Bernstein Shur Business and Commercial Litigation Newsletter #81

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Daniel J. Murphy, Paul McDonald

July 2018 | Issue 81

Our July recap addresses a patent infringement case against Groupon, an enforcement action commenced against sellers of e-cigarettes, elimination of the so-called “Persuader Rule,” and other news that will have an impact on business and litigation.

IBM has filed suit against Groupon based on alleged breach of IP patents

In the suit brought in Delaware, IBM alleged that Groupon infringed on key patents held by IBM that facilitate e-commerce. Among other things, the patented technology allows users to log on to a commercial website using their Google or Facebook account, allowing for a “single sign-on.” Several notable e-commerce companies, including Amazon, Facebook, and Google, license the single sign-on technology from IBM, paying between $20 million to $50 million per year for such access. IBM seeks an award of nearly $170 million from Groupon, which it alleges has refused to license the technology. For its part, Groupon has asserted that IBM has overreached because its patents are based on a precursor to the current internet and do not apply to the present version of World Wide Web.

Massachusetts has launched an investigation of Juul, the e-cigarette maker, concerning alleged sales to minors

The investigation was commenced by Massachusetts Attorney General Maura Healey, who has placed Juul and two online sellers on notice they are required to verify the age of purchasers of e-cigarette products. Juul, which is based in California, has come under fire for allegedly marketing nicotine delivery products that are favored by minors. The devices resemble USB thumb drives and deliver vaporized nicotine fluid in a wide range of flavors. The U.S. Surgeon General has reported e-cigarette use among high school students has increased by 900 percent over a four-year period through 2015. Based on this data, the U.S. Food and Drug Administration has commenced enforcement actions against e-cigarette sellers. Massachusetts has faulted Juul for failing to prevent minors from purchasing their e-cigarettes, including a failure to properly verify the age of purchasers.

The Department of Labor has rescinded the so-called “Persuader Rule” introduced under the Obama administration in relation to union issues

Under this rule, attorneys and consultants were required to report on advice given to employers about persuading employees regarding issues concerning union organizing and collective bargaining. The rationale behind the rule was to require legal counsel to publicly disclose the identity of outside counsel or consultants seeking to affect the decision of employees to unionize, as well as the terms and activities of such arrangements. Since November, 2016, the Persuader Rule has not been implemented based on a nationwide injunction issued by a federal district court in Texas. The rule had been criticized as intruding on the attorney-client privilege and requiring the disclosure of confidential information. The Department of Labor struck down the Persuader Rule based on these concerns.

The Second Circuit Court of Appeals has affirmed dismissal of a class action against E*Trade Financial that brought state law claims where class claims had to be brought under federal statutes.

In the case, class plaintiffs took issue with E*Trade’s alleged practices of channeling trade orders to dealers that paid the most to E*Trade, rather than obtaining “best execution” for clients. Among other things, Plaintiffs alleged breach of fiduciary duty and failure to act in the best interests of client. On appeal, the Second Circuit determined that the claims asserted by Plaintiffs actually sounded in fraud and therefore had to be brought exclusively under the federal Securities Litigation Uniform Standards Act (SLUSA). Pursuant to this statute, class actions asserting securities fraud claims brought under the SLUSA and in compliance with heightened federal pleading standards. Based on class plaintiffs’ failure to comply with SLUSA, the Second Circuit affirmed dismissal of the class action.