American Enterprise Institute

September 28, 2007

[Edited transcript from audio tapes]

8:45 a.m.	Registration and Breakfast
9:00	Panelists:	Theodore H. Frank, AEI
		Michael S. Greve, AEI
		Maureen Mahoney, Latham & Watkins
		Andrew J. Pincus, Mayer Brown and Yale Law School Supreme Court Advocacy Clinic
	Moderator:	Peter J. Wallison, AEI
11:00	Adjournment

Proceedings:

Peter J. Wallison:  One of the most interesting issues is whether the Court, as the media has rather simplistically suggested, has “moved right” under Roberts and Alito.  As you will hear, this idea seems misplaced.  In part, it is an allusion arising from the fact the Court took up a large number of business cases during the term, and we will be covering those cases.  But the decisions did not bear out the idea that the Court moved in a particular direction.

We will begin with my colleague, Michael Greve, who has, as usual, an interesting and thoughtful take on what the Court is doing.  We will then go to Andy Pincus if he arrives, and he will discuss patents, arbitration, the Weyerhaeuser decision and at least two commerce clause cases.  Maureen Mahoney will then discuss the important, interesting civil rights cases that came up during the term, and Ted will be the cleanup, so to speak, with some thoughts on the key cases that show the court’s newfound awareness of the cause of litigation and the limits of judicial power.

I will introduce each of them before they make their presentations, but we will begin with Michael Greve.  Michael is the John G. Searle Scholar at AEI.  His research and writing cover American federalism and its legal, political and economic dimensions.  He co-founded and, from 1989 to 2000, directed the Center for Individual Rights, which is a public-interest law firm that served as counsel in many precedent-setting constitutional cases.  He has written widely on constitutional and administrative law on federalism, on environmental policy and on civil rights.  Michael?

Michael S. Greve:  Thank you, Peter.  It is customary to have three points.  I’m getting old, however, so I just have two.  I’ll start with a broad overview of the business cases under the Roberts Court.  There is a piece in the materials that have been handed out that has more on that issue.  The takeaway from that discussion is this:  The business cases decided by the Roberts Court are not part of some right-wing conspiracy or conservative lurch on the part of the Supreme Court.

My second point consists of some more speculative remarks on what accounts for the Court’s preoccupation with business-related cases, what that preoccupation portends, and what it may imply.  In there, the takeaway is this:  It is high time for the business community to stop congratulating itself on its splendid victories and to do what it is not always good at, which is to think seriously about a sustainable agenda for the United States Supreme Court and for American business.

I will start with the Roberts Court, and this newsletter that is in your material, again, describes some of the cases; I’ll just give you the raw counts.  In the 2005 term, the first Roberts term, there were -- of the 72 cases, 20, at least, that addressed business-related issues and issues of central concern to American business.  By the way, the numbers are higher than the Chamber of Commerce counts but they are close to the SCOTUS block counts and other observers who categorize these matters.  In the 2006 term, it was even more dramatic; 25 of the cases dealt with -- 25 of 67 cases dealt with business-related that matters -- and, of course, these counts and the percentages look even higher if you look at the civil docket; that is to say, the Supreme Court docket minus Booker cases.

So obviously, the business cases are very prominent.  What is equally prominent is that the pro-business outcomes and results in these cases -- I will not to try to quantify that because, in many of these cases, they are business firm patent cases; often, antitrust cases.  There are business firms on both sides, so it is hard to score these as the pro- or anti-business, but it is safe to say in a fair characterization that business as a whole was very happy with the -- has been very happy over the past two terms.

So does that signal a conservative revolution or rightward lurch on the Supreme Court?  No, because the great majority of these cases are unanimous or near unanimous.  In the 2005 term, of the 20 business cases, 18 were decided either unanimously or with one or two dissents.  In the 2006 term, the count is 18 cases decided almost unanimously or unanimously out of 25 cases.  That stands, actually, in sharp contrast to the sustained ideological split in these Broadway cases on the Supreme Court.

There were in the 2006 term 25 5-to-4 decisions, and 19 of those were decided in the usual block votes - the Liberals against the Conservatives and Justice Kennedy in the middle with a hand-wringing dissent.  But those are not business cases.  There were only 3 business cases that were decided in that fashion; one was Massachusetts v. EPA, which was a global warming case; another case was the Ledbetter case, which Maureen will talk about.  That is a civil rights case where you have to count on ideological divisions, and the only pure business case that featured that particular split was the Leegin antitrust case decided at the end of last term, which Ted will talk about.

So if you look at the pattern of these business cases, they are in contrast to the Supreme Court’s ideological docket.  These cases are not bloc-driven.  They are the exception to an ideological court and not a confirmation.  What does this mean and why is this happening?  Why is the Court becoming so preoccupied with these business cases?  Well, one obvious answer or one plausible answer, I suppose, is that -- there is no conspiracy here; this is just the normal ebb and flow of cert petitions and cert grants.  I think that is possible but it is also unlikely because the Court’s preoccupation with these issues is far too pronounced.

A second possibility is, well, this is Chief Roberts, right?  He was a business lawyer; he is preoccupied with these cases.  And I think that is certainly a factor.  We have learned over many decades that the Chief Justice can, in fact, set an agenda.  Chief Justice Rehnquist did so.  He came from his preoccupation with federalism, which was initially his own, to really setting the agenda for Court for a long, long time on that issue.  The same may be true of the Roberts Court, but that does not quite answer -- the chief’s particular preoccupation does not quite answer the question of why the Court as a whole embraces this particular agenda.

The third possibility that -- a third explanation of what accounts for this phenomenon is that the trial lawyers have really gotten out of hand and the Court has come to recognize that the civil justice system is in very bad disrepair.  I think that is also obvious; that is quite true that that is the Court’s opinion and its drift.  Again, it is hard to explain why that should have occurred to them now because all of these things have them true for at least 2 or 2-1/2 decades. 

So why now?  Why to this extent?  Now, I come to the speculation, I think the business docket appeals to different justices in different ways and for different reasons, and so they all settle for it.  Chief Justice Roberts is very high on consensus and collegiality; he has made that clear in public.  And it is obvious that these cases - the business cases - lend themselves to that agenda, or that MO, much more readily than some case about racial quotas or partial birth abortion.

For Justice Breyer, these are the cases that he cares about.  He will vote the “right way” from his vantage and from his party’s vantage, so to speak, in all these social and ideological cases.  He knows who brought them and he will continue to dance with them, but that is not really what he cares about.  What he really cares about is administrative law, business cases where he understands these issues better than anybody else.

Justice Kennedy -- it is relatively easy as a business lawyer to sell Justice Kennedy on this agenda, it seems to me, because what you write is something like this: “Dear Justice Kennedy, you have made it known to the world that you want to be the king of every compost heap, and, man, do we have a dung heap for you.  How about punitive damages?  You care about it?”  Oh, yes, that is the State Farm case.

For Justice Scalia I think the attraction of these cases is that, look, at least, they are not about the mystery of life; they are about law.  If we cannot have a real constitutional revolution, let’s just change the subject and talk about business cases.  There are at least three ways in which -- that support my interpretation of Justice Scalia’s motives in these cases.  One is that is normal, that is sensible if you care about law, and he does care about law.  It also happens to be true that these cases are more law-like than these ideological cases. 

In some instances, you think you are confronting different justices.  You read Justice Ginsburg in these business cases.  I love Justice Ginsburg; I want more Justice Ginsburgs on the Court.  You do not want to think or know what I think about Justice Ginsburg in these civil rights cases.  So in a way, these cases bring out the best in Justice Scalia’s colleagues. 

The third reason why I think this may be what drives Justice Scalia is he has done it before.  When the federalism revolution on the Rehnquist Court started, Justice Scalia did not have a states’ right bone in his body.  Nothing predestined him for embracing that agenda, and yet, he did, because after Planned Parenthood that was the only revolution that could be had and so he settled on it.

Suppose this is true or even suppose it is false; I think it is hugely important now to think about the broader business agenda.  How do all these disparate issues from antitrust to patents to preemption to the dormant commerce clause -- how does all of that fit together?  Where is this going?  Can one have a coherent conceptual edifice that is sustainable over the long haul?  Maybe that inquiry, which I will now share with you in less than three minutes, is grossly premature.  What the Supreme Court is doing here is, it is remedying or trying to remedy the worst excesses of the trial bar, the worst miscarriages of justice, the worst institutional failures [audio glitch] the Federal Circuit.  Slap some Band-Aids on what is wrong out there.  If that is the only agenda, I’m all in favor of it.  I think that will be a great, great thing. 

It is hugely important that the Court, at long last, has come to the recognition that the usual refrain that it used to have in these cases, which is let Congress fix the problem -- but that is not going to do it.  That the failures out there are in part the Supreme Court’s own fault and that the Supreme Court has an obligation to fix it.  So if that is all there is to this, I’m all in favor of it.  But, to repeat, it is already time to think more carefully -- for the Court and for outside constituencies to think more carefully about what this portends and where it is going.

Here is why it is important for the Court - two reasons.  First, projects and judicial agendas that start with inchoate support and no clear direction and no clear sense of where this is going and where it will end tend to collapse.  There again, my example is federalism; that was originally the chief’s project.  Then several justices settled on it for very, very different reasons with very, very different motivations and with very different ideas of where this was going.  Then the federalism agenda became intensely ideological and then it collapsed when it ran into difficulties.  It is entirely possible that the same may happen to the business agenda because already - and this is my second reason why it is important for the Court - you can see the inconsistencies and tensions in the Supreme Court’s approach to these questions.

I’ll give you two examples.  My first example of that is the Dormant Commerce Clause that was, last term, a decision in a waste case; I will not bore you with the details.  And there is the usual -- where the usual opinions by Justice Scalia and by Justice Thomas saying, “We hate the Dormant Commerce Clause.  We do not believe it exists.”  Then there is a very disturbing opinion by Chief Justice Roberts, his first opinion on the Dormant Commerce Clause case in his capacity where -- which ends on saying, “The Dormant Commerce Clause looks an awful lot like Lochner v. New York.” 

With all due respect, he should not be allowed to say that.  He should not be even allowed to think that because so long as that thought - the Dormant Commerce Clause is like Lochner - is in the back of his mind, the next step is to say, “Look, even against the worst state depredations against interstate commerce, let Congress fix it.  The Dormant Commerce Clause, that is federal general common law.  We cannot have that.”  That thought is antithetical to everything, anything the business community might want to do.  It undermines the entire premise of the business agenda or the business docket because the premise of those cases is precisely that, no, if we wait around for Congress, nothing will ever happen.  So that is one of these tensions.

My second example of that same tension is preemption cases.  For the coming term, there are six cases now on preemption, and my prediction is they yield very, very mixed results.  The trouble in every preemption case is you can count the votes against you, but you cannot count to 5; you cannot even count to 1 on the pro-preemption side.  And the big preemption case this past term, Watters v. Wachovia, showed that Chief Justice Roberts’ and Justice Scalia’s votes in these cases are very, very doubtful and very distressing. 

Here is the substantive  problem of these preemption cases:  If the business community loses on preemption, it no longer matters whatever else it wins because here is the thing - what the business cases say, roughly - is Congress cannot fix this problem, cannot set the civil justice system right on its own.  That is good, but the fact that the Court itself is now willing to make a contribution, that is not good enough because what you have to do if you want to beat the trial bar, if you want to beat the state AGs is you have to mobilize absolutely every legal resource that the system has to offer, including federal preemption. 

The Court may not see this so somebody has to explain it to them.  The question is who?  There are only two real constituencies that can do so; one is the SG, one is the business community itself.  I think it is very important for both the SG's office and for the business community at large to think through the larger issues, first, because the opportunities are greatest when the Court is sympathetic but inchoate.  So in that situation, business lawyers should stop thinking about racking up these lay-ups.  It should think about what is our strategy.  What is our endgame here?

The second reason why that is important for the business community, it seems to me, is, look, in these cases the Court does not get any signals; it does not get any guidance from the litigants.  The agenda has to be its own, and that is very, very hard, and in the end, sustainable.  Think about issues where conscious agenda was successful at least for a time.  In all of these cases, from religion to federalism, what the court had was some guidance from the litigators, which managed to do three things. 

First is to keep the really stupid cases off the docket, the ones that hurt you in the long run.  Second, signal to the Court which cases are really, really important to you and which ones are not.  And third, provide the Court with a coherent framework of analysis.  That is what Mike McConnell, now Judge McConnell, did in the religion cases; that is what Bill Pryor, and now Judge Pryor, did in the federalism cases.  Once these people disappeared on the federal -- and absconded to the federal bench, the agenda collapsed.  In the business situation, you do not really have anything like that.  All the Court is looking at -- or rather, not even the court; all the clerks are looking at is this bewildering array of confusing business cases about statutes that they do not comprehend and they have to sort through this stuff on their own.

So the challenge, it seems to me, both for the SG’s office - or at least the friendly SG’s office - and the business community is to think, “How can we fix that?  What can we do to help the Court here a little?”  My judgment on the SG’s office performance and the business community’s performance to date is they have both been miserable.  I will not elaborate on that, but at the slightest provocation from the audience I will be happy to do so.

Peter J. Wallison:  I told you he would be original.  Okay.  Andy Pincus is a block away, we were told.  So we will go ahead, instead, with Maureen if that is all right.

Maureen Mahoney:  Sure.

Peter J. Wallison:  Maureen is a partner in the Washington D.C. office of Latham & Watkins, and she leads the firm’s appellate and constitutional practice.  She has previously served as a U.S. deputy solicitor general and has argued 18 cases in the Supreme Court, including four in the last term.  She won the landmark affirmative action case on behalf of the University of Michigan Law School and represented Arthur Andersen in the firm’s successful challenge to its criminal conviction.  Maureen, thank you.

Maureen Mahoney:  Thank you.  For starters, I would like to address the question of whether Court has moved right.  I share the view that you cannot look at the business docket and say the Court has moved right because there is a high degree of unanimity in those decisions.  But I do think, as a broader question, that it is probably right to say that it looks like the Court has moved a little bit right since the changes in composition.  That is a hard thing to study, a hard thing to prove, yet.  And, of course, it is early. 

But I think that probably the most persuasive way of showing that it has happened or happening is to look at some statistics that have been done on voting patterns.  It is striking that Justice Alito votes substantially more frequently with Justice Scalia than did Sandra Day O’Connor.  That probably is not happening in business cases.  I have not seen the breakdown but Justice O’Connor was generally pretty much in sync with the kinds of decisions that the business community favors.  So I think there has been some movement, and it is probably largely in the social areas involving issues like abortion and affirmative action.  But -- so there has been some rightward movement; nothing dramatic, by any means.

The other overview point I would just like to emphasize is that I also think that in the business docket, even though it was done with a fair amount of unanimity, the plaintiff’s bar definitely did lose ground last term.  I do not think it is because the Court is on a mission or has its agenda.  It has certain ideological ways of approaching statutory construction that are leading to that result, and I think it has disadvantaged the plaintiff’s bar. 

If we look at the civil rights docket from last term, we can see essentially what that is and how it is happening.  There was not much on the civil rights docket last term but there were two cases that stood out; one is a business case, one is not.  The first is Ledbetter, and while Michael says that is a civil rights case, that is true but it is also very much a business case because it is a civil rights damage remedy case.  Business has to care deeply about all of the civil rights damage cases because employment discrimination suits are a major threat to business.  Enormous costs are imposed every year trying to defend these cases, having to settle cases that are not meritorious in order to avoid trials, and also looking at big damages, particularly in the class action setting.

So Ledbetter was the best example of one of those cases last term and, of course, unlike the other business cases, it reflects the fact that there is no great unanimity when the issue is a civil rights-related issue.  That was one of the few business cases that was decided 5-to-4, but the majority of the Court applied a principle that I think really serves the interest of business and hurts the plaintiff’s bar, and that is that they are not going to imply remedies beyond the language of the statute. 

It was, of course, a case involving allegations of pay discrimination, and the issue was whether the time had gone by to have asserted that claim, and the majority of the Court simply said, “We are going to look at the language.  If it does not plainly support this remedy, we are not going to say that we think it furthers the purposes of the statute to allow this claim to proceed.”  On that basis, the Court ruled against the claimant.

However, this cannot be necessarily a long-lived success for business because this is a Court that is driven by direction from Congress.  If Congress comes in and changes the language of that statute, this Court - Roberts and the rest of them; all of those that business is cheering this year - they are going to decide in favor of the plaintiff if the language says that you can bring that claim many days beyond 180.  So, ultimately, business has to persuade Congress of its agenda, or else it is going to be short-lived successes, and we will see that in a number of cases, I’m sure, from last term.

The other case that was significant in the civil rights area is two cases, really, -- were the cases involving the race-conscious assignment programs out of Seattle and Louisville.  They were not business cases but business has tended to have a strong interest in the affirmative action area because of efforts to try to increase diversity in their own workforces.  I suggest that business also has to watch these cases and worry because I think there are probably businesses out there that may find themselves subject to class action lawsuits arising out of aggressive use of affirmative action in their hiring, retention and promotion programs.

So these cases, I do think, are interesting, and what they certainly reflected was that -- and as I’m sure you all know that both the Louisville school system and the Seattle school system lost their cases and their programs to use race-conscious means to assign students to schools were struck down as a violation of equal protection on a 5-4 vote. 

I think, though, that what this shows is not that the Court moved.  I do not think having argued Gruder, which was the University of Michigan affirmative action case -- I do not think you could look at those programs and say that they survived scrutiny under the Gruder decision; they did not.  Instead, it would have taken a court moving beyond Gruder and expanding tolerance for affirmative action programs under the Equal Protection Clause in order to uphold those programs. 

What we saw, of course, is that the Roberts Court is not going to be inclined to do that.  I found it interesting that the opinion did seem to -- I will not say embrace Gruder; I think that would be too strong.  But it was not really skeptical about whether Gruder is the law.  I think it accepted it as the standard.  It did not seem to leave room to say we may revisit that in the future.  It used it as the standard and it went from there.

So I think that what business has to be concerned about when looking at the landscape is that, to the extent, they are trying to use Gruder and Gruder principles - principles that suggest that there is a strong interest in a diverse environment in the workplace to see, “Okay.  Will our courts be able to take that principle, borrow it from the higher ed setting and apply it under Title VII or in their own workforce?”  I think there is not a whole lot of reason to think that is going to happen.  So there -- business needs to be watching and be quite careful about the way that they are using any kind of race-conscious programs in their own workforce.

Looking forward, I think that we saw that there were a number of cases that the Court took for this term now in the civil rights area, and they are very interesting cases.  I do not know that any of them are likely to be blockbusters, but they present several issues that are certainly important to business and in terms of controlling costs.  The first is there is a pair of retaliation claims, and this is always an interesting area, I think, of civil rights litigation because -- and it can be quite controversial. 

You may recall a few years ago, there was a case called Jackson v. City of Birmingham.  This is a Title IX case where a male coach tried to sue because he said he had been, I believe, discharged because he had complained about allegations of discrimination against the girls’ athletic program at his school.  The Court upheld the claim 5-to-4, allowing an action under Title IX by a man for retaliatory discrimination.  Title IX damage remedies are implied, and the Court, nevertheless, in a 5-to-4 decision with Justice O’Connor and the majority and Justice Kennedy in the dissent, said that we will recognize this implied right of action under Title IX for retaliation.  I suspect that if that case were decided today fresh that Justice Alito may well not vote in the way that Justice O’Connor did.

So it is interesting to me that there are two cases now that are coming up this term on retaliation remedies.  One is a case out of the Seventh Circuit; this is the Cracker Barrel v. Humphries case and it involves a retaliation claim under Section 1981 which, unlike Title VII, is for claims based on differential treatment based on race in contractual relations.  Here, it was an employee who claimed that he had been retaliated against because he had complained about discrimination.  He did not bring this claim under Title VII, or maybe he did and he lost.  But it was found that he had not satisfied all the procedural prerequisites associated with Title VII claims. 

So he wanted to scoot to a Section 1981 claim, instead, which does not have the conciliatory requirements and the same statute of limitations.  The Seventh Circuit found that this was a permissible kind of claim under Section 1981.  Judge Easterbrook dissented, and the Court has granted cert.  So it will be quite interesting to see how they construe Section 1981 and whether it covers retaliation claims.

The second case involving retaliation claims is Gomez-Perez v. Potter; this is a case involving the Federal Act.  It is the Federal Sector Age Discrimination Act so it is not the ADEA, more generally.  But the issue there, again, is whether you can infer that retaliation is part of the remedy that has been provided, and it will be interesting to see whether Jackson is extended to that situation or whether the Court finds you just cannot infer that remedy. 

A second area that is coming up that I find quite interesting is a case that involves -- it is Sprint/United v. Mendelsohn, and it involves what is called “me, too” evidence.  It is kind of a sleeper case; I have not heard many people talk about it, but here is why I think it is really quite significant.  The key issue in the case is if you have an individual plaintiff bringing a discrimination claim, under what circumstances can you try to prove your claim by bringing in other employees - either former employees or current employees - who say, “I was discriminated against too.”  Not by the same supervisor, not connected with the decision making that is actually at issue in the case but just, “I work for this company and I was subjected to some kind of action that I believe to be discriminatory.” 

Many district courts, in my experience, allow far-ranging discovery into these kinds of issues.  Whether there are any other employees out there who might have been subjected to discrimination, it really drives up the cost of discovery, and it also makes it much harder to get summary judgment if you are allowing disparate evidence like this when some other supervisor and some other part of the company did something that might have been discriminatory, and then, you are facing multiple trials about discrimination in a single-plaintiff trial.  So I actually think this could be a -- if it comes out the way I suspect it probably will - although I do not know that this kind of evidence is not admissible -- it could definitely bring down the cost of defending these kinds of claims and make companies less willing to settle some of the claims that are not particularly -- where they think they do not have much exposure.  That is pretty much it for the employment docket so far.  There are a couple other cases but I think those are the big ones.

Peter J. Wallison:  Thanks very much, Maureen.  Excellent.  Well, Andy Pincus is here and we are going to have an opportunity to hear from him.  He is a partner in the Washington D.C. office of Mayer Brown.  He specializes in briefing and arguing cases in the Supreme Court and in the federal and state appellate courts, as well as developing legal arguments in trial courts.  He has argued 16 cases before the Supreme Court and has filed briefs in more than 100 other cases in the court.  He also serves as co-director of the Yale Law School’s Supreme Court Advocacy Clinic and Seminar.  I should mention, as is true in this case, I’m just hitting the highlights of the backgrounds of the people here so you can find a little bit more material in your folders.  Andy?

Andrew J. Pincus:  Thanks, Peter.  I apologize.  I’ll be talking about some technology cases, and it was a technological glitch that made me a little late today.  I want to pick up on Maureen’s theme of the interaction between the Court and Congress because the two areas that I would like to spend most of my time talking about, intellectual property and arbitration, I think are both examples of the Court’s really single-minded focus in a statutory context of making sure that policy decisions are made by Congress and not by courts.  I think that theme and Congress’ reaction to what the Court does or does not do pervades all of the business cases, but especially these two areas.

Let me start with intellectual property and patent law.  It is no surprise there has been a lot of comment on the fact that in recent years, the Court’s patent docket has grown tremendously.  There was a period of years where, maybe, every other year or every third year, there would be a patent case often dealing with some obscure issue.  In recent years, every single term, there has been a significant blockbuster patent case, really starting with eBay which, of course, was the case about what the standard is that district courts should apply in determining once infringement is shown, whether or not to grant an injunction barring infringement.  In that case, the Federal Circuit had developed a rule that basically said you always grant an injunction unless the result would damage public health. 

Although the statute that governs injunctions and patent cases talked about equity, and in every other context, the Supreme Court and lower courts have said in deciding whether to grant them injunction, you apply the familiar test.  You look at damages as a remedy and the equities.  That could have been thrown -- gone by the boards in the patent area.  What the Supreme Court said in eBay is, “We do not understand that.  There is a familiar equitable test.  Congress essentially mimicked the relevant language in the statute.  Why is this not being applied?” 

That is obviously the right answer.  There was somewhat of a disagreement about the Court on how that equitable test would have come out in particular cases, but there was unanimity that courts had to go through that familiar equitable standard.  And that decision has played out in the lower courts; in fact, what has happened for the most part, really, with a remarkable degree of consistency is that in what you call traditional patent claims, claims where the plaintiff is manufacturing the product on which it has the patent or for which it has been assigned the patent and the defendant is infringing and attempting essentially to trench on the exclusivity that the plaintiff is trying to capitalize on, an injunction is granted.

In situations where the plaintiff is not in the business and is someone more in the business of licensing its patent to many commerce, courts have said, “Well, gee.  You are really in the licensing business.  You are not trying to capture exclusivity for yourself or for one or two users of the patent.  You are really in the business of licensing.  And if you are in the business of licensing, why is damages not an appropriate remedy for you?”  Also, in those cases, there often is the problem, especially in the technology industry, where the assertion of the patent comes after a product has been developed, often after a standard has been developed.  And the claim is, to comply with this industry standard you will have to infringe my patent.

So, more technology.  eBay, I think, was a surprise to lawyers in the patent bar because I think -- I do not want to deprecate my friends in the patent bar, but it really may be not a Galapagos Island of the law, but it really had grown up by itself.  There is a very specialized patent bar; there is a specialized court that reviews patent decisions, the Federal Circuit.  And so patent law was developing apart from the general trends in statutory interpretation, the trend that Maureen was talking about of really looking to Congress and not having Court make up rules that they might think are good policy but are not reflected in what Congress wrote.  So I think eBay was a bit of a wake-up call in that area, at least, for where the Supreme Court was coming from in patent adjudication, and the decision last term in KSR really continued the trend. 

The question in KSR was -- well, to step back, obviously, patents are granted because the inventor advances the useful arts as the Constitution says.  For a long time, patent law has said if what is being proffered as patentable was obvious to someone knowledgeable in the relevant art, then it is not patentable because we are not giving patents for things or advances that are obvious.  We are giving patents for things that are non-obvious because they have that germ of invention in them.

And so, that standard has been around for a long time.  The Federal Circuit had put a gloss on that standard and said, “Well, in determining obviousness, there has to be something written down in the prior art that shows that this would have been obvious.  And if there is nothing written down, then we are not going to find obviousness regardless of whether the relevant experts all would have concluded that this is obvious.”

And there, too, the Supreme Court said, “No, it may be relevant that something is written down; that is obviously a relevant source of evidence.  But we are not going to make it the only source of evidence.”  In fact, the most obvious things may not be written down because they are so obvious to everyone that no one thought to talk about them.

And so, there, too, what the Federal Circuit had said is, “We are worried about, retrospectively, a bias that would say, ‘Well, in hindsight, we could see that this is obvious but maybe courts would be biased and juries would be biased where things at the time might not have been obvious.’”  And so we are worried that not having this prophylactic standard will render unpatentable inventions that should be patentable, and so we think this is a good prophylactic device in order to protect the inventors.

And clearly, the way the Supreme Court thinks about these issues -- if you need a prophylactic protection like that, that is a decision for Congress, not a decision for courts.  What courts should do is apply the law as it is written.  This term, we have, I think, another case that -- maybe not rising to the blockbuster level of KSR, and I should say in which Maureen represents the petitioner and I represent a set of amici; a case called Quanta, where the question involves another long-term, well-recognized principle and patent law, which is the first sale doctrine.  And that doctrine, of course, is if you are the inventor and you license someone to create an article that encompasses your patent and then that article is sold, that transaction exhausts your rights and you do not have any rights to assert infringement claims against the downstream users of that article, regardless of whether it is incorporated into something new or however it is used.  The first-sale exhaustion doctrine means the first sale is where you capture your value as the inventor, and then the downstream market is allowed to take that invention and use it.

The Federal Circuit, however, has said that that is not quite right and it has recognized an exemption from the exhaustion doctrine in a situation involving components that are used in computers.  And it said in this case the first [indiscernible] that the license to the initial manufacturer said, “We are only licensing this to you for your activity and there is no license for downstream users.  And, by the way, you have an obligation to inform those downstream users that their use or incorporation of this invention into their products does constitute infringement and they have no rights.”

Obviously, stepping back and looking at the market impact, it is quite significant because what this says is, “The patent owner can essentially assess a toll at every stage of the process.”  And especially for inventions that are necessary to comply with industry standards or where there is really only one alternative, that toll could be quite substantial for downstream users who do not have an alternative to go to in the market place. 

So, this is another case where the Federal Circuit seems to have veered a little bit away from what Congress wanted, away from what Congress said, and toward a rule that I think in its policy view, maybe, it thinks is appropriate to help inventors.  But, again, courts’ policy views do not matter.  The policy views that matter are the ones that are written down by Congress and I think this is another area where let’s just say patent law –- lots of things have grown up separate from where the courts generally have been moving.  And I think this is probably another case and it is a case where the solicitor general has filed an amicus brief saying that the Federal Circuit is wrong, where there is going to be another correction.

It is interesting to step back for a minute and look at the interaction between the Court and Congress on these patent issues.  As many of you probably know, there is a big patent reform debate now going on in Congress.  A lot of the issues –- the policy questions there are, does the patent law have the balance right especially in private litigation between the remedies that are available so that patent owners can protect their rights, while at the same time not having a system that allows the kind of coercive claims that we have seen in other areas of the law where it almost does not matter how strong the patent claim is because the damages claim is so great or, pre-eBay, the threat of an injunction shutting down your business is so huge, that you really have to get some kind of settlement regardless of the merits.

Congress is debating that.  You see the Court debating that.  And interestingly, you see the Federal Circuit moving to reconsider some of the decisions that have been the subject of criticism in the congressional legislation a month or so ago.  The Federal Circuit issued a decision in a case called Seagate that addressed the question of proving willfulness under the patent law.  Under patent law, you can get multiple damages if you prove willful infringement. 

And there is a big question about what “willful” meant and the Federal Circuit, I think, at least in the view of many participants - and it was really an issue that united almost all of the participants in the patent debate - had developed a standard and associated procedural rules that were really tilted very, very far in favor of plaintiffs, probably shown by the fact that there was a willfulness claim asserted in just about every single patent case that was filed.

And part of the legislation includes a pretty comprehensive reform not only of the substantive standard, but also of the procedures for asserting willfulness claiming, incorporating, frankly, many of the protections that have appeared in state laws regulating punitive damages claims, keeping those claims after the merits are decided and limiting what can go to the jury and so forth.

Seagate moved quite a ways toward where the legislation is in terms of the standard, in terms of talking about some of the procedural protection.  So it is an interesting dialogue going on between the Supreme Court, the Federal Circuit, and Congress on these patent issues.  And I do not think we have probably seen the end of them.  But, clearly, all sides are talking a lot more than they were pre-eBay.

Let me turn to another issue – arbitration.  Another issue where the courts are heavily involved and Congress is getting involved or at least some people want Congress to get involved.

As you probably know, the use of arbitration has really grown substantially in all segments of the economy.  It is used in business-to-business transactions.  It is also increasingly used in consumer transactions because a lot of consumer complaints companies found are small.  They can be resolved expeditiously; there is no need for consumers to use lawyers, and there is no need to start creating the kind of adversarial relationship that often happens when people go into litigation in an area where the risks to the defendant are so high that they have to take an adversarial position right from the beginning.

So lots of [indiscernible] consumer contracts and employment contracts subject to some pretty substantial procedural limitations that have been devised by arbitral forums, such as the American Arbitration Association, that have been forced by courts if, just as in any other area of the law, if a contractual provision is unfair and a result of unequal bargaining power, courts will strike it down as unconscionable.  And courts do that with respect to arbitration clauses that are unfair.

The cases before the Court deal with two interesting aspects of arbitration; I think that they are probably setting the stage for something to come.  One, that was granted last term, involves the question whether the parties can contract for judicial review standard tougher than the one prescribed by Congress and the Federal Arbitration Act.  The reason that arbitration has really been permitted to flower here is that Congress in 1925 enacted the Federal Arbitration Act, which really overturned the very substantial bias against arbitration of the judicial system. 

Not surprisingly, judges thought they meted out pretty good justice and were quite suspicious at that time of alternatives, and were very frequently striking down arbitration contracts.  And so, what the FAA says is that those provisions are perfectly permissible and it limits the grounds on which courts can set aside an arbitral work quite substantially.

The question in this case is whether the parties can say, “Well, we understand the FAA is there but we would really like more searching judicial review of our decision.  We would like a court to, for example, engage in plenary review of the questions of law that were decided by the arbitrator.”  It is an issue that has really divided the arbitration community.  You have some people who are very strongly of the view that arbitration is totally about contract and that the parties certainly –- it is well settled that in setting up the arbitration rules, the parties within the limits of unconscionability can design any kind of system they want; maybe not trial by combat, but lots of systems for resolving their disputes.

This obviously goes a step farther and says even though the statute provides a limited review, can the parties contract out of that and provide for more searching review?  So the people who believe in focus on freedom of contract say, “Of course, this is just like anything else - the FAA says it is enforceable.” 

On the other side, you have some other members of the arbitration and business communities who say, “Gee, the principle of judicial noninterference, except in extreme circumstances of arbitration, is such a fundamental one.  We do not think either is a matter of policy or is a matter of law that it is something that parties can contract around.”  And I think it will be interesting to see how the Court resolves those two competing interests.

One aspect of the case that I do not think -- I quickly looked at the briefs; I'm not sure that it has gotten a lot of play -- is I think this Court may be interested in a sort of questioned precedent which is, “Can parties contract to give courts authority that they do not have under statute?”  Is that something that is permissible under Article 3 and under the statutes governing judicial jurisdiction?  Is that something that really can be done putting aside the arbitration principles involved?

The second case is a case -- sort of interesting that the court granted it -- involves Judge Alex, who I guess is a successor or a competitor of Judge Judy on syndicated television, and a dispute that he has with his talent management agency about fees.  And California has a statute that requires those disputes to be heard by an administrative agency, and the question in the case is whether the Federal Arbitration Act preempts that rule and allows parties to go right to arbitration or whether the statute still applies, and the state can force parties to go into the administrative process.  Obviously, if states can force parties into an administrative process there may not be much left for arbitration because states could pretty quickly enact laws, which provide for some searching administrative review of disputes before they get to arbitration that would pretty much gut the system now, which is state laws cannot interfere with the parties’ arbitration agreement.

So I think the issue in the case is maybe quite specific to Hollywood, but the principles that the Court may use to resolve it will be quite interesting.  And the Court has been somewhat divided on federalism issues, generally, and also on the question about how the Federal Arbitration Act -- whether it preempts state law and the extent to which it does.  So I think the decision in the case could have a very significant impact on what happens with respect to arbitration more generally.

Like Seagate, there are a lot of things roiling in the lower courts that I think you might see coming before the court later this year that involve, for example, whether or not as part of an arbitration agreement in the consumer context, can consumers waive their right to participate in a class action?  It is an issue that has divided the lower courts; it is an issue that is very important to the future of arbitration because for companies, part of the trade-off is to provide very cheap and easily accessible remedies for individual consumers, but not to at the same time be spending a lot of money defending class actions, which may provide questionable benefits to the actual consumers as opposed to the lawyers involved. 

And if that trade-off is not possible, I think you may see a lot of companies saying, “Why are we paying -- constructing an arbitration system?”  For example, at some company -- Consumer Arbitration Agreement, the company says, “If you win an arbitration, we will pay a minimum of $1,000 regardless of the value of the claim to recognize the fact that for consumers having to go through arbitration may be a burden, and to provide an incentive to settle claims upfront.”  And so, companies I think are going to move -- not be interested in providing those kinds of benefits if they still have to carry the burden of class actions.  Maybe I’ll stop there.  [Audio glitch]  I apologize for not being –- did you talk about antitrust?  Or is that coming up?

Theodore H. Frank:  No, go right ahead.

Andrew J. Pincus:  Well, I’ll talk a little bit about antitrust.  I have an interesting one case that I argued last term called Weyerhaeuser that I think is emblematic of the way the Court is thinking about antitrust law these days.  Weyerhaeuser was a case that involved predatory buying.  You have all heard about predatory pricing – the big seller drops its price low supposedly to drive the little company out of the market, and then it is going to raise its prices up later to recoup the loses.  And in a case called Brooke Group, the Court said, “We looked at the economics and there has been a lot of economic analysis of these claims, and the economic sensibility of this kind of approach is very questionable.”  It also does not happen very often and there is also a question about whether what the market context is to make it work because, obviously, it only works if the laws that are taken upfront can be recouped later. 

And so, if the market structure is such that when the company raises its prices to recoup the loss that it has taken on the below-cost sales, if there is entry, then that is not going to happen.  Consumers are not going to be harmed and there is no reason to adapt the rule, which, sort of somewhat counter-intuitively, an antitrust law imposes liability for lowering prices when, of course, the whole purpose of antitrust law is to lower prices.

The question on Weyerhaeuser is how does that apply to a buying claim?  And the buying claim was this: Weyerhaeuser operated sawmills in an area of the Pacific Northwest and there also was the plaintiff in this case, which was a smaller sawmill operator.  And the plaintiff’s claim was Weyerhaeuser was bidding up the price of timber in order to increase the plaintiff’s input costs, so that the plaintiff’s ability to compete in the downstream market would be hampered.  And Weyerhaeuser then, after this was all over and the plaintiff was driven out of business, would lower the timber prices and would have the power to do that and would be able to, therefore, recoup its losses on paying the higher prices by having lower input costs, and selling the product at the same price in the downstream market.  So it is really the converse of the predatory buying claim.

And the question in the case was, what is the legal standard applicable to such a claim?  Do we apply the same kind of objective standard as predatory selling?  Because for bidding up inputs is also the kind of conduct you would expect in a competitive market.  If you are the seller of the trees, presumably, you are very happy if your buyers are bidding up prices and it is not clear why the antitrust laws would want to preclude you from getting those increased prices, especially if there is no impact in the downstream market.  And it was conceded in this case that the downstream market for finished lumber was highly competitive – lots of people and there was no ability on Weyerhaeuser’s part or anyone else’s to raise the price of its finished products.

So the question was - do we apply this objective rule?  The Ninth Circuit said, “No.  No need to apply an objective rule.  We approve a jury instruction that says Weyerhaeuser paid more than it should have and bought more timber than it needed.”  And that was the question that went to the jury; sort of a bizarre standard in antitrust law where we are supposed to be promoting competition. 

And the standard that the jury was supposed to apply was: paid more than it should have, bought more than it should have, and that harmed the competitor.  And of course, there too, the idea that one competitor should manage its buying price practices with an eye toward whether or not they are going to hurt a competitor is the opposite of the idea people are supposed to be competing here. 

But that was the jury instruction that the Ninth Circuit approved, and the case went to the Supreme Court and the Court said, “No, we do not think that is a very good idea.  We think that justice in the predatory selling context – this is an area where we are talking about price, and price is the central component of what makes our system work.  And we do not want to have legal rules that are going to deter hard price competition by making people look over their shoulder for fear that some jury later might say, ‘Gee, you paid more than we think you should have and therefore, we are going to hold you liable for increasing the price that you paid to the timber sellers.’”

It was an interesting antitrust case because often the actual class that is hindered by the possible chilling effect on legitimate competition of antitrust rules does not appear.  It is hard for actual consumers to appear in Court.  But in this case you did have the actual sellers of the timber who filed an amicus brief saying, “We do not like this Ninth Circuit rule because we are worried that we are going to get a lot lower prices for our trees because all of the timber buyers are going to say, ‘We are nervous about competing,’ and the best thing to do is not raise the prices too much.”  And so not surprisingly, that was something that the Court rejected.

I think that case is emblematic of the Court’s increasing focus in the antitrust area where, contrary to the other areas we have been talking about, Congress has said, “We give you a common law authority to devise reasonable rules.”  And where the Court is really looking increasingly -- not just on whether the rules are reasonably abstract, but whether the rules are reasonable as they play out in the real world of litigation and how does the real world of litigation impact what might in abstract look like very fair rules.” 

And the Court, I think, especially in the antitrust law area, has said, “We are going to be very conscious of that, and we are going to devise rules as in Brooke Group and Weyerhaeuser that address the risk that detailed legal rules that submit a lot of close factual questions to the jury are going to have a real chilling effect on legitimate conduct.”  And so, we are willing to sacrifice a little bit of enforcement in order to not chill the entire economy by the legal rules that we developed.

Peter J. Wallison:  Great, Andy.  Thanks very much.  Certainly worth waiting for.  Ted Frank is a resident fellow at AEI and he is the director, as I indicated before, of our Legal Center, the successor to the National Center on Legal Policy.  And he is managing the institute’s research on liability reform, proposals, tort law, class actions, civil procedure, and other related issues.  Before he came to AEI, Ted worked at law firms in Los Angeles and Washington D.C., and clerked for Judge Frank Easterbrook.  Ted?

Theodore H. Frank:  Thank you.  I do have three points.

First, I'm going to refute the method of the monolithic AEI by disagreeing with Michael on the issue of whether the Supreme Court has moved at all on the question of civil litigation; I’m going to argue that there has been a definite shift in its attitudes and a shift that I think will accelerate in the upcoming terms.

Second, I'm going to discuss the Philip Morris v. Williams punitive damages case and then I'm going to talk about the upcoming pharmaceutical preemption docket.  I think the most important case of this term is a case that did not get a lot of attention; it was a 7-2 antitrust decision -- extensively antitrust, but it actually made a much larger ruling in the field of civil procedure and that is Bell Atlantic v. Twombly. 

There was a decades-old decision called Conley v. Gibson that said that courts could not dismiss a complaint unless “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim, which would entitle him to relief.”  And that was essentially a blank check to the plaintiffs.  You make your allegation and you are entitled to go on the fishing expedition to see whether or not you can prove it, so long as you have had some reasonable good faith basis for making the allegation.  There is absolutely nothing stopping you from proceeding with a lawsuit and forcing the defendant to undergo expensive discovery.

This term, the Supreme Court overturned that decades-old precedent and it did 7-to-2.  It stated, “It is no answer to say that a claim just shy of plausible entitlement to relief can, if groundless be weeded out early in the discovery process through ‘careful case management.’  It is self-evident that the problem with the discovery process cannot be solved by careful scrutiny of evidence at the summary judgment stage.  The threat of discovery expense will push cost-conscious defendants to sell even anemic cases before reaching those proceedings.”  And thus it required a greater standard of plausibility before a complaint could go forward.

This is going to do a lot to shut down merit-less litigation at an earlier stage, and I think that it is very important and it is part of an attitude that the Robert’s Court has shown towards litigation in not just this case, but in other cases.  In Tellabs quote: “The private securities fraud actions have not adequately contained can be employed abusively to impose substantial costs in companies’ and individuals’ conduct conforms to law.” 

The Leegin antitrust case reversed the 90-year-old Dr. Miles doctrine because it was “a flawed antitrust doctrine that serves the interest of lawyers by creating legal distinctions that operate as traps for the unwary more than the interest of consumers.”  Case after case after case, recognizing the limits of the litigation system, the dangers of litigation, having a sort of judicial modesty that the courts cannot do everything, that there are real costs to proceeding through the judicial system.  And I think a lot of that is Justice Roberts.

Justice Roberts is the only justice on the bench who has that sort of experience in the modern-day business litigation environment, admittedly, mostly at the appellate level, but he experienced this on a day-to-day basis at least.  And I think his attitude is coming across to the other justices.  And I think a very vivid example of this is that just 10 years ago,  there was the Justice Stevens opinion, 9 - nothing, where a petitioner came to the Court and asked to shut down a litigation or at least postpone it because of the danger that the litigation would be disruptive.  And 9-nothing the Court held that “it appears to us to be highly unlikely to occupy any substantial amount of the petitioner’s time”; and that was the case of Bill Clinton v. Paula Jones.  And I think there is a certain naiveté that the Court exhibited in 1997 that they are exhibiting much less now.

Justice Breyer was very recently at a conference held by a litigation support management group discussing discovery practices, and somebody mentioned to him that a certain pretrial discovery process cost $4 million.  And Justice Breyer, according to Forbes Magazine, erupted in outrage: “We cannot do that.  It really costs millions of dollars.  You are going to drive out of the litigation system people who ought to be there.”  And the audience laughed because $4 million is pretty cheap.  And I think we are going to see this increased recognition that procedural rules create real substantive costs on the economy, on litigants, and on judicial accuracy.

And another case where that came into play is 7-to-1 decision -- Credit Suisse First Boston v. Billing.  And this is a Justice Breyer opinion where he stated: “Antitrust plaintiffs may bring lawsuits throughout the nation in dozens of different courts with different non-expert judges and different non-expert juries.  There is no practical way to confine antitrust suits so that they challenge only activity of the kind investors seek to target, activity that is presently unlawful and will likely remain unlawful under the securities laws.  Rather these factors suggest that antitrust courts are likely to make unusually serious mistakes in this respect.”

Again, judicial modesty.  And what is fascinating about this is that same sort of reasoning can be applied throughout our civil justice system in product design litigation, in pharmaceutical litigation, the standard of care and medicinal judgment calls, day-to-day regulation of prison systems.  We are talking about an attitude of judicial modesty here that, again, across the board, left to right, just about everybody except Justice Stevens recognizes that the courts cannot really solve all of our problems.  And I think that is a very promising sign for upcoming business docket for years to come.

There are, however, potential pitfalls.  The Justice O’Connor era was very inclined to get involved and, say, stepped in for punitive damages cases and tried to mold those and create standards to reduce the impact of the civil courts.  And Philip Morris v. Williams was the first punitive damages case in the post-O’Connor era.  Justice Roberts and Justice Alito had never heard of punitive damages case before and the punitive damages case is never really split upon right to left lines.  Scalia and Thomas were consistently in the dissent, holding that this is completely outside the scope of the Supreme Court’s power to handle the issue of punitive damages, to decide whether or not they are within the balance of the due process clause.  And we are not going to touch it and we are just going to affirm everything.

Therefore, it was a mystery on how Roberts and Alito would rule on that.  When Philip Morris v. Williams came up for arguments, however, the respondents explicitly punted on the question of whether or not the Court should reverse BMW v. Gore.  And so, the Court just did not address it and so that is still to come.  And as it was, it was only a 5-to-4 majority. 

And as it was, it created a fairly incomprehensible rule whereby it struck down this particular judgment of $82 million of punitive damages, where there were $500,000 of compensatory damages what worked out after rounding to 152 to 1 ratio.  Rather than say, “That is completely outside of the 10 to 1 that we thought problematic in our earlier cases of Campbell and Gore,” they said, “We are just concerned about the jury instructions here.  You let the jury decide based on everybody in Oregon that the tobacco company has allegedly injured.  That is not fair.” 

Now, you can talk about everybody else in Oregon when you are deciding how reprehensible the conduct is because that is relevant to punitive damages, but the actual damages to non-parties cannot be considered.  And that is sort of dancing on the head of a pin; it is not clear to me how a jury is ever going to handle that.  It is pretty obvious how the plaintiff’s party is going to handle it, though - make the exact same arguments but they will couch it within the Philip Morris v. Williams language and will get the same results.

So it is a good news-bad news approach there.  Good news for the business community; that particular case was reversed and BMW v. Gore is still alive.  The bad news is the doctrine’s getting increasingly convoluted and the challenge for the business community in upcoming punitive damages cases is going to be to find a coherent theory for the regulation of punitive damages within the judicial system that five justices can sign on to because right now the only coherent theory out there is that of Scalia, Thomas, and Ginsburg that says the Court should not touch this at all. 

And the effect of that in the long run is also uncertain because what has happened is the plaintiff’s bar has largely moved the boundless punitive damages into boundless non-economic damages and then based on punitive damages on a multiple of equally arbitrary non-economic damages.  And the Supreme Court denied cert in Ford Motor v. Buell-Wilson, a case out of the California state courts that I wrote about earlier this year, where that precise issue was addressed -- it is not clear that the Court is willing to get into that.

The good news, however, in Philip Morris v. Williams is dicta in the case where the Court expressed explicit concern about the problem of not giving defendants the “opportunity to present every available defense.”  This was the jury instruction problem that they struck it down.  The plaintiffs were sitting there accusing Philip Morris of injuring millions of other people, and Philip Morris was not allowed to defend themselves against those claims; obviously, of marginal relevance in the punitive damages context because the reprehensibility issue, but where that obviously does come into play are in class actions. 

And we have the Ninth Circuit and other courts holding that -- what Richard Epstein calls the procedural tail wagging the substantive dog; using the class action mechanism to smooth out the ability of the defendants to defend themselves in cases that are highly individualized like employment litigation cases, the multi-billion dollar Dukes v. Wal-Mart case, the multi-billion dollar Schwab Tobacco litigation.  And if this statement in Philip Morris v. Williams is to be taken seriously, it implies that all these class actions are just utterly inappropriate, which I thought they were long before Philip Morris v. Williams, but that is a different story.

Let me switch gears now and talk about the preemption docket in the three or four minutes I have remaining.  There is not going to be any great advances for the business community in the pharmaceutical preemption cases coming up before the Supreme Court.  The business community needs to win all three of these cases and if they do, it will not advance the ball very far.  But a loss in any of them would be catastrophic for the reasons Michael mentions.

We are starting off with Riegel v. Medtronic; that was a 2 to 1 Second Circuit decision on a pre-market approval of class- three medical devices and getting past the technical issue there, the issue there is that when the FDA, the Food and Drug Administration, gives pre-market approval for the safety and efficacy of a medical device, at that point the manufacturer is not allowed to modify it without further FDA approval.  So the question is, can you sue under state law for design flaws that you should have done something else to design the product when the FDA has approved it and you are not allowed to change it without further FDA approval?

Previous decision in Medtronic v. Lohr for marketing clearance, which is a later step in the regulatory process said, “There is preemption.  Is it the same case in pre-market approval?”  Second Circuit said, “Yes, that is the question before the court.”  Very interesting procedural maneuver happened there.  The plaintiffs disclosed that, “Oh, by the way the lead plaintiff died three-and-a-half years ago and we did not tell anybody until now.”

You might say something about the way the plaintiffs conduct litigation these days that they had not been in touch with their client for three-and-a-half years.  But technically that would seem to imply that the case needs to be dismissed without the Supreme Court issuing a ruling because there is a certain deadline for when you get to substitute a new plan; it will be interesting on how that plays out.

Another case there has not been cert granted yet, but it is the similar principle – Wyeth v. Levine coming out of the Vermont Supreme Court.  Again, cert has not yet been granted on that, but it is pretty critical that the Supreme Court take this up and reverse it.  Again, you have a state court creating liability for a manufacturer not doing something that the FDA expressly forbade it to do.  And again, that should be just a straightforward application of preemption; if the federal government says you cannot do X and you are being held liable for not doing X, for not adding a warning that the FDA told them you could not add, if there is no preemption there, then it is open season on defendants.

The most interesting case is that the Court granted cert on Monday -- that is Warner-Lambert v. Kent.  The question there is the application of a 2001 decision called Buckman, which held that when there is an allegation of fraud on the FDA that is entirely within the FDA’s jurisdiction to determine whether or not there has been fraud, the state courts cannot be second-guessing that.  The Second Circuit came up with a fairly –- what I would call a disingenuous opinion, saying, “Buckman did not apply to a case where the plaintiffs hope to prove their case by proving that there is fraud on the FDA,” notwithstanding the 9-nothing decision in Buckman.

Again, if the Court does not reverse there, they are completely writing Buckman out of law and that is going to be of great relevance to the pharmaceutical community.  It comes up in a number of Vioxx cases and punitive damages cases in New Jersey, where punitive damages were found based on the supposed finding of fraud on the FDA and a number of Texas failure to warn claims were thrown out where -- because the Court in another case coincidentally called Ledbetter -- the Court found that Buckman did apply and the plaintiffs’ claims were preempted.  On that note, I’ll turn it over to audience question.

Peter J. Wallison:  Thank you very much.  Before we turn to your questions, in listening to our panelist today, one theme did seem to come out to me, at least.  I do not actually think that Michael and Ted are disagreeing on this, but it seemed to me that the direction the Court is going is in a direction of procedural litigation reform.  And I think Michael stressed the idea that the Court has decided that things have gotten out of hand in our civil litigation system, but Congress will not solve the problems of the Court; it has to do it.  And then what Ted was saying is the Court is, in fact, doing it slowly but surely.

I wonder whether the other members of the panel see that as one way of thinking about what was said today.  Maureen, do you have any thoughts on that?

Maureen Mahoney:  Well, I think that what the court did last term, at least in limiting damage remedies for the most part, is something that has been happening for two decades.  Really, if you look back at Justice Rehnquist when he was then an associate justice, he wrote a case called Blue Chip Stamps, which said this whole notion of an implied remedy for securities fraud is a little troubling, and we are going to strictly limit it to the kinds of remedies that could have been brought at common law.  I think, maybe, it is an acceleration of those trends, but I think they have been there for quite a while.

Andrew Pincus:  I think it is a two-step process.  I think I agree with Maureen.  Over prior decades there had been a lot of law accreted, that courts could imply causes of action where Congress had not created one, could make up evidentiary rules that helped make claims easier to establish.  And I think this is a Court that is not going to be doing that.  As we talked about before, it is going to be pretty strictly hewing to what Congress has said about these kinds of issues.  I do think that in the area where the Court has some leeway to decide an antitrust in Twombly, which really was construing the federal rules of civil procedure, I think the Court is much -- as I said before about antitrust, it is willing to take into account the fact that the litigation system is not a transaction-cost-free, spill-over-effect-free system; it has real world effects. 

And I think it is unlike prior Courts which acted as if -- in Connolly we are just going to say, “This is the rule,” without much consideration of what it might mean in the real world.  This is a Court with -- in areas where it has that authority that Congress has given it.  It is very willing and believes it is important to look at what this means in the real world and to take account of those consequences.

 Peter J. Wallison:  Andy, you were talking, as part of your presentation, about this arbitration case.  This is a very interesting case because it comes up also in the securities area.  This is an idea that has been suggested for dealing with the massive class action problem that exists under 10b-5 in the securities laws.  This is clearly one area where the Court could cut back on the costs of this kind of class-action litigation if it adopted some theory that would permit people to agree to arbitration with companies that have sold them products, for example.  Where do you think that is really going to go when it gets to the Court?

 Andrew J. Pincus:  Well, I think the question for the Court will be -- if you look at the last 20 years and what the Supreme Court has done on arbitration, there, too, there had been some hostility to the arbitrability of federally created causes of action, and the Court gradually has whittled all that away, and said, “No.  There is no presumption that there is something special about these claims.  They should be as arbitrable as anything else.” 

The question will be:  Does the Federal Arbitration Act preclude anything other than an unconscionability fairness kind of determination about the way arbitration is constructed?  That is going to be the first question in this class action waiver area.  And I think that is a question that is posed where we have some courts in Illinois that say, “No, this is all just about unconscionability.  We can see many situations where the trade-off that is provided in terms of waiving the right to join a class action but getting a much more favorable individual remedy that is available on court is perfectly reasonable.”  You have courts in California that have gone the other way and so, I think, we do not know. 

 I think one thing that will influence how the Supreme Court decides that question is, of course, there is a preemption flavor to the Federal Arbitration Act.  The things that have been talked about in terms of how different justices view preemption, and the scope of preemption that they are willing to find will be important in that.  Justice Thomas, for example, as in the punitive damages area, is not a big fan of preemption and the arbitration area.  With respect to securing these class actions, that can be done. 

There is really no need for the Court to act.  If a company decided to put into its charter an arbitration requirement and attach it to its securities, I think there is a question whether that might not be enough to get the ball rolling.  There may be questions about how enforceable that is against people who are buying the securities.  But I think, at least, there has been a lot of discussion in the capital markets reports that have been issued about whether this is something that -- really, the only obstacle is in SEC, a perception that the SEC is not favorably disposed to arbitration in this area.

 Michael S. Greve:  I do not disagree with anything.  I just want to add that the relation between the Court and the Congress is actually a complicated matter.  It is becoming increasingly complicated and to my mind, it is very hard to generalize across areas.  So you look at civil rights litigation; there the pattern has historically been -- there is some civil rights statute -- as long as the Court expands it and runs with it, that is fine with Congress.  As soon as it actually reads the statute for what it says, Congress then enacts a Civil Rights Restoration Act that restores civil rights to what they have never been before.  That is, of course, what is -- I mean, the Ledbetter Act -- believe it or not, there is actually such a proposal in Congress and then only question to my mind is how much Congress will hang on that particular Christmas tree.  As Andy says, the antitrust cases are a little bit different.  There the Court has some “running room” because the Sherman Act has been read as an invitation for federal common law making.  That is a longstanding principle and that is what makes the Leegin case so interesting, because there the question was, precisely what is the scope?  And on this particular issue, we say a price maintenance.  Justice Breyer argued while there has, in fact, been congressional intervention of a sort and to the extent that there has been, it is all done the other way.  We should not have this sense of “We are in charge here.”  Nonetheless, five members of the Court thought, “No.  That is fine to march ahead.” 

This brings me to the Federal Arbitration Act and the question there, it seems to me, is somewhere in between.  Andy put this very gently; it has a preemption flavor.  Justice Thomas has now written - how many opinions?  Four?  Five?  - saying, “It is not preemption under Federal Arbitration Act; that is all totally made up.”  Now, my personal view on this is he happens to be right except he should not be saying this.  The -- [laughter]

 Maureen Mahoney:  Do not put this man on the Supreme Court.  [Laughter]

 Michael S. Greve:  The reason why this matters is that the Court in that area, to my mind - and I should not be saying this now - should be very strategic and be very, very careful.  It is one thing to have these civil rights statutes crank back into Congress; even that is not a terribly good thing.  But in any event, the damage there is limited. 

If the Federal Arbitration Act goes back to Congress, God help us because whatever preemptive force it now has on account of judicial rulings that they back - what?  25 years now or whatever?  - will be gone.  A lot of protections that now exist will be gone and so I think it would behoove the Court not to settle for a slogan - “Let Congress decide it” - but to be very, very circumspect in not exceeding Congress’ and the interest groups’ tolerance threshold.

 Andrew J. Pincus:  Peter, can I make two quick points.  First of all, I think the election last year and what the control of Congress -- at least what the experts seem to say for the next few years, really, is a fundamental change for the last 12 years starting in 1995.  The business community, at least, really did not have to worry that victories in Court were going to be overturned on the Hill.  And I think, as the Ledbetter process illustrates, we are now in a very different dynamic and if the Democrats make additional gains in 2008, you could have quite a different -- and take the White House, you could have quite a different dynamic in terms of this interaction between the Court and Congress. 

You could have a Court that is reading things very strictly, but if you are a company with an interest in a litigation issue, you might have to tack on a legislative strategy at the end of your successful litigation strategy because your victory in Court might be quite short-lived.  Arbitration is a perfect example of this; the Federal Arbitration Act is very much a topic of discussion on the Hill right now.  The trial lawyer organization has said it is eliminating the FAA as one of its top priorities. 

There has been a bill introduced in both houses of Congress; I think there is going to be a hearing on it in the House Judiciary Committee in the middle of October that will very significantly, essentially, eliminate the availability of arbitration in any consumer contract, employment contract and any other contract that is regulated by federal statute or by any statute that is designed to address unequal bargaining power.  If the breadth of that provision, especially the last catch-all clause does not worry you, you might also be interested to know that it is retroactive.  So any existing contract that has those provisions, the arbitration clause will be invalidated.  I do not think we have to worry about the Supreme Court putting the FAA in play, as they say; it is in play.

 Peter J. Wallison:  Okay, it is time for your questions.  Do not be shy now.  Hold on, wait.  I wanted to say that everyone should state a question but also identify yourself and wait for the microphone.  Wait -- microphone.

 Karen Schwartz [phonetic]:  Hello, my name is Karen Schwartz.  I’m temporarily in D.C. and I’m from California.  And my question relates to Judge Alex’s case.  Assuming that California has also in its Talent Act a provision that says that you can arbitrate claims but you have to include certain requirements in your contracts, specifically, that the labor commissioner is given notice of the arbitration and the opportunity to send a representative, a point that was not made in the cert petitions, how do you think the Supreme Court would rule in the ultimate issue, which is, I believe, correctly stated as may a state impose additional requirements on arbitration clauses in contracts where those - and I am going to show my own predisposition - where those conditions do not appreciably burden the rights under the FAA and where they are consistent with the purposes of the FAA.  And, by the way, the Ninth Circuit found that the contracted issue did not contain those state-mandated requirements.

 Andrew J. Pincus:  You are obviously a lot more familiar with the case than I am.  I guess I can give you a couple of reactions and I apologize; I do not know the details of the statute.  Obviously, the preemption question is whether there is a conflict between the field that the federal statute preempts and what the state is trying to do. 

It is interesting because my immediate reaction to what you say is if this provision is in the state law, it is pretty clear that the state did not anticipate making everyone go through arbitration because, otherwise, it would not have had this provision in its statute.  I mean, making everyone go through the administrative process because, otherwise, it would not have had this provision talking about what would happen when there were arbitrations.  I think the preemption question will be, is this something that is within the field that Congress intends to preempt that not obviously relates to how it relates to the arbitration process.

 Karen Schwartz:  Oh, I will just leave it on for convenience.

 Peter J. Wallison:  Okay, any other questions?  Wait for the mic, please, and identify yourself.

 Ilya Shapiro [phonetic]:  Ilya Shapiro from Cato Institute.  A couple of you have mentioned that the business cases of last term were moving in the direction that Chief Justice Roberts wanted in terms of judicial minimalism or modesty.  I am wondering how to square that with blockbusters like Twombly and Leegin, some of the others.  I mean, you have Philip Morris was kind of a minor punt, not really deciding either way.  But is judicial minimalism a growing or definite theme in the Roberts Court’s business docket?

 Maureen Mahoney:  I am not sure if I used that term.  I do not think so; I did not mean if I did.  I do not think minimalism is the benchmark.  I think, instead, what you see, at least, in the statutory cases, you see this notion that we are not going to go beyond the language; we are not going to give remedies beyond what exist.  Is that minimalist?  I do not think so.  It is just statutory interpretation and I think that Twombly is an example, as Andy said, and also Leegin.  These are areas where the Court has its own policy making authority to interpret these areas of law. 

Similarly, in some of the patent cases, too, where the standards are not -- they are not actually interpreting some language that Congress has given them to deal with.  They are exercising that decision making within those policy realms in ways that are rather bold.  We cannot say this is just Roberts by any means; I mean, the opinion in Twombly, for instance, was written by Justice Souter.  So I think it is a pretty shared view that when they have got the opportunity they are going to use it in a way that makes sense.  And, maybe, the reason we notice so much of it last term is just that they took more of these cases than they typically do.

 Peter J. Wallison:  Michael?

 Michael S. Greve:  I entirely agree with what Maureen said.  The way I would phrase this -- there are two issues.  One is the Court’s own doctrines and the second is its attitude or position vis-à-vis its monitoring problem, and litigation that goes on in the lower courts.  On the second issue there, the fact is that the trial lawyers, trial bar, would be taking it on the chin and that the Court is very, very attuned to the real costs of having a litigation system that systematically drums more cases into the system, including frivolous cases.  So that is one, but that is a very -- and there I agree entirely with what Andy said before and what Ted said.  That is a very, very different question from the court’s own doctrines and its own attitude vis-à-vis both the Congress and with respect to its own precedents.

 Peter J. Wallison:  Let me just mention one point here, and that is minimalism in the Court may be somewhat different when it deals with substantive matters rather than when it deals with procedural matters, it seems to me.  For example, class actions under 10b-5, which I happen to have looked at a little bit -- are judge made -- the Congress never approved and never authorized class actions under 10b-5.  It is done by the courts- - combination of a court in 1946 saying that there ought to be a class action here, and then the rules of civil procedure changing in the ‘60s which allowed people to opt out of a class action.  If they did not opt out, the class went forward.  And so it created gigantic classes that have been exploited by the trial bar.  So is it minimalist if the Supreme Court allows this to continue by not asserting itself?  Or is it the appropriate thing for a court that is in charge of the litigation system, in a sense, in the United States to intervene in a case like this and make clear what it thinks ought to be done in the litigation system? 

I think that is part of what Michael was suggesting because Congress does not appear to be able to deal with it.  We have to look differently at this when it is dealing with procedural issues rather than when it is dealing with substantive issues.  Oh, we got more questions, wonderful.  Okay, way in the back please.  Identify yourself.

 Bonnie Wachtel [phonetic]:  My name is Bonnie Wachtel.  Question for Michael Greve.  I see in the background of everything you are discussing the increasing concern with international competition and globalization, which helps along --that, is, in fact, a principal tailwind for the business community, both in Congress and in the courts, despite the prospect of the trial lawyers and everything else.  And this is only going to become increasingly important.  So we do have that going in our favor. 

Now with that as background, I was taken by your comments when you said the business community really ought to start thinking this through - what is their strategy?  What are their priorities?  Where are they trying to go?  And, of course, your writing always has this great interesting conceptual framework and, in a sense, trying to put that forward.  Here is the question:  Exactly how do they go about doing that?  I mean, what is the institutional framework in which the business community has sort of writ large, decides, “All right, this is going to be our general plan of attack and priorities.”  A place like AEI, I know it is very helpful in terms of setting that out, but do you have any specifics as to where to go?  And feel free to go into your rant about the state AGs.

 Michael S. Greve:  I thought you meant some other rant, and I have a lot of those.  First, I entirely agree that the international competition is a tailwind.  To speculate - this is one area where the justices’ exposure and summer travels on international circuits actually helps us.  They see some -- well, they are exposed to foreigners and including foreign businessmen, think about the civil justice system in the United States and that cannot but help us.  With respect to your question, what is the appropriate forum for the business community to press these larger concerns, I do not know.  It is very hard to do because the people have so much at stake.

Let me just say this -- give you one example of this.  And I am choosing this now because it is both very prominent in the upcoming term and because it is a recurrent theme that cuts across many industries, and that is this preemption issue.  So long as the Court looks at this as, “Here is a case about the Bolt Act and here is a case about the FDA and here is another case about NHTSA.  We will do this on the basis of what some Congress in 1968 might have thought about problems that it acknowledged to -- we never thought about” -- so long as that happens, we are going to be dead. 

Somebody has to explain to the Court, “Here is an” -- and I can give you examples of cases that went south precisely because they focused on an individual statute and this counterfactual question of what Congress might have thought.  Somebody has to explain to the Court: “No.  There has to be some general theories, some general principles that organize this field.  You cannot wing your way through this in the fashion in which you do.”  Whoever that is - the Chamber of Commerce or somebody else - would have to build credibility over time.  It cannot look like, “Oh, here is another brief on somebody who wants to save himself some money.”  It will be very hard to do, but that is where I would look.  It seems to me amicus briefs are a forum where [audio glitch] lay out the broader issues that are at stake in contrast to repeating in a slightly different forum stuff that the parties in the case will say in any event.

 Bonnie Wachtel:  Do you think those broader issues are being adequately briefed?  Is this message of the broader context of these specific legal issues getting them to the court?

 Maureen Mahoney:  Well, I would say that there is certainly -- I do not think on a really global kind of way but certainly the business community has taken certain important issues and focused on them in a pretty coherent long term way, punitive damages being the best example.  It is not just one case at a time with organizations like the Chamber; they really try to spot cases; they try to help along the way; they try to bring the right cases to the Court -- the Washington Legal Foundation in a variety of areas.  So it is not a master plan but there certainly are a number of efforts that are coordinated in the long term that, I think, have borne real fruit for the business community.

 Andrew J. Pincus:  Yeah, I think Maureen is absolutely right about those organizations and the good work they do.  I think on preemption, to pick a topic, this is not a Court that is going to adopt -- say, “We do not care what Congress did.  We are going to adopt a general rule of preemption.”  That is the opposite of where they are right now.  There are people who believe if there is going to be a general rule of preemption that is Congress’ job; it is not our job. 

And I think convincing the Court to do that would be quite an uphill struggle.  Take the commerce clauses in the area, for example, where it is not universal preemption but it has certainly been a very important principle in terms of promoting interstate markets and discouraging discrimination in favor of instate interests.  The commerce clause is not on the ropes but it certainly is not going to be extended by the current court because a number of justices feel that it is not their job to make those kinds of policy choices. 

Just to talk for a minute about the broader question of preemption, it is very interesting if you think about the United States versus the European Union.  The European Union has a very good structure for limiting local regulation, or for restricting local regulation, so that it can only occur within certain parameters that allow the construction of the internal market.  If you look at the two legal systems right now, they are way ahead of us in their ability to construct a unified market so that European businesses who have that as their home turf have a much less regulation -- at least much less of a burden of conflicting regulations; there might be more overall regulation in some areas but at least it is pretty uniform.  And we, on the other hand, do not really have any device in our system for sharing regulatory authority in an efficient way or for limiting state regulation. 

I think part of what has to happen is a real conversation about the impact on U.S. competitiveness broadly of a system where the choice is between total preemption, which politically a lot of people do not favor, or letting 50 flowers bloom, which has real problems.  If you are a U.S. business and your home market is so fractured and is so burdened, the costs that that impose are going to hamper your competing internationally.  But we really do not have that kind of conversation and think of ways to deal with it that take account of the fact that the political reality is that the groups that oppose preemption are quite powerful in the business community’s traditional home turf. 

 Michael S. Greve:  I will make this very brief.  I do not agree with Andy at all.  This is not where the Court is and making it go and making it move will be a very hard thing.  But I am a rat choice guy, right?  If it were easy, it would already have been done.  Anything that is worth doing will be difficult.

 Peter J. Wallison:  One other thought on this subject and that is that the Supreme Court actually does read.  It reads the newspapers; it travels, as Michael suggests.  These are human beings who listen, and it is peculiar that there has been a lot of attention paid in the last six or eight months to the question of excessive class actions in the United States and what effect this is having on our economy.  There have been at least three reports; there will be another one out shortly on this subject. 

At the same time as this is happening, the Supreme Court is beginning to do things that reflect, at least to some of us who are optimistic about these things, a concern about this.  They are taking the Stoneridge case, for example, as you will hear next Friday -- if it comes out the right way, it will be a major step in the Supreme Court saying, “No, no, no.  We are not going to allow class actions to expand any further than they are.  And, in fact, we are trying to restrain them as much as possible.” 

Why are they doing this?  The only reason that I can see is that they are seeing in all the turbulence and talk that is going on in the press and elsewhere some real concerns about the effect that these things are having on the economy.  So it is a very complex process that this does not always involve filing amicus briefs with the court.  They are seeing things in the popular press that are really, I think, influencing them.

 Maureen Mahoney:  But they did exactly the same thing in the Central Bank case, which was how many years ago now?  They really reached out for that issue to illuminate the aiding and abetting liability.  It was not squarely presented by the petition.  They jump out; they take it.  It has just been happening for quite a while.

 Peter J. Wallison:  Well, actually, yes.  In fact, the Court has had about a half-dozen decisions since the 1970s in which it has tried to cut back on class actions, especially in the 10b-5 area, and unsuccessfully.  So at some point they jumped in again and in a series of decisions they tried to limit it even further.  But it is a very blunt instrument.  My point is simply that they are listening and it is not just through people approaching them directly through the legal process but, rather, approaching them through the kind of information that is available generally.  We have one more question over here and then we will have to end it.

 Allison Hayward:  Hi, Allison Hayward, George Mason Law School.  What Peter was saying earlier about the differences between procedure and substantive cases got me wondering what the panel might think of the Court’s unwillingness to step in and clean up lower court-made messes in procedural interpretation like personal jurisdiction.  I do not know what purposeful availment means and I do not know what forseeability means and no one has known for how many years now -- 15?  So circuits are going their own way; I think this is fairly fundamental.  It is very much an “eat your vegetables” kind of topic and I just do not know if that is the kind of thing that even now will grab a more business-sensitive Court, or if this is something that just goes by the by.  I am wondering what you thought.

 Andrew J. Pincus:  Well, I think that is an issue that people have tried to bring before the Court and it has not really been interested.  I do not want to have a long answer to this question because people actually -- part of the question is how does the Court select its docket?  Is that process really conducive to identifying legal issues that are important when, increasingly, importance does not necessarily mean how many times is the issue litigated in the courts because it could have a real primary effect on primary conduct or even how have the courts of appeals disagreed on it. 

Part of the interesting question for the Court, as our legal system has become so expensive that a lot of things either never get there or settled, is how does it figure out when, essentially, the principal people who are working on that are 28 -- 7- year-old law clerks?  How does it figure out whether something is important when the objective indicia it has used in the past might not be the best guide to what is important now?  And that is a big challenge for the Court.

 Michael S. Greve:  I agree with that, too.  Just to rephrase this, they are not going to touch personal jurisdiction issues, at least, not in any systematic way.  There are other issues - choice of law issues - that they are also not going to touch.  The last choice of law decision they handed down was unanimous and it held: “We decline to follow the constitutional course.”  That was from Justice O’Connor; that would make a fine epitaph for the [laughter in the background]. 

And the reason is that these are areas where they think -- I think everything will be standard-less.  It will just be multifactor this, that, the other thing; nobody has a coherent theory, right?  These fields of law have a history and it was not a happy history, so it was just as well for them to get out of it.  They do not have any conceptual apparatus to get back into these areas and until and unless somebody gives them that apparatus, they will not.

 Peter J. Wallison:  Okay, well, I think -- do you have a question?  Oh, okay.  I think we have come to the end of a wonderfully interesting session. 

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