The Federal Communications Commission recently issued three separate decisions considering 182 appeals from funding denial decisions made by the Universal Service Administrative Company ("USAC"). A common theme among the cases is the Commission’s refusal to adhere to form over substance where doing so would fail to promote the goals of the universal service program, i.e., ensuring access to discounted telecommunications and information services to schools and libraries. Following is a summary of these decisions.
Funding Denials for Failure to Timely Respond are Overturned
In the Alpaugh Unified School District decision, the Commission granted 78 appeals. USAC had denied or reduced funding on the grounds that the applicants failed to respond to its requests for information in a timely fashion.
Several different grounds of appeal had been asserted, including claims that the USAC information requests had not been received, that the requested information had been submitted to USAC, that a deferral had been requested or that a staffing problem prevented submission of the requested information. The Commission focused largely on the procedural nature of the failures as distinguished from "a failure to adhere to a core program requirement or a misuse of funds" and found good cause to grant the appeals, The Commission said "given that any violations that occurred were procedural, not substantive, we find that complete rejection of these applications is not warranted."
In addition to granting the appeals and remanding the applications to USAC for further action, the Commission directed USAC to develop outreach procedures designed to better inform applicants of the additional information that may be need and to provide applicants with a fifteen day period from the date of receipt within which to respond.
Technology Plan Waivers are Granted
In the Brownsville Independent School District decision, the Commission considered 32 appeals seeking review of USAC decisions to reduce or deny funding because the applicants' applications were not supported by approved technology plans. Under the rules, unless schools are seeking discounts on "basic local, cellular, PCS, and/or long distance telephone service and/or voicemail only," a request for discounts must be based on an approved technology plan developed prior to requesting bids on services and approved by a state agency or other specified entity.1 The Commission granted the appeals and waived, in part, its technology plan rules.
In some cases, the applicants had committed clerical or ministerial errors, e.g., providing the wrong technology plan documentation or missing deadlines for developing or obtaining approval. Based upon the procedural nature of these deficiencies, the Commission held that complete rejection of these applications was unwarranted.
In others, applicants had failed to submit technology plans based upon a misunderstanding of which telecommunications services are considered non-basic. In considering the appeals, the Commission noted that the principal purpose of the technology plan requirement is to guard against the waste of program funds. Here though, it found no evidence that the applicants – whose applications were by and large prepared by individuals whose primary role is unrelated to applying for universal service funds -- sought to defraud or abuse the E-rate program. The Commission granted these appeals finding that, based upon the circumstances, rigid compliance with its rules did not serve the public interest.
The Commission adopted additional directives here as well, applicable to all pending applications and appeals for Funding Year 2007. Where an applicant responds to a request to provide technology plan documentation and the requested documentation is deficient (e.g., is outdated or will expire before the end of the relevant funding year), USAC must: (1) inform the applicant promptly in writing of any and all deficiencies, along with a clear and specific explanation of how the applicant can remedy those deficiencies; and (2) permit the applicant to submit correct documentation, if any, within 15 calendar days from the date of receipt of notice.
Complete Rejection Unwarranted in Cases of Missed Deadlines for Evidencing a Signed Contract Where Legally Binding Commitments Were in Place
In a third decision, Adams County School District 14, the Commission granted relief to 72 Petitioners seeking a reversal of USAC funding denials. In 66 of the cases, the requests had been denied because the applicants did not have a legally binding agreement in place at the time of the FCC Form 471 submission. In the remaining 6 cases, the funding commitments had been reduced because the contract expired before the end of the funding year.
The appeals rested on one of three claims:
* conflicting local or state procurement requirements prevented compliance;
* employee error or misunderstanding of the rules; or
* technical compliance with the rules despite USAC’s decision to the contrary.
Where compliance was prevented due to a need to adhere to local or state procurement laws, because of a need to have service provider commitments approved by a governing board or where the service provider agreements were contingent upon obtaining USAC approval of funding, the Commission found that rigid adherence to the rule did not serve the public interest. It likewise found that denial of funding for ministerial mistakes, such as one applicant's mistaken notation on its FCC Form 471 that its contract ended nine months before the end of the funding year, thus securing funding for only three months instead of the 12 as intended, did not serve the public interest. More important than the missed deadline was the fact that the applicants had legally binding contracts in place during the relevant funding years and that all of the petitioners had some form of an agreement with their service providers before submitting their FCC Forms 471.
The Commission also granted requests for review where USAC had denied funding solely because the execution date of the contract did not accompany the signature lines of both the applicant and the service provider. It found that funding had been denied only because the effective date of the contract was separate from the signature lines but that the applicants were in compliance with the rules since they had signed and dated contracts in place before the submission of their FCC Forms 471.
As mentioned above, these decisions share in common an apparent policy decision to excuse good-faith lapses in strict compliance. Nevertheless, in each case the Commission emphasized the limited nature of its decision and that its actions do not eliminate or modify the rules at issue. Applicants are encouraged to be careful in their adherence to the Commission’s rules and policies so as to avoid delays in approval and/or denial of funding.
Note
1 Applicants whose technology plans have not been approved upon submission of the Form 470 must certify that they understand their technology plans must be approved prior to the commencement of service and must confirm, in Form 486, that their plan was approved prior to the receipt of services.
Please contact Mark Palchick (202/857-4411) or Howard Barr (202/857-4506) if you have any questions regarding this advisory.
http://www.wcsr.com/default.asp?id=114&objId=234
Monday, June 4, 2007
Supreme Court Issues Unanimous Decision Broadening the Obviousness Test for Determining Patent Invalidity
Suppreme Court Patent Decision: KSR Int'l Co. Vs. Teleflex Inc.
On April 30, 2007, the Supreme Court issued a unanimous decision in KSR Int’l Co. v. Teleflex Inc. that revised existing patent law on the issue of obviousness, making it easier for companies to challenge patents on the grounds that they cover products that are obvious combinations of existing technology. The Court decided that a patent claim reciting a combination of existing inventions and technologies for adjustable gas pedals was invalid for obviousness, reversing a decision by the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit’s decision was based on a test known as the "teaching, suggestion, or motivation" (TSM) test. Under the TSM test, when a patent is based on the combination of multiple prior art references, a patent challenger must establish some suggestion, teaching, or motivation that would have led a person of ordinary skill in the art to combine "prior art" (public domain) teachings in the manner claimed in the patent. The Supreme Court criticized the Federal Circuit’s application of the TSM test as too rigid and too narrow.
Key Conclusions of KSR
* A patent claim reciting a combination of elements that can each be found in the prior art will likely be obvious when that combination yields "predictable" results.
* Courts and patent examiners should not focus solely on the problem the patent holder was trying to solve when determining obviousness. Rather, any need or problem known in the field at the time of the invention and addressed in the patent can provide a reason for the combination, thereby leading to obviousness.
* A patent claim can be invalidated by a showing that the combination of elements was "obvious to try." According to the Court, the influence of design or market trends upon the development of a claimed invention may make it obvious.
* KSR significantly broadens the universe of information that a Court may consider in determining whether there exists a teaching, suggestion, or motivation to combine prior art references so as to render a patent claim obvious.
Consequences of KSR
* Vulnerability of Inventions Comprising Combinations of Old Elements- Previously, a patentee could take comfort in Federal Circuit law holding that combinations based on entirely new, partly new, or all old elements could be patentable and that an accused infringer's attempts to merely cite the existence in the prior art of each claim limitation, without more, were not helpful to the invalidity defense. Now, although merely citing the existence of each claim limitation in the prior art may still not be enough to render a claim obvious, it does bring the accused infringer one step closer to invalidating the claim. This broadened obviousness analysis will most highly impact inventions in the mechanical and electrical areas, where predictability of results is more common than with such fields as microbiology.
* Presumption of Validity Opened to Attack in Certain Cases - Under Federal Circuit precedent, the burden to overcome the presumption of validity with clear and convincing evidence is more easily carried when the patent challenger cites prior art that was not considered by the U.S.P.T.O. examiner during prosecution of the patent application. In KSR, a key prior art patent had not been considered during prosecution, and the Court remarked: "We...think it appropriate to note that the rationale underlying the presumption – that the PTO, in its expertise, has approved the claim – seems much diminished here." This statement may open the door to more direct attacks on the presumption of validity in future cases where the patent challenger relies on previously-uncited prior art.
* Potential for Greater Use of Summary Judgment to Declare Invalidity- Reiterating that obviousness is ultimately a legal question for a district court judge to decide, the Supreme Court found that the case was ripe for resolution of obviousness on summary judgment because there was no genuine dispute of material fact as to the level of skill in the art, the content of the prior art, and the scope of the patent claim. While this treatment does not represent a change in the law, the Supreme Court’s approval of summary judgment in KSR may encourage district courts to more seriously consider disposing of patent cases before trial based upon obviousness defenses.
* Reaction by USPTO – On May 3, 2007, the Deputy Commissioner of Patents issued an internal Memorandum to examining group directors, indicating that the PTO would issue guidelines to its patent examiners on how to apply KSR to patent applications, but that in the meantime, the directors should note that the Supreme Court did not reject the TSM test and required explicit reasons for combining the teachings of prior art patents to render a claim obvious. The Memorandum concluded that it "remains necessary" to identify the reason supporting a proposed combination of prior art references.
Adapting to Change in Law Wrought by KSR
* Patent Applicants facing an obviousness rejection should ensure that the examiner followed the PTO's guidelines regarding KSR. Rejections not following the guidelines are subject to being withdrawn or overruled on appeal.
* Current patent litigants should reevaluate the likelihood of success of any obviousness defense asserted in the litigation, in light of KSR. If the claimed invention is in the mechanical or electrical area, then the litigants should explore whether any viable basis exists for classifying the results of the invention as "unpredictable." The likelihood of summary judgment resolution should also be considered. In this manner, patentees can reassess the invalidity risks of continuing with the litigation, and accused infringers can reassess how likely they are to end the litigation favorably, and at the very least, whether they have acquired any leverage with which to force a settlement of the case.
* Potential patent litigants - Patentees considering a lawsuit, as well as potential infringers facing a threat of litigation against them, should perform the same KSR analysis described above. The results of that analysis may impact the decision on whether the patentee should initiate litigation in the first place. If the patentee has threatened legal action, or even just offered a license, then the accused infringer may have grounds to initiate a declaratory judgment action against the patentee, and the KSR analysis can determine whether the infringer stands a substantial chance of prevailing in that action on obviousness invalidity grounds.
Ms. Sperry is an Associate, and Mr. Cicero is a Member, at Womble Carlyle Sandridge & Rice, PLLC ("Womble Carlyle"), where they both concentrate their practices on intellectual property litigation. The views herein expressed are solely those of the authors and are not necessarily the views of Womble Carlyle or its clients, are set forth only for purposes of discussion of the state of the law as of the date of this article, and should not be construed as legal advice. Any questions concerning the application of legal principles to particular facts should be presented in confidence to appropriate legal counsel.
http://www.wcsr.com/default.asp?id=114&objId=238
On April 30, 2007, the Supreme Court issued a unanimous decision in KSR Int’l Co. v. Teleflex Inc. that revised existing patent law on the issue of obviousness, making it easier for companies to challenge patents on the grounds that they cover products that are obvious combinations of existing technology. The Court decided that a patent claim reciting a combination of existing inventions and technologies for adjustable gas pedals was invalid for obviousness, reversing a decision by the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit’s decision was based on a test known as the "teaching, suggestion, or motivation" (TSM) test. Under the TSM test, when a patent is based on the combination of multiple prior art references, a patent challenger must establish some suggestion, teaching, or motivation that would have led a person of ordinary skill in the art to combine "prior art" (public domain) teachings in the manner claimed in the patent. The Supreme Court criticized the Federal Circuit’s application of the TSM test as too rigid and too narrow.
Key Conclusions of KSR
* A patent claim reciting a combination of elements that can each be found in the prior art will likely be obvious when that combination yields "predictable" results.
* Courts and patent examiners should not focus solely on the problem the patent holder was trying to solve when determining obviousness. Rather, any need or problem known in the field at the time of the invention and addressed in the patent can provide a reason for the combination, thereby leading to obviousness.
* A patent claim can be invalidated by a showing that the combination of elements was "obvious to try." According to the Court, the influence of design or market trends upon the development of a claimed invention may make it obvious.
* KSR significantly broadens the universe of information that a Court may consider in determining whether there exists a teaching, suggestion, or motivation to combine prior art references so as to render a patent claim obvious.
Consequences of KSR
* Vulnerability of Inventions Comprising Combinations of Old Elements- Previously, a patentee could take comfort in Federal Circuit law holding that combinations based on entirely new, partly new, or all old elements could be patentable and that an accused infringer's attempts to merely cite the existence in the prior art of each claim limitation, without more, were not helpful to the invalidity defense. Now, although merely citing the existence of each claim limitation in the prior art may still not be enough to render a claim obvious, it does bring the accused infringer one step closer to invalidating the claim. This broadened obviousness analysis will most highly impact inventions in the mechanical and electrical areas, where predictability of results is more common than with such fields as microbiology.
* Presumption of Validity Opened to Attack in Certain Cases - Under Federal Circuit precedent, the burden to overcome the presumption of validity with clear and convincing evidence is more easily carried when the patent challenger cites prior art that was not considered by the U.S.P.T.O. examiner during prosecution of the patent application. In KSR, a key prior art patent had not been considered during prosecution, and the Court remarked: "We...think it appropriate to note that the rationale underlying the presumption – that the PTO, in its expertise, has approved the claim – seems much diminished here." This statement may open the door to more direct attacks on the presumption of validity in future cases where the patent challenger relies on previously-uncited prior art.
* Potential for Greater Use of Summary Judgment to Declare Invalidity- Reiterating that obviousness is ultimately a legal question for a district court judge to decide, the Supreme Court found that the case was ripe for resolution of obviousness on summary judgment because there was no genuine dispute of material fact as to the level of skill in the art, the content of the prior art, and the scope of the patent claim. While this treatment does not represent a change in the law, the Supreme Court’s approval of summary judgment in KSR may encourage district courts to more seriously consider disposing of patent cases before trial based upon obviousness defenses.
* Reaction by USPTO – On May 3, 2007, the Deputy Commissioner of Patents issued an internal Memorandum to examining group directors, indicating that the PTO would issue guidelines to its patent examiners on how to apply KSR to patent applications, but that in the meantime, the directors should note that the Supreme Court did not reject the TSM test and required explicit reasons for combining the teachings of prior art patents to render a claim obvious. The Memorandum concluded that it "remains necessary" to identify the reason supporting a proposed combination of prior art references.
Adapting to Change in Law Wrought by KSR
* Patent Applicants facing an obviousness rejection should ensure that the examiner followed the PTO's guidelines regarding KSR. Rejections not following the guidelines are subject to being withdrawn or overruled on appeal.
* Current patent litigants should reevaluate the likelihood of success of any obviousness defense asserted in the litigation, in light of KSR. If the claimed invention is in the mechanical or electrical area, then the litigants should explore whether any viable basis exists for classifying the results of the invention as "unpredictable." The likelihood of summary judgment resolution should also be considered. In this manner, patentees can reassess the invalidity risks of continuing with the litigation, and accused infringers can reassess how likely they are to end the litigation favorably, and at the very least, whether they have acquired any leverage with which to force a settlement of the case.
* Potential patent litigants - Patentees considering a lawsuit, as well as potential infringers facing a threat of litigation against them, should perform the same KSR analysis described above. The results of that analysis may impact the decision on whether the patentee should initiate litigation in the first place. If the patentee has threatened legal action, or even just offered a license, then the accused infringer may have grounds to initiate a declaratory judgment action against the patentee, and the KSR analysis can determine whether the infringer stands a substantial chance of prevailing in that action on obviousness invalidity grounds.
Ms. Sperry is an Associate, and Mr. Cicero is a Member, at Womble Carlyle Sandridge & Rice, PLLC ("Womble Carlyle"), where they both concentrate their practices on intellectual property litigation. The views herein expressed are solely those of the authors and are not necessarily the views of Womble Carlyle or its clients, are set forth only for purposes of discussion of the state of the law as of the date of this article, and should not be construed as legal advice. Any questions concerning the application of legal principles to particular facts should be presented in confidence to appropriate legal counsel.
http://www.wcsr.com/default.asp?id=114&objId=238
How lawyers charge fees
You can't make a decision about whether or not to hire a lawyer without knowing something about how a lawyer charges fees. Without doubt, lawyers are expensive. Although fee rates may vary from one part of the country to another, fees charged by lawyers in Louisiana are probably typical and close to the national average. Like any professional or businessman, a lawyer must be compensated for years of training and experience as well as expenses and office overhead. The typical lawyer may pay 50% or more of each fee for overhead and there must be enough left over to provide a reasonable income.
Lawyer fees, negotiating
Talk to your lawyer about fees. This is the best way to avoid misunderstandings.
Lawyers normally charge fees in one of three ways:
* at an hourly rate
* by a flat rate
* on a contingency
An hourly rate is usually preferred by business clients because they may have several cases that the lawyer is working on at one time. The lawyer itemizes the time spent on each case and presents a bill, usually on a monthly basis.
Lawyers will frequently charge a flat rate when the approximate amount of work involved is known in advance or when the client needs to know exactly how much the fees will total. Flat fees are often payable in advance or in installments.
Contingency fees are based on a percentage of an award or settlement that the lawyer recovers. If the lawyer does not win the case or obtain a settlement, the client generally does not owe any fees. Contingency fees are usually one-fourth to one-third of the amount recovered. In many cases, the percentage is increased if the case goes to trial or if it is appealed.
Contingency fees have come under attack lately on the theory that they encourage lawyers to file lawsuits that may not have any merit. In actual fact, a competent lawyer is not about to take a case on a contingent basis unless it does have merit. This is because the lawyer ends up spending his time and paying for expenses to prepare a case without any guarantee that he will be paid. If he is successful, he may be well paid for his efforts. If he is not successful, he will have lost a considerable amount of time that could have been used on behalf of a client who is paying by the hour.
The contingency fee is also the only way many potential clients have of hiring a lawyer. If all fees were charged on a flat rate or by the hour, the man who is injured in an accident and loses his job would have no means to obtain the services of a lawyer. Most contingency fee contracts result from personal injury cases. This is because the lawyer can usually expect more of a recovery if he is successful and because the client is usually not in a position to pay any other type of fee. Lawyers will sometimes take other types of cases on a contingency basis, but there usually must be the potential for a large award. As a general rule, the harder the type of case is to win, the more potential there must be for a large recovery.
http://www.la-legal.com/modules/article/view.article.php?c10/42/p0
Lawyer fees, negotiating
Talk to your lawyer about fees. This is the best way to avoid misunderstandings.
Lawyers normally charge fees in one of three ways:
* at an hourly rate
* by a flat rate
* on a contingency
An hourly rate is usually preferred by business clients because they may have several cases that the lawyer is working on at one time. The lawyer itemizes the time spent on each case and presents a bill, usually on a monthly basis.
Lawyers will frequently charge a flat rate when the approximate amount of work involved is known in advance or when the client needs to know exactly how much the fees will total. Flat fees are often payable in advance or in installments.
Contingency fees are based on a percentage of an award or settlement that the lawyer recovers. If the lawyer does not win the case or obtain a settlement, the client generally does not owe any fees. Contingency fees are usually one-fourth to one-third of the amount recovered. In many cases, the percentage is increased if the case goes to trial or if it is appealed.
Contingency fees have come under attack lately on the theory that they encourage lawyers to file lawsuits that may not have any merit. In actual fact, a competent lawyer is not about to take a case on a contingent basis unless it does have merit. This is because the lawyer ends up spending his time and paying for expenses to prepare a case without any guarantee that he will be paid. If he is successful, he may be well paid for his efforts. If he is not successful, he will have lost a considerable amount of time that could have been used on behalf of a client who is paying by the hour.
The contingency fee is also the only way many potential clients have of hiring a lawyer. If all fees were charged on a flat rate or by the hour, the man who is injured in an accident and loses his job would have no means to obtain the services of a lawyer. Most contingency fee contracts result from personal injury cases. This is because the lawyer can usually expect more of a recovery if he is successful and because the client is usually not in a position to pay any other type of fee. Lawyers will sometimes take other types of cases on a contingency basis, but there usually must be the potential for a large award. As a general rule, the harder the type of case is to win, the more potential there must be for a large recovery.
http://www.la-legal.com/modules/article/view.article.php?c10/42/p0
Saturday, June 2, 2007
FCC Reconsiders Effective Competition Decision
In an unusual decision, the Federal Communications Commission has essentially waived the statutory thirty-day period for filing petitions for reconsideration and will conduct a de novo review of a June 30, 2005 effective competition finding. Section 405 of the Communications Act governs petitions for reconsideration of Commission actions. The statute specifically requires that any "petition for reconsideration must be filed within 30-days from the date upon which public notice is given of the order, decision, report or action complained of."
The Commission has no authority – at least under the terms of the Communications Act -- to waive statutory timelines. Indeed, in a recent ruling in Reuters Limited v. FCC, the D.C. Circuit Court of Appeals held that the FCC exceeded its authority in acting on a late-filed petition for reconsideration. As a result, in virtually all instances in which the Commission considers an untimely filed petition for reconsideration, it denies the petition as untimely filed. Here, though, the Commission relied on an older Court of Appeals case -- Gardner v. FCC -- holding that the statutory limit does not prevent the Commission from considering late-filed petitions under extraordinary conditions.
Background
Mediacom Southeast, LLC originally filed its petition seeking an effective competition decision as to its Fairhope, Alabama system on April 4, 2005. For reasons that remain unexplained, Fairhope’s opposition, as well as a number of other related pleadings, were not placed in the Commission’s file. Mediacom’s request was treated as unopposed and granted along with sixteen other unopposed effective competition petitions.
The decision was publicly released on July 6, 2005. In order to be considered timely, a petition for reconsideration would have had to have been filed on or before August 7, 2005. The City of Fairhope, however, did not file for reconsideration until August 25, 2005.
The Petition for Reconsideration
Fairhope argued that it was unaware of the grant because the Commission failed to provide either it or its counsel with a copy of the decision. It further asserted that it only learned of the decision on August 22, 2005 when it received a copy attached to a Mediacom submission to the Commission relevant to the case.
Notwithstanding that Fairhope at least should have known of the decision because of its public release – note that the time for seeking for reconsideration does not run from notice by mail but from the release date – the Commission found sufficient extraordinary conditions to warrant review:
* First, Fairhope had timely filed an opposition to Mediacom’s effective competition request;
* Second, "t was the Commission’s error which substantially contributed to" Fairhope's failure to timely seek reconsideration; and
* Third, Fairhope acted quickly after discovering the grant.
his is a rare decision as the Commission virtually always follows the Reuters holding, denying untimely reconsideration petitions on the grounds that it has no authority to waive the statutory thirty-day filing deadline.
Having decided to grant reconsideration, the Commission will now conduct a de novo review, fully considering the arguments raised in response to the effective competition petition. It has further directed the parties to update the record requiring that "the updated information should reflect the best possible data available and accurately reflect the current state of competition in Fairhope." It indicated that a decision will be issued "expeditiously" following completion of the pleading cycle.
However, the Commission denied Fairhope's request that the Commission modify the ex parte status of the proceeding from "restricted" to "permit but disclose," which would have permitted other interested parties to address the Commission's continued use of 2000 Census occupied household data for purposes of determining DBS penetration and other related issues. The Commission held such issues were "of general concern that exceed the limits of its Petition for Reconsideration" that there was an existing forum for the discussion of such matters.
Please contact Mark Palchick (202/857-4411) or Howard Barr (202/857-4506) if you have any questions regarding this advisory.
http://www.wcsr.com/default.asp?id=114&objId=227
The Commission has no authority – at least under the terms of the Communications Act -- to waive statutory timelines. Indeed, in a recent ruling in Reuters Limited v. FCC, the D.C. Circuit Court of Appeals held that the FCC exceeded its authority in acting on a late-filed petition for reconsideration. As a result, in virtually all instances in which the Commission considers an untimely filed petition for reconsideration, it denies the petition as untimely filed. Here, though, the Commission relied on an older Court of Appeals case -- Gardner v. FCC -- holding that the statutory limit does not prevent the Commission from considering late-filed petitions under extraordinary conditions.
Background
Mediacom Southeast, LLC originally filed its petition seeking an effective competition decision as to its Fairhope, Alabama system on April 4, 2005. For reasons that remain unexplained, Fairhope’s opposition, as well as a number of other related pleadings, were not placed in the Commission’s file. Mediacom’s request was treated as unopposed and granted along with sixteen other unopposed effective competition petitions.
The decision was publicly released on July 6, 2005. In order to be considered timely, a petition for reconsideration would have had to have been filed on or before August 7, 2005. The City of Fairhope, however, did not file for reconsideration until August 25, 2005.
The Petition for Reconsideration
Fairhope argued that it was unaware of the grant because the Commission failed to provide either it or its counsel with a copy of the decision. It further asserted that it only learned of the decision on August 22, 2005 when it received a copy attached to a Mediacom submission to the Commission relevant to the case.
Notwithstanding that Fairhope at least should have known of the decision because of its public release – note that the time for seeking for reconsideration does not run from notice by mail but from the release date – the Commission found sufficient extraordinary conditions to warrant review:
* First, Fairhope had timely filed an opposition to Mediacom’s effective competition request;
* Second, "t was the Commission’s error which substantially contributed to" Fairhope's failure to timely seek reconsideration; and
* Third, Fairhope acted quickly after discovering the grant.
his is a rare decision as the Commission virtually always follows the Reuters holding, denying untimely reconsideration petitions on the grounds that it has no authority to waive the statutory thirty-day filing deadline.
Having decided to grant reconsideration, the Commission will now conduct a de novo review, fully considering the arguments raised in response to the effective competition petition. It has further directed the parties to update the record requiring that "the updated information should reflect the best possible data available and accurately reflect the current state of competition in Fairhope." It indicated that a decision will be issued "expeditiously" following completion of the pleading cycle.
However, the Commission denied Fairhope's request that the Commission modify the ex parte status of the proceeding from "restricted" to "permit but disclose," which would have permitted other interested parties to address the Commission's continued use of 2000 Census occupied household data for purposes of determining DBS penetration and other related issues. The Commission held such issues were "of general concern that exceed the limits of its Petition for Reconsideration" that there was an existing forum for the discussion of such matters.
Please contact Mark Palchick (202/857-4411) or Howard Barr (202/857-4506) if you have any questions regarding this advisory.
http://www.wcsr.com/default.asp?id=114&objId=227
The Upswing Is In Lawsuits
As the housing market slows, buyers & sellers are increasingly at odds.
This article is reprinted with permission from Legal Times.
It's no secret that the housing market has slowed in recent months. According to the National Association of Realtors, new home sales in 2006 were estimated at 1.06 million, the fourth highest annual total on record. In contrast, experts predict that new home sales will decline to 961,000 in 2007 and then rise only slightly to 971,000 in 2008.
This downturn in the housing cycle is not just making things difficult for sellers. It’s also creating an environment of increased adversity between buyers and sellers of residential development projects and spawning a flurry of litigation.
In recent years, when the housing market was on a consistent upswing, residential home developers were clamoring to snatch up property to add to their inventory. When residential developers entered into contracts to purchase land for development, they were willing to conduct the required due diligence in as few as 30 to 90 days. And even if issues turned up that could increase the development costs, purchasers then had more flexibility in their anticipated profit margins to overlook the problems.
They were willing to take these risks on the assumption that the accelerating sale prices of the homes to be built on the property would be more than enough to absorb any unexpected increases in development costs. Residential developers were also willing to expedite their land acquisitions by waiving conditions to closing so as not to delay the time line for construction of the new homes that were then so highly in demand. Trying to hold on to their real-estate contracts, purchasers were quick to file suit to force the sale if they heard of any attempts by a seller to break a deal and sell instead to a competing bidder.
NOT SO FAST
However, since the housing market entered its cyclical downturn, the buyers of residential development projects are no longer analyzing deals under fast and furious trajectories of increased new home prices. Profit margins have tightened, and developers’ flexibility to take on the risk of increased development costs has correspondingly declined.
In this environment, residential developers can no longer assume that issues affecting their development costs will not financially strain a project. They now expect sellers, who are typically sophisticated parties in these types of transactions, to share more in the financial risks. Many residential home developers have also found themselves holding excess inventory—and their interests have shifted from acquiring property to depleting the supply that they hold. Sellers, on the other hand, no longer have a line of back-up bidders knocking at their doors and have lost much of the leverage they previously held over their buyers.
In short, as the housing market has slowed, tensions between purchasers and sellers with diverging interests have mounted, and a new wave of litigation is spinning off from residential land development deals gone sour. So what is all the fighting about?
The crucial fact is that the typical land acquisition deal for the construction of new homes involves a due-diligence period during which the purchaser studies the feasibility of the project. At the conclusion of the due-diligence period, the buyer typically decides if it wants to go forward with the contract or to exercise an option to walk away from the deal. Once the purchaser (the developer) commits to the project, the seller is usually obligated to complete the process of subdividing the land into buildable lots, with all required governmental approvals, before the purchaser has an obligation to close. These two periods—due diligence and the subdivision development process—are breeding grounds for disputes.
In today’s market, disagreements between buyers and sellers are arising as early as the due-diligence period. Developers are now taking more time with their due diligence than they did when new home sales were burgeoning and are more closely scrutinizing the economics of a project before committing to it.
The discovery of issues that can affect the costs, complexity,and time line for the intended development is causing developers with narrower profit margins to proceed with caution. For example, if a developer discovers the presence of a hazardous material that requires remediation on the site, it may seek an extension of the due-diligence period to see whether the hazardous material might lead to increased costs or delay. A developer may try to renegotiate the deal for a reduced purchase price reflecting the increased risk or may demand that the seller share the risk by bearing some or all of the remediation costs. Such demands to rewrite a deal or share costs tend not to sit well with sellers, who are anxious to close their deals as quickly as possible to convert their asset to cash.
Other tensions related to due diligence arise out of the sellers’ obligations to disclose information known to them about the property. While buyers expect sellers to fully disclose information about conditions on the property that might affect its development, sellers also have a disincentive to come forward with information that may have an adverse impact on the buyers’ willingness to purchase the property. In fact, sellers may delay making their disclosures until late in the study period to diminish the amount of time the buyer has to consider the information. But that can lead to further problems: Once the buyer is committed to the contract but may still want to get out of the deal, the buyer may look to the seller’s nondisclosure of any important information as a means for declaring the seller in default.
THE GREAT DIVIDE
The subdivision process is the next phase in the development process place where disputes are on the rise. The contracts typically require the seller to apply for and obtain approval of the planned development from the required governmental authorities. This process often means the seller must submit plans for the new residential development to the locality’s land-use or planning commission. It may also mean that the seller must apply to rezone the property to maximize the allowable density of lots, thereby increasing the number of lots the seller can sell and the number of new homes the purchaser can build.
The sellers are also typically responsible for coordinating the provision of water, sewer, utilities, and roadway access to the site, responding to the locality’s comments and conditions to approval for the project, working with transportation departments on roadway approvals, and working with environmental, wetlands, engineering, or archaeological consultants to analyze and address factors that can affect the development of the land.
These activities can give rise to countless obstacles. It’s these obstacles that are giving rise to disputes. For example, the presence of wetlands or environmentally protected areas may limit exactly where residential lots will be permitted on the property. And with a reduced area of usable land, the number of buildable lots the property will yield might be cut to an amount less than the minimum number of lots required by the contract. In circumstances like this, if buyers cannot negotiate a sharing of the risk or resolution of the issue, they often seek to get out of the deal. Sellers, on the other hand, may attempt to avoid this obstacle and simply allow time to pass in hopes that the purchaser will become more willing to rework the project once the market bounces back. As the economics of a project start to fail, the developers are not hesitating to immediately hold sellers in default and terminate deals. Sellers resist, and litigation is under way.
ONE MORE STEP
The final place where disputes are arising is the closing phase of the deals. In the closing phase, a series of conditions usually must be satisfied before the buyer is obligated to tender the purchase price on the property. For example, contracts tend to require the seller to be able to deliver a clear and marketable title free of any liens at closing. But if the seller has run short on cash and failed to pay the contractors it hired to construct the roadways and if the contractors have filed for a lien against the property, a buyer is now more likely to delay closing and demand that the seller resolve the issue on its own, rather than waive the condition or assist the seller in satisfying the obligation. Buyers who used to be willing to tie up these kinds of loose ends are now, instead, holding the sellers strictly to their obligations.
Residential developers’ increased scrutiny of the conditions to closing and decreased flexibility to take on extra economic risk are also leading to disagreements over the quality of a seller’s satisfaction of conditions. For example, the buyer who learns that a seller failed to disclose certain information about the property that will increase development costs is now more willing to declare the seller in default and refuse to close on the deal. Then, what often happens is that the seller contests knowledge of the condition, argues that the purchaser knew of the condition all along, and demands that the purchaser close. When buyers terminate or refuse to close, which they are increasingly willing to do, litigation over the deposit, at a minimum, is almost certain to follow.
We expect disputes and litigation between purchasers and sellers of land for new home development to continue until the housing market for new homes picks up again. In the meantime, residential real estate developers will probably spend a little more time with their litigation counsel than they did in past years.
http://www.wcsr.com/default.asp?id=114&objId=230
This article is reprinted with permission from Legal Times.
It's no secret that the housing market has slowed in recent months. According to the National Association of Realtors, new home sales in 2006 were estimated at 1.06 million, the fourth highest annual total on record. In contrast, experts predict that new home sales will decline to 961,000 in 2007 and then rise only slightly to 971,000 in 2008.
This downturn in the housing cycle is not just making things difficult for sellers. It’s also creating an environment of increased adversity between buyers and sellers of residential development projects and spawning a flurry of litigation.
In recent years, when the housing market was on a consistent upswing, residential home developers were clamoring to snatch up property to add to their inventory. When residential developers entered into contracts to purchase land for development, they were willing to conduct the required due diligence in as few as 30 to 90 days. And even if issues turned up that could increase the development costs, purchasers then had more flexibility in their anticipated profit margins to overlook the problems.
They were willing to take these risks on the assumption that the accelerating sale prices of the homes to be built on the property would be more than enough to absorb any unexpected increases in development costs. Residential developers were also willing to expedite their land acquisitions by waiving conditions to closing so as not to delay the time line for construction of the new homes that were then so highly in demand. Trying to hold on to their real-estate contracts, purchasers were quick to file suit to force the sale if they heard of any attempts by a seller to break a deal and sell instead to a competing bidder.
NOT SO FAST
However, since the housing market entered its cyclical downturn, the buyers of residential development projects are no longer analyzing deals under fast and furious trajectories of increased new home prices. Profit margins have tightened, and developers’ flexibility to take on the risk of increased development costs has correspondingly declined.
In this environment, residential developers can no longer assume that issues affecting their development costs will not financially strain a project. They now expect sellers, who are typically sophisticated parties in these types of transactions, to share more in the financial risks. Many residential home developers have also found themselves holding excess inventory—and their interests have shifted from acquiring property to depleting the supply that they hold. Sellers, on the other hand, no longer have a line of back-up bidders knocking at their doors and have lost much of the leverage they previously held over their buyers.
In short, as the housing market has slowed, tensions between purchasers and sellers with diverging interests have mounted, and a new wave of litigation is spinning off from residential land development deals gone sour. So what is all the fighting about?
The crucial fact is that the typical land acquisition deal for the construction of new homes involves a due-diligence period during which the purchaser studies the feasibility of the project. At the conclusion of the due-diligence period, the buyer typically decides if it wants to go forward with the contract or to exercise an option to walk away from the deal. Once the purchaser (the developer) commits to the project, the seller is usually obligated to complete the process of subdividing the land into buildable lots, with all required governmental approvals, before the purchaser has an obligation to close. These two periods—due diligence and the subdivision development process—are breeding grounds for disputes.
In today’s market, disagreements between buyers and sellers are arising as early as the due-diligence period. Developers are now taking more time with their due diligence than they did when new home sales were burgeoning and are more closely scrutinizing the economics of a project before committing to it.
The discovery of issues that can affect the costs, complexity,and time line for the intended development is causing developers with narrower profit margins to proceed with caution. For example, if a developer discovers the presence of a hazardous material that requires remediation on the site, it may seek an extension of the due-diligence period to see whether the hazardous material might lead to increased costs or delay. A developer may try to renegotiate the deal for a reduced purchase price reflecting the increased risk or may demand that the seller share the risk by bearing some or all of the remediation costs. Such demands to rewrite a deal or share costs tend not to sit well with sellers, who are anxious to close their deals as quickly as possible to convert their asset to cash.
Other tensions related to due diligence arise out of the sellers’ obligations to disclose information known to them about the property. While buyers expect sellers to fully disclose information about conditions on the property that might affect its development, sellers also have a disincentive to come forward with information that may have an adverse impact on the buyers’ willingness to purchase the property. In fact, sellers may delay making their disclosures until late in the study period to diminish the amount of time the buyer has to consider the information. But that can lead to further problems: Once the buyer is committed to the contract but may still want to get out of the deal, the buyer may look to the seller’s nondisclosure of any important information as a means for declaring the seller in default.
THE GREAT DIVIDE
The subdivision process is the next phase in the development process place where disputes are on the rise. The contracts typically require the seller to apply for and obtain approval of the planned development from the required governmental authorities. This process often means the seller must submit plans for the new residential development to the locality’s land-use or planning commission. It may also mean that the seller must apply to rezone the property to maximize the allowable density of lots, thereby increasing the number of lots the seller can sell and the number of new homes the purchaser can build.
The sellers are also typically responsible for coordinating the provision of water, sewer, utilities, and roadway access to the site, responding to the locality’s comments and conditions to approval for the project, working with transportation departments on roadway approvals, and working with environmental, wetlands, engineering, or archaeological consultants to analyze and address factors that can affect the development of the land.
These activities can give rise to countless obstacles. It’s these obstacles that are giving rise to disputes. For example, the presence of wetlands or environmentally protected areas may limit exactly where residential lots will be permitted on the property. And with a reduced area of usable land, the number of buildable lots the property will yield might be cut to an amount less than the minimum number of lots required by the contract. In circumstances like this, if buyers cannot negotiate a sharing of the risk or resolution of the issue, they often seek to get out of the deal. Sellers, on the other hand, may attempt to avoid this obstacle and simply allow time to pass in hopes that the purchaser will become more willing to rework the project once the market bounces back. As the economics of a project start to fail, the developers are not hesitating to immediately hold sellers in default and terminate deals. Sellers resist, and litigation is under way.
ONE MORE STEP
The final place where disputes are arising is the closing phase of the deals. In the closing phase, a series of conditions usually must be satisfied before the buyer is obligated to tender the purchase price on the property. For example, contracts tend to require the seller to be able to deliver a clear and marketable title free of any liens at closing. But if the seller has run short on cash and failed to pay the contractors it hired to construct the roadways and if the contractors have filed for a lien against the property, a buyer is now more likely to delay closing and demand that the seller resolve the issue on its own, rather than waive the condition or assist the seller in satisfying the obligation. Buyers who used to be willing to tie up these kinds of loose ends are now, instead, holding the sellers strictly to their obligations.
Residential developers’ increased scrutiny of the conditions to closing and decreased flexibility to take on extra economic risk are also leading to disagreements over the quality of a seller’s satisfaction of conditions. For example, the buyer who learns that a seller failed to disclose certain information about the property that will increase development costs is now more willing to declare the seller in default and refuse to close on the deal. Then, what often happens is that the seller contests knowledge of the condition, argues that the purchaser knew of the condition all along, and demands that the purchaser close. When buyers terminate or refuse to close, which they are increasingly willing to do, litigation over the deposit, at a minimum, is almost certain to follow.
We expect disputes and litigation between purchasers and sellers of land for new home development to continue until the housing market for new homes picks up again. In the meantime, residential real estate developers will probably spend a little more time with their litigation counsel than they did in past years.
http://www.wcsr.com/default.asp?id=114&objId=230
Friday, June 1, 2007
FCC Consent Decrees: Payola Guidance
The Federal Communications Commission has released the details of consent decrees with four major broadcast groups. In exchange for terminating the FCC's investigation of payola allegations, CBS Radio, Citadel Broadcasting, Clear Channel and Entercom are to make "voluntary contributions" to the US Treasury of between $2 million and $4 million and agreed to adhere to a set of Business Reforms for the next three years.
Aside from the amounts of the contributions, the terms of the consent decrees and the associated Business Reforms are the same and may be considered as providing guidance to the industry as to the Commission’s current view of acceptable promotional practices by record labels and radio stations.
The Business Reforms begin by restating the traditional payola ban on soliciting, receiving or accepting cash or other items of value from a record label or its representatives in exchange for providing or increasing airplay of music from the record label or any of its artists.
The Commission now has further provided that no item of value may be accepted from an independent music promoter unless the promoter certifies in writing that it has not been compensated by the record label based upon airplay.
This general prohibition is subject to a major exception for permitted activity surrounding contests, promotions or giveaways. According to the consent orders, stations and their employees may solicit, receive and accept items of value to give away on the air, at station events or promotions, or for the benefit of charities. Such materials may include promotional items, gift cards, CDs, gift certificates, concert tickets, airfare, hotel rooms, vouchers and cash. However, they cannot be given to company employees or members of their immediate families or households. Moreover, if used in a contest, the rules and on-air announcements for the contest must clearly indicate the value of the prizes and identify the record label as the provider.
The Commission further clarified that stations and their employees may accept payment (whether cash or other items of value) from record labels for on-air advertising, provided that proper sponsorship identification announcements are made. In addition artists may appear at events or interviews for which their record label has subsidized "reasonable" costs, so long as onair announcements identify the record label as a sponsor. Beyond the restrictions that apply to all on-air advertising and promotion, stations and labels may enter into commercial transactions by which a station agrees to license, sell, distribute or promote a label’s artists, songs or records.
The Commission has also defined several categories of "nominal consideration" which stations and their employees may solicit, receive and accept from record labels for use by the station without running afoul of the payola policies. These include:
* Electronic copies of songs and up to 20 copies of a CD for the purpose of familiarizing station employees with the recordings.
* Electronic copies of recordings for posting on station websites to familiarize visitors with the recordings.
* Promotional items such as t-shirts, key chains, coffee mugs, baseball hats, posters, pens and bumper stickers, intended for the personal use of station employees and having an individual value of $25 or less.
* Up to 20 concert tickets (including associated backstage or "VIP"-type passes) to be used by station employees (plus additional tickets for employees who are working at the concert).
* Gifts of up to $150 to commemorate an employee's life events, professional achievements and holidays (such as for a birthday, wedding, birth of a child, job promotion or winning a music industry award).
* Meals and entertainment having a value of up to $150 per person (including an accompanying spouse or significant other) for an event attended by a record label employee and having a legitimate business purpose. Meals and entertainment exceeding $150 per person may be accepted if approved in writing by a station's compliance officer consistent with the terms of a company-wide compliance plan that the consent decrees require each company to adopt.
* Reasonable travel and lodging expenses to attend live performances and appearances by record label artists for the purpose of familiarizing station employees with the artists, subject to a limit of 20 such trips annually to be allocated among all company employees.
The Commission notes that there may be a natural increase in airplay of an artist's music during the period surrounding the artist's appearance at an event, contest or giveaway promoting the artist. However, if the increase in airplay results from an agreement or understanding with the record label or the artist, then the increased airplay is considered to have been sponsored by the label or artist and must be identified as such.
The Commission has also imposed documentation requirements – a database record of: each item of value received from a record label; the disposition and identification of contestwinners of prizes valued at more than $25; the addresses of recipients of prizes that exceed the monetary reporting threshold of the Internal Revenue Service (currently $600); and written agreements for all advertising by record labels.
Finally, the Commission required each of the four settling companies to engage in training to familiarize personnel with the requirements of the Business Reforms, to appoint a compliance officer, to designate a compliance contact in each market, to establish a hotline for employees to obtain advice on compliance and report violations, and to insert into all personnel contracts a clause relating to compliance with the sponsorship identification laws.
Enforcement of potential violations of these requirements is to be strict: upon issuance of a future Notice of Apparent Liability to any of the four companies alleging violation of the Commission's sponsorship identification laws, any accused employee is to be suspended, immediately investigated and required to undergo remedial training. If a violation is found, the employee is to be subject to further disciplinary action, including termination. While the Commission’s new guidelines only apply directly to the four settling parties, they comprise the Commission's most current thoughts about payola. Consequently, while not necessarily a safe harbor, they would seem to provide reasonable standards for stations' vigilance in this often gray area of policy.
If there is a common theme to the Commission’s consent decrees and their associated Business Reforms, it seems to be that the closest scrutiny will be directed toward consideration having an on-air component, whether music exposure, publicity or contest prizes. The Commission seems to be taking a more indulgent view toward consideration that merely has the potential to influence broadcast content, such as promotional items for employee use, personal gifts, and attendance at concerts and artist appearances. The key, which has remained relatively constant over the last four decades, is disclosure of situations which an outsider might construe as conferring an unfair advantage to the provider in crafting a station's on-air product.
http://www.wcsr.com/default.asp?id=114&objId=235
Aside from the amounts of the contributions, the terms of the consent decrees and the associated Business Reforms are the same and may be considered as providing guidance to the industry as to the Commission’s current view of acceptable promotional practices by record labels and radio stations.
The Business Reforms begin by restating the traditional payola ban on soliciting, receiving or accepting cash or other items of value from a record label or its representatives in exchange for providing or increasing airplay of music from the record label or any of its artists.
The Commission now has further provided that no item of value may be accepted from an independent music promoter unless the promoter certifies in writing that it has not been compensated by the record label based upon airplay.
This general prohibition is subject to a major exception for permitted activity surrounding contests, promotions or giveaways. According to the consent orders, stations and their employees may solicit, receive and accept items of value to give away on the air, at station events or promotions, or for the benefit of charities. Such materials may include promotional items, gift cards, CDs, gift certificates, concert tickets, airfare, hotel rooms, vouchers and cash. However, they cannot be given to company employees or members of their immediate families or households. Moreover, if used in a contest, the rules and on-air announcements for the contest must clearly indicate the value of the prizes and identify the record label as the provider.
The Commission further clarified that stations and their employees may accept payment (whether cash or other items of value) from record labels for on-air advertising, provided that proper sponsorship identification announcements are made. In addition artists may appear at events or interviews for which their record label has subsidized "reasonable" costs, so long as onair announcements identify the record label as a sponsor. Beyond the restrictions that apply to all on-air advertising and promotion, stations and labels may enter into commercial transactions by which a station agrees to license, sell, distribute or promote a label’s artists, songs or records.
The Commission has also defined several categories of "nominal consideration" which stations and their employees may solicit, receive and accept from record labels for use by the station without running afoul of the payola policies. These include:
* Electronic copies of songs and up to 20 copies of a CD for the purpose of familiarizing station employees with the recordings.
* Electronic copies of recordings for posting on station websites to familiarize visitors with the recordings.
* Promotional items such as t-shirts, key chains, coffee mugs, baseball hats, posters, pens and bumper stickers, intended for the personal use of station employees and having an individual value of $25 or less.
* Up to 20 concert tickets (including associated backstage or "VIP"-type passes) to be used by station employees (plus additional tickets for employees who are working at the concert).
* Gifts of up to $150 to commemorate an employee's life events, professional achievements and holidays (such as for a birthday, wedding, birth of a child, job promotion or winning a music industry award).
* Meals and entertainment having a value of up to $150 per person (including an accompanying spouse or significant other) for an event attended by a record label employee and having a legitimate business purpose. Meals and entertainment exceeding $150 per person may be accepted if approved in writing by a station's compliance officer consistent with the terms of a company-wide compliance plan that the consent decrees require each company to adopt.
* Reasonable travel and lodging expenses to attend live performances and appearances by record label artists for the purpose of familiarizing station employees with the artists, subject to a limit of 20 such trips annually to be allocated among all company employees.
The Commission notes that there may be a natural increase in airplay of an artist's music during the period surrounding the artist's appearance at an event, contest or giveaway promoting the artist. However, if the increase in airplay results from an agreement or understanding with the record label or the artist, then the increased airplay is considered to have been sponsored by the label or artist and must be identified as such.
The Commission has also imposed documentation requirements – a database record of: each item of value received from a record label; the disposition and identification of contestwinners of prizes valued at more than $25; the addresses of recipients of prizes that exceed the monetary reporting threshold of the Internal Revenue Service (currently $600); and written agreements for all advertising by record labels.
Finally, the Commission required each of the four settling companies to engage in training to familiarize personnel with the requirements of the Business Reforms, to appoint a compliance officer, to designate a compliance contact in each market, to establish a hotline for employees to obtain advice on compliance and report violations, and to insert into all personnel contracts a clause relating to compliance with the sponsorship identification laws.
Enforcement of potential violations of these requirements is to be strict: upon issuance of a future Notice of Apparent Liability to any of the four companies alleging violation of the Commission's sponsorship identification laws, any accused employee is to be suspended, immediately investigated and required to undergo remedial training. If a violation is found, the employee is to be subject to further disciplinary action, including termination. While the Commission’s new guidelines only apply directly to the four settling parties, they comprise the Commission's most current thoughts about payola. Consequently, while not necessarily a safe harbor, they would seem to provide reasonable standards for stations' vigilance in this often gray area of policy.
If there is a common theme to the Commission’s consent decrees and their associated Business Reforms, it seems to be that the closest scrutiny will be directed toward consideration having an on-air component, whether music exposure, publicity or contest prizes. The Commission seems to be taking a more indulgent view toward consideration that merely has the potential to influence broadcast content, such as promotional items for employee use, personal gifts, and attendance at concerts and artist appearances. The key, which has remained relatively constant over the last four decades, is disclosure of situations which an outsider might construe as conferring an unfair advantage to the provider in crafting a station's on-air product.
http://www.wcsr.com/default.asp?id=114&objId=235
Supreme Court Issues Unanimous Decision Broadening the Obviousness Test for Determining Patent Invalidity
Suppreme Court Patent Decision: KSR Int'l Co. Vs. Teleflex Inc.
On April 30, 2007, the Supreme Court issued a unanimous decision in KSR Int’l Co. v. Teleflex Inc. that revised existing patent law on the issue of obviousness, making it easier for companies to challenge patents on the grounds that they cover products that are obvious combinations of existing technology. The Court decided that a patent claim reciting a combination of existing inventions and technologies for adjustable gas pedals was invalid for obviousness, reversing a decision by the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit’s decision was based on a test known as the "teaching, suggestion, or motivation" (TSM) test. Under the TSM test, when a patent is based on the combination of multiple prior art references, a patent challenger must establish some suggestion, teaching, or motivation that would have led a person of ordinary skill in the art to combine "prior art" (public domain) teachings in the manner claimed in the patent. The Supreme Court criticized the Federal Circuit’s application of the TSM test as too rigid and too narrow.
Key Conclusions of KSR
* A patent claim reciting a combination of elements that can each be found in the prior art will likely be obvious when that combination yields "predictable" results.
* Courts and patent examiners should not focus solely on the problem the patent holder was trying to solve when determining obviousness. Rather, any need or problem known in the field at the time of the invention and addressed in the patent can provide a reason for the combination, thereby leading to obviousness.
* A patent claim can be invalidated by a showing that the combination of elements was "obvious to try." According to the Court, the influence of design or market trends upon the development of a claimed invention may make it obvious.
* KSR significantly broadens the universe of information that a Court may consider in determining whether there exists a teaching, suggestion, or motivation to combine prior art references so as to render a patent claim obvious.
Consequences of KSR
* Vulnerability of Inventions Comprising Combinations of Old Elements- Previously, a patentee could take comfort in Federal Circuit law holding that combinations based on entirely new, partly new, or all old elements could be patentable and that an accused infringer's attempts to merely cite the existence in the prior art of each claim limitation, without more, were not helpful to the invalidity defense. Now, although merely citing the existence of each claim limitation in the prior art may still not be enough to render a claim obvious, it does bring the accused infringer one step closer to invalidating the claim. This broadened obviousness analysis will most highly impact inventions in the mechanical and electrical areas, where predictability of results is more common than with such fields as microbiology.
* Presumption of Validity Opened to Attack in Certain Cases - Under Federal Circuit precedent, the burden to overcome the presumption of validity with clear and convincing evidence is more easily carried when the patent challenger cites prior art that was not considered by the U.S.P.T.O. examiner during prosecution of the patent application. In KSR, a key prior art patent had not been considered during prosecution, and the Court remarked: "We...think it appropriate to note that the rationale underlying the presumption – that the PTO, in its expertise, has approved the claim – seems much diminished here." This statement may open the door to more direct attacks on the presumption of validity in future cases where the patent challenger relies on previously-uncited prior art.
* Potential for Greater Use of Summary Judgment to Declare Invalidity- Reiterating that obviousness is ultimately a legal question for a district court judge to decide, the Supreme Court found that the case was ripe for resolution of obviousness on summary judgment because there was no genuine dispute of material fact as to the level of skill in the art, the content of the prior art, and the scope of the patent claim. While this treatment does not represent a change in the law, the Supreme Court’s approval of summary judgment in KSR may encourage district courts to more seriously consider disposing of patent cases before trial based upon obviousness defenses.
* Reaction by USPTO – On May 3, 2007, the Deputy Commissioner of Patents issued an internal Memorandum to examining group directors, indicating that the PTO would issue guidelines to its patent examiners on how to apply KSR to patent applications, but that in the meantime, the directors should note that the Supreme Court did not reject the TSM test and required explicit reasons for combining the teachings of prior art patents to render a claim obvious. The Memorandum concluded that it "remains necessary" to identify the reason supporting a proposed combination of prior art references.
Adapting to Change in Law Wrought by KSR
* Patent Applicants facing an obviousness rejection should ensure that the examiner followed the PTO's guidelines regarding KSR. Rejections not following the guidelines are subject to being withdrawn or overruled on appeal.
* Current patent litigants should reevaluate the likelihood of success of any obviousness defense asserted in the litigation, in light of KSR. If the claimed invention is in the mechanical or electrical area, then the litigants should explore whether any viable basis exists for classifying the results of the invention as "unpredictable." The likelihood of summary judgment resolution should also be considered. In this manner, patentees can reassess the invalidity risks of continuing with the litigation, and accused infringers can reassess how likely they are to end the litigation favorably, and at the very least, whether they have acquired any leverage with which to force a settlement of the case.
* Potential patent litigants - Patentees considering a lawsuit, as well as potential infringers facing a threat of litigation against them, should perform the same KSR analysis described above. The results of that analysis may impact the decision on whether the patentee should initiate litigation in the first place. If the patentee has threatened legal action, or even just offered a license, then the accused infringer may have grounds to initiate a declaratory judgment action against the patentee, and the KSR analysis can determine whether the infringer stands a substantial chance of prevailing in that action on obviousness invalidity grounds.
Ms. Sperry is an Associate, and Mr. Cicero is a Member, at Womble Carlyle Sandridge & Rice, PLLC ("Womble Carlyle"), where they both concentrate their practices on intellectual property litigation. The views herein expressed are solely those of the authors and are not necessarily the views of Womble Carlyle or its clients, are set forth only for purposes of discussion of the state of the law as of the date of this article, and should not be construed as legal advice. Any questions concerning the application of legal principles to particular facts should be presented in confidence to appropriate legal counsel.
http://www.wcsr.com/default.asp?id=114&objId=238
On April 30, 2007, the Supreme Court issued a unanimous decision in KSR Int’l Co. v. Teleflex Inc. that revised existing patent law on the issue of obviousness, making it easier for companies to challenge patents on the grounds that they cover products that are obvious combinations of existing technology. The Court decided that a patent claim reciting a combination of existing inventions and technologies for adjustable gas pedals was invalid for obviousness, reversing a decision by the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit’s decision was based on a test known as the "teaching, suggestion, or motivation" (TSM) test. Under the TSM test, when a patent is based on the combination of multiple prior art references, a patent challenger must establish some suggestion, teaching, or motivation that would have led a person of ordinary skill in the art to combine "prior art" (public domain) teachings in the manner claimed in the patent. The Supreme Court criticized the Federal Circuit’s application of the TSM test as too rigid and too narrow.
Key Conclusions of KSR
* A patent claim reciting a combination of elements that can each be found in the prior art will likely be obvious when that combination yields "predictable" results.
* Courts and patent examiners should not focus solely on the problem the patent holder was trying to solve when determining obviousness. Rather, any need or problem known in the field at the time of the invention and addressed in the patent can provide a reason for the combination, thereby leading to obviousness.
* A patent claim can be invalidated by a showing that the combination of elements was "obvious to try." According to the Court, the influence of design or market trends upon the development of a claimed invention may make it obvious.
* KSR significantly broadens the universe of information that a Court may consider in determining whether there exists a teaching, suggestion, or motivation to combine prior art references so as to render a patent claim obvious.
Consequences of KSR
* Vulnerability of Inventions Comprising Combinations of Old Elements- Previously, a patentee could take comfort in Federal Circuit law holding that combinations based on entirely new, partly new, or all old elements could be patentable and that an accused infringer's attempts to merely cite the existence in the prior art of each claim limitation, without more, were not helpful to the invalidity defense. Now, although merely citing the existence of each claim limitation in the prior art may still not be enough to render a claim obvious, it does bring the accused infringer one step closer to invalidating the claim. This broadened obviousness analysis will most highly impact inventions in the mechanical and electrical areas, where predictability of results is more common than with such fields as microbiology.
* Presumption of Validity Opened to Attack in Certain Cases - Under Federal Circuit precedent, the burden to overcome the presumption of validity with clear and convincing evidence is more easily carried when the patent challenger cites prior art that was not considered by the U.S.P.T.O. examiner during prosecution of the patent application. In KSR, a key prior art patent had not been considered during prosecution, and the Court remarked: "We...think it appropriate to note that the rationale underlying the presumption – that the PTO, in its expertise, has approved the claim – seems much diminished here." This statement may open the door to more direct attacks on the presumption of validity in future cases where the patent challenger relies on previously-uncited prior art.
* Potential for Greater Use of Summary Judgment to Declare Invalidity- Reiterating that obviousness is ultimately a legal question for a district court judge to decide, the Supreme Court found that the case was ripe for resolution of obviousness on summary judgment because there was no genuine dispute of material fact as to the level of skill in the art, the content of the prior art, and the scope of the patent claim. While this treatment does not represent a change in the law, the Supreme Court’s approval of summary judgment in KSR may encourage district courts to more seriously consider disposing of patent cases before trial based upon obviousness defenses.
* Reaction by USPTO – On May 3, 2007, the Deputy Commissioner of Patents issued an internal Memorandum to examining group directors, indicating that the PTO would issue guidelines to its patent examiners on how to apply KSR to patent applications, but that in the meantime, the directors should note that the Supreme Court did not reject the TSM test and required explicit reasons for combining the teachings of prior art patents to render a claim obvious. The Memorandum concluded that it "remains necessary" to identify the reason supporting a proposed combination of prior art references.
Adapting to Change in Law Wrought by KSR
* Patent Applicants facing an obviousness rejection should ensure that the examiner followed the PTO's guidelines regarding KSR. Rejections not following the guidelines are subject to being withdrawn or overruled on appeal.
* Current patent litigants should reevaluate the likelihood of success of any obviousness defense asserted in the litigation, in light of KSR. If the claimed invention is in the mechanical or electrical area, then the litigants should explore whether any viable basis exists for classifying the results of the invention as "unpredictable." The likelihood of summary judgment resolution should also be considered. In this manner, patentees can reassess the invalidity risks of continuing with the litigation, and accused infringers can reassess how likely they are to end the litigation favorably, and at the very least, whether they have acquired any leverage with which to force a settlement of the case.
* Potential patent litigants - Patentees considering a lawsuit, as well as potential infringers facing a threat of litigation against them, should perform the same KSR analysis described above. The results of that analysis may impact the decision on whether the patentee should initiate litigation in the first place. If the patentee has threatened legal action, or even just offered a license, then the accused infringer may have grounds to initiate a declaratory judgment action against the patentee, and the KSR analysis can determine whether the infringer stands a substantial chance of prevailing in that action on obviousness invalidity grounds.
Ms. Sperry is an Associate, and Mr. Cicero is a Member, at Womble Carlyle Sandridge & Rice, PLLC ("Womble Carlyle"), where they both concentrate their practices on intellectual property litigation. The views herein expressed are solely those of the authors and are not necessarily the views of Womble Carlyle or its clients, are set forth only for purposes of discussion of the state of the law as of the date of this article, and should not be construed as legal advice. Any questions concerning the application of legal principles to particular facts should be presented in confidence to appropriate legal counsel.
http://www.wcsr.com/default.asp?id=114&objId=238
Subscribe to:
Posts (Atom)