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Click for PDF This update provides an overview and summary of key class action developments during the fourth quarter of 2018 (October through December). Part I summarizes amendments to Rule 23 that went into effect on December 1, 2018. Part II covers an important First Circuit decision in In re Asacol Antitrust Litigation, in which the court reversed a class certification order where a significant number of uninjured individuals were included in the certified class. Part III discusses a Second Circuit decision rejecting an attempt by defendants to moot putative class actions. Part IV addresses a Ninth Circuit decision considering what constitutes a “coupon” settlement subject to increased scrutiny under the Class Action Fairness Act. I.   December 2018 Amendments to Rule 23 First, new amendments to Rule 23 took effect on December 1, 2018.  These amendments focus on procedural issues relating to class settlement and notice to absent class members.  We have briefly summarized the changes below: Electronic Notice to Rule 23(b)(3) Classes:  Rule 23(c)(2)(B), which governs notice requirements for Rule 23(b)(3) classes, now expressly permits notice via electronic or other means, so long as the selected method is “the best notice practicable under the circumstances.” Explicit Standards for Settlement Approval:  To provide courts with a standard set of substantive and procedural concerns to consider when determining whether a settlement is “fair, reasonable, and adequate,” the amended Rule 23(e)(2) directs courts to consider:  (1) the adequacy of representation by class representatives and class counsel; (2) whether “the proposal was negotiated at arm’s length”; (3) the adequacy of relief, taking into account various factors; and (4) whether “class members are treated equitably relative to each other.” Many courts had already been relying on these factors, but there was not always uniformity among the federal circuits.  The advisory committee’s comments also specifically note that the amended language was not intended to displace other factors courts have used to determine fairness, reasonableness, and adequacy. Addressing “Bad Faith” Objectors:  The amendments to Rule 23(e)(5) attempt to deter “bad faith” objections to class settlements in two ways.  First, Rule 23(e)(5)(A) requires objectors to state specific grounds for any objection and whether the objection applies to the entire class, a subset of the class, or just the objector.  Second, a new provision—Rule 23(e)(5)(B)—prohibits an objector from receiving consideration for withdrawing an objection or for abandoning an appeal from a judgment approving the proposal, unless approved by the court after a hearing.  These changes are designed to curb meritless objections that are asserted by objectors in order to obtain payoffs in return for withdrawing the objections—a disturbing trend that has increased in recent years. Standards for Approving Notice of Proposed Class Settlement:  In an effort to avoid scenarios in which the parties provide notice after preliminary approval of a class settlement, only to have the court deny final approval or order additional notice, the amendment to Rule 23(e)(1) now requires parties to provide the court “with information sufficient to enable [the court] to determine whether to give notice of the proposal to the class.”  Based on the information provided by the parties, Rule 23(e)(1) also now mandates that a court determine, before sending notice to the class, that the proposed class will likely be certified and the proposed settlement is likely to earn final approval.  Before this change, many courts at the preliminary approval stage had merely been asking whether a settlement was within the “range of reasonableness,” so it was not entirely unusual for courts to grant preliminary approval, direct costly notice to be issued to the class, but then deny final approval based on concerns that could have been spotted at the outset.  This amendment thus aims to prevent situations in which a court is asked to order notice based on insufficient information, and thereafter must order a second notice, which is both wasteful and confusing to class members. Clarification of Interlocutory Appeals Permitted under Rule 23(f):  The amendment to Rule 23(f) clarifies that an order to give notice of proposed settlement under Rule 23(e)(1) cannot be appealed under Rule 23(f).  As such, Rule 23(f) permits parties to seek permission to pursue an interlocutory appeal only of an order granting or denying class certification.  Rule 23(f) also extends the 14 day time limit to 45 days for cases where the U.S. government is a party. II.   First Circuit Reverses Class Certification Order Because at Least 10% of Class Members Suffered No Injury  As we have discussed in a past update, the federal courts of appeals have long been divided over whether it is permissible to certify a class that includes uninjured class members who lack standing under Article III.  Although the Supreme Court has never squarely addressed the issue, the Court noted in Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016), that “the question whether uninjured class members may recover is one of great importance.”  Id. at 1050.  And Chief Justice Roberts in his Tyson Foods concurring opinion expressed his view that “Article III does not give federal courts the power to order relief to any uninjured plaintiff, class action or not.”  Id. at 1053 (Roberts, C.J., concurring). This past quarter, the First Circuit addressed this issue in In re Asacol Antitrust Litigation, 907 F.3d 42 (1st Cir. 2018).  The court reversed an order certifying a class of indirect purchasers of the anti-inflammatory drug Asacol because “there are apparently thousands [of class members] who in fact suffered no injury” and the “need to identify those individuals will predominate and render a[ class] adjudication unmanageable.”  Id. at 53–54. The plaintiffs sought to represent a class of buyers who purportedly bought Allergan medicines at artificially high prices because Allergan’s predecessor allegedly pulled Asacol off the shelves just before its patent expired and replaced it with a newer version of the drug, which had a later patent expiration date.  Id. at 45–47.  According to the plaintiffs, this conduct injured them because it “allegedly precluded generic manufacturers from introducing a generic version of Asacol, which would have provided a lower-cost alternative.”  Id. at 44. It was undisputed that at least 10% of the putative class members—”thousands” of individuals—had not suffered any injury attributable to the allegedly anticompetitive conduct because they were brand loyalists who would not have switched to a generic drug had one been available.  Id. at 53–54.  Nonetheless, the district court certified a class that included those uninjured persons, reasoning that the uninjured class members could be removed in a subsequent proceeding conducted by a claims administrator.  Id. at 47. The First Circuit reversed, holding that the plaintiffs could not satisfy the predominance requirement of Rule 23(b)(3) because individualized issues relating to the uninjured class members would predominate.  As the First Circuit noted, “determining whether any given individual was injured (and therefore has a claim) turns on an assessment of the individual facts concerning that person,” and “the defendant must be offered the opportunity to challenge each class member’s proof that the defendant is liable to that class member.”  Id. at 55. The court rejected the plaintiffs’ argument that class members could submit affidavits to a claims administrator who could distinguish injured class members from uninjured members, explaining that such a process could only work if the declarations would be “unrebutted.”  Id. at 52–53.  But where the “defendants have expressly stated their intention to challenge any affidavits that might be gathered,” the affidavits would not be sufficient, as a “claims administrator’s review of contested forms completed by consumers concerning an element of their claims would fail to be protective of defendants’ Seventh Amendment and due process rights.”  Id. (internal quotation marks omitted).  The First Circuit emphasized that “[t]he fact that plaintiffs seek class certification provides no occasion for jettisoning the rules of evidence and procedure, the Seventh Amendment, or the dictate of the Rules Enabling Act.”  Id. at 53. In reaching its decision, the First Circuit distinguished the Supreme Court’s decision in Tyson Foods, where the underlying substantive law—the Fair Labor Standards Act—supported the admissibility of representative evidence, noting that the plaintiffs in Asacol had “point[ed] to no such substantive law that would make an opinion that ninety percent of class members were injured both admissible and sufficient to prove that any given individual class member was injured.”  Id. at 54. The First Circuit also disagreed with the plaintiffs’ assertion that the district court could proportionately reduce the aggregate damages award by the percentage of uninjured class members, concluding that this approach incorrectly assumed that the amount of damages did not depend on the number of class members harmed.  Id. at 55.  Rather, “proving that the defendant is not liable to a particular individual because that individual suffered no injury reduces the amount of the possible total damages.”  Id.  Moreover, if the plaintiffs’ approach were permissible, “there would be no logical reason to prevent a named plaintiff from bringing suit on behalf of a large class of people, forty-nine percent or even ninety-nine percent of whom were not injured, so long as aggregate damages on behalf of ‘the class’ were reduced proportionately.”  Id. at 56.  The First Circuit concluded that “[s]uch a result would fly in the face of the core principle that class actions are the aggregation of individual claims, and do not create a class entity or re-apportion substantive claims.”  Id. Asacol represents a significant victory for class action defendants, who often are faced with putative classes filled with uninjured persons who could never assert a viable claim on an individual basis.  The plaintiffs have filed a petition for rehearing en banc, which remains pending. III.   The Second Circuit Rejects Attempt to Moot Putative Class Actions As we have discussed previously, including in our 2016 year-end update, the Supreme Court decided in Campbell-Ewald Co. v. Gomez that an unaccepted settlement offer—even an offer of complete relief—does not necessarily moot a plaintiff’s claim.  136 S. Ct. 663, 670–71 (2016).  However, the Court did not decide “whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”  Id. at 672.  Nonetheless, the trend has been to reject a distinction between an unaccepted offer of judgment and an unaccepted offer combined with the delivery of money to the plaintiff, as we reported in May 2017. That trend continued in the Second Circuit this past quarter.  In Geismann v. ZocDoc, Inc., 909 F.3d 534 (2d Cir. 2018), the court held that tendering payment to the named plaintiff does not moot putative class claims.  The plaintiff filed a putative class action alleging violations of the Telephone Consumer Protection Act.  Id. at 536–37.  The defendant made two attempts to moot the plaintiff’s individual claims.  It first made a settlement offer under Rule 68, which the plaintiff rejected.  Id. at 537.  The district court then entered judgment in the amount of the offer, and dismissed the action as moot.  The plaintiff appealed, and the Second Circuit applied Campbell-Ewald to reverse, holding that the offer did not moot the claims.  Id.  On remand, the defendant tried again, this time tendering payment to the court under Rule 67.  Id.  The district court again entered judgment for the defendant, and the plaintiff again appealed.  Id. The Second Circuit followed the reasoning set forth by the Seventh Circuit in Fulton Dental, LLC v. Bisco, Inc., 860 F.3d 541 (7th Cir. 2017), and held that, under Campbell-Ewald, an unaccepted tender of payment under Rule 67 is the same as an unaccepted offer of payment—neither is binding under contract law until accepted, and neither moots a plaintiff’s claims.  Geismann, 909 F.3d at 541.  The court explained that the Rule 67 procedure provides for safekeeping of disputed funds pending resolution of litigation, but it cannot alter the parties’ contractual relationship and legal duties.  Id. at 541–42.  “[A] conclusion otherwise,” the court reasoned, “would risk placing the defendant in control of a putative class action, effectively allowing the use of tactical procedural maneuvers to thwart class litigation at will.”  Id. at 543. While courts continue to be skeptical of attempts to moot putative class actions through efforts to make a named plaintiff whole, it is important to note that the Supreme Court in Campbell-Ewald left open the possibility that actual delivery of money to the named plaintiff—as opposed to a mere settlement offer—might result in mootness.  Given that unanswered question, it is possible the Court may eventually weigh in on these issues again. IV.   The Ninth Circuit Provides Guidance on Identifying a “Coupon” Settlement The Class Action Fairness Act (“CAFA”) imposes certain limitations and requirements in the event a class action settlement includes coupons.  Specifically, under CAFA, district courts must consider “the value to class members of the coupons that are redeemed,” and not the aggregate value of all coupons that are simply offered, when assessing the amount of relief awarded to the class for purposes of awarding attorney’s fees for class counsel.  28 U.S.C. § 1712(a) (emphasis added).  However, CAFA does not define what is a “coupon,” leaving that term for the courts to interpret. The Ninth Circuit took up that issue in In re Easysaver Rewards Litigation, 906 F.3d 747 (9th Cir. 2018).  The plaintiffs in that case alleged that after they had purchased defendants’ products online, the defendants had, without plaintiffs’ knowledge or consent, enrolled the plaintiffs in a “rewards” program that charged them ongoing fees for no actual benefits.  The parties ultimately reached a proposed settlement that included a $20 credit that class members could use to purchase additional products from the defendants online.  The district court approved the settlement and awarded attorney’s fees to class counsel based on the total value of the credits offered (not just those redeemed), reasoning that the credits did not count as “coupons” because “of how closely the relief matched class members’ alleged injury.”  Id. at 756. The Ninth Circuit reversed.  The court reiterated its three-factor inquiry for determining what constitutes a coupon under CAFA: “(1) whether class members have ‘to hand over more of their own money before they can take advantage of’ a credit, (2) whether the credit is valid only ‘for select products or services,’ and (3) how much flexibility the credit provides, including whether it expires or is freely transferrable.”  Id. at 755 (quoting In re Online DVD, 779 F.3d 934, 951 (9th Cir. 2015)). Applying these factors to the credits in Easysaver, the Ninth Circuit concluded that the credits were coupons.  First, class members could use the credits to purchase only a very limited universe of online products—such as flowers, chocolates, and similar gifts—without spending any of their own money.  Id. at 757.  In fact, when asked at the fairness hearing whether a class member could purchase anything from the defendants’ websites for the amount of the credits once shipping charges were included, counsel replied:  “If you include shipping, I’m not sure.”  Id.  Second, the Ninth Circuit was troubled by the fact that in order to take advantage of the credit, class members “must hand over their billing information again to the very company that they believe mishandled that information in the first place,” resulting in the same activity that they believe led to their injury.  Id.  Third, the credits also had a series of blackout periods—including Mother’s Day, Valentine’s Day, and other holidays on which consumers most often buy flowers and chocolates.  Id. The district court erred, according to the Ninth Circuit, by improperly relying on a fourth factor—i.e., “how closely the relief matched class members’ alleged injury.”  Id. at 756.  The court explained that while this equivalence “bore on the fairness of the settlement,” it did not impact “whether the vouchers were coupons under CAFA.”  Id.  This holding brings the Ninth Circuit in line with the Seventh Circuit, which has rejected a similar analysis.  See In re Sw. Airlines Voucher Litig., 799 F.3d 701, 706 (7th Cir. 2015). The proposed credits in Easysaver bore several key indicia of a coupon settlement, and the Ninth Circuit plainly was suspicious of the actual value, if any, to class members, particularly given the underlying nature of the defendants’ alleged wrongdoing.  This opinion reinforces the incentives for plaintiffs’ counsel to avoid artificial inflation of a settlement “without a concomitant increase in the actual value of relief for the class.”  Easysaver, 906 F.3d at 755. The following Gibson Dunn lawyers prepared this client update: Christopher Chorba, Theane Evangelis, Kahn A. Scolnick, Bradley J. Hamburger, Jeremy Smith, Wesley Sze, Jennafer Tryck, Gatsby Miller and Andrenna Berggren. Gibson Dunn attorneys 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 (+1 213-229-7000, tboutrous@gibsondunn.com) Christopher Chorba – Co-Chair, Class Actions Practice Group – Los Angeles (+1 213-229-7396, cchorba@gibsondunn.com) Theane Evangelis – Co-Chair, Class Actions Practice Group – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) Bradley J. Hamburger – Los Angeles (+1 213-229-7658, bhamburger@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Gibson, Dunn & Crutcher LLP is pleased to announce its selection by Law360 as a Law Firm of the Year for 2018, featuring the four firms that received the most Practice Group of the Year awards in its profile, “The Firms That Dominated in 2018.” [PDF] Of the four, Gibson Dunn “led the pack with 11 winning practice areas” for “successfully securing wins in bet-the-company matters and closing high-profile, big-ticket deals for clients throughout 2018.” The awards were published on January 13, 2019. Law360 previously noted that Gibson Dunn “dominated the competition this year” for its Practice Groups of the Year, which were selected “with an eye toward landmark matters and general excellence.” Gibson Dunn is proud to have been honored in the following categories: Appellate [PDF]: Gibson Dunn’s Appellate and Constitutional Law Practice Group is one of the leading U.S. appellate practices, with broad experience in complex litigation at all levels of the state and federal court systems and an exceptionally strong and high-profile presence and record of success before the U.S. Supreme Court. Class Action: Our Class Actions Practice Group has an unrivaled record of success in the defense of high-stakes class action lawsuits across the United States. We have successfully litigated many of the most significant class actions in recent years, amassing an impressive win record in trial and appellate courts, including before the U. S. Supreme Court, that have changed the class action landscape nationwide. Competition: Gibson Dunn’s Antitrust and Competition Practice Group serves clients in a broad array of industries globally in every significant area of antitrust and competition law, including private antitrust litigation between large companies and class action treble damages litigation; government review of mergers and acquisitions; and cartel investigations, internationally across borders and jurisdictions. Cybersecurity & Privacy: Our Privacy, Cybersecurity and Consumer Protection Practice Group represents clients across a wide range of industries in matters involving complex and rapidly evolving laws, regulations, and industry best practices relating to privacy, cybersecurity, and consumer protection. Our team includes the largest number of former federal cyber-crimes prosecutors of any law firm. Employment: No firm has a more prominent position at the leading edge of labor and employment law than Gibson Dunn. With a Labor and Employment Practice Group that covers a complete range of matters, we are known for our unsurpassed ability to help the world’s preeminent companies tackle their most challenging labor and employment matters. Energy: Across the firm’s Energy and Infrastructure, Oil and Gas, and Energy, Regulation and Litigation Practice Groups, our global energy practitioners counsel on a complex range of issues and proceedings in the transactional, regulatory, enforcement, investigatory and litigation arenas, serving clients in all energy industry segments. Environmental: Gibson Dunn has represented clients in the environmental and mass tort area for more than 30 years, providing sophisticated counsel on the complete range of litigation matters as well as in connection with transactional concerns such as ongoing regulatory compliance, legislative activities and environmental due diligence. Real Estate: The breadth of sophisticated matters handled by our real estate lawyers worldwide includes acquisitions and sales; joint ventures; financing; land use and development; and construction. Gibson Dunn additionally has one of the leading hotel and hospitality practices globally. Securities: Our securities practice offers comprehensive client services including in the defense and handling of securities class action litigation, derivative litigation, M&A litigation, internal investigations, and investigations and enforcement actions by the SEC, DOJ and state attorneys general. Sports: Gibson Dunn’s global Sports Law Practice represents a wide range of clients in matters relating to professional and amateur sports, including individual teams, sports facilities, athletic associations, athletes, financial institutions, television networks, sponsors and municipalities. Transportation: Gibson Dunn’s experience with transportation-related entities is extensive and includes the automotive sector as well as all aspects of the airline and rail industries, freight, shipping, and maritime. We advise in a broad range of areas that include regulatory and compliance, customs and trade regulation, antitrust, litigation, corporate transactions, tax, real estate, environmental and insurance.

Click for PDF Decided January 8, 2019 Henry Schein, Inc. v. Archer & White Sales, Inc., No. 17-1272 The Supreme Court held 9-0 that courts may not decline to enforce agreements delegating arbitrability issues to an arbitrator, even if the court concludes that the claim of arbitrability is “wholly groundless.” Background: The Federal Arbitration Act generally permits courts to decide whether a contract requires arbitration of a dispute.  The Act, however, also requires courts to interpret contracts as written, and the Supreme Court has held that an arbitration agreement may “clearly” and “unmistakably” refer the arbitrability issue to an arbitrator.  Here, the defendants in an antitrust lawsuit sought to compel arbitration, citing a clause in their contracts with the plaintiff requiring arbitration of any “dispute arising under or related to” the contracts, “except for actions seeking injunctive relief.”  Although the plaintiff sought both damages and injunctive relief, the defendants argued that arbitration was required because damages were the predominant form of relief requested.  The Fifth Circuit held that the trial court properly declined to refer the arbitrability issue to an arbitrator because the plaintiff’s claim for injunctive relief made the defendants’ request for arbitration “wholly groundless.” Issue: May a court decline to enforce an agreement delegating arbitrability issues to an arbitrator, and resolve arbitrability disputes itself, if it concludes that the claim of arbitrability is “wholly groundless”? Court’s Holding: No.  Courts must enforce agreements to delegate arbitrability issues to an arbitrator, even if the court concludes that a claim of arbitrability is “wholly groundless,” because the Federal Arbitration Act does not contain a “wholly groundless” exception. “The [Federal Arbitration] Act does not contain a ‘wholly groundless’ exception. . . . When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.” Justice Kavanaugh, writing for a unanimous Court What It Means: In Justice Kavanaugh’s first opinion, the Court was “dubious” that recognizing a “wholly groundless” exception would save time and money, as such an exception would “inevitably spark collateral litigation” over whether a claim for arbitration is “groundless,” as opposed to “wholly groundless.” The decision removes an opportunity for plaintiffs to avoid arbitration of threshold issues of arbitrability where a contract has delegated those issues to an arbitrator.    The Court emphasized again the importance of enforcing arbitration agreements as they are drafted and refusing to create exceptions that would permit judicial second-guessing of arbitration agreements.    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 Labor and Employment Practice Catherine A. Conway +1 213.229.7822 cconway@gibsondunn.com Jason C. Schwartz +1 202.955.8242 jschwartz@gibsondunn.com © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Click for PDF This edition of Gibson Dunn’s Federal Circuit Update notes the cases at the Supreme Court on certiorari from the Federal Circuit and summarizes new revisions to the Federal Circuit Rules of Practice.  The Update also summarizes recent Federal Circuit decisions ending assignor estoppel in IPRs, clarifying the role of preamble transitions in claim construction, explaining requirements for claiming priority through a chain of applications, and detailing how inventions can be shown to be non-abstract and patent eligible. Federal Circuit News On October 20, 2018, the American Inns of Court hosted its annual Celebration of Excellence dinner at the Supreme Court of the United States.  Judge Pauline Newman received the prestigious Lewis F. Powell, Jr. Award for Professionalism and Ethics.  This award is presented annually to a lawyer or judge who has rendered exemplary service in the areas of legal excellence, professionalism, and ethics.  It was presented by Chief Judge Barbara M. Lynn of the United States District Court for the Northern District of Texas. Among other things, Judge Newman spoke about the future of the law vis-à-vis artificial intelligence. Supreme Court:  Thus far, there are two patent cases from the Federal Circuit scheduled to be heard in the OT2018 Term. Case Status Issue Amicus Briefs Filed Helsinn Healthcare S.A. v. Teva Pharm. USA Inc., No. 17-1229 Argument on December 4, 2018 Whether, under the Leahy-Smith America Invents Act (“AIA”), the sale of an invention by the inventor to a third party qualifies as prior art if the sale was subject to confidentiality. 23 Return Mail Inc. v. United States Postal Service, No. 17-1594 Petition for certiorari granted on October 26, 2018 Whether the government is a “person” who may petition to institute review proceedings under the Leahy-Smith America Invents Act. 2 Of these, Helsinn has drawn substantial interest from multiple industries, with many pro-patentee groups arguing to overturn the Federal Circuit’s decision that a secret sale qualifies as prior art. For example, the Biotechnology Innovation Organization and Pharmaceutical Research and Manufacturers of America argue that Federal Circuit’s Helsinn decision calls into question large numbers of issued or pending patents.  U.S. Inventor (which represents 13,000 inventor and business members) argues that the Federal Circuit’s decision construing Section 102(a)(1) to include non-public prior art sales undermines Congress’ goal that the AIA harmonize U.S. Patent law with law from other countries.  Congressman Lamar Smith, a lead sponsor of the AIA, also argued that the Federal Circuit did not properly construe the statue in Helsinn.  On the other side of the argument, The Association for Accessible Medicines, as well as SPCM S.A. and the High Tech Inventors Alliance, argue that the Federal Circuit’s decision is correct. Federal Circuit Practice Update This month, we highlight new amendments to the Federal Circuit Rules of Practice (“FCRP”), which are effective as of December 1, 2018.  The revisions primarily relate to filing procedures and include a number of substantive and clerical edits.  Notable amendments include: FCRP 25:  Rule 25 is amended to require that most paper briefs be provided within five business days of the notice requesting paper copies.  Copies may not be submitted before the notice.  Previously, parties were required to submit paper copies within five business days of acceptance of electronic filing of the document.  A new Practice Note explains that in typical, non-expedited cases, the Clerk of Court will issue the notice “shortly after briefing concludes.”  But paper copies for petitions and briefs related to panel rehearing and en banc proceedings remain due as before.  Rule 25 now also enables the Clerk of the Court to require “the filing of a corrected copy of any submission that fails to comply with the court’s rules” or ECF procedure, and to strike a filing if the party does not take the requested corrective action. FCRP 31:  In cross-appeals, the cross appellant now has 21 days to file its reply after the appellant’s reply is served.  This increases the time allowed from 14 days under the prior rule. FCRP 32:  Rule 32 is also amended to no longer allow the Clerk of Court to refuse to file briefs that do not comply with Federal Rule of Appellate Procedure 32.  Instead, the Clerk of Court can require corrections and only thereafter strike a brief if the correction is not made. FRCP 44:  A new Practice Note is added to Rule 44. “Raising a constitutional question in a brief or motion. Inclusion of a constitutional challenge in a brief or motion is insufficient to satisfy the written notice requirements of Federal Rule of Appellate Procedure 44.  Parties must file a separate notice before the clerk of court will certify a matter to the Attorney General of the United States or the attorney general of a State.” The full rule amendments can be found here.  The Clerk of Court has also published a summary of the revisions and their impact on procedural changes in the filing process.  Of note: Immediate Docketing:  Non-confidential documents will be available on the docket immediately upon filing, versus being treated as tendered. Clerk’s Office Compliance Review:  After a brief or appendix is filed, the Clerk’s Office will review the filing to confirm compliance with FRAP and FCRP requirements. The Clerk of Court’s full summary is available here. Key Case Summaries (October – September 2018) Arista Networks, Inc. v. Cisco Sys., Inc., No. 17-1525, 17-1577 (Fed. Cir. Nov 9, 2018):   Assignor estoppel does not apply to petitions for Inter Partes Review. Arista filed an IPR petition challenging a patent owned by Cisco.  The named inventor was employed by Cisco when the purported inventive work was done and assigned his interests to Cisco.  Afterwards, the inventor left Cisco to found Arista.  Arista then sought to invalidate the patent.  Cisco argued that the doctrine of assignor estoppel should bar Arista from challenging the patent’s validity.  The Board, however, declined to apply the doctrine and instituted review. The Federal Circuit (Prost, C.J., joined by Schall, J., and Chen, J.) affirmed the decision to limit assignor estoppel.  As a predicate, the panel held that it had jurisdiction to review the Board’s refusal to apply estoppel despite the Supreme Court’s decision in Cuozzo Speed Technologies v. Lee, which held that the decision to institute an IPR is not subject to appeal.  As the panel reasoned, whether estoppel applies in IPRs stands in contrast to the statutory provision at issue in Cuozzo.  The panel concluded that the issue of estoppel is not “closely related to the preliminary patentability determination or the exercise of discretion not to institute,” and is thus reviewable. For the merits, the court looked to Section 311(a), which provides that “a person who is not the owner of a patent may file with the Office a petition to institute an inter partes review of the patent.”  According to the panel, this language left no room for assignor estoppel.  The court reasoned that this was consistent with Congress’s express incorporation of equitable doctrines in other contexts, such as before the ITC.  The court noted that allowing assignor estoppel in other forums while not allowing it in IPRs may invite forum shopping.  But the court dismissed this as an “intentional congressional choice.”  Thus, while assignor estoppel remains a viable defense in ITC and district court actions, it is not available before the Board to prevent institution of an IPR. Acceleration Bay, LLC v. Activision Blizzard, Inc., Nos. 17-2084, 17-2085, 17-2095 to -99, -17-2017, 17-2018 (Fed. Cir. Nov. 6, 2018):  Lack of transition language in claim preamble does not transform preamble into limitations. Acceleration appealed multiple Board decisions from various IPRs invalidating claims of its patents.  The Federal Circuit (Moore, J., joined by Prost, C.J., and Reyna, J.) affirmed.  Central to the dispute was an unusual issue of claim construction, as certain challenged claims lacked the traditional and nearly ubiquitous “transition” words that separate a claim’s preamble from its limitations.  In one patent, the claim began by reciting: “A computer network for providing an information delivery service.”  In another, the claim began: “A computer network for providing a game environment.”  Both claims, however, lacked transition phrases (e.g., “comprising” or “consisting of”).  Activision argued that, given the lack of transition phrasing, these terms are part of the body of the claims, and thus limiting, despite their location at the lead of the claim. The Federal Circuit panel, however, held that the phrases were preambles notwithstanding the lack of transition language.  As the court noted: “We see no beneficial purpose to be served by failing to include a transition word in a claim to clearly delineate the claim’s preamble from the body, and we caution patentees against doing so.”  But, the court also warned that “poor claim drafting will not be an excuse … to infuse confusion into its claim scope.”  The court held that, regardless of the lack of a transition, “game environment” and “information delivery service” are not claim limitations, because they do “not impart any structure into” and instead “merely describe intended uses for what is otherwise a structurally complete invention.” Natural Alternatives Int’l, Inc. v. Iancu, No. 17-1962 (Fed. Cir. Oct. 1, 2018):  Requirements to claim priority to earlier applications must be met on the face of each application in a chain. Natural Alternatives’ patent challenged in inter partes reexamination issued from the eighth application in a chain, and claimed priority back through that chain to the first application of 1997.  During prosecution, the fifth application in the chain, originally a continuation-in-part claiming priority back to the 1997 application, was amended to delete the claim of priority to the earlier four applications.  The petitioner argued that this “broke the chain of priority” for later applications asserting priority through that fifth application, such that patents issued from those later applications were only entitled to that fifth application’s priority (i.e., 2003 versus 1997). The examiner accepted this argument and rejected the claims over the prior art, including over the original 1997 parent application.  The Board affirmed, and the patentee appealed, arguing priority “vested” when the sixth application in the chain—filed days before amendment to the fifth application’s priority—met Section 120 criteria (namely, it was: (a) disclosed per Section 112(a); (b) filed by an inventor named in the previous application; (c) filed before the conclusion of the first application; and (d) it contained a specific reference to the earlier application). The Federal Circuit (Prost, C.J., joined by Moore, J., and Reyna, J.) rejected the “vesting” argument, holding that it “conflates properly claiming priority and demonstrating entitlement to priority.”  The panel reasoned that “examiners and adjudicators cannot be expected to scrutinize the prosecution history of an application and each parent application to determine whether the application would have met Section 120’s requirements at any point during its pendency.”  The court affirmed that, because the fifth application lacked priority to the first, the later application’s priority claim did not satisfy Section 120 and thus was “defective from the start.” Ancora Technologies, Inc. v. HTC America, Inc., No. 18-1404 (Fed. Cir. Nov. 16, 2018):  Claims that recite how an improvement is effectuated can pass muster under step one of Alice. Ancora sued HTC, alleging infringement of a patent for a purported method of restricting the operation of unauthorized software.  Although the patent acknowledged there were “numerous” prior art methods to limit unauthorized software, the patent stored the relevant key in read-only memory so it could not be removed or modified via attack.  HTC moved to dismiss arguing the patent is ineligible under Section 101.  The district court agreed and granted HTC’s motion. The Federal Circuit (Taranto, J., joined by Dyk, J., and Wallach, J.) reversed.  According to the panel, claims can constitute non-abstract improvements if they recite a specific technique that departs from earlier approaches.  In the court’s view, in such cases the determination of patent eligibility can be decided at step one of the Alice inquiry, without resorting to the second step.  Here, the court held that the claims for improving computer security passed muster at step one because the method specifically recites how the improvement is effectuated, including a structure for the key and a specific location in memory for storing that is less vulnerable to hacking. 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) Raymond A. LaMagna – Los Angeles (+1 213-229-7101, rlamagna@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: Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) 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) © 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.

Law360 named eight Gibson Dunn partners among its 2018 MVPs and noted that the firm had the most MVPs of any law firms this year.  Law360 MVPs feature lawyers who have “distinguished themselves from their peers by securing hard-earned successes in high-stakes litigation, complex global matters and record-breaking deals.” Gibson Dunn’s MVPs are: Christopher Chorba, a Class Action MVP [PDF] – Co-Chair of the firm’s Class Actions Group and a partner in our Los Angeles office, he defends class actions and handles a broad range of complex commercial litigation with an emphasis on claims involving California’s Unfair Competition and False Advertising Laws, the Consumers Legal Remedies Act, the Lanham Act, and the Class Action Fairness Act of 2005. His litigation and counseling experience includes work for companies in the automotive, consumer products, entertainment, financial services, food and beverage, social media, technology, telecommunications, insurance, health care, retail, and utility industries. Michael P. Darden, an Energy MVP [PDF] – Partner in charge of the Houston office, Mike focuses his practice on international and U.S. oil & gas ventures and infrastructure projects (including LNG, deep-water and unconventional resource development projects), asset acquisitions and divestitures, and energy-based financings (including project financings, reserve-based loans and production payments). Thomas H. Dupree Jr., an MVP in Transportation [PDF] –  Co-partner in charge of the Washington, DC office, Tom has represented clients in a wide variety of trial and appellate matters, including cases involving punitive damages, class actions, product liability, arbitration, intellectual property, employment, and constitutional challenges to federal and state statutes.  He has argued more than 80 appeals in the federal courts, including in all 13 circuits as well as the United States Supreme Court. Joanne Franzel, a Real Estate MVP [PDF] – Joanne is a partner in the New York office, and her practice has included all forms of real estate transactions, including acquisitions and dispositions and financing, as well as office and retail leasing with anchor, as well as shopping center tenants. She also has represented a number of clients in New York City real estate development, representing developers as well as users in various mixed-use projects, often with a significant public/private component. Matthew McGill, an MVP in the Sports category [PDF] – A partner in the Washington, D.C. office, Matt practices appellate and constitutional law. He has participated in 21 cases before the Supreme Court of the United States, prevailing in 16. Spanning a wide range of substantive areas, those representations have included several high-profile triumphs over foreign and domestic sovereigns. Outside the Supreme Court, his practice focuses on cases involving novel and complex questions of federal law, often in high-profile litigation against governmental entities. Mark A. Perry, an MVP in the Securities category [PDF] – Mark is a partner in the Washington, D.C. office and is Co-chair of the firm’s Appellate and Constitutional Law Group.  His practice focuses on complex commercial litigation at both the trial and appellate levels. He is an accomplished appellate lawyer who has briefed and argued many cases in the Supreme Court of the United States. He has served as chief appellate counsel to Fortune 100 companies in significant securities, intellectual property, and employment cases.  He also appears frequently in federal district courts, serving both as lead counsel and as legal strategist in complex commercial cases. Eugene Scalia, an Appellate MVP [PDF] – A partner in the Washington, D.C. office and Co-Chair of the Administrative Law and Regulatory Practice Group, Gene has a national practice handling a broad range of labor, employment, appellate, and regulatory matters. His success bringing legal challenges to federal agency actions has been widely reported in the legal and business press. Michael Li-Ming Wong, an MVP in Cybersecurity and Privacy [PDF] – Michael is a partner in the San Francisco and Palo Alto offices. He focuses on white-collar criminal matters, complex civil litigation, data-privacy investigations and litigation, and internal investigations. Michael has tried more than 20 civil and criminal jury trials in federal and state courts, including five multi-week jury trials over the past five years.

We are pleased to present Gibson Dunn’s sixth “Federal Circuit Year In Review,” providing a statistical overview and substantive summaries of the 140 precedential patent opinions issued by the Federal Circuit over the 2017-2018 year.  This term was marked by four en banc decisions, as well as significant panel decisions in patent law jurisprudence with regard to subject matter eligibility (e.g., Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018), and Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121 (Fed. Cir. 2018)); venue for patent cases (In re Cray Inc., 871 F.3d 1355 (Fed. Cir. 2017)); and indefiniteness (MasterMine Software, Inc. v. Microsoft Corp., 874 F.3d 1307 (Fed. Cir. 2017)).  The issues most frequently addressed in precedential decisions by the Court over the last year were: obviousness (50 opinions); anticipation (27 opinions); claim construction (24 opinions); jurisdiction, venue, and standing (22 opinions); and infringement (20 opinions). Use the Federal Circuit Year In Review to find out: The easy-to-use Table of Contents is organized by substantive issue, so that the reader can easily identify all of the relevant cases bearing on the issue of choice. Which issues may have a better chance (or risk) on appeal based on the Federal Circuit’s history of affirming or reversing that issue in the past, including the real rate of affirmance on claim construction. The average length of time from issuance of a final decision in the district court and docketing at the Federal Circuit to issuance of a Federal Circuit opinion on appeal. What the success rate has been at the Federal Circuit if you are a patentee or the opponent based on the issue being appealed. The Federal Circuit’s history of affirming or reversing cases from a specific district court. How likely a particular panel may be to render a unanimous opinion or a fractured decision with a majority, concurrence, or dissent. The Federal Circuit’s affirmance/reversal rate in cases from the district court, ITC, and the PTO. The Year In Review provides statistical analyses of how the Federal Circuit has been deciding precedential patent cases, such as affirmance and reversal rates (overall, by issue, and by District Court), average time from lower tribunal decision to key milestones (oral argument, decision), win rate for patentee versus opponent (overall, by issue, and by District Court), decision rate by Judge (number of unanimous, majority, plurality, concurring, or dissenting opinions), and other helpful metrics. The Year In Review is an ideal resource for participants in intellectual property litigation seeking an objective report on the Court’s decisions. Gibson Dunn is nationally recognized for its premier practices in both Intellectual Property and Appellate litigation.  Our lawyers work seamlessly together on all aspects of patent litigation, including appeals to the Federal Circuit from both district courts and the agencies. Please click here to view the FEDERAL CIRCUIT YEAR IN REVIEW 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: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Michael Sitzman – San Francisco (+1 415-393-8200, msitzman@gibsondunn.com) Nathan R. Curtis – Dallas (+1 214-698-3423, ncurtis@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: Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) 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) © 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.

The UK Legal 500 2019 ranked Gibson Dunn in 13 practice areas and named six partners as Leading Lawyers. The firm was recognized in the following categories: Corporate and Commercial: Equity Capital Markets Corporate and Commercial: M&A – Upper Mid-Market and Premium Deals, £250m+ Corporate and Commercial: Private Equity – High-value Deals Dispute Resolution: Commercial Litigation Dispute Resolution: International Arbitration Finance: Acquisition Finance Finance: Bank Lending: Investment Grade Debt and Syndicated Loans Human Resources: Employment – Employers Public Sector: Administrative and Public Law Real Estate: Commercial Property – Hotels and Leisure Real Estate: Commercial Property – Investment Real Estate: Property Finance Risk Advisory: Regulatory Investigations and Corporate Crime The partners named as Leading Lawyers are Sandy Bhogal – Corporate and Commercial: Corporate Tax; Steve Thierbach – Corporate and Commercial: Equity Capital Markets; Philip Rocher – Dispute Resolution: Commercial Litigation; Cyrus Benson – Dispute Resolution: International Arbitration; Jeffrey Sullivan – Dispute Resolution: International Arbitration; and Alan Samson – Real Estate: Commercial Property and Real Estate: Property Finance. Claibourne Harrison has also been named as a Next Generation Lawyer for Real Estate: Commercial Property.

U.S. News – Best Lawyers® awarded Gibson Dunn Tier 1 rankings in 132 practice area categories in its 2019 “Best Law Firms” [PDF] survey. Overall, the firm earned 169 rankings in nine metropolitan areas and nationally. Additionally, Gibson Dunn was recognized as “Law Firm of the Year” for Litigation – Antitrust and Litigation – Securities. Firms are recognized for “professional excellence with persistently impressive ratings from clients and peers.” The recognition was announced on November 1, 2018.

The National Law Journal named Gibson Dunn to its 2018 Appellate Hot List [PDF], which recognizes 22 firms that “won key matters before the U.S. Supreme Court and federal courts of appeal.” The firm was featured for its wins at the Supreme Court, including three victories last term argued by three different Gibson Dunn lawyers.  The Appellate Hot List was published on October 26, 2018.

Click for PDF This update provides an overview and summary of significant class action developments during the third quarter of 2018 (July through September), as well as a brief look ahead to some of the key class action issues anticipated for the end of 2018 and into 2019. Part I covers the class action cases on the U.S. Supreme Court’s docket this Term. Part II reviews several decisions from the federal courts of appeals relating to the interplay between class actions and arbitration agreements, including Gibson Dunn’s recent win before the Ninth Circuit in O’Connor v. Uber Technologies. Part III highlights two decisions that have created circuit splits on important issues of class action procedure. Part IV wraps up with a discussion of a new Ninth Circuit decision on the amount-in-controversy requirement in the Class Action Fairness Act (CAFA). I.   The U.S. Supreme Court Is Hearing Argument on Arbitration Issues and Will Consider Several Other Class Action Cases As previewed in our first and second quarter 2018 updates, an eight-member U.S. Supreme Court heard argument on October 3, 2018 in New Prime Inc. v. Oliveira (No. 17‑340).  (Gibson Dunn represents the petitioner, New Prime Inc.) The Court—now with all nine members—will also hear argument in three other cases involving arbitration or class action issues in late October, as previewed in our first and second quarter 2018 updates and 2018 Supreme Court Roundup.  On October 29, the Court will hear argument in Lamps Plus, Inc. v. Varela (No. 17‑988), to decide whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that authorizes class arbitration based on general language commonly used in such agreements.  The same day, argument will be held in Henry Schein, Inc. v. Archer & White Sales, Inc. (No. 17-1272), which concerns whether a court can decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes that the claim of arbitrability is “wholly groundless.”  And on October 31, in Frank v. Gaos (No. 17-961), the Court will consider the validity of cy pres-only settlements that provide no direct compensation to class members. The Court also added another class action case to its docket in September, Home Depot U.S.A., Inc. v. Jackson (No. 17-1471), which presents two questions regarding the permissibility of removal to federal court under CAFA:  (a) whether CAFA’s statement that “any defendant” may remove an action permits removal by a party that was brought into the suit when an original named defendant filed a counterclaim, and (b) whether the Supreme Court’s holding in Shamrock Oil & Gas Co. v. Sheets, 313 U.S. 100 (1941)—that an original plaintiff may not remove a counterclaim against it—extends to third-party counterclaim defendants.  In Home Depot, Citibank filed a state-court collection action against Jackson, and Jackson filed a counterclaim against Citibank, Home Depot, and another company, alleging class-action consumer-protection claims.  The Fourth Circuit held that Home Depot could not remove the case to federal court under CAFA because Home Depot was a counterclaim defendant, not an original defendant.  The three other circuits to have addressed this issue have also held that CAFA does not permit removal in these circumstances.  Home Depot argues that this interpretation creates an “unfortunate loophole” in CAFA’s grant of federal jurisdiction over certain class actions, allowing plaintiffs’ attorneys to keep consumer class actions out of federal court simply by bringing them as counterclaims in minor debt-collection and other state court suits.  Home Depot presents the Court with the opportunity to determine whether its precedent and CAFA’s text requires this result. II.   Several Federal Courts of Appeals Issue Significant Rulings Regarding the Interplay Between Class Actions and Arbitration Arbitration—and class arbitration in particular—continues to be actively litigated in the circuit courts. In an important decision that will have significant implications for attempts to pursue class actions notwithstanding individual arbitration agreements, the Ninth Circuit in O’Connor v. Uber Technologies, Inc., 904 F.3d 1087, 2018 WL 4568553 (9th Cir. 2018), reversed an order certifying a class of hundreds of thousands of current and former drivers alleging they were misclassified as independent contractors.  Relying on its earlier decision in Mohamed v. Uber Technologies, Inc., 848 F.3d 1201 (9th Cir. 2016), which upheld the enforceability of Uber’s arbitration agreements with drivers, the Ninth Circuit reversed the district court’s class certification orders, orders denying Uber’s motions to compel arbitration, and orders regulating Uber’s communications with drivers under Rule 23(d).  (Gibson Dunn represented Uber in O’Connor and Mohamed.) In O’Connor, the plaintiffs argued that the arbitration agreements were unenforceable because the named plaintiffs had supposedly “opted out of arbitration on behalf of the entire class,” and the agreements contained class-action waivers that violated the National Labor Relations Act.  2018 WL 4568553, at *4.  The Ninth Circuit rejected both arguments, holding that the plaintiffs’ opt-out argument—which was premised on the Georgia Supreme Court’s decision in Bickerstaff v. Suntrust Bank, 788 S.E.2d 787 (Ga. 2016)—was not supported by federal law and, in fact, “would be preempted by the FAA.”  O’Connor, 2018 WL 4568553, at *4–5.  The court also held that the plaintiffs’ NLRA argument was “extinguished” by Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018).  O’Connor, 2018 WL 4568553, at *5. Because the district court’s class-certification orders were premised on its erroneous finding that the arbitration agreements were unenforceable, the Ninth Circuit reversed the district court’s decisions on those issues as well, emphasizing that a class cannot be certified where drivers “entered into agreements to arbitrate their claims and . . . waive[d] their right to participate in a class action with regard to those claims.”  O’Connor, 2018 WL 4568553, at *5.  The Ninth Circuit’s decision in O’Connor makes clear that a class cannot be certified where putative class members are subject to binding arbitration agreements that include class waivers. In several other decisions this past quarter, the Tenth and Eleventh Circuits sided with the Second and Fifth Circuits in a widening split with the Third, Fourth, Sixth, and Eighth Circuits over whether the availability of class arbitration is a “question of arbitrability” that presumptively must be decided by courts in the first instance, absent clear evidence of contrary intent in the parties’ arbitration agreement. In Spirit Airlines, Inc. v. Maizes, 899 F.3d 1230 (11th Cir. 2018), the Eleventh Circuit affirmed a district court’s ruling that the availability of class arbitration was presumptively one for the court to decide, but that the parties’ arbitration agreement evidenced a clear intent to overcome that default presumption.  Id. at 1233–34.  In particular, the parties’ agreement adopted American Arbitration Association (AAA) arbitration rules, including Rule 3 of the AAA’s Supplementary Rules for Class Arbitrations, which explicitly provides that an arbitrator shall decide whether an arbitration clause permits class arbitration.  Id.  Siding with the Fifth Circuit, the Eleventh Circuit rejected the “higher burden for showing ‘clear and unmistakable’ evidence for questions of class arbitrability [relative to] . . . ordinary questions of arbitrability” adopted by the Third, Fourth, Sixth, and Eighth Circuits following Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010).  See Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966, 972-73 (8th Cir. 2017) (“The risks incurred by defendants in class arbitration . . . and the difficulties presented by class arbitration . . . all demand a more particular delegation of the issue than we may otherwise deem sufficient in bilateral disputes.”); accord Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 762–63 (3d Cir. 2016); Dell Webb Cmtys., Inc. v. Carlson, 817 F.3d 867, 876–77 (4th Cir. 2015); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599–600 (6th Cir. 2013).  But see Wells Fargo Advisors, L.L.C. v. Sappington, 884 F.3d 392, 395 (2d Cir. 2018); Robinson v. J & K Admin. Mgmt. Servs., Inc., 817 F.3d 193, 196 (5th Cir. 2016). The Eleventh Circuit reached the same conclusion one month later in JPay, Inc. v. Kobel, 904 F.3d 923 (11th Cir. 2018), affirming a district court’s summary judgment ruling that the availability of class arbitration was presumptively one for the court to decide, but that, like Spirit Airlines, the parties’ arbitration agreement evidenced a clear intent to overcome that default presumption by adopting the AAA’s arbitration rules.  Id. at 937–40.  The court acknowledged that a plurality of the U.S. Supreme Court in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), held that whether an agreement provides for class arbitration is not a question of arbitrability, but observed that the Supreme Court has since repeatedly emphasized—in Stolt-Nielsen and Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013)—that Bazzle was a plurality opinion and that the question remains open.  JPay, 904 F.3d at 931. Similarly, in Dish Network, L.L.C. v. Ray, 900 F.3d 1240 (10th Cir. 2018), the Tenth Circuit held that the issue of classwide arbitrability presumptively is for a court to decide, but rejected the argument that the arbitrator exceeded his authority in considering that issue and ordering class arbitration because the parties’ agreement demonstrated a clear intent to delegate the issue to the arbitrator.  As in Spirit Airlines and JPay, the parties agreed that “any claim, controversy and/or dispute between them” would be resolved through arbitration under AAA rules, which give the arbitrator authority to decide his own jurisdiction.  Id. at 1245–46. These cases serve as an important reminder to pay close attention to the terms incorporated by reference into an arbitration agreement in order to avoid inadvertently delegating key issues like classwide arbitrability to an arbitrator, whose decision may be unreviewable by a court or reviewable only under a highly deferential standard.  Also, as noted above and in our second quarter 2018 update, the Supreme Court in Lamps Plus, Inc. v. Varela (No. 17‑988), will decide whether the FAA forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in such agreements.  While not explicitly teed up for resolution in Lamps Plus, the Court could weigh in on the widening split over whether the availability of classwide arbitration presumptively should be decided by a court or an arbitrator. III.   Circuit Splits Regarding Appealability of Class Action Orders After Settlement and on the Propriety of “Issue” Certification Class action procedure was another active topic this past quarter, with a Tenth Circuit decision breaking with the Ninth Circuit on the question whether class certification rulings may be appealed following settlement and voluntary dismissal of individual claims, and a Sixth Circuit decision that deepens an existing circuit split as to whether predominance is a prerequisite to “issue” certification under Rule 23(c)(4).  Ultimately, one or both of these questions may end up before the Supreme Court. In Anderson Living Trust v. WPX Energy Production, LLC, 904 F.3d 1135 (10th Cir. 2018), the Tenth Circuit held—contrary to the Ninth Circuit’s decision in Brown v. Cinemark USA, Inc., 876 F.3d 1199 (9th Cir. 2017)—that voluntary dismissal of individual claims following settlement does not convert a previous denial of class certification into a final appealable order.  In Anderson, the parties settled the plaintiffs’ individual claims two years after the district court had denied class certification.  The district court then entered a stipulated judgment dismissing the individual claims with prejudice, but reserving the plaintiffs’ right, if any, to appeal the class-certification denial.  But the Tenth Circuit dismissed the appeal, relying on the U.S. Supreme Court’s decision in Microsoft v. Baker, 137 S. Ct. 1702 (2017), which held that the federal courts of appeals lack jurisdiction “to review an order denying class certification . . . after the named plaintiffs have voluntarily dismissed their claims with prejudice.”  Id. at 1712.  The Ninth Circuit in Brown had come to the opposite conclusion, and distinguished Baker on the ground that there was a difference between dismissing claims following a settlement for consideration and dismissing claims voluntarily as a mechanism to trigger appellate review.  The Tenth Circuit, by contrast, held that distinction was illusory, and that the policy concerns articulated in Baker—the danger of protracted litigation and piecemeal appeals, preventing parties from usurping Rule 23(f), and wanting to avoid giving plaintiffs an asymmetrical advantage in seeking interlocutory review of class certification decisions—applied in both scenarios. The Sixth Circuit in Martin v. Behr Dayton Thermal Products, 896 F.3d 405 (6th Cir. 2018), added to the division among the federal courts of appeals as to whether plaintiffs must satisfy Rule 23(b)(3)’s predominance requirement for a claim as a whole when seeking “issue” certification under Rule 23(c)(4).  In Martin, a group of Ohio residents alleged that four companies had contaminated the local drinking water.  Plaintiffs sought class certification under Rule 23(b)(3), which requires that “questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy,” as well as Rule 23(c)(4), which provides that “[w]hen appropriate, an action may be brought or maintained as a class action with respect to particular issues.”  The district court denied certification under Rule 23(b)(3), holding that the plaintiffs could not meet that rule’s predominance requirement as to “injury-in-fact and causation,” but granted certification under Rule 23(c)(4) on seven discrete issues, including the extent of “[e]ach [d]efendant’s role in creating the contamination” at issue and “[w]hether [the d]efendants negligently failed to investigate and remediate the contamination at and flowing from their respective [f]acilities.”  Martin, 896 F.3d at 409–10. The Sixth Circuit affirmed the class certification order.  It noted the existing circuit split between the “broad” view of Rule 23(c)(4) taken by the Second, Fourth, Seventh, and Ninth Circuits, and the “narrow” view held by the Fifth and Eleventh Circuits.  According to the Sixth Circuit, under the “broad” view of Rule 23(c)(4), a district court may certify a class on specific common issues “even where predominance has not been satisfied for the cause of action as a whole,” so long as predominance and superiority are satisfied for the issues identified for class treatment.  Martin, 896 F.3d at 411–12.  The “narrow” view of Rule 23(c)(4), by contrast, “prohibits certification if predominance has not been satisfied as to the cause of action as a whole.”  Id.  The Sixth Circuit adopted the broad view, reasoning that it “respects each provision’s contribution to class determinations by maintaining Rule 23(b)(3)’s rigor without rendering Rule 23(c)(4) superfluous.”  Id. at 413.  The court also explained that the superiority requirement of Rule 23 “functions as a backstop against inefficient use of Rule 23(c)(4).”  Id. IV.   Ninth Circuit Clarifies CAFA’s Amount-In-Controversy Requirement Finally, the Ninth Circuit’s opinion in Fritsch v. Swift Transportation Co. of Arizona, LLC, 899 F.3d 785 (9th Cir. 2018), slightly relaxed the amount-in-controversy requirement for defendants seeking to remove an action to federal court under CAFA.  This holding will likely be of particular import in cases brought under Title VII and other statutes that include a fee-shifting provision for prevailing plaintiffs. Fritsch was a putative wage-and-hour class action asserting various violations of the California Labor Code.  899 F.3d at 789.  The defendant removed the case to federal court, relying on a combination of claimed damages and attorneys’ fees to meet the $5 million removal threshold under CAFA.  Id.  The district court concluded that the defendant could not include any fees beyond those that had “been incurred prior to removal,” which caused the total amount in controversy to fall below the removal threshold.  Id.  The Ninth Circuit reversed, explaining that under existing circuit precedent, while the threshold is measured “at the time of removal,” it includes “all relief claimed at the time of removal to which the plaintiff would be entitled if she prevails.”  Id. at 793 (quotation omitted).  For attorneys’ fees, this meant that district courts “must include future attorneys’ fees recoverable by statute or contract when assessing whether the amount-in-controversy requirement is met,” rather than just fees actually incurred at the time of removal.  Id. at 794.  In so ruling, the Ninth Circuit parted ways with the Seventh Circuit’s decision in Gardynski-Leschuck v. Ford Motor Co., 142 F.3d 955, 958 (7th Cir. 1998), which had held that future attorneys’ fees are too speculative to count toward the amount-in-controversy requirement for federal jurisdiction under the Magnuson-Moss Warranty Act.  Fritsch, 899 F.3d at 795.  To address the concern that future fees may be too speculative, the Ninth Circuit held that a district court must count only those future fees that the removing defendant can substantiate under a preponderance-of-the-evidence standard.  Id. at 795–96. The following Gibson Dunn lawyers prepared this client update: Christopher Chorba, Theane Evangelis, Kahn A. Scolnick, Bradley J. Hamburger, Brandon J. Stoker, Lauren M. Blas, David Schnitzer, Jessica Culpepper, Gatsby Miller, and Timothy Kolesk. Gibson Dunn attorneys 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 (+1 213-229-7000, tboutrous@gibsondunn.com) Christopher Chorba – Co-Chair, Class Actions Practice Group – Los Angeles (+1 213-229-7396, cchorba@gibsondunn.com) Theane Evangelis – Co-Chair, Class Actions Practice Group – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) Bradley J. Hamburger – Los Angeles (+1 213-229-7658, 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.

Click for PDF On October 16, 2018, the Securities and Exchange Commission issued a report warning public companies about the importance of internal controls to prevent cyber fraud.  The report described the SEC Division of Enforcement’s investigation of multiple public companies which had collectively lost nearly $100 million in a range of cyber-scams typically involving phony emails requesting payments to vendors or corporate executives.[1] Although these types of cyber-crimes are common, the Enforcement Division notably investigated whether the failure of the companies’ internal accounting controls to prevent unauthorized payments violated the federal securities laws.  The SEC ultimately declined to pursue enforcement actions, but nonetheless issued a report cautioning public companies about the importance of devising and maintaining a system of internal accounting controls sufficient to protect company assets. While the SEC has previously addressed the need for public companies to promptly disclose cybersecurity incidents, the new report sees the agency wading into corporate controls designed to mitigate such risks.  The report encourages companies to calibrate existing internal controls, and related personnel training, to ensure they are responsive to emerging cyber threats.  The report (issued to coincide with National Cybersecurity Awareness Month) clearly intends to warn public companies that future investigations may result in enforcement action. The Report of Investigation Section 21(a) of the Securities Exchange Act of 1934 empowers the SEC to issue a public Report of Investigation where deemed appropriate.  While SEC investigations are confidential unless and until the SEC files an enforcement action alleging that an individual or entity has violated the federal securities laws, Section 21(a) reports provide a vehicle to publicize investigative findings even where no enforcement action is pursued.  Such reports are used sparingly, perhaps every few years, typically to address emerging issues where the interpretation of the federal securities laws may be uncertain.  (For instance, recent Section 21(a) reports have addressed the treatment of digital tokens as securities and the use of social media to disseminate material corporate information.) The October 16 report details the Enforcement Division’s investigations into the internal accounting controls of nine issuers, across multiple industries, that were victims of cyber-scams. The Division identified two specific types of cyber-fraud – typically referred to as business email compromises or “BECs” – that had been perpetrated.  The first involved emails from persons claiming to be unaffiliated corporate executives, typically sent to finance personnel directing them to wire large sums of money to a foreign bank account for time-sensitive deals. These were often unsophisticated operations, textbook fakes that included urgent, secret requests, unusual foreign transactions, and spelling and grammatical errors. The second type of business email compromises were harder to detect. Perpetrators hacked real vendors’ accounts and sent invoices and requests for payments that appeared to be for otherwise legitimate transactions. As a result, issuers made payments on outstanding invoices to foreign accounts controlled by impersonators rather than their real vendors, often learning of the scam only when the legitimate vendor inquired into delinquent bills. According to the SEC, both types of frauds often succeeded, at least in part, because responsible personnel failed to understand their company’s existing cybersecurity controls or to appropriately question the veracity of the emails.  The SEC explained that the frauds themselves were not sophisticated in design or in their use of technology; rather, they relied on “weaknesses in policies and procedures and human vulnerabilities that rendered the control environment ineffective.” SEC Cyber-Fraud Guidance Cybersecurity has been a high priority for the SEC dating back several years. The SEC has pursued a number of enforcement actions against registered securities firms arising out of data breaches or deficient controls.  For example, just last month the SEC brought a settled action against a broker-dealer/investment-adviser which suffered a cyber-intrusion that had allegedly compromised the personal information of thousands of customers.  The SEC alleged that the firm had failed to comply with securities regulations governing the safeguarding of customer information, including the Identity Theft Red Flags Rule.[2] The SEC has been less aggressive in pursuing cybersecurity-related actions against public companies.  However, earlier this year, the SEC brought its first enforcement action against a public company for alleged delays in its disclosure of a large-scale data breach.[3] But such enforcement actions put the SEC in the difficult position of weighing charges against companies which are themselves victims of a crime.  The SEC has thus tried to be measured in its approach to such actions, turning to speeches and public guidance rather than a large number of enforcement actions.  (Indeed, the SEC has had to make the embarrassing disclosure that its own EDGAR online filing system had been hacked and sensitive information compromised.[4]) Hence, in February 2018, the SEC issued interpretive guidance for public companies regarding the disclosure of cybersecurity risks and incidents.[5]  Among other things, the guidance counseled the timely public disclosure of material data breaches, recognizing that such disclosures need not compromise the company’s cybersecurity efforts.  The guidance further discussed the need to maintain effective disclosure controls and procedures.  However, the February guidance did not address specific controls to prevent cyber incidents in the first place. The new Report of Investigation takes the additional step of addressing not just corporate disclosures of cyber incidents, but the procedures companies are expected to maintain in order to prevent these breaches from occurring.  The SEC noted that the internal controls provisions of the federal securities laws are not new, and based its report largely on the controls set forth in Section 13(b)(2)(B) of the Exchange Act.  But the SEC emphasized that such controls must be “attuned to this kind of cyber-related fraud, as well as the critical role training plays in implementing controls that serve their purpose and protect assets in compliance with the federal securities laws.”  The report noted that the issuers under investigation had procedures in place to authorize and process payment requests, yet were still victimized, at least in part “because the responsible personnel did not sufficiently understand the company’s existing controls or did not recognize indications in the emailed instructions that those communications lacked reliability.” The SEC concluded that public companies’ “internal accounting controls may need to be reassessed in light of emerging risks, including risks arising from cyber-related frauds” and “must calibrate their internal accounting controls to the current risk environment.” Unfortunately, the vagueness of such guidance leaves the burden on companies to determine how best to address emerging risks.  Whether a company’s controls are adequate may be judged in hindsight by the Enforcement Division; not surprisingly, companies and individuals under investigation often find the staff asserting that, if the controls did not prevent the misconduct, they were by definition inadequate.  Here, the SEC took a cautious approach in issuing a Section 21(a) report highlighting the risk rather than publicly identifying and penalizing the companies which had already been victimized by these scams. However, companies and their advisors should assume that, with this warning shot across the bow, the next investigation of a similar incident may result in more serious action.  Persons responsible for designing and maintaining the company’s internal controls should consider whether improvements (such as enhanced trainings) are warranted; having now spoken on the issue, the Enforcement Division is likely to view corporate inaction as a factor in how it assesses the company’s liability for future data breaches and cyber-frauds.    [1]   SEC Press Release (Oct. 16, 2018), available at www.sec.gov/news/press-release/2018-236; the underlying report may be found at www.sec.gov/litigation/investreport/34-84429.pdf.    [2]   SEC Press Release (Sept. 16, 2018), available at www.sec.gov/news/press-release/2018-213.  This enforcement action was particularly notable as the first occasion the SEC relied upon the rules requiring financial advisory firms to maintain a robust program for preventing identify theft, thus emphasizing the significance of those rules.    [3]   SEC Press Release (Apr. 24, 2018), available at www.sec.gov/news/press-release/2018-71.    [4]   SEC Press Release (Oct. 2, 2017), available at www.sec.gov/news/press-release/2017-186.    [5]   SEC Press Release (Feb. 21, 2018), available at www.sec.gov/news/press-release/2018-22; the guidance itself can be found at www.sec.gov/rules/interp/2018/33-10459.pdf.  The SEC provided in-depth guidance in this release on disclosure processes and considerations related to cybersecurity risks and incidents, and complements some of the points highlighted in the Section 21A report. 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 in the firm’s Securities Enforcement or Privacy, Cybersecurity and Consumer Protection practice groups, or the following authors: Marc J. Fagel – San Francisco (+1 415-393-8332, mfagel@gibsondunn.com) Alexander H. Southwell – New York (+1 212-351-3981, asouthwell@gibsondunn.com) Please also feel free to contact the following practice leaders and members: Securities Enforcement Group: New York Barry R. Goldsmith – Co-Chair (+1 212-351-2440, bgoldsmith@gibsondunn.com) Mark K. Schonfeld – Co-Chair (+1 212-351-2433, mschonfeld@gibsondunn.com) Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Joel M. Cohen (+1 212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (+1 212-351-3824, ldunst@gibsondunn.com) Laura Kathryn O’Boyle (+1 212-351-2304, loboyle@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Avi Weitzman (+1 212-351-2465, aweitzman@gibsondunn.com) Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com) Washington, D.C. Richard W. Grime – Co-Chair (+1 202-955-8219, rgrime@gibsondunn.com) Stephanie L. Brooker  (+1 202-887-3502, sbrooker@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Patrick F. Stokes (+1 202-955-8504, pstokes@gibsondunn.com) F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) San Francisco Marc J. Fagel – Co-Chair (+1 415-393-8332, mfagel@gibsondunn.com) Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) Thad A. Davis (+1 415-393-8251, tdavis@gibsondunn.com) Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Michael Li-Ming Wong (+1 415-393-8234, mwong@gibsondunn.com) Palo Alto Paul J. Collins (+1 650-849-5309, pcollins@gibsondunn.com) Benjamin B. Wagner (+1 650-849-5395, bwagner@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) Los Angeles Michael M. Farhang (+1 213-229-7005, mfarhang@gibsondunn.com) Douglas M. Fuchs (+1 213-229-7605, dfuchs@gibsondunn.com) Privacy, Cybersecurity and Consumer Protection Group: Alexander H. Southwell – Co-Chair, New York (+1 212-351-3981, asouthwell@gibsondunn.com) M. Sean Royall – Dallas (+1 214-698-3256, sroyall@gibsondunn.com) Debra Wong Yang – Los Angeles (+1 213-229-7472, dwongyang@gibsondunn.com) Christopher Chorba – Los Angeles (+1 213-229-7396, cchorba@gibsondunn.com) Richard H. Cunningham – Denver (+1 303-298-5752, rhcunningham@gibsondunn.com) Howard S. Hogan – Washington, D.C. (+1 202-887-3640, hhogan@gibsondunn.com) Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, jjessen@gibsondunn.com) Kristin A. Linsley – San Francisco (+1 415-393-8395, klinsley@gibsondunn.com) H. Mark Lyon – Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com) Shaalu Mehra – Palo Alto (+1 650-849-5282, smehra@gibsondunn.com) Karl G. Nelson – Dallas (+1 214-698-3203, knelson@gibsondunn.com) Eric D. Vandevelde – Los Angeles (+1 213-229-7186, evandevelde@gibsondunn.com) Benjamin B. Wagner – Palo Alto (+1 650-849-5395, bwagner@gibsondunn.com) Michael Li-Ming Wong – San Francisco/Palo Alto (+1 415-393-8333/+1 650-849-5393, mwong@gibsondunn.com) Ryan T. Bergsieker – Denver (+1 303-298-5774, rbergsieker@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.

Click for PDF This edition of Gibson Dunn’s Federal Circuit Update offers a reminder of the upcoming American Intellectual Property Law Association (AIPLA) Annual Meeting and of Supreme Court’s upcoming review of decisions coming up from the Federal Circuit.  We also briefly recap the rules for obtaining a stay of an order pending Federal Circuit appeal.  The Update also summarizes recent Federal Circuit decisions limiting the scope of fee awards, narrowing the window for IPR petitions, clarifying standing requirements for IPR appeals, and providing for the separate patentability for engineering mammalian versus bacterial genomes. Federal Circuit News The AIPLA’s Annual Meeting will take place at the Marriott Wardman Park Hotel in Washington, D.C. from October 25–27, 2018.  Keynote speakers at this meeting will include the Honorable Raymond T. Chen and the Honorable Kara F. Stoll of the Federal Circuit, as well as Andrei Iancu of the U.S. Patent and Trademark Office. Supreme Court:  Thus far, the only case from the Federal Circuit scheduled to be heard in the OT2018 Term is Helsinn Healthcare S.A. v. Teva Phar. USA Inc.  Twenty-three amicus briefs have been filed in that case, reflecting the high interest in the case: Case Status Issue Helsinn Healthcare S.A. v. Teva Pharm. USA Inc., No. 17-1229 Petition for writ of certiorari granted on June 25, 2018 Whether the sale of a patented invention by the inventor to a third party that is obligated to keep the invention confidential constitutes prior art for determining patentability Federal Circuit Practice Update This month, we highlight the Federal Rules of Appellate Procedure and the Federal Circuit Rules of Practice governing requests to stay lower court or agency orders pending appeal.  Stay requests in appeals from a district court are governed by Federal Rule of Appellate Procedure 8 and Federal Circuit Rule 8, with stays from PTAB proceedings governed by parallel Rules 18. Proceed Below First:  FRAP 8(a)(1) and 18(a)(1) provide that “ordinarily” a party must first move in the district court or PTAB for the stay pending appeal. Stay from Federal Circuit:  Under FRAP 8(a)(2) and 18(a)(2), if the party did not move for relief below, the party must include in its motion a showing that it would have been impractical to do so.  Alternatively, if the party did make a request below, the party must explain why the district court or PTAB denied the motion or otherwise failed to provide the requested relief.  Given these requirements, a stay from the Federal Circuit should not be viewed as an alternative to moving below but rather as a second chance if prior efforts failed. Evidentiary Support Required:  FRAP 8(a)(2)(B) and 18(a)(2)(b) also require that “affidavits or other sworn statements” accompany a motion for a stay to support the need for the relief sought.  Lawyer’s argument is generally deemed insufficient. Bond May be Required:  The Federal Circuit “may condition relief on the filing of a bond or other appropriate security.”  FRAP 8(a)(2)(E) and 18(b). Formal Requirements:  Federal Circuit Rules 8 and 18 provide further procedural guidelines.  The motion and opposition to stay may not exceed 5,200 words, and the reply may not exceed 2,600 words.  A list of exhibits required for stay motions is also provided.  The Federal Circuit also mandates that, if a motion to stay remains pending below, the moving party must include an explanation as to when it filed the motion and why it is not practical to await a ruling below. Key Case Summaries (August – September 2018) In Re: Rembrandt Techs. LP Patent Litigation, No. 17-1784 (Fed. Cir. Aug. 15, 2018 (Public Opinion)):  Attorneys’ fees awarded under § 285 must have a “causal connection” to the misconduct that rendered the case exceptional. Section 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”  The statute, however, does not expressly state whether, in exceptional cases, the award must be apportioned between the exceptional and nonexceptional aspects of the case.  In Rembrandt the Federal Circuit suggests that only fees related to the exceptional aspects of the case should be shifted, which may portend a trend to narrower fee awards in the future. In a multidistrict litigation, Rembrandt asserted nine patents against dozens of parties.  After the Markman hearing, the court issued claim construction, which was adverse to Rembrandt for all patents.  The parties then agreed to covenants not to sue on eight of the patents and stipulated to non-infringement for the ninth.  After the Federal Circuit affirmed the claim construction for the ninth patent, the district court considered the defendants’ motion for fees.  The court found that Rembrandt had improperly revived two of the patents, allowed spoliation of evidence, and had improperly given fact witnesses interests contingent on the case’s outcome.  The court found these facts supported that the case was exceptional and awarded $51 million in fees. The Federal Circuit (O’Malley, J.) affirmed the court’s determination that the case is exceptional based on the above findings, but vacated the award of attorneys’ fees.  The panel held that, although the amount of a fee award is a matter of the district court’s discretion, the amount must bear a “causal connection” to the misconduct that makes the case exceptional.  The panel noted that, in less complicated or sprawling litigation, a “finding of pervasive misbehavior or inequitable conduct that affects all of the patents in suit may justify an award of all of the fees incurred.”  But here the district court awarded the entirety of the fees without making findings that, for example, spoliation affected every issue in the suit.  Likewise, the court did not explain why there was misconduct with respect to patents that were not improperly revived.  The panel thus remanded for a fee determination causally linked to the misconduct. Click-to-Call Techs., LP v. Ingenio, Inc., No. 15-1242 (Fed. Cir. Aug. 16, 2018) (key holding en banc): IPR one-year time bar under § 315(b) runs from when a complaint is served even if that complaint is then voluntarily dismissed without prejudice. In 2001, Inforocket sued Ingenio (then operating under a different name) for patent infringement.  After the complaint was served, the case was dismissed.  Click-to-Call (“CTC”) later acquired the patent and sued Ingenio a second time.  Ingenio filed an IPR petition, which CTC argued was time barred because the earlier complaint had been served well more than one year prior to the petition.  The PTAB rejected CTC’s § 315(b) argument and found the claims unpatentable. The Federal Circuit (O’Malley, J.) disagreed and vacated the ruling.  In a rare procedural move, a majority of the en banc court joined the panel’s holding that § 315(b)’s time bar runs from when a petitioner is served with an infringement complaint even if the complaint is dismissed.  The court explained that § 315(b) focuses on whether a petitioner “is served with a complaint alleging infringement.”  While the court recognized precedent stating that dismissals without prejudice leave the parties “as though the action had never been brought,” the panel also noted that the language of § 315(b) offers no exceptions.  The panel and en banc majority thus held that dismissal of a complaint does not negate the time bar triggered by service of that complaint. Regents of the Univ. of Calif. v. Broad Institute, Inc., No. 17-1907 (Fed Cir. Sept. 10, 2018):  Genetic engineering methods in mammalian cells are patentably distinct from those applied to bacterial cells. The University of California (UC) and the Broad Institute (along with their respective research partners) both claimed inventorship over CRISPR (Clustered Regularly Interspaced Short Palindromic Repeats) genomic editing using the Cas9 nuclease enzyme.  CRISPR-Cas9, which enables fast and precise genomic editing, is recognized as a potentially revolutionary next-generation tool in biomedical research and therapy development. The UC researchers reduced to practice (and published) using CRISPR-Cas9 in vitro in a non-cellular environment, and their patent application did not limit claims to any particular cell type.  The Broad team later reduced to practice in eukaryotic cells (specifically, human and mouse cells), filing claims covering CRISPR-Cas9 in eukaryotic cells.  The Patent Trial and Appeal Board issued an interference.  The Broad asserted that its later application was non-obvious and patentably distinct because a person of ordinary skill in the art would not have had a reasonable expectation of success in eukaryotic cells based on the UC’s research.  The PTAB agreed, citing differences between eukaryotic (e.g., plant or animal) and prokaryotic (e.g., bacterial) systems. The Federal Circuit affirmed.  The panel (Moore, J., joined by Schall, J. and Prost, C.J.) considered evidence of the unpredictability, more complicated protein folding, and greater genomic length and complexity of eukaryotic cells, as well as other prior art prokaryotic research that did not work fully in eukaryotic systems.  Although a motivation to combine was evidenced by multiple research groups succeeding in applying the CRISPR-Cas9 in eukaryotic cells shortly after the UC published its initial research, this did not necessarily indicate an expectation of success.  The panel thus found “substantial evidence” that “applying similar prokaryotic systems in eukaryotes was unpredictable” and that methods in eukaryotic cells were patentably distinct. While the panel cautioned that it was not “ruling on the validity of either set of claims,” its decision provides precedent that foundational research in bacterial systems and the same method applied to eukaryotic cells may be patentably distinct.  CRISPR-Cas9 and other biotechnologies stemming from prokaryotic research may now be subject to multiple patent estates, potentially subjecting industry participants to overlapping licensing obligations for the same technology.  From the perspective of foundational noneukaryotic-based research, such the UC’s work here, this decision may suggest future § 112 challenges for claims extending to eukaryotic systems or lead to narrower claiming to exclude such scope. JTEKT Corp. v. GKN Automotive, Ltd., No. 17-1828 (Fed. Cir. Aug. 3, 2018): Status as a competitor with potentially infringing product in development is insufficient to confer standing to appeal an adverse IPR decision Under § 311(a), any person or entity may petition to institute an IPR—there is no requirement of Article III standing.  But to appeal to the Federal Circuit, the petitioner must satisfy Article III, establishing an injury that is both concrete and particularized and not conjectural or hypothetical. GKN’s patent recites claims to vehicle drivetrains.  JTEKT was developing a competing drivetrain and initiated an IPR against GKN’s patent.  JTEKT sought to appeal the Board’s adverse decisions on several claims, but the Federal Circuit (Dyk, J., joined by O’Malley, J., and Prost, C.J.) held that the appellant lacked standing.  As the panel noted that, “[t]he fact that JTEKT has no product on the market at the present time does not preclude Article III standing.”  But, as the party seeking review, JTEKT had the burden to show the requisite injury.  The Federal Circuit noted that JTEKT was “currently validating its design” which could “continue to evolve and may change” before being finalized.  As such, the panel held that JTEKT failed to “establish that its planned product would create a substantial risk of infringing claims.” E.I. DuPont de Nemours & Co. v. Synvina C.V., No. 17-1977 (Fed. Cir. Sept. 17, 2018): Operating a factory capable of infringing a method of manufacturing is sufficient to confer standing to appeal an adverse IPR decision. DuPont petitioned for IPR of its competitor’s (Synvina’s) patent to methods of manufacturing FDCA.  On appeal, Synvina challenged DuPont’s standing to maintain the appeal, arguing that DuPont had not suffered an actual or imminent injury in fact.  The Federal Circuit (Lourie, J., joined by O’Malley, J. and Chen, J.) rejected the challenge.  The court held that, on appeal from an adverse IPR decision, “the petitioner must generally show a controversy of sufficient immediacy and reality to warrant the requested judicial relief.”  The court found this standard met because DuPont—a competitor of the patent owner—operates a plant capable of infringing the challenged patent, with the claimed reaction conditions.  Thus, “DuPont is engaged or will likely engage in an activity that would give rise to a possible infringement suit.”  Taken with JTEKT above, this illustrates the fact dependent and uncertain nature of the standing inquiry. 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) Raymond A. LaMagna – Los Angeles (+1 213-229-7101, rlamagna@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.

Euromoney Legal Media Group recognized three Gibson Dunn partners among its inaugural list of Americas Rising Stars. Blaine Evanson was named Best in Litigation: Appellate; Stacie Fletcher was named Best in Environment; and John Partridge was named Best in Life Sciences. Stacie Fletcher was also recognized for her work on behalf of International Paper in an Alabama Environmental Suit, which was named as one of the Matters of the Year. The winners were announced on September 27, 2018.  

As the Supreme Court begins its 2018 Term next week, Gibson Dunn’s Supreme Court Round-Up provides summaries of the questions presented in the cases that the Court will hear this Term as well as other key developments on the Court’s docket.  Gibson Dunn presented 3 arguments during the 2017 Term, securing wins for clients in all 3 cases, and was involved in 11 additional cases as counsel for amici curiae.  To date, the Court has granted certiorari in 42 cases for the 2018 Term, and Gibson Dunn is counsel for the petitioner in 2 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 17 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 24 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) Andrew G.I. Kilberg (+1 202.887.3759, akilberg@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.

Click for PDF This July 2018 edition of Gibson Dunn’s Federal Circuit Update discusses the recent Federal Circuit Bar Association Bench and Bar Conference, provides a summary of the pending Helsinn Healthcare case before the Supreme Court regarding the on-sale bar, and briefly summarizes the joint appendix procedure at the Federal Circuit.  This Update also provides a summary of the recent en banc case involving attorneys’ fees for litigation involving the PTO.  Also included are summaries of recent decisions regarding means-plus-function terms, the entire market value rule, the interplay between software patents and section 101, and tribal sovereign immunity before the Patent Trial & Appeal Board. Federal Circuit News The annual Federal Circuit Bench and Bar Conference was held this year in Coronado, CA, from June 20 to June 23, 2018.  Nicole Saharsky, co-chair of Gibson Dunn’s Appellate and Constitutional Law practice, presented on the Supreme Court Term in Review panel, and Kate Dominguez, a partner in the firm’s New York office, participated in the conference’s first-ever moot oral argument. Supreme Court.  The Supreme Court decided three cases from the Federal Circuit in the recently concluded OT2017 Term (Oil States v. Greene’s Energy; SAS v. Iancu; WesternGeco v. ION Geophysical).  The Court also granted certiorari recently in a new case to be heard next Term: Case Status Issue Helsinn Healthcare S.A. v. Teva Pharm. USA Inc., No. 17-1229 Petition granted on June 25, 2018 Whether the sale of a patented invention by the inventor to a third party that is obligated to keep the invention confidential constitutes prior art for determining patentability Recent En Banc Federal Circuit Cases NantKwest, Inc. v. Matal, No. 16-1794 (Fed. Cir.) (July 27, 2018) (en banc):  The PTO cannot recover attorneys’ fees in litigation pursuant to 35 U.S.C. § 145. After the PTAB affirmed the rejection of NantKwest’s patent application, NantKwest appealed to the district court under Section 145.  The PTO prevailed and moved to recover both its attorneys’ fees and expert fees pursuant to section 145, which states that “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Applying this statutory provision, the district court granted the expert fees, but rejected the request for attorneys’ fees.  On appeal, a Federal Circuit panel (Prost, CJ) reversed the award of attorneys’ fees, holding that the “[a]ll expenses” provision of section 145 authorizes attorneys’ fees.  Judge Stoll dissented.  The Federal Circuit sua sponte ordered that the panel decision be vacated and that the case be reheard en banc. The en banc majority (Stoll, J.) noted that the American Rule—where each litigant pays its own attorneys’ fees—is a “bedrock principle” of U.S. jurisprudence and prohibits courts from shifting attorneys’ fees from one party to the other absent a “specific and explicit directive from Congress.”  The en banc majority held that the phrase “all the expenses of the proceedings” falls short of this “stringent standard,” and thus affirmed the district court’s denial of the request for attorneys’ fees.  Chief Judge Prost dissented, joined by Judges Dyk, Reyna, and Hughes. Federal Circuit Practice Update This month, we are highlighting the difference between the Federal Rules of Appellate Procedure and the Federal Circuit Rules of Practice as relating to the content of the appendix to the briefs.  As the Federal Circuit explains in its practice notes, an appendix prepared without careful attention to Federal Circuit Rule 30 may be rejected and could result in dismissal. Contents:  In addition to the documents required by FRAP 30(a)(1)(A)-(C), Federal Circuit Rule 30(a)(2) requires that each appendix include: (1) the entire docket sheet from the proceedings below; (2) the judge’s charge to the jury, the jury’s verdict, and the jury’s responses to questions; (3) the patent-in-suit in its entirety; and (4) any nonprecedential opinion or order cited in the briefs.  Rule 30(a)(2) further explains that parties should not include other parts of the record unless they are “actually referenced in the briefs,” and the briefs should not contain “indiscriminate referencing” to blocks of pages.  To the extent the parties wish to include briefs and memoranda from the trial court in the appendix, the parties must obtain leave of the court to file the briefs or memoranda in their entirety; otherwise, the parties should include only excerpts of the documents cited in the briefs. Determination of Contents:  The Federal Circuit Rules do not follow FRAP 30(b)’s instructions for determining the contents of the appendix, but the Rules lay out a similar process.  In the absence of an agreement on the contents of the appendix, the appellant must serve on the appellee a designation of materials for the appendix within 14 days after docketing of the appeal from a court or the service of the certified list or index in an appeal from an agency.  The appellee then has 14 days to provide the appellant with a counter-designation that identifies additional parts to include.  The appellant then has 14 days to serve on all parties a table that designates the page numbers for the appendix.  The parties can agree to an extension of these time limits without leave of the court as long as it does not require an extension of the time required for filing the appellant’s brief. Format of the Appendix:  FRAP 30(d) governs the arrangement of the appendix except that the appellant must place the judgment or order from which it appeals, plus any opinion, memorandum, or findings and conclusions supporting it, as the first documents. Timing:  The Federal Circuit Rules disregard many of the FRAP 30(c) provisions relating to deferred appendices.  The Rules explain that the appellant must serve and file an appendix within seven days of the filing of the last reply brief.  If the appellant does not file a reply brief, the appellant must file the appendix within the time period for filing the reply brief. Key Case Summaries (June – July 2018) ZeroClick, LLC v. Apple Inc., No. 17-1267 (Fed. Cir. June 1, 2018):  Claim limitations without the word “means” require intrinsic or extrinsic evidence to support a finding that they are governed by § 112, ¶ 6. ZeroClick asserted patent infringement claims for patents related to modifications to a graphical user interface that allow the interface to be controlled using a pre-defined pointer or touch movements instead of a mouse.  The district court found that two claim limitations recite means-plus-function limitations:  (1) “program that can operate the movement of the pointer” and (2) “user interface code being configured to detect one or more locations touched by a movement of the user’s finger on the screen without requiring the exertion of pressure and determine therefrom a selected operation.”  After determining that these limitations were subject to § 112, ¶ 6, the district court found that the claims were invalid because the specifications do not disclose sufficient structure. The Federal Circuit (Hughes, J.) vacated the district court’s findings, explaining that, because the two limitations did not include the word “means,” the presumption is that § 112, ¶ 6 does not apply and the presumption had not been rebutted.  The court explained that the determination as to whether § 112, ¶ 6 applies must be made under the traditional claim construction principles, on an element-by-element basis, and in light of the intrinsic and extrinsic evidence.  The Federal Circuit reasoned that the district court improperly treated “program” and “user interface code” as nonce words that could substitute for “means” and presumptively bring the limitations within the ambit of § 112, ¶ 6.  The court therefore vacated the court’s invalidity finding and remanded for further proceedings. Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., Nos. 2016-2691, -1875 (Fed. Cir. July 3, 2018):  The entire market value rule for damages calculations is a narrow exception that a patentee can invoke only if it shows that the patented feature alone motivated consumers to buy the accused products. Power Integrations sued Fairchild for infringement of two patents.  In two separate trials, the first jury found that Fairchild infringed various claims of the asserted patents, and a second jury awarded damages of $140 million based on expert testimony from Power Integrations that relied solely on applying the entire market value rule.  The district court denied Fairchild’s post-trial motions, and Fairchild appealed. The Federal Circuit (Dyk, J.) affirmed the jury’s infringement finding but vacated and remanded the damages award.  The court reiterated that a patentee damages calculations must include apportionment so that royalties cover only the value that the infringing features contribute to the value of the accused product.  The court explained that the entire market value rule is “a demanding alternative to our general rule of apportionment,” and that it is appropriate “only when the patented feature is the sole driver of customer demand or substantially creates the value of the component parts.”  When the accused product “contains multiple valuable features, it is not enough to merely show that the patented feature is viewed as essential, that a product would not be commercially viable without the patented feature, or that consumers would not purchase the product without the patented feature.”  Instead, “the patentee must prove that those other features did not influence purchasing decisions.”  Because the patentee had failed to meet its burden showing that the patented feature “alone motivated consumers to buy the accused products,” the patentee could not invoke the entire market value rule.  The court accordingly vacated the damages award and remanded for a new damages trial. Interval Licensing LLC v. AOL, Inc., Nos. 2016-2502, -2505, -2506, -2507 (Fed. Cir. July 20, 2018):  Application of section 101 to software patents. After remand from an initial appeal to the Federal Circuit addressing claim construction issues, defendants moved for judgment on the pleadings, arguing that the claims were ineligible under 35 U.S.C. § 101.  The district court concluded that the claims were directed to the abstract idea and contained no inventive concept because the elements of the claims were “purely conventional” and did nothing more than apply the abstract idea in the environment of networked computers without any explanation as to how the claim elements solved technical issues. The Federal Circuit (Chen, J.) affirmed.  The majority explained that computer software inventions, due to their “intangible nature,” “can be particularly difficult to assess under the abstract idea exception.”  Although the court has found some software-based claims eligible for patentability, other claims “failed to pass section 101 muster” because they did not recite any “inventive technology for improving computers as tools” or “because the elements of the asserted invention were so result-based that they amounted to patenting the patent-ineligible concept itself.”  The majority concluded that the claims in this case were abstract because they were directed to “broad, result-oriented” terms that simply demanded “the production of a desired result” without “a solution for producing that result”; i.e., the claims never addressed how to reach the claimed result. Judge Plager concurred with the court’s opinion based on the “current state of the law” but wrote separately to “highlight the number of unsettled matters as well as the fundamental problems that inhere in this formulation of ‘abstract ideas.'”  In addressing the “almost universal criticism” of the application of “abstract idea” jurisprudence, he joined with Judge Lourie’s concurrence from Berkheimer v. HP Inc. in encouraging Congress to clarify § 101 law, and he also encouraged district courts to consider withholding judgment on § 101 motions until after addressing §§ 102, 103, and 112 defenses. Saint Regis Mohawk Tribe v. Mylan Pharm. Inc., Nos. 2018-1638, -1639, -1640, -1641, -1642, -1643 (Fed. Cir. July 20, 2018):  Tribal immunity does not apply in IPR proceedings. Mylan petitioned the Board to institute IPR proceedings on various patents owned by Allergan, Inc.  While the IPR was pending, Allergan transferred title of the patents to Saint Regis Mohawk Tribe, which in turn asserted sovereign immunity.  The Board denied the Tribe’s motion to terminate on the basis of sovereign immunity and Allergan’s related motion to withdraw from the proceedings.  The Tribe and Allergan appealed. The Federal Circuit (Moore, J.) held that tribal immunity does not apply in IPR proceedings.  The court explained that Indian tribes possess “inherent sovereign immunity” but that this immunity does not extend to actions brought by the federal government, including where the federal government, acting through an agency, engaged in an investigative action or pursued adjudicatory agency action.  The court concluded that IPR proceedings are hybrid proceedings, with elements of both judicial proceedings and specialized agency proceedings, but that they are more akin to specialized agency proceedings because the Director has full discretion whether to institute review of a petition, the Board can choose to continue review even if the petitioner chooses not to participate, and PTO procedures do not mirror the Federal Rules of Civil Procedure.  Because the court concluded that IPR proceedings are more akin to specialized agency proceedings, tribal sovereign immunity does not apply. 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.

Click for PDF This update provides an overview and summary of significant class action developments during the second quarter of 2018 (April through June), as well as a brief look ahead to some of the key class action issues anticipated later this year. Part I discusses the U.S. Supreme Court’s decisions in two key cases, Epic Systems Corp. v. Lewis, and China Agritech, Inc. v. Resh. Part II looks forward to the Supreme Court’s October 2018 Term and previews a new class action case on the Court’s docket, Nutraceutical Corp. v. Lambert. Part III discusses two recent circuit-level cases involving class action settlements. I.     The U.S. Supreme Court Affirms Validity of Arbitration Clauses in Employment Agreements, and Limits American Pipe Tolling to Individual Suits The Supreme Court issued two important opinions in the past quarter of significant relevance to class action defendants. First, in the consolidated cases of Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA, Inc., 138 S. Ct. 1612 (2018), the Supreme Court held that arbitration agreements in which an employee waives his right to bring a claim against an employer on a class or collective basis are enforceable under the Federal Arbitration Act (“FAA”) and do not violate the National Labor Relations Act (“NLRA”).  The Court’s ruling resolved a longstanding circuit split on this issue. In a 5-4 decision written by Justice Gorsuch, the Court held that “Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s saving clause nor the NLRA suggests otherwise.”  138 S. Ct. at 1616, 1624–27.  The Court rejected the employees’ argument that the FAA’s savings clause—which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract”—precludes enforcement of their arbitration agreements.  Because the employees’ argument was not applicable to “any” contract, and instead singled out “individualized arbitration proceedings” as invalid, the Court explained that the savings clause was not implicated, and there was no “generally applicable contract defense[]” to overcome the FAA’s presumption of enforceability.  Id. at 1622–23. The Court also rejected the argument that enforcing an arbitration agreement’s class action waiver would violate employees’ right to engage in collective action under the NLRA.  It disagreed with the suggestion that the later-passed NLRA had impliedly repealed portions of the FAA, emphasizing that “repeals by implication are ‘disfavored,’” and “Congress ‘does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions.’”  Id. at 1624, 1626–27.  Section 7 of the NLRA, moreover, “focuses on the right to organize unions and bargain collectively,” “does not express approval or disapproval of arbitration,” and “does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly.”  Id. at 1624. Finally, the Court declined to apply Chevron deference to the NLRB’s contrary conclusions, noting that Congress had not given the NLRB any authority to interpret the FAA, a statute that the agency does not administer.  The Court also observed that although Chevron deference is premised on the notion that “‘policy choices’ should be left to the Executive Branch,” “here the Executive seems to be of two minds, for [the Court] received competing briefs from the [NLRB] and the United States (through the Solicitor General),” the latter of which had supported the employers.  Id. at 1630. Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, dissented.  They expressed concern that “underenforcement of federal and state” employment statutes will result from the majority’s decision, because employees will be deterred by the relative expense and “slim relief obtainable” in individual suits.  Id. at 1637, 1646–48 (Ginsburg, J., dissenting).  In response, the majority observed that “the dissent retreats to policy arguments,” and underscored that “[t]he respective merits of class actions and private arbitration as means of enforcing the law are questions constitutionally entrusted not to the courts to decide but to the policymakers in the political branches where those questions remain hotly contested.”  Id. at 1632. Epic Systems confirms that courts will continue to enforce agreements between employers and employees to arbitrate their disputes on an individual—rather than class or collective—basis, and continues the Supreme Court’s trend of enforcing the FAA’s strong policy favoring arbitration. In the second important class action case of the Term, China Agritech, Inc. v. Resh, 138 S. Ct. 1800, the Court declined to extend the rule of equitable tolling announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), to the filing of successive class actions. Under American Pipe, the timely filing of a class action tolls the applicable statute of limitations for “all persons encompassed by the class complaint” to intervene in the action or to file individual suits after the denial of class certification.  China Agritech, 138 S. Ct. at 1804–05.  The Ninth Circuit had extended that ruling to the successive filing of class actions, but the Supreme Court reversed, explaining that the concerns underlying American Pipe simply do not apply in the class action context.  The rule announced in American Pipe serves to promote “the efficiency and economy of litigation” embodied in Rule 23, on the theory that plaintiffs “reasonably rel[y] on the class representative . . . to protect their interests in their individual claims,” and without equitable tolling, potential class members “would be induced to file protective motions to intervene” (id. at 1806), or “a needless multiplicity of [separate] actions” to protect their interests in the event certification is denied (id. at 1810). Extending American Pipe tolling to successive class actions, however, “would allow the statute of limitations to be extended time and again” and allow plaintiffs “limitless bites at the apple.”  Id. at 1808–09.  The Court noted that in those circuits that had already declined to extend American Pipe to successive class actions, there had not been “a disproportionate number of duplicative, protective class action filings.”  Id. at 1810.  The Court also reasoned that “efficiency favors early assertion of competing class representative claims” (id. at 1807), and early filing “may aid a district court in determining, early on, whether class treatment is warranted” (id. at 1811). All of the justices joined the Court’s opinion in China Agritech except for Justice Sotomayor, who wrote an opinion concurring in the judgment but expressing the view that the Court’s holding should be limited to cases governed by the Private Securities Litigation Reform Act.  Id. at 1811–15 (Sotomayor, J., concurring in the judgment). China Agritech emphasizes the importance of timely filing putative class actions and reaffirms the class action defendant’s reasonable expectation that class claims will not continue to emerge after the statute of limitations period has expired. II.     The U.S. Supreme Court Is Poised to Weigh In on the Timing of Rule 23(f) Petitions, Arbitration Issues, and the Validity of Cy Pres-Only Settlements The Supreme Court’s October 2018 Term promises to be another active one in the class action space, particularly on a number of bread-and-butter issues relating to class action procedure, settlement, and arbitration. On June 25, 2018, the Supreme Court granted certiorari in Nutraceutical Corp. v. Lambert (No. 17‑1094) to resolve whether equitable exceptions apply to non-jurisdictional claims-processing rules, and specifically, to decide if and when an appellate court may equitably toll the time to file a petition for permission to appeal the grant or denial of class certification under Federal Rule of Civil Procedure 23(f).  Ordinarily, a Rule 23(f) petition must be filed within 14 days following the grant or denial of class certification or decertification, but the Ninth Circuit held that, under the particular circumstances of the case, the filing of a motion for reconsideration 20 days after the decertification order equitably tolled the 14-day deadline.  The Ninth Circuit acknowledged, however, that its ruling conflicted with the other circuit courts that have considered the issue.  (We covered the Ninth Circuit’s decision in Lambert in our third quarter 2017 update.) As noted in our first quarter 2018 update, the Supreme Court is also expected to resolve a series of other issues of interest to class action practitioners in the coming Term.  In New Prime Inc. v. Oliveira (No. 17‑340), the Court will decide whether (a) a dispute regarding the applicability of the FAA must be resolved by an arbitrator under a valid delegation clause, and (b) an exemption for contracts of employment for transportation workers in Section 1 of the FAA applies to independent contractors.  Briefing is currently underway.  (Gibson Dunn represents the petitioner, New Prime, Inc.)  In Lamps Plus, Inc. v. Varela (No. 17‑988), the Court will decide whether the FAA forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in such agreements.  And in Frank v. Gaos (No. 17-961), the Court will consider the validity of cy pres-only settlements that provide no direct compensation to class members.  Opening briefs were filed in both cases on July 9, 2018. III.     The Seventh and Eighth Circuits Issue Notable Class Action Settlement Decisions The federal courts of appeals continue to closely scrutinize class action settlements, and this past quarter saw the issuance of two significant decisions (which both coincidentally involved Target Corp.). In Pearson v. Target Corp., No. 17‑2275,  — F.3d —, 2018 WL 3117848 (7th Cir. June 26, 2018), the Seventh Circuit examined a common tactic employed by professional objectors—filing baseless appeals from a settlement approval as a form of “blackmail,” hoping that the parties will pay them to dismiss the appeals so that the settlement can become effective. In 2014, the parties in Pearson had agreed to a classwide settlement in response to allegations that the defendants had “violated consumer protection laws by making false claims about the efficacy of [a dietary] supplement.”  Id. at *1.  Ted Frank, a frequent objector to class action settlements, objected to the awards to class counsel in the district court, and appealed the settlement approval order to the Seventh Circuit.  The Seventh Circuit agreed with Frank’s objections and reversed the district court, holding that “the settlement provided outsized benefits to class counsel.”  Id. On remand, the parties reached a new settlement, which the district court approved.  It then dismissed the case “‘without prejudice’ so as to allow the Court to supervise the implementation and administration of the Settlement.”  Id.  Three different class members then objected and filed appeals.  Id. at *2.  All three subsequently dismissed their appeals, and the district court entered a new order dismissing the case with prejudice.  Id.  Frank then moved to intervene and disgorge any side settlements made with the other three objectors.  His concern was “‘objector blackmail’” in which an “absent class member objects to a settlement with no intention of improving the settlement for the class,” “appeals, and pockets a side payment in exchange for voluntarily dismissing the appeal.”  Id. at *1.  The district court refused to hear the motion, reasoning that the dismissal with prejudice had divested the court of jurisdiction.  Frank then moved under Federal Rule of Civil Procedure 60(b) to vacate the dismissal with prejudice and restore the court’s jurisdiction over the settlement.  Id. at *2.  The district court denied that motion as well, which led to Frank’s second appeal and the subject of this decision.  Id. The Seventh Circuit again ruled in Frank’s favor.  Writing for a three-judge panel, Judge Wood explained that Frank could bring a Rule 60(b) motion because he had objected the settlement and thus qualified as a “party.”  Id.  On the merits, the court held that the district court should have granted the Rule 60(b) motion because (1) the objectors voluntarily dismissed their appeals before briefing raised concerns that they had done so at the expense of the class; (2) the class was comprised of ordinary consumers rather than sophisticated financial institutions (and thus needed greater protection from the court); (3) Frank sought only to effectuate the limited ancillary jurisdiction contemplated by the settlement itself, so the interest in finality was less compelling that it would be had Frank sought to unwind the settlement and re-litigate merits issues; and (4) Rule 60(b)(6) exists as an “‘equitable’” “safety valve” for precisely these types of situations.  Id. at *3-4. This decision continues the trend among the federal courts of appeals to carefully scrutinize class settlements, particularly when they involve “ordinary consumers.”  And, as the Seventh Circuit recognized, it also highlights the importance of “an amendment of Rule 23”—Rule 23(e)(5)(B)—which is “designed to prevent this problem from recurring.”  Id. at *5.  That proposed rule would require district court approval, after a hearing, of any “‘payment or other consideration’ provided for ‘forgoing or withdrawing an objection’ or ‘forgoing, dismissing, or abandoning an appeal.’”  Id.  If Congress allows this new rule to go into effect, observers will be keen to see whether it “solve[s] the problem” of “objector blackmail,” or whether objectors will find new, creative ways to “leverage[]” the process “for a purely personal gain.”  Id. at *1, *5. The second case, In re Target Corporation Customer Data Security Breach Litigation, 892 F.3d 968 (8th Cir. 2018), also involved the re-examination of a class action settlement, at the urging of an objector, after the Eighth Circuit had rejected an earlier settlement. With the earlier settlement, the Eighth Circuit concluded the district court had “failed to conduct the appropriate pre-certification analysis.”  Id. at 972.  On the second go-around, however, the Eighth Circuit affirmed the judgment of the district court, reasoning that the court had not “fundamentally misunderstood the structure of the settlement agreement” (id. at 973), nor was separate legal counsel required to protect the interests of the subclass of plaintiffs who had yet to suffer any material loss from the data breach that formed the basis for the suit (id. at 976).  On the latter point, the Eighth Circuit maintained that the interests of those class members with “documented losses” and those without losses were “more congruent than disparate” because it was “hypothetically possible that a member” of either subclass could “suffer some future injury.”  Id. at 975-76. The Eighth Circuit also affirmed the district court’s approval of the settlement.  Even though it noted the district court’s analysis of the $6.75 million fee award may have been “perfunctory,” it held the court’s reasoning was sufficient and that the lodestar multiplier applied was “well within amounts [the court had] deemed reasonable in the past.”  Id. at 977.  The court also held that the district court was within its discretion to approve the settlement despite the objectors’ concerns about what arguably constituted a “clear-sailing” provision requiring defendants not to oppose the attorney’s fees request, and a “kicker” provision that permitted unused settlement funds to be returned to defendants rather than distributed to the class.  Id. at 979. The following Gibson Dunn lawyers prepared this client update: Christopher Chorba, Theane Evangelis, Kahn A. Scolnick, Bradley J. Hamburger, Brandon J. Stoker, Jeremy S. Smith, Lauren M. Blas, Michael Eggenberger, and Gatsby Miller. Gibson Dunn attorneys 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 (+1 213-229-7000, tboutrous@gibsondunn.com) Christopher Chorba – Co-Chair, Class Actions Practice Group – Los Angeles (+1 213-229-7396, cchorba@gibsondunn.com) Theane Evangelis – Co-Chair, Class Actions Practice Group – Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Kahn A. Scolnick – Los Angeles (+1 213-229-7656, kscolnick@gibsondunn.com) Bradley J. Hamburger – Los Angeles (+1 213-229-7658, bhamburger@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Orange County partner Blaine Evanson is the author of “Kennedy, Kavanaugh and the OT 2017 Term” [PDF] published in The Daily Journal on July 12, 2018.

Click for PDF On July 9, 2018, President Trump nominated Judge Brett Kavanaugh of the United States Court of Appeals for the District of Columbia Circuit to fill seat on the Supreme Court of the United States being vacated by Justice Anthony Kennedy. To assess Judge Kavanaugh’s potential impact on the Supreme Court, should the Senate confirm his nomination, we have started reviewing his written opinions and other legal writings.  This Memorandum briefly summarizes Judge Kavanaugh’s noteworthy opinions in several key areas of law, including (1) administrative law, (2) antitrust, (3) arbitration, (4) immigration, (5) labor and employment, (6) religious liberty, and (7) tax. Based on Judge Kavanaugh’s prior opinions, President Trump appears to have fulfilled his campaign promise to “appoint judges very much in the mold of Justice Scalia.”  Like Justice Scalia, Judge Kavanaugh often decides cases by focusing on the text of the relevant statute or constitutional provision, without resorting to legislative history.  Judge Kavanaugh also frequently resolves constitutional cases by examining the document’s original meaning in light of history and tradition. Judge Kavanaugh, who is 53 years old, is admired on both sides of the political aisle.  He is credited with a keen legal mind and praised for writing opinions that are clear and concise.  Judge Kavanaugh earned his law degree in 1990 from Yale Law School.  Following law school, he clerked for Judge Walter King Stapleton on the Third Circuit and Judge Alex Kozinski on the Ninth Circuit.  He then completed a one-year position with the United States Solicitor General’s Office (later called a Bristow Fellowship) before clerking for Justice Kennedy.  Judge Kavanaugh joined the Office of the Independent Counsel under Kenneth Starr and later went into private practice.  In the George W. Bush administration, Judge Kavanaugh served as Assistant to the President and Staff Secretary to the President.  President George W. Bush nominated him to the D.C. Circuit in 2006.  The Senate confirmed his nomination to that seat by a vote of 57-36. Gibson Dunn will continue to review his jurisprudence and monitor the confirmation proceedings, and provide periodic updates. Administrative Law In two significant decisions addressing the process for appointment of executive branch officials, and the President’s power to remove them, Judge Kavanaugh authored opinions that construed the Constitution’s separation of powers in the context of the modern administrative state. PHH Corp. v. Consumer Fin. Prot. Bureau, 881 F.3d 75 (D.C. Cir. 2018) (en banc).  Judge Kavanaugh dissented from the en banc opinion holding that the statute providing that the Consumer Financial Protection Bureau’s director could be removed by the President only for cause was constitutional.  According to Judge Kavanaugh, vesting authority in a single director removable only for cause violates historical precedent, threatens individual liberty, and diminishes the President’s Article II authority over the Executive Branch. Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 537 F.3d 667 (D.C. Cir. 2008), aff’d in part, rev’d in part and remanded, 561 U.S. 477 (2010).  Judge Kavanaugh dissented from a panel opinion holding that the Public Company Accounting Oversight Board did not violate the Appointments Clause or separation of powers principles.  He reasoned that the PCAOB violated separation of powers because PCAOB members were only removable for cause by another independent agency, the Securities and Exchange Commission, and not by the President or his alter ego, such as the head of an executive agency.  The Supreme Court later reversed the panel decision and largely endorsed Judge Kavanaugh’s reasoning. * * * An important question in administrative law is the continued vitality of Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), under which courts examine agency interpretations of statutes in two steps, such that if the statute itself unambiguously forecloses the agency’s interpretation, it is invalid, but if the statute is ambiguous, the agency’s interpretation is upheld if merely reasonable.  Chevron deference, Judge Kavanaugh has explained, is the rule that “in cases of textual ambiguity, [courts] defer to an executive agency’s reasonable interpretation of a statute.”  Fixing Statutory Interpretation, 129 Harv. L. Rev. 2118, 2135 (2016) (reviewing Second Circuit Judge Katzmann’s book on statutory interpretation). One potential limitation on the reach of Chevron deference is the “major rules” doctrine, and Judge Kavanaugh’s dissent from denial of rehearing en banc as to the D.C. Circuit’s upholding of the FCC’s 2015 net neutrality rule indicates that he takes that limitation seriously.  See U.S. Telecom Ass’n v. FCC, 855 F.3d 381, 417-35 (D.C. Cir. 2017).  The major rules doctrine requires Congress to speak clearly when it authorizes an agency rule that is of “vast ‘economic and political significance,’” and Judge Kavanaugh has explained that it “helps preserve the separation of powers and operates as a vital check on expansive and aggressive assertions of executive authority.”  And, in his view, “while the Chevron doctrine allows an agency to rely on statutory ambiguity to issue ordinary rules, the major rules doctrine prevents an agency from relying on statutory ambiguity to issue major rules,” although he acknowledged that “determining whether a rule constitutes a major rule sometimes has a bit of a ‘know it when you see it’ quality.”  Id. at 419, 423. That said, Judge Kavanaugh’s day job for 12 years has required application of Chevron as it currently exists, and in doing so, he has often written for the D.C. Circuit in reining in exercises of authority by agencies—perhaps most prominently, the EPA.  For example, in Mexichem Fluor, Inc. v. EPA, 866 F.3d 451 (D. C. Cir. 2017), writing for the divided panel, he concluded that a Clean Air Act provision which requires manufacturers to replace ozone-depleting substances with safe substitutes does not grant EPA authority to require replacement of hydroflourocarbons, a set of compounds which are not ozone-depleting substances.  Focusing on the plain statutory text at the first of the two steps under Chevron, he concluded that “EPA’s current reading stretches the word ‘replace’ beyond its ordinary meaning.”  He nevertheless pointed to other sources of statutory authority for regulating HFCs. In two prominent cases, the Supreme Court relied on and agreed with Judge Kavanaugh’s opinions, which had differed from his colleagues’ upholding of EPA actions: Coalition for Responsible Regulation, Inc. v. EPA, 684 F.3d 102 (D.C. Cir. 2012) (per curiam), reh’g en banc denied, No. 09–1322, 2012 WL 6621785 (Dec. 20, 2012), rev’d in part by Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014).  The D.C. Circuit upheld challenged EPA greenhouse-gas actions, and Judge Kavanaugh urged rehearing en banc, disagreeing with EPA’s construction of the term “air pollutant.”  The Supreme Court, in a 5-4 opinion by Justice Scalia, rejected EPA’s construction, quoting an admonition from Judge Kavanaugh’s opinion:  “Agencies are not free to ‘adopt . . . unreasonable interpretations of statutory provisions and then edit other statutory provisions to mitigate the unreasonableness.’” White Stallion Energy Center, LLC v. EPA, 748 F.3d 1222 (D.C. Cir. 2014), rev’d by Michigan v. EPA, 135 S. Ct. 2699 (2015).  After Judge Kavanaugh dissented in part from the D.C. Circuit panel’s upholding of an EPA power-plant emission rule, the Supreme Court reversed in a 5-4 opinion by Justice Scalia.  The Court quoted Judge Kavanaugh’s opinion for the principle that, where Congress instructed EPA to add power plants to the program only if EPA found regulation “appropriate and necessary,” the term “appropriate” was “broad and all-encompassing” enough to include consideration of cost.  “Read naturally in the present context,” the Court explained, “the phrase ‘appropriate and necessary’ requires at least some attention to cost.” In another case, however, the Supreme Court overturned Judge Kavanaugh’s conclusion and instead deferred to the EPA’s views under Chevron: EME Homer City Generation, L.P. v. EPA, 696 F.3d 7 (D.C. Cir. 2012), rev’d and remanded by EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014), on remand, 795 F.3d 118 (D.C. Cir. 2015).  Judge Kavanaugh’s opinion for a divided panel entirely set aside the Transport Rule, also known as the Cross–State Air Pollution Rule, under the Clean Air Act, but the Supreme Court, in a 6-2 opinion by Justice Ginsburg (Justice Alito was recused), disagreed.  The Supreme Court concluded that the Rule was not invalid “on its face,” but allowed certain “particularized, as-applied challenge[s]” to proceed.  On remand, Judge Kavanaugh’s opinion for a unanimous opinion remanded actions as to some states to the EPA for reconsideration (without vacating them). To be sure, Judge Kavanaugh has written unanimous and divided panel opinions upholding EPA rules against private challengers.  See, e.g., Am. Trucking Ass’s, Inc. v. EPA, 600 F.3d 624 (D.C. Cir. 2010) (upholding, over a dissent, EPA approval of California’s rule regulating emissions from transportation refrigeration units in trucks); Energy Future Coalition v. EPA, 793 F.3d 141 (D.C. Cir. 2015) (upholding unanimously EPA regulation requiring test biofuels be commercially available against biofuel producer challenge). And Judge Kavanaugh’s rejection of EPA’s efforts to interpret the statutes it administers have not only favored regulated entities:  In NRDC v. EPA, 749 F.3d 1055 (D. C. Cir. 2014), writing for a unanimous panel, he held that EPA exceeded its authority when it created an affirmative defense for private civil suits in which plaintiffs seek penalties for violations of emission standards by sources of pollution. Antitrust FTC v. Whole Foods Market, Inc., 548 F.3d 1028 (D.C. Cir. 2008).  The FTC moved to preliminarily enjoin Whole Foods’s merger with Wild Oats.  The district court denied the injunction, and the panel majority reversed.  Judge Kavanaugh dissented, writing that he would have affirmed the denial of the injunction, and that the FTC’s position opposing the merger “calls to mind the bad old days when mergers were viewed with suspicion regardless of the economic benefits.”  He accused the majority of reviving the Supreme Court’s “moribund Brown Shoe practical indicia test” and of applying “an overly lax preliminary injunction standard for merger cases.” Arbitration Verizon New England v. NLRB, 826 F.3d 480 (D.C. Cir. 2016).  In the collective bargaining agreement between Verizon New England and its employees’ union, the employees waived their right to picket.  Later, during a labor dispute, employees displayed pro-union signs on Verizon’s property.  Verizon demanded that the employees take down the signs, and the union challenged Verizon’s action before an arbitration panel, which interpreted the collective bargaining agreement’s waiver of the right to picket as including waiver of the right to display of pro-union signs.  The union sought relief from the NLRB, which is allowed to review arbitral decisions but must apply a highly deferential standard to the arbitrator.  The agency overturned the arbitration decision, and Verizon appealed to the D.C. Circuit.  Judge Kavanaugh, writing for the Court, held that the NLRB had not deferred sufficiently to the arbitration decision.  His opinion stressed the importance of deference to arbitrators, noting that the NLRB was required to defer unless “the arbitration decision was ‘clearly repugnant’ to the National Labor Relations Act.”  Here, Judge Kavanaugh wrote, it did not matter whether the agency read the collectively bargaining agreement differently than the arbitrator; instead, what mattered was that the arbitrator’s reading was not “egregiously wrong” because the term “picketing” may, under certain circumstances, include the mere display of signs. Immigration Garza v. Hargan, 874 F.3d 735 (D.C. Cir. 2017) (en banc).  In this litigation over whether a teenager who was in the United States unlawfully could be released from government custody to obtain an abortion, the en banc D.C. Circuit vacated the panel opinion granting the government additional time to find an immigration sponsor and thus delaying the abortion.  In dissent from the en banc order, Judge Kavanaugh wrote that the majority wrongly concluded “that the Government must allow unlawful immigrant minors to have an immediate abortion on demand.”  He stated that the en banc order ignored the government’s “permissible interest in favoring fetal life, protecting the best interests of a minor, and refraining from facilitating abortion.” Fogo de Chao (Holdings) Inc. v. U.S. Dep’t of Homeland Sec., 769 F.3d 1127 (D.C. Cir. 2014). The panel majority held that the agency failed to sufficiently explain its newly adopted conclusion that cultural knowledge was categorically irrelevant to the “specialized knowledge” required to obtain an L-1B work visa. Judge Kavanaugh dissented, agreeing with the agency that a chef’s cultural background does not constitute “specialized knowledge,” and that American chefs could learn the relevant Brazilian cooking techniques within a reasonable time.   He concluded: “In our constitutional system, Congress and the President determine the circumstances under which foreign citizens may enter the country.  The judicial task is far narrower: to apply the immigration statutes as written.” Labor and Employment Venetian Casino Resort LLC v. NLRB, 793 F.3d 85 (D.C. Cir. 2015).  The Venetian, a luxury hotel and casino complex operating from the Las Vegas Strip, asked police to issue criminal citations to union-demonstrators who were blocking an entrance to the casino.  The demonstrators filed a petition with the NLRB, claiming that the Venetian committed an unfair trade practice by interfering with the demonstration. Writing for a unanimous panel, Judge Kavanaugh determined that the Noerr-Pennington doctrine—which provides that “employer conduct that would otherwise be illegal may be ‘protected by the First Amendment when it is part of a direct petition to government’”—shielded the Venetian from liability.  The court explained that “the act of summoning the police to enforce state trespass law is a direct petition to government,” and therefore constitutionally protected conduct. Ayissi-Etoh v. Fannie Mae, 712 F.3d 572 (D.C. 2013).  Judge Kavanaugh, writing in concurrence, emphasized that a single workplace use of an offensive racial epithet could be severe enough to establish a hostile work environment for purposes of federal anti-discrimination laws.  He noted that although “[i]t may be difficult to fully catalogue the various verbal insults and epithets that by themselves could create a hostile environment,” no other “act can more quickly alter the conditions of employment and create an abusive working environment that the use” of the n-word “by a supervisor in the presence of his subordinates.” Religious Liberty Priests for Life v. U.S. Dep’t of Health & Human Services, 808 F.3d 1 (D.C. Cir. 2015).  This constitutional challenge to the scheme for opting out of contraceptive coverage under the Affordable Care Act (“ACA”) was brought by several pro-life, religiously-affiliated employers.  They contended that the statutory and regulatory scheme (which allowed religious nonprofits to opt out from including contraceptive coverage in their health insurance plans only by completing forms that prompted others to cover contraceptives to employees) violated the Religious Freedom Restoration Act (“RFRA”), among other laws.  RFRA prohibits the federal government from substantially burdening any person’s exercise of religion, unless there is both a compelling government interest and no less restrictive mean of achieve that interest.  A three-judge panel of the D.C. Circuit (which did not include Judge Kavanaugh) held that the contraception scheme did not violate RFRA because it did not impose a substantial burden on religious exercise.  The en banc D.C. Circuit denied review over a dissent by Judge Kavanaugh.  In his dissent, Judge Kavanaugh argued that:  (1) the contraception scheme substantially burdened the plaintiffs’ exercise of religion because “submitting the form actually contravenes plaintiffs’ sincere religious beliefs” and refusing to submit the form would trigger a monetary penalty; (2) the federal government “has a compelling interest in facilitating access to contraception for the employees of these religious organizations”; and (3) the government could have facilitated access to contraception without requiring religious organizations to submit any forms.  Judge Kavanaugh concluded that the contraceptive scheme violated RFRA, but along the way he identified the “less restrictive” way the government could have lawfully ensured contraceptive coverage. In addition, Judge Kavanaugh has been involved with several other challenges to the Affordable Care Act: Sissel v. U.S. Dep’t of Health & Human Services, 799 F.3d 1035 (D.C. Cir. 2015).  Judge Kavanaugh dissented from the denial of a petition for rehearing en banc, and would have granted the petition to fix the rationale of the panel opinion while reaching the same outcome.  In Sissel, the plaintiffs argued that the Affordable Care Act was unconstitutional because it is a revenue-raising bill that, per the Origination Clause, must originate in the House of Representatives rather than the Senate.  The panel opinion, relying on Supreme Court precedent, determined that the Origination Clause was not implicated because the revenue-raising function of the ACA was not the primary purpose of the Act.  Judge Kavanaugh would have granted the petition to hold that the ACA was a revenue-raising bill because it raised an “enormous” amount of revenue that is not earmarked for a program created by the Act.  However, he would have found that the Act originated in the House of Representatives and therefore satisfied the Origination Clause. Seven-Sky v. Holder, 661 F.3d 1 (D.C. Cir. 2011), abrogated by National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012).  Judge Kavanaugh dissented from a panel decision upholding the Affordable Care Act’s individual mandate, and would have found that the Anti-Injunction Act deprived the panel of jurisdiction to decide the issue.  He regarded the individual mandate, which is enforced and collected by the Internal Revenue Service, as a tax, and therefore the Anti-Injunction Act, “which carefully limits jurisdiction of federal courts over tax-related matters,” prevents a federal court from passing on its constitutionality until a challenger pays the tax or faces an enforcement action by the IRS.  Judge Kavanaugh’s dissent previewed Chief Justice Robert’s later opinion upholding the individual mandate as a permissible tax. Tax Cannon v. District of Columbia, 783 F.3d 327 (D.C. Cir. 2015).  The District of Columbia requires retired police officers who work in the D.C. Protective Services Division to offset their salary by the amount of their police pension.  Judge Kavanaugh, writing for a unanimous panel, determined that the offset did not constitute a tax.  “It does not raise revenue.  Rather, it operates on the opposite side of D.C.’s financial ledger.  It reduces D.C.’s total expenditures on salaries.”  Judge Kavanaugh characterized the salary reduction statute as “nothing more than a way for D.C. to prevent so-called double-dipping and thereby reduce its expenditures on employee salaries.” Gibson Dunn Supreme Court Practice: Gibson Dunn has a longstanding, high-profile presence before the Supreme Court of the United States.  No law firm has a stronger record of success in representing clients before the Supreme Court. Gibson Dunn lawyers have argued more than 150 cases before the Supreme Court. Twelve of our current attorneys have argued before the Supreme Court Our Supreme Court victories have been some of the biggest in history, including Bush v. Gore, Citizens United v. Federal Election Commission, Hollingsworth v. Perry, Wal-Mart Stores, Inc. v. Dukes, Alice Corp. v. CLS Bank International, N.L.R.B. v. Noel Canning, Daimler AG v. Bauman, and many more. 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. We are also unmatched in advocacy before the federal and state courts of appeals. Gibson Dunn attorneys argue one appeal approximately every three business days. Each year, we brief and argue federal appeals in every regional circuit, the D.C. Circuit, and the Federal Circuit. We also argue dozens of state court appeals annually.  Numerous currently serving state solicitors general began their careers at Gibson Dunn. Appellate and Constitutional Law Group Co-Chairs: 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) © 2018 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

The Texas Bar Foundation presented Dallas partner Allyson Ho with its 2018 Gregory S. Coleman Outstanding Appellate Lawyer Award. The award is given to a lawyer who exhibits “an outstanding appellate practice while maintaining a strong commitment to providing legal services for the underserved,” a “dedication to mentoring young attorneys” and “a strong moral compass to guide both professional and personal pursuits.”  Honorees were recognized at the annual dinner in June 2018.

Click for PDF On June 25, 2018, the Supreme Court of the United States assuaged the concerns of many that antitrust enforcement would hobble new and creative ways of conducting business, particularly businesses that have relied on technology to bring consumers and sellers together by offering a “platform” that creates a highly convenient way for them to interact and consummate sales. In Ohio v. American Express, the Court held that plaintiffs failed to prove a Sherman Act Section 1 violation in the credit card market because they presented evidence of alleged anticompetitive effects only on the merchant side of the relevant market. Without evidence of the impact of the challenged practices on the cardholder side of the market, the Court concluded that plaintiffs failed to carry their burden to prove anticompetitive effects. The Court’s opinion has several important elements beyond its holding that certain two-sided platform markets must be evaluated as a single relevant market: Significantly, the Supreme Court discussed a framework for analyzing alleged restraints under the rule of reason for the first time.  Both the majority and dissent adopted the parties’ agreed-upon, three-step framework for analyzing restraints under the rule of reason.  Under this framework, the plaintiff bears the initial burden of proving anticompetitive effects, which shifts the burden to the defendant to show a procompetitive justification.  If the defendant meets its burden of proving procompetitive efficiencies, then the burden shifts back to the plaintiff to show that those efficiencies could have been achieved through less restrictive means.  Notably, the Court did not mention any balancing of anticompetitive effects against procompetitive justifications. The third step in the above rule of reason framework may be the focus of scrutiny as plaintiffs look to find “less restrictive alternatives” to overcome defendants’ evidence of a procompetitive rationale for a challenged practice.  DOJ-FTC Competitor Collaboration Guidelines provide, however, that the agencies “do not search for a theoretically less restrictive alternative that is not realistic given business realities.”  Section 3.36(b). The Court also found that evidence that output of transactions in the relevant market had increased during the relevant period undercut plaintiffs’ reliance solely on evidence of price increases by Amex.  The Court’s reliance on the failure to prove output restriction reinforces the continued vitality of the Court’s prior decision in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993). The Court rejected the argument that market definition could be dispensed with based on evidence of purported actual anticompetitive effects in the form of merchant fee increases by Amex.  The Court in this regard distinguished horizontal restraints, which in some cases may be analyzed without “precisely defin[ing] the relevant market,” and vertical restraints, stating that vertical restraints frequently do not pose any threat to competition absent the defendant possessing market power. Therefore, it is critical to precisely define the relevant market when evaluating vertical restraints. The case arose out of a decades-old practice.  For more than fifty years, American Express Company and American Express Travel Services Company (together, “Amex”) have included “anti-steering” provisions in contracts with merchants who agree to accept American Express cards as a means of payment. These provisions prohibited merchants from trying to persuade customers to use cards other than American Express cards or imposing special conditions on customers using American Express cards. Absent the challenged provisions, merchants had a strong incentive to encourage customers to use other credit cards because other credit card providers charged merchants lower fees than Amex.  Amex uses the money received from its higher merchant fees to fund investments in its customer rewards program, which offers cardholders better rewards than those offered by rival credit card companies. The United States and several States (“plaintiffs”) sued Amex in October 2010, alleging that the anti-steering provisions violated Section 1 of the Sherman Act. The United States District Court for the Southern District of New York entered judgment for plaintiffs, finding that the provisions violated Section 1 because they caused merchants to pay higher fees by precluding merchants from encouraging cardholders to use an alternative card with a lower fee at the point of sale. The district court sided with plaintiffs in finding that the credit card market was really two separate markets: a merchant market and a cardholder market. The United States Court of Appeals for the Second Circuit reversed, holding that the district court erroneously considered only the dealings between Amex and merchants.  As a result, it failed to recognize that the credit card market was a single, “two-sided” market, not two separate markets.  Therefore, the impact of the anti-steering provisions on the cardholder side of the market had to be analyzed in order to determine if those provisions had a substantial anticompetitive effect in the relevant market.  The Supreme Court affirmed in a 5-4 decision. The majority, in an opinion authored by Justice Thomas, agreed with the Second Circuit that the credit card market should be considered as a single market because credit card providers compete to provide credit card transactions, but can create and sell those services only if both the cardholder and the merchant simultaneously choose to use the credit card network as a means of payment. The market is “two-sided” in that it involves the simultaneous provision of services to both cardholders and merchants; in any transaction, a credit card network cannot sell its payment services individually to only the cardholder or only the merchant. The majority observed that the credit card market exhibited strong “indirect” network effects because prices to cardholders affected demand by merchants and prices to merchants affected demand by cardholders.  Higher prices to cardholders would tend to decrease the number of cardholders, which would decrease the attractiveness of that card to merchants, which in turn would decrease the attractiveness of the card to cardholders.  Conversely, higher prices to merchants would decrease the number of merchants accepting the card, which would decrease the utility of the card to cardholders, decreasing the number of cardholders. In either case, the provider increasing prices faced the risk of “a feedback loop of declining demand.”  Providers therefore had to strike a balance between the prices charged on one side of the platform and the prices charged on the other side. In the credit card market, different cardholders might attribute different value to broad acceptance of their card by numerous merchants or to generosity of “cash back” or other loyalty or usage rewards. Similarly, merchants might assign different values to the level of fees by a credit card provider versus the card’s ability to present the merchant with a higher proportion of “big spenders.” Significantly for future cases, the majority observed that not every “platform” business bringing together buyers and sellers should be considered to be a single market. The majority focused on the strength of the indirect network effects—that is, the potential for increased prices on one side to reduce demand on the other side, prompting a feedback loop of declining demand.  The majority discussed a newspaper selling advertisements to advertisers as an example of a “platform” that should not be considered a single market. According to the majority, the indirect network effects operated only in one direction. Advertisers might well care if high subscription prices reduced the number of readers. But because readers are largely indifferent to the amount of advertising in a newspaper, a reduction in advertisements caused by higher advertising rates would not lead to a reduced number of readers. The Court emphasized the importance of market definition in analyzing alleged anticompetitive effects caused by vertical restraints. Unlike horizontal restraints among competitors, the majority wrote, “[v]ertical restraints often pose no risk to competition unless the entity imposing them has market power, which cannot be evaluated unless the Court first defines the relevant market.” Thus, the Court disagreed with plaintiffs’ assertion that under FTC v. Indiana Federation of Dentists, 476 U.S. 447 (1986), evidence of actual adverse effects in the form of increased merchant fees was sufficient proof.  The Court distinguished Indiana Federation of Dentists by noting that it involved a horizontal restraint, and therefore the Court concluded it did not need to precisely define the relevant market to evaluate the restraint’s competitive impact. The dissent, authored by Justice Breyer, accused the majority of “abandoning traditional market-definition approaches” by declining to define the relevant market by assessing the substitutability of other products or services for the product or service at issue. As the dissent noted, because consumers’ ability to shift to substitutes constrains the ability of a seller to raise prices, it is necessary to include reasonable substitutes within the relevant market. The dissent argued that the card providers’ services to merchants and services to cardholders were complements, not substitutes, in the sense that, like gasoline and tires for a car, both must be purchased to have value. But this analogy is inapt in at least two respects. First, there is no need for simultaneity in the purchase of gasoline and tires. Few, if any, consumers buy new tires each time they purchase gasoline. Second, the two complementary products are both purchased by the owner or operator of the vehicle. The seller of gasoline and tires does not have to purchase a service from anyone in order to sell the gasoline or tires (unless the buyer wishes to use a credit card, in which case both the buyer and the merchant must simultaneously choose to use the payment services offered by the credit card provider). This is unlike the credit card context where both the cardholder and the merchant must simultaneously choose to use the payment services offered by the credit card provider. The Court’s acceptance that some businesses operate in a single, two-sided market has implications for antitrust cases involving technology-based “platform” businesses, such as ride-sharing and short-term home rentals, that have become a substantial and growing component of the economy. The outcomes in future cases are likely to turn on the strength of the evidence showing that network effects constrain pricing decisions. Makan Delrahim, the head of the DOJ’s Antitrust Division, said this past week that he had feared the Supreme Court would cause “harm to our economy” by creating a rule for evaluating two-sided markets that would harm new “platform” business models like Uber, AirBnB and eBay. He described DOJ’s philosophy with respect to the case as “it’s one interrelated market, it’s a new business model, and you can’t stick your head in the sand and say, ‘If you’re raising the prices – whether on the consumer or driver – it can’t have an effect.’ And it could be a positive effect, because a Lyft can do the same thing and now be able to compete better with an Uber or whatever the next one would be.”  While Mr. Delrahim acknowledged that the Amex ruling likely would apply to companies like Uber and AirBnB, he does not believe Google will benefit from it, noting that consumers do not use Google Search just to see advertisements. Although the Amex decision is notable for its focus on commercial realities and acceptance of the existence of two-sided markets, there are other significant aspects of the decision.  Most notably, the Court discussed a three-step, burden-shifting framework for analyzing restraints under the rule of reason. This provides welcome guidance, as the Court had not previously discussed any framework or methodology for evaluating claims under the rule of reason.  While the framework was agreed-upon among the parties below, its adoption by the majority (and acceptance by the dissent) nevertheless provides important instruction regarding the steps to be conducted by courts in weighing rule of reason claims under either Section 1 or Section 2.  In the first step of the decision’s framework, the plaintiff bears the burden to prove anticompetitive effects in the relevant market. If the plaintiff carries that burden, in the second step the burden shifts to the defendant to demonstrate a procompetitive rationale for the challenged restraint. If the defendant makes that showing, then in the third step the burden shifts back to the plaintiff to “demonstrate that the procompetitive efficiencies could reasonably be achieved through less restrictive means.” The Court held that plaintiffs had not satisfied the first step of the rule of reason framework. As with many cases, the Court’s definition of the relevant market determined the outcome. To prove anticompetitive effects, plaintiffs relied solely on direct evidence of Amex’s increases in merchant fees during 2005-2010. However, the Court concluded that because the market was two-sided, such evidence was incomplete and did not demonstrate anticompetitive effects in the form of either higher prices for credit card transactions or a reduction in the number of such transactions. Indeed, the Court found that certain evidence in the record cut against plaintiffs’ claim that the anti-steering provisions were the cause of any increases in merchant fees by Amex—for example, rival card companies had also increased merchant fees. The Court also noted that credit card transaction output had increased substantially during the relevant period, further undermining any claim of anticompetitive effects. Quoting from Brooke Group, 509 U.S. at 237, the majority wrote that it will “not infer competitive injury from price and output data absent some evidence that tends to prove that output was restricted or prices were above a competitive level.”  The Court’s focus on output restriction under Brooke Group demonstrates that the Court’s continued insistence on the application of sound economic principles in evaluating antitrust claims. While it noted Amex’s rationale for the anti-steering provisions, the Court did not address the second or third step of the rule of reason framework given its finding that the plaintiffs had failed to satisfy the first step. The Court’s recognition in the third step that proven procompetitive efficiencies may be overcome by a showing of less restrictive means of achieving those efficiencies will likely cause private plaintiffs and enforcement agencies to increase their focus on potential alternatives. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please feel free to contact any member of the firm’s Antitrust and Competition practice group or the following authors: Trey Nicoud – San Francisco (+1 415-393-8308, tnicoud@gibsondunn.com) Rod J. Stone – Los Angeles (+1 213-229-7256, rstone@gibsondunn.com) Daniel G. Swanson – Los Angeles (+1 213-229-7430, dswanson@gibsondunn.com) Richard G. Parker – Washington, D.C. (+1 202-955-8503, rparker@gibsondunn.com) M. Sean Royall – Dallas (+1 214-698-3256, sroyall@gibsondunn.com) Chelsea G. Glover – Dallas (+1 214-698-3357, cglover@gibsondunn.com)