An important federal appeals court has determined that a Connecticut court has jurisdiction over a Canadian citizen whose only act in Connecticut was accessing information on a computer server located in Connecticut.  In MacDermid, Inc. v. Deiter, 702 F.3d 72 (Dec. 26. 2012), a Connecticut-based company, MacDermid, Inc., sued its former employee, Deiter, a Canadian citizen who worked from Canada, in federal court in Connecticut for misappropriation of MacDermid’s trade secrets.  MacDermid alleged that Deiter sent confidential company information from her company email account to her personal email account.  The lower court dismissed the case, saying that Connecticut courts did not have jurisdiction over Deiter because she never set foot in Connecticut and only used a computer terminal in Canada.  MacDermid appealed.  The U.S. Court of Appeals for the Second Circuit, in New York, reversed, holding that it was proper for a Connecticut court to exercise personal jurisdiction over a Canadian employee of a Connecticut company because, even though she was located in Canada and physically interacted only with a computer in Canada, she “used” a server in Connecticut.


Background

MacDermid is a chemical company located in Connecticut.  Dieter, a resident of Ontario, Canada, worked for MacDermid’s Canadian subsidiary.  The email system for both MacDermid and its Canadian subsidiary is located on a server in Waterbury, Connecticut.  Just before Dieter was about to be fired, she forwarded what MacDermid claims is confidential information from her MacDermid email account to her personal email account.  In doing so, Dieter accessed MacDermid’s email server in Connecticut, even though she did so while located in Canada and physically interacting only with her computer terminal in Canada (albeit a company computer).  MacDermid sued Dieter in Connecticut for trade secrets misappropriation, and Dieter moved to dismiss, arguing that Connecticut courts did not have jurisdiction over her, as she had never left Canada.  The issue was whether the Connecticut “long arm” statute gave Connecticut courts jurisdiction over someone outside of Connecticut, and whether such jurisdiction would be constitutional.  One section of the “long arm” statute gives Connecticut courts jurisdiction over someone who “uses a computer” or “a computer network” located in Connecticut.  Therefore, the issue became whether accessing email via a server located in Connecticut constituted “using” a Connecticut computer or network.

Analysis

The lower court dismissed the case because it found that Dieter had not “used” a Connecticut computer or Connecticut computer network, but had only sent email from one computer in Canada to another computer in Canada.  The Second Circuit court disagreed.  It concluded that “using” a computer or network may involve more than just the act of physically interacting with a computer.  While Dieter had physically interacted only with her terminal in Canada, she had “used” MacDermid’s network in Connecticut by accessing it electronically when she sent an email from her company account to her personal account.  The Second Circuit pointed out that the “long arm” statute does not require that user be located in Connecticut, but only that the computer or network – i.e., the thing that is “used” – be located there.  In other words, the “long arm” statute extends to people who access Connecticut computers or networks remotely.

But, having determined that Connecticut’s “long arm” statute extended to Dieter, the Second Circuit still had to determine whether exercising jurisdiction over Dieter would be  constitutional.  It found that it was.  The court found that Dieter knew that, in using MacDermid’s email system, she was accessing a server in Connecticut.  Even though Dieter would have to travel from Ontario to Connecticut to defend herself in the lawsuit, that would not be an unreasonable burden on her.  Furthermore, according to the court, Connecticut has a significant interest in interpreting its misappropriation laws.  The Second Circuit concluded that it was proper for Dieter to be sued in Connecticut for the wrong she was alleged to have committed.

Implications

While this decision was based on Connecticut law, the Second Circuit federal appeals court covers New York, Connecticut, and Vermont.  Moreover, it is considered an important authority on commercial law.  So its analysis on personal jurisdiction could be persuasive in other courts.

Lesson

The lesson here is that if you think you are safe from suit in a particular state in the U.S. just because you access a computer from the comfort of a faraway state – or even, as in this case, another country – you might be gravely mistaken.

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics
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On Friday, August 24, a nine member jury entered a verdict in favor of Apple and awarded almost $1.05 billion in damages.  Apple filed suit against one of its largest competitors, Samsung Electronics, in April 2011, and alleged that Samsung’s Galaxy line of smartphones and tablets infringed seven of Apple’s patents covering the iPhone and iPod products.  In turn, Samsung countersued alleging that Apple infringed Samsung’s patents covering various wireless software components of its products.  After more than a year of highly contentious litigation and following a trial that began at the end of July and lasted the better part of August, the jury deliberated for less than three days before delivering the verdict in favor of Apple. 

Prior to trial, Apple received a significant e-discovery victory when the court sanctioned Samsung for its failure to preserve emails after Samsung should have anticipated the lawsuit by Apple.  The court determined that Samsung had a duty to preserve evidence as of August 23, 2010, and while Samsung issued a litigation hold and provided instructions detailing how to save emails using its email system, Samsung failed to disable the auto-delete function of its email system, which automatically deleted all emails every two weeks in Samsung’s Korean offices.  The court ordered that, as part of the sanctions, the jury would be allowed to draw an adverse inference against Samsung and that the jury would be told to presume that relevant evidence was destroyed and that the lost evidence was favorable to Apple.  

The court also entered pretrial preliminary injunctions against Samsung barring the sale of the Galaxy Nexus phone and the Galaxy Tab 10.1 in the United States. Moreover, the court delivered various ruling for and against both parties on various in limine motions.  One ruling against Samsung appeared to be very significant: Samsung took issue with the court’s ruling that, because Samsung failed to disclose in time contentions that Samsung’s designs were in development before the iPhone, Samsung was precluded from using slides containing images of the Samsung designs.      

In opening statements and during trial, Apple set forth its theory that Samsung had ripped off the unique design features of the iPad and iPhone and infringed certain utility patents.  Apple focused on comparisons between Samsung’s phones from 2006 to its newer smartphones from 2010.  Also, Apple relied on internal documents from Samsung comparing Samsung’s products with the iPhone hardware.  On the other hand, Samsung maintained the position that Apple had no right to claim a monopoly on certain design features that were not revolutionary.  Samsung’s theory to demonstrate non-infringement was to get the jury to focus on the specific legal requirements relating to each of Apple’s patents.  Samsung also went on the offensive by attempting to prove that Apple’s products use certain Samsung features for mobile devices, such as the process for emailing photos and the technology relating to easily finding photos in an album.  Moreover, Samsung attempted to demonstrate that Apple’s patents were invalid due to developments in technology that existed before Apple claimed to have invented such technology.  The parties relied on various liability and damages experts to support their respective positions. 

During closing arguments, counsel for Apple argued that Samsung copied Apple’s designs after realizing that Samsung could no longer compete with Apple.  Samsung, in turn, argued that a verdict in favor of Apple would severely suppress competition and reduce consumer choices.  In the end, with more than 100 pages of legal instructions, the jury was able to complete a 20 page-long verdict form and return a verdict in less than three days.    
       
For the specific articles from which the information in this summary was obtained, please visit http://newsandinsight.thomsonreuters.com/Legal/.  

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The Toxic Tort Litigation Blog brings to the attention of defense practitioners weapons to add to their defense arsenal. An article in the Bloomberg BNA Toxics Law Reporter (6/14/02), titled "Making the Most of Twombly/Iqbal in Product Liabililty Cases," offers a valuable primer concerning how the pleading requirements under Rule 8(a) of the Federal Rules of Civil Procedure have been reinterpreted and reshaped by the U.S. Supreme Court in two landmark decisions, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S 662,129 S. Ct. 1937 (2009).

In the article, Arnold & Porter’s Anand Agneshwar and Paige Sharpe review how these two decisions have been employed in product liability litigation either to win outright dismissals of complaints or to force plaintiffs to clearly state in their complaints – and not after discovery – precisely what they seek to prove. Motions brought under Twombly and Iqbal have come to be known as Twiqbal motions.

Prior to the Supreme Court’s publication of Twombly in 2007, federal trial courts were guided by the holding in Conley v. Gibson, a U.S. Supreme Court case decided in 1957. Pursuant to the holding of that case, “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” As Mr. Agneshwar and Ms. Sharpe point out, Twombly retired the “no set of facts” language of Conley, and in its place issued a plausibility standard under which plaintiffs must provide “more than labels and conclusions, and a formulaic recitation of the elements of the cause of action will not do so.” Thus, in order to “nudge [] their claims across the line from conceivable to plausible,” plaintiffs must provide a complaint with “enough heft to show that the pleader is entitled to relief.”

The policy rationale for this holding is the avoidance of “potentially enormous expense of discovery in cases with no reasonably founded hope that the discovery process will reveal relevant evidence.” Twombly left unclear whether its pleading directives applied to all civil cases brought in federal court, or just antitrust cases. However, two years later, the Iqbal court made clear that the pleading requirements in Twombly were to be applied across-the-board.

How successful have Twiqbal motions been in product liability cases? A 2011 law review article by Professor William M. Janssen in the Louisiana Law Review, which focused on pharmaceutical and medical device litigation, found that some 21% of the 264 cases studied were dismissed on Iqbal grounds during the relevant time period. This statistic suggests that it would be imprudent to file a Twiqbal motion in every product liability case. Thankfully, Mr. Agneshwar and Ms. Sharpe provide a series of factors that should be considered prior to filing a Rule 8(a) motion.

As a general rule, defense counsel should carefully scrutinize their adversary’s pleadings in products cases to evaluate whether plaintiff has properly alleged facts to support an essential element of a claim, such as how a product is defectively designed (design defect claim) or how specifically defendants’ product labeling is insufficient (failure to warn claim). A complaint that contains only conclusory allegations is vulnerable to Twiqbal attack. 

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In 1997, New York passed N.Y. Unconsolidated Law §8905-a, a statute that prohibits professional “combative sports,” including mixed-martial arts (MMA) events and associated activities.  Even speech that promotes MMA is barred.  On Nov. 15th, after more than a decade of failed efforts trying to have the law repealed via legislative means, several plaintiffs filed suit in the SDNY challenging the constitutionality of the statute.  They include (1) Zuffa, LLC, d/b/a the Ultimate Fighting Championship (UFC), the largest promoter of MMA in the U.S., and (2) several MMA fighters, including Ms. Gina Carano, often called the “Face of Women’s MMA,” #16 on Maxim Magazine’s 2009 “Hot 100” list, and, hopefully, an incurable future stalker of mine.  They allege that the law, which targets only pro MMA and exempts boxing and standard martial arts altogether, violates several constitutional protections, including the freedom of speech and equal-protection clause.  The UFC wants to stage events in New York, regardless of how that is made legal.  Says UFC Vice President Mark Ratner, "Every arena small and big has been asking us to come, and it's just nonsensical that the sport has not been approved yet."  Mr. Ratner likely will get his wish soon.  The law looks to be doomed, either through judicial action or via the lawmakers and other forces that brought it to life.  


1.  History and Growth of MMA

MMA, which involves both striking and grappling, often is described as a combination of boxing, Greco-Roman wrestling, and at least a half-dozen different martial arts, including kickboxing, jiu-jitsu, and judo.  Fighters face off in a boxing-type ring and score points by landing blows.  As in boxing, MMA matches end when one combatant (a) "taps out" - meaning he or she leaves the ring voluntarily – , (b) is knocked out, or (c) when time expires, at which judges select the winner. 

MMA traces its roots both to Greek and Roman sport of  Pankration, which featured a combination of grappling and striking skills, and the various forms of martial arts that evolved in East Asia over a millennia ago.  In the 19th and early 20th centuries, it remained a minor sport in many parts of the world, but steadily gained momentum in Japan and Brazil.  The late Bruce Lee is sometimes called the “father” of MMA because he combined the best of boxing, karate, judo, and other martial arts to create “the style of no style.”  In 1990, Mr. Arthur Davie, a Los Angeles advertising executive, former Marine, and fan of MMA since seeing a bout between an Indian wrestler and a Thai boxer when on leave during duty in Vietnam, began exploring the idea of whether MMA could be brought to the greater world stage.  In 1993, with the help of several people, including the Gracies, a famous Brazilian family known for its dominance of Vale Tudo ("anything goes" in Portuguese), Mr. Davie “officially” introduced MMA in the U.S. 

During its early years in the U.S., MMA was a lightly-regulated and self-described “no holds barred” sport.  It offered a feral, non-stop, all-body combat alternative to the hands-only and regularly-boring boxing, which often involved bouts dominated by opponents leaning on one another in something akin to a slow and sweaty prom dance.  MMA was limited to pay-per-view and obscure cable channels.  Over the next 15 years, it steadily grew, not only in terms of popularity, but in organization, safety, and professionalism.  In 2008, CBS introduced MMA to network TV via an EliteXC event that drew 6.8M viewers.  FOX recently inked a seven-year deal with UFC and hosted a network event that peaked with 8.8M viewers.  MMA now reportedly appears on television in 155 countries and in 22 different languages.  In January, approximately 1.4 million people watched a single MMA event on pay-per-view that reportedly grossed $110 million.  HBO is now allegedly interested in airing MMA events.  No longer a pariah sport, it is now sponsored by the U.S. Marines, Dodge, and Harley-Davidson.  

2.  Of Politics and Pugilists

MMA’s early efforts to gain popularity created a polarizing effect that ultimately led to the creation of §8905-a.  Having no advertising budget, it promoted the “savagery” of MMA and adopted catch phrases such as “no rules” and "Two men enter.  One man leaves."  In so doing, it created shock value that turned legitimate press into free advertising.  MMA was the real version of the fake “wrestling” that Americans had been watching for decades.  Like a highway accident, the MMA fascinated some and repulsed others.  Unfortunately, the “others” included concerned a large block of NY legislators, who compared MMA to cockfighting.  ''I think extreme fighting is disgusting. It's horrible," New York Mayor Rudy Giuliani said at the time. “[T]his is way beyond boxing. This is people brutalizing each other.''  Others politicians jumped on the bandwagon, and the law passed quickly.

Depending on whom you believe, other forces beyond the anti-violence crowd were at work.  New York was, and is, a world hub of professional boxing, having hosted at Madison Square Garden some of the greatest boxing matches of the 20th century.  Some supporters of MMA claim that NY politicians were overtly influenced by some of the most powerful people in the boxing industry, who viewed MMA as a threat to boxing’s future.  Former UFC promoter Campbell McLaren alleged that the enacting of the law “was done in a very illegal and bogus manner.”

3.  Legal Arguments

The plaintiffs argue that the ban is unconstitutionally vague, irrational, and violates various other protections, including the freedom of speech, the freedom of expression, the commerce clause, and the equal-protection clause.  

Irrationality and Equal Protection  

The plaintiffs claim that the law, if it ever was rational, is now really irrational because the claimed impetus for §8905-a, i.e., protecting professional MMA athletes from a no-rules barbarity, is all but gone.  They assert that today's professional MMA bouts are highly monitored and governed by new rules for fighter safety, including weight classes and timed rounds.  UFC even provides accident insurance for its athletes and covers injuries suffered both inside and outside of the gym or arena.  The plaintiffs also argue that MMA is actually safer than other, more mainstream contact sports, such as boxing, ice hockey, equestrian sports, football, and rodeo, all of which are legal in New York.  Further, they contend that with grappling and wrestling such an integral part of MMA, many fighter's careers can last much longer than those of boxers because fighters do something other than throw punches to the head and body.  Further, unlike football, opponents have to fight face-to-face, vastly reducing the likelihood of a blind-side hit.  

If supported by substantial evidence, all of this raises substantial equal-protection issues.  During a February 2011 interview with MMA radio, NY Assemblyman Robert Reilly (D-Latham), the loudest anti-MMA voice in the state, appeared to have conceded as much:  “Well, . . . I do want to not be, um . . . too contentious when I say this. . . . but today I don’t think professional boxing . . . would be legalized in many states today because of the danger to the fighters.”  

Nonsensical Law

The logic behind other aspects of the law is elusive.  Why does it only apply only professional MMA?  Says Barry Friedman, one of the plaintiffs’ attorneys, "Amateur bouts under the statute seem to be fine.   It's just professionals that are banned, so it sort of doesn't make any sense on its own terms."  Why is the mere promotion of professional MMA banned under the law?  Will New York citizens wilt if they see an ad for an MMA bout?  They already are able to watch MMA on television.  If the goal is to protect the populace from violent images, NY may as well try banning many other violent things, including violent movies, TV shows, and video games. 

Freedoms of Speech and Expression 

According to Atty. Friedman, no court has ever directly confronted the question of whether athletes have a First Amendment right to be seen in action.  “It’s martial artistry,” he said. “The nature of martial arts is a lot like dancing.”  "The First Amendment protects what's called expressive conduct, which is doing physical things that express ideas, with anything from a parade to a dance being protected.  Our argument here is that mixed-martial arts constitute expressive conduct.  I can't think of another example of a sport that's safe and regulated, and has been banned."  

Even if the law is found not to infringe on the freedoms of speech and expression, it is difficult to argue that it does not impinge upon personal liberties.  All pro MMA athletes are adults who freely choose to participate and operate in a controlled private environment.  As one online commenter stated, “What are we trying to do, protect fighters from themselves? What's next, New York legislating the amount of force used in hockey checks or football tackles?  Get the hell out of the way and let these adults do what they want to do.   The money [that pro MMA could bring to NY] is a secondary benefit.  Our liberty to do what we want, accepting the consequences, is the more important issue.”

4.  Time for Law to “Tap Out”

In one way or another, §8905-a is on its way out.  If the SDNY does not reject the statute, for one or more of the following reasons, others soon will succeed in having MMA exempted from it.  

First, in the midst of the worst national economy since the Great Depression and an NBA season that appears to be lost, New York, generally, and the Madison Square Garden owners and workers, especially, need every dime they can collect.  As stated by UFC CEO Lorenzo Fertitta, "Denying fighters the chance to exhibit their training and skills before a live audience and denying thousands of New Yorkers the ability to watch their favorite fighters perform live is not only an injustice to them, but to the local markets that would reap tremendous economic benefits from hosting competitions.”  Said Derek Crouse, of bleacherreport.com, “For a city that loves to tax everything, why wouldn’t they jump on the golden goose of the UFC, whose popularity is skyrocketing faster than anything in sports?”  Finally, with state budgets being slashed and all state employees being asked to do more with less, don’t the offices of the NY Atty. General and NY Dist. Atty. of New York and have better things to do than defend this statute? 

Second, the forces of business that donate to political campaigns eventually will convince NY lawmakers to rewrite the law.  With both CBS and FOX supporting MMA, other large media entities will not be far behind.  Further, expect the news arms of both companies to start reporting about the “ridiculous” NY law.  And if one needed any further sign that the Apocalypse is upon the supporters of §8905-a, on November 5th, USA Today reported that Don King is entering the realm of MMA.   That’s THE Don King - the face of boxing promotion for the last half-century and an ardent critic and detractor of MMA for the last two decades.  King now calls MMA a "sophisticated barbarism," and stated "I'm looking forward to doing [MMA], too, and creating a competition between the UFC and whatever I call the MMA company that I put together." He predicted that MMA will complement, but never overtake, the "sweet science" of boxing.  Ignore the sweet hype.  This is the functional equivalent of boxing leadership facing reality and throwing in the towel. 

Third, where economics and business lead, politics generally follow.  As a group, New York Republicans largely have supported MMA for years.  Several efforts to overturn the ban through legislation have stalled out for various political reasons, including the latest attempt over the summer.  In May 2011, the New York State Senate, which is slimly held by Republicans voted overwhelmingly (42-18) in favor of a bill that would sanction pro MMA, but the bill stalled in the Assembly Ways & Means Committee, which includes Mr. Reilly and reportedly is controlled by Democrats.  Mr. Reilly and his colleagues find themselves on an increasingly- lonely island.  Even the most liberal Democrats in the country are pushing for pro-MMA’s entry into New York.  In 2010, Harry Reid, Democratic Senator of UFC’s home state of Nevada, told the AP that UFC bouts were well-regulated “fair street fights” with “somebody watching every move [the athletes] make.”  He added, “I'm going to see what I can do to help [professional MMA] in New York.  I'm aware of the issue, . . . I know a few people in New York[, and] I'm going to see if I can talk a little sense to them.”  So far, sense has not prevailed. 

Bill Staar is a partner in the Boston office of Morrison Mahoney LLP, Chair of DRI's Sports Law & Entertainment Group and member of the Sporting Goods Manufacturers Association’s Legal Task Force.  He concentrates in the areas of product liability, construction disputes, toxic torts, and general business litigation. He also is a member of DRI's Product Liability, Commercial Litigation, and Construction Law Committees.

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NBA Lockout: The Latest

Posted on October 20, 2011 02:19 by Bill Staar

NBA owners and players continue to try to execute a new collective-bargaining agreement (CBA). The first two weeks of the regular season are gone. On October 10th, NBA commissioner David Stern cancelled all games originally scheduled from Nov. 1 through Nov. 14. Although some see light at the end of the tunnel, nothing clearly has indicated an imminent end to the lockout. While the parties are locked up in mediation, the rest of us are fed secondary related stories, some less entertaining than others. 

A. Close to and End?
A 16-hour marathon mediation session stretched from 8 a.m. Tuesday morning to 2 a.m. Wed. morning. The sides reportedly remain divided mostly by two issues -- the division of revenues and the structure of the salary cap system. Despite federal mediator George Cohen’s request that all parties remain silent, vague reports of "significant progress" have been whispered from the lips of alleged insiders. In the last CBA, the players took a 57% share of revenues. They have since offered 53%. The league wants a 50-50 split, which increases to a 51% share to the players if certain revenue projections are met. Talks resumed on Wednesday morning and will continue on Thursday. One prominent NBA veteran agent/attorney, Steve Kauffman, said he has noticed an increase in calls from NBA teams in recent days looking to "expediate" contract talks with assistant coaches. Kauffman sees this as an indication that owners believe something big is about to happen. 

Assuming that Wednesday’s and Thursday’s talks fail, it is not clear as to the next deadline that will result in the loss of additional portions of the season. Some have speculated that the informal deadline is the end of this week, although no one from the league has claimed as much. 

B. Delay Breeds Nonsense
The continued delay has led to some unintended and regrettable comedy on behalf of the players and at least one of their supporters. The players recently launched a "Let us play" Twitter campaign, which reportedly often pleads for "fairness." Apparently, this is supposed to conjure images of a small powerless child being locked in his room by a evil parent. C’mon, guys.

Even more disturbing is a bizarre statement by sportscaster Bryant Gumbel at the close of his HBO Real Sports television show earlier this week. Casting impartiality to the wind, Mr. Gumbel accused Commissioner Stern of standing in the way of a solution to the league's labor dispute:

If the NBA lockout is going to be resolved anytime soon, it seems likely to be done in spite of David Stern, not because of him. The NBA's infamously egocentric commissioner seems more hell bent lately on demeaning the players than on solving his game's labor issues. His efforts are typical of a commissioner who has always seemed eager to be viewed as some kind of modern-day plantation overseer, treating NBA men as if they were his boys. . . . His moves are intended to do little more than show how he's the one keeping the hired hands in their place.

Mr. Stern is a tough negotiator. To be sure, he has threatened to cancel games and followed through. He does not bluff. Stern also allegedly has said that the players are being misled by their union. Is that in poor taste? Maybe. Is it a legitimate negotiating tactic, especially if he believes it to be true? Of course. None of this makes Mr. Stern a racist, much less a man who desires to a plantation overseer. 

Mr. Gumbel’s comments are shameful, and unless he is prepared to offer evidence of Mr. Stern’s racism, he should issue an apology to Mr. Stern immediately. Sadly, he now joins a growing list of African-American sports writers and athletes who scream racism whenever black athletes don’t get their way. This list includes Jason Whitlock, who in 2010 alleged accused the NCAA of slavery in its investigation of Reggie Bush for actions in violation of NCAA standards, i.e., "Reggie Bush is Kunta Kinte, a runaway slave." It also includes Minn. Vikings running back Adrian Peterson who, in March of this year, reportedly told Doug Farrar of Yahoo Sports the following in response to a question about ongoing labor negotiations with the NFL: "It's modern-day slavery, you know?" This from a guy scheduled to make about $10 million in 2011. I’ve never heard of slaves making anything close to that type of money. Where are they? Where do I sign up? 

C. Potential Third-Party Suits
The city of Memphis reportedly is considering bringing a lawsuit against the NBA if the league cancels more games or the entire 2011-12 season. The Memphis Grizzlies needed city bonds to help put together their home at the FedEx Forum, and the city's taxpayers stand to foot a hefty $18M bond-payment bill if the entire season is cancelled. They city also is considering raising property taxes to pay for the bonds. 

D. Top Players To Play Overseas? 
Any continued work stoppage is not going to harm the pockets of the league’s top players. According to ESPN, LeBron James, Kobe Bryant and Dwyane Wade are among the locked-out NBA stars who could be making a world tour during what would have been the first two weeks of the season. Citing unnamed sources, the US-based sports network's website said plans were in the works for groups of NBA superstars to play between October 30 and November 9 in London, Macau, Australia, and Puerto Rico. Two games would be played in Australia and London, and all games would be played in venues of at least 15,000 seats. Among the others who reportedly could be involved are Derrick Rose, Carmelo Anthony, Chris Paul, Amare Stoudemire, Chris Bosh, Paul Pierce, Carlos Boozer, Rajon Rondo, Blake Griffin, Russell Westbrook, Kevin Durant, and Kevin Garnett.

Bill Staar is a partner in the Boston office of Morrison Mahoney LLP. He concentrates in the areas of product liability, construction disputes, toxic torts, and general business litigation. He is a member of DRI's Product Liability, Commercial Litigation, and Construction Law Committees, Vice Chair of DRI's Sports Law Group, and member of the Sporting Goods Manufacturers Association Legal Task Force.

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Former NBA legend Bill Russell has recently brought a suit against the National Collegiate Athletic Association (“NCAA”) (Russell v. NAT’L Coll. Athletic Ass’n., 11-04938, U.S. District Court, Northern District of California).  Russell’s suit is one of several the NCAA is currently facing revolving around alleged violations of federal antitrust laws.  Russell alleges the NCAA used his likeness from his days as a collegiate athlete at the University of San Francisco, where he led the men’s basketball team to national championships in 1955 and 1956.  He also claims that the NCAA has violated federal antitrust laws by preventing former student athletes (football and basketball) from being compensated for the commercial use of their images and likenesses.  Russell alleges that the NCAA sells videos of the championship games he led his team in for $150, without compensating the featured athletes.

Electronic Arts, Inc., (“EA”) is also named as a defendant in the suit.  As the second largest video game maker in the United States, Russell claims EA used his image in a “Tournament of Legends” featured on one of its NCAA basketball video games.    Russell seeks an injunction blocking any further sales of the videos and video games in question.  Additionally, he wants disgorgement of profits from both the games and videos along with other damages.  

Russell’s claim will likely be consolidated with a pending lawsuit brought by Ed O’Bannon, a former UCLA basketball standout (O’Bannon v. NAT’L Coll. Athletic Ass’n., 09-cv-01967, N.D. Cal.; appeal pending, 10-15387, 9th. Cir.).  O’Bannon’s suit alleges that the NCAA and EA have conspired to violate former student-athletes’ rights to profit from and control the use of their image. EA has denied any wrongdoing, relying on the constitutional right of freedom of speech under the First Amendment.  EA claims that freedom of speech under the First Amendment means it does not need permission to use any player’s likeness because the videos have sufficient creative elements that collectively express that they are more than depiction of any one athlete.  The NCAA has also denied any wrongdoing.  

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This week, the FDIC and SEC approved the Volcker Rule and released a draft for public comments.  Bank regulators will have to solidify the Rule in the coming months, as the Rule is set to take effect in July, 2012 – although banks would have three years to comply with the Rule. 

Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Volcker Rule limits the type of investments that banks can make with their own money.  A result of the financial crisis, the Rule seeks to reign in the behavior that caused banks to fail in 2008.  The Rule is named after former Federal Reserve Chairman Paul Volcker, a man who criticized bank practices long before the financial crisis.  The Rule applies to banks that have government guarantees and may even impose limits on financial companies supervised by the Federal Reserve Board.  

The Volcker Rule places two big limitations on banks.  First, the Rule prohibits banks from owning or controlling hedge funds and private equity funds: a bank cannot own more than three percent of a hedge fund or private equity fund, and cannot invest more than three percent of its capital in such funds.  

Second, the Rule prohibits banks from engaging in proprietary trading.  Proprietary trading occurs when a bank makes trades for its own benefit, rather than for the benefit of a customer.  There are a few exceptions to this rule though, including trades of foreign currencies, commodities, and government bonds.  Additionally, banks can engage in proprietary trading if they are hedging while trading on behalf of a customer.  And banks may still act as market-makers and underwriters.      
The Rule is not without problems though.  Even its supporters claim note that the Rule may not be strict enough, and may contain loopholes.  Also, it can be difficult to draw a line between proprietary trades and trades made for customers.  

Wall Street is certainly not happy with the additional regulations.  Compliance will create new costs; the Rule requires banks to create internal compliance programs overseen by executives.  And Moody's noted that the Rule gives certain companies, like investment firms and offshore banks, a competitive advantage because they are not subject to the regulations.  

At almost 300 pages, the Volcker Rule will likely receive several public comments in the next few months, including some very loud ones from Wall Street.  

William F. Auther is a partner with an active trial practice in business litigation and Kelly M. McInroy is a law clerk in the Phoenix office of Bowman and Brooke LLP.  

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Proposed class action settlements often bring out two types of objectors representing individual class members who would be affected by the settlement.  The first argues the settlement terms are themselves  unreasonable and seek modification of those terms.  Where those objections result in a higher overall recovery for the class, they seek attorneys’ fees from the increased value of the settlement fund.  See e.g., Duhaine v. John Hancock Mut. Life Ins. Co., 2 F.Supp.2d 175 (D.Mass. 1998) (allocating a portion of the fee award to counsel for successful objectors who improved the settlement fund).  The second type of objectors do not necessarily challenge the overall settlement amount per se, but rather object to the size of the award of counsel fees.  In that instance, they argue the amount of requested fees are excessive relative to the value of the settlement to the class members and seek a reduction of the award or an increase in the size of the fund.  Last year, in Fleming v. Barnwell Nursing Home and Health Facilities, Inc., 15 N.Y.3d 375 (2010), a majority of New York’s Court of Appeals held that counsel for a successful objector to the size of a fee request by class counsel was not entitled to recover attorneys fees from the increased value of the settlement fund.  The majority reached this decision based on a New York rule which it read to limit fee awards to “representatives of the class” and that such did not include counsel for individual class members even if their objections increased the award to the class.

Driven in part of the Fleming decision and the disincentive it created for class members to retain counsel to object to fee requests (since the cost of a successful objection would still be borne solely by the objector or her counsel even though the entire class benefited from the objection), the New York legislature passed a new version of the rule which would permit a court  to award fees to “representatives of the class and/or to any other person that the court finds has acted to benefit the class.”  N.Y. Senate Bill 4577.  On September 12, that bill was sent to Governor Cuomo for consideration and on September 23, Governor Cuomo signed the bill. http://www.law.com/jsp/lawtechnologynews/PubArticleLTN.jsp?id=1202517053062&slreturn=1 .  


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 United States District Court Judge Ellen Huvelle has set a date to hear the Department of Justice Antitrust Division's challenge to the merger of AT&T and T-Mobile.  At a hearing in Washington on September 21, Judge Huvelle announced that the DOJ's attempt to enjoin the $39 billion merger, which the DOJ contends would harm consumers, will commence on February 13.  The hearing, in which the DOJ seeks to permanently enjoin the parties from consummating their merger, is expected to last up to six weeks.

As explained in the DOJ complaint, DOJ contends that AT&T and T-Mobile are two of only four "national" mobile wireless providers (the other two being Verizon Wireless and Sprint) and that collectively the "big four" provide more than 90 percent of service connections to all U.S. mobile wireless devices.  If AT&T were permitted to acquire T-Mobile, the "low cost rival" of the four, consumers would likely face higher prices, less product variety and innovation, and poorer quality services, at least according to the DOJ.  

Since the DOJ's filing of the action at the end of August, several states have now joined the action in seeking to have the merger enjoined, including New York, California and Illinois.  Two competitors, Sprint and Cellular South, a regional wireless carrier, have also sued seeking to derail the merger, and numerous consumer groups have voiced their support for the DOJ's actions.  On the other hand, those supporting the merger have also been quite vocal.  In early September, 15 House Democrats signed a letter sent to President Obama expressing their dissatisfaction with the DOJ's decision to block the deal, and more recently almost 100 House Republicans did the same.  Among other things, the legislators contend that AT&T has announced that the merger, if consummated, would lead to more jobs and that given the current economic climate that should carry heavy weight.

This topic and other hot antitrust cases for 2012 will be discussed as part of the "Hot Litigation Picks" program at the DRI Annual Meeting October 26-30 in Washington, DC.  Register before September to take advantage of reduced registration fees.
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During his campaign, Sen. Barack Obama repeatedly proclaimed that, with his election, “change” would be coming to Washington, D.C. Now that Sen. Obama has become President-Elect Obama, will his recipe for change extend to the antitrust laws?  Will the incoming Obama administration change the way federal regulators view the antitrust laws? Will it increase the number of antitrust enforcement actions brought by the Department of Justice (DOJ) Antitrust Division and the Federal Trade Commission (FTC)? Well, if candidate Obama’s statements along the campaign trail are an accurate indicator of his future intentions, all signs clearly point towards a significant increase in antitrust enforcement at the federal level over the next four years.

Numerous signs that the incoming Obama administration will take a different, more activist, approach towards antitrust enforcement can be found from along his campaign trail.  For example, candidate Obama’s views on the current level of antitrust enforcement were expressed in a speech last May, when he declared, “We’re going to have an antitrust division in the Justice Department that actually believes in antitrust law.  We haven’t had that for the last seven, eight years.” However, candidate Obama’s views on the antitrust laws and his intentions regarding how to modify antitrust enforcement if elected were by no means limited to general pronouncements of this nature. Owing perhaps to his former role as a law school professor, during his campaign candidate Obama provided an unusually detailed amount of specificity concerning the “change” he believes is required to make federal antitrust enforcement more effective.

Changes in antitrust policy

Back in 2007, when still a bit of a long-shot candidate, Senator Obama provided a detailed response to an American Antitrust Institute request for his views on antitrust enforcement policy (notably, he was reportedly the only candidate, from either party, to respond to their request at the time.) In his statement, Obama was critical of the Bush administration’s merger enforcement and pledged more vigorous enforcement, asserting that “between 1996 and 2000, the FTC and DOJ together challenged on average more than 70 mergers per year,” but that “from 2001 to 2006, the FTC and DOJ on average only challenged 33.” As the campaign progressed, Obama also expressed concern about consolidation in the media industry, including the XM/Sirius merger, which he said might “give the new firm excessive market power or unduly limit the choices consumers have for satellite-radio content.” In July, candidate Obama also called for a close examination of the proposed DHL/UPS joint venture, stating, “At the very least, the DOJ should examine whether having two competitors in a fairly concentrated market act as partners would have anticompetitive effects.” Given all of these pronouncements, it seems quite clear that an Obama administration is likely to live up to candidate Obama’s pledge to “step up review of merger activity and take effective action to stop or restructure those mergers that are likely to harm consumer welfare, while quickly clearing those that do not.”

While on the campaign trail, candidate Obama also frequently pledged to bring more antitrust enforcement cases, stating, “I will assure that we have an Antitrust Division that is serious about pursuing cases.” In addition, Obama specifically decried the Bush administration’s “failure” to bring any monopolization cases over the last seven years, and told the American Antitrust Institute, “My administration will ensure that insurance and drug companies are not abusing their monopoly power through unjustified price increases  —whether on premiums for the insured or on malpractice insurance rates for physicians.”  Reaffirming his view that monopoly enforcement has been insufficient over the last eight years, Obama recently voiced his strong disapproval of a September 2008 DOJ Antitrust Division report that sought to explain and justify the Division’s cautious approach to bringing monopolization actions. Thus, it appears quite likely that the policies set forth in that report will be short-lived and that, before too long, an Obama administration will bring at least one monopolization case, possibly in the health care area.

A focus on a few particular industries

Candidate Obama also took direct aim at several particular market sectors in his response to the American Antitrust Institute. In addition to media mergers, Obama also expressed the view that antitrust enforcement in the healthcare, energy, and pharmaceutical sectors needed to be enhanced. Specifically, in the media area, on the campaign trail candidate Obama expressed his “strong support” for the principle of network neutrality, and said that letting internet providers charge fees that give some websites or applications priority over others “would threaten innovation, the open tradition and architecture of the internet, and competition.” In the areas of healthcare and pharmaceuticals, Obama claimed that “lax enforcement of healthcare mergers” has caused harm to consumers, and stated that he would also take steps to ensure that branded pharmaceutical companies could not block generic drugs from the marketplace.

Legislative initiatives involving the antitrust laws

President-elect Obama’s plans for antitrust “change” are also likely to extend to legislative proposals. For example, in his response to the American Antitrust Institute, candidate Obama also noted that, while in the Senate, he introduced legislation to repeal the McCarran-Ferguson Act for medical malpractice insurance, and confidently proclaimed, “As president, I will sign this bill into law.” Accordingly, legislation seeking to repeal the insurance industry’s McCarran-Ferguson Act exemption — which has been introduced many times over the last 20 years but never enacted — is likely to be an early agenda item for the Obama administration. Another initiative likely to gain traction in an Obama administration is legislation that would overturn the Supreme Court’s 2007 decision in Leegin, reinstating the pre-Leegin law that made retail price maintenance a per se antitrust violation.

Patent law antitrust issues

Candidate Obama also took aim at settlements in patent infringement actions involving generic drugs. In his policy statement to the American Antitrust Institute, he expressed a desire to “ensure that the law effectively prevents anticompetitive agreements that artificially retard the entry of generic pharmaceuticals onto the market, while preserving the incentives to innovate that drive firms to invent life-saving medications.”  The specific concern in this area of the law is that  so-called “reverse payment” settlements to resolve patent infringement actions may in reality be intended more as a means of delaying the entry of generic drugs into the market — an anticompetitive result. Within the last few years the U.S. Supreme Court has twice denied petitions for certiorari to hear such matters, and bills to address reverse payment settlements have been introduced, but stalled, in Congress. An Obama administration may put White House muscle behind such legislation and/or petition the Supreme Court to finally grant certiorari and hear and resolve this important issue.

International cooperation

Finally, candidate Obama also pledged to strengthen competition advocacy in the international community. He has stated that he will “work with foreign governments to change unsound competition laws and to avoid needless duplication and conflict in multinational enforcement of those laws.” Accordingly, this is likely to be another focus of the new Obama administration.

Conclusion

In short, given the frequency and detailed nature of candidate Obama’s campaign trail pronouncements about the need for “antitrust change,” it is very likely that we will see a considerable increase in the level of antitrust enforcement in the new Obama administration. There will be numerous developments in the world of antitrust enforcement over the next four years.

James M. Burns
Williams Mullen
jimburns@williamsmullen.com

 

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