by Lee Gesmer | Mar 5, 2009 | Readings and Novelties
In the late 1970s and early 1980s, the American economy was in crisis after years of stagflation. Mortgage rates were 17%, business loans carried 20% interest rates and productivity had collapsed. On April 21, 1980, Time magazine ran a cover story that asked the question: “Is Capitalism Working?” Today, the crisis that the American economic system faces is greater than that during the darkest days of stagflation. In this opinion piece, George M. Taber, former business editor of Time magazine and author of the 1980 cover story, asks and answers the same question — 29 years later. [Continue reading at Knowledge@Wharton]
Taber still agrees with the final sentence of his 1980 article in Time:
For all its obvious blemishes and needed reforms, capitalism alone holds out the most creative and dynamic force that any civilization has ever discovered: the power of the free, ambitious individual.
And, he warns that despite the pain inflicted by the boom and bust business cycle that is the downside of unfettered capitalism — pain that we are suffering from now –
well-intentioned, but unwise, changes in the nature of American capitalism could do damage that will be felt for decades . . . The American brand of capitalism rests on creative destruction, innovation and, ultimately, entrepreneurs. It is impossible to rebuild the superstructure of U.S. prosperity by destroying its foundation.
by Lee Gesmer | Mar 5, 2009 | Patents
It would be nice if lawyers didn’t have to call their clients and tell them that their company had been sued for patent infringement in the Eastern District of Texas (EdTX). “Where? Where’s that?” “What, you’ve never heard of Marshall, Texas?” you reply. “Never been to Tyler, Beaumont or Lufkin? Kind of quiet evenings after the sidewalks are rolled up, but your choice of BBQ rib joints is almost endless, and traffic isn’t a problem.”
As I’ve written before EdTX has evolved into a hotbed of patent litigation, although it has cooled a bit as of late. When you’re talking to a lawyer in Boston and you learn that he or she is heading to Texas, it’s a good bet that the destination is somewhere in the Eastern District. The EdTX has assembled some frightening statistics regarding number of patent cases (large) and the success rate of plaintiffs (high).
The lawyers in that part of the country joke that they used to do PI law (personal injury), and now they do IP law (intellectual property). But, everyone has known for a while that this couldn’t last forever, and that EdTX might lose its hold on patent litigation once W left office.
Indeed, the patent reform litigation just filed in the House and Senate has the EdTX in its crosshairs. The Senate bill states (excerpted):
A party shall not manufacture venue by assignment, incorporation, or otherwise to invoke the venue of a specific district court. Venue is only proper were (a) defendant is incorporated; (b) defendant has its principle place of business; (c) where the defendant is permanently located and has committed substantial acts of infringement; or (d) where the plaintiff resides if the plaintiff is a nonprofit or individual inventor. The court should transfer venue to avoid evidentiary burdens when transfer can be accomplished without causing undue hardship to the plaintiff.
If passed, a provision like this would cut into the patent litigation industry in EdTX, and the lawyers there might have to return to PI once the cases in their pipeline run out. That may make them sad, but it will make lawyers and companies in the rest of the U.S. quite happy.
by Lee Gesmer | Mar 3, 2009 | Contracts
The terms “unjust enrichment,” “restitution,” “quasi-contract” and “constructive trust” cause the average lawyer to recoil with apprehension (although she doesn’t show it, of course). We were forced to grapple with some of these ancient legal concepts in law school, but we quickly migrated to more modern legal principles, and although we may have remembered the terms (any lawyer worth his salt can throw around the terms unjust enrichment and restitution), the depth of knowledge of most lawyers on these topics is shallow at best. We were relieved when we could move on to things like the Uniform Commercial Code, which dates back only to the early 1950’s.
In fact, it’s easy to trace “unjust enrichment” and related terms back as far as the 1600s, and earlier. A search on Google Book Search reveals a volume titled “Unjust Enrichment in England before 1600.” References to Roman Law are also not difficult to find. When you start dealing with legal principles forged during the Middle Ages or Roman times, you know it’s going to be difficult.
Imagine, then, how QLT, Inc., a Canadian-based biopharmaceutical company, felt when it learned that it had been sued in federal court in Massachusetts and that the outcome of the case hinged on the application of these ancient legal doctrines? That was the situation that QLT faced. Even worse, QLT found itself in the courtroom of U.S. District Judge William Young, one of those rare judges who never backs down from a challenge, and probably mastered Latin so he could read the ancient legal texts in the original.
In early January the U.S. Court of Appeals for the First Circuit issued a decision, affirming a $100 million-plus judgment against QLT. The facts of the case are complex, but the First Circuit summarized them nicely in the opening paragraph of its 64 page decision:
These appeals require us to grapple with the metes and bounds of Massachusetts unjust enrichment and restitution law. Like many such cases, the present case involves one party’s conferral of a valuable benefit during ongoing contract negotiations, followed by an irreparable breach in the bargaining process. What makes this case unusual is that its subject matter — the development of a blockbuster pharmaceutical — poses challenges in valuing the benefit conferred, . . . . Defendant QLT Phototherapeutics, Inc. (“QLT”) appeals a jury finding that it was unjustly enriched because plaintiff Massachusetts Eye and Ear Infirmary (“MEEI”) conferred on QLT several benefits during the course of the development of Visudyne, a successful (and highly profitable) treatment for age-related macular degeneration (“AMD”), a leading cause of adult blindness.
The Court of Appeals decision is a tour de force on the law of unjust enrichment in Massachusetts, and although not binding on the Massachusetts state courts, is likely to be the guiding case in this area until something more authoritative comes along from the Massachusetts state courts. After a recitation of the well-known legal standard for unjust enrichment (see the three-part standard at bottom**), where the case got interesting was when the court held that:
- the “benefit conferred” under this doctrine did not require proof of a “trade secret.” The First Circuit affirmed Judge Young’s decision to allow the jury to to proceed to an unjust enrichment verdict based on the plaintiff’s ownership of merely “confidential information.” “Confidential information” and “trade secrets” are two different things, with confidential information generally being things such as pricing or marketing plans – information of some value, but usually ephemeral in nature. Trade secrets tend to be proprietary formulas, algorithms, things that are of lasting value and importance. However, the First Circuit held that mere “confidential information” could be used to support a claim of unjust enrichment. This holding is noteworthy, and it opens to door to a category of claims that would have been precluded had the court held otherwise. Unjust enrichment may not stand where the benefit is publicly available information, but almost anything short of that can be deemed confidential, and will support a claim.
- The First Circuit held that while a plaintiff may not recover its lost profits under a theory of unjust enrichment, it could force the defendant to disgorge its profits. Although Massachusetts courts have not spoken on the issue of profit disgorgement in the context of quasi-contracts, the First Circuit held that it was “likely” it would rule as described. Thus, the court clarified the measure of damages in unjust enrichment cases, again to the benefit of plaintiffs.
Read the case here: Mass Eye and Ear Infirmary v. QLT Phototherapeutics, Inc.
(** The elements of unjust enrichment are: (1) a benefit conferred upon the defendant by the plaintiff; (2) an appreciation or knowledge by the defendant of the benefit; and (3) acceptance or retention by the defendant of the benefit under the circumstances that would be inequitable without payment for its value.)
by Lee Gesmer | Mar 3, 2009 | Miscellaneous
It’s perfectly monstrous the way people go about nowadays saying things against one, behind one’s back, that are absolutely true”
Oscar Wilde
“Gossip needn’t be false to be evil – there’s a lot of truth that shouldn’t be passed around.”
Frank A Clark
“The defendant in an action for writing or for publishing a libel may introduce in evidence the truth of the matter contained in the publication charged as libellous; and the truth shall be a justification unless actual malice is proved”
Entire text of Mass. Generals Laws, Chapter 231, Section 92, enacted in 1902
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“The truth is an absolute defense to a claim of defamation.” This is something that all lawyers know, and we have told this to clients countless times. However, we will have to temper this advice following a recent decision from the First Circuit U.S. Court of Appeals. The case, for reasons that should be apparent, is attracting a lot of attention.
First the case, then the law, then a few brief observations.
Facts of the Case
Alan Noonan was an employee of Staples. After an investigation, Staples concluded that Noonan had padded his expense account, and terminated him for cause. The day after the termination a Staples executive sent the following email to 1500 Staples employees:
It is with sincere regret that I must inform you of the termination of Alan Noonan’s employment with Staples. A thorough investigation determined that Alan was not in compliance with our [travel and expenses] policies. As always, our policies are consistently applied to everyone and compliance is mandatory on everyone’s part. It is incumbent on all managers to understand Staples[‘s] policies and to consistently communicate, educate and monitor compliance every single day. Compliance with company policies is not subject to personal discretion and is not optional. In addition to ensuring compliance, the approver’s responsibility to monitor and question is a critical factor in effective management of this and all policies.
Noonan sued for defamation. Staples responded that the statement regarding Noonan was true. The federal U.S. judge found that the statement was true, and dismissed the claim.
The Appeal
On appeal, the Court of Appeals reversed. The court applied the Massachusetts defamation statute, enacted in 1902, which states in its entirety as follows:
The defendant in an action for writing or for publishing a libel may introduce in evidence the truth of the matter contained in the publication charged as libellous; and the truth shall be a justification unless actual malice is proved. (M.G.L. c. 231, Section 92)
The court took as true the lower court’s finding that Noonan had been out of compliance with Staples’ travel and expense policies. Taking an “originalist” approach to the 1902 statute (a legal philosophy that takes the view that the the text of a written law should be understood according to what was meant by those who drafted and enacted it – think Supreme Court Justice Anton Scalia), the court held that “actual malice” meant “malevolent intent” or “ill will.” The court concluded that whether the Staples executive who published the email did so with “malevolent intent or ill will” was a question of fact, and sent the case back to the trial court for a jury trial.
Observations
This case will be analyzed six ways from Sunday by the defamation experts, of which there are many, so I’ll keep my observations brief.
First, it begs the obvious to observe that sending this email to 1500 Staples employees was poor judgment. Apparently, there had been other expense account incidents at Staples before this, and one implication that readers could have taken from this email was that Noonan had engaged in fraudulent conduct (or so Noonan argued). However, for all we know the Staples exec that sent the email had consulted with legal counsel and been told “truth is an absolute defense, ” so don’t worry about it.
Second, when I was studying for the Bar Exam I recall that we touched on this statute. Our discussion reflected the widely held assumption that the “actual malice” exception to the “truth defense” was likely unconstitutional under the First Amendment. I’m not sure why the First Circuit didn’t address the constitutional legality of the statute before applying it. The law is more than 100 years old, and its enactment precedes the development of defamation in light of First Amendment law, all of which was deemed irrelevant under the court’s approach to statutory construction.
Third, taking the case at its literal meaning, anytime a person gossips about another person in a manner that is damaging to reputation it is actionable if it is accompanied by “ill will,” even if true (I take the “ill will” standard to be much easier to met than “malevolent intent”). Not to overstate things, but the implications of this could be significant. If you speak ill of your enemy in such a way that damages her reputation in the community, you may be liable for defamation, whether your statement is true or not.
Some examples:
- You learn that someone in your community (your town, school community, church or temple, or workplace, for example), was once charged with a crime, and you share this fact with others.
- You share the fact that someone in the community had been terminated from an earlier job based on suspicion of theft, sexual harassment or other reputation-harming conduct.
- You share the fact that long ago, one of the attorneys in your law firm failed the bar exam on the first try, before passing it on the second try.
- You share the fact that one of your co-workers whom no one knows is gay visits the local “gay” bar most weekend nights.
Assuming that the victim of this speech can claim that you bear her ill will, you could be liable for defamation under this decision. And why would you share these facts if you didn’t hope to to injure the person? In other words, ill will may not be that difficult to prove.
The issues associated with a decision like this are complex, as is the balance between freedom of speech and the harm that speech can cause. The Supreme Court has struggled to establish the line between defamation and permissible speech when “public figures” are involved and the speech is false, but much less attention has been paid when the victim of alleged defamation is a private person, as was Mr. Noonan in this case.
The picture is complicated even further by the right of privacy. In Massachusetts, as in many other states, the right of privacy has been interpreted to encompass a prohibition against the publication of “private facts,” which are facts of a “highly personal or intimate nature” that are “of no business of the public.” It appears that the Noonan v. Staples decision extends the reach of that protection to a level somewhere beyond “private facts,” although this extension is based on the law of defamation according to the 1902 Massachusetts statute, not the law of privacy.
The First Circuit decision in Noonan v. Staples is here.
An article by Dan Kennedy on MediaNation (“A Chilling Decision About Libel”) critiquing this decision is here.
by Lee Gesmer | Feb 25, 2009 | Patents
Once you get a patent, it costs a lot to maintain it. For most categories of patentees, the maintenance fees after issuance are $980, $2,480 and $4,110 at 3.5 years, 7.5 and 11.5 years, respectively. If the fee is not paid, the patent is forfeited.
Top patent blogger Dennis Crouch has an interesting set of statistics on his site, discussing the “fall-off” rate of maintenance fees paid at the end of each of these periods, beginning in July 1998. The non-renewal rate is significant. As Mr. Crouch observes, the non-renewals shorten the life of the median patent from 17 years to 12 years. Click here for a more detailed explanation of the study, and a scatter plot graphic.
It’s no great surprise that many patents fail to survive, but it’s interesting to see just how many are abandoned because their owners don’t deem it to be worth the expense to keep them alive.
