Bernstein Shur Business and Commercial Litigation Newsletter #31

August 2013 | Issue 31

By Paul McDonald and Dan Murphy

We are pleased to present the 31st edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight cases and news addressing the inclusion of binding forum selection clauses in corporate bylaws, IP litigation, and other news that will have an impact on business and litigation. We hope you enjoy the newsletter.

In the News:

Delaware Chancery Court holds that corporate bylaw provisions pre-selecting the forum for litigating claims involving internal affairs of the company are valid and enforceable. The Plaintiffs in Boilermakers Local 154 Retirement Fund v. Chevron Corp. challenged the actions of the board of directors of Chevron and FedEx in unilaterally adopting bylaws that required any litigation relating to the internal affairs of the company to be brought in, and only in, the courts of the State of Delaware, where both corporations were incorporated. In rejecting these claims, Chancellor Strine found that the action of the two boards “easily meets the[] requirements” Delaware Corporation Code § 109(b), which provides that the bylaws of a corporation “may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees.” This decision gives a green light to corporate board’s adopting bylaw provisions requiring derivative actions and other suits against corporate officers and directors to be brought in a particular court. Click here to access the decision.

A recent government report shows that litigation initiated by patent trolls accounts for only twenty percent of suits. “Patent troll” is a term that has been coined for patent holding companies which seek to enforce patent rights against alleged infringers, but do not actually manufacture goods or sell services based on those rights. The report, which was prepared by the U.S. Government Accountability Office, reflects that so-called practicing entities – parties that own the patent rights to the goods and services that they sell – account for the vast majority of all patent suits. The findings run contrary to the public perception that non-practicing entities have caused a sharp spike in patent litigation. Click here to read more about the development.

Noted law professor, Lawrence Lessig, sues a music publisher over the removal of his YouTube video under the Digital Millennium Copyright Act, arguing that his use of a music clip in a lecture was protected under the “fair use” doctrine. A copyright grants the holder certain exclusive rights, including distribution and reproduction, but exceptions exist under the “fair use” doctrine for non-commercial uses. The DMCA is concerned with digital content that is subject to copyright, including the type content found on YouTube. Under the DMCA, a service provider that is hosting content posted by third parties can be shielded from infringement liability if it promptly takes down the third party’s allegedly infringing content with a specified period. Professor Lessig posted on YouTube a lecture that he gave in South Korea, but a music publisher, Liberation Music Pty Ltd., caused YouTube to remove the lecture under DMCA procedures, claiming that Lessig infringed on its copyrighted material when it used clips from the pop group, Phoenix. In response, Lessig has sued Liberation Music in the U.S. District Court for the District of Massachusetts, asserting the removal of his lecture was improper based on fair use doctrine’s protection for non-commercial uses. Read more about the case here. To access the federal statute addressed to the fair use doctrine click here.

A federal court allows a class action to proceed against Starbucks under the Americans With Disabilities Act based on the height of its self-service counters. In the suit, plaintiffs allege that Starbucks’ self-service pickup counters pose safety risks to patrons in wheelchairs and constitute violation of the ADA based on the common design plans used in its stores in California. Based on ADA guidelines, self-service counters cannot make a customer reach deeper than 20 inches, or be higher than 44 inches. In response to the class action, Starbucks challenged the legal standing of plaintiffs to pursue claims as a class, stating that they should be limited to asserting their own individual claims drawn from their actual experiences at visited stores. U.S. District Judge Dean Pregerson for the Central District of California rejected Starbucks’ challenge based on standing and allowed the class action to proceed. Read more about the case here.