I have always maintained a digressions section of the blog, down in the corner of the left hand side of the blog, for the purpose of allowing me to talk about areas of my practice – like intellectual property litigation – other than those listed in the title of the blog; its also there to give me space for subjects that are of interest to me but of only tangential relation to the subjects of either the blog or my practice, such as the financial underpinnings of the Massachusetts Health Care Reform Act.

This time around I have decided to make use of my editorial prerogatives and the digressions section of the blog to welcome my first ever guest blogger, Robert Plotkin. Longtime readers may remember other references to Robert in patent related blog entries; Robert is a long time patent lawyer who specializes, in particular, in patent protection for computer technology, and was named a "Go-To Law Firm for Leading Technology Companies" by American Lawyer Media in 2008.

Stanford University Press has just published Robert’s new book, The Genie in the Machine: How Computer-Automated Inventing is Revolutionizing Law and Business, and the ideas behind it – the manner in which such automated inventing strays from and thus may impact the paradigms under which we understand patent prosecution and patent law – fascinate me. The Boston ERISA and Insurance Litigation blog, despite its massive advertising revenue (place tongue firmly in cheek while reading that line), lost the bidding for serialization rights for the book, so I asked Robert if he would write a series of blog posts detailing the issues covered by the book. Robert agreed, and I plan to run them every Friday for the next few weeks. Note that Robert’s blog on automated inventing, by the way, can be found here.

Here’s the first of the series:

Automatic Product Design and Its Impact on Patent Law

Inventors have long been using software to help them design new products. For example, computer-aided design (CAD) software enables engineers to draw three-dimensional models of the components of an automobile engine, and even to "connect" those components together to see how they will interact without needing to build physical prototypes.

Few people are aware that software now exists which can not only display product designs which have been drawn by a human engineer, but also create such designs itself. In addition, today’s latest "artificial invention" software can simulate the operation of a new product — such as an automobile engine — evaluate its performance, and then refine the product design repeatedly to improve the end product. One example of such software — Stephen Thaler’s "Creativity Machine" — has been called "Thomas Edison in a box." In my book, The Genie in the Machine, I describe the history of such technology and provide many real-world examples of the products it has been used to create — everything from toothbrushes to antennas to the nosecone on the Japanese bullet train.

Artificial invention technology has the potential to enable us to create better products more quickly and inexpensively than ever before. Such software often produces designs that surprise expert human inventors, because software lacks the blindspots and prejudices that can stop human engineers from pursuing pathways that are fruitful but which contradict conventional wisdom. Businesses are already using invention automation software — including evolutionary algorithms and artificial neural networks — to slash their research and development costs.

Patent law has yet to grapple with the implications of computer-automated inventing. Yet it must do so if patent law is to continue promoting innovation. In my next blog entry, I will point out some of the challenges that artificial invention technology poses for patent law.

Maybe of what not to do.

I couldn’t let this go by without noting it – he has a Nobel after all and I, well, I have a sixth man award from a high school basketball team. Paul Krugman on health care reform:

Without an effective public option, the Obama health care reform will be simply a national version of the health care reform in Massachusetts: a system that is a lot better than nothing but has done little to address the fundamental problem of a fragmented system, and as a result has done little to control rising health care costs.

I think I have read that description of the Massachusetts act before. No, wait, I think I wrote it.

Just too funny not to post this today, even though this was supposed to be a post-free Friday while I finish up a brief. Randy Maniloff of White and Williams has done a (mock) thorough piece of opposition research into the new Supreme Court nominee and discovered, somewhat apparently to his shock, that her rulings reflect a consistent trend of finding in favor of insurers, rather than insureds, on coverage and bad faith issues that have come before her. His piece detailing this is here.

My take? The decisions and quotes Randy highlights reflect a focus by the judge on the specific facts of the cases and on the details of specific insurance coverage doctrines, rather than a looser approach of relying on easy maxims that tend to add up to nothing more than the tie goes to the runner, which in this area means the insured, such as “ambiguous provisions must be construed against the insurance company.” When you focus on the facts of the cases and the details of this area of the law, you don’t end up with any sort of an insured oriented bias, and instead you often find that the insurer’s decision is upheld because the insurer used that same focus in the first instance in making its own decision with regard to coverage.

Kudos to Randy, for again using humor to shed some light into the dark corners of insurance coverage law, this time, whether intentionally or not, on the extent to which judicial approach affects the outcome of coverage cases.

Thanks to Point of Law for passing his piece along.

Well, I have argued more than once on these electronic pages that ERISA preemption, rather than being the whipping boy of choice for people who advocate state level health insurance mandates, should be understood as a key element in bringing about any type of effective change to the health insurance system. Why is that? Because ERISA preemption forbids the states from enacting health insurance reform statues since states cannot enact them without either deliberately or unavoidably rejiggering employer provided – and thus ERISA governed – health plans, meaning that any real change from the current employer provided (and voluntary) health insurance system can only take place on a national level. And why is this in turn good? Because states are kidding themselves if they think that they can, financially, pull off reform of the system on their own, as this article here demonstrates yet again. Although buried behind the praise for the fact that the state reform has increased access by decreasing the numbers of uninsured, the article notes that affordability problems have arisen, which cannot “be blamed on the state’s overhaul, but on a much larger and troubling national trend [which is that] [h]ealthcare costs, in general, are increasing faster than inflation.” The city of San Francisco, or the Commonwealth of Massachusetts, cannot solve that problem, and they can’t fund it on their own, either. It’s a national problem, and one that ERISA preemption demands be handled nationally.

Kevin O’Keefe, the lawyer turned blogging evangelist behind the company that hosts this blog, told me when I was picking a topic for my blog that I should choose a subject where there was plentiful source material to work from on a day in, day out basis. They were oddly prophetic words, in that not too long after launching the blog, fiduciary litigation and concerns exploded, generating a seemingly endless stream of cases and business developments to blog about. Excessive fees, company stock declines, subprime meltdowns, the rise of ERISA as the new securities class actions – all of these issues that I have covered extensively here really exploded after the launch of this blog.

There is so much information and activity going on out there now in this area that it is always good to have other bloggers, the more knowledgeable the better, likewise chiming in on developments in this area, and few are more knowledgeable than long time ERISA blogger B. Janell Grenier, who has just launched a separate blog dedicated to developments concerning the law governing fiduciary status titled the ERISA Fiduciary Guidebook (A Work in Progress). Her new blog captured, for instance, a recent Massachusetts federal court decision that I didn’t cover, involving some of the issues raised by an employer who becomes delinquent in making plan contributions.

In my last post, I mentioned a seminar I gave recently on insurance coverage issues and commented on one of the themes of my presentation. Another theme I emphasized in that talk was the fact that modern insurance coverage law is basically 20 years old, with its fountainhead being the development of the law of insurance coverage to account for the complexities and size of the asbestos exposures that confronted much of American industry at that point; from that development of the case law would come further refinement and expansion of the relevant doctrines as the courts, insurance companies and industry subsequently struggled to allocate financial responsibility for the surge in environmental clean up actions. Insurance coverage law before then was essentially a backwater of random, not necessarily sophisticated decisional authority; since then, it has become a complex weave of interdependent theories and doctrines.

I mention this because I am reminded of it by the current state of the law concerning fee and cost issues in 401(k) plans. To some, it may be a weird correlation, but not to me. I have written before about how the Seventh Circuit’s decision in Hecker provides a broad range of issues that warrant review and thought, some of which I have touched on in my posts and others of which I have not. I suspect there will come a time in which we will think of the law on this particular subject as being divided into two eras: before Hecker and after Hecker. And by that, I do not necessarily mean that the case law will start to follow Hecker and reform or solidify the landscape on this issue as a result. That might happen, but I am skeptical, at least in the longer or middle term. There are many issues in Hecker that were not played out fully in that decision or in the record underlying it in my view, and I suspect they will be in later cases, or by legislation or regulation, in ways that will change how we think about this type of issue, both from what existed before Hecker and from what Hecker itself suggests.

I am thinking in particular today of the court’s treatment of the amount and lack of transparency of the fees and costs in the plan before it as essentially not important, for all intents and purposes, either to participants, or, seemingly, to the court’s analysis of the plan’s obligations. A deeper look at the role of costs and fees, along with their impact, I suspect, might suggest an entirely different outcome to excessive fee cases such as Hecker, and it would not surprise me if at least some other courts in the future engage in such a closer examination and come to a different conclusion as a result. What has me thinking about this today? It is this excellent post by Ryan Alfred of BrightScope on the range of fees and costs in funds, a fiduciary’s obligations to understand all of them, and the lack of transparency as to exactly what plans are actually paying in fees and costs. Moreover, he points out the systemic differences among how different knowledgeable parties – experts may be a fair statement – calculate such fees and costs. This analysis suggests that fees and costs are nowhere near as simple to interpret and analyze as the Hecker court’s analysis assumes them to be, given that the court analyzed them on a motion to dismiss without detailed factual development of the evidence on the fees and costs in question. My educated guess, using Ryan’s analysis as a backdrop, is that a court may reach an entirely different understanding of fiduciary obligations in this regard if it first engages in a thorough factual development of the record on this issue before ruling, which the Hecker court did not.

I gave a seminar recently to a group of in-house counsel on insurance coverage, and the theme of my talk was the need to go beyond – or at least look behind – standard insurance packages to instead tailor the insurance program to the specific needs and exposures of the particular company in question. For instance, policies often exclude or are silent – leaving it for debate at a later time, such as after a claim is made – on whether there is coverage for awards of attorneys fees or punitive damages. Companies, I suggested, need to survey their potential exposures and analyze whether, given the types of claims made against them historically and the jurisdictions in which they operate, they are at risk of such awards; if so, they then need to tailor their insurance programs accordingly with regard to such exposures, at the time of acquisition, rather than worrying about it only after a claim is made against them.

As a result, I greatly enjoyed this piece out of the New York Times, which gives that same advice from a practical perspective for smaller businesses. The article, in particular, focuses on the need to carefully consider the trade off between how much of the company’s revenue to tie up in insurance costs versus the potential costs to the company of a particular type of claim if it is not insured against.

I thought I would post some thoughts and comments on the First Circuit’s pronouncement of its law after Glenn, before too much more time goes by, rather than waiting for a window of time that would allow me to write a much longer post on it. Some things that sit too long get stale, and comments on new, noteworthy opinions fall in that category, so here are my thoughts. First, for those of you who haven’t seen it yet, a First Circuit panel has now issued an opinion detailing how the First Circuit will handle structural conflict of interest situations in light of the Supreme Court’s ruling in Glenn. You can find the opinion here. Of note, the panel goes out of its way to paint prior, pre-Glenn, First Circuit decisions as not particularly different than the holding in Glenn, and to a certain extent this is true: prior First Circuit precedent had required that structural conflicts only affect the outcome if there was a showing that the conflict had actually impacted the benefit determination, and in many ways this is very consistent with the holding in Glenn that consideration of the structural conflict is only one aspect of the review and that such a conflict is essentially irrelevant if the evidence shows the conflict was cabined in a way that demonstrates it played little or no role in the outcome.

Second, and of particular note, the panel made clear that it was only dealing with the specific issue at play in Glenn, namely the impact of a structural conflict of interest. The court indicated that the rule may well be different in the presence of evidence showing that there was an actual conflict that motivated the outcome, and that a change in the standard of review might continue to be appropriate under that circumstance. In essence, while withholding judgment on what rule it might adopt in that circumstance after Glenn, the First Circuit is distinguishing between arguments that begin from the premise that there was a structural conflict of interest – the Glenn type scenario – and arguments based on the idea that the administrator was actually subjectively motivated by a conflict; the court made clear that only the former scenario is governed by its new decision applying the Glenn rubric.

Third, in an aspect of its decision that provoked the ire of one member of the Panel who wrote a concurring opinion specifically to challenge the opinion’s analysis of this issue, the case holds that the First Circuit’s prior rulings on discovery in denial of benefits cases – that little is to be allowed and it is disfavored – remain in effect and are consistent with Glenn. Of even more interest and practical concern going forward, though, is the court’s conclusion that, rather than engage in discovery into the possible impact of a structural conflict of interest on a decision, it is incumbent upon administrators to make the evidence of the cabining and lack of impact of such a conflict part of the administrative record compiled during the administrator’s handling of a claim. If there is a functional impact of the First Circuit’s ruling on plan administrators, it is this one – the need to evidence the lack of importance of the structural conflict in the administrative record itself.
 

I have been accused of being something of a troglodyte for not whole heartedly embracing the Massachusetts Health Care Reform act, including because it puts the cart before the horse in failing to recognize (and address) the fact that rapidly rising health care costs are the real problem driving accessibility and also because the statute is preempted, which matters because the problems it is trying to address can only really be targeted successfully in the long run on a national basis rather than on this type of state by state ad hoc approach, which Congress long ago precluded by means of ERISA preemption. Compare those posts to this and you will see that, yes indeed, it is costs that drive the problem and that the solution to that lies on a national basis, not a state by state one (see for instance, this recent column noting the impact of costs on the implementation of the Massachusetts Health Care Reform act, an issue much better addressed across the entire national pool of the insured).