Making the most of your case inan employment trial requires many of the same best prac-tices as in other types of cases, including preparation, effi-cient use of trial time, effective use of technology andadoption of innovative, engaging techniques like mini-opening statements. But success in trying employment

cases also poses special challengesbecause jurors have some expertise inthe field. Other areas of practice in fed-eral court involve specialized legal andfactual issues that are beyond the com-mon experience of many jurors, suchas a patent case involving arcane legalissues applied to cutting-edge technolo-gy. But when it comes to employmenttrials, the vast majority of jurors havepersonal experience through their ownwork history or those of family mem-bers and close friends, and many arefamiliar with, or even trained in, theiremployer’s human resources policies

and practices. Whether the experience is positive, nega-tive or mixed, gleaned from a position in management or

Major changes are in the worksfor the Computer Fraud and Abuse Act (“CFAA”). 18 U.S.C.§ 1030. In the past ten years, the CFAA has moved fromobscurity into the limelight as Congressional amendmentsdrastically increased its scope. The watershed began inlate 2001, when Congress, as part of the USA Patriot Act,adopted a definition of “loss” in theCFAA that made it easier for private liti-gants to meet the $5,000 threshold fordamage or loss. In 2007, Congressexpanded a crucial liability provision tocriminalize “intentionally access[ing] acomputer without authorization orexceed[ing] authorized access, andthereby obtain[ing]…in formation.” 18U.S.C. § 1030(a)(2)(C). This sectionimposes liability on anyone who access-es a computer without authorization orwho exceeds authorization, even if theperson commits no further wrongdo-ing. Since 2002, complaints alleging acause of action under the CFAA have increased nearly600% percent.

2011 brought several potential developments in CFAAjurisprudence. First, the Ninth Circuit decided and thenrecanted United States v. Nosal, a case effectively resolvinga raging circuit split on the meaning of “authorization.”Second, Congress is considering an amendment to theCFAA that would eliminate liability under the CFAA that ispredicated solely on the violation of a computer use policyor website terms of use.

Many commentators have criticized the CFAA for poten-tially criminalizing activity such as visiting social network-ing sites or checking personal email. These critiques stemlargely from United States v. Drew, 259 F.R.D. 449 (C.D.

Also in This Issue

Carl Ciochon Presuming Reliance ina Fraud Case ................................p. 3

Roger Heller On CLASS ACTIONS ............................p. 7

Howard H. Ullman On ANTITRUST ....................................p. 9

James Yoon On PATENTS ........................................p. 11

Robert H. Bunzel Letter from the President ......................p. 12

The Rise of the ComputerFraud and Abuse Act

Hon. Elizabeth D. Laporte Sebastian Kaplan

Volume 21 No. 1WINTER 2011/2012

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Trying Employment Cases:A View from the Bench

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the rank and file, emotionally fraught or not, almost everyjuror arrives at the courthouse with a particular perspec-tive on the issues to be tried. And almost every juror con-siders herself an expert in the field of employment relations.

Further, the backdrop of the current economic andsocial climate may strongly affect the receptivity of thejury pool to your client’s theory of liability and damages.Counsel need to assess and prepare their cases in light ofthis reality. For example, the serious economic downturnof recent years may have led jurors initially to hold plain-tiffs more personally responsible for doing everythingpossible to keep their jobs while people they know areinvoluntarily unemployed despite their best efforts. Butnow, with protests capturing frequent news coverage, it ispossible that jurors have become more skeptical of largeemployers, that they may view as refusing to hire whilekeeping executive pay in the top one percent.

A winning strategy starts with effective use of the pre-trial conference. Attorneys should come prepared, havingmet and conferred and agreed on as much as possible, sothat they persuade the judge to adopt well reasoned stipu-lations and present only real, significant disputes thatrequire judicial resolution.

In limine motions should focus on issues that truly mat-ter, without throwing in the kitchen sink. With casesinvolving employees’ private lives, it can be difficult toremain objective about the facts that are really worthfighting over. Refrain from unpersuasive attempts to keepvery relevant but damaging evidence out, which the judgeis unlikely to grant. From the opposing parties’ perspec-tive, consider whether using sensitive, embarrassing orstale information to undermine an opposing witness willbackfire and be perceived by the jury as bullying, tangen-tial or both.

Logistical issues regarding introduction of depositiontestimony at trial, especially videotaped testimony, shouldbe addressed in advance to avoid disruption and ensurean adequate record on appeal. Consideration should begiven to how to preserve the record regarding videotapedpresentations in case of an appeal, since court reportersusually do not report the audio portion of the excerpts asthey are played. For example, the parties may stipulate tosubstituting the relevant excerpts of the written deposi-tion transcript or making DVDs of the excerpts part of therecord.

Employment cases often present the issue of witnesses— typically the individuals who made the adverseemployment decisions or policies at issue — who will becalled by the employer in its defense but will also testifyfirst as adverse witnesses called by the plaintiff. See Fed.R. Evid. 611; Cal. Evid. Code § 776. When the individual isacting as the plaintiff’s witness, the plaintiff usually prefersto direct the line of questioning and limit its substance totopics the plaintiff wants to elicit. This tactic forces thedefendant to wait until its case-in-chief to recall the wit-ness to give a more fulsome and appealing explanation ofwhy they did what they did. The defendant may some- Continued next page

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times be willing to have such witnesses appear twice; giv-ing them a chance to recover from any difficulties han-dling the plaintiff’s initial questioning and to better pre-pare after the defense has seen how the plaintiff’s case-in-chief has played out. But the defendant often prefers toavoid the potential for their key witnesses to make a nega-tive first impression on the jury by being confined tomaterial that the plaintiff cherry picks. In arguing that thewitnesses should be permitted to complete all their directtestimony for both sides at the same time, the defendantmay stress the inconvenience or hardship on the employ-er of having senior managers away from their duties forsignificant periods of time, or on the witnesses personally.Judges have discretion on how to handle this recurringissue, so it behooves the parties to address it at the pretrialconference.

As to exhibits, judges wish that counsel would refrainfrom meritless objections, and instead focus on the objec-tions that really matter. The authenticity of documentsshould almost always be a matter of stipulation to avoidwasting precious time before the jury, and only challengedwhere there is a genuine issue about a “hot” document.Settle jury instructions as soon as possible, preferablybefore the trial starts, so that you can try your case in lightof how the jury will be instructed. One special advantageof settling the instructions before trial is allowing the juryto be preinstructed before opening statements on thehandful of substantive instructions that set out the key ele-ments of liability, which helps jurors focus on the key factsthat will prove, or disprove, liability.

The Ninth Circuit’s and California’s jury instructions foremployment cases usually present an excellent startingpoint — and quite often an appropriate ending point —for the parties to agree on proposed instructions that thejudge will likely adopt. Some tailoring may be necessaryto adapt them to the particular case at hand (as is alreadybuilt in to some of the model instructions) or, less fre-quently, to address an amendment to the applicable statuteor change in binding precedent since the model instruc-tions were last updated. The parties should focus on keep-ing the instructions in plain English. Further, they shouldresist the temptation to craft dueling instructions thatsharply depart from the model ones in a transparentattempt to tilt them to favor one side or the other, at therisk of losing credibility with the judge and wasting time.In the zeal to win at trial, do not lose sight of the possibili-ty that “winning” an unduly favorable jury instruction maycome back to haunt you on appeal in the form of re -versible error.

Keeping the instructions clear presents a special chal-lenge where, as frequently happens in employment cases,the plaintiff has brought overlapping but not identicalstate and federal claims, such as both a federal ADA claimand a state disability claim under FEHA. Instead of propos-ing confusing, lengthy instructions, the plaintiff shouldconsider dropping whichever claim is less favorable or theparties should explore stipulating to instruct on the feder-al or state statute only, with the result to govern the paral-lel claim.

As to the proposed verdict form, the plaintiff should

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In a fraud case, reliance provides “thecausal connection between the wrongful conduct and theresulting damage.” W.K. Prosser, The Law of Torts § 103, at729 (3d ed. 1964). Proof of reliance thus serves as thelynchpin of plaintiff’s fraud claim. But direct proof ofreliance on the challenged misrepresentation or omissionmay, for many reasons, be difficult to prove. Perhaps plain-tiff died after the cause of action accrued. Where plaintiffis an entity, the person who made the fateful decision mayhave left the company, or may no longer remember pre-cisely what was relied upon. In a classaction (or a nonclass pro ceedingbrought by multiple plaintiffs) nu -merosity may make it impractical topre sent individualized proof of reliance.

The existence of these kinds of im -pediments to establishing reliancehowever, will not necessarily consign afraud case to the litigation scrapheap.In certain cases the law will affordplaintiff a presumption of reliance,shifting to defendant the burden ofproving the plaintiff did not rely on thealleged misrepresentation or omission.This article examines situations inwhich, under either California or feder-al law, plaintiff may be entitled to such a presumption.

California Common Law:The Vasquez Presumption

In Vasquez v. Superior Court, 4 Cal. 3d 800 (1971), agroup of consumers alleged that their agreement to pur-chase freezers and bulk supplies of frozen food on aninstallment basis had been procured by fraud, and soughtto have the claim adjudicated as a class action. The trialcourt sustained a demurrer to the class aspects of theirclaim on the ground that a class action for fraud could notbe maintained by consumers. Plaintiffs sought a writ ofmandate from the Supreme Court. Defendants argued(inter alia) that because each allegedly fraudulent salehad been made on an individualized basis, individualizedproof of fraud was required, and class treatment was inap-propriate.

In assessing whether plaintiffs had demonstrated suffi-cient “community of interest” to proceed as a class, thecourt focused on plaintiffs’ allegation that they “all signedcontracts to purchase food and a freezer in relianceupon…recitations by salesmen of a standard sales mono-logue contained in a training book and sales manual.” Id.at 810. This allegation of universal reliance on a standard-

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Carl Ciochon

Presuming Reliance ina Fraud Case respect genuine concerns of the judge and the defendant

regarding issues that need to be broken out and decidedin sequence by the jury to ensure a fair verdict andaddress any special issues like predicate findings for equi-table relief that the judge will be asked to order if theplaintiff prevails. At the same time, the defendant shouldavoid long, complex verdict forms that may invite jurorconfusion and increase the odds of inconsistent verdicts.Read and reread and read again the proposed verdict formto make sure it flows clearly and logically before submit-ting it to the judge.

Both the plaintiff and the defendant usually share aninterest in having a written juror questionnaire tailored tothe case and filled out in advance before voir dire, in orderto tease out the relevant personal experiences and per-spectives of prospective jurors, especially in light of thefrequent time limits on voir dire in federal court. Further,a questionnaire can save jurors the embarrassment ofanswering sensitive questions in open court or in time-consuming sidebars, potentially allowing prospectivejurors to be more candid. At the same time, the judge maybe concerned with the added cost and inconvenience ofcalling the jurors in ahead of time to fill out the question-naires. The best way to persuade a judge to use a question-naire is to stipulate to a reasonable set of questions thatare not too lengthy and stick to relevant issues. Also, becareful that the questionnaire does not give the jurors onlyextreme options, along the lines of: “Agree or disagree:Employers can do no wrong/Employers are always atfault.” Such questions may strike prospective jurors as talk-ing down to them and result in unhelpful, arbitraryanswers that do not reflect their actual views.

In federal court, the judge usually conducts most (if notall) of the voir dire based on questions proposed by theparties, allowing a limited time for each party to conductfollow up questioning. Whether the questions are posedby the judge, the attorneys, or both, open-ended questionsthat allow the jurors to reveal their relevant experiencesand opinions are generally most effective. Conversely,wasting voir dire on calculated efforts to try to enlistjurors to your side wastes precious time better spent onferreting out jurors who are predisposed against yourcase. Judges are likely to impose time limits on the presen-tation of evidence, after discussing the reasonable amountof time necessary to try the case. Time limits announcedin advance of jury selection allow the prospective jurorsto reduce their hardship excuses to the relevant periodand plan around their jury service. And in judges’ experi-ence, the parties rarely run out of time; to the contrary,they often have time left over, as in a recent employmenttrial before me.

Despite what some attorneys initially think, time limitsare your friend, helping to focus the case and avoid boringor frustrating the jury through needless repetition. Re -member that most human beings have a limited attentionspan and information processing bandwidth. Releasingmore words into the air in their presence — no matter

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Continued from page 3Presuming Reliance in a Fraud Case

ized sales pitch was key to the court’s analysis of whetherreliance could be shown. As the court explained, “[i]f[plaintiffs] can establish without individual testimony thatthe representations were made to each plaintiff and thatthey were false, it should not be unduly complicated tosustain their burden of proving reliance thereon as a com-mon element.” Id. at 814. This conclusion was based on athree-step analysis.

First, the court noted the long-standing rule thatreliance need not be demonstrated by direct evidence.Rather, “[t]he fact of reliance upon alleged false represen-tations may be inferred from the circumstances attendingthe transaction which oftentimes afford much strongerand more satisfactory evidence of the inducement whichprompted the party defrauded to enter into the contractthan his direct testimony to the same effect.” Id. (quotingHunter v. McKenzie, 197 Cal. 176, 185 (1925)). Next, thecourt posited that one of the “circumstances” affordinginferential evidence of reliance is action taken following amaterial misrepresentation: “Where representations havebeen made in regard to a material matter and action hasbeen taken, in the absence of evidence showing the con-trary, it will be presumed that the representations wererelied on.” Id. (quoting 12 Williston on Contracts, at 480(3d ed. 1970)). Finally, the court concluded that this infer-ence/presumption could, in the appropriate circum-stances, be applied on a classwide basis: “[I]f the trialcourt finds material misrepresentations were made to theclass members, at least an inference of reliance wouldarise as to the entire class.” Id.

The Vasquez presumption thus has two distinct compo-nents. First, Vasquez supports the availability of a reliancepresumption where a material misrepresentation has beenmade, and “action has been taken” consistent with the rep-resentation. Subsequent cases have applied this presump-tion outside of Vasquez’s class action context. Forinstance, where a health plan provider represented that itsclaims arbitration process was expeditious, and the plain-tiff’s employer subsequently subscribed to the plan, arebuttable Vasquez presumption was applied to establishreliance. Engalla v. Permanente Medical Group, Inc., 15Cal. 4th 951, 977-79 (1997); see also Continental Airlines,Inc. v. McDonnell Douglas Corp., 264 Cal. Rptr. 779 (1989)(reliance on representation that airplane landing gear wasdesigned so that fuel tanks would not rupture in crash).Second, in a class action, where the same representationwas heard or read by all classmembers, Vasquez affords “atleast an inference” of classwide reliance. See Mirkin v.Wasserman, 5 Cal. 4th 1082, 1095 (1993) (making clearthat this aspect of Vasquez applies only to cases whererepresentation was “actually communicated” to each class-member); see also Cal. Evid. Code § 600 (defining “pre-sumption” and “inference”).

Rule 10b-5 and “Fraud on the Market”The best known presumption of reliance applies in

securities fraud cases brought under SEC Rule 10b-5. InBasic, Inc. v. Levinson, 485 U.S. 224, 245 (1988), the

Supreme Court endorsed the “fraud on the market” theo-ry, premised on the notion that (i) purchasers and sellersof publicly traded securities reasonably rely on price inmaking their purchase and sale decisions, and (ii) where asecurity is traded on an efficient market, material misrep-resentations will necessarily be reflected in its price. Asthe Court explained:

The fraud on the market theory is based on thehypothesis that, in an open and developed securities mar-ket, the price of a company’s stock is determined by theavailable material information regarding the company andits business.… Misleading statements will thereforedefraud purchasers of stock even if the purchasers do notdirectly rely on the misstatements.

Id. at 241-42 (quoting Peil v. Speiser, 806 F.2d 1154, 1160-61 (3d Cir. 1986)).

In the Ninth Circuit, a plaintiff seeking the benefit of thispresumption must show that defendant “made materialrepresentations or omissions concerning a security that isactively traded in an ‘efficient market’.…” Binder v.Gillespie, 184 F.3d 1059, 1064 (9th Cir. 1999); cf. OscarPrivate Equity Invs. v. Allegiance Telecom, Inc., 487 F.3d261, 265 (5th Cir. 2007) (in the Fifth Circuit, a plaintiffmust show the misrepresentation “actually moved the mar-ket”); In re Salomon Analyst Metromedia Litig., 544 F.3d474, 481 (2d Cir. 2008) (in the Second Circuit, plaintiffmust show that the defendant “(1) publicly made (2) amaterial misrepresentation (3) about stock traded on animpersonal, well-developed (i.e., efficient) market”). Thequestion of whether the market in any particular securitywas “efficient” can be the subject of significant dispute andexpert testimony. Compare In re PolyMedica Corp. Sec.Litig., 432 F.3d 1 (1st Cir. 2005) (encouraging detailed eco-nomic analysis to determine market efficiency), with In reMoody’s Corp. Sec. Litig., 274 F.R.D. 480, 489 n.3 (S.D.N.Y.2011) (“the NYSE is a paradigmatic efficient market”).

Omissions Under 10b-5:The Affiliated Ute Presumption

Like Basic, Affiliated Ute Citizens of Utah v. UnitedStates, 406 U.S. 128 (1972), was an action brought underRule 10b-5. Members of the Ute Indian Tribe alleged adeceptive scheme to purchase for less than market valuetheir shares in a corporation formed to hold tribal land.The Supreme Court agreed that defendants’ role in thetransaction gave rise to a disclosure obligation, and thatthey could not simply “stand mute” while helping plaintiffssell their shares for less than market value. Id. at 153. TheCourt further held that “[u]nder the circumstances of thiscase, involving primarily a failure to disclose, positive proofof reliance is not a prerequisite to recovery. All that is nec-essary is that the facts withheld be material in the sensethat a reasonable investor might have considered themimportant in the making of this decision.” Id. at 153-54.

Over the years, the federal courts have struggled todefine the precise boundaries of the Affiliated Ute pre-sumption. As one court described the problem:

Any fraudulent scheme requires some degree of con-cealment, both of the truth and of the scheme itself. Wecannot allow the mere fact of this concealment to trans-form the alleged malfeasance into an omission rather than

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Continued from page 4Presuming Reliance in a Fraud Case

testimony to the effect that “I heard the representations, Imade the decision, I relied on the representations in mak-ing the decision”; or (b) successfully invoke a Vasquez pre-sumption. Even in cases where Vasquez should clearlyapply, courts may be reluctant to enter a finding of fraudbased solely on a presumption. Counsel would thereforebe well advised to develop and present whatever directevidence of reliance can be mustered.

10b-5 Misrepresentation Cases. If the action is broughtunder Rule 10b-5 and based on misrepresentation, canplaintiff plead fraud on the market in sufficient detail tosurvive a 12(b)(6) motion? As an ever more defendant-friendly Supreme Court has moved from an interpretiveapproach under which 10b-5 was applied “flexibly” toeffectuate its remedial purpose (e.g., Affiliated Ute, 406U.S. at 151), to one which focuses on limiting 10b-5’s “im -plied private right of action” (e.g., Janus Capital Group,Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011)), thefederal courts have been increasingly receptive to chal-lenges to the fraud on the market presumption. In particu-lar, 12(b)(6) motions are now frequently converted intomini-trials on the adequacy of plaintiffs’ fraud on the mar-ket allegations. Plaintiffs’ counsel should be prepared toconfront multiple declarations by impressive economicsand finance experts advancing complex explanationsabout why the alleged misrepresentation was not materialand the market in the subject security inefficient.

10b-5 Omission Cases. May plaintiff’s 10b-5 actionlegitimately be characterized as “primarily” based on omis-sions, thus warranting application of the Affiliated Utepresumption? Keep in mind that courts tend to be skepti-cal of plaintiffs’ efforts to invoke Affliated Ute, and thatthere are more cases rejecting application of the pre-sumption than employing it. If an Affiliated Ute pre-sumption is sought, care should be taken to plead purelyomissions, since a determination that the action presentsa “mix” of omissions and misrepresentations will typicallylead to rejection of the Affiliated Ute presumption.

Rebutting the Presumption. Where plaintiff has suc-cessfully invoked a presumption of reliance, how doesdefendant rebut that presumption? Can defendant showthat plaintiff acted in reliance on other factors, such aspersonal preferences, alternative motives, or representa-tions made by others? Is there evidence plaintiff hadalready made a decision before the alleged misrepresenta-tions were made? Did plaintiff know the true facts, ren-dering reliance unreasonable? In a securities case, can itbe shown that the alleged misrepresentations or omis-sions did not affect the market price?

Ultimately, the cases governing presumptions of reli -ance display a tension between two competing

views. The cases applying such a presumption stand forthe proposition that where the facts indicate a materialmisrepresentation and logically connected harm to theplaintiff, defendant may properly be required to show themisstatement did not cause the harm. On the other hand,the cases declining to permit plaintiff the benefit of sucha presumption reflect the view that fraud is serious busi-ness, and plaintiffs should be required to establish every

an affirmative act. To do otherwise would permit theAffiliated Ute presumption to swallow the reliancerequirement almost completely. Moreover, it would fail toserve the Affiliated Ute presumption’s purpose since thisis not a case where reliance would be difficult to provebecause it was based on a negative.

Joseph v. Wiles, 223 F.3d 1155, 1163 (10th Cir. 2000). Ac -cordingly, most circuits, including the Ninth, hold that theAffiliated Ute presumption applies only in cases “that pri-marily involve omissions.” Binder, 184 F.3d at 1064 (“theAf filiated Ute presumption should not be applied to casesthat allege both misstatements and omissions unless thecase can be characterized as one that primarily allegesomissions.”).

Mirkin v. Wasserman:California Rejects “Fraud on the Market” and

Affiliated Ute as Substitutes for Actual RelianceIn Mirkin v. Wasserman, 5 Cal. 4th 1082 (1993), the

California Supreme Court was asked to adopt the “fraudon the market” and Affiliated Ute presumptions in thecontext of an action for fraud and deceit under Civil Codesections 1709 and 1710. Plaintiffs were a class of pur-chasers of publicly traded securities, the market price ofwhich had allegedly been inflated through material mis-representations. Their complaint did not, however, allegethat plaintiffs had actually read or heard any of the allegedmisrepresentations. Plaintiffs nonetheless urged the courtto allow their claims to proceed based on either a fraud onthe market theory or an Affiliated Ute presumption. Thecourt declined, explaining that “California courts havealways required plaintiffs in actions for deceit to plead andprove the common law element of actual reliance.” Id. at1092. In so ruling, the court noted that it was not leavingplaintiffs without a remedy, since both the CaliforniaCorporate Securities Law (which imposes no reliancerequirement) and Rule 10b-5 permit a plaintiff to recoverwithout proof of actual reliance. Id. at 1090 (citing Basicand Cal. Corp. Code §§ 25400, 25500, as interpreted inBowden v. Robinson, 136 Cal. Rptr. 871, 877-78 (1977)).

Practical ConsiderationsIn cases where direct evidence of reliance is weak,

entirely lacking, or impractical to present, plaintiff’s abilityto invoke a presumption of reliance can mean the differ-ence between dismissal and victory at trial.

California Common Law. If the action is broughtunder the California law of fraud and deceit, can plaintiffadequately allege — and, equally importantly, subsequentlyprove — actual reliance? At the pleading stage, it may suf-fice (at least as a practical matter) to merely allege themagic words that “plaintiff reasonably relied on defen-dant’s misrepresentations” (though it must be noted thatthis approach proved insufficient in Mirkin, where pars-ing of the complaint revealed no allegation that plaintiffshad actually read or heard the alleged misrepresentations).Regardless of plaintiff’s pleading burden, in order to certifya class, survive summary judgment, or meet plaintiff’s bur-den of proof at trial, plaintiff must either: (a) present direct Continued on page 6

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Continued from page 3Trying Employment Cases

how persuasive they appear to you — has diminishingreturns. A frequent comment I hear from jurors afterthey’ve rendered their verdict is: why was there so muchrepetition in the trial? Don’t the attorneys realize we got itthe first time?

Consider asking the judge to allow you to present“mini” opening statements, perhaps five minutes each,right before voir dire. Mini openings help orient prospec-tive jurors to the issues in the case, peak their interest inserving, and elicit more relevant responses to voir dire. Inboth a mini and traditional opening statement, do notoverreach: under-promise and over-deliver. Be wary ofdemonizing the plaintiff, or conversely, the key employerdecision-makers if they are not inherently unsympatheticand the supporting evidence is not very strong. Also, con-sider proposing that jurors be allowed to submit writtenquestions during the trial in a controlled manner, with thejudge consulting the attorneys as to whether and, if so,how best to answer. The Ninth Circuit has a patterninstruction for this purpose. See Ninth Circuit Model CivilJury Instruction 1.15. Jurors appreciate the opportunityeven if they seldom use it, and it offers a window intotheir concerns, which trial counsel can then address.

During trial, use your time before the jury efficiently toget right to the key evidence, showcase favorable witness-es, and undermine the credibility of unfavorable oneswithout seeming to overreach or bully them. If you needto get necessary but tedious evidence into the record andcannot do so by stipulation, try to keep it short and inter-sperse it with more interesting testimony to keep the juryengaged. Don’t waste time engaging in frequent objec-tions (especially improper speaking ones) or bickeringwith opposing counsel, or worse, the judge. Similarly, limitrequests for sidebars to few to none, because jurors hatethem. They find them tedious and disrespectful of theirtime, and suspect (sometimes correctly) that the attorneysare attempting to hide relevant evidence. Instead, antici-pate such concerns in advance, and use breaks to addressissues that must be raised outside the presence of the jury.

Of course, use technology effectively. Find out whatequipment the court already has available, which may besufficient. By now it probably goes without saying thatshowing excerpts of videotaped depositions is far moreeffective than reading aloud from a transcript. High -lighting key parts of documents on a screen as a witness

testifies about them is also helpful. As the trial proceeds, make sure you have your witness-

es ready to go with adequate backup in case a witnessgets on and off the stand more quickly than anticipated orfails to arrive on time. The judge and the jury will appreci-ate the respect shown for their time. Conversely, runningout of evidence to present during standard trial hourswithout a good reason, especially if it happens more thanonce, may count against your time before the jury or haveother unpleasant consequences.

When deciding whether to file optional midtrialmotions or requests for special corrective jury instructionsdirected toward the latest skirmish with the other side,exercise restraint. What may seem to you to be an urgentand reasonable request after a long trial day may strike thejudge as unnecessary at best and overreaching at worst.For example, after the plaintiff has given heart-wrenchingtestimony about the effect of the employer’s actions onthe family, a request to have a special instruction to thejury not to be swayed by sympathy is not likely to begranted because the standard jury instructions alreadycover that ground. Save the midnight motions for address-ing the few, if any, issues that may really decide the casethat you have a good chance at winning. And if possiblelet the judge know to expect an after-hours filing so thatthe judge can prepare to address the motion while mini-mizing inconvenience to the jury.

Finally, use closing argument to pull together the evi-dence in light of the instructions and hammer home

your theme, again without overreaching. Ask if the judgewill give the instructions before closing argument, so thatyou can highlight key points from the instructions as youclose. Then wait for the verdict, knowing that you havedone your best.

❏

The Honorable Judge Elizabeth D. Laporte is aUnited States Magistrate Judge for the NorthernDistrict of California, and is a member of the Boardof Governors for the Northern California chapter ofABTL.

Continued from page 1Rise of the Computer Fraud and Abuse Act

Cal. 2009), where federal prosecutors indicted a Missouriwoman for cyberbullying a minor. The legal basis for theprosecution was that the defendant, a middle-aged wo -man, violated MySpace’s terms and conditions by creatinga profile claiming she was a teenage girl. Although the district court granted defendant’s motion for judgment ofacquittal, the court left open whether violation of a websites terms and conditions could result in criminalprosecution.

Although Drew was a criminal prosecution, it showshow business litigators can test the CFAA’s boundaries.The CFAA is now pleaded in several contexts that go farbeyond the computer hacking activities that most associ-ate with cybercrime and that motivated the passage of thestatute. Specifically, the CFAA is now a common cause ofaction in civil disputes between employers and employeeswho download or copy information from company com-

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Continued from page 5Presuming Reliance in a Fraud Case

element of their claim. The tension between these twoviews will be present so long as cases such as Vasquez,Basic and Affiliated Ute remain the law. Any case inwhich this issue arises will thus present a felicitousopportunity for thoughtful, skilled advocacy in support ofthe argument that a presumption of reliance should — orshould not — apply.

❏Carl Ciochon is a partner with the Oakland

office of Wendel, Rosen, Black, & Dean LLP.Cciochon@wendel.com

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invest one party with a degree of discretion in perfor-mance sufficient to deprive another party of a substantialproportion of the agreement’s value, the parties’ intent tobe bound by an enforceable contract raises an impliedobligation of good faith to observe reasonable limits inexercising that discretion, consistent with the parties’ pur-pose or purposes in contracting.

Centronics v. Genicom Corp., 562 A.2d 187, 193 (N.H.1989). Sometimes, the implied covenant represents theonly protection consumers have from potential abusiveconduct.

Numerous class actions have been filed recently whichhave sought to invoke the implied covenant to addressdiscretionary language in standardized consumer con-tracts. Although some have been successful, others havefallen short, including where plaintiffs attempted to usethe implied covenant to impose limitations or require-ments on businesses that are at odds with the expressterms of consumer agreements. See, e.g., McCoy v. ChaseManhattan Bank, USA, 559 F.3d 963, 971 (9th Cir. 2009).

With some exceptions, cases challeng-ing exercises of discretion under stan-dardized consumer contracts are well-suited to class-wide adjudication. Thefocus of the claims will generally be onthe defendant’s conduct. More over, thestandardized nature of the agreementsmeans that there will generally be littlevariation with respect to the discre-tionary language and express terms,increasing the likelihood that the expec-tations of the parties can be de terminedobjectively.

By developing standardized agree-ments and retaining unilateral discretionto change terms, businesses have madeconsiderable progress in protecting their interests andtheir ability to adjust to changing conditions. Mandatoryarbitration and class waiver provisions — bolstered some-what by the Supreme Court’s recent decision in AT&TMobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) — havefurther allowed businesses to take action with respect totheir customers without the threat of class litigation. Thepresence of discretionary “change in terms” provisions,however, may provide plaintiffs with an additional argu-ment, in the post-Concepcion world, for invalidating theseform contracts, as they push these agreements further inthe direction of lacking mutuality. The defense bar shouldbe prepared to address this argument in the future.

The increasing use of “change in terms” provisions instandardized consumer contracts, and recent suc-

cesses in challenging alleged abuses of discretion, suggestthat plaintiffs will continue to file class actions of thisnature, and businesses should expect their discretionarychoices to receive careful scrutiny. In the meantime, busi-nesses and consumers alike face some uncertainty as tothe “terms and conditions” that apply and the extent towhich they can be modified, in some cases leaving for afinder of fact the determination of whether the businesshas crossed the line.

Roger Heller

On CLASS ACTIONS

Roger Heller

Those of us who have opened acredit card account or made a major purchase recently arefamiliar with “terms and conditions” — i.e., the rules andrestrictions that govern our relationships, as consumers,with the companies with which we do business. Often inthe form of lengthy “agreements,” these terms serve therole of standardizing and organizing our everyday com-mercial dealings. In many respects, they help control liti-gation by clarifying parties’ legal rights and responsibili-ties. Increasingly, however, businesses are including provi-sions whereby they retain broad discretion to changeterms, sometimes without notice to the customer. Theseprovisions arguably provide needed flexibility — e.g., byallowing parties to adjust their relationships to accountfor technological advances — but they also create adegree of uncertainty and the potential for abuse. Classactions challenging alleged abuses of such contractual dis-cretion are on the rise, and recent developments suggestthat this trend will continue even as questions regardingthe general direction of consumer litigation emerge.

Many consumers are skeptical about the purpose ofthese agreements. After all, the terms are drafted by busi-nesses and their lawyers, often contain legalese, are diffi-cult for consumers to understand, and are generally non-negotiable. Moreover, given the language used and man-ner in which the agreements are distributed, consumersare often not inclined or encouraged to read them.Discretionary “change in terms” provisions reinforce con-sumer skepticism regarding these agreements and whothey are intended to benefit.

Read literally, these clauses can make performance ofother terms optional for the business, rendering the agree-ment as a whole less a binding contract and more a seriesof flexible guidelines subject to unilateral modification.Indeed, businesses have relied on such clauses to changecentral terms of their arrangements with customers,including, for example, the payment terms for loans andthe method of registering transactions for checkingaccount customers.

Businesses’ discretion to change terms under these pro-visions, however, is not unlimited, even absent directly-applicable statutes or regulations. Several courts, includ-ing in class cases, have held that the covenant of goodfaith and fair dealing, implied by common law into all con-tracts, prohibits businesses from exercising their contrac-tual discretion arbitrarily or unreasonably. See e.g., Perduev. Crocker Nat’l Bank, 38 Cal. 3d 913, 923-24 (1985);Okmyansky v. Herbalife Int’l of Am., Inc., 415 F.3d 154,157 n.3 (1st Cir. 2005) (“Ceding discretion in a contract isnot tantamount to subjecting oneself to legalized tyran-ny…not even the reservation of absolute discretion canclear the way for a totally arbitrary and unprincipled exer-cise of a contracting party’s power.”). As Justice Souterexplained, while on the New Hampshire Supreme Court:

Under an agreement that appears by word or silence to

7❏

Mr. Heller is a partner in the San Franciscooffice of Lieff Cabraser, Heimann & Bernstein.Rheller@lchb.com

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8

ceases when an employee resolves to use the computercontrary to the employer’s interest.” Id. at 1133. To satisfyconstitutional notice, the court held: “The plain languageof the statute therefore indicates that “authorization”depends on actions taken by the employer.… If theemployer has not rescinded the defendant’s right to usethe computer, the defendant would have no reason toknow that making personal use of the company computerin breach of a state law fiduciary duty to an employerwould constitute a criminal violation of the CFAA.” Id. at1135.

In the year or so after Brekka, district courts mostlyaligned themselves in these two camps. This past year,however, two circuit court decisions changed the land-scape in a way that expands the scope of the CFAA.

In United States v. Rodriguez, 628 F.3d 1258 (11th Cir.2010), a criminal defendant and former employee at theSocial Security Administration (“SAA”) appealed his con-viction and twelve-month sentence under the CFAA.Rodriguez used his privilege as an SSA employee to accessa government database and retrieve personal informationabout individuals he knew, including women he pursuedromantically. The question was whether Rodriguezaccessed the database without authorization or exceedingauthorization — he was authorized to access the databasegenerally, but the SSA prohibited its employees fromobtaining information without a legitimate purpose. TheEleventh Circuit affirmed the conviction, holding Rod -riguez exceeded his authorization by violating the SSA pol-icy. That Circuit distinguished Brekka on the groundsthere was no explicit employer policy involved in thatcase.

In United States v. Nosal, 642 F.3d 781 (9th Cir. 2011),the Ninth Circuit panel reversed the district court’s orderdismissing an indictment against Nosal for conspiring todefraud his former employer by taking confidential infor-mation and inducing other employees to take such infor-mation. Like the Eleventh Circuit, the panel relied on the“exceeds authorized access” language in the CFAA. Thepanel distinguished Brekka — which only addressedaccess “without authorization” — on the grounds that thevictim company had a policy it made employees sign thatrestricted their use and disclosure of the victim’s informa-tion to legitimate company business. The panel noted butdodged the problem that this interpretation may apply toall sorts of innocuous activity an employer may prohibit— it merely claimed that § 1030(a)(4) requires the CFAAviolation be part of a fraudulent scheme. The dissent, how-ever, correctly pointed out that § 1030(a)(2)(C) containsidentical “exceeds authorized access” language, withoutany qualification requiring additional wrongdoing such asfraud. The majority opinion provided no rationale for lim-iting the liability provision of § 1030(a)(2)(C) in a way thatwould not, for example, prohibit an employee whoaccessed his social networking account on a work com-puter from being liable if his employer prohibited person-al internet use on the job. Perhaps motivated by the dis-sent’s critique, the Ninth Circuit has now called Nosal foren banc rehearing and vacated the panel’s decision.

Continued on page 10

Continued from page 6Rise of the Computer Fraud and Abuse Act

puters before leaving their employment. These disputesmostly arise where an employee leaves to work for a com-petitor, but employers also now raise the CFAA as a coun-terclaim to employee complaints of wrongful dischargeand employment discrimination. Additionally, the CFAAhas begun to make its mark in consumer class actionsagainst online service providers, especially companies thatcollect consumer information online.

The CFAA has several other benefits for businesses.First, it confers federal jurisdiction over commercial tortsthat are usually pleaded only as state law actions, such astrade secret misappropriation, breach of contract, andintentional interference with prospective economicadvantage. Second, there are fewer elements to proveunder the CFAA than related state law claims; it is oftennecessary only to show a defendant accessed a computerand that the plaintiff suffered damage or loss in excess of$5,000.

The actual scope of the CFAA will ultimately turn on thedefinition of “authorization.” There is now raging a circuitsplit over whether the CFAA’s authorization languageshould be construed broadly or narrowly. Under thebroad view, anyone who knows they are acting against theinterest of the computer owner is acting “without autho-rization.” So, an employee who has accepted a job with acompetitor, and accesses his current employer’s computerbefore quitting, does so “without authorization.”

The broad view has been adopted by Judge Posner andthe Seventh Circuit. In International Airport Centers, LLCv. Citrin, 440 F.3d 418 (7th Cir. 2006), the Seventh Circuitreversed the district court’s order dismissing an employ-er’s CFAA claim against a former employee who hadcopied confidential information from his work laptop andwiped his computer before leaving to start his own com-peting business. The Circuit held: “Citrin’s breach of hisduty of loyalty terminated his agency relationship…andwith it his authority to access the laptop, because the onlybasis of his authority had been that relationship.” Id. at420–21. Commentators refer to this view as the “agencyview.”

Under the contrasting narrow view, the victim mustgrant and revoke authorization, not the defendant. So, anemployee who is given authorization to access hisemployer’s customer contact database when he is hiredretains his authorization until the employer specificallyrevokes it, even if the employee has resolved to abscondto a competitor with valuable trade secrets.

This narrow view has been adopted by the NinthCircuit. In LVRC Holdings LLC v. Brekka, 581 F.3d 1127(9th Cir. 2009), the Ninth Circuit affirmed the districtcourt’s grant of summary judgment for the defendant onthe CFAA claim. Brekka worked for LVRC, and emailednumerous LVRC files to his personal email address duringhis employment, before leaving to compete with LVRC.LVRC also accused Brekka of accessing its network usingan unexpired password after he ceased his employment.The Ninth Circuit held: “No language in the CFAA supportsLVRC’s argument that authorization to use a computer

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In Animal Science Products, Inc. v.China Minmetals Corp., 654 F.3d 462 (3d Cir. 2011), theThird Circuit held that the Foreign Trade AntitrustImprovements Act (“FTAIA”) does not impose a jurisdic-tional bar on antitrust claims involving trade or commercewith foreign nations, but rather merely sets forth requiredelements of an antitrust claim involving foreign trade. Thistechnical distinction has real-world consequences, becauseit will likely make achieving early dismissal of some U.S.antitrust claims against foreign companies more difficult.The decision also sets forth factors that inform the analysisof whether foreign firms’ conduct is directed at U.S. importtrade and is thus within an FTAIA exemption and subjectto U.S. antitrust law.

The FTAIAThe FTAIA exempts certain foreign conduct from the

reach of the Sherman Act. At the same time, it providesthat the Sherman Act will apply if the defendants are in -volved in “import trade or commerce” or if the defendants’conduct has a “direct, substantial, and reasonably foresee-able effect” on domestic commerce, import commerce, orcertain export commerce, and the conduct “gives rise” to aSherman Act claim. Courts have historically treated theFTAIA as creating a jurisdictional bar to antitrust claimsinvolving trade or commerce with foreign countries, andhave entertained and granted motions to dismiss com-plaints for lack of jurisdiction under the FTAIA.

Animal Science Products Rejects the ArgumentThat the FTAIA Creates a Jurisdictional Bar

The U.S. purchaser-plaintiffs in Animal Science Productsbrought a putative class action alleging that Chinese magne-site producers engaged in a price-fixing conspiracy that hadan impact on United States commerce and therefore violat-ed Section 1 of the Sherman Act. The district court dis -missed the complaint on the ground that it lacked subjectmatter jurisdiction to adjudicate the dispute under theFTAIA.

The Third Circuit reversed, and reinstated the com-plaints. The court based its ruling on the Supreme Court’sdecision in Arbaugh v. Y&H Corp., 546 U.S. 500 (2006),which involved neither the FTAIA nor even an antitrustclaim. In Arbaugh, the Supreme Court distinguishedbetween substantive limitations on claims set out in federallegislation and the subject matter jurisdiction of the U.S.courts. The Court ruled that a statutory limitation is juris-dictional — meaning that courts cannot even hear a casethat does not meet the requirements — only if Congress“clearly states” that it intends for a limitation to be jurisdic-tional. See id. at 515-16. Applying this rule, the ThirdCircuit determined that the FTAIA does not impose a sub-ject matter jurisdiction bar, because it “neither speaks injurisdictional terms nor refers in any way to the jurisdic-tion of the district courts.” Instead, the court wrote, “the[FTAIA] statutory text is wholly silent” about federal court

jurisdiction. The Third Circuit’s decision charts a newcourse, and also conflicts with decisions of other courts,including the U.S. Court of Appeals for the Seventh Circuit,which had determined in United Phosphorus, Ltd. v.Angus Chemical Co., 322 F.3d 942 (7th Cir. 2003) (enbanc), that the FTAIA does impose a subject matter juris-diction bar.

Significance of the Jurisdiction/Elements ofClaim Distinction: Burden on Defendants

Under Animal Science Products, FTAIA limitations helpdefine the necessary elements of a plaintiff’s claim, but donot create a jurisdictional bar to suit. This distinction is sig-nificant for at least two reasons.

First, the burden on a motion directed at lack of subjectmatter jurisdiction rests with the plaintiff. In contrast, on amore typical defense motion to dismiss for failure to state aclaim, the defendant carries the burden. Second, on a lackof subject matter jurisdiction mo tion, the court can usuallylook outside the four corners of the com-plaint and consider and determine otherfacts which might allow a case to go for-ward. On a motion to dismiss for failureto state a claim, the court must generallylook only at the face of the complaint,and must accept all alleged facts to betrue.

Animal Science Products’ Guidanceas to Application of FTAIA ImportException to Foreign Companies

In remanding, the Third Circuit of fer -ed some guidance as to the applicationof the FTAIA’s “im port trade or com-merce” exception to foreign companies.

• First, the exception must be given a“relatively strict” construction. However, although func-tioning as a physical importer may satisfy the import tradeor commerce exception, it is not a necessary prerequisite.Rather, the inquiry is whether the defendants’ alleged anti-competitive behavior was “directed at” an import market.Nor, the court suggested, are foreign defendants necessari-ly beyond the reach of U.S. antitrust law just because theport of first destination of goods sold is outside the U.S.

• Second, the court held that the FTAIA’s “effects”exemption does not contain a “subjective intent” require-ment. Instead, the “direct” and “substantial” effect contem-plated by the FTAIA must merely have been “foreseeable”to an objectively reasonable person.

• Finally, the court listed specific factors that may sup-port application of U.S. antitrust law to foreign defendants.These include whether the defendants took steps to pre-vent foreign manufacturers from selling to U.S. firms, or toprevent at least one American firm from purchasing prod-ucts directly from certain foreign manufacturers. Addi -tionally, although the port of first destination question isnot dispositive, it may be relevant to whether foreign sell-ers’ actions were directed at a U.S. import market.

In assessing their exposure to U.S. antitrust law, foreignmanufacturers may wish to consider whether their

activities “”objectively”“ target import goods or services inlight of the above factors.”

Howard M. Ullman

Howard M. Ullman

❏Mr. Ullman is of counsel with Orrick, Herrington& Sutcliffe LLP. hullman@orrick.com

9

On ANTITRUST

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The problem, it seems, is that courts, and for that matter,the rest of us, are unsure what appropriate conventionsapply when it comes to computers and the internet. Wehave had centuries to iron-out the social and legal normsregarding physical trespass — the closest, but still imper-fect analogy to the cause of action created by the CFAA.And while physical trespass may appear simple at firstblush, the case law is complex, and its development testeddoctrinal limits and generated unique extensions and limitations, such as constructive trespass and adverse possession.

Our lack of social conventions makes courts reticent toextend the scope of the CFAA to activity that is question-ably criminal. Brekka reveals the Ninth Circuit’s discom-fort with criminalizing the relatively innocuous act of anemployee emailing himself some files for unclear motives.Reading Citrin, however, reveals that the Seventh Circuitwas cavalier in extending the scope of the CFAA becausethe judges found firm ground in traditional agency law;Citrin is not really a decision about computers or technol-ogy at all.

Rodriguez and Nosal, in turn, are part of a vanguard ofcases that avoid the difficult question of defining nascentand inchoate social norms by focusing on the explicit andspecific conventions between the parties — employmentagreements, company policies, and the like. This focus onparties’ agreements reflects the same theme pervadingother recent Supreme Court decisions, such as City ofOntario v. Quon, 130 S. Ct. 2619 (2010), which held theCity did not violate the Fourth Amendment by searchingits employee’s text messages. The Supreme Court held thesearch was reasonable because the clear employer policystated that the employer was entitled to search its employ-ee’s text messages if the employee exceeded the allottednumber of messages in a given month. In an area wherenew technology presents difficult questions, courts arelikely to look to the agreements of the parties in decidingaccess id authorization issues in deciding access and au -thorization issues based on the agreements of the parties.

In the long run, these agreements between parties willhelp generate the social norms that will define how weunderstand what people are allowed to do with comput-ers. In the short run, however, attorneys and their clientsconcerned about a computer breach should focus on thespecific agreements made with employees, vendors, jointventure partners, and other entities that will have accessto a client’s computer network. Litigators facing the fire-drill caused by a trade secret misappropriation shouldimmediately request the company policy on technologyuse and consider other means a client may have used toinform its employees about the parameters of acceptablecomputer use.

In Pulte Homes, Inc. v. Laborers’ International Unionof North America, 648 F.3d 295 (6th Cir. 2011), the SixthCircuit began the process of codifying certain normsregarding internet use by reversing a district court’s dis-missal of a company’s CFAA claim against a labor organiza-tion for orchestrating an email protest campaign targeting

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Continued from page 8Rise of the Computer Fraud and Abuse Act

its executives. The campaign was successful enough thatthe volume of email and voice mail overloaded the plain-tiff’s computer systems and prevented some of its employ-ees from accessing their work email and phones.

Although not discussed by the Sixth Circuit, an impor-tant point of context is that the defendant’s actions resem-bled a common form of hacking known as a denial of ser-vice (DOS) attack. A hacker launching a DOS attack gener-ates thousands of requests for a specific website in anattempt to overload the server and shut the site down.The defendant’s actions in Pulte were quite different, as itdid not use an automated system to send thousands ofemails (although it did use an automated calling machine).Nevertheless, Pulte reflects that courts are begin ning torecognize that opprobrium of these kinds of activities haspermeated social awareness sufficiently to create a plausi-ble inference of intent.

In Facebook v. Power.com, No. C 08-05780 JW, 2010 WL3291750 (N.D. Cal. July 20, 2010), Judge Ware attemptedto clarify the norms regarding appropriate internet use,specifically how website owners access competing web-sites. Facebook sued Power.com for accessing its socialnetwork to collect information on Facebook users’friends, an alleged violation of Facebook’s terms of ser-vice. Facebook moved for judgment on the pleadings orpartial summary judgment on its California ComputerCrime Law, California Penal Code section 502 claims.

Interpreting California Penal Code section 502 inaccord with the CFAA, Judge Ware held that constitutionalnotice requirements prohibited finding Power.com’s activ-ities illegal based solely on Facebook’s terms of use.Instead, Judge Ware held access to a website can only beunauthorized if the defendant circumvented technical bar-riers. This solution is similar to requiring property ownersto build a fence to put potential trespassers on notice.Whether this technical barriers requirement will survivethe Ninth Circuit’s en banc resolution of Nosal andwhether technical barriers provide sufficient constitution-al notice on their own remain open questions.

Congress has been dealing with the same issues,although in less detail. Senator Leahy has proposed revis-ing the CFAA to limit liability to exceeding authorizedaccess to seven categories of sensitive information.Senators Grassley and Franken, going a step further, seekto amend the CFAA to eliminate liability based only on theviolation of an acceptable use policy or terms of serviceagreement, effectively adopting Brekka.

Business litigators should be aware that courts arereluctant to hold that novel forms of computer

access and use create liability under the CFAA. At thesame time, the recent decisions in Rodriguez, Nosal, andPulte suggest that courts are increasingly willing to acceptthat breaches of private agreements and actions thatresemble recognized forms of hacking are sufficient tosurvive dismissal. Undoubtedly, these cases will increasethe prevalence of CFAA litigation, at least until Congresssteps in to provide clarity on this murky subject.

❏Sebastian Kaplan is an associate with the SanFranicsco office of Fenwick & West LLP. skaplan@fenwick.com

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valid or infringed. As such, it is important for companiesto develop damages theories early in the case and takethe necessary steps to produce the witnesses and docu-ments that support their theories.

For instance, the most common form of patent dam-ages is the “reasonable royalty.” These damages are calcu-lated using a “hypothetical negotiation” methodology thatseeks to determine the amount of money a “willing licen-sor” in the position of the plaintiff and a “willing licensee”in the position of the defendant would have agreed uponfor the right to use the patented technology (assumingthat it was valid and infringed) at the time of first infringe-ment. Some of the most important factors in determininga “reasonable royalty” are (1) the portion of the defen-dants’ profits attributable to the alleged patented technol-ogy; and (2) the nature and form of the license agree-ments that were previously entered into by the plaintiffand defendant. From the start of the case, defendantsshould focus on demonstrating that the success of theirproduct is unrelated to the allegedpatented feature (e.g., customers buythe accused products because theywant features or services unrelated tothe infringement allegation). If thecompany can show that the success ofits products is attributable to a non-accused feature that it developedthrough its own R&D, the showing willhave a double benefit to the company.First, it will help demonstrate that thepatent is not valuable and, as a result,the defendant would not have paid sig-nificant money for the patent in thehypothetical negotiation. And second, itwill help convince the “fact finder” audience that thedefendant is an innovative company. Such a perception isvery helpful at trial because it tends to negate the audi-ence concern that the defendant may have benefitedfrom using patented technology that it did not pay for.

With respect to prior license agreements, the defen-dant should use those agreements to show that

plaintiff’s damages demands are excessive and outsideindustry norms. During litigation, the “fact finders” willattempt to determine a fair price for the plaintiff’s patent.The fair price assigned by the “fact finders” will be greatlyinfluenced by the terms of previous license agreements ofthe plaintiff and/or defendant. If a defendant can showthat the plaintiff’s demands are outside the scope of prioragreements and industry norms, the defendant can greatlyundermine the credibility of the plaintiff’s claims for notonly damages but also the other issues of the case.Accordingly, from the start of litigation, defendant compa-nies should seek to develop a holistic story that enablesthe audience of “fact finders” to see the world in the lightmost favorable to the defendant. Such a story must beeasy to understand and persuasive. In all likelihood, it willnot be limited to the technical issues of the case.

On PATENTS

11

When a company is sued for patentinfringement, there are a number of natural reactions.First, the company looks for ways to make the lawsuit dis-appear or become someone else’s problem. Second, itexamines the technical issues of the case in hopes ofestablishing non-infringement or that the assertedpatent(s) is invalid. And finally, it searches for ways tominimize the financial costs and burden associated withthe patent case. In particular, it searches for ways to limitthe amount of discovery on non-technical issues (e.g.,damages), and the number of employees who will be -come involved in the patent case. These reactions, whileunderstandable, can inadvertently reduce the company’seffectiveness in mediation, motion practice and trial.

All patent cases are litigated before an audience of “factfinders” who will shape the course of litigation. This audi-ence includes not only the judge, jury and mediator, butalso the key decision makers for the patent plaintiff.Effective litigation strategies focus on educating these“fact finders” to see the case in the light most favorable tothe defendant company. The strategies begin with theunderstanding that the audience views patent cases in aholistic as opposed to segmented manner. The audienceseeks a story or narrative that will help it understand thecase and the position of the parties. Typically, a defendantcannot provide the audience with its desired story byfocusing its efforts on educating the “fact finders” aboutthe technical issues (e.g., infringement or validity) of thecase. Such technical issues are frequently complex andhotly disputed, and may confuse the audience as opposedto educating them about the strength of a company’s caseand why a “fair” result would be to rule in the company’sfavor. The audience wants (and needs) practical, “easy tograsp” information that it can use in forming its opinionabout the case. Often, this practical information comesfrom the damages side of the case.

The audience’s view of the case is frequently deter-mined by a number of damages-related factors including:(1) whether the alleged patented technology is importantto the success (e.g., profitability) of the defendant’s prod-ucts; (2) whether the alleged patented technology is nec-essary for the defendant’s products going forward; and (3)what other companies in the industry have paid for thealleged patented technology (or similar technology). Ifthe answer to factors (1) and (2) is “yes” and the answerto factor (3) is a substantial amount of money, the audi-ence is frequently inclined to view the asserted patent asvaluable, valid and, unfortunately for a defendant,infringed. Conversely, if the answer to factors (1) and (2)is “no,” the audience tends to view the patent suit as a nui-sance and is less inclined to view the patent as either ❏James Yoon is a partner with the Palo Alto office of

Wilson Sonsini Goodrich & Rosati. jyoon@wsgr.com

James Yoon

James Yoon

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2012 will be a watershed year to prevent further fundingcuts to the judicial branch, and a goal to restore $300 mil-lion of previous cuts by 2015 is gathering strength in avery combative climate. The State Bar, led again in 2012 byformer NorCal ABTL president Jon Streeter, and a groupknown as the “Open Courts Coalition,” led by CAOC 2012president Niall McCarthy, are important resources thatABTL members should consult to see how you and yourfirms can advance this effort.

This is my last report to our members. I have yieldedthe ABTL Northern California president position to

Mary Jo Shartsis for 2012, supported by officers RickSeabolt, Dara lyn Durie and Drew Bassak. In passing theleadership re sponsibility, I am ending a decade of boardservice to ABTL, having chaired programs, an annual semi-nar, and much more. Wallace Stevens, one of America’sgreat lawyer-poets, wrote in Notes Toward a SupremeFiction (1942), “The partaker partakes of that whichchanges him.” The priorities and complexity of ABTL havebettered this ex-president, and I hope in some small way Ihave contributed to our common advance.

Much occurred in 2011 for BayArea business trial lawyers. There were key Californiacases decided by the U.S. Supreme Court radically alteringclass action and arbitration practice, prominent and wel-come new judges began sitting in the Northern District,the closure of most San Francisco civil courtrooms in thesummer was barely averted, and the implosion and realign-ment of long-standing local firms continued. Throughout,ABTL shined as the area’s finest bench-bar professionalorganization. We ended 2011 with an increased number ofNorthern California members — at 1709 — thanks to thehuge efforts of Bob Stumpf and Marshall Wallace for ourmembership committee.

I wrote to you in the Spring 2011 Issue of our ABTLReport, laying out my three goals for the year: member-

ship strength, dinner program originality,and access to open courts. Since then,ABTL saw stellar programs with ChiefJudge Ware presiding in Palo Alto over ahigh tech crimes panel in June, a JulyEast Bay lunch with Justice Mark Simonsand Judge Lynn Duryee on electronicevidence, a September dinner with KenFeinberg, Elizabeth Cabraser and Stu Gor -don on alternatives to class ac tions formass torts, and our December movienight, replete with popcorn, ethically lift-ed by Professor Rory Little and JudgesElizabeth Laporte and Richard Kramer.We also found the energy to co-sponsor(with BASF) a complex courts statewide

symposium in November, and led a large contingent ofNorthern Cali fornians to a great October annual seminar inSanta Bar bara chaired by the Orange County chapter. Thestate of ABTL’s core mission of bench-bar collegialityremains strong.

In July 2011, the San Francisco Superior Court, due tostate judicial branch budget cuts, announced it would layoff 40% of its staff and shutter 25 civil courtrooms, includ-ing our two indispensable complex litigation departments.A coalition of bar leaders from BASF, CAOC and the CityAttorney’s Office came together to work with legislators,the AOC, San Francisco, and the Judicial Council to reachagreement by August 31 that San Francisco would receivean emergency $2.5 million infusion of funds and wouldaccept $650,000 in AOC complex litigation grant money,reducing staff layoffs to 15% and civil courtroom closuresto 14 while preserving both complex departments. As theABTL Northern California chapter president, I lent a voiceand repeated presence in these efforts, though ABTL as anorganization, which uniquely has many judges on ourstatewide boards, advocates for access to open courtsrather than any particular solution. Bar leaders StuGordon, Dan Burkhardt, Kelly Dermody, Stephanie Skaff,Chris Kearney, Bianca Young and Chris Dolan deserve ourmembers’ appreciation for their work on the interim SanFrancisco resolution. But San Francisco is not alone, andlitigants in state courts will continue to lose access to jus-tice due to funding cutbacks totaling 30% since 2008.

Robert H. Bunzel

Letter from the President

❏Robert H. Bunzel, the President of the Northern

California chapter of ABTL for 2011, is the manag-ing shareholder of Bartko Zankel Tarrant & Millerin San Francisco. rbunzel@bztm.com

c/o Michele Bowen, Executive DirectorP.O. Box 696 • Pleasanton, California 94566

(925) 447-7900 • www. abtl.org

OFFICERS

Robert H. Bunzel, 2011 PresidentMary Jo Shartsis, 2012 PresidentRichard L. Seabolt, Vice President

Daralyn J. Durie, Treasurer • Andrew Bassak, Secretary

BOARD OF GOVERNORS

Daniel B. Asimow • Hon. Carlos Bea • Daniel J. BergesonWilliam Bernstein • Krystal D. Bowen• Rachel S. Brass

Hon. Steven A. Brick • Hon. Gerald J. BuchwaldJeffrey R. Chanin • Lawrence M. Cirelli • Hon. Carol A. CorriganDiane M. Doolittle • Bruce A. Ericson • Hon. Robert B. Freedman

Hon. Beth L. Freeman • Steven L. FriedlanderHon. Susan Y. Illston • Hon. Teri L. Jackson

Hon. James P. Kleinberg • Hon. Richard A. KramerHon. Elizabeth D. Laporte • Hon. Patricia M. Lucas

Hon. Socrates P. Manoukian • Thomas MayhewHon. Marla J. Miller • Robert A. Mittelstaedt • Mark C. Molumphy

Hon. Dennis Montali • Tim L. O’Mara • Michael K. PlimackBenjamin K. Riley • Elizabeth S. Salveson • Stephen G. Schrey

Hon. Richard G. Seeborg • John S. SiamasHon. Mark B. Simons • Hon. Fern M. Smith (Ret.)

David S. Steuer • Robert J. Stumpf, Jr. • Alison TucherMarshall C. Wallace • Diane L. Webb • Darryl M. Woo

EDITORIAL BOARD — ABTL REPORT

Thomas Mayhew • Howard Ullman, Co-Editors(415) 954-4948 • (415) 773-5652

Columnists

Peter Benvenutti • John Green • Roger Heller • Trent NorrisChip Rice • Michael Sobol • Walter Stella

Howard Ullman • Kate Wheble • James Yoon

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