Bernstein Shur Business and Commercial Litigation Newsletter #30

July 2013 | Issue 30 

 By Paul McDonald and Daniel Murphy

We are pleased to present the 30th edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month we highlight cases discussing federal pleading standards, the intersection of patent law and antitrust regulations, and whether unpaid interns qualify as employees, as well as statistics showing the decline in securities arbitration filings. We hope you enjoy the newsletter.

Federal Circuit rules that compliance with federally approved form complaint for patent infringement is sufficient to withstand dismissal under the Iqbal/Twombly standard. Rule 84 of the Federal Rules of Civil Procedure states that the forms in the Rules Appendix, “suffice under these rules and illustrate the simplicity and brevity that these rules contemplate.” In K-Tech Telecommunications, Inc. v. Time Warner Cable, Inc., the U.S. Court of Appeals for the Federal Circuit was called on to consider whether a complaint for patent infringement based on Form 18 contained sufficient factual allegations to meet the pleading standard announced in the U.S. Supreme Court’s decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal.  Iqbal and Twombly significantly altered federal pleading law, declaring (i) that a complaint cannot survive a motion to dismiss unless it states a claim that is “plausible”; and (ii) that the plausibility standard is met when “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. The District Court dismissed K-Tech’s complaint based on its failure to allege certain facts that are not contained in Form 18. Specifically, the District Court declared that without identifying the defendant’s infringing product or process, the complaint did not meet the Iqbal/Twombly standard. The Federal Circuit rejected this analysis, ruling that to the extent there is any conflict between the Federal Forms and Twombly and its progeny, the Forms control. Because it found that K-Tech’s complaint contained all of the allegations required by Form 18, the Federal Circuit reversed, finding that Time Warner’s motion to dismiss was improperly granted. Click here to access the court’s opinion.

Supreme Court ruling supports Federal Trade Commission’s challenge of so-called “pay for delay” generic drug settlements on antitrust grounds. In the case, FTC v. Actavis, Inc., the FTC took issue with a pharmaceutical company’s settlement of a patent infringement case launched by a rival generic drugmaker. Rather than see the case through to a determination on the validity of the patent in question, the pharmaceutical company paid the generic drug maker millions of dollars to refrain from competing against the patented drug until the expiration of the patent. The FTC has challenged such “pay for delay” settlements in the past, but some courts have held these agreements are legal. Although the Supreme Court’s ruling did not invalidate the “pay for delay” agreement in question, it held that lower courts erred in dismissal of the FTC’s enforcement action and that the agency’s lawsuit seeking to prove that the arrangement violated antitrust laws should proceed. Based on the ruling, the FTC expects to mount more challenges to “pay for delay” arrangements. Click here to access the court’s opinion, and here to read more to read about the decision.

U.S. District Court finds that unpaid internships can violate minimum wage laws and interns can qualify as employees under the Fair Labor Standards Act. In the case, Glatt v. Fox Searchlight Pictures, Inc., two individuals challenged their classification as unpaid interns, arguing that they qualified as employees who were not subject to the exemption for trainees. A determination of exemption based on trainee status turns on a six-part test, which includes scrutiny of whether: 1) the internship is similar to educational instruction; 2) the internship is for the benefit of the intern; 3) the intern does not displace regular employees; 4) the employer derives no immediate advantage from the intern’s activities; 5) the intern is not necessarily entitled to a job at the conclusion of the internship; and 6) the parties understand that the intern is not entitled to wages. Weighing these factors, the U.S. District Court for the District of Southern New York concluded that the employer could not avail itself of the narrow exception for trainees because the individuals essentially performed the work of paid employees, providing immediate advantage to their employer and performing low-level tasks that did not require any specialized training. Analysts state that the decision creates significant legal uncertainty concerning the use of unpaid interns. Fox Searchlight has vowed to appeal the decision. Click here to read the court’s opinion, and here for more about the case.

Securities arbitrations resulting from the financial crisis appear to have peaked. In the wake of the recent financial crisis, some 5,200 FINRA arbitrations were commenced during 2009. However, based on current year figures and estimates, about 2,400 FINRA arbitrations will be filed in 2013. Click here to read more about recent trends in FINRA arbitrations.