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Described by Justice Alito as “perhaps the most important criminal procedure case that this Court has heard in decades,” the Supreme Court’s decision in Maryland v. King will have far-reaching Fourth Amendment implications.1 In 2008, the Maryland General Assembly passed the Maryland DNA Collection Act, amending a 2002 statute that expanded police authority to collect DNA samples from those arrested for certain offenses.2 Under the statute, samples are collected at the time of arrest, but can only be analyzed once the arrestee has been charged and arraigned.3 Once collected, the DNA sample is immediately processed, submitted to the FBI’s Combined DNA Index System database (CODIS), and compared against other samples.4
The Arrest, the Swab, and the Rape Conviction5
On April 10, 2009, police arrested Alonzo Jay King, Jr. in Wicomico County, Maryland on first- and second-degree assault charges. King’s arrest for a violent crime authorized police to collect a buccal swab DNA sample from him by rubbing a cotton swab on the inside portion of King’s mouth. The Maryland State Police Forensic Sciences Division uploaded the sample to the Maryland DNA database in July, and recorded a “hit” in August, matching King’s DNA to an unsolved rape case from 2003. In that case, a disguised man broke into the home of a fifty-three-year-old woman and raped her while holding a gun to her head. The woman could not identify her attacker, but police were able to collect a sample of the attacker’s semen.
Based solely on the DNA evidence, the Wicomico County grand jury returned an indictment against King for first-degree rape in October. At trial, King filed a motion to suppress the DNA evidence, arguing the Act authorized an illegal search and seizure, which could not survive scrutiny under the Fourth Amendment. After the hearing judge denied the motion to suppress, King was subsequently convicted of first-degree rape and sentenced to life in prison without the possibility of parole. King appealed, but Maryland’s highest court—the Court of Appeals of Maryland—granted certiorari before the intermediate appellate court rendered a judgment.6 The Court of Appeals then reversed, holding that the Act violated the Fourth Amendment. The State appealed to the United States Supreme Court and filed a request for a stay pending the disposition of the writ.7 Chief Justice Roberts granted the stay because the State had established a reasonable possibility that the Court would grant certiorari and a fair prospect that the Court would reverse the decision below.8 On November 9, 2012, the Court granted certiorari and heard oral arguments on February 26, 2013.9
A Brief Look at Balancing the Fourth Amendment and an Arrestee’s Expectation of Privacy
The Fourth Amendment protects people from “unreasonable searches and seizures” without a warrant supported by probable cause that describes with particularity “the place to be searched, and the persons or things to be seized.”10 The Supreme Court incorporated the Fourth Amendment to the states in 1961 by holding that evidence obtained by searches and seizures in violation of the Constitution is inadmissible in state courts.11 There is “no fixed formula” for determining a Fourth Amendment violation; instead, the ultimate question is whether the actions by police were reasonable enough under the circumstances to satisfy the Fourth Amendment’s requirements.12 The basic rule is that warrantless searches are per se unreasonable “subject only to a few specifically established and well-delineated exceptions.”13 In Pennsylvania v. Mimms, the Court stated that lower courts should consider “‘the reasonableness in all the circumstances of the particular governmental invasion of a citizen’s personal security.’”14
Reasonableness may mean that neither a warrant nor probable cause is required in all cases. Individualized suspicion is often required, but the “‘Fourth Amendment imposes no irreducible requirement of such suspicion.’”15 Indeed, the Court has cautioned that individualized suspicion is “not a constitutional floor, below which a search must be presumed unreasonable.”16
In Samson v. California, the Court analyzed the search under a “totality of the circumstances” test by balancing the State’s interest against the parolee’s legitimate privacy expectation.17 Although the defendant in Samson was a parolee, the “totality of the circumstances” analysis would be the same with any suspect in police custody because of a diminished expectation of privacy.18 In the particular case of arrestees, the Court recognized that they have a diminished expectation of privacy, placing them further across the continuum from law-abiding citizens to convicts, probationers, and parolees. Recently, the Court upheld the strip search of an arrestee for a traffic offense as reasonable under this analysis because the government’s interest in safety outweighed the arrestee’s diminished expectation of privacy.19
Although the Court has not discussed buccal swabs in the past, it has recognized other extractions of DNA material—such as drawn blood—as a search.20 In conducting that analysis, however, the Court has also held that if performed appropriately, blood draws are not so invasive as to violate the Fourth Amendment.21 Additionally, courts have allowed law enforcement to collect DNA samples from arrestees when they have “abandoned” or not demonstrated a subjective expectation of privacy as to items that contain their DNA, such as left-behind water bottles or cigarette butts, because this type of DNA collection is not a search in the constitutional sense.22 Neither party to the suit questions that DNA collection is a search in the constitutional sense, but they do diverge on how to characterize this search.23 The lower courts in Mitchell and King held the processing of the DNA sample and creation of the DNA profile in CODIS to be a second search, but disagreed on its constitutionality because of the extensiveness of information that “junk DNA” can provide to the government.24
Two federal appeals courts and one state supreme court previously upheld statutes similar to the Maryland act as permissible under the Fourth Amendment.25 In United States v. Mitchell, the Court of Appeals for the Third Circuit conducted a balancing analysis of the Federal DNA Act and held that collecting a DNA sample was minimally intrusive and did not weigh significantly in the defendant’s favor.26 The court held that the method used to process the DNA, so called “junk DNA,” contained very little information beyond identification, and other safeguards were sufficient to render the search reasonable for Fourth Amendment purposes.27 The Ninth Circuit and the Virginia Supreme Court, like the Third Circuit, have upheld the everyday practice of collecting DNA from arrestees, common to federal law enforcement and twenty-eight states.28
Maryland Creates a Split and Draws the Court’s Attention
In King, the Court of Appeals of Maryland split with these courts and held that the DNA search was unreasonable under the Fourth Amendment.29 The court applied the “totality of the circumstances” test and found for the defendant because King, as an arrestee, was entitled to a presumption of innocence that convicted felons, probationers, and parolees did not receive. Reasoning that the respondent’s expectation of privacy outweighed the State’s interest in using DNA for identification purposes, the court rejected the State’s need for the DNA to identify the defendant because fingerprints and photographs had already adequately identified King. The court rejected the State’s argument that DNA samples are a modern, more accurate form of ink fingerprinting because the vast amount of genetic data that an arrestee’s DNA may contain distinguishes it from a simple fingerprint. Simply put, the court held that a lawful arrest for a crime of violence cannot serve as probable cause for a DNA search of an arrestee.
At oral argument on February 26, 2013, the Supreme Court focused predominantly on the primary purpose of the legislation and the comparison between “DNA fingerprinting” and ink fingerprinting.30 The State and the Solicitor General compared the evolution of speed and accuracy of ink fingerprinting with where “DNA fingerprinting” will likely be, in as few as two years.31 Chief Justice Roberts expressed hesitation to decide a case based on the future possibilities of the technology, but Maryland countered that the technology is already more accurate than ink fingerprinting and can be used to revoke bail if a “hit” comes back from the database.32 Despite heavy reliance by the Maryland Court of Appeals on the presumption of innocence, the justices seemed more interested in the possession of DNA by the government and the speed of processing the samples.
What Is the Initial Inquiry: Per Se Unreasonable or Balancing?
Both Justice Kagan and the respondent indicated that the initial analysis is usually not a balancing of the interests at play, but a requirement that the state meet one of the established Fourth Amendment warrant exceptions because warrantless searches are per se unreasonable.33 In this case, none of the traditional exceptions, such as search incident to arrest or exigent circumstances, would apply. The Court could create a new exception to the warrant requirement for biometric data generally.34 The Court could also attempt to fit this situation into a recognized exception such as a search incident to arrest; however, this is unlikely because the search would not fit into the twin rationales of officer safety or preservation of evidence.35 These outcomes are unlikely, but the Court could find for the State through a straightforward balancing analysis. Warrantless searches are per se unreasonable, but that does not end the inquiry. A balancing of interests determines ultimately whether the government’s actions were reasonable.
DNA identification is in the same place technologically that ink fingerprinting was twenty to thirty years ago, before powerful computer databases or even the Internet existed.36 Both ink fingerprinting and DNA sampling are used for identification, but both also match arrestees to crimes. The test of reasonableness by balancing interests has resulted in the Court holding that warrantless searches without individualized suspicion can still be reasonable in certain circumstances, such as when the privacy interest is minimal, the government’s purpose will be frustrated by requiring a warrant, and safeguards are in place to limit discretion.37 The warrantless “search” of fingerprinting arrestees has never been squarely addressed by the Court, but King conceded that given the widespread use of fingerprinting, the practice is most likely constitutional.38 “DNA fingerprinting” more accurately addresses the governmental interest in properly identifying arrestees, determining whether to detain or release them, and devising methods to best supervise them.39 Finally, the amici curiae brief of the fifty states persuasively argued that collecting DNA samples from arrestees serves the compelling governmental interest in solving crimes because of the number of previously unsolvable cold cases that have been solved by collecting DNA samples from arrestees.40
The State does have a significant interest in accurately identifying arrestees, and DNA collection assists the State in adequately supervising pretrial detainees. The use of DNA also leads to more efficient criminal investigations by eliminating suspects and conserving resources.41 Nevertheless, processing DNA continues long after the arrestee has been identified, so the purpose must also be identification of arrestee involvement in previously unsolved crimes. Although not explored fully in oral arguments, the length of time DNA identification currently takes could be compared with the length of time ink-fingerprinting identification took prior to the incorporation of computer databases.42 The safeguards surrounding the processing and use of the DNA sample constitute a reasonable search under a “totality of the circumstances” analysis because the search is minimal and the DNA processing can only reveal the identity of the arrestee as random numbers. Thus, the only loss of privacy is in being accurately identified, and there is no established, reasonable expectation of privacy in anonymity, especially after an arrest.43
If the Supreme Court decides to uphold the Maryland Court of Appeals and rules “DNA fingerprinting” of arrestees unconstitutional, it would have far-reaching implications because many states and the federal government have enacted similar legislation. The fact that every state—including those without similar legislation—has filed in support of petitioner should not be overlooked. It is unusual for the Court to take up a case that has not been fully vetted in the lower courts. However, the shockwaves that this decision could make by overruling other appellate courts and striking down a widely used practice demonstrate the need to resolve this dispute.
Ultimately, the Samson “totality of the circumstances” balancing test to determine reasonableness is appropriate. The governmental interests in identifying suspects and solving unrelated offenses should be sufficient to outweigh the privacy interest in preventing access to an individual’s genetic code, especially when combined with the safeguards already in place to protect the arrestee’s genetic information. A decision in favor of Maryland could establish that the Samson “totality of the circumstances” analysis to determine reasonableness is the initial inquiry for Fourth Amendment purposes. This outcome could signal that provided a state acts reasonably, a number of activities previously barred by the Fourth Amendment now could be legitimate.
A decision in favor of King, on the other hand, would not only result in massive upheaval of routine law-enforcement practices, but would lead to fewer solved crimes. Such an outcome may also stunt the evolution of DNA identification, the speed of which could eventually match that of ink fingerprinting today. Should the court rule in favor of King, it would also necessarily draw a distinction for the first time between the privacy rights of arrestees and parolees.
Should the Court reverse the Maryland Court of Appeals, the bench will likely carefully narrow the opinion to limit future expansive uses of this information. The Court could require the state to bear the heavy burden of demonstrating that the DNA samples are appropriately handled and only used for identification purposes.
Ultimately, the Court should reverse the Maryland Court of Appeals because on balance the statute is reasonable. The minimal intrusion to the arrestee is offset by the improvement of suspect identification for bail supervision, the important governmental interest in solving crimes, and statutory safeguards. Had a similar case found ink fingerprinting (which does not require individualized suspicion) unconstitutional, many law-enforcement practices that we currently consider normal and routine would not exist, compromising law enforcement’s effectiveness. Striking down statutory DNA identification would cut short future technological advances that could make the use of DNA fingerprinting equivalent to current ink-fingerprinting practice, yet much more effective and accurate.
David C. Soutter, Case Note, Twenty-First Century Fingerprinting: Supreme Court in King to Determine Privacy Interest in Arrestee DNA, 1 Suffolk U. L. Rev. Online 47 (Apr. 22, 2013), http://www.suffolklawreview.org/king-maryland.
This short commentary corrects an erroneous understanding of probabilistic causation in the loss-of-chance doctrine and the damage calculation method adopted in Matsuyama v. Birnbaum.1 The Supreme Judicial Court of Massachusetts is not alone. Many other common law courts have made the same error, including Indiana, Nevada, New Mexico, Ohio, and Oklahoma.2 The consistency in the mistake suggests that the error is the majority rule of damages. I demonstrate here that this majority rule is based on erroneous mathematical reasoning and the fallacy of probabilistic logic.
To be clear, I do not contest the propriety of the loss-of-chance doctrine because the underlying policy sensibly addresses the social problem of medical malpractice inflicted on severely ill patients.3 Without the doctrine, there would be no such thing as medical malpractice for patients who were more likely to not survive the ailment. I only comment on the conceptual understanding of probabilistic causation and the nature of probability-based damage calculation. The essential error in Matsuyama and other courts’ decisions is a misconception of the reference class from which probabilistic causation is calculated. This error undervalues damages in certain types of cases where even after the medical malpractice, the plaintiff still had some residual chance of survival, though she ultimately died, thus begetting the cause of action.
Loss-of-Chance Doctrine and Damage Calculation
The loss-of-chance doctrine applies in medical malpractice actions in which the plaintiff cannot prove traditional “but for” causation because she was likely to die from her ailment even before the negligence. The doctor’s negligence is typically the failure to diagnose the condition or to treat the condition, and as a result the plaintiff suffers the loss of a chance to survive. Under a traditional analysis, as a matter of probability it is more likely than not that the natural ailment killed the plaintiff in each instance, and the doctor would escape liability no matter how egregious the negligence. This situation leads to what scholars have called “recurring misses,” when doctors systematically escape liability for negligent treatment in cases involving severely ill patients.4
Matsuyama presents a typical fact pattern.5 The plaintiff had cancer at the time he was examined by the defendant. The examination failed to detect the cancer. The jury found that at the time of the initial examination, the plaintiff had only a 37.5% chance of survival.6 The defendant’s negligence destroyed that small chance to survive.7 As a matter of probability, he would have succumbed to his natural health condition irrespective of the negligence. Of course, if we had three such plaintiffs in exactly the same condition, the odds suggest that negligence would have killed one of them.8
Common law courts have adopted the loss-of-chance doctrine to provide plaintiffs a remedy in medical malpractice cases.9 Loss of chance is an exception to the traditional causation analysis, and provides an alternative theory of liability for medical malpractice. The doctrine recognizes that a plaintiff’s loss of probabilistic chance to survive should be a cognizable injury.10 Courts provide an award of damages based on this probabilistic loss of chance.
The Supreme Judicial Court of Massachusetts in Matsuyama provides a five-step process for calculating damages.11 The jury must find these facts:
(1) “the full amount of damages allowable for the injury,” without any probabilistic offset;
(2) the probability of survival before the medical malpractice;
(3) the probability of survival after the medical malpractice;
(4) the difference in probabilities between steps (2) and (3); and
(5) the product of the difference in probabilities (4) and the full amount of damages (1).
We can generalize this rule of law with this formula:
The court provides the following numeric example to illustrate the damage calculation: The full value of a wrongful death is $600,000. The patient had a 45% chance of survival before the medical practice. The patient had a 15% chance of survival after the medical malpractice. Based on the reduction of 30% chance of survival, the court suggests that the damage for loss of chance is: 30% (reduction in chance) x $600,000 (full loss) = $180,000 (damages).12
A number of other courts have adopted the same approach toward damage calculations.13 For example, in McKellips v. Saint Francis Hospital, Inc., the Supreme Court of Oklahoma gave this example: The full value of a wrongful death is $500,000. The patient had a 40% chance of survival before the medical malpractice. The patient had a 25% chance of survival after the medical malpractice. Based on the 15% reduction of chance of survival, the court suggested that the damage for loss of chance is $75,000 (= 15% x $500,000).14 Indeed, this method in McKellips has influenced a number of subsequent decisions, including Matsuyama.15
The above damage calculation method is a common approach taken by courts in conceptualizing causation analysis and damage calculation. This approach is wrong. In fact, for reasons explained below, the damages in the above hypotheticals should be $211,765 in the Matsuyama hypothetical16 and $100,000 in the McKellips hypothetical.17
The Matsuyama court and other courts have incorrectly calculated probabilistic causation and the damage calculations derived therefrom. The method of calculation endorsed in these cases is correct only in the special case when malpractice reduced the chance of survival to zero. If the malpractice still left a residual chance of survival (as seen in the hypotheticals above), then as a matter of mathematics and probability, the method of damage calculation adopted by the courts is incorrect.
The Special Case of Zero Chance of Survival
When medical malpractice reduces a less-than-probable chance of survival to zero chance of survival, the proper damage amount is the reduction in the chance of survival multiplied by the full value of the loss. In these cases, the Matsuyama and McKellips method produces the correct result. For example, assume the following: (1) full value of loss is $600,000; (2) the chance of survival before the negligence is 30%; and (3) the chance of survival after the negligence is 0%. The damage calculation is: 30% (reduction in chance) x $600,000 (full loss) = $180,000 (damages).
In calculating the percentage decrease in the probability of survival due to negligence, we first need the reference class (the denominator in the fraction). Logically, the denominator is the number of people who died: The reference class is based on the number of people who died from either the natural ailment condition or the malpractice. This constitutes the 100%—another way to say this is that all deaths are explained as having been caused by a natural condition or by negligence. The numerator is the number of people who died from the negligence, and this fraction calculates the damages based on probabilistic causation.
An easier way to think about this situation in probabilistic terms is to imagine 100 people in the identical position. Irrespective of any negligence, how many of these people would have died naturally from the ailment? Seventy people. How many died from the malpractice? Thirty people. What is the probabilistic causation attributable to the negligent doctor? The answer must be 30%, calculated as 30/100. Thus, the damage calculation based on $600,000 full loss must be $180,000 (= 30% x $600,000).
We can generalize the special case where the negligence reduces the pre-negligence chance of survival to zero (death is certain after the negligence) as the following:
This method is seen in Matsuyama and other cases. In Matsuyama, the damage calculation formula was: J = D x (P — R), but since R = 0 in the special case, the formula reduces to: J = D x P. This method applies only when there is no residual chance of survival. Otherwise, the application of this method is an error as a matter of probability analysis.
The Normal Case of Residual Chance of Survival
When malpractice reduces a less-than-probable chance of survival but there still remains a residual chance of survival after the negligence,18 the proper damage amount cannot be the product of the reduction in the chance of survival and the full value of the loss. For example, assume the exact hypothetical provided in Matsuyama: (1) full value of loss is $600,000; (2) the chance of survival before the negligence is 45%; and (3) the chance of survival after the negligence is 15%, which is the residual chance of survival after the negligence. The damage cannot be $180,000 (= 30% x $600,000) as Matsuyama suggests.
To see why, again imagine 100 people in the plaintiff’s exact situation. How many of these people would have died naturally from the ailment? Fifty-five people, because the plaintiff had a 45% chance of survival before the malpractice. How many would have died from the malpractice? Thirty people, because the doctor reduced the chance of survival from 45% to 15%. How many people would have survived despite the negligence? Fifteen people, because there is still a 15% residual chance of survival after the negligence. Because these 15 people would have survived the natural ailment and the malpractice, they would have no injury and thus no legal claim. How many people would have died in total? Eighty-five people.
The reference class from which probability is calculated must be all injured people, which is 85 people and not 100 people. Of these unfortunate 85 people, 55 died from the natural ailment, and 30 died from the malpractice.
What, then, is the probabilistic causation attributable to the negligent doctor? The answer clearly cannot be 30%. The probabilistic causation attributable to the doctor’s negligence must be: 30/85 = 35.3%. Thus, the damage calculation must be: 35.3% (reduction in chance) x $600,000 (full loss) = $211,765 (damages). The error in the hypothetical resulted in an undervaluation of damages of $31,765.
The Matsuyama decision confirms its error in discussing the specific facts of the case. The plaintiff had a pre-negligence chance of survival of 37.5% and $875,000 full value of damages.19 The plaintiff had a 0% to 5% post-negligence chance of survival.20 The court suggested that the actual post-negligence chance of survival was an important fact that the trial court should have considered, which is correct as a general application of the rule, but the court used an incorrect statistical reasoning to explain why the datum is important. The court opined that a 5% residual chance of survival would cause a 32.5% loss of chance, rather than 37.5%, decreasing damages from $328,125 (= 37.5% x $875,000) to $284,375 (= 32.5% x $875,000).21 As explained above, this is the wrong analysis of the plaintiff’s actual damages. If there is a finding that the plaintiff had a 5% residual chance of survival, the probabilistic causation attributable to the defendant’s negligence would be: 32.5% ÷ 95% = 34.2%. Thus, the damages are: 34.2% x $875,000 = $299,342.
The error in Matsuyama produces only a small difference between the erroneous damages and correct damages because the residual chance was so small. In other cases where the residual chance is large, the difference in damage amounts can be large. Consider this hypothetical: The plaintiff’s pre-negligence chance of survival was 50%, and full damages are $600,000. The defendant’s negligence reduces the chance of survival to only 10%. The damages are $266,667 (= 40% ÷ 90% x $600,000). However, if the defendant’s negligence reduces the chance of survival to only 40%, the damages are $100,000 (= 10% ÷ 60% x $600,000). Thus, the residual chance of survival—which is an indicator of how the negligence took away the chance of survival—matters greatly in the damage calculation.22
We can generalize the rule of law for damage calculation when there is a post-negligence residual chance of survival:
where J = award of damages
D = full damages
P = pre-negligence chance of survival
R = post-negligence residual chance of survival
This formulation takes into account that a percentage of patients survive both the ailment and the negligence, and as a result they are not injured and cannot be plaintiffs. These people must be excluded from the calculation of probabilistic causation.
Note also that the above formula produces the same outcome as the formula used in the special case where there is no residual chance of survival (recall that the formula in the special case is J = D x P). If R = 0, then the following must be true:
Lastly, I note that my formula requires no more additional factfinding or exceptional application of mathematical analysis by juries. The math is basic elementary school arithmetic, and in any loss-of-chance case, juries are still required to find the pre- and post-negligence chance of survival: The variables are still only D, P, and R. As a matter of judicial administration, the only adjustment required is the application of a correctly stated and conceived formula to calculate probabilistic causation and damages.
If courts adopt the loss-of-chance doctrine, and many do, they must award damages based on the probabilistic causal contribution of the defendant’s negligence to the plaintiff’s death. Indeed, courts embrace this concept of probabilistic causation and damages.23 How, then, did the courts err in the analysis? The error in the mathematical logic arises from the choice of perspective on uncertainty. Courts have conceptualized probabilistic causation from an ex ante perspective when in theory they should consider probabilities from an ex post perspective.24
An ex ante perspective views the probability of an uncertain future event, through the concept of expected value. Expected value is the chance of something occurring in the future given various potential outcomes. Probabilities are assigned to the various outcomes. Mathematically, the calculation is simply the sum of the products of probabilities and outcomes: E(x) = P1 X1 + P2 X2 + . . . + Pn Xn where Pi is the probability given an outcome Xi.
The logic of Matsuyama and other cases is apparent. If we consider the potential future outcomes of medical malpractice and calculate an expected value, that calculation would be: E(x) = P1 0 + P2 0 + P3 D where P1 is the probability of survival, P2 is the probability of death from the natural ailment, P3 is the probability of death from the negligence, and P1 + P2 + P3 = 1. Since a plaintiff can recover nothing from surviving or death from natural causes, the expected value of a doctor’s negligence is E(x) = P3 D, which is what courts have adopted as the rule of law on damages.
However, when a person dies, which is a precondition to bringing a medical malpractice claim for loss of chance, we are no longer concerned with various states of future outcomes including the possibility of survival, but instead we are looking back in time to the past. The reference class is the group of dead plaintiffs, and should not include the class of people who survived (this last bit of uncertainty has been resolved). We have a past occurrence of death, and we must assign only two probabilities: P(d1) the probability that death resulted from the ailment, and P(d2) the probability that death resulted from negligence where P(d1) + P(d2) = 1. The residual chance of survival must be taken out of the equation. The causation analysis must answer the question: Given that death occurred, what was the probability that it resulted from the negligence? Damages should follow therefrom.
Robert J. Rhee, Commentary, Loss of Chance, Probabilistic Cause, and Damage Calculations: The Error in Matsuyama v. Birnbaum and the Majority Rule of Damages in Many Jurisdictions More Generally, 1 Suffolk U. L. Rev. Online 39 (Mar. 18, 2013), http://www.suffolklawreview.org/Matsuyama-Birnbaum.
Marbury Research Professor of Law; Co-Director, Business Law Program, University of Maryland Francis King Carey School of Law. I thank my colleagues Andrew Blair-Stanek and Don Gifford for their helpful comments.
On Friday, April 6, 2007, Howard Cotterman and his wife, Maureen, drove across the border from Mexico, seeking reentry to the United States at the Lukeville, Arizona Port of Entry (POE).1 A primary inspection of Cotterman’s passport revealed an alert due to Cotterman’s 1992 conviction for sex offenses involving a minor, and a Customs and Border Protection (CBP) officer conducted a secondary inspection of the Cottermans’ vehicle.2 The CBP officer found two laptop computers and three digital cameras, and he contacted the Immigration and Customs Enforcement (ICE) office in Sells, Arizona for assistance when he discovered that many of the computer files were password protected. Two ICE agents drove from Sells to Lukeville, collected the laptops, and delivered them to a computer forensic examiner at the ICE lab in Tucson late that same night.3
The forensic examiner worked through the weekend, and by the evening of Sunday, April 8, he had discovered approximately seventy-five images of child pornography on Cotterman’s laptop.4 Over the days and weeks that followed, the examiner unlocked hundreds of additional photos and videos of a similar nature, most of them involving the same young girl. The federal government indicted Cotterman on child pornography charges on June 27, 2007.5
Following his federal indictment, Cotterman moved to suppress the evidence collected from his laptop.6 Cotterman argued that federal agents discovered the evidence through an unreasonable, nonroutine border search, as the search failed to meet the heightened standard of suspicion of criminal conduct required for such searches.7 The Government, however, argued that the search of Cotterman’s computer files fell within the routine border-search exception, which does not require a heightened standard of individualized suspicion.8 The district court agreed with Cotterman, granting his motion to suppress and holding that the search failed to meet the requisite heightened standard.9 On appeal, the Ninth Circuit reversed the district court, holding that neither the relocation of Cotterman’s laptop nor the delay necessary to search it fully were unreasonable for a routine border search, given the circumstances of the seizure.10 Now, the Ninth Circuit has reheard the case en banc, with the opinion pending before the court.11
Privacy and National Security: A Delicate Balance
Under the Fourth Amendment, individuals maintain a reasonable expectation of privacy in both their persons and property, and any search or seizure must meet certain standards of reasonableness for seized evidence to be admissible.12 The Fourth Amendment’s protections are not absolute, however, as federal courts have created limited exceptions for warrantless searches.13 The judicially created border-search doctrine gives the government broad authority to conduct searches of persons and property seeking entry at the country’s borders.14 A person seeking entry (or reentry) into the United States abandons the usual expectation of privacy and subjects himself to a routine search of his belongings by government officials.15 National security interests support protecting the integrity of the country’s borders, creating a policy rationale for the lessened standard of suspicion governing searches conducted there.16
The Ninth Circuit has determined that whether a search is routine or nonroutine is largely based on the degree of intrusiveness of the search at the border.17 While a nonroutine border search requires reasonable suspicion of the search’s target, the Ninth Circuit considers the search of a vehicle—even an extensive search—routine and therefore constitutional, despite the absence of any particularized suspicion.18 The Ninth Circuit has embraced an extended border-search doctrine, which furthers the government’s authority to conduct searches away from—but near to—the physical border subsequent to the individual’s seeking entry. However, for these extended border searches to be constitutional, the government must meet the heightened standard of reasonable suspicion.19
The Ninth Circuit has afforded the government broad authority in searching electronic devices while conducting border searches.20 The court previously held that border searches of laptop computers are routine and therefore do not require reasonable suspicion.21 Further extending the border-search doctrine, the Ninth Circuit has included searches taking place at the border’s functional equivalent, not just at the physical border.22
Extended Border-Search Doctrine: How Far Is Too Far?
In Cotterman, the Ninth Circuit’s prior opinion considered the application of the border-search doctrine to laptop computers and other electronic devices. The majority determined that the search of Cotterman’s laptop fell within the border-search doctrine, for which no reasonable suspicion was necessary to conduct the search.23 Although the Government removed the computer from the border to conduct a thorough forensic search, the court reasoned that this did not constitute an extended border search requiring reasonable suspicion.24 The majority also distinguished a computer search from property searches of a highly intrusive, invasive, or destructive nature.25 The Ninth Circuit subsequently reversed the district court’s order granting Cotterman’s motion to suppress and remanded the case to the district court.26
Judge Fletcher dissented, arguing that the court failed to distinguish search from seizure and therefore left open the possibility of the government seizing personal property for days, weeks, or months without any suspicion.27 Judge Fletcher argued instead that the circumstances surrounding the scope of the Government’s lengthy detention of Cotterman’s laptop required individual suspicion. The seizure deprived Cotterman of his possessory interest without any clear limit on the scope of the search, Judge Fletcher wrote, and the search therefore intruded on his reasonable expectation of privacy.28
As the Ninth Circuit acknowledged in Cotterman, the border-search doctrine stands as a crucial exception to the Fourth Amendment’s guarantee against unreasonable searches and seizures.29 Even when balanced against the rights enjoyed by all individuals, the security interests of the sovereign remain paramount, and suspicionless searches are essential to protecting the country’s borders.30 This balancing test creates a necessary tension between national security interests and the personal privacy of individuals subjected to border searches.31 Both the majority and the dissent observed that advances in portable computers and other electronic devices further complicate this balancing test, as the difficulty in accessing encrypted data threatens to make searches increasingly invasive. An otherwise routine border search becomes more intrusive if government officials cannot access property using normal means that fall within the scope of their search authority.32
By granting a rehearing, the Ninth Circuit implicitly acknowledged Judge Fletcher’s concerns about the extent to which the majority’s holding broadened the government’s increasingly unbridled search and seizure power at the border.33 The majority weighed the sovereign’s interests heavily, permitting a lengthy and suspicionless seizure of property despite the constitutional protections of the Fourth Amendment. While that right—freedom from unreasonable searches and seizures—is not absolute, its further erosion would be difficult to halt under the Ninth Circuit’s original opinion, a fact perhaps recognized by the court’s grant of a rehearing.34 The court had insisted on a case-by-case analysis of the reasonableness of a border search, and the majority scoffed at the “parade of imagined horribles” conjured by those who seek to draw a clearer line between the country’s national security interests and an individual’s privacy right.35 Ultimately, the best solution may require congressional action, setting specific limits on the number of hours or days during which an electronic device may be seized pursuant to a routine border search.36
Border searches of laptop computers present relatively new opportunities to obtain vast amounts of personal information concerning those entering the United States. While government officials attempt to take advantage of these search opportunities, continued advances in computer technology will make searches more difficult to conduct, thereby extending the period of time needed for each search.37 The Ninth Circuit’s opinion neither demanded a reasonable-suspicion standard for border searches of laptops nor defined a reasonable period of time in which to conduct them, thus permitting government officials to search a personal computer until they find evidence of a crime regardless of whether there is any individualized suspicion.38 The court sought clarification on both issues upon rehearing.
A Question for the Supreme Court?
Terrorist plots, drug trafficking, and child pornography present scenarios that easily justify broadening the government’s authority to conduct invasive and prolonged searches at the border. Nevertheless, this expansion of the border-search doctrine could submit any traveler’s electronic files to an invasive computer search of unknown duration.39 By finding the detention of a laptop computer reasonable for any duration necessary to conduct a comprehensive search, the Ninth Circuit initially granted the government excessive latitude for conducting border searches.40 If the en banc panel issues an opinion consistent with the original, citizens traveling abroad should carefully consider the contents of their laptops, cell phones, and other devices before bringing them along and subjecting them to an exhaustive search upon return.
The Fifth Circuit has also defined the border-search doctrine broadly, but other courts of appeals have varied when applying the doctrine.41 The Ninth Circuit’s rehearing presented an opportunity to address the proper determination of ‘reasonableness’ under the border-search doctrine, but also pointed to the likelihood of the Supreme Court taking up the issue. National security interests are in conflict with the privacy rights of every international traveler, and while the border-search doctrine has balanced those interests in the past, Cotterman opened wide the floodgates. Anyone entering or reentering the United States with a laptop or other electronic device would find those devices subject to seizure of substantial duration, as well as a search that raises questions about reasonableness. The Supreme Court will likely need to define the scope of the border-search doctrine for the digital age, and the Ninth Circuit’s rehearing en banc sets the stage for that to happen.42
The Ninth Circuit issued their decision in the case on March 8th. It can be found at http://cdn.ca9.uscourts.gov/datastore/opinions/2013/03/08/09-10139.pdf.
Hilary Detmold, Case Note, The Ninth Circuit’s En Banc Rehearing of Cotterman: What’s on Your Laptop?, 1 Suffolk U. L. Rev. Online 32 (Feb. 25, 2013), http://www.suffolklawreview.org/detmold-cotterman.
In Lopez v. Commonwealth,1 police officers sued the Commonwealth of Massachusetts and the Division of Human Resources (HRD), alleging HRD engaged in racial discrimination by creating and administering a multiple-choice examination for candidates seeking promotion to police sergeant that resulted in a disparate impact on minority candidates.2 The plaintiff class included all African-American and Hispanic police officers employed by civil service municipalities throughout Massachusetts who took the police sergeant promotional examination in the years 2005-2008 and were not “reached for promotion.”3 Consistent with the requirements of civil service law, civil service municipalities selected candidates for the police sergeant position based on a certification list created by HRD, which ranks candidates in order of scores on the promotional examination.4 The plaintiffs alleged that they were denied promotional opportunities because municipal employers relied on HRD’s certification list, despite the examination’s discriminatory impact, which caused African-American and Hispanic candidates to rank lower on the list than non-minority candidates, irrespective of equal qualifications.5
Originally, the plaintiffs brought a claim against HRD and their municipal employers, in the United States District Court for the District of Massachusetts, alleging disparate impact race discrimination under Title VII of the Civil Rights Act of 1964 (Title VII).6 The United States Court of Appeals for the First Circuit, however, dismissed the claim against HRD because the division never functioned as the plaintiffs’ “employer,” as required by Title VII, and the court remanded the case to trial against only the municipal employers.7 Not deterred, the plaintiffs proceeded to commence an action in superior court against HRD.8 Originally, the court granted HRD’s motion to dismiss after it found that the Commonwealth did not waive its sovereign immunity, and alternatively, because the plaintiffs failed to state a claim upon which relief could be granted.9 The Massachusetts Supreme Judicial Court disagreed and permitted HRD to be named as a defendant after identifying the legislature’s waiver of the Commonwealth’s sovereign immunity.10 The court further recognized that while three of the claims were properly dismissed, the plaintiffs’ allegation that HRD interfered with the right to be free from discrimination adequately stated an “interference” claim, which protects employees from racial discrimination when considered for promotion, and remanded that claim to superior court.11
I. Discrimination Liability in Massachusetts
Employers are prohibited from making employment decisions based on an employee’s race, color, religion, sex, national origin, age, or non-job-qualification-related disability.12 Title VII is the primary federal statute that prohibits discrimination on the basis of race, color, religion, sex, and national origin.13 Nevertheless, Title VII only applies to “employers,” meaning individuals or entities that fall outside this definition are not liable under the statute for discriminatory actions.14 Massachusetts enacted its own discrimination law, chapter 151B, section 4 of the Massachusetts General Laws, which similarly prohibits employers from hiring, discharging, or otherwise discriminating against employees of a protected class in compensation or terms and conditions of employment, unless justified by a legitimate reason, referred to as a “bona fide occupational qualification.”15
Chapter 151B reaches beyond its federal counterpart and holds more “employers” responsible for discrimination by specifically including “the commonwealth and all political subdivisions” in its definition of “employer.” Therefore, while the Commonwealth or its subdivisions could not be held accountable for discrimination under Title VII, it could be subject to liability under chapter 151B. In addition, some claims under chapter 151B do not require any employer-employee relationship as a prerequisite to liability.
Under both federal and state law, plaintiffs may bring two types of discrimination claims: disparate treatment and disparate impact. Disparate treatment liability arises when an employer intentionally discriminates against an employee or group of employees by treating him or them unequally based on a statutorily forbidden characteristic, such as race, sex, national origin, or age.16 Absent proof of intent, employers may still be liable under a disparate impact theory, which applies when a facially neutral employment practice has a disproportionally negative effect on a statutorily protected group.17 Disparate impact theory recognizes the possibility that some employment practices, including standardized testing, “may in operation be functionally equivalent to intentional discrimination,” although not designed to achieve a discriminatory result.18 Under Title VII, courts impose disparate impact liability to eradicate standardized employment tests that produce discriminatory results and adversely impact hiring and promotion of minority candidates.19 Nevertheless, not all discrimination statutes permit liability under both disparate treatment and disparate impact analysis, and whether both theories are available depends upon the statutory language creating the cause of action.20
Many cities, towns, and municipalities in Massachusetts hire and promote public employees under the civil service merit system.21 Civil service laws protect applicants and employees from unfair treatment and nepotism, and encourage employment decisions based on the qualifications of the job candidate, considering his ability, skills, and experience.22 The merit system requires each candidate to take a competitive examination—either for original appointment or for promotion—which is used by HRD to create a list, in order of exam performance, for the appointing authority to consider.23 While the appointing authority may elect to prepare and administer its own competitive examination, the majority use the examination prepared by HRD.24 When an appointing authority anticipates a promotion or hiring need, it must estimate the number of positions to be filled and request a certification list from HRD reflecting a candidate pool following the “2n+1 formula,” with “n” being the number of positions the appointing authority seeks to fill.25
The appointing authority may only consider candidates who appear on the certification list prepared by HRD, and if the appointing authority elects to “bypass” a higher-ranked candidate in favor of a candidate who appears lower on the list, the authority must send the aggrieved candidate a letter explaining the reasons for the bypass.26
II. Lopez’s Interpretation of Massachusetts Discrimination Law
Lopez v. Commonwealth first acknowledged the Commonwealth’s amenability to suit by recognizing that the legislature waived sovereign immunity under chapter 151B by including the Commonwealth and its instrumentalities in the statutory definition of “person” and “employer.”27 Next, the Massachusetts Supreme Judicial Court analyzed the viability of the chapter 151B claims, and dismissed the claims under sections 4(5) and 4(1), before concluding the plaintiffs could proceed with their interference claim under section 4(4A).28 The plaintiffs failed to sustain a claim under section 4(5), which makes it unlawful for “any person, whether an employer or an employee or not, to aid [or] abet . . . the doing of any of the acts forbidden under [chapter 151B] or to attempt to do so.”29 This claim was fatally flawed because the plaintiffs neglected to assert the primary act of employment discrimination committed by their direct employers, as the principal offenders, that HRD purportedly aided or abetted.30 The claim under section 4(1), which makes it unlawful for an employer to discriminate against individuals in the scope of their employment, did not proceed because the plaintiffs were not directly employed by HRD and the court refused to graft Title VII’s indirect employment theory onto Massachusetts employment discrimination law, which does not recognize such liability.31 The court permitted the interference claim to proceed against HRD after determining that section 4(4A) makes it unlawful for any person, not just the direct employer, “to coerce, intimidate, threaten, or interfere with another person in the exercise or enjoyment of any right granted or protected” by chapter 151B.32 While HRD argued that the actions proscribed by section 4(4A), including interference, contemplate intentional conduct, and the plaintiffs merely alleged HRD knowingly administered a discriminatory examination, the court disagreed and held interference claims may be established by evidence of disparate impact, which is satisfied by proof that the defendant “knowingly interfered with the plaintiffs’ right to be free from discrimination,” and does not require proof of discriminatory intent.33
III. The Hyper-Extension of Disparate Impact Liability
The Supreme Judicial Court ignored statutory intent by entertaining an interference claim against a third party without first requiring proof of discriminatory motive. In order to properly determine the availability of disparate impact liability, the court should have first examined the statutory language of chapter 151A, section 4, as not all discrimination statutes permit a cause of action without proof of discriminatory intent.34 Though alone, the verb “interfere” is arguably ambiguous, when qualified by the preceding verbs—coerce, intimidate and threaten—it is clear that section 4(4A) is aimed at thwarting intentional, purposeful, discriminatory conduct.35 Further, it is difficult to ignore that in other areas of the law, the Commonwealth requires proof of intent before holding unrelated third parties liable for interfering with the rights of others.36
As the dissent reasoned, it is no secret that “statutory language should be given effect consistent with its plain meaning and in light of the aim of the legislature,” and the court’s role is to effectuate the legislature’s purpose.37 Instead, the Supreme Judicial Court exploited the ambiguity in the word “interfere” to achieve a desired result, contrary to legislative intent, and thus far outside the scope of its duty.
By failing to require intent, the Supreme Judicial Court also undercut the authority of the Massachusetts Commission Against Discrimination (MCAD), the administrative agency charged with interpreting and enforcing 151B.38 In 2003, the full commission refused to grant relief under section 4(4A) because an aggrieved party neglected to establish “intent to discriminate,” and announced that “for an individual to be held liable for a violation of M.G.L. c. 151B he must have, at the very least, ‘interfered’ with another’s rights in a manner that was in deliberate disregard of those rights.”39
Rather than delivering this unprecedented opinion, the Supreme Judicial Court should have deferred to the MCAD’s expertise in interpreting and enforcing section 4(4A), one of the antidiscrimination statutes the agency is entrusted to administer. The issue of deference is not novel to the court, as it has previously recognized that it is “particularly appropriate to defer to the MCAD’s interpretation [of chapter 151B] where . . . the legislative policy is ‘only broadly set out in the governing statute.’”40 Even the federal district court, in applying Massachusetts law, heeded the MCAD’s interpretation of “interference” and required intent for a third-party interference claim under section 4(4A).41 It is unclear why the Supreme Judicial Court refused to defer, or even acknowledge the MCAD’s interpretation, as discussed by the dissent. Until the legislature is afforded the opportunity to correct the Supreme Judicial Court’s interpretive error, third-party non-employers are vulnerable to liability for interference discrimination under chapter 151B, section 4(4A), even if they did not intend to discriminate.42
Stephanie Merabet, Case Note, Supreme Judicial Court in Lopez Permits Interference Discrimination Claim Against Third Party Without Proof of Discriminatory Intent, 1 Suffolk U. L. Rev. Online 17 (Feb. 25, 2013), http://www.suffolklawreview.org/merabet-discrimination.
Mass. Gen. Laws Ann. ch. 151B, § 4 (West 2012). According to the law in Massachusetts:
It shall be an unlawful practice . . . [f]or an employer, by himself or his agent, because of the race, color, religious creed, national origin, sex, gender identity, sexual orientation, . . . genetic information, or ancestry of any individual to refuse to hire . . . or to discharge from employment such individual or to discriminate against such individual in compensation or in terms, conditions or privileges of employment, unless based upon a bona fide occupational qualification.
When names have been certified to an appointing authority . . . and the number of appointments or promotional appointments actually to be made is n, the appointing authority may appoint only from among the first 2n + 1 persons named in the certification willing to accept appointment . . . .
Id. at 16. For example, if only one appointment will be made, the appointing authority may only select one of the first three persons named. See id. ↩
See Shafir v. Steele, 727 N.E.2d 1140, 1144 (Mass. 2000) (recognizing intentional tort of interference). The court noted:
the only difference between the torts described in § 766 [of the Restatement] . . . and § 766A is that, under § 766, the tortious conduct causes the third person not to perform, whereas § 766A involves interference preventing the plaintiff from performing his own part of the contract.
Id.; see also Restatement (Second) of Torts § 766A (1979) (defining intentional tortfeasor as one who “interferes with the performance of a contract . . . between another and a third person, by preventing the other from performing the contract”). See generally Leigh-Ann M. Patterson, Shafir v. Steele Recognizes New Tort of Intentional Interference with Plaintiff’s Own Contractual Performance, Bos. B.J., Jan./Feb. 2001, at 14, available at http://nixonpeabody.com/116427 (discussing evolution of MA law and “case of first impression” recognizing intentional tort in MA). ↩
See Woodason v. Norton Sch. Comm., 25 MDLR 62 (2003), aff’d sub nom. Sch. Comm. of Norton v. Mass. Comm’n Against Discrimination, 830 N.E.2d 1090 (Mass. App. Ct. 2005) (setting forth required elements and permissible circumstances of section 4(4A) claim). The MCAD addressed the statutory language in some depth:
While we agree that the word “interfere” does not necessarily require coercion, intimidation or threats, the concept of interference with one’s rights must be construed with some regard for the context of the statutory language within which it appears. In construing the word “interfere,” to give no import to the strong language surrounding it would be misguided.
Id. (emphasis added). ↩
“We saw that if we paid off this patent holder, we’d have to pay off every patent holder this same amount. This is the first case we took all the way to trial. And now, nobody has to pay Soverain jack squat for these patents.”1
Litigation is expensive, plain and simple. In a typical patent-infringement dispute, defending a case from start to finish—that is, from the complaint to the appeal—may cost a company upwards of a million dollars. Accordingly, the defendant-company will often choose to pay the patent holder a licensing fee instead of advancing its case to trial. At times, the alleged infringer may be particularly confident that it is not infringing, or that the patent is not even valid in the first place. Nevertheless, an impartial weighing of potential litigation costs against the price of licensing the patent will oftentimes produce an economically justifiable solution—pay the patent holder and simply walk away. It must just be the cost of doing business, right?
Not for Newegg, and not for its Chief Legal Officer, Lee Cheng.2 In an age when settlement is commonplace, Newegg’s approach to infringement litigation is refreshing, albeit confrontational and seemingly expensive: Newegg refuses to settle with nonpracticing entities (NPEs) that allege infringement.3 NPEs, which are more commonly referred to as “patent trolls,” are companies that accumulate patents with the intent to aggressively pursue licensing fees through litigation, with no plans of ever manufacturing or marketing the patented inventions.4 In the past decade, NPEs have changed the landscape of patent law, generating a constant fear of litigation and discouraging the very innovation that lies at the heart of patent protection. Even President Obama, in a recent “Fireside Hangout” on Google Plus, stated that NPEs were doing nothing more than “extorting” money from others, and that further legislation is necessary to remedy the problem.5 Soverain Software LLC v. Newegg Inc.6 demonstrates how costly and truly difficult it can be for a defendant to stand its ground against an NPE.
In 2007, Soverain filed suit against a group of companies for infringement of its patents disclosing a system for e-commerce sales transactions.7 Each of the other defendant-companies chose to pay Soverain to license the patents in exchange for avoiding litigation; however, Newegg refused. It argued that the Newegg sales system was materially different than the patented system, and that Soverain’s patents were obvious in light of the prior art and thus invalid. In a way, the case was a perfect storm. On one side, the prototypical NPE holding a group of dubious patents, and on the other, an alleged infringer committed to litigating the issue, regardless of cost. The stage was set for the two companies to square off in what was coined “the mother of all patent battles,” and the rest of the online-retail community had a front-row seat.8 The case is particularly interesting for two reasons: It highlights the stark difference between the Federal Circuit and the district court’s position regarding what level of evidence is necessary to establish a prima facie case of nonobviousness, and it also provides an example of when a court will disregard evidence of licensing as secondary indicia of nonobviousness, when such licenses merely reflect a party’s attempt to avoid costly litigation.
The “Shopping Cart” Patents and Soverain’s Goal to Obtain One Percent of All Internet Sales
The Soverain-Newegg dispute involved a number of patents, developed in 1994 by Open Market Inc., covering a system that most would describe as your typical online sales transaction. The patents disclosed a sales system with a buyer computer, a host computer, and a merchant computer, all interconnected by an electronic network. Under the patented system, the buyer accesses the merchant’s website and selects a product, the product is recorded in the buyer’s “shopping cart,” and the information is saved on the server until he or she chooses to checkout and purchase the item. The vast majority of online retailers rely on a similar system to conduct sales transactions on the Internet.
The patented inventions were embodied in a software system called “Transact” that Open Market attempted to license to retailers in the early 1990s. After modest success, Open Market sold the patents and supporting software to Divine Inc. in 2001. Less than two years later, however, Divine filed for bankruptcy, and Soverain purchased the patents. In fact, Soverain was created specifically to acquire these “shopping cart” patents, with the ultimate goal of brandishing the patents to demand licensing fees from all major online retailers.9 Shortly after acquiring the patents, Soverain began actively pursuing licensing fees from online retailers whose sales systems incorporated the patented technology.
Soverain’s goal was to demand a one percent royalty on all Internet sales transactions generated through the use of the patented system.10 From the outset, Soverain was extremely successful, obtaining judgments against Avon and Victoria’s Secret for over $18 million, as well as a running royalty on all online sales.11 In 2005, Amazon settled with Soverain for a reported $40 million, while The Gap also settled for an undisclosed sum.12 And to date, Soverain has filed infringement suits against more than a dozen other companies, such as Office Depot, Kohl’s, and J. Crew.13 In 2007, Soverain shifted its focus to Newegg, an online retailer that sells electronics and information-technology products.14
Nonobvious as a Matter of Law?
Newegg refused to pay Soverain a licensing fee for the use of the patented system, and in 2007 the parties went to trial in the United States District Court for the Eastern District of Texas.15 At issue were the three Open Market patents that Soverain had acquired: U.S. Patent Nos. 5,715,314 (the ‘314 patent); 5,909,492 (the ‘492 patent); and 7,272,639 (the ‘639 patent). The parties each agreed that there were three specific sets of claims at issue: the “shopping cart” claims, which were system claims 34 and 51 of the ‘314 patent; the “hypertext statement” claims, which were system claims 41 and 61 of the ‘492 patent; and the “session identifier” claims, which were method claims 60 and 79 of the ‘639 patent. The “shopping cart” claims involved the system of storing shopping information in individual storage areas, referred to as shopping carts, on the host server. The “hypertext statement” claims covered a system of producing an online-accessible sales summary, or receipt, with each sales transaction. And last, the “session identifier” claims disclosed a method of assigning a number to each shopping session, for purposes of keeping record of the transaction.
At trial, Newegg attempted to differentiate its system from the patented inventions, claiming that its sales system did not store sales information on its server but, instead, utilized “cookie” technology to store the ongoing sales information on the buyer’s computer until checkout, which it argued was a significant distinction. Additionally, and most notably, Newegg also attacked the validity of the patents themselves, claiming that all three patents were obvious in light of the prior art and thus invalid. Specifically, Newegg alleged that an e-commerce system called the “CompuServe Mall” was available prior to the issuance of Open Market’s original patents, rendering the “shopping cart” and “hypertext statement” claims of the ‘314 and ‘492 patents obvious. Additionally, Newegg relied on U.S. Patent Nos. 5,560,008 (the ‘008 patent) and 5,724,424 (the ‘424 patent), both of which disclosed a method of assigning numbers to individual customers, to argue that the “session identifier” claims of the ‘639 patent were also obvious.
Throughout trial, both parties offered evidence on the issue of obviousness. Newegg relied heavily on the CompuServe Mall, a system by which a buyer could access a database of retailers on a buyer computer that operated as an electronic sales catalog: The buyer would type “O” to order or select an item and “checkout” to purchase. Newegg offered testimony from CompuServe’s former Chief Technology Officer, who provided a detailed description of the CompuServe system, as well as two books, published prior to the patented inventions, that explained how to utilize the CompuServe Mall. Additionally, Newegg’s expert witness testified regarding the similarities between the CompuServe Mall and the patented system embodied in the Transact software, detailing the similarities element by element, before concluding that all of the elements and limitations found in Soverain’s patents were “shown or apparent” in the prior art.16
In response, Soverain argued that its patents were nonobvious in light of the CompuServe Mall, offering testimony from its own expert, who explained that the patented system had a number of claims that were not present in the CompuServe Mall. Specifically, Soverain alleged that the patents incorporated Internet technology that was not available at the time of the CompuServe system. Additionally, Soverain was permitted to offer evidence that numerous companies had paid to license its “shopping cart” patents, as a means of demonstrating that the inventions were commercially successful. Relying on these licenses, Soverain’s argument was rather convincing: Why would companies pay to license Soverain’s software if its patents were invalid?
Despite extensive evidence on the issue of obviousness, at the close of trial Judge Davis removed the issue of obviousness from the jury, granting Soverain’s Rule 50(a) motion and concluding that the patents were nonobvious as a matter of law and thus valid. Judge Davis said, “I don’t think there’s sufficient testimony to present an obviousness case to the jury. I think it would be very confusing to them.”17 With the issue of obviousness removed from consideration, the jury found that Newegg had indirectly infringed on the “shopping cart” and “hypertext statement claims” of the ‘314 and ‘492 patents, but that it did not infringe on the “session identifier” claims of the ‘639 patent. The jury awarded Soverain $2.5 million dollars in damages.
After the jury rendered its verdict, both Newegg and Soverain filed a series of post-trial motions. Newegg moved to vacate and remit the damages award, while Soverain moved for a permanent injunction or, in the alternative, an ongoing royalty payment. Both sides also filed renewed motions for judgment as a matter of law under Rule 50(b). Again, Judge Davis sided with Soverain, denying Newegg’s motions and upholding the jury’s verdict of infringement of the ‘314 and ‘492 patents. Additionally, the judge set aside the jury’s finding of noninfringement of the asserted claims of the ‘639 patent, entering a judgment in favor of Soverain and ordering a new trial on the issue of damages. Last, he entered a judgment in favor of Soverain for both post-trial damages and an ongoing royalty of $0.15 per sales transaction for the life of the patents.
The Nonobviousness Requirement
To obtain a patent, an invention must exhibit patentable subject matter and must be new, useful, and nonobvious.18 At issue in Soverain was the obviousness requirement, which states a patent may not be obtained “if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.”19 In order to determine nonobviousness, a patent examiner or the court will consider previous patents, patent applications, and other existing public information to determine whether, in light of that information, the claimed invention or improvement would have been obvious to an ordinary person with skill in that particular art. For example, in a patent application for a new system of delivering an existing pharmaceutical, the examiner may review prior patents covering delivery systems of other pharmaceuticals, as well as articles published in medical journals and other available literature, to determine if this new system of delivery is sufficiently nonobvious to warrant patent protection.
In Graham v. John Deere Co.,20 the Supreme Court established four factors that the court should consider in determining if the party has satisfied the nonobviousness requirement: (1) the scope and content of the prior art; (2) the difference between the prior art and the claimed invention; (3) the level of ordinary skill in the field of the invention; and (4) any “objective” or “secondary” considerations.21 With ongoing advances in technology, the courts have frequently been faced with difficult validity determinations with respect to nonobviousness. Particularly relevant in the Soverain case was the Federal Circuit’s recent decision in Muniauction, Inc. v. Thomson Corp.,22 a case involving patents disclosing a system of buying and selling bonds online. With respect to whether it was obvious to combine an existing bonds-sales system and Internet technology, the Federal Circuit concluded that the patents failed the nonobviousness requirement, stating that the application of Internet technology to an existing process was “commonplace.”23
The Federal Circuit—“Questions of Law Must Be Correctly Decided”24
Despite the judgment in the district court, most believed Newegg had actually scored a significant victory at trial—the $2.5 million verdict was only seven percent of what Sovereign sought in damages, and the $0.15 royalty per transaction was significantly less than the one percent of all sales that Soverain had set out to obtain. Nevertheless, Newegg appealed the decision to the United States Court of Appeals for the Federal Circuit. Citing Graham and KSR International Co. v. Teleflex Inc.,25 the Federal Circuit characterized the obviousness determination as a question of law, before gently reminding the district court that “questions of law must be correctly decided.”26
The Federal Circuit reversed the district court’s ruling that the patents were nonobvious as matter of law. In stark contrast to the district court’s finding, the Federal Circuit concluded that sufficient evidence was offered to determine that the patents were, in fact, obvious as a matter of law and thus invalid. Judge Newman wrote, “The district court’s conclusion that a prima facie case of obviousness was not met is not explained by the court or by Soverain, and does not accord with the record.”27 The court went on to hold that the “shopping cart” and “hypertext statement” claims of the ‘614 and ‘492 patents were obvious in light of the CompuServe Mall system, and that applying the use of the Internet to the existing electronic sales process did not render the Soverain patents nonobvious. Additionally, the court vacated the district court’s finding of infringement regarding the “session identifier” claims of the ‘639 patent, stating that the prior ‘008 and ‘424 patents rendered obvious the “session identification” claims, and that any distinction between attaching numbers to individual buyers, as opposed to individual sales transactions, was immaterial.
Last, the court rejected Soverain’s argument that extensive licensing and commercial success of the patented inventions negated any finding of obviousness. In reaching its decision, the court explained that the patented system was relatively unsuccessful in the early 1990s, and that the recent licensing of the product was more likely a reflection of parties attempting to avoid costly infringement litigation, as opposed to a genuine interest in the patented system. The court concluded that licenses purchased “by those who bought litigation peace . . . do not support [a finding of] nonobviousness.”28
Emptying the Cart—Soverain’s Impact Moving Forward
The Federal Circuit’s decision to reverse the district court’s finding of nonobviousness as matter of law would usually be surprising. It is hard to understand how two courts, both reviewing the same evidence, could come to entirely conflicting conclusions. More specifically, the district court found there was insufficient evidence to allow the jury to even consider the issue of obviousness, while the Federal Circuit concluded that very same evidence was sufficient to render the patented system obvious by clear and convincing evidence.
The result, however, is less surprising when you consider that the parties litigated the case in the Eastern District of Texas. The Eastern District has, over time, developed a reputation as being a “patent friendly” court and, as such, is a common forum for NPEs seeking to enforce their patents.29 With this decision, the Federal Circuit has seemingly pushed back against the Eastern District. Nevertheless, it is hard to predict if the Federal Circuit will continue down this path of curbing baseless patent litigation, or if defendants will actually choose to provide it with the opportunity to do so. Here, Newegg likely spent more money defending the suit than it would have paid for a license—to effect change, other defendants would have to make similar financial sacrifices. Another possible solution to limiting the NPE threat could be a fee-shifting provision that would permit the defendant to recoup attorney fees if the patent is determined to be invalid, which would serve to discourage baseless infringement actions, while also incentivizing defendants to challenge what they consider to be questionable patents.30 Under existing patent law, a judge may award attorney fees only in exceptional cases.31
At a minimum, the Soverain case is certainly a victory for online retailers, as well as the consumers who would have been affected by the increased cost of online sales. In contrast, the decision is a significant loss for Soverain, whose attempts to utilize “shopping cart” patents to generate licensing fees have seemingly been halted. From a tactical standpoint, the case provides future defendants with a roadmap for attacking broad, technology-based patents that simply incorporate the Internet into existing methods. Last, the case serves to expose the inherent weaknesses in arguing that licensing fees should be considered secondary indicia of nonobviousness, when such licensing is likely the result of parties avoiding costly litigation, as opposed to a desire to utilize the patented invention. Moving forward, this distinction may prove to be an effective tool for defendants seeking an invalidity determination based on the obviousness of the patented invention, especially when the licensing fees at issue are significantly less than the cost of litigating infringement.
Kevin C. Adam, Commentary, Obviously Obvious: Federal Circuit Reverses District Court’s Decision That Online “Shopping Cart” Patents Are Nonobvious as a Matter of Law—Soverain Software LLC v. Newegg Inc., 1 Suffolk U. L. Rev. Online 9 (Feb. 25, 2013), http://www.suffolklawreview.org/adam-patent.
Kevin C. Adam is a 2012 graduate of Suffolk University Law School and former Editor-in-Chief of the Suffolk University Law Review.
Supreme Court cases reflect changing times. Suffolk University Law Review began in 1967, the year of Loving v. Virginia,1 a civil rights case that struck down state laws barring interracial marriage. In 2013, the Court has before it cases to determine the validity of federal and state laws limiting same-sex marriages.2
This piece looks at a different sector of the Court’s docket. Not coincidentally, Suffolk University Law Review Online begins as courts are paying increased attention to issues of high technology. The Supreme Court presently has four intellectual property cases pending (and two just decided), after decades in which it commonly considered one or two such cases per year.
Ass’n for Molecular Pathology v. U.S. Patent & Trademark Office3 addresses an issue with philosophical implications: Are human genes patentable? The case represents a recent surge of Supreme Court patent cases. In 1980, Diamond v. Chakrabarty held that a living thing, a genetically engineered, “human-made micro-organism” is patentable subject matter.4 In 1981, Diamond v. Diehr established that computer-implemented inventions could be patentable.5 The invention in question was a process for curing rubber, involving measuring certain temperatures and using a computer to calculate the appropriate length of time to run the curing process. Those cases also established three categories of nonpatentable subject matter: abstract ideas, laws of nature, and natural phenomena. The Supreme Court then did not address the issue of patent subject matter for decades, leaving the lower courts struggling to define the boundaries of those three vague exceptions.
In 2010, Bilski v. Kappos held that a general process for using commodity exchange transactions to hedge risks was an unpatentable abstract idea.6 In 2012, Mayo Collaborative Services v. Prometheus Laboratories, Inc. held unpatentable a diagnostic method, which consisted essentially of measuring the level of a metabolite in a patient’s blood and adjusting the dose of a drug accordingly.7 The Court held that this method was unpatentable as encompassing a law of nature combined with “well-understood, routine, conventional activity previously engaged in by scientists who work in the field.”8
The Federal Circuit in Ass’n for Molecular Pathology held that Bilksi and Prometheus did not govern the patentability of genes, on the theory that its analysis did not apply to the third category of unpatentable subject matter: products of nature.9 Rather, the Federal Circuit held that human genes were patentable—not in natural form in the body—but in the isolated form captured in a laboratory. The isolated form, the lower court ruled, was a different molecule than the natural form and so not simply a product of nature.10 If, however, the Supreme Court does extend the general approach of Prometheus, it might well hold that the gene itself is an unpatentable product of nature, and the isolated form is simply the result of “well-understood, routine, conventional activity previously engaged in by scientists who work in the field.”11
Notable also is the fact that Ass’n for Molecular Pathology will not answer the broad question of whether human genes are patentable? The facts of the case raise only the issue of whether human DNA, once isolated, is patentable. But “human genes” could encompass many other issues: Whether synthetic genes put into humans are patentable; whether DNA isolated from fossil ancestors of homo sapiens are patentable; whether genes from another species combined with human genes are patentable; and whether human DNA that did not code for a gene—but was nevertheless useful—was patentable.
Genes are also at the heart of Bowman v. Monsanto Co.,12 in which the question is: “Whether the Federal Circuit erred by (1) refusing to find patent exhaustion in patented seeds even after an authorized sale and by (2) creating an exception to the doctrine of patent exhaustion for self-replicating technologies?”13 In plain English, whether a farmer who purchases patented genetically modified seeds may plant the seeds that grow from the resulting plant. Such self-replicating technologies indeed raise new questions for the law.
Software can also fall into that category, and raises analogous issues. An important issue is whether someone who buys software may resell it without infringing the copyright in the software. Courts so far have enforced limitations on resale incorporated in intellectual property licenses, whether for patented seeds or copyrighted software. By contrast, copyright holders of yore were not able to shut down markets in used books.
John Wiley & Sons, Inc. v. Kirtsaeng14 reflects the increasing internationalization of trade and communications.15 The case addresses the question of whether the importation of books printed abroad under license from a copyright owner infringes the copyright owner’s exclusive right to distribute the work in the United States. A student from Thailand noticed how much more expensive textbooks were in the United States than their foreign counterparts. The enterprising student imported and sold thousands of books until publishers successfully sued him for copyright infringement. If a book is printed and sold in the United States, the purchaser may freely resell it under the “first sale” doctrine. But the Second Circuit held that first sale does not apply to books printed outside the United States, even if authorized by the copyright holder.16 The case turns on laborious issues of statutory interpretation and has good policy arguments on both sides. If first sale does not apply to foreign works, then museums in the United States are infringing by displaying foreign-made artworks they own, such as Picasso’s paintings. If first sale does apply, then perhaps United States publishers will no longer sell less expensive editions abroad, hurting education in developing countries.
Federal Trade Commission v. Watson Pharmaceuticals, Inc. addresses a different aspect of the control over the market for a product covered by intellectual property.17 When patented pharmaceuticals are reaching the end of their patent term, patent holders often sue makers of the generic versions for patent infringement. Sometimes those suits are resolved in a counterintuitive way: The patent holder pays the accused infringer as part of the settlement. Such “reverse settlement payments” look like antitrust violations: A monopolist paying a potential competitor to stay out of the market. But some courts have tended to uphold such settlements, on the theory that they encourage settlement of litigation and offer an incentive to develop generic versions of patented drugs. Watson will address the elementary question of how closely courts will scrutinize such transactions under antitrust laws.
Gunn v. Minton addressed an institutional issue, holding that state courts have jurisdiction to hear legal malpractice claims involving patents.18 Exclusive jurisdiction in patent and copyright cases has made intellectual property primarily a federal area of the law. The mere fact that Gunn reached the Supreme Court demonstrates how that has extended even to state law claims that involve federal intellectual property rights, such as the claim that a patent lawyer negligently drafted the claims in a patent application or gave faulty advice in patent litigation. The Supreme Court unanimously held that exclusive federal jurisdiction over patent law does not deprive state courts from exercising jurisdiction over state law claims in a case involving a patent.19 Gunn echoes the issues of federalism in 1967 and today, whether and how states and the federal government could regulate marriage.
Already, LLC v. Nike, Inc. addressed the question of how easy it should be for someone to sue himself or herself.20 Among legal entitlements, intellectual property rights are notoriously vague, ambiguous, and uncertain. Rights holders often assert infringement without filing suit, such as to gain leverage in licensing negotiations. The accused party may then seek to clarify rights–by suing itself by bringing a declaratory judgment action seeking a court order that it is not infringing. The party asserting rights will then backpedal, arguing there is no controversy and so no justiciable case. Already held that there was no jurisdiction where the trademark holder had filed a covenant not to sue the other party.21
These high-profile cases give a flavor of the role that technology and intellectual property have come to play in today’s society. Suffolk University Law Review Online will reflect and embody these changes.
Stephen McJohn, Commentary, Genetic Engineering, Self-Replicating Technologies–and Used Books: Intellectual Property Law in 2013, 1 Suffolk U. L. Rev. Online 5 (Feb. 25, 2013), http://www.suffolklawreview.org/mcjohn-ip2013.
Stephen McJohn, Professor of Law, Suffolk University Law School.
A quarter century ago, the Lexington, Kentucky Veterans Affairs (VA) Medical Center pioneered a risk management program now known as “disclosure and offer.” Its guiding principal was that patients injured by malpractice should be told about the incident and “made whole” without having to litigate.
After a patient suffered an injury that the VA judged to have been caused by a departure from the standard of care, the VA contacted the patient and, along with an attorney of his choosing, invited him to meet with VA staff. At the meeting, the VA disclosed the error to the patient and discussed a plan about how to meet the patient’s medical needs. With guidance from his own legal counsel, the patient was offered fair, negotiated compensation (defined as what a judgment would be, including pain and suffering, if the case went to trial).
The VA program’s creators believed advising patients to seek counsel was necessary to protect the program’s integrity: Negotiating compensation for malpractice requires experience and expertise in law and medicine alike. Risk managers have this experience, unrepresented patients do not. And, because the goal was to be completely transparent and honest, the fact that a patient had legal representation was not seen as a threat. If the attorney made an unrealistic demand, VA risk managers simply said no to it.
In 1999, the Lexington VA team published a paper describing their experience using this method. 1 They concluded that payouts were similar to hospitals in a comparison group that did not have disclosure-and-offer protocols. It also appeared to save the VA money by reducing legal expenses that would have been incurred had these cases been litigated. This was deemed a success: The program treated patients ethically, helped the VA realize savings, and facilitated patient safety analyses without fear of legal ramifications.
Today, disclosure-and-offer programs are fixtures at facilities nationwide. 2 The current generation of programs, however, appears to have adopted a self-serving approach that eliminates safeguards designed to assure patients get fair advice regarding compensation. The most recent data revealed that only four percent of disclosure programs advise patients to seek independent legal advice.3
This should not be. To disclose an error and not to offer full compensation—or to disclose an error, but then leave a patient to negotiate with a trained risk manager with adverse financial interests—puts physicians on the wrong side of a conflict of interest.4
Recent research shows why programs that avoid attorney involvement may, intentionally or not, take advantage of patients.5 Only sixty percent of the study participants (each of whom was asked to assume they had suffered an injury and then had it disclosed to them as having been caused by a clear act of malpractice) described themselves as being very likely or somewhat likely to seek counsel regarding their legal rights. The potential for abuse becomes clear when coupling this with the finding that 78.8% of those surveyed stated they would be very likely or somewhat likely to accept waiver of medical expenses only (as opposed to full damages) as compensation.
The VA believed that the disclosure-and-offer programs’ collaborative tone made it difficult for unrepresented patients to recognize the need to ask nuanced questions that were likely beyond their legal understanding. Risk managers have a primary financial responsibility to their employers that should be balanced by a skilled representative for the patient. Without this, unrepresented patients would likely never know whether an offer was sufficient to pay future injury-related expenses (for medical costs and lost earnings); whether offered pain and suffering damages (if any) approximated a likely jury value; or if the offer had been discounted for any reason (e.g. unclear liability or to build-in room with the expectation the patient would attempt to negotiate).
To prevent miscommunications or misunderstandings, we recommend that disclosure programs adopt a two-part protocol as part of any discussion of malpractice with a patient:
Nothing in these protocols should be considered revolutionary. In fact, attorneys who suspect they have committed legal malpractice must exercise these same practices with their own clients.6
Advising patients to seek counsel protects their interests and the process’s integrity too. Without it, patients may not recognize that the discussion about compensation is inherently a legal negotiation in which those making the offer have a conflict of interest. It is also important to allow patients to have a cooling-off period if they initially decline to consult an attorney. Ultimately, some patients may decide not to seek counsel, or even not to take compensation. Making this decision, however, presupposes the patient has a fair opportunity to consider the options and the effects of foregoing compensation. For that reason, no decisions should be made with unrepresented patients until they have had a fair opportunity to understand the significance of their decisions.
These best practices are not intended as a windfall for plaintiffs’ attorneys. Instead, plaintiffs’ attorneys are ethically bound to do the right thing by significantly reducing their fees if claims are resolved as a result of the disclosure-and-offer process.7 If patients are able to afford it, plaintiffs’ attorneys should work for a reasonable hourly fee. If not (or if patients would prefer to pay on a contingency fee basis), the plaintiff’s attorney is obligated to offer a contingent fee significantly less than the traditional one-third.
Compensation is a tricky issue and one in which a patient both deserves and requires advice from experienced advisors whose only loyalty is to the patient. By adopting these protocols, medical facilities and patients alike can resolve a bad situation in an ethically sound way. In the event that negotiations fail and result in a trial, hospitals are in a strong position to prove that their postincident activities were fair and patient-centered rather than self-serving.
Gabriel Teninbaum and Steve Kraman, Essay, Disclosure and Offer at Twenty-Five: Time to Adopt Policies to Promote Fairly Negotiated Compensation, 1 Suffolk U. L. Rev. Online 1 (Feb. 25, 2013), http://www.suffolklawreview.org/teninbaum-kraman.
Gabriel Teninbaum, Associate Professor of Legal Writing, Suffolk University Law School. Professor Teninbaum has written extensively in the area of medical apology. His other publications include How Malpractice Apology Programs Harm Patients, 15 Chap. L. Rev. 307 (2011) and Medical Apology Programs and the Unauthorized Practice of Law, 46 New Eng. L. Rev. 505 (2012).
Dr. Steve Kraman, Professor, Division of Pulmonary, Critical Care and Sleep Medicine, Department of Internal Medicine, University of Kentucky. Dr. Kraman is the former chief of staff of the Lexington, Kentucky VA Medical Center. Together with medical center counsel, he started and managed that facility’s disclosure-and-offer program.
A lawyer shall not: (1) make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement; or (2) settle a claim or potential claim for such liability with an unrepresented client or former client unless that person is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel in connection therewith.
Federal judges have a variety of tools to sanction litigants who fail to comply with discovery orders.1 After years of discovery disputes in Linde v. Arab Bank, PLC,2 the district judge issued “severe” sanctions against Arab Bank, which, according to the bank’s attorneys, turned a multi-billion-dollar case “into a show trial.”3 The plaintiffs are thousands of victims and family members of victims of Palestinian terrorist attacks that occurred in Israel between 1995 and 2004.4 The plaintiffs alleged that the bank violated the Anti-Terrorism Act (ATA) by providing material support and resources to foreign terrorists with the knowledge or intention that they would be used in the preparation or execution of the aforementioned attacks.5 The allegations included claims that the bank assisted in administering a “death and dismemberment benefit plan,” and provided other types of financial services to terrorist organizations.6
During the pretrial discovery phase of the case, Arab Bank refused to produce a sizable portion of the requested materials, claiming that doing so would subject them to liability under foreign law. The district court applied a commonly used balancing test, holding that the plaintiffs’ interests in receiving information vital to the litigation, coupled with the United States’ interest in combating terrorism, outweighed the bank’s privacy interests and potential hardship, as well as the interests of the implicated foreign countries in enforcing their banking-secrecy laws.7 The bank, however, refused to produce the requested discovery despite the district court’s order.8 Years after the bank’s initial refusal, the district court issued sanctions.9
The district court’s sanctions will provide the plaintiffs with two key advantages at trial.10 First, it will allow the jury to essentially infer that the missing discovery would have established the bank’s liability. Second, the bank will be precluded from making any argument or offering any evidence at trial that the plaintiffs could have refuted with the missing discovery.
Arab Bank subsequently filed an interlocutory appeal of this order to the Second Circuit, asking the court to vacate it by, among other things, issuing a writ of mandamus. The bank argued that the Second Circuit had jurisdiction to review the sanctions order because the headlines of a potential multi-billion-dollar jury verdict claiming the bank had “blood on [its] hands” could lead to a run on the bank from both its correspondent banks and customers, effectively crippling it before an appeal could be heard.11 Moreover, the bank also contended that compliance with the order would destroy the privacy rights of thousands of customers, and an appeal could not repair that damage once done. The bank asked the court to issue a writ of mandamus to vacate the sanctions order, claiming that it violates the established limits for civil sanctions on parties acting in good faith during discovery. In addition, the Kingdom of Jordan filed an amicus curiae brief arguing the sanctions violated the principles of international comity.12
The plaintiffs countered that the court did not have jurisdiction to vacate the sanctions order because, among other things, the district court’s order was not an indisputable abuse of its discretion.13 The plaintiffs argued that the bank did not, as it claimed, act in good faith, and countered that the order’s inferences would still require the support of independent evidence. Additionally, they posited that the preclusion order only prevents the bank from unjustly benefiting from the evidence they refuse to produce.14
The ATA provides a civil cause of action for the victims of international terrorism. Before its enactment, it was difficult for victims of terrorism to be made whole from the damages inflicted upon them. The statute allows plaintiffs to collect treble damages and attorneys’ fees from those that injure an American citizen “by reason of an act of international terrorism.”15 Although the phrase “international terrorism” was left ambiguous, courts have looked to congressional intent to determine which activities fall within the definition’s scope. In Boim v. Holy Land Foundation for Relief & Development, the Seventh Circuit held that, under certain circumstances, individuals or entities could be liable under the ATA for donating to the Palestinian terrorist organization Hamas.16 Courts have largely relied on this case’s reasoning to establish “material support,” which includes providing financial services, as within the scope of “international terrorism,” and thus creating liability under the ATA.17 Additionally, courts have also required that a financial institution must “knowingly” provide material support to terrorists in order to be found liable.18 Plaintiffs who file suit against banks under the ATA rely heavily on records that document the bank’s actions. Indeed, such evidence is directly relevant to proving a bank acted with the required scienter to be held liable.
The Federal Rules of Civil Procedure state: “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense,” and the “[r]elevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.”19 The scope of pretrial discovery has been referred to as “sweeping, virtually creating a presumption of discoverability.”20 Courts can order a party under their jurisdiction to produce discovery under that party’s “possession, custody or control,” no matter where it is located.21 Considered by most of the world’s judicial systems to be invasive and overreaching, the Federal Rules’ discovery provisions demanding production often conflict with foreign laws mandating concealment.
In 1987, the Supreme Court held that foreign law does not “deprive an American court of the power to order a party subject to its jurisdiction to produce evidence.”22 The Court endorsed a balancing test that addresses the sensitive and fact-specific inquiries these issues implicate.23 In ATA banking cases, courts have consistently ordered the production of discovery located abroad in violation of the laws of the country where the discovery is located—generally weighing the interests of the plaintiffs in gathering important evidence to make their case, and of the United States in combating terror, more heavily than the defendant and foreign nation’s interest in avoiding liability and enforcing their laws.24 When a district judge balances the interests at stake and decides to order discovery, despite the potential liability for the producing party under foreign law, failure to obey the court’s orders can result in sanctions. Indeed, the consequences can be devastating; the sanctions at a court’s disposal include the adverse-inference instruction and the right to suppress evidence.25 When imposing sanctions, case law dictates that district courts should consider, among many factors, the harshness of the sanctions, the degree to which the sanctions are needed to reestablish the evidentiary balance upset by the nondisclosure, and the nondisclosing party’s degree of fault.26
Once a district judge orders discovery, the orders are usually interlocutory and not subject to immediate appeal because they can be reviewed after final judgment in the case.27 There are numerous exceptions to this rule, however, which include the issuance of a writ of mandamus. The All Writs Act enables appeals courts to issue a writ of mandamus instructing a district court to remedy an erroneous order.28 Nevertheless, mandamus is warranted only under circumstances such as “judicial usurpation of power” or “clear abuse of discretion” by the lower court.29 Moreover, the party seeking issuance of the writ must have no other suitable means of attaining the relief it seeks. Even if a case falls within the scope of the aforementioned requirements, the court still has discretion to consider whether issuance is “appropriate under the circumstances.”30
In Linde, the Second Circuit held that the privacy implications of a potential judgment, as well as the economic and diplomatic ramifications, were not extraordinary enough to warrant review. The court rejected use of this power “even if the District Court incorrectly resolved any singular factual or legal question.”31 The court held that warnings of a run on the bank or “financial and political destabilization” were too speculative, and indirectly linked to the sanctions at issue.32
Typically, terrorist organizations use foreign banks and financial institutions to fund their attacks and activities. Thus, the circumstances surrounding ATA banking cases will almost always implicate records located abroad and generate discovery disputes that place banks in the catch-22 between United States courts demanding production and foreign laws mandating concealment. If district courts continue to weigh the respective interests in favor of the plaintiff and the production of evidence abroad, the consequences for defendants in these cases could be dire. In Linde, the Second Circuit established that sanctions allowing adverse-inference instructions and evidence-preclusion orders are effectively unreviewable until after a final judgment. If similar sanctions are ordered in ongoing and future ATA banking discovery disputes, the plaintiffs in these cases will proceed to trial with significant settlement leverage.
While these discovery and evidentiary disputes raise difficult questions and implicate a variety of important interests, courts should continue to order the production of evidence abroad and sanction litigants that refuse to comply. The alternative would render the ATA moot. If foreign banking-secrecy laws effectively shield evidence located abroad, plaintiffs bringing suit under the ATA would be unable to prove their cases. Indeed, the plaintiffs in these cases must prove that the banks acted with the requisite scienter to be held liable. When foreign banks are the accused parties, almost all evidence required to prove such a claim will inevitably be located abroad. Congress intended for the ATA to “empower victims” of international terrorism “with all the weapons available in civil litigation,” including discovery.33 While concerns of international comity should be considered, it is well established that legislative intent can override those concerns.34 Congress’s intent was to use discovery as one of those weapons; limiting discovery would effectively render the ATA moot, hardly ‘empowering’ the victims of terrorism.
Although harsh, the sanctions at issue are not unjust, nor will their application create a “show trial.” The plaintiffs will still be required to submit independent evidence in support of their claim and then the jury will decide, based on the merits of the evidence presented, whether the documents the bank withheld likely had the content they are allowed (but not required) to infer. Additionally, limiting evidence the bank can offer prevents the bank from benefiting from evidence it withheld from the plaintiffs. Without this order, Arab Bank officials could testify at trial that they closed terrorist accounts but then invoke banking secrecy and refuse to answer questions about when or why they did so. It would be analogous to a criminal defendant taking the stand and answering direct examination, but then refusing cross-examination on the grounds of Fifth Amendment privilege.35 The absence of these orders would actually lead to “show trials,” where banks could escape liability by withholding important documents—effectively enjoying the benefits and avoiding the hindrances of the laws and courts of the United States.
If ATA plaintiffs are unable to access vital discovery to prove their cases, they will not be the only ones harmed; the United States public will suffer as well. The possibility of significant civil damages in United States courts and the subsequent economic ramifications of such awards can deter banks from doing business with terrorists. The ATA’s legislative history suggests that Congress viewed private suits under the Act as “infused with the public interest.”36 Indeed, there is some evidence that ATA suits have already begun to incentivize banks to implement greater efforts to prevent terrorists from utilizing their services.37 In fact, this would not be the first time private civil litigation could play a role in bankrupting terrorism. The Ku Klux Klan was “brought to its knees” by private civil litigation, as opposed to government or military action.38
Today, more than ever before, foreign banks enjoy the benefits of our markets and protections of our laws. It would be unjust if foreign banks could enjoy those advantages while simultaneously avoiding their hindrances. Banks that conduct business in the United States make a choice, and sometimes that choice can present disadvantages as well. If foreign banks decide that it would be more beneficial to turn a blind eye to terrorists that utilize their services than to remain under the personal jurisdiction of United States courts, then that is their prerogative. Until a bank (or any organization or individual) makes that choice, however, it has impliedly accepted the risks of being under control of two legal systems that may, at times, conflict with each other. While under the control of two legal systems, banks should fail in any argument that suggests the United States’ interest in combatting terrorism and providing remedies to victims of terrorism should yield to foreign interests by enforcing banking secrecy. There will always be banks willing to provide material support for terrorist organizations, as long as it makes financial sense for them to do so.39 Ordering discovery, and implementing sanctions that will balance the evidentiary gap stemming from noncompliance, will fulfill congressional intent and allow plaintiffs to present their case. There is no doubt that the victims of international terrorism deserve to hold accountable those providing material support to the terrorists that victimize them. The most important outcome of ATA litigation, however, will be the threat of civil litigation as a significant deterrent against rendering material support to terrorists in the future.40 By cutting off the “oxygen of terrorism,” civil litigation will decrease the operational capacity of terrorists and, in turn, will inevitably shorten the list of victims (and plaintiffs) able to file suit under the ATA.41
Matthew J. Smith, Case Note, Discovering New Ways to Deter Terrorism: The ATA and the Cross-Border Discovery Catch-22, 1 Suffolk U. L. Rev. Online 25 (Feb. 25, 2013), http://www.suffolklawreview.org/smith-discovery.