Conflict Minerals, COOL, and Compelled Commercial Speech at the D.C. Circuit

DC CircuitTwo decisions issued a little over two weeks apart by separate U.S. Court of Appeals for the D.C. Circuit three-judge panels have created significant uncertainty on a critically important First Amendment issue. The court’s forthcoming actions in these cases will have a major impact on government regulation and on regulated industries as diverse as livestock, food, tobacco, smartphones, and medical devices.

The issue in both cases before the court is when can government compel businesses to provide information about their products or themselves. The U.S. Supreme Court held in Zauderer v. Office of Disciplinary Counsel that government can constitutionally require disclosures of a “purely factual” nature which are “reasonably related to the State’s interest in preventing deception of consumers.” The Court has repeatedly reaffirmed Zauderer, most recently in the 2010 case Milavetz, Gallop & Milavetz, P.A. v. U.S., where Justice Sotomayor wrote for a unanimous Court that a low level of scrutiny applies only in cases where the compelled speech is “directed at misleading commercial speech” (italics in opinion).

COOLCountry of Origin Labeling Rule. On March 28, a three-judge panel of Senior Judge Williams, Chief Judge Garland, and Judge Srinivasan upheld the Department of Agriculture’s country-of-origin labeling (COOL) rule in American Meat Institute v. U.S. Dept. of Agriculture. AMI argued that the compelled origin disclosure impinged on its members’ First Amendment rights, and because the information was not meant to prevent deception, the court should review the rule under the heightened scrutiny of Central Hudson v. Public Service Commission, and not the “reasonableness” standard of Zauderer. In upholding the COOL rule, the panel concluded that Zauderer encompassed government interests beyond just preventing consumer confusion, and thus it applied the minimal scrutiny of Zauderer rather than Central Hudson.

That conclusion rejected years of D.C. Circuit precedent (including last year’s R.J. Reynolds Tobacco Co. v. FDA) and instead embraced rulings from the First and Second Circuits. The panel acknowledged in a footnote that “reasonable judges” may read Reynolds as limiting Zauderer review to deception, and suggested en banc review for American Meat Institute. On April 4, the D.C. Circuit sua sponte vacated the panel decision and ordered en banc review. Oral argument is set for May 19. Continue reading

State Attorneys General Advance Their Citizens’ Interests in Supreme Court Foreign Debt Case

supreme courtIn the long-running legal battle between Argentina and its “holdout” bondholders, each side has been seeking to line up high-profile allies in pending Supreme Court proceedings.  Last week, a few foreign governments filed amicus curiae briefs in the Court in support of Argentina.  Today, the bondholders lined up what may prove to be a more important set of allies: 21 States filed an amicus curiae brief urging the Court to rule against Argentina.

The States are not simply disinterested observers of these court proceedings, which will determine the power of U.S. courts to issue injunctions designed to force foreign countries to honor their commitments to repay bond debt.  Through their public pension funds, States have invested billions of dollars in foreign sovereign debt.  It’s not surprising, therefore, that they oppose Argentina’s contention that the Foreign Sovereign Immunities Act (FSIA) largely bars U.S. courts from taking steps to enforce judgments entered against issuers of defaulted sovereign debt.  The States’ willingness to come forward so publicly should serve as an important reminder to the High Court that American taxpayers and pensioners will be badly harmed if foreign governments are permitted to walk away from their contractual commitments.

The dispute between Argentina and its holdout bondholders actually encompasses two separate Supreme Court proceedings.  The States’ brief (one of several filed today in support of the bondholders) was filed in the proceeding that addresses whether Argentina can be required to answer questions regarding the location of its commercial assets.  Bondholders want that information to assist in their efforts to seize non-exempt Argentine assets in satisfaction of court judgments they previously obtained.  The FSIA provides that a sovereign’s commercial assets (but not its governmental assets) may be seized by judgment creditors.  U.S. courts have the power to order seizure of commercial assets located within the United States, while judgment creditors must seek the assistance of courts in a foreign country if they wish to seize the sovereign’s commercial assets located in that country.  The question before the Supreme Court:  may a sovereign debtor be required by a U.S. court to answer questions regarding the location of its commercial assets in foreign countries, or would such a requirement affront the nation’s sovereign dignity?

The States’ amicus curiae brief strongly urges the Court to grant bondholders access to that information.  They argue that even though Argentina waived its sovereign immunity and agreed to be subject to suit in New York courts when it borrowed money from the States and other bondholders, those concessions would be meaningless if bondholders were denied the tools necessary to enforce their repayment rights.  They note that unless bondholders are granted the ability to discover the location of a sovereign nation’s commercial assets, they will have no way of knowing where to turn to initiate enforcement proceedings.

Those arguments may persuade the Supreme Court.  More importantly, the Supreme Court filing by 21 States (represented by a bipartisan group of Attorneys General) reinforces the breadth of the opposition to Argentina’s position.  Their presence also serves as a reminder to the Court that allowing foreign governments to walk away from their debts would harm millions of Americans.

Also published on Washington Legal Foundation’s Forbes.com contributor page

Patents for “Real Inventions with Computers”?: The High Court Hears Arguments in CLS Bank Case

bethShaw-0580editConvertedProfile-e1360002102239Featured Expert Column — Patent Law

Beth Z. Shaw, Brake Hughes Bellermann LLP

On Monday, March 31, the Supreme Court heard argument in the much anticipated patent case Alice Corporation v. CLS Bank International. The arguments focused on the scope of application of Section 101 to claims for a patent related to computer data processing. In a previous divided opinion, the U.S. Court of Appeals for the Federal Circuit failed to agree on any standard as to why the computer-related patent claims were not patent eligible.

Justice Breyer, who questioned the parties more than any other justice, asked the Petitioner how the process claims at issue were different from King Tut applying calculations using an abacus. He queried how to come to a result that might have broader policy implications. Justice Breyer appeared to struggle with the idea of allowing a broad rule that might result in “competition on who has the best patent lawyer,” yet also expressed concern about ruling out “real inventions with computers.”

Justice Sotomayor asked if the Petitioners are “trying to revive the patenting of a function.” She also questioned whether the medium, system, and method claims stand or fall together, an issue that has plagued the divided Federal Circuit for some time. Justice Sotomayor wondered, however, if the Court actually needs to “announce a general rule with respect to software” to resolve this case.

The Petitioners argued that Congress intended the courts apply Section 102 to invalidate patents based on novelty, yet continue a liberal interpretation of Section 101. Justice Ginsburg seemed reluctant to accept that line of reasoning, stating that there are “four Justices” who don’t “buy that argument.” Justice Scalia noted, however, that “four is not five.” Justice Scalia’s questions suggest that he believes that a Section 101 patent-eligibility question should not be confused with the question of whether an invention is novel based on prior art.

Focusing on the practical application of the law by judges, Justice Kagan asked, “[w]hat do we want a judge to do at this threshold level in terms of trying to figure out whether the description is sufficient to get you past [101]?”

It appears that at least some of the justices may prefer to invalidate the patent here without reaching a broader question of when computer-related inventions should be patent-eligible. There also appear to be a group of justices, including Justice Scalia, who want to more clearly differentiate between the question of novelty and the question of an “abstract idea” as defined by previous case law applying Section 101. The questions from the oral argument at the Supreme Court reflect a philosophical debate and potentially divided Court, which could result in a decision with multiple opinions, not unlike that of the Federal Circuit in this case.

Supreme Court Observations: Lexmark Int’l v. Static Control Components

Villafranco_John_web Lynch_Michael_web Garcia_Paul_webGuest Commentary

by John E. Villafranco, Michael C. Lynch, and Paul R. Garcia, Kelley Drye & Warren LLP*

(Ed. Note: Villafranco and Lynch authored an October 2013 WLF Legal Opinion Letter previewing the Lexmark case which can be accessed here)

On March 25, 2014, a unanimous Supreme Court in Lexmark Int’l, Inc. v. Static Control Components, Inc. ruled that a manufacturer of components for use in refurbished toner cartridges has standing under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), to sue the maker of printers in which the cartridges could be used for false advertising. Static Control Components, Inc., the component manufacturer, alleged that Lexmark International, Inc., the printer company, falsely told consumers that they could not lawfully purchase replacement cartridges made by anyone other than Lexmark, and falsely told companies in the toner cartridge remanufacturing business that it was illegal to use Static Control’s components.

The question before the Court was not whether Static Controls has constitutional standing under Article III, but whether it has so-called “prudential standing.” The Court initially noted that “prudential standing” is a misnomer, and that the real question “is whether Static Control falls within the class of plaintiffs whom Congress authorized to sue under § 1125(a).” Slip Op. 8-9. If it does, a court “cannot limit a cause of action that Congress has created because ‘prudence’ dictates.” Slip Op. 9. Rejecting the various approaches of the lower courts—from the competitor-only test, to antitrust standing, to the reasonable interest inquiry—the Supreme Court instead adopted a two-party inquiry.

Continue reading

Update: U.S. Government Fails to Answer Argentina’s Call for Help, Declines Filing Brief in Sovereign Debt Case

DOJArgentina this week received some support (in the form of several amicus curiae briefs) for its efforts to obtain Supreme Court review of the setback it suffered in Second Circuit at the hands of Argentine bondholders. Argentina needs all the help it can get; it is nearing the end of the line in its thus-far unsuccessful efforts to ignore the claims of “holdout” bondholders. However, the most important news from the Court this week was who did not file: the United States government declined entreaties by Argentina to urge the High Court to review the case. Without the support of the United States, Argentina has little hope of convincing the Supreme Court to hear its appeal.

The holdouts will file their brief in May, and the Justices will convene in early June to decide whether to hear the case. If, as is likely, they decide not to hear it, that will be the end of the line for Argentina in U.S. courts on this issue.

Among the briefs filed this week, one that stands out is the brief filed by Brazil. Its principal argument was that the injunction issued against Argentina—requiring Argentina to treat all its bondholders equally—“offends the sovereignty and dignity of Brazil.” It is hard to understand how that is so, unless Brazil wants to join Argentina in refusing to pay its bondholders. Moreover, Brazil seems to overlook that the Second Circuit did not order Argentina to pay anything. The court’s injunction merely said, in effect, “You are a sovereign nation and cannot be forced to use your non-commercial assets to repay your debts. But you can’t have it both ways; if you refuse to make any payments to creditors whose claims have been upheld by our courts, you cannot expect to be granted easy access to American equity markets.” Brazil need not worry that it too will be denied access to equity markets so long as it abides by its contractual commitments to treat all bondholders fairly.

Like all of the other amicus briefs filed this week, Brazil’s fails to cite a single U.S. court decision that conflicts with the Second Circuit decision. In the absence of such a conflict, the U.S. Supreme Court is likely to deny review. Indeed, of the many thousands of petitions it receives each year, it agrees to hear on average only 70. Nor is the Court usually impressed by the sheer number of amicus curiae briefs (ten were filed in support of Argentina); it is identity of the filer (e.g., briefs submitted by the United States carry significant weight) rather than quantity of filings that the Justices focus on most closely. For example, the Court is unlikely to give much weight to Brazil’s brief, in light of press reports suggesting that Brazil decided to file only after demanding and receiving trade concessions from Argentina (as discussed here at The Legal Pulse). The Court takes a dim view of amicus briefs that are, in effect, paid for by one of the parties.

Is Argentina Paying for Amicus Briefs in Foreign Debt Case Before U.S. Supreme Court?

supreme courtIn a last-ditch effort to stave off defeat in its long-running battle with bondholders who want to be paid, Argentina in February asked the U.S. Supreme Court to hear its appeal from an adverse appeals court decision.  It is now busy trying to line up amici curiae (“friends of the court”) to file supporting briefs with the High Court.  The deadline for filing amicus briefs is next Monday, and a number of groups and foreign countries have given official notice of their intent to file briefs in support of Argentina.

However, there are some indications that Argentina has paid for one or more of the anticipated amicus filings.  The Supreme Court takes a dim view of that practice; it wants each amicus filer to truly be a “friend of the court,” not a “friend of a party.”  The Court does not strictly prohibit the filing of amicus briefs that have been paid for by a party.  But it requires that the fact of payment be explicitly disclosed in the opening footnote of the amicus brief.

Lawyers who practice regularly before the Court know that a disclosure of payment in Footnote 1 is a black mark; the Court is unlikely to pay much attention to a paid-for brief.  The justices view such briefs as simply a second brief from one of the parties, an effort to evade the strict word limit that the Court imposes on parties’ briefs.

Brazil’s potential brief is particularly suspect.  Accounts appearing this week in the Brazilian press (here, here, here, here, and here; translated stories here) relate that Brazil has agreed to a request from Argentina to file an amicus brief in support of Argentina’s petition for review.  The press accounts claim that Brazil agreed to the request in return for financial favors.  In return for agreeing to file, Brazil allegedly received commitments from Argentina for: (1) removal of trade barriers, particularly in the automobile industry; and (2) financing for Argentine car dealerships, to allow them to purchase more Brazilian cars.

Mexico has already filed its intent to file an amicus brief in support of Argentina. Argentina may also be courting France to file with the Court; President Kirchner met today with President Hollande It’s hard to say if Argentina is using the same tactics with Mexico and France, but if any sort of financial encouragement is on the table, both nations should be aware of the “Footnote 1” ramifications and take heed.

If the Brazilian press accounts are accurate, then its lawyers will be required under Supreme Court rules to disclose in the opening footnote of their brief the payments made by Argentina to finance the brief.  Would Brazil still decide to file once its lawyers inform it of the required disclosures?  An amicus brief submitted by a disinterested South American country urging the Court to hear a case raising issues deemed important by that country might have some influence on the Court’s decision-making process.  In contrast, an amicus brief filed by a country that has been paid for the filing by one of the parties is likely to sit on a shelf gathering dust.

Supreme Court Observations: BG Group PLC v. Republic of Argentina

supreme courtThe Supreme Court on Wednesday issued a divided opinion in a case that raised an important issue of arbitration law:  should an arbitrator or a judge decide whether an international treaty requires a private party to bring a commercial dispute before a judge prior to attempting arbitration?  In BG Group PLC v. Republic of Argentina, the Court ruled 7-2 against Argentina, concluding that arbitrators acted within their power when they concluded that a British firm was not required to file suit in Argentina’s courts before seeking arbitration.  Chief Justice Roberts, joined by Justice Kennedy, dissented; they argued that in signing the bilateral UK-Argentina investment treaty, Argentina agreed to arbitration only on condition that investors bring their disputes to an Argentine court first.  But there was one point on which the justices agreed unanimously:  Argentina has a sorry history of living up to its contractual commitments to investors.  That point of agreement does not bode well for Argentina, which in two pending Supreme Court cases is asking the Court to permit it to invoke sovereign immunity as the basis for resisting repayment of sovereign debt.

The case involved claims by a British firm, BG Group plc, that Argentina breached a natural gas distribution contract.  Washington, D.C.-based arbitrators awarded BG Group $185 million in damages, and Argentina turned to American courts to overturn the award.  It cited the terms of the UK-Argentina treaty as the basis for its claim that the arbitrators lacked jurisdiction to hear the case.  The treaty provides that an investor asserting a claim under the treaty may not initiate arbitration until 18 months after filing a claim against Argentina in an Argentine court.

The arbitrators held that BG Group should be excused from complying with the 18-month litigation requirement.  They noted that Argentina, after taking steps that essentially expropriated BG Group’s property, adopted a series of laws designed to block any BG Group lawsuit.  They held that these laws, “while not making litigation in Argentina’s courts literally impossible, nonetheless hindered recourse to the domestic judiciary to the point where the Treaty implicitly excused compliance with the local litigation requirement.” Continue reading

Don’t Make a Federal Case Out of It: High Court Should Grant Review in No-Injury Class Action

wahooThe U.S. Supreme Court this week has a chance to strike a blow for judicial modesty and at the same time call a halt to a disturbing trend being pushed by the plaintiffs’ bar:  class-action lawsuits in which no one was injured but that seek millions of dollars in “damages.”  The Court is being asked, in the case of First National Bank of Wahoo v. Charvat, to consider whether federal courts possess jurisdiction to hear such no-injury lawsuits.  The Court should accept the invitation and announce that attorneys will no longer be permitted to flout Article III of the U.S. Constitution, which limits the filing of federal lawsuits to those who have actually suffered an injury.

The case involves two small Nebraska banks that, like most banks, charge a small fee to non-customers who use their ATM machines.  Federal law requires banks to provide notice that they charge such a fee.  The two Nebraska banks did provide notice (on the very first screen seen by ATM users), and no one has come forward to claim that he or she used one of the ATMs without being aware that a fee would be incurred.

Here’s the wrinkle: at the time this lawsuit arose, federal regulations (since repealed) also required a second form of notice—on a small placard physically attached to the ATM.  Some of the ATMs maintained by the First National Bank of Wahoo and the Mutual First Federal Credit Union did not display the placard.  Jarek Charvat, an enterprising young man working with a local plaintiffs’ law firm, knew about the ATM fees and observed that the banks were not in full compliance with the federal placard regulation.  So he went from bank branch to bank branch, making ATM withdrawals and deliberately incurring a $2.00 fee at each stop. Continue reading

WLF Brief Video Explains What’s at Stake as Supreme Court Hears Arguments in Halliburton v. Erica John Fund

Washington Legal Foundation filed an amicus brief supporting the petitioner in Halliburton v. Erica P. John Fund, on which we were represented by Lyle Roberts on a pro bono basis.  The brief is available here.

If you would like a copy of Mr. Robert’s comments, click here.

Courts Endorse Businesses’ Using Forum-Selection Clauses As Litigation Management Tools

Guest Commentary

by Ross Coker*

Since its debut in the early 2000s, Google has grown at a startlingly rapid pace, becoming not only a global behemoth in the online search engine and advertising markets, but expanding its reach through smartphones, computer operating systems, and more.  Just this month, Google surpassed ExxonMobil as the world’s second largest company by market capitalization.

In the United States, such success inevitably makes one a target of class-action lawsuits.  To avoid being dragged into one of the country’s notorious Judicial Hellholes,® companies like Google include venue and forum selection clauses in their consumer contracts.  In addition to avoiding plaintiff-friendly jurisdictions, such clauses allow companies to resolve legal disputes close to “home” in a manner that minimizes disruption to conducting business.

A recent federal district court ruling, Rudgayzer et al. v. Google Inc., reflects the importance and effectiveness of these forum-selection clauses and clarifies their strategic underpinning.  Rudgayzer filed suit in the Eastern District of New York (EDNY) alleging improper notice after Google settled another class action suit involving the now-defunct “Buzz” product.  The judge dismissed Rudgayzer’s suit because the plaintiff had assented to Google’s consumer contract, which contained the forum-selection clause.

Santa Clara County, CA

Santa Clara County, CA

In order to reach that conclusion, the court had to first determine whether the clause could be enforced.  The court noted that the federal circuits are split on the legal standard to apply in this situation.  The Second Circuit, whose precedents bind the EDNY, permits dismissal under Federal Rule of Civil Procedure 12(b)(3) if the consumer was made aware of the forum-selection clause, the clause is mandatory by the terms of the contract, and state contract law permits the imposition of such a clause.  The plaintiff can escape the clause only if it can show that the transfer of its case would be “unreasonable or unjust.”  Continue reading