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WASHINGTON-For much of the nation’s business community, the U.S. Supreme Court would need to decide only one case in their favor to make their day, indeed, their entire year: Philip Morris USA v. Williams. The case, No. 05-1256, draws the high court this term back into the realm of punitive damages, not just their relationship to compensatory damages awarded, but also whether they can be awarded for the effect of the misconduct on nonparties to the lawsuit. The high court last term heard an unusually large number of important and diverse business-related cases, said veteran high court litigator Mark I. Levy of the Washington office of Atlanta’s Kilpatrick Stockton. But one key area was missing from that year’s docket: civil justice issues such as punitive damages. With the Philip Morris case, that gap is filled with what he and others call potentially the biggest business case of the 2006-07 term. Although the high court is somewhat behind in its total number of cases granted review in the new term, the half dozen or so business-related cases already slotted for review reflect the emergence of a significant business docket, more so than was seen in the Rehnquist court years, said Levy. “It’s still too early to call it a trend, but the court is taking very important cases,” he said. Besides the punitive damages challenge, the court also will hear two antitrust cases; two patent cases; and cases in banking, bankruptcy, employment and environmental law, he noted. “All of that is a welcome sign to the business community,” he said. Punishing verdict In the Philip Morris case, a jury awarded roughly $800,000 in compensatory damages and $79.5 million in punitive damages to the family of Jesse Williams, who smoked Marlboro cigarettes for 47 years and died of lung cancer. Oregon appellate courts upheld the awards, finding, in the words of the Oregon Supreme Court, that the company, with others, “engaged in a massive, continuous, near-half-century scheme to defraud the plaintiff and many others, even when Philip Morris always had reason to suspect-and for two or more decades absolutely knew-that the scheme was damaging the health of a very large group of Oregonians-the smoking public-and was killing a number of that group.” The awards were appealed up to the U.S. Supreme Court, which sent the case back to the lower Oregon courts for reconsideration in light of the high court’s 2003 ruling in State Farm Mutual Insurance Co. v. Campbell.
Cases to Watch Antitrust Bell Atlantic v. Twombly, No. 05-1126: Is a complaint that alleges parallel or similar behavior, and conspiracy to limit competition, but has no allegations in support other than the similar or parallel conduct, sufficient to survive a motion to dismiss? Patent KSR International Co. v. Teleflex Inc., No. 04-1350: Is the test used by the U.S. Court of Appeals for the Federal Circuit to determine the “obviousness” of a claimed invention correct? Punitive damages Philip Morris USA v. Williams, No. 05-1256: May a court’s finding that defendant’s conduct was highly egregious support a punitive damages award nearly 100 times the amount of compensatory damages awarded, and may a defendant be punished for the effects of its conduct on non-parties to the lawsuit?

In State Farm, Justice Anthony M. Kennedy, writing for the majority, said, “Single-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution, than awards with ratios in [the] range of 500 to 1, or, in this case of 145 to 1.” However, Kennedy also suggested that a greater ratio might pass due process muster if there was particularly egregious behavior resulting in a small amount of economic harm. The Oregon Supreme Court, applying State Farm, again upheld the $79.5 million punitive award because of the “extreme and outrageous” conduct by Philip Morris. “This case is arguably the most important punitive damages case the Supreme Court has taken to date,” said Lori Nugent of the Chicago office of Philadelphia’s Cozen O’Connor. “The battle lines are drawn very cleanly.” Plaintiffs, she said, assert that when conduct is sufficiently egregious, the punishment need have no relationship whatsoever to the offense. The defendant takes the position that the concept that punishment must have a rational relationship to the offense dates from the Magna Carta, and has been a part of the concept of justice since well before the Magna Carta, she added. “If the court were to accept plaintiff’s argument, there would be no limitation on the amount of punitive damages that could be assessed against a company doing business in the U.S. if a jury of as few as 6 people in some jurisdiction determined the conduct at issue was sufficiently egregious,” said Nugent. “The outcome of this case will impact the basic underpinnings of justice in the United States.” But the approach of business and Philip Morris is “basically to gut punitive damages as a part of the way our civil justice system operates,” said Mark Gottlieb, director of the Tobacco Products Liability Project. “As someone who works for an organization that looks to punitive damages as a way to change industry behavior in order to benefit public health, I’m somewhat hopeful punitive damages will be available as a powerful deterrent to industry behavior of the type that the Oregon Supreme Court, Court of Appeals and trial court noted in the Williams case,” he said. Restraining trade The high court has two antitrust cases so far in the new term, bringing to five the total number of antitrust challenges heard by the court in just two terms. “I can’t remember the last time the court had five antitrust cases in two terms,” said Kilpatrick’s Levy. Of the two pending, Bell Atlantic v. Twombly,No. 05-1126, is potentially the more significant, he said. The case involves the pleading requirements for an action under Section 1 of the Sherman Antitrust Act. The justices are asked whether a complaint that alleges parallel or similar behavior, and conspiracy to limit competition, with nothing else, is sufficient to survive a motion to dismiss. The case arises out of a class action against the regional Bell operating companies, alleging conspiracy to exclude competitors from-and not to compete against one another in-their respective geographic markets for local telephone and high-speed Internet services. The court’s decision, said Levy, is likely to affect proceedings in a broad range of technology and nontechnology industries. “The reason it’s so important is antitrust cases are massive litigation, very document intensive, and the remedies are treble damages and attorney fees,” Levy said. “There’s a lot of bargaining power on the plaintiff side. Relatively few cases get to trial and few get to summary judgment. So the question of disposing of these cases on a motion to dismiss is of critical importance to the business community as a practical matter.” The 2d U.S. Circuit Court of Appeals in the Bell Atlanticcase made it much easier for plaintiffs to get past the pleading stage and into discovery, he added. Obviously obvious KSR International Co. v. Teleflex Inc., No. 04-1350, is one two important patent cases this term. KSR challenges a test used by the Federal Circuit to determine what makes an invention so “obvious” as to be unpatentable. Questions of obviousness arise in almost every patent case, so the high court’s decision will affect a broad range of industries. MedImmune v. Genetech, No. 05-608, basically asks what a patent licensee must do to bring a declaratory judgment action challenging the validity of the patent. The Federal Circuit has held that a licensee who continues to comply with the license and hasn’t been threatened by the licensor cannot sue. Other cases to watch include: Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., No. 05-381: Whether a plaintiff alleging that a defendant engaged in “predatory bidding” must prove that the defendant suffered a loss in the short term and had a dangerous probability of recouping its loss in the long term. Ledbetter v. Goodyear Tire & Rubber, No. 05-1074: How does Title VII’s statute of limitations apply to periodic paychecks alleged to be discriminatory? Marrama v. Citizens Bank of Massachusetts, No. 05-996: Does a debtor have an absolute right to convert from one Bankruptcy Code chapter to another?

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