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Just last week, on February 18, 2015, Seattle Seahawks superstar running back Marshawn Lynch (“Lynch”), also known as Beast Mode, filed for a federal trademark with the United States Patent and Trademark Office (“USPTO”) for his now famous quote—“I’M JUST HERE SO I WON’T GET FINED.” For those of you who are not big NFL fans, Lynch coined his now signature phrase during the Super Bowl XLIX Media Day. This did not come as a huge shock to most NFL fans because Lynch has developed a reputation for avoiding the media and refusing to fulfill the media obligations of one of the league’s brightest superstars. However, in the face of the NFL’s threat of a $50,000 fine if he refused to participate in Super Bowl XLIX Media Day, Lynch decided to play ball. In response to over 20 proffered questions, Lynch simply responded, “I’m just here so I won’t get fined.”

This caused quite the outrage from the media and certain sports fans—mostly 49er fans (we all know how they adore the Seahawks), who found Lynch’s conduct unprofessional and disrespectful. But, say what you will about Lynch’s unprofessional conduct and disregard for his obligations as an NFL superstar, the fact is the man knows how to exploit and protect his own intellectual property. Financially speaking, Lynch maximized the utility of the situation by coining a signature phrase and getting it out to millions of viewers during media week. In fact, a renowned sponsorship evaluation firm calculated the value of the total exposure for Lynch’s clothing line during his Super Bowl XLIX appearances to be more than $3 million in equivalent advertising time. Not only that, he prudently followed up by filing a federal trademark application for the mark with the USPTO. Now, this did not strike me as the conduct of an IP novice, so I decided to investigate the matter further. My research revealed my intuition to be true—this was not, as the saying goes, Lynch’s first rodeo.

It turns out that Lynch is the proud owner of several other trademarks. Just last year, Lynch trademarked ABOUT THAT ACTION BOSS after he uttered the phrase to “Prime Time” Deion Sanders of the NFL Network during the lone interview that he did during Super Bowl XVLVIII Media Day. ABOUT THAT ACTION BOSS has been reviewed by the USPTO and will be published in the latter part of March. In addition to the aforementioned mark, Lynch owns four separate BEAST MODE marks and filed for four more. Lynch’s BEAST MODE marks apply to a variety of products ranging from energy drinks to earbuds and sports apparel. Interestingly, these BEAST MODE registrations all include a section for “[O]ther data” where Lynch’s attorneys have included the following: “The name ‘BEAST MODE’ identifies a living individual whose consent is of record.” I find this addition to the registrations even more intriguing in light of the fact that the marks could have been obtained without including such information. Although I cannot be certain, I would be willing to wager that Mr. Lynch, BEAST MODE himself, insisted on its inclusion.

Whatever your personal opinion of BEAST MODE, one thing is clear—he is far more business savy than the media and average sports fan give him credit for. Although Lynch is media-averse, he efficiently maximized his exposure for commercial gain. Unlike the masses of superstars who squander their fortunes and/or fail to develop alternative revenue streams outside of athletics, Lynch exploited the goodwill in his signature phrases and nickname to create what I can only assume is a lucrative side business. If you’re interested, check out the clothing line at http://www.beastmodeonline.com. Otherwise, be sure to stay tuned to the IP Blog and we will keep you apprised of any developments regarding the mark I’M JUST HERE SO I WON’T GET FINED.

By: Intellectual Property Group

On February 5, 2015, Congressman Bob Goodlatte reintroduced the “Innovation Act”; a bill designed to implement several changes to the legal framework governing United States patent law. The law is designed to make it more difficult for non-practicing entities (also known as “patent trolls”) to maintain patent infringement lawsuits. The law appears to have significant support among both houses of Congress, and may soon become law.

If passed, the Innovation Act purportedly will create several disincentives aimed at increasing the risk faced by non-practicing entities when bringing patent infringement lawsuits. First, the Innovation Act would require non-practicing entities to meet a heightened pleading requirement. Non-practicing entities would be required to plead “with detailed specificity” how the accused products allegedly infringed their patents. Additionally, the Innovation Act contains a fee-shifting provision which would allow the court to award attorneys’ fees to the prevailing party. This provision was included in the Act to address the fact that most lawsuits brought by non-practicing entities are settled by the accused party because the defense costs and legal fees associated with defending patent infringement cases often run into the millions of dollars. Accordingly, by including a fee-shifting provision, the supporters of this bill hope to create a greater incentive for accused parties to defend themselves, and to punish non-practicing entities for asserting specious claims. The Innovation Act doubles down on this fee-shifting approach by placing limitations on the discovery that can be propounded during the litigation. First, the Innovation Act would limit discovery to so-called “core documents.” According to the proposed legislation, “core documents” are documents that are most likely to be germane to the litigation, such as documents detailing how an accused product functions. Additionally, the Act would delay most of the discovery in a case until after the relevant portions of the patent asserted by the non-practicing entity had been interpreted by the court. Because the discovery process in litigation represents a significant portion of the expenses incurred by parties to litigation, Congress hopes that these limitations will remove some of the financial pressure associated with defending patent litigation claims, thereby creating an incentive for more parties to defend themselves instead of entering into extorted settlement agreements.

While there are many non-practicing entities bringing baseless patent infringement litigation against innocent third parties, there are myriad legitimate small businesses who have developed intellectual properties, obtained patents, but never have manufactured physical embodiments of their inventions. As a result, many legitimate businesses fall within the reach of laws directed toward curtailing the ability of non-practicing entities to bring and maintain patent litigation matters. As a result, while well intentioned, proposed legislation such as the Innovation Act, while being promoted as a means of protecting small business from the perils of the hordes of patent trolls wandering the small business landscape, may actually inhibit the ability for small intellectual property-based startup companies to bring lawsuits designed to vindicate their own patent rights. Additionally, the Innovation Act also may reward patent trolls who have significant financial resources and can financially support patent litigation, or tolerate the risk associated with the proposed fee-shifting provisions. Therefore, ironically, the Innovation Act could cause legitimate small businesses who own intellectual property to sell or license their patent rights to well-funded non-practicing entities, thereby creating much larger, more diversified “patent trolls.”

What do you get when you take one shark costume, add a confused backup dancer, throw in Katy Perry and the Super Bowl halftime show and top it off with a satirical artist with a 3D printer? First the backstory.

The “Left Shark” in question is a Katy Perry backup dancer who was dressed in a shark costume for Perry’s beach-themed number “Teenage Dream” during the Super Bowl halftime show. The Left Shark (the dancer to Perry’s right) seemed to have forgotten his dance moves — how else could you explain the flailing of fins. The Internet took notice; so did 3D sculptor Fernando Soza.

Soza’s satirical barbs are usually reserved for the politico set, such as Governor Chris Christie wearing a traffic cone and carrying a sign that reads “traffic study”. However, this time he took aim at the Left Shark and created a 3D printed sculpture of one regular shark, one pink shark and one holding a beer bottle.

So what do you get when you take one shark costume, add a confused backup dancer, throw in Katy Perry and the Super Bowl halftime show and top it off with a satirical artist with a 3D printer? You have the makings for a copyright dispute, of course. What else could there be?

Perry’s lawyers sent Soza a cease and desist letter alleging that the shark sculpture infringed certain “intellectual property depicted or embodied in connection with the shark images and costumes portrayed and used” in Perry’s Super Bowl halftime show. The letter insisted that Soza’s sale of the sculpture infringed Perry’s “copyrighted work” and demanded that Soza “cease and desist from all further commercial use or exploitation of unauthorized products bearing the…copyrighted images.”

Perry’s lawyers almost accomplished their goal; Soza was ready to cut bait until an NYU law professor offered to represent him. Soza’s reply challenged Perry’s claim on two grounds: the first was on ownership. Soza’s lawyer quoted a press interview Perry gave wherein she said that she had to go through layers of bureaucracy for approval of, among other things, her costumes. While interesting, the sole fact that Perry had to get NFL approval of her show costumes would not divest her of whatever authorship rights she may otherwise have in the costume. The other ground was on the copyrightability of the costume itself.

Copyright Registrability of Costumes

The United States Copyright Office has generally refused to register claims to copyright costume design on the ground that costumes are useful articles that ordinarily contain no artistic authorship separable from their overall utilitarian shape. However, where a costume design contains a separable pictorial or sculptural authorship, copyright protection is available. The “separable authorship” means that the portion of the costume claimed to be protectable must be physically separable (the work can be physically removed from the costume), or conceptually separable (the work is independently recognizable and capable of existence apart from the overall utilitarian shape of the useful article).

An example of where a costume contains physically separable elements is where the costume contains fanciful elements not related to the functionality of the costume. For example, in the case of Chosun International, Inc. v. Chrisha Creations, Ltd., 214 F.3d 324 (2005), the court determined that the heads of Chosun’s plush sculpted animal costumes are separable from the overall design of the costume, and hence eligible for protection under the Copyright Act. Because the costume “heads” are physically separable from the overall costume, in that they could be removed from the costume without adversely impacting the wearer’s ability to cover his or her body, copyright protection would be available.

An example of where a costume contains conceptually separable works is where the costume incorporates a protectable character. For example, The U.S. District Court for the Central District of California handed a big victory to Warner Bros. when it ruled that Gotham Garage violated Warner Bros.’ intellectual property rights in the iconic Batmobile when Gotham Garage manufactured a car based on the 1966 and 1989 Batmobile. Although an automobile is a useful article, the court held that the Batmobile was a protectable character and conceptually separable from the useful article. Generally, characters that are sufficiently delineated or “constitute the story being told” are entitled to receive protection apart from the work in which the character appears. However, where the character is “only a chessman in the game of telling the story” or is a stock character, no protection is warranted.

Is the Left Shark costume protectable under copyright law? In order for the Left Shark costume to be protectable under the copyright law, Perry’s team would have to claim that a portion of the costume is physically separable or conceptually separable. In Soza’s reply letter, he essentially challenged Perry’s lawyer to identify the elements of the shark costume that are protectable. Perry’s team has yet to respond. Soza, it is reported, continues to sell the Left Shark sculptures. Ernest Hemingway’s quote from “The Old Man and the Sea” comes to mind: “‘Fish,’ he said softly, aloud, ‘I’ll stay with you until I am dead.’” (Or at least until sales go flat.)

By Anthony Daye

Recently, my Alma Mater, The University of Southern California, was sued by a former member of the Trojan football team. Former cornerback Brian Baucham filed a lawsuit against USC and former coach Lane Kiffin, alleging he suffered permanent injuries after being forced to play in a game while he was ill. Baucham’s lawsuit claimed that he was “forced by Coach Kiffin to play a home game even though Mr. Baucham was very ill and diagnosed by the USC Health Clinic with an influenza-like illness, viral pharyngitis and dehydration.” After playing in a game against Berkeley, “Baucham suffered from cardiopulmonary damage, as well as brain injury with neurocognitive deficits,” according to the lawsuit. Baucham alleges that USC and Kiffin violated both the NCAA and USC injury protocol programs when they forced him to play.

This got me to thinking: Now that the National Labor Relations Board has found that scholarship football players are employees under the NLRA, what if Mr. Baucham filed suit against USC as an employee?

What causes of action could an employee have against an employer that forces them to work when they are injured or seriously ill?

Failure to Reasonably Accommodate a Disability: The Americans with Disabilities Act (ADA) and the California Fair Employment and Housing Act require that most employers provide qualified individuals with disabilities with reasonable accommodations. Whether or not the employee has a qualifying disability should always be carefully analyzed. For example, an employee’s bad back or sprained knee can be a disability; telling them to “tough it out” is not a reasonable accommodation. Keep in mind that time off of work may be considered a “reasonable accommodation” depending on the circumstances.

Workers’ Compensation – Aggravation of Pre-Existing Injuries: Even if an employee has a pre-existing injury that is bothering him/her at work (i.e. a skiing injury), forcing an employee to “fight through the pain” may cause the employee to aggravate the pre-existing injury. This essentially means that the employee’s injury is now worse than it was before, which will likely lead to a workers’ compensation claim. This is similar to what Baucham alleges in his law suit against USC.

FMLA Violation: The Family and Medical Leave Act (FMLA) provides for job protected leave and benefits coverage entitlements to employees who meet FMLA eligibility requirements. FMLA regulations define a “serious health condition” as an illness, injury, impairment, or physical or mental condition that requires the employee to be away from work. For example, if an employee comes to his/her employer with a doctor’s note for a Crossfit injury and needs a week off during the busiest time of the year, the employer has to allow the leave if the employee has:

(a) worked for the employer for at least 12 months;

(b) has worked at least 1,250 hours during the 12 months prior to the start of the FMLA leave; and

(c) works at a location where at least 50 employees are employed at the location or within 75 miles of the location.

Because this employee is an avid Crossfitter, he/she repeatedly shows up injured to work needing days off at a time. This means the employer must repeatedly allow the employee to take time off for qualifying injuries, up to 12 weeks per year.

In addition to the traditional employment claims, there is nothing to stop and employee from tacking on non-traditional claims such as negligence, intentional infliction of emotional distress, and negligent infliction of emotional distress to name a few. Moreover, both injured employees and their coworkers may have claims against employers based on general negligence (similar to negligent hiring) and OSHA regulations.

Suffice it to say, employers should think twice before requiring injured employees to “take one for the team” and work through pain as a condition of continued employment.

A few years ago, I wrote a column addressing a case in which Pom Wonderful LLC sued Coca Cola Company in connection with the marketing of one of its pomegranate-blueberry juice products. That case dealt with whether one of Pom Wonderful’s claims were barred by the Federal Drug and Cosmetic Act with regard to labeling issues.

Ever protective of its brand, Pom Wonderful was recently successful before the Ninth Circuit in a trademark infringement case. Pom Wonderful sued a competing pomegranate beverage maker doing business under the name Pur Beverages for trademark infringement. After the district court denied Pom Wonderful’s motion for preliminary injunction barring the defendant from selling its competing beverage, Pom Wonderful appealed to the Ninth Circuit.

Pom Wonderful owns numerous trademark registrations that make up its “Pom” brand family. Pom Wonderful spends significant sums in marketing its products and policing against other companies’ uses that may infringe on its trademarks. In connection with these efforts, Pom Wonderful discovered that Pur was selling a pomegranate flavored energy drink that it called “Pŏm”. When Pur refused to change its marking, Pom Wonderful sued it for trademark infringement and moved for an injunction.

The Ninth Circuit concluded that the district court erred in denying Pom Wonderful’s motion for preliminary injunction. While a preliminary injunction is “an extraordinary and drastic remedy,” an injunction should issue where the moving party, such as Pom Wonderful, can establish that “(1) it is likely to succeed on the merits; (2) it is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in its favor; and (4) an injunction is in the public interest.” The primary issue facing the Ninth Circuit was whether the lower court had erred in determining that Pom Wonderful had not demonstrated the likelihood of success on the merits.

The Court began by recognizing that Pom Wonderful, to prevail on a claim of trademark infringement, would have to show that: “(1) it has a protected ownership interest in the `Pom’ mark; and (2) Pur’s use of the word ‘Pŏm’ is likely to cause consumer confusion thereby infringing upon Pom Wonderful’s rights.” The Court did not have to spend much time on the first factor because Pom Wonderful’s registration of its trademarks was “prima facie evidence of the validity of the mark”. This registration provided Pom Wonderful the “exclusive right to use the ‘Pom’ mark [and] covers all design variations of the word because ‘Pom’ was registered as a standard character mark,” i.e., a mark that makes no claim to any particular font, style, color or display size.

Turning to the issue of likelihood of consumer confusion, the Ninth Circuit stated that it had to use the factors from AMF, Inc. v. Sleekcraft Boats, 5999 F.2d 341 9th Cir. 1979) (“the Sleekcraft Factors”) in assessing the likelihood of consumer confusion. These factors are as follows: “(1) strength of the protected mark; (2) proximity and relatedness of the goods; (3) type of goods and the degree of consumer care; (4) similarity of the protected mark and the allegedly infringing mark; (5) marketing channel convergence; (6) evidence of actual consumer confusion; (7) defendant’s intent in selecting the allegedly infringing mark; and (8) likelihood of product expansion.” The Ninth Circuit turned to each of these factors in turn to determine that the lower court had erred.

Strength of the Protected Mark: The Ninth Circuit found that the lower court had correctly found that this factor favored Pom Wonderful. Although the mark “Pom” does not necessarily mean pomegranate by resorting to conventional dictionaries, it requires customers to use some additional imagination and perception to attribute the mark to Pom Wonderful’s goods. Given its substantial investment in its sales and marketing efforts, the Court held that “Pom Wonderful enjoys sufficient marketplace recognition to render its `Pom’ mark commercially strong.”

Relatedness of Goods: The Ninth Circuit found that the lower court had also correctly found that this second factor favored Pom Wonderful and that Pom Wonderful’s juice beverages were related to Pur’s “Pŏm” energy drink. This factor addresses “related goods … are those `which would be reasonably thought by the buying public to come from the same source if sold under the same mark’.” The Court concluded that a fruit juice beverage and a fruit flavored energy drink are sufficiently complimentary that a reasonable consumer would connect them.

Degree of Consumer Care: This was another factor that the Ninth Circuit concluded had been properly found by the lower court to be in Pom Wonderful’s favor. Given the nature of the beverage market whereby customers typically by single unit beverages at low cost, a “consumer [would] exercise a low degree of care and sophistication” in making such purchases

Similarity of Marks: Here, the Ninth Circuit found that the lower court erred in concluding that there was not a similarity of marks. The Ninth Circuit compared the product labeling and noted that they had “many obvious visual similarities,” including each containing three letters with a stylized second letter. The Ninth Circuit further went beyond the mere look of the labeling and found that because the marks were pronounced in precisely the same manner, “the marks are aurally identical.” Finally, the Ninth Circuit concluded that the two marks had the same meaning in that they both referred to pomegranate flavoring and/or ingredients. Given the visual, aural and semantic similarities, and having to weigh similarities more heavily than dissimilarities between the marks, the Ninth Circuit concluded that the lower court erred in not finding the marks to be similar for purposes of the injunction motion.

Marketing Channel Convergence: The Ninth Circuit concluded that the lower court again erred in concluding that this factor did not favor Pom Wonderful. This factor concerns “whether the parties’ customer basis overlap” and “how the parties advertise and market their products.” The Ninth Circuit concluded that Pom Wonderful would likely be able to establish that “both companies use parallel market channels” and that they both sell their products through supermarkets throughout the country, with at least one overlapping state and one overlapping supermarket chain. The Ninth Circuit also concluded that both products were similar in that they were “inexpensive and marketed to health conscience consumers.” Therefore, the Ninth Circuit held that this factor should have been weighed in Pom Wonderful’s favor.

Turning to the three remaining factors: actual confusion, defendant’s intent and product expansion, the Court held that the record before the lower court indicated that these factors did not favor one side or the other. Thus, in looking at the totality of the circumstances, the Ninth Circuit found that five of the Sleekcraft factors favored Pom Wonderful and the other three were neutral. Thus, the Ninth Circuit held that the lower court erred in not finding that Pom Wonderful had established the likelihood of success on the merits to warrant injunctive relief. The Ninth Circuit remanded the case back to the lower court to consider whether Pom Wonderful had established the other factors necessary for injunctive relief in light of its ruling.

The Federal Circuit Court of Appeals has applied the Supreme Court’s test for unpatentable abstract ideas to patents covering methods to determine a person’s likelihood of getting certain types of cancer.

In University of Utah Research Foundation v. Ambry Genetics Corp., 2014 U.S. App. LEXIS 23692, decided by the Federal Circuit on December 17, 2014, the court addressed the patentability of two types of claims:  compositions and methods.  The composition claims were directed to single strands of DNA called “primers” that correspond to the double-stranded DNA of a gene.  The method claims were directed to diagnostic methods used to determine whether a patient carries a particular gene mutation that carries an increased risk of breast and ovarian cancer.

The plaintiffs were Myriad Genetics, University of Utah, and others.  They discovered the BRCA1 and BRCA2 genes that, when mutated, cause breast and ovarian cancer.  Myriad developed diagnostic test kits to detect the presence of the mutations.  Myriad patented the natural gene sequences, synthetic primers, and medical test kits.

In 2013, the U.S. Supreme Court held that Myriad’s claims to the natural gene sequences were invalid.  Association for Molecular Pathology v. Myriad, 133 S. Ct. 2107 (2013).  The Court found that the gene sequences were not patent-eligible subject matter, but were instead ineligible natural phenomena.

After the Supreme Court’s decision,  Ambry Genetics began selling its test kits for the BRCA1 and BRCA2 genes.  Myriad sued Ambry Genetics for infringement of the claims to the primers and the diagnostic methods.  The district court for the District of Utah denied Myriad’s motion for preliminary injunction, holding that the claims covered patent-ineligible subject matter.  The district court found that the primers and the methods were products of nature, essentially the same as the natural DNA of the gene, and therefore patent-ineligible.

The Federal Circuit affirmed.  The court held that the primer claims were patent-ineligible as products of nature, even though they were synthetic, as they were identical in structure to the natural DNA.  As to the method claims, the court explained that it did not need to decide if the method claims were patent-ineligible as laws of nature, but instead applied the Supreme Court’s test for claims that are directed to abstract ideas.  That test was set forth in a business method case, Alice Corp. v. CLS Bank, International, 134 S. Ct. 2347 (2014).  Under the Alice Corp. test, a court must first determine whether the claim covers a patent-ineligible idea.  If so, the court must then determine whether the remaining claim elements transform the claim into patent-eligible subject matter (i.e., whether there is a further “inventive concept” that makes the claim patent-eligible).

The court applied the two-part Alice Corp. test to Myriad’s method claims.  According to the court, the first part of the test was met because the step of comparing the gene sequences of the patient’s DNA to the normal DNA of the BRCA genes was an abstract idea.  The second part of the test was met because the remaining steps of the claims did not add an “inventive concept” to transform the claim into patent-eligible subject matter.  The court found that these steps were “routine and conventional activity.”  Because both parts of the test were met, the court held that the method claims were patent-ineligible.

This decision was in the best interest of patients.  Myriad’s claims to the diagnostic methods are invalid.  This means that Ambry Genetics and other competitors will be able to offer their own diagnostic test kits to patients, and the price of the kits will drop.  More patients will be tested, and that’s a good thing.

Just over a month ago I wrote about the Davis v. Electronic Arts matter that was pending before the Ninth Circuit Court of Appeal.  Specifically, I opined that the matter was ripe for Supreme Court review in light of the circuit split that is developing with respect to the misappropriation of likeness in video games.  In my last blog, I explained that a number of legal scholars, and myself, believed that Electronic Arts had absolutely no chance of prevailing in Davis in light of an identical case that Electronic Arts lost at the trial level and on appeal (Keller v. Electronic Arts) wherein NCAA college football players brought a similar claim for the use of their likeness in the Electronic Arts video game franchise NCAA Football.  The matter was submitted to the Ninth Circuit on September 11, 2014, and the Ninth Circuit issued its opinion on January 6, 2015.

In the Davis v. Electronic Arts opinion (Case No. 12-15737), the Ninth Circuit rejected the legal razzle dazzle (pardon the football expression) raised by Electronic Arts and upheld the denial of Electronic Arts’ motion to strike the case as a strategic lawsuit against public participation (SLAPP).  Specifically, the Ninth Circuit rejected the argument that the use of the former players’ likeness was protected under the First Amendment as “incidental use.”  The Court disagreed with Electronic Arts’ characterization of the role of the former players’ likeness in the video game because it was central to Electronic Arts’ main commercial purpose: to create a realistic virtual simulation of football games involving current and former NFL teams.  Electronic Arts acknowledged that the likeness of the current NFL players carries substantial commercial value and failed to offer a meaningful distinction with respect to the former NFL players.  Instead, it argued that there are thousands of players in the video game and accordingly, any individual player’s likeness has only “de minimis commercial value.”  However, the Court refused to accept this highly technical argument and instead found “no basis for such a sweeping statement.”

The Court also rejected Electronic Arts’ transformative use defense, which is a defense used when the “work in question adds significant creative elements so as to be transformed into something more than a mere celebrity likeness or imitation.”  The Court stated that the case was analogous to Keller in that the game “replicates players’ physical characteristics and allows users to manipulate them in the performance of the same activity for which they are known in real life—playing football for an NFL team.”  “Neither the individual players’ likeness nor the graphics and other background content are transformed more in Madden NFL than they were in NCAA Football. “  In fact, Electronic Arts did not even attempt to distinguish the two games.  Accordingly, the Court found that Electronic Arts had not shown that the transformative use defense applies to the claims.

Thus, the Ninth Circuit ruled exactly how the majority of legal scholars believed it would and followed Keller.  As a result, the circuit split regarding the misappropriation of likeness in video games has been reemphasized and it is quite possible that Electronic Arts will petition the Supreme Court for review to resolve the split.  It remains to be seen whether the Supreme Court will review the case in light of the sparse number of cases it reviews every year.  But be sure to check back periodically because if the Supreme Court grants review, we will be here with the play-by-play.

By Labor & Employment

The U.S. Supreme Court has declined to review California high court’s landmark decision in Iskanian v. CLS Transportation Los Angeles, which held that arbitration agreements with mandatory class waivers are generally enforceable, but carved out an exception for the state’s Private Attorney General Act (“PAGA”) claims.

As discussed in our prior blog post, The New PAGA-Waiver Trap Door, while the California Supreme Court in Iskanian held that an employee cannot waive their right to a PAGA lawsuit, not all California federal courts agree. A number of federal trial judges in California have disagreed and ruled that PAGA waivers are enforceable in their courts. (See, e.g., Lucero v. Sears Holding Mgmt. Corp., 2014 U.S. Dist. LEXIS 168782 (S.D. Cal. Dec. 2, 2014); Mill v. Kmart Corp., 2014 U.S. Dist. LEXIS 165666 (N.D. Cal. Nov. 26, 2014); Ortiz v. Hobby Lobby Stores, Inc., 2014 U.S. Dist. LEXIS 140552 (E.D. Cal. Oct. 1, 2014); Chico v. Hilton Worldwide, Inc., 2014 U.S. Dist. LEXIS 147752 (C.D. Cal. Oct. 7, 2014); and Langston v. 20/20,Companies, Inc., 2014 WL 5335734 (C.D. Cal. Oct. 17, 2014).

CLS and other California employers were hoping the U.S. Supreme Court would resolve this growing conflict. Unfortunately, for now, the U.S. Supreme Court has decided they will not resolve this divide. Accordingly, a PAGA waiver in an arbitration agreement may or may not be enforceable, depending on whether the action is in state or federal court. Employers who wish to have arbitration agreements with PAGA waivers should consult legal counsel to determine if doing so is advisable.

This blog has previously reported on the anti-poaching cases involving various tech companies in Silicon Valley. The cases arise out of alleged agreements between various tech companies not to recruit each other’s employees. The U.S. Department of Justice brought antitrust actions as a result of these alleged agreements which resulted in the companies entering into settlements with the government. In addition to the government’s actions, a class action was filed on behalf of tech employees claiming these “anti-poaching” agreements harmed their earning ability and mobility.

Last year, various tech companies entered into a settlement of these claims for approximately $325 million. That settlement was rejected by U.S. District Court Judge Lucy H. Koh as not being “within the range of reasonableness.” Earlier this week, the parties to this class action announced that they had entered into a new settlement with Apple, Google, Intel and Adobe proposing to pay $415 million to settle the class action. The settlement will be submitted to Judge Koh for approval. If the settlement is not approved, the case is currently set to go to trial this spring.

More details concerning the proposed settlement can be found at the following New York Times Article, “Bigger Settlement Said to Be Reached in Silicon Valley Antitrust Case,” dated January 14, 2015.

Many employers have arbitration agreements wherein employees agree to waive the right to file a lawsuit against the employer under various laws, including the California’s Private Attorney General Act (“PAGA”).  Employers were disappointed when the California Supreme Court ruled last June that such waivers of PAGA lawsuits are invalid, at least in state court.  See Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014).However, a number of federal trial judges in the Golden State subsequently disagreed and ruled that PAGA waivers are enforceable in their courts.  See, e.g., Ortiz v. Hobby Lobby Stores, Inc., E.D. Cal. Case No. 2:13-cv-01619 (Sept. 30, 2014).  Because a PAGA waiver still may be enforceable against an employee in federal court, many employers have either kept or inserted such waivers in their arbitration agreements.

This week it became apparent that including a PAGA waiver may destroy an employer’s ability to require arbitration in any type of lawsuit, be it under PAGA or some other theory (e.g., alleged discrimination, harassment, retaliation, or wage-and-hour or meal-and-rest-period violations).  Specifically, the California Court of Appeal ruled that a PAGA waiver will invalidate an entire arbitration agreement in state court if that agreement also includes a non-severability clause.  See Montano v. The Wet Seal Retail, Inc., Cal. Ct. App. Case No. B244107 (Jan. 7, 2015).

Non-severability clauses basically state that the entire agreement will be unenforceable if any provision of it is found to be invalid.  By contrast, severability clauses allow a court or an arbitrator to strike any invalid provision in the agreement while still enforcing the remainder of it.

The non-severability clause in the Montano case recited that the PAGA waiver was “a material or important term of this arbitration agreement.”   That clause also mandated that, if “the wavier is found to be unenforceable for any reason by a court or arbitrator, then this entire arbitration agreement is void and unenforceable by the parties.”

There are advantages and disadvantages to both having or refraining from arbitration agreements, as well as including or deleting severability clauses and non-severability clauses.  Employers should weigh those risks and benefits carefully before deciding which path to follow.  Employers who wish to enhance the likelihood of enforcing their arbitration agreements should review them in light of this new Montano decision and consult legal counsel to determine if amendments are advisable.