When it comes to the law, I am conservative by nature, in the “if it ain’t broke, don’t fix it” meaning of the word. I am not speaking here of substantive legal rules, or case outcomes, and how to view them, but instead of the bread and butter elements of a litigator’s life, evidentiary rules, rules of civil procedure, pleading requirements, burdens of proof, and the like. If something of that nature is working well enough in the real world, in places like the courtroom where the rubber meets the road when it comes to any high minded thinking about legal issues, I tend to be skeptical of proposed changes, whether that concerns new rules of expert disclosure or a doctrinal shift in a particular exception to the rule barring hearsay testimony.

What brings this to mind at this moment is the issue of Iqbal, and the requirement imposed by it that plaintiffs plead facts that could actually support a cause of action, with the accompanying instruction – or at least implication – to federal judges to look, in essence, critically at the facts as pled to determine whether there is a viable case that should be allowed to proceed. Even though such a rule adds to the arsenal of the lawyer representing a corporate defendant, of which I am one 80-something percent of the time, I had always felt the prior rules of initial pleading worked well enough, and that there was probably no need to mess around with it, although I always recognized that it made dismissal at the initial stages something that could almost never occur except in the instance of a plaintiff either truly erring in pleadings or pleading a cause of action that simply doesn’t exist.

But I have come to believe, as I have continued to read the plaintiffs’ bar’s criticism of Iqbal – see here for instance – and the academic analysis of it – see here – that the rule makes sense, and that Iqbal represents a change for the better. As in most things in the law, my take is based on my own experiences in the litigation of cases, which I think is the best laboratory for analyzing any particular rule of law – theory is all well and good, but what happens when you actually put something into practice, and how it affects the litigants and the administration of cases, is what matters. Years before Iqbal – and even Twombly, for that matter – I litigated a copyright infringement action in which I represented one of the defendants, and the court dismissed the action on a 12(b)(6) motion on the thesis that the complaint showed that the statute of limitations should bar the claim because the plaintiff had constructive notice of the infringement at a much earlier date than the actual date of discovery pled in the complaint. Although we did not have the language of Iqbal and Twombly to use at that time to describe such an investigation into the factual merits of a complaint at such an early stage, the court was in essence Iqbal-ling the complaint, and dismissing the action. This being pre-Iqbal, the action was eventually reinstated on appeal, on the ground that the then applicable rules for pleading a cause of action were satisfied and the grounds for a dismissal at that stage – which were very high prior to Iqbal – had not been met; in essence, the appeals court concluded that a determination on that issue would have to be made at a later date, and could not be done on a motion to dismiss under the pre-Iqbal rules. Remanded, then, to the district court, the case then proceeded through discovery, extensive motion practice, and a trial, after which the jury found the exact same thing that the court had concluded in reviewing the complaint: that the plaintiff should be found to have had constructive notice of the infringement at such an early date that the statute of limitations barred the claim. Thus, pre-Iqbal, you had one appeal and a trial to reach the exact same conclusion that the judge could see just from the face of the complaint, right at the beginning of the case.

Iqbal, now, prevents this scenario, and allows the court to make an early ruling of that nature, and it would have been the right way to handle that case. Who benefits from allowing such a case to go forward? My own view is no one, except maybe the lawyers billing on the case. The defendant has to litigate for years to get to the same conclusion that could have been reached at the beginning, and which Iqbal now allows the court to reach early on, while the plaintiff spends years chasing a claim that a court can rightly determine early on will never come to fruition. Iqbal, in the hands of careful jurists, protects both sides of the v. from such a Quixotic quest.

Geez, I certainly don’t mean anything by it, but in its application by the courts, this new “structural conflict of interest” rule imposed by the Supreme Court in Metropolitan Life v. Glenn seems to be just as open to variation from circuit to circuit as was the case with the highly variegated rules across the circuits on this issue that predated it. Some circuits appear to be treating the standard as little more than a variation on the themes that preceded it; for instance, my take at this point in the First Circuit is that the standard now means that discovery is proper to explore whether the conflict affected the outcome and, if it did, than that should be taken into account; I have to say, I am having trouble seeing how this is much different than the circuit’s rule pre- Metropolitan Life, which held that a structural conflict was only relevant if it had an actual impact on the outcome. I suppose one change is that the rule now allows discovery into that question, before a court rules on that point – as occurred here – which wasn’t necessarily the case in this circuit prior to the Supreme Court’s ruling. On the other end of the spectrum is a recent ruling by the Ninth Circuit, discussed here, which can be fairly understood as treating the existence of the structural conflict as a legitimate basis for engaging in de novo review by another name; it is hard to read this analysis of that decision without viewing the court as having conducted a de novo review of the evidence in light of the structural conflict and using that as the basis for decision making. Variety is the spice of life, I guess, and has long been the norm when it comes to the handling by different circuits of the same issues arising under ERISA. Although Metropolitan Life appears to have standardized those rules with regard to one issue – namely the effect of “structural conflict of interests” – to some degree, it hasn’t come close to putting the treatment of that issue on the same page in every circuit.

For a long while, I have felt like a lone voice or (to mix my metaphors) at least the skunk at the garden party, when I have criticized employer mandates and, even more so, the Massachusetts Health Care Reform Act. As I have frequently discussed in various posts, the problem with these statutes is that they don’t target the real problem in the provision of health insurance by employers, which is cost – that is what is driving employers to reduce or not provide such insurance to their employees. Mandating insurance, payments or penalties simply penalizes employers for not being able to afford to do something that, pricing being better, they would have done – and historically did do – on their own, which is provide health insurance as an employee benefit.

Marcia Angell, a prominent Massachusetts physician, made this exact point about the Massachusetts Health Care Reform Act, when she explained that its fundamental flaw is that:

In Massachusetts [which enacted an individual mandate in 2006], there is no real price regulation. Essentially what the mandate does is say to people, you will go into this treacherous market and buy insurance at whatever price the companies choose to charge. In effect, it’s delivering a captive market to these profit-oriented companies. . . . Massachusetts already spends one-third more on health care than other states, and costs are rising at unsustainable rates. As a result, they’re chipping away at benefits, dropping beneficiaries and increasing premiums and co-payments.

Now, the Boston Globe today has an article reiterating and driving home this same point, in which it reports that “[t]he state’s major health insurers plan to raise premiums by about 10 percent next year, prompting many employers to reduce benefits and shift additional costs to workers.” The article goes on to point out that controlling costs was supposed to go hand in hand with the mandate imposed by the state’s reform act, but that obviously has not occurred.

I have said it before and I will say it again – mandating expensive coverage that is only getting more expensive is not a solution, and no state has pockets deep enough to solve this problem on its own.

I don’t think anyone has made as sustained a study of the law of QDROs as Albert Feuer. Albert has a new piece he has authored on the Drainville decision, which I discussed here, in which Albert concurs that it is both well reasoned and accurate in treating substantial compliance with the statutory QDRO requirements as sufficient. Albert, however, has long maintained a particular scholarly view on the QDRO requirements, which is that they only apply to pensions under the statutory language, and don’t reach other ERISA governed plans or benefits. Albert points out that the Drainville court erred in its analysis for this reason.

Being a practical, courtroom oriented kind of guy, I have never done my own independent analysis of Albert’s thesis, since in practice QDROs are treated as applicable across the board and thus my litigation over the issue has always focused on the application of the statutory requirements, and not on whether they reach all covered benefits or only pension benefits. I have to say, though, that his argument on the point and the manner in which he presents it has always been pretty persuasive; it would certainly be interesting to see a lawyer challenge a purported QDRO on this basis and to see what a court would do with that issue.

I have been swamped for awhile, but have wanted to post on this case, by Judge Young of the U.S. District Court here, for almost as long, and I want to get it up today while I have a few minutes of daylight, because I think it is a very important opinion for practitioners. Long time readers will know that I am very fond of federal court decisions that give a scholarly, extensive overview of the case law on both sides of an issue, because it prevents a litigator from having to reinvent the wheel by creating his or her own survey of the law on that particular issue when it comes up in their own practices, since a court has already done it. In this opinion here, Judge Young gives a scholarly overview of the split among the circuits on what it means to be a “prevailing party” entitled to recover attorneys’ fees in an ERISA case. The particular issue before him was whether a participant who does not recover benefits, but instead attains a remand to the administrator for further review has prevailed, for purposes of ERISA’s attorney fee shifting provision. The court’s conclusion, after surveying the cases throughout the country, is: (1) maybe; and (2) sometimes. I am being a bit flippant, but the truth is it is an excellent analysis of an issue you don’t see that often and the court’s conclusion, in a nutshell, is that you have to look and see if the plaintiff, beyond just getting that relief, accomplished some significant goal of the suit; if so, then the plaintiff is a prevailing party entitled to an award of attorney’s fees. It is not a black and white issue, in the sense of remand either always does or always does not warrant such an award, but a fact based one dependent on what was actually accomplished in the lawsuit. For anyone who deals with these issues, it is certainly worth a read. The case is Colby v. Assurant Employee Benefits.

Here’s a great opinion, out of the United States District Court for the District of Rhode Island, on QDROs, their statutory basis, their purpose, and how they should be structured. Notably, the court weighs in in a very sensible manner on the never ending question of whether, under ERISA, the divorce decree at issue must comply exactly with the requirements imposed by ERISA to qualify as a QDRO or whether instead, as in horse shoes, close enough counts. In this circuit, close enough is usually good enough, and courts tend to enforce the divorce decree so long as the court is convinced it can accurately ascertain the intent and purpose of the agreement from the decree, regardless of whether the exact detailed requirements that ERISA imposes to qualify as a QDRO have been met. This opinion comes closer than those to requiring close compliance with the specific requirements of the statute, but allows variance from them subject to a certain principled guidance – namely, whether the variance does not affect the plan administrator’s ability to determine to whom and in what amount to pay plan proceeds. If so, then the requirements should be considered to have been met in substance and the order in question deemed a QDRO for these purposes.

Beyond this aspect of the opinion, one of its most notable features is simply its nice exposition of exactly what a QDRO needs to contain. Exactly what needs to be contained in a divorce document to qualify as a QDRO seems to be a constant source of confusion for people who are not ERISA lawyers but who have to work out family/divorce agreements; this opinion just lays it out in clear fashion.

The opinion is Metropolitan Life Ins. Co. v. Drainville. It doesn’t appear to have been posted yet on the court’s website, but once it is, you should be able to find it here.  For now, here’s a Lexis site for it: 2009 U.S. Dist. LEXIS 63613.

I have to admit I have found the Workplace Prof blog tough sledding since the site’s founding blogger, Paul Secunda, took retirement from the site, apparently to spend more time in the snow in Wisconsin. Without Paul, the blog has trended heavily towards labor law and lacks the type of frequent, insightful commentary about ERISA that was a hallmark of the Secunda regime.

I mention this today because the blog has a guest/drop in post from Paul, commenting on a Wall Street Journal law blog story about the decline in securities class action litigation. Paul comments that one reason for this that was overlooked in the story may well be the discovery of the class action plaintiffs’ bar over the past few years of ERISA as a better tool for prosecuting such claims and as an excellent stand-in in many cases for securities suits. This is something I have discussed frequently over the years on this blog, but I have to admit, until Paul, the law professor formerly known as the Workplace Prof, mentioned it in his post, it had not jumped out at me as something relevant to the Wall Street Journal piece. But there you have it – more anecdotal evidence for the idea that ERISA is displacing securities actions in many circumstances.

It has become a given in any talk on 401(k) plans and fiduciary liability that I give these days – my comment that, when the market was always going up, up, up, no one cared that they might have made 15% instead of 14% but for some unresolved problem with a plan’s structure, but with the market going down, down, down, anything and everything even allegedly wrong with a plan is going to get sued over. The point is always the same: it is doubly important now to always dot all the eyes and cross all the tees, which translates into watch your investment selection mix, watch your fees, watch your level of disclosure, watch the process by which you select your vendors, and so on. It all adds up to the idea that in this market, someone is going to come after you if you are a fiduciary or a plan vendor, so be prepared to defend everything you do.

That is why I liked this post here, from the folks at the Float, about excessive fee litigation trickling down to the level where suits based on fees are being filed against plans with as little as $2 million is assets, and their advisors. There’s nowhere to hide anymore, folks. Get it right in the first place, and then defend yourself; being the small fish isn’t going to keep you out of the churn.

So, so, so very far behind. Its even creeped onto the blog, and in particular into our serialization of The Genie In the Machine. Oh, well, better late than never. Here is the last and final installment of our semi-serialization of Robert Plotkin’s book on automated inventing, and its impact on patent law. Meanwhile, you can find the first three installments here, here and here.

Automated Inventing: Should Computer-Generated Inventions be Patentable?

In my previous entries I have discussed how "artificial invention technology" is being used to invent new products automatically. In this entry I will argue that such computer-generated inventions should be patentable, but that the legal requirements for patentability will need to be recalibrated in light of artificial invention technology.

For an invention to be patentable, it must (among other things) be "nonobvious." Imagine, for example, that you design a new pencil. Assume that all previous pencils have been constructed from pine wood and that your pencil is constructed from oak, but in all other respects is the same as an existing pencil. Should you be entitled to a patent on your pencil? It satisfies patent law’s "novelty" requirement because it differs in some way from previously-existing pencils. Yet it most likely does not satisfy patent law’s "nonobviousness" requirement. A product is considered "obvious," and therefore not patentable, if the product design would have been obvious to a "person having ordinary skill in the art" of the product at the time the product was designed.

Patent law’s "person having ordinary skill in the art" (PHOSITA), like tort law’s "reasonable person," is a legal fiction, intended to represent the current level of skill of people currently practicing in a particular technological field (art). If a court were to determine whether your oak pencil is obvious, it would first ask, "what was the ordinary level of skill of pencil designers at the time you designed your pencil"? The court would answer this question by looking at factors such as the educational degrees typically held by pencil designers and the number of years of experience they have. A typical statement by a court is that "pencil designers of ordinary skill as of January 1, 2009 had a Bachelor’s Degree in Mechanical Engineering and 6 years of work experience designing pencils." Based on this finding, the court attempts to determine whether such a hypothetical person would have found it obvious, on January 1, 2009, to construct pencils out of oak rather than pine.

If all pencil designers were to go back to school and obtain Ph.D.’s in Mechanical Engineering tomorrow, courts would recognize the resulting increased skill of the "person having ordinary skill in the art" in subsequent patent cases. The basic effect would be to raise the bar for nonobviousness, thereby making it more difficult for people to obtain patents on pencils.

Creation and adoption of artificial invention technology by pencil designers could have a similar real-world effect on the ability of pencil designers to create new pencils. One person who I interviewed for The Genie in the Machine said that he considers an engineer with a Bachelor’s Degree, but equipped with artificial invention technology, to be as effective at solving problems as an unaided engineer with a Ph.D. If pencil designers worldwide were to adopt, and become skilled at using, artificial invention technology, the law of nonobviousness should take this increase in "effective inventive skill" into account. As a result, it should generally become more difficult to obtain patents on new pencils. Intuitively, someone should not be able to obtain a patent on a pencil that could have been created by any pencil designer merely by applying ordinary skill to widely-available invention automation technology.

Yet it is at best unclear whether this is how the nonobviousness standard will adapt to artificial invention technology. The caselaw on nonobviousness pays very little attention to the technologies that inventors use to assist them in the inventive process, focusing instead primarily on inventors’ education and training. Even the U.S. Supreme Court’s most recent pronouncement on obviousness in KSR v. Teleflex, 550 U.S. 398 (2007), declined to address this issue as directly as it could have. As a result, we are left with incomplete guidance regarding whether the level of skill of those having ordinary skill in an art in a particular patent case will be interpreted in light of the skill that those in the art have at using extant invention automation technology to solve problems. If invention automation technology is not taken into account when calibrating the level of skill of PHOSITA in particular cases, we run the risk of allowing inventions which could be produced using only ordinary skill to be patented. This would run counter to the very purpose of the nonobviousness requirement and of patent law itself.

As with the other topics addressed in my previous blog entry, I discuss the relationship between nonobviousness and invention automation technology in much more detail in The Genie in the Machine. I hope you have enjoyed this overview of the promise of invention automation technology, and of the challenges that such technology rises for patent law. I look forward to your comments and questions and to an ongoing dialogue.

Little time to blog today – plus I still have to get up the latest chapter of our on-going serialization of Robert Plotkin’s book, The Genie in the Machine – but I did want to pass along, with a couple of brief comments, this excellent article on the question of whether there is coverage for governmental investigations under directors and officer or professional liability insurance. The article focuses really on two points. First of all, that there may be such coverage, but the time to determine that is not after a claim is made; the time to do so is in advance, when you are negotiating for the policy. This is a basic point I frequently make in seminars – a company needs to survey its potential exposures in advance, and structure the insurance it is purchasing to make sure that, to the extent the market will allow it, coverage is acquired in advance for those potential exposures. This is work your insurance broker and/or your outside coverage lawyers can help with, and it will cost a lot less than fighting later over whether or not there is coverage for an exposure that, with foresight, could have been anticipated and explicitly insured against. Second, the article discusses in depth the question of whether the investigation notice constitutes a claim that would trigger insurance coverage. This is a very interesting and subtle point, and the outcome can vary depending both on the jurisdiction involved and the particular language used to define the word claim in the particular policy at issue. On a more philosophical level, this point is interesting to me because it references back to something I have discussed elsewhere on this blog, namely the idea that all modern insurance coverage law harkens back to the doctrinal shifts that occurred as part of the large dollar insurance battles over coverage for asbestos and environmental exposures a quarter century ago; in this particular instance, the question of when notice from a government agency qualifies as a claim – which is discussed in this article with regard to an investigation into financial behavior – was first really developed in case law considering whether environmental clean up demand letters and notices constituted a claim that could trigger insurance coverage.