One of the nice things about the being a Justice of the United States Supreme Court is that you never have to explain yourself. You don’t have to ask questions at oral argument. You don’t have to read the briefs filed by the parties, not really, because you can interpret the facts stated and arguments raised however you want.
You certainly don’t have to be consistent across your own opinions. In one case, you can make an argument inconsistent with the argument you made in another case. Few people will notice and, worse, fewer will care, because caring about the consistency of Supreme Court opinions is a Sisyphean exercise in futility. The Justices are not going to see the error of their ways and change their minds.
Which brings us to Microsoft v. i4i Limited Partnership and Janus Capital Group v. First Derivative Traders, two major Supreme Court opinions over the past few days, in, respectively, patent infringement and financial securities fraud law.
First, in Microsoft v. i4i, the Supreme Court decided that a defendant challenging the validity of a patent-in-suit has to demonstrate the patent’s invalidity through “clear and convincing evidence,” a higher standard than the “preponderance of the evidence” burden of persuasion that’s the default in most cases. It wasn’t an unusual or unexpected outcome: the Federal Circuit has been applying that exact role for a generation now, and most everyone assumed the Supreme Court would leave things as they are. Patently-O has a longer summary.
There’s been a huge debate lately, particularly in the venture capital, startup, and technology industries, about the loose, excessively pro-patent-holder standards of patent law. I don’t want to jump into the debate about whether or not such a rule is the right rule as a matter of legal policy. Rather, let’s take a look at how the Supreme Court reached their answer:
In asserting an invalidity defense, an alleged infringer must contend with the first paragraph of §282, which provides that “[a] patent shall be presumed valid” and “[t]he burden of establishing invalidity . . . rest[s] on the party asserting such invalidity.”…
We begin, of course, with “the assumption that the ordinary meaning of the language” chosen by Congress “accurately expresses the legislative purpose.” Engine Mfrs. Assn. v. South Coast Air Quality Management Dist., 541 U. S. 246, 252 (2004) (internal quotation marks omitted). But where Congress uses a common-law term in as tatute, we assume the “term . . . comes with a common law meaning, absent anything pointing another way.” Safeco Ins. Co. of America v. Burr, 551 U. S. 47, 58 (2007) (citing Beck v. Prupis, 529 U. S. 494, 500–501 (2000)). Here, by stating that a patent is “presumed valid,” §282, Congress used a term with a settled meaning in the common law.
Our decision in RCA, 293 U. S. 1, is authoritative. There, tracing nearly a century of case law from this Court and others, Justice Cardozo wrote for a unanimous Court that “there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence.” Id., at 2. …
Thus, by the time Congress enacted §282 and declared that a patent is “presumed valid,” the presumption of patent validity had long been a fixture of the common law. According to its settled meaning, a defendant raising an invalidity defense bore “a heavy burden of persuasion,” requiring proof of the defense by clear and convincing evidence. Id., at 8. That is, the presumption encompassed not only an allocation of the burden of proof but also an imposition of a heightened standard of proof.
That sort of analysis is a bit unorthodox — typically, courts are supposed to look first to the “plain meaning” of a statute and ignore anything about the statute’s drafting or origin unless that meaning is ambiguous — but it’s not an unreasonable analysis. In essence, the Supreme Court looked at the whole context of patent infringement law and decided that, because the federal courts have believed for decades that Congress believes that the patent office believes that it only grants good patents because it believes that inventors effectively disclose all relevant facts, the burden for anyone trying to argue that the patent office either made a mistake or didn’t have the full picture in front of it should be very high.
The Supreme Court recognized that was a bit of a stretch, and so used a couple of tools in the statutory interpretation toolbox, like the canon against superfluity (i.e., that a court should give effect “to every clause and word of a statute.”), to knock down multiple arguments raised in opposition.
Fair enough, I suppose. These questions don’t have easy, obvious answers.
But that’s where Janus Capital Group v. First Derivative Traders raises problems. In Janus, the Supreme Court decided that investors defrauded by misleading statements put into a financial prospectus by an investment advisor didn’t have viable direct securities fraud claims against the investment advisor. D & O Diary summarizes it more fully.
Did the Supreme Court reach that answer by looking at securities act as a whole? Did the Justices look at the circumstances surrounding the passage of the act, and carefully examine, with great deference, how the act has been interpreted the past?
Of course not. Those five justices of the Supreme Court whose nominations were endorsed by the large public corporations and Director and Officer liability insurance companies that make up the most powerful corporation lobbying groups in the country only deploy those analytical tools in certain circumstances. They read the key sentence Rule 10b-5 (17 CFR §240.10b–5(b)) that makes it unlawful for “any person, directly or indirectly, . . . to make any untrue statement of a material fact” in connection with the purchase or sale of securities in such a way that “any person” did not mean “any person,” “directly or indirectly” did not mean “directly or indirectly,” and “make” did not mean what any of the rest of us believe “make” means. No, those words are all superfluous except for “make,” which now means:
For purposes of Rule 10b–5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. Without control, a person or entity can merely suggest what to say, not “make” a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement was made by—and only by—the party to whom it is attributed.
That interpretation is entirely new. The Supreme Court already held almost twenty years ago in Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164 (1994) that “Any person or entity, including a lawyer, accountant, or bank, who employs a manipulative device or makes a material misstatement (or omission) on which a purchaser or seller of securities relies may be liable as a primary violator under 10b–5, assuming all of the requirements for primary liability under Rule 10b–5 are met.” “Any person” means “any person.”
The new opinion destroys liability for those same “lawyers, accountants, or banks” identified in Central Bank through an interpretation of “make” that Justice Breyer quite rightly argues in dissent:
The English language does not impose upon the word “make” boundaries of the kind the majority finds determinative. Every day, hosts of corporate officials make statements with content that more senior officials or the board of directors have “ultimate authority” to control. So do cabinet officials make statements about matters that the Constitution places within the ultimate authority of the President. So do thousands, perhaps millions, of other employees make statements that, as to content, form, or timing, are subject to the control of another.
Of course, there isn’t a shadow of doubt that the Congress which passed the Securities Exchange Act of 1934 in the midst of the Great Depression intended the law’s scope to be as broad as possible and to impose liability on “any person” who “directly or indirectly … make[s] any untrue statement of a material fact” in connection with a security.
But who cares what Congress says? Five Justices of the Supreme Court reach a preferred conclusion and then either invent or omit words as best suits them. Little wonder lawyers and courts alike no longer look to the Supreme Court for guidance in interpreting the law, they just skim the holdings in the syllabus and try to figure it out themselves. The shame is that this conservative judicial activism persists unabated.