Part three
The following article was originally printed in Around the Bar, the monthly publication of the Baton Rouge Bar Association.
This article is intended for attorneys and therefore has a more "scholarly" approach that may be less easy to read. However, for the lawyer or for the layman with a serious interest in the subject, this article presents a complete review of current Louisiana law on grandparent visitation.
Grandparent Visitation Rights in Louisiana
What rights should grandparents have to see their grandchildren? Should it make a difference if the parents are divorced or if one of the parents is dead or in jail? Can the states have legislation allowing grandparent visitation, or is there an absolute constitutional right for a parent to be free from any interference in the way the parent decides to raise the child?
At the present time, it looks like the Louisiana First and Third Circuit Courts of Appeal and the United States Supreme Court may be in disagreement on these issues. Will the Louisiana Supreme Court and/or the Louisiana Law Institute arrive at a solution? Stay tuned….
Troxel v. Granville
At the heart of the dispute is the U.S. Supreme Court case decided in June of 2000 that put many state legislatures into panic mode (Jennifer Troxel v. Tommie Granville 530 U.S. 57). At issue was a Washington State law (Section 26.10.160(3)) that permits “any person” to petition a superior court for visitation rights “at any time” and authorizes the court to grant visitation when it would “serve the best interest of the child.”
Tommie Granville and Brad Troxel had two daughters. They never married and ended their relationship in 1991. Brad lived with his parents, Jennifer and Gary Troxel, and regularly brought his daughters to the Troxels’ house for weekend visitation during a two-year period. Brad committed suicide in 1993, but the Troxels continued to see their granddaughters on a regular basis after their son’s death. Late in 1993, Tommie Granville informed the Troxels that she would not allow any further visitation except for one short visit per month. The Troxels sued for visitation rights in Superior Court under Washington’s statute and asked for two weekends of visitation each month and two weeks in the summer. Granville did not oppose visitation entirely, but wanted to allow only one day of visitation each month without any time overnight. In 1995, the Superior Court awarded the Troxels one weekend per month, one week during the summer, and four hours on each grandparent’s birthday.
Granville appealed during which time she married and her new husband adopted the daughters. Eventually, the case was heard by the Washington Supreme Court which found that the statute under which the Troxels gained visitation unconstitutionally infringed on the fundamental right of parents to rear their children. The U.S. Supreme Court granted certiorari in 1999 and affirmed the Washington judgment. The majority (there were three strong dissents) found that the Fourteenth Amendment provides that no state “shall deprive a person of life, liberty, or property” and that “The liberty interest at issue in this case—the interest of parents in the care, custody, and control of their children—is perhaps the oldest of the fundamental liberty interests recognized by the Court.”
Of course, it could also be argued that this decision has the effect of substituting a court’s understanding of family relationships with the understanding of elected bodies, thereby allowing a mother, for whatever motives, to sever all relations to one-half the bloodline of the children. As Justice Scalia said in his dissent: “I think it obvious—whether we affirm or reverse the judgment here, or remand as Justice Stevens or Justice Kennedy would do—that we will be ushering in a new regime of judicially prescribed, and federally prescribed, family law. I have no reason to believe that federal judges will be better at this than state legislatures; and state legislatures have the great advantages of doing harm in a more circumscribed area, of being able to correct their mistakes in a flash, and of being removable by the people.”
If you look at the many amicus briefs filed in Troxel, you can see how the wagons have been circled for future disputes over this issue. Filing briefs on behalf of the mother were: Northwest Women's Law Center et al; Coalition for the Restoration of Parental Rights; American Academy of Matrimonial Lawyers; Lambda Legal Defense and Education Fund et al; and nine others. Filing briefs on behalf of the grandparents were: American Association of Retired Persons; Grandparent Caregiver Law Center: National Conference of State Legislatures et al; and two others.
Louisiana Statutory Law
Louisiana has three statutes that control the issue of grandparent visitation. These statutes may or may not run afoul of Troxel, depending on how you wish to argue and, perhaps, whether you are in the Third Circuit or the First Circuit.
Children’s Code Article 1264 is aimed exactly at the situation in Troxel where a parent is deceased and the children are adopted by a new parent:
Art. 1264 Post-adoption visitation rights of grandparents
Notwithstanding any provision of law to the contrary, the natural parents of a deceased party to a marriage dissolved by death whose child is thereafter adopted, and the parent of a party who has forfeited the right to object to the adoption of his child pursuant to Article 1245 may have limited visitation rights to the minor child so adopted.
Title 9 of the Civil Code Ancillaries allows grandparent visitation where the visitation would be in the best interest of the children:
LSA R.S. 9:344 Visitation rights of grandparents and siblings.
A. If one of the parties to a marriage dies, is interdicted, or incarcerated, and there is a minor child or children of such marriage, the parents of the deceased, interdicted, or incarcerated party without custody of such minor child or children may have reasonable visitation rights to the child or children of the marriage during their minority, if the court in its discretion finds that such visitation rights would be in the best interest of the child or children.
B. When the parents of a minor child or children live in concubinage and one of the parents dies, or is incarcerated, the parents of the deceased or incarcerated party may have reasonable visitation rights to the child or children during their minority, if the court in its discretion finds that such visitation rights would be in the best interest of the child or children.
C. If one of the parties to a marriage dies or is incarcerated, the siblings of a minor child or children of the marriage may have reasonable visitation rights to such child or children during their minority if the court in its discretion finds that such visitation rights would be in the best interest of the child or children.
D. If the parents of a minor child or children of the marriage are legally separated or living apart for a period of six months, the grandparents or siblings of the child or children may have reasonable visitation rights to the child or children during their minority, if the court in its discretion find that such visitation rights would be in the best interest of the child or children.
Finally, Civil Code Article 136 gives visitation rights, under extraordinary circumstances, to a relative by blood or affinity (which, of course, includes grandparents). Where Article 136 conflicts with R.S. 9:344, the provisions of R.S. 9:344 shall supersede Article 136. Before granting visitation under Article 136, the court must consider such things as 1) the length of time and quality of the relationship; 2) whether the child needs guidance which can be best provided by the relative; 3) the preference of the child, if the child is mature enough to express a preference; 4) the willingness of the relative to promote a close relationship with the parent; and, 5) the mental and physical health of the child and the relative.
These three statutes set the scene for the conflict that some courts believe exists with the decision of the U.S. Supreme Court in Troxel.
Louisiana Grandparent Visitation Cases
The Third Circuit narrowly avoided having to rule on the constitutionality of Louisiana’s visitation statutes in State In Re: Satchfield v. Guillot (La.App. 3 Cir. 06/26/02) 820 So.2d 1255. After acknowledging that the case would have to be examined in light of the Troxel decision, the Court concluded that 9:344 did not apply since the parents were together and that the requirement of Civil Code Article 136(B) that there be extraordinary circumstances, upon which the trial court relied, was “a substitution of its judgment for the judgment of Sebastian’s parents without a showing that the parents’ decision is detrimental to the child.” Finding that there were not sufficient extraordinary circumstances, the Court concluded that it did not have to rule on the constitutionality of Article 136(B).
In Dupre v. Dupre (La.App. 3 Cir. 12/30/02) 2002-0902, the Third Circuit had to face the constitutionality of R.S. 9:344 squarely since the father was sentenced to life in prison and the provisions of R.S. 9:344 were certainly applicable to the issue of grandparent visitation. The trial court awarded one weekend per month visitation to the grandparents and the mother appealed. In its decision, the Third Circuit analyzed Troxel and concluded that 9:344, which only allows visitation to the parents of a deceased, interdicted or incarcerated parent, provided it be found to be in the best interest of the child, is easily distinguishable from the ‘breathtakingly broad” statute found unconstitutional in Troxel.
Our own First Circuit has had more trouble deciding where Louisiana’s grandparent visitation statutes stand in relation to the Washington statute found unconstitutional by the U.S. Supreme Court. In Galjour v. Harris (La.App. 1 Cir. 03/28/01) 795 So.2d 350, the First Circuit had no problem distinguishing the Louisiana statutes allowing grandparent visitation from the Washington statute. In Galjour, the mother was deceased and the grandparents petitioned for visitation claiming they had a statutory right under R.S. 9:344 to seek visitation. The father filed an exception claiming the statute was unconstitutional under the Troxel ruling. At trial the grandparents were given visitation on every third weekend subject to some restrictions. The father appealed, claiming the statute was unconstitutional and claiming that the trial court erred in not giving him any special weight in determining what was in his child’s best interest. The court decided that R.S. 9:344 was sufficiently different and limited in its scope from Troxel and “Additionally, the statute’s grant of visitation does not contemplate a significant intrusion upon the child’s relationship with the other parent or interference with said parent’s fundamental right to make childrearing decisions.”
The following year, the First Circuit seems to reverse itself in Wood v. Wood (La.App. 1 Cir. 09/27/02) No. 2002 CU 2819. In this case, the father was incarcerated and the mother and grandparents entered into a stipulated judgment giving the grandparents visitation on the first weekend of each month, one Sunday every other month, and one night on all major holidays. By agreement, the grandparents also paid child support. Because of apparent problems with visitation arrangements, the grandparents asked for and received additional visitation of one week in the summers. The mother appealed the award of the additional one week visitation and the First Circuit reversed the trial court’s award of additional visitation.
The first thing the First Circuit had to do in Wood was justify how it arrived at a different conclusion the year before in Galjour. The court cited the fact that the Legislature, after the Galjour decision, passed a resolution requesting that the Louisiana Law Institute study the effect of Troxel on the Louisiana statutes on child visitation and “report its findings and recommendations to the legislature on or before January 1, 2003.” The First Circuit noted that the request by the Legislature was an expression of concern “for protecting the fundamental rights of parents” rather than the broader and more obvious conclusion that the resolution was a request for guidance as to where Louisiana stood and what (if anything) should be done legislatively.
The Court next addressed the constitutionality of R.S. 9:344, even though the issue was not brought up at the trial level. Finally, the Court determined that the trial judge had put an unfair burden on the parent to show that the additional visitation would be detrimental to the child. In his dissent, Judge Bob Downing pointed out that no such burden had been placed on the parent to show the additional visitation was detrimental. The record showed that the trial court addressed the issue properly: the child’s best interest. There was evidence presented that the child enjoyed her visits, that she visited cousins while at her grandparents’ house, and that she is happy there. Judge Downing then discussed the finding in Galjour that R.S. 9:344 does not represent a significant intrusion on the parent’s rights and observed: “I do not see how an additional one-week of visitation during the summer would be a significant intrusion on the child’s relationship with her mother or an interference with her right to make child-rearing decisions.”
Wood v. Wood has been appealed and the Louisiana Law Institute had scheduled hearings for January 31, 2003, on the issue of Troxel in relation to the Louisiana visitation statutes. As of the writing of this article, no decision has been rendered on Wood and no recommendations have been made by the Law Institute. As for the grandparents in Troxel, the newly discovered constitutional right in that case effectively took away the grandchildren they helped raise and severed all living links to their dead son. Louisiana’s existing statutes, reasonably interpreted, would avoid that particular injustice.
http://www.la-legal.com/modules/article/view.article.php?c4/40
Wednesday, June 6, 2007
Tuesday, June 5, 2007
FCC Acts to Prohibit Franchising Authorities from Unreasonably Denying Competitive Cable Franchises
The Commission has released a Report and Order and Further Notice of Proposed Rulemaking ("FNPRM") regarding its authority to regulate with respect to the Communications Act’s prohibition against local franchising authorities ("LFAs") unreasonably refusing to award competitive franchises for the provision of cable services. Following is a summary of the Commission's decision.
The Commission found that the current operation of the local franchising process in many jurisdictions constitutes an unreasonable barrier to entry that impedes the achievement of the interrelated federal goals of enhanced cable competition and accelerated broadband deployment. In this regard, it explicitly stated its "concern ... that traditional phone companies seeking to enter the video market face unreasonable regulatory obstacles, to the detriment of competition generally and cable subscribers in particular."
The Commission first determined that it is authorized to act. Although a fundamental premise of its decision, this is an issue that almost certainly will be subjected to judicial scrutiny. Indeed, two of the five Commissioners dissented. Commissioner Adelstein characterized the FNPRM as "legislation disguised as regulation" and "an arrogant case of federal power riding roughshod over local governments." He noted that states and municipalities already have introduced franchise reform where needed, that a national remedy is unnecessary, and that many of the specific determinations are unwarranted by the anecdotal evidence presented.
The Commission adopted rules determining that all of the following would constitute an unreasonable refusal to award a competitive franchise:
* an LFA's failure to issue a decision on a competitive application within explicit timeframes – 90 days for entities with existing authority to access rights-of-way and six months for those without such authority;
* an LFA's refusal to grant a competitive franchise because of an applicant’s unwillingness to agree to unreasonable build-out mandates;
* an LFA demanding certain specified costs, fees and other compensation unless such costs are counted toward the statutory 5 percent cap on franchise fees;
* an LFA's denial of an application based upon a new entrant's refusal to undertake certain obligations relating to public, educational and government ("PEG") and institutional networks ("I-Nets") channels; and
* an LFA's refusal to grant a franchise based on issues related to non-cable services or facilities.
Failure to act within the prescribed time limits will result in the grant of an interim franchise based on the terms proposed in the application. The interim grant will remain in effect until final action is taken on the application.
The FNPRM seeks comment on how its findings should affect existing franchisees.
The Commission also preempted local laws, regulations and requirements, including level-playing-field provisions, to the extent they permit LFAs to impose greater restrictions on market entry than the rules adopted in this item.
The Commission found that certain build-out conditions can have an entry-deterring effect. It identified several instances where a build-out requirement would be unreasonable.
* Absent other factors, to require a new competitive entrant to serve everyone in a franchise area before it has begun providing service to anyone.
* To require facilities-based entrants, such as incumbent LECs, to build out beyond the footprint of their existing facilities before they have even begun providing cable service.
* Absent other factors, to require more of a new entrant than an incumbent cable operator by, for instance, requiring the new entrant to build out its facilities in a shorter period of time than that originally afforded to the incumbent cable operator, or requiring the new entrant to build out and provide service to areas of lower density than those to which the incumbent cable operator is required to build out and serve.
The Commission also identified reasonable build-out requirements that an LFA could consider:
* the new entrant's market penetration.
* benchmarks requiring the new entrant to increase its build-out after a reasonable period of time had passed after initiating service and taking into account its market success.
The Commission clarified that cable operators cannot be required to pay franchise fees on revenues from non-cable services. It also held that non-incidental franchise-related costs required by LFAs, such as attorney’s and consultant’s fees, must count toward the 5 percent franchise fee cap. It found that the term "incidental" should be limited to those costs itemized in the Act as well as certain other minor expenses. It also held that requests made by LFAs that are unrelated to the provision of cable services by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.
The Commission further clarified that the Act grants LFAs jurisdiction only with respect to the provision of cable services over cable systems and that it would be unreasonable for an LFA to deny a franchise based on issues unrelated to such services. The Commission makes it clear that LFAs may not use their video franchising authority to regulate a local exchange carrier's network beyond the provision of cable services.
http://www.wcsr.com/default.asp?id=114&objId=226
The Commission found that the current operation of the local franchising process in many jurisdictions constitutes an unreasonable barrier to entry that impedes the achievement of the interrelated federal goals of enhanced cable competition and accelerated broadband deployment. In this regard, it explicitly stated its "concern ... that traditional phone companies seeking to enter the video market face unreasonable regulatory obstacles, to the detriment of competition generally and cable subscribers in particular."
The Commission first determined that it is authorized to act. Although a fundamental premise of its decision, this is an issue that almost certainly will be subjected to judicial scrutiny. Indeed, two of the five Commissioners dissented. Commissioner Adelstein characterized the FNPRM as "legislation disguised as regulation" and "an arrogant case of federal power riding roughshod over local governments." He noted that states and municipalities already have introduced franchise reform where needed, that a national remedy is unnecessary, and that many of the specific determinations are unwarranted by the anecdotal evidence presented.
The Commission adopted rules determining that all of the following would constitute an unreasonable refusal to award a competitive franchise:
* an LFA's failure to issue a decision on a competitive application within explicit timeframes – 90 days for entities with existing authority to access rights-of-way and six months for those without such authority;
* an LFA's refusal to grant a competitive franchise because of an applicant’s unwillingness to agree to unreasonable build-out mandates;
* an LFA demanding certain specified costs, fees and other compensation unless such costs are counted toward the statutory 5 percent cap on franchise fees;
* an LFA's denial of an application based upon a new entrant's refusal to undertake certain obligations relating to public, educational and government ("PEG") and institutional networks ("I-Nets") channels; and
* an LFA's refusal to grant a franchise based on issues related to non-cable services or facilities.
Failure to act within the prescribed time limits will result in the grant of an interim franchise based on the terms proposed in the application. The interim grant will remain in effect until final action is taken on the application.
The FNPRM seeks comment on how its findings should affect existing franchisees.
The Commission also preempted local laws, regulations and requirements, including level-playing-field provisions, to the extent they permit LFAs to impose greater restrictions on market entry than the rules adopted in this item.
The Commission found that certain build-out conditions can have an entry-deterring effect. It identified several instances where a build-out requirement would be unreasonable.
* Absent other factors, to require a new competitive entrant to serve everyone in a franchise area before it has begun providing service to anyone.
* To require facilities-based entrants, such as incumbent LECs, to build out beyond the footprint of their existing facilities before they have even begun providing cable service.
* Absent other factors, to require more of a new entrant than an incumbent cable operator by, for instance, requiring the new entrant to build out its facilities in a shorter period of time than that originally afforded to the incumbent cable operator, or requiring the new entrant to build out and provide service to areas of lower density than those to which the incumbent cable operator is required to build out and serve.
The Commission also identified reasonable build-out requirements that an LFA could consider:
* the new entrant's market penetration.
* benchmarks requiring the new entrant to increase its build-out after a reasonable period of time had passed after initiating service and taking into account its market success.
The Commission clarified that cable operators cannot be required to pay franchise fees on revenues from non-cable services. It also held that non-incidental franchise-related costs required by LFAs, such as attorney’s and consultant’s fees, must count toward the 5 percent franchise fee cap. It found that the term "incidental" should be limited to those costs itemized in the Act as well as certain other minor expenses. It also held that requests made by LFAs that are unrelated to the provision of cable services by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.
The Commission further clarified that the Act grants LFAs jurisdiction only with respect to the provision of cable services over cable systems and that it would be unreasonable for an LFA to deny a franchise based on issues unrelated to such services. The Commission makes it clear that LFAs may not use their video franchising authority to regulate a local exchange carrier's network beyond the provision of cable services.
http://www.wcsr.com/default.asp?id=114&objId=226
Recording Industry Legal Action Against College Students
On February 28, 2007, the Recording Industry Association of America ("RIAA") announced that it would escalate its efforts to deter illegal music sharing by sending "pre-litigation" letters to approximately 400 college students at 13 colleges and universities with the highest incidents of illegal music file sharing according to the RIAA. These 400 letters represent the first step in an increased effort by the RIAA to take legal action against college students. In announcing its new approach, the RIAA is enlisting the aid of university administrators to deliver the "pre-litigation" letters to the students whose IP addresses match the RIAA’s records of illegal file sharers. The pre-litigation letters offer the allegedly offending students terms of settlement at a "discounted settlement rate" to avoid litigation. The students must accept the settlement terms within 20 days from the date of the letter to accept the offer and avoid litigation.
In light of the escalated approach by the RIAA, we recommend that colleges and universities take the following actions:
* Review and update their peer-to-peer (P2P) network policies to include information about the RIAA’s new approach
* Distribute the updated P2P policies to faculty and students
* Consult with legal counsel regarding communications to students identified in the RIAA "pre-litigation" letters
* Consult with legal counsel to determine which of the other actions suggested by the RIAA are appropriate for institutions to take
Under the Digital Millennium Copyright Act, network operators, including colleges and universities that provide networks for faculty and student use, are protected from liability for the infringing activities of third parties who post or transfer infringing materials on or through the network, as long as the network operators follow the procedures set forth in the Act for removing the infringing material upon notice that it is infringing. However, institutions that know of and promote, or profit from, infringing conduct on their networks may be found liable for contributory or vicarious infringement. For this reason, colleges and universities must work closely with legal counsel in responding to the recent RIAA announcement and in preparing and implementing their policies relating to infringement on their networks.
Jennifer Collins is a member of the Firm’s Intellectual Property Practice Group. Her practice includes counseling clients with respect to copyrights and other intellectual property. She chairs a team of transactional lawyers who assist clients in negotiating agreements involving intellectual property.
http://www.wcsr.com/default.asp?id=114&objId=229
In light of the escalated approach by the RIAA, we recommend that colleges and universities take the following actions:
* Review and update their peer-to-peer (P2P) network policies to include information about the RIAA’s new approach
* Distribute the updated P2P policies to faculty and students
* Consult with legal counsel regarding communications to students identified in the RIAA "pre-litigation" letters
* Consult with legal counsel to determine which of the other actions suggested by the RIAA are appropriate for institutions to take
Under the Digital Millennium Copyright Act, network operators, including colleges and universities that provide networks for faculty and student use, are protected from liability for the infringing activities of third parties who post or transfer infringing materials on or through the network, as long as the network operators follow the procedures set forth in the Act for removing the infringing material upon notice that it is infringing. However, institutions that know of and promote, or profit from, infringing conduct on their networks may be found liable for contributory or vicarious infringement. For this reason, colleges and universities must work closely with legal counsel in responding to the recent RIAA announcement and in preparing and implementing their policies relating to infringement on their networks.
Jennifer Collins is a member of the Firm’s Intellectual Property Practice Group. Her practice includes counseling clients with respect to copyrights and other intellectual property. She chairs a team of transactional lawyers who assist clients in negotiating agreements involving intellectual property.
http://www.wcsr.com/default.asp?id=114&objId=229
The Upswing Is In Lawsuits
As the housing market slows, buyers & sellers are increasingly at odds.
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
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
Monday, June 4, 2007
FCC Issues Separate Decisions Granting 182 Appeals from Funding Denials
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
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
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
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