The editors of InsideCounsel compiled the top 20 news stories of 2011 that mattered most to in-house lawyers. Read about the year’s top events, people and stories on the following pages.
1. Social Situation
That’s right—2012 is just days away, and we’re still talking about social media. While there are oodles of issues surrounding one of the most buzzed-about, liked and tweeted topics of the past few years, one aspect of social media stood out this year from among many on the legal landscape: coping with the still-precarious problem of deciding upon—and implementing—a corporate social media policy.
A recent survey conducted by law firm Proskauer Rose found that 76 percent of companies use social media for business purposes, but nearly 50 percent of those businesses don’t have a social media policy. Polling more than 120 multinational employers, the survey also revealed that 43 percent of respondents reported that their employees had misused social media, 29 percent block employees’ access to social media sites and 27 percent monitor employees’ use of social media sites.
“In order to harness the benefits and minimize the risks of social networks, employers need to set distinct and specific policies and practices for their use,” Betsy Plevan, co-head of Proskauer Rose’s International Labor & Employment Group, said in the survey. “Relying on employees to exercise good judgment is simply not enough.”
While Proskauer Rose’s study indicates that nearly half of the respondents do, in fact, have social media policies, it’s likely that a number of those businesses scrambled to put a plan in place. Because of this, some companies may not have taken the necessary time to ensure that the language and permissions are completely appropriate for the organizations and their employees. And the wrong policy or obtuse language could lead to serious problems.
The National Labor Relations Board (NLRB) issued a survey in August of the more than 129 cases involving social media that it has reviewed in some form. While many of the cases are still pending, there are at least seven settlement agreements in social media cases, and the NLRB’s general counsel has issued complaints in another four cases.
“With respect to employer policies restricting employee use of social media, our review of cases found many specific policies alleged to be overbroad, including those that restrict discussion of wages, corrective actions and discharge of coworkers, employment investigations, and disparagement of the company or its management,” the NLRB wrote. “The context in which the policy was adopted and even the issue of whether a rule or policy has been actually adopted are also important in these cases.”
The NLRB concluded that companies should take a hard look at whether they are breaking the law before they fire employees over social media usage.
But even with the board’s guidance, confusion persists over what companies may and may not include in their social media policies.
“The whole issue of social media is yet to be fully resolved,” Stefan Marculewicz, a Littler Mendelson shareholder, told InsideCounsel in September. “What we are seeing is the NLRB doing a lot of publicity around its issuance of complaints and settlement of cases. There are no published decisions yet on social media, but they are taking a very active role in driving policy on the way companies behave though their prosecution and publicity of that prosecution.”
Therefore, to ensure companies have effective, appropriate social media policies, they should take the following steps: Begin the process by ensuring that there are references to social media in all pre-existing harassment and discrimination, ethics, confidentiality, electronic equipment/Internet usage, marketing, and hiring policies and procedures. Next, companies should clearly address employees’ privacy expectations pertaining to their equipment and software/programs.
“Co-worker ‘friending’ should be limited or prohibited between supervisors and subordinates, and all employees should be allowed to reject a friend request from a co-worker without repercussion,” David Gevertz, a Baker Donelson shareholder and InsideCounsel.com contributor, wrote in August. “Employees should be instructed to refrain from using the company’s logo, trademark or proprietary graphics, as well as photos of the company’s premises or product, on social networking sites without prior approval.” Company endorsements should be regulated, if not discouraged, he added.
It’s also important for companies to actively monitor content on their social media sites, as well as all online company references. This task can be outsourced to a reputable third party, if necessary, while internal responses to unflattering responses can be routed through in-house or outside counsel.
2: Not So Neutral
After nearly a year of waiting, the Federal Communications Commission (FCC) finally published its long-awaited and hotly debated rules for Internet traffic at the end of September. The “net neutrality” rules, which the FCC passed Dec. 21, 2010, by a 3-2 vote, were published in the Federal Register Sept. 23, and went into effect Nov. 20.
The FCC adopted three basic protections intended to prohibit providers from discriminating against legal Internet traffic and enforce transparency:
“First, transparency: fixed and mobile broadband providers must disclose the network management practices, performance characteristics, and commercial terms of their broadband services,” the FCC wrote. “Second, no blocking: fixed broadband providers may not block lawful content, applications, services, or non-harmful devices; mobile broadband providers may not block lawful websites, or block applications that compete with their voice or video telephony services. Third, no unreasonable discrimination: fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic.”
Internet service providers aren’t happy about the new regulations. Many have espoused beliefs that there is no statutory basis for government intervention, and that the onerous restrictions will slow innovation.
To that end, now that the rules have passed, a spate of legal challenges already have begun to clog courtrooms. As of press time, at least seven challenges to the FCC regulations have been filed in federal courts around the country, including the second such lawsuit issued by Verizon Communications. Less than a month after the FCC initially adopted the rules, Verizon filed a lawsuit to block the order, but it was rebuffed by the D.C. Circuit in April. The court ruled the suit was “fatally premature” based on the reasoning that challenges to federal regulations can only be filed in the 30 days after the FCC publishes rules in the Federal Register.
3: Buckling Bribery
Some suggest it’s the Foreign Corrupt Practices Act (FCPA) done right. The United Kingdom’s Bribery Act, implemented in July, clamps down on corruption, intensifying liability risks for companies worldwide.
Compared to the FCPA, the Bribery Act presents four main differences: It criminalizes the receipt of bribes (the FCPA doesn’t), applies the law to both public and private sectors (the FCPA only applies to public), makes failure to prevent bribery an offense and, unlike the FCPA, bans facilitation payments.
The U.K. Bribery Act toughens foreign corruption legislation with a wider jurisdictional reach, which affects all companies that do business in the U.K. or employ British citizens. It also holds employers accountable for failing to catch acts of bribery.
Other offenses, including bribing, being bribed and bribing foreign public officials, are all considered criminal acts under the provisions, cementing the tough reputation of the act. Raj Parker, a partner at Freshfields Bruckhaus Deringer, called the act “the most far-reaching bribery legislation in the world” in a story for the Wall Street Journal.
Still, companies should not fear the harsh provisions. “The hope of many is that the Bribery Act won’t inherently require a complete reworking of policies for entities trying to comply with the Act,” said Dean Gonsowski, an e-discovery consultant for security software company Symantec, in a recent InsideCounsel.com column. “Instead, a more measured and reasonable goal should be to have compliant entities examine the Act to see if any augmentation is necessary.”
Although both the FCPA and the U.K. Bribery Act ban companies with ties to Britain from paying bribes overseas, the U.K. Bribery Act makes it harder to commit bribery in general. As a result, it will likely have a large impact on the future workings of companies around the globe.
4: Constitutional Controversy
After battling a barrage of lawsuits this year from several organizations and a group of 26 states, President Obama’s Patient Protection and Affordable Care Act finally reaches the Supreme Court, which will decide whether the health care overhaul is constitutional.
The disputed health care legislation says people must have minimum health care coverage by 2014 or pay a fee. According to those opposing the law, federal enforcement of health care is unconstitutional and exceeds the scope of Congress’ power.
In January, six states joined the lawsuit initiated in Florida, which brought the total number of plaintiff states to 26. Representing one of the plaintiff states, Texas Attorney General Greg Abbott said in a press statement to Bloomberg the joint challenge “reflects broad, nationwide concern about the constitutionality of this sweeping and unprecedented federal legislation.”
Signed into law by Obama in March 2010, the legislation continued to battle these constitutional challenges throughout the year. In Washington, D.C., District Judge Gladys Kessler dismissed a lawsuit and said Congress was “acting within the bounds” of its constitutional Commerce Clause power.
In February, Obama expressed willingness to be more flexible in the act, telling governors he would allow states to apply for “innovation waivers” in 2014, exempting them from several requirements in the law if they could create ways to adequately expand coverage without increasing the deficit in their states. However, Obama also said he is “not open to refighting the battles of the last two years.”
Buried in controversy, the Obama administration and the challengers of the health care overhaul are pressuring the Supreme Court to review the law in March 2012 instead of April, giving the judges more time to craft the ruling before the term ends in June 2012. According to the Huffington Post, the justices will likely decide whether to hear the health care case around the middle of November.
5: Deciding Dukes
It was an epic case—years in the making. It had employers on edge and women enraged over equal rights. It came to be known simply as Dukes.
But Dukes’ claim to fame wasn’t its fight for equal rights. It was the size of the class—1.5 million strong, the largest civil rights class action in American history. On June 20 the Supreme Court heard Dukes v. Wal-Mart Stores, Inc., and said the plaintiffs didn’t have enough in common to constitute a class, ruling that the case could not proceed. Employers breathed a sigh of relief, as many experts had worried the case would open the door for similar massive class actions against other large employers.
Dukes began 11 years ago, when Betty Dukes filed a sexual discrimination suit against her employer, Wal-Mart, claiming that despite excellent performance reviews over her six-year tenure with the retailer, Wal-Mart denied her the training she needed to advance to a higher-salaried position. In 2001, Dukes sought class certification to represent 1.5 million women who work or have previously worked for the company since Dec. 26, 1998. In their suit, the plaintiffs contended that Wal-Mart’s policies and practices resulted in discrimination in compensation and promotion against its women employees nationwide.
In 2004, a federal district judge ruled in favor of the class certification, and Wal-Mart appealed. A high court ruled that the district court improperly certified the class, and the case then went to the 9th Circuit, which in 2005 upheld the district court’s certification. In 2010, an en banc panel affirmed the district court’s certification in a 6-5 decision. Late last year, the Supreme Court agreed to hear Wal-Mart’s appeal, and ultimately ruled in favor of the world’s largest retailer. The high court’s ruling essentially makes it harder for plaintiffs to get class certification in discrimination suits.
“The Supreme Court’s decision repositions the goal posts on the playing fields of how workplace class actions are structured, defended and litigated,” Seyfarth Shaw Partner Gerald Maatman told InsideCounsel in August. “But I don’t think it will end the game. Employers are fooling themselves if they believe class actions are gone.”
David Sanford, lead plaintiffs attorney in Dukes, agrees. He predicts more focused regional, statewide or storewide class action discrimination cases for which commonality will be easier to establish.
“As long as Title VII remains the law of the land, we will continue to have these cases,” Sanford told InsideCounsel in August.
6: Whistleblower Worries
Employers weren’t exactly overjoyed when the Securities and Exchange Commission (SEC) issued its final provisions to the Dodd-Frank whistleblower rules in May. The new rules, which went largely unchanged from their original version, offer employees an incentive to speak up about possible violations to federal securities laws.
Under the provisions, which took effect in August, individuals who offer the government new information about a possible federal securities law violation will receive awards ranging from 10 percent to 30 percent of the company’s penalty if their disclosure leads to enforcement actions and monetary sanctions exceeding $1 million.
Additionally, the final rules reject a mandate that would have required whistleblowers to report potential violations to internal company compliance programs before taking their complaints to the SEC. The new rules do, however, incentivize whistleblowers to first report internally: If an internal report and subsequent company investigation uncovers more information that leads to a “successful” SEC action, the whistleblower will be credited not just for the tips he or she delivered, but for all the information the company gathers in its own investigation. This would likely translate to a greater award.
The final rules also extend the “lookback period” from 90 days to 120 days. This means that if a whistleblower made his first report internally, he can subsequently report to the commission within 120 days and still be treated as if he reported tothe SEC on the earlier reporting date.
Experts fear the new rules will encourage employees to seek out ways to profit from corporate misdeeds rather than work toward a more ethical corporate culture.
“Fraudulent misconduct, the bane of good compliance systems, then becomes the gold mine, rather than an impetus for companies with effective compliance systems to address the underlying issues,” the Association of Corporate Counsel wrote when it commented on the proposed provisions.
7: Galleon Sinks
His punishment almost makes the time served by Ivan Boesky and Michael Milken look like extended vacations. And yet some critics clamored that it’s too short.
Raj Rajaratnam, the “new face of insider trading,” had quite a year, and became the poster child for the U.S. government’s attempt to snuff out what it called “rampant illegal trading” on Wall Street. After a civil trial that lasted about two months, Rajaratnam was convicted May 11 on all 14 counts of securities fraud and conspiracy for his role in the Galleon Group insider trading scandal. The billionaire investor then endured an agonizing purgatorial period that featured wild speculation about possible punishments before he was sentenced Oct. 13 to 11 years in prison. In addition to jail time, the judge fined Rajaratnam $10 million and ordered him to forfeit $53.8 million.
Despite being the longest sentence for insider trading ever handed down, Rajaratnam’s punishment is far lighter than what many experts predicted. Prosecutors initially had requested that he be given a tougher sentence—between 19 ½ and 24 ½ years in prison—but Rajaratnam immediately spoke out against the nearly quarter-century penalty. Calling the term “grotesquely severe,” Rajaratnam asked for leniency so he didn’t have to die in prison. And the judge listened.
Rejecting the prosecution’s request, U.S. District Judge Richard Holwell said he took into account the defendant’s relatively serious health concerns when rendering his decision. Because of Rajaratnam’s “imminent kidney failure” and likely need of a transplant as a result of advanced diabetes, and charitable work aiding victims of natural disasters in his home nation of Sri Lanka and Pakistan, the judge decided upon a significantly lower jail term.
“Prison creates a more intense form of punishment for critically ill prisoners,” Judge Holwell said during the sentencing, but added that infirmity doesn’t afford “a get-out-of-jail-free card.”
The average sentences for others related to the Galleon Group scandal have been just under three years.
8: Arbitration Affirmed
The Supreme Court’s April 27 ruling in AT&T Mobility v. Concepcion was music to companies’ ears.
The case concerned a California couple who had brought a class action lawsuit against AT&T. The couple accused the telecommunications company of false advertising and fraud when it charged them roughly $30 in sales tax for phones that were “free” to individuals who signed two-year service contracts.
In October 2009, the 9th Circuit said a California consumer-protection law trumped AT&T’s argument that the couple was bound by an arbitration clause in their contract that prevented them from settling disputes in court.
But the high court reversed, deciding 5-4 that the Federal Arbitration Act (FAA) pre-empts state law. Writing for the majority, Justice Antonin Scalia said allowing the class action would impede the FAA’s objective to “allow for efficient, streamlined procedures tailored to the type of dispute.”
Labor law experts noted that AT&T Mobility could allow companies to safeguard themselves from employee class actions if they included arbitration clauses in their employment agreements. Law firm partners interviewed for the Wall Street Journal in August reported an increase in companies interested in incorporating such clauses in their contracts.
But Steve Moore, a shareholder at Ogletree Deakins and a columnist for InsideCounsel.com, reminded employers in September that they cannot draft their arbitration agreements “in a way that is one-sided, harsh and oppressive to the employee.”
Additionally, some labor experts aren’t sure whether AT&T Mobility will quell Fair Labor Standards Act (FLSA) collective actions and class actions alleging violations of workers’ rights under Section 7 of the National Labor Relations Act.
“Employees have a statutory right under the FLSA to bring a collective action for wage and hour matters that shouldn’t be affected by this decision,” Proskauer Rose Partner Mark Batten told InsideCounsel in July.
9: Hacker’s Delight
A handful of hacks this spring made one thing clear: Data security breaches are a growing corporate threat.
In mid-April, consumers were confused when Sony unexpectedly took its popular gaming and music services offline. Days later, the entertainment company announced that hackers had penetrated its systems, compromising a staggering 100 million user accounts.
As Sony worked with the FBI and security software companies to investigate the hack and repair its systems, it made a series of missteps, including publicly pointing the finger at the hacker group Anonymous, which denied any involvement in the breach; declining to participate in a Congressional hearing about the threat data theft poses to consumers; and offering vague deadlines as to when its systems would be restored. Bythe end of May, Sony faced more than 25 lawsuits, including a class action, alleging negligence, breach of contract and consumer privacy violations.
The hacking of such a tech-savvy company indicated that data breaches are a real danger. Other corporations—including Epsilon Data Management, which provides online mail services to 2,500 companies; craft retailer Michaels; Fox Broadcasting; the financial conglomerate Citigroup Inc.; and the Japanese video game maker Sega Corp.—also fell prey to hackers this spring.
“There certainly is no letup in the attacks on systems or the prevalence of viruses that can compromise businesses’ systems,” Michael Dowd, a Foley Hoag partner, told InsideCounsel in July.
The string of security breaches prompted governmental action. On Oct. 13, the Securities and Exchange Commission issued guidelines detailing what companies should report in their cyber-attack disclosures, including any activity that could lead to financial losses.
10: Union Agenda
Whether it was making rules, issuing decisions or bringing complaints, the National Labor Relations Board (NLRB) raised employers’ ire throughout 2011. The board rushed through a packed agenda while its three pro-union members had control.
In its most startling move, the board’s acting general counsel, Lafe Solomon, in April asked that Boeing be required to move work back to unionized facilities in Washington from a new facility in the right-to-work state of South Carolina, even though the company had already invested $2 billion and hired 1,000 workers for the new plant. Solomon alleged that Boeing illegally moved some production work for the 787 Dreamliner plane to South Carolina to punish union workers for past strikes in Washington.
Boeing General Counsel Michael Luttig asserted that the South Carolina factory was built to handle new Dreamliner orders and that no work had been moved out of Washington. The case was ongoing before an administrative law judge at press time.
Among several precedent-setting NLRB decisions, Specialty Healthcare and Rehabilitation Center of Mobile stands out. While directed at nursing homes, its impact is expected to extend across a wide range of industries. The decision permits unions to organize small groups of workers within a single job category. For unions, smaller units are much easier to organize, particularly if they can cherry pick a work group that is upset with its supervisor.
“I can’t think of a company that is not endangered by this decision,” Cliff Nelson, a partner at Constangy, Brooks & Smith, told InsideCounsel in November. “It’s the most important decision from the labor board in at least the last 10 years.”
On the rulemaking front, a regulation requiring virtually all private employers to post a “Notice of Employee Rights” stirred up so much controversy that the board delayed implementation from Nov. 14 to Jan. 31, 2012, to allow time for more employer education. It also proposed rules to significantly shorten the time between the filing of a petition for a union election and the date the election is held. Employers say that would diminish their ability to communicate the benefits of remaining nonunion; the depth of their angst was reflected in more than 60,000 comments filed in response to the proposed rules.
The fate of the “quickie election” rules is in doubt. The retirement of chairman Wilma Liebman in late August, and the anticipated Dec. 31 departure of union advocate Craig Becker, will leave the board with only two members—Democrat Mark Pearce and Republican Brian Hayes—going into 2012. With Congress unlikely to allow any Obama appointments, this will bring the board’s pro-union activity to a halt for the foreseeable future.
11: Dealing with Disability
Employers let out a collective groan when the Equal Employment Opportunity Commission’s (EEOC) final regulations implementing the Americans with Disabilities Act Amendments Act (ADAAA) went into effect on May 24.
The act, which Congress passed in 2008, greatly expands the definition of “disabled” under the Americans with Disabilities Act (ADA), and has many businesses worried they’ll face a barrage of discrimination lawsuits from workers who wouldn’t previously have been considered disabled under the ADA.
To qualify as disabled under the original ADA, a person needed to have a physical or mental impairment that substantially limited one or more major life activities. While the ADAAA doesn’t change this definition of disability, the EEOC’s new regulations expand the range of “major life activities” to include activities such as sitting, concentrating and interacting with others.
“It’s jokingly being called the All Americans are Disabled and Must be Accommodated Act,” Vedder Price Shareholder Thomas Wilde told InsideCounsel in June.
The EEOC’s regulations also list medical issues, such as reproductive, digestive and skin, as impairments that could affect major life activities.“
Therefore, a skin disorder or a reproductive problem may constitute disabilities,” Troutman Sanders Partner and InsideCounsel.com columnist Evan Pontz wrote in October.
With disability so broadly redefined, employees will more easily be able to prove they are disabled.
“As a result, the critical issue in ADAAA litigation will not be, ‘Is this employee disabled?’ but rather, ‘Did this employer offer a reasonable accommodation?’” noted Sara Ackermann, a shareholder at Ruder Ware, in a September column for InsideCounsel.com.
Experts say employers should streamline their companies’ accommodation request processes and document all meetings with employees regarding accommodations. Supervisors also should be retrained on the new law and employers’ duties to accommodate.
12: Climate Conundrum
To many environmentalists’ chagrin, a monumental climate change case fizzled in the Supreme Court this year.
In 2004, eight states, New York City and three non-profit organizations sued six utilities because their carbon dioxide (CO2) emissions allegedly were a public nuisance that contributed to global warming. The plaintiffs in Connecticut v. AEP sought injunctive relief that would require the utilities to cap and reduce their emissions, which purportedly constituted 10 percent of the country’s total CO2 emissions.
A trial court dismissed the case, saying the judicial branch doesn’t have the power to regulate greenhouse gas (GHG) emissions. But on appeal, the 2nd Circuit allowed the plaintiffs’ claims to proceed and denied the defendants’ petition for en banc review. The Supreme Court granted certiorari in December 2010.
Companies and environmental law experts worried about the ramifications of a plaintiff victory.
“If the plaintiffs can tag utilities for CO2 liability, the damages are potentially staggering,” Wylie Donald, a partner at McCarter & English, told InsideCounsel in April.
The Obama administration and dozens of other parties filed amicus briefs on behalf of the utilities. They argued that the government, not the courts, is responsible for emissions regulations. Many also noted that the Environmental Protection Agency (EPA) was in the process of developing GHG emissions regulations per the Supreme Court’s 2007 ruling in Massachusetts v. EPA, in which the high court decided that the Clean Air Act required the EPA to regulate GHGs if they were dangerous pollutants.
The Supreme Court heard arguments for Connecticut v. AEP on April 19 and delivered its decision June 20. The high court ruled 8-0 that the EPA’s authority to regulate emissions displaced the plaintiffs’ claims. The court did not, however, address whether parties can bring nuisance claims under state law to attempt to reduce emissions. With the matter open for consideration on remand, experts predict plaintiffs will bring similar nuisance claims, which could lead to a future Supreme Court ruling.
13: Financial Woes
Congress became increasingly concerned about our country’s fiscal policy issues this year. As the nation’s debt grew closer to the maximum limit, officially reaching the debt ceiling in May, Treasury Secretary Tim Geithner and Congress discussed whether to increase the country’s legal borrowing limit. This year marked the first time the U.S. Treasury has come so close to the limit, and members of Congress have expressed concern for the economic repercussions it could impose on the international financial markets.
In an August column, InsideCounsel.com columnist and Venable Partner John Cooney, discussed two “must-pass” laws designed to remedy the country’s financial woes that Congress considered this fall. The first, a deficit reduction bill, sought $1.2 trillion in targeted deficit reductions in order to avoid across-the-board spending cuts. A 12-member committee, comprising six members from each house and each party, had until Nov. 23 to vote on the deficit reduction bill. The committee had not yet passed the bill at press time.
The second piece of legislation, an omnibus appropriations bill, would fund all federal agencies simultaneously.
“A potential impasse has been developing on the appropriations front,” Cooney wrote. “Throughout the year, the House has adopted appropriations riders that would deny EPA (Environmental Protection Agency) funding to promulgate rules implementing existing statutes. These provisions were expected to die in the Senate under Presidential veto threat.”
But in September, President Obama conceded to House Republicans and rejected the EPA’s draft rule on limiting ozone emissions in order to reduce regulatory burdens as the economy recovers.
14: Designer Genes
The biotechnology industry breathed a sigh of relief in July when the Federal Circuit overturned part of a lower court’s decision and essentially ruled that genes can be patented.
The suit, Association for Molecular Biology, et al. v. USPTO, challenged patentsmolecular diagnostic company Myriad Genetics held on genes BRCA1 and BRCA2, which are used to predict the risk of breast and ovarian cancers in women. In March 2010, a New York federal district judge said genes are natural phenomena—or a product of nature—and thus excluded from patentability under Section 101 of the Patent Act. The unprecedented ruling invalidated the thousands of gene patents that had been patented in the U.S. prior to this decision.
But in a 2-1 decision on July 29, the appeals court ruled that DNA isolated from the body is “markedly different” from DNA in chromosomes within the body, and therefore they are not products of nature. According to the court, isolating DNA creates a new chemical entity, making those genes patentable. However, in its decision, the appeals court rejected a patent on the process of analyzing a patient’s genes to determine if they had the mutations indicating a higher cancer risk because that process involved “patent-ineligible abstract, mental steps.”
The closely watched case has garnered strong opinions on both sides of the debate. Critics, including the American Medical Association, the American Society of Human Genetics and the American College of Obstetrics and Gynecologists, contend that patenting genes creates monopolies that keep genetic-testing costs high. Supporters of gene patenting, such as Myriad and others in the biotech industry, believe the patents are important for encouraging research that may eventually help cure serious diseases.
In October, plaintiffs said they plan to petition the U.S. Supreme Court to overturn the Federal Circuit’s decision.
15: Patents Reformed
Perhaps one of the most significant pieces of legislation passed in 2011, the America Invents Act represents a radical restructuring of the nation’s patent system. Signed into law Sept. 16, the bill, which changes both patent prosecution and patent litigation, is the first serious reform of the U.S. patent system in nearly 60 years.
“This legislation is a big deal no matter how you slice it,” James Mullen, a partner at Morrison & Foerster, told InsideCounsel in November.
The most notable—and controversial—change in the law revolves around how the U.S. Patent and Trademark Office grants patents. Under the previous system, patents were issued to the person who was “first to invent” something. In response to the argument that the “first to invent” rule led to increased litigation from people who claimed they were the first to invent something despite not holding a patent, the new act eliminates this problem by implementing a “first to file” patent system. This new rule brings the U.S. patent system in line with most other nations, and makes it cheaper and easier for businesses to obtain worldwide patent rights.
“This bill is designed to help all inventors,” said Rep. Lamar Smith, R-Texas, who helped author the legislation. The current system hurts inventors because it can lead to years of costly legal challenges, he added.
As with most dramatic changes, however, the bill’s decriers have come out in numbers. Critics contend the “first to file” system puts pressure on inventors to race to the Patent Office, which will adversely affect smaller business. Under the current system, these smaller companies can take time to refine their inventions before filing for a patent. Because new applications will need to be filed any time an invention is significantly altered, smaller companies often will not have the money or manpower required for filing patent applications, so many of their inventions won’t receive patent protection.
While smaller changes to the law were implemented in September, and other changes will be rolled out over the next 18 months, the “first to file” system won’t take effect until March 16, 2013.
16: Immigration Imbroglio
The patchwork of state immigration laws that the U.S. Chamber of Commerce has long predicted would burden employers if Congress failed to pass comprehensive federal legislation became a reality in 2011. Several states passed laws aimed at stemming illegal immigration, some of which the federal government immediately challenged in court.
Much of the media attention focused on Alabama, which passed what it proclaimed to be the toughest of the laws.
In September, Judge Sharon Lovelace Blackburn of the Federal District Court for the Northern District of Alabama upheld most sections of the state law challenged by federal prosecutors, including a requirement that state and local law enforcement officials try to verify a person’s immigration status during routine traffic stops or arrests, if they suspect the person is in the country illegally. She also upheld a section that criminalized the “willful failure” of anyone in the country illegally to carry federal immigration papers. In October, the 11th Circuit issued a preliminary injunction blocking several provisions of the law, including the section making it a crime for illegal immigrants not to carry registration documents, but let stand the requirement for immigration verification during traffic stops and arrests.
A federal district court had blocked nearly identical provisions in Arizona’s 2010 immigration law, and that decision was upheld by the 9th Circuit in April. Arizona Gov. Jan Brewer asked for Supreme Court review in August. On Oct. 31, federal authorities filed suit to block similar provisions in a South Carolina law that is scheduled to take effect Jan. 1, 2012.
Meanwhile, the Supreme Court in May upheld a 2007 Arizona law that sanctions businesses that hire illegal immigrants.
On a 5-3 vote, the court held in Chamber of Commerce of the United States v. Whiting that federal immigration law does not preempt Arizona from suspending or revoking the licenses of businesses that violate state immigration law. It also upheld a requirement that employers use the federal E-Verify program to check the immigration status of prospective workers.
The Chamber of Commerce and civil rights groups contended the law was barred by the Immigration Reform and Control Act of 1986, which forbids states from imposing sanctions for hiring illegal immigrants. But the federal law exempts “licensing and similar laws,” and a key issue in the case was whether Arizona’s law fell under that exemption.
Chief Justice John Roberts noted that eight other states had passed laws similar to Arizona’s, penalizing employers who hire illegal workers—Colorado, Mississippi, Missouri, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia.
17: Debt Debacle
Just as the U.S.’s financial collapse of 2008 had a ripple effect around the world, the European debt crisis, which dominated the media this year, has garnered similar worry among businesses and personal investors.
The crisis began when the European Union discovered that Greece was unable to pay its debts, which threatened not only the economic stability of 17 nations within the eurozone (those that use the euro currency), but also the 27 countries that make up the EU. And Greece wasn’t alone in spending money it didn’t have. Other countries, such as Ireland, Spain and Portugal, also had been struggling financially. The culmination of this led to the European debt crisis.
After months of working toward a solution, in late October, European leaders announced the Eurozone Debt Deal, which would reduce Greece’s loan payments to private investors by 50 percent. They also created a $1.4 trillion rescue fund to keep credit flowing to other troubled nations, and said they would require banks to boost their reserves by the middle of next year.
While the news offered hope for the struggling continent, the worry over how Europe’s economy going forward will affect the U.S. looms.
“They have made significant progress over the last week and the key now is just to make sure that it drives forward in an effective way,” President Obama said at an Oval Office meeting on Oct. 27. “It will definitely have an impact on us here in the United States. If Europe is weak, if Europe is not growing, as our largest trading partner, that is going to have an impact on our businesses and our ability to create jobs here in the United States.”
With the U.S. economy being so closely tied to Europe’s, only time will tell the impact the crisis will really have.
18: Banks Behaving Badly
Plain and simple, it’s just been a bad year for Bank of America (BofA). The beleaguered bank has had its name dragged through the mud in association with scores of lawsuits, many of which revolve around the sale of mortgage-backed securities during the housing bubble of the mid to late 2000s.
Many of the bank’s problems began when it purchased Countrywide Financial Corp. for $4.1 billion in July 2008, and assumed most of its liabilities at the time. Since then, plaintiffs have queued up as if BofA was handing out free money, prompting some people with knowledge of BofA’s financial situation to speculate in September that Countrywide could file for bankruptcy if litigation losses threaten to topple the parent company.
In June, BofA announced an agreement to pay $8.5 billion to settle claims from investors that lost money on mortgage-backed securities sold by Countrywide. A group of 22 investors originally had purchased securities valued at $105 billion before the housing market burst.
However, U.S. District Judge William Pauley decided in October that a federal court must review the proposed settlement because the deal, which would be the largest such payment by a financial services provider, concerns important national interests.
“The settlement agreement at issue here implicates core federal interests in the integrity of nationally chartered banks and the vitality of the national securities markets,” Judge Pauley wrote in his decision. “A controversy touching on these paramount federal interests should proceed in federal court.”
American International Group Inc. (AIG), which criticized the settlement, independently sued BofA, Countrywide and fellow subsidiary, Merrill Lynch, for $10 billion in August for misrepresenting the quality of mortgages it sold to investors.
Additionally, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, filed lawsuits against BofA, JPMorgan Chase, Deutsche Bank and Goldman Sachs in September for misrepresenting mortgage-backed securities during the housing bubble. The agency accuses the banks of neglecting to perform the due diligence required under securities law when they marketed securities to investors, and overlooking indications that borrowers’ incomes were inflated or inaccurate.
The National Credit Union Administration also sued Goldman Sachs in August over its sale of mortgage-backed securities to now-defunct credit unions, for which it is seeking more than $491 million in damages.
And if all of this wasn’t enough, a New Jersey man filed a lawsuit in October accusing BofA, JPMorgan Chase and Wells Fargo of colluding with credit card issuers to fix the fees they charge customers seeking to withdraw money from automated teller machines nationwide.
19: No Deal
It came as no surprise that only five months after AT&T made known its plans to purchase T-Mobile USA, the Department of Justice (DOJ) stepped in.
In its late March announcement, AT&T said it reached a $39 billion deal to acquire T-Mobile USA, the American subsidiary of German-based telecommunications giant Deutsche Telekom AG. The merger would combine the nation’s second- and fourth-largest wireless carriers, making AT&T No. 1 in the U.S. wireless market.
On Aug. 31, the DOJ moved to block the sale, filing suit in the U.S. District Court for the District of Columbia and citing antitrust violations.
“The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services,” Deputy Attorney General James Cole said in a press release. “Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers, particularly the four remaining national carriers. This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition.”
Since the DOJ filed its suit, several states had joined the case.
AT&T declined to discuss settlement options withthe DOJ, rather asking a district judge in September to move forward with the trial. “We’re seeking a prompt trial because we’re very interested in closing this transaction,” AT&T attorney Mark Hansen said at a Sept. 21 court hearing.
In early November, AT&T said it was extending its expected closing date of the transaction from the end of the first quarter of 2012 to the end of the first half of the year, citing the DOJ’s lawsuit to block the merger. The trial has been set for February 2012.
20: Comings and Goings
It’s been a busy year for organizations that support the in-house legal profession. Two of the most prominent associations—the Association of Corporate Counsel (ACC) and Minority Corporate Counsel Association (MCCA)—saw significant changes in some of their top positions in the past 12 months.
In February, the ACC announced it had tapped Veta Richardson as its new president and CEO after Fred Krebs retired from the association’s lead role. Richardson had served as the executive director of the MCCA, where for the previous 10 years she worked diligently to advance the hiring, retention and promotion of diverse lawyers in legal departments and their outside firms. Throughout the past decade, Richardson had been lauded for her work at MCCA, and her appointment left a vacancy that was hard to fill.
But the organization found the perfect candidate in Joseph West. West had previously worked as an associate general counsel at Wal-Mart, where he focused his energy on diversity efforts in the retailer’s legal department. Healso served on the American Bar Association’s Commission on Racial and Ethnic Diversity in the Profession and had received various awards for his work in diversity over the years.
Meanwhile, longtime ACC General Counsel Susan Hackett stepped away from her post in June to launch her own consulting firm. The ACC looked internally for a new GC and promoted James A. Merklinger, who had previously worked in the ACC’s large law programs for 16 years.