Top SCOTUS Cases that Matter for Tech, Life Sciences and Games Industries – 2018 Term Preview

by Fenwick & West LLP
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As the U.S. Supreme Court kicks off its 2018 term this week, it prepares to take up a series of firsts, including questions about the America Invents Act, securities fraud and privacy-related class action litigation. At the end of September, the Court also agreed to resolve a long-running circuit split in a case involving Oracle over how costs are awarded in copyright cases. The outcomes of these and a number of other cases have potential business implications for tech, life sciences and games companies. We’ve prepared a list of the most important ones we think you should know about.

In Helsinn Healthcare v. Teva Pharmaceuticals, the high court will take its first stab at addressing whether amendments to the America Invents Act narrow the scope of invalidating prior sales to exclude “secret sales”—an important question for companies in industries where product development requires collaboration among several companies and years of work to launch a product.

In Lorenzo v. Securities and Exchange Commission, a potentially far-reaching decision in the securities field, SCOTUS will for the first time address how allegations of scheme liability fit with its 2011 Janus decision limiting individual liability for misstatements.

The Court will also for the first time tackle questions about how cy pres should work in the context of class action damages. The outcome in that case, Frank v. Gaos, may impact the future of class action lawsuits in the context of privacy law.

Read on for our analysis of the key business-related cases that we are keeping a close eye on.


PATENTS | LIFE SCIENCES

Name of case: Helsinn Healthcare SA v. Teva Pharmaceuticals USA, No. 17-1229

Issue:  Whether, under the Leahy-Smith America Invents Act, an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.

Significance: Helsinn will be the Court’s first chance to address whether the AIA amendments narrowed the scope of commercial activities that qualify as invalidating prior sales to exclude “secret sales.” Such secret sales, in the case of Helsinn, include where the public is aware of the existence of an underlying development agreement, but the public is not in possession of the invention because of the parties’ confidentiality obligations for the unlaunched product. The issue is particularly important across many industries as today’s product development often requires collaboration among multiple companies and years of development to bring a product to market. Since AIA was enacted, the Congressional sponsors of the act, the USPTO and much of the public have operated under the assumption that such “secret sales” were not prior art. Uncertainty over what does and does not qualify as prior art clouds future product development efforts as well as the patents that have issued since AIA was enacted. Finally, as many amici have noted, eliminating “secret sales” as prior art more closely harmonizes U.S. law with many other jurisdictions and, in view of the risks of someone else filing a patent application first following the U.S.’s conversion to a “first-to-file” system, does not overly incentivize inventors to try to extend their exclusivity by commercializing a product while trying to keep their invention secret and later filing a patent application.


SECURITIES

Name of case:  Lorenzo v. Securities and Exchange Commission, No. 17-1077

Issue:  In a securities fraud suit, whether the government or a private plaintiff can plead a “scheme to defraud” against an individual where the individual did not author or “make” the allegedly fraudulent misstatement to investors. The issue arises in the wake of the Supreme Court’s 2011 holding in Janus Capital Group v. First Derivative Traders that an individual cannot be liable under Exchange Act Section 10(b) or Rule 10b-5 (b) for a misstatement if the person did not make or author the statement. A divided D.C. Circuit court in Lorenzo upheld an opinion by the U.S. Securities and Exchange Commission finding that although Lorenzo had not “made” the statement and thus could not be liable under Rule 10b-5 (b), which covers misstatements, he could be held liable under Rule 10b-5 (a) and (c), which prohibits schemes to defraud. Judge Bret Kavanaugh dissented, and took the SEC to task for decades of trying to “circumvent” Supreme Court decisions seeking to limit secondary liability. The question for the Court is whether the SEC or private plaintiffs can skirt the holding in Janus by repackaging a misstatement claim as a scheme claim. 

Significance:  The welcome limitations on potential liability for secondary actors announced in Janus would be undermined were the Court to side here with the SEC and allow ordinary false statement claims to be labeled as “schemes.” The Court’s ruling will be far-reaching in the securities field, as it will apply to both government enforcement actions and private class action securities suits.


CLASS ACTION

Name of case:  Frank v. Gaos, No. 17-961

Issue:  Whether the settlement of a class action privacy lawsuit against Google which does not provide any settlement funds to class members satisfies the requirement that binding class action settlements be “fair, reasonable, and adequate” to class members.

Significance:  The appeal arises from the settlement of a class action lawsuit alleging that Google violated the Stored Communications Act and state law by sharing the internet search terms of its users with the owners of third-party websites. The settlement consists of cy pres funds (i.e., funds paid by a defendant to third parties) and required Google to pay $5.3 million to six nonprofit organizations, $2.1 million to the plaintiffs’ attorneys, and nothing to the class members. The lower courts found that a cy pres settlement was appropriate because the settlement fund was non-distributable given that there were approximately 129 million class members and the individual recovery for each class member was approximately 4 cents. The case will test the appropriateness of cy press settlements in the privacy class action context and may have important implications for whether plaintiffs’ attorneys will be incentivized to bring class action lawsuits based on violations of privacy law in the future as these violations typically do not result in class members suffering any monetary loss. The case could be particularly significant in light of the increasing number of privacy class action lawsuits being brought against data-driven companies.


COPYRIGHT

Name of case:  Rimini Street v. Oracle USA, No. 17-1625

Issue:  Whether the Copyright Act allows awarding non-taxable costs to the prevailing party, or whether it instead limits cost awards only to “taxable” costs.

Significance: This case will resolve a long-standing circuit split over whether non-taxable costs—such as expert witness fees, jury consulting fees, and electronic discovery costs—are available under the Copyright Act.  Section 505 of the Act authorizes courts to award “full costs” to the prevailing party, while other generally applicable provisions (28 U.S.C. §§ 1920 and 1821) identify only certain categories of “taxable” costs that federal courts may award absent an express statutory authorization. Which rule a court applies could mean a multi-million difference in the amount of a cost award in copyright cases: for instance, the award to Oracle in this case included over $12 million in non-taxable costs alone.


COPYRIGHT

Name of case:  Fourth Estate Public Benefit Corp. v. Wall-Street.com, No. 17-571

Issue:  Whether a plaintiff must have registered a copyright claim before filing an infringement lawsuit or if a pending application is sufficient to sue. Some circuit courts have held that copyright owners can file a lawsuit as soon as they’ve filed an application with the Copyright Office. Other circuit courts have ruled that an owner cannot sue until the office registers or refuses to register the copyright.   

Significance:  The Supreme Court may resolve a long-running circuit split on this technical question about when a copyright owner can sue. The outcome may matter a great deal in cases where a copyright owner wants to rush to seek a preliminary injunction to stop infringement. The Court’s review of the Fourth Estate creates a real risk that copyright registration will become a requirement before filing litigation. For industries like games or apps, where copycats are frequent and can quickly go viral, a registration-first rule underscores the importance of timely and regular registrations. Companies should also consider filing for an expedited copyright registration for any product they even expect could be an immediate hit. The extra cost of an expedited registration is a small price to pay for a company thinking about the possibility of litigation. Regardless of the outcome in this case, there are good reasons for copyright owners to register early. For example, if infringement starts before the registration date, the copyright owner cannot recover attorneys’ fees or statutory damages.


ARBITRATION

Name of case:  Henry Schein v. Archer and White Sales, No. 17-1272

Issue:  Whether the Federal Arbitration Act permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is “wholly groundless.”

Significance:  Schein will mark the Court’s first opportunity to interpret the Fifth Circuit’s “wholly groundless” exception outlined in Douglas v. Regions Bank (5th Cir. 2014), which allows a court, after finding the existence of an enforceable delegation clause, to decline to submit the issue of arbitrability to an arbitrator where an assertion of arbitrability is “wholly groundless.” The “wholly groundless” exception was created by courts to prevent a claim—one that is on its face very clearly excluded from the scope of an arbitration agreement—from being sent to an arbitrator to determine arbitrability as a result of a delegation clause. The Court’s decision will resolve a current circuit split regarding the applicability of this narrow exception to cases where the movant’s argument is baseless. It is important for our clients to be aware of the existence of this exception, particularly if the Court affirms it, because, even though a party’s arbitration agreement may contain a court-approved delegation clause, a plaintiff may try to rely on the “wholly groundless” exception as an additional hook to try to avoid arbitration. If the Court declines to endorse the “wholly groundless” exception, it would be consistent with its other recent pro-arbitration rulings.


ARBITRATION

Name of case:  Lamps Plus v. Varela, No. 17-988

Issue:  Whether state law principles of contractual interpretation permit compelling a party to an arbitration agreement into class arbitration where the arbitration agreement does not mention class-arbitration. In its 2010 decision in Stoll-Nielsen v. AnimalFeeds (2010), the Supreme Court held that “a party may not be compelled to submit to class arbitration unless there is a contractual basis to conclude that the party agreed to do so.” In the decision under review, the Ninth Circuit Court of Appeals applied California principles of contract interpretation to find that Lamps Plus’ employment agreement, which included a mandatory arbitration agreement that did not expressly mandate only individual arbitration, was ambiguous as to whether the parties agreed to class interpretation. Construing that ambiguity against the drafter, a divided Ninth Circuit panel held that the parties agreed to class arbitration.

Significance:  The Court’s ruling should provide greater clarity on whether the Federal Arbitration Act prohibits courts from compelling businesses into class arbitration where an arbitration agreement does not expressly waive class proceedings. Because class arbitration eliminates many of the cost and time-saving benefits of arbitration, the case is significant for companies that seek to control the costs of dispute resolution through arbitration.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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