Having recently tried a patent infringement case to a jury, I was amused by this article in IP Law & Business pointing out that patent cases are almost never tried and few patent lawyers have actually tried a case to a jury. The key statistic is here, in this line in the article: “there were only 102 jury trials about patent disputes in 2006, out of 2,830 such cases filed, according to the Administrative Office of the U.S. Courts.” I had a lot of fun trying the case, and am circulating an article for publication based on lessons learned from it, but given these numbers, I can only wonder how soon it will be before I get another one past the hurdles of settlement and summary judgment, and into trial.

On a more substantive note, this article here recounts the research of James Bessen, a lecturer at Boston University Law School, who has found that the costs of patent infringement litigation actually exceed the economic value across all industries of patenting inventions. That’s a lot of legal fees, for a field of litigation that almost never gives rise to a trial. More interestingly, Bessen has gathered statistics suggesting that for many industries and many business people, pursuing patents may not be a profitable, or even useful, business strategy. His data points towards something we already know, which is that for those industries, such as the pharmaceutical industry, where holding exclusive rights on a product is crucial, the patent system drives both innovation and large profits, but that for decision makers in other industries, seeking a patent may not always be the best way to proceed with regard to a given product. Certainly though, for the individual inventor, it is probably the necessary first step to ever being able to successfully maintain marketplace control and exploitation of an invention, no matter if, across the economic universe as a whole, businesses may spend more money litigating patent disputes than they earn off of patents.

Been away from the desk for a few days, but not away from my reading, and there’s been a whole series of things in the media that may be of interest to those who read this blog that I have meant to pass along and comment on. I am going to try to post frequent but shorter notes for the next day or three until I cover them all, starting with one that most clearly and directly falls within the jurisdiction of this blog, concerning the payment of fees to a quasi-retirement plan sponsor. Many of you may have already seen the story, from the New York Times, which concerns payments received by the National Education Association from financial firms whose investment products it recommended to members. As the article explains:

A lawsuit filed last week in federal court in Washington State contends that the National Education Association breached its duty to members by accepting millions of dollars in payments from two financial firms whose high-cost investments it recommended to members in an association-sponsored retirement plan. The case was filed on behalf of two N.E.A. members who had invested in annuities sold by Nationwide Life Insurance Company and the Security Benefit Group. It contends that by actively endorsing these products, which carry high fees, the N.E.A., through its N.E.A. Member Benefits subsidiary, took on the role of a retirement plan sponsor, which must put its members’ interests ahead of its own. By taking fees from the two companies whose annuities N.E.A. Member Benefits recommended to its members, the N.E.A. breached its duty to them, the suit contends.

The article goes on to explain some tricks and twists that the plaintiffs face in trying to press their suit against the N.E.A. related to the payments and the high cost products, namely that the plaintiffs need to shoehorn the case into ERISA by arguing that “because the N.E.A. actively promoted the annuity products to its members, it essentially stepped in as a plan sponsor [thereby making] it subject to Erisa’s fiduciary duty requirements.”

With regard to this problem, concerning the plaintiffs’ need to figure out the best manner to structure their lawsuit, what you are really seeing is the problem of forcing a square peg into a round hole. I have argued in other posts that, as we move decisively from a defined benefit plan world to a defined contribution world, and thereby make plan participants the bearers of all the risks of their retirement investments, we need to simultaneously provide those plan participants with the legal protections and tools to manage those risks, including the types of risks alleged in this case, of misleading investment recommendations, undisclosed payments, and excessive costs.

I hope to keep an eye on this case going forward, as it may provide an excellent window on the question of whether, and if so how, the law can evolve to deal with these changes in the real world environment in which people now must prepare for retirement.

A couple of loyal blog readers have commented that I have veered off a good bit on digressions this past couple weeks, and I can’t deny it – maybe it’s a lawyer’s version of a summer fling. Anyway, today I return to a central focus of this blog, ERISA and, in particular today, investment advisors and their potential liability as fiduciaries. This law firm newsletter, passed on by the Workplace Prof, has a nice discussion of the question of when a broker or other investment advisor to a defined contribution plan (and I suppose a defined benefit plan as well) crosses the line, by rendering professional services to the plan, into the dangerous realm of being deemed a fiduciary. The Prof highlights the following discussion from the newsletter:  

[T]here are lawsuits and NASD arbitrations claiming that brokers have become ERISA fiduciaries. They are, in the main, based on allegations that the brokers gave investment advice. The cases are usually filed by the plan sponsor or its fiduciaries (e.g., the responsible officers, the committee or the trustee) to recover investment losses. Some of those cases are won by the plans and others are won by the brokers. The legal issue is whether the broker made investment recommendations that rose to the level of ERISA-defined “investment advice,” which is different than either the securities law definition or the conversational meaning of those words. Stated slightly differently, ERISA did not make every broker a fiduciary, nor did it turn every investment recommendation into fiduciary advice. Instead, ERISA and the DOL regulations crafted a specific and limited definition of fiduciary investment advice.

This is a nice summary of the point addressed in the newsletter, but as one of my law school professors liked to say whenever someone stopped after the first part of a holding, you need to read on. When you go the newsletter itself, you find that the summary really reflects simply the holding under a particular, and detailed, set of facts from one particular case. And that is exactly as it should be. The determination of whether a particular broker or other financial advisor to a plan became a fiduciary as a result of investment advice rendered to the plan is highly fact specific, and should turn on exactly what events occurred in any one particular case. As a result, one neither can nor should jump to any particular conclusion about the fiduciary status – and accompanying potential exposure – of any particular broker or advisor (or of brokers or advisors as a class) from the newsletter, the case discussed in the newsletter, or the Prof’s post. Instead, it is important to analyze the status of a particular broker on the basis of the exact role played by that particular broker or advisor with regard to a particular plan.

Wow, don’t think Massachusetts’ health care reform law doesn’t dictate to employers what type of health insurance to provide, only in a more subtle way than the state of Maryland did with its Fair Share Act based – but unsuccessful, thanks to ERISA preemption- attempted bludgeoning of Wal-Mart? At the risk of picking a fight, which isn’t the reason I write this blog (trust me, with my practice, I have enough fights going on at any given time, without looking for one more), this seems to be what Brian King, over at his ERISA Law Blog, thinks. But it is hard to square that view with this article right here, from the Boston Globe today, explaining how the state’s largest health insurer has abandoned plans to offer employers the opportunity to provide employees with a healthcare plan involving only a 33% contribution by the employer, because of pressure from the state government, which wants higher contribution limits so as to better implement the state’s health care reform act.

Now I am not saying that a one third contribution by employers is what we should want, but there may well be businesses for whom that type of plan makes sense, and for whose employees it is a better option than whatever else the employer could afford. And there is little doubt, as you see in this article, that this is a choice that is being taken away from employers by state action, as a result of the health care reform act. In essence, the state is dictating higher employer contribution limits, apparently wanting them to be at 50% or better.

Now Brian’s post is about preemption, and whether the state act imposes the types of restrictions on employers that could render the act preempted. Requiring these higher levels of contribution by employers doesn’t necessarily mean the act is subject to ERISA preemption, but it is the kind of action that defeats the argument that the state’s health care reform act only minimally infringes on employers’ operation of their benefit plans and thus is not invasive enough to warrant preemption, an argument that I seem to see more and more when it comes to the Massachusetts health reform act.

The other thing about electronic discovery and the federal rules that was on my mind yesterday, as I mentioned in yesterday’s post, is emails, with the thoughts provoked by this article here on discovering emails from opposing parties. Now one mistake people often make when they are first confronted with the federal e-discovery rules is thinking that they govern and are really about the production of emails, and this mistake is understandable, given that nothing has become more ubiquitous in business life than email. But there is, with one exception, nothing special about email when it comes to the production of documents. Instead, as this article points out, emails should be seen as nothing more than correspondence or other types of routine business documents that must be produced if they concern the case; the easiest way to think about it is to view them as though they were letters, and think about whether they must be produced in the same way one would analyze whether a collection of letters is relevant and must be produced.

The only difference is, and this is where the e-discovery rules come into play, is that correspondence can only be produced if it physically was saved somewhere in a file; for cases involving events from some time in the past, it may well be the case that many letters have been discarded or were never kept, and thus they cannot be produced. For purposes of the litigation, it is as if they never existed, except and to the extent you can get someone to testify about their contents, and even then only if that testimony about the contents would be admissible. Otherwise, those letters may as well never have existed, at least for purposes of litigation.

And this is where email differs, because while someone may have long ago deleted emails from their own in-boxes, they may still exist elsewhere in a network or may be stored in back up formats. And what the electronic discovery rules essentially require is that, in that case, a party to litigation not treat the deleted emails as though they were discarded written correspondence, but instead go back into the computer system and the back up storage and either locate and produce those emails, or document that it would be just too dang expensive to do so. And the way the decisions applying the federal electronic discovery rules are going, I would expect it to be the first option, and wouldn’t count on successfully invoking the second. This, in turn, is why electronic discovery vendors and e-discovery lawyers are routinely advising companies now to be proactive when it comes to retention of such computerized information as emails, so that they are saved and sorted even in the absence of litigation, in a manner allowing their – relatively – easy access and searching if a lawsuit ever is instituted.

A couple of thoughts that are on my mind today about electronic discovery, concerning a couple of articles related to the subject. The first, which I will talk about today (I will return to the other tomorrow, assuming no breaking news pushes me on to a different topic) has to do with some comments in this article here, which concerns continued disputes over the existence in Massachusetts of a court session dedicated to business disputes, or to so-called complex litigation. For those of you who don’t practice in Massachusetts, the state court system here has a judge rotation system that, at a minimum, it is fair to say tends to seem somewhat unusual, at best, to out of state lawyers litigating here. Under the system, rather than having one judge assigned to a case from beginning to end, the judges rotate from courtroom to courtroom and often from courthouse to courthouse, while the cases stay put in the same courtroom (known here as the cases staying in a particular “session”), with the result that different judges preside over the same case at different times. There are historical reasons for this, and people, including me, have lots of strong opinions, both pro and con, about this system, none of which I will delve into here. The business litigation session, among other things, mostly is a change from this rotation system; for cases deemed to qualify for the session, they stay with the same judge, who sits continually in the business litigation session.

Okay, with the history and context lesson done, on to my point. In the article, the suggestion is made that one potential benefit of litigating a business dispute in the state’s business litigation court is avoiding the electronic discovery rules of the federal courts, where most parties, as long as they can obtain jurisdiction, are likely to file complex business cases. I don’t really think that idea is quite right. In the first instance, avoiding the electronic discovery rules doesn’t change the fact that, in almost every complicated business dispute, you are going to have significant issues related to discovery of electronically stored information. You are not going to avoid this by being in state court, but are only going to avoid the now applicable federal rules governing disputes over such data. The federal courts have far more resources to deal with extensive discovery disputes over these issues than do the state courts in Massachusetts, including, among other things, lower case loads per judge and access to magistrate judges to assign discovery disputes to. So it may well be that a party that is anticipating electronic discovery and the discovery disputes that inevitably accompany it and chooses the state court system for that reason will simply be inadvertently shooting itself in the foot if it elects state court for that reason. It is not avoiding such discovery, only the federal rules that govern it, while putting the issue before a court with less resources to handle it. And second, if there is federal court jurisdiction over the case, the idea of preferring the state court’s business litigation session for purposes of avoiding the federal electronic discovery rules only makes sense if all parties to the case agree to doing so – otherwise, the case is simply going to get removed to the federal court by the defendant. So I don’t really think that the existence of the federal electronic discovery rules is really an argument for the existence or use of the state court’s business litigation session.

I have a high school education in physics, but I seem to remember that physics teaches that for every action, there is an equal and opposite reaction. One of the things I like about insurance coverage litigation and counseling is it is much the same; things happen in the real (i.e., non-insurance) world, and the world of insurance coverage reacts. In this way, insurance coverage law and the industry itself act as almost a fun house mirror of events in the real world, mirroring, but with some distortion, what is going on out there.

This article here, on the insurance coverage issues raised by the use of leased workers, is a perfect case in point. On the one hand, you have the real world, in which companies seek to reduce labor costs by leasing workers, while on the other hand, you have a legal regime starting to fix the spot at which liabilities related to leased workers should rest. As the writer points out, these events require companies to realign their insurance coverages, or otherwise risk absorbing unexpected, uninsured, potentially significant losses.

The author addresses “a recent decision by Judge F. Dennis Saylor IV of the United States District Court in Massachusetts [that] raised a red flag for employers seeking to reap [the] benefits” of reduced costs by the use of leased workers. In the case at issue, an injured leased employee was not barred by Massachusetts’ workers compensation statute from suing the company that was making use of his services, but, at the same time, that company did not itself have coverage under its general liability policy for claims brought by such leased workers. The claim, as a result, essentially fell into the gap between workers compensation insurance and the company’s liability coverages, leaving the company itself fully exposed to the risk of injury to the leased employee.

And returning to my point about how insurance coverage and insurance policies end up reflecting back what is going on in the real world, the author explains the cause of this phenomenon, noting that:  

a CGL policy usually contains an “employer exclusion,” which excludes injuries to the employer’s employees sustained within the scope of their employment for their employer. The “employer exclusion” operates in a fairly straightforward manner when the injured employee was hired directly by the employer and is a traditional employee of the employer. The exclusion becomes more complicated when the injured worker is a person who was leased, furnished or provided to the employer by an employee leasing firm. Due to the popularity of this type of alternative staffing arrangement, the typical CGL policy includes provisions stating the exclusion applies to “leased workers.”  

So, at the end of the day, as companies shifted to leased workers, their insurers shifted right along with them, preventing the risks of those workers from being passed onto them, unless, as the author of the article points out, the company is willing to pay additional premium dollars to obtain coverage of those leased employees.

Here’s the Massachusetts Lawyers Weekly article on Partners Healthcare System v. Sullivan, the case I posted on a couple weeks back involving the question of whether preemption prevented the Massachusetts Commission Against Discrimination from taking action against Partners over its decision to allow benefits to be granted to its employees’ same sex, but not opposite sex, partners. It’s a good article that provides some nice context and background to the case. The Partners case is important to a certain extent, even if not doctrinally, because when you combine that case with Judge Gertner’s recent inquiry, addressed here, as to whether an employer could likewise limit benefits only to opposite sex, but not same sex, spouses, you see the complexities presented by trying to bring ERISA and state anti-discrimination laws into line with Massachusetts’ acceptance of same sex marriages.

Well, not really. More like an argument for a little healthy skepticism when it comes to the subject of patent reform, which as pitched on blogs, in the popular media and elsewhere, really consists of proposals directed at two themes: reducing or at least discouraging the filing of patent infringement lawsuits, and restricting the ability to patent things that are not really advances at all. Now I am all for efforts to tighten the standards for patenting supposedly new discoveries, to more effectively limit patents to developments that are really innovative and not obvious, and anyone who has read my comments in this BNA article here knows I am a bit of a skeptic when it comes to the idea of broadly allowing patenting of business methods or other supposed advances that, frankly, just may not be all that unique or imaginative. And to some extent, we are already seeing a judicial response to this problem, as we see in the Supreme Court’s KSR ruling that makes it harder to maintain patents that do not reflect real innovation and advances in a particular art.

And I don’t necessarily even have a problem with pitches being made by the wealthier part of the tech industries that the patent laws be shifted to protect them against suits by inventors, or licensees, who do not manufacture but are instead simply holders of patents allegedly infringed upon by the manufacturers, such as argued for in this post here by the general counsel of Sun, although I think there should be a high bar for triggering such protections, namely proof, first, of real diligence by the alleged infringer in determining prior to manufacture whether there may be patents out there covering some aspect of the manufactured product and, second, of legitimate efforts by the manufacturer to license any such patents at fair market value.

But what we should be skeptical about is allowing some legitimate ideas for improving the patent system to be used as cover, almost as a Trojan horse, for what may well be a less legitimate goal of simply protecting large companies from smaller companies and even from lone inventors, which is what many people fear they are really hearing when someone with a vested interest in reducing patent infringement claims uses the term patent reform, and we should be very cautious when it comes to changes that reduce the incentives for the little guy or woman, even the lone tinkerer in a garage, to invent something. And the reason for this is right here, in this article about amateur inventors coming close to or bettering the best work of NASA and the large industrial companies that supply it.

Worried about jobs going overseas, about engineering and drug manufacturing going to India, about products being manufactured in China? The best defense against those events impoverishing the American economy is the kind of invention and developments of new products and ideas that the patent system encourages, and of the kind that is reflected in this article.

Here’s a great story out of Boston, by means of the Workplace Prof, that touches on several obsessions of this blog – ERISA, the federal arbitration act, and court review of arbitration awards. As the Prof explains in this post here, a federal judge for the District of Massachusetts is seeking amicus briefs related to whether or not the court should affirm or instead vacate an arbitrator’s finding that an employer could limit ERISA governed health insurance benefits provided to employees’ spouses only to spouses of the opposite sex. The arbitrator had determined that the benefits were collectively bargained for and that the limitation was appropriate under the collective bargaining agreement.

Now, presumably, the matter is before the District Court here on a motion by the losing party in the arbitration to vacate the award, given that the court is asking for amicus to address the question of whether the arbitration award and the employee benefit plan approved of by the arbitrator violate a clear Massachusetts public policy, given the state’s protection of same sex marriages. The court is inquiring as well into the question of whether that public policy, if it can trump the arbitrator’s award and thereby justify setting aside the arbitration award, is itself trumped by ERISA preemption, with the result, presumably, that the benefits offered by the employer have to be left as is.

There aren’t many states where this issue could really come into play, one would think, although I don’t know how many other states other than Massachusetts allow gay marriage, and thus can have employee spouses who are not of the same sex. Beyond that, the court’s response shows a serious involvement by the court in the question of whether an arbitration award was proper, which I have argued before in this blog is the appropriate approach of a court presented with a challenge to an arbitration award. While one might say the court is really reaching out quite far to address this issue, more than one would normally expect from a district court judge, I will take that any day over the situation I have noted in other posts on this blog, where judges sometimes seems to simply reflexively approve arbitration awards, or at least start with some sort of barely rebuttable presumption that the award should be upheld, both of which are approaches that I do not believe are justified under the Federal Arbitration Act. In addition, it is not particularly out of the norm in this particular federal district to reach out for help from the legal and business community in this way in this type of a case, as I can recall other judges in this district requesting amicus briefs on difficult questions involving the interplay of ERISA and federal or state anti-discrimination laws. Moreover, other judges, as discussed in this post of mine from a little while back, in this district are likewise continuing to struggle with the impact of ERISA on employers as they try to figure out how to structure their employee benefits when it comes to spouses, partners and other dependents, in this brave new world we live in here in the Commonwealth of Massachusetts.

Incidentally, the underlying arbitration award is one that I discussed here, in this post, some time ago, in case you want to know more about the underlying controversy.