Kaufman and Canoles

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Archive for April, 2011

Thursday, April 28, 2011

i4i Revisited

An earlier post explained the recent ruling by the United States Court of Appeals for the Federal Circuit (the appeals court that hears patent appeals) in the case of i4i Limited Partnership and Infrastructures for Information Inc., v. Microsoft Corporation, 598 F.3d 831 ( Fed. Cir. 2010), where the Federal Circuit  affirmed a bedrock principle of patent law: Any potential infringer who challenges the validity of a patent—in essence, arguing that that the patent should not have been granted for a variety of reasons, including that the claimed invention was already disclosed or was obvious in light of other patents, publications or the like (collectively, called “Prior Art”)—must prove the invalidity claim or defense under a very demanding “by clear and convincing evidence” burden of proof, even when the Prior Art was not considered in granting the patent. In perhaps one of the most important patent cases of the past decade, the Supreme Court heard argument Monday, April 18, 2011 on the i4i case and its decision could have implications that would drastically change United States patent law and have a profound effect on how corporations protect and profit from their future inventions.

i4i sued Microsoft in 2007, claiming that Microsoft’s Word program infringed patented technology that allowed users to edit XML code.   After a trial, Microsoft was found to have willfully infringed the patent, was ordered to pay i4i $290 million, and was enjoined from selling versions of Word containing the infringing technology (Microsoft has since revised Word).   Microsoft challenged the Court’s decision claiming that the lower court used the wrong standard to determine a patent’s validity: Microsoft argued that where prior art has not been considered by the Patent Office only a “preponderance” of the evidence rather than the heightened “clear and convincing” standard should be applied in challenging the validity of a patent.  The Federal Court disagreed with Microsoft and affirmed the lower court’s decision.  Thereafter, the Supreme Court granted an appeal.

Published reports (see e.g., Reuters  and Computer World) reveal disparate opinions from all the Court’s Justices (except Chief Justice Roberts who recused himself).  Commentators viewing the argument have indicated that the Court had concerns both ways but seemed focused upon the implications of changing the burden of proof standard.   For example, Justice Antonin Scalia asked Microsoft’s counsel:

Are you going to argue for all the time, in which case, you can appeal to the general rule that we always apply, or are you going to say, oh, yes, we won’t apply it normally but only when the prior art hadn’t been considered?…I mean, you — you can’t ride both horses. They’re going in different directions . . .

Justice Stephen Breyer asked whether the current system protected not only inventions that deserve protection, but also those that may not deserve it. “We’re trying to get a better tool if possible to separate the sheep from the goats.”

Additionally, Justice Samuel Alito had problems with the higher burden of proof in  the Patent Statute:  “A presumption normally doesn’t have anything to do with clear and convincing evidence . . . Most presumptions can be disproved by much less than clear and convincing evidence. So how do you read that in your position into the language of the statute?”

Several other justices sought refuge in precedent and asked about a Supreme Court precedent from 1934 that could cast doubt on Microsoft’s argument. “What do we do?” Justice Elena Kagan asked. “One answer to that question is we go with our prior precedent.” Justice Sonia Sotomayor asked whether the dispute could have been resolved with different jury instructions. 

A ruling in favor of Microsoft could lead to the reshaping of patent litigation and to the invalidation of many existing patents.  Stay tuned: the Supreme Court is expected to hand down its ruling by the end of June.

Stephen E. Noona is the head of Kaufman & Canoles’ Trial Section and Co-chair of its Intellectual Property Law and Franchising Practice Group.  He has been counsel in over ninety (90) patent cases in the Eastern District, is Fellow in the American College of Trial Lawyers and has appeared before the judges in all four Divisions of the Eastern District on patent matters.  –Stephen E. Noona

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Tuesday, April 26, 2011

Patent Marking: Do It, But Know When to Stop

Most patent holders know that, under Section 287(a) of the Patent Act, they should “mark” their patented devices.  Failure to mark in accordance with the statute may deprive a patent holder of the right to recover damages in infringement litigation.  Because of a recent flood of “false patent marking” cases, patentees should also know it is important to stop marking patented inventions when the patents expire. 

Section 292(a) of the Patent Act has long provided that “[w]hoever marks upon, or affixes to … any unpatented article, the word ‘patent’ or any word or number importing that the same is patented, for the purpose of deceiving the public … shall be fined not more than $500 for every such offense.”  A false patent marking claim requires a plaintiff to prove that (1) the defendant marked an unpatented article and (2) had the intent to deceive the public.  

A change in the statute, coupled with two recent Federal Circuit rulings, has resulted in a veritable cottage industry of qui tam false marking suits.  One web site has catalogued over 1,400 false marking suits that have been filed since the beginning of 2010.

Qui tam claims are those where a statute authorizes private individuals to bring lawsuits on behalf of the government as well as themselves.  They are permitted only in rare circumstances.  For example, the federal False Claims Act authorizes “whistle blowers” to bring qui tam suits alleging fraud on the government by private contractors.  Section 292(b) of the Patent Act also allows qui tam suits for false patent marking:  “[a]ny person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States.”

Two Federal Circuit decisions have made false marking qui tam suits quite attractive to plaintiffs and their lawyers.  In late 2009, the Federal Circuit held in its Forest Group decision that the language of Section 292(b) requires that the penalty for false marking, “not more than $500 for each such offense”, be applied for each article that was falsely marked (the rule under the prior statute, which had different wording and a potentially unlimited penalty, was that the penalty would apply for each patent that was falsely marked, regardless of the number of articles bearing the mark).  Then, in its 2010 Stauffer decision, the court of appeals held that a qui tam plaintiff need not prove any injury to himself in order to have standing to bring suit: Section 292(b) provides standing in itself.  As a result, if a company sells 10,000 products bearing patent marking after the patent expires, it is potentially exposed to damages of up to $5 million.  Moreover, anyone can assert the claim, even if he did not purchase the product.

A qui tam plaintiff still must prove the defendant had the intent to deceive in falsely marking its products, and in most cases that intent probably is lacking.  Yet, intent is a question of fact not easily determined, which means that most courts will not quickly dismiss false marking claims.   The costs of litigation and uncertainty of outcome are such that even companies that falsely mark inadvertently will be inclined to settle these claims. 

Not surprisingly, the flood of qui tam suits resulting from these decisions has been highly controversial.  The Patent Reform Act passed by the Senate in March would limit qui tam marking suits to those brought by the government and private parties suffering competitive injury.  In February, the district court for the Northern District of Ohio ruled that the qui tam provision was unconstitutional, and in March the Federal Circuit held that such claims are subject to Rule 9(b)’s strict pleading requirements for fraud.  Yet, at least for now, even accidental false patent marking potentially can be very costly.

To cope with the problem, patentees should establish procedures to prevent false patent marking and clearly demonstrate that any post-expiration marking was not intentional.  Patentees should track when patents expire, have routines to communicate when patent marking should cease, follow those routines, and take steps to verify compliance.  Those licensing their patents should include in license grants not only the requirement to mark, but also the requirement to stop upon expiration, and include provisions for auditing and/or certifying compliance. 

Christopher Mugel practices intellectual property law from Kaufman & Canoles’ Richmond, Virginia office. –Christopher J. Mugel

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Tuesday, April 26, 2011

Who May Be Evaluating Your Decisions?

A recent jury verdict generated significant attention for its staggering amount: $25 million, in favor of an employee who had sued his employer.  As has been reported, this verdict was so large that the judge issued an order requiring the plaintiff to accept a smaller award of $2 million or submit to a new trial. 

In support of his ruling, the judge explained that the excessive award was likely the result of juror sympathy for the plaintiff, juror misunderstanding of the claims, or juror prejudice against a wealthy corporate defendant.  With national unemployment at just under 10% and EEOC charges at record high levels, employers are reminded of the importance of good personnel decisions.  In the event a jury is reviewing your personnel decision, they may be unreasonably sympathetic to the employee, they may misunderstand the legal implications of claims or defenses, and they may have a significant bias against corporate employers. 

Consistent enforcement of well drafted company policies, supported by proper documentation, can help employers avoid juries; or, if necessary, can help persuade jurors to overcome their biases. –David J. Sullivan

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Saturday, April 16, 2011

How Long Is Your Company’s “Introductory Period?”

Many employers classify new employees as “Introductory” or “Tryout” period employees for some period of time at the outset of employment.  Designating an “Introductory” or “Tryout” period can be beneficial, as it informs new employees of their initial evaluation period and sets up a framework for evaluating new employees.  For employers who use such mechanisms, it’s important to consider the effect of these provisions on potential liability under the Virginia Unemployment Compensation Act.

Indeed, an employer who terminates a new employee before that employee has worked 30 days or 240 hours for that employer will not be charged for any unemployment benefits that the terminated employee may be eligible to receive.

With that threshold in mind, if your company uses an “Introductory” or “Tryout” period for new employees, consider limiting the period to something less than 30 working days.  That way, if a new employee demonstrates that he is unfit for employment, your company is programmed to make that assessment and take appropriate action before assuming responsibility for unemployment benefits. –David J. Sullivan

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Saturday, April 16, 2011

What is Cloud Computing?

Your company may have lots of software and hardware to keep itself running and to maintain client records, invoices, accounting records, documents and e-mails.  You may even have a temperature controlled room with large servers.  And most likely, you struggle with when to make expensive upgrades.  Cloud computing to the rescue.  Typically, cloud computing providers deliver business applications online and they are accessed from a web browser while the software and data is stored on servers.  As an on demand service, proponents for cloud computing says that it is a way to increase capacity or add capabilities without investing in new infrastructure, training new personnel or licensing new software.  One of the greatest concerns, however, is the loss of control of the data since it is created outside the firewalls of the workplace.  If you are considering cloud computing, understand the rewards and the risks by spending some time analyzing what your company may gain and what risks you may incur. –Nicole J. Harrell

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Wednesday, April 13, 2011

Negotiate the Terms of a Franchise Agreement

Prospective franchisees should always try to negotiate to improve the terms of their Franchise Agreement.

Contrary to what franchisors’ salespeople are likely to tell you, franchise agreements are negotiable prior to execution.  While many franchisors (particularly large, established franchisors) discourage negotiation, franchise laws do not prohibit negotiation of franchise agreements.  Indeed, for franchise sales governed by Virginia law, the Virginia Retail Franchise Act allows a new franchisee to declare a franchise void within the first 30 days if “[t]he franchisee was not afforded the opportunity to negotiate with the franchisor on all provisions within the franchise, except that such negotiations shall not result in the impairment of the uniform image and quality standards of the franchise.”  Va. Code § 13.1-565(b).

While economic terms such as the amounts of initial franchise fees and royalty fees are most likely to be non-negotiable, potential franchisees can frequently improve their position vis-à-vis the franchisor by negotiation of other important terms of the franchise agreement.  Franchisors will typically not change the text of their Franchise Agreement, but will frequently agree to a standalone addendum to the Franchise Agreement, changing or clarifying certain of its terms. –Stephen E. Story

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Wednesday, April 13, 2011

Tips for New Importers

Importing goods into the United States presents an exciting new opportunity for many businesses; however, you must ensure your company complies with applicable rules before importing.  Under the Customs Modernization Act (Title VI of the North American Free Trade Agreement Implementation Act [P.L. 103-182, 107 Stat. 2057]), the importer is legally responsibile for declaring the value, classification, and rate of duty applicable to imported merchandise.  In order to fullfil this responisbility, you should be aware of the following: 1) the country of origin of the merchandise and manufacturer; 2) the composition of the merchandise; 3) the intended use of the item; and 4) pricing/payment information (in order to properly determine the value of the shipment). For more information on the classification of merchandise, you can consult the Harmonized Tariff Schedule (HTS) which contains the actual HTS number and tariff classification guidelines that explain how to properly classify merchandise.  Additionally, importers can request a written ruling from U.S. Customs Border and Protection for the proper HTSUS classification and rate of duty for their merchandise.  When requesting a binding ruling, importers should follow the procedures outlined in Part 177 of the Customs Regulations (19 C.F.R. 177).  You may also wish to research the results of previous ruling requests by using the Customs Rulings Online Search System (CROSS) http://rulings.cbp.gov/.

Also, the Importer Security Filing and Additional Carrier Requirements (commonly known as “10+2”) applies to import cargo arriving to the United States by vessel and requires the “Importer Security Filing (ISF) Importer,” or their agent (e.g., licensed customs broker), to electronically submit certain advance cargo information to U.S. Customs Border Protection in the form of an Importer Security Filing.  Failure to comply with this rule could ultimately result in monetary penalties, increased inspections and delay of cargo.  More information on this and other import rules can be found at http://www.cbp.gov/xp/cgov/trade/basic_trade/.
R. Ellen Coley

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Wednesday, April 6, 2011

Guidance for Public Comments on ACO Proposed Rule

As previously promised, this post will provide guidance for interested parties to comment on the ACO proposed rule as well as the respective other documents issued simultaneously with the proposed rule.

The Centers for Medicare & Medicaid Services (“CMS”) is seeking public comment on nearly all of the substantive provisions of the ACO proposed rule issued on March 31, 2011 and published on April 7, 2011.  The deadline for submitting comments is 5:00PM on June 6, 2011.  Comments must refer to file code “CMS-1345-P.”  Comments may be submitted electronically to http://www.regulations.gov, or by regular, express or overnight mail, or by hand courier by following the delivery instructions in the “Addresses” section of the ACO proposed rule.

CMS and the Department of Health and Human Services Office of Inspector General (“OIG”) are seeking public comment on further waiver design considerations for the Shared Savings Program and for the separate waiver authority for the Center for Medicare and Medicaid Innovation under § 1115A of the Social Security Act.  The deadline for submitting comments is 5:00PM on June 6, 2011.  Comments must refer to file code “CMS-1345-NC2”.  Comments may be submitted electronically to http://www.regulations.gov, or by regular, express or overnight mail, or by hand courier by following the delivery instructions in the “Addresses” section of the CMS/OIG joint notice.

The Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) are seeking public comment on whether, and why, the guidance in the proposed FTC/DOJ Antitrust Policy Statement issued on March 31, 2011 should be changed in any respect.  Additionally, the two Agencies seek public comment on whether there are other sources of data that ACO applicants could use to determine relevant primary service area shares as well as whether the requirements to obtain an expedited antitrust review present an undue burden on ACO applicants.  The deadline for submitting comments is May 31, 2011.  Comments may be submitted electronically to https://ftcpublic.commentworks.com/ftc/acoenforcementpolicy, or by mail by following the delivery instructions in the “Request for Comments” section of the FTC/DOJ Antitrust Policy Statement.  Comments should state “Proposed Statement of Antitrust Enforcement Policy Regarding ACOs Participating in the Medicare Shared Savings Program, Matter V100017” in the text and, if filed by mail, on the envelope. 

The Internal Revenue Service (“IRS”) is seeking public comments regarding the need for guidance on participation by tax-exempt organizations in the Shared Savings Program.  Specifically, the IRS requests comments regarding how a tax-exempt organization’s participation through an ACO furthers or is substantially related to an exempt purpose.  The deadline for submitting comments is May 31, 2011.  Comments should include “Notice 2011-20” in the subject line.  Comments may be submitted electronically to notice.comments@irscounsel.treas.gov, or by mail or hand delivery by following the instructions in the “Request for Public Comment” section of the IRS notice.

We hope that this information will aid in submitting public comments on these various documents.  Please stay tuned as we will be breaking down the ACO proposed rule over the next several weeks to provide guidance and analysis of how the proposed rule would operate if adopted in final form and how interested providers and provider organizations can get involved with the Shared Savings Program through the creation of, and/or participation in, an ACO. –Christopher L. McLean

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Tuesday, April 5, 2011

Is Your FMLA Policy Up to Date?

Department of Labor regulations implementing the Family and Medical Leave Act (FMLA) require that covered employers include notice of the Act’s provisions in employee handbooks.  Specifically, the Department of Labor takes the position that this notice must include all of the information set forth in the Department of Labor’s Employee Rights and Responsibilities Under the Family and Medical Leave Act poster.

In 2008, Congress amended the FMLA to provide employees with job protected leave for “qualifying exigency leave” and “leave to care for a covered servicemember.”  Accordingly, all covered employers with employee handbooks are required to have details on these types of leave set out in the FMLA policies in their handbooks.  Its always a good idea to review your written policies for legal compliance, and employers covered by the FMLA have an additional reason in light of these provisions. –David J. Sullivan

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Tuesday, April 5, 2011

CMS Issued Proposed Rule on ACOs

On March 31, 2011, the Centers for Medicare & Medicaid Services (“CMS”) issued the proposed rule to establish Accountable Care Organizations (“ACOs”) under the Shared Savings Program.  The 428 page proposed rule is available at http://www.cms.gov/sharedsavingsprogram.

As part of a cross-agency, coordinated effort, several other documents were released simultaneously with the CMS proposed rule:

  • CMS and the Department of Health and Human Services Office of Inspector General (“OIG”) jointly issued a notice outlining proposals for waivers of certain Federal laws—the physician self-referral law, the anti-kickback statute, and certain provisions of the civil monetary penalty law—in connection with the Shared Savings Program.  The CMS/OIG joint notice is available at http://www.ofr.gov/(X(1)S(com4j24lb1eenf3qumhardfb))/OFRUpload/OFRData/2011-07884_PI.pdf
  • The Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) jointly issued a “Proposed Statement of Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program.”  The FTC/DOJ Antitrust Policy Statement is available at: http://www.ftc.gov/opp/aco/.
  • The Internal Revenue Service (“IRS”) issued a notice requesting comments regarding the need for guidance on participation by tax-exempt organizations in the Shared Savings Program through ACOs. The IRS notice is available at http://www.irs.gov/pub/irs-drop/n-11-20.pdf.

The Agencies are requesting comments on their respective proposed rules and polices discussed above.  Our next post will provide further guidance on participating in the public comment process for the CMS proposed rule on ACOs as well as commenting on these other supplemental documents.  Additionally, we will break down the new ACO proposed rule and provide guidance on better understanding how the end result of ACOs may work over the next several posts.—Christopher L. McLean

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