United States: Supreme Court Docket Report - May 20, 2013

Today, the Supreme Court granted certiorari in three cases of interest to the business community:

Sarbanes-Oxley Act of 2002—Whistleblower Protection

Section 806 of the Sarbanes-Oxley Act of 2002 provides "[w]histleblower protection for employees of publicly traded companies." 18 U.S.C. § 1514A. Today, the Supreme Court granted certiorari in Lawson v. FMR LLC, No. 12-3, to decide whether the First Circuit correctly held that this provision applies solely to employees of publicly traded companies.

The petitioners, plaintiffs below, are former employees of private companies that serve as investment advisers and broker-dealers for the Fidelity family of mutual funds. The petitioners brought separate civil actions, alleging, among other things, that their corporate employers violated § 806 by retaliating against them for complaining about allegedly improper business practices.

The district court denied the employers' motion to dismiss. The court held that § 806 encompasses employees of private companies that are contractors or subcontractors of public companies. But the court created a "limiting principle" making § 806 apply only when employees of nonpublic contractors or subcontractors make allegations of fraud by the public company against its shareholders and not when they complain of conduct by their privately held employers. On interlocutory review, a panel of the First Circuit reversed and ordered dismissal of the complaints, holding that the whistleblower provision of the Sarbanes-Oxley Act covers the employees of statutorily defined public companies only. The First Circuit based that conclusion on its reading of the text of § 806 (including the title and caption of the whistleblower provision), Supreme Court precedent, and the Act's pre- and post-enactment legislative history. The First Circuit then denied rehearing and rehearing en banc, over two judges' dissents.

The petition for certiorari argued that the First Circuit's decision conflicts with a decision of the Department of Labor's Administrative Law Review Board.

The Supreme Court's decision may clarify the scope of privately held companies' liability under the Sarbanes-Oxley Act for alleged acts of retaliation against their employees. The decision will thus be important to all privately held companies that contract or subcontract to provide services to public companies, including firms providing advising or managerial services.

Absent extensions, which are likely, amicus briefs in support of the petitioners will be due on July 12, 2013, and amicus briefs in support of the respondents will be due on August 12, 2013.

Mayer Brown is co-counsel for the respondents.

Airline Deregulation Act—Federal Preemption—Breach of Implied Covenant of Good Faith and Fair Dealing

Today, the Supreme Court granted certiorari in Northwest, Inc. v. Ginsberg, No. 12-462, which presents the question whether Section 1305(b) of the Airline Deregulation Act preempts a state common-law claim alleging that an airline breached the implied covenant of good faith and fair dealing by revoking a passenger's membership in the airline's frequent-flyer program. The district court had dismissed the plaintiff's claim as preempted, but the Ninth Circuit reversed, holding that the Airline Deregulation Act does not preempt state-law contract claims based on an alleged breach of the implied covenant of good faith and fair dealing.

The Airline Deregulation Act, which was enacted in 1978 in order to dismantle the federal regulatory apparatus that had governed airline pricing and services since 1958, contains an express-preemption provision that preempts any state or local law "related to a price, route, or service" of air carriers governed by the Act. The preemption provision's purpose was to prevent state governments from re-regulating airlines whose operations had been deregulated by Congress. The Act contains a savings clause, however, which allows states to enforce certain common-law or statutory "remedies" against airlines notwithstanding broad preemption of claims. The question in Northwest is whether a lawsuit against an airline based on the allegation that the airline breached an implied covenant of good faith in the operation of its frequent-flyer program is a state regulation "related to a price...or service" of the airline (in which case it would be preempted). The Ninth Circuit said no. Three other circuits (the First, Seventh, and Eighth) have reached the opposite conclusion. The Supreme Court granted certiorari to resolve the conflict.

The Court's decision in this case will be important to all air carriers governed by the Airline Deregulation Act and all motor carriers governed by parallel provisions of the Federal Aviation Administration Authorization Act, as well as participants in other regulated industries (such as pharmaceutical and tobacco manufacturers) whose federal regulatory schemes contain broad preemption provisions. The decision will likely clarify the precise scope of air and motor carriers' liability under state common law. 

Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on July 12, 2013, and amicus briefs in support of the respondent will be due on August 12, 2013.

Patents—Actions Seeking Declaration Of Noninfringement—Burden Of Proof

In MedImmune v. Genentech, Inc., 549 U.S. 118, 137 (2007), the Supreme Court ruled that a patent licensee that believes that its products do not infringe the patent, and accordingly are not subject to royalty payments, is "not required ... to break or terminate its ... license agreement before seeking a declaratory judgment in federal court that the underlying patent is ... not infringed." Today, the Court granted certiorari in Medtronic, Inc. v. Boston Scientific Corporation, No. 12–1128, to decide whether, in a declaratory-judgment action brought by a licensee seeking a declaration of noninfringement of a patent, the licensee (i.e., the plaintiff) has the burden to prove that its products do not infringe the patent, or whether the patentee (i.e., the defendant) has the burden to prove infringement.

In 1991, petitioner Medtronic entered into a license agreement with the predecessor-in-interest of respondent Guidant Corporation (a wholly owned subsidiary of respondent Boston Scientific), which was the exclusive licensee of patents owned by respondent Mirowski Family Ventures, LLC. Under the license agreement, Medtronic had the right to practice certain patents, and Medtronic agreed to pay royalties for any products subject to the license. In 2007, MFV sent letters to Medtronic accusing seven Medtronic devices of infringing 29 claims of the patents, and demanding royalties. Believing that its devices did not infringe, Medtronic began paying royalties into escrow and filed an action against respondents seeking a declaration of noninfringement. Following a bench trial, the district court entered judgment for Medtronic, rejecting respondents' contention that Medtronic bore the burden of proof regarding infringement and finding that respondents had failed to prove that Medtronic's products infringed the patents.

The U.S. Court of Appeals for the Federal Circuit reversed the district court's ruling for Medtronic on the burden of proof. Medtronic Inc. v. Boston Scientific Corp., 695 F.3d 1266 (Fed. Cir. 2012), reh'g and reh'g en banc denied (Dec. 14, 2012). The appeals court explained that the dispute between Medtronics and respondents required the court to determine "the proper allocation of the burden of persuasion in the post-MedImmune world, under circumstances in which a declaratory judgment plaintiff licensee seeks a judicial decree absolving it of its responsibilities under its license while at the same time the declaratory judgment defendant is foreclosed from counterclaiming for infringement by the continued existence of that license." Id. at 1272. It concluded that, in this "limited circumstance," the licensee "bears the burden of persuasion." Id. at 1274. This result is appropriate, the appeals court reasoned, because Medtronic was "unquestionably the party now requesting relief from the court." Id. at 1273. It noted that Medtronic "already has a license, cannot be sued for infringement, it is paying money into escrow, and it wants to stop," whereas MFV wanted "nothing more than to be discharged from the suit and be permitted to continue the quiet enjoyment of its contract." Id. According to the court of appeals, in these limited circumstances—where the licensee is the party seeking to "disturb the status quo ante"—the licensee "must present evidence showing that it is entitled to such relief." Id.

The Supreme Court's decision in this case will be important to both patent licensees and licensors in declaratory-judgment actions.

Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on July 12, 2013, and amicus briefs in support of the respondents will be due on August 12, 2013.

Last week, the Supreme Court also invited the Solicitor General to file a brief expressing the views of the United States in the following case of interest to the business community:

Sony Computer Entertainment America LLC v. 1st Media LLC, No. 12-1086: The question presented is whether the Court of Appeals for the Federal Circuit erred in restricting district courts' equitable discretion in evaluating patent unenforceability by applying a rigid test that (a) forecloses district courts from considering the entire circumstantial record; and (b) precludes district courts from granting equitable remedies where a patent applicant has violated the patent office's duty of candor.

Originally published May 20, 2013

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