Business Litigation Report – April 2016

Historic Mandamus Petition May Reduce Size of E.D. Tex. Patent Docket: In re TC Heartland LLC, Case No. 16-105 (Fed Cir. 2015) –

Almost half the new patent cases filed in the 94 federal judicial districts in the United States in 2015 were filed in the Eastern District of Texas. The next most popular district, the District of Delaware, saw about one fourth as many cases. A petition for a writ of mandamus filed with the Federal Circuit is poised to alter this landscape significantly if the Petitioner is successful.

Background –

Petitioner TC Heartland LLC seeks to remove an ongoing patent suit related to liquid water sweeteners filed by Respondent Kraft Foods Group Brands LLC from the District of Delaware to the Southern District of Indiana, where it is based. Respondent is a Delaware corporation. Petitioner had moved for the district court to dismiss or transfer the case, and it filed a writ of mandamus with the Federal Circuit when the district court denied its motion. Highlighting the petition’s importance is the fact that several major technology firms have filed amicus curiae briefs. The central question is whether 28 U.S.C. § 1400(b) precludes the district court from hearing a patent infringement case in a district other than those where defendants are incorporated or where they have a regular and established place of business. Should Petitioner succeed, proper venue in patent suits in the Eastern District of Texas would be much more difficult to establish. Meanwhile, other districts such as the District of Delaware or the Northern District of California would likely see a marked increase in patent cases on their dockets.

Please see full Article below for more information.

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Practice Area Updates:

Insurance Litigation Update
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EU Litigation Update
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ITC Litigation Update
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Appellate Victory Concerning
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Historic Mandamus Petition May Reduce Size of E.D. Tex. Patent Docket: In re
TC Heartland LLC, Case No. 16-105 (Fed Cir. 2015)
Almost half the new patent cases filed in the 94 federal
judicial districts in the United States in 2015 were
filed in the Eastern District of Texas. The next most
popular district, the District of Delaware, saw about
one fourth as many cases. A petition for a writ of
mandamus filed with the Federal Circuit is poised to
alter this landscape significantly if the Petitioner is
Petitioner TC Heartland LLC seeks to remove an
ongoing patent suit related to liquid water sweeteners
filed by Respondent Kraft Foods Group Brands
LLC from the District of Delaware to the Southern
District of Indiana, where it is based. Respondent
is a Delaware corporation. Petitioner had moved
for the district court to dismiss or transfer the case,
and it filed a writ of mandamus with the Federal
Circuit when the district court denied its motion.
Highlighting the petition’s importance is the fact that
several major technology firms have filed amicus curiae
briefs. The central question is whether 28 U.S.C.
§ 1400(b) precludes the district court from hearing a
patent infringement case in a district other than those
where defendants are incorporated or where they have
a regular and established place of business. Should
Petitioner succeed, proper venue in patent suits in
the Eastern District of Texas would be much more
difficult to establish. Meanwhile, other districts such
as the District of Delaware or the Northern District of
California would likely see a marked increase in patent
cases on their dockets.
The text of 28 U.S.C. § 1400(b) states that “Any civil
action for patent infringement may be brought in the
judicial district where the defendant resides, or where
the defendant has committed acts of infringement and
has a regular and established place of business.” At
issue is the proper interpretation of the term “resides.”
Stephen Neuwirth Named an “Antitrust Trailblazer” by The
National Law Journal
Stephen Neuwirth was named an “Antitrust Trailblazer” by The National Law Journal.
This honor is given to “leading practitioners who moved the needle in antitrust
law,” are “innovative thinkers,” and achieved “extraordinary accomplishments.” Mr.
Neuwirth was recognized for his recent representation of the class of direct purchasers
in the Polyurethane Foam Antitrust Litigation, which resulted in settlements of over
$430 million. He was also recognized for his success on both the plaintiff and defense
sides of antitrust litigation, a unique feature of his practice.
Law360 Names Quinn Emanuel 2015 “Practice Group of the
Year” in Five Categories
Quinn Emanuel was named 2015 “Practice Group of the Year” by Law360 in five
categories: Appellate, Banking, Class Actions, Product Liability, and White Collar.
This award series recognizes firms that secured wins in the most important matters of
the year.
Star Litigators Join Quinn Emanuel’s Washington, D.C. Office
(See page 9)
228 U.S.C. § 1391(c) defines the term to include both
the district in which a defendant is domiciled as well
as any district in which the defendant is subject to the
court’s personal jurisdiction with respect to the civil
action in question.
Competing Interpretations
Petitioner argues that the broad definition of “resides”
advanced in § 1391(c) does not supplement the
language in § 1400(b). The Supreme Court reached
the same conclusion in Fourco Glass Co. v. Transmirra
Products Corp., 353 U.S. 222 (1957). However,
Congress amended § 1391(c) in 1988, which provided
the basis for the Federal Circuit in VE Holding Corp. v.
Johnson Gas Appliance Co. to determine that Congress
had overturned Fourco by adding language indicating
that the provision supplied the residency definition
“for the purposes of venue under this chapter,” which
would have included § 1400(b). 917 F.2d 1574 (Fed.
Cir. 1990). In 2011 Congress again amended § 1391,
but this time it removed the language the Federal
Circuit had relied upon in VE Holding and replaced
it with language stating that § 1391 governed venue
in all civil actions brought in district courts of the
United States “except as otherwise provided by law.”
In light of this history, Petitioner argues that because
§ 1400(b) provides venue requirements separately
from § 1391, the 2011 amendments exclude it from
the “resides” definition of § 1391(c). Alternatively,
Petitioner argues that the Federal Circuit’s holding in
VE Holding was a mistaken interpretation of the 1988
amendments to § 1391(c), which Congress never
intended to have the effect of overturning Fourco,
and the Federal Circuit should revisit the question en
banc. Because the Federal Circuit may only overturn
its own precedent en banc, Petitioner would first need
to convince the Federal Circuit to hear the petition en
banc before it could ultimately succeed on the basis of
the VE Holding argument in front of the entire Federal
Circuit bench. Finally, Petitioner also advances a third
argument that district courts lack specific jurisdiction
over acts of infringement that occurred outside of the
forum, so defendants would not “reside” within the
forum under either interpretation of § 1391(c) for the
purposes of such acts of infringement.
Respondent argues in response that the 2011
amendments to § 1391 actually broadened the ambit of
the provision by extending it from one specific chapter
to all venue statutes in the U.S. Code, so interpreting
these amendments as limiting its effect on § 1400(b)
would be misguided. Further, Respondent challenges
the applicability of the “except as otherwise provided
by law” language in § 1391, arguing that § 1400(b)
does not actually provide a separate definition of
corporate residence as § 1391(c) does. Respondent
also makes a separation of powers argument that the
Federal Circuit should not disrupt Congress’s intent
by drastically altering venue law and overturning VE
Holding en banc. Finally, Respondent contends that
Petitioner’s personal jurisdiction arguments disregard
existing precedent and the language of The Patent Act
authorizing redress for acts of infringement regardless
of where they occurred.
An amicus brief filed by many frequent defendants
argued that the current state of patent venue law has
empowered forum shopping. Though Amici did not
name the Eastern District of Texas directly, the brief
refers to a “single district” where “40 percent of patent
suits are filed.” They argued that patent owners with
“questionable patents” purposely filed suit in districts
that would favor them strategically because they were
“least likely to promptly stay a patent suit pending
patent office review proceedings, least likely to grant
an early motion to dismiss under Section 101 of the
Patent Act, and least likely to allow an early summary
judgment motion of noninfringement or invalidity.”
They contend that this situation runs “plainly contrary
to Congress’s intent in enacting laws about venue.”
The brief went on to argue that such a regime “shields
the weakest patents from the necessary scrutiny” and
discourages negotiation as an alternative to filing
suit. They also argue, like Petitioner, that the Federal
Circuit’s holding in VE Holding was an incorrect
interpretation of the changes to the venue statutes.
Another amicus brief filed by patent licensors and
inventors argued against granting the petition on the
basis that it would lead to “absurd results.” The brief
suggested that Petitioner’s proposed interpretation
would work a de facto grant of immunity for foreign
defendants against patent infringement claims, as
plaintiffs would be left without any venue in which
to sue such defendants not incorporated in the United
States. Amici also contend that Petitioner’s reliance on
Fourco is misplaced, as there the Supreme Court relied
heavily for its definition of corporate “residency” on
Shaw v. Quincy Mining, which had been decided in
1892. They contend that, at the very least, Congress
had overturned these decisions when it enacted its 2011
amendments broadening the definition of “residency.”
They also attacked the arguments advanced in the
opposing amici about forum shopping as having “falsely
accused U.S. Courts of corruption,” and calling such
accusations “highly inappropriate and inflammatory.”
Finally they contend that such efficiency arguments
do not withstand scrutiny as defendants often “seek to
make the matter less efficient and more burdensome
to patent holders” by endeavoring to have their cases
transferred. Should the Federal Circuit grant rehearing
en banc, it is expected that many other companies
would use the longer briefing period to file their own
amicus briefs in support or opposition to the petition.
Coming Resolution
Oral argument was held on March 11, 2016. Opening
its oral argument, Petitioner argued that “This case
turns on the meaning of six words: ‘Except as otherwise
provided by law.’” The judicial panel hearing the case
was composed of Judge Kimberly A. Moore, Judge
Evan J. Wallach, and Judge Richard Linn. The panel
asked pointed questions during Petitioner’s argument,
suggesting that they may not be sympathetic to the
arguments in favor of granting the writ. At one point
Judge Moore asked, without giving an opinion on the
merits of the effects of the current patent venue regime,
whether this was a decision better left to the legislature
rather than the Federal Circuit. When she went
on to express suspicion about Petitioner’s statutory
arguments, pointing to the recent failure of several
patent reform bills, Petitioner responded that the
Supreme Court had found “congressional inaction is to
be given very little weight in the interpretive process.”
Judge Wallach questioned why a writ of mandamus was
necessary absent some showing of irreparable harm that
Petitioner could not cure through a standard appeal.
Drawing on this suggestion, Respondent pointed out
that it was the only party who would be harmed by
litigating in Delaware, because when it sought a stay
of the case pending IPR proceedings, TC Heartland
pushed for the Delaware case to proceed. Respondent
also argued that, if the central problem is a surfeit of
patent litigation in the Eastern District of Texas, then
the Federal Circuit should not decide this issue in a
case originating in the District of Delaware. Instead,
the Federal Circuit should wait to decide this question
until a litigant had suffered injury in virtue of a case
which had been brought in that venue. The panel was
less active during Respondent’s oral argument than it
had been during that of Petitioner.
Even if Petitioner is unsuccessful before the three-
judge panel who heard oral arguments on March 11th,
the Federal Circuit may still decide to hear the case en
banc, where it would be able to overturn its decision in
VE Holding. It is possible that such a panel would be
willing to revisit the standard, as the Federal Circuit
has seen significant turnover in recent years. Over
half of the 12 judges currently on the bench have been
appointed since 2010—twenty years after the Federal
Circuit first announced the rule in VE Holding.
Congress may step in to resolve this question
on its own. A bill currently under consideration,
Innovation Act, H.R. 9, would make it so that
patent cases could only be filed in districts where
the Defendant has its principal place of business,
a party has a facility related to the infringement—
such as a research or manufacturing facility related
to the patented invention—or districts where the
inventor named on the patent conducted research
or development. This would effectively overturn the
Federal Circuit’s precedent in VE Holding. The House
Judiciary Committee voted 24-8 to approve the bill in
June of 2015. Committee Chairman Bob Goodlatte,
R-Va., then announced, “Today in this committee,
we are taking a pivotal step toward eliminating the
abuses of our patent system, discouraging frivolous
patent litigation and keeping U.S. patent laws up to
date.” Most recently, the Senate Committee on Small
Business and Entrepreneurship held hearings on the
bill in February along with a related Senate bill, Patent
Act, S.1137. Opponents of the bill argue that it would
weaken intellectual property rights and make it more
difficult for legitimate patent owners to protect their
inventions. However, it may be difficult for Congress
to pass significant patent litigation during an election
year in any case. Perhaps sensing this and instead
attempting to enact piecemeal legislation, Senators Jeff
Flake, R-AZ, and Cory Gardner, R-CO, recently teased
plans to introduce a bill titled “Venue Equity and Non-
Uniformity Elimination Act of 2016,” which is limited
to the venue issue, adopts a construction similar to
that of the Innovation Act, and explicitly allows for
mandamus relief for any “clearly and indisputably
erroneous denial” of a motion to dismiss or transfer in
light of improper venue. Senators Flake and Gardner
promise that they have arranged for bipartisan co-
sponsorship of the bill’s introduction.
The Federal Circuit is likely to reach its decision
before Congress enacts any reforms. Should the Federal
Circuit grant the petition for writ of mandamus, it is
clear that plaintiffs will have more difficulty availing
themselves of proper venue in the Eastern District of
Texas. This will significantly change the landscape
of patent litigation. However, if the appellate court
denies Petitioners their requested relief, it is unlikely
to seriously consider this issue again in the near future
as the structure adopted in VE Holding will have
been explicitly adopted following Congress’s 2011
amendments, and the issues were ably and cogently
briefed by all parties. Q
4Ninth Circuit Adopts California Rule Voiding Arbitration Provisions Barring
Certain Representative Claims
In recent decisions, both the Court of Appeals for the
Ninth Circuit and the California Supreme Court have
held that arbitration clauses barring employees from
pursuing class actions in arbitration are unenforceable
with respect to certain types of claims. Specifically,
employment agreements cannot bar employees from
pursuing through arbitration representative claims
pursuant to the California Labor Code Private
Attorney General Act.
California’s Iskanian Rule
In Iskanian v. CLS Transportation Los Angeles, LLC,
the California Supreme Court held that an arbitration
agreement that required an employee to forfeit the
right to pursue representative claims pursuant to the
California’s Labor Code Private Attorneys General
Act (PAGA) was contrary to public policy and
unenforceable as a matter of state law. 327 P.3d 129,
149 (Cal. 2014), cert. denied, 135 S. Ct. 1155 (2015).
The PAGA provides an employee the right to act as
a private attorney general to recover civil penalties
for Labor Code violations affecting other employees,
with the majority of any monetary award accruing to
the State.
In reaching its decision, the California Supreme
Court held that the Federal Arbitration Act did not
preempt its rule prohibiting the waiver of representative
PAGA claims. The California Supreme Court
distinguished AT&T Mobility LLC v. Concepcion,
wherein the United States Supreme Court held that
the Federal Arbitration Act preempted a California
Supreme Court rule providing that class arbitration
waivers in consumer contracts are unconscionable.
563 U.S. 333, 352 (2011). In Concepcion, the United
States Supreme Court reasoned that California’s rule
barring class arbitration waivers was inconsistent with
the Federal Arbitration Act, because class arbitration
is slower and more costly than bilateral arbitration.
Id. at 348. In Iskanian, the California Supreme Court
held that unlike in Concepcion, the Federal Arbitration
Act did not have preemptive effect because the goal
of the Act is to promote arbitration as a means of
resolving private lawsuits, which does not preclude the
Legislature from “deputizing employees to prosecute
Labor Code violations on the state’s behalf.” Iskanian,
327 P.3d at 133, 149-150.
To support its holding that an employee’s right to
bring a representative PAGA claim may not be waived,
the California Supreme Court also relied on California
Civil Code Section 1668. That section states that
“[a]greements whose object, directly or indirectly, is
to exempt [their] parties from violation of the law are
against public policy and may not be enforced.” The
California Supreme Court also relied on California
Civil Code Section 3513, which provides that “a law
established for a public reason cannot be contravened
by a private agreement.” Iskanian, 327 P.3d at 148.
Thus, pursuant to the Iskanian rule, an employee’s
right to pursue a representative PAGA claim in any
forum may not be waived pursuant to an employment
contract. Id. at 133.
Holding in Sakkab v. Luxottica Retail North
America, Inc.
In Sakkab v. Luxottica Retail North America, Inc., a 2-1
panel majority in the U.S. Court of Appeals for the
Ninth Circuit held that the Federal Arbitration Act
does not preempt the Iskanian rule. 803 F.3d 425,
439 (9th Cir. 2015). Applying different reasoning
than the California Supreme Court, the Court of
Appeals determined that the United States Supreme
Court’s holding in Concepcion was inapposite,
reasoning that “[b]ecause a PAGA action is a statutory
action for penalties brought as a proxy for the state,
rather than a procedure for resolving the claims of
other employees, there is no need to protect absent
employees’ due process rights in PAGA arbitrations.
PAGA arbitrations therefore do not require the formal
procedures of class arbitrations.” Id. at 436 (internal
citations omitted).
The Ninth Circuit subsequently reached the same
conclusion in Hopkins v. BCI Coca-Cola Bottling Co.
of Los Angeles, holding that “the Iskanian rule applies
to the arbitration agreement . . . and [the plaintiff’s]
waiver of his right to bring a representative PAGA
action is unenforceable.” No. 13-56126, 2016 WL
685018, at *1 (9th Cir. Feb. 19, 2016). The Hopkins
Court adopted the Sakkab Court’s holding without
further analysis.
The effect of the Iskanian, Sakkab, and Hopkins
decisions is to permit an employee who has signed
an employment contract barring representative action
to nevertheless pursue representative claims for civil
penalties pursuant to the California PAGA.

The Merits of Sakkab
Luxottica (the defendant in Sakkab) unsuccessfully
argued that the Federal Arbitration Act preempts the
Iskanian rule because that rule interferes with the
Federal Arbitration Act’s objectives. The case turns
on whether the facts in Concepcion and Sakkab (the
former relating to class arbitration waivers and the
latter pertaining to the arbitration of representative
PAGA claims) are sufficiently analogous to render
Concepcion controlling.
In Concepcion, the Supreme Court reasoned that
a judicial rule invalidating class arbitration waivers
interfered with the Federal Arbitration Act because
(1) “the switch from bilateral to class arbitration
sacrifices the principal advantage of arbitration—its
informality—and makes the process slower, more
costly, and more likely to generate procedural morass
than final judgment”; (2) “class arbitration requires
procedural formality”; and (3) “class arbitration
greatly increases risks to defendants” due to the
absence of review. 563 U.S. at 348-50 (emphasis in
original). The panel majority in Sakkab, however,
distinguished representative PAGA claims from class
arbitration claims, reasoning that because a PAGA
claim is not a procedure for resolving the claims of
other employees, “there is no need to protect absent
employees’ due process rights.” Luxottica Retail N.
Am., Inc., 803 F.3d at 435. The majority concluded
that “PAGA arbitrations therefore do not require
the formal procedures of class arbitrations,” such as
notice, opt-out, or class certification procedures. Id.
The dissenting judge, however, reasoned that
“[t]he Iskanian rule burdens arbitration in the same
three ways identified in Concepcion.” Id. at 444. He
noted that pursuant to California’s Labor Code, “an
arbitrator overseeing a representative PAGA claim
would have to make specific factual determinations
regarding (1) the number of other employees affected
by the labor code violations, and (2) the number of pay
periods that each of the affected employees worked.”
Id. at 445 (emphasis in original). The dissenting judge
argued that the arbitration of representative claims,
when compared to the arbitration of individual
claims, is (1) “certainly more likely to make the process
slower, substantially more costly, and more likely
to generate procedural morass”; (2) “certainly more
procedurally complex”; and (3) “greatly increases the
risk to employers.” Id. at 446-48. He concluded that
because the Iskanian rule conflicts with the purpose of
the Federal Arbitration Act by burdening arbitration,
it is therefore preempted by the Federal Arbitration
Act pursuant to Concepcion.
The Sakkab majority decision rests on a narrow
reading of Concepcion in conjunction with a distinction
between class arbitration and the arbitration of
representative PAGA claims. Prior to the Court of
Appeals’ decision in Sakkab, the majority of federal
district courts to consider the issue had determined
that the Iskanian rule was preempted by the FAA:
nine district courts found preemption compared
to three which did not. (All of the District Court
decisions were within the Ninth Circuit and therefore
either affirmed or overruled by Sakkab.)
In recent years, the United States Supreme Court
has twice rejected arguments that class arbitration
waivers are unenforceable under California law.
Both times, the Supreme Court held that the Federal
Arbitration Act preempts conflicting state law and
that class arbitration waivers must be enforced:
• AT&T Mobility v. Concepcion, 563 U.S.
333, 352 (2011) (overruling California
Supreme Court and holding that the Federal
Arbitration Act preempted California law
providing that class action waivers in certain
consumer contracts were unconscionable and
• DirecTV v. Imburgia, 136 S. Ct. 463, 471
(Dec. 15, 2015) (overruling California
Court of Appeal and holding that the Federal
Arbitration Act requires enforcement of a
waiver of class arbitration despite the Court
of Appeal finding that class action waivers are
unenforceable under California law).
The Sakkab case has some similarities to both
the Concepcion and Imburgia cases, but comes out a
different way. The defendant in Sakkab petitioned the
Court of Appeals for the Ninth Circuit for rehearing
en banc, but that petition was denied. Luxottica has
90 days from the date of the denial—until May 2,
2016—to file a petition for a writ of certiorari before
the United States Supreme Court. U.S. Supreme
Court Rule 13.
The United State Supreme Court has previously
declined to review the Iskanian rule three times. CLS
Transp. Los Angeles, LLC v. Iskanian, 135 S. Ct. 1155
(2015); Bridgestone Retail Operations, LLC v. Brown,
135 S. Ct. 2377 (2015); CarMax Auto Superstores
California, LLC v. Areso, No. 15-236, 2015 WL
5005244 (2015). But in doing so the Supreme Court
has provided some commentary. Specifically, when
the Supreme Court issued its decision in DirecTV v.
Imburgia—the same day that it declined to review the
6Insurance Litigation Update
Insurance Coverage for Liability Under the
Telephone Consumer Protection Act. The Telephone
Consumer Protection Act (“TCPA”), enacted in 1991,
prohibits certain telephone solicitations conducted
with automated systems. 47 U.S.C. § 227. Spurred
by advances in automated systems such as artificial
voices, and by the FCC’s June 2015 order (FCC 15-
72) strengthening TCPA protections, TCPA claims
have surged and can result in significant legal fees
and costly settlements or judgments. For example,
in 2015, Capital One and its co-defendants paid
more than $75,000,000 to settle a TCPA class action.
Vulnerable companies are eager to confirm that their
insurance will cover TCPA claims, but, as discussed
in this article, that question is not easily answered and
depends on the coverage available.
In determining coverage under commercial general
liability (“CGL”) insurance policies, courts are split
on whether coverage for “personal and advertising
injury” extends to TCPA claims. The type of injury
TCPA claims may fall within is usually defined as “oral
or written publication, in any manner, of material
that violates a person’s right to privacy.” One question
raised is whether contacting a consumer can count as
“publication.” The majority of courts have held it can.
However, one recent opinion disagreed based on the
reasoning that “publication requires dissemination
to the public at large.” OneBeacon America Ins. Co.
v. Urban Outfitters, Inc., 625 Fed. Appx. 177, 180
(3d Cir. September 15, 2015). OneBeacon focused
on dictionary definitions of “publication,” but the
Eleventh Circuit pointed out that texts and faxes fit
within dictionary definitions of “publication” such as
“to produce or release for publication; specif[ically]:
print.” Hooters of Augusta, Inc. v. American Global
Ins. Co., 157 Fed. Appx. 201, 208 (11th Cir. 2005).
Another question raised by CGL policies is whether
unauthorized solicitations violate a right to privacy
given that they do not divulge personal information.
The Seventh Circuit distinguished between the right
to secrecy (i.e. the right to protection of personal
information) and the right to seclusion, holding that
the “right to privacy” in the TCPA context includes
only the latter. American States Ins. Co. v. Capital
Assoc. of Jackson County, Inc., 392 F.3d 939, 943 (7th
Cir. 2004). However, the majority of courts have
interpreted “right to privacy” to include a right to
seclusion. See, e.g., Penzer v. Transp. Ins. Co., 29 So.
3d 1000, 1006-07 (Fla. 2010).
Courts also differ as to whether the TCPA is penal
and therefore falls into a commonly used exclusion
for willful violations of a penal statute. In US Fax
Law Center, Inc. v. iHire, Inc., 362 F. Supp 2d 1248
(D. Colo. 2005), the court classified the TCPA as
penal because it authorizes recovery in excess of actual
damages (“actual damages . . . or . . . $500” and treble
damages for willful violation) and serves the public
interest through a deterrent effect. Id. at 1250, 1253.
However, the majority of courts to consider this have
held that the TCPA is not penal. See, e.g., Terra Nova
Ins. Co. v. Fray-Witzer, 869 N.E.2d 565, 420 (Mass.
2007) (holding that the TCPA is remedial based on
legislative intent and the fact that the “remedy flows
directly to the private consumer who suffered the
injury, rather than to the government”).
Professional liability insurance may also cover
TCPA violations. Coverage, however, varies
depending on the wording of the contract and the
type of profession. In BCS Ins. Co. v. Big Thyme
Enterprises, Inc. 2013 WL 594858 (D. S.C. 2013),
the insured argued that “advertising is an integral
component of an insurance agent’s livelihood”
and requires specialized skill, but the court held
Iskanian rule in CarMax Auto Superstores California,
LLC—the Supreme Court stated:
Lower court judges are certainly free to note their
disagreement with a decision of this Court. But
the Supremacy Clause forbids state courts to
dissociate themselves from federal law because
of disagreement with its content or a refusal to
recognize the superior authority of its source.
The Federal Arbitration Act is a law of the
United States, and Concepcion is an authoritative
interpretation of that Act. Consequently, the
judges of every State must follow it.
136 S. Ct. 463, 468 (2015) (internal quotations and
citations omitted).
that “sending unsolicited faxes to potential clients
is neither the rendering nor the failure to render
Professional Services.” Id. at *3. Based on different
contract language, the court in Landmark American
Ins. Co. v. NIP Group, Inc., 962 N.E.2d 562, 576 (Ill.
App. Ct. 2011) held that a professional liability policy
could cover an insurance company’s TCPA violations
because that policy expressly excluded some types of
advertising without mentioning the TCPA.
In response to increasing litigation and persisting
uncertainty about coverage, it has become increasingly
common for insurers to simply exclude coverage for
TCPA claims. The effect of such exclusions can be
wide, as illustrated by Illinois Cas. Co. v. West Dundee
China Palace Restaurant, Inc., 2015 WL 9437903
(Ill. App. 2 Dist. December 23, 2015), a recent case
holding that an exclusion of liabilities “arising from”
the TCPA excluded coverage not just for a claim citing
the TCPA but also for claims based on the same facts
as the TCPA claim, such as a claim for common law
conversion of fax toner. Id. at *4-5; see also State Farm
Fire & Cas. Co. v. Easy PC Solutions, LLC, 2015 WL
8215533, at *2 (Wis. App. 2015).
Due to the complex, still-evolving law regarding
TCPA coverage, the changes being made by insurers
to exclude coverage for TCPA liability, and the high
potential liability untethered to a requirement to
show actual damages, companies that call, fax, or
text consumers, and the companies that insure them,
should carefully analyze whether their policies will
cover TCPA violations.
EU Litigation Update
Asserting Standard Essential Patents (SEP) in
Europe After the European Court of Justice’s
Huawei v. ZTE Decision. In its Huawei v. ZTE
decision (C-170/13) of July 16, 2015, the European
Court of Justice (ECJ) set out a new framework under
which the owner of a standard essential patent (SEP)
can seek injunctive relief against an infringer without
abusing a dominant position under Art. 102 TFEU.
To balance the parties’ interests, the ECJ established a
six-step approach:
1. The patentee must first notify the defendant of
the alleged infringement;
2. The defendant then must show its willingness
to license on FRAND terms;
3. The patentee must make a specific, written offer
for a license on FRAND terms;
4. The defendant must diligently respond to that
offer in accordance with recognized commercial
practices in the field and without delaying
5. If the defendant rejects the patentee’s offer, it
must make a counter-offer on FRAND terms;
6. If the patentee rejects the counter-offer, the
defendant must provide appropriate security
(including for past use) and be able to render
an account of its acts of use.
By setting out these six steps, the ECJ brought
much needed clarification for the assertion of SEPs
and also the defense against such assertions after the
Commission had indicated in earlier statements that
it would not follow the approach the German courts
had practiced after the German Supreme Court’s
Orange Book decision in 2009. Half a year after the
ECJ’s judgment, the first decisions of the German
courts implementing the new rules have been handed
In its judgment, the ECJ had already indicated that
the aforementioned rules would not apply to claims
for damages. This view was shared by the District
Court Mannheim in a recent case, in which the
plaintiff sought a declaratory judgment confirming
the defendant’s liability for damages (District Court
Mannheim, judgment of February 26, 2016, case no.
7 O 38/14).
In Sisvel v. Haier, the District Court Düsseldorf
(judgments of November 3, 2015, case nos. 4a O 93/14
and 4a O 144/14) rejected the defendants’ FRAND
defense and granted an injunction because it found
that the defendants had not met their obligations as
set forth by the ECJ. In detail, the defendants had
rejected the patentee’s license offer for allegedly not
meeting the FRAND requirements. The defendants
made several counter-offers that were all rejected by
the patentee for various reasons, for example because
it wanted to license the parent company including
all subsidiaries and not just one of the subsidiaries
(step 5). The Düsseldorf court did not find it relevant
whether or not the initial offer made by the patentee
was on FRAND terms (step 3). Instead, the court
held that a defendant must make a counter offer on
FRAND terms in any event, i.e. even if it was entitled
to reject the patentee’s offer for not being FRAND.
Additionally, the court held that the defendant would
have to comply with the requirements of step 6 from
the time the plaintiff rejects its counteroffers.
On appeal, the Düsseldorf Court of Appeals stayed
the enforcement of the injunction because it found
that the District Court’s decision was not in line
with the principles set out by the ECJ. According to
the Court of Appeals, the steps laid out in Huawei
v. ZTE are strictly sequential. The alleged infringer
is only called on to satisfy the conditions imposed
on it once the SEP owner has first satisfied its own
obligations. The District Court’s failure to consider
the question of whether the SEP-owner’s first license
offer was compliant with FRAND principles meant
that it had applied the ruling of the ECJ in Huawei v.
ZTE incorrectly.
A few weeks after the decision of the District Court
Düsseldorf, the District Court Mannheim also issued
an injunction in favor of an SEP owner rejecting the
defendant’s FRAND defense because it did not show
its willingness to take a license on FRAND terms
(Saint Lawrence Communications (SLC) v. Deutsche
Telekom, judgments of November 27, 2015, case
nos. 2 O 106/14, 2 O 107/14, 2 O 108/14). The
court found it to be irrelevant that the plaintiff only
informed the defendant of the alleged infringement
(step 1) after the complaint had already been filed but
not yet served. It held that in any event the defendant
could have shown its willingness to license during
the proceedings, but failed to do so and therefore
did not meet the requirements set out by the ECJ.
More specifically, the defendant could not just refer
to the willingness of its suppliers to take a license but
had to show that it itself was willing to take a license,
especially if there is doubt as to whether the suppliers
conform to the ECJ’s requirements for a willing
licensee. Indicating the willingness to take a license
three months after notification of the infringement
was deemed too late. In addition, the Mannheim
Court agreed with the Düsseldorf District Court that
it did not matter whether the patentees first offer was,
in fact, a FRAND offer. The appeal is pending.
The decisions so far show that the German courts
have not yet found a consistent approach in applying
the principles established by the ECJ in Huawei v.
ZTE. It is not settled whether or not the six steps
established by the ECJ are strictly sequential, such
that an obligation for a party to take a certain step
only arises once the other party has complied with its
duties as sequentially set out in the six step approach.
Different from the German Supreme Court’s approach
under the Orange Book regime, the ECJ has burdened
both parties equally.
Thus, it is not only critical for the owner of an SEP
to develop a strategy in order to show compliance with
the ECJ’s requirements, but also for the defendant.
ITC Litigation Update
The Federal Circuit Considers Another Issue
Relating to ITC Jurisdiction in Section 337
Investigations. Less than three months after its en
banc decision in Suprema, Inc. v. Int’l Trade Comm’n,
796 F.3d 1338 (Fed. Cir. 2015), the Federal Circuit
handed down another ruling directly implicating
the United States International Trade Commission’s
(“ITC”) jurisdiction in Section 337 investigations.
The panel’s decision in ClearCorrect Operating, LLC
v. Int’l Trade Comm’n, 810 F.3d 1283, 1286 (Fed. Cir.
2015), again circumscribes the ITC’s jurisdiction and
rejects the ITC’s interpretation of Section 337. The
ITC has requested that the Federal Circuit review the
panel’s decision en banc and vacate that decision as the
Federal Circuit did in Suprema.
Section 337 of the Tariff Act of 1930 authorizes the
ITC to block the importation into the United States
of “articles” that either violate a valid and enforceable
intellectual property right held in the United States
or otherwise involve unfair methods of competition.
When there is no importation of “articles,” there can be
no unfair act and thus nothing for the ITC to remedy.
The ITC has traditionally interpreted the definition of
“articles” to include electronic transmission of digital
data. See, e.g., Certain Hardware Logic, Comm’n Op.
on Remedy, the Public Interest, and Bonding, 1998
WL 307240, at *11 (Mar. 1, 1998) (establishing that
“the Commission has the legal authority to cover
electronic importations”); Certain Incremental Dental
Positioning Adjustment Appliances, Inv. No. 337-TA-
562, Comm’n Op. at 7 (Jan. 23, 2013) (enforcement
action confirming that an electronic transmission
is an article subject to the ITC’s jurisdiction). This
interpretation was reviewed by the Federal Circuit in
ClearCorrect. On November 10, 2015, the majority
of a divided Federal Circuit panel issued a precedential
opinion reversing the ITC’s interpretation of “articles”
as that term pertains to the electronic transmission
of digital data. ClearCorrect, 810 F.3d at 1286.
According to the majority, under the text of Section
337, “articles” means “materials things” and thus does
not include electronic transmissions.
The underlying ITC investigation in ClearCorrect
(Inv. No. 337-TA-833) was based on a patent
infringement complaint filed by Align Technology,
Inc. (“Align”) against ClearCorrect Operating, LLC
(“ClearCorrect USA”) and Clear Correct Pakistan
(Private), Ltd. (“ClearCorrect Pakistan”) (collectively,
“ClearCorrect”). The asserted patents covered the
production of particular orthodontic appliances, also
known as aligners. As part of that manufacturing
process, ClearCorrect USA and ClearCorrect Pakistan
exchanged digital models of a patient’s teeth. Physical
models based on the digital versions were ultimately
manufactured in the United States by ClearCorrect
USA. Because the physical models were made in the
U.S. and thus not subject to the ITC’s jurisdiction,
the accused “articles” under Section 337 were the
digital models transmitted from Pakistan to the U.S.
The ITC found that it had jurisdiction over those
electronically imported digital models.
The majority in ClearCorrect disagreed. Chief
Judge Prost, writing for the majority, noted that
although the term “articles” is not defined by statute,
the literal text of the term, the context in which the
text is found within Section 337, and the statutory
scheme all indicate that Congress intended “articles”
to mean “material things” and not to extend to
electronic transmissions of digital data. 810 F.3d at
1299. The majority further reasoned that although
“electronic transmissions have some physical
properties—for example an electron’s invariant mass
is a known quantity—[ ] commonsense dictates that
there is a fundamental difference between electronic
transmissions and ‘material things.’” Id. at 1286.
In a strong dissent, Judge Newman argued that
not only had Congress vested the ITC “with broad
enforcement authority to remedy unfair trade acts”
so that its authority under Section 337 would be
“broad enough to prevent every type and form of
unfair practice,” but that the majority’s ruling also
contravenes “decades of precedent concerned with
digital data, electronic transmission, and infringing
importation.” Id. at 1305-06, 1312. The dissent
thus reasoned that Section 337 is “not limited to the
kinds of technology that existed in 1922 or 1930”;
that the term “articles” is “all-encompassing” and
covers all infringing imported “articles of commerce”;
and that the “importation of infringing articles is
not restricted to specific kinds of carriers or modes
of entry.” Id. at 1306-09. The dissent further added
that because digital information is patentable and
potentially infringing subject matter, there is no
basis for excluding it from Section 337 because that
statute covers “imported infringing subject matter . . .
whatever the form of the subject matter.” Id. at 1306.
On January 27, 2016, the ITC and Align filed
separate petitions for en banc rehearing. On January
28, the Federal Circuit invited ClearCorrect and amici
curiae to file responses to the petitions for rehearing
en banc, which they did in February. Because of the
importance of this issue, the Federal Circuit may well
issue two en banc decisions in a year concerning the
ITC’s jurisdictional reach.
Star Litigators Join Quinn Emanuel’s Washington, D.C. Office
Tara Lee and Debbie Shon have joined Quinn
Emanuel as partners in the firm’s Washington, D.C.
office. Ms. Lee, formerly Co-Chair of the DLA
Piper’s Global Investigations practice and Global
Chair of the firm’s Cross Border Litigation practice,
is a veteran trial lawyer with particular expertise in
international and transnational investigations. Her
investigations and litigation practice includes some
of the highest profile FCPA and FCA cases brought
by the Department of Justice, and substantial
experience conducting investigations in unstable
political environments, including Africa, the Middle
East (including Iraq and Afghanistan), and Eastern
Europe. She is a graduate of the U.S. Naval Academy
and University of San Diego School of Law, and has
been named a Pioneer and Trailblazer in Litigation by
The National Law Journal, and a Female Powerbroker
by Law360, among other accolades.
Ms. Shon, formerly Vice President of International
Law & Global Public Policy for U.S. Steel
Corporation, chairs the firm’s International Trade
Group. Before joining U.S. Steel, Ms. Shon was the
managing director and general counsel of a media
and real estate investment company. She also served
as a legal and commercial strategic consultant to
Fortune 500 companies on market entry and WTO
issues throughout the Asia Pacific region, and advised
the Organization of American States (OAS) and the
Economic Community of Western African States
(ECOWAS) on international trade matters. Ms. Shon
was appointed by President Clinton as the Assistant
U.S. Trade Representative for Intergovernmental
Affairs and Public Liaison and served as an adjunct
professor at the University of Southern California
Law School. She received her J.D. from Georgetown
University Law Center. Q
Appellate Victory Concerning the
Stolichnaya Trademarks
The firm recently obtained a crucial appellate victory
in its long-standing fight on behalf of Federal
Treasury Enterprise Sojuzplodoimport (“FTE”),
a Russian government agency that is seeking to
recover ownership of the world-famous Stolichnaya
The STOLI trademarks were fraudulently
privatized and stolen from the Russian people
amidst the collapse of the Soviet Union. A Russian
businessman named Yuri Shefler eventually gained
control over the marks and maneuvered them out of
Russia to corporations in Switzerland, Cyprus, and
elsewhere. Several years later, while investigating a
company controlled by an associate of Shefler, the
Russian government discovered that the STOLI
marks had not been properly privatized, and began its
effort to recover the STOLI marks around the world.
In rulings confirmed by the European Court of
Human Rights, the Russian Federation established in
the Russian courts that the marks were not properly
privatized and that they belonged to the Russian
Federation as the successor of the Soviet. FTE was
then organized and tasked with, among other things,
establishing the Russian Federation’s rights over the
STOLI trademarks in other countries, including the
United States, the second largest market in the world
for STOLI vodka.
FTE first filed suit in the United States in
2004, asserting trademark infringement and other
claims against Shefler, his companies, and various
distributors. After several years of preliminary
litigation and failed attempts at a global settlement,
this suit was dismissed, primarily on the ground that
the Russian Federation had retained too great of an
interest in the trademarks to permit FTE to qualify as
an owner under the Lanham Act, and therefore FTE
lacked standing under the Act.
After the Second Circuit affirmed that ruling,
the Russian Federation executed an assignment
transferring all right, title, and interest in the STOLI
trademarks to FTE, and FTE filed a new suit, claiming
standing based on this assignment. The district court
once again dismissed FTE’s claims. In addition to
finding that some subsidiary claims were barred by
res judicata and laches, the district court held that
the Russian Federation’s assignment failed to confer
standing on FTE because the assignment was invalid
under Russian law. In so doing, the district court
resolved a question of first impression against FTE
and the Russian Federation based upon its assessment
of expert testimony on Russian law.
On appeal, FTE persuaded the Court of Appeals
that the district court erred in even considering
whether the Russian Federation’s had violated its
own law in making the assignment to FTE. The
Second Circuit unanimously ruled that principles of
international comity and the Act of State doctrine
barred the district court from judging the validity of
a foreign government’s conduct under foreign law.
Accordingly, the Second Circuit reversed the district
court’s standing holding and reinstated FTE’s primary
claims for trademark infringement.
As a result, after more than a decade of litigation,
FTE’s claims are now ready to be considered on their
Iran Prisoner Swap Victory
At 4:46 am on January 16, 2016, the firm’s client,
Khosrow Afghahi, was released from the Federal
Detention Center in Houston, Texas—one of seven
Iranian-Americans freed in U.S.-Iran nuclear and
prisoner negotiations announced just the day before.
Mr. Afghahi received a full Presidential pardon.
The case began nine months earlier when the client
was accused in Houston federal court of the crime
of making and selling goods in Iran—in his case,
surge protectors similar to those sold at an office
supply store. The business had existed since before
the 1978 Revolution, but the client had become a
U.S. citizen only more recently, to visit family more
often. Discovery was impaired because (1) he was
detained in jail pending trial, and (2) it is terribly
difficult to get materials located in Iran. However, it
became clear that the client might soon be included
in a rumored “prisoner swap.” On the night of
Friday, January 15th, the firm was told to appear at the
warden’s office at 5:30 am on Saturday when a pardon
and swap would quickly occur. Every 30 minutes,
the warden received a message that they were “close…
except for one more glitch.” Twenty-three hours later,
it finally took place, and the firm’s client was happily
reunited with his wife and son.
Complete Patent Defense Jury Trial
Victory in the Eastern District of Texas
On behalf of defendants Alcatel Lucent, AT&T,
Verizon, and Sprint, the firm recently won a complete
victory before a jury in a patent infringement lawsuit
in the Eastern District of Texas. Although the case
included three network carrier customers of the
client, Alcatel Lucent, the firm handled all aspects
of the presentation during trial. The case involved
allegations of infringement against use of Alcatel
Lucent’s LTE base stations in each of the networks.
Plaintiff, Adaptix, Inc., is a subsidiary of Acacia
Research Corporation and the predecessor of a
company called Broadstorm Telecommunications,
Inc., which was founded in 2000 by a former
professor at the University of Washington. Although
Broadstorm had not been successful in the marketplace,
the company developed a patent portfolio, which has
grown to include over 130 patents worldwide. Acacia
acquired Adaptix in 2012 for $160 million, and
has since filed approximately sixty lawsuits against
numerous LTE base station manufacturers, handset
manufacturers, and network providers. Acacia had
previously obtained over $100 million in licensing
revenue from the Adaptix portfolio.
Adaptix originally asserted five patents in this case,
but after development of strong non-infringement
and invalidity defenses, Adaptix narrowed down its
case to three claims from one patent for trial. Adaptix
sought $100 million in damages for the remaining
patent, which Adaptix claimed was “front and center”
in prior negotiations with its licensees and was the
most valuable patent in its portfolio. At trial, the firm
presented focused non-infringement theories, as well
as strong invalidity theories based on anticipation,
obviousness, and lack of written description.
Ultimately, the jury found for the defendants on
all claims, finding that the patent was not infringed
and was invalid on all of the bases the firm asserted at
trial. Shortly after the verdict on a Friday afternoon,
Acacia’s stock fell 20%, which was followed by the
resignation of Acacia’s CEO the following Monday
and withdrawal of Adaptix’s trial counsel in the
following weeks.
Plaintiffs Seeking $1.4 Billion Take
Nothing from Our Clients
The firm recently obtained an important victory for
its client, American Electric Power, Inc., zeroing out
the plaintiffs after three years of litigation in which
the plaintiffs sought to recover over $1.4 billion
dollars. On March 28, 2016, an Ohio federal judge
dismissed the majority of claims brought against
American Electric Power, Inc.’s subsidiaries, in a
suit brought by the owners of a coal-fired generating
station located in Rockport, Indiana, seeking more
than $1.4 billion in damages and declaratory and
injunctive relief. Three days after the decision,
plaintiffs moved to dismiss their remaining claims
with prejudice, thereby disposing of the case in its
entirety, with plaintiffs taking nothing.
In July 2013, Wilmington Trust Company—on
behalf of Rockport Plant (Unit 2) beneficial owners
Phillip Morris Capital Corporation, Verizon Capital
Corporation, and Aircraft Services Corporation (an
affiliate of General Electric Capital Corporation)—
filed a complaint in federal court in the Southern
District of New York against AEP Generating
Company (“AEG”) and Indiana Michigan Power
Company (“I&M”). The breach of contract and
indemnification case alleged approximately $1.4
billion in damages for breaches of certain contracts
structuring a sale leaseback transaction with
plaintiffs. Plaintiffs alleged that defendants breached
those contracts by entering into a Consent Decree that
settled environmental litigation brought by the EPA
against I&M and its affiliates. The plaintiffs alleged
that the terms of the Consent Decree (as modified in
2013) require installation of environmental control
equipment or shutdown of the unit in 2025 or 2028,
after the expiration of I&M and AEG’s current lease of
the facility from plaintiffs. The case was subsequently
transferred to the Southern District of Ohio, where
AEP is headquartered.
On March 28, 2016, U.S. District Chief Judge
Edmund A. Sargus, Jr., granted I&M and AEG’s
motions to dismiss and for judgment on the pleadings,
and denied plaintiffs’ dueling motion for summary
judgment. The Court rejected plaintiffs’ claims that
I&M’s entry into the Consent Decree unlawfully
burdened plaintiffs’ ownership interests in Rockport
Unit 2, finding that the Consent Decree was expressly
permitted by the parties’ contracts. The Court also
dismissed plaintiffs’ claims for indemnification and
breach of the implied covenant of good faith and fair
dealing. Q
quinn emanuel
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business litigation report
Published by Quinn Emanuel
Urquhart & Sullivan, LLP as a service
to clients and friends of the firm.
It is written by the firm’s attorneys.
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contact Becca Voake at 213-443-3165.
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quinn emanuel urquhart & sullivan, llp

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