Freedom Line Blog

The Center for Individual Freedom (CFIF) today joined a coalition made up of more than two dozen free-market organizations on a letter urging Congress to use the Congressional Review Act to reverse a new rule by the Consumer Financial Protection Bureau (CFPB) that prevents financial services companies from using arbitration to resolve customer disputes.

The letter, which was organized by the Center for Freedom and Prosperity, can be read in its entirety here (PDF).

In this installment of the Freedom Minute, the Center for Individual Freedom’s (“CFIF”) Renee Giachino discusses our nation’s growing epidemic of frivolous patent litigation by illegitimate parties who hope to score “jackpot jury” verdicts or simply frighten legitimate patent holders into costly out-of-court settlements to avoid catastrophic litigation costs, and the bipartisan effort in Washington,  DC, to help address the problem.

As we enter 2016 and the presidential race accelerates, it can be tempting and even entertaining for conservatives and libertarians to find themselves divided on an array of issues, from foreign policy to immigration reform to how to improve our tax code.  Respectful debate and disagreement on such matters is both healthy and necessary.

On another issue, however, there should be little disagreement:  the desperate need for litigation reform in America.  That includes patent litigation reform, particularly in light of the fact that , as Wall Street Journal legal reporter Ashby Jones reports, 2015 just witnessed a 25% increase in patent suits in a single year:

Patent litigation brought by so-called ‘non-practicing entities’ continued to flourish in 2015, according to a new study, despite repeated attempts to curtail it.  According to the report, released Monday by RPX Corp., NPEs filed over 3,600 patent cases in 2015.  NPEs, also referred to derisively as ‘patent trolls,’ buy up patents and seek to make money from them through licensing and litigation.  NPEs filed 3,604 cases last year, a sharp increase over 2014, in which NPEs filed 2,891.

Fortunately, a large and bipartisan majority in Congress has recognized the need for patent litigation reform, which CFIF has strongly and consistently supported:

To address those widespread problems in our current patent litigation system, while also protecting legitimate patent claimants, Congressman Robert Goodlatte (R – Virginia) has reintroduced the Innovation Act.   Identical legislation passed the House approximately one year ago by a lopsided 325 to 91 vote, and nothing has changed since that date to justify a reversal.

The bill narrowly targets patent litigation abuses, primarily by introducing several key reforms to the patent litigation process.  Those reforms include:  (1) Greater ability to shift costs and fees to improper litigants than the current system provides;  (2) Heightened pleading standards that require greater clarity and justification for the lawsuit itself;  (3) Greater transparency regarding true owners of disputed patents;  and (4) Much-needed streamlining of the discovery process during litigation, which often imposes oppressive burdens in time and resources upon respondents.

Unfortunately, some opponents of reform have resorted to claiming that patent litigation reform would somehow undermine patent rights or intellectual property rights more broadly.  That is simply not the case, as we have explained exhaustively.  We at CFIF stand among the strongest proponents of IP protections, and we would not support any cause that undermined them.  The reality is that the bills we support target patent litigation abuse, not substantive patent rights themselves.  The Innovation Act, for instance, simply requires that losing parties in a patent lawsuit demonstrate “that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.”

That is not a difficult hurdle to clear.

Accordingly, opponents of patent litigation reform must answer why requiring parties who resort to costly and protracted litigation to show that their claim is “reasonably justified in law and fact” is somehow unfair or excessively burdensome.   They cannot, and there is simply no reason for further delay in achieving patent litigation reform legislation in 2016.

Private arbitration and other forms of alternative dispute resolution provide important alternatives to traditional court litigation, and this week the U.S. Supreme Court delivered an important and welcome victory against trial lawyers and liberals who seek to undermine them.  The ruling is particularly notable for the fact that even liberal justices Breyer and Kagan joined in the 6-3 majority.

The case originated from an agreement between DirecTV and customers under which the parties agreed to a class action waiver and to resolve any disputes through private arbitration.  Although pro-trial lawyer California state law made class action waivers unenforceable, the Supreme Court had rightfully ruled in 2011 that the Federal Arbitration Act preempts such such state laws.  In the instant case, the California courts nevertheless attempted to circumvent that 2011 ruling, but the Supreme Court was having none of it.

For their part, liberal justices Ginsburg and Sotomayor did their best Bernie Sanders and Occupy Wall Street impression.  Their dissent is worth citing simply because of its self-evident reliance upon class warfare and leftist economic policy over objective, sober legal analysis:

It has become routine, in large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no-class-action arbitration clauses…  I would read it, as the California court did, to give the consumer, not the drafter, the benefit of the doubt.  Acknowledging the precedent so far set by the Court, I would take no further step to disarm consumers, leaving them without effective access to justice.”

First and foremost, Justice Ginsburg’s claim is incorrect as a matter of fact.  Arbitration and alternative dispute resolution don’t deprive anyone of justice.  They simply move the parties away from more expensive and tedious traditional litigation in overcrowded court system, and toward fair, speedier and less-burdensome resolution by an arbiter (usually an experienced judge) selected by both parties.  Second, Justice Ginsburg’s argument rests on sentiment and her own policy preference rather than law.

Accordingly, the Court’s ruling constitutes a critical loss for the powerful trial lawyers’ lobby, which essentially by definition makes it a critical victory for Americans more broadly.

In an interview with CFIF, Bob Dorigo Jones, Senior Fellow for the Center for America, discusses lawsuit abuse, the need for tort reform and the finalists in the 18th Annual Wacky Warning Labels Contest, the winners of which will be announced today on John Stossel’s show on FOX Business News.

Listen to the interview here.

The 2010 BP oil spill in the Gulf of Mexico is by now a fading memory for most Americans.  The U.S. Supreme Court, however, will soon decide whether to hear a case stemming from the spill that could, at long last, restrain abusive trial lawyers who game our legal system.

The case involves BP, which immediately accepted responsibility for the spill and asked attorney Kenneth Feinberg to handle claims on a rapid and completely independent basis. Ultimately, Feinberg ordered more than 200,000 payments totaling $6 billion over 16 months.

The problem at issue arose when opportunistic plaintiffs’ lawyers decided that they weren’t receiving their customary windfall.  Consequently, they rushed to court and demanded a class-action settlement, which a federal district court in Louisiana granted.

Then the court appointed a well-connected local Louisiana lawyer to administer claims for what are broadly categorized as “business economic losses.” For example, a restaurant owner on the coast could demonstrate damages by comparing pre-spill revenues and profits versus post-spill revenues and profits. Victims who could establish a decline in revenues and confirm a causal connection between the losses and the spill itself, were entitled to payment.

Unfortunately, the claims administrator also steered vast sums toward businesses whose losses clearly had nothing to do with the spill. BP’s lawyers cite 64 representative examples of such abuse in their writ to the Supreme Court, including:

• A real estate rental company that leased properties to two Saturn dealerships, which both went out of business because GM stopped making Saturns in 2009, put in a claim and received $238,000.
• A group of emergency room physicians received $2.3 million after claiming that revenues dropped sharply, but that decline resulted not from the spill, but from a one-time earnings adjustment to accounts receivable over a period of five years.

BP appealed the awards to the Fifth Circuit, but lost in a sharply-split decision. Judge Edith Clement, a highly-respected appellate judge appointed by President George W. Bush, minced no words in her dissent.  She warned that the judiciary itself was becoming a “party to the fraud” against BP

Citing Judge Clement, Cardozo School of Law professor Lester Brinkman, a premier authority in the academic study of plaintiffs’ lawyers, wrote, “Make no mistake; fraud it is.  The settlement agreement entered into by BP to provide compensation to those that suffered loss from the spill, states that in order to be eligible for compensation, claimants must affirm under penalty of perjury, that they suffered ‘damages arising from’ the Deep Water Horizon incident.  But the Louisiana legal system has obliterated these words from the agreement.”

So why should informed citizens care? After all, BP admitted to doing great damage to the Gulf of Mexico.

We should care because if the abusive and greedy plaintiffs’ lawyers triumph in this case, few restraints will remain. If ever there was an example of discarding the rule of law in favor of enriching a politically-powerful group, this case is it.

At issue in this case is a straightforward proposition. Namely, a class-action settlement is grossly inappropriate where large numbers of that supposed class have even not suffered harm. That seems elementary

Unfortunately, different federal courts of appeal have ruled inconsistently in similar cases. That inconsistency alone constitutes one reason the Supreme Court could and should accept the case. Another reason is the important and fundamental legal issue at stake: people who haven’t suffered actual harm should not receive unjustified windfall damages.

Whatever one thinks of BP, the case now before the Supreme Court is a critical one, and its legal position is the correct one. Accordingly, the Justices should take the important step of granting cert.

Jonathan O. Harris, a shareholder in the Nashville (TN) office of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., discusses how overly permissive pleading standards unfairly permit and encourage plaintiff abuse and the arguments contained in CFIF’s legal brief urging the Tennessee Supreme Court to adopt pleadings standards to reduce lawsuit abuse.

Listen to the interview here.

In a recent interview with CFIF, Contest founder and bestselling book author Bob Dorigo Jones shares the results of the 13th Annual Wacky Warning Labels Contest and discusses America’s lawsuit-happy culture and the lengths to which companies must go to avoid being sued.

Listen to the interview here.