If you’re a reader of this blog, you’re undoubtedly familiar with Bell Atlantic v. Twombly and Ashcroft v. Iqbal, a pair of Supreme Court cases which altered the pleading standards applicable to civil cases filed in federal court.

Defense lawyers have jumped all over those two opinions in an attempt to dismiss lawsuits — particularly complex commercial class actions, like antitrust cases — before any discovery can be taken. Every lawsuit, they claim, no matter how detailed and compelling, is "implausible" under Twombly and Iqbal. I taught CLEs to help other trial lawyers defeat those arguments.

Back when the Iqbal opinion first came out, I wasn’t impressed. Sure, the Supreme Court added the word "plausible" to the Rule 8 standard, but frankly I didn’t think Twombly or Iqbal would make Rule 8 and Rule 12(b)(6) any more dispositive than they already were. Before either of those cases were decided, if a judge read a plaintiff’s complaint and thought that the claim was "implausible," they would dismiss it under Fed.R.Civ.P. 12(b)(6) for failing to state a claim upon which relief could be granted. Twombly and Iqbal simply codified a practice that was already widespread in the federal judiciary.

That’s not to say I think the opinions do nothing — by way of their vague, ambiguous and amorphous language, they confuse a lot of judges into arbitrarily deeming certain allegations to be "conclusions" instead of "facts" (and even Judge Posner can’t figure out the "plausibility v. probability" distinction) — but the underlying legal principles are the same.

I said as much at the time. Time has proven me correct.

Almost exactly a year ago I posted Second Circuit Revives Digital Music Price-Fixing Case, Takes A Bite Out Of Twombly, noting a Second Circuit opinion which held:

Although the Twombly court acknowledged that for purposes of summary judgment a plaintiff must present evidence that tends to exclude the possibility of independent action, 550 U.S. at 554, and that the district court below had held that plaintiffs must allege additional facts that tended to exclude independent self-interested conduct, id. at 552, it specifically held that, to survive a motion to dismiss, plaintiffs need only “enough factual matter (taken as true) to suggest that an agreement was made,” id. at 556; see also 2 Areeda & Hovenkamp § 307d1 (3d ed. 2007) (“[T]he Supreme Court did not hold that the same standard applies to a complaint and a discovery record . . . . The ‘plausibly suggesting’ threshold for a conspiracy complaint remains considerably less than the ‘tends to rule out the possibility’ standard for summary judgment.”).

Defendants next argue that Twombly requires that a plaintiff identify the specific time, place, or person related to each conspiracy allegation. This is also incorrect. The Twombly court noted, in dicta, that had the claim of agreement in that case not rested on the parallel conduct described in the complaint, “we doubt that the . . . references to an agreement among the [Baby Bells] would have given the notice required by Rule 8 . . [because] the pleadings mentioned no specific time, place, or person involved in the alleged conspiracies.” 550 at 565 n.10. In this case, as in Twombly, the claim of agreement rests on the parallel conduct described in the complaint. Therefore, plaintiffs were not required to mention a specific time, place or person involved in each conspiracy allegation. 

The Second Circuit’s opinion was significant. The case was right up Twombly‘s alley — an allegation of an illegal agreement in violation of antitrust laws, the details of which were still known only to the defendants — and so the Second Circuit’s reinstatement of the case dealt a powerful blow to the defense lawyers who had been arguing that Twombly and Iqbal had slammed the courthouse shut on plaintiffs who couldn’t prove their whole case before even filing it.

The record companies in that case weren’t inclined to throw in the towel, so they filed a petition for certiorari to the Supreme Court arguing, as you would imagine, that the Second Circuit failed to follow Twombly and Iqbal.

A funny thing happened yesterday. Tucked in among pages and pages of summary orders at the Supreme Court was this:

10-263
SONY MUSIC ENTERTAINMENT, ET AL. V. STARR, KEVIN, ET AL.
The petition for a writ of certiorari is denied. The Chief Justice and Justice Sotomayor took no part in the consideration or decision of this petition.

The Second Circuit’s opinion thus stands firm. Even after Twombly and Iqbal, all a plaintiff needs to allege, even in a complex antitrust case, is “enough factual matter (taken as true) to suggest" the elements of the claim.

That’s the same as the Third Circuit recently held in In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010) and later applied to all cases, including complex cases, in W. Penn Allegheny Health Sys. v. UPMC, No. 09-4468, (3d Cir. November 29, 2010)(precedential).

In short, the Circuit Courts have taken a hard look at Twombly and Iqbal and have rejected the numerous attempts by big corporations to slam the courthouse doors shut on meritorious cases, and the Supreme Court hasn’t stopped those Courts from setting the record straight.

In celebration, below the fold are some plaintiff-friendly precedential opinions over the last year in various Courts of Appeals (in addition to the Second Circuit and Third Circuit opinions above). 


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I am a fan of the American court system. There is no natural law requiring people to resolve their differences by asking third parties to represent them and advocate on their behalf in front of impartial decision-makers. The folks in classical Athens and Rome thought it was a good idea, the Europeans rediscovered the practice

[Update, May 2012: Leo E. Strine, Jr., Chancellor of the Delaware Court of Chancery, referenced this post in his thoughtful new law review article, Our Continuing Struggle With the Idea That For-Profit Corporations Seek Profit, 47 Wake Forest L. Rev. 135 (2012).]

[UpdatesFrancis Pileggi has his take (courtesy

At Electronic Discovery Law:

Last month, the Seventh Circuit’s Electronic Discovery Pilot Program Committee released its report on phase one of its Electronic Discovery Pilot Program.  Initiated as a “multi-year, multi-phase process to develop, implement, evaluate, and improve pretrial litigation procedures that would provide fairness and justice to all parties while seeking to reduce

"Once the lawyers get involved…"

There are a hundred ways to end that sentence. Once the lawyers get involved, everything falls apart. It takes ten times as long to finish a deal. A lawsuit is inevitable. The hysterics start.

Few of the potential endings are favorable towards lawyers. Perhaps the most common sentiment is: once

Via Blawgletter (and a couple other sources), the whole eleven-judge Federal Circuit issued a rare en banc opinion that held, 9-2, that Harvard, MIT, the Whitehead Institute for Biomedical Research, and Ariad Pharmaceuticals, Inc. couldn’t, well, I’ll let Barry Barnett explain:

Ariad, MIT, the Whitehead Institute, and Harvard claimed that Eli Lilly infringed their patent on ways to reduce the symptoms of some diseases by causing a protein — Nuclear Factor kappaB* — to behave.  The problem (as Blawgletter gleans from the judges’ five opinions) arises from the fact that the inventors seem not to have figured out how to suppress symptom-causing NF-kB activity.  They appear simply to have discovered that NF-kB existed and guessed that somehow bringing it to heel would help sick people feel better.

Ariad, MIT, Whitehead, and Harvard urged that the first paragraph of section 12 requires a patent to say only enough to “enable” an in-the-know person to build something that makes NF-kB curtail its hurtful conduct inside human cells.

I knew some of the folks at those places were smart, but I never realized they were so smart they didn’t have to actually invent anything to get a patent. Instead, they can just describe a problem and then claim a patent over someone else’s solution.

To call the case “significant” is an understatement. Among those submitting amicus briefs to the Federal Circuit were:

  • The University of California
  • Federal Circuit Bar Association
  • Monsanto Company
  • GlaxoSmithKline
  • Microsoft Corporation
  • Google Inc.
  • Verizon Communications, Inc.

…and a dozen other schools and technology, pharmaceutical, and research companies who make—or pay—billions of dollars related to broad patents that claim to cover discoveries, but not necessarily inventions, in scientific fields.

The Federal Circuit, however, is even smarter still:

[A] separate requirement to describe one’s invention is basic to patent law. Every patent must describe an invention. It is part of the quid pro quo of a patent; one describes an invention, and, if the law’s other requirements are met, one obtains a patent. The specification must then, of course, describe how to make and use the invention (i.e., enable it), but that is a different task. A description of the claimed invention allows the United States Patent and Trademark Office (“PTO”) to examine applications effectively; courts to understand the invention, determine compliance with the statute, and to construe the claims; and the public to understand and improve upon the invention and to avoid the claimed boundaries of the patentee’s exclusive rights.

[…]

Perhaps there is little difference in some fields between describing an invention and enabling one to make and use it, but that is not always true of certain inventions, including chemical and chemical-like inventions. Thus, although written description and enablement often rise and fall together, requiring a written description of the invention plays a vital role in curtailing claims that do not require undue experimentation to make and use, and thus satisfy enablement, but that have not been invented, and thus cannot be described. For example, a propyl or butyl compound may be made by a process analogous to a disclosed methyl compound, but, in the absence of a statement that the inventor invented propyl and butyl compounds, such compounds have not been described and are not entitled to a patent.

Ariad Pharmaceuticals, Inc. v. Eli Lilly and Co., pp. 12, 26.

Specific to the patent at issue,

The ’516 patent discloses no working or even prophetic examples of methods that reduce NF-κB activity, and no completed syntheses of any of the molecules prophesized to be capable of reducing NF-κB activity. The state of the art at the time of filing was primitive and uncertain, leaving Ariad with an insufficient supply of prior art knowledge with which to fill the gaping holes in its disclosure. See Capon, 418 F.3d at 1358 (“It is well-recognized that in the unpredictable fields of science, it is appropriate to recognize the variability in the science in determining the scope of the coverage to which the inventor is entitled.”).

Whatever thin thread of support a jury might find in the decoy-molecule hypothetical simply cannot bear the weight of the vast scope of these generic claims. … Here, the specification at best describes decoy molecule structures and hypothesizes with no accompanying description that they could be used to reduce NF-κB activity. Yet the asserted claims are far broader.

Thus, the patent was invalid.

The Federal Circuit’s opinion, though, goes much farther than the facts of the case, with a broad rule for future “discovery” patents:

Ariad complains that the doctrine disadvantages universities to the extent that basic research cannot be patented. But the patent law has always been directed to the “useful Arts,” U.S. Const. art. I, § 8, cl. 8, meaning inventions with a practical use, see Brenner v. Manson, 383 U.S. 519, 532-36 (1966). Much university research relates to basic research, including research into scientific principles and mechanisms of action, see, e.g., Rochester, 358 F.3d 916, and universities may not have the resources or inclination to work out the practical implications of all such research, i.e., finding and identifying compounds able to affect the mechanism discovered. That is no failure of the law’s interpretation, but its intention. Patents are not awarded for academic theories, no matter how groundbreaking or necessary to the later patentable inventions of others. “[A] patent is not a hunting license. It is not a reward for the search, but compensation for its successful conclusion.” Id. at 930 n.10 (quoting Brenner, 383 U.S. at 536). Requiring a written description of the invention limits patent protection to those who actually perform the difficult work of “invention”—that is, conceive of the complete and final invention with all its claimed limitations—and disclose the fruits of that effort to the public.

That research hypotheses do not qualify for patent protection possibly results in some loss of incentive, although Ariad presents no evidence of any discernable impact on the pace of innovation or the number of patents obtained by universities. But claims to research plans also impose costs on downstream research, discouraging later invention. The goal is to get the right balance, and the written description doctrine does so by giving the incentive to actual invention and not “attempt[s] to preempt the future before it has arrived.” Fiers, 984 F.2d at 1171. As this court has repeatedly stated, the purpose of the written description requirement is to “ensure that the scope of the right to exclude, as set forth in the claims, does not overreach the scope of the inventor’s contribution to the field of art as described in the patent specification.” Rochester, 358 F.3d at 920 (quoting Reiffin v. Microsoft Corp., 214 F.3d 1342, 1345 (Fed. Cir. 2000)). It is part of the quid pro quo of the patent grant and ensures that the public receives a meaningful disclosure in exchange for being excluded from practicing an invention for a period of time. Enzo, 323 F.3d at 970.

Id., pp. 28-29 (emphases added).

I think the Federal Circuit made the right decision both on the statute and on the policy—there’s a substantial consensus today that our patent system is unjustly overprotective in many areas, including biochemical research—but the decision is not without some costs. As the Circuit recognized with the “loss of incentive” part above, it was already hard for scientists to justify to non-scientist corporate managers or school trustees the value of basic research without referencing the financial upside of patentable discoveries. Now that will be even harder, since the financial upside is less lucrative and less secure.

That said, basic research progressed well enough for hundreds of years without the over-patenting we have today, and even a small increase in government funding could likely make up for any new losses due to reduced patentability. Thus, on the whole, the case is a victory for law and for science.


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Felix Salmon at Reuters caught something interesting:

[T]he facts of the case are pretty clear. The relationship between JP Morgan and Televisa goes back decades, and so JP Morgan was the natural choice for Televisa to turn to when it decided to buy a fiber-optic cable company called Bestel for $325 million, $225 million

[UPDATE: The WSJ Law Blog has copies of the letters submitted to the Delaware Chancery Court. Professor Hazard is undoubtedly one of the pre-eminent experts in the field, and he makes a compelling argument that Cravath violated the Rules of Professional Conduct. Yet, showing a violation of the Rules is not enough — to disqualify counsel under Chancellor Chandler’s standard, Airgas will have to show the violation will "materially advance" Air Product’s position or undermine the fair and efficient administration of justice. So far, I haven’t seen anything demonstrating that. The vague references made so far to Cravath’s insider knowledge of Airgas’s finances isn’t enough, since a firewall within Cravath can likely cure that problem.

UPDATE II: As predicted, the Eastern District of Pennsylvania declined to enter an injunction against Cravath, and the Delaware Chancery Court did not disqualify them.]

As has been reported all over the legal media,

Industrial gas producer Airgas filed suit against Cravath, Swaine & Moore on Friday over the firm’s role as legal adviser to rival Air Products on that company’s $5.1 billion bid for Airgas.

… Air Products filed a complaint on Thursday in Delaware’s Chancery Court against Airgas, claiming that the smaller company improperly blocked its board of directors from considering previous Air Products takeover offers. Cravath litigation partners Francis Barron, David Marriott and Gary Bornstein are representing Air Products in the Delaware litigation along with local counsel Kenneth Nachbar (he of sports gambling notoriety) and Jon Abramczyk from Morris, Nichols, Arsht & Tunnell. (Click here for the Chancery Court complaint, courtesy of The Times‘ Dealbook.)

Airgas responded by retaining Cozen O’Connor chairman Stephen Cozen, litigation chair Jeffrey Weil and litigation partner Thomas Wilkinson Jr., for a civil suit against Cravath in state court in Pennsylvania. In the suit, Airgas claims that Cravath has a conflict of interest and breached its fiduciary duty by representing Air Products because it previously advised Airgas on several financings. According to Airgas’ complaint against Cravath, the company has had a client relationship with the firm for 10 years and has paid Cravath about $2 million, including a $320,000 payment last October.

There’s an obvious question dangling over the Pennsylvania suit filed by Airgas: what basis — or power — does a state court in Pennsylvania have to preclude a New York law firm from representing a Delaware-registered company in Delaware state court litigation against another Delaware-registered company?

Unsurprisingly, that’s just what Philadelphia Court of Common Pleas (Commerce Court) Judge Albert Sheppard Jr. wondered before denying Airgas’ petition for a temporary restraining order:

In essence, I would be saying to a lawyer you can’t go to Delaware and represent your client. I find that difficult. I don’t want to do that.

Judge Sheppard only had it for two weeks, though, since Cravath, like virtually every out-of-state defendant, promptly removed the case to Federal court, i.e. the Eastern District of Pennsylvania, where it was assigned to Judge Eduardo Robreno (whose work in the Philadelphia Inquirer bankruptcy I’ve covered before).

Cravath (represented by a team at Conrad O’Brien*) has responded to the suit and has asked Judge Robreno to abstain from hearing the case at all:

First, whatever this Court may ultimately decide with respect to Airgas’s claim for money damages, Airgas’s request for a preliminary injunction is the functional equivalent of a motion to disqualify Cravath from appearing before the Delaware Chancery Court. With all due respect, Cravath submits that a motion precluding counsel from appearing in Delaware Chancery Court is more appropriately decided by Chancellor William B. Chandler III, who presides over the firstfiled Delaware litigation. Just as this Court has full authority over proceedings here, judicial comity warrants according Chancellor Chandler due authority over proceedings in his courtroom. …

Second, the Delaware Chancery Court is aptly suited to decide the key issue presented by Airgas’s petition to this Court—whether Cravath should be disqualified. Indeed, the dispute concerning Cravath’s ability to represent Air Products is intertwined with the merits of the (firstfiled) Delaware litigation. …

Third, whereas this Court’s ruling on Airgas’s petition for preliminary relief would be, by definition, provisional, the Delaware Chancery Court’s ruling on the question of whether Cravath should be disqualified will be a final decision on the merits.

(From Cravath’s brief, available on RECAP.)

It’s hard to argue with that; whatever the merits of the conflict-of-interest allegations, it seems they all relate to the Delaware litigation and so should be decided there.

Of course, there’s a reason Cravath wants the case decided in Delaware’s Chancery Court (and why Airgas wants it decided elsewhere). As Francis G.X. Pileggi notes:

[Airgas’] separate suit alleging a conflict was filed in Philadelphia. One might speculate that the suit was not filed in Delaware and it was not filed as a motion to disqualify, because the Delaware decisions recently have not granted many motions to disqualify. See, e.g., cases summarized on this blog here.

Indeed, one might speculate that. More on that in a moment.

Back in Delaware, it seems a war of correspondence has broken out:

Airgas (which has retained Wachtell, Lipton, Rosen & Katz) began the exchange of correspondence Monday, when it sent a letter to Chancellor William Chandler at Delaware’s Court of Chancery … In its Monday letter to Chandler, Airgas argues that a Pennsylvania courtroom is the proper place for the Cravath hearing. In response, Air Products and local counsel Kenneth Nachbar of Morris, Nichols, Arsht & Tunnell drafted their own letter to Chandler, urging him to decide on Cravath’s fate in Delaware and accusing Airgas of trying to "circumvent" Chandler’s authority by suing in Pennsylvania.

Airgas also has enlisted a legal ethics expert who has issued an opinion letter in which he claims Cravath was working under "a clear and serious conflict of interest" while it was helping Air Products formulate its takeover bid last fall, according to a copy of the letter obtained by The Am Law Daily. In his letter, Geoffrey Hazard Jr., a professor at the University of Pennsylvania Law School, says Cravath … violated the so-called "hot potato" rule, which holds that a firm cannot get out of a conflict simply by dropping one client on short notice, Hazard wrote.

Like I wrote before, the hot potato rule lives. Here’s a recent recitation of the rule:

Courts that have considered the issue have held that a firm will not be allowed to drop a client in order to shift resolution of the conflicts question from Rule 1.7 dealing with current clients, to the more lenient standard in Rule 1.9 dealing with former clients.

El Camino Res., LTD. v. Huntington Nat’l Bank, No. 1:07-cv-598, 2007 U.S. Dist. LEXIS 67813, at *39–40 (W.D. Mich. Sept. 13, 2007).

On the surface, that’s not good for Cravath — if Chancellor Chandler applies a similar analysis, then Cravath will be evaluated as if it was simultaneously representing Airgas and Air Products on both sides of the litigation, which is expressly prohibited by the Delaware, Pennsylvania and New York rules.

But the final analysis is a practical one:

The finding of an ethical violation, however, does not automatically require disqualification. The court should order disqualification only where some specifically identifiable impropriety has actually occurred and the balance of relevant factors requires vindication of the integrity of the legal profession over defendant’s interest in retaining counsel of its choice.

Id.

Returning again to why Cravath wants the issue decided in Delaware by Chancellor Chandler, it bears mention here that Chancellor Chandler took a strongly disqualification-unfriendly view in a similar case a year ago, in which Dow Chemical attempted to disqualify Wachtell from representing Rohm and Haas:

I am not persuaded that Wachtell’s access to this information will materially advance Rohm and Haas’s position or undermine the fair and efficient administration of justice. Dow’s defense to specific performance is that conditions in the market and within Dow have changed significantly since December 2008 and that it is no longer feasible for the merger to close. Dow has failed to convince me that the information Wachtell had access to regarding Dow’s strategies and asset values in 2006 and 2007 will substantially advance the interest of Rohm and Haas in this litigation. Additionally, Wachtell has assured the Court that its attorneys who obtained confidential Dow information have not and will not share Dow’s client confidences with the Wachtell attorneys working on this matter. While Dow is correct that the ethical rules impute knowledge of one attorney to other attorneys in the firm, the issue before the Court is not whether there was a violation of the ethical rules. To justify disqualification, the Court must find that allowing the representation to continue would threaten the fair and efficient administration of justice, a threat that is greatly reduced by a credible representation to the Court that the firm will ensure that the attorneys working on this matter do not have access to Dow’s client confidences. Dow has failed to point to information or confidences obtained by Wachtell in its 2006-2007 work for Dow that will have a material influence on the proceedings before me today.

Rohm and Haas Co. v. Dow Chem. Co., No. 4309-CC, 2009 WL 445609, at *3 (Del. Ch. Feb. 12, 2009)(also courtesy of Pileggi).

Truth be told, there’s not much distinguishing the Rohm and Haas v. Dow situation from the present case with Cravath, except for the "hot potato" rule aspect, given how Cravath’s work for Airgas was much more recent than Wachtell’s work was for Dow. Indeed, it seems Cravath’s work for Airgas unambiguously overlapped its work for Air Products.

As noted above, though, a mere violation of the rules isn’t enough; the question is what prejudice the former client will suffer and if that prejudice can be avoided. Cravath’s work for Airgas was comparatively small, and if Cravath sets up an ethical firewall that keeps the former Airgas attorneys away from the Air Products lawsuit, that will likely be enough to satisfy Chancellor Chandler.


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Oh, Ashcroft v. Iqbal, will we ever stop blogging about you?

The newest online debate pits the class action defense lawyers at Drug & Device Law against University of Pennsylvania Law School Professor Stephen Burbank at PENNumbra, the online supplement to UPenn’s Law Review.

Beck and Herrmann open with a defense of Iqbal