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Deception Inspection: Attorney Faces Discipline for Citing Fake Law

The US Court of Appeals for the Second Circuit referred an attorney for potential further disciplinary measures after the attorney cited a nonexistent case created by ChatGPT. Park v. Kim, Case No. 22-2057 (2d Cir. Jan. 30, 2024) (Parker, Nathan, Merriam, JJ.) (per curiam).

Minhye Park sued David Dennis Kim for an action related to a wage dispute. During the district court proceedings, Park continually and willfully failed to respond to and comply with the district court’s discovery orders. Kim eventually moved to dismiss based on Park’s failure to comply with court orders and discovery obligations. Park opposed. After weighing the requirements of Rules 37 and 41(b), the district court concluded that dismissal was appropriate. Park appealed.

The Second Circuit affirmed the dismissal, concluding that Park’s noncompliance amounted to “sustained and willful intransigence in the face of repeated and explicit warnings from the court that the refusal to comply with court orders . . . would result in the dismissal of [the] action.”

Separately, the Second Circuit addressed the conduct of Park’s attorney during the appeal, including a citation to a nonexistent case that was generated using the artificial intelligence (AI) tool ChatGPT. After receiving Park’s reply brief, the Court ordered Park to submit a copy of one of the cited decisions. Park’s attorney responded that she was “unable to furnish a copy of the decision,” explaining that she had difficulty locating a relevant case through traditional legal research tools and therefore used ChatGPT to provide the case caption ultimately cited in the brief.

The Second Circuit found that citation to a nonexistent case suggests conduct that falls below the basic obligations of counsel, and thus referred the attorney to the Court’s Grievance Panel for further investigation and consideration of a referral to the Court’s admission committee. The Court explained that any attorney appearing before it is bound to exercise professional judgment and responsibility, which impose a duty to certify that any papers filed with the court are well grounded in fact and legally tenable. Recognizing that ChatGPT is a significant technological advancement, the Court explained that the use of such tools does not excuse an attorney from separately ensuring that submissions to the Court are accurate or legally tenable. The Court concluded that referral to the Grievance Panel was warranted because the brief presented a false statement of law and the attorney made no inquiry at all, let alone a reasonable inquiry into the validity of the arguments presented. The Court also ordered the attorney to provide a copy of the ruling to her client.

Practice Note: The Second Circuit noted that several courts around the United States have proposed or enacted rules addressing the use of AI tools before a court but explained that such rules are unnecessary to inform attorneys that court submissions should be accurate.




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Parody of Iconic Sneaker Isn’t Entitled to Heightened First Amendment Protection

The US Court of Appeals for the Second Circuit upheld a temporary restraining order and preliminary injunction enjoining use of a trademark and trade dress associated with an iconic sneaker design over a First Amendment artistic expression defense. Vans, Inc. v. MSCHF Product Studio, Inc., Case No. 22-1006 (2d Cir. Dec. 5, 2023) (per curiam). This case is the first time a federal appeals court has applied the Supreme Court of the United States’ recent decision in Jack Daniel’s v. VIP Products, which clarified when heightened First Amendment protections apply to expressive uses of another’s trademark and trade dress.

MSCHF Product Studio is a Brooklyn-based art collective known for provocative works that critique consumer culture. It sells its works in limited releases during prescribed sales periods called “drops.” It promoted and sold a shoe called the “Wavy Baby,” which is a distorted, corrugated version of the iconic black-and-white Vans Old Skool sneaker. MSCHF claimed that the product was a commentary on consumerism in sneakerhead culture and that the Wavy Baby shoes were not meant to be worn but were instead “collectible work[s] of art.”

MSCHF promoted the shoes using the musician Tyga. Vans sent MSCHF a cease-and-desist letter and a week later filed a six-count complaint in federal court, including a claim for trademark infringement under the Lanham Act. The following day, Vans filed a motion for a temporary restraining order, seeking to have the court enjoin the sale of the Wavy Baby shoes. Nevertheless, MSCHF proceeded with its pre-planned drop of the Wavy Baby sneakers and sold 4,306 pairs of the Wavy Baby in one hour.

About a week later, after oral argument on the temporary restraining order (TRO) motion, the district court granted Vans’s motion. The district court concluded that Vans would likely prevail in showing a likelihood of consumer confusion and rejected MSCHF’s contention that the Wavy Baby was entitled to special First Amendment protections because it was an artistic parody. MSCHF appealed.

The Second Circuit held the appeal in abeyance pending the Supreme Court’s Jack Daniel’s decision. In that case, Jack Daniel’s sued the maker of a squeaky dog toy that resembled the iconic whiskey bottle and used puns involving dog excrement in place of the actual language of the Jack Daniel’s label. In a unanimous decision, the Court clarified that special First Amendment protections (as used in the Rogers test for expressive works that incorporate another’s trademark) do not apply when a trademark is used as a source indicator—that is, “as a mark.”

The Second Circuit concluded that the Jack Daniel’s case “forecloses MSCHF’s argument that Wavy Baby’s parodic message merits higher First Amendment scrutiny” because, even though the product is a parody, the Rogers test does not apply if the mark is also used as a source identifier. The Second Circuit drew a direct parallel between Wavy Baby and the punning dog toy in the Jack Daniel’s case, noting that in both cases the infringing product evoked the protected trademark and [...]

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All the Way Up to the Second Circuit, and Back

The US Court of Appeals for the Second Circuit vacated a grant of summary judgment made prior to discovery, holding that the district court abused its discretion in finding a draft contract agreement admissible under Federal Rule of Evidence (FRE) 1003 notwithstanding sworn testimony questioning its contents. Eric A. Elliott, aka Fly Havana v. Joseph Anthony Cartagena et al., (2d. Cir. Oct. 17, 2023) (Merriam, Nardini, JJ.)

The dispute in this case centered on whether Eric Elliott was properly credited and compensated for his contribution in writing the song “All the Way Up.” Both Elliott and Joseph Anthony Cartagena (also known as “Fat Joe”) acknowledged that Elliott had signed an agreement regarding the song, but both parties were unable to locate the original agreement. Instead, Cartagena submitted a draft that he claimed was an authentic duplicate. This draft purported to assign all of Elliott’s rights to the song to an entity.

Elliott disputed the authenticity of the draft, claiming that there were numerous additional and different material terms in the agreement he signed. Nonetheless, the district court found the evidence admissible under FRE 1003 and 1004 and entered summary judgment in favor of defendants prior to discovery being conducted in the case. Elliot appealed.

The Second Circuit concluded that the district court abused its discretion and vacated. FRE 1002, also known as the “best evidence rule,” states that “[a]n original writing . . . is required in order to prove its content unless these rules or a federal statute provides otherwise.” If an original document is unavailable, a duplicate may still be admissible under FRE 1003, which states: “A duplicate is admissible to the same extent as the original unless a genuine question is raised about the original’s authenticity or the circumstances make it unfair to admit the duplicate.”

Here, the district court relied on Cartagena’s sworn testimony that he printed the draft at the complex where he lived and brought it with him to a meeting with Elliott. The district court disregarded Elliott’s sworn testimony in response to Cartagena, which suggested that the draft was not identical to the version Elliott signed. While the draft specified that the rights to the song would be assigned to an entity, Elliott averred that the version he signed “seemed to state that [he] was going to be compensated and credited as a writer.” Given this factual dispute, the Second Circuit held that the district court abused its discretion in admitting the draft as a duplicate under FRE 1003 and granting summary judgment, particularly without the benefit of discovery.

The Second Circuit concluded that there was a genuine factual dispute as to whether Elliott validly assigned all his rights and whether any such purported assignment precluded Elliott’s claims. Given the issues regarding the authenticity of the draft and the genuine dispute of material fact, the Court found summary judgment improper.

However, a duplicate may also be admissible under FRE 1004, which states: “[a]n original is not required and other evidence of the content [...]

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Unfair Play: Unjust Enrichment for Copying and Using Non-Trade-Secret Spreadsheet

The US Court of Appeals for the Second Circuit reversed a district court’s dismissal of an unjust enrichment claim, finding that unjust enrichment claims do not necessarily rise or fall with trade secret misappropriation claims and may be advanced where there is a dispute as to whether a contract’s scope covers the parties’ disagreement. Pauwels v. Deloitte LLP, Case No. 22-21 (2d Cir. Oct. 6, 2023) (Sacks, Robinson, JJ.) (Jacobs, J., dissenting in part).

Andre Pauwels is a contractor who was retained without written agreement by The Bank of New York Mellon and its parent company (collectively, BNYM) to work on investment valuation. In 2014, while working for BNYM, Pauwels developed the “Pauwels Model” for valuation, which was implemented in Excel spreadsheets. Pauwels typically would send BNYM only the outputs from the Pauwels Model. According to Pauwels, the Pauwels Model and spreadsheets were confidential and proprietary, although the spreadsheets were not password-protected, encrypted or labeled confidential, and Pauwels sometimes shared the spreadsheets with BNYM.

In 2016, BNYM engaged Deloitte and related entities (collectively, Deloitte) to take over Pauwels’s duties. Pauwels never authorized BNYM to share the Pauwels Model spreadsheets with Deloitte, and BNYM assured Pauwels that Deloitte was not using those spreadsheets. In April 2018, Pauwels discovered that BNYM had given Deloitte the spreadsheets and that Deloitte had copied the Pauwels Model. BNYM terminated its relationship with Pauwels in May 2018.

In March 2019, Pauwels sued BNYM and Deloitte for trade secret misappropriation, unfair competition and unjust enrichment and further alleged that BNYM committed fraud and negligent misrepresentation. After BNYM and Deloitte moved to dismiss, the district court granted the motion in relevant part. The district court dismissed the unjust enrichment claim as duplicative of the trade secret misappropriation claim, citing the 2009 Second Circuit case Faiveley Transp. Malmo v. Wabtec for the proposition that “where an unfair competition claim, and a misappropriation claim arise from the same factual predicate . . . the two claims generally rise or fall together.” The district court dismissed the remainder of the claims for failure to plausibly allege the existence of trade secrets, that BNYM and Deloitte had “misappropriated” anything, or that Pauwels suffered damages. Pauwels appealed.

The Second Circuit reversed the dismissal of Pauwels’s unjust enrichment claim as to BNYM. Initially, the Court found that Pauwels’s unjust enrichment claim was not duplicative of his trade secret misappropriation claim, distinguishing Faiveley Transp. and explaining that misappropriation is not an element of unjust enrichment claims. The Court rejected BNYM’s argument that Pauwels’s unjust enrichment claim was precluded by the contract between the parties. The Court found that Pauwels could maintain his claim because there was “a bona fide dispute . . . whether the scope of an existing contract covers the disagreement between the parties.” According to Pauwels, he was engaged and paid for his advice and expertise only, meaning that BNYM had no right to benefit from the Pauwels Model spreadsheets by sharing them with Deloitte. According to BNYM, [...]

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Cover-Up Isn’t Covered Under VARA

The US Court of Appeals for the Second Circuit affirmed that the Visual Artists Rights Act of 1990 (VARA) does not prohibit covering an artist’s mural where there is no damage to the mural. Samuel Kerson v. Vermont Law School, Inc., Case No. 21-2904 (2d. Cir. Aug. 18, 2023) (Livingston, Cabranes, Kovner, JJ.)

In 1993, Samuel Kerson and Vermont Law School entered into a written agreement for Kerson to paint two murals on the walls of the law school’s community center. The completed murals were publicly viewable and depicted several distinct scenes spanning the history of US slavery, from the capture of Africans in their homelands through the abolitionist movement.

Because of complaints from community members regarding how the murals presented Black people, the law school considered options for the murals’ removal. The school decided to conceal the murals behind a barrier of fabric-cushioned acoustic panels. The panels were constructed such that they were suspended approximately two inches away from the murals’ surface and did not touch the murals.

Kerson filed suit seeking to enjoin the installation of the acoustic panels on the theory that they amounted to a violation of his rights under VARA. Under the relevant part of VARA, the author of a “work of visual art” “shall have the right”:

(A) to prevent any intentional distortion, mutilation, or other modification of that work which would be prejudicial to his or her honor or reputation, and any intentional distortion, mutilation, or modification of that work is a violation of that right, and

 

(B) to prevent any destruction of a work of recognized stature, and any intentional or grossly negligent destruction of that work is a violation of that right.

17 U.S.C. §§ 106A(a)(3)(A)-(B).

In the district court, Kerson argued that blocking the public from viewing his work of art would amount to the “destruction” or “intentional distortion, mutilation, or other modification” of the murals. The district court disagreed and granted summary judgment in favor of the law school. Kerson appealed.

Kerson argued that permanently concealing the murals with a solid barrier of acoustic panels modified and thus “destroy[ed]” his work. The Second Circuit agreed with the district court that covering a work of art did not amount to “destruction” under VARA. The Court explained that Kerson’s argument did not comport to the conventional understanding of the word “destruction” under the plain meaning of the statute. The acoustic panels were designed to not touch the murals, let alone destroy them.

The Second Circuit also rejected Kerson’s argument that covering a work of art amounts to “modification.” Under VARA, “modification” would entail a change to the work of art that alters some portion of it without radically transforming the whole. For example, an additional brush stroke, erasure of content or the reorganization of a movable component would be a modification of a work of art. Modifications do not include concealing the entire work behind a solid barrier.

The Second Circuit also rejected Kerson’s argument that concealing the murals was [...]

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Electra Powers Second Circuit’s False Endorsement Analysis

Following on the heels of its 2021 decision in Electra v. 59 Murray, the US Court of Appeals for the Second Circuit affirmed the summary judgment denial of a Lanham Act claim related to false endorsement premised upon the unauthorized use of photographs in connection with promotional materials. Souza et. al. v. Exotic Island Enterprs., Inc., Case No. 21-2149 (2d Cir. May 19, 2023) (Lynch, Nardini, Menashi, JJ.) The Second Circuit also affirmed the district court’s summary judgment denial of Lanham Act false advertising and New York state right of publicity claims.

The operator of a gentlemen’s club used photographs of current and former professional models in social media posts promoting the club. The photographs were obtained without the models’ permission through a third-party vendor. The models sued the club operator asserting false endorsement, false advertising and right of publicity violations. The parties filed dueling summary judgment motions in February 2021. During the pendency of those motions, the Second Circuit decided Electra, a case involving overlapping plaintiffs suing on several of the same causes of action based on highly similar fact patterns. The district court subsequently granted the club operator’s motion for summary judgment and denied the models’ motion. The models appealed.

The Second Circuit relied heavily on its Electra decision to affirm the district court’s denial of the models’ false endorsement claim. To prevail on a false endorsement claim under Section 43 of the Lanham Act, the models were required to prove that there was a likelihood of confusion between their goods or services and those of the club operator. Likelihood of consumer confusion is evaluated using the eight Polaroid factors:

  1. Strength of the trademark
  2. Similarity of the marks
  3. Proximity of the products and their competitiveness with one another
  4. Evidence that the senior user may bridge the gap by developing a product for sale in the market of the alleged infringer’s product
  5. Evidence of actual consumer confusion
  6. Evidence that the imitative mark was adopted in bad faith
  7. Respective quality of the products
  8. Sophistication of consumers in the relevant market.

First, the models argued that the district court oversimplified the “strength of the mark” analysis (factor 1) to focus only on the recognizability of the mark. The Second Circuit disagreed, explaining that not only was Electra’s focus on recognizability binding precedent but also, that factor was required to be evaluated in the context of the mark’s strength in the false endorsement context (i.e., as a function of the extent to which the endorser’s identity could be linked with the product being sold). In other words, without an adequate showing that the models were recognized in the social media posts promoting the club, there could be no case of endorsement, let alone false endorsement.

Second, the models challenged the district court’s exclusion of their expert testimony on certain Polaroid factors. The district court excluded surveys conducted by the models’ expert as unreliable because they suffered from various methodological flaws and, therefore, did not provide a reliable [...]

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No Lost Value Damages Despite Trade Secret Misappropriation

The US Court of Appeals for the Second Circuit vacated a damages award, finding that although there was liability for appropriating trade secrets, the trade secret proprietor was only entitled to compensatory damages under federal trade secret law, not avoided cost damages based on alleged estimated research and development or loss of value. Syntel Sterling Best Shores Mauritius, Ltd., et al. v. The TriZetto Grp., Inc., et al., Case No. 21-1370 (2d Cir. May 25, 2023) (Wesley, Raggi, Lohier, JJ.)

This case involved trade secrets concerning healthcare insurance software called Facets® that was developed by TriZetto and alleged misappropriation by a TriZetto subcontractor, Syntel Sterling. In 2010, TriZetto and Syntel entered a Master Service Agreement (MSA) under which Syntel agreed to support TriZetto’s Facets customers. In exchange, TriZetto granted Syntel access to its trade secrets related to Facets. In 2012, the parties amended the MSA to allow Syntel to compete directly with TriZetto for consulting services. A dispute arose in 2014 when Syntel’s competitor Cognizant acquired TriZetto. Syntel terminated the amended MSA and requested payment of rebates owed. TriZetto refused, raising concerns about Syntel’s continued use of confidential trade secrets post-termination.

Syntel filed suit for breach of contract in the Southern District of New York, and TriZetto counterclaimed. During trial, TriZetto proceeded on trade secret misappropriation counterclaims related to the Facets software under the Defend Trade Secrets Act (DTSA) and New York law. Syntel argued that the amended MSA authorized Syntel to compete for Facets services business while using TriZetto’s trade secrets.

During discovery, the district court issued a preclusion order that sanctioned Syntel for discovery misconduct, finding that “Syntel was actively creating a repository of [TriZetto’s] trade secrets on its own . . . to be used in future work.” Citing the preclusion order, the district court instructed the jury that Syntel had misappropriated two of 104 asserted trade secrets.

With respect to damages, TriZetto presented expert testimony that established that Syntel avoided spending about $285 million in research and development costs because of the misappropriation covering the period between 2004 and 2014, an amount that covered only a portion of TriZetto’s overall $500 million research and development costs. Syntel’s expert did not counter that amount. Instead, Syntel argued that these avoided costs did not apply here for several reasons: because the alleged misappropriation did not destroy the value of Facets since Syntel could have used Facets for free by entering a third-party access agreement with TriZetto because TriZetto continued to make millions using its Facets software, and because Syntel was not a software company but a competing service provider. The jury instructions included Syntel’s avoided development costs as one form of unjust enrichment that applied to the federal claims but not the state claims.

The jury returned a verdict in favor of TriZetto on all counts. The jury awarded TriZetto $285 million in avoided development costs under the DTSA as compensatory damages and double that amount in punitive damages. Following trial, Syntel renewed its motion for judgment as [...]

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When Are Compulsory Copyright Licenses Compulsory?

The US Court of Appeals for the Second Circuit partially affirmed a district court’s summary judgment order holding that audiovisual recordings of live concerts do not fall within the scope of the Copyright Act’s compulsory license provision while purchasers of audio-only recordings obtain a compulsory license in the copyright of the work fixed by their predecessors/sellers. ABKCO Music, Inc. et al. v. Sagan et al., Case No. 20-3816 (2d Cir. Oct. 6, 2022) (Jacobs, Wesley, Menashi, JJ.)

In 2002, William Sagan purchased, through Norton, a collection of audio and audiovisual live concert recordings from Bill Graham Archives. All three parties are named defendants in this case. The agreement conveyed all intellectual property that the Archives held (from a transaction with Sagan) and included a disclaimer stating that record company and artist approval was required to exploit the recordings. The defendants’ subsequent purchases of other recordings contained similar limited assurance language regarding intellectual property rights. In 2006, the defendants made the entire collection publicly available online for a streaming and downloading fee. A year later, the defendants began using a third-party licensing agent to obtain compulsory licenses under 17 USC § 115 and negotiated licenses from plaintiff music publishers in the audio and audiovisual live concert recordings.

Section 115 of the Copyright Act requires persons seeking to make and distribute phonorecords of a previously published musical work to obtain a compulsory license by providing notice to the copyright owner before distribution and paying government-prescribed royalties. (§ 115(a)(1), (b), (c).) The Copyright Act defines phonorecords as “[m]aterial objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed.” (§ 101.) Section 115’s substantive requirements for duplications of audio/sound recordings fixed by another include requirements that the sound be fixed lawfully, and that duplication be authorized by the copyright owner. (§ 115(a)(1).)

In 2015, the music publishers sued defendants for copyright infringement of 197 musical works posted online without valid compulsory licenses. The music publishers alleged that the defendants did not obtain compulsory licenses for audiovisual works as required by § 115 and that the defendants failed to comply with § 115 substantive compulsory licensing requirements for audio-only works. Defendants argued implied license and equitable estoppel as affirmative defenses. The publishers sought damages and a permanent injunction pursuant to the Copyright Act.

The district court, on summary judgment, ruled that the defendants had no valid license authorizing the reproduction and distribution of the musical works in either audio or audiovisual format, that the defendants had neither an implied license nor any basis for estoppel, and that Sagan (a principal in several of the defendant streaming services) was liable for direct infringement. The district court denied the publishers’ request for an injunction but granted the publishers an award of attorneys’ fees. The defendants appealed from the summary judgment order and the order granting fees and costs. The plaintiffs cross-appealed denial of an injunction.

The Second Circuit affirmed the district court’s holding that the defendants infringed each musical work [...]

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Don’t Dew It: Second Circuit Cans Likelihood of Confusion Argument

The US Court of Appeals for the Second Circuit reversed and vacated a district court’s preliminary injunction grant because the district court erred in assessing the strength of a trademark. RiseandShine Corporation v. PepsiCo, Inc., Case No. 21-2786 (2d Cir. July 22, 2022) (Leval, Chin, Menashi, JJ.)

Rise Brewing began selling canned coffee under the registered mark “RISE” in 2016. The registered mark consists of the word “rise” in large, red, regular capital letters with the words “Brewing Co.” below in a smaller, similar font on a horizontal line. The mark appears on every bottle of Rise Brewing’s canned coffee products.

In March 2021, PepsiCo launched a canned energy drink product under the mark “MTN DEW RISE ENERGY,” which contains the word “rise” on the top of each can, followed by the word “energy” running vertically up its side in a much smaller font and the MTN DEW house mark above the word “rise.”

Rise Brewing filed a complaint for trademark infringement and filed a motion for a preliminary injunction to enjoin PepsiCo from using or displaying the challenged in the market pending trial. The district court granted the motion, finding that Rise Brewing was likely to succeed on the merits regarding likelihood of confusion. PepsiCo appealed.

The Second Circuit explained that the party seeking a preliminary injunction over the use of a trademark can meet the likelihood of success prong of the preliminary injunction standard by showing that a significant number of consumers are likely to be misled or confused as to the source of the products in question. Here, the district court found that there would be a likelihood of reverse confusion—that consumers would mistake Rise Brewing’s coffee products (the prior user) as Mountain Dew products (the subsequent user). The Court disagreed and reversed, finding that the district court erred in the evaluation of the most important factor: strength of the mark.

The strength of a trademark is assessed based on either or both of two components:

  1. The degree to which it is inherently distinctive
  2. The degree to which it has achieved public recognition in the marketplace.

Although the Second Circuit agreed with the district court that the RISE trademark was a suggestive mark, it disagreed on the extent to which it was distinctive. The Court explained that “[t]he district court failed to note that the strong logical associations between ‘Rise’ and coffee represent weakness and place the mark at the low end of the spectrum of suggestive marks.” Because of the legal element in determination of the strength of a given mark, the district court’s mistake constituted a legal error.

The Second Circuit found that the lack of distinctiveness in using the term “rise” to describe coffee products can be demonstrated by [...]

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Lost and “Found”: Fourth Circuit Interpretation of Discovery in Support of Foreign Litigation Opens Circuit Split

The US Court of Appeals for the Fourth Circuit held that a corporation that is not physically present in a district is not “found” in the district for purposes of the federal statute that authorizes courts to order discovery for use in a foreign tribunal. In re Eli Lilly and Co., Case No. 22-1094 (4th Cir. 2022) (Niemeyer, Diaz, JJ.; Floyd, Sr. J.) The Court rejected the approach of the Second Circuit, which previously had held that a district court’s power to order discovery under 28 USC § 1782 was coextensive with the minimum contacts inquiry of specific jurisdiction.

After acquiring a patent portfolio related to the psoriasis drug Taltz, Novartis AG sued Eli Lilly for patent infringement in several European courts. Eli Lilly requested discovery from Novartis in the Eastern District of Virginia under § 1782, which authorizes a district court “of the district in which a person resides or is found” to “order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal.” Novartis is based in Switzerland and has no offices or employees in the Eastern District of Virginia.

Following a magistrate judge’s grant of Eli Lilly’s ex parte application for a discovery subpoena, the district court vacated that order. The Fourth Circuit affirmed, substantially echoing the district court’s reasoning.

There was no dispute that Novartis did not “reside” in the district; the only issue was whether Novartis could be “found” there. The Fourth Circuit considered the plain meaning of “found,” Supreme Court precedent interpreting similar statutory language, and the legislative history of the statute, and held “that a corporation is found where it is physically present by its officers and agents carrying on the corporation’s business.”

The Fourth Circuit rejected Eli Lilly’s counterargument that the satisfaction of specific jurisdiction requirements was sufficient for a corporation to be “found” in a district, including Eli Lilly’s reliance on the 2019 Second Circuit decision in In re del Valle Ruiz, which held that a corporation was “found” wherever it could be subject to specific jurisdiction. The Fourth Circuit concluded that In re del Valle Ruiz failed to give “found” its plain meaning, incorrectly ignored Supreme Court precedent and did not give appropriate weight to the legislative history of § 1782.

Even if the Fourth Circuit had disagreed with the district court’s interpretation of § 1782, the Court would still have affirmed based on the deferential abuse-of-discretion standard. Because § 1782 permits, but does not require, an order of discovery, the Court found that the district court’s determination that to “request[ ] [ ] a substantial volume of data and materials located abroad [to] be brought into the United States for subsequent use in proceedings abroad, [would be] a nonsensical result” was well reasoned.

With this decision, the Fourth Circuit broke with the Second Circuit and created a circuit split in the interpretation of § 1782.

Ian Howard, a summer associate in the Washington, DC, office, also contributed [...]

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