Alison Frankel

On Wednesday, the Food and Drug Administration announced that the government has decided not to seek review of a landmark 2012 ruling by the 2nd Circuit Court of Appeals in U.S. v. Caronia. As you probably recall, a split 2nd Circuit panel held in December that the First Amendment protects truthful speech about the off-label use of FDA-approved products, finding that the misbranding provisions of the Food, Drug and Cosmetic Act do not prohibit off-label marketing, as long as it’s not misleading. Wednesday’s announcement by the FDA means that in New York, Connecticut and Vermont, pharmaceutical and medical device makers can give physicians information about their products that they can’t discuss in other states without risking prosecution.

That disparity would have been a good reason for the government to seek en banc or U.S. Supreme Court review of the 2nd Circuit panel’s Caronia ruling, said Jeffrey Senger of Sidley Austin, a former deputy chief counsel of the FDA. Senger told me Thursday that the Justice Department, which litigates on behalf of the FDA, undoubtedly considered whether it had a responsibility to ask the entire 2nd Circuit or the Supreme Court to clarify what pharma companies can and cannot say about their products. (Former healthcare fraud prosecutor Michael Loucks, now at Skadden, Arps, Slate, Meagher & Flom, told me the same thing when the Caronia ruling came down last month. “There’s a downside to the pharmaceutical industry and to society if the Justice Department shies away from further review,” Loucks said. “It’s not helpful to drug or device companies to have a lack of clarity. It’s also not helpful to the Justice Department.”)

But there was also a downside for the government in pursuing the Caronia appeal — especially because the Supreme Court made it clear in a 2010 case called Sorrell v. IMS Health that pharma marketing is “a form of expression protected by the Free Speech Clause of the First Amendment.” Sorrell involved a Vermont law restricting the sale of pharmacy prescription records, not off-label marketing. Nevertheless, the ruling is considered a good indicator of the justices’ likely view of the issues in Caronia. And losing at the Supreme Court would extend Caronia’s reasoning beyond the confines of the 2nd Circuit, which is just what the Justice Department doesn’t want. “I think the government had a very substantial risk of losing at the Supreme Court if they had appealed,” said Senger, who added that the decision to forgo an appeal did not surprise him.

Just filing a petition for certiorari would have sent a message the Justice Department wants to avoid, Senger said. Cert petitions typically urge the justices to review cases because of their national significance. That would undermine the government’s depiction of Caronia as a narrow decision that will not affect its prosecution of off-label marketing cases. Indeed, the FDA statement on the decision not to appeal the 2nd Circuit ruling said that the FDA does not believe Caronia will “significantly affect the agency’s enforcement of the drug misbranding provisions” of the Food, Drug and Cosmetic Act.

Senger said the Justice Department can work around Caronia by charging off-label marketing defendants with making false and misleading statements, which are not protected by the First Amendment. Whistle-blower lawyers have told me that it’s rare for the Justice Department to bring cases based only on truthful statements about off-label drug efficacy, so restricting prosecution to false marketing may not hinder the government.

Last week, the court-appointed mediator in the consolidated Avandia marketing and product liability litigation against GlaxoSmithKline informed U.S. District Judge Cynthia Rufe of Philadelphia that 58 plaintiffs’ firms in the case have agreed to an allocation plan for $143.75 million in common-fund fees. As mediator Bruce Merensteinof Schnader Harrison Segal & Lewis described the process, nine law firms objected to the initial allocation plan proposed by a Rufe-appointed fee committee. After a dozen phone calls and 15 in-person sessions over the last few months, members of the fee committee adjusted their own take to bring the objectors on board. In the final allocation outlined in Merenstein’s report, the biggest share of the common fees, $22.6 million, will go to Reilly Pozner. Wagstaff & Cartmell is in line for $17.2 million; Andrus Hood & Wagstaff for $14.7 million; and Miller & Associates and Heard Robins Cloud & Black for more than $10 million. The Miller firm was an objector to the original allocation plan, but all of the other firms looking at eight-figure awards from the common fund were on the fee committee.

Keep in mind that the common-fund fees are on top of whatever contingency fees the plaintiffs’ firms will receive as a share of their clients’ settlements with GSK over the diabetes drug. Rufe ordered last October that all of the plaintiffs in thousands of settled (and later-settled) cases must pay 6.25 percent of their settlements into a common fund to compensate the lawyers who worked on behalf of all Avandia plaintiffs in the consolidated litigation. If you do the math, that reflects a total of $2.3 billion in Avandia settlements by GSK (Rufe doesn’t cite the total but based her order on an aggregated estimate calculated by a plaintiffs’ expert.)

So what, you may be wondering, is the total percentage of that $2.3 billion that will go to plaintiffs’ lawyers? We don’t know. And that’s why the Avandia litigation model, which GSK previously employed in the Paxil litigation, could be a boon to plaintiffs lawyers.

Jon King, a California lawyer who was a founding partner at Michael Hausfeld’s eponymous antitrust shop but was fired from the firm last October, spares no accusations in the 78-page wrongful termination complaint he filed last week in federal court in the Northern District of California. The suit is a compendium of supposed misbehavior by Hausfeld and some of his partners, allegedly committed under the pressure of financial straits. I’m not sure how much fire underlies the clouds of smoke from King’s red-hot complaint, but Hausfeld has made enough enemies and is leading enough big cases — including a potentially gargantuan investor class action against the banks that allegedly manipulated Libor rates — that the suit is going to be the talk of the antitrust bar.

I want to say up front that I emailed Hausfeld, asking him to address some of the specific accusations in King’s complaint. I did not receive a reply from him, but a representative sent an email statement: “This is an employment grievance from a former partner of Hausfeld LLP,” it said. “The firm separated with Mr. King for good reason, and the allegations made by him are baseless. We abide by the highest ethical standards and will defend our reputation vigorously.”

So keep Hausfeld’s denial in mind as you consider King’s allegations that the firm took financial advantage of co-counsel in litigation over the unauthorized use of likenesses of college athletes in videogames; courted Asian electronics companies to be plaintiffs in one antitrust case even as the firm litigated against them in another action; tried to undermine client development efforts by co-counsel; and signed the name of a famous client — NFL Hall of Famer Elvin Bethea — to a letter he did not write or support. Individually the accusations may not amount to much, and there’s a lot in King’s kitchen-sink complaint that, quite frankly, seems intended to tar the reputation of some Hausfeld partners rather than to bolster King’s argument that he was fired for blowing the whistle on the firm’s unethical practices. But the complaint includes enough details about the founding and operation of Hausfeld LLP to be a fascinating inside look at the firm.

If ownership of a valid patent can’t help you stop a competitor from selling products that incorporate your proprietary technology, then — according to an extraordinary new filing by Apple – there’s something seriously wrong with the patent system.

Apple has asked the Federal Circuit Court of Appeals to bypass standard operating procedures and commit the entire court, rather than a three-judge panel, to reviewing its bid for a post-trial injunction barring the sale of Samsung devices that have been found to infringe Apple patents. U.S. District Judge Lucy Koh of San Jose, California, who presided over the trial of Apple’s claims against Samsung last summer, refused last month to grant Apple a permanent injunction, citing the Federal Circuit’s October 2012 ruling in yet another Apple case against Samsung. Though Apple has already petitioned for en banc review of that ruling, which involved a pretrial injunction, its new motion argues that the standard for injunctions is even more important when a patent holder has already gone through trial and established the illegal conduct of its competitor. The entire Federal Circuit, Apple contends, must clarify whether the appeals court really intended to contradict its own and U.S. Supreme Court precedent and make it “all but impossible” to obtain a permanent injunction in a smart-device case.

The brief includes an unusually blunt discussion of how injunction motions shape patent litigation — and why they’re such a powerful weapon for patent holders. “The injunction standard defines a patentee’s rights as against a competitor and affects numerous strategic decisions in a patent case, including whether to file, what patents to assert, what discovery requests to make, what consumer survey questions to ask, what issues to put to a damages expert, what questions to ask at depositions, what patent claims to advance at trial, and whether and when to settle,” wrote Apple’s lawyers at Wilmer Cutler Pickering Hale and Dorr and Morrison & Foerster. If the Federal Circuit takes away the possibility of a permanent injunction, Apple argued, that leaves patent holders only with the chance to obtain money damages, which their competitors will come to consider just a cost of doing business. “If that is indeed the law,” Apple’s brief said, in language that sounds like an overt challenge to the Federal Circuit, “patent rights will be greatly diminished in value.”

Vernon Hugh Bowman is the rare Indiana soybean farmer destined for immortality as a U.S. Supreme Court caption.

Bowman had the temerity to attempt to outwit Monsanto, the giant agriculture company that, as you surely know, invested hundreds of millions of dollars and years of research in the creation of soybean seeds that are genetically modified to withstand the herbicide glyphosate, which Monsanto markets as Roundup. The genetically modified seeds, according to the Supreme Court brief Monsanto filed Wednesday, have been such a hit with farmers that more than 90 percent of the U.S. soybean crop begins with Monsanto’s Roundup Ready seeds. Given that every soybean plant produces enough seeds to grow 80 more plants — and that soybeans grown from Roundup Ready seeds contain the genetic modification of glyphosate resistance — Monsanto has insisted that farmers sign licensing agreements with strict restrictions. Soybean producers are only supposed to use the Roundup Ready seeds they buy to grow crops in a single season, and they’re forbidden from planting second-generation seeds harvested from first-generation crops.

The licensing agreements do contain an exception, though: Farmers are allowed to sell the second-generation seeds to grain elevators, which, in turn, are permitted to sell a mixture of undifferentiated seeds as “commodity grain.” Monsanto contends that commodity grain should be used for feed, not cultivation. But Bowman figured that the mixture sold by grain elevators probably contained mostly Roundup Ready seeds, so for several years, after harvesting his first crop (planted with authorized, Monsanto-licensed seeds), he planted a second crop with commodity grain. When he treated the second crop with herbicide, he was proved right — most of the plants were resistant.

I did a double take Wednesday, when I noticed a pair of new suits by Lehman Brothers Holdings in federal court in Colorado. The complaints, which are almost identical, claim that the mortgage originator Universal American Mortgage breached representations and warranties about loans it sold to Lehman, which subsequently suffered losses as a result of those breaches. But here’s the thing: Each suit addresses only one supposedly deficient loan! Lehman’s lawyers at Akerman Senterfitt allege that Lehman sustained about $100,000 in damages on one of the loans and $120,000 on the other — numbers that are light years apart from the multibillion-dollar claims we’ve seen from groups of mortgage-backed securities investors who band together to assert contract breaches in thousands of loans at a time.

The Lehman complaints each also contained a curious paragraph, noting that the claims at issue were previously asserted as counts in an eight-loan put-back case Lehman was litigating in federal court in Miami. The judge in that case, Lehman said, had decided after a pretrial conference last week that “each loan must be filed separately, rather than joined within one action.”

That notation sent me to the docket in the Florida case, and to the order entered by U.S. District Judge James King on Jan. 9. It’s true: King ruled that every allegedly deficient loan has to be addressed in its own suit, not in a block case. “The lack of commonality among the various factual circumstances pertinent to each of the eight individual loans makes them all but impossible to be adjudicated together,” King wrote. “That lack of commonality flows from, among other things, the facts that each of these loans was made at a different time, to different borrowers, in different locations involving different purchases of different real properties; most fundamentally, each loan requires separate proof as to whether a breach occurred, what damages, if any, flowed from any such breach, and what the amounts of any such damages are.”

Back in October 2011, New York State Supreme Court Justice Shirley Kornreich issued a pair of strange decisions in parallel cases against Credit Suisse by the bond insurers MBIA and Ambac. The monolines, both represented by Patterson Belknap Webb & Tyler, had sued the bank in 2010, asserting claims for both fraud and breach of contract in connection with Credit Suisse mortgage-backed securities they agreed to insure. Kornreich had previously dismissed the fraud counts, holding that they merely duplicated the monolines’ contract claims. But that ruling put her at odds with at least six other state and federal judges, and when the New York Appellate Division, First Department, affirmed the consensus view in a different case, Kornreich had little choice but to reinstate the Ambac and MBIA fraud claims. As expected, she did so in those October 2011 decisions.

But what Kornreich gave the bond insurers with one hand, she took away with the other. In the same 2011 decisions, the judge ruled that Ambac and MBIA had waived their rights to a jury trial in the contracts they signed with Credit Suisse. That meant that she, rather than a jury, would decide the merits of those newly reinstated fraud allegations — and she didn’t think there was much merit to them. Kornreich’s decisions said that Ambac and MBIA couldn’t just point to the MBS offering materials and claim they were duped. Credit Suisse, she said, had offered ample notice of potential weaknesses in the underlying loan pool. To prove fraudulent inducement, she ruled, Ambac and MBIA would have to show that the bank engaged in outright deception.

The judge did order discovery on the bond insurers’ fraud claims, though not much has taken place. In the meantime, Ambac and MBIA appealed Kornreich’s holding that they’d waived their right to a jury trial. They argued that the waiver should not apply, since it was part of a contract they claimed they’d been fraudulently induced to enter. Credit Suisse, represented in both cases by Orrick, Herrington & Sutcliffe, countered that although New York law does hold that contract waivers are not enforceable when a plaintiff is suing to invalidate the contract, Ambac and MBIA are not asking for rescission of the contract, but only for money damages. In that circumstance, Credit Suisse said, Kornreich correctly ruled that the bond insurers don’t have the right to trial by jury.

Amid the furor last week over whether AIG would thumb its nose at its federal rescuers and join former chairman Hank Greenberg’s $25 billion constitutional case against the United States, a curious side deal by AIG and Greenberg’s Starr International was mostly overlooked. Last year, as government lawyers prepared motions to dismiss Starr’s suits against both the United States and the Federal Reserve Bank of New York, AIG signed an agreement with Starr that kept the insurer out of the fray — even though one of the most powerful defenses against the claims Starr was asserting on behalf of AIG was that Greenberg’s lawyers had served the requisite presuit demand on the corporation’s board.

We still don’t know exactly why AIG agreed to the side deal with Greenberg and we probably won’t ever get a direct answer now that AIG is out of the case. (AIG’s board voted Wednesday to stay out of Starr’s Fifth Amendment “takings” case and Starr lawyer David Boies of Boies, Schiller & Flexner subsequently said Greenberg won’t sue the board for breach of duty.) But a filing Friday by AIG shows that the insurer has its own megabucks dispute under way with the Federal Reserve. That could be one of the reasons AIG didn’t help the government defend against Starr’s suits — and, more importantly, at this point, it could affect AIG’s $10 billion claims against Bank of America, as well as BofA’s proposed $8.5 billion breach-of-contract settlement with holders of Countrywide mortgage-backed securities.

AIG’s new filing, styled as a New York State Supreme Court complaint against the New York Federal Reserve’s Maiden Lane special purpose vehicle, requests a declaration that in 2008, when the Fed paid $20.8 billion to acquire AIG’s mortgage-backed portfolio through the Maiden Lane vehicle, Maiden Lane did not acquire AIG’s rights to sue MBS issuers for securities fraud. (The Fed has since sold off the Maiden Lane MBS portfolio, at a profit of more than $2 billion.) The complaint explains that the suit is a response to recent declarations by Fed officials in AIG’s case against Countrywide, which (as I’ve told you) Bank of America has moved to dismiss on the grounds that the Fed, and not AIG, owns the fraud claims AIG has asserted.

If ever there was a corporate board that should have been worried about breach-of-duty accusations, it was the directors of Countrywide in 2007 and 2008, after the collapsing real estate market exposed fatal flaws in the mortgage lender’s business model. Shareholder lawyers, always quick to sense opportunity in corporate scandal, began to file derivative suits accusing Countrywide directors of countenancing fraud in the fall of 2007. By May 2008, the cases had been consolidated in federal court in Los Angeles, and lead counsel at Bernstein Litowitz Berger & Grossmann and Grant & Eisenhofer had successfully countered most of the defendants’ dismissal arguments. At that point, it appeared that the Countrywide case could turn out to be a true rarity: a derivative suit that actually generated money damages.

Then Bank of America rode in and bought Countrywide for $2.5 billion. Regardless of what you think of that acquisition, which has been dubbed the worst banking deal of all time, the merger offered at least one very distinct benefit for Countrywide board members. Because the deal was structured as a stock-for-stock transaction, the Countrywide shareholders who had brought derivative breach-of-duty claims against the board, and had survived a motion to dismiss most of those claims, no longer held Countrywide stock. That meant they no longer had standing to assert their case on behalf of Countrywide. After the merger was completed in July 2008, Bank of America, not the former Countrywide shareholders, owned claims against Countrywide board members — and BofA certainly wasn’t going to assert them, since the merger agreement specifically indemnified the board.

The merger, in other words, seemed to spell the end of the derivative suit. In December 2008, U.S. District Judge Mariana Pfaelzer of Los Angeles said as much when she dismissed the case. The judge quoted from the Delaware Supreme Court’s 1984 ruling in Lewis v. Anderson: “It is well established that a merger which eliminates a derivative plaintiff’s ownership of shares of the corporation for whose benefit she has sued terminates her standing to pursue those derivative claims.” Lewis included an exception for cases in which the entire merger is a fraud engineered to protect the board, but Pfaelzer said the fraud exception doesn’t encompass the BofA deal, in which the directors’ escape from liability was the side effect of a legitimate merger.

The first time I wrote about private antitrust claims against banks for rigging the London Interbank Offered Rate (or Libor), it was August 2011 and the judicial panel on multidistrict litigation had just consolidated 18 class actions alleging a conspiracy to manipulate the benchmark rates, which are used to set variable interest rates on all sorts of securities around the world. I titled the piece, “The megabillions litigation you’ve never heard of.”

How things have changed in the 17 months since then! The private Libor litigation still has megabillions potential, but thanks to the tsunami of Libor news in 2012, everyone knows it. The consolidated cases are proceeding in federal court in Manhattan before U.S. District Judge Naomi Reice Buchwald, who is considering fully briefed motions to dismiss by more than a dozen bank defendants. Meanwhile, new claimants have piled on. I’ve already told you about the class actions filed after the $450 million Barclays settlement last summer, which tried to distinguish themselves from the cases already under way. Now there’s another wrinkle in the private Libor litigation: On Wednesday, the counties of San Diego and San Mateo, the city of Riverside and the municipal utility district of Oakland filed simultaneous antitrust complaints in three different federal courts in their home state of California. And a lawyer from the firm that filed all of the new cases, Cotchett, Pitre & McCarthy, told me Thursday that he is hoping more California cities and counties will join in. “California public entities — that’s who we’re trying to gather up,” said Daniel Sterrett of Cotchett.

The allegations in the California suits will be familiar to anyone who has followed the burgeoning Libor scandal, in which banks supposedly falsified reports of interbank borrowing rates to a British banking authority in order to improve trading positions or avoid damaging their reputations. The new complaints aren’t even the first to mine documents released by British and U.S. regulators in connection with UBS’s $1.5 billion settlement in December. The Los Angeles County Employees Retirement Association, represented by Bernstein Litowitz Berger & Grossmann, filed a class action on Dec. 21 that included allegations based on the UBS materials. (The pension fund’s suit, interestingly, asserts only federal racketeering and California state-law claims that are not already in the ongoing class action, so at least as the original case is currently pleaded, the pension fund’s case doesn’t overlap it.)