Business and Commercial Litigation Newsletter – #43

By Paul McDonald and Dan Murphy

August 2014 | Issue 43

We are pleased to present the 43rd edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight recent cases that address whistleblower protections under the Dodd-Frank Act, trade secret disputes, and other news that will have an impact on business and litigation. We hope you enjoy the newsletter.

In the News:

The Second Circuit holds that Dodd-Frank Act whistleblower protections do not extend overseas. In the underlying case, Liu v. Siemens AG, the plaintiff, a Taiwan-based division compliance officer of Siemen China Ltd., charged that his employer engaged in a kickback scheme in violation of U.S. law, making inflated bids for contracts with public hospitals in Asia, and directing kickbacks to the officials approving the bids. The employee reported possible Foreign Corrupt Practices Act violations to the SEC and brought an action under the anti-retaliation provisions of the Dodd-Frank Act. The U.S. District Court for the Southern District of New York dismissed the action, holding that the Dodd-Frank Act does not have extraterritorial application. On appeal, the Second Circuit affirmed the decision of the trial court, adopting the rationale that U.S. laws may govern domestically, but cannot govern overseas in the absence of any express statutory language providing for such authority.

Read more about this development here and access the court’s opinion here.

Morgan Stanley prevails against Charles Schwab & Co. in a trade secret arbitration. In a proceeding before a FINRA arbitration panel, Schwab sought recovery of $15 million from Morgan Stanley based on its alleged misappropriation of trade secrets and raiding of Schwab’s workforce at a San Francisco branch office. A trade secret is generally understood as a legally protected formula, practice, or process that is not publicly known or ascertainable, by which businesses can maintain advantage over their competitors. Schwab alleged that Morgan Stanley induced employees at its West Portal branch to leave the firm, resulting in lost revenues and the misappropriation of trade secrets. The arbitration panel denied Schwab’s claims and its request for injunctive relief, but upheld a previous order assessing sanctions against Morgan Stanley based on its failure to return or purge records regarding Schwab’s customers.

Read more about this matter here.

Berkshire Hathaway Inc. agrees to pay a fine to government regulators to resolve antitrust charges based on its failure to report an increase in its stake in USG Corp. In November 2008, Berkshire Hathaway purchased convertible notes issued by USG that bore 10 percent interest per annum. Berkshire Hathaway, led by Warren Buffett, struck similar deals with Goldman Sachs and General Electric in the wake of the financial crisis of 2007-2008. In December 2013, Berkshire Hathaway exchanged approximately $240 million of those notes for common shares in USG, resulting in a 28 percent stake in the company, executing the transaction without proper regulatory approval. Under the Hart-Scott-Rodino Antitrust Improvements Act, parties are prohibited from executing certain mergers, acquisitions and security transfers until making detailed filings and obtaining antitrust clearance from federal regulators. Under the settlement, Berkshire Hathaway will pay approximately $900,000 to federal regulating agencies.

Read more about this development here.

A federal judge upholds a $1.2 million jury verdict in favor of a freelance photographer who alleged that media outlets infringed the Copyright Act after they republished photos from his Twitter account. In the case, a photographer, Daniel Morel, posted photos of the Haitian earthquake on his Twitter account. An editor at Agence France-Presse accessed the photos through Twitter and then circulated them through Getty Images, resulting in wide dissemination through news outlets. Agence France-Presse originally sued Morel seeking a declaration that it did not infringe Morel’s copyright interests. However, a federal jury rejected these arguments, instead awarding statutory damages to Morel on his copyright counterclaims. Under the Copyright Act, statutory damages for “willful” infringement can reach up to $150,000 per violation. Defendants requested the court to reduce the large verdict, but the court instead upheld the award, stating that defendants’ actions were not only willful, but showed a gross disregard for plaintiff’s rights under the Copyright Act.

Read more about this development here.