Federal and state antitrust regulators and politicians are fixated on this country’s most successful online businesses. When discussing why the U.S. should follow other countries’ lead and bring these American-made innovators to heel (including at tomorrow’s House Judiciary Committee hearing), we may hear phrases like “data is the new oil,” “essential facility,” “network effects,” and “barrier to entry.” The use of such catchy buzzwords should not distract anyone, however, from the reality that collection and use of consumer data does not justify demands for elevated antitrust scrutiny.
Data is the new oil is a clever phrase, evoking a substance which, though essential to the economy, is highly regulated and increasingly demonized. But it is a misleading, inapt metaphor. Numerous other commentators, including International Center for Law and Economics’ Alec Stapp (who’ll be speaking at an October 30 WLF briefing) and Georgetown University’s Mark McCarthy, have thoroughly debunked the comparison, so we’ll focus here on three other buzzwords.
The idea that online data is an essential facility to which government must impose open access has won some supporters, mostly overseas. Data, to these advocates, is akin to a railroad bridge over a river owned by one railroad company. That company’s denial of bridge access to all other rail carriers shuts off competition, a predicament that only government intervention can resolve.
The essential-facility argument falters because the type of information that competitors of the online market leaders desire is “non-rivalrous.” Unlike oil, data can be used more than once. Consumers are free to share that desired information, either through entering it on a website or through their online activity, with any market participant they wish.
MIT Professor Catherine Tucker explains in an April 2019 CPI Antitrust Chronicle piece why data is unlikely to be an essential facility for online advertisers. Online browsing data is not very valuable, Professor Tucker explains, in part because over 90% of ad campaigns accomplish nothing. The presence of “multiple digital footprints” complicates one or several firms’ ability to maintain control over data relevant to advertisers.
A third justification for antitrust intervention gaining traction is that the large amounts of data enable online businesses to entrench themselves through network effects. The telephone network is a classic example of an industry that expands thanks to network effects—businesses’ value increases with each new telephone user. The more data a business collects, the “data network effects” argument goes, the better services it can provide, making it harder for new entrants to compete.
But as as two general partners at venture-capital firm Andreessen Horowitz explain in an analysis, businesses cannot count on network effects to build a “data moat” that secures a firm’s survival. Collection of data, they argue, is more of an economies-of-scale effect than a network effect. But more data doesn’t provide more value at less “cost.” As more data becomes available and more businesses are collecting it, data’s value decreases. Also, the authors explain, data’s short lifecycle of relevance and its repetitive nature reduce its value as more is collected.
A fourth argument for antitrust intervention is that large online firms’ data possession constitutes a market barrier to entry. Two major factors dictate against data, in and of itself, being a market entry barrier. First, as we discussed above, the type of data that new competitors require to enter the online market is abundant, reusable, and relatively inexpensive to obtain.
Second, consumer information has little or no value on its own. Only through innovation—the creation of products and services that efficiently and effectively harness data—does that information become valuable. Consider that when ride-sharing companies burst onto the scene, they didn’t have the relevant data—their taxi and limousine rivals had it. But what those firms did offer was a new approach and a product consumers liked to use, and the data followed.
American Action Forum’s Will Rinehart notes that a firm’s successfully “processed data,” not raw data, is what gives it a competitive advantage. A data-centric business’s success, he explains, can depend on how it adjusts to an avalanche of data and a rapid increase in users. Facebook succeeded in making these adjustments while its main rival, MySpace, “hit a wall with its technology and slogged through upgrades” that led to its ultimate demise.
Talent and creativity, not data, is more often than not the true barrier to entry, a circumstance that our antitrust laws should support, not deter or punish. As former FTC Acting Chairman Maureen Ohlhausen (also participating in our October 30 program) testified last July, “Antitrust is about protecting the process, not guaranteeing a particular result at a particular time.”
Government action motivated by market restructuring, and the resulting chill on innovation, can be a far more burdensome barrier to entry than any business’ collection or use of data. We’ve written previously about the antitrust missteps of the past. In the 1940s, the Justice Department and Congress acted against grocer A&P in part because its rivals complained about A&P’s revolutionary use of data to reduce prices and improve customer offerings. A&P crumbled under the weight of subsequent criminal and civil charges and the grocery industry, and its consumers, ended up suffering as a result.
Members of Congress, state attorneys general, and federal agencies, all of whom are competing over who can be tougher on Big Tech, must bear in mind the mistakes made by their predecessors, or risk negative market outcomes in the future.
Also published by Forbes.com on WLF’s contributor page.
The post Catchy Buzzwords Can’t Justify Increased Antitrust Scrutiny of Data-Centric Enterprises appeared first on Washington Legal Foundation.
The Committee on Small Business Subcommittee on Economic Growth, Tax, and Capital Access will hold a hearing titled, “Can Opportunity Zones Address Concerns in the Small Business Economy?” The hearing is scheduled to begin at 10:00 A.M. on Thursday, October 17, 2019 in Room 2360 of the Rayburn House Office Building.
The hearing will focus on what prospects the opportunity zones enacted in the Tax Cuts and Jobs Act provide for small businesses and local economic development. Members will have the chance to hear from witnesses about how the law works, the status of regulatory developments, and stakeholder input.To view a livestream of the hearing, please click here.
Mr. Aaron Seybert
Managing Director of Social Investments
The Kresge Foundation
*Witness testimony will be posted within 24 hours after the hearing’s occurrence
Wednesday, October 30, 1:00-2:00 p.m.
- Maureen K. Ohlhausen, Partner, Baker Botts LLP and Former Acting Chairman, Federal Trade Commission
- Alec Stapp, Research Fellow, International Center for Law and Economics
SBA Management Review: SBA IG Report on the Most Serious Management and Performance Challenges Facing the SBA
Each year the Office of Inspector General for the Small Business Administration releases a Report on the Most Serious Management and Performance Challenges Facing the SBA. The goal is to focus attention on significant issues to enhance the effectiveness of the agency and its programs. At this hearing, Members will hear directly from the Inspector General regarding the findings.
To view a livestream of the hearing, please click here.
Mr. Hannibal “Mike” Ware
United States Small Business Administration
*Witness testimony will be posted within 24 hours after the hearing’s occurrence
The post Domino’s must face blind man’s suit over website after U.S. Supreme Court rejects appeal appeared first on Washington Legal Foundation.
—Marc B. Robertson, WLF Staff Attorney
Click here for WLF’s comment.
WASHINGTON, DC— Washington Legal Foundation (WLF) today filed formal comments with the Food and Drug Administration (FDA) in response to a request for input on new proposed warnings for cigarette packages and advertisements. WLF’s comments argue that the proposed warnings run afoul of the First Amendment.
For years, FDA has required cigarette packages and advertisements to display warnings (such as the Surgeon General’s Warning) highlighting the potential dangers of cigarette smoking. In 2012, the U.S. Court of Appeals for the D.C. Circuit struck down an FDA regulation that imposed similar graphic warnings on tobacco products. The August 16 proposal takes largely the same approach as the invalidated rule, mandating that cigarette packages and advertisements include graphic, photorealistic images in addition to new textual warnings.
WLF’s comments argue that FDA’s second attempt suffers from the same constitutional infirmities as its earlier warning requirement. FDA asserts that its latest proposal advances a substantial government interest and does not unduly burden protected speech. But such an interpretation of commercial-speech rights flouts Supreme Court jurisprudence.
Under those precedents, WLF argues, the government may only compel speech if the required disclosure involves “purely factual and uncontroversial” information and is aimed at the preventing consumer deception. The FDA’s perceived “significant gaps in public understanding about the negative health consequences of cigarette smoking” do not amount to consumer deception by the cigarette companies. Further, the graphic images serve little purpose beyond shocking and inflaming consumers, and are therefore controversial.
The compelled disclosures are also far more extensive than necessary and impose an undue burden on the industry. Speech regulations should be a last resort, but FDA fails to provide evidence that it considered any alternative beyond requiring the tobacco industry to serve as a billboard for FDA’s ideological views.
Celebrating its 41st year, WLF is America’s premier public-interest law firm and policy center advocating for free-market principles, limited government, individual liberty, and the rule of law.
The post WLF Calls into Doubt Constitutionality of FDA’s Compelled Graphic Warnings on Cigarettes appeared first on Washington Legal Foundation.
The post Generics, Others Back Impax Against FTC In 5th Circ. appeared first on Washington Legal Foundation.
On the first day of the October Term 2019, the U.S. Supreme Court denied a Domino’s Pizza petition asking it resolve a split among the federal circuits over whether websites are “places of public accommodation” under the Americans with Disabilities Act (ADA). Even though the statute predates the Internet and contemplates only physical structures when prescribing private entities’ duties, the Ninth Circuit held that Domino’s failure to make its website “accessible” to a visually-impaired Californian violated the ADA.
Commentators have rightly predicted that the Domino’s cert denial will further incentivize the filing of ADA suits against business websites, an area of litigation already fraught with dubious claims. That unfortunate outcome means we’ll probably see more suits like those brought by Miami attorney Scott R. Dinin. As described in an August 23, 2019 federal sanctions order, Dinin, along with his hearing-impaired client, Alexander Johnson, hatched a scheme “to dishonestly line their pockets with attorney’s fees from hapless defendants under the sanctimonious guise of serving the interests of the disabled community.”
Dinin has brought at least 653 cases alleging ADA violations. 131 of those cases featured Johnson as the plaintiff. While some of those lawsuits were premised on non-compliant websites, Dinin’s specialty has been suing gas-station owners whose gasoline pumps included screens with video content. Those suits alleged that the videos’ lack of closed captioning violated Title III of the ADA (as well as Florida’s Civil Rights Act). As is common, many of Dinin’s ADA-shakedown targets settled. But a few fought back and, in doing so, exposed Dinin and Johnson’s scheme. The details—unearthed in discovery and featured prominently in several of U.S. District Judge Paul C. Huck’s pre-trial orders—are truly revelatory.
First, Judge Huck found that by failing to exhaust Johnson’s administrative remedies, as required for claims under the Florida Civil Rights Act, Dinin knowingly pursued frivolous civil claims in federal court.
Second, Judge Huck found that, contrary to the claims of Dinin’s (now-scrubbed) website, neither Dinin nor Johnson were crusaders for “the RIGHTS of the disabled” but rather had “abused the ADA solely for their own financial gain.” In the majority of agreements settling Johnson’s suits, the gas-station owners paid only attorneys’ fees and costs while providing no remedial relief. In several settlements, the only remedial relief obtained was that the gas station agreed to discontinue the videos.
Although eliminating the videos won’t provide Johnson with the closed-captioning he demanded, it will bring the targeted gas station owners into compliance with the ADA. But Dinin and Johnson didn’t want their targets to be compliant. In an email to Dinin providing feedback on a draft complaint, Johnson told Dinin to remove a statement alleging that the defendant failed to turn off the gas-pump videos after Johnson’s visit: “[W]e do not need to sabotage our other cases by providing defendants a defense.” As Judge Huck put it, Johnson didn’t want to “kill the goose laying their golden eggs.”
Third, Judge Huck found that Dinin systematically inflated his attorneys’ fees and misled the federal courts about his experience. For example, he billed 6.2 hours at $400 per hour to draft and file a complaint that was virtually identical to other ADA complaints he’d filed. He billed 1.8 hours to change the name of a defendant in that same complaint. And he billed 1.5 hours to make minimal wording changes that Johnson recommended. To justify his $400 hourly rate, Dinin claimed to be a highly qualified, experienced litigator. In one case, he claimed to have started his legal career in 1996. In another, he claimed to have practiced law since 2001. In reality, he was not admitted to The Florida Bar until 2008. Arguing against imposing sanctions, Dinin chalked up his “inadvertent[ly]” improper conduct to his “inexperience and incompetence,” which rendered him unable “to properly run a law firm.”
Last, and certainly not least, Huck exposes Dinin’s plainly unethical arrangement with Johnson. If the ADA settlements generated only attorneys’ fees and costs, Judge Huck asks in his sanctions order, “What’s in it for Johnson?” It turns out that Dinin split his fees 50/50 with Johnson in violation of a Florida Bar rule. Other than his disability benefits, those fees were Johnson’s sole source of income.
Judge Huck imposed a range of sanctions on Dinin and Johnson. Besides dismissing the two lawsuits before him, Judge Huck ordered the attorney and his client to disgorge all fees and costs recovered in every one of the gas-pump cases. The court also fined Dinin and Johnson $59,900 each, payable to a disabilities-rights group in Miami. Because Johnson claims an inability to pay, he must perform 400 hours of community service with a disabilities-rights group. Judge Huck also enjoined the pair from filing an ADA complaint in any jurisdiction without his court’s permission. Finally, Judge Huck referred Dinin to the Florida Bar for investigation.
Dinin and Johnson’s conduct was so egregious that one might conclude it’s an aberration. But ADA litigation abuse has been on the rise for more than a decade. Drive-by ADA lawsuits have been the subject of a 60 Minutes report, investigations and interventions by state attorneys general, and laws in states like Ohio and Florida requiring that plaintiffs give businesses notice and an opportunity to cure any alleged violation.
In the early days of ADA litigation abuse, attorneys and their clients would gas up the car and drive around town to identify physical premises that were out of compliance. Today, an ADA attorney, still in his pajamas, can surf the Internet in search of defendants from the comfort of his own bed. ADA suits involving websites grew 177% (from 814 in 2017 to 2,250 in 2018). Some observers have suggested that DOJ could mitigate problems of regulatory uncertainty and burdensome litigation if only it would promulgate a uniform Internet-accessibility standard under the ADA. But that expedient view of the problem overlooks a glaring defect—Congress never authorized such a rule. Sooner or later, the Supreme Court will need to intervene.
Also published by Forbes.com on WLF’s contributor page.
The post Egregious ADA-Litigation Scheme Highlights Need for Clarity on Law’s Application Online appeared first on Washington Legal Foundation.
—Richard Samp, WLF Chief Counsel
Click here for WLF’s brief.
WASHINGTON, DC—Washington Legal Foundation (WLF) today called on the U.S. Court of Appeals for the Fifth Circuit to overturn a Federal Trade Commission decision that applies exacting antitrust scrutiny to virtually any agreement between a brand-name drug company and a generic drug company to settle patent-infringement litigation. In an amicus curiae brief filed in Impax Laboratories LLC v. FTC, WLF argued that the FTC decision expands antitrust law dramatically and will make it almost impossible for litigants to settle drug-patent disputes.
As a reward for developing a new prescription drug, federal patent law grants a brand-name drug company the exclusive right to market the drug for several years. When the patent term expires, generic drug companies are permitted to produce copycat versions of the drug, and retail prices drop sharply. If a generic company initiates litigation and wins a judgment declaring the patent invalid, it can enter the market immediately—under conditions likely to produce enormous profits. The parties often end up settling their patent dispute, with generic companies agreeing to drop their patent invalidity claim in return for some consideration.
The U.S. Supreme Court’s 2013 decision in FTC v. Actavis held that a patent-litigation settlement is subject to antitrust scrutiny if the settlement includes a large and unexplained payment from the brand-name company to the generic company. It held such payments may be an indication that the brand-name company is unreasonably restraining trade by paying a potential competitor to stay out of the market. The Court rejected the FTC’s argument that such payments should be presumptively illegal; instead, it held that reviewing courts should apply a rule-of-reason analysis that looks at all factors to determine whether the settlement harms consumers. WLF argues that in this case, involving a settlement between Endo Pharmaceuticals and Impax Laboratories, the FTC found an antitrust violation after applying the very “presumptively illegal” standard of review disapproved by the Actavis decision.
Washington Legal Foundation preserves and defends America’s free-enterprise system by litigating, educating, and advocating for free-market principles, a limited and accountable government, individual and business civil liberties, and the rule of law.
Summary: Antitrust enforcers and other policymakers in the U.S. and abroad must recommit to criminal leniency programs that encourage businesses and individuals to voluntarily disclose their role in market-distorting cartel activity.
Digesting a dissent by Judge Elizabeth L. Branch
The Honorable Elizabeth L. Branch was nominated to the Eleventh Circuit by President Donald J. Trump and confirmed on February 27, 2018. Judge Branch had no role in WLF’s selecting or editing this opinion for our Circulating Opinion feature.
Case No. 17-13595, Decided September 17, 2019, U.S. Court of Appeals for the Eleventh Circuit
Introduction to the Opinion: In United State v. Florida, 2019 WL 4439465 (3d Cir. Sept. 17, 2019), the Eleventh Circuit concluded, per Sixth Circuit Judge Boggs sitting by designation, that the Attorney General of the United States may enforce Title II of the Americans with Disabilities Act (ADA) against public entities through a civil action. The majority opinion reasons that Congress indicated its clear intent to grant the Attorney General litigating authority under Title II by (1) cross-referencing other federal civil rights laws that granted the Attorney General litigation authority and (2) ordering the Attorney General to promulgate implementing regulations. In her succinct dissent, Judge Branch reads the statute as written, criticizing the majority for circumventing the presumption that the federal sovereign is not a “person,” and thus concluding that the Attorney General cannot be “a person alleging discrimination.” The language of Title II does not mention the Attorney General, she notes, while Titles I and III of the ADA explicitly name the Attorney General as an entity with enforcement authority.
BRANCH, Circuit Judge, dissenting:
Because the United States is not a “person alleging discrimination” under Title II of the Americans with Disabilities Act (“ADA”), Title II does not provide the Attorney General of the United States with a cause of action to enforce its priorities against the State of Florida. Accordingly, I respectfully dissent.
The relevant text of Title II states:
The remedies, procedures, and rights set forth in section 794a of Title 29 shall be the remedies, procedures, and rights this subchapter provides to any person alleging discrimination on the basis of disability in violation of section 12132 of this title.
42 U.S.C. § 12133 (emphasis added). The language of this provision is unambiguous. Title II provides enforcement rights “to any person alleging discrimination.” Thus, the question is whether the Attorney General is a “person alleging discrimination” under Title II.
To answer that question, we apply “a ‘longstanding interpretive presumption that ‘person’ does not include the sovereign,’ and thus excludes a federal agency.” Return Mail, Inc. v. USPS, 587 U.S. ––––, 139 S.Ct. 1853, 1861–62, 204 L.Ed.2d 179 (2019) (quoting Vermont Agency of Natural Resources v. US ex rel. Stevens, 529 U. S. 765, 780–781, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000)). In Return Mail, the Supreme Court considered whether the United States Postal Service (“USPS”), a federal agency, was a “person” eligible to seek patent review under the America Invents Act (“AIA”). USPS had petitioned for review of Return Mail’s patent under two sections of the AIA that allow for post-issuance patent review. Id. at 1861–62. However, the language of the AIA limited post-issuance review proceedings to “a person who is not the owner of a patent,” id. (citing 35 U.S.C. §§ 311(a), 321(a)), or when “the person or the person’s real party in interest or privy has been sued for infringement.” Id. (citing AIA § 18(a)(1)(B), 125 Stat. 330). Thus, the direct question presented to the Supreme Court in Return Mail was: “whether a federal agency is a ‘person’ capable of petitioning for post-issuance review under the AIA.” Id. In concluding that the Government presumptively is not a “person” for purposes of federal statutes, the Supreme Court explained:
This presumption reflects “common usage.” United States v. Mine Workers, 330 U.S. 258, 275 [67 S.Ct. 677, 91 L.Ed. 884] (1947). It is also an express directive from Congress: The Dictionary Act has since 1947 provided the definition of “person” that courts use “[i]n determining the meaning of any Act of Congress, unless the context indicates otherwise.” 1 U.S.C. § 1; see Rowland v. California Men’s Colony, Unit II Men’s Advisory Council, 506 U.S. 194, 199–200 [113 S.Ct. 716, 121 L.Ed.2d 656] (1993). The Act provides that the word “person … include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.” § 1. Notably absent from the list of “person[s]” is the Federal Government. See Mine Workers, 330 U.S. at 275 [67 S.Ct. 677] (reasoning that Congress’ express inclusion of partnerships and corporations in § 1 implies that Congress did not intend to include the Government). Thus, although the presumption is not a “hard and fast rule of exclusion,” United States v. Cooper Corp., 312 U.S. 600, 604–605 [61 S.Ct. 742, 85 L.Ed. 1071] (1941), “it may be disregarded only upon some affirmative showing of statutory intent to the contrary.” Stevens, 529 U.S. at 781 [120 S.Ct. 1858].
Id. at 1862.
Given Return Mail’s clear explanation of the presumption in favor of excluding the Federal Government from the definition of “person,” I approach the analysis of Title II the same way. As such, I begin with the presumption that “person alleging discrimination,” 42 U.S.C. § 12133, does not include the United States. See Return Mail, 139 S.Ct. at 1861–62. In order to overcome “the presumption that a statutory reference to a ‘person’ does not include the Government,” there must be “some indication in the text or context of the statute that affirmatively shows Congress intended to include the Government” in its definition of “person.” Id. Nothing in the text of Title II overcomes this presumption. But Return Mail states that context matters, too. And so I next examine the enforcement language contained in the other Titles of the ADA.1
In Title I of the ADA, the enforcement language provides as follows:
The powers, remedies, and procedures set forth in … this title shall be the powers, remedies, and procedures this subchapter provides to the Commission, to the Attorney General, or to any person alleging discrimination on the basis of disability in violation of any provision of this chapter, or regulations promulgated under section 12116 of this title, concerning employment.
42 U.S.C. § 12117(a) (emphasis added). The text of Title I thus explicitly conveys the “powers, remedies, and procedures … to the Attorney General.” Id. Title II echoes the “any person alleging discrimination” language contained in Title I, but the reference to “the Attorney General” is conspicuously missing from Title II. Compare 42 U.S.C. § 12133, with 42 U.S.C. § 12117(a).
Title III of the ADA also contains language bestowing enforcement authority on the Attorney General:
If the Attorney General has reasonable cause to believe that—(i) any person or group of persons is engaged in a pattern or practice of discrimination under this subchapter; or (ii) any person or group of persons has been discriminated against under this subchapter and such discrimination raises an issue of general public importance, the Attorney General may commence a civil action in any appropriate United States district court.
42 U.S.C. § 12188(b)(B) (emphasis added). The text of Title III of the ADA is even more explicit than the text of Title I and clearly provides the Attorney General with the authority to bring a civil suit in federal court. Title II, by contrast, is entirely devoid of any reference to “the Attorney General” or the power to “commence a civil action.” Compare 42 U.S.C. § 12133 with 42 U.S.C. § 12188(b)(B).
The difference in language across the ADA’s three titles is noteworthy. It is well settled that, “where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Russello v. United States, 464 U.S. 16, 23, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983) (quoting United States v. Wong Kim Bo, 472 F.2d 720, 722 (5th Cir. 1972)). If Congress had intended to grant a civil cause of action to the Attorney General in Title II, “it presumably would have done so expressly as it did in” Titles I and III. See Russello, 464 U.S. at 23, 104 S.Ct. 296.
Yet the majority essentially reads Title III’s language (that “the Attorney General may commence a civil action in any appropriate United States district court”) into Title II. Although the majority readily admits that, “at first glance, Title II’s enforcement provision is not as specific as those in Titles I and III,” it finds these differences inconsequential. The majority reasons that the differences between Title II and the other subchapters of the ADA “should not dictate a conclusion that, absent greater specificity, we should simply assume that a single word in § 12133 ends all inquiry.” As discussed above, the inquiry does, in fact, turn on a single word. Accordingly, it is clear that the Attorney General is not a “person alleging discrimination” under Title II.
Notably, however, the United States does not argue that the Attorney General is a “person alleging discrimination.” The United States instead argues that “Title II provides to ‘persons’ alleging discrimination the ‘remedies, procedures, and rights’—including the prospect of Attorney General enforcement—that are provided to persons under the Rehabilitation Act and Title VI.” The majority agrees with the United States: “Focusing solely on the word ‘person’ and the difference in the language of enforcement provisions within the ADA ignores” the presumption that “Congress legislated in light of existing remedial structures.” But “[f]ocusing solely on the word ‘person’ ” is precisely where this case should begin and end. Because the Attorney General of the United States—on behalf of the United States itself and not on behalf of any individuals served by the State of Florida—filed suit in this case, it is the United States that must have a cause of action to enforce Title II. And that determination necessarily depends on whether the Attorney General is a “person alleging discrimination” under the text of Title II. Because he is not such a person, the Attorney General has none of the “rights, procedures, and remedies” available under the Rehabilitation Act and Title VI. Accordingly, in this case, it is legally irrelevant what those “rights, procedures, and remedies” are because he simply does not possess those rights with respect to Title II. I do not agree that the multitude of cross-references to other federal regulatory schemes somehow provides a cause of action that does not otherwise exist in the text of Title II.
The Attorney General also insists that “a holding that the Attorney General cannot continue to bring lawsuits to enforce Title II would seriously undermine federal enforcement of the ADA against public entities.” But we cannot expand the definition of “person” just because such an interpretation would “further the purpose of the” statute. Return Mail, 139 S.Ct. at 1867 n.11. “Statutes rarely embrace every possible measure that would further their general aims, and, absent other contextual indicators of Congress’ intent to include the Government in a statutory provision referring to a ‘person,’ the mere furtherance of the statute’s broad purpose does not overcome the presumption in this case.” Id. See Cooper, 312 U.S. at 605, 61 S.Ct. 742 (“[I]t is not our function to engraft on a statute additions which we think the legislature logically might or should have made”). And Title II remains enforceable—even if the Attorney General does not have enforcement authority—because, as the Attorney General acknowledges, a “person alleging discrimination” may still enforce Title II through a private right of action.
Both the United States and the majority make much of the fact that “one of the purposes of the ADA was to ensure that the Federal Government ‘play[ed] a central role in enforcing the standards established in this chapter on behalf of individuals with disabilities.’ ” But, even if we find—as I do—that Title II does not allow the Attorney General to bring suit, the federal government will continue to “play a central role in enforcing the standards established in [the ADA] on behalf of individuals with disabilities.” 42 U.S.C. § 12101(b)(3). Title I and Title III of the ADA clearly and explicitly confer enforcement authority on the Attorney General. See 42 U.S.C. §§ 12117(a), 12188(b)(B). Accordingly, a holding that the Attorney General cannot sue the States to enforce Title II does not affect, in any way, the Attorney General’s ability to enforce the other Titles of the ADA. Thus, the ADA’s broad statutory purpose rationally coexists with the holding that the Attorney General cannot file federal lawsuits to enforce Title II.
Because the text of Title II is determinative, and because that text does not provide the Attorney General with a cause of action to enforce Title II against the State of Florida, I would affirm the order of the district court. I respectfully dissent.
The post Circulating Opinion: <em>United States v. Florida</em> appeared first on Washington Legal Foundation.
—Corbin K. Barthold, WLF Senior Litigation Counsel
Click here for WLF’s brief.
(Washington, DC)—Washington Legal Foundation today filed an amicus curiae brief urging the U.S. Supreme Court to clarify when a government delay in granting a land-use permit turns into a constitutional taking.
A California couple have been engaged in a years-long struggle to obtain a building permit for their land. When their case went to court, both the trial court and the California Court of Appeal ruled that the city authorities had arbitrarily held up their building project. The courts further ruled, however, that the landowners are not owed just compensation for a taking. Applying the multi-factor “Penn Central” regulatory takings test, the courts concluded that the landowners could not recover from the government unless they knew, when they bought the land, whether they would keep a house already standing on it, or instead replace it with a new one.
In its brief, WLF explains that the lower courts are applying the Penn Central test in many inconsistent ways. The lower courts cannot figure out how government delay fits into the Penn Central test, or how bad-faith government conduct fits into an assessment of delay. They take differing stances on whether any specific length of delay is presumptively suspicious. They cannot agree on whether the Penn Central factors are considered in a certain order or all at once. They are not even sure what those factors are. This confusion arises, WLF argues, directly from tensions in the Supreme Court’s own precedents on this area of law. WLF therefore urges the Court to grant review and provide the lower courts some much-needed guidance.
Celebrating its 42nd year as America’s premier public-interest law firm and policy center, WLF advocates for free-market principles, limited government, individual liberty, and the rule of law.
The post WLF Urges Supreme Court to Clarify Key Regulatory Takings Rule appeared first on Washington Legal Foundation.
The Committee on Small Business will meet for a hearing titled, “Silicon Prairie: Tech, Innovation, and a High-Skilled Workforce in the Heartland.” The hearing is scheduled to begin at 10:00 A.M. on Tuesday, October 8, 2019 at Dr. Thomas R. Burke Technical Education Center at Kansas City Community College, 6565 State Ave, Kansas City, KS 66102.
This hearing will examine the current state of the high-tech small business workforce and their challenges, particularly for startups and entrepreneurs located outside of technology hubs. It will also provide an opportunity for small business owners and experts to provide innovative solutions to combat the small business employee shortage.
Mr. David Toland
Kansas Department of Commerce
Mr. Thomas Salisbury
Regional Administrator, Region VII
Small Business Administration
Ms. Neelima Parasker
President and CEO
Overland Park, KS
Mr. Ruben Alonso III
Kansas City, MO
Ms. Tammie Wahaus
Elias Animal Health
*Witness testimony will be posted within 24 hours after the hearing’s occurrence
The post Justices Won’t Take ADA Suit Over Domino’s Website Access appeared first on Washington Legal Foundation.
The Committee on Small Business will meet for a hearing titled, “Closing the Digital Divide: Connecting Rural Americans to Reliable Internet Service.” The hearing is scheduled to begin at 1:00 P.M. on Friday, October 4, 2019 at Columbia Greene Community College, 4400 Route 23, Hudson, NY 12534.
Over 24 million Americans, the vast majority of whom live in rural areas, lack access to broadband at benchmark speeds. Small businesses, students, and farmers across upstate New York deserve better access to reliable and affordable broadband service. The field hearing will be an opportunity for the public to hear a conversation about broadband deployment efforts in rural America and the challenges small firms and local communities face without reliable broadband services.
Mr. Tim Johnson
Otsego Electric Cooperative
Ms. Shannon Hayes
Sap Bush Hollow Farm Store and Café
West Fulton, NY
Mr. David Berman
Mr. Jason Miller
Delhi Telephone Company
Mr. Brian Dunn
Middleburgh Central School District
Dr. Cliff Belden
Chief Medical Officer
Columbia Memorial Health
*Witness testimony will be posted within 24 hours after the hearing’s occurrence
United States ex rel. Glenn: What We Can Learn from Cisco’s Settlement of FCA Suit Alleging Cybersecurity Violations
Stephen A. Wood is a Partner with Chuhak & Tecson, P.C. in Chicago, IL and serves as the WLF Legal Pulse’s Featured Expert Contributor on the False Claims Act
Click here for a printer-friendly PDF.
On July 31, 2019 a False Claims Act complaint was unsealed with the contemporaneous announcement that the defendant in the case, Cisco Systems, Inc., had agreed to a settlement of all claims in the matter for a seven-figure sum. The firms representing the relator touted the settlement as groundbreaking, the first ever involving a breach of information-security requirements. The action was filed in 2011 and so predated current Federal Acquisition Requirements that impose direct obligations on contractors related to cybersecurity. Nevertheless, the relator alleged that Cisco knowingly sought payment for a system that put agency security at risk. The settlement highlights the growing FCA risk that businesses face with regard to information security. In addition, this and other recent cases further reveal the compliance challenges faced by government contractors and other businesses who rely upon revenue from government sources.
The Action Against Cisco
Filed as a qui tam action on May 10, 2011, the complaint names James Glenn, a former employee of Cisco’s Danish distributor, as relator. The action was brought on behalf of the United States as well as eighteen states and the District of Columbia under their respective anti-fraud statutes. Cisco was the sole defendant. Glenn alleges that he was fired by his employer when he complained about software defects in Cisco’s products. The only publicly available pleading is the complaint, which was unsealed on the day the settlement was announced.
At issue in this case was a Cisco-manufactured video surveillance system sold by it or by distributors to state and federal governments. The Cisco Video Surveillance Manager (VSM) runs on internet protocol-based software. The VSM allowed for connection and management of multiple video cameras through a centralized server, which in turn was accessible remotely over the internet. Cisco acquired the software from another company and adapted it for use in its VSM. Relator alleges that the security flaws existed at the time Cisco acquired the software and Cisco never fixed them.
The claimed security flaws were alleged to put a user’s entire information-management system at risk. Many customers, it was claimed, connected their video surveillance systems to their main computer systems through a local area network (LAN). In theory, anyone gaining unauthorized access to one video camera could access the entire computer system of a federal or state agency. This could permit a hacker, the complaint warns by way of example, to shut down an airport, or erase evidence (video or otherwise) of a crime. And because these systems were marketed to persons responsible for physical, as opposed to information, security, the flaws were less likely to ever be detected.
Relator claims that he discovered the flaws because his employer, a Danish company called NetDesign, generally encouraged employees to test the company’s products, software, and systems to identify weaknesses. As part of this effort, relator discovered these flaws in the VSM and reported them to his managers as well as Cisco. A couple of months later, relator was terminated ostensibly for financial reasons, which he suggested were pretextual given the company’s strong financial performance that year. Eventually, relator made his way to law enforcement in the U.S., providing the same information regarding the security flaws he had provided to Cisco.
Relator alleged that Cisco violated a federal regulatory scheme consisting of statutes, regulations, and standards. The starting point for his theory was the Federal Information Security Management Act of 2002 (FISMA), as implemented through the Federal Acquisition Regulations.1 FISMA required federal agencies to implement regulations pertaining to information security. The statutory text includes the following rationale: “Unauthorized disclosure, corruption, theft, or denial of IT resources have the potential to disrupt agency operations and could have financial, legal, human safety, personal privacy, and public confidence impacts. . . . In particular, there is need to focus on the role of contractors in security as more and more Federal agencies outsource various information technology functions.”
Relator alleged further that the Federal Acquisition Regulations at 48 CFR § 11.102 refer procurement stakeholders to the Federal Information Processing Standards (FIPS). The FIPS in turn incorporate certain National Institute of Standards and Technology (NIST) Special Publications, in particular SP 800-53. Cisco was alleged to have violated several SP 800-53 standards, including, for example, sections AC-3 (“Access Control Enforcement”), IA-5 (“Authenticator Management”), SC-8 (“Transmission Integrity”), SC-9 (“Transmission Confidentiality”), SC-23 (“Session Authenticity”), and SI-10 (“Information Input Validation”).
The Complaint asserts liability in a single count for violation of multiple sections of 31 U.S.C. § 3729 (a)(1). Similarly, the complaint contains a single count brought under each of the anti-fraud statutes of 18 states and the District of Columbia, for a total of 20 counts. Each follows the same pattern. No new facts are alleged. Cisco is claimed to have, among other things, “knowingly presented or caused to be presented, false or fraudulent claims for video surveillance software” as well as “knowingly made, used, or caused to be made or used, false or fraudulent records or statements material to false or fraudulent claims . . . .” Each count includes an allegation of conspiracy between Cisco and NetDesign, relator’s employer, “and others of its partners and affiliates, to commit statutory violations,” although no company other than Cisco is named as a defendant.
In response to the public announcement of the settlement, a Cisco spokesperson stated: “We are pleased to have resolved a 2011 dispute involving the architecture of a video security technology product. . . . There was no allegation or evidence that any unauthorized access to customers’ video occurred as a result of the architecture.” Public reports regarding the suit indicate that Cisco publicly acknowledged the problem, stopped selling the allegedly defective unit, and issued a software fix in 2013.
Analysis of the Settlement
Although the complaint isn’t entirely clear, relator implies that he was responsible for bringing this issue to Cisco’s attention, that it had no prior knowledge of the flaws in its VSM product. If true, it is fair to question whether Cisco would bear liability for any pre-notification conduct. An argument for liability would implicate what Cisco knew about the software before it sold the VSM and the technical difficulty required to discover the security flaws. And Cisco’s failure to detect the flaws on its own would have to rise to the level of reckless disregard or deliberate ignorance under § 3729 (b)(1). Of course, once on notice, Cisco could be held liable for continued sales of the allegedly defective system. Notably, the complaint contains no allegation that Cisco certified compliance, expressly or impliedly, with information-security requirements.
The amount of the settlement, approximately $8.6 million, seems relatively modest, given the number of plaintiffs involved and the likely number of sales of the video monitoring system. This was probably because no system was actually shown to have been breached, according to Cisco. In addition, contrary to the allegations that the defects rendered the system “worthless,” customers no doubt received value for the systems and used them for their intended purpose, despite the claimed software defects. It is entirely possible, too, that the allegations regarding the magnitude of the risk were overstated, that although it may have been possible for a hacker to access a video camera, the likelihood of a system-wide breach was much less likely.
At the time of the filing of the Cisco complaint, the relevant regulations and standards affected contractors only indirectly. Cisco’s product, it was alleged, caused agencies to be in breach of their obligations under FISMA to ensure the security of information assets (data and systems) including those provided or managed by contractors. There was no allegation that Cisco violated a regulatory or contractual term imposed directly on it. Instead, Cisco’s primary failing, it seems, was selling systems after notice of defect, albeit a defect that did not necessarily prevent the product from performing its intended function. In that sense, the Cisco case is more like a run-of-the-mill defective product FCA case, where the seller knows its product is defective and fails to rectify the matter or at least inform the government. In such a light, the Cisco settlement seems less ground-breaking.
What Does the Cisco Settlement Portend?
This is not to suggest that the Cisco settlement does not serve as a forerunner of information-security enforcement and litigation. Just the opposite is likely. This is a logical consequence of our government’s dependence upon technology and the internet, which in turn leads to regulation. After the filing of the Cisco complaint, the federal government issued regulations that imposed requirements on government contractors directly. In 2013, the Department of Defense promulgated 48 CFR 252.204.7012, titled “Safeguarding covered defense information and cyber incident reporting,” and proceeded to amend it multiple times over the next three years, creating a moving compliance target for industry.2 Contractors outside the defense industry must look to 48 CFR 52.204-21, similarly titled “Basic Safeguarding of Covered Contractor Information Systems.” The clause imposes a set of 15 basic requirements on contractors related to information security including, for example, limiting access to authorized users, authenticating the identities of those who have access to information, and controlling physical access to systems or data.
The terms of both provisions are rather vague and broad. For example, adequate security is defined under 252.204.7012 as “protective measures that are commensurate with the consequences and probability of loss, misuse, or unauthorized access to, or modification of information.” This regulation further states that contractors must “apply other information systems security measures when the Contractor reasonably determines that information systems security measures, in addition to those identified in paragraphs (b)(1) and (2) of this clause, may be required to provide adequate security in a dynamic environment or to accommodate special circumstances (e.g., medical devices) and any individual, isolated, or temporary deficiencies based on an assessed risk or vulnerability. These measures may be addressed in a system security plan.”
Ensuring compliance with such provisions is a challenge and warrants contract specific clarification through communication with the agency and agreement on a specific security plan. Thus, not only must contractors be cognizant of information-security compliance and attendant FCA litigation risk, but they must ensure that they have taken steps to identify as precisely as possible what security measures are required, and if those are not met, that the relevant facts are disclosed to the governing agency.
Even this may not be enough to forestall a qui tam filing, however, as can be seen in United States ex rel. Markus v. Aerojet Rocketdyne Holdings, Inc., pending in the Eastern District of California. Relator, former head of cybersecurity at the defendant company, alleged that the defendant failed to comply with applicable regulations, including 252.204.7012. In his complaint, he asserted two counts under the FCA: (1) that defendant committed promissory fraud in that compliance was a prerequisite to contract award, and (2) that defendant submitted false records in connection with claims for payment.3
The former claim, if proved, is more serious because it could lead to a finding that all contract invoices were false claims. See, e.g., United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943) (contract awarded as a result of collusive bidding renders all subsequent invoices false). Defendant moved to dismiss, mainly on lack of facts to show any material violation. In support, the defendant offered evidence that it had been in communication with the DOD regarding its cybersecurity compliance and had actually disclosed that it was not compliant. The court denied the motion to dismiss holding that the complaint alleged enough facts to establish materiality, mainly insofar as the extent of defendant’s noncompliance may not have been disclosed.
Apart from federal procurement, the health care industry faces similar risk of litigation related to information-security compliance. As an example, providers and other possessors of protected health information are required to safeguard this data under the Health Insurance Portability and Accountability Act (HIPAA). Breach of these requirements through inadequate information-security measures could result not only in liability for violations of HIPAA, but also possibly under the False Claims Act were a relator to allege the submission of Medicare or Medicaid claims for payment impliedly certified compliance with applicable regulations, including information security under HIPAA. See, e.g., United States ex rel. O’Donnell v. America at Home Healthcare and Nursing Svcs., Ltd., No. 14-cv-1098, 2018 WL 319319 (Jan. 8, 2018 N.D. Ill.) (denying motion to dismiss relator’s claim that HIPAA violation is actionable under FCA). This was essentially the theory put forth in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), where relator alleged that the defendant impliedly certified compliance with a variety of state and federal regulations by virtue of submitting claims for federal and state reimbursement.
The Cisco settlement and related information-security litigation reveals that any business subject to a government requirement of information security faces the possibility of litigation under the False Claims Act for violation of those requirements. Although an information-security breach would surely expose a company to greater liability, the lack of one will not insulate a company from exposure under the FCA, as was the case with the Cisco settlement. Compliance efforts must focus on these requirements, including the specification of requirements where clarity is lacking. This is likely to be an ongoing challenge for companies doing business with federal and state governments. Because technology is constantly changing, and security measures adequate one day may become obsolete the next, constant vigilance is necessary.
To read more about the items below, click the link above for a PDF of the newsletter.
The compensation claims of injured railroad employees are governed exclusively by the Federal Employers Liability Act; States may not create alternative compensation schemes. (Dannels v. BNSF Railway Co.)
Certifying a plaintiffs’ class that may obtain billions of dollars in recovery without a showing of actual harm raises serious due process concerns. (In re Facebook Biometric Information Privacy Litig.)
Without meaningful reform, multi-district litigation (MDL) in the federal courts will continue to erode public confidence in the value and fairness of MDL proceedings. (In re Multi-District Litigation Reform)
Second Circuit refuses to rehear First Amendment challenge to New York City ordinance that bans advertisements in for-hire vehicles. (Vugo, Inc. v. City of New York)
Utah Supreme Court rules that implantable medical devices (unlike prescription drugs) are not always deemed “unavoidably unsafe” products and thus are not automatically exempt from strict products-liability suits. (Burningham v. Wright Medical Group)
—Corbin K. Barthold, WLF Senior Litigation Counsel
Click here for WLF’s brief.
(Washington, DC)—Washington Legal Foundation today filed an amicus curiae brief urging the U.S. Supreme Court to review a Ninth Circuit decision that badly erodes modern antitrust law’s focus on consumer welfare.
A California federal jury was told that the defendant before it violated the antitrust laws if its only purpose, in refusing further dealings with the plaintiffs, was to harm a competitor. The Ninth Circuit approved this instruction even though the jury, by following it, could stand an antitrust violation solely on the defendant’s subjective intent.
Stripping objective criteria from the antitrust refusal-to-deal standard, WLF explains in its brief, is a major departure from settled antitrust law. In antitrust’s early days, bad intent was often closely linked to liability. It eventually became clear, however, that what matters, when a business’s conduct is scrutinized under the antitrust laws, is not what the business intended in theory, but what its conduct accomplished in reality. It is precisely by setting out to harm a rival that a business often ends up doing the most good for consumers and society at large. This became the uniform position of the federal courts. The Ninth Circuit’s ruling is a drastic step backwards.
WLF’s brief urges the Supreme Court to grant review and clarify that economic effects, not subjective intent, are the cornerstone of antitrust law.
Celebrating its 42nd year as America’s premier public-interest law firm and policy center, WLF advocates for free-market principles, limited government, individual liberty, and the rule of law.
The post WLF Urges Supreme Court To Review Ninth Circuit’s Retreat From Sound Antitrust Analysis appeared first on Washington Legal Foundation.
By Cary Silverman, a partner in the Washington, D.C. office of Shook, Hardy & Bacon L.L.P. and Frank Cruz-Alvarez, a partner in the firm’s Miami, FL office. Mr. Cruz-Alvarez is the WLF Legal Pulse’s Featured Expert Contributor on Civil Justice/Class Actions.
Any attorney familiar with consumer law who has viewed a late-night commercial targeting prescription drugs, medical devices, or other products has probably wondered why basic rules that apply to anyone else who sells a product or service do not seem to apply to plaintiffs’ lawyers. That may be finally changing.
On September 24, the Federal Trade Commission issued a press release indicating that the agency sent warning letters to several attorneys and “lead generators” expressing concern that some of their mass tort television advertisements mislead the public. At the same time, the FTC warned consumers that they should not stop a prescribed medication in response to an attorney advertisement. The FTC also offered guidance to attorneys on how to advertise without running afoul of the “fundamental principle” of FTC law: “Ads for services or products can’t be unfair or deceptive.” Attorney advertising, the FTC emphasizes, “is no exception.”
Lawsuit ads targeting prescription drugs and medical devices follow a common troubling formula. Ads are typically introduced as “medical alerts” to get viewers’ attention and mask their true profit motivation. Some flash the FDA’s official logo, which both builds credibility and may lead viewers to think the agency approves or supports the advertisement’s content. Ominous warnings follow, asserting that a medication that the FDA approved as safe and effective, and a physician prescribed after considering the risks to a patient, may lead to awful injuries or death. Ads often hide the identity of the sponsor and other important information in fine print that no one can possibly read. An advertiser that uses these types of tactics to sell any other product or service would be in hot water with the FTC.
The FTC’s action comes on the heels of an article published this month by nine FDA researchers who studied the impact of attorney advertisements on patients’ decisions to discontinue a direct oral anticoagulant (DOACs), including dabigatran (Pradaxa), rivaroxaban (Xarelto), apixaban (Eliquis), and edoxaban (Savaysa). Doctors prescribe these blood thinners to patients with conditions that place them at risk for strokes. They help by keeping blood clots from forming in an artery, a vein, or the heart, but anyone on an anticoagulant is at risk of excessive bleeding. The authors searched the FDA’s Adverse Event Reporting System to identify reports of patients who discontinued or reduced the dose of their DOACs after viewing an attorney advertisement.
What they found is stunning. Through November 15, 2017, the authors identified 66 reports of patients who discontinued their medication after viewing a lawsuit advertisement, usually without consulting with their doctor. Because of these fearmongering ads, which warn viewers that their medication causes internal bleeding, “bleeding on the brain,” “or even death,” half of these patients (33) experienced a stroke, seven people died, and 24 people experienced other serious injuries. Most of the victims were senior citizens. These figures likely significantly understate the number of injuries and deaths, as few doctors, patients, or their families may think to report attorney advertisements to the FDA or even be aware that an ad sparked a patient’s decision to stop taking his or her medication.
Misleading advertisements have generated thousands of lawsuits that have pressured some companies into settlements, but are the concerns warranted? Well, judges and juries have not thought so. Nearly all of the blood thinner cases that have reached trial, for example, have ended in defense verdicts. Meanwhile, the American Medical Association has decried these commercials. In a resolution adopted this year, the AMA’s House of Delegates indicates the issue has become “even more pervasive” since the physicians’ group first expressed concern in 2016, as actual patient harm is occurring as a result of misleading lawsuit ads.
The FTC’s recent action warns law firms and lead generators that:
- Lawsuit ads that cause, or are likely to cause, viewers to discontinue their medications may constitute an unfair act or practice.
- Ads that open with sensationalized warnings or alerts may mislead viewers to believe they are watching a government-sanctioned medical alert or public service announcement.
- Some lawsuit ads may misrepresent the risks associated with drugs. These ads could leave consumers with the false impression that the risks of the drugs exceed the benefits or that the FDA has recalled their prescribed medication.
The Commission suggests that lawsuit advertisements:
- Immediately identify themselves as paid advertising.
- Avoid “scare tactics.” Risks asserted in the ads, like health-related claims made in advertising other products, must be substantiated by competent and reliable scientific evidence.
- Include clear and prominent audio and visual disclosures stating that consumers should not stop taking their medications without first consulting their doctors.
Unless plaintiffs’ law firms that specialize in mass tort litigation and lead generators change their advertising practices, more action is likely to come. The FTC indicates that it “will continue to monitor potentially deceptive or unfair lawyer advertising” and “take follow-up action as warranted.” In addition, two states—Tennessee and Texas—passed laws this year prohibiting common deceptive lawsuit advertising practices, which could lead to state attorney general enforcement actions.
The post FTC SENDS WARNING TO MASS TORT LAWYERS AND LEAD GENERATORS appeared first on Washington Legal Foundation.