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April 24, 2018 |
Supreme Court Clarifies That Inter Partes Review Must Decide All Challenged Claims

SAS Institute, Inc. v. Iancu, No. 16-969 Decided April 24, 2018 Today, the Supreme Court held 5-4 that if the Patent Trial and Appeal Board (PTAB) exercises its discretion to institute inter partes review, it must issue an opinion on all challenged claims. Background: Inter partes review is an administrative process in which the PTAB revisits the patentability of claims in existing patents. The PTAB may institute that review if the petitioner shows a “reasonable likelihood” of success on at least one claim. 35 U.S.C. § 314(a). If the PTAB institutes inter partes review, it “shall issue” a written decision as to the patentability of “any patent claim challenged by the petitioner.” 35 U.S.C. § 318(a). In this case, SAS Institute petitioned the PTAB for inter partes review of a certain patent. The PTAB reviewed only some of the claims, as U.S. Patent and Trademark Office (PTO) regulations permit. SAS Institute argues that the PTAB was required to issue a final decision on all of the claims. Issue: Whether the PTAB must issue a final written decision as to every claim challenged by the petitioner when it institutes an inter partes review. Court’s Holding: Yes, if the PTAB institutes inter partes review, it must rule on all challenged claims. “Even under Chevron, we owe an agency’s interpretation of the law no deference unless, after ‘employing traditional tools of statutory construction,’ we find ourselves unable to discern Congress’s. meaning.” Justice Gorsuch, writing for the majority What It Means: The Court determined that the statute’s plain text does not permit the PTAB to decide which claims to review when it grants inter partes review. Instead, if the PTAB decides that the petitioner is reasonably likely to succeed on at least one claim, the statute requires the PTAB to review all of the claims in the petition. The Court rejected SAS Institute’s invitation to overrule Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984), under which courts defer to reasonable agency interpretations of an ambiguous statute. Here, the Court held that the PTO is not entitled to deference because the statute is not ambiguous. The majority left open the possibility that the PTAB could deny a petition while noting that one or more claims merit reexamination and permitting the petitioners to file a new petition limited to those claims. The America Invents Act’s estoppel provisions prevent a petitioner from arguing that a claim is invalid, in a district court or before the International Trade Commission, on any ground raised or that reasonably could have been raised on inter partes review if the PTAB issues a final written decision on the claim. As a result of today’s decision, if the PTAB institutes review, every claim raised must be addressed—and so likely will trigger the estoppel provisions. The Supreme Court’s ruling may lead the PTAB to grant fewer petitions—meaning more patent litigation in the district courts. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com Related Practice: Intellectual Property Wayne Barsky +1 310.552.8500 wbarsky@gibsondunn.com Josh Krevitt +1 212.351.4000 jkrevitt@gibsondunn.com Mark Reiter +1 214.698.3100 mreiter@gibsondunn.com   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 24, 2018 |
Supreme Court Upholds PTO Inter Partes Review of Patent Validity

Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 Decided April 24, 2018 The Supreme Court held 7-2 that the U.S. Patent and Trademark Office’s inter partes review process does not violate the Constitution. Background: In 2011, Congress passed the America Invents Act, which created a new adversarial process within the U.S. Patent and Trademark Office (PTO), known as inter partes review. This process allows anyone to challenge the validity of an existing patent on the grounds that the patent was anticipated by is or obvious in light of the prior art. Under that process, the Patent Trial and Appeal Board (PTAB) – rather than a federal court – decides whether to cancel or confirm a challenged patent, subject to deferential review by the Federal Circuit. Issue: Whether inter partes review violates Article III’s grant of judicial power to the federal courts and the Seventh Amendment’s right to a jury trial. Court’s Holding: No, patents are public rights, and not purely private rights, so Congress may allow non-Article III tribunals (like the PTAB) to adjudicate those rights. “[T]he decision to grant a patent is a matter involving public rights—specifically, the grant of a public franchise. Inter partes review is simply a reconsideration of that grant, and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration.” Justice Thomas, writing for the majority Gibson Dunn filed an amicus brief defending inter partes review for Dell, Facebook, Hewlett Packard, Twitter and others. What It Means: The Court held that patents are public rights that may be granted, abridged, or withdrawn without adjudication by an Article III court or factfinding by a jury. The Court explained that a patent owner’s property rights in an issued patent are subject to PTO’s authority to reexamine or cancel the patent. Although inter partes review resembles adversarial litigation, it determines a party’s patent right against the government – not liability between private parties. The Court rejected the argument that, historically, the validity of a patent could only be challenged in court. Instead, drawing on the argument that Gibson Dunn made in its amicus brief, the Court concluded that inter partes review is consistent with historical practice under the English patent system. The Court emphasized that its holding is narrow and that it did not decide whether infringement actions or other patent matters could be heard outside of an Article III court or whether the retroactive application of inter partes review is constitutional. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com   Related Practice: Intellectual Property Wayne Barsky +1 310.552.8500 wbarsky@gibsondunn.com Josh Krevitt +1 212.351.4000 jkrevitt@gibsondunn.com Mark Reiter +1 214.698.3100 mreiter@gibsondunn.com   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 24, 2018 |
Supreme Court Holds That Foreign Corporations Cannot Be Sued Under The Alien Tort Statute

Jesner v. Arab Bank, PLC, No. 16-499 Decided April 24, 2018 Today, the Supreme Court held 5-4 that a foreign corporation may not be sued under the Alien Tort Statute. Background: The Alien Tort Statute of 1789 (ATS) provides that foreign nationals may sue in federal court “for a tort only, committed in violation of the law of nations or a treaty of the United States.” 28 U.S.C. § 1350. In recent years, plaintiffs increasingly have relied on the ATS to sue multinational corporations and banks in federal courts for alleged terrorist activities and human rights violations abroad. In this case, the plaintiffs sued Arab Bank, PLC—a Jordanian financial institution with a branch in New York—alleging that the bank helped finance terrorist attacks in the Middle East. Issue: Whether foreign corporations can be sued in federal court in the United States under the ATS. Court’s Holding: No. Neither the language of the ATS nor the Court’s precedents interpreting it supports extending the statute to reach suits against foreign corporations. The political branches, rather than the courts, are responsible for weighing foreign-policy concerns and deciding whether foreign corporations should face liability for acts like those at issue in this case. The Judiciary is “not well suited to make the required policy judgments that are implicated by corporate liability in cases like this one.” “[A]bsent further action from Congress it would be inappropriate for courts to extend ATS liability to foreign corporations.” Justice Kennedy, writing for the majority What It Means: Although the decision does not resolve whether plaintiffs may sue U.S. corporations under the ATS, it does stop the recent trend of plaintiffs using the ATS to sue foreign corporations and foreign financial institutions in the United States. Jesner joins a line of recent precedents refusing to create new private rights of action and reiterating that the decision to attach liability to certain conduct is best left to Congress. By clearly prohibiting ATS liability against foreign corporations, the decision may strengthen the arguments of U.S. corporations seeking to dismiss an ATS suit when the underlying claim is based on the conduct of a foreign affiliate. The decision may place greater pressure on Congress to legislate in this area. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com Related Practice: Transnational Litigation William E. Thomson +1 213.229.7891 wthomson@gibsondunn.com Andrea E. Neuman +1 212.351.3883 aneuman@gibsondunn.com Perlette Michèle Jura +1 213.229.7121 pjura@gibsondunn.com   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 17, 2018 |
Supreme Court Holds That Recent Legislation Moots Dispute Over Emails Stored Overseas

Click for PDF United States v. Microsoft Corp., No. 17-2 Decided April 17, 2018 Today, the Supreme Court held that Microsoft’s dispute with the federal government over the government’s attempts to access email stored oversees is moot. Background: The Stored Communications Act, 18 U.S.C. § 2701 et seq., authorizes the government to require an email provider to disclose the contents of emails (and certain other electronic data) within its control if the government obtains a warrant based on probable cause. In this case, the federal government obtained a warrant to obtain emails from an email account used in drug trafficking. The drug trafficking allegedly occurred in the United States, but the emails were stored on a data server in Ireland. Microsoft refused to provide the emails on the ground that the Stored Communications Act does not apply to emails stored overseas. Issue: Whether the Stored Communications Act requires an email provider to disclose to the government emails stored abroad. Court’s Holding: The case is moot. On March 23, 2018, the President signed the Clarifying Lawful Overseas Use of Data Act (CLOUD Act), which amended the Stored Communications Act so that it now applies to emails stored abroad. The parties’ dispute under the old version of the law therefore was moot. “No live dispute remains between the parties over the issue with respect to which certiorari was granted.” Per Curiam What It Means: Given passage of the CLOUD Act, there was no longer any need for the Supreme Court to interpret the prior version of the Stored Communications Act. The CLOUD Act requires an email provider to disclose emails, so long as the statute’s procedures have been followed, regardless of whether those emails are “located within or outside of the United States.” CLOUD Act § 103(a)(1) (to be codified at 18 U.S.C. § 2713). But the CLOUD Act permits courts to exempt providers from disclosing emails of customers who are not U.S. Citizens or residents, if disclosure would risk violating the laws of certain foreign governments. CLOUD Act § 103(b) (to be codified at 18 U.S.C. § 2703(h)).   Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com Related Practice: White Collar Defense and Investigations Joel M. Cohen +1 212.351.2664 jcohen@gibsondunn.com Charles J. Stevens +1 415.393.8391 cstevens@gibsondunn.com F. Joseph Warin +1 202.887.3609 fwarin@gibsondunn.com Related Practice: Privacy, Cybersecurity and Consumer Protection Alexander H. Southwell +1 212.351.3981 asouthwell@gibsondunn.com   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 4, 2018 |
Supreme Court Round-Up: A Summary of the Court’s Opinions, Cases to Be Argued Next Term, and Other Developments (April 4, 2018)

As the Supreme Court continues its 2017 Term, Gibson Dunn’s Supreme Court Round-Up is summarizing the issues presented in the cases on the Court’s docket and the opinions in the cases the Court has already decided. The Court has accepted 64 cases for argument this Term, and has heard arguments in 51 cases.  Gibson Dunn has presented one oral argument this Term and has two arguments this month, in addition to being involved in ten cases as counsel for amici curiae.  In addition, the Court has granted certiorari in eight cases for the 2018 Term, and Gibson Dunn is counsel for the petitioner in one of those cases. Spearheaded by former Solicitor General Theodore B. Olson, the Supreme Court Round-Up keeps clients apprised of the Court’s most recent actions.  The Round-Up previews cases scheduled for argument, tracks the actions of the Office of the Solicitor General, and recaps recent opinions.  The Round-Up provides a concise, substantive analysis of the Court’s actions.  Its easy-to-use format allows the reader to identify what is on the Court’s docket at any given time, and to see what issues the Court will be taking up next.  The Round-Up is the ideal resource for busy practitioners seeking an in-depth, timely, and objective report on the Court’s actions. To view the Round-Up, click here. Gibson Dunn has a longstanding, high-profile presence before the Supreme Court of the United States, appearing numerous times in the past decade in a variety of cases. During the Supreme Court’s 5 most recent Terms, 9 different Gibson Dunn partners have presented oral argument; the firm has argued a total of 19 cases in the Supreme Court during that period, including closely watched cases with far-reaching significance in the class action, intellectual property, separation of powers, and First Amendment fields. Moreover, while the grant rate for certiorari petitions is below 1%, Gibson Dunn’s certiorari petitions have captured the Court’s attention: Gibson Dunn has persuaded the Court to grant 23 certiorari petitions since 2006. *   *   *  * Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following attorneys in the firm’s Washington, D.C. office, or any member of the Appellate and Constitutional Law Practice Group. Theodore B. Olson (+1 202.955.8500, tolson@gibsondunn.com) Amir C. Tayrani (+1 202.887.3692, atayrani@gibsondunn.com) Brandon L. Boxler (+1 202.955.8575, bboxler@gibsondunn.com) Rajiv Mohan (+1 202.955.8507, rmohan@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 2, 2018 |
Supreme Court Says Car Dealership Service Advisors Are Exempt From FLSA Overtime Pay Requirements

Click for PDF Encino Motorcars, LLC v. Navarro, No. 16-1362   Decided April 2, 2018 Today, the Supreme Court held 5-4 that car dealership service advisors are exempt from the Fair Labor Standards Act’s requirement to pay overtime. Background: The Fair Labor Standards Act (FLSA) contains an exemption from its overtime-pay requirements for “any salesman, partsman, or mechanic” who is “primarily engaged in selling or servicing automobiles.” 29 U.S.C. § 213(b)(10)(A). Service advisors are car dealership employees who meet with customers, identify their service needs, and sell them services for their vehicles. They sued, claiming that they are entitled to overtime pay under the FLSA. Issue: Whether service advisors at car dealerships are exempt from the Fair Labor Standards Act’s overtime-pay requirements. Court’s Holding: Yes, service advisors are exempt because they qualify as “salesmen . . . primarily engaged in . . . servicing automobiles” under the FLSA. “If the text is clear, it needs no repetition in the legislative history; and if the text is ambiguous, silence in the legislative history cannot lend any clarity.” Justice Thomas, writing for the majority What It Means: The Court’s analysis was straightforward: The ordinary meaning of “salesman” is “someone who sells goods or services,” and service advisors sell customers services for their vehicles. The Court also concluded that service advisors are “primarily engaged in . . . servicing automobiles,” even though they do not repair the vehicles themselves, because they are “integrally involved in the servicing process.” The Court rejected the frequently-stated view that FLSA exemptions should be construed narrowly because the FLSA is a remedial statute. The FLSA gives no “textual indication” that the exemptions should be construed narrowly, and the exemptions are “as much a part of the FLSA’s purpose as the overtime-pay requirement.” The decision today finally resolves the question whether service advisors are exempt from the FLSA’s overtime-pay requirement. Service advisors generally were regarded as exempt until the Department of Labor changed course in 2011 and issued a regulation that interpreted “salesman” to exclude service advisors. The question reached the Supreme Court in 2016, but the Court did not decide the issue, holding only that the Department of Labor’s regulation was not entitled to deference because the agency failed to sufficiently explain why it had changed position in 2011. See Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2016). Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com   Related Practice: Labor and Employment Catherine A. Conway +1 213.229.7822 cconway@gibsondunn.com Jason C. Schwartz +1 202.955.8242 jschwartz@gibsondunn.com   Related Practice: Litigation Theodore J. Boutrous, Jr. +1 213.229.7804 tboutrous@gibsondunn.com Randy M. Mastro +1 212.351.3825 rmastro@gibsondunn.com   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 29, 2018 |
Federal Circuit Update (March 2018)

Click for PDF This March 2018 edition of Gibson Dunn’s Federal Circuit Update discusses the three pending Federal Circuit cases before the Supreme Court that consider issues regarding inter partes review proceedings and extraterritorial damages, and a brief summary of the process for seeking an interlocutory appeal.  This Update also provides a summary of the pending en banc case involving attorneys’ fees for litigation involving the PTO.  Also included are summaries of recent decisions regarding the fair use defense to copyright infringement, factual issues underlying patent eligibility under 35 U.S.C. § 101, and the jurisdiction of the Federal Circuit over Walker Process antitrust claims. Federal Circuit News On Friday, March 16, 2018, the Judicial Conference of the U.S. Court of Appeals for the Federal Circuit was held in Washington, D.C.  At the Conference, Judge Pauline Newman was recognized with the 2018 American Inns of Court Professionalism Award.  Judge Newman has served on the Federal Circuit in active status for the past 34 years. Supreme Court.  The Supreme Court has heard oral argument on two cases from the Federal Circuit this term, and recently granted certiorari on a third case: Case Status Issue WesternGeco LLC (Schlumberger) v. ION Geophysical Corp., No. 16-1011 Certiorari granted Jan. 12, 2018; Argument Apr. 16, 2018 Recoverability of lost profits for foreign use in cases where patent infringement is proven under 35 U.S.C. § 271(f) Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 Argued on Nov. 27, 2017 Constitutionality of inter partes review under Article III and the Seventh Amendment SAS Institute Inc. v. Matal, No. 16-969 Argued on Nov. 27, 2017 The number of claims that must be addressed by the Patent Trial and Appeal Board in a final written decision during inter partes review Upcoming En Banc Federal Circuit Cases NantKwest, Inc. v. Matal, No. 16-1794 (Fed. Cir.):  Whether the PTO can recover attorneys’ fees in litigation under 35 U.S.C. § 145. After the PTAB affirmed the examiner’s rejection of NantKwest’s patent application, NantKwest appealed to the United States District Court for the Eastern District of Virginia under 35 U.S.C. § 145.  The PTO prevailed on the merits of the appeal and moved to recover both attorneys’ fees and expert fees.  Section 145 provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Applying this provision, the district court granted the PTO’s request for expert fees, but rejected the PTO’s request for attorneys’ fees.  A panel of the Federal Circuit reversed the district court’s holding as to attorneys’ fees, holding that the “[a]ll expenses of the proceedings” provision under § 145 authorizes an award of attorneys’ fees.  (Decision available here.) The Federal Circuit sua sponte ordered that the panel decision be vacated and that the case be reheard en banc.  Seven amicus briefs were filed, five in support of NantKwest (the International Trademark Association, the Intellectual Property Owners Association, the Intellectual Property Law Association of Chicago, the Association of Amicus Counsel, and the American Bar Association) and two in support of neither party (Federal Circuit Bar Association and American Intellectual Property Law Association).  Oral argument was held on March 8, 2018.  (Audio recording is available here.) Question presented: Did the panel in NantKwest, Inc. v. Matal, 860 F.3d 1352 (Fed. Cir. 2017) correctly determine that 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees? Federal Circuit Practice Update How to Appeal from an Interlocutory Decision.  The Federal Circuit has exclusive jurisdiction over interlocutory orders in patent law cases.  See 28 U.S.C. § 1292(c)(1).  Interlocutory orders are appealable as of right if they relate to an injunction, receivers, or certain admiralty cases.  See § 1292(a)(1)–(3).  All other interlocutory appeals are discretionary and require that both the district court and the appeals court agree to hear the issue on appeal. The district court judge must first certify that the issue “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.”  28 U.S.C. § 1292(b).  There is no deadline after the substantive order to move for certification under section 1292(b), but the prospective appellant should move promptly.  If the district court declines to issue such a certification order, that is the end of the road (absent mandamus or other extraordinary relief). If the district court certifies an issue for interlocutory appeal, the appeals court has discretion to permit the appeal.  See § 1292(b); see also Regents of U. of Cal. v. Dako N. Am., Inc., 477 F.3d 1335, 1336 (Fed. Cir. 2007) (“Ultimately, this court must exercise its own discretion in deciding whether it will grant permission to appeal an interlocutory order certified by a trial court.”).  A party has ten days after the district court’s certification order to petition the court of appeals.  See § 1292(b); see also Fed. R. App. P. 5(a)(3).  The petition must contain a summary of relevant facts, the question presented, the relief sought, a statement of the reasons why the appeal should be allowed, and copies of the relevant district court orders.  Fed. R. App. P. 5(b)(1)(A)–(E).  A party then has ten days to file an answer in opposition to the petition.  Fed. R. App. P. 5(b)(2).  The petition is decided without the benefit of oral argument, unless the court of appeals orders otherwise.  Fed. R. App. P. 5(b)(3). Key Case Summaries (February – March 2018) Oracle Am., Inc. v. Google LLC, Nos. 17-1118, 17-1202 (Fed. Cir. Mar. 27, 2018):  Direct copying of a copyrighted work for use in a competing platform using the material for the same purpose and function did not, on the facts of the case, amount to fair use. After a jury had determined that Google’s use of Oracle’s copyright in Java API packages was a fair use, the district court denied Oracle’s post-trial motions for judgment as a matter of law and for a new trial.  Applying the four factors for fair use from 17 U.S.C. § 107, the district court held that a reasonable jury could have concluded that the use was fair because:  (1) the purpose and character of Google’s use was transformational; (2) the nature of the copyrighted work was not “highly creative”; (3) the amount and substantiality of the portion used was only as much of the work as was necessary for its transformative use; and (4) Google’s use of the code did not cause harm to the potential market for the copyrighted work. The Federal Circuit (O’Malley, J.) reversed.  At the outset, the Federal Circuit discussed the standard of review and found that fair use is “primarily a legal exercise” and thus, under the Supreme Court’s recent decision in U.S. Bank Nat’l Ass’n ex rel. CWCapital Asset Mgmt. LLC, No. 15-1509 (U.S. Mar. 5, 2018), the inferences to be drawn from the fair use factors are legal in nature and subject to de novo review. In analyzing the first factor, the court found that Google’s use of the Java APIs to create its Android platform was commercial under Ninth Circuit law even though Google gave a free open source license to Android because direct economic benefit is not required, and Google profited indirectly from the platform.  The court also found that Google’s use was not transformative because Google (1) used the API packages for the same purpose as they were used in the Java platform, (2) made no alterations to the expressive content of the copyrighted material, and (3) did not adapt the material for a “new context” when it provided Android for smartphones.  As to the second factor, the court found that the evidence presented at trial would allow reasonable jurors to conclude that functional considerations were substantial and important.  Addressing the third factor, the court noted that Google directly copied 37 API packages and 11,500 lines of code, even though only 170 lines of code were necessary to write in the Java language.  Although the amount of code was a small percentage of the roughly 2.86 million lines of code in Java libraries, the court found the copying qualitatively substantial because it copied 37 APIs in their entirety—even though Google admitted they could have written their own APIs—in order to make the Android platform familiar and attractive to Java programmers.  Turning to the fourth factor, the court noted that Android competed directly with Oracle’s Java platform and that the free nature of Android caused significant market harm to Oracle’s efforts to license Java. Based on those findings, the court noted that the second factor favored a finding of fair use, whereas the first and fourth factors weighed “heavily against” a finding of fair use.  The court considered the third factor to be neutral “at best.”  In balancing these factors, the court concluded that the factors weighed against a finding of fair use, and the court explained that “[t]here is nothing fair about taking a copyrighted work verbatim and using it for the same purpose and function as the original in a competing platform.”  The court added the caveat that it was “not conclud[ing] that a fair use defense could never be sustained in an action involving the copying of computer code.” Berkheimer v. HP Inc., No. 2017-1437 (Fed Cir. Feb. 8, 2018):  Patent eligibility under section 101 presents issues of fact and, under the facts of that case, summary judgment was not appropriate. The Federal Circuit held that the second prong of the Alice ineligibility inquiry under 35 U.S.C. § 101—whether the claim elements “transform the nature of the claim” into patent-eligible subject matter if they “involve more than performance of well-understood, routine, [and] conventional activities previously known to the industry”—is “a factual determination” that may not be suitable for summary judgment if facts are disputed. The district court ruled on summary judgment that eight claims from U.S. Patent No. 7,447,713 were directed to abstract ideas and thus ineligible for patenting under section 101.  The ‘713 Patent describes a means of digitally processing and archiving files by “parsing” the files into multiple parts, comparing those parts, and eliminating redundant material to allegedly improve storage efficiency and reduce storage costs. The Federal Circuit (Moore, J.) reversed.  Berkheimer alleged that the claims at issue covered linking data so as to facilitate “one-to-many” editing (i.e., allowing a single edit to populate to multiple points that use the same data).  The patentee asserted that this “inventive feature” operated in an “unconventional manner” versus mere “copy-and-paste” functionality in the prior art.  Although the panel agreed that all the challenged claims were directed to the abstract ideas of parsing and comparing data—the first prong of the Supreme Court’s Alice test—the panel reversed the district court’s ruling on the second Alice prong for four claims on the basis that the second prong “is a question of fact.”  Specifically, the Federal Circuit panel held that whether the “one-to-many” editing feature was “well-understood, routine, and conventional” was a disputed factual question that could not be decided on summary judgment.  In light of this, the Federal Circuit panel held that whether this added feature was “well-understood, routine, and conventional” was a disputed factual question that could not be decided on summary judgment. On March 12, HP petitioned for rehearing en banc, supported by several amici curiae.  On March 15, the Federal Circuit invited a response to HP’s petition. Aatrix Software, Inc. v. Green Shades Software, Inc., No. 2017-1452 (Fed. Cir. Feb. 14, 2018):  Patent eligibility presents issues of fact not amenable to a Rule 12 motion to dismiss. Following Berkheimer, the Federal Circuit (Moore, J.) issued a parallel ruling concerning the appropriateness of deciding patent eligibility at the Rule 12 stage.  Judge Reyna wrote separately in partial dissent. Aatrix Software asserted two patents directed to systems and methods for importing data onto a computer to allow that data to be processed and viewed.  The district court granted defendant’s motion to dismiss, holding that the claims were not directed to patentable subject matter. On appeal, the Federal Circuit reversed, holding that the complaint set forth a question of fact as to patentability because the complaint alleged that “the claimed software uses less memory, and results in faster processing speed” and thus is patent eligible because “the claimed invention is directed to an improvement in the computer technology itself.” Judge Reyna dissented, challenging the practical implications of the ruling and arguing that Federal Circuit precedent “is clear that the § 101 inquiry is a legal question” and a question “that can be appropriately decided on a motion to dismiss.” Xitronix Corp. v. KLA-Tencor Corp., No. 2016-2746 (Fed. Cir. Feb. 9, 2018):  Jurisdiction over Walker Process-antitrust claims is in the regional circuits, not the Federal Circuit. Under 28 U.S.C. § 1295(a)(1), the Federal Circuit has appellate jurisdiction over actions arising under “any Act of Congress relating to patents.”  Walker Process claims involve allegations that enforcing a patent procured by fraud on the PTO constitutes an antitrust violation under the Sherman Act.  The Federal Circuit has historically treated such claims as presenting “a substantial question of patent law” and thus accepted jurisdiction over them. In Gunn v. Minton, the Supreme Court held that a state law claim alleging legal malpractice in handling a patent case—which likewise implicates U.S. Patent law—did not itself “arise under” or depend on a question of patent law sufficient to convey jurisdiction to federal courts.  568 U.S. 251, 258 (2013). In Xitronix, both sides asserted that the Federal Circuit had appellate jurisdiction over the Walker Process claim under appeal in that case.  No other patent-related claim was asserted on which to base Federal Circuit jurisdiction.  The Federal Circuit, however, raised the question of jurisdiction sua sponte, ruling that, given the Supreme Court’s analogous view in Gunn, jurisdiction for Walker Process claims rested with the regional circuits.  Accordingly, the Federal Circuit overruled its prior contrary precedent and transferred the appeal to the Fifth Circuit. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Blair A. Silver – Washington, D.C. (+1 202-955-8690, bsilver@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Intellectual Property Group: Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com)Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 22, 2018 |
Delaware Supreme Court Holds That Forum Non Conveniens Dismissals Do Not Require An Alternative Available Forum

Click for PDF On March 22, 2018, in a 4-1 opinion, the Delaware Supreme Court held that where defendants have demonstrated that litigating in Delaware would result in an overwhelming hardship to defendants, Delaware courts may dismiss suits under the doctrine of forum non conveniens even if no alternative forum is available.[1]  Given the significant number of multinational corporations subject to suit in Delaware, and the challenges those defendants face presenting a meaningful defense where the key documents, witnesses and evidence reside overseas, this ruling will go a significant way toward enabling defendants to better protect their rights to a full and fair trial. The underlying litigation was filed in Delaware state court by Argentine citizens alleging exposure to pesticides used on Argentine tobacco farms and seeking compensatory and punitive damages against several defendants, including Monsanto Company, Philip Morris Global Brands, Inc., and Philip Morris USA Inc. (“Philip Morris USA”). Rejecting the rules governing forum non conveniens in federal court, and adopting reasoning consistent with the forum non conveniens approach in New York’s courts, the Delaware Supreme Court held that the existence of an alternative forum is not a pre-requisite to dismissal, but rather only one of many factors to be considered in making the determination whether “‘litigating in Delaware would result in an overwhelming hardship to [the defendant].’”[2] The Delaware Supreme Court explained that the doctrine of forum non conveniens has changed dramatically since it was first recognized by the U.S. Supreme Court in 1947.  Citing one study showing that federal courts granted “roughly half of motions to dismiss for forum non conveniens,” the Court wrote that “state courts now shoulder more of the transnational litigation.”[3]   But these “cases are complex and strain judicial resources,” as demonstrated by the present litigation, in which all conduct occurred in Argentina, all documents and witnesses would be located in Argentina, and the Delaware courts would need to apply Argentine law to a dispute that “has no real connection [to Delaware].”[4] International comity also informed the Court’s decision not to require an alternative forum prior to dismissal.  The Court recognized that “some countries have erected barriers preventing plaintiffs from pursuing litigation in their home country once a case has been filed in the United States” and that “plaintiffs can take steps to render the foreign jurisdiction unavailable.”[5]  The Court reasoned that rejecting the available-forum requirement “might encourage foreign jurisdictions to rethink laws and rules shifting to the U.S. courts disputes that are more closely connected to their own countries and citizens.”[6] In announcing the rule, the Delaware Supreme Court did not totally foreclose foreign plaintiffs from bringing suit against Delaware companies in Delaware courts because “[t]he degree of the Delaware corporate defendant’s connection to the alleged wrong will still be considered” in the forum non conveniens analysis.[7]  But the Court emphasized that “trial court[s] will … have the discretion to dismiss a transnational dispute when the defendant has demonstrated overwhelming hardship if the case is litigated in the Delaware courts, even if an alternative forum is not available.”[8] The Delaware Supreme Court’s decision is a significant development in transnational case law.  Given the sheer number of businesses incorporated in Delaware, Delaware state court is an obvious target for foreign plaintiffs seeking to avail themselves of American courts, which are widely viewed as plaintiff-friendly.  But this decision gives U.S. businesses sued in connection with foreign conduct another arrow in their quivers as they defend against costly transnational litigation. Gibson Dunn represented Philip Morris USA in the Delaware litigation.  Patrick Dennis, Miguel Estrada, Perlette Jura, and Amir Tayrani led the Gibson Dunn team.    [1]   Aranda v. Philip Morris USA, Inc., No. 525, 2016 (Del. Mar. 22, 2018).    [2]   Id. at 13-14 (quoting Mar–Land Indus. Contractors, Inc. v. Caribbean Petroleum Refining, L.P., 777 A.2d 774, 779 (Del. 2001)).    [3]   Id. at 14-15 (citing Maggie Gardner, Retiring Forum Non Conveniens, 92 N.Y.U. L. Rev. 390, 396 (2017)).    [4]   Id. at 15-16.    [5]   Id. at 16.    [6]   Id. at 17-18.    [7]   Id. at 18.    [8]   Id. The following Gibson Dunn lawyers assisted in the preparation of this client update: Patrick Dennis, Perlette Jura, Amir Tayrani, Chris Leach, and Miguel Loza Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the firm’s Transnational Litigation Group: Randy M. Mastro – New York (+1 212-351-3825, rmastro@gibsondunn.com) Theodore J. Boutrous, Jr. – Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Scott A. Edelman – Los Angeles (+1 310-557-8061, sedelman@gibsondunn.com) Andrea E. Neuman – New York (+1 212-351-3883, aneuman@gibsondunn.com) William E. Thomson – Los Angeles (+1 213-229-7891, wthomson@gibsondunn.com) Perlette Michèle Jura – Los Angeles (+1 213-229-7121, pjura@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) Anne M. Champion – New York (+1 212-351-5361, achampion@gibsondunn.com) Please also feel free to contact the following  members of the Environmental Litigation and Mass Tort practice group: Washington, D.C. Stacie B. Fletcher (+1 202-887-3627, sfletcher@gibsondunn.com) Avi S. Garbow – Co-Chair (+1 202-955-8558, agarbow@gibsondunn.com) Raymond B. Ludwiszewski (+1 202-955-8665, rludwiszewski@gibsondunn.com) Michael K. Murphy (+1 202-955-8238, mmurphy@gibsondunn.com) Daniel W. Nelson – Co-Chair (+1 202-887-3687, dnelson@gibsondunn.com) Peter E. Seley – Co-Chair (+1 202-887-3689, pseley@gibsondunn.com) Los Angeles Patrick W. Dennis (+1 213-229-7568, pdennis@gibsondunn.com) Matthew Hoffman (+1 213-229-7584, mhoffman@gibsondunn.com) Thomas Manakides (+1 949-451-4060, tmanakides@gibsondunn.com) New York Anne M. Champion (+1 212-351-5361, achampion@gibsondunn.com) Andrea E. Neuman (+1 212-351-3883, aneuman@gibsondunn.com) San Francisco Peter S. Modlin (+1 415-393-8392, pmodlin@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 20, 2018 |
Supreme Court Holds States May Hear Securities Fraud Class Actions Under The 1933 Act

Click for PDF Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439 Decided March 20, 2018 Today, the Supreme Court held 9-0 that class actions alleging only federal claims under the Securities Act of 1933 may be heard in state court and, if brought in state court, cannot be removed to federal court. Background: Federal and state courts have traditionally shared jurisdiction over claims under the Securities Act of 1933. After the Private Securities Litigation Reform Act of 1995 (PSLRA) tightened standards for pleading and proving federal securities fraud class actions, plaintiffs began filing those claims in state court. In response, Congress enacted the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which requires certain “covered class actions” alleging state law securities claims to be heard and dismissed in federal court. 15 U.S.C. § 77p(c). But courts were split over whether covered class actions filed in state court that allege only claims under the 1933 Act also must be heard in federal court. In this case, investors in Cyan, Inc. filed a class action in California state court alleging only claims under the 1933 Act. The California courts refused to dismiss the case for lack of subject-matter jurisdiction. Issues: (1) Whether state courts lack subject-matter jurisdiction over class actions that allege only Securities Act of 1933 claims, and (2) Whether defendants in class actions filed in state court that allege only 1933 Act claims may remove the cases to federal court. “[W]e will not revise [Congress’s] legislative choice, by reading a conforming amendment and a definition in a most improbable way, in an effort to make the world of securities litigation more consistent or pure.” Justice Kagan,writing for the Court Court’s Holding: SLUSA does not deprive state courts of subject-matter jurisdiction over class actions raising only claims under the 1933 Act and does not authorize defendants to remove such actions to federal court. What It Means: SLUSA has often been the subject of statutory-interpretation disputes. But here, the unanimous Court held that SLUSA’s “clear statutory language” does not preclude state courts from adjudicating class actions involving 1933 Act claims. SLUSA’s class-action bar and federal-court-channeling provision apply only to state law claims. Under SLUSA, covered securities class actions based on the 1934 Act must proceed in federal court. 15 U.S.C. § 78aa. But as a result of the Court’s decision today, covered class actions based only on the 1933 Act may proceed in state court. Either way, the Court emphasized, the substantive protections of the PSLRA (such as the safe harbor for forward-looking statements) apply to all claims under both the 1933 and 1934 Acts. The United States argued that SLUSA permits defendants in class actions filed in state court that raise 1933 Act claims to remove those actions to federal court. The Court disagreed. In the wake of this ruling, businesses should expect to see more securities class actions alleging violations of the 1933 Act in state court, because plaintiffs will seek to take advantage of state courts that are perceived to be friendlier to their interests. This significant loophole may prompt Congress to enact new legislation, similar to SLUSA, to ensure that plaintiffs are required to bring securities class actions in federal court. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com Related Practice: Securities Litigation Brian M. Lutz +1 415.393.8379 blutz@gibsondunn.com Robert F. Serio +1 212.351.3917 rserio@gibsondunn.com Meryl L. Young +1 949.451.4229 myoung@gibsondunn.com Related Practice: Class Actions Theodore J. Boutrous, Jr. +1 213.229.7804 tboutrous@gibsondunn.com Christopher Chorba +1 213.229.7396 cchorba@gibsondunn.com Theane Evangelis +1 213.229.7726 tevangelis@gibsondunn.com © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 19, 2018 |
D.C. Circuit Vacates Part of FCC’s 2015 TCPA Order in ACA International, et al. v. FCC, et al.

Click for PDF On March 16, 2018, the D.C. Circuit unanimously vacated part of the FCC’s July 2015 Declaratory Ruling and Order, which vastly expanded the scope of the Telephone Consumer Protection Act of 1991 (“TCPA”).[1]  The Court of Appeals rejected the FCC’s effort to expose legitimate companies of all sizes and types to liability for simply attempting in good faith to communicate with customers who previously provided valid consent to be contacted. The TCPA prohibits calls to cellular phones by an “automatic telephone dialing system” (“ATDS”) without the “prior express consent of the called party.”[2]  The statute defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”[3] The FCC’s 2015 order expanded the definition of an ATDS to include equipment that is not currently able to store or dial telephone numbers in a random or sequential fashion.  The order also permitted callers only one call before imposing strict liability for future calls when a number, without the caller’s knowledge, has been reassigned from a person who previously consented to be contacted. The D.C. Circuit ruled for the petitioners—including the U.S. Chamber of Commerce, represented by Gibson Dunn—on two significant issues in the case.  First, the Court set aside the FCC’s “utterly unreasonable” interpretation of the types of calling equipment that qualify as an ATDS.[4]  The Court struck down that aspect of the FCC’s order because it “fail[ed] to satisfy the requirement of reasoned decisionmaking” and “[t]he order’s lack of clarity about which functions qualify a device as an autodialer compound[ed] the unreasonableness of the Commission’s expansive understanding of when a device has the ‘capacity’ to perform the necessary functions.”[5]  In particular, the court described the potential reach of the FCC’s order to include all smartphones as “eye-popping.”[6] Second, the Court set aside the FCC’s one-call safe harbor as arbitrary.[7]  The Court concluded that the FCC “gave no explanation of why reasonable-reliance considerations would support limiting the safe harbor to just one call or message.”[8]  Because the Court had “substantial doubt” that the FCC would have adopted its “treatment of reassigned numbers as a whole,” it vacated that entire portion of the order.[9] The D.C. Circuit did uphold two other challenged portions of the order—the rule for revocation of consent and an exemption for healthcare-related calls.[10]  Nonetheless, the decision substantially reduces the increasing burden of class-action liability under the TCPA and helps to restore the open lines of communication necessary to consumers and businesses in our modern economy. Because the D.C. Circuit did not remand the matter to the FCC, the agency could commence a new proceeding to address the definition of an autodialer, and in the meantime courts may also seek to address that issue.  The FCC is currently slated to consider a request for further public comment on the creation of a database for reassigned numbers.[11]  As part of that process, the FCC is considering whether to afford protection against liability to callers who take advantage of such a resource.[12]  The FCC also has adopted “rules allowing providers to block calls from phone numbers on a Do-Not-Originate (DNO) list and those that purport to be from invalid, unallocated, or unused numbers.”[13]    [1]   ACA Int’l, et al. v. FCC, et al., No. 15-1211 (D.C. Cir. Mar. 16, 2018).    [2]   47 U.S.C. § 227(b)(1)(A).    [3]   Id. § 227(a)(1).    [4]   ACA Int’l, No. 15-1211, slip op. at 19 (quoting Aid Ass’n for Lutherans v. U.S. Postal Serv., 321 F.3d 1166, 1174 (D.C. Cir. 2003)).    [5]   Id. at 29.    [6]   Id. at 16.    [7]   Id. at 35.    [8]   Id. at 36.    [9]   Id. at 39–40 (quoting Am. Petroleum Inst. v. EPA, 862 F.3d 50, 71 (D.C. Cir. 2017)). [10]   Id. at 5. [11]   In re Advanced Methods to Target and Eliminate Unlawful Robocalls, Second Further Notice of Proposed Rulemaking, CG Dkt. No. 17-59 at ¶ 2 (circulated for tentative consideration at March 2018 open meeting), available at https://transition.fcc.gov/Daily_Releases/Daily_Business/2018/db0301/DOC-349522A1.pdf; see also In re Advanced Methods to Target and Eliminate Unlawful Robocalls, Second Notice of Inquiry, 32 FCC Rcd 6007, 6013 ¶¶ 16, 18 (2017) (discussing database proposal). [12]   In re Advanced Methods to Target and Eliminate Unlawful Robocalls, Second Further Notice of Proposed Rulemaking, CG Dkt. No. 17-59 at ¶ 30. [13]   In re Advanced Methods to Target and Eliminate Unlawful Robocalls, Report and Order and Further Notice of Proposed Rulemaking, CG Dkt. No. 17-59 (Nov. 16, 2017), available at https://apps.fcc.gov/edocs_public/attachmatch/FCC-17-151A1_Rcd.pdf. The following Gibson Dunn lawyers assisted in preparing this client update: Helgi Walker and Brian Lipshutz. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following leaders of the firm’s Administrative Law and Regulation Practice: Eugene Scalia – Washington, D.C. (+1 202-955-8206, escalia@gibsondunn.com) Helgi C. Walker – Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 18, 2018 |
Fifth Circuit Vacates Labor Department’s “Fiduciary Rule” “In Toto” in Chamber of Commerce of U.S.A., et al. v. U.S. Dep’t of Labor

Click for PDF On March 15, 2018, in a 2-1 opinion, the U.S. Court of Appeals for the Fifth Circuit struck down the U.S. Department of Labor’s controversial “Fiduciary Rule.”[1]  The Rule would have expanded who is a “fiduciary” under ERISA and the Internal Revenue Code, imposing significant new obligations and liabilities on broker-dealers and insurance agents who sell annuities to IRAs.  As the Fifth Circuit’s opinion explained, the Department had “made no secret of its intent to transform the trillion-dollar market for IRA investments, annuities and insurance products, and to regulate in a new way the thousands of people and organizations working in that market.”[2] The Fifth Circuit ruled for plaintiffs—the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association (“SIFMA”), the Financial Services Institute (“FSI”), the Financial Services Roundtable (“FSR”), the Insured Retirement Institute (“IRI”), and other leading trade associations—on each of their principal arguments.  Specifically, the Court reasoned that the Labor Department’s new definition of “fiduciary” was inconsistent with the plain text of ERISA and the Internal Revenue Code, as well as with the common-law meaning of “fiduciary,” which depends upon a special relationship of trust and confidence; that the Department impermissibly abused its authority to grant exemptions from regulatory burdens as a tool to impose expansive new duties that were beyond its power to impose; and that the rule impermissibly created private rights of action against brokers and insurance agents when Congress had not authorized those claims.  The Court therefore held that the Fiduciary Rule and the exemptions adopted alongside it were arbitrary, capricious, and unlawful under the Administrative Procedure Act (“APA”), and vacated them “in toto.”[3] Under the APA, “vacatur” is a remedy by which courts “set aside agency action” that is arbitrary and capricious or otherwise outside of the agency’s statutory authority.[4]  Its effect is to “nullify or cancel; make void; invalidate.”[5]  Because the effect of vacatur is, in essence, to remove a regulation from the books, its effect is nationwide.  As the U.S. Court of Appeals for the D.C. Circuit has explained, “When a reviewing court determines that agency regulations are unlawful, the ordinary result is that the rules are vacated—not that their application to the individual petitioners is proscribed.”[6]  The Fifth Circuit’s judgment, which is scheduled to take effect on May 7, thus will effectively erase the “fiduciary” rule from the books without geographical limitation. The Fifth Circuit’s decision was the second ruling last week to address the Fiduciary Rule.  On March 13, the Tenth Circuit addressed a more limited challenge to one aspect of the Rule, specifically, the procedures and reasoning followed by the Department in regulating products known as “fixed indexed annuities.”[7]  Although the Tenth Circuit rejected that challenge, it made clear it was not addressing two threshold issues that had not been presented:  whether the Labor Department had authority to promulgate the Rule and whether the Rule permissibly defined the term “fiduciary.”  The March 15 decision of the Fifth Circuit now conclusively resolves those questions in the negative.  And because the Fifth Circuit vacated the Rule on grounds the Tenth Circuit did not address, no “circuit conflict” is presented by the two decisions.[8] Gibson Dunn represented the U.S. Chamber of Commerce, SIFMA, the FSI, FSR, and IRI, among other associations, in their successful challenge to the Fiduciary Rule.  The American Council of Life Insurers and the Indexed Annuity Leadership Council filed parallel actions through separate counsel at WilmerHale and Sidley Austin, and Gibson Dunn presented oral argument before the Fifth Circuit for all three cases.    [1]   Chamber of Commerce of the U.S.A., et al. v. U.S. Dep’t of Labor, et al., No. 17-10238, slip op. 46 (5th Cir. Mar. 15, 2018).    [2]   Id. at 45.    [3]   Id. at 46.    [4]   5 U.S.C. § 706(2).    [5]   Black’s Law Dictionary (online 10th ed. 2014).  See, e.g., Kelso v. U.S. Dep’t of State, 13 F. Supp. 2d 12, 17 (D.D.C. 1998) (quoting United States v. Munsingwear, Inc., 340 U.S. 36, 41 (1950)) (explaining that “basic understandings of vacatur dramatize that, by definition, that which is vacated loses the ability to ‘spawn[ ] any legal consequences'”).    [6]   Nat’l Mining Ass’n v. U.S. Army Corps of Engineers, 145 F.3d 1399, 1409 (D.C. Cir. 1998) (quoting Harmon v. Thornburgh, 878 F.2d 484, 495 n.21 (D.C. Cir. 1989)).    [7]   See Mkt. Synergy Grp. v. U.S. Dep’t of Labor, et al., No. 17-3038 (10th Cir. Mar. 13, 2018)    [8]   A third challenge to the Fiduciary Rule is currently being held in abeyance.  See Nat’l Ass’n for Fixed Annuities v. U.S. Dep’t of Labor, et al., No. 16-5345 (D.C. Cir. Feb. 22, 2018) (holding case in abeyance pending joint status report within 10 days of the decision of the Fifth Circuit). The following Gibson Dunn lawyers assisted in preparing this client update: Eugene Scalia, Jason Mendro, Andrew Kilberg and Brian Lipshutz. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors: Eugene Scalia – Washington, D.C. (+1 202-955-8206, escalia@gibsondunn.com) Jason J. Mendro – Washington, D.C. (+1 202-887-3726, jmendro@gibsondunn.com) Please also feel free to contact the following practice group leaders: Administrative Law and Regulatory Practice: Eugene Scalia – Washington, D.C. (+1 202-955-8206, escalia@gibsondunn.com) Helgi C. Walker – Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com) Labor and Employment Practice: Catherine A. Conway – Los Angeles (+1 213-229-7822, cconway@gibsondunn.com) Jason C. Schwartz – Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com) Executive Compensation and Employee Benefits Practice: Michael J. Collins – Washington, D.C. (+1 202-887-3551, mcollins@gibsondunn.com) Stephen W. Fackler – Palo Alto/New York (+1 650-849-5385/212-351-2392, sfackler@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 9, 2018 |
D.C. Circuit Applies U.S. Copyright Law to Video Content Streamed from Abroad

Click for PDF On March 2, 2018, the United States Court of Appeals for the D.C. Circuit decided an important case addressing two separate, still unsettled questions about the scope of copyright infringement liability.  See Spanski Enterprises v. Telewizja Polska, S.A., No. 17-7051 (D.C. Cir. Mar. 2, 2018).  In brief, the court held that the defendant infringed the plaintiff’s exclusive public performance right when, without authorization, it made copyright-protected television programming available to stream inside the United States, even though the stream was hosted outside the United States.  This was the first time a federal court of appeals considered whether streaming content originating extraterritorially is subject to U.S. copyright liability.  Separately, though the defendant insisted that it could not face liability unless it “volitionally” selected the content delivered to each user, the court held that operating a video-on-demand system which allowed members of the public to receive a copyright-protected performance constituted copyright infringement. Spanski Enterprises involved a longstanding licensing agreement between Telewizja Polska (TVP), the national broadcasting company of Poland, and Spanski Enterprises, a Canadian corporation in the business of distributing Polish-language programming.  A 2009 settlement agreement between the parties established that Spanski alone could distribute the programming at issue in North and South America, whether over the Internet or otherwise.  TVP continued to distribute its programming everywhere else in the world, including by offering episodes for streaming on its website, but used geoblocking technology to ensure that no IP address associated with North or South America could access any programming to which Spanski held the license.  However, in 2011 attorneys for Spanski discovered that users in North and South America could still access programming that should have been geoblocked.  Spanski sued TVP for infringement and, after a five-day bench trial, Judge Tanya Chutkan of the United States District Court for the District of Columbia found TVP liable. On appeal, TVP raised two main challenges to the district court’s ruling.  First, it argued that it could not commit copyright infringement because none of its conduct took place within the United States, and the Copyright Act does not apply extraterritorially.  Second, it argued that a defendant only faces copyright liability if its “conduct was volitional.”  Because TVP merely operated an “automatic content delivery system” from which the user “selects the content it will view” without TVP’s involvement in processing that request, TVP insisted it had not violated the law.  The United States filed an amicus brief on behalf of Spanski, urging the court to reject both TVP’s arguments. In an opinion written by Judge Tatel and joined by Judges Griffith and Wilkins, the court of appeals affirmed, holding TVP liable for infringing Spanski’s exclusive rights.  Applying the Copyright Act to TVP’s conduct is not an impermissible extraterritorial application, the Court explained, because “the infringing performances—and consequent violation of Spanski’s copyrights—occurred on the computer screens in the United States on which the episode’s images were shown.”  TVP argued that when a performance originates internationally but is shown to the public within the country, only the domestic viewer was liable for copyright infringement.  The court disagreed, holding that a broadcaster remains liable for “the infringing display of copyrighted images on the viewer’s screen” whenever such a performance occurs “in the United States,” no matter where the broadcaster is located. The court also held that an unauthorized performance via a video-on-demand system like TVP’s infringed Spanski’s exclusive rights, even without proof that TVP took a “volitional” act, because TVP made it possible for end users to select copyright-protected content.  The text of the Copyright Act, the court explained, imposes liability whenever a defendant makes it possible for “members of the public” to “receive[] the performance” of copyrighted content.  The court found it unnecessary to decide whether a “volitional conduct” requirement exists at all or how far it extends, holding that TVP’s conduct constitutes infringement “whatever the scope of any such requirement might otherwise be.” In rejecting TVP’s “volitional conduct” argument, the court of appeals relied heavily on the Supreme Court’s 2014 decision in American Broadcasting Cos. v. Aereo, Inc., 134 S. Ct. 2498 (2014).  In Aereo, the Supreme Court held that an intermediary service that automatically captured and retransmitted broadcast television signals infringed the public performance right, even where the end user and not the service selected which content to capture.  The D.C. Circuit concluded that Aereo “forecloses [TVP’s] argument that the automated nature of its video-on-demand system or the end user’s role in selecting which content to access insulates it from Copyright Act liability.”  The court noted that TVP’s video-on-demand service involved TVP itself even more directly in the infringing performances than did the system in Aereo: unlike in Aereo, TVP itself selected and uploaded the content its system made available. Both holdings are important developments.  No other federal court of appeals has yet squarely held that U.S. copyright law applies to performances originating internationally that can be viewed inside the United States—though, as Professor Nimmer puts it in his copyright treatise, it requires only “a straightforward application of the statute” to hold that such performances are actionable.   5 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 17.02 (rev. ed. 2017).  This holding will prevent would-be infringers from evading liability simply by relocating across a border. Separately, though the court refused to decide whether a “volitional conduct” requirement exists, its application of Aereo to TVP’s on-demand system adds fuel to the ongoing debate over the Copyright Act’s scope.  Several courts of appeals, both before and since the Supreme Court’s Aereo decision, have held that the Copyright Act only applies to “volitional conduct.”  BWP Media USA, Inc. v. T & S Software Associates, Inc., 852 F.3d 436 (5th Cir. 2017); Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657 (9th Cir. 2017); CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d 544 (4th Cir. 2004); Parker v. Google, Inc., 242 F. App’x 833 (3d Cir. 2007).  In its amicus brief, however, the Government argued that Aereo “rejected” a volitional-conduct argument.  Thus, it will be up to future courts to decide the ultimate fate of the defense. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, or the authors: Howard S. Hogan – Washington, D.C. (+1 202-887-3640, hhogan@gibsondunn.com) Connor S. Sullivan* – New York (+1 212-351-2459, cssullivan@gibsondunn.com) *Prior to joining the firm, Connor Sullivan contributed to an amicus curiae brief filed in this appeal in support of Spanski Enterprises. Please also feel free to contact the following practice group leaders: Intellectual Property Group: Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) Media, Entertainment and Technology Group: Scott A. Edelman – Los Angeles (+1 310-557-8061, sedelman@gibsondunn.com) Ruth E. Fisher – Los Angeles (+1 310-557-8057, rfisher@gibsondunn.com) Orin Snyder– New York (+1 212-351-2400, osnyder@gibsondunn.com) Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Technology Transactions Group: David H. Kennedy – Palo Alto (+1 650-849-5304, dkennedy@gibsondunn.com) Daniel Angel – New York (+1 212-351-2329, dangel@gibsondunn.com) Shaalu Mehra – Palo Alto (+1 650-849-5282, smehra@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 21, 2018 |
Supreme Court Says Whistleblowers Must Report to the SEC Before Suing for Retaliation Under Dodd-Frank

Click for PDF Today, the Supreme Court held 9-0 that whistleblowers must report alleged misconduct to the SEC before they can sue under the Dodd-Frank Act’s anti-retaliation provision. Background: The Dodd-Frank Act prohibits retaliating against a “whistleblower” because that person reported misconduct to the SEC; initiated, testified in, or assisted with an SEC proceeding; or made certain required or protected disclosures. 15 U.S.C. § 78u-6(h)(1)(A). The Act defines a “whistleblower” as a person who reports misconduct to the SEC. 15 U.S.C. § 78u-6(a)(6). Paul Somers reported suspected misconduct to his employer but not to the SEC. After he was fired, he sued his former employer for retaliation under the Dodd-Frank Act. Issue: Whether the Dodd-Frank Act’s anti-retaliation provision extends to individuals who have not reported alleged misconduct to the SEC. Court’s Holding: Whistleblowers must report suspected misconduct to the SEC to be able to sue for retaliation under the Dodd-Frank Act. “Courts are not at liberty to dispense with the condition—tell the SEC—Congress imposed.”          Justice Ginsburg, writing for the Court What It Means: The Court premised its decision on the statute’s text. Even though purpose-based arguments were made for extending the anti-retaliation provision to individuals who do not report to the SEC, the Court declined to take that step because the statute clearly defines a “whistleblower” as a person who reported alleged misconduct to the SEC. The Court rejected the SEC’s contrary interpretation of the statute, which was contained in a regulation. The Court also dismissed concerns that the ruling would undermine protection for “auditors, attorneys, and other employees subject to internal-reporting requirements,” explaining that they already had protection under Sarbanes-Oxley and would also be protected under Dodd-Frank once they provided the relevant information to the SEC. Recall that the Court addressed a similar issue in Lawson v. FMR LLC, 134 S. Ct. 1158 (2014). In that case, the Court held for the whistleblower, ruling that contractors and subcontractors of a public company may sue for retaliation under the Sarbanes-Oxley Act. It is important to note that the Sarbanes-Oxley Act does not include a requirement that a whistleblower report to the SEC. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909challigan@gibsondunn.com Mark A. Perry +1 202.887.3667mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com   Related Practices: Labor and Employment Catherine A. Conway+1 213-229-7822 cconway@gibsondunn.com Eugene Scalia+1 202-955-8206 escalia@gibsondunn.com Jason C. Schwartz+1 202-955-8242 jschwartz@gibsondunn.com © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 15, 2018 |
Gibson Dunn Named Appellate Firm of the Year

Benchmark Litigation recognized Gibson Dunn as Appellate Firm of the Year at its 2018 U.S. Awards dinner. In addition, Benchmark Litigation honored SEC v. Lynn Tilton/Patriarch Partners and Partner Fund Management v. Theranos as some of the “impact cases” of the year. The awards were presented on February 15, 2018.  

February 6, 2018 |
Law360 Names Gibson Dunn Among its Sports 2017 Practice Groups of the Year

Law360 named Gibson Dunn one of its five Sports Practice Groups of the Year [PDF] for 2017. The practice group “set itself apart from the pack in 2017 by taking on some of the biggest sports cases, including a challenge to the federal sports wagering law, while simultaneously helping clients secure a major broadcasting deal and an Olympic bid.” The firm’s profile was published on February 6, 2018.

January 31, 2018 |
Alert – Federal Circuit Update (January 2018)

Click for PDF This January 2018 edition of Gibson Dunn’s Federal Circuit Update discusses the upcoming switch to NextGen CM/ECF at the Federal Circuit, the three pending Federal Circuit cases before the Supreme Court that consider issues regarding inter partes review proceedings and extraterritorial damages, and the Federal Circuit’s motion procedures.  This Update also provides a summary of the pending en banc case involving attorneys’ fees for litigation involving the PTO.  Also included is a summary of the recent en banc decision regarding judicial review of timeliness determinations in inter partes review proceedings and summaries of recent decisions regarding burdens of proof in marking cases and exceptional fees in light of changes in law. Federal Circuit News NextGen CM/ECF.  On March 19, 2018, NextGen CM/ECF will go live for the Federal Circuit.  The new system will streamline logins and simplify access to the website by eliminating, for example, the need for Java plug-ins.  Users may upgrade their PACER accounts by following instructions found here. Supreme Court.  The Supreme Court has heard oral argument on two cases from the Federal Circuit this term, and recently granted certiorari on a third case: Case Status Issue WesternGeco LLC (Schlumberger) v. ION Geophysical Corp., No. 16-1011 Certiorari granted Jan. 12, 2018 Recoverability of lost profits for foreign use in cases where patent infringement is proven under 35 U.S.C. § 271(f) Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 Argued on Nov. 27, 2017 Constitutionality of inter partes review under Article III and the Seventh Amendment SAS Institute Inc. v. Matal, No. 16-969 Argued on Nov. 27, 2017 The number of claims that must be addressed by the Patent Trial and Appeal Board in a final written decision during inter partes review Upcoming En Banc Federal Circuit Cases NantKwest, Inc. v. Matal, No. 16-1794 (Fed. Cir.):  Whether the PTO can recover attorneys’ fees in litigation under 35 U.S.C. § 145. After the PTAB affirmed the examiner’s rejection of NantKwest’s patent application, NantKwest appealed to the United States District Court for the Eastern District of Virginia under 35 U.S.C. § 145.  The PTO prevailed on the merits of the appeal and moved to recover both attorneys’ fees and expert fees.  Section 145 provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Applying this provision, the district court granted the PTO’s request for expert fees, but rejected the PTO’s request for attorneys’ fees.  A panel of the Federal Circuit reversed the district court’s holding as to attorneys’ fees, holding that “[a]ll expenses of the proceedings,” under § 145, authorizes an award of attorneys’ fees.  (Decision available here.) The Federal Circuit sua sponte ordered that the panel decision be vacated and that the case be reheard en banc.  Four amicus briefs have been filed, two in support of NantKwest (the International Trademark Association and the Intellectual Property Owners Association) and two in support of neither party (Federal Circuit Bar Association and American Intellectual Property Law Association).  Oral argument is scheduled to be heard on March 8, 2018. Question presented: Did the panel in NantKwest, Inc. v. Matal, 860 F.3d 1352 (Fed. Cir. 2017) correctly determine that 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees? Federal Circuit Practice Update Motion Practice before the Federal Circuit.  Motions before the Federal Circuit are governed by Fed. R. App. P. 27 and Fed. Cir. R. 27, as well as IOP #2.  Below is a brief summary of the rules regarding motion practice. Timing.  A motion may generally be filed at any time.  The opposing party must file its response, if any, within 10 days after service of the motion.  Fed. R. App. P. 27(a)(3)(A).  Any reply to a response must be filed within seven days after the response is served.  Fed. R. App. P. 27(a)(4).  However, certain motions must be filed within a certain period of time.  For example, a motion to dismiss generally must be filed before the opening appellate brief is filed—if the party fails to file the motion in a timely manner, that argument must instead be included in the party’s response to the opening appellate brief.  Fed. Cir. R. 27(f) (joint or unopposed motions to dismiss or remand, however, may be made at any time).  As another example, absent “extraordinary circumstances,” motions for extension of time must be filed at least seven days before the brief is due.  Fed. Cir. R. 26(b)(1). Length.  The motion or response must not exceed 5,200 words; the reply must not exceed 2,600 words.  Fed. R. App. P. 27(d)(2)(A), (C).  Certificates of interest, affidavits, and proofs of service do not count in regards to this word count.  Fed. Cir. R. 27(d).  Motions generally cannot not be incorporated into briefs, except as provided in Fed. Cir. R. 27(e)–(f).  See Fed. Cir. R. 27(g). Content.  A motion must contain a statement for the grounds and relief sought.  Fed. R. App. P. 27(a)(2).  The content of a motion filed before the Federal Circuit preferably includes the material outlined in Fed. Cir. R. 27(a), including: (1) the name of this court; (2) the caption; (3) the title of the motion; (4) the grounds for the motion, the relief sought, and the legal argument to support the motion; (5) the movant’s statement of consent or opposition to the motion; (6) counsel’s or pro se party’s signature; (7) the certificate of interest (see Fed. Cir. R. 47.4); (8) supporting affidavit; and (9) the proof of service (see Fed. R. App. P. 25(d)).  A subset of these preferred contents is provided for the opposition and reply filings in Fed. Cir. R. 27(b) and (c). Motions Panel.  Every month, the Chief Judge appoints a motions panel, consisting of three judges with a designated lead judge.  IOP #2(1).  Whether motions are heard by the motions panel or the merits panel depends in large part on the timing of when the motion is filed.  IOP #2(4).  Non-procedural, opposed motions filed before briefs have been delivered to the merits panel are generally heard by the motions panel (procedural or unopposed motions may be decided by the Clerk).  IOP #2(4), (6).  The motions panel may defer the motion to the merits panel.  IOP #2(4).  If the motion is filed after the briefs have been delivered to the merits panel, the merits panel generally will decide the motion.  IOP #2(6), (7).  Motions are generally decided without oral argument.  Fed. R. App. P. 27(e); IOP #2(5). Key Case Summaries (December 2017 – January 2018) Wi-Fi One, LLC v. Broadcom Corp., No. 2015-1944, -1945, -1946 (Fed. Cir. Jan. 8, 2018) (en banc): IPR time bar determinations by the PTAB are appealable. Broadcom filed a petition for IPR.  Wi-Fi One asserted that Broadcom’s petition was time barred under 35 U.S.C. § 315(b) due to Broadcom being in alleged privity with litigants whose cases predated the one-year time limit.  The PTAB disagreed and instituted the IPR.  On appeal from the Board’s subsequent determination of unpatentability, Wi-Fi One again asserted that the Board had no authority to review the claims given the § 315(b) bar.  The Federal Circuit panel rejected this, following Achates that, per § 314(d), such determinations are unreviewable because they are “final and nonappealable.” The en banc Federal Circuit majority (Reyna, J., joined by Prost, C.J., and Newman, Moore, O’Malley, Wallach, Taranto, Chen, and Stoll, JJ.) recognized “the strong presumption in favor of judicial review of agency actions.”  The majority stated that, to overcome this presumption, “Congress must clearly and convincingly indicate its intent to prohibit judicial review,” which it found lacking here. In concurrence, Judge O’Malley would have relied on a more fundamental rationale—namely that, if the PTO “exceeds its statutory authority by instituting an IPR proceeding under circumstances contrary to the language of § 315(b), [the Federal Circuit] … should review those determinations.”  Judges Hughes, Lourie, Bryson, and Dyk dissented, reading § 314(d) as conveying “Congress’s intent to prohibit judicial review of the Board’s IPR institution decision” as a whole. Arctic Cat Inc. v. Bombardier Recreational Prods. Inc., No. 17-1475 (Fed. Cir. Dec. 7, 2017): Defining the burdens of each party when the court considers a marking challenge. Arctic Cat sued Bombardier alleging infringement of two patents relating to a steering system for personal watercraft.  After the district court denied Bombardier’s motions for summary judgment on various issues, including the failure of Arctic Cat’s sole licensee to mark its products with the patent, the case went to trial.  The jury found that Bombardier failed to prove invalidity of the two asserted patents and that it willfully infringed the two patents.  The jury awarded Arctic Cat damages and a royalty, and the district court trebled damages in a subsequent order.  The district court also denied Bombardier’s motion for judgment as a matter of law as to all issues, including invalidity, marking, damages, and willfulness. The Federal Circuit (Moore, J.) affirmed-in-part and vacated-in-part the district court’s rulings.  The court found substantial evidence supporting the jury’s finding regarding validity and further affirmed the royalty and willfulness holdings, but it vacated the district court’s holding relating to marking. The court acknowledged that the allocation of burdens on marking was a question of first impression that had split district courts.  The court held that an alleged infringer who challenges a patentee’s compliance with § 287 bears only “an initial burden of production to articulate the products it believes are unmarked ‘patented articles’ subject to § 287.”  The court explained: “To be clear, this is a low bar.  The alleged infringer need only put the patentee on notice that he or his authorized licensees sold specific unmarked products which the alleged infringer believes practice the patent.” Once the alleged infringer meets its burden, the patentee has the burden to prove that the identified products do not practice the patented invention. Inventor Holdings, LLC v. Bed Bath & Beyond, Inc., No. 16-2442 (Fed. Cir. Dec. 8, 2017): A plaintiff must reevaluate its case after changes in the law to avoid facing an exceptional case fee award for its continued litigation. Inventor Holdings sued Bed Bath & Beyond (“BBB”) for infringement of a patent in April 2014, which was about two months before the Supreme Court’s decision in Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).  BBB moved for judgment on the pleadings, the district court granted the motion, and the Federal Circuit in an earlier appeal affirmed the district court under Rule 36.  BBB then moved for attorneys’ fees, arguing that, once Alice issued, Inventor Holdings should have reevaluated its case and dismissed the action because its claims were objectively without merit.  The district court awarded BBB its attorneys’ fees beginning from the date of the Supreme Court’s decision in Alice, and Inventor Holdings appealed. The Federal Circuit (Chen, J.) affirmed.  It determined that the district court acted within its discretion in finding the case exceptional because of the weakness of Inventor Holdings’ § 101 arguments after the issuance of Alice and the need “to deter similarly weak arguments in the future.”  The court held that Alice was “a significant change in the law as applied to the facts of this particular case” and that “there is no uncertainty or difficulty in applying the principles set out in Alice to reach the conclusion” that the claims of the patent at issue were ineligible.  The court further explained that it was Inventor Holdings’ “responsibility to reassess its case in view of new controlling law,” so the district court did not abuse its discretion in awarding fees based on Inventor Holdings’ failure to reassess its case after Alice issued. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Los Angeles (+1 213-229-7228, bevanson@gibsondunn.com) Blair A. Silver – Washington, D.C. (+1 202-955-8690, bsilver@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Intellectual Property Group: Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com)Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 30, 2018 |
Fourth Quarter 2017 Update on Class Actions

Click for PDF This update provides an overview and summary of key class action developments during the fourth quarter of 2017 (October through December), and a brief look ahead to some of the key class action issues anticipated in 2018. Part I addresses class action developments at the United States Supreme Court, including the December grant of certiorari in an important case regarding the tolling effect of putative class actions under the American Pipe rule, and a pending certiorari petition that could provide clarification of the propriety of cy pres awards in class action settlements. Part II covers rulings from the Third and Ninth Circuits that explore the limits that Article III standing imposes on consumer protection suits in the absence of a clear injury to the plaintiff, and the circuit split that now exists on this issue. Part III describes several rulings from the federal appellate courts on the issue of removal under the Class Action Fairness Act (“CAFA”). Part IV discusses noteworthy rulings from the California Court of Appeal that reaffirm the differences in class certification standards between California and federal courts, including California’s emphasis on the ascertainability of a proposed class. In 2017, our first quarter update covered notable decisions by the federal courts of appeals interpreting the Supreme Court’s rulings in Spokeo, Inc. v. Robins (standing to sue for statutory violations) and Campbell-Ewald Co. v. Gomez (whether an unaccepted offer of judgment may moot a class action), and other key decisions in the areas of class certification and class settlement.  Our second quarter update addressed the Supreme Court’s opinion in Microsoft v. Baker (rejecting plaintiffs’ attempts to manufacture appellate jurisdiction by a “voluntary dismissal” following orders denying class certification), and several other topics of interest to class action litigators, including CAFA issues.  And our third quarter update focused on arbitration-related developments, interlocutory appeals under Rule 23(f), and other noteworthy appellate rulings issued during that quarter. We will continue to issue quarterly updates on developments in the law of class actions throughout 2018. I.     Supreme Court Agrees to Decide Tolling Effect of Putative Class Actions and Weighs Certiorari on Cy Pres Relief As our second quarter 2017 update explained, the Ninth Circuit in Resh v. China Agritech, Inc., 857 F.3d 994 (9th Cir. 2017), in conflict with several other circuits, held that the tolling of a statute of limitations under American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974)—which held that the timely filing of a putative class action tolls the limitations period as to the individual claims of the putative class members—applies not only to the filing of subsequent individual lawsuits but also to subsequent class action lawsuits.  On December 8, 2017, the Supreme Court granted China Agritech’s cert petition (No. 17-432) to decide whether the American Pipe rule permits a previously absent putative class member to bring a subsequent class action outside the applicable limitations period.  Whether the American Pipe rule extends to successive (or “stacked”) class actions—and thus whether the rule can be used to revive the claims of absent persons who did not themselves sue after class certification was denied in an earlier case—is of considerable practical importance to class action defendants, who face the prospect of a series of duplicative putative class actions over a potentially lengthy period of time.  The Court has set the case for oral argument on March 26, 2018.  (At the petition stage, Gibson Dunn represented the Chamber of Commerce of the United States of America and the Retail Litigation Center as amici supporting petitioner China Agritech.  At the merits stage, Gibson Dunn represented those organizations, and the American Tort Reform Association, in an amicus brief supporting the petitioner.) Additionally, the Supreme Court is also expected to decide by June 2018 whether the National Labor Relations Act precludes enforcement of class action waivers in mandatory employment arbitration agreements, which is the question presented in Epic Systems Corp. v. Lewis (No. 16-285), National Labor Relations Board v. Murphy Oil USA, Inc. (No. 16-307), and Ernst & Young LLP v. Morris (No. 16-300).  We discussed the underlying circuit split in our third quarter 2016 update, and described the October 2, 2017 oral argument in our third quarter 2017 update. In 2018, the Court could also address a significant class action question raised by the certiorari petition in Frank v. Gaos (No. 17-961) (pet. for cert., filed Jan. 3, 2018).  Specifically, the petition in Frank gives the Court the opportunity to address some of the “fundamental concerns” Chief Justice Roberts previously identified “surrounding the use of” cy pres remedies—under which courts redirect unclaimed funds to their next best use, often benefitting persons who are not identical to the aggrieved class of plaintiffs—which are “a growing feature of class action settlements.”  Marek v. Lane, 134 S. Ct. 8, 9 (2013) (Roberts, C.J., respecting denial of certiorari).  The petitioners in Frank objected to the fairness of the “cy pres-only,” no-money-for-the-class settlement approved by a divided vote in In re Google Referrer Header Privacy Litig., 869 F.3d 737 (9th Cir. 2017).  We described the Ninth Circuit’s decision sustaining that settlement in our third quarter 2017 update. Petitioners challenge the allowance of purely cy pres settlements, in which money flows to non-parties (typically, charitable institutions selected by class counsel and the defendants), whenever direct monetary payments to class members is deemed “infeasible” (in that the monetary amount would be small when divided among class members).  They contend the Ninth Circuit’s forgiving standard for such settlements conflicts with the more stringent standards of the Third, Fifth, Seventh, and Eighth Circuits disfavoring purely cy pres relief, inviting class action plaintiffs’ counsel to favor the Ninth Circuit.  Petitioners urge the Court to reject the Ninth Circuit’s approach as “a serious abuse of the class action mechanism that puts the interests of those it is intended to protect, class members, dead last.”  Respondents’ brief in opposition is currently due on March 9, 2018. II.     The Courts of Appeals Issue Significant Rulings on Article III Standing In two notable decisions this quarter, the Third and Ninth Circuits issued rulings making it more difficult for defendants to obtain the dismissal of class complaints on Article III standing grounds. Cottrell v. Alcon Labs., 874 F.3d 154 (3d Cir. 2017) In Cottrell, a split panel reversed a district court’s dismissal of a putative consumer class action lawsuit on standing grounds.  The plaintiffs were consumers of prescription eye medication who alleged that manufacturers and distributors of the medication packaged it with a dispenser that discharged the medicine in doses that were too large, forcing consumers to waste it, and thereby violating the consumer protection statutes of their home states.  Id. at 159.  The district court granted the defendants’ motion to dismiss on the grounds that the named plaintiffs lacked Article III standing, finding that the plaintiffs had not pleaded an injury in fact.  Id. at 161. Breaking with a decision of the Seventh Circuit, the Third Circuit held that, under Spokeo, Inc. v. Robbins, 136 S. Ct. 1540 (2016), the plaintiffs had sufficiently alleged an injury to confer standing to sue for unfair trade practices based on their theory that a manufacturer is obliged to optimize the number of eye drop doses in a container of fixed volume, even if there was no misrepresentation as to the number of doses in the product.  Id. at 163-65.  The court acknowledged that the Seventh Circuit had recently reached the opposite conclusion when faced with similar allegations in Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir. 2017), but concluded that the Seventh Circuit improperly “blended standing and merits together in a manner that the Supreme Court has exhaustively cautioned courts against,” and in so doing, the Seventh Circuit’s analysis “flips the standing inquiry inside out, morphing it into a test of the legal validity of the plaintiffs’ claims of unlawful conduct.”  Id. at 165-66. In a strongly-worded dissent, Judge Jane R. Roth cautioned that the Third Circuit’s opinion “erodes [constitutional] strictures by allowing the plaintiffs here to manufacture a purely speculative injury in order to invoke our jurisdiction.”  Id. at 171.  Judge Roth further warned that “the Majority … invites judges—rather than industry experts, market forces, or agency heads—to second-guess the efficacy of product design even in the most opaque of industries.”  Id. at 175-76. The Third Circuit’s decision also appears to be in tension with the Ninth Circuit’s decision in Ebner v. Fresh, Inc., 838 F.3d 958 (9th Cir. 2016), which concluded that a plaintiff could not state a valid claim for false advertising based on the quantity of lip balm in a dispenser tube, some of which may not be reasonably accessible once the consumer reaches the bottom of the tube using a screw mechanism.  The Ninth Circuit concluded that the product’s label accurately stated the amount of lip balm in the tube, and was “not false and deceptive merely because the remaining product quantity may be ‘unreasonably misunderstood by an insignificant and unrepresentative segment of the class of persons’ that may purchase the product.”  Id. at 996. Davidson v. Kimberly-Clark Corp., 873 F.3d 1103 (9th Cir. 2017) In Davidson, the Ninth Circuit revived a putative class action filed by a consumer who alleged that Kimberly-Clark’s flushable wipes are not actually flushable.  The plaintiff in Davidson asserted claims under California’s Consumers Legal Remedies Act, Unfair Competition Law, and False Advertising Law, and sought damages and injunctive relief, among other remedies.  The district court found that the plaintiff lacked standing to seek injunctive relief because she was unlikely to purchase Kimberly-Clark’s flushable wipes in the future.  Id. at 1108-09.  On the merits, the district court concluded that the plaintiff had failed to adequately allege why the representation “flushable” was false, and dismissed the complaint.  Id. at 1109.  Finally, the district court found that the plaintiff failed to allege any harm due to her use of the product.  Id. The Ninth Circuit reversed, holding that the complaint adequately alleged that the term “flushable” deviated from the dictionary definition of the term.  Id. at 1110-11.  The court further held that the plaintiff sufficiently alleged harm because she claimed she was exposed to false information about the product purchased, which caused the product to be sold at a higher price.  Id. at 1112. In reaching its decision, the Ninth Circuit noted that several district courts had reasoned that plaintiffs who are already aware of the deceptive nature of an advertisement are not likely to be misled into buying the relevant product in the future and, therefore, are not capable of being harmed again in the same way.  Id. at 1113-14.  The Ninth Circuit, however, rejected that reasoning, and instead held that “a previously deceived consumer may have standing to seek an injunction against false advertising or labeling, even though the consumer now knows or suspects that the advertising was false at the time of the original purchase, because the consumer may suffer an ‘actual and imminent, not conjectural or hypothetical’ threat of future harm.”  Id. at 1115. III.    Disputes Regarding the Removal of Class Actions Under CAFA Continue to Be Resolved y the Courts of Appeals The federal courts of appeals continue to grapple with the terms of the CAFA statute and its application to various factual scenarios, and this quarter they issued an unusually high number of decisions on these issues. Corporate Citizenship.  In Roberts v. Mars Petcare US, Inc., 874 F.3d 953 (6th Cir. 2017), the Sixth Circuit reversed the district court’s denial of a motion to remand to Tennessee state court a lawsuit by a putative class of Tennessee citizens against a Delaware corporation headquartered in Tennessee.  The court held that the phrase “a citizen of a State different from any defendant” in CAFA, 28 U.S.C. § 1332(d)(2)(A), refers to “all of a defendant’s citizenships, not the alternative that suits it.”  Roberts, 874 F.3d at 955.  The court reasoned that CAFA did not alter the general rule under the diversity jurisdiction statute that a corporation is considered a citizen of both its state of incorporation and the state of its principal place of business for diversity purposes, and that Mars Petcare was therefore not diverse from the members of the putative class.  Id. at 955-56. Discretionary Exception.  In Speed v. JMA Energy Co., 872 F.3d 1122 (10th Cir. 2017), the district court remanded a lawsuit filed by a putative class of oil well owners to Oklahoma state court.  Although the class met the elements for removal under CAFA, the district court concluded that the factors in the discretionary exception to CAFA, 28 U.S.C. § 1332(d)(3), weighed in favor of remand, because the plaintiff had sued an Oklahoma energy company under an Oklahoma statute, and more class members were from Oklahoma (48%) than from any other state.  The Tenth Circuit affirmed, rejecting the defendant’s argument that a factor in the discretionary exception analysis found to be “neutral” should count against remand.  Speed, 872 F.3d at 1128-29. “Home State” Exception.  In Brinkley v. Monterey Financial Services, Inc., 873 F.3d 1118 (9th Cir. 2017), the plaintiff filed a lawsuit in California state court alleging violations of California and Washington laws that prohibit recording of telephone conversations without notice, on behalf of a putative class of individuals who had made or received a recorded phone call with the defendant “while physically located or residing in California and Washington.”  The defendant removed, and during jurisdictional discovery produced a list of more than 152,000 persons whose calls had been recorded and who had a California or Washington address, and the plaintiff filed an expert report analyzing a random sample of the list.  Id. at 1120.  The district court granted the plaintiff’s motion to remand under the “home state” exception to CAFA, 28 U.S.C. § 1332(d)(4)(B), finding that at least two-thirds of the members of the putative class were California citizens based on the expert’s statistical evidence.  Id.  The plaintiff, however, had produced evidence only regarding individuals “residing in” California, and had failed to present evidence regarding either the size of the entire class or the composition of the “located in” California subgroup of the class.  Id. at 1122.  The Ninth Circuit therefore vacated the district court’s decision, holding that the plaintiff’s attempt to remand the case “based on evidence of only some class members’ citizenship” was improper.  Id. CAFA and Mass Actions.  In Liberty Mutual Fire Insurance Co. v. EZ-FLO International, Inc., 877 F.3d 1081 (9th Cir. 2017), the Ninth Circuit affirmed remand of lawsuit that the defendant had removed as a “mass action” under 28 U.S.C. § 1332(d)(11)(B)(i).  The case was brought by 26 insurance companies in their capacity as subrogees of 145 insured homeowners with leaking pipes.  Id.  at 1083.  The court applied the Supreme Court’s holding in Mississippi ex rel. Hood v. AU Optronics Corp., 134 S. Ct. 736 (2014), that the “persons” in the phrase “100 or more persons” in the CAFA definition of “mass action” refers to named plaintiffs, and therefore concluded that the 145 insureds, although real parties in interest in the case, did not count toward the CAFA numerosity requirement because they were not the parties who had actually brought the lawsuit, filed or served papers, or had any right to control the lawsuit, and thus could not be counted as “plaintiffs.”  EZ-FLO, 877 F.3d at 1084-85. Notice of Class Settlements to State Officials.  In In re Flonase Antitrust Litigation, 879 F.3d 61 (3d Cir. 2017), the Third Circuit affirmed the district court’s denial of a motion by GlaxoSmithKline to enforce a class settlement against the State of Louisiana through an injunction to prevent the state from pursuing its claims against the manufacturer in a separate lawsuit.  Louisiana, an indirect purchaser of Flonase and a potential member of the class, had not received class notice, but had received notice of the litigation pursuant to the CAFA provision that requires the complaint be sent to each state in which a class member resides, 28 U.S.C. § 1715(b).  Id. at 63-64.  The court held that the class settlement could not be enforced against Louisiana through an injunction because the state had not waived its sovereign immunity and its receipt of the statutory notice under CAFA did not constitute a clear declaration of its consent to be sued.  Id. at 68-69. As these cases indicate, parties removing cases under CAFA should pay close attention to the text of the statute when determining whether the removal requirements apply, and should stay advised of the latest developments in the courts of appeals as they continue to interpret various provisions of the statute. IV.    Notable California Appellate Decisions on Class Certification Standards The California Court of Appeal issued two notable class actions decisions last quarter that reaffirmed the differences between California and federal class certification standards, and emphasized the state’s heightened rule for establishing ascertainability. Hefczyc v. Rady Children’s Hospital-San Diego, 17 Cal. App. 5th 518 (2017) (pet. for review filed Dec. 27, 2017) In Hefczyc, the plaintiff filed a putative class action against a hospital seeking only declaratory relief regarding certain contractual terms between a class of the hospital’s patients (or their guarantors) and the hospital.  Id. at 522.  The plaintiff moved for class certification under California Code of Civil Procedure section 382 and asserted that this provision of law was the state law equivalent of Federal Rule of Civil Procedure 23(b)(1) and (b)(2), the elements of which are less onerous for declaratory or injunctive relief actions than for damages actions.  Id. at 525-26.  The trial court rejected the plaintiff’s argument and denied class certification, finding that the plaintiff’s motion was insufficient because he failed to establish ascertainability, predominance, and superiority as required by section 382.  Id. at 526. The California Court of Appeal affirmed, holding that section 382 does not have an equivalent to Federal Rule of Civil Procedure 23(b)(1) or (b)(2), and as a result, California’s procedural requirements apply to declaratory relief, injunctive relief, and damages actions alike.  The court explained: [T]here is no gap in California precedent to be filled by reference to Federal Rules of Civil Procedure, rule 23(b)(1)(A) or (b)(2) (28 U.S.C.) on the issue of what class certification standards must be met when a plaintiff seeks only declaratory or injunctive relief on behalf of a class.  Even when the plaintiff seeks solely declaratory or injunctive relief, California case law follows the well-established requirements that our Supreme Court has consistently stated, namely, (as relevant here) that the plaintiff must establish that (1) the class is ascertainable; (2) common questions predominate; and (3) a class action would provide substantial benefits, making it superior to other procedures for resolving the controversy. Id. at 535-36. Noel v. Thrifty Payless, Inc., 17 Cal. App. 5th 1315 (2017) (pet. for review filed Jan. 24, 2018) In Noel, the plaintiff filed suit under the California Consumers Legal Remedies Act, Unfair Competition Law, and False Advertising Law after purchasing an inflatable swimming pool that was smaller than it appeared in a photo on the box.  Id. at 1320-21.  The trial court denied the plaintiff’s motion to certify a proposed class of more than 20,000 customers, concluding that the proposed class was not ascertainable, and further found that the plaintiff had not presented any evidence to establish a method for identifying class members, including what records were available or what those records would show.  Id. at 1323. The Court of Appeal affirmed the denial of class certification, criticizing “class counsel’s premature filing of the motion without first conducting sufficient discovery to meet its burden of demonstrating there are means of identifying members of the putative class so that they might be notified of the pendency of the litigation.”  Id. at 1321.  Doing so, the court reasoned, “jeopardizes the due process rights of absent class members.”  Id. The court also concluded that the trial court did not abuse its discretion by denying the plaintiff a continuance to conduct additional discovery, noting that “no one forced [plaintiff’s counsel] to file a premature class certification motion.”  Id. at 1337.  Although the plaintiff had obtained new counsel between the filing of the motion and the hearing, the court noted that new counsel could have withdrawn the motion and conducted additional discovery or requested a continuance if he had concluded the motion was premature.  Id. at 1338. The Noel decision’s strict enforcement of California Code of Civil Procedure section 382’s ascertainability requirement is a positive development for defendants in class action suits, but conflicts with another California Court of Appeal decision, Aguirre v. Amscan Holdings, Inc., 234 Cal. App. 4th 1290 (2015), which held that a plaintiff could wait until the remedial stage to offer a member identification plan. The following Gibson Dunn lawyers prepared this client update: Christopher Chorba, Theane Evangelis, Kahn Scolnick, Bradley J. Hamburger, Indraneel Sur, Jennafer M. Tryck, Samuel D. Eisenberg and Laura A. Sucheski. Gibson Dunn are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Class Actions or Appellate and Constitutional Law practice groups, or any of the following lawyers: Theodore J. Boutrous, Jr. – Co-Chair, Litigation Practice Group – Los Angeles (213-229-7000, tboutrous@gibsondunn.com) Christopher Chorba – Co-Chair, Class Actions Practice Group – Los Angeles (213-229-7396, cchorba@gibsondunn.com) Theane Evangelis – Co-Chair, Class Actions Practice Group – Los Angeles (213-229-7726, tevangelis@gibsondunn.com) Kahn A. Scolnick – Los Angeles (213-229-7656, kscolnick@gibsondunn.com) Bradley J. Hamburger – Los Angeles (213-229-7658, bhamburger@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 22, 2018 |
Supreme Court Says That Challenges to “Waters of the United States” Rule Must Be Filed in Federal District Court

National Association of Manufacturers v. Department of Defense, No. 16-299 Today, the Supreme Court unanimously held that challenges to an agency rule defining the “waters of the United States” under the Clean Water Act must be filed in federal district court, not in the federal courts of appeals. Background: The Clean Water Act grants federal courts of appeals exclusive jurisdiction over challenges to certain EPA actions. Other EPA actions may be challenged only in federal district court. After the EPA and the Army Corps of Engineers jointly issued a rule purporting to define the “waters of the United States,” a trade association challenged the rule in federal district court. Issue: Whether challenges to the “Waters of the United States” rule must be filed in federal district court or a federal court of appeals. Court’s Holding: The rule may be challenged only in district court. “Rather than confront [the] statutory text, the Government asks us to ignore it altogether.”          Justice Sotomayor, writing for the unanimous Court What It Means: The “Waters of the United States” rule has been the subject of many challenges from parties who argue that the government defines “waters of the United States” too broadly. Challengers typically seek rigorous scrutiny in the district courts, while the government tries to limit these challenges to deferential review in a single court of appeals. The Supreme Court’s ruling means that challengers have 6 years to sue in the district courts under the Administrative Procedure Act (APA). District courts will resolve challenges using APA standards subject to appellate review, with the possibility of differing decisions from different district courts. The Trump Administration is proposing a new definition of “waters of the United States.”  The Supreme Court’s ruling would govern any challenges to that new rule as well. This case continues the Supreme Court’s trend of rejecting the federal government’s views on issues concerning “waters of the United States.”  The Court rejected the government’s arguments about when agency actions may be challenged in United States Army Corps of Engineers v. Hawkes Co., Inc. (2016). Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 challigan@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Nicole A. Saharsky +1 202.887.3669 nsaharsky@gibsondunn.com Related Practice: Environmental Litigation and Mass Tort Avi S. Garbow +1 202.955.8558 agarbow@gibsondunn.com Daniel W. Nelson +1 202.887.3687 dnelson@gibsondunn.com Peter E. Seley +1 202.887.3689 pseley@gibsondunn.com   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 18, 2018 |
2017 Year-End E-Discovery Update

Click for PDF E-discovery in 2017  featured increasing stability and maturity, due in large part to the continuing impact of the 2015 federal rule amendments addressing sanctions and proportionality. Yet, many challenges remain. Here are some of the highlights from the past year: Most courts are faithfully applying the requirements of amended Rule 37(e) to sanctions motions, only awarding the most serious sanctions where the responding party destroyed evidence with the intent to deprive, tailoring sanctions to be proportionate to actual prejudice, and denying sanctions where there was no prejudice. Nevertheless, some courts have based their findings of an intent to deprive on inferences drawn from conduct that might reasonably have been interpreted as negligent. A surprising number of courts continued to analyze spoliation sanctions issues on common law pre-dating the 2015 rule amendments, apparently unaware of amended Rule 37(e) and its requirements. Reliance on courts’ inherent powers to sanction persists—and may even have increased in 2017—despite the statement in the Committee Note that the amendment to Rule 37(e) was intended to foreclose such reliance. Proportionality continues to gain traction in limiting the scope of discovery. With respect to possession, custody and control, there continues to be a split in authority between courts applying the legal right test and those applying the practical ability test. Courts in jurisdictions applying the practical ability test are increasingly finding litigants to have control—and therefore preservation obligations—over discoverable information in the possession of non-parties. Discovery of social media is becoming increasingly commonplace. Decisions in 2017 reflected that early notions of social media having a “special status” because of privacy concerns (leading to, for example, a requirement of a threshold showing before discovery could be propounded) are giving way to social media being treated no differently from other forms of evidence. The use of technology assisted review (“TAR”)—also known as predictive coding—to search and review large document populations appears more widespread than in past years, particularly for requesting parties’ review of substantial incoming productions and in symmetrical litigation involving large document volumes, where both sides may want to use TAR. The consolidation among medium-sized and large e-discovery service providers only seemed to accelerate in 2017. It is not apparent whether this consolidation is fundamentally altering the market for e-discovery services, other than to possibly result in greater stability in the space once all of the M&A dust settles. Local and regional vendors seem to be increasingly squeezed, being acquired or facing stiff competition from large commodity vendors on the one hand, and potentially losing smaller customers to vendors of do-it-yourself online e-discovery software services, on the other hand. Other noteworthy developments in the vendor space have been the challenges posed by mobile devices, social media and ESI stored in the cloud—often requiring advanced tools and significant expertise to collect, process and search—and the more widespread availability of analytics applications that vendors can license and provide to their clients rather than having to develop in-house. As always, the year was an interesting one for e-discovery. We invite you to read our more detailed analysis and observations below. Spoliation Sanctions: Rule 37(e) Continues to Have a Substantial Impact Amended Federal Rule of Civil Procedure 37(e) continues to have a substantial impact on sanctions for failure to preserve ESI. Most courts are faithfully applying the requirements of amended Rule 37(e) to sanctions motions, only awarding the most serious sanctions where the responding party destroyed evidence with intent to deprive, tailoring sanctions to be proportionate to actual prejudice, and denying sanctions where there was no prejudice. Nevertheless, a surprising number of courts still relied on common law pre-dating the 2015 rule amendments, apparently unaware of amended Rule 37(e) and its requirements. Intent to Deprive Leads to Most Serious Sanctions Under amended Rule 37(e), courts can only issue the most serious sanctions—e.g., case terminating sanctions or an adverse inference jury instruction—where a party acted with the intent to deprive another party from using the ESI in the litigation. In Organik Kimya, San ve Tic. A.S. v. Int’l Trade Comm’n, 848 F.3d 994, 103 (Fed. Cir. 2017), the defendant presented evidence that, days before an investigation was to take place, the plaintiffs intentionally began overwriting their laptops to delete what the court estimated to be hundreds of thousands of relevant files. Applying Rule 37(e), the court found that the plaintiffs acted with intent to deprive and held that a default judgment was appropriate “not merely to penalize those whose conduct may be deemed to warrant such a sanction, but [also] to deter those who might be tempted to such conduct in the absence of such a deterrent.” In Basra v. Ecklund Logistics, Inc., No. 8:16-cv-832017, WL 1207482, at *1, *4 (D. Neb. Mar. 31, 2017), which arose out of an accident involving two trailer-tractors, the plaintiffs alleged the defendant had intentionally destroyed relevant ESI, including accident logs and reports. The plaintiffs requested an adverse jury instruction and attorneys’ fees. The court found that, “although [the] defendant’s record-keeping [was] less than meticulous,” the plaintiffs did not establish that the defendant had destroyed evidence with an intent to suppress the truth. The court therefore held that the defendant did “not engage in conduct that would warrant the sanction of an adverse jury instruction for spoliation of evidence,” and did not issue any sanctions. The court did not explicitly reference Rule 37(e), but appeared to apply its requirements. In Jackson v. Haynes & Haynes, No. 2:16-cv-01297-AKK, 2017 WL 3173302, at *3–4 (N.D. Ala. Jul. 26, 2017), the court found that the plaintiff failed to take reasonable steps to preserve relevant ESI on her smartphone when she relinquished it to her provider after having retained counsel to pursue the litigation. The court denied the defendants’ request for default judgment or an adverse inference jury instruction, however, because the plaintiff had not acted with intent to deprive the defendants of the evidence. The court reasoned that being “negligent and irresponsible in maintaining the information” and “knowing of her obligation to preserve the integrity of the information” are “not sufficient to show an intent to deprive[.]” Some courts have found an intent to deprive based on inferences drawn from conduct that might reasonably have been interpreted as negligent, at worst. For example, in Moody v. CSX Transp., — F. Supp. 3d —, No. 07-CV-6398 P, 2017 WL 4173358, at *15 (W.D.N.Y. Sept. 21, 2017), a case arising out of railway accident, the court granted the plaintiff’s motion for an adverse inference instruction where the defendant transferred information from an event data recorder saved on a laptop computer to a central repository, permitted the data on the recorder to be overwritten and recycled the laptop, only to later discover that the data in the repository was unreadable. The court found that the defendant’s conduct supported an inference that it acted with the intent to deprive plaintiff of the event recorder data. Actual Prejudice Required Absent evidence of actual prejudice, courts continued to deny sanctions under amended Rule 37(e)—even in the face of an intentional failure to preserve evidence. For example, in HCC Ins. Holdings, Inc. v. Flowers, No. 1:15-cv-3262-WSD, 2017 WL 393732, at *2-*4 (N.D. Ga. Jan. 30, 2017), the defendant and her husband ran several computer cleaning programs on her personal laptop after a court ordered her to produce her computer. The court concluded that, although the couple’s actions were “troubling, and in breach of [their] duty to preserve,” spoliation sanctions were “not warranted” because the presence of any trade secrets or other information that was relevant to the case was merely “speculati[ve].” Similarly, in Simon v. City of New York, No. 14-CV-8391-JMF, 2017 WL 57860, at *7 (S.D.N.Y. Jan. 5, 2017), the court refused to impose sanctions against the plaintiff for failing to retain a cell phone video of the events giving rise to an alleged false arrest. The court held there was no prejudice under amended Rule 37(e) because there was no evidence that the video would help the defendants and arguments regarding the contents of the video amounted to “pure speculation.” In Eshelman v. Puma Biotechnology, Inc., No. 7:16-cv-18-D, 2017 WL 2483800, at *5 (E.D. N.C. June 7, 2017), the plaintiffs sought an adverse inference jury instruction due to the defendant’s failure to preserve internet web browser and search histories relating to an alleged defamatory investor presentation. In refusing to sanction the defendant, the court first noted that, despite the loss of the internet browser history, “other avenues of discovery [were] likely to reveal information about the searches performed.” For example, the defendant could seek such information from people who previously had worked with the plaintiff and assisted her in preparing the investor presentation. The court also found that the defendant had failed to present any evidence “regarding the particular nature of the missing ESI in order to evaluate the prejudice it [was] being requested to mitigate.” In Crow v. Cosmo Specialty Fibers, Inc., No. 3:15-cv-05665-RJB, 2017 WL 1128505, at *1, *5 (W.D. Wa. Mar. 24, 2017), a court refused to sanction a party under amended Rule 37(e) for its failure to produce an email, where the email was later produced after a more careful search, finding only “meager prejudice.” The moving party was able to conduct several depositions in which it explored topics in the email, and there was no showing that delayed receipt of the email had affected any aspects of the case. In Edelson v. Cheung, No. 2:13-cv-5870 (JLL (JAD), 2017 WL 150241, at *2-*4 (D. N.J. Jan. 12, 2017), the court awarded an adverse inference jury instruction sanction against the defendant for deleting emails from his personal computer. The plaintiff presented evidence that the defendant had opened a second email account, which he did not disclose even to his own counsel, for the purpose of evading discovery, and then deleted key emails when it was discovered. The plaintiff pointed to an email from the undisclosed account obtained from a third party that stated, “don’t forget to use only gmail account . . . Do not use frontier email. They read everything.” The defendant, for his part, testified that it “didn’t occur” to him to disclose the email account and that he deleted the e-mails because his computer “was running very sluggish” and someone recommended that he delete “certain items” from his computer in order to increase its speed. The court did not find the defendant’s explanation credible. Remedy Should be No Greater than Necessary to Cure the Prejudice Pursuant to amended Rule 37(e), courts have continued to order remedies no greater than necessary to cure the prejudice that the moving party suffered. For example, in Edelson, supra, 2017 WL 150241 at *1, *4, the plaintiff sought a default judgment, or, in the alternative, an adverse inference jury instruction, where the defendant deleted key emails from his personal computer. The court found that the defendant had intentionally deleted the emails in an attempt to deprive the plaintiff of relevant information. Nevertheless, the court held that the plaintiff had “failed to demonstrate that he ha[d] suffered a degree of prejudice that merit[ed] the imposition of a default judgment against [the] defendant.” Other evidence besides the emails at issue was available for use at trial to support the plaintiff’s allegations. Thus, the court adopted the “more appropriate sanction [and] instruct[ed] the jury that it [could] presume the information was unfavorable to [the] defendant.” Some Courts Still Fail to Apply Amended Rule 37(e) Despite fairly broad application of amended Rule 37(e) in 2017, a surprising number of courts failed to apply it in spoliation sanctions motions. In many, but not all, of the cases, it nevertheless appears that the sanctions decision would have been the same under Rule 37(e). For example, in Dallas Buyers Club, LLC v. Huszar, No. 3:15–cv–907–AC, 2017 WL 481469 (D. Or. Feb. 6, 2017), the plaintiff claimed that the defendant illegally downloaded its eponymous movie. The defendant denied doing so, and subsequently destroyed his computer’s hard drive. He claimed the computer began exhibiting signs of failure, at which point he took it to a technician and the content was lost. Id. The court found the defendant credible but still issued an adverse inference jury instruction, finding that “although an adverse inference instruction is not as drastic a remedy as a default order, it is still a harsh remedy and will sufficiently compensate for the potential prejudice suffered by [the plaintiff].” Id. The Court did not consider amended Rule 37(e). Had it done so, the court’s finding that the defendant’s explanation was credible may have precluded a finding of intent to deprive, which would have been necessary to award an adverse inference instruction, and its finding of “potential prejudice” rather than actual prejudice would have been insufficient for any sanction under Rule 37(e). In Redzepagic v. Hammer, No. 14-civ-9808-ER, 2017 WL 780809, at *4, n. 9 (S.D.N.Y. Feb. 27, 2017), the court refused to issue spoliation sanctions for the plaintiff’s deletion of text messages following commencement of the lawsuit, despite the defendant’s argument that a “very strong inference” could be drawn “that the information [the] plaintiff had would support [the] defendant’s position.” Without reference to amended Rule 37(e), the court found that an employee of the defendant had separately preserved the relevant text messages, and the employee voluntarily turned over those texts to the court. The court reasoned that “because these documents were preserved by an employee . . . and were available to both parties in the action, there [was] no reason to infer that the text messages [the plaintiff] deleted would support [the defendant’s] position.” Thus, the court “decline[d] to impose sanctions or grant an adverse inference,” a result that would likely have been the same under Rule 37(e). Brown v. Certain Underwriters at Lloyds, London, No. 16-cv-02737, 2017 WL 2536419, at *2–6 (E.D. Pa. Jun. 12, 2017), arose out of a fire that occurred at plaintiffs’ property. The defendants suspected that the plaintiff was involved in setting the fire. They were interested in examining his cell phone to determine whether it contained any evidence that would tend to corroborate their suspicion. A day before the plaintiff was scheduled to produce the contents of his cell phone, he claimed for the first time that he had lost it “months ago.” He provided no details, however, regarding how he lost the phone or his attempts to preserve or recover its contents. The court failed to reference Rule 37(e) and instead relied on common law superseded by the rule. Finding that the defendant’s explanation lacked credibility, the court awarded an adverse inference jury instruction and attorneys’ fees. Finally, in Charles v. City of New York, No. 12-cv-6180 (SLT) (SMG), 2017 WL 530460, at *25-26 (E.D.N.Y. Feb. 8, 2017), a wrongful arrest case, the court declined to apply Rule 37(e) to a video recording on a smart phone. The defendant sought case terminating sanctions because the plaintiff had lost the smart phone on which she recorded video of her interaction with the police. Noting that the smart phone was not the only evidence in the case, and that there was no evidence of intentional destruction, the court refused to issue sanctions, finding that the plaintiff’s actions at most amounted to “mere negligence, not gross negligence.” The court did not apply amended Rule 37(e), reasoning that amended Rule 37(e) only applies to ESI and that neither the phone nor the video constituted ESI. Inherent Authority: Still Alive Many had expected that the December 2015 amendment to Rule 37(e) would eliminate courts’ inherent authority to impose sanctions for preservation failures, particularly in light of the statement in the Committee Notes that the amended rule “forecloses reliance on inherent authority or state law to determine when certain measures should be used.” Yet, the language of the amended rule itself did not address the issue. And, barely a month after the amendment’s effective date, Magistrate Judge James C. Francis IV held in Cat 3 LLC v. Black Lineage Inc., 164 F. Supp. 3d 488 (S.D.N.Y. 2016), that if a party’s apparent alteration of e-mails was not sanctionable under amended Rule 37(e), then the court could still impose sanctions pursuant to its inherent authority. Judge Francis subsequently co-authored an article laying out his case for the survival of inherent authority. See Hon. James C. Francis IV & Eric P. Mandel, Limits on Limiting Inherent Authority: Rule 37(e) and the Power to Sanction, The Sedona Conference Journal (Vol. 17, No. 2, p. 613) (2016). Following Judge Francis’ opinion in Cat 3, Judge Paul Grimm, who was a member of the Civil Rules Advisory Committee, stated that “[w]hen the drafters were crafting Rule 37(e), we did so with a desire to occupy the field.” To obtain spoliation sanctions under inherent authority, according to Judge Grimm, you would “have to argue that in some way, the existing Rule is insufficient and you also have to be faithful to the law of inherent authority,” meaning “you would need to show bad faith.” Tera Brostoff, Reports of Death of Inherent Judicial Authority Exaggerated?, Bloomberg BNA Electronic Discovery and E-Evidence (Nov. 15, 2016). Judge Grimm’s statement is reminiscent of the Supreme Court’s statement in Chambers v. NASCO, a key case regarding inherent authority, that courts ordinarily should rely on the Rules in imposing sanctions, but “if in the informed discretion of the court, neither the statute nor the Rules are up to the task,” the court may rely on inherent authority. Similarly, Judge Francis has stated that “[t]he point is, if there is a gap in the rule, then the exercise of inherent power is appropriate[.]”  Views from the Bench: Leading Federal Judges in Conversation on EDiscovery and More, 34 (R. Hilson & C. Sullivan eds., 2017). Nevertheless, it appears to be Judge Francis’ view that inherent authority exists even if a matter is covered by Rule 37(e). See id. at 34-35. That view is not shared by all others.  See, e.g., id. at 35 (Hon. Frank Maas, ret., quoted as stating “I’m far less sure than Judge Francis is that inherent authority lives on in cases that fall within the four corners of Rule 37(e).”) See also Gareth Evans and Phillip Favro, Unfinished Business: A Holiday Wish List For New E-Discovery Centered FRCP Amendments, LegalTech News (Dec. 15, 2017) (calling for moving to the text of the rule the language in the Rule 37(e) Committee Note foreclosing reliance on inherent authority). In 2017, the Supreme Court addressed courts’ inherent authority to impose discovery-related sanctions in Goodyear Tire & Rubber Co. v. Haeger, __ U.S. __, 137 S.Ct. 1178 (2017). The Court held that sanctions imposed under inherent authority must be compensatory rather than punitive and must have been “causally related to the sanctioned party’s misconduct.” The case did not involve spoliation, however, and the court did not address whether amended Rule 37(e) forecloses reliance on inherent authority. Thus, it appears unlikely that Goodyear has resolved the issue whether courts may rely on inherent powers in awarding sanctions for a failure to preserve ESI. Meanwhile, some courts continued to rely upon inherent powers in issuing sanctions for preservation failures. In Hsueh v. New York State Dept. of Financial Servs., 15-civ.-3401-PAC, 2017 WL 1194706, at *4, *6 (S.D.N.Y. Mar. 31, 2017), for example, the court found that amended Rule 37(e) did not apply to the destruction of ESI where the party had “intentionally deleted” the information (despite the fact that Rule 37(e) expressly applies where a party acted with intent to deprive). The court stated that “[b]ecause Rule 37(e) does not apply, the Court may rely on its inherent power to control litigation in imposing spoliation sanctions” in granting an adverse inference sanction for spoliation. The court in Hsueh observed that amended Rule 37(e) is aimed at “serious problems resulting from the continued exponential growth in the volume of ESI as well as excessive effort and money that litigants have had to expend to avoid potential sanctions for failure to preserve ESI.”  In this case, the court reasoned, the ESI was not lost on account of “improper systems in place to prevent the loss of the recording” but rather “because she took specific action to delete it.” The court concluded, however, that under either amended Rule 37(e) or the court’s inherent authority an adverse inference and attorneys’ fees were appropriate because (i) the plaintiff was under an obligation to preserve the recording, (ii) there was no doubt the destroyed evidence was relevant to the claims in the case, and (iii) the plaintiff acted in bad faith and with an intent to destroy the ESI. Accordingly, the debate continues over whether inherent authority survives as a basis for spoliation sanctions. At least some of the discussion, however, has shifted to limits on the circumstances under which inherent authority may be invoked (assuming that it can be invoked at all)—for example, that Rule 37(e) must not provide an adequate remedy and bad faith conduct must have been involved. In any event, we doubt that we have heard the last of this issue from courts, commentators and possibly even drafters of future rule amendments. Proportionality: Alive, and Well Proportionality as a limit on the scope of discovery continues to gain traction following its incorporation into Rule 26(b)(1)’s definition of the scope of discovery in the 2015 rule amendments. Of particular note in 2017, the Sedona Conference released its Commentary on Proportionality in Electronic Discovery, 18 Sedona Conf. J. 141 (2017), which sets forth six “Principles of Proportionality” pertaining to the amended rule’s proportionality factors and courts’ application of them since the 2015 rule amendments. These principles consist of the following: (1) “[t]he burdens and costs of preserving relevant electronically stored information should be weighed against the potential value and uniqueness of the information when determining the appropriate scope of preservation;” (2) “[d]iscovery should focus on the needs of the case and generally be obtained from the most convenient, least burdensome, and least expensive sources;” (3) “[u]ndue burden, expense, or delay resulting from a party’s action or inaction should be weighed against that party;” (4) “[t]he application of proportionality should be based on information rather than speculation;” (5) “[n]onmonetary factors should be considered in the proportionality analysis;” and (6) “[t]echnologies to reduce cost and burden should be considered in the proportionality analysis.” The discussion in the Commentary on Proportionality reflects that the evaluation of whether discovery is “proportional to the needs of the case” is highly dependent on the specific facts of any given case, and it is the parties’ burden to provide evidence and educate the court on their specific situation. Additionally, proportionality does not merely involve an analysis of the cost of collection and production compared to the need for the documents—it extends beyond this, taking into account the good faith of the parties, the parties’ comparative access to information, and the importance of the issues. Further, the Commentary advocates that parties work together and utilize appropriate technologies in the discovery process. Judicial decisions in 2017 continued to reflect that proportionality in discovery has gained traction since the 2015 federal rule amendments. In Solo v. United Parcel Service Co., No. 14-12719, 2017 WL 85832 (E.D. Mich., Jan. 10, 2017), for example, the court considered whether UPS should be compelled to produce information stored on backup tapes because their billing system only maintained live data for a short period of time. Id. at *2. UPS submitted a declaration attesting that it would take six months and $120,000 to recover the data from the back-up tapes. The court held that restoring back-up tapes was not proportional to the needs of the case not only because of the expense, but also because the data would only be relevant if the plaintiffs prevailed on certain issues on the merits. In Scott v. Eglin Fed. Credit Union, No. 3:16-CV-719-RV-GRJ2017, 2017 WL 1364600, at *3 (N.D. Fla. Apr. 13, 2017), an employment discrimination case, the defendant (the plaintiff’s former employer) moved to compel the plaintiff’s current employer (a third party) to produce emails and text messages with the plaintiff. Noting that “emails and text messages may be fair game for discovery in most cases,” the court nonetheless denied the motion to compel, explaining  “[b]alancing the marginal relevance of information in emails and text messages against the time and expense that would be involved for a small business … in searching cellular telephones, servers and other electronic storage facilities makes little sense and would cause Plaintiff’s current employer to incur an expense that ultimately will have little or no impact on the outcome of this case.” Id. at *3. In Simon v. Northwestern Univ., No. 1:150-CV-01433, 2017 WL 467677 (N.D. Ill. Feb. 3, 2017), the court engaged in a substantial proportionality analysis, including analyzing the importance of the issues (“The court finds the importance of the issues at stake in this action extremely high”); the amount in controversy (“the Court finds this amount to be high as well”); the relative burden on the defendants (the court determined it was high as to the individuals but “relatively low” as to the university); and the parties’ access to relevant information (determining that the university had the greatest access). In Crabtree v. Angie’s List, Inc., No. 1:16-CV-0087-SEP-MJD, 2017 WL 413242, at *3 (S.D. Ind. Jan. 31, 2017), a wages and hours action, the defendant requested a forensic examination of the plaintiffs’ electronic devices to determine how many hours the plaintiffs were working offsite. The court denied the request as not proportional to the needs of the case. Notably, as part of its proportionality analysis, the court considered the plaintiffs’ privacy and security interests. In Gordon v. T.G.R. Logistics, Inc., 321 F.R.D. 401 (D. Wyo. 2017), the defendant moved to compel production of an electronic copy of the “entire Facebook account history” from the plaintiff’s two Facebook accounts on the ground that the information would be relevant to her claims of physical and emotional injury resulting from a motor vehicle accident. The court engaged in a proportionality analysis, stating that “[s]ocial media presents some unique challenges to courts in their efforts to determine the proper scope of discovery of relevant information and maintaining proportionality.” While it is conceivable that almost any post to social media will provide some relevant information concerning a person’s physical and/or emotional health, it also has the potential to disclose more information than has historically occurred in civil litigation. Possession, Custody or Control: Split in Authority Persists Whether a party has “possession, custody or control” over relevant and responsive documents—and therefore an obligation to preserve and produce them—continued to be an important issue in 2017. A split in authority has persisted between courts applying the “legal right” test (i.e., finding that a party has control over documents in the possession of others only when it has the legal right to the documents) and those applying the “practical ability” (i.e., finding that a party has control when it has the practical ability to obtain the documents, even if it does not have a legal right to them). In Parris v. Pappas, No. 3:10-cv-1128 WWE, 2017 WL 3314001, at *2 (D. Conn. Aug. 3, 2017), the court applied the practical ability test in denying a motion to compel the defendant to produce documents in the possession of his girlfriend. The court held that the plaintiff had failed to sustain her burden of establishing that the documents were in the defendant’s possession, custody or control because the defendant attested that he had asked his girlfriend for the documents, but she had refused to provide them. The court noted, however, that the plaintiff could subpoena the documents from the girlfriend pursuant to Rule 45. By contrast, the court in Ronnie Van Zant, Inc. v. Pyle, No. 17 Civ. 3360-RWS, 2017 WL 3721777, at *8-*9 ( S.D.N.Y. Aug. 28, 2017), also applying the practical ability test, imposed sanctions on a defendant for its failure to prevent a third-party independent contractor from destroying relevant text messages on his smart phone. The lawsuit arose out of a “blood oath” among the surviving members of the band Lynyrd Skynyrd and the family members of band members who had been killed in a 1977 plane crash that none would seek to profit from the band’s name or story. Despite the oath, which was later reflected in a consent order, the band’s drummer—Artemis Pyle—worked with the defendant film company to produce a film about the band. In the ensuing lawsuit for breach of the consent order, the court awarded an adverse inference jury instruction holding the defendant film company responsible for the failure of the film’s director—an independent contractor—to preserve relevant text messages that were lost when he turned in and upgraded his personal smart phone. The court reasoned not only that the film company had the ability to ensure that the director preserved relevant data on his smart phone, but also that its failure to do so coupled with the director’s actions “evince the kind of deliberate behavior that sanctions are intended to prevent and weigh in favor of an adverse inference.” In Williams v. Angie’s List, No. 1:16-00878-WTL-MJD, 2017 WL 1318419, at *2-*3 (S.D. Ind. April 10, 2017), a wage and hours action, the court applied the legal right test. The plaintiffs—who often worked from home and, accordingly, their hours were not reflected in badge-swipe data—sought from the defendant background data automatically recorded while they were working on Salesforce, a sales platform utilized by the defendant. The court rejected the defendant’s argument that it did not have possession, custody or control of the Salesforce data, citing the defendant’s contractual relationship with Salesforce giving the defendant the right to the data. Discovery of Social Media Grows Increasingly Commonplace It is not an overstatement to say that social media has become an integral part of modern life. Social media has played an important role for a number of years in keeping us in touch with friends and family. In recent years, social media applications have also played an prominent role in professional networking and, increasingly, in workplace communications and collaboration. Not surprisingly, therefore, the discovery of social media is also becoming increasingly commonplace. As social media has expanded into many different areas, conceptions of what it exactly is are becoming somewhat blurred. No longer just Facebook, but numerous other social and professional networking and communication applications may be considered social media. The Oxford English Dictionary defines “social media” as “websites and applications used for social networking” and “social network,” in turn, as “the use of dedicated websites and applications to communicate with each other by posting information, comments, messages, images, etc.” See Concise Oxford English Dictionary (12th ed. 2011). Many social media applications have their own direct and group messaging functions, and many instant messaging applications have features that are common to social media. As social media is becoming ubiquitous, early notions that social media might have a special status because of privacy concerns (leading to, for example, a requirement of a threshold showing before discovery could be propounded) are giving way to social media being treated no differently from other forms of evidence. See, e.g., United States ex rel Reaster v. Dopps Chiropractic Clinic, LLC, No.13-1453-EFM-KGG, 2017 WL 957436, at *1-*2 (D. Kan. Mar. 13, 2017) (“while information on social networking sites is not entitled to special protection, discovery requests seeking this information should be tailored so as not to constitute the proverbial fishing expedition in the hope that there might be something of relevance in the respondent’s social media presence”) (internal quotations and citation omitted). Proportionality and relevance requirements can play a particularly important role in discovery of social media. Because social media accounts usually contain a substantial amount of irrelevant and personal information, courts must balance legitimate rights to discovery against overly broad and intrusive inquiries. See, e.g., Brown v. Ferguson, No. 4:15-cv-0083-ERW, 2017 WL 386544, at *1-*2 (E.D. Mo. Jan. 27, 2017) (rejecting disclosure of social media passwords as constituting unfettered access, but also rejecting a distinction between private messages and public content on Facebook). Gordon v. T.G.R. Logistics, Inc., 321 F.R.D. 401 (D. Wyo. 2017), illustrates the challenge facing courts in determining the appropriate scope of social media discovery. In Gordon, the defendant brought a motion to compel the production of the “entire Facebook account history” of the plaintiff’s two Facebook accounts on the ground that the information would be relevant to her claims of physical and emotional injury resulting from a motor vehicle accident. The court engaged in a proportionality analysis, observing that “[s]ocial media presents some unique challenges to courts in their efforts to determine the proper scope of discovery of relevant information and maintaining proportionality.” The court continued that “[w]hile it is conceivable that almost any post to social media will provide some relevant information concerning a person’s physical and/or emotional health, it also has the potential to disclose more information than has historically occurred in civil litigation. While we can debate the wisdom of individuals posting information which has historically been considered private, we must recognize people are providing a great deal of personal information publicly to a very loosely defined group of ‘friends,’ or even the entire public internet.” The court explained that the relative ease and low cost of downloading a user’s Facebook history would not itself resolve the issue. The court observed that, in the past, “[n]o court would have allowed unlimited depositions of every friend, social acquaintance, co-employee or relative of a plaintiff to inquire as to all disclosures, conversations or observations. Now, far more reliable disclosures can be obtained with a simple download of a social media history.” The court reasoned, on the one hand, that even though producing the plaintiff’s Facebook history would involve very little time or expense, it could nevertheless have a very significant impact in generating additional discovery and in lengthening testimony. “It’s not difficult to imagine a plaintiff being required to explain every statement contained within a lengthy Facebook history in which he or she expressed some degree of angst or emotional distress or discussing life events which could be conceived to cause emotion upset, but which is extremely personal and embarrassing.” On the other hand, the court recognized that “Defendant has a legitimate interest in discovery which is important to the claims and damages it is being asked to pay. Information in social media which reveals that the plaintiff is lying or exaggerating his or her injuries should not be protected from disclosure. Courts must balance these realities regarding discovery of social media and that is what most of the courts which have addressed this issue have done.” In the end, the court denied the defendant’s request for the entirety of the plaintiff’s Facebook history and instead limited the scope of the discovery to Facebook posts after the accident that relate to the accident and her resulting physical and emotional injuries and any posts relating to other events that could reasonably be expected to result in emotional distress. Technology Assisted Review: Gaining Strength? A noticeable practice trend in 2017 has been that the use of technology assisted review (“TAR”)—also known as predictive coding—to search and review large document populations appears to be more widespread than in past years. We are seeing requesting parties more frequently using TAR in their review of substantial incoming productions, where the TAR protocol and training of the TAR tool will not be subject to challenge from the opposing party. We are also seeing TAR used more often in symmetrical litigation, where both sides have large production obligations and both use TAR—or want to have the option to use TAR—in their document search and review process. That is not to say that the use of TAR is commonplace, as many had anticipated would be the case by now. Rather, within a relatively small slice of litigation matters—those that involve particularly massive amounts of ESI to search and review—it appears that TAR is being used more than in the past. A substantial body of case law has developed regarding issues relating to the use of TAR.  See The Sedona Conference TAR Case Law Primer, 18 Sedona Conf. J. 1 (2017). Yet, many issues remain unresolved—except that TAR is generally accepted by the courts as a legitimate search and review methodology. There was a dearth of case law in 2017 involving disputes over TAR, perhaps reflecting that TAR is most being used on incoming productions and pursuant to stipulated protocols in symmetrical litigation. The two decisions in 2017 regarding TAR disputes dealt with the extent of transparency required regarding the TAR process and the use of search terms to cull a document population before the use of TAR. In Winfield v. City of New York, No. 15-cv-05236 (S.D.N.Y. Nov. 27, 2017), the plaintiffs argued that the defendant’s TAR model was improperly trained because its reviewers had over designated documents in the seed and training sets as non-responsive. The plaintiffs argued—and the court agreed—that several inadvertently produced documents designated as non-responsive used to train the TAR model were actually responsive. The plaintiffs sought both to bar the defendant from continuing to use TAR and to require disclosure of information about the TAR process—including the defendant’s coding of seed and training documents, how the defendant trained its document reviewers, and detailed information about the ranking system used in the TAR process (i.e., what relevance score cut-off was used, and how many documents were deemed responsive and unresponsive at each ranking level). The court referenced Sedona Principle 6, which provides that the producing party is in the best position to “evaluate the procedures, methodologies, and technologies appropriate for preserving and producing their own electronically stored information.” Id., slip op. at 20; see also The Sedona Conference Principles, Third Edition, 19 Sedona Conf. J. 1, 118 et. seq. (forthcoming 2018) (available at www.thesedonaconference.org). The court stated that, “[t]raditionally, courts have not micro-managed parties’ internal review processes for a number of reasons.” Those reasons include that “attorneys, as officers of the court, are expected to comply with Rules 26 and 34 in connection with their search, collection, review and production of documents, including ESI.” Additionally, the court stated that “internal attorney ESI work processes may reveal work product” and noted that “perfection in ESI discovery is not required[.]” Nevertheless, the court asserted, “parties cannot be permitted to jeopardize the integrity of the discovery process by engaging in halfhearted and ineffective efforts to identify and produce relevant documents.” Id., slip op. at 20-21. The court reviewed information about the defendant’s TAR process in camera—including information about the seed and training sets, its training of reviewers, and the validation process the defendant used. The court concluded that “the City’s training and review processes and protocols present no basis for finding that the City engaged in gross negligence in connection with its ESI discovery—far from it.” Id., slip op. at 23. Additionally, with respect to detailed information about the defendant’s TAR process—such as the cut-off used and the number of responsive and unresponsive documents at each ranking level—the court stated that it “views this information as protected by the work product privilege and, accordingly, [it] is not subject to disclosure.” Id., slip op. at 27; see also John M. Facciola and Philip J. Favro, Safeguarding the Seed Set: Why Seed Set Documents May Be Entitled to Work Product Protection, 8 Fed. Cts. L. Rev. 1 ( Feb. 2015). Nevertheless, because there was some evidence of “human error” in the training process, the court ordered the defendant to provide the plaintiffs, on an attorneys’ eyes only basis, with a random sample of 300 non-privileged documents from the population of documents the TAR process determined to be non-responsive. Id., slip op. at 25-26. The only other reported or widely publicized TAR decision in 2017, FCA US LLC, v. Cummins, Inc., No. 16-12883, 2017 WL 2806896, at *1 (E.D. Mich. Mar. 28, 2017), involved a dispute over “whether the universe of electronic material subject to TAR review should first be culled by the use of search terms.” Without any substantive discussion, other than to cite materials that it reviewed, the court stated that “[a]pplying TAR to the universe of electronic material before any keyword search reduces the universe of electronic material is the preferred method.” E-Discovery Vendor Developments The consolidation among medium-sized and large e-discovery service providers, usually financed by private equity funding, that has been going on for several years now only seemed to accelerate more in 2017. It is not apparent whether this consolidation is fundamentally altering the market for e-discovery services, other than to possibly result in greater stability in the space once all of the M&A dust settles. Generally, the market appears to be settling into several different segments: (1) large vendors with a national and often international footprint providing basic, commodity services using mostly standard technologies; (2) medium-sized vendors—also with a national and global footprint—focused on providing both expert e-discovery consulting and professional services as well as standard and more advanced technologies; (3) vendors of “do it yourself” online e-discovery software services (i.e., “SAAS,” aka software as a service), usually targeted at small and medium-sized law firms that now, increasingly, must deal with e-discovery; and (4) traditional local and regional vendors providing basic services, much as they have in the past. The local and regional vendors seem to be increasingly squeezed in this market, either being acquired by or not able to compete with the large vendors providing commodity services. Notably, it appears that there are far fewer new entrants in e-discovery services market—which used to have relatively low barriers to entry—than in the past. Also, there appears to have been significant maturation of some of the SAAS providers, which appear to be finding a solid niche in a potentially large market segment—small and medium-sized law practices—often not previously serviced by e-discovery providers. Other noteworthy developments in the vendor space have been the challenges posed by mobile devices, social media and ESI stored in the cloud—often requiring advanced tools and significant expertise to collect, process and search—and the more widespread availability of analytics applications that vendors can license and provide to their clients rather than having to develop in-house. Conclusion The past year showed once again that e-discovery continues to progress, but also continues to face new and pre-existing challenges. We hope that you found our 2017 Year-End E-Discovery Update informative. We invite you review further the many articles, client alerts and updates that our attorneys have published by going to the Gibson Dunn Electronic Discovery Practice Group’s page on the Firm’s website. The following Gibson Dunn lawyers assisted in the preparation of this client update:  Gareth Evans, Jennifer Rearden, Heather Richardson, Chelsea Mae Thomas and Natalie Dygert. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. The Electronic Discovery and Information Law practice group brings together lawyers with extensive knowledge of electronic discovery and information law.  The group is comprised of seasoned litigators with a breadth of experience who have assisted clients in various industries and in jurisdictions around the world.  The group’s lawyers work closely with the firm’s technical specialists to provide cutting-edge legal advice and guidance in this complex and evolving area of law.  For further information, please contact the Gibson Dunn lawyer with whom you usually work or the following leaders of the Electronic Discovery and Information Law practice group: Gareth T. Evans – Orange County (+1 949-451-4330, gevans@gibsondunn.com) Jennifer H. Rearden – New York (+1 212-351-4057, jrearden@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 16, 2018 |
Law360 Names Gibson Dunn Among its Appellate 2017 Practice Groups of the Year

Law360 named Gibson Dunn one of its six Appellate Practice Groups of the Year [PDF] for 2017. The firm’s Appellate practice was profiled on January 16, 2018.