Blawgletter®

$44.4 Million Trade Secrets Verdict Stands in Fifth Circuit

A Houston jury awarded Wellogix $94.4 million for Accenture's misappropriation of trade secrets in software that helped oil and gas companies track and manage costs of drilling wells. The judge cut the award to what Wellogix asked for -- $26.2 million in actual damages plus $18.2 million in punies. And today the Fifth Circuit affirmed. Wellogix, Inc. v. Accenture, L.L.P., No. 11-20816 (5th Cir. May 15, 2013).

The case might pass without remark except for the respect the panel showed for the jury's work on the case. In the opening paragraph, the court set the tone by quoting Supreme Court decisions from more than 60 years ago on the test for setting aside a verdict:

"Only when there is a complete absence of probative facts to support the conclusion reached does a reversible error appear." Lavender v. Kurn, 327 U.S. 645, 653 (1946).

"But juries are not bound by what seems inescapable logic to judges." Morissette v. United States, 342 U.S. 246, 276 (1952).

See Wellogix, slip op. at 1 & 2.

The panel went on to approve the jury's finding of misappropriation and its awards of actual and exemplary damages.

To which Blawgletter says "wow" and "way to go".

Reaping What You Sow Infringes Soybean Patent, Supreme Court Holds

Farmers plant seeds. Where do they get the seeds? Lots of places. Their own crops. Farmer Crawford up the road. Bean sellers. Monsanto. And so on.

What if the seeds use a technique that someone -- Monsanto, say -- has taken out a patent on? Can you use seeds from a crop that you or someone else grew with Monsanto seeds to make a new crop? Or would that infringe those nice Monsanto people's patent?

It would do the infringement thing. So a 9-0 Supreme Court held today in Bowman v. Monsanto Co., No. 11-796 (U.S. May 13, 2013).

Justice Kagan wrote for the Court. She noted that buying a product that uses a patentee's invention has never given the purchaser a right to make copies of the product. Sure, as a matter of patent law, the buyer can use the one he lawfully acquired any way he wants. He can run it, sell it, lend it, dress it in doll clothes, burn it, chop it into thousands of little pieces, worship it, bury it in his back yard, or say ugly things to it. We call that the "patent exhaustion" doctrine. But letting him copy it would give him a right that belongs only to the patent-holder.

Vernon Bowman, an Indiana farmer, had gotten some of Monsanto's Roundup Ready soybean seeds from a vendor (grain elevator) and used them to plant several crops. Monsanto sued him for patent infringement and won a judgment for $85,000. Farmer Bowman asked the Supreme Court to overturn the judgment, arguing that a mean old company like Monsanto shouldn't have the right to profit from generation after generation of Roundup Ready soybeans, over the 20 or so year life of the patent. Monsanto's entitlement to charge royalties, he urged, should end when it makes the first sale of the seeds, after which sale it will have exhausted its patent rights.

That approach didn't sell.

Neither did his "seeds-are-special argument: that soybeans naturally 'self-replicate or 'sprout' unless stored in a controlled manner,' and thus 'it was the planted soybean, not Bowman' himself, that made replicas of Monsanto's patented invention." Id. at 9. Deeming the point a "blame-the-bean defense", Justice Kagan observed that Bowman "devised and executed a novel way to harvest crops from Roundup Ready seeds without paying the usual premium" and grew "eight successive soybean crops" as a result. Id. "In all this, the bean surely figured. But it was Bowman, and not the bean, who controlled the reproduction (unto the eighth generation) of Monsanto's patented invention." Id. at 10.

The Court cautioned that its holding may not cover all things that make copies of themselves -- such as things whose self-replication "might occur outside the purchaser's control" or "might be a necessary but incidental step in using the item for another purpose", as in some computer software programs. Id.

Quote of the Day: Richard Clifton

Abraham Lincoln told a story about a lawyer who tried to establish that a calf had five legs by calling its tail a leg. But the calf had only four legs, Lincoln observed, because calling a tail a leg does not make it so. Before us is a case about a lawyer who tried to estalish that a company owned a copyright by drafting a contract calling the company the copyright owner, even though the company lacked the rights associated with copyright ownership. Heeding Lincoln's wisdom, and the requirements of the Copyright Act, we conclude that merely calling someone a copyright owner does not make it so.

Righthaven LLC v. Hoehn, No. 11-16751, slip op. at 34 (9th Cir. May 9, 2013) (Clifton, J.).

Forget It, Jake. It's Kabletown.

At the end of the one of the Best Movies Ever, Evelyn Mulwray (Faye Dunaway) drives with her young daughter towards safety down a Los Angeles street. Will they escape? Yes, we think they just might!

A Los Angeles police lieutenant (Perry Lopez) steps onto the pavement. He aims his pistol and fires. Mulwray's car glides into a wall. The horn blares. It keeps blaring, as Mulwray's lifeless body presses against the steering wheel.

A look of crazy anguish pierces the face of Jake Gittes (Jack Nicholson), a private detective who has fallen in love with his client Mulwray. One of Jake's associates grabs him. He faces his boss and says:

"Forget it, Jake. It's Chinatown."

That pretty much sums up what Adam Liptak writes today in the Sunday NYT, on the front page of the Business section, about the rulings in business cases by the Roberts Court. Liptak titles his piece "Friend of the Corporation" (in the print version) and "Corporations Find a Friend in the Supreme Court" (online), and he opens it thus:

Not long after 10 a.m. on March 27, a restless audience waited for the Supreme Court to hear arguments in the second of two historic cases involving same-sex marriage. First, however, Justice Antonin Scalia attended to another matter. He announced that the court was throwing out an antitrust class action that subscribers brought against Comcast, the nation's largest cable company.

Almost no one in the courtroom paid attention, despite Justice Scalia's characteristically animated delivery, and the next day's news coverage was dominated by accounts of the arguments on same-sex marriage. That was no surprise: the Supreme Court's business decisions are almost always overshadowed by cases on controversial social issues.

But the business docket reflects something truly distinctive about the court led by Chief Justice John G. Roberts Jr. While the current court's decisions, over all, are only slightly more cnservative than those from the courts led by Chief Justices Warren E. Burger and William H. Rehnquist, according to political scientists who study the court, its business rulings are another matter. They have been, a new study finds, far friendlier to business than those of any court since at least World War II.

Liptak goes on to tell about the study, which appears in the Minnesota Law Review, by Wiliam M. Landes and Richard A. Posner, as well as "a despairing overview", in the New York University Law Review, by Arthur R. Miller.

Blawgletter says check it out.

You'll note that the case Liptak uses to kick off the article, Comcast Corp. v. Behrend, No. 11-864, holds a special place in our heart. We argued it to the Court last November, and in our giddiness afterwards dared to hope the Court would concede what became obvious during the argument -- that Their Honors had made a mistake in thinking, when they took the case, that it properly raised a question of admissibility of expert opinion evidence under the Daubert line of decisions.

The majority instead posed and answered a different question, one that it seems to have formulated after the briefing concluded. That explains the dissenters' view that the majority had engaged (per Liptak) in "unseemly judicial gamesmanship" by "refram[ing] the legal issue in the case so that they could rule for Comcast."

It's Kabletown.

Knowing It When You See It

Who wrote "I know it when I see it"? Do you think:

a. Jon Stewart, about comedic talent;

b. Rod Stewart, on pulchritude;

c. Jeb Stuart, concerning military audacity; or

d. Potter Stewart, in reference to "hard-core pornography".

The Second Circuit wrote something like that when it ruled on April 25 that Artist A's reaping in Artist B's garden, where Artist A had not sown, counted, as a matter of law, as "fair use" under the Copyright Act of 1976. The panel thus tossed a district court's decision that went the other way. Cariou v. Prince, No. 11-1197-cv (2d Cir. Apr. 25, 2013).

The case dealt with a claim by Patrick Cariou that Richard Prince infringed Cariou's copyrights in photos he'd taken during close study of Rastafarian people in Jamaica. Prince copied the smallish images into mostly big works, which his lawyers deemed "transformative" and therefore satisfying a critical part of the test for a fair use defense to Cariou's infringement claim.

The district court granted judgment to Cariou, holding that Prince hadn't done enough to transform the Cariou output. They key consisted in Prince's failure to "comment on, relate to the historical context of, or critically refer back to" the efforts by Cariou, the court thought.

The Second Circuit begged to differ. It opined that an artist can transform someone else's work without meaning to say, or actually saying, anything about it. And at least 25 of the images at issue dropped anchor in the fair use safe harbor as a matter of law, the two-judge majority ruled. The third member on the panel -- a guest from the Ninth Circuit -- said he would have fixed the legal standard and sent the case back for findings and conclusions by the district court in the first instance rather than deciding the issue in the apeal.

All agreed that they know fair use when they see it.

Blawgletter wishes to offer a couple of thoughts.

One, while we don't disagree with the substance of the majority's reasoning and decision, we do see a lot of merit in the dissenter's view that trial courts ought to have the first shot at ruling on a question of what conclusion the evidence leads to. Trial judges do that very well. Appellate judges do it less well, not least because they do it seldom and, on account of their relative isolation and their lack of contact with juries and other ordinary people, have less sense of community standards and a stronger streak of elitism. Cf. "The frequent irrelevancy of the Supreme Court", Hercules and the Umpire, Apr. 24, 2013 ("In short, while the Supreme Court may exist at the 'center of the universe,' it frequently plies its trade in a 'galaxy far, far away.'").

Two, Prince made a terrible witness for himself. In his deposition, he testified that he had zero intention of making something "new" out of Cariou's Rasta photos -- an admission that forced the majority to say his mental process mattered almost not at all. We wonder whether Prince told his lawyers beforehand that he planned to torpedo his best defense or whether he simply came out with it in a spontaneous burst of artistic freedom.

Bonus: Will the dissenting visitor ever get another invitation?

Hat tip to ABA Journal.

Form and Substance and Twombly -- Oh, My!

To Blawgletter's eye, a complaint that alleges patent infringement bears itself with a certain elegance. Such a pleading often runs but several pages, and in substance it states that the Bad Guy defendant does some thing or things that infringe the Good Person plaintiff's patent. And Form 18 -- which appears with its brothers and sisters in the Appendix of Forms to the Federal Rules of Civil Procedure -- says that will do just fine.

But Form 18 predates the Supreme Court's rulings in Bell Atl. Co. v. Twombly and Ashcroft v. Iqbal. As you will recall, Twombly and Iqbal designed, built, and launched a "plausibility" standard for judging whether a pleading states a claim that can survive a challenge under Rule 12. Many objected that the Court had amended Rule 12(b)(6) -- to make it harder to satisfy -- while pretending not to.

In 2012, a district court granted a motion to dismiss under 12(b)(6) for failure to state a plausible patent infringement claim despite the fact that the complaint complied with Form 18. Today, the Federal Circuit reversed, holding that doing what Form 18 calls for suffices, even after (the Court's sub silentio amendment of Rule 12(b)(6) in) Twombly and Iqbal. See K-Tech Telecommunications, Inc. v. Time Warner Cable, Inc., No. 12-1425 (Fed Cir. Apr. 18, 2013).

Should the Court grant review in K-Tech? If it does, it could then repeat why it thinks plausibility does NOT imply any degree of probability, and it then could go on to explain whether the bare-bones of Form 18 either fails Twombly and Iqbal (thus proving the amendment theory) or doesn't (ergo making patent cases a favorite of the federal courts).

We love pretzels!

The Saga of Dickie Scruggs

Blawgletter admires good writing, no matter whence it comes. But we like it better when a judge produces it.

Last week, Fifth Circuit Judge Jacques Wiener did a fine piece of work. It kind of sings. And it tells the on-going tale of Dickie Scruggs, the rich lawyer who flew too close to the sun. We think you'll enjoy his narrative of the facts:

    Scruggs made both a name and a fortune as a plaintiffs’ attorney in asbestos and tobacco litigation. Along the way, he became entangled in many fee-sharing disputes with co-counsel, one of which resulted in a lawsuit filed by Robert Wilson in the Circuit Court of Hinds County, Mississippi (“the Wilson Case”). Robert “Bobby” DeLaughter, best known first for successfully prosecuting Byron De La Beckwith for murdering civil rights leader Medgar Evers, sat on the Circuit Court of Hinds County, where he was assigned the Wilson Case and his path crossed with Scruggs.

Scruggs wanted a sure thing in the Wilson Case, having recently lost a similar fee fight. As the presiding judge, DeLaughter could put his finger on the scales. DeLaughter coveted a federal Article III judgeship more than anything else; as the brother-in-law of then-United State Senator Trent Lott, Scruggs could influence the person who sent candidates to the President. In early 2006, Scruggs retained Ed Peters, a close friend and mentor of DeLaughter’s, as a secret go-between who conveyed an offer: If DeLaughter would help Scruggs win the Wilson Case, Scruggs would recommend DeLaughter to Lott for a district court judgeship.

    DeLaughter kept his end of the bargain: When Scruggs badly needed a trial continuance, DeLaughter entered, verbatim, a scheduling order prepared by one of Scruggs’s attorneys, despite having disclaimed input from either party. DeLaughter also reviewed yet-to-be-filed motions for Scruggs, advising how he would rule and which arguments needed work. During 2006, three judicial vacancies opened on Mississippi federal district courts. In March 2006, after being passed over for nomination to one of those seats, DeLaughter relayed his dissatisfaction and concern that “he was doing his part of the bargain and that . . . Scruggs was not going to fulfill his part of the deal.” Immediately thereafter, Scruggs had Senator Lott call DeLaughter. Although the record suggests that Lott did not say that DeLaughter was being considered, DeLaughter nonetheless came away with the impression that he was in the running for the seat.

    Mollified that Scruggs was keeping his end of the bargain, DeLaughter continued secretly to tilt the scales in the Wilson Case. When Wilson filed a potentially dispositive motion asking DeLaughter to quantify the amount of fees Scruggs still owed, Scruggs’s attorneys did not know whether to oppose the motion and pursue a full trial or to agree to submit the quantification issue to the judge. DeLaughter assured them that Scruggs would win the quantification motion, and he did. After faxing a preview of his order to Scruggs’s counsel, DeLaughter held that Scruggs owed no more than he had already paid and denied Wilson’s motion for reconsideration without comment. But the quantification order was so
favorable that even Scruggs’s attorneys worried that it could not be affirmed on appeal, so Scruggs settled the Wilson Case before appeal with the help of DeLaughter, who revealed Wilson’s confidential settlement position.

    These machinations came to light when members of Scruggs’s legal team began cooperating with the government’s investigation of an unrelated judicial bribery scheme. A grand jury returned an indictment charging Scruggs and DeLaughter with one count of conspiracy to commit federal programs bribery, in violation of 18 U.S.C. § 666, and three counts of aiding and abetting honest-services mail fraud, in violation of 18 U.S.C. §§ 1341 and 1346. The honest-services counts in the indictment alleged “a scheme and artifice to secretly and corruptly influence” DeLaughter, thus “depriving [Wilson] and the citizens of the State of Mississippi of their intangible right to [his] honest services.” In particular, the indictment alleged that Scruggs prevailed on Lott to consider DeLaughter, and “in return” DeLaughter provided secret access and favorable treatment.

    Scruggs pleaded guilty to a superseding information charging him with a single count of aiding and abetting honest-services mail fraud, in violation of 18 U.S.C. §§ 1341 and 1346. Like the original indictment, the information alleged a scheme corruptly to influence DeLaughter and deprive the citizens of Mississippi of their right to his honest services, describing Scruggs’s call to Lott on DeLaughter’s behalf. But the Information omitted that which DeLaughter did for Scruggs “in return.”

    Pursuant to a plea agreement, the charges in the indictment were dismissed. Scruggs was sentenced to imprisonment for seven years, concurrent with a prior five-year term for conspiring to bribe another judge who was presiding over a different fee dispute.

    On June 24, 2010, the Supreme Court issued Skilling v. United States in which it addressed the constitutionality of 18 U.S.C. § 1346, the honest-services statute. Section 1346 states that “the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.” To avoid problems of constitutional vagueness with this definition, the Court in Skilling limited the application of the statute to paradigmatic bribery and kickback schemes only.3 In June 2011, Scruggs filed a motion to vacate his sentence pursuant to 28 U.S.C. § 2255, contending in light of Skilling that, as he did not admit to bribing Judge DeLaughter, he is not guilty of a crime.

    The district court concluded that, by pleading guilty, Scruggs had procedurally defaulted on that claim. After a two-day evidentiary hearing, thedistrict court issued a thorough 48-page opinion denying the § 2255 motion because Scruggs had not shown either his actual innocence or cause and prejudice. The district court issued a certificate of appealability on the issue of “actual innocence” and “other issues in the opinion,” and Scruggs timely filed a notice of appeal.

United States v. Scruggs, No. 12-60423, slip op. at 1-4 (5th Cir. Apr. 12, 2013).

Scruggs lost the appeal, by the way. We can imagine your surprise.

Sorry Your Dog Died

People love dogs. At least some people do. Others adore cats. A few cherish both. Yet others go ga-ga over more exotic beasts. And they hate to see them suffer and grieve when they die.

The Supreme Court of Texas today shared the pain of critter-lovers across the Lone Star State, even citing a movie that broke many a young Texan's heart -- Old Yeller. But the Court-as-empath didn't translate into a ruling that the tragic loss of a pet entitles the owner to damages for the mental hurt that results. Strickland v. Medlen, No. 12-0047 (Tex. Apr. 5, 2012).

Chief Justice Wallace and Justice Johnson declined to join in part II-C, which dealt with what the legislature might do, and the Chief Justice also shunned footnote 58, which listed types of potentially recoverable damages, of Justice Willett's opinion for an otherwise unanimous Court.

The Court also issued a bundle of other opinions, which you can access here.

Supreme Court Reverses Cable Class

Today the Supreme Court, by 5-4, reversed a ruling that upheld certification of an antitrust case against Comcast as a class action. The majority disagreed with the district court and court of appeals on whether the plaintiffs' damages model showed class-wide losses from Comcast's efforts to thwart "overbuilder" competition in the Philadelphia area.

Justice Scalia wrote the majority opinion, in which Chief Justice Roberts and Justices Kennedy, Thomas, and Alito joined.

Blawgletter understands that Justices Ginsburg and Breyer took the unusual, if not extraordinary, steps of writing a joint dissent and reading it this morning from the bench. Justices Sotomayor and Kagan joined in the dissenting opinion.

The dissent urged that the Court should have dismissed the writ as improvidently granted and, failing that, should have affirmed the Third Circuit.

Class cousnel respectfully disagree with the majority's ruling. We look forward to satisfying the Court's narrow methodological concerns on remand to the trial court and to trying the case on the merits as soon as practicable.

I had the honor of arguing the case for the class in November. You hate to lose, but it was a terrific experience.

P2P Movie-Sharing Infringes Copyrights, Ninth Circuit Holds

If you've watched a new movie online without paying for it, you likely committed a bad copyright law thingy. You probably infringed.

Naughty, naughty.

How exactly the Internets enable you thus to Reap where you have not Sown, film-wise, may baffle you. It did us. Thanks to the Ninth Circuit, we wonder no more. Or at least less.

The court probes the online underbelly's innards in Columbia Pictures Industries, Inc. v. Fung, No. 10-55946 (9th Cir. Mar. 21, 2013) (http://cdn.ca9.uscourts.gov/datastore/opinions/2013/03/21/10-55946.pdf). The panel explains how "peer to peer" (P2P) networks enable users to view movies (and other material) gratis. A P2P network responds to a user's request by prompting servers that contain pieces of a movie to send the pieces to the user's computer. The torrent of distinct pieces reassembles fast enough that the requesting user can watch the movie without a lot of jitters. That's the plan, at least.

The defendant in Columbia Pictures, Fung, welcomed his sites' subscribers to use his P2P programming to grab and view popular movies without paying for them. He earned money not by charging for subscriptions but from ad revenue, which accrued when subscribers clicked on ads.

The Ninth Circuit held that Fung violated the Copyright Act by inducing his subscribers to infringe the copyrights of movie owners. It also ruled that none of the "safe harbors" in the Digital Millennium Copyright Act saved him. The court thus affirmed entry of a permanent injunction against Fung but sent the case back to the district court with instructions to make the injunction clearer.