LEGAL
The next Supreme Court term begins in less than two months, and there are already a number of important cases on the docket of which corporate counsel should take note. Here are five of the most important such cases the Court has agreed to review thus far.
Salman is a major insider trading case revolving around the question of the level of personal benefit gained from the disclosure of insider information. Specifically, the Court is expected to clarify its 1983 Dirks v. Securities and Exchange Commission ruling, which held that an insider in an insider trading prosecution is considered to have breached his fiduciary duty (and thus would be criminally liable) if “the insider personally ... benefit[ed], directly or indirectly, from his disclosure.”
The case involves trading by Bassam Salman based on information from his brother-in-law, who provided the information without any specific tangible benefit. In its Salman ruling, the Ninth Circuit read Dirks broadly, finding liability “when an insider makes a gift of confidential information to a trading relative or a friend.” The Ninth Circuit’s ruling distinctly diverges with U.S. v. Newman, a 2014 opinion from the Second Circuit that finds such liability only when there is “a meaningfully close personal relationship that generates an exchange that is objective, consequential and represents at least a potential gain of a pecuniary or similarly valuable nature.”
Moreover, many observers expect the Court to clarify Dirks on the issue of downstream tippee (the person receiving the inside information) liability, an issue that also sees conflict among the circuits after Newman.
Yes, this is the same case as the blockbuster 2012 ruling wherein a jury verdict handed Apple a $1 billion victory over Samsung. A lot of stuff has happened since then (and describing the details thereof would require more space than I have), but the punch line is that this ruling could end up undoing most of the gains that Apple has made in the course of this litigation.
The specific issue before the Court in this case is whether Samsung should be required to pay 100% of the profits gained from the sale of products found to infringe on Apple’s design patents. The three design patents in question pertain to the iPhone’s (1) black rectangular-with-rounded-corners design, (2) with a bezel surrounding the rim, and (3) with “a matrix of colorful square icons with evenly rounded corners within the display screen.”
Samsung alleges that the design patent “100% profits” rule is outdated and ill-equipped to handle the digital age, and further, that it should only have to pay the portion that the infringing designs constituted of the entire product.
Aside from the big names headlining it, the case is also worth watching because, according to The New York Times, this is the first design patent case the Court has heard in over a century.
In a similar intellectual property case, but one concerning copyrights rather than patents, Star Athletica involves the distinction between the design elements of a garment (which are eligible for copyright protection) and its utilitarian aspects (which are not).
Fashion designs have long been generally understood to fall outside the scope of copyright eligibility, since they are “useful articles” – those “having an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information.”
Varsity Brands registered “multiple graphic designs that appear on the cheerleading uniforms and warm-ups they sell.” After noticing Star Athletica’s “substantially similar” designs on its own cheerleading uniforms, Varsity sued Star for infringement.
While the district court sided with Star, the Sixth Circuit ruled in favor of Varsity Brands, finding that copyright protection extends to the “graphic features of a design even if those features cannot be physically removed from useful article.”
The case presents the Court with an interesting opportunity to clarify the law on the issue, since, according to Star’s petition for certiorari, “[t]here are now at least ten different separability tests” used by the Copyright Office and various courts to determine which design elements are distinct from the utilitarian elements of clothing.
Presumably, the Court will rule in such a way as to maintain the decades-long status quo on garment copyright, but it could still surprise us all, and such a result could represent a massive game-changer for the fashion industry.
The pair of cases, consolidated as Visa v. Stoumbos, deals with the question of whether business association members can engage in an antitrust conspiracy. Specifically, the plaintiffs (users and operators of independent ATMs) allege that Visa and MasterCard are fixing fees unreasonably high “when an ATM transaction is processed through a network unaffiliated with Visa and MasterCard.”
The district court dismissed the actions for failing to state a claim, and the D.C. Circuit Court of Appeals reversed. Visa appealed, and the Supreme Court agreed to review.
What’s important to note here is that the Court will not be deciding the substance of the case itself; rather, since the case didn’t progress beyond the pleading stage at the district court level, the Court will only be deciding whether the plaintiffs’ allegations were sufficient to state a claim.
As enshrined by the question presented to the Court, the plaintiffs alleged that an anti-trust conspiracy was formed by “members of a business association agree[ing] to adhere to the association’s rules and possess governance rights in the association.”
Obviously, the Court is unlikely to answer that question with a simple, unnuanced “yes” or “no.” But even any sort of resolution in favor of the plaintiffs could lead to anti-trust liability for a number of “business associations” already operating in the market today.
This class-action case has a complex procedural history, but the main takeaway from it all is that the Ninth Circuit’s ruling in this matter effectively revived the “death-knell doctrine” – thereby setting off alarm bells in corporations across the country.
The “death-knell doctrine” is an exception to the final-judgment rule (the general rule that appeals can only be taken from a final judgment) that allows “an interlocutory appeal if precluding an appeal until final judgment would moot the issue on appeal and irreparably injure the appellant’s rights.” As Microsoft and its many amici are quick to point out, the Supreme Court effectively gutted the doctrine as applied to class-action cases in its 1978 Coopers & Lybrand v. Livesay ruling.
The Court hasn’t been particularly friendly to class-actions in the past decade (although I noted in a previous article that the Court’s direction has shifted somewhat this past year), so class-action attorneys shouldn’t get their hopes up that the Court is going to overrule Livesay.
That being said, with the Court likely being short one justice (and a reliable opponent of class actions at that) when this case will be heard next term, anything is possible. In fact, a 4-to-4 split leaves the Ninth Circuit’s ruling in place – a ruling which, according to Microsoft, completely flies in the face of established Supreme Court precedent.
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