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Appellate Practice Update – November 2021

November 30, 2021

Review of Selected Business Cases from Supreme Court’s 2020 Term

The Supreme Court recently finished its October 2020 Term.  We summarize below four cases of interest to the business community.

Google LLC v. Oracle America, Inc., No. 18-956, Decided April 5, 2021

In creating the Android operating system, Google wrote code that relied in part on Oracle’s Java application programming interface (“API”). Oracle sued Google for copyright infringement.  The question before the Supreme Court was whether a software interface is eligible for copyright protection, and if so, whether a fair use defense nevertheless applied.

The Court assumed without deciding that the interface is copyrightable, and decided the case based on the second issue by holding that the fair-use doctrine applied.  The Court looked at four factors: First, Google’s purpose in copying the code was to create a new platform, Android . Second, the nature of the copyrighted use was narrow—Google only used the Java API so that its engineers could code in a familiar language. Third, Google copied very little of the Java API. Finally, Google’s product (Android) was not a competitor with Java’s API. 

Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, No. 20-222, Decided June 21, 2021

This case clarified procedural hurdles in securities class action lawsuits. Under the Federal Rules of Civil Procedure, plaintiffs can bring a class action if they can show that a common question of law or fact “predominates” over issues specific to individual members.  Fed. R. Civ. P. 23(b)(3).  For securities class actions arising out of a so-called “fraud on the market,” existing Supreme Court precedent presumes that, because of market efficiency, the market price of a security reflects all material public information, including any fraudulent statements. 15 U.S.C. § 78j(b). This idea, known as the Basic presumption, posits that all plaintiffs in Section 10(b) suits who traded a security before a fraud was revealed relied on that information—establishing a common, “predominant” fact. 

The instant case arose out of Goldman Sachs’ alleged misrepresentation of its compliance with conflict-of-interest regulations.  The first issue the Court addressed is whether Goldman could argue at the class certification stage that the alleged misrepresentation was too general to implicate the Basic presumption.  The Second Circuit held that generality could only be adjudicated in the merit phase but the Supreme Court reversed, finding that generality is an important factor both as to whether a class should be certified and as to the materiality of the misrepresentation itself (in the merits stage).

Second, the Court addressed evidentiary burdens for rebutting Basic.  Goldman was sued under the theory that it misrepresented its conflict-of-interest compliance and that this fraudulently inflated the stock price, which crashed when the SEC announced an investigation.  To rebut the Basic presumption at the class certification stage, Goldman produced expert testimony demonstrating thirty-six prior instances when its stock price did not significantly change on unfavorable conflict news.  The district court ruled against Goldman, explaining that the court was not persuaded that Goldman had rebutted the Basic presumption, and the Second Circuit affirmed.  Goldman contended that upon producing the expert testimony, the burden shifted to plaintiffs to persuade the Court they relied on the misrepresentation. However, relying on prior precedent, the Supreme Court disagreed with Goldman and made clear that a defendant bears the full burden of persuasion in rebutting Basic.

Ford Motor Company v. Montana Eighth Judicial District Court, Nos. 19-368 and 19-369, Decided March 25, 2021

The Supreme Court addressed to what extent a business’s activities in a state create personal jurisdiction over the company such that the company may be sued in that state. Ford was sued in two state courts—Montana and Minnesota—for product liability torts, but contended that, because the cars were manufactured and sold in other states or Canada, Montana and Minnesota courts did not have personal jurisdiction over Ford.

The Supreme Court disagreed.  The Court reasoned that Ford’s specific conduct of selling or manufacturing the cars at issue need not have occurred in Montana or Minnesota so long as Ford engaged in other conduct in those states, such as advertising the cars, selling them, and servicing them.  Ford’s contacts in Minnesota and Montana, which were “designed to make driving a Ford convenient there,” made it reasonably foreseeable that a resident would buy a car across state borders and bring it back home.  Montana Eighth makes independent business activity more determinative of personal jurisdiction, observing that by “conducting so much business [in a state]” Ford “creates reciprocal obligations” like defending against claims by forum residents.

AMG Capital Management, LLC v. Federal Trade Commission, No. 19-508, Decided April 22, 2021

The Supreme Court limited the Federal Trade Commission’s ability to pursue monetary equitable remedies like restitution or disgorgement in court.  The case involved an individual whose companies allegedly used intentionally confusing and long contracts to make high-interest loans to customers. The FTC brought criminal and civil actions against the individual and his companies, and—citing its right to seek “permanent injuncti[ve]” relief—the FTC sought civil restitution from AMG. 15 U.S.C. § 53(b). This request was consistent with prior caselaw in the Ninth Circuit (where the case against AMG was brought), which affirmed the FTC’s ability to seek monetary equitable remedies. 

The Supreme Court reversed.  As a matter of statutory interpretation, the Court ruled that the FTC’s ability to pursue a “permanent injunction” in Section 13(b) of the Federal Trade Act, 15 U.S.C. § 53(b), did not include monetary equitable remedies like “restitution.”  Additionally, the Court reasoned that allowing the FTC to pursue restitution using Section 13(b) would be out of step with other parts of the Federal Trade Act (like Sections 5 and 19), which explicitly allow the FTC to pursue monetary equitable relief but include procedural safeguards for the defendant that are absent from Section 13(b).