Welcome to Inside Track, where we’re covering key issues for in-house lawyers, answering your pressing questions and keeping you in the know about what your colleagues are up to. This week, it’s Uber in the hot seat—again! And it’s looking pretty uncomfortable for the company’s deputy GC. Plus, confusion at the CFPB and jail time for an ex-GC.
What’s happening –
HOLD UP. Waymo’s lawsuit against Uber was, until Tuesday, slated to go to trial next week in San Francisco federal court. That was before everything imploded and Uber’s deputy GC Angela Padilla (above) found herself defending serious charges that she helped keep a damaging document under wraps. You’re going to want to read this story by my colleague Caroline Spiezio about what happened today in court.
➤ The letter. The drama centers on a letter sent to Padilla by former Uber employee Richard Jacobs that was only just produced. Jacobs testified Tuesday that his attorney sent a letter to Padilla detailing secretive techniques Uber used to spy on competitors. While serving as Uber’s manager of global intelligence, Jacobs said that he learned of an internal organization at Uber called the “marketplace analytics team,” which gathered competitor trade secrets and codes and also attempted to “evade, impede, obstruct, influence several ongoing lawsuits against Uber.” This team looked to anonymous servers and encrypted devices to ensure there was no paper trail, according to Jacobs.
➤ No Trust. U.S. District Judge William Alsup, who is presiding over the case, said Tuesday that the trial would be postponed. “I can no longer trust the words of the lawyers for Uber in this case,” Judge Alsup said. “If even half of what is in that letter is true, it would be an injustice for Waymo to go to trial.”
➤ Angela Padilla. The in-house attorney took a beating on Wednesdayfrom Alsup. Padilla testified that upon receiving the letter from Jacobs, she passed it to two lawyers in Uber’s compliance department at a meeting that outgoing CLO Salle Yoo was at. But Padilla didn’t send the email to in-house or outside counsel directly involved in the suit with Waymo, she testified. Attorneys from Wilmer Cutler Pickering Hale and Dorr were hired to look into Jacobs’s allegations.
It came out in court that Uber paid Jacobs $4.5 million as part of a mediated settlement after he was fired by Uber. “Here’s the way it looks,” Alsup told Padilla. “You said it was a fantastic BS letter with no merit and yet you paid $4.5 million. To someone like me and people out there, mortals, that’s a lot of money, that’s a lot of money. And people don’t pay that kind of money for BS and you certainly don’t hire them as consultant if you think everything they’ve got to contribute is BS. On the surface it looks like you covered this up.”
FORMER GC BEHIND BARS. Thaddeus Bereday, the former GC of insurer WellCare Health Plans, was sentenced on Nov. 22 to six months in federal prison. Bereday, along with four other WellCare execs, was indicted in 2011 for submitting inflated expense information to the Florida agency that administers Medicaid. Along with jail time, the ex-GC was also ordered to pay a $50,000 fine and was sentenced to three years of supervised release.
➤ The bigger picture: This year, the federal government has gone after a number of professionals for healthcare fraud and other illegal practices. For instance, prosecutors charged more than 400 defendants earlier this year – from doctors, to nurses and other licensed professionals – for allegedly participating in fraud schemes that amounted to more than $1.3 billion in false billings.
➤ What about in-house lawyers? Bereday is one of the few in-house lawyers to be subject to prosecution. But that may not be the case for long, said my colleague Kristen Rasmussen, who has followed this issue closely. She told me that “as the feds continue their crackdown on health care fraud, particularly in the prescription opioid space, we’ll likely see more top lawyers becoming the victims of such prosecutions.”
NET NEUTRALITY. In just a few weeks, at a Dec. 14 meeting, net neutrality regulations are expected to be dismantled. The debate over whether these regulations should be rolled back has pitted giants like Amazon, Verizon, Google and AT&T against each other.
Who’s saying what? ➤ In April, Verizon released a video in which general counsel Craig Silliman discussed net neutrality: “The FCC is not talking about killing net neutrality rules and in fact, not we nor any other ISP are asking them to kill the open internet rules,” Silliman said in the video. “All they’re doing is looking to put the open internet rules in an enforceable way on a different legal footing.”
➤ In a July comment to the FCC, AT&T said: “As a threshold matter, there have been no ‘net neutrality’ rules of any kind for most of the broadband era, and—despite incessant warnings to the contrary—no problems arose in that unregulated environment,” the company said in its filing, adding that the Title II-specific rules have imposed “massive costs on the broadband ecosystem in the form of diminished incentives for investment and innovation.”
➤ Amazon has countered that the company’s concern is that “removing or weakening open internet rules will disrupt” the openness of the internet.
➤ Vimeo GC Michael Cheah told my colleague Caroline that the plan to repeal the rules was a “complete abdication,” adding that repealing the regulations “is not based on any real evidence or economic analysis[.]” Cheah previously wrote in a July comment to the FCC that “[r]epealing the rules at this critical time would unsettle expectations, jeopardize investment, and reduce consumer choice.”
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WHO’S LEADING THE CFPB? There’s a clash at the moment over who is leading the Consumer Financial Protection Bureau, which may mean uncertainty for in-house counsel.
➤ What’s going on? Unless you live in a cave, or really unplugged over Thanksgiving weekend, you know the basics. Effective Nov. 24, Richard Cordray resigned from his position as director of the CFPB. He named Leandra English as deputy director, putting her in line to become acting director. Then President Donald Trump appointed Mick Mulvaney, director of the Office of Management and Budget, to lead the CFPB. So English sued … and lost.
Now what? The challenge for in-house counsel, said Benjamin Olson, partner at Buckley Sandler and former Deputy Assistant Director for the CFPB’s Office of Regulations, will be advising the business on how to balance middle-term and long-term risk once the CFPB is firmly in the hands of a Trump administration appointee.”
He added: “In areas where the tension between compliance and competition is the highest … some in-house counsel are already struggling with a perception within their organizations that, following the election, the old rules went away. While it is reasonable to expect some amount of deregulation from the CFPB over the next few years, that will be a slow process and, until the rules change, state regulators, private lawsuits, and the expectations of business partners are still concerns.”
“This may be a case where the cover-up was worse than the initial action.”
- Paige Boshell, a partner at Bradley Arant Boult Cummings and leader of the firm’s cybersecurity and privacy team, on the very belated announcement of a breach at Uber and news that the company paid off hackers to keep it quiet.
Question of the week –
In each briefing, we’ll answer a question for in-house attorneys by going to top practitioners in those areas. If you have a question, email me.
This week’s question: The U.S. Supreme Court heard oral arguments Monday in a case that questions the constitutionality of inter partes review, administrative patent trial proceedings created by the America Invents Act as a more efficient alternative to district court litigation. What, if anything, should in-counsel be doing now to prepare for the decision?
Should Oil States find AIA Trial Proceedings unconstitutional, in-house counsel will lose a cost-control mechanism, and be forced back to district courts to litigate patent validity disputes. Such a change would likely reinvigorate “patent trolls” and increase nuisance lawsuits. While this may seem a long shot at present, budgets may need to be adjusted in 2018 to account for the potential of increased legal spend.
In-house counsel at entities whose patents may be challenged at the PTAB should also consider whether the court’s ruling may affect legal strategy, both at the PTAB and on appeal. For example, several justices expressed concerns regarding the due process afforded to patent owners at the PTAB, and whether patent owners’ investment-backed expectations are a relevant consideration. Even if Oil States’ Article III and Seventh Amendment challenges fail, the Supreme Court may leave the door open for patent owners aggrieved by PTAB decisions to use other constitutional doctrines to seek relief such as violations of the Fifth Amendment’s due process or takings clauses.
— Scott McKeown, an intellectual property litigation partner and chair of the Patent Trial and Appeal Board group at Ropes & Gray LLP. Matthew Rizzolo, an intellectual property litigation counsel with Ropes & Gray LLP. They are based in the firm’s Washington, D.C. office. (Responses are edited for clarity and length.)
Don’t miss –
Thursday, Nov. 30 – The U.S. House Committee on Energy and Commerce will hold a hearing to consider developments in combating online sex trafficking. Efforts to amend Section 230 of the Communications Decency Act will be a likely topic of discussion. Witnesses include law professor Eric Goldman and Yiota Souras, GC of the National Center for Missing and Exploited Children.
Friday, Dec. 1 – The New York City Bar Association is hosting a half-day event that will look at everything from what the in-house counsel’s role should be in M&A transactions to crisis management and how litigation funding can benefit legal departments. Panelists include counsel from Morgan Stanley, Ernst & Young and Avis Budget Group.
Monday, Dec. 4 and Tuesday, Dec. 5 – ALM’s cyberSecure conference in New York City is almost here. In-house counsel from JPMorgan Chase, Colgate-Palmolive, Citi Group and more will discuss the challenges associated with data security and privacy and will look at best practices to manage these risks. If you’re not able to attend, my colleagues and I will be there bringing you all the details.
On the move
Resignation. According to a U.S. Securities and Exchange Commission filing, Planet Fitness GC Richard Moore has decided to resign from the company. Moore—who will stay on in his role until Nov. 30, according to the Nov. 20 filing—has been chief administrative officer and GC since early 2013. Moore joined the company as GC in 2012, and that same year, he led the company through its sale to TSG Consumer Products.
Thanks for reading. See you next week!
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