Blawgletter®

Good Faith Would Not Defeat False Opinion Claim Under Securities Act, Sixth Circuit Holds

2013-05-23T22:37:43-05:00

The Sixth Circuit split with the Second and Ninth Circuits today on what a plaintiff must plead under section 11 of the Securities Act of 1933 in cases that involve opinions, views, and other "soft" info.

The panel looked at a claim that Omnicare violated Section 11 by publicly stating its judgment that its drug-care services for people who live in long-term care complied with the law when in fact the services didn't comply. Omnicare argued on appeal that the district court rightly kicked the case on the ground that the complaint failed to allege that Omnicare knew it hadn't met its legal duties. But the panel held that plaintiffs met their pleading burden simply by calling the opinion false. Section 11 does not require proof of scienter (intent to defraud), it pointed out, although it does allow a good faith defense (which didn't matter because the court needed to assess only whether plaintiffs had stated a valid claim).

The threesome also noted their own opinion that colleagues in New York and San Francisco had gotten the law on the point wrong. Indiana State District Council of Laborers and Hod Carriers Pension and Welfare Fund v Omnicare, Inc., No. 12-5287 (6th Cir. May 23, 2013) (declining to follow Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011), and Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1162 (9th Cir. 2009)).

Irony lives.

Using Amateur Athlete's Avatar in Video Game Could Violate Right of Publicity, Third Circuit Rules

2013-05-21T14:04:34-05:00

Electronic Arts, Inc., makes video games, including the NCAA Football series. EA put an avatar of Ryan Hart, an ex-quarterback at Rutgers, in the series. Hart sued EA for "violating his right of publicity as recognized under New Jersey law." Hart v. Electronic Arts, Inc., No. 11-2750, slip op. 5 (3d CIr. May 21, 2013). The district court granted EA summary judgment, holding that EA had a free speech right to use the likeness and biographical information -- the "identity" -- of Hart.

The Third Circuit, by a 2-1 vote, reversed. It balanced EA's first amendment rights against Hart's interest in not having others exploit his image for commercial gain. The panel settled on the "transformative use" test of copyright law and concluded that NCAA Football used too much of Hart's identity to obtain summary judgment on Hart's right of publicity claim.

The dissenting judge believed "that the creative components of NCAA Football contain sufficient expressive transformation to merit First Amendment protection."

WSJ Equates Filing Empty Seats with Court-Packing

2013-05-20T14:12:57-05:00

About 76 years ago, President Franklin D. Roosevelt hatched a plan for bending to his will a recalcitrant and obstructive (by his lights) U.S. Supreme Court. The Court at the time consisted of seven Republican appointees and two Democratic ones.

As the Senate Committee on the Judiciary explains what happened:

To counter the impact of the Court's decisions on the New Deal reforms, President Roosevelt proposed legislation that would have altered the makeup of the Supreme Court. The Judiciary Reorganization Bill of 1937, which provided for broad reform of the federal judicial system, allowed President Roosevelt to appoint an additional member to the Supreme Court for every sitting justice over the age of 70, which would have resulted in a total of six new justices at the time the bill was introduced. Despite the fact that the Constitution does not limit the size of the Supreme Court, the legislation immediately came under sharp criticism from legislators, bar associations, and the public.

Fast forward to today, when The Wall Street Journal worries about a court-"packing" plan that consists not of adding judgeships but of filling the ones that already exist. The WSJ editors assert:

It's good to be the king. When the federal courts overturn your Administration's rules or find decisions unconstitutional, you can pack them with judges more likely to rule your way. That seems to be the working theory at the White House, where word is that President Obama is close to nominating several new judges to sit on the D.C. Circuit Court of Appeals.

The D.C. Circuit is arguably the most important appellate court below the Supreme Court. By dint of its location and history, the court often hears challenges to decisions by federal agencies. Among the various federal circuits, the D.C. court has also earned a reputation (relatively speaking) for judicial restraint and careful reasoning that is often adopted by the Supremes. This isn't news, but it has taken on greater political significance because D.C. Circuit judges aren't rolling over for Mr. Obama's regulatory agenda. They are taking seriously legal challenges to illegal rule-making.

What prompted the editorial? The facts that four of the D.C. Circuit's judgeships sit empty and that President Barack Obama may try to fill them.

The one that belonged to Chief Justice John G. Roberts has lacked a judge since his move to the High Nine, on September 25, 2005 (7+ years). The other three respectively have had no occupant since November 1, 2008 (4+ years), October 14, 2011 (2+ years) and February 12, 2013 (3+ months).

But the WSJ urges President Barack Obama to keep hands off. Why? Because, it says, the court now has "six judges on senior status who sit on cases" and therefore "doesn't need new judges to handle the workload." Filling the vacant seats that Congress established thus constitutes "packing the court for political ends."

Let's see. We know that the nominating President's party predicts how judges rule in cases. So how many "active" and "senior" judges got on the court as a result of nominations by Republican and Democratic Presidents, respectively?

The numbers come out thus:

Active Judges

Republican -- 4

Democratic -- 3

Senior Judges

Republican -- 5

Democratic -- 1

Total Judges

Republican -- 9

Democratic -- 4

If Blawgletter has added right, the D.C. Circuit will remain majority Republican appointee even if President Obama nominates four people, and the Senate confirms them, to fill the empty seats.

Tell us again how that amounts to court-packing?

$44.4 Million Trade Secrets Verdict Stands in Fifth Circuit

2013-05-15T21:19:47-05:00

A Houston jury awarded Wellogix $94.4 million for Accenture's misappropriation of trade secrets in software that helped oil and gas companies track and manage costs of drilling wells. The judge cut the award to what Wellogix asked for -- $26.2 million in actual damages plus $18.2 million in punies. And today the Fifth Circuit affirmed. Wellogix, Inc. v. Accenture, L.L.P., No. 11-20816 (5th Cir. May 15, 2013).

The case might pass without remark except for the respect the panel showed for the jury's work on the case. In the opening paragraph, the court set the tone by quoting Supreme Court decisions from more than 60 years ago on the test for setting aside a verdict:

"Only when there is a complete absence of probative facts to support the conclusion reached does a reversible error appear." Lavender v. Kurn, 327 U.S. 645, 653 (1946).

"But juries are not bound by what seems inescapable logic to judges." Morissette v. United States, 342 U.S. 246, 276 (1952).

See Wellogix, slip op. at 1 & 2.

The panel went on to approve the jury's finding of misappropriation and its awards of actual and exemplary damages.

To which Blawgletter says "wow" and "way to go".

Reaping What You Sow Infringes Soybean Patent, Supreme Court Holds

2013-05-13T22:42:05-05:00

Farmers plant seeds. Where do they get the seeds? Lots of places. Their own crops. Farmer Crawford up the road. Bean sellers. Monsanto. And so on.

What if the seeds use a technique that someone -- Monsanto, say -- has taken out a patent on? Can you use seeds from a crop that you or someone else grew with Monsanto seeds to make a new crop? Or would that infringe those nice Monsanto people's patent?

It would do the infringement thing. So a 9-0 Supreme Court held today in Bowman v. Monsanto Co., No. 11-796 (U.S. May 13, 2013).

Justice Kagan wrote for the Court. She noted that buying a product that uses a patentee's invention has never given the purchaser a right to make copies of the product. Sure, as a matter of patent law, the buyer can use the one he lawfully acquired any way he wants. He can run it, sell it, lend it, dress it in doll clothes, burn it, chop it into thousands of little pieces, worship it, bury it in his back yard, or say ugly things to it. We call that the "patent exhaustion" doctrine. But letting him copy it would give him a right that belongs only to the patent-holder.

Vernon Bowman, an Indiana farmer, had gotten some of Monsanto's Roundup Ready soybean seeds from a vendor (grain elevator) and used them to plant several crops. Monsanto sued him for patent infringement and won a judgment for $85,000. Farmer Bowman asked the Supreme Court to overturn the judgment, arguing that a mean old company like Monsanto shouldn't have the right to profit from generation after generation of Roundup Ready soybeans, over the 20 or so year life of the patent. Monsanto's entitlement to charge royalties, he urged, should end when it makes the first sale of the seeds, after which sale it will have exhausted its patent rights.

That approach didn't sell.

Neither did his "seeds-are-special argument: that soybeans naturally 'self-replicate or 'sprout' unless stored in a controlled manner,' and thus 'it was the planted soybean, not Bowman' himself, that made replicas of Monsanto's patented invention." Id. at 9. Deeming the point a "blame-the-bean defense", Justice Kagan observed that Bowman "devised and executed a novel way to harvest crops from Roundup Ready seeds without paying the usual premium" and grew "eight successive soybean crops" as a result. Id. "In all this, the bean surely figured. But it was Bowman, and not the bean, who controlled the reproduction (unto the eighth generation) of Monsanto's patented invention." Id. at 10.

The Court cautioned that its holding may not cover all things that make copies of themselves -- such as things whose self-replication "might occur outside the purchaser's control" or "might be a necessary but incidental step in using the item for another purpose", as in some computer software programs. Id.