Patent Litigation Development for Manufacturers: U.S. Supreme Court Limits where Corporations can be Sued for Patent Infringement

This week, we are pleased to have a guest post from James Nault, a patent attorney and member of Robinson & Cole LLP’s intellectual property litigation group.

The United States Supreme Court just limited where corporations can be sued for patent infringement in a case called TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341 (U.S. May 22, 2017).  Manufacturers sued for patent infringement are now more likely to fight those fights in their home venues.

Case Background

Kraft sued TC Heartland, an Indiana-based and incorporated manufacturer of flavored drink mixes, for infringement of one of Kraft’s patents in the federal district court in Delaware.  TC Heartland moved the court to either dismiss the case or to transfer it to a federal district court in Indiana, which the Delaware court could have done.  But the court refused to do so, citing a case from the U.S. Court of Appeals for the Federal Circuit, which hears all patent appeals, which held 30 years ago that a corporation can be sued for patent infringement wherever it is subject to personal jurisdiction.

A complete discussion of all of the rules regarding personal jurisdiction is beyond the scope of this post, but basically because TC Heartland regularly shipped it products into Delaware, the court ruled that they could be sued there, which comported with the Federal Circuit’s rule.  TC Heartland appealed to the Federal Circuit, asking them to order the district court to transfer the case to Indiana, but the Federal Circuit refused.  So TC Heartland petitioned the Supreme Court to take the case, which they did.

The Supreme Court’s Opinion

The Supreme Court, in a unanimous opinion authored by Justice Clarence Thomas, reversed the Federal Circuit and held that the rule the Federal Circuit had announced 30 years ago, which greatly broadened where a corporation could be sued, is wrong.  Justice Thomas cited a 60-year-old U.S. Supreme Court case called Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), which had definitively interpreted the special federal statute governing venue in patent infringement actions to mean what it says, which is that “[a]ny 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” [note:  a corporate defendant can also be sued in a venue if it consents to being sued there].

The Federal Circuit had held, using a separate statutory section governing venue generally, that where a corporation resides is wherever it is subject to personal jurisdiction, basing that holding on amendment to the general venue section.  But the Supreme Court has now rejected that idea, holding that where a corporation resides is only where it is incorporated.

That rejection was foreshadowed by Chief Justice Roberts at oral argument when his first question to Kraft’s counsel of record was “Is Fourco still good law?”  In other words, if Fourco is still good, then the Federal Circuit’s contrary rule could not be right.  TC Heartland’s Counsel of Record Jim Dabney had argued that Fourco is indeed still good law, and that an amendment to the general venue section could not alter the more specific patent venue section, and the Supreme Court has now agreed.

Why it Matters for Manufacturers

This case is important for manufacturers because the Federal Circuit’s expansive broadening of where a corporation could be sued for patent infringement meant that corporations were often sued far away from their headquarters state or where they were incorporated.  It also made possible the rise of the Eastern District of Texas, now the most popular venue for patent infringement actions in the country [a place where our firm has defended clients on several occasions], which has plaintiff-friendly special patent rules which make out-of-state defendants particularly vulnerable.  TC Heartland should return much patent litigation back to where a manufacturer is incorporated or where it has its major manufacturing center, i.e. on its home turf.

“Manufacturing” Law: Courts Also Move to Fill the Void

Last month, I wrote that in the absence of significant Congressional action on the labor and employment front, states and cities are increasingly willing to take steps to improve employment protections.  Some courts appear willing to join in – challenging longstanding precedent and finding protections and safeguards not previously recognized.

Four separate decisions in the span of 54 days demonstrate this trend.

The landmark Civil Rights legislation of the 1960’s, Title VII of the 1964 Civil Rights,  banned discrimination on the basis of race, color, religion, sex or national origin.  Title VII did not expressly ban discrimination on the basis of sexual orientation or trans-gender status.  While some state discrimination laws prohibited discrimination against gays and lesbians, virtually every court to look at the issue held that Federal law did not.  Typical of such decisions was the holding of the Eleventh Circuit Court of Appeals in Evans v. Georgia Regional Hospital (March 10, 2017).

Seventeen days after the Eleventh Circuit’s Evans decision, the Second Circuit Court of Appeals reached similar conclusion as “binding” precedent, but strongly criticized it.  Christiansen v. Omnicom Group Inc.  (March 27, 2017).  Eight days after Christiansen, the Seventh Circuit addressed the issue in Hively v. Ivy Tech Community College (April 4, 2017) and concluded that discrimination on the basis of sexual orientation was no less discriminatory than discrimination on the basis of gender.  Finally, a month later, a lower New York federal district court followed suit, holding that Title VII banned sexual orientation discrimination.  See Philpot v. State of New York, et al.(May 3, 2017).

The dizzying speed in which these decisions were issued could herald a major shift in the law – or not.  We likely will not know the outcome until the United States Supreme Court resolves the issue.  Until then, manufacturers seeking to stay compliant with the challenging legal landscape should conduct periodic reviews of workplace policies and err on the side of caution.

“Take-Home Toxins” Expand Duty of Care Imposed on Employers

Thank you to my colleague, Diana Neeves, for this post. Diana is an associate in our Environmental & Utilities Practice Group.

A federal district court in Pennsylvania recently found that Accuratus Corporation (“Accuratus”), a ceramics manufacturer and supplier, could be liable under New Jersey law for chemical exposure injuries to the girlfriend and roommate of an Accuratus employee.

Ms. Schwartz dated an Accuratus employee between 1978 and 1980 and lived with this employee for some time in 1980. She allegedly suffers from chronic beryllium disease, which she believes was caused by exposure to beryllium brought home by her boyfriend.

The law governing employers’ liability for injuries caused by exposure to toxins brought home by workers varies by state and has typically been limited to liability for injuries to a worker’s spouse, a “foreseeable victim.” Although state courts have been more apt to recognize the employer’s duty to prevent take-home exposures in recent years, others continue to reject this extension of liability.

Previously under New Jersey law, take-home exposure liability was construed somewhat narrowly in light of concerns about “considerations of fairness and policy” and “limitless exposure to liability.” For instance, in Olivo v. Owens-Illinois, Inc., the New Jersey Supreme Court found that Exxon Mobil Corporation owed a duty to its employee’s spouse “based on the foreseeable risk of exposure from asbestos borne home on contaminated clothing” and the typicality of a wife “laundering the work clothes worn by her husband.”

In 2016, after the initial dismissal of Ms. Schwartz’s case and her subsequent appeal, the New Jersey Supreme Court reviewed whether the employer’s duty set forth in Olivo could extend beyond the employee’s spouse. The Court held that it could, noting that, while this duty has never been extended outside the context of an employee’s household, the class of persons to which the duty may be extended need not be categorically defined. Instead, the Court called for a case-by-case analysis that considers the relationship of the parties, the opportunity for and nature of the exposure, and the employer’s knowledge of the dangerousness of exposure.

Applying this analysis on remand, the federal district court found that the nature of beryllium as a toxin “known to travel on clothes to workers’ homes [that] can remain dangerous in the home for some time, and importantly, can cause serious damage with only minimal exposure,” taken together with the relationships of the parties in this case, was sufficient to generate a duty. In so finding, the Court explained:

“As a simple fact of human life, an employer must reasonably foresee that virtually all of its employees live with or have repeated close contact with someone, unless there is good reason to believe that its employees are disproportionately hermits and loners… [And this] reality means it may be reasonably foreseeable to a Defendant employer working with a particularly insidious toxic substance that material carried home on an employee’s clothes may harm someone at that home who is a frequent overnight guest and romantic partner or roommate sharing living space and housework.”

This case serves as a reminder to manufacturers that their duty of care may extend beyond their own employees. In order to satisfy that duty of care, manufacturers undoubtedly will consider the materials used and the universe of potential exposures to those materials in developing an appropriate protocol to ensure that workers—and anyone with whom a worker may have close contact—are protected.

The case is Schwartz v. Accuratus Corporation, Civil Action No. 12-6189 (E.D. Pa., Mar. 30, 2017).

States (and Cities) Rush In Where Congress Fears to Tread

Some manufacturers may interpret the “Epic Fail” of Congress to repeal the Affordable Care Act as a sign of stability in the labor and employment landscape.  After all, one thing which the new Administration and Congressional Republicans had in common was their seven-year pledge to repeal “Obamacare.”  When compared to the divergent views on other controversial measures – minimum wage, overtime regulations, and the overhaul of the tax code – repeal of the ACA looked like “low hanging” fruit.  The failure to pick that plumb suggests reform of federal employment and labor laws will not occur anything soon.

But cities and states appear willing to act in areas where Congress may not be able.  This “patchwork” of local standards threatens to make the task of compliance by manufacturers and others a full-time job.

For example, New Jersey is considering an amendment to the state’s paid leave law to expand the scope of benefits.  Because the state pays covered employees through its insurance system, funded by employee contributions, the adoption of this amendment likely will not impact manufacturers directly.  The same cannot be said for two proposed New Jersey bills (one in the State Assembly and one in the State Senate)  which would make it unlawful to take adverse employment action against employees for their use of medical marijuana

Similarly, Texas adopted a state law prohibiting employers from considering an applicant’s credit history unless that history is substantially related to employment.

States are not the only entities taking action to expand employee protections in the absence of federal legislation.  The City of Los Angeles recently adopted new regulations restricting the use of criminal arrest and conviction records.  The Los Angeles regulations mirror the approach adopted by the Federal Equal Employment Opportunity Commission (and possibly could have been adopted in anticipation of a change in federal law).  The City of Seattle adopted the “Secure Schedule” Ordinance – a complex regulation requiring covered employers (retail establishments employing 500 or more employees anywhere and full service restaurants employing 500 or more employees and hosting 40 or more locations anywhere) to provide good faith estimates of work schedules, engage in an “interactive process” when scheduling employees, and offer additional hours to current employees before hiring others.  While less complex and burdensome, the City of San Jose adopted its own “Opportunity to Work” Ordinance.  Covering employers employing 35 or more employees within the city, the Ordinance requires employers to offer additional work hours to current employees before hiring additional persons (including subcontractors, staffing agencies or temporary services agencies).

Manufacturers should be cognizant of proposed legislation at the state and local level.  Manufacturers with operations in multiple jurisdictions need to be especially vigilant as their HR policies could get caught up in a increasing complex web of local regulation.

A Contract Provision Often Overlooked By Manufacturers

Most manufacturers scrutinize indemnification clauses in contracts to determine what liability they might be taking on if something goes wrong in a transaction or sale.  A typical indemnification clause will also provide that the party that indemnifies the other must pay that other party’s legal fees if a lawsuit is brought by a third party.

Over the past several years, however, there is a growing trend in business to business disputes that warrants attention.  Companies are starting to use these indemnification clauses (and their requirement that the other side pay fees) in direct actions against the other contracting party.  For instance, imagine that your customer alleged that you breached their supply contract and then demanded not only damages under the contract but that you have to pay their legal fees in suing you!

Unfortunately, absent some language prohibiting such an argument, the courts are split on this issue.  In New York, for instance, the courts have held that the parties are responsible to pay their own fees absent clear language in the contract to the contrary.  Other states, however, take the opposite approach and impose the requirement that the contract must limit indemnification to “third party” claims.

For that reason, we have developed specific language that we include in manufacturing contracts that provides that intra-party claims are not covered by the indemnification provision.  If you have any questions on this topic, please feel free to contact me at jwhite@rc.com.

 

Top 10 OSHA Violations of 2016

Every year, OSHA releases a list of the 10 most frequently cited violations, which, for 2016, were accumulated by reviewing the nearly 32,000 workplace inspections conducted by OSHA staff. The list for 2016 looks a whole lot like the list for 2015 and the preceding years. As OSHA notes, “it rarely changes.” The top 10 violations for 2016 were:

  1. Fall protection
  2. Hazard communication
  3. Scaffolds
  4. Respiratory protection
  5. Lockout/tagout
  6. Powered industrial trucks
  7. Ladders
  8. Machine guarding
  9. Electrical wiring
  10. Electrical, general requirements

While this list might not look new, it is a good reminder of the issues OSHA will focus on during its next inspection. As we previously reported, the fall protection standards for general industry were recently revised to allow for greater flexibility by allowing a variety of fall protection measures in different circumstances, so manufacturers may want to inform themselves of these new options.

Other violations on this list often arise out of insufficient planning, communication, and/or training. By implementing and carrying out better training and communication, manufacturers may be able to reduce the likelihood of any number of the violations on this list.

Keurig Settlement An Expensive Reminder About Product Defect Reporting Obligations

This week, we welcome a post from Jim Ray, a partner in the Hartford office of Robinson & Cole LLP.  Jim’s practice includes environmental and product liability litigation and counseling, and he has assisted a number of clients implementing voluntary corrective actions under the CPSC Fast Track recall program.

The United States Consumer Product Safety Commission (CPSC) recently announced a $5.8 million agreement with Keurig Green Mountain, Inc. settling claims that Keurig failed to report a product defect that posed an unreasonable risk of serious injury to consumers.  The CPSC alleged that Keurig’s MINI Plus Brewing Systems could spray users with hot water, coffee, and coffee grounds.

Between 2010 and 2014, Keurig received about 200 reports of hot water and coffee spraying out of the machines, more than half of which resulted in injury.  A number of users sought medical treatment for severe burns, one was seen by a plastic surgeon, two had facial scarring, and one had an eye injury.  In two instances, retailers asked Keurig to conduct a product safety investigation.

It was not until June 2014 that Keurig initiated an investigation of the brewers.  However, Keurig did not submit a full report with the CPSC until the end of November 2014.  In December 2014, Keurig and the CPSC jointly announced a recall of more than 6 million brewers.

Section 15 of the Consumer Product Safety Act (CPSA) requires manufacturers, distributors and retailers of consumer products to immediately notify the CPSC when they learn that a product, among other things, “contains a defect which could create a substantial product hazard” or “creates an unreasonable risk of serious injury or death.”  A product defect can create a substantial product hazard when it poses a substantial risk of injury to the public.  In evaluating this, the company should consider the number of products in commerce, the pattern of the defect, and the severity of the potential injuries that could result.  Section 37 of the CPSA, though not implicated in the Keurig matter, also requires reporting to CPSC when at least 3 lawsuits have settled or gone to judgment in favor of the plaintiff in a 24 month period in which allegations were made that use of a product resulted in death or grievous bodily injury.  The CPSA provides for penalties of up to $100,000 per violation for knowing violations.

The CPSC alleged that Keurig failed to notify CPSC despite having “information reasonably supporting the conclusion that the Brewers contained a defect and created an unreasonable risk of serious injury.”  The CPSC also alleged that once Keurig initiated an investigation to evaluate its reporting obligations, it took more than 4 months to complete it (considerably longer than the 10 days CPSC considers reasonable.)  Keurig denied the CPSC’s allegations, claiming that the voluntary recall was done out of an abundance of caution without the firm having concluded that the product contained a defect or posed an unreasonable risk of injury.

The Keurig case serves as reminder to those manufacturing, distributing or selling consumer products of the serious nature of product defect reporting obligations.  Those entities should also be aware of the CPSC Fast Track recall program, under which companies can quickly implement a corrective action program to remove potentially unsafe products from the marketplace.  For those companies considering such a recall, CPSC will provide significant assistance and will refrain from making a preliminary determination that the product contains a defect that creates a substantial product hazard.

Surpassing Even My Expectations, Predictions Come True

Last month, in my “Manufacturing Law Predictions for 2017: Labor and Employment” posting, I wrote:  “Expect at least some high-profile workplace ‘raids’ to round up undocumented workers and substantial fines on the employers which have hired them.”  On Monday, the Department of Homeland Security announced that it had concluded the round-up of 680 undocumented workers in multiple states.  “680 Immigrants Arrested in Week-Long Roundup, DHS Chief Says.”  While these arrests do not appear to have targeted manufacturers or other employers hiring undocumented workers, backlash from civil rights and other advocacy groups likely will pressure the administration to punish those companies profiting from such unlawful hiring.

This would be a good time for manufacturers and the subcontractors which supply services to them to make sure their own paperwork is all in proper order.

 

Lawsuit Proceeds Against Monsanto for Manufacture of PCBs

Last year, we told you about a lawsuit brought by three California cities against Monsanto Company, alleging that Monsanto is liable for PCB (polychlorinated biphenyl) contamination in San Francisco Bay. The cities—San Jose, Berkeley, and Oakland—sued Monsanto for allegedly creating a public nuisance not by discharging PCBs, but just by manufacturing them.

In September 2016, the court dismissed the suit, holding that the cities had not alleged a property interest in the contaminated water in question, a requirement of California public nuisance law. However, the court allowed the cities to amend their complaint, and the cities took advantage of that opportunity.

The cities filed an amended complaint, setting forth their property interest in the water in greater detail. Once again, Monsanto moved to dismiss the complaint. This time, however, Monsanto was not successful. Not only did the court hold that the cities sufficiently alleged a property interest in the water, but it held that the cities had adequately pled that Monsanto caused the nuisance.

In their amended complaint, the cities allege that “Monsanto knew PCBs were dangerous, concealed that knowledge, promoted the use of PCBs in a range of applications, and gave disposal instructions that were likely to cause contamination.” The cities allege that Monsanto provided an incinerator for the disposal of liquid PCB waste, but it just instructed customers to dispose of solid PCB waste in “a well operated, properly operated landfill . . . .”

Monsanto countered these allegations noting that there were no regulations at the time to prevent disposal of PCB waste in landfills, and that its recommendations regarding disposal were not mandatory. Despite that, the court found that the cities allegations were “sufficient to show a causal connection between Monsanto’s actions and the alleged public nuisance.”

Monsanto further argued that any alleged contamination was caused by third parties who were actually responsible for the disposal of the PCBs. The court disagreed. According to the court, under California law, third party actions do not preclude Monsanto’s liability if the acts are “reasonably foreseeable, and should have been anticipated.” And, based on the cities’ allegations, widespread PCB contamination was reasonably foreseeable. In addition, the court distinguished other cases in which manufacturers were not held liable by noting that the cities allege that Monsanto is directly liable for the nuisance because they gave improper disposal instructions.

Ultimately, the court denied Monsanto’s motion to dismiss, but granted Monsanto the opportunity to file another motion to dismiss or stay the case based solely on whether the cities had exhausted their administrative remedies.

Unfortunately for manufacturers, this case is not an anomaly. There is a growing trend in the pursuit of public nuisance claims against manufacturers, in part as a way to side-step traditional products liability laws. And with this victory, plaintiffs may gain some traction—at least for now—to pursue similar claims against other manufacturers.

The cases, pending in the U.S. District Court for the Northern District of California, are City of San Jose v Monsanto Co. et al., No. 5:15-cv-03178; City of Oakland v Monsanto Co. et al., No. 5:15-cv-05152; and City of Berkeley v. Monsanto Co. et al., No. 5:16-cv-00071.

What Will 2017 Bring For Manufacturers: Environmental, Health & Safety Edition

This post is the last in our three-part series about what manufacturers can expect in 2017. In my humble opinion, we saved the best for last – Environmental, Health & Safety.

Citizen Science

With increasing awareness of environmental issues and advancing monitoring technologies comes a rise in citizen science. Citizens—be it a single person or a community group—are increasingly relying on their own data and devices to evaluate a host of environmental and product issues. Readily available and portable monitoring technology allows citizens to test the air at a factory fence line, water discharges, even product contents, in a quick and efficient manner.

While many citizens are not actually using this data to bring lawsuits, they are at least using it to for screening purposes. The citizen-gathered data may lack the reliability that comes from professionally collected data, but it is not entirely inaccurate. At the very least, citizens are and will continue to use this data as a negotiating tool, and it may lead to the collection of further—and more reliable—data that may be presented to a government agency or used against manufacturers in a lawsuit.

Novel Theories of Liability for Manufacturers

We all know that there is an extensive network of environmental laws in the United States that, for a number of environmental problems, defines unlawful behavior, the liable parties, and even the policies and procedures to remedy a potential problem. But when that network of environmental laws does not provide a satisfactory solution, public entities have not hesitated to turn to alternative methods to protect human health and the environment. We have previously reported on the cases being advanced by a number of west coast cities against Monsanto Company, alleging that Monsanto created a public nuisance solely by manufacturing polychlorinated biphenyls (PCBs). And a California court has already held lead pigment manufacturers liable for creating a public nuisance by manufacturing lead pigment, which was subsequently used to manufacture lead paint, which was subsequently used in buildings throughout the state.

If the laws and regulations do not provide a mechanism to bring a claim against a manufacturer, the question of legal liability will not stop there. In 2017, we can expect manufacturers to be subject to claims for liability, perhaps from where we least expect it.

Increased Visibility of Violations, Worker Injuries and Illnesses

It is 2017, and the federal government is finally making its way into the digital age. Across the board, more agencies are requiring electronic submission of information, and they also plan to publicize this information electronically. From environmental permit monitoring requirements to Occupational Safety and Health injury and illness reports, 2017 will usher in increased visibility of a company’s data and information. The agencies have all announced varying rationales for this increased transparency, from nudging business towards better health and safety practices to increasing public outcry. But whatever the motive, with increased information will likely come increased enforcement.

Rise of NGO Enforcement

It goes without saying that it is hard to crystal ball where we will be in the regulatory arena a year from now. Just yesterday, President Trump signed an executive order announcing that, for every new regulation, any agency must identify at least two existing regulations to be repealed. While we have yet to see this order implemented, it is clear that this administration is intent on reducing regulations across the board.

A reduction in regulations, however, will not necessarily mean a lack of enforcement; it may just mean a change in the enforcer. Since Trump’s victory, money has been pouring in to non-governmental organizations (NGOs) aimed at protecting the environment. These organizations may face legal challenges in the face of a lax regulatory environment, but we can expect them to get creative with novel legal theories to protect the environment. And while many of these theories will likely be advanced against the current administration, the business community will be part of the mix as well.

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