The Lawletter Vol 39 No 4

Tim Snider, Senior Attorney, National Legal Research Group

     Some owners of patents that have little or no commercial value in and of themselves exploit those patents to promote litigation and thus force patentees who are practicing their inventions to compromise and settle infringement claims as an alternative to running up ruinous fees and costs to defend their patents. This practice has become known as "patent trolling." It is the bane of the patent bar.

     In Highmark, Inc. v. AllCare Health Management System, Inc., 134 S. Ct. 1744 (2014), the district court had entered summary judgment in favor of Highmark, which had sought a declaration that its patent was noninfringing. Highmark, Inc. v. AllCare Health Management System, Inc., 706 F. Supp. 2d 713 (N.D. Tex. 2007). Highmark then moved for an award of fees and costs under 35 U.S.C. § 285, arguing that the case was "exceptional."

     The district court granted Highmark's motion, reasoning that Allcare had engaged in a  pattern of "vexatious" and "deceitful" conduct throughout the litigation. Specifically, it found that Allcare had "pursued this suit as part of a bigger plan to identify companies potentially infringing the [patent in suit] under the guise of an informational survey, and then to force those companies to purchase a license of [U.S. Patent No. 5,301,105] under threat of litigation." Id. at 736-37. The court found that Allcare had "maintained infringement claims [against Highmark] well after such claims had been shown by its own experts to be without merit" and had "asserted defenses it and its attorneys knew to be frivolous." Id. at 737.

     In a subsequent opinion, the district court fixed the amount of the award in favor of Highmark at $4,694,727.40 in attorney's fees and $209,626.56 in expenses, in addition to $375,400.05 in expert fees. On appeal, 687 F.3d 1300 (Fed. Cir. 2012), the Federal Circuit affirmed in part and reversed in part. The Federal Circuit concluded that because the determination of whether a party's litigating position is "objectively baseless" is an issue of law, it was free to review the merits of the district court's judgment de novo.

     Justice Sotomayor, writing for a unanimous Court, disagreed and concluded that the review of the district court's determination under § 285 should instead be subject to review under the standard of abuse of discretion. That provision authorizes fee shifting, whereby a party's fees and costs may be awarded if the case is found to be "exceptional." She reasoned that as a matter of the sound administration of justice, the district court is better positioned to decide whether a case is exceptional, because it lives with the case over a prolonged period of time. As a practical matter, rarely will a district court's finding be reversed on appeal.

The Lawletter Vol 39 No 3

Sandra Thomas, Senior Attorney, National Legal Research Group

     Maryland's highest court has rejected an attempt by a husband to avoid a divorce in Maryland by claiming that he did not participate in the marriage that the wife testified had occurred in 1993 in Zaire, now known as the Democratic Republic of the Congo. Tshiani v. Tshiani, 81 A.3d 414 (Md. 2013).

     According to the wife's testimony, the husband participated in the marriage ceremony by telephone and was represented at the event by his cousin and by other members of his family who provided the dowry required by the tribal tradition and who joined in the eight-hour celebration following the marriage. The husband was reported to have been asked: "'Do you know this girl? Do you like this girl? Do you want us to give the dowery [sic] and the gift to this family so that you, this person can be your husband or wife?'" Id. at 417. Several days after the ceremony, the wife traveled to Virginia, where she lived in an apartment with the husband for a period of time before they moved to Maryland, where they remained until their separation, almost 15 years later. The parties had three sons during the marriage. The husband was employed at the World Bank.

The Lawletter Vol 39 No 3

Paul Ferrer, Senior Attorney, National Legal Research Group

     Given its small caseload, the U.S. Supreme Court continues to surprise with the number of arbitration cases it decides year after year. An article in the July 2011 issue of Lawletter, see Supreme Court Weighs In on Enforceability of Arbitration Clause Prohibiting Classwide Arbitration, 35 Lawltr. No. 10, at 39, discussed the decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), in which the Court "held that the [Federal Arbitration Act (the 'FAA'), 9 U.S.C. §§ 1B16,] pre-empted a state law barring enforcement of a class-arbitration waiver" contained in an otherwise enforceable arbitration agreement. Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2308 (2013) (discussing Concepcion, 131 S. Ct. 1740). We predicted that in the wake of the Concepcion decision, parties who actually read the boilerplate language in the adhesive contracts they sign could expect to see many more arbitration provisions including class-action waivers. And, in fact, such a waiver was also at issue in the Court's later decision in the American Express case.

The Lawletter Vol 39 No 3

Alistair Edwards, Senior Attorney, National Legal Research Group

     There are numerous cases in which a borrower/mortgagor has attempted to defeat the enforceability of its mortgage (and promissory note), based on an alleged violation of the pooling and servicing agreement ("PSA"), the instrument that created the trust into which the mortgage was deposited. The courts in those cases have been quick to point out that the mortgagor was not a party to the PSA. Most of these courts have also held that the mortgagor is not a third-party beneficiary to the PSA and cannot challenge it on that basis. See, e.g., In re Correia, 452 B.R. 319 (B.A.P. 1st Cir. 2011) (finding that an individual who is not a party to, or a third-party beneficiary of, the PSA lacks standing to object to breaches of the PSA's terms).

     Recently, in Dernier v. Mortgage Network, Inc., 2013 VT 96, ___ A.3d ___, the court, applying New York law, considered the standing of the mortgagors to challenge their mortgage and note based on a violation of the PSA. The court adopted the general rule that the mortgagor is not a third-party beneficiary to the PSA. But the court went one step further and indicated that the mortgagors, although not a party to, or third-party beneficiary of, the PSA, could attack their mortgage and note if the violations of the PSA rendered the assignment of the mortgage and note void and not merely voidable. There, the court explained:

The Lawletter Vol 39 No 3

John Stone, Senior Attorney, National Legal Research Group

     When handgun owners and gun rights advocacy organizations brought an action against the City of San Francisco challenging the validity of city ordinances regulating handgun storage and
ammunition sales as impermissible violations of the right to bear arms under the Second Amendment, they were denied a preliminary injunction by a trial court. On appeal, the Ninth Circuit Court of Appeals affirmed that ruling. Jackson v. City of San Francisco, No. 12-17803, 2014 WL 1193434 (9th Cir. filed Mar. 25, 2014).

     The city ordinance required handguns in a residence to be stored in a locked container or disabled with a trigger lock when not carried on a person. Such storage regulations, the court concluded, did burden conduct protected by the Second Amendment since handgun storage regulations have not been part of a long historical tradition of proscription. However, that restriction did not place a substantial burden on Second Amendment rights, and, thus, intermediate scrutiny applied to the gun owners' challenge to the ordinance. Although the ordinance implicated the core of the Second Amendment right in that it applied to law‑abiding citizens and imposed restrictions on the use of handguns within the home, it did not constitute a complete ban, either on its face or in practice, on the exercise of a law‑abiding individual's right to self-defense.

The Lawletter Vol 39 No 2

Fred Shackelford, Senior Attorney, National Legal Research Group

     Does the attractive nuisance doctrine apply only to trespassers? That was the issue decided recently by the Colorado Supreme Court in S.W. ex rel. Wacker v. Towers Boat Club, Inc., 2013 CO 72, 315 P.3d 1257. In the S.W. case, a child was seriously injured when the inflated "bungee run" structure on which he was playing was hurled by a gust of wind up into the air before crashing back to earth. It was undisputed that at the time of the accident, the child was a licensee on the premises rather than a trespasser. Under Colorado's premises liability statute, Colo. Rev. Stat. § 13‑21‑115, the common-law attractive nuisance doctrine is retained with respect to children under 14 years of age. The S.W. court described the doctrine by quoting from an older Colorado case:

If an owner sees fit to keep on his premises something that is an attraction and allurement to the natural instincts of childhood, the law . . . imposes upon him the corresponding duty to take reasonable precautions to prevent the intrusion of children, or to protect from personal injury such as may be attracted thereby.

2013 CO 72, ¶ 12, 315 P.3d at 1260 (court's emphasis) (quoting Kopplekom v. Colo. Cement-
Pipe Co., 16 Colo. App. 274, 278, 64 P. 1047, 1048 (1901)).

     The defendant in S.W. argued that the attractive nuisance doctrine did not apply, because its application is limited to situations in which the injured child is a trespasser. Rejecting this argument, the S.W. court explained:

     Because section 13-21-115 specifically incorporates the doctrine of attractive nuisance, our first step is to examine the precise contours of the doctrine as it developed at common law. Our survey reveals that, although the doctrine primarily featured cases involving child trespassers, its application did not turn on a child's classification within the trespasser- licensee‑invitee trichotomy. Rather, the linchpin of the attractive nuisance doctrine was the intuitive concept that children, due to their youth and impulsive behavior, are instinctively drawn to certain objects and are thus prone to placing themselves in danger. For this reason, the doctrine imposed a duty on landowners to protect all children from certain attractions on their land, whether they entered the land through trespass or invitation. Therefore, all children—regardless of classification within the trichotomy—could bring a claim for attractive nuisance at common law.

Id. ¶ 10, 315 P.3d at 1259.

     The court further concluded that application of the doctrine to licensees would be consistent with Colorado's constitution, which requires that the circumstances under which a licensee may recover include all of the circumstances under which a trespasser could recover and that the circumstances under which an invitee may recover include all of the circumstances under which a trespasser or a licensee could recover.

The Lawletter Vol 39 No 2

Matt McDavitt, Senior Attorney, National Legal Research Group

     The federal Shipowner's Limitation of Liability Act ("Limitation Act"), 46 U.S.C. §§ 30501–30512 (formerly cited as 46 U.S.C. app. §§ 183 et seq.), is a useful, if often criticized, tool enabling owners of vessels involved in injurious maritime accidents to obtain complete exoneration from liability or to cap their financial liability at the value of the vessel(s) involved, plus any cargo. A shipowner faced with a tort, personal injury, or wrongful death suit may invoke the Limitation Act by filing suit in the appropriate federal district court, forcing all potential claimants to appear in order to decide the limited issues of (a) whether the vessel owner/petitioner may indeed attain the protections of the Act and, if so, (b) what maximum damages may properly be assessed against the shipowner if it is found liable in the tort, personal injury, or wrongful death suit.

     A question that often arises in the Limitation Act proceeding to determine the scope and value of vessel owner liability is whether third-party practice is allowed in such limited-issue actions. A shipowner accused by an injured plaintiff may wish to implead codefendants for the purpose of securing indemnity and contribution from alleged joint tortfeasors. A common scenario in vessel accidents is that shipowners wish to implead the manufacturer or designer of the vessel or its components, the negligence of whom was alleged to be the proximate cause of the injury.

     A review of the spare authority on this topic nationally confirms that a clear split of authority exists regarding this issue. In the Fifth Circuit, the rule is that limitation-of-liability petitioners cannot implead joint tortfeasors into the limitation action, because it is a special statutory proceeding, intended solely to allow a shipowner the opportunity to limit its liability in a separate, defensive action. The leading case nationally asserting this position is Louisiana Department of Highways v. Jahncke Service, 174 F.2d 894 (5th Cir. 1949). In that case, the shipowner/limitation petitioner sought to implead a third person alleged to be jointly liable with the petitioner into the limitation action. The limitation action respondent, Jahncke Service, moved to strike the third-party petition, the court granted Jahncke's motion, and the Department of Highways appealed.

     On appeal, the Fifth Circuit Court of Appeals upheld the decision below, noting that because limitation proceedings are special actions with limited scope, a third party may not be impleaded by the claimant for exoneration from, or limitation of, liability. A later district court decision from New York cites the Jahncke opinion in its explanation as to why limitation-of- liability claimants are not allowed to implead alleged joint tortfeasors into the limitation action:

     Rule 56 of the Admiralty Rules, 28 U.S.C.A. provides: 'In any suit, whether in rem or in personam, the claimant or respondent (as the case may be) shall be entitled to bring in  any other vessel or person (individual or corporation) who may be partly or wholly liable either to the libelant or to such claimant or respondent by way of remedy over, contribution or otherwise, growing out of the same matter.'