Today, the Supreme Court issued three decisions, described below, of interest to the business community.

  • Securities Law—Insider Trading
  • False Claims Act—Seal Requirement
  • Patent Act—Design Patent Damages

Securities Law—Insider Trading

Salman v. United States, No. 15-628

The Court clarified an important issue of securities law, concluding unanimously today in an opinion by Justice Alito that a tippee who trades on inside information provided by another person cannot escape liability merely because the tipper expected and received nothing of tangible value in exchange for the information. In this case, the defendant's brother-in-law, an employee of an investment bank, provided a tip to a member of the extended family, who then shared the information with the defendant.

The Court reaffirmed the "gift-giving standard" articulated in Dirks v. SEC, 463 U.S. 646, 664 (1983), that the government need not prove that an insider who makes a gift of information to a relative or friend received any additional, tangible benefit. In so holding, the Court rejected one of the holdings of the well-publicized decision in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), in which an indirect tippee several steps removed from the original tipper was exonerated.

The Court did not address the alternative holding in Newman—that the prosecution lacked evidence that the defendants in that case knew they were trading on unlawfully obtained inside information. Where inside information is disseminated beyond a core group of friends or family members, the ultimate trader's knowledge of the information's origin can be significant. The knowledge requirement may well reach the Court in a future case.

False Claims Act—Seal Requirement

State Farm Fire & Casualty Co. v. United States ex rel. Rigsby, No. 15-513

The False Claims Act requires a qui tam relator—a private party authorized to seek recovery from those who make false claims on the federal government—to file his or her complaint under seal. The Supreme Court granted certiorari to decide what the remedy should be when the relator violates the seal requirement by disclosing the existence of the lawsuit.

The merits briefing in the case focused on two issues: whether a violation of the seal requirement always requires dismissal of the complaint; and, if not, what factors courts should consider in deciding whether dismissal is appropriate in a particular case. In a short, unanimous decision by Justice Kennedy issued today, the Supreme Court held that a seal violation may permit but does not mandate dismissal of a relator's complaint. The Court declined, however, to describe the factors that should inform the exercise of a court's discretion in deciding whether to dismiss. The Court stated that three factors—actual harm to the government, severity of the violations, and evidence of bad faith—"appear to be appropriate," but left the standards for dismissal to be worked out "in the course of later cases." The Court went on to say that "monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate."

Patent Act—Design Patent Damages

Samsung Electronics Co. v. Apple Inc., No. 15-777

The Patent Act provides that, when a design patent is infringed, the patentee may recover the infringer's "total profit" as to the relevant "article of manufacture." In the context of a multi-component good, the Federal Circuit had adopted a blanket rule that only a finished good sold to consumers qualifies as an "article of manufacture." In this case, the design patent related to the exterior design of smart phones; the Federal Circuit therefore held that the "article of manufacture" is the entire phone.

Today, in a unanimous decision authored by Justice Sotomayor, the Supreme Court reversed the lower court's statutory interpretation. The Court held that the plain meaning of "article of manufacture" encompasses both the "end product sold to the consumer" as well as "a component of that product." But, noting that the parties had not briefed the issue, the Court did not "set out a test for identifying the relevant article of manufacture." It left that critically important task for remand. The parties—likely supported by amici—will now contest the standards that should govern this inquiry before the Federal Circuit.

Originally published December 6, 2016

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