September 2014 Legal Brief – Firm Newsletter
Posted: September 12th, 2014
News (All)
Follow Up on Push for Trade Secret Litigation
Posted: August 22nd, 2014
Tags: intellectual property
Earlier this year, a new bill was introduced in Congress seeking to add a federal civil cause of action for trade secret theft. With the most recent bill introduced by a bi-partisan coalition in the House, there appears to be momentum for the passage of federal trade secrets legislation this fall.
The proposed new legislation would permit a trade secret owner to bring a civil action in federal court for the theft or misappropriation of a trade secret. Currently, the Economic Espionage Act only authorizes federal actions by the Attorney General, not private parties, and plaintiffs are left to bring trade secret claims in state court.
Because companies conduct business across multiple states, there are inconsistencies and differences as to their interpretations of certain key issues across the state, such as the definition of a trade secret, what are reasonable measures to secure the secrecy, damages, and the statute of limitations. Further, although the Uniform Trade Secrets Act (UTSA) has been adopted by all states, except Massachusetts and New York, some courts have differing interpretations of the UTSA. In sum, a bill to provide uniform trade secret protection and federal remedies across the United States is needed.
On July 29, 2014, the House introduced a bill similar to the Senate’s “Defend Trade Secrets Act of 2014″ entitled the “Trade Secrets Protection Act of 2014.” The House bill tracks the Senate bill, but there are only a few notable differences. First, it does not permit a civil claim under the Economic Espionage Act, but permits a civil claim for “misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce.” Also, it clarifies that it only covers misappropriation actions that occur on or after it is enacted.
There does not appear to be much opposition by the Senate to the House’s version of the trade secret bill. Therefore, we should expect to see some activity on the bills in early September.
In addition, the large number of companies and organizations in favor of the legislation, which includes IBM, 3M, Adobe, Boeing, Microsoft, Honda and DuPont, have generated a positive push for the bill.
Having a unified and harmonized law to address the discrepancies in trade secrets law will put trade secrets on the same level as patents, trademarks and copyrights. Progress of this bill through Congress will be closely monitored and followed.
Broadcast Networks Prevail in Aereo Suit
Posted: August 22nd, 2014
My January blog post reported that the Supreme Court had recently agreed to hear the case American Broadcasting Co. v. Aereo, focusing on the dispute between television broadcasters and Aereo, a start-up that distributed broadcast signals through a network of small antennas in a “cloud.” Subscribers, who paid between $8 and $12 per month, could use the service to record shows and watch live and recorded programming from their mobile devices.
When the Supreme Court heard the case in April 2014, the networks argued that Aereo (and the other start-ups that were sure to follow) threatened retransmission fees – a vital source of revenue paid to networks and their local stations by cable and satellite subscribers for access to their signals and the right to retransmit their programming. Since annual retransmission fees reach into the billions for broadcast networks, the networks did not take the threat lightly, claiming they might be forced to block access to their signals if the Court found in Aereo’s favor. Aereo’s business model, they argued, is the sale of “public performances” of copyrighted work without permission of the copyright owner.
Aereo countered that their service was today’s rabbit ears antenna, allowing subscribers to watch free broadcast television on their own schedules. The Second Circuit had agreed with Aereo’s position in an April 2013 decision, finding that “Aereo’s transmissions of unique copies of broadcast television programs created at its users’ requests and transmitted while the programs are still airing on broadcast television are not ‘public performances’ of the [networks’] copyrighted works.”
The Supreme Court did not see it that way. In its June 25, 2014 decision, the Court found that Aereo’s resemblance to traditional cable companies was “overwhelming,” and that Aereo’s service conflicted with copyright law requiring the copyright owner’s permission for a public performance of the protected work. “Performance” includes retransmission to the public, and the Court was not swayed by Aereo’s argument that its retransmission was private due to the nature of the technology. The Court found that because of the service’s “overwhelming likeness” to a cable company, these technological differences were inconsequential.
Aereo suspended service shortly after the Supreme Court decision, but is now seeking to reinstate service in certain states based on theories it claims stem from the Supreme Court decision. They are unlikely to find sympathy with the broadcast networks. CBS chief executive Leslie Moonves was quoted in the New York Times following the Supreme Court decision: “For two years they have been in existence, trying to hurt our business. They fought the good fight. They lost. Time to move on.”
Sources and for additional information:
Liptak, Adam and Emily Steel, “Aereo Loses at Supreme Court, in Victory for TV Broadcasters.” New York Times, June 25, 2014. Accessible athttp://www.nytimes.com/
“Aereo Suspends Service After U.S. Supreme Court Ruling.” CBS News, June 28, 2014. Accessible at http://www.cbsnews.com/
New Pregnancy Guidelines Issued by EEOC
Posted: August 14th, 2014
By Christine Malafi
Last month, the Equal Employment Opportunity Commission (EEOC) issued its written Enforcement Guidance on Pregnancy Discrimination and related issues. The Guidance, provided in the context of the Pregnancy Discrimination Act (PDA) and the Americans with Disability Act (ADA), supersedes the EEOC’s prior writings from 1983 and 1991, and applies to all employers with more than fifteen employees.
During the last 16 years, pregnancy discrimination charges filed with the EEOC have substantially increased—3,900 such charges were filed in 1997 and 5,342 such charges were filed in 2013. Discrimination is usually based on unfounded beliefs that pregnant women are not physically capable of working or that working may harm a fetus. The EEOC has clearly stated that employees cannot be discriminated against because they are, may be, intend to be, or were pregnant. Promotions cannot be denied to an employee because she may become pregnant in the future. Pregnant employees cannot be excluded from performing job duties (i.e., handling certain chemicals) out of an employer’s fear that the fetus may be harmed. Further, the same parental leave policies must be available to both male and female employees.
Pregnancy-related conditions may be disabilities under the ADA, and will require the granting of reasonable accommodation, such as granting more frequent breaks, keeping a bottle of water nearby, using a stool, modifying work schedules to accommodate morning sickness, and/or altering how job functions are performed. While a “normal” pregnancy does not constitute a disability under the ADA, it is a serious health condition under the Family Medical Leave Act (FMLA), entitling a pregnant employee to FMLA leave. The EEOC Guidelines address the “middle” ground, and state that employers must reasonably accommodate a pregnant employee with light duty or modified assignments, even when there is no pregnancy-related condition which can be considered a disability. This is a controversial issue, one that is pending before the United States Supreme Court, in the case of Young v. United Parcel Service, a case where a pregnant worker was denied light duty assignment because her doctor told her not to lift heavy packages. She claims that UPS told her that light duty was only available to employees with job-related injuries or to those disabilities recognized under the ADA.
Additionally, the new Guidelines find both breast-feeding and lactation are pregnancy-related medical conditions for which employees must be permitted to address in the same way as other limiting medical conditions. Therefore, an employer whose policies permit schedule changes or use of sick leave to attend doctor appointments or to address medical conditions must permit employees to utilize those policies for breast-feeding and lactation issues.
As before issuance of the Guidelines, an employee’s pregnancy, childbirth, or related medical condition cannot be a motivating factor in an adverse employment action. Employment policies should not include any policy that treats pregnant workers less favorably or demonstrates pregnancy bias. Policies should not more favorably treat employees (of either sex) who are not affected by pregnancy, but who have similar ability or inability to work. The Guidelines still permit neutral employment policies or practices which do not have disparate or disproportionate impact on pregnant employees, where it may be shown that they are job related and consistent with business necessity.
Due Process Upheld for Physicians Targeted for Termination from Medicare Advantage Plans
Posted: August 9th, 2014
Tags: healthcare
Physicians who receive termination notices from insurers should learn about their rights from a recent case brought by the Fairfield County Medical Association.[1] On February 7, 2014, the Second Circuit Court of Appeals upheld the District Court’s injunction[2] enjoining United Healthcare (“United”) from: 1) terminating affected physicians in its Medicare Advantage program; 2) notifying customers that the affected physicians would be terminated from the network; and 3) compelling United to reinstate, advertise, and market the affected physicians in its 2014 Medicare Advantage Network directories.[3]
The District Court for the District of Connecticut classified its preliminary injunction as one in “aid of arbitration,” since the United provider contracts clearly required physicians to submit disputes to binding arbitration. Those arbitrations are pending.
Background
The Fairfield County Medical Association commenced this litigation on behalf of the affected physicians. Throughout October 2013, United notified 2,200 physicians that their Medicare Advantage provider contracts would expire on February 1, 2014. United’s abrupt unilateral termination of these contracts risked causing significant disruption to patient care and the affected physician practices, and the physicians fought back.
The primary issue focused on whether United’s actions constituted an “amendment” to physician contracts or a “termination” of those contracts. Under the provider contracts, United had broad discretion to amend contract terms upon 90 days written notice, but terminations without cause triggered a longer timeline for resolution. United claimed it simply “amended” the provider contracts at issue, while the affected physicians asserted that United unilaterally and unlawfully terminated their contracts.
Medicare Advantage provider contract terminations are governed by 42 C.F.R. § 422.202(d), and they provide several due process guarantees for providers facing termination. Before terminating a physician from a Medicare Advantage plan, an insurer must provide:
- Written notice;
- If relevant, standards and profiling data used to evaluate the physician and the numbers and mix of physicians needed by the insurer;
- Notice to the affected physician of her right to appeal and the process and timing for requesting a hearing.[4]
Notably, 42 C.F.R. § 422.202(d)(4), requires a Medicare Advantage insurer to provide a minimum of 60 days written notice before terminating a physician contract without cause. However, the United Medicare Advantage contracts at issue required United to send written notice by certified mail to a terminated physician at least 90 days prior to the anniversary date of a physician’s agreement. Deadline calculation using the contract anniversary date provided more time in most cases for physicians to adjust than United’s October notices provided.
For other insurance plans, New York physicians receive protection under Public Health Law § 4406(2)(a). That section is similar to 42 C.F.R. § 422.202(d), in that it requires insurers to first provide written notice to the terminated physician, which must include an explanation of the reasons for the proposed termination. Physicians also have a right under this statute to challenge the determination decision at a hearing before a panel that includes clinical peers.
Lessons
The lesson learned from the Fairfield County case is that despite insurers’ efforts to shrink their networks, federal courts will not credit strained arguments that mass terminations constitute “amendments” to provider contracts. Further, the courts will enforce the conflict resolution provisions contained within the plain language of provider contracts. In most cases, provider contracts contain provisions creating administrative hearing procedures, in addition to requirements to submit unresolved disputes to binding arbitration. Providers should routinely review their provider contracts with insurers in order to understand the prescribed remedies if they receive a termination notice.
Both federal[5] and New York State Law[6] protect physicians from insurer termination based solely because a physician has advocated on behalf of a patient, appealed an adverse coverage decision, or has filed a complaint against a health care plan. Insurers may resort to pretextual “without cause” termination clauses if possible, so physicians are well advised to seek counsel to review the underlying events leading up to a termination. Courts have entertained physician lawsuits against insurers alleging breach of an implied duty of good faith and fair dealing as well as for unjust enrichment.[7]
Insurers will continue to shrink provider networks, and physicians have means to protect themselves and preserve their patient base. The moment a physician receives a termination notice from an insurer, she should immediately engage counsel to evaluate options to protect her income source.
[1] Fairfield Ct. Med. Ass’n v. United Healthcare of New Eng, No. 3:13-cv-1621 (SRU)(D.Conn. Dec. 5, 2013).
[2] Fairfield Ct. Med. Ass’n v. United Healthcare of New Eng., No. 13-408 (2d Cir. Feb. 7, 2014).
[3] Fairfield Ct. Med. Ass’n v. United Healthcare of New Eng, No. 3:13-cv-1621 (SRU)(D.Conn. Dec. 5, 2013).
[4] 42 C.F.R. § 422.202(d)(1)(i-ii).
[5] See, e.g. 42 U.S.C. §§1395 et. seq.
[6] N.Y. Public Health Law § 4406-d (5).
[7] See, e.g. Kamhi v. EmblemHealth, Inc., 37 Misc.3d 171 (Sup.Ct. Kings, March 21, 2012).
Supreme Court Rules That Inherited IRAs Are Not Protected in Bankruptcy
Posted: August 9th, 2014
Tags: estate planning, Supreme Court
If you follow my blog, you know that I’m not much on spouting case law. But every so often a case comes along in the estate planning arena that’s worthy of passing along.
In a unanimous decision on June 12, 2014, the Supreme Court of the United States, in Clark v. Rameker (June 12, 2014, No. 13 299) 2014 US Lexis 4166, affirmed a Seventh Circuit decision and ruled that inherited IRAs are not retirement funds within the meaning of the Bankruptcy Code. For those legal geeks out there, the specific part of the Code is 11 USC §§ 522(b)(3)(C) and (d)(12).
This decision resolves a split among the Circuit courts about the status of IRAs that parents leave to their children. The courts have long held that typical IRAs are protected from creditors as they are set up specifically for retirement to the point that you’re penalized if you take out funds early. In contrast, money in an account inherited from a parent can be withdrawn at any time. Justice Sotomayor, writing for the court, said that this crucial change in the status of the account makes it less like retirement savings and more like a pot of money available to pay off creditors. Otherwise, Sotomayor said, nothing would prevent someone who declares bankruptcy from using the entire balance of an inherited IRA “on a vacation home or a sports car immediately after her bankruptcy proceedings are complete.”
To add insult to injury, if the money comes out of the inherited IRA and is used to satisfy creditors, it also becomes taxable income. So Uncle Sam gets his share first, then the creditors get the rest. Your children have now lost the ability to stretch the IRA payments out over the course of their lifetime and minimize the income tax ramifications.
Now, for most of us that have children without creditor issues, this isn’t a problem. But some children have had difficulties, and you never know what the future might bring for others. So, is there still a way to protect these assets and minimize the tax consequences? I’m glad you asked.
One way of accomplishing this is to change the beneficiary of your IRA from your children to a trust. Upon your death, a properly crafted trust would create an irrevocable discretionary trust for your children. The trustee can then stretch the IRA payout into this discretionary trust and control when those assets are then given to the child. So long as the child is not a trustee, he would have no control over when he gets any of the assets from the now inherited IRA nor how much of these assets. Since it’s now out of the child’s reach, it’s out of the creditor’s reach as well.
Keep in mind that this discretion by the trustee is to determine whether the child has creditor difficulties or not. This may cause contention between the trustee and the child beneficiary if the child wants more than the required minimum distribution from the inherited IRA and the trustee refuses. If the trustee and beneficiary are siblings, this contention may exacerbate any existing tension between them. The point is that this type of trust is not to be used lightly and only after discussions with the various family members and with a trusted estate planning attorney.
Managers – Think Twice Before Setting Negotiation Goals
Posted: August 9th, 2014
Tags: management, negotiation
To encourage the negotiators they supervise to do their best, managers routinely rely on performance benchmarks, the promise of bonuses, and other types of goals.
Adapted from “Managers – Think Twice Before Setting Negotiation Goals…,” for the May 2009 issue of Negotiation. See below for more details.
But before you engage in further goal setting, consider the following real-life disasters: Under the leadership of turnaround expert Q.T. Wiles, quarterly earnings goals became a companywide obsession at disk drive manufacturer MiniScribe in the 1980s.
In just one example of the unethical behavior inspired by the race for higher earnings, employees shipped bricks disguised as hard drives. Rampant fraud was revealed, and MiniScribe went bankrupt. In the early 1990s, Sears, Roebuck and Co. gave its auto repair staff the goal of achieving$147 per hour in sales. To reach this challenging goal, staff overcharged for work and made unnecessary repairs. The scandal broke, and Sears’s reputation suffered for years. In the years leading up to its collapse, energy-trading company Enron promised its salespeople large bonuses for meeting challenging revenue goals.
This focus on revenue rather than profit contributed to widespread fraud and, ultimately, to the firm’s downfall. Far from being a cure-all, negotiation goals can trigger a variety of destructive behaviors, write professors Lisa D. Ordóñez (University of Arizona), Maurice. Schweitzer (University of Pennsylvania), Adam D. Galinsky (Northwestern University), and Max H. Bazerman (Harvard University) in an article in the Academy of Management Perspectives. What’s wrong with goals? Hundreds of research experiments suggest that setting specific, challenging goals can inspire employees and improve organizational results. But these findings, achieved in controlled settings, fail to account for the pressures and temptations of the real world. Specific, challenging goals can lead to a number of problems, according to Ordóñez and colleagues, including these four:
1. Focusing too closely.
Goals focus our attention on a task, research has shown. Unfortunately, close focus can cause us to overlook other important issues and tasks. When a division rewards employees for meeting short-term sales targets, for example, those employees are likely to overlook other crucial goals, such as improving customer satisfaction, that will help the organization thrive over the long term.
2. Taking too many risks.
Managers are often advised to set goals that are challenging enough to motivate negotiators to work as hard as possible but not so tough that employees see no point in trying. This argument ignores the fact that such “stretch goals “tend to encourage risky behavior. In one study, professors Richard Larrick (Duke University), Chip Heath (Stanford University), and George Wu (University of Chicago) found that such goals motivated negotiators to make large demands that destroyed value.
3. Behaving unethically.
As our opening stories vividly illustrate, goals can cause employees to make decisions that are not only risky, but also unethical. By encouraging negotiators to focus on ends rather than means, goal setting creates an organizational climate ripe for unlawful and immoral behavior. Goals can trigger two types of cheating behavior, write Ordóñez and her coauthors. First, negotiators may resort to unethical methods to reach their goals, such as lying or making false promises to their counterparts. Second, negotiators who fall short of their goals may misrepresent their performance to their employers and clients—by fudging sales numbers or misreporting on their timesheets, for example.
4. Failing to learn and cooperate.
Intense focus on narrow goals can keep negotiators from seeing the big picture. As a result, goals may distract them from absorbing broader lessons they could apply to future negotiations, research suggests. In addition, negotiators may be tempted to adopt competitive strategies rather than cooperative ones to meet challenging goals and, as a result, miss out on opportunities to create value for their organizations in the process. To motivate, use goals sparingly given the many pitfalls of goals, managers would be wise to think long and hard before using them. The Table below lists several questions that Ordonez, Schweitzer, Galinsky, and Bazerman advise managers to answer before implementing goals, as well as steps you can take to address goal pitfalls.
Posted by PON STAFF ON / BUSINESS NEGOTIATIONS
http://www.pon.harvard.edu/daily/business-negotiations/managers-think-twice-before-setting-negotiation-goals/
July 2014 Legal Brief – Firm Newsletter
Posted: July 30th, 2014
Redskins’ Trademarks Canceled for Disparagement
Posted: July 28th, 2014
Tags: intellectual property
On June 17, 2014, the Trademark Trial and Appeal Board (“TTAB”) of the U.S. Patent & Trademark Office (“USPTO”) canceled six trademark registrations of the Redskins football team as disparaging under Section 2(a) of the Lanham Act, 15 U.S.C. § 1052(a). Blackhorse v. Pro-Football, Inc., T.T.A.B., No. 92046185, 06/18/14.
Section 2(a) of the Lanham Act states that no trademark registration shall be refused unless it “[c]onsists of… matter which may disparage or falsely suggest a connection with… beliefs, or national symbols, or bring them into contempt, or disrepute.”
The 2-1 TTAB decision found that a substantial composite of Native Americans considered the term “Redskins” to be disparaging at the time the marks were registered.
A disparagement determination under Section 2(a), according to the TTAB, depends on (1) the meaning of the term in connection with the goods and services, and (2) whether that meaning of the term was disparaging to the referenced group at the time of registration.
The panel majority found overwhelming evidence that the term REDSKINS, as it appears in the marks, retains the meaning of “Native American.” As for the disparaging effect of term, the TTAB pointed out that the relevant group is only the group described by the mark, i.e., Native Americans, and not the general public or the football team itself.
The panel found disparagement at the time of registrations after considering expert testimony, dictionaries, reference books from the time, and a resolution of the National Congress of American Indians (“NCAI”).
The Washington Redskins plan to appeal the decision, and have expressed confidence that it will be overturned.
In the meantime, the registrations will remain in effect while the case is on appeal. Furthermore, although the process could take years, the team could still continue to use its names and could try to stop third parties from using it by citing common-law rights that are based on use, not registration. The Redskins franchise has used the name since the 1930s. Therefore, even if the decision is not overturned, the Redskins can use the name and enforce its trademarks using common-law rights.