Legal Insights - Page 69 of 133

Supreme Court Cuts Back Patent Owners’ Post-Sale Rights

Published: June 22, 2017

by Audrey A. Millemann
The IP Law Blog

Patent owners can no longer restrict the use of their patented products after the products are sold. Under the doctrine of patent exhaustion, a patent owner’s rights are “exhausted” once the patent owner sells the product. In Impression Products v. Lexmark International, Inc., 2017 U.S. LEXIS 3397 (May 30, 2017), the Supreme Court expanded the scope of patent exhaustion, reversing a long-standing rule that a patent owner can control the use of its patented product after the product is sold. The Supreme Court held that the sale (or license) of a patented product exhausts all of the patent owner’s rights. The Court also held that exhaustion applies regardless of whether the sale is inside or outside the U.S.

Lexmark owned several patents for toner cartridges for laser printers. When the toner in the cartridge was used up, the cartridge could be refilled and reused. Lexmark gave consumers two choices in purchasing its cartridges: the consumer could either pay full price for the cartridges with no restrictions or pay a discounted price with a contract to use the cartridge only once and return the empty cartridge only to Lexmark. Lexmark installed microchips on the refundable cartridges to prevent their reuse.

Impression Products and other companies bought the used Lexmark cartridges and solved the microchip problem, refilling the cartridges with toner and selling the refilled cartridges at a price lower than Lexmark’s price.

Lexmark sued Impression Products for patent infringement. Lexmark claimed that Impression Products infringed Lexmark’s patents by purchasing the used returnable cartridges and reselling them, in violation of the contract Lexmark had with the original purchasers. Lexmark also claimed that Impression Products infringed Lexmark’s patents by purchasing Lexmark cartridges that Lexmark had sold outside the U.S. and importing them into the U.S. for sale

Impression Products argued that it had not infringed the patents because Lexmark’s sales of the cartridges, in the U.S. or abroad, exhausted Lexmark’s patent rights. Impression Products moved to dismiss both of Lexmark’s claims. The district court granted the motion as to the returnable cartridges, but denied it as to the cartridges that were sold abroad.

The Federal Circuit Court of Appeals ruled for Lexmark on both claims. As to the returnable cartridges, the court held that patent exhaustion did not preclude the patent owner from imposing limits on post-sale use or resale, as long as the restrictions were clearly stated. As to the cartridges sold abroad, the court held that the patent owner retained the right to sue those who imported into the U.S. the cartridges originally sold abroad.

The Supreme Court reversed the Federal Circuit on both claims. First, the Court held that patent owners exhaust their rights when they sell the patented product, and it is irrelevant whether the post-sale limitations imposed by the patent owner are clearly stated. The patent owner relinquishes all rights to the patent when it sells the product. At that point, the product “becomes ‘the private individual property’ of the purchaser, with the rights and benefits that come along with ownership.” Id. at *18. The Court explained that the patent exhaustion doctrine means that “patent rights yield to the common law principle against restraints on alienation.” Id. According to the Court, “there is no basis [in the law] for restraining the use and enjoyment of things sold.” Id. at *19.

The Court explained that sales through licensees are treated the same way as sales by the patent owner. Such sales exhaust the patent owner’s rights. Thus, a patent owner cannot impose limits on the ultimate purchaser’s use of the patented product through the use of a license to an intermediary.

Second, the Court held that Lexmark’s sales outside the U.S. are also subject to patent exhaustion. If a patent owner sells its patented product abroad, it loses all patent rights, just as if it had sold the product in the U.S. Others are free to import the product that they purchased outside the U.S. for sale in the U.S.

U.S. Supreme Court Allows Early Notice For Biosimilars

Published: June 15, 2017

by Eric Caligiuri
The IP Law Blog

In SANDOZ INC. v. AMGEN INC. et al., the United States Supreme Court in a unanimous opinion ruled that biosimilar makers can give their required 180-day statutory notice of sales before their products win approval by the United States Food and Drug Administration (“FDA”). In short, the Court held a biosimilar maker “may provide notice either before or after receiving FDA approval.” If biosimilar makers had to await FDA approval before giving notice, this requirement would essentially delay the biosimilar’s lower priced offerings from reaching the market by six months. In the case of major biologics, when the biosimilar discounted version of a brand-name reaches the market, this completion can significantly reduce sales that can run in the billions of dollars annually.

At issue in the case is 42 U. S. C. §262(l), which was enacted as part of the Biologics Price Competition and Innovation Act of 2009 (BPCIA). The BPCIA governs a type of drug called a biosimilar, which is a biologicial product that is highly similar to a biologic product that has already been approved by the FDA. A biologic is type of pharmaceutical drug product manufactured in, extracted from, or semisynthesized from biological sources. Examples of commercial biologics include vaccines, blood, blood components, allergenics, somatic cells, gene therapies, tissues, recombinant therapeutic protein, and living cells used in cell therapy. For example, the biologic at issue in this case is filgrastim, which is used to stimulate the production of white blood cells. Amgen has marketed a filgrastim product called Neupogen since 1991 and claims to hold patents on methods of manufacturing and using filgrastim.

Most biologics are very large, complex molecules or mixtures of molecules. Many biologics are produced using recombinant DNA technology. In comparison, a standard synthetic drug is typically manufactured through chemical synthesis, which means that it is made by combining specific chemical ingredients in an ordered process. Synthetic drugs generally have well-defined chemical structures, and a finished drug can usually be analyzed to determine all its various components. By contrast, it is difficult, and sometimes impossible, to characterize a complex biologic by testing methods available in the laboratory, and some of the components of a finished biologic may be unknown.

Thus, to be approved as a biosimilar, a drug must have the same active ingredient, strength, dosage form, and route of administration as the reference drug, and it must also be “bioequivalent.” This means that generic drugs are the same chemically as their innovator counterparts and that they act the same way in the body. To gain FDA approval, an applicant must show that its product is “highly similar” to the reference product and that there are no “clinically meaningful differences” between the two in terms of “safety, purity, and potency.” An applicant may not submit an application until 4 years after the reference product is first licensed, and the FDA may not license a biosimilar until 12 years after the reference product is first licensed. As a result, the manufacturer of a new biologic enjoys a 12-year period when its biologic may be marketed without competition from biosimilars.

The manufacturer or sponsor may also hold multiple patents covering the biologic, its therapeutic uses, and the processes used to manufacture it. Those patents may constrain an applicant’s ability to market its biosimilar even after the expiration of the 12-year exclusivity period. However, the BPCIA facilitates patent litigation during the period preceding FDA approval so that the parties do not have to wait until commercial marketing to resolve their patent disputes. The BPCIA sets forth a carefully calibrated scheme for preparing to adjudicate, and then adjudicating, claims of patent infringement.

When the FDA accepts a biosimilar application for review, it notifies the applicant, who within 20 days “shall provide” to the sponsor a copy of the application and information about how the biosimilar is manufactured. The applicant also “may provide” the sponsor with any additional information that it requests. These disclosures enable the sponsor to evaluate the biosimilar for possible infringement of patents it holds on the reference product (i.e., the corresponding biologic).

After the applicant makes the requisite disclosures, the parties exchange information to identify relevant patents and to flesh out the legal arguments that they might raise in future litigation. For example, within 60 days of receiving the application and manufacturing information, the sponsor “shall provide” to the applicant “a list of patents” for which it believes it could assert an infringement claim if a person without a license made, used, offered to sell, sold, or imported “the biological product that is the subject of the [biosimilar] application.” Next, within 60 days of receiving the sponsor’s list, the applicant may provide to the sponsor a list of patents that the applicant believes are relevant but that the sponsor omitted from its own list, and “shall provide” to the sponsor reasons why it could not be held liable for infringing the relevant patents and why the patents may be invalid.

Following this exchange, the BPCIA channels the parties into two phases of patent litigation. In the first phase, the parties collaborate to identify patents that they would like to litigate immediately. The second phase is triggered by the applicant’s notice of commercial marketing and involves any patents that were included on the parties’ lists but not litigated in the first phase.

As to the issues in the case, the Court first had to decide whether the requirement that an applicant provide its application and manufacturing information to the manufacturer of the biologic is enforceable by injunction. The Court concluded that an injunction is not available under federal law, but remanded for the court below to decide whether an injunction is available under state law.

The second issue the Court considered is whether the applicant must give notice to the manufacturer after, rather than before, obtaining a license from the FDA for its biosimilar. In deciding the issue, the Court noted Section 262(l)(8)(A) states that the applicant “shall provide notice to the reference product sponsor not later than 180 days before the date of the first commercial marketing of the biological product licensed under subsection (k).” The Federal Circuit had held that an applicant’s biosimilar must already be “licensed” at the time the applicant gives notice. But, the Supreme Court disagreed.

The Court reasoned the applicant must give “notice” at least 180 days “before the date of the first commercial marketing.” “[C]ommercial marketing,” in turn, must be “of the biological product licensed under subsection (k).” Because this latter phrase modifies “commercial marketing” rather than “notice,” “commercial marketing” is the point in time by which the biosimilar must be “licensed.” The statute’s use of the word “licensed” merely reflects the fact that, on the “date of the first commercial marketing,” the product must be “licensed.” Accordingly, the court held the applicant may provide notice either before or after receiving FDA approval.

Arbitration Agreements Cannot Foreclose a Party’s Right to Seek Public Injunctive Relief under California’s Consumer Protection Laws

Published: June 14, 2017

by Lukas Clary

The California Supreme Court has struck back in its ongoing battle with the United States Supreme Court as to the enforceability of arbitration agreements in consumer contracts. On April 7, 2017, in McGill v. Citibank, the California Supreme Court held that a contractual waiver of the right to seek public injunctive relief—i.e., relief that serves primarily to benefit the public at large rather than redress private wrongs—is contrary to public policy and thus unenforceable under California law. The McGill court further held that the Federal Arbitration Act (FAA) does not preempt its holding. Pending a very possible review by the United States Supreme Court, the McGill holding serves to further limit the rights that parties may waive in arbitration agreements.

The Case

In 2001, plaintiff Sharon McGill opened a credit card account with Citibank and purchased a “credit protector” plan. The credit protector plan required Citibank to defer or credit certain amounts on McGill’s credit card account when a qualifying event such as a job loss or divorce occurred. Shortly thereafter, Citibank sent McGill a Notice of Change in Terms Regarding Binding Arbitration to Your Citibank Card Agreement (the “Notice”). The Notice amended McGill’s original agreement by adding an arbitration provision allowing either party to elect mandatory arbitration of any claims arising out of McGill’s account. The arbitration provision required arbitration of all claims, “no matter what legal theory they are based on or what remedy (damages, or injunctive or declaratory relief) they seek.” It further precluded McGill from pursuing any claim or obtaining any relief as part of a class action or on behalf of others, whether in arbitration or in any forum. McGill did have the right to opt out of the agreement by a certain date, but never did so and continued using her card.

In 2011, McGill filed a class action against Citibank based on its marketing of the credit protector plan and the handling of a claim she made when she lost her job in 2008. McGill alleged claims under California’s consumer protection statutes: the Consumer Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.); the unfair competition law (UCL; Bus. § Prof. Code, § 17200 et seq.); and the false advertising law (id., § 17500 et seq.). Among the relief McGill sought was “an injunction prohibiting Citibank from continuing to engage in its allegedly illegal and deceptive practices.” Citibank then petitioned to compel arbitration pursuant to the arbitration agreement. The trial court granted the petition in part, but denied it as to the claims brought under the consumer protection statutes. The trial court applied the Broughton-Cruz rule, which holds that agreements to arbitrate claims for public injunctive relief under the CLRA, UCL, or the false advertising law are not enforceable in California. The Court of Appeal reversed, holding that the U.S. Supreme Court’s holding in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 (“Concepcion”) preempts the Broughton-Cruz rule. In Concepcion, the court held that the FAA preempts state law that prohibits the enforcement of arbitration agreements containing class action waivers.

The California Supreme Court reversed the appellate court, but did not reach the issue of whether Broughton-Cruz rule survived Concepcion. The Court first determined that the Broughton-Cruz rule was not even invoked by the Citibank arbitration agreement. Specifically, the Citibank agreement did not purport to require arbitration of the consumer protection claims, but instead precluded McGill from seeking public injunctive relieve in any forum. That provision functioned as an outright waiver, not a mandate to arbitrate. According to the Court, such a waiver is invalidated by California Civil Code section 3513, which provides that “a law established for a public reason cannot be waived by a private agreement.” The Court held that the consumer protection laws, insofar as they allowed McGill to seek an injunction precluding Citibank from engaging in deceptive advertising practices, existed for a public reason and could not be waived. If allowed, the Court reasoned, pre-dispute arbitration agreements waiving the right to seek public injunctive relief “would seriously compromise the public purposes [the CLRA, UCL, and false advertising law] were intended to serve.” The Court held that such a waiver was therefore contrary to public policy and unenforceable under California law.

The Court next held that the FAA did not preempt this rule. In asserting preemption and citing to Concepcion, Citibank argued that the FAA requires courts to “place arbitration agreements on an equal footing with other contracts and to enforce them according to their terms.” The Court rejected Citibank’s argument, holding that the FAA only precludes courts from invalidating arbitration agreements based on defenses that apply only to arbitration. By contrast, the defense at issue—Civil Code section 1513’s mandate that a law established for public reason cannot be waived by contract—applied to contracts generally, not solely to arbitration agreements. That is, “a provision in any contract—even a contract that has no arbitration provision—that purports to waive” the right to public injunctive relief under the consumer protection laws is unenforceable. According to the Court, the FAA does not require enforcement of such a provision.

The Court also distinguished the issue at hand from arbitration agreements waiving parties’ right to pursue class actions, which were addressed and allowed in Concepcion. Whereas class action waivers only waive procedural rights—i.e., the mechanism by which substantive rights are pursued—a waiver of the right to seek public injunctive relief in any forum waived the substantive right to bring the claim at all. That waiver went too far according to the Court.

Takeaway from McGill

For now, the McGill holding means that arbitration agreements purporting to waive a party’s right to pursue public injunctive relief in any forum are void. But while the McGill court did not see the FAA as preempting this rule, the U.S. Supreme Court may disagree. Also, because the McGill court concluded that the Broughton-Cruz rule was not invoked, it did not reach the issue of whether that rule was preempted by the FAA in light of Concepcion. Unless and until the Supreme Court weighs in on these issues, businesses are advised to craft arbitration agreements carefully to ensure the desired provisions will be enforceable. This includes provisions that address how to treat claims for injunctive relief under the CLRA, UCL, and false advertising laws.

New Laws Affecting New York City Retail And Fast Food Workers

Published: June 14, 2017

The Labor & Employment Law Blog

By: Katie A. Veatch

On May 30, 2017, the Mayor of New York City (“NYC”) signed into law five bills related to workplace reform in the retail and fast food industries. These laws are set to take effect on November 26, 2017.

New Laws Applicable to Retail Industry in NYC

Intro 1387 (On-Call Scheduling), bans the practice of on-call scheduling for retail employees in NYC. The law applies only to retail employers with twenty or more employees at one or more stores within NYC. Under this new law, an employer will be prohibited from (1) scheduling a retail employee for an on-call shift; (2) cancelling a work shift with fewer than 72 hours’ notice; (3) requiring a retail employee to work with fewer than 72 hours’ notice, unless the employee consents to working in writing; and (4) requiring a retail employee to contact an employer to confirm whether the employee should report for his/her scheduled shift in the 72 hours before the start of the shift. However, a retail employer is permitted to make schedule changes or cancel shifts within the 72 hour window if it is to give an employee time off or to allow an employee to voluntarily trade shifts with another employee or if the employer’s operations cannot begin or continue.

Read the New Laws Applicable to the Fast Food Industry in NYC here: http://blog.hrusa.com/blog/new-laws-affecting-new-york-city-retail-and-fast-food-workers/

Non-Compete Provisions and Forum Non Conveniens Considerations

Published: June 9, 2017

by James Kachmar

Under California law, non-complete provisions are generally unenforceable. But what happens when the non-compete provision appears in an employment contract that is governed by another state’s law with a forum selection clause limiting any dispute to that particular state? All California courts in the past have refused to enforce a choice of law provision (absent a forum selection clause) that requires a California court to apply the law of a state that may be more favorable to non-competes on grounds that it violates California’s public policy concerning such restrictions. Courts in California, however, have been more tolerant of forum selection clauses that will send a dispute over a non-compete provision to a forum that views them more favorably. This dichotomy was recently on display in the case, Scales v. Badger Daylighting Corp.

Badger, a Nevada corporation with its principle place of business in Indiana, provides hydrovac excavation services. Daniel Scales, who lives in California, was employed by Badger between 2014 and 2016. Upon his gaining employment with Badger, he signed a confidentiality and non-competition agreement that provided certain restrictions on his ability to work for a competitor following the termination of his employment with Badger. It also contained both a choice of law provision (i.e., that the laws of Indiana would apply) and a forum selection clause (i.e., any lawsuit would be filed in Marion County, Indiana).

In 2016, Mr. Scales left his employment with Badger and joined a competitor in the same field. Badger filed a lawsuit for breach of contract in Marion County, Indiana. Shortly thereafter, Mr. Scales and others files a lawsuit in Kern County, California, alleging, among other things, a claim for declaratory relief that the non-compete provision he entered into was unenforceable as being contrary to California public policy. Badger removed the lawsuit to federal court and then filed a motion to dismiss Mr. Scales’ declaratory relief claim on the grounds of forum non conveniens.

The U.S. District Court began its inquiry by determining whether there was a valid forum selection clause at issue in the agreement. It noted that the U.S. Supreme Court has recognized that forum selection clauses “are presumptively valid and should be honored `absent some compelling and countervailing reason’.” Furthermore, the Court would not give any consideration to the fact that Mr. Scales filed in California as the plaintiff’s choice of forum should not be given consideration in the analysis.

Plaintiff argued that the forum selection clause was invalid because it violated California’s public policy as set forth in California Labor Code section 925 and Business and Professions Code section 16600. Section 925 of the Labor Code was recently enacted and makes any agreement by which a California employee is required to agree to an out-of-state choice of law/forum selection clause without the aid of counsel to be voidable. However, this section only applies to contracts entered into after January 1, 2017. Given that Mr. Scales entered into his agreement in 2014, the Court found that he could not take advantage of the recent change in law.

Turning its attention to California’s general prohibition on non-compete provisions in section 16600 of the Business and Professions Code, the Court held that enforcing the forum selection clause would not necessarily contravene the policy set forth by that section. The primary focus was to determine whether the clause was reasonable and not to focus on the ultimate effect of enforcing such a clause. In essence, unless Mr. Scales could show that granting the forum non conveniens motion would “foreclose all of [his] remedies,” the Court would uphold the validity of the forum selection clause.

To determine the validity of the forum selection clause, the Court was required to look at the “public interest” factors. First, the Court was to look at the “localized interests,” i.e., the competing interests between the forum state and the state identified in the forum selection clause. Badger argued that its headquarters were in Indiana and that Indiana had an interest in protecting its corporations from out-of-state competitors. The Court found this significant as well as the fact that Indiana was already handling litigation between the parties concerning Mr. Scales’ non-compete provision.

The next factor the Court was required to look at was familiarity with governing law. Because the agreement also had an Indiana choice of law provision, the Court concluded that an Indiana court would be best positioned to apply its own laws especially since it was already considering litigation between the parties.

The final factor to be considered in the analysis is administrative difficulties. Once again, the Court sided with Badger in its analysis. The Court concluded that the fact that there was already pending litigation in Indiana warranted dismissal under the grounds of forum non conveniens to avoid duplicative or inconsistent results between the two lawsuits. Thus, the Court granted Badger’s motion to dismiss Mr. Scales’ claim challenging the non-compete provision on the grounds of forum non conveniens.

Attorneys representing out-of-state employers in litigation involving the enforceability of a non-compete provision should consider whether there is a valid forum selection clause that will enable the defendant to litigate the dispute in a more favorable forum elsewhere. However, attorneys should be aware that if the contract at issue was entered into after January 1, 2017, it may implicate the provisions of section 925 of the California Labor Code and make such provisions voidable.

Eagles Ltd. v. Hotel California Baja, LLC: Any Time of Year, You Can Find Infringement Here

Published: June 8, 2017

The IP Law Blog

Recently, Eagles Ltd. (the “Eagles”), the entity in control of legendary rock band The Eagles’ business affairs, filed a lawsuit against Hotel California Baja, LLC for trademark infringement. While I’m sure most of us are familiar with the Eagles’ song Hotel California, it may come as a surprise to most trademark aficionados that the Eagles have never registered HOTEL CALIFORNIA with the USPTO. Although this is shocking, and many intellectual property practitioners might even say reckless, those reactions beg the question: Is federal registration an absolute necessity to enforcement?

Federal registration is undoubtedly beneficial, and most practitioners would advise registration as the prudent course of action, but it is by no means an absolute necessity. The Lanham Act is protective of all trademarks that a proponent can establish having used in the United States, whether registered or not. While I wouldn’t personally advise my clients to proceed without a registration, as there is significant downside, this should come as relief to some entrepreneurs, particularly start-ups, who may not quite have the revenue needed to pursue trademark registration for their marks. But such an election should not be made without first consulting competent counsel to obtain a complete understanding of the disadvantages of proceeding with an unregistered trademark. For example, one such disadvantage is that unregistered trademarks are geographically restricted to the area where the mark is utilized. After all, we don’t all have national and international distribution like the Eagles, giving rise to trademark protection that is equally broad in scope.

In any event, the Eagles have filed their lawsuit in the United States District Court for the Central District of California, which is based in Los Angeles. Interestingly enough, the Hotel California Baja is based, as its name implies, in Baja California, Mexico. Although this could seemingly pose a jurisdictional problem, the Hotel California Baja is a registered California corporation, which, in this instance, makes it subject to the Central District’s jurisdiction. In the lawsuit, the Eagles allege that the Hotel California Baja has engaged in unfair competition and created a false designation of origin to consumers. More specifically, the Eagles allege that through the use of HOTEL CALIFORNIA, the playing of the Eagles’ music in the lobby, and the sale of merchandise self-proclaiming the hotel as “legendary,”[1] the Hotel California Baja has duped consumers into believing that the hotel is somehow associated or otherwise affiliated with the Eagles, or alternatively, that the Eagles sponsor or approve of the hotel’s services and commercial activity. Furthermore, the Eagles have alleged that the Hotel California Baja falsely claims to have served as inspiration for the song. As you might assume from the filing of this action, the Eagles have no such relationship with the Hotel California Baja, and they do not sponsor or approve its activities.

It is also worth noting that there is related litigation pending before the USPTO. Namely, in October 2016, the Eagles opposed the Hotel California Baja’s trademark registration, which was filed in November 2015, on the ground that it creates a likelihood of consumer confusion. Interestingly enough, shortly thereafter, the Eagles finally attempted to register HOTEL CALIFORNIA with the USPTO, but the examining attorney issued an office action refusing registration on the basis of Hotel California Baja’s previously filed application! However, in light of the recently filed federal litigation, both of these matters will likely be stayed.

It will be interesting to see how this dispute is ultimately resolved, whether through settlement or litigation. At this juncture, we do not have enough information to provide an informed analysis of how we believe it may come out, but we will keep an eye on the docket and provide updates when meaningful information becomes available.

[1] The Eagles contend that if the Hotel California is legendary, there can only be one source for that status: the Eagles. Thus, the Eagles contend that this characterization of the Hotel California Baja further exemplifies the false designation of origin.

Is Panic Really the Best Choice? One Lawyer’s Approach to Analyzing “Substantially Similar Work” Under the California Fair Pay Act

Published: June 7, 2017

by Charles L. Post
The Labor & Employment Law Blog

Since the passage of the California Fair Pay act in late 2015 (effective January 1, 2016) and its recent amendments, many employers and commentators have criticized the statute for imposing a vague and dangerous standard on California employers.

The California Fair Pay Act replaces the former “equal work” standard of the Equal Pay Act with a “substantially similar” standard. The California Fair Pay Act (Labor Code section 1197.5) states: “(a) An employer shall not pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions …”.

Some adrenalized commentators have said that any effort to actually conduct this analysis is a fool’s errand. The standard is so vague and shapeless that it is functionally meaningless until a court sharpens the standard with defined tests and definitive holdings. Other commentators suggest that employers abandon any attempt to determine if any two types of work are substantially similar to one another (an analysis required by the statute) and instead focus on the second half of the statutory analysis, which allows employers to justify wage disparities (along race or gender lines) on the basis of a bona fide factors other than sex or race.

While it is true that courts have not yet ordained a specific analysis on how to determine substantially similar work, the statutory standard is not so vague as to defy either analysis or application. Legislative examples propose that under this standard a male school janitor and a female hotel housekeeper may be engaged in substantial similar work.

Even if the standard were so vague as to defy application (and I don’t believe it is) employers are well served to act reasonably and based upon a good faith and reasonable interpretation of the law. Yes, a court may later hold that some part of any analysis used is incorrect, but the use of a reasonable analytic process (before any court decision considering the law) will likely place an employer in a better position than a company that has skipped the first step of the required analysis.

To read this full article and a general approach to conducting the “substantially similar” work analysis, click here.

Texas Bus Monitor Termination For Incontinence Is Discrimination

Published: June 7, 2017

by Shauna N. Correia
The Labor & Employment Law Blog

In Green v. Dallas County School District, a Texas jury found that a Dallas County School District (the “School District”) violated Texas disability discrimination laws when it fired a bus monitor who lost control of his bladder on a school bus. The bus monitor, Paul Green, suffered a known disability – congestive heart failure – and had disclosed that he was taking a diuretic drug for his heart condition. The District said it did not fire the bus monitor “because of” his disability (congestive heart failure) but because of the health and safety violations that occurred. On appeal, the Court of Appeal agreed and reversed the jury verdict. Green asked the Texas Supreme Court to consider whether the jury could have found he was fired because of a different “disability” – his urinary incontinence.

To read the rest of this article, visit HRUSA at http://blog.hrusa.com/blog/texas-bus-monitor-termination-for-incontinence-is-discrimination/

California Supreme Court adds to line of cases narrowly applying the right to recover attorneys’ fees under Civil Code section 1717.

Published: June 2, 2017

by Josiah M. Prendergast

Despite increasing sophistication amongst contracting parties and evermore common use of attorney fee clauses, the “American Rule” endures. The American Rule is that each side pays its own attorney fees in litigation, win or lose. In California, statutory exceptions to the American Rule are limited, leaving private parties to modify the American Rule, if they so desire, through contract. For those contracting parties, the recent California Supreme Court decision in DisputeSuite.com, LLC v. Scoreinc.com, however, should temper expectations when seeking to recover attorneys’ fees under California Civil Code section 1717.

A long-standing criticism of the American Rule is that it encourages meritless lawsuits. The American Rule creates somewhat of a Sophie’s choice for defendants to baseless actions: pay to settle a frivolous claim or potentially pay more in attorneys’ fees to defeat bogus claims.

In the absence of legislative will to abandon or modify the American Rule, private parties turned to contractual attorney fee provisions to discourage weak or baseless lawsuits between contracting parties. Many early adopters, however, also used attorney fee provisions to discourage lawsuits based on good faith disputes. For example, residential landlords began including one-sided provisions in leases, making the tenant liable for the landlord’s attorneys’ fees in any lawsuit related to the lease.

The Legislature responded by enacting section 1717, which generally entitles the prevailing party in any action on a contract to recover its attorneys’ fees where the contract contains an attorney fee clause, regardless of whether the clause is one-sided. The case law interpreting and applying section 1717 shows time and again that section 1717 is a limited exception to the American Rule. The principal effect of section 1717 is to protect weaker or unsophisticated contracting parties by nullifying the one-sidedness of attorney fee clauses. Otherwise, courts will not construe a narrow attorney fee clause more broadly than the language used in the contract, much to the chagrin of many prevailing parties.

For example, section 1717 does not apply where the plaintiff asserts tort claims, even if the defendant prevails based on a provision in the contract. Although “a defense to a tort action based on a provision in the contract may have the effect of enforcing the provisions of the contract[,]” “the assertion of a defense does not constitute the bringing of an action to accomplish that goal.” Gil v. Mansano (2004) 121 Cal.App.4th 739, 743. Broadly-phrased contractual language (i.e., “all claims between the parties, whether in tort or contract”), might entitle the defendant to recover its attorneys’ fees in that instance, but section 1717 will not imply the right where the action is not based on the contract.

In DisputeSuite.com (2017) 2 Cal.5th 968, the Court addressed a different limiting aspect of section 1717: when has a party “prevailed” such that section 1717 requires the court to award attorneys’ fees? There, DisputeSuite sued Score, in California, for breach of contract. The contract contained an attorney fee provision as well as a forum selection clause. Score successfully moved to dismiss the action based on a forum selection clause in the agreement that specified Florida as the proper forum. Score then moved to recover its attorneys’ fees as the prevailing party. The trial court denied the motion because, although the action in California was dismissed, DisputeSuite had filed suit in Florida, so it remained an open question whether Score would ultimately prevail on the merits of the contract claims. The Court of Appeals and the California Supreme Court affirmed the trial court’s ruling.

Score argued that a party could be a prevailing party, under section 1717, based on a procedural victory. Supreme Court agreed, but held that a procedural victory must “finally dispose of the parties’ contractual dispute” to merit a prevailing party award under section 1717. Score’s motion to dismiss did not finally dispose of the dispute. As some consolation, the Court indicated that a party in Score’s position, having been sued in the wrong forum, was not wholly without recourse. Such a “defendant may seek sanctions under Code of Civil Procedure section 128.7, which may include attorney fees incurred as a result of the improper filing.” 2 Cal.5th at 981. Section 128.7 has its own shortcomings, however, which are not addressed here.

The DisputeSuite decision builds on a line of cases demonstrating the limited relief Civil Code section 1717 affords. Parties negotiating a contract should be attentive to the language used in any attorney fee clause, to ensure its scope meets their expectations. Otherwise, they should expect to bear their own legal expenses, win or lose. At least for now, that’s the American way.

The Jury Is Still Out on What “Registration” Means Under Section 411 of the Copyright Act.

Published: June 1, 2017

by Scott M. Hervey
The IP Law Blog

The Copyright Act provides that “Registration” of a copyright is a precondition to filing suit for copyright infringement. 17 U.S.C. § 411(a). We are still trying to figure out exactly when registration occurs.

While copyright registration is voluntary, the Copyright Act provides several incentives for a copyright owner to register a copyright, one of which is the right to enforce a copyright in an infringement action: 17 USC 411(a) provides:

[N]o civil action for infringement of the copyright in any United States work shall be instituted until … registration of the copyright claim has been made in accordance with this title. In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement .…”

There are two camps of thought splitting the Federal circuit courts on when “registration” takes place with regard to Section 411(a). The first is that “registration” occurs when a copyright owner files all necessary application materials to the Copyright Office to register a copyright. The 5^th and 9^th Circuits and various district courts in other circuits have adopted this perspective, relying on the fact that the Copyright Act prescribes that the effective date of a registration is the date on which a proper and complete application was filed. Because an applicant may sue for infringement whether or not a registration is issued as long as a proper application was filed, courts following the application approach believe the “registration” approach is misguided. Since an applicant can file suit either way, it is immaterial whether registration is ultimately granted.

The second camp is that “registration” occurs when the Register of Copyrights registers the copyright or rejects the application. The 10^th Circuit follows the “registration“ approach. Just this month, the 11^th Circuit made clear that it too will follow the registration approach.

In its decision in Fourth Estate v. Wall Street.com, LLC, the 11^th Circuit explained the rationale behind its support of the “registration” approach. That case involved a copyright infringement lawsuit over articles appearing on WallStreet.com. The Copyright Office had not yet processed the copyright applications and Wall-Street.com, LLC moved to dismiss. The court stated that “the Copyright Act defines registration in Section 410(a) as a process that requires action by both the copyright owner and the Copyright Office; the filing of the application, the payment of the application fee, the examination of the application by the Register of Copyrights, and then either the issuance of the certificate of the notification of the refusal of registration.

Section 410(a) of the Copyright Act provides in pertinent part:

When, after examination, the Register of Copyrights determines that, in accordance with the provisions of this title, the material deposited constitutes copyrightable subject matter and that the other legal and formal requirements of this title have been met, the Register shall register the claim and issue to the applicant a certificate of registration under the seal of the Copyright Office.

The court argued that the use of the phrase “after examination” in section 410(a) makes explicit that an application alone is insufficient for registration. Further, the court points out that Section 411(a) allows an applicant whose application has been refused to file an infringement suit. If registration occurred as soon as an application was filed, how could the application ever be refused the court reasoned.

With two Federal circuits clearly split, it is time for the Supreme Court to resolve this issue.

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