312 701 7829) in our Chicago office.
Internal Revenue Service—Investigatory Summonses—Right to Evidentiary Hearing
Congress has authorized the Internal Revenue Service to issue summonses “[f]or the purpose of ascertaining the correctness of any [tax] return, making a return where none has been made, determining the liability of any person for any internal revenue tax …, or collecting any such liability.” 26 U.S.C. § 7602. The IRS may issue a summons “[t]o examine any books, papers, records, or other data which may be relevant or material,” and to require any person to produce such documents or give testimony. Id. And the IRS may enforce a contested summons in federal district court by demonstrating that (1) “the investigation will be conducted pursuant to a legitimate purpose”; (2) “the inquiry may be relevant to the purpose”; (3) “the information sought is not already within the Commissioner’s possession”; and (4) “the administrative steps required by the [Internal Revenue] Code have been followed.” United States v. Powell, 379 U.S. 48, 57-58 (1964).
On Friday, the Supreme Court granted certiorari in United States v. Clarke, No. 13-301, to decide under what circumstances a federal district court must hold an evidentiary hearing when the opponent of a summons alleges that the IRS issued the summons for an improper purpose.
The case arises from an IRS investigation into the tax returns of Dynamo Holdings Limited Partnership. During the examination, the IRS issued five summonses directing third parties to produce certain documents and to give testimony relating to debt that Dynamo had reported on its returns. After the third parties failed to comply, the IRS sought enforcement in the Southern District of Florida.
The third parties resisted enforcement, contending that the IRS issued the summonses for improper purposes, including as retaliation for Dynamo’s refusal to extend the limitations period. The district court granted the IRS’s petition for enforcement, holding that “more than a naked assertion” was required to establish improper purpose. The court also denied the opponents’ request for discovery and an evidentiary hearing because they “made no meaningful allegation of improper purpose.”
The Eleventh Circuit vacated and remanded, holding that opponents of a summons are “entitled to a hearing to explore their allegations of an improper purpose.” The court of appeals ordered the district court to hold a hearing to permit the opponents to “question IRS officials concerning the Service’s reasons for issuing the” summonses.
The Supreme Court’s decision will resolve when and how the recipient of an IRS summons can contest enforcement in district court. That issue is of interest both to taxpayers and to businesses holding transactional or financial records relating to other taxpayers.
Absent extensions, which are highly unlikely, amicus briefs in support of the petitioners will be due on March 3, 2014, and amicus briefs in support of the respondent will be due on April 2, 2014. Any questions about this case should be directed to Thomas C. Durham (+1 312 701 7216) in our Chicago office or to Donald M. Falk (+1 650 331 2030) in our Palo Alto office.
Foreign Sovereign Immunities Act—Post-Trial Discovery
The Foreign Sovereign Immunities Act of 1976 provides for subject-matter jurisdiction to adjudicate claims against a foreign sovereign if one or more exceptions to sovereign immunity, including waiver of immunity to jurisdiction, exist. See 28 U.S.C. § 1605. FSIA also provides for execution of a judgment against the property of a foreign state, limiting such execution to property in the United States used for a commercial activity in the United States. See 28 U.S.C. § 1610(a). Several federal courts, including the Fifth, Seventh, and Ninth Circuits, have held that post-judgment discovery from a foreign sovereign is limited to identifying property that could be subject to execution under FSIA. The Second Circuit, in conflict with these decisions, recently approved broad-based post-judgment discovery, including discovery relating to assets of a foreign government’s “agencies, instrumentalities, ministries, political subdivisions, representatives, State Controlled Entities …, and all other Persons acting or purporting to act for or on behalf of” the foreign government. The Second Circuit allowed discovery to identify assets both in the United States and abroad through subpoenas of third-party bank records. On Friday, the Supreme Court granted certiorari in Republic of Argentina v. NML Capital, Ltd., No. 12-842, to review the Second Circuit’s ruling and to address the scope of discovery available to a plaintiff holding a money judgment against a foreign sovereign.
The Plaintiff in NML Capital held bonds on which the Republic of Argentina had defaulted, and had reduced its claim to a series of money judgments. In an attempt to enable execution on these judgments, the Plaintiff subpoenaed the records of Bank of America and Banco de la Nación Argentina. The District Court allowed the subpoenas. The Second Circuit affirmed, stressing that discovery did not implicate Argentina’s immunity from attachment, both because any attachment of assets would require a further proceeding, and because the targets of the subpoenas were third-party banks, rather than Argentina itself.
Argentina filed a petition for certiorari, urging the Supreme Court to adopt the view of the Fifth, Seventh, and Ninth Circuits that post-judgment discovery is limited to identifying assets subject to execution under FSIA. At the Supreme Court’s invitation, the Solicitor General filed an amicus brief, stressing the importance of the circuit split and the significance of the issue for United States foreign relations. The Solicitor General also conveyed the Department of State’s concerns that the Second Circuit’s opinion could have negative effects on bilateral relations by imposing intrusive discovery burdens on foreign governments and heads of state.
The question presented is important to the business community as well, especially businesses that hold sovereign debt or provide financial services to foreign governments, their ministers, or foreign-state-controlled entities. The outcome of this case will have far-reaching implications for discovery related to foreign assets, and could dramatically increase the burden and expense to which foreign governments and financial institutions with which they do business are exposed.
Absent extensions, which are highly unlikely, amicus briefs in support of the petitioner will be due on March 3, 2014, and amicus briefs in support of the respondents will be due on April 2, 2014. Any questions about the case should be directed to Evan Tager (+1 202 263 3240) in our Washington office.
This morning and in recent weeks, the Supreme Court has also invited the Solicitor General to file briefs expressing the views of the United States in four cases of interest to the business community:
Picard v. JPMorgan Chase & Co., No. 13-448: The questions presented are: (1) whether the Securities Investor Protection Corporation’s right to subrogation is limited to customers’ Securities Investor Protection Act claims against a failed brokerage’s estate and therefore does not reach claims against third parties that share responsibility for the brokerage’s collapse and customers’ losses; (2) whether federal statutory silence overrides any right to contribution under state law for liabilities arising under the federal statute regardless of whether Congress intended to preempt the state law; and (3) whether a trustee lacks standing under SIPA or the Bankruptcy Code to assert claims against parties that hastened or deepened the bankruptcy and are therefore general to all of an estate’s customers or creditors.
B&B Hardware, Inc. v. Hargis Industries, Inc., No. 13-352: The questions presented are: (1) whether the Trademark Trial and Appeal Board’s finding of a likelihood of confusion precludes respondent from relitigating that issue in infringement litigation, in which likelihood of confusion is an element; and (2) whether, if issue preclusion does not apply, the district court was obliged to defer to the Board’s finding of a likelihood of confusion absent strong evidence to rebut it.
Comptroller of the Treasury of Maryland v. Wynne, No. 13-485: The question presented is whether the United States Constitution prohibits a state from taxing all the income of its residents—wherever earned—by mandating a credit for taxes paid on income earned in other states.
O’Neill v. Al Rajhi Bank, No. 13-318: The questions presented are: (1) whether the civil-remedy provision of the Anti-Terrorism Act, 18 U.S.C. § 2333, supports claims against defendants based on theories of secondary liability, and requires plaintiffs to establish that a defendant’s support provided to a terrorist organization was a proximate cause of the plaintiffs’ injury; (2) whether U.S. courts have personal jurisdiction over defendants who, acting abroad, provide material support to a terrorist organization that attacks the territorial United States and the defendant intends to provide support to the organization, knows of the organization’s objective and history of attacking U.S. interests, and can foresee that its material support will be used in attacks on the United States.
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