“But is it fair?” Part 1

Today’s hearings in the Supreme Court bring back the memory of Chief Justice Earl Warren. As lawyers before him moved along, confident in the refined legal points they were making, Warren from time to time would interrupt and ask, with emphasis: “But is it fair?” That perhaps was not a question about law, but it was a question about justice. To be just, one could argue, a court decision must seem to be fair.

Charles Dickens probably had the same thing in mind when he wrote (cleverly but not originally) in Oliver Twist in 1838: after Mr. Bumble was told that, under the law, his wife acted under his direction, he retorted: “If the law supposes that, the law is a ass – a idiot.”

It is doubtful that either quotation will come up today when the Supreme Court hears the cases of San Antonio v. Hotels.com, L.P. and Minerva Surgical, Inc., v. Hologic, Inc. The San Antonio case is about the rules governing payment of the legal costs of an appeal to a higher court, and the Minerva Surgical case is about who can challenge the validity of a patent.

Let’s see if these cases can be made interesting in some way, and confront the issue of whether the outcomes, so far, seem just or fair.

The San Antonio case: For the past 15 years, the city of San Antonio has led a group of 173 local governments in Texas as they tried to collect all of the hotel room taxes that they believed they were owed. The amount due, they calculated, was about $55.2 million, but they ultimately won a judgment in a federal trial court for $84.1 million when interest charges and penalties that had built up over the years were added.

The bottom line as this case reached the Supreme Court: the cities not only lost their case when it went up to a higher federal court, thus collecting none of the taxes, interest or penalties that they had sought, but they also are now facing a court-assessed fee of $2,226,724.37 to be paid to the other side as its costs when it pursued the appeal and won. (Usually, in courts in America, each side pays its own costs, but in federal courts, fee-shifting laws sometimes allow judges to award costs to the party that wins.)

The other side in this controversy is a group of 11 online travel companies, including such well-known firms as Hotels.com, Expedia Inc., Orbitz LLC, and Travelocity.com. Under local ordinances in the Texas communities, those companies had a legal duty to collect the room taxes that occupants had paid to stay in lodgings across the state.

This case began in 2006. Although the legal issues arise under the local laws of the Texas community governments, they chose to sue in federal court – no doubt hoping it would be a more favorable forum than Texas state courts. (Issues of state or local law can be pursued in federal court when the two sides in a case are from different states. Here, the communities were in Texas and the online travel companies were based elsewhere.)

In their lawsuit, the local governments claimed that the travel firms had worked out deals with hotels across the state that it would collect and pay to the local governments only a wholesale room rate, not the full rate actually paid by the customers. The lawsuit sought payment of the full retail rate.

They won after a month-long trial; a jury unanimously ruled for San Antonio and the other local governments. The judge concluded that the travel companies should turn over $55,146,689 in unpaid room taxes. Later, the judge raised the award to the local governments to $84,123,089. (While that case was going on in federal court, the city of Houston chose to break off from the class of other suing governments, and pursued its own claim in Texas state court. Houston lost its case in two levels of state courts.)

After the travel companies appealed the San Antonio verdict to a federal appeals court, that court decided that it was bound to follow the state court ruling against Houston’s separate claim, even though the Houston case had proceeded on its own, more limited record. The appeals court overturned the local governments’ $84.1 million award. It also ordered the local governments to pay the appeals costs that the travel companies had sought, totaling $905.60.

The case then went back to the federal trial court, and the travel companies raised their demand to be paid for their appeals costs, which they figured at $2,353,294.58. The local governments asked the judge to reduce that amount significantly, but the judge said that he was bound by an appeals court precedent saying that trial judges have no authority to reduce an appeals costs award. The judge expressed some sympathy for the local governments’ argument, but said that he had no power to act.

The local governments filed a new appeal, but the appeals court ruled that it, too, was bound by its own precedent. The appeals court ordered those entities to pay the travel companies costs totaling $2,226,724.37. That was an order by a three-judge panel. By a vote of 10-6, the full appeals court refused to consider a new challenge by the local governments.

San Antonio, as the leader of the local governments, then took the dispute to the Supreme Court. It limited its challenge to the appeals court ruling that the trial judge had no discretion to reduce the appeals costs award to the travel companies as the winners of the appeal. San Antonio contended that the appeals court ruling conflicts with the views of every other federal appeals court on that point. Now that the Supreme Court has decided to sort out that conflict, the Justice Department has entered the case to support the local governments.

(The local governments appear not to have had a right to try to appeal to the Supreme Court their loss on the question of whether the hotel room taxes had to be paid in full, because that is an issue under state or local law, and the Supreme Court defers to state courts on interpretations of their own laws, unless a federal constitutional issue is at stake. None is here.)

The question before the Supreme Court: Do the rules governing federal court procedures give the trial courts the authority to reduce or deny altogether the award of costs of an appeal to the party that won that appeal?

Significance: Although clarity on that question will be important to federal court procedures in the appeals process, there is no indication of a wider significance. This one of those cases in which the facts are more interesting, generally, than the law.

A few questions to ponder:
Was the majority of the full appeals court wrong to leave intact the precedent about appeals costs despite the disagreement of all other appeals courts?

Was it fair for the travel companies to seek such a large costs award in the trial court after they had told the appeals court they were seeking only $905.60?

Were their demands for such an award sought as a way to punish the local governments for aggressively pursuing them on the tax question?

Was the appeals court wrong in failing to judge, on its own, whether the hotel taxes should have been paid, instead of relying on a state court decision to the contrary in an entirely separate case?

Was the appeals court actually bound by the state court decision under state law? And is it fair that the local governments could not take that issue to the Supreme Court?
————————————————————————————————————————————————————————
“But is it fair?” Part 2

Continuing the thought experiment on questions of fairness that lie in the background of two cases before the Justices today. The basic inquiry here is not on the specific legal questions that the Justices are being asked to answer, although those must be examined. Rather, the intended focus is on whether the process and the outcome so far – as the cases reached the Court – have the appearance of being fair and just.

It is a truism, of course, that court cases usually produce a winner and a loser (if there is a settlement before there is a ruling, though, there may be no clear winner or loser and both may or may not feel satisfied). But it is not always true, when there is a decision by a court, that it will dependably be fair to either side. As Justice Stephen Breyer is fond of saying, reaching a court decision requires judgment, the capacity to apply reason fairly to choose between alternatives. Hopefully, that will usually even if not predictably produce fair outcomes.

The cases the Court is reviewing today involve legal issues that are internally complex, and yet conclude with questions that a lay reader untrained in the law may judge to be fair, or not.

After the Court finishes hearing the court procedure case (San Antonio v. Hotels.com, L.P) this morning, at about 11:15 or 11:30, it will turn to patent law in the case of Minerva Surgical, Inc., v. Hologic, Inc. The audio portion (but not the video) of each case will be broadcast live on cspan.org/supreme court

Here, as simply as it can be stated, is the core legal question in the patent case: who can defend themselves against a claim that they infringed a patent by arguing that the patent should never have been issued in the first place? Patent law seems to say that anyone can do that, but an important federal appeals court has carved out a significant exception.

Quickly, it is important to note that this case is significant for medical science, and has particular meaning for the medical treatment of abnormal bleeding in the endometrium, the lining of a woman’s uterus.

A California inventor named Csaba Truckai – an energetic scientist and entrepreneur who has been granted scores of patents and has set up a succession of companies to seek patents and to market his medical inventions – has been working since the 1990s on devices to alleviate abnormal endometrial bleeding by a process known as ablation (surgical destruction of tissue cells). He is no longer directly involved with the companies involved in the case before the Supreme Court, but it is his inventions that are central to the case.

The invention on which he first received several patents was a device that, during the ablation, drew off moisture that could complicate the process; the device had a head that would absorb moisture, thus diverting it away from the ablation site. In 1998, he set up a company named NovaCept and assigned his patents to it. By 2001, when NovaCept got federal approval to market a device embodying those patents, Truckai was no longer actively involved in that company’s operations.

NovaCept was bought out by Cytyc Corporation in 2004, and that firm was taken over some three years later by another medical device firm, Hologic, Inc. Hologic has done very well financially selling devices based upon the original Truckai invention, and apparently has dominated this market for several years.

Meanwhile, in 2008, Truckai invented a new version of his device, and won a patent on it in 2013. Unlike the first one, his new device holds the moisture at the ablation site and was intended to achieve significantly better outcomes by doing so. Minerva would claim that this newer device had a 93 percent success rate with ablations, compared to 77.7 percent for the Hologic device based on Truckai’s first invention. The new device was said to be completely stopping bleeding twice as often as the Hologic device.

The key to this new version was a moisture-absorbing head, according to the patent he obtained on it. He founded a new company, Minerva Surgical, Inc., and assigned that patent to it. Minerva spent years testing the device, and finally won federal approval to market it in 2015; by then, Truckai had left that company. However, in the meantime, he had been hoping that Hologic would either buy the new invention or else invest in it.

That did not happen. Instead, in 2013, Hologic sought a new, continuation patent on the original Truckai invention. The application papers did not specify whether the head of the device either absorbed or transported moisture. In 2015, it got a new patent on the new claim. With that in hand, Hologic sued Minerva for infringing on that patent. A federal court in Delaware ruled for Hologic, finding infringement after deciding that the new Hologic claim covered devices with either absorbing or transporting qualities for moisture at the ablation site, even if that scope had not been spelled out in the patent papers.

In 2018, after a judge had ruled that Minerva did infringe on Hologic’s patents, a jury awarded Hologic about $4.8 million in damages. Minerva appealed to the federal appeals court that specializes in patent law (it is the only appeals court, other than the Supreme Court itself, that can decide patent law disputes). Minerva tried to defend itself, by claiming that the new patent was invalid for failure to make clear how it would handle moisture at the ablation site; that, it argued, was a core scientific factor behind either version.

In making that claim, Minerva started with a legal disadvantage. Although patent law specifies that, in any case in which infringement is claimed, the sued party can respond by claiming that the patent at issue was not validly granted. However, the specialized appeals court has held the view that such a defense cannot be claimed if the person sued was the inventor of the patent or was an entity to whom the patent had been assigned. The theory behind that exception appears to be that those who have benefitted from the patent should not be allowed later to claim it should not have been issued at all.

The question before the Supreme Court: Is the exception created by the special federal appeals court, depriving some entities of the principal defense to an infringement claim, forbidden by the explicit language of the federal Patent Act itself?

Significance: Patent infringement lawsuits can lead to very expensive verdicts, and can interfere with the continued distribution of inventions of devices or products that have been patented and can even slow the process of inventing new adaptations of inventions. The outcome of this case is thus central to patent law, with widespread practical and commercial consequences, but it does not appear to have implications beyond the patent field itself.

A few questions to ponder:

Does it make any sense, and is it fundamentally unfair, for a federal court to invent an exception to a federal law that Congress has written in specific terms? Isn’t it Congress’s job to revise the language of the laws it enacts?

If a federal court is allowed to do that, what reasons would fairly justify it?

Is it fair, under patent law, for an inventor to keep setting up a succession of companies to exploit patented inventions, and then using the later companies to undermine those to whom it previously transferred patents?

Would the patent system be fairer, overall, if Congress were to put some limits on buying up companies that hold valuable patents on inventions created by someone else? Is the market for acquisitions of companies holding patents out of control?

How fair is it for a company that acquired an original patented invention to later tweak it in order to have a legal basis for suing inventors who have created new and better versions?

Does the award of new patents on such tweaked inventions make the patent-granting process open to unfair manipulation?