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Most law students learn early in law school the old maxim: “Bad facts make bad law.” A recent Ninth Circuit case, Garcia v. Google, Inc., seems certain to test this proposition with its incredibly sympathetic facts.

Ms. Garcia, an aspiring actress, was paid approximately $500 to appear in a minor role that she believed to be an Arabian adventure movie titled, “Desert Warrier.” Instead, a clip of her performance was used in an anti-Islamic film titled, “Innocence of Muslims,” which was posted to YouTube. (Google is the owner of YouTube.) Not only was her performance included in this movie, but her lines had been “dubbed over” so that the line audiences heard her say was “Is your Mohammed a child molester?” The film and this line provoked anger worldwide and an Egyptian cleric issued a fatwa calling for the killing of everyone involved with the film. Shortly thereafter, Ms. Garcia began receiving death threats.

In addition to taking security precautions, Ms. Garcia filed a number of “take down notices” under the DMCA seeking to have YouTube remove Innocence of Muslims from its website. When Google refused, Garcia filed a copyright infringement action and sought a preliminary injunction ordering Google to take the film down from YouTube. The court denied Garcia’s request.

Garcia appealed this ruling to the Ninth Circuit. In a 2-1 decision authored by Chief Judge Alex Kozinsky, the Ninth Circuit reversed the lower court and held that an injunction should have been entered.

The bulk of the Ninth Circuit’s decision (as well as the dissent) focuses on the first factor that must be established for injunctive relief, the likelihood of success on the merits. Although Ms. Garcia was not seeking to claim that she had a copyright interest in the film, she argued that she had a copyrightable interest in her performance within the film. The Ninth Circuit recognized that “[t]o succeed on this claim, Garcia must prove not only that she likely has an independent interest in her performance but that [the film’s producer] doesn’t own any such interest as a work for hire and that he doesn’t have an implied license to use her performance.” The Court first turned to whether Garcia had an independent copyright interest in her performance.

The Court recognized that a film “is typically conceived of as `a joint work consisting of a number of contributions by difference `authors’’.” While Garcia did not qualify as a “joint author” under Ninth Circuit precedent, that did not mean “she doesn’t have a copyright interest in her own performance within the film.” In reaching this issue, the Ninth Circuit admitted that this “is a rarely litigated question”.

The Court claimed that the Copyright Act does not necessarily prevent a contributor from obtaining a copyright interest in a creative contribution to a work and therefore, “the key question remains whether it’s efficiently creative to be protectable.” Although Google argued that the film’s producer wrote the lines that Garcia spoke, managed all aspects of the production and later dubbed over a portion of her scene, the Court concluded that the actor does “far more than speak words on a page.” The actor provides “body language, facial expression and reactions to other actors and elements of a scene.” The Ninth Circuit observed sharply “otherwise `every schmuck … is an actor because everyone … knows how to read’.” The Court continued that an actor’s performance may be copyrightable “if it invents `some minimal degree of creativity … know matter how crude, humble or obvious’ it might be.” The Court cited the performances of a silent actor like Buster Keaton to make this point. The Court concluded without elaboration: “[I]t’s clear that Garcia’s performance meets these minimum requirements.”

The Court continued by distinguishing the copyrightable interest that Garcia had in her performance from the copyrightable interest the producer had in the film. The Court noted that the producer “implicitly granted” Garcia a license by hiring her to perform his screen play. While that did not give her a copyright in Innocence of Muslims, Garcia could assert a copyright interest “in the portion of `Innocence of Muslims’ that represents her individual creativity,” which the Court again found without elaboration that this was not de minimis. Seeming to recognize the slippery slope upon which it embarked, the Court states: “We need not and do not decide whether every actor has a copyright in his performance within a movie. It suffices for now to hold that while the matter is fairly debatable, Garcia is likely to prevail.”

Having found that Garcia had a copyrightable interest in her performance, the Court had to turn away Google’s defenses that Garcia made a “work for hire” or granted the producer an implied license to use her performance in Innocence of Muslims. First, the Court recognized that “under the work for hire doctrine, the rights to Garcia’s performance vested in [the producer] if Garcia was [his] employee and acted in her employment capacity or was an independent contractor who transferred her interest in writing.” It was undisputed that there was no signed writing by plaintiff that constituted a work for hire agreement (although there was apparently a document with her forged signature).

As to whether Garcia was an employee, the Court found that this was “a good example of why it is difficult to categorize an actor, particularly one in a small role as a conventional employee.” The Court noted that the producer hired her only for a specific task, she worked for only a couple of days and other than a payment of approximately $500, did not receive any of the benefits that would normally be paid to an employee. Thus, the Court found that Garcia’s performance was not a work for hire and that she could state an infringement claim.

Next, the Court turned to whether Garcia had granted the producer an “implied license” to use her performance in Innocence of Muslims. The Court noted that it had previously found an implied license even though “plaintiff’s contribution to a film or other work would otherwise be worthless or of `minimum value’.” The Court noted that Garcia had auditioned for the role, was paid for her performance and believed that the director would eventually release the film and thus had obviously granted the director an implied license of some sort. The Court noted that because an implied license is to be construed broadly, the fact that “a film didn’t meet the ex ante expectation of an actor” does not render it meaningless. The Court ruled, however, that an implied license is not unlimited.

The Court found it significant that plaintiff was lied to as to the type of film her performance was to be used in. Specifically, the Court reasoned that “Innocence of Muslims” was not an Arabian adventure movie as had been represented to Garcia, but rather, “that the film isn’t intended to entertain at all.” Because the Court concluded that the producer committed fraud on Garcia, it concluded that Garcia did not give the director/producer an implied license to use her performance in Innocence of Muslim. Once again, recognizing the apparent slippery slope of this position, the Court cautioned: “The situation in which a filmmaker uses a performance in a way that exceeds the bounds of the broad implied license granted by an actor will be extraordinarily rare.”

The Court continued by considering the other injunction factors and found that the district court had erred in not granting Garcia a preliminary injunction. The Court ordered Google to remove Innocence of Muslims from YouTube.com.

The Dissent in Garcia began by noting the broad deference to be given to a trial court in determining whether or not to grant injunctive relief. The Dissent found that it was not error for the district court to conclude at this preliminary stage that it was unclear whether the law granted Garcia a copyrightable interest in her performance. He concluded that under the Copyright Act, while “a motion picture is a work,” the Act “does not clearly place an acting performance within its sphere of copyrightable works.” He also reasoned that Garcia could not be considered the “author” of the work since she admitted “she had no creative control over the script or her performance.” In essence, the Dissent concluded that she “was not the originator of ideas or concepts” but had “simply acted out other’s ideas or script.”

The Dissent also found that there was no error in the finding that plaintiff made a work for hire, which doctrine “is important in the analysis of motion picture authorship because in the United States most contributions to a motion picture are created as works made for hire.” The Dissent found it significant that the producer provided the instrumentalities and tools, was in charge of the filming location, decided when and how long plaintiff would work, and was engaged in the business of film making. Thus, it was not a stretch to conclude that plaintiff was an employee for purposes of the film. The Dissent concluded that “the majority gave zero deference to the district court’s position on the likelihood for successor factor.”

It is clear that the plaintiff in Garcia v. Google was placed in a very sympathetic position given the apparent fraud that had been perpetrated on her and the death threats she received. The majority went to great lengths to make clear that this case was “extraordinary” to justify its decision that the lower court had abused its discretion in denying injunctive relief. It remains to be seen whether other actors (or other performers such as musicians in a band) may seek to assert some kind of copyrightable interest in their “performance” or whether the Ninth Circuit will have to revisit Garcia to ensure that its finding is limited to those most extraordinary circumstances.

Section 1514A of the Sarbanes-Oxley Act states that:

“No [public] company . . . , or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].”

18 U. S. C. §1514A(a) (2006 ed.).

On March 4, 2014, the United States Supreme Court issued its decision in Lawson, et. al. v. FMR LLC, et. al.  The case concerned the definition of the protected class under section 1514A and the Court framed the issue as follows: Does section 1514A shield only those employed by the public company itself, or does it shield as well employees of privately held contractors and subcontractors (for example, investment advisers, law firms, accounting firms, etc.) who perform work for the public company?

Click here to read the full article.

On February 25, 2014, the Ninth Circuit Court of Appeals issued its decision in Escriba v. Foster Poultry Farms, Inc., holding that employees who affirmatively decline to take FMLA leave do not have the protections of FMLA. Maria Escriba worked in a Foster Poultry Farms, Inc. (Foster Farms) processing plant in Turlock, California for 18 years. She was terminated in 2007 for failing to comply with the company’s “three day no-show, no-call rule” at the end of a previously approved two week period of leave that she took in order to care for her ailing father in Guatemala. Escriba filed a lawsuit under the Family and Medical Leave Act (FMLA) and its California equivalent, the California Family Rights Act (CFRA). The parties disputed the characterization of Escriba’s request for a two-week period of leave. Foster Farms claimed that Escriba requested vacation leave, not FMLA leave. Escriba claimed that Foster Farms knew the purpose of her leave was to care for her ill father and therefore her termination was an unlawful interference with her rights under the FMLA. Foster Farms responded that, although Escriba provided an FMLA-qualifying reason for taking leave, she explicitly declined to have her time off count as FMLA leave.

The trial court characterized the case as a classic “he said, she said” matter which focused on what Escriba told her supervisors. Escriba’s claims therefore proceeded to a jury trial in 2011. Before Escriba’s claims were submitted to the jury, both parties moved for judgment as a matter of law (JMOL). The trial court denied Foster Farm’s motion and took Escriba’s under advisement, pending the jury’s determination. After the jury returned a verdict in favor of Foster Farms, Escriba renewed her motion for JMOL and requested a new trial. The trial court denied both of her motions. Foster Farms, as the prevailing party, then moved to tax costs against Escriba but the trial court declined to do so. Both parties appealed the respective adverse rulings against each of them to the Ninth Circuit and it affirmed the trial court’s rulings on all issues.

When analyzing the merits of the case, the Ninth Circuit said that the FMLA does not expressly state whether an employee may defer the exercise of FMLA rights under the statute. The pertinent FMLA regulations promulgated by the Department of Labor in 1995, however, provide some guidance. After an employee alerts the employer of desiring to take leave for a reason that would qualify under the FMLA, the “employer will be expected to obtain any additional required information through informal means.” (29 C.F.R. § 825.303(b).) During this “informal” process, the employee will be expected to “provide more information.” Id.

The regulations go on to state that the “employee need not expressly assert rights under the FMLA or even mention the FMLA,” but the employer “should inquire further of the employee if it is necessary to have more information about whether FMLA leave is being sought by the employee, and to obtain the necessary details of the leave to be taken.” (29 C.F.R. § 825.302(c).)

The Court reasoned that, “an employer’s obligation to ascertain whether FMLA leave is being sought” strongly suggests that there are circumstances in which an employee might seek time off but intend not to exercise his or her rights under the FMLA. According to the court, “[a] compelling practical reason supports this conclusion. Holding that simply referencing an FMLA-qualifying reason triggers FMLA protections would place employers like Foster Farms in an untenable situation if the employee’s stated desire is not to take FMLA leave. The employer could find itself open to liability for forcing FMLA leave on the unwilling employee.” Therefore, the Court concluded that an employee can affirmatively decline to use FMLA leave, even if the underlying reason for seeking the leave would have invoked FMLA protection.

The Court rejected Escriba’s claim that if an employee is permitted to affirmatively decline FMLA leave that would be tantamount to waiving it, and waiver of FMLA rights is not permitted under the regulations. Escriba pointed to the regulation providing that “[e]mployees cannot waive, nor may employers induce employees to waive, their rights under FMLA.” (29 C.F.R. § 825.220(d).) The Court found instead that affirmatively declining the present exercise of a right in order to preserve it for the future is fundamentally different from permanently relinquishing that right.

The Court concluded that viewing the evidence in the light most favorable to the jury’s verdict, there is substantial evidence that Escriba elected not to take FMLA leave. After her initial request for a leave to go to Mexico, there were two more meetings and Escriba was asked twice (through an interpreter) if she needed more time in Guatemala. Escriba twice answered “no.” Further, Escriba’s supervisor testified that she then told Escriba to visit the Human Resources Department if she later decided to request more than two weeks of leave. The Court found that a jury hearing this evidence could conclude that the supervisor had “inquire[d] further of the employee . . . about whether FMLA leave [was] being sought,” (per 29 C.F.R § 825.302(c)), and that Escriba’s two “no” responses clearly indicated that she did not intend to take FMLA leave. The Court also found that the fact that Escriba approached her supervisor in the first place rather than going directly to the Human Resources Department was in itself telling because, as Escriba conceded, her supervisor had previously approved all of Escriba’s vacation requests in, but Human Resources had handled all of her requests for FMLA leave – which the evidence showed, she had successfully requested on fifteen prior occasions. Thus, substantial evidence supported the jury’s verdict that Escriba did not intend to take FMLA leave.

Takeaway: This case was a win for the employer but employers should beware that this case is not a free pass for them to impose upon employees the responsibility of specifically requesting FMLA leave and/or requesting that qualifying leave be designated as FMLA leave. The Ninth Circuit’s decision in this case is very fact specific and each situation must be analyzed on its own based on the relevant circumstances.

The United States Supreme Court was presented with the question of who has the burden of proof when a licensee files an action seeking a declaration of non-infringement against the patentee. In Medtronic Inc. v. Mirowski Family Ventures, 187 L.Ed.2d 703 (Jan. 22, 2014), the Supreme Court reviewed a decision by the Federal Circuit Court, which held that the plaintiff licensee has the burden of proving non-infringement. The Federal Circuit Court, in interpreting the Declaratory Judgment Act, found that Medtronic, as the plaintiff, carried the burden of proof to prove all elements of its claim, as does any other plaintiff. The Supreme Court reversed.

The defendant, Mirowski Family Ventures (“Mirowski”), owned numerous patents relating to implantable heart stimulators. Medtronic entered into a license with Mirowski to practice certain of Mirowski’s patents in exchange for royalties. Pursuant to the terms of the license, Mirowski notified Medtronic of Mirowski’s contention that several of Medtronic’s products violated Mirowski’s patents and, therefore, additional royalties were due. Medtronic disputed the claim, filed an action for declaratory relief, and accrued the disputed unpaid royalties in an escrow account as permitted under the license.

The Supreme Court reversed the Federal District Court, finding that the patent holder, Medtronic, retains the burden of proving infringement even when a licensee initiates an action for declaratory judgment. The procedural method by which the question of infringement is presented did not determine the burden of proof.

The Supreme Court’s decision was supported by three settled legal propositions. First, the patent holder generally has the burden of proving infringement. (See Imhauser v. Buerk, 101 U.S. 647, 662.) Second, the Supreme Court has repeatedly held that the Declaratory Judgment Act is only procedural and does not change substantive rights. (Beacon Theaters, Inc. v. Westover, 359 U.S. 500, 509 (1959).) Lastly, the burden of proof is a substantive element of claim, not a mere procedural consideration. (Rollie v. Illinois Dept. of Revenue, 530 U.S. 15, 20-21 (2000).) These three well-settled legal principles dictated the ruling that the patent holder always bears the burden of proving infringement.

The Supreme Court further recognized the practical problems that would arise if the Federal District Court’s decision on burden-shifting stood. If, for example, Medtronic failed to carry a burden of proving non-infringement, the issue of actual infringement by Medtronic, or others, would remain unsettled, leaving uncertainty between the parties and possibly others. Just because a plaintiff might not carry its burden of “non-infringement” does not mean the patent holder has proven infringement. Moreover, the patentee is best-positioned to interpret its patent and its contentions with respect to infringement. The licensee should not be put into a position of guessing why the patentee thinks a product or process infringes a claim of its patent.

The entire purpose of the Declaratory Judgment Act was to remove the dilemma confronting a licensee when charged with infringement. The licensee should not have the risk of losing its rights under the license or face an infringement lawsuit. The Declaratory Judgment Act does not shift the substantive burden of proof on the licensee. Absent Medtronic’s declaratory judgment action, Mirowski would have filed an infringement action and clearly would have the burden of proving infringement. Mirowski sent Medtronic a notice of infringement and set the dispute in motion. The Court determined there is no reason why the licensee should bear the burden of proving non-infringement simply because it initiated the declaratory judgment complaint to preserve its rights.

When discussing your estate planning needs with your attorney, after you discuss basic terms and concepts, your attorney will likely talk to you about the different types of revocable living trusts that may be appropriate for you.  If you are married, this may include a discussion about a revocable living trust structure commonly referred to as a “Sweetheart Trust.”

The Sweetheart Trust derives its name from the high level of control and discretion the surviving spouse maintains after the death of the first spouse. Initially, while both spouses are alive and competent, either spouse can revoke his or her share of the trust and the terms of the trust can usually be modified with the consent of both spouses.  When one spouse dies, all trust assets remain in the same revocable trust for the lifetime of the surviving spouse.  During the surviving spouse’s lifetime, he or she can terminate the trust, change its terms, add or remove beneficiaries, and otherwise manage the trust as he or she sees fit.  Because the surviving spouse has complete and absolute control over the trust after the first spouse dies—in essence, an unconditional gift—this type of trust is called a Sweetheart Trust.

Many couples are attracted to the Sweetheart Trust because it achieves most of their estate planning goals in a relatively straightforward and simple trust structure.  Although its structure is simple, a Sweetheart Trust still functions as a probate avoidance vehicle, which is the primary reason most people establish a trust.  Additionally, due to the fact that all assets remain in the same revocable trust after the death of the first spouse, a Sweetheart Trust is generally easier and cheaper to administer upon the death of the first spouse and during the surviving spouse’s lifetime.  No documentation is required to divide the trust, and no separate income tax returns are required.  Additionally, since the surviving spouse does have complete discretion over how the property is managed after the death of the first spouse, this level of control mirrors that of the non-trust alternative:  holding property in joint tenancy or as community property with right of survivorship (where the surviving joint owner inherits the property outright).

The Sweetheart Trust has gained more attention recently because of two changes in the Federal Estate Tax laws.  First, the unified credit amount, which is the amount that can pass free of tax to anyone, has risen to over $5 million.  Effectively, the Federal Estate Tax now is paid by less than 1% of decedent’s estates, which eliminates from most estate plans the estate tax avoidance benefits of a more complicated trust structure.  Second, now that “portability“ is available, the surviving spouse may be able to use the unused unified credit of the deceased spouse, and so a married couple may be able to leave over $10 million to their heirs free of estate tax.

With all this said, it must be cautioned that a Sweetheart Trust is not right for everyone.

While a Sweetheart Trust is a great probate avoidance vehicle, it is not without its disadvantages.  To begin with, due to the fact that the surviving spouse has the ability to change beneficiaries, a Sweetheart Trust is not usually appropriate in a blended family situation (where each spouse has different natural heirs).  In such a situation, there is commonly a concern that the surviving spouse may be tempted to disinherit his or her stepchildren. Along these same lines, if a Sweetheart Trust is used and the surviving spouse remarries, he or she can modify the trust’s distribution provisions to leave part (or all) of the assets to the new spouse.

In addition, if the trust estate contains appreciating assets, such that there is a possibility that estate tax will be due upon the survivor’s death, other trust structures (such as an “A/B” or “A/B/C” trust) might prove more effective at reducing the likelihood of having to pay estate taxes upon the death of the surviving spouse.  Of further note is the fact that although “portability” may allow the survivor to shelter over $10 million from estate taxes at his or her death, it does not allow the survivor to use the generation skipping transfer tax exemption of the deceased spouse, which reduces the amount that can be left in trust for the next generation to avoid estate taxes in that generation.  The purpose of highlighting these scenarios is not to show that Sweetheart Trusts are always a bad idea—because they are not.  Rather, it is to show that the high degree of control given to the surviving spouse can have certain consequences and both spouses need to be okay with them; and, that there may be some disadvantageous estate and generation skipping transfer tax consequences for larger estates.  But if the disadvantages of the Sweetheart Trust are understood, and simplicity is the paramount concern of both spouses, then the relatively simple structure of a Sweetheart Trust may be the ideal probate avoidance vehicle.

Under California law, non-compete provisions with an employee are generally unenforceable.  Statutory exceptions to this rule include the seller of a business’s goodwill or a membership interest in an LLC.  Courts have also recognized a judicial exception to this rule: where the non-compete is necessary to protect an employer’s trade secret information.  This judicial exception seeks to balance the tension that exists between an employee’s right to mobility versus the employer’s need to protect its valuable business information.

A recent decision from a federal district court in the Northern District of California shows what a fine line it is between permissible and impermissible non-competes.  In Sunbelt Rentals, Inc. v. Victor, 2014 U.S. Dist. LEXIS 14416, a company that operated rental centers sought a preliminary injunction against one of its former employees who had joined a competing company.  In addition to alleging a claim for trade secret misappropriation, Sunbelt accused Victor of breaching his employment agreement which contained a non-compete/non-solicitation provision.  The provision at issue was an agreement by the employee that he would not solicit any customer “who purchased or leased products or services from [Sunbelt] at any time during the 12 calendar months immediately preceding the termination of this agreement for any reason and for or with whom employee had contact, responsibility or access to confidential information related to” the customer.  Sunbelt argued that Victor had breached this provision of his agreement and thus, was entitled to injunctive relief against Victor.

Victor opposed the motion for preliminary injunction by arguing that the “non-compete” provision in his employment agreement was unenforceable under section 16600 of the California Business and Professions Code.  The Court began by recognizing that under this section “covenants not to compete are generally unenforceable” and that this section “represents a strong public policy” of California.  The Court continued by recognizing the three statutory exceptions to 16600 as well as the judicially-created rule that such provisions are not necessarily invalid when “necessary to protect trade secrets.”

Sunbelt attempted to argue that the “non-compete” was enforceable because it only sought to prevent its former employees “from using Sunbelt’s confidential information to solicit Sunbelt’s customers.”  The Court rejected this argument finding that the subject provision was much broader.  The Court noted that it prevented the solicitation of any customers who had done business with Sunbelt during the preceding 12 months, even if that customer was no longer doing business with Sunbelt.  Further, the Court found that the provision would apply if Sunbelt could show that its former employee merely had access to confidential information, not that the former employee had used such information to make the solicitation.

Given this, the Court found that the subject “non-compete” provision went too far and was thus unenforceable under section 16600.  (The Court did find that a contractual provision preventing the former employee from soliciting his former coworkers was, at least at the preliminary injunction stage, valid.)

The Sunbelt opinion once again demonstrates the high level of scrutiny courts apply when an employer accuses a former employee of violating a non-compete contractual provision.  Great care must be exercised in preparing such provisions to ensure that they do not run afoul of section 16600.  Should a court invalidate such a provision, the employer may be left with having to carry a heavier burden to establish that the employee has misappropriated trade secret information in order to prevent the unfair competition.

A number of recent California appellate decisions reveal hidden traps that may ensnare employers in administrative proceedings involving employee claims for unemployment or workers-compensation benefits. Such proceedings typically appear routine and uncomplicated. Nonetheless, missteps in handling those routine and relatively low-risk claims can greatly increase an employer’s exposure to liability in a separate civil action alleging wrongful termination, harassment, discrimination, retaliation, or similar claims.

Whereas employer exposure to claims for unemployment or workers-compensation benefits most often is relatively minor, employer liability in civil cases can be extreme, including the potential recovery of emotional-distress and punitive damages and attorney fees. Thus, employers who wish to reduce such risks should consider consulting with employment counsel before participating in such routine administrative proceedings.

For example, in Cuiellette v. City of Los Angeles, 194 Cal. App. 4th 757, 764 (2011), an employer hired a “workers compensation claims administrator … for its expertise in managing workers compensation cases.” The claims administrator advised the employer against allowing a disabled employee to work in a light-duty position because, for purposes of workers compensation, the employee was 100 percent disabled. That recommendation focused on intricacies of workers-compensation law and overlooked the employer’s independent obligation under anti-discrimination laws to provide reasonable accommodations to disabled employees. The result was a jury verdict against the employer of $1.5 million, and three separate appeals to avoid or undue that outcome.

More recently, the California Court of Appeal issued an unpublished decision revealing (in a muted way) another peril in the context of workers-compensation claims. The deadline to file a civil lawsuit alleging discrimination, harassment and retaliation typically expires within two years (depending on whether the employee files a charge of with the DFEH or the EEOC). Nonetheless, the appellate court in this case ruled that an employee who was fired in July 2006 could file a civil lawsuit alleging such claims against his employer in December 2011. The Court of Appeal found this late filing to be permissible because the employee had filed a claim for workers-compensation benefits in September 2006 alleging that the employer had harassed him and discriminated and retaliated against him. Although such claims cannot be addressed in the context of a workers-compensation claim, the appellate court said the statute of limitations on such claims did not start ticking because the employee had raised them in the workers-compensation forum in good faith.

Employers may feel a particularly strong sense of security in handling, without an attorney, employee claims for unemployment benefits, since state law says that rulings in such proceedings are inadmissible as evidence in a civil lawsuit. See Cal. Unemp. Ins. Code § 1960. Regardless, an administrative finding that an employee is entitled to such benefits, or that that an employer’s explanation for firing the employee is dubious, still may be admissible in federal court. See Baldwin v. Rice, 144 F.R.D. 102, 105-07 (E.D. Cal. 1992).

Even if the ultimate administrative findings are not worrisome, employers run the risk of making unfavorable or inaccurate admissions in such proceedings that can be used against them later in a civil lawsuit. Such unfavorable or inaccurate admissions by the employer appear to be exactly what an employee was hoping to obtain in Kelley v. California Unemployment Insurance Appeals Board, Cal. Ct. App. Case No. B244098 (Feb. 10, 2014). A copy of that appellate decision is available at this link.

The plaintiff in the Kelley case went on a stress leave from her job one month after she filed a claim with the DFEH alleging that her employer was retaliating against her for reporting sexual harassment. Her physician cleared her to return to work as of November 15, 2010, but she had hired a lawyer in the interim. Beginning on November 13, her lawyer exchanged emails with the employer’s lawyer demanding a number of assurances before the employee would return to work.

For instance, the plaintiff’s attorney insisted that the employer provide a written job description, a written statement of goals and objectives, written confirmation of the plaintiff’s job title, duties, pay and benefits, the status of the employee’s earlier request for vacation, and written confirmation that the plaintiff would not be subjected to retaliation for her earlier harassment complaints. The employer refused, characterizing the demands as an imposition of unreasonable conditions, and therefore terminated the plaintiff’s employment.

The plaintiff applied for unemployment benefits, but the employer contended that she was ineligible because she had voluntarily quit by insisting upon conditions that the employer had no obligation to satisfy. The California Unemployment Insurance Appeals Board ultimately found that the plaintiff was entitled to such benefits because the employer had discharged her “for reasons that did not amount to misconduct.” Clearly, such a finding could be very problematic for an employer if admitted as evidence for the jury to consider in a civil lawsuit.

Of course, at that point, such an administrative finding would be inadmissible in state court – but the story doesn’t end there. The employer challenged the administrative decision in a civil court. The trial court found that the email demands from the plaintiff’s attorney “were to some extent posturing for the threatened civil action,” but concluded that those emails were mere requests and not ultimatums or conditions. Accordingly, both the trial court and the Court of Appeal affirmed that the employee was entitled to the benefits because she did not quit. The appellate court held that the plaintiff’s “requests were not conditions or ultimatums and that [the employer] … could have waited to see whether she reported for work after the company declined to provide the requested information” rather than fire her.

In sum, the Kelley case no longer involves mere findings of fact concerning the circumstances of the plaintiff’s termination “made … in any action or proceeding before the [California Unemployment Insurance A]ppeals [B]oard.” Cal. Unemp. Ins. Code § 1960. On the contrary, such findings were made by a California trial court and affirmed by the California Court of Appeal. Consequently, the employer’s ability to dispute such findings in a subsequent proceeding may now be impaired.

The takeaway from these decisions is that employers face significant risk when it comes to litigating administrative claims for such benefits without first consulting with employment counsel, even though the potential damages may seem insubstantial. Obtaining guidance from legal counsel earlier may help to avoid significant liability in subsequent lawsuits.

On January 22, 2014, the United States Supreme Court decided that a patent owner has the burden of proving infringement in an action filed by a licensee for a declaratory judgment of noninfringement. This case, Medtronic, Inc. v. Mirowski Family Ventures, LLC, 2014 U.S. LEXIS 788 (2014), reversed a Federal Circuit Court of Appeals decision holding that in such a case, the burden of proof shifts to the licensee to prove it did not infringe.

In 1991, Medtronic and Mirowski entered into a license. Medtronic made medical devices, including cardiac devices, and Mirowski owned patents covering heart simulator implants. The license provided that if Mirowski believed that a new product of Medtronic was covered by the patents, Mirowski would give notice to Medtronic. Medtronic could then choose one of three options: agree to pay royalties for the new product, pay royalties and also challenge Mirowski’s finding of infringement, or not pay royalties, when which would allow Mirowski to terminate the license and sue Medtronic for patent infringement. The parties later modified the license to allow Medtronic to pay royalties into an escrow account if it decided to challenge Mirowski’s finding of infringement, with the winner receiving those royalties.

In 2007, Mirowski notified Medtronic that several new Medtronic products infringed Mirowski’s patents. Medtronic disagreed and sued Mirowski in the district court in Delaware for a declaratory judgment of noninfringement and invalidity. Pursuant to the license, Medtronic paid royalties for these products into an escrow.

The district court tried the case and ruled in favor of Medtronic. The court found that the burden of proving infringement fell on Mirowski and that it had not met that burden.

Mirowski appealed to the Federal Circuit Court of Appeals. The court concluded that Medtronic had the burden of proof, reversing and remanding the case. The court held that the patent owner normally bears the burden of proving infringement and that the burden remained on the patent owner even in a declaratory judgment action where the patent owner is a defendant asserting a counterclaim for infringement. The court held, however, that the burden shifts to the declaratory judgment plaintiff when the plaintiff is a licensee paying royalties and the patent owner is precluded from suing for infringement because the license is being performed. In such a case, the court said, the licensee has the burden of showing noninfringement.

Medtronic filed a petition for writ of certiorari to the Supreme Court and the Court granted the petition.

MedImmune. Under the Federal Circuit’s rule, if a licensee wants to challenge a patent (such that the burden of proof of infringement is on the patent owner), it must repudiate the license and force the patent owner to sue for infringement, risking treble damages and attorneys’ fees if it loses. As Medtronic explained, this is exactly the problem the Supreme Court had intended to solve in MedImmune.

The Court addressed the question of who bears the burden of proving infringement (or noninfringement) when a patent licensee continues to pay royalties but sues for a declaratory judgment of noninfringement. The Court held that the burden remains on the patent owner. 2014 LEXIS 788 at *13.

The Court first analyzed the issue as a matter of “simple legal logic.” Id. at *13-15. The Court explained that the burden of proof typically falls on the patent owner; the Declaratory Judgment Act is procedural; and the burden of proof is a substantive issue -therefore, the burden of proof remains on the patent owner. Id. at *15.

The Court noted that Federal Circuit’s burden-shifting rule would result in uncertainty in the marketplace and the possibility of inconsistent results. The declaratory judgment action might not result in a clear determination of the rights of the parties. Id. at *16.

According to the Court, the patent owner is in the best position to prove whether a product infringes the patent. The licensee should not have to figure out the patent owner’s theory of infringement.

The Court held that the Federal Circuit’s burden shifting exception conflicts with the Declaratory Judgment Act. The court explained that in its MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) decision, it had specifically intended to eliminate the problem faced by a licensee who wanted to challenge infringement without having to repudiate the license and force the patent owner to sue for infringement. MedImmune permitted licensees to continue to pay royalties and challenge infringement at the same time. Absent the procedure set forth in MedImmune, Medtronic would either have to give up its right to challenge infringement or stop paying royalties to sue for declaratory judgment, risking being sued for infringement and held liable for willful infringement (with treble damages and attorneys’ fees) if it was found to infringe. The Court said that the Federal Circuit’s decision “create[s] a significant obstacle” to the use of the MedImmune process, and that “we are unaware of any strong reason for creating that obstacle.” Id. at *17.

The Court did not think much of an argument propounded on behalf of Mirowski that unless the Court affirmed the Federal Circuit’s rule, licensees could force patent owners into litigation over infringement at any time. According to the Court, there must be a genuine dispute for a declaratory judgment action to be brought, and, in this case, Mirowski’s claim of infringement triggered the dispute. Id. at *20. The Court found “no convincing reason why the burden of proof law should favor the patentee.” Id. at *21.

The Court further explained that its rationale was supported by public policy in ensuring that “‘patent monopolies…are kept within their legitimate scope.’ [Citation omitted.]” Id. at *21. “A patentee should not be allowed to exact royalties for the use of an idea…that is beyond the scope of the patent monopoly granted.’” Id., quoting Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 349-50 (1971).

This decision means that it is now irrelevant which party files the lawsuit and is the plaintiff. The patent owner, not the accused infringer, bears the burden of proof no matter whether it is the plaintiff or the defendant.