That May Be A $500 Bow Tie I'm Wearing

kendallgray@andrewskurth.com (Kendall Gray) — Thu, 02 Sep 2010 18:16:12 GMT

I will admit it. My sense of style is not for everyone. Atypical. Iconoclastic. Nerdy. Or just bad. I would accept any of those words as accurate descriptors.

But as I sit here in my Brooks Brothers seersucker suit and my Brooks Brothers regimental stripe bow tie, I am torn between feeling the outrage of a genetically predisposed defense lawyer and disappointment that my ship came in and I simply missed it. I was alerted to my lost opportunity by stories in the ABA Law Journal, the Wall Street Journal, Law360 and Reuters.

You see, my natty bow tie is fitted with the Adjustolox mechanism, allowing me to adjust a "one size" bow tie to fit my scrawny neck without the slippage that occurs with inferior mechanisms. Naturally, such a useful and novel invention as the Adjustolox mechanism is patented.

Or, was patented. You see, the patents expired in 1954 and 1955.

Which was also probably the last time that large numbers of men dressed like I do.

Alas for my beloved Brooks Brothers, because a bow-tie-wearing patent lawyer purchased some bow ties still marked with the expired patent numbers. He brought a "false marking" claim against the glorious font of men's business style.

Apparently the very future of The Republic is placed at risk if one wrongly claims a patent for the Adjustolox. Presumably the market is being improperly excluded from the useful arts and sciences of bow tie adjusting technology. As a result the feds can fine you $500 for each Adjustolox you sell with expired patent numbers--if you do so for the purpose of deceiving the public. See 35 U.S.C. § 292.

Let's see:

$500 x [gajillion ties sold] = No longer practicing law to earn a living.

If, however, you sell falsely labeled Adjustoloxae simply because no one has looked at a bow tie since 1955, it's all good.

But you still have to prevail against Raymond E. Stauffer, the bow-tie-festooned patent lawyer, because 35 U.S.C. § 292 allows "any person" to seek a $500-per-Adjustolox penalty and share 50% of the take with the gubmint.

That was the ruling in Stauffer v. Brooks Brothers, Inc., released Tuesday by the Federal Circuit. Congress can create its own "injury in fact" -- a statutory violation -- and then essentially deputize "any person" to pursue collection for that injury.

Of course, the Federal Circuit was not asked to rule upon the wisdom of such a statute. That is the purview of Congress alone. If it were otherwise, little that Congress commits to writing would survive.

But who knew that my retro wardrobe could be such source of potential riches? No telling what revenue I could garner from investigating the patents on other aspects of my geezer lifestyle. No telling what else I prize is marked with patents that expired 50 years ago.

Mobile Content Providers Settle Unauthorized Billing Class Action

Thu, 02 Sep 2010 17:00:00 GMT

While the FCC has taken an interest in mobile marketing by carriers -- most notably with investigations of carrier early termination fees and proceedings examining wireless consumer "bill shock" -- it also is helpful to remember that the mobile content providers are subject to enforcement for deceptive marketing practices. Our colleagues at the Ad Law Access blog covered a recent settlement of a class action lawsuit by several mobile marketers. They remind marketers to clearly and conspicuously disclose costs so that consumers know what they are obligated to pay. Mobile service providers should ensure that their billing and collection agreements impose such an obligation on the content provider and that the carrier properly polices compliance.

Read the Ad Law Access story here.

California Legislature Fails to Pass 33% Renewable Portfolio Standard

Thu, 02 Sep 2010 16:24:56 GMT

An alert written by Stoel Rives partner Seth Hilton:

Last night, the California legislature failed to pass Senate Bill 722—the 33% Renewable Portfolio Standard (RPS) legislation—by the close of the legislative session. The bill would have increased California’s RPS to 33% for both investor-owned and publicly owned utilities. It would also have placed limits on the use of renewable resources located out-of-state to meet California’s RPS—utilities would have been required to meet a certain percentage of their RPS obligations through resources whose first point of interconnection was a California balancing authority, or whose power is transmitted to California through a dynamic transfer arrangement or scheduled hourly or inter-hourly into California. The proposed legislation also would have authorized the use of renewable energy credits (RECs)—the environmental attributes of renewable power separated from the power itself—for RPS compliance, but would have imposed limits on the amount of RECs that could be used to meet the utilities’ RPS obligation.

Last year, California also failed to enact a 33% RPS bill, similar to SB 722, although the process proceeded farther than this year. Last year, the legislature passed the bill, but it was vetoed by Governor Schwarzenegger due to concerns about the limits placed on the use of out-of-state generation. Like SB 722, last year’s bill would have limited the extent to which California could rely on out-of-state renewable resources to meet California’s RPS. Part of the failure of SB 722 to pass this year can be attributed to disagreements between the legislature and the Governor regarding what limits would be appropriate for out-of-state generation.

Despite his concern about limits on out-of-state generation, Governor Schwarzenegger supports increasing California’s RPS to 33%. Following his veto of the legislation last year, he issued an executive order directing the California Air Resources Board (ARB) to develop regulations to implement a 33% RPS under authority the ARB had under AB 32, California’s Global Warming Solutions Act. Pursuant to the executive order, the ARB was to enact those regulations by July 2010. Shortly before the ARB considered those regulations, the Governor requested via letter to the ARB that it postpone consideration of those regulations while the legislature attempted to pass a 33% RPS bill. ARB therefore moved the hearing on those regulations to September 22, 2010. With the failure of SB 722, ARB may now move forward with those regulations, although there are questions regarding the extent to which those regulations would be implemented by the new Governor.

In March, the California Public Utilities Commission (CPUC), which is responsible for administering portions of California’s current 20% RPS for investor-owned utilities, adopted a decision that would have authorized the use of RECs to meet the 20% RPS, subject to certain caps. In May, the CPUC stayed that decision. If SB 722 were enacted, it would have preempted the CPUC’s efforts to set standards for the use of RECs. Just last week, the CPUC issued a proposed decision that, if adopted, will lift the stay. The proposed decision was seen by many as an effort to encourage the legislature to act on SB 722 and adopt standards for the use of RECs. Now that the legislation has failed, the CPUC is free to move forward with its proposed decision allowing the use of RECs, and to lift the stay of the March decision.

If you have any questions about the issues of this update, please contact:

Steven Hall at (503) 294-9434 or schall@stoel.com
Seth Hilton at (916) 319-4749 or sdhilton@stoel.com
Jennifer Martin at (503) 294-9852 or jhmartin@stoel.com
Marcus Wood at (503) 294-9434 or mwood@stoel.com

FDCPA Fee-Shifting Applies To Appellate Proceedings, Tenth Circuit Holds

Thu, 02 Sep 2010 16:07:46 GMT

In Anchondo v. Anderson, Crenshaw & Associates, L.L.C, --- F.3d ---, 2010 WL 3261155 (10th Cir. Aug. 16, 2010), the Tenth Circuit held that, like that of the Truth in Lending Act (TLA), the Fair Debt Collection Practices Act’s (FDCPA) fee-shifting provision encompasses appellate...

Grandma Robbed by Nazis - Grandson Sues Spain to Recover Stolen Paintings

Thu, 02 Sep 2010 12:24:16 GMT

In August, 2009, the Ninth Circuit decided en banc by 9-2 that a California resident Claude Cassirer can sue Spain to recover his grandmother's oil painting "Rue Saint-Honore, apres-midi, effet de pluie," painted by the French impressionist Camille Pissarro and taken by the Nazi government. (Cassirer v. Kingdom of Spain, 2010 U.S. App. 2010 WL 3169570 (9th Cir. 2010).) The court rejected Spain's defense, holding that the defendants cannot claim a sovereign immunity from suit in the U.S. under the Foreign Sovereign Immunities Act ("FSIA").

The plaintiff's grandmother, Lilly Cassirer, owned the painting in Germany. After the World War II started, being threatened as a German Jew, she had to leave the country and "sell" the painting without being paid. The Gestapo of the Nazi government eventually confiscated the painting, which was purchased by several collectors and ended up in the hand of the Thyssen-Bornemisza Collection Foundation, an instrumentality of Spain. When the plaintiff Claude Cassirer discovered in 2000 that the painting was displayed at the Madrid museum, he asked the Spanish government to return it, but the request was refused.

He sued Spain and the Foundation in the U.S. district court of California in 2005, seeking return of the painting or recovery of damages for conversion. In response, Spain and the Foundation filed a motion to dismiss, claiming that the plaintiff cannot sue them under the FSIA. The FSIA makes a foreign country immune from the jurisdiction of the U.S. courts unless an exception applies. (28 U.S.C. §§ 1602, 1604.) The only pertinent exception in this case is provided by section 1605(a)(3), "takings exception," where a foreign state is not immune if "right in property [was] taken in violation of international law . . . and that property . . . is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States." (28 U.S.C. § 1605(a)(3).) Against this background, the Ninth Circuit focused on three issues.

(1) Does the FSIA's takings exception apply to Spain, which did not expropriate the property?

The court dismissed the defendants' argument that the takings exception does not apply to Spain, which subsequently purchased the painting. The court reasoned that the plain language of section 1605(a)(3) does not require that defendant foreign state be the entity that took the property in violation of international law. The court pointed out that the textual passive voice "property taken in violation of international law" focuses on an event without regard to a specific foreign country that took the property. In addition, it briefly examined Congress' intention in legislating the FSIA, and concluded that the purpose of the FSIA buttresses the plain meaning of the text.

(2) Was the Foundation engaged in sufficient commercial activities in the U.S.?

The court also dismissed another claim by the defendants that the Foundation's activities in the U.S. were de minimis and in lack of the requisite connection to the property. The court stated that the Foundation engaged in many commercial activities in the U.S., including buying books, selling the museum's products, and advertizing the museum. Again, the court looked to the plain language of section 1605(a)(3), and held that the clause does not require plaintiff's claim to arise out of specific activity involving the property in the U.S., unlike the traditional concepts of specific personal jurisdiction.

(3) Is the plaintiff required to exhaust judicial remedies in Spain before suing in the U.S.?

Further, the court dismissed Spain's claim that the plaintiff is required to exhaust judicial remedies available in local jurisdiction (here Spain or Germany) before the court may determine whether Spain is immune from suit. The court relied on the plain language of section 1605(a)(3) to conclude that the text does not contain such requirement. The general rule is that judicial discretion governs where Congress has not clearly required exhaustion, the court stated.

Accordingly, the Ninth Circuit concluded that the defendants are not immune from a suit, and the courts in the U.S. entertain subject matter jurisdiction over them. Beyond that, the court expressed no opinion, leaving the decisions to the district court.

Dissents

Two judges disagreed with the majority, reasoning that a taking by the Nazi government in violation of international law does not invoke waiver of sovereign immunity by Spain. As opposed to the majority's opinion, the dissents think that the plain meaning of the statutory text is ambiguous, which demands more exacting statutory interpretation than the majority did. For example, they stated that the statute should not be construed in a way to violate the Due Process Clause of the U.S. Constitution or international law, as done by the majority. Further, for policy reason, the dissents expressed concern of numerous lawsuits as a consequence of allowing jurisdiction over any foreign state that possesses property that was previously taken by another state in violation of international law. They were also concerned about diplomatic implications by letting Spain suffer loss of its sovereign immunity.

Class Certification Denied in Microwave Popcorn Litigation

Thu, 02 Sep 2010 11:55:00 GMT

A federal court has denied class certification in a proposed consumer fraud class action arising from the sale of microwave popcorn with artificial butter flavoring. See Courtney Fine v. Conagra Foods, Inc., No. CV 10-01848 SJO (C.D. Calif., Aug. 27, 2010).

The facts: Diacetyl is a naturally occurring chemical in butter, and was also used in artificial butter flavors for decades. In 2007 defendant Conagra, maker of microwave popcorn, issued a press release to the public stating it was no longer adding the compound diacetyl, which has been associated with lung injury in factory workers exposed to high doses, to its butter-flavored microwave popcorn products. Since the announcement, defendant "reformulated" all butter-flavored varieties of Orville Redenbacher's and Act II microwave popcorn in response, it said, to consumer uncertainty regarding the ingredients of the microwave popcorn. Conagra also redesigned the packaging for these products to display the words "No Added Diacetyl."

Plaintiff alleged that she understood the advertising claim to be there was no diacetyl in the new popcorn, as opposed to no added diacetyl, and alleged she relied on defendant's claims that there was "no diacetyl" in the popcorn products when making the purchases. Plaintiff asserted, however, that diacetyl is still present in the products (as part of natural butter). Plaintiff further asserted that had she known the representation regarding the diacetyl was false, she would not have made the purchases.

Plaintiff alleged causes of action for: (1) false and misleading representation of material facts, constituting unfair competition within the meaning of California Business & Professions Code §§ 17200, et seq. ("UCL"); and (2) false advertising in violation of Business & Professions Code §§ 17500, et seq. ("FAL"). She further alleged that she suffered a monetary loss as a result of defendant's alleged actions, which were in violation of the Consumer Legal Remedies Act ("CLRA"), Cal. Civ. Code §§ 1750, et seq.

Last March, Conagra removed the case from state court to federal (Judge Otero). Then they filed a Motion to Dismiss based on various grounds, including that: (1) Plaintiff does not allege a cognizable injury resulting from defendant's products and therefore lacks standing; (2) Plaintiff fails to state a claim under the UCL, FAL, and CLRA as a matter of law under Rule 12(b)(6). The gist of the final argument was that plaintiff "received exactly what she paid for." But, the court was persuaded that plaintiff adequately asserted that she did not get what she paid for, as she was under the impression that defendant's popcorn products were free of diacetyl. That is, she asserted that Conagra’s placement of "No Diacetyl Added" on the packaging is a material misrepresentation, and that reasonable consumers could (somehow) have taken the label to mean that diacetyl did not exist in the product at all.

Plaintiffs then moved for certification of a class consisting of all persons residing in the state of California who purchased Orville Redenbacher's brand Light Butter, Movie Theater Butter Light microwave popcorn, and/or ACT II brand 94% Fat Free Butter, Light Butter, and Butter Lover's microwave popcorn for personal use and not for resale since September 1, 2007. Plaintiff sought certification under Rule 23(b)(3) and 23(b)(2), but argued her "primary goal is to obtain injunctive relief by way of an order enjoining Defendant from its continued practice of making misleading advertising and label claims about its butter flavored microwave popcorn products."

The court denied the motion for class certification on three related grounds. The first problem was that in the court's prior Order Denying Defendant's Motion to Dismiss (6/29/10), the court had ruled that plaintiff established standing for herself because she alleged that she incurred injury as a result of defendant's allegedly improper conduct. That is, plaintiff's spending money on defendant's popcorn in reliance of defendant's placing "No Added Diacetyl" on the packaging.

In the class Motion, plaintiff sought to certify a class that includes "all persons residing in the State of California who purchased [Defendant's] popcorn for personal use and not for resale since September 1, 2007." Named plaintiff made no mention of the proposed class being comprised only of members who made the purchase as a result of defendant's allegedly false statements, which would be necessary in order to establish standing for the rest of the class. The court noted that other courts have held that class definitions should be tailored to exclude putative class members who lack standing; each class member need not submit evidence of personal standing but, nonetheless, a class must be defined in such a way that anyone within it would have standing. Burdick v. Union Sec. Ins. Co., 2009 WL 4798873, at *4 (C.D. Cal. 2009).

Accordingly, class certification was improper here, given that plaintiff's proposed class included many people who may not have relied on defendant's alleged misrepresentations when making their purchasing decisions.

Second, a related problem was the Rule 23(a) requirement that plaintiff’s claims be typical of the class claims. The court agreed with Conagra that plaintiff failed to adduce facts suggesting that other class members have been injured by the same course of conduct that she asserts injured her. There could be no serious question, said the court, that the vast majority of putative class members here never read (let alone considered) the defendant's statement at issue, do not know what diacetyl is, and did not base their popcorn purchases on diacetyl-related issues. Plaintiff purchased popcorn, she said, because of defendant's allegedly misleading statements regarding diacetyl. Plaintiff's injury was established due to her alleged reliance on defendant's statements. But plaintiff sought to certify a class that would likely include people with varying rationales behind their purchases – many who purchased popcorn based on factors like flavor or brand. Plaintiff thus failed to establish that she could be a typical representative of the class, whose members were buying for all sorts of reasons unrelated to diacetyl.

Third, because the court found that plaintiff was not a typical representative, the court also held that plaintiff was not an adequate representative under Rule 23(a)(4).

What is refreshing about this short opinion is the recognition that Rule 23(a) matters too. Often we see courts giver very cursory analysis of the (a) elements and/or emphasize that regardless of the initial prerequisites the issues of predominance, manageability and superiority dictate the certification result. While the fact that class members undoubtedly bought microwave popcorn for many reasons would impact predominance of individual issues, it also does in fact suggest that the class representative's claims were not typical of the the class, as defined.

(NB. Your humble blogger is involved in the diacetyl litigation, but not this case.)

Whch Mass Tort Cases Deserve Settlement?

Thu, 02 Sep 2010 10:00:38 GMT

Fordham Law professor Howard Erichson (http://law.fordham.edu/faculty/1095.htm) has posted a new working paper that addresses the thorny issue of settlements in mass tort cases. Titled Uncertainty and the Advantage of Collective Settlement, (forthcoming, DePaul Law Review) it posits six different types of uncertainty in mass torts, each of which he links to well-known cases. According to Erichson, there is uncertainty about

1. General causation (eg, Bendectin litigation)
2. Liability (tobacco/Agent Orange)
3. Exposure (ephedra/Wolburn leukemia clusters)
4. Product ID (asbestos)
5. Individual medical causation (Vioxx)
6. Damages

Erichson argues that, for cases 4, 5, and 6, aggregate settlement is a good idea, while litigation is probably better for cases 1, 2, and 3. What's his definition of "good idea"? He makes a few casual references to "justice," but what he really seems to mean is a settlement where the defendant pays compensation in proportion to the harm it (likely) caused. As Erichson puts it:

When parties face uncertainty about individual causation, a collective settlement may offer an excellent opportunity for an outcome that reflects proportional liability even in the absence of a proportional liability rule of tort law. However, collective settlement offers this advantage only when the uncertainty relates to the likelihood that each plaintiff will prevail on causation. If causation is uncertain but it is clear that each plaintiff can or cannot meet the preponderance standard, then collective settlement would reflect the same overliability or underliability that would result from individual or collective adjudication.

When liability and causation are clear but the amount of damages is uncertain, collective resolution – whether by adjudication or settlement – offers the benefit of reducing variability and possibly providing greater accuracy. Particularly with regard to punitive damages, collective resolution can serve the important function of reducing variable results among similarly situated claimants.

Erichson likes typologies, and views himself as providing starting points for further analysis by other researchers. So the fair question to ask is: is this a useful breakdown of types of uncertainty? And the answer is: somewhat.

One problem is that it seems Erichson stretched a little to get six categories. In particular, "individual medical causation" feels like a fudge. There's little to distinguish it from liability, except that--according to Erichson--in one case, the legal question is uncertain, and in the other, the factual question is. In either case, however, it would require individual trials to determine whether the substance caused the illness, and whether that meant that the manufacturer was liable. (For example, in some mass tobacco cases, it appears one of the larger problems with aggregate treatment was how to address the difficult issue of determining individual medical causation.)

And the second problem is that Erichson really doesn't consider the means by the settlement will be achieved, and the method of settlement can have a tremendous effect on its "justice." There's no question that the parties would have difficulty pushing through a mass-tort settlement as a classwide settlement. And while it is possible to settle a mass tort without invoking Rule 23, those settlements bring their own problems. Among other issues, settling many different cases on the same "take it or leave it" terms seems unfair, but engaging in a lengthy plaintiff-by-plaintiff claims may not save much time or money over the original trials. As Judge Eldon Fallon observed about the Vioxx settlement:

The potential harm to the public's perception of the judicial process is especially acute in the instant case because of the large number of claimants participating in the settlement. The approximately 50,000 plaintiffs and the $4.85 billion settlement fund have captured the public's attention, resulting in a heightened degree of public scrutiny on the settlement proceedings and the judicial process in general. Disproportionate results and inconsistent standards threaten to damage the public's faith in the judicial resolution of mass tort litigation by creating an impression of inherent unfairness.

That, right there, is the rub. To make the settlement seem fair, it has to be fair, treating like cases similarly, and different cases differently. Judge Fallon's solution was to assert the power to review individual plaintiffs' lawyers contingent-fee contracts (which would check the lawyers' understandable impulse to settle as many cases as possible on whatever terms). That is an unwieldy solution, but better than nothing. How to resolve mass-tort claims like this--where individual causation is uncertain--remains a very difficult question. Erichson's proposed typology is useful on the easier questions, but unfortunately glosses over one of the most challenging issues in aggregate litigation today.

ALJ Rogers Issues Final ID Finding No Infringement In Bulk Welding Wire Investigation

Thu, 02 Sep 2010 01:48:05 GMT

On August 31, 2010, ALJ Rogers issued a lengthy Final Initial Determination in Inv. No. 337-TA-686, Certain Bulk Welding Wire Containers and Components Thereof and Welding Wire, finding that...

En Banc Federal Circuit Affirms ITC Decision on Patent Misuse

Thu, 02 Sep 2010 01:43:12 GMT

On August 30, 2010, the en banc Federal Circuit affirmed the decision of the ITC in Inv. No. 337-TA-474 (Princo Corp, et al. v. International Trade Commission, et al., Fed. Cir. 2007-1386). The...

New York Enacts Domestic Workers' Bill of Rights

Wed, 01 Sep 2010 22:53:35 GMT

On August 31, 2010, just in time for Labor Day, New York Governor David Paterson signed into law the “Domestic Workers Bill of Rights” (“Bill of Rights”), which grants certain employment protections to household domestic workers such as nannies, caregivers and housekeepers. The Bill of Rights, which takes effect on November 29, 2010, is the first of its kind in the nation and amends New York Labor Law, in addition to other statutes, to entitle domestic workers to receive overtime pay, one day of rest per week or overtime pay when they work on their day of rest, and three days of paid time off after one year of employment. To learn more about the law and its implications for employers, please continue reading Littler's ASAP, "New York Enacts Bill of Rights for Domestic Workers," by Stephen A. Fuchs.

Videx, Inc. Locks on to Medeco Security's Alleged Infringement

Wed, 01 Sep 2010 22:51:43 GMT

Videx, Inc., a Corvalis-based manufacturer of electronic access control products, has sued lock manufacturer Medeco Security Locks, Inc., for infringement of Videx’s U.S. Patent No. D457,051, entitled “Key for Electronic Lock.” However, Videx’s Complaint is short on details and does not specifically identify the allegedly infringing Medeco product(s). Rather, Videx alleges only that Medeco has made, used, imported, offered to sell, or sold “keys" embodying the patented invention.

What does the patented design look like? According to the drawings, like this:

In case you are having trouble visualizing what this might look like in practice, as I did, photos of Videx electronic key products that appear to embody the invention can be found on the Videx website here (under the “Keys” tab).

The case, Civ. No. 10-832-ST, has been assigned to the Hon. Janice M. Stewart.

California's Proposition 23

Wed, 01 Sep 2010 20:46:39 GMT

This coming campaign season, Californians will be given the opportunity to vote on Proposition 23, an initiative that would suspend California's clean energy legislation, the Global Warming Act of 2006 or AB32. The California Jobs Initiative, a movement reportedly financed by Texas oil companies, is charging that AB32 will cost California 1.1 million jobs and $3.7 billion a year in higher energy costs.

Proponents of AB32 are answering the charge. Joe Romm, a well-known climate expert and blogger, considers it to be "one of the most progressive pieces of environmental legislation ever enacted." According to Romm, in addition to reducing pollution levels and dependence on foreign oil, AB32 is spurring market growth in California’s clean tech and clean energy industries. His climate blog reports that AB32 has stimulated more than $9 billion of private investment, helped pave the way for more than 12,000 companies, and has contributed to the creation of more than 100,000 green jobs. Also, by sending a clear carbon price signal, AB32 provides the long term market certainty necessary for businesses to invest. As a result, California’s clean energy sector has grown stronger and now sits at the forefront of our nation’s energy innovation. In 2007 alone, Californian businesses patented 1,401 new clean technologies, constituting one sixth of all clean energy technology patents in the nation for that year. Contrary to the arguments of the jobs initiative, supporters of AB32 argue that the law has helped buoy California’s economy through the recent recession.

Perhaps more importantly, as California has historically done with clean air legislation, AB32 serves as a model for federal action. Suspending AB32 would further complicate the struggles to enact federal legislation on climate change. If California decides that it cannot afford to address climate change, other states will be hesitant to follow California's lead. This would not be welcome news for climate change activists at a time when our most respected environmental groups feel as if they’re losing the battle over the climate bill. Regardless of the outcome this November, it will serve as an important referendum over energy policy.

Enforcement Action by Federal Trade Commission Highlights Importance of Social Media Guidelines for Employees

Wed, 01 Sep 2010 17:15:43 GMT

Employees who post reviews of their employer’s products and services on social media sites, without disclosing their corporate affiliation, can land their employer in an FTC enforcement action. The FTC’s second enforcement action for violation of the agency’s endorsement guidelines, announced on August 26, makes this point.

According to the FTC, Reverb Communications, an on-line public relations firm, sought to boost sales of its clients’ gaming applications by having its employees post positive reviews on iTunes. Over the course of nine months, Reverb employees, posing as disinterested users, gave clients’ games a rating of 4 or 5 and posted comments, such as “Amazing new game,” “ONE of the BEST,” and “Really Cool Game.” According to the FTC, these reviews were misleading because they did not, as suggested, come from independent, ordinary consumers, but from Reverb employees who had a financial incentive to provide a positive endorsement.

In the agreement resolving the FTC’s complaint, Reverb agreed, among other things, (a) not to permit its employees to endorse any product without conspicuously disclosing the employee’s connection to Reverb and/or the manufacturer or advertiser of the product; (b) to take reasonable steps to remove the endorsements that were posted without full disclosure; (c) to maintain for five years all documents related to the company’s compliance with the agreement; and (d) to obtain for five years all current and future employees’ acknowledgement of receipt of the company’s agreement with the FTC.

With social media sites offering endless opportunities to recommend and review products and services, and employers increasingly pushing into Web 2.0 to promote their own products and services, well intentioned but misleading endorsements can easily mushroom throughout the Web. Employers can reduce this risk by explaining in a social media policy how the FTC defines an endorsement and by requiring any employee who provides an endorsement to disclose conspicuously his or her corporate affiliation. In addition, employers, as part of their social media training, should explain that even a numerical score or a brief comment about the employer’s products or services on a site not sponsored by the company could constitute an “endorsement” under the FTC’s guidance. The training also can provide the employee with different ways to disclose their affiliation with the employer, such as by stating, “I work in Employer’s product development department, and I think our product is the best in its class,” or by including the employer’s name and the employee’s job title when posting a comment.

This entry was written by Philip L. Gordon.

Photo credit: parasoley

An Ideal Time for Hospitals to Reevaluate Strengths & Strategies for Using those Strengths

Wed, 01 Sep 2010 15:36:59 GMT

Our McGuireWoods colleagues, Scott Becker and Bart Walker, recently published an article entitled "Strategies for Hospital Leadership and Identifying Strengths, Allocating Hospital Resources and Focusing on Profitable Niche Leadership" which contains key concepts on strategic planning for hospitals. In light of healthcare reform legislation, trends in reimbursement, growing interest in accountable care organizations and other issues facing the U.S. healthcare industry, now is an ideal time for hospital leaders to reevaluate their strengths and use those strengths to meet their challenges

Progress Made In the Development of California's Green Chemistry Regulations

Wed, 01 Sep 2010 13:48:22 GMT

This post was written by Eric McLaughlin.

Since the enactment of California’s two landmark green chemistry laws in September 2008 (AB 1879 and SB 509), significant effort has been made to develop their implementing regulations. This process has proven to be difficult and controversial, because a compromise must be reached between numerous competing concerns, most notably the legislative mandate to protect human health and the environment, and the significant costs to be imposed on companies manufacturing and selling consumer products in California. The process has also come under intense nationwide scrutiny, because California's Green Chemistry Initiative is considered a possible model for national chemical policy reform.

State regulators at the Department of Toxic Substances Control (DTSC) have until January 1, 2011 to enact the final version of the green chemistry regulations, known as the Safer Consumer Products Alternatives (SCPA) regulations. An informal rulemaking process has been used to shape the regulatory framework and extensive public comment has been received from stakeholders, including the scientific community, industry and environmentalists. The most recent draft of the SCPA regulations was released on June 23, 2010 and public comments were accepted through July 15, 2010.

California’s green chemistry laws are intended to completely refocus the regulation of chemicals in consumer products on the beginning of the product life cycle – the design phase. This approach will enable determinations to be made about which chemicals should be used in which products, and weighing the potential effects of those products on human health and the environment before they occur. Drafting the regulations to accomplish this goal, however, has prompted much debate throughout the informal rulemaking process, which has intensified as the SCPA regulations have taken shape, and has focused on six main issues: (1) scope of the regulations; (2) prioritizing chemicals of concern; (3) alternatives analysis; (4) confidential business information; (5) conflicting and duplicative regulations; and (6) the cost of implementation. This post summarizes the status of these issues.

How wide to cast the net – a threshold issue is how to balance the goal of regulating chemicals in consumer products to reduce their potentially harmful effects with the financial burden imposed on the regulated community, particularly in this challenging economy. For instance, some wish to maximize the number of chemicals addressed and populate the public clearinghouse mandated by SB 509 with a great deal of data in a very short period of time. However, the burdens of this approach must also be recognized, which include the enormously time consuming and expensive tasks of identifying all the chemicals used in the broad array of consumer products sold throughout the State, followed by preparing life cycle assessments for each one of them.

Early versions of the SCPA regulations were strongly criticized for borrowing "lists of lists" of chemicals from other regulatory programs and adopting broad categories of loosely defined consumer products. The Green Chemistry Alliance warned that unless chemicals and products are selected and prioritized based upon real life exposure risk, the green chemistry initiative will collapse under its own weight. The current draft relies on this approach to a lesser degree, and instead applies a lengthy list of prioritization factors to chemicals in consumer products that exhibit hazard traits. Nevertheless, the number of chemicals covered at the outset – which include all 800+ listed under California's Proposition 65 – is still an ambitious first step.

Prioritizing chemicals of concern – An effective mechanism is needed to prioritize the chemicals addressed, but various stakeholders have advocated for different criteria to govern that process. Industry’s position is that a policy automatically equating any amount of exposure with harm is not only contrary to AB 1879, but would also put an onerous burden on manufacturers to develop, gather and analyze vast amounts of data on hazard traits and exposure in very little time, and in some cases without good reason. Scientists, including those on the Green Ribbon Science Panel, are concerned that without an effective prioritization mechanism, the green chemistry program will fall victim to “paralysis by analysis.” Environmentalists are similarly concerned that if the regulations do not take effect quickly enough, the primary goal of the program – to avoid adverse human health and environmental impacts – will be thwarted.

The current draft of the SCPA regulations uses a mechanism of funneling down those chemicals and consumer products to be regulated. Chemicals and consumer products are first "considered" based on their volume, toxicity and exposure potential, and then the highest priority products containing the highest priority chemicals are selected for further regulatory analysis. However, there are currently no deadlines for completing the various steps of this subsequent funneling process, which will follow DTSC's January 1, 2011 deadline to specify the threshold hazard traits to be regulated.

Alternatives analysis – The process by which manufacturers will be required to study potential alternative chemicals for use in consumer products remains the subject of much debate. Of particular concern to all involved is who will perform those assessments – industry, third parties working for industry, independent third parties, regulators, or some combination of those entities. Manufacturers prefer to conduct their own alternatives analyses, given the complexity of evaluating chemical uses and exposures, the risks associated with being bound by others’ decisions, and the desire to control the dissemination of confidential information. Assemblyman Feuer, the author of AB 1879, has commented on the need to counter the “adverse incentives” that would result if industry could sidestep regulation by failing to develop data upon which regulatory decisions could be based, e.g., by purposefully neglecting to fill critical "data gaps." Similarly, environmentalists insist that the data considered must be completely transparent to the public and subject to DTSC oversight.

Another criticism of the alternatives analysis process is the lack of deadlines to force industry to complete the various steps involved. DTSC's Acting Director Maziar Movassaghi has acknowledged that the timeframe under the current regulations is variable and that it could take years to find suitable alternatives for certain chemicals currently in use.

Confidential business information (CBI) – CBI is a hotly disputed issue and is closely tied to the alternatives analysis process. That process requires industry to provide detailed information about chemicals of concern (COC) and potential alternatives, including their identity, composition and performance characteristics, as well as redesign of COC-containing products, redesign of associated manufacturing processes, and manufacturers' customer lists. Much of this information is typically considered by industry to be proprietary CBI to protect substantial investments made in research and development, and its public disclosure would have severe economic consequences. Industry is also concerned that publicizing information about chemical and product design alternatives will pave the road for product liability lawsuits.

While the draft regulations do protect trade secrets identified by industry, they also: restrict the scope of data for which such protection can be claimed; reserve for DTSC the discretion to accept or reject claims of trade secret status; allow for disclosure of trade secrets in cases of "substantial need" as determined by DTSC; fail to specify the precise measures to be used to protect such confidential information; and do not impose legal liability against DTSC employees who fail to safeguard such information.

Conflicting and duplicative regulations – Faced with a new, all-encompassing system of chemical regulation, industry is concerned about how that system will overlap, and perhaps conflict, with the existing patchwork of chemical and product regulations already in effect on the federal and state level. For example, federal agencies could regulate a particular public health or environmental risk under their existing authority that could conflict with the regulatory actions taken under the draft SCPA regulations. Moreover, due to the perceived sluggish operation of the current SCPA regulations, lawmakers are currently considering the need for additional chemical-specific bans, the elimination of which was a goal of the green chemistry laws. The draft regulations allow for the exemption of COCs regulated in a similar manner under other laws, but leave exemption determinations to DTSC's discretion and do not specify the criteria to be considered when making such determinations.
Cost of implementation – Perhaps the one thing that all parties involved – scientists, industry, activists and regulators – appear to agree on is that implementing the new SCPA regulations will require significant funding and staffing resources. While much of this burden appears destined to fall on industry, a substantial role must also be played by the regulators to administer and enforce the program. However, the source of government funding remains unclear amidst the State’s budget crisis and service cutbacks.

Thus, while progress has been made in developing the SCPA regulations, there is much disagreement about whether this progress is headed in the right direction. For instance, industry representatives have recently commented that DTSC’s latest draft of the SCPA regulations may overreach the agency’s authority under the green chemistry laws and appear to be considering grounds for challenging the regulations in court. However, DTSC has not yet issued a final draft of the SCPA regulations, which will trigger further hearings and a 45-day public comment period under the formal rulemaking process. Consequently, there is still time and opportunity for further debate and revision of the SCPA regulations.

Late-Filed Forms Update: Airband Seeks Review of FCC Denial

Wed, 01 Sep 2010 13:15:32 GMT

Last week, we posted an entry about the tough stance the FCC's Wireline Competition Bureau is taking on late-filed Universal Service Forms submitted by contributors. One of the parties whose USF appeal was denied, Airband Communications, has filed an application for review of the Bureau decision. The Commission yesterday asked for comment on the request. Comments are due September 30 and October 15.

The FCC's quick action is unusual in one sense: the deadline for petitions for reconsideration or applications for review of the Denial Order is not until September 14. Other parties to the same order may file additional petitions on the same issue.

Blogging: Why do it?

dab@foleyhoag.com (dab@foleyhoag.com) — Wed, 01 Sep 2010 12:00:00 GMT

Fred Wilson posted a short and interesting video interview he gave some years ago in which he discusses the role of his blog in his life professional life. This caused me to think about why I started, and continue to host this blog now that a number of years have passed.

Unlike Fred, I can’t say that I have a single cogent reason for it. My reasons range from marketing thinks I should to I learn a lot from writing to I think the ecosystem may benefit from the perspective of someone, who is neither a VC nor an entrepreneur, who works closely with many start-up companies,, to I enjoy the writing.

With respect to the marketing motive, one thing I have learned is that marketing alone is not a valid reason to blog. I probably spend between 2 and 4 hours per week on this blog (that translates to 150 hours per year (round numbers)). I am pretty sure that I have not directly acquired a single client because of this blog. Compare this performance to the book I wrote some years ago or an article I wrote on SEC issues related to sales of stock by insiders in public companies, each of which produced many very good clients. But, I admit, I would not have started if marketing (and one of my partners) had not convinced me to give it a try.

With respect to learning, a lot of those hours I spend are used reading what other bloggers have to say, in effect, keeping up with the topics of the day. I would be doing much this even if I weren’t writing, but when I read blogs now I consider them in terms of why is this person saying whatever they are saying and what would I say about it. Strangely enough, this can make a difference in the daily practice of law. (For example, I have formed opinions about the merits (or not) of VC seed notes and my clients have benefitted from these views.)

With respect to the ecosystem, blogging in this space is dominated by VCs (Fred Wilson, Brad Feld, etc.) and certain entrepreneurial types (Dharmesh Shah, Nivi and Naval, etc.). Each of these groups has a vested point of view in, say the VC seed note debate, and almost all other topics. I am not invested (and I use that word advisedly) in this debate (or most of the others) and there are times when a less committed point of view is useful.

Finally, as with everything in life, there is no excuse for not having fun. You can think of tons of reasons to blog. Leveraging your time (as Fred Wilson does), selling (as marketing would like to do), learning, etc. but in the end, it has to be fun.

Update on Gulf Oil Spill Litigation

Wed, 01 Sep 2010 11:48:40 GMT

Couple of interesting issue being debated in the Gulf Oil Spill Litigation. In re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico on April 20, 2010, MDL-2179 (E.D. La.).

The first concerns control over the testing of key components of the rig, once they are recovered. Readers know how important such testing can be in supporting or refuting causation theories. But the very act of testing, even if not destructive, potentially alters the condition of the product. Who goes first; what tests get run in what order; who does the testing; how tests are done... all of these can be vitally important issues in accident investigation and product liability litigation.

Defendant Transocean Ltd. unit has asked the judge in the MDL to grant a motion for a protective order that would block the government's apparent plan to unilaterally control testing of the oil rig's blowout preventer. Press reports suggest the blowout preventer could be recovered from the Gulf floor in the near future. Transocean Offshore Deepwater Drilling Inc. and several other defendants thus filed a motion last week in the U.S. District Court for the Eastern District of Louisiana for an expedited hearing on the protective order covering the blowout preventer.

The federal government has indicated that it wants to take exclusive control of the blowout preventer, transport it to a government site, and then contract for forensic testing and analysis. The motion argues that while the government has solicited input from other parties on testing protocol, it never said it would pay attention to any of those suggestions.

The second issue is a battle between Transocean and co-defendant BP over document discovery. Transocean attorneys are claiming that BP has been withholding documents and limiting Transocean's access to sensitive information connected to the accident, including records of tests on the blowout preventer, lab reports on components of the rig such as the well cement mix, and data on equipment used to keep well pipes in place during cementing. BP, for its part, calls the claim a "publicity stunt” designed to divert attention from Transocean's alleged role in the accident. BP claims it has already turned over thousands of pages of documents, including materials on the initial exploration plan, lab tests and daily drilling reports, and mud log reports.

Third, the American Petroleum Institute and other parties who are defendant-intervenors have asked the MDL judge to remand one of the many coordinated cases. Gulf Restoration Network et al. v. Salazar et al. This one is the suit brought by environmental groups against the federal government, and the argument is that it is fundamentally different from the other cases because it focuses on administrative law issues regarding the government’s approval of offshore drilling plans.

The Gulf Restoration Network, along with the Sierra Club, accused the U.S. Department of the Interior of ignoring environmental regulations when it allegedly waived safety regulations to allow BP and Transocean to conduct offshore drilling exploration in the Gulf of Mexico.

The discovery for negligence claims at the core of the MDL, these moving parties assert, will not materially assist or advance a case that stems from the legal issue whether the federal government took proper steps in granting the companies the offshore drilling exploration permits. In fact, the argument goes, keeping Gulf Restoration in the MDL would unreasonably delay what would normally be a quick resolution to an administrative law action.

Patent Case Transferred to District With Witnesses and Documents

david.donoghue@hklaw.com (R. David Donoghue) — Wed, 01 Sep 2010 11:11:47 GMT

MPH Techs. Oy v. Zyxel Coms. Corp., No. 10 C 684, Slip Op. (N.D. Ill. Jul. 16, 2010) (Darrah, J.).

Judge Darrah granted defendants' 28 U.S.C. § 1404(a) motion to transfer this patent case to the Northern District of California. Venue was proper in both districts. Plaintiff's choice of forum was only given slight weight because the Northern District of Illinois was not plaintiff's home forum and had only a weak connection to the case. The convenience of witnesses weighted in favor of transfer. All of defendants' employee witnesses were in the Northern District of California and, more importantly, half of the non-party witnesses were in the Northern District of California. Three of plaintiff's four witnesses were in its home country – Finland. Access to proofs is given little deference in light of wide-spread use of digital discovery, but still leaned slightly in favor of transfer because defendants' documents were largely in California.

The situs of material events was neutral because it is largely irrelevant in patent cases. The convenience of parties weighed in favor of transfer. Plaintiff's inconvenience in traveling from Finland to Chicago or to Northern California was not significantly different.

The interests of justice weighed slightly in favor of transfer because defendants' employees had a greater interest in the case than Illinois citizens did. Otherwise, the Courts were similarly capable of handling patent cases and had comparable times to resolution, with only a few months difference in each category.

Update from BIS’s Update 2010

Wed, 01 Sep 2010 01:16:28 GMT

The Bureau of Industry and Security’s Update 2010 conference started off this morning with free coffee and pastries, a military honor guard procession, and the Star Spangled Banner. At first, it was hard to tell whether I was attending a military parade or a sporting event. But, of course, I was in a stuffy ballroom [...]

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