Commercial Lease Parties Beware: Lessons from Tarrytown


by Andrew Fine, JD (NYS Bar admission pending; firm alumnus)

 

 

 

Through a recent appellate court decision, New Yorkers were gravely reminded that the age-old commercial concept of “caveat emptor” – which is Latin for “buyer beware” –  applies with equal force to those seeking commercial leases. Due diligence and factual investigation, it appears, are burdens naturally imposed on buyers and lessees alike.

 

On September 14, 2016, the Second Department of the New York Supreme Court, Appellate Division, decided 1357 Tarrytown Road Auto, LLC v. Granite Properties, LLC.[1] In this case, the plaintiff was a company that operated an automobile dealership (hereinafter, “Tarrytown”) which sought to expand its business by leasing additional property from the defendant (hereinafter, the “Landlord”) in the Town of Greenburgh, New York. After negotiation, the two parties entered into an agreement whereby the Landlord assigned an existing lease to Tarrytown. The agreement was finalized in July of 2013.

 

For the next two months, it was business as usual. In September, 2013, however, Tarrytown discovered that local law prohibited vehicles without license plates from parking on the leased premises (hereinafter, the “local ordinance”). Because Tarrytown intended to operate an automobile dealership on the premises, this local ordinance presented an unwelcome surprise as well as a serious obstacle. Tarrytown argued that the practice of parking cars without license plates on a dealership lot was “essential to the business of selling automobiles.”[2] Indeed, common sense would tend to support that argument.

 

Despite knowledge that Tarrytown intended to operate a car dealership on the premises, the Landlord had not disclosed the existence of this local law to Tarrytown during their lease negotiation, and the lease itself contained no mention of the local ordinance. The terms of the lease explained instead that provisions in the lease related to the parking of automobiles were subject to “any restrictions of local law, zoning, or ordinance.”[3] The relevant local ordinances were neither mentioned nor described in the lease outside of this generalized provision. Surprised and frustrated by its discovery, in September, 2013, Tarrytown asked the Landlord for a release from the Lease given the commercially frustrating nature of this local ordinance. The Landlord refused.   

negotiate commercial lease, Commercial Lease Attorney

Tarrytown subsequently brought suit in New York supreme court against the Landlord seeking release from the lease. Specifically, it alleged that the Landlord fraudulently induced Tarrytown into signing the lease by refusing to disclose the local ordinance, and that the Landlord had breached an implied covenant of good faith and fair dealing by failing to disclose the ordinance. The Landlord brought a motion to dismiss Tarrytown’s complaint. The New York supreme court granted this motion to dismiss, but only in part, with respect to the cause of action alleging fraudulent inducement. The Landlord, believing that the supreme court erred by declining to dismiss the complaint in its entirety, and appealed the supreme court’s order.

 

On appeal, the Second Department ruled in favor of the Landlord, and found that the lower supreme court should indeed have dismissed Tarrytown’s complaint in its entirety. But why?

 

The Second Department explained that the implied covenant of good faith and fair dealing is breached “when a party acts in a manner that would deprive the other party of the right to receive the benefits of their agreement.”[4] Simply put, this covenant constructively includes any promises “which a reasonable [person]…would be justified in understanding were included” with the rest of the written contract.[5] It was Tarrytown’s contention that the lease carried with it an implied promise from the Landlord that the premises were legally suitable for their intended purposes. The Second Department, however, felt otherwise. It explained that the lease explicitly provided that “no representation concerning the suitability of the premises for [Tarrytown’s]…intended business” was made in the lease. Accordingly, the court declined to “impos[e] a duty on the Landlord to disclose zoning or local law restrictions” on the basis that doing so would impose a duty on the Landlord that was expressly disclaimed by the lease.[6] The Second Department even went one step further by explaining that, generally speaking, contracts such as this may “conclusively establish a defense to causes of action alleging breach of the implied covenant of good faith and fair dealing.”[7] In essence, this means that contracts which state that no representations are being made therein with respect to a certain matter cannot be later invalidated on the basis that the contract should have made such a representation. This judicial analysis appears not to hinge on fairness, but rather on the express defensive language within the contract.

 

This case may understandably leave New York entrepreneurs and commercial lessees feeling uneasy. After all, this precedent places the burden on lessees to conduct their own due diligence before signing a lease by researching and identifying local zoning laws, local ordinances, and other rules and regulations that could disturb business on the premises. Commercial lessees would be prudent to carefully negotiate with landlords for the inclusion of express warranties and assurances in the lease itself. By the same token, lessees should be wary of those clauses which disclaim representations in the agreement.[8] Otherwise, lessees may fall prey to obscure and unknown regulations that serve to plague the premises that they paid so much to lease. To all business people who are shopping now or in the future for commercial leases: good luck, and caveat emptor.

 

 

 

 

[1] See generally 1357 Tarrytown Rd. Auto, LLC v. Granite Properties, LLC, 37 N.Y.S.3d 341 (N.Y. App. Div. 2d Dept. 2016).

[2] Id. at 342.

[3] See id. at 343.

[4] Id., citing Frankini v. Landmark Constr. of Yonkers, Inc., 937 N.Y.S.2d 80 (N.Y. App. Div. 2d Dept. 2012)

[5] Id., citing Dalton v. Educ. Testing Serv., 663 N.E.2d 289 (N.Y. 1995)

[6] Id.

[7] Id., citing Minovici v. Belkin BV, 971 N.Y.S.2d 103 (N.Y. App. Div. 2d Dept. 2013)

[8] See “New York Court Reminds Tenants to Do Their Due Diligence,” Westlaw Practical Law Real Estate, Oct. 28, 2016.



Non-U.S. (foreign) copyrighted works should be registered with the U.S. Copyright Office


by Henry Park, Esq.
Of Counsel and Registered U.S. Patent Attorney
Copyrights are territorial rights, which means that they are granted by—and limited to—the jurisdiction in which the copyright claimant seeks protection. To avoid this limitation, 171 countries have signed the Berne Convention for the Protection of Literary and Artistic Works.

 

Under the Berne Convention, signatories recognize that the works from one contracting state must be given the same protection in each of the other contracting states as the latter gives to its own nationals. See Berne Summary at http://www.wipo.int/treaties/en/ip/berne/summary_berne.html (1) Authors shall enjoy, in respect of works for which they are protected under this Convention, in countries of the Union […] the rights which their respective laws do now or may hereafter grant to their nationals, as well as the rights specially granted by this Convention.

 

See Berne Convention, Article 5(1) at http://www.wipo.int/treaties/en/text.jsp?file_id=283698#P109_16834. Moreover, that protection must not be conditioned upon compliance with any formality. See supra Berne Summary.

(2) The enjoyment and the exercise of these rights shall not be subject to any formality[.]
See Berne Convention, Article 5(2) at http://www.wipo.int/treaties/en/text.jsp?file_id=283698#P109_16834.

Non-U.S. copyrights, Best Law Firm in Brooklyn New York | Law Firm of Dayrel Sewell

When the U.S. became a signatory to the Berne Convention, it amended its copyright laws through the Berne Convention Implementation Act of 1988. Specifically, the U.S. amended Section 411 to require the registration of only domestic works before a copyright lawsuit can be filed. See 17 U.S.C. § 411(a).

Thus, a non-U.S. copyright claimant (i.e., foreign claimant) can initiate a copyright infringement lawsuit in the U.S. based on its foreign copyrights without registering them.

 

The U.S., however, did not amend Sections 410(c) or 412. Section 410(c) grants a presumption of validity to registered works, which affects the order of proof. See 17 U.S.C. § 410(c). Section 412 makes timely registration a prerequisite for certain remedies: the award of statutory damages and of attorneys’ fees. See 17 U.S.C. § 412.

 

[The committee] has concluded that the statutory incentives for registration contained in the provisions of sections 410(c), 412, and 205 of the Copyright Act are not preconditions for the ‘enjoyment and exercise’ of copyright. While those provisions substantially enhance the relief available to the proprietor of a registered work, they do not condition the availability of all meaningful relief on registration, and therefore are not inconsistent with Berne.

 

Elsevier B.V. v. UnitedHealth Group, Inc., 93 U.S.P.Q.2d (S.D.N.Y. Jan. 10, 2010) (quoting from Senate Report No. 100-352).
To avail oneself of the benefits associated with Section 412, the copyright holder must timely register its works.

 

 

– for an unpublished work, that the work is registered before any infringement

– for a published work, that the work is registered within three months of its first publication See 17 U.S.C. § 412. Once timely registered, the copyright holder may claim statutory damages instead of having to prove actual damages and the actual infringer’s profits. See 17 U.S.C. § 504(c). Statutory damages are determined by the court and range from between $750 – $30,000 per infringed work, and can go up to $150,000 per work if the infringement was willful. See 17 U.S.C. § 504(c). Additionally, the copyright holder may recover its costs and, if it is the prevailing party, its reasonable attorney’s fees. See 17 U.S.C. § 505; see also Kirtsaeng v. John Wiley & Sons, Inc., 579 U.S. ___ (2016) (a court examines a variety of factors when determining whether to award attorney’s fees, but should put substantial weight on the reasonableness of the losing party’s position). Both of these benefits are particularly strong negotiating tools. Thus, foreign copyright claimants should timely register their foreign copyrights with the U.S. Copyright Office to avail themselves of all potential relief under U.S. Copyright Law.



Myriad Back in Court on Patent Subject Matter Eligibility


On June 13, 2013, the Supreme Court issued a unanimous decision holding that “genes and the information they encode are not patent eligible simply because they have been isolated from the surrounding genetic material.” See Association for Molecular Pathology v. Myriad Genetics Corp. (AMP), 133 S. Ct. 2107, 2120 (2013). Attorney Sewell’s publication entitled “Unanimous U.S. Supreme Court and Angelina Jolie: BRCA1 & BRCA2 Patentability” is widely disseminated, well-received by his peers, and sparks considerable commentary.

 

Background

In somewhat of a twist, the Supreme Court’s decision against the patentability of isolated DNA prompted more—not less—litigation by Myriad regarding gene patents. Between 1997 and 2013, Myriad’s revenue from its BRACAnalysis test steadily increased, and totals more than $2 billion. BRACAnalysis is a genetic test that confirms the presence of BRCA1 or BRCA2 gene mutations, responsible for the majority of breast and ovarian cancers. Myriad earned that revenue by carefully guarding its patent rights and preventing others from providing screening tests for the BRCA1 and BRCA2 genes. From the mid-1990s, until the Supreme Court’s AMP decision, Myriad was the lone provider of full-sequence BRCA1 and BRCA2 tests in the United States. Within days of the Supreme Court’s AMP decision, Defendant Ambry Genetics Corporation announced plans to sell tests less expensive than Myriad’s to screen BRCA1 and BRCA2 genes. Ambry Genetics Corporation is a clinical diagnostic and genomic services company in Aliso Viejo, California. Defendant now offers a menu of at least six tests that include screening for BRCA1 and BRCA2: a combined BRCA1/BRCA2 test, BRCAPlus, BreastNext, PancNext, Ova Next, and CancerNext. Defendant’s BRCA1/BRCA2 test is available for $2,200—substantially less than the price for comparable testing offered by Myriad.

Soon after Defendant Ambry made its announcement, Myriad filed a complaint in the District Court of Utah alleging that Ambry’s genetic testing infringes several of Myriad’s patents. Myriad also moved for a preliminary injunction to enjoin Defendant Ambry from sales or offers to sell “genetic tests including a BRCA1 or BRCA2 panel”. Ambry opposed the motion, alleging that the claims were invalid under 35 U.S.C. § 101 et seq. The district court divided the Myriad gene patent claims at issue into the Primer Claims and the Method Claims.

On March 20, 2014, the Utah District Court held that Plaintiffs are not entitled to a preliminary injunction because “although Plaintiffs have shown they are likely to be irreparably harmed if an injunction does not issue, Defendant has raised substantial questions concerning whether any of the patent claims at issue in Plaintiffs’ Motion are directed toward patent eligible subject matter under 35 U.S.C. § 101”. Myriad then appealed to the Federal Circuit the denial of its motion for a preliminary injunction.

U.S. Federal Circuit Court of Appeals

On October 6, 2014, Chief Judge Prost and Judges Dyk and Clevenger of the U.S. Court of Appeals for the Federal Circuit heard oral argument in the interlocutory appeal of the Utah district court’s denial of Myriad’s motion for preliminary injunction against Ambry Genetics. In re BRCA1- and BRCA2- Based Hereditary Cancer Test Patent Litigation, Case Nos. 14-1361, -1366. The two main issues that dominated the argument are: 1) the correct implementation of the test for patent eligibility; and 2) the application of this test to probes and primers. The impact on the biotechnology industry was also discussed.

Jonathan E. Singer, counsel for Myriad, began by arguing that both the Federal Circuit and the Supreme Court had previously acknowledged that Myriad was entitled to patent some applications of their newly-discovered gene sequence and tools designed specifically to utilize that sequence. Myriad argues that primer pairs are patent subject matter eligible under 35 U.S.C § 101 because the pairs are structurally and functionally different than a single fragment of DNA. Counsel for Myriad also argued that, as a whole, the method of screening for alterations on the BRCA genes involves steps of the method claims, when considered together, effect an improvement in a technical field – by using Myriad’s probes and primers that Myriad invented.

With respect to the primer claims, Ambry argues that these claims are patent-ineligible because, in addition to reciting patent-ineligible products of nature, the claims fail under Alice because they are a generic component used to amplify a person’s gene sequence to access the sequence information for the patent-ineligible sequence comparison. As for the method claims, Ambry argues that under Alice, “the combination of unpatentable subject matter and a generic physical application is no more patent eligible than a claim reciting only the unpatentable subject matter.” See Ambry Supplemental Brief at page 3.

Conclusion

What is clear from the district and appellate court arguments is that it does not appear likely that Myriad will be successful in its attempts to preliminarily enjoin Ambry. Additionally, the biotechnology industry is looking towards the Federal Circuit for guidance on the correct implementation of patent subject matter eligibility under Myriad, Mayo, and Alice.

patent, trademark, copyright, trade secret, intellectual property, unfair competition



Intellectual property (patents, trademarks, copyrights, trade secret) is all around us and is valuable. The things that we use, watch, and buy are items that were thought of and then put into practice. Attorneys at the New York LAW FIRM OF DAYREL SEWELL, PLLC protect your intellectual property, so that you can maximize value. The majority of our attorneys possesses scientific training and is well-experienced in the litigation and prosecution aspects of patents, trademarks, copyrights, trade secrets, licensing, unfair competition, and more. Our passion and commitment is unmatched and is one of several aspects that set us apart from our peers. We care. As a result, our clients receive legal expertise with individualized attention by attorneys who are invested in the outcome of your matters. Our clients realize the value that this law firm delivers and are committed to a long-term, rewarding, attorney-client relationship.



Patent Troll Paying the Toll


In an exemplary ruling, the United States District Court for the Southern District of New York has ordered the so-called patent troll, Lumen View Technology, LLC (“Lumen”), to pay opposing party FindTheBest.com’s legal fees and other expenses under the fee-shifting provision of 35 U.S.C. § 285. See Lumen View Technology, LLC v. FindTheBest.com, Inc., 1:13-cv-3599 (DLC) (SDNY 2014).

 

Lumen filed suit against FindTheBest in May 2013 alleging FindTheBest infringed on a computer-implemented method patent that facilitated bilateral and multilateral decision-making. Lumen also filed more than twenty other similar patent infringement claims against various other technology companies during 2012 and 2013. FindTheBest quickly noticed the Lumen claim was a sham due to the fact that FindTheBest technology did not use a bilateral or multilateral decision-making process. The Southern District found Lumen’s suit to be without merit and dismissed the case in November 2013.

 

After the dismissal, FindTheBest petitioned the court to find Lumen’s suit one of an “exceptional case” under Section 285 and the recent Supreme Court ruling in Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014).

 

In the April 2014 unanimous decision penned by Justice Sotomayor, the Supreme Court ruled that an “exceptional case” under § 285 is one that stands out from others with respect to a party’s litigating position, considering the law and the facts of the case, or the unreasonable manner in which the case was litigated. See Octane Fitness, LLC, 134 S. Ct. at 1756.

 

The Court found the previous standard in Brooks Furniture Manufactuirng, Inc. v. Dutailier Int’l, Inc., 393 F. 3d 1378 (2005), to be overly restrictive and one that hampered the statutory grant of discretion given to the courts under Section 285. Section 285 imposes only one constraint on a district court’s discretion to award fees, one of “exceptional” cases. In Brooks, a case could only be deemed exceptional when there was material inappropriate conduct, or when parties brought cases in subjective bad faith and were objectively baseless. The Court found this framework to be inconsistent with the text of Section 285.

 

In step with the Supreme Court’s Octane decision, the Southern District found Lumen’s patent infringement suit to fall under the “exceptional case” standard. As such, the Southern District of New York granted FindTheBest’s motion and found the suit to be a “prototypical exceptional case” shifting payment of FindTheBest’s case fees to Lumen.

 

patent, patent search, patent attorney, intellectual property, attorney fees, patent infringement, Supreme Courtattorney fees, toll, litigation



Continuing Legal Education, Networking, and Refreshments


The LAW FIRM OF DAYREL SEWELL, PLLC is pleased to announce that Dayrel will be co-presenting a Continuing Legal Education (CLE) course called “Intellectual Property Fundamentals: What Every Attorney Needs to Know” on Monday, May 19, 2014 at the Brooklyn Bar Association.

This Continuing Legal Education event will provide practicing attorneys with a primer to issue spot, analyze, and provide better value to their clients by competently addressing the various intellectual property issues that arise in a myriad of business transactions and lawsuits.

Along with an overview of the main intellectual property areas of patent, trademark, and copyright, this course will provide key practice points, current case law, and analytical framework that are sure to add value to your practice.

While many attorneys lack the STEM background required to become a registered U.S. Patent Attorney, one would be remiss to ignore the significant, valuable intellectual property ramifications of various business decisions. From employment contracts to social media to portfolio licensing, intellectual property is all around us.

Intellectual property (IP) is an overarching term for the legal protection of creations, inventions, products or processes that originate from a person’s mind or ‘intellect’. Generally-speaking, intellectual property fits into one of four distinct categories: patents, trademarks, copyrights, and trade secrets. While some of the principles are similar to real property, there is a plethora of rules and laws to protect such intellectual inventions both domestically and internationally.

The United States Patent and Trademark Office (USPTO) is the federal agency for granting U.S. patents and registering trademarks. In doing this, the USPTO fulfills the mandate of Article I, Section 8, Clause 8, of the Constitution that the legislative branch “promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” The USPTO registers trademarks based on the commerce clause of the Constitution (Article I, Section 8, Clause 3). Additionally, The USPTO advises the president of the United States, the secretary of commerce, and U.S. government agencies on intellectual property (IP) policy, protection, and enforcement; and promotes the stronger and more effective IP protection around the world.

Refreshments and networking will immediately follow the CLE presentation. The attached flyer contains further course and registration information. You are encouraged to attend this fun and informative event. We look forward to seeing you!

Intellectual Property Fundamentals What Every Attorney Needs to Know

Continuing Legal Education, Networking, and Refreshments

The USPTO for intellectual property fundamentals



Patent Assertion Entity Settles with Attorney General and Sues the Federal Trade Commission


On January 14, 2014, the Office of the New York State Attorney General (OAG) made a significant contribution in combating the ignominious patent troll.

 

Attorney General Eric Schneiderman announced that MPHJ Technology Investments, LLC (MPHJ), a so-called “patent troll”, entered into an Assurance of Discontinuance (or settlement) with the OAG stemming from the OAG’s June 2013 investigation of potentially deceptive statements, and other abusive conduct, by MPHJ relating to its patent licensing program which targeted New York businesses as potential infringers of its patents.

See Assurance No. 14-015. The Attorney General’s investigation focused on MPHJ’s use of deceptive and abusive tactics when it contacted hundreds of small and medium-sized New York businesses in an effort to strong-arm them into paying MPHJ for patent licenses of dubious value.

Thankfully, the State of New York is taking corrective measures against patent troll abusive tactics. The settlement establishes guidelines for entities who exemplify patent troll behavior. Amongst other things, the settlement contains guidelines for future patent assertion conduct that, in part, include:

 

  1. good faith basis for asserting patents after conducting reasonable diligence;
  2. providing material information necessary for an accused infringer to evaluate a claim;
  3. material information necessary to evaluate a reasonable royalty rate;
  4. no misleading statements about a license fee;
  5. transparency of ownership of the patent holder and financial interest;
  6. additional safeguards against deceptive patent assertion conduct; and,
  7. material information necessary to evaluate the value of a proposed license

 

It is important to note that the guidelines in the OAG’s settlement are minimum standards and are not a safe harbor. OAG states that “[t]he requirements imposed on MPHJ in the settlement should be viewed by other patent trolls as the minimum standards that such entities seeking to contact New York businesses must follow to avoid liability for unlawful deceptive practices.”

 

MPHJ v. FTC

In addition to falling squarely within the crosshairs of the New York, Nebraska, Minnesota, and Vermont Attorney Generals, MPHJ is one of the first patent trolls to ostensibly catch the consumer protection watchful eye of the Federal Trade Commission (FTC). Prior to the FTC filing its draft complaint, MPHJ filed its own preemptive complaint on January 13, 2014 in the Western District of Texas against the FTC and its commissioners and directors. See MPHJ Technology Investments v. FTC et al.; case no. 6:14-cv-00011-WSS. As a bit of background, the FTC first sent a subpoena to MPHJ in July 2013, “seeking certain information regarding MPHJ’s patent-related correspondence and enforcement activity” prior to likely seeking a consent judgment or pursuing FTC Act litigation barring deceptive trade practices. FTC also served a subpoena on Farney Daniels, the law firm retained by MPHJ to help with its enforcement campaign.

 

MPHJ contends that its lawsuit against the FTC arises out of the “unlawful interference and threats by the FTC Defendants against MPHJ and its counsel directed at stopping or impeding the lawful, proper, and constitutionally protected efforts by MPHJ to identify and seek redress for infringement of its U.S. patents.”

 

To date, the FTC has not filed its reply to MPHJ’s Complaint. Notwithstanding, intellectual property enthusiasts and many interested others anxiously await greater, appropriate patent reform.

 

The Ignominious Patent Troll by Dayrel S. Sewell



HSBC Sued by NY A.G. Over Foreclosure Abuse


HSBC Sued by NY A.G. Over Foreclosure Abuse

Today, the New York State Attorney General’s Office (AGO) announced that it has filed suit against HSBC Bank USA and HSBC Mortgage Corporation (USA) in NY State Supreme Court in Erie County. See THE PEOPLE OF THE STATE OF NY vs. HSBC BANK USA. The lawsuit states that HSBC is failing to follow state law related to foreclosure actions, thereby putting homeowners at greater risk of losing their homes.

 

Background

 

In New York, loans for real property are secured through mortgages rather than through deeds of trust. New York, unlike trust states, is a judicial foreclosure state. In states like New York, mortgage foreclosure actions must proceed through the judiciary system.

 

Clearly, there are laws that govern the judicial foreclosure process and lenders are no exception to the requirement that these laws be followed. The New York State Unified Court System (UCS) issued a rule in October 2010 requiring that all foreclosure law firms attest to the accuracy of the legal papers they filed in court, in response to the widely reported robo-signing scandal in the mortgage industry. Since the implementation of the rule, after a foreclosure action is filed, the foreclosure firm must file an affirmation (the “Due Diligence Affirmation”) simultaneously with its filing of a Request for Judicial Intervention (RJI). The process mandates that the lender then attend a settlement conference within 60 days. Surprisingly, many foreclosure law firms almost immediately stopped filing RJIs after issuance of the court rule. Foreclosure law firms who refuse to file the RJIs not only run afoul of state law, but also significantly injure homeowners who want to save their homes.

 

A RJI is a very important instrument in the litigation process that transforms an indexed case wherein documents are filed to a case that now has a justice assigned to the matter. Without an RJI, New York courts do not schedule court-supervised foreclosure settlement conferences. Cases, in which complaints are filed but no RJI is filed—which would otherwise move the case forward by assigning a justice to the matter—often linger indefinitely on the “shadow docket”. The shadow docket in New York consists of thousands of foreclosure cases that linger for several months, and sometimes years, causing distressed homeowners and the overtaxed judicial system to suffer. A recent report indicates that a “re-review of the November 2010 and March 2011 residential foreclosure filings in Brooklyn and Queens reveals that 43% of cases remain in the shadow docket.”

 

While cases are on the shadow docket, delinquent interest, inspection fees, attorney’s fees, and other costs in addition to the mortgage, continue to accrue. In general, the larger a loan balance, the more difficult it is to attain an appropriate and affordable modification.

 

Discussion

 

An investigation conducted by Attorney General Schneiderman showed that lenders HSBC Bank USA and HSBC Mortgage Corporation (USA) repeatedly failed to timely file the RJI in hundreds of foreclosure cases against New York homeowners, increasing the risk that those homeowners would lose their homes. A sampling of HSBC foreclosure filings from four counties — Erie, Monroe, Suffolk and Bronx — identified close to 300 instances where HSBC failed to file the RJI with the proof of service. In some of those cases, homeowners waited for over two years for HSBC to file the RJI.

 

“Companies like HSBC are brazenly ignoring state law, leaving homeowners across New York stuck in a legal limbo where they can’t even get the legally required settlement conference that could help them keep their homes,” said Attorney General Schneiderman. “For homeowners facing foreclosure, time is their greatest enemy. Every day spent waiting for a settlement conference is a day that the lender piles on additional interest, fees and penalties and the homeowner falls further behind. I am committed to doing everything I can to stand up for New Yorkers who are trapped in the ‘shadow docket’ and denied their right to fight for their homes.”

 

As a result of these findings, Attorney General Schneiderman filed suit seeking to compel HSBC to file the RJI immediately in all cases in which it has filed a proof of service, and to file an RJI simultaneously with proof of service in all future cases. In cases where HSBC has already failed to file the RJI with proof of service on the homeowner, the suit also seeks to compel HSBC to take the following steps to protect New York homeowners:

 

  • Prepare an accounting of interest charges, penalties and fees (e.g. late fees, inspection fees, attorney’s fees, broker reports) that accrued beginning 60 days after the filing of proof of service on the homeowner;
  • Toll and waive all accrued interest charges, fees and penalties that accrued, or will accrue, beginning 60 days after the filing of proof of service on the homeowner;
  • Grant restitution for interest charges, fees and penalties paid by the homeowner that accrued beginning 60 days after the filing of proof of service on the homeowner; and
  • Grant damages to homeowners injured by HSBC’s illegal practices.

 

Case Details

 

The presiding justice is Justice John L. Michalski. The index number for the instant action is 001660/2013. The attorney representing the AGO is James Morrissey. The RJI was filed on May 31, 2013. The AGO’s motion seeking the aforementioned relief was filed on June 3, 2013 and has a motion hearing date of July 24, 2013.

 

Conclusion

 

New York is undoubtedly well-represented. Attorney General Schneiderman is committed to prosecuting HSBC and any other lenders that deny New York homeowners their legal rights to negotiate alternatives to foreclosure. Schneiderman asserts that he will not hesitate to bring similar actions against other mortgage lenders who hold borrowers in the shadow docket in defiance of state law.



“First-Sale” Resellers Rejoice


“First-Sale” Resellers Rejoice

SUPREME COURT OF THE UNITED STATES

KIRTSAENG, DBA BLUECHRISTINE99 (Petitioner) v. JOHN WILEY & SONS, INC. (Respondent)

No. 11–697. Argued October 29, 2012—Decided March 19, 2013

 

COMMENT

 

Recently, a seminal decision was issued by the Supreme Court of the United States that undoubtedly affects the scope of rights for copyright holders as well as the resellers of those copyrighted works.

 

Background

 

John Wiley & Sons, Inc., an academic textbook publisher, often assigns to its wholly owned foreign subsidiary (Wiley Asia) rights to publish, print, and sell foreign editions of Wiley’s English language textbooks abroad. Wiley Asia’s books state that the books are not to be taken (without permission) into the United States.

 

Supap Kirtsaeng moved to the United States from Thailand in 1997 to pursue an undergraduate degree in mathematics at Cornell University. After moving, Kirtsaeng asked friends and family to buy foreign edition English-language textbooks in Thai book shops, where the books were sold at low prices, and to mail the books to him in the United States. He then sold the books, reimbursed his family and friends, and kept the profit. Allegedly, in this manner, Kirtsaeng subsidized the cost of his education.

 

Issue

 

Whether the “first sale” doctrine should apply to copies of a copyrighted work lawfully made abroad.

 

“First-Sale” Resellers Rejoice

 

Procedural Posture

 

On September 8, 2008, Wiley brought suit against Kirtsaeng in the United States District Court for the Southern District of New York. Wiley filed suit, claiming—amongst other things—that Kirtsaeng’s unauthorized importation and resale of its books was a copyright infringement of Wiley’s 17 U.S.C. § 106(3) exclusive right to distribute and 17 U.S.C. §602’s import prohibition.

 

Kirtsaeng retorted that because his books were lawfully made and acquired legitimately, 17 U.S.C. §109(a)’s “first sale” doctrine permitted importation and resale without Wiley’s further permission.

 

The District Court jury ultimately found Kirtsaeng liable for willful copyright infringement of all eight works and imposed damages of $75,000 for each of the eight works. The District Court held that Kirtsaeng could not assert this defense because the doctrine does not apply to goods manufactured abroad. Kirtsaeng appealed.

 

On August 15, 2011, in a 2-1 split decision, the Second Circuit affirmed the District Court’s ruling, concluding that §109(a)’s “lawfully made under this title” language indicated that the first sale doctrine does not apply to copies manufactured outside of the United States.

 

On April 16, 2012, petition for writ of certiorari to the Second Circuit was granted by the Supreme Court.

 

Discussion

 

The first sale doctrine is codified at 17 U.S.C. § 109(a). Section 109(a) reads, in relevant part,:

 

Notwithstanding the provisions of section 106(3) [of the Copyright Act], the owner of a particular copy … lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy….

 

The crux of the argument between the litigants is the imposition, or lack thereof, of geographical limitations vis-à-vis the statutory language of “lawfully made under this title”. Should Wiley’s argument of geographical limitations apply to this statutory language, it would mean that the first-sale doctrine does not apply to Wiley Asia’s books. Contrastingly, should Kirtsaeng’s argument of non-geographical limitation made “in accordance with” or “in compliance with” the Copyright Act, then the first-sale doctrine would apply to copies manufactured abroad and could be re-sold without the copyright owner’s permission.

 

The Court first analyzed § 109(a)’s statutory language and held that § 109(a) says nothing about geography. A non-geographically based, simple reading “promotes the traditional copyright objective of combatting [sic] piracy and makes word-byword linguistic sense.”

 

Next, the Court grappled with the historical and contemporary statutory context of the language at issue. The Court held that the comparison of the language between §109(a)’s predecessor and the present provision supports the conclusion that Congress did not have geography in mind when writing the present version of §109(a). The Court also found support for its non-geographical interpretation of the first-sale doctrine predicated on Congress’ intent to retain the substance of common-law “first sale” doctrine.

 

Lastly, the Court relied on a constitutional law provision, which is a tenet of intellectual property law. The Court highlighted several ways that—by requiring geographical limitations—would fail to further basic constitutional copyright objectives, in particular “promot[ing] the Progress of Science and useful Arts,” U. S. Const., Art. I, §8, cl. 8.

 

For example: “Technology companies tell us that “automobiles, micro­waves, calculators, mobile phones, tablets, and personal computers” contain copyrightable software programs or packaging. Brief for Public Knowledge et al. as Amici Curiae 10. See also Brief for Association of Service and Computer Dealers International, Inc., et al. as Amici Curiae 2. Many of these items are made abroad with the American copyright holder’s permission and then sold and imported (with that permission) to the United States. Brief for Retail Litigation Center, Inc., et al. as Amici Curiae 4. A geographical interpretation would prevent the resale of, say, a car, without the permission of the holder of each copyright on each piece of copyrighted automobile software.”

 

Moreover, said the Court, “reliance upon the “first sale” doctrine is deeply embedded in the practices of those, such as book­sellers, libraries, museums, and retailers, who have long relied upon its protection. Museums, for example, are not in the habit of asking their foreign counterparts to check with the heirs of copyright owners before sending, e.g., a Picasso on tour. Brief for Association of Art Museum Directors 11–12.”

 

In summation, the Court held that Section 109(a)’s language, its context, and the “first sale” doctrine’s common-law history favored Kirtsaeng’s position.

 

Policy Implications

 

The Court, in siding with Kirtsaeng, noted “the ever­growing importance of foreign trade to America.” This 6-3 nod to being mindful of foreign trade is not to be overlooked. When the Court spoke of the activities of associations of libraries, used-book dealers, technology companies, consumer-goods retailers, and museums that would be hampered by geographical limitations, it took the important step of applying the law to the facts, and not doing so in a vacuum because of the real-world applications that Supreme Court decisions have. Will the market for reselling significantly change (i.e., supply and demand economics)? What effect will the Kirtsaeng decision have on domestic and international pricing of copyrighted works? Time will tell how the actions of copyright holders and resellers change because of the Kirtsaeng decision.

 

Read between the lines. It is clear that the Court weighed and balanced various factors in its decision that Wiley’s perceived benefits of the imposition of geographical limitations are far outweighed by the negative affects on foreign trade and the suppression of the progress of science and the useful arts that such geographical limitation would render.

 

Conclusion

 

The Supreme Court, in a 6-3 ruling authored by Justice Breyer, reversed the ruling of the Second Circuit Court of Appeals and remanded the case.

 

Held: The “first sale” doctrine applies to copies of a copyrighted work lawfully made abroad.



After Patent Life, FDA says NO to Generic OxyContin


After Patent Life, FDA says NO to Generic OxyContin

Background

 

Under the Food, Drug, & Cosmetic (FD&C) Act and implementing regulations, the Food and Drug Administration (FDA) is responsible for ensuring that all new drugs are safe and effective. FDA also regulates the advertising and promotion of prescription drugs under the FD&C Act.

 

Purdue Pharma L.P., based in Stamford, CT, is a privately held pharmaceutical company founded by physicians. The FDA approved Purdue Pharma’s controlled-release pain reliever OxyContin in 1995. OxyContin (oxycodone hydrochloride controlled-release) is an opioid analgesic supplied in various dosages for oral administration. OxyContin is Purdue’s brand for time-release oral oxycodone. OxyContin followed Purdue’s older product, MS Contin, a morphine-based product that was approved in 1984 for a similar intensity and duration of pain and during its early years of marketing was promoted for the treatment of cancer pain.

 

OxyContin

 

OxyContin’s time-release formula could be used over 12 hours to maintain a steady level of the narcotic oxycodone in patients suffering from moderate-to-severe pain. By 2001, sales had exceeded $1 billion annually, and OxyContin had become the most prescribed brand name narcotic medication for treating moderate-to-severe pain. OxyContin has long been one of the nation’s top-selling prescription painkillers with sales of more than $2.8 billion last year, according to prescription tracker IMS Health.

 

However, in early 2000, reports began to surface about abuse and diversion for illicit use of OxyContin. Several factors thought to be early contributors to the abuse and diversion of OxyContin are: 1) the active ingredient in OxyContin is twice as potent as morphine, which may have made it an attractive target for misuse; 2) the original label’s safety warning advising patients not to crush the tablets because of the possible rapid release of a potentially toxic amount of oxycodone may have inadvertently alerted abusers to methods for abuse; and, 3) the significant increase in OxyContin’s availability in the marketplace may have increased opportunities to obtain the drug illicitly in some states.

 

After the problems with often-abused OxyContin began to surface, FDA and Purdue collaborated on a risk management plan to help detect and prevent abuse and diversion. Although risk management plans were not in use when OxyContin was approved, they are now an optional (or, at times, required) feature of new drug applications.

 

Recent Developments

 

Purdue stopped making its classic OxyContin pills — first released to the market in 1995 and easy to crush, snort and abuse — in 2010. In April 2010, the FDA approved a reformulated version of OxyContin, which was designed to be more difficult to manipulate for purposes of misuse or abuse. Purdue stopped shipping original OxyContin to pharmacies in August 2010. Various sources estimate that this new ‘tamper-proof’ pill’s patent term will expire about 2025.

 

Purdue Pharma’s patent on its original OxyContin formulation expired on April 16, 2013. That very same day, the FDA issued an immediate press release stating that it will not approve generic formulations to the original OxyContin. The FDA says that:

 

“because original OxyContin provides the same therapeutic benefits as reformulated OxyContin, but poses an increased potential for certain types of abuse, the FDA has determined that the benefits of original OxyContin no longer outweigh its risks and that original OxyContin was withdrawn from sale for reasons of safety or effectiveness. Accordingly, the agency will not accept or approve any abbreviated new drug applications (generics) that rely upon the approval of original OxyContin.”

 

The FDA also approved updated labeling for Purdue’s reformulated OxyContin tablets. The new labeling indicates that the product has physical and chemical properties that are expected to make abuse via injection difficult and to reduce abuse via the intranasal route (snorting).

 

The decision is the first time that the agency has allowed a manufacturer to state that a narcotic drug has tamper-resistant properties, said an agency official, Dr. Douglas C. Throckmorton. Dr. Throckmorton further stated that the F.D.A. had looked at data from several studies, some of it underwritten by Purdue, in arriving at its decision. He said that while the data was not perfect, the agency had concluded that it was enough to show that the new version of OxyContin was safer, in its abuse resistance, than the original version.

 

Discussion

 

The public health position is clear. Dr. Throckmorton says that “[t]he development of abuse-deterrent opioid analgesics is a public health priority for the FDA.” The public health aspect is self-evident, but what about the ramifications of the FDA’s decision?

 

Pharmaceutical companies invest vast sums of money into their Research & Development (R&D) programs, including safety and efficacy testing. The exclusive monopoly of a patent offers these companies means to recoup some of that investment while also promoting the progress of science and providing full disclosure of the invention (which in this case is a composition of matter). Typically, when a drug loses patent, revenues plunge quickly because such expirations open the door to a slew of cheaper versions from generic drug manufacturers that can rely on abbreviated new drug applications (ANDA) containing safety and efficacy data previously submitted to the FDA.

 

In general, generic drug companies are not built upon the model of conducting extensive R&D. It is this axiomatic principle that the FDA decision effectively protects Purdue from lower-price competition by requiring generic companies to develop their own abuse-deterrent designs. The ‘catch 22’ here is that generic drug companies, in part, are able to offer more competitive drug pricing because of the ANDA’s cost-saving reliance on the brand-name drug’s safety and efficacy data that was already submitted to—and relied on—by the FDA.

 

Economics teaches us that when supply is limited and demand outpaces supply (which it undoubtedly has for OxyContin), the price for goods generally increases. So, too, is the case with reformulated Oxycontin. When reformulated OxyContin was introduced to the market in late 2010, the price of the new version of OxyContin was about $6 per 40 milligram tablet, the same then as the price for the non-tamper resistant pill. Since then, the price of the new version has risen to about $6.80 for a tablet of that strength. Roughly a 13% increase in product price in less than three years of being on the market is not too shabby for Purdue’s profits.

 

Conclusion

 

Reformulated Oxycontin adds greater understanding of the affects and interplay between law and economics. The advertisement-like, ‘all-new’ OxyContin is a strikingly, interesting demonstration of the interconnection of patent law, food & drug law, public health, pharmaceuticals, and marketplace economics. Metaphorically-stepping back from the trees to see the entire forest is an invaluable lesson.