I’ve written before about how dangerous waiver is for lawyers. It lurks everywhere, like sharp coral just a few inches beneath the water off an inviting tropical beach.
In Microsoft’s recent loss to i4i in federal court in Texas affirmed by the Federal Circuit, Mister Softee (stock trader slang for Microsoft), found itself hung up on a reef with razor sharp coral when the Federal Circuit may have refused to reverse a $290 million trial verdict on what the court considered a waiver technicality.
As every experienced trial lawyer knows, trials are a virtual waiver landmine – if you don’t proffer the evidence a judge excludes, you’ve waived it on appeal. If you don’t object to jury instructions, you waive the right to challenge them on appeal. This list seems almost endless, and there’s nothing a federal court of appeals likes more than to dismiss an argument on the grounds that it was, somehow, waived during trial.
This having been said, there are a few potential waivers points that lawyers absolutely MUST keep in mind – to the point where the documents that will avoid the waiver should be prepared before trial, subject only to updating as the trial progresses and the moment of truth (or waiver) is reached. One of the most important potential waiver risks arises under FRCP 50.
Before the case goes to the jury the defendant MUST move for judgment as a matter of law (or “JMOL”) – failure to do so means the defendant has waived its right to do so following the jury verdict. Thus, even if the ultimate jury verdict is without a legally sufficient evidentiary basis, the judge may not upset it if the defendant failed to make a timely motion for JMOL. (The reasons for this are arcane, and not of great importance here, but the fact that the motion MUST be made pre-jury, in order for it to be made post-jury is very important). Best practice is to move for JMOL at the close of plaintiff’s case, and again at the close of all of the evidence.
The JMOL motion must address all issues that form the basis for the motion, and it must be specific – the lawyer cannot simply state, “We move for judgment as a matter of law because plaintiff has failed to satisfy the elements of its cause of action.” This is where the trial lawyer, who is preparing for closing argument, working on jury instructions, dealing with the client, must pay attention. The best practice is to have an associate, with a checklist, who will remind you (force you, if necessary) to address this issue.
What happened in the i4i/Microsoft case?
At the close of evidence Microsoft moved for judgment as a matter of law on various grounds:infringement, willfulness and validity of the i4i patent, but not obviousness as to a certain piece of prior art or, quite importantly, damages.
As a result, the Federal Circuit held that it was barred from considering whether the jury’s damages award was supported by the evidence. as Microsoft requested that it do. The Federal Circuit stated:
Had Microsoft filed a pre-verdict JMOL, it is true that the outcome might have been different. Given the opportunity to review the sufficiency of the evidence, we could have considered whether the $200 million damages award was “grossly excessive or monstrous” in light of Word’s retail price and the licensing fees Microsoft paid for other patents. Cf. Lucent, 580 F.3d at 1325-32. As this court did in Lucent, we could have analyzed the evidentiary basis for the Georgia-Pacific factors, and whether the benchmark (XMetaL) was sufficiently comparable.
However, we cannot. Instead of the more searching review permitted under Rule 50(b), we are constrained to review the verdict under the much narrower standard applied to denials of new trial motions. . . . This standard is highly deferential: we may set aside a damages award and remand for a new trial “only upon a clear showing of excessiveness.” . . . To be excessive, the award must exceed the “maximum amount calculable from the evidence.” . . . We must affirm unless the appellant clearly shows there was no evidence to support the jury’s verdict. . . .
Under this highly deferential standard, we cannot say that Microsoft is entitled to a new trial on damages. The damages award, while high, was supported by the evidence presented at trial, including the expert testimony—which the jury apparently credited. . . . Given the intensely factual nature of a damages determination and our deferential standard of review, we are not in a position to second-guess or substitute our judgment for the jury’s.
No one can say whether the Federal Circuit would have upset the damages award had it applied the more rigorous standard that would have resulted from a pre-jury JMOL motion on damages, but clearly, one must wonder.
To thicken the plot, Microsoft has now asked the Federal Circuit to rehear the case en banc (Microsoft’s brief requesting en banc review here), arguing that the JMOL rule does not apply to damages (since, by definition, damages have not been awarded pre-jury verdict), and presenting a number of other challenges to the damages award. The brief asserts that this case represents “the largest [damages award] ever sustained on appeal in a patent infringement case.”
It’s rare for a federal circuit court to rehear a case en banc where some fundamental issue of law of broad applicability is not at stake, so it will be interesting to see how the Federal Circuit handles this request. Worst case, should it decline, lawyers will have to add to their trial checklist a JMOV motion directed at damages, even before the jury awards damages.
Here is the text of new Federal Rule of Evidence 502, eliminating waiver resulting from inadvertent disclosures of attorney-client privileged or work-product materials in federal litigation:
Federal Rule of Evidence 502
(signed into law September 19, 2008)
The following provisions apply, in the circumstances set out, to disclosure of a communication or information covered by the attorney-client privilege or work-product protection.
(a) Disclosure made in a federal proceeding or to a federal office or agency; scope of a waiver. —
When the disclosure is made in a federal proceeding or to a federal office or agency and waives the attorney-client privilege or work-product protection, the waiver extends to an undisclosed communication or information in a federal or state proceeding only if:
(1) the waiver is intentional;
(2) the disclosed and undisclosed communications or information concern the same subject matter; and
(3) they ought in fairness to be considered together.
(b) Inadvertent disclosure. —
When made in a federal proceeding or to a federal office or agency, the disclosure does not operate as a waiver in a federal or state proceeding if:
(1) the disclosure is inadvertent;
(2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and
(3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Fed. R. 25 Civ. P. 26(b)(5)(B).
(c) Disclosure made in a state proceeding. —
When the disclosure is made in a state proceeding and is not the subject of a state-court order concerning waiver, the disclosure does not operate as a waiver in a federal proceeding if the disclosure:
(1) would not be a waiver under this rule if it had been made in a federal proceeding; or
(2) is not a waiver under the law of the state where the disclosure occurred.
(d) Controlling effect of a court order. —
A federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court – in which event the disclosure is also not a waiver in any other federal or state proceeding.
(e) Controlling effect of a party agreement. —
An agreement on the effect of disclosure in a federal proceeding is binding only on the parties to the agreement, unless it is incorporated into a court order.
(f) Controlling effect of this rule. —
Notwithstanding Rules 101 and 1101, this rule applies to state proceedings and to federal court-annexed and federal court-mandated arbitration proceedings, in the circumstances set out in the rule. And notwithstanding Rule 501, this rule applies even if state law provides the rule of decision.
(g) Definitions. —
In this rule:
(1) “attorney-client privilege” means the protection that applicable law provides for confidential attorney-client communications; and
(2) “work-product protection” means the protection that applicable law provides for tangible material (or its intangible equivalent) prepared in anticipation of litigation or for trial.
This rule comes too late for the many lawyers spending their weekday mornings in dark bars, drinking their memories away, their careers ruined by inadvertent disclosure of privileged client documents. It also comes too late to save the hundreds of millions of dollars spent on document review over the last few decades, in an effort to make sure that privileged materials aren’t produced to opposing counsel. But, better late than never. Click here to read the explanatory note on this rule.
Click here to read an earlier post on this issue: The Agony of Inadvertant Disclosure.
One of the things that drives people crazy is how easy it is to file a lawsuit, and conversely how difficult it is to persuade a judge to dismiss a lawsuit before the defendant incurs the costs of discovery and summary judgment. It has long been the law in Massachusetts that a complaint should not be dismissed “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Nader v. Citron, 372 Mass. 96 (1977). This is a very difficult (some would say metaphysical) standard. Under it dismissal has been limited to black and white situations where the plaintiff has failed to allege the basic elements of a cause of action, or where (for example) a statute of limitations defense is apparent on the face of the complaint.
No more. Last year the U.S. Supreme Court rejected this standard in the federal court (Bell Atlantic Corp. v. Twombly), holding that a complaint (the document that initiates a lawsuit) must assert a claim to relief that is “plausible on its face.” The complaint must allege facts plausibly suggesting a right to relief. Vague assertions intended to satisfy the “no set of facts” standard will no longer suffice.
The Massachusetts state courts often follow the federal courts when it comes to matters of procedure, and in June the Supreme Judicial Court expressly adopted the Twombly standard in Iannachino v. Ford Motor Company (“we take the opportunity to adopt the refinement of that standard that was recently articulated by the United States Supreme Court in . . . Twombly“).
Of course, the devil is in the details when it comes to how specific, detailed and complete a set of facts must be to plausibly suggest a particular plaintiff’s right to relief. The lower federal courts are struggling to apply the Twombly standard in various contexts, and I expect a similar process to take place in the state courts in the coming years. One thing is certain, however – filing a complaint in state court has just gotten more difficult, and the chances of obtaining early dismissal has improved for defendants.
What do lawyers fear the most? Spiders, snakes, public speaking, death by auto de fe?
Well, I’ll be darned if I know, but one thing that scares the bejesus out of all thinking lawyers is waiver. Lawyers start to become vaguely aware of this horror in law school. Once they go out into practice it slowly dawns on them that it’s ultimately undefinable, that it lurks behind every legal shrub and tree, that opposing counsel will throw it in your face when you least expect it and long after you can fix it, and that if they don’t a court may do so on its own initiative. In its most severe forms it can lead to bankruptcy, scandal, and even malpractice (apologies to Jimmy Stewart).
Take a simple summary judgment motion in federal court. Unbeknownst to the novice lawyer, this process is fraught with dangers. The defendant files the motion. You file an opposition. The defendant files a reply affidavit introducing new facts. You lose the motion, and on appeal you argue that it was inappropriate for the defendant to introduce new facts in its reply. You cite the “no new facts” rule. After all, you were sandbagged by that reply, and the court shouldn’t have relied upon it.
Not so fast, the First Circuit recently held on these facts – did you raise this with the district court and object to the new evidence? If not you have waived the right to raise this on appeal. Desrosiers v. Hartford Life (2008). You lose.
A simple, one page motion to strike that could have been drafted and filed in an hour would have saved the day. For want of a nail …
Waiver, one of the most dreaded words a lawyer can hear. And so it goes.
After writing the post immediately below it occurred to me that although there is much talk about the discovery of electronically stored evidence (ESI), the admissibility of ESI is addressed far less often. In fact, in the two day conference I linked to in that post, the topic is not even mentioned.
For the interested, there are two important starting places for this topic. The first is the 101 page decision in Lorraine v. Markel American Insurance Company by Magistrate Judge Paul Grimm (one of the “rock star judges” mentioned in the ABA article), and the second is The Next Frontier: Admissibility of Electronic Evidence (Listrom, Harlan, Ferguson and Redis). (Note: this last link is on the ABA website and appears to require an ABA membership user name/password; as yet I am unable to locate a copy anywhere else).
The Federal Trade Commission has asked for en banc review of the D. C. Circuit’s decision in the FTC’s Rambus proceeding. I expect this case to be appealed to the Supreme Court, and given the Court’s propensity to accept antitrust cases over the last several years and the importance of this case, the case stands a better-than-average chance of being accepted for review by the Court. Of course better-than-average is still difficult, so the FTC shouldn’t get its printing presses warmed up quite yet.
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The Supreme Court granted review of the Ninth Circuit’s decision in Pacific Bell v. Linkline, and will hear and decide the case next term. The issue in this case, as described in the Pacific Bell’s petition to the Supreme Court, is –
Whether a plaintiff states a claim under Section 2 of the Sherman Act by alleging that the defendant – a vertically integrated retail competitor with an alleged monopoly at the wholesale level but no antitrust duty to provide the wholesale input to competitors – engaged in a “price squeeze” by leaving insufficient margin between wholesale and retail prices to allow the plaintiff to compete.
The Ninth Circuit held that there was an antitrust duty, and Pacific Bell is appealing that ruling. The SCOTUS blog page for this case is here.
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I strongly recommend that patent and antitrust attorneys read Massachusetts U.S. District Judge Stearns’ recent decision in Hertz v. Enterprise Rent-A-Car. (Warning; non-lawyers should steer clear).
Hertz sued Enterprise under the Sherman Antitrust Act. At issue is Enterprise’s patent 7,275,038, an Internet-based computerized transaction system for the car rental business.
Hertz, threatened by the prospective (and then actual) issuance of this patent brought suit for declaratory judgment of non-infringement on a variety of grounds, each of which was considered by Judge Stearns in considering Enterprise’s motion to dismiss.
In this characteristically incisive and well-reasoned decision Judge Stearns addresses a pouporri of legal matters:
- Jurisdictional issues relating to a Walker Process claim antitrust claim (arising from patent invalidity based on fraud on the Patent Office; Walker Process Equip Co., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965)).
- The difference between an “amended complaint” and a “supplemental complaint” and its relevance to jurisdictional issues in this case.
- The level of specificity necessary to plead fraud-related claims arising in a patent context.
- The pleading requirements for a claim of tortious interference with advantageous business relations under state law.
- The pleading requirements under M.G.L. c. 93A where the complaint fails to allege that the anticompetitive effects of defendant’s actions were felt primarily and predominantly in Massachusetts.
- Whether there is sufficient case or controversy to support a declaratory judgment action under the Supreme Court’s 2007 decision in MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007), which supplanted the “reasonable apprehension of imminent suit” test with a more lenient standard for declaratory judgment actions in patent cases.
- Whether the patent complaint stated “plausible claims” as required by the Supreme Court the 2007 antitrust decision in Bell Atlantic v. Twombly (and which Judge Stearns held applies to patent-based claims).
Enjoy, legal mavins …..
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When lawyers win a trial they like to publicize their efforts in a “war story” article. After all, one of the best parts of winning is the bragging rights.
These stories often are so self-serving they aren’t worth reading, but I have to recommend the article recently published on the ABA’s “Antitrust Source” website: Defending “The Last Man Standing”: Trench Lessons from the 2008 Criminal Antitrust Trial, United States v. Swanson. The defense lawyers in this case describe in detail how they took on a criminal price fixing conspiracy case brought by the government, and obtained a hung jury after an lengthy trial. The feds declined to retry the case, so this was a de facto win. The article describes all of the problems faced by the defense, which was representing an individual executive, Gary Swanson: witnesses who had pleaded guilty and were testifying for the government; an enormous volume of discovery materials, language issues (Korean), emails that were extremely damaging (at first sight), and more.
Sometimes being a lawyer is like being an airline pilot – hundreds of hours of tedium, interrupted by moments of sheer panic.
In the case of lawyers, the panic can hit from a number of sources: a missed court filing date or statute of limitations, the discovery during trial that your client has failed to produce key documents during discovery, the failure to discover a controlling legal precedent, the realization that a client has lied to you, or “inadvertant disclosure.”
To lawyers, the term “inadvertant disclosure” means that during discovery documents protected by attorney-client privilege or work-product immunity have been produced to the other side, by mistake. You (the disclosing attorney) usually learn of this when the opposing lawyer calls you up to gloat (under the guise of politely informing you of the incident, which is required under the ethical rules). It’s enough to ruin any lawyers day: you demand (or beg for) the return of the documents; the opposing lawyer refuses; you file a motion with the court asking for an order that the documents be returned to you (after that embarrassing call to your client); the other side opposes your motion; and finally, the judge writes a decision ruling one way or the other on your request for return, but in either case informing the world of what a sloppy or incompetent lawyer you were to have produced the documents in the first place.
Of course, a whole body of case law has emerged establishing legal tests for whether documents should be returned in these situations. To make things worse, different courts around the nation have created different tests. To make matter much worse ESI (electronically stored information) has made the whole process far more complicated than in the “old days,” when lawyers or paralegals could simply look through hard copy before production, and be reasonably confident they had caught any privileged documents.
The risks and technical issues associated with privilege review of ESI are illustrated by a May 29, 2008 decision by a judge in the Federal District Court for the District of Maryland. In this case, Victor Stanley, Inc. v. Creative Pipe, Inc., a large quantity of ESI was produced by the defendant. The defendant tried to weed out privileged documents by using a “key word” search. For example, the names of the defendant’s attorneys were searched, in the hope that all communications with defendant’s counsel would be located and the items removed.
In this case the keyword search method failed, and the judge ruled that keyword searching for privileged and work-product documents was not
sufficient to avoid a “waiver.” The decision (linked below via scribd.com) is quite detailed, and provides a good analysis of the risks associated with inadvertent production of ESI based on a keyword search failure.
Of course, there is a potential solution to this problem that ESI savvy lawyers tend to use: in the protective order filed with the Court early in the case (or separately if there is no protective order), include a “clawback” provision that provides that if either side engages in inadvertent production, the waiver doctrine will not apply and the documents will be returned. Especially at the beginning of a case, when the risk of inadvertent production may be viewed as equal by both sides, the lawyers on each side may conclude that it’s in their best interests to agree to clawback.
Here is a sample “clawback” provision:
1. Inadvertent or Unintentional Production
(a) The inadvertent or unintentional production of Discovery Materials without a confidentiality designation shall not be deemed a waiver in whole or in part of a party’s claim of confidential treatment under the terms of this Order. Any document that initially is produced without bearing a confidentiality designation may later be so designated, with respect to future disclosure by the Producing Party, and the receiving party shall make all reasonable efforts to retrieve all copies, if any, of such document disclosed to persons other than those authorized in Sections 6 through 8 hereof and to prevent further use or disclosure of confidential information contained therein by such persons.
(b) If information subject to a claim of attorney-client privilege, attorney work product or any other legal privilege protecting information from discovery is inadvertently produced to a party or parties, such production shall in no way prejudice or otherwise constitute a waiver of, or estoppel as to, any claim of privilege, work product or other ground for withholding production to which the producing party or other person otherwise would be entitled. If a claim of inadvertent production is made pursuant to this Section, with respect to information then in the custody of another party, such party promptly shall return to the claiming party or person that material and all copies or reproductions thereof as to which the claim of inadvertent production has been made, shall destroy all notes or other work product reflecting the contents of such material, and shall delete such material from any litigation-support or other database. The provisions of this Section shall not be deemed to prevent any party from seeking an order compelling production of any document or information, including documents or information contained in documents that are returned as a result of a claim of inadvertent production.
Link to the case: Victor Stanley, Inc. v. Creative Pipe, Inc.
If you’re in the middle of a trial, don’t tell the judge that you’ve settled the case unless you absolutely, positively mean it. Amazon fell into this trap in its recent litigation with Basis Technology, a Massachusetts linguistics software company. On the third day of trial over a dispute arising out of a contractual relationship the parties informed the judge that the case had been settled. The judge ended the trial, but the settlement agreement that the parties then attempted to negotiate for signature foundered over the calculation of Amazon’s minority stock ownership in Basis, an important element of the settlement. After the dispute was brought to the attention of the trial judge she examined the negotiations and held that the intention of the parties had been to settle. She ruled that all of the material terms of the settlement had been agreed upon, and that Amazon’s objection to the stock calculation was a “post hoc objection” insufficient to derail the settlement. The trial judge refused to reopen the trial, and entered judgment on the terms sought by Basis.
Amazon appealed the judgment entered by the trial court, but the Appeals Court rejected the appeal. In addition to affirming the reasoning of the trial court judge, the Appeals Court emphasized an important principle, long recognized by many courts: when you report a case settled during trial, the court will bend over backwards to enforce the settlement, even if the terms are only oral.This case doesn’t create new law, or even apply a novel legal principle, but it serves as a reminder to be extremely careful, when reporting a settlement during trial, that in fact you have every important aspect of the settlement nailed down, and in writing. Amazon, or it’s counsel, forgot this, and paid the price.
You can read the full decision here.
Trade Secrets, Procedure. Warning: if you’re seeking discovery in a trade secret case in the Suffolk Business Litigation Session make sure that you have (a) provided the court with a detailed description of your trade secrets, and (b) filed a protective order that strictly complies with the Uniform Rules of of Impoundment.
For a recent decision making these points, written by Judge Allan Van Gestel in the Suffolk Business Litigation Session, click [here]. The decision, Tourtellotte Solutions, Inc. v. Tradestone Software, Inc., was featured on the front page of Massachusetts Lawyers Weekly last October. In a nutshell, the plaintiff asked for expedited discovery (in other words, the right to take discovery on a schedule faster than allowed in the ordinary course by the rules of civil procedure), so that the plaintiff could obtain evidence necessary to bring a preliminary injunction against the defendant. The plaintiff’s basic claim was that the defendant had engaged in “software misappropriation,” a term that Judge Van Gestel stated “sounds very much like trade secret misappropriation.”
The judge denied the motion, stating: “a detailed description of what is claimed to be a trade secret must be provided and a protective order of some sort needs to be worked out.”
Neither conclusion is surprising in the least. Many decisions in trade secret cases have held that the plaintiff must identify its trade secrets with particularity. The courts recognize that to permit the plaintiff to launch a “fishing expedition” into the defendant’s technology before identifying its trade secrets is fundamentally unfair. California has even codified this rule by state statute. What is surprising is when (as we have seen from time-to-time), a court does not compel a plaintiff to describe its trade secrets with particularity before commencing discovery.
On the subject of an acceptable protective order, Judge Van Gestel was offended that the protective order proposed by the plaintiff did not comply with the Uniform Rules of Impoundment, which require that a “sealed” filing (in other words, a filing in a sealed envelope that is segregated from the case file that is available to the public) be preceded by a motion and an affidavit explaining why the court should deviate from the standard procedure of making all documents filed with the courts available to the public. Because filing documents “under seal” requires the clerk’s office to go to the inconvenience of identifying and segregating these filings (with the concomitant risks of lost documents and inadvertent disclosure), the party seeking this exception must obtain the court’s permission before putting the court to this inconvenience. Lawyers requesting protective orders in the Business Litigation Session (which are standard in trade secret cases and many other types of business litigation) should keep Judge Van Gestel’s warning in mind. An example of a protective order referencing the Uniform Rules of Impoundment can be found here: [link]
Procedure. There are fads in the law, just like everywhere else. Apologies to Michael Lewis, but there can be no doubt that, in the odd and insular world inhabited by litigators, electronic discovery is the new, new thing, and almost everyone is scrambling to catch up. It is what Y2K was from 1997 to January 1, 2000, but unlike Y2K, it’s not going away anytime soon.
It easy to tell what’s hot in litigation: just watch publications like the National Law Journal and the American Lawyer and look for frequent articles on the “hot topics.” Google “electronic discovery” and you get 354,000 hits.
I’ll be writing more about electronic evidence and discovery, but for now it’s worth noting that if you want to learn about this subject one resource stands tall: Kroll Ontrack.
Kroll makes an effort to track and digest every case involving electronic discovery and computer forensics (look here to see this lengthy document, which can be sorted by topic or jurisdiction). Others, such as Lexis, are not far behind.
You can sign up for Kroll’s newsletter here.
And, if that’s not enough, you can order the monograph authored by two Kroll-employed attorneys, Electronic Discovery: What Every Lawyer Should Know. This 250 page book should make for a pleasant weekend of reading if you feel you really need to get up to speed on this topic.
I should note that the Foreword to this monograph was written by Ken Withers, a friend, attorney, former Bostonian, and for many years now Senior Judicial Education Attorney at the Federal Judicial Center in Washington, D.C.