Winter 2006-Spring 2007
(Special Double Issue)
In This Issue
Perhaps many of you recall your law review days and remember being a bit confused when you started your first cite check and realized it was for an issue dated two years prior to the current year. Lawyers’ falling behind on publications starts early on in law school. Such is the case with The Foreseeable Future. We got a little bit behind with the crush of regular business. But, to make up for it, we are pleased to bring you a special Winter/Spring double issue packed with useful information. Hey, maybe we have started a new tradition. Nevertheless, we will be back on track with the summer issue in a couple of months. Until then, have a safe and fun Memorial Day.
On April 30th, the Supreme Court dealt a setback to patent holders and applicants whose underlying inventions may be deemed “obvious” in light of prior work in the field. In KSR International v. Teleflex, Inc., the Supreme Court rejected the Federal Circuit’s long-standing “teaching-suggestion-motivation” doctrine that helped courts and the PTO determine whether an invention was an obvious combination of prior teachings in the field. Under that test, one challenging a patent typically had to find in the prior art some indication that the ideas from different articles or patents could be combined in order to invalidate a patent as “obvious.” According to the Court, however, neither Congress’s enactment of Section 103 of the patent statute nor the Court’s prior precedent “disturbed this Court’s earlier instructions concerning the need for caution in granting a patent based on the combination of elements found in the prior art.” The Court explained that a combination patent that only “unites old elements with no change in their respective functions” essentially uses only knowledge from the public domain.
The Court’s opinion will make it easier for the PTO to reject a patent application as presenting an obvious invention; the decision may also embolden those who may wish to petition to re-examine in the PTO a patent on obviousness grounds, as well as those defendants accused of patent infringement if they believe the asserted patent may be invalidated as obvious. For the University and other significant patent holders, it is too early to know how the decision will affect business. But almost certainly the decision will require a hard look at any invention or patent that could be challenged as “obvious” based on the standard now embraced by the Court.
OGC will keep you posted on developments in this area as they arise.
The Drug-Free Schools and Communities Act was passed in 1989. The Drug-Free Schools and Campuses Regulations went into effect in 1990 and lay out several requirements regarding alcohol and drug abuse prevention programs with which all institutions of higher education receiving federal funding must comply. UT System Administration Policy 164 was also developed in accordance with the federal requirements. One of the requirements of the law and policy is a biennial review of alcohol and other drug programs and policies to determine program effectiveness and consistency of policy enforcement and to identify and implement any changes needed.
The biennial report is not required to be submitted to the Department of Education, but must be compiled and available for inspection. Although the regulations do not specify a date by which the report needs to be completed, the Department of Education recommends that the report be available by the end of each even numbered calendar year. Many of the UT institutions received a reminder from the Department of Education and may have already completed the review and report; however, for those that have not, immediate attention to this matter is recommended. The U.S. Department of Education’s Higher Education Center for Alcohol and Other Drug Abuse and Violence Prevention has prepared a guide that is a very useful resource.
When OGC implemented its electronic document management system, UT institutions were requested to send any requests for document review or assignment of an attorney via email if possible. If you do not receive an email confirmation with notification of attorney assigned from our office within 48 hours, please call the intended recipient.
Please join me in welcoming these new attorneys to OGC:
by Steve Rosen (Business Law)
On February 8, 2007, the Board of Regents approved a series of modifications to Regents’ Rules and Regulations Rule 90000 relating to intellectual property. The modifications are the result of a year-long joint effort by faculty, administrators and industry to consider revisions that will make the UT System intellectual property policies more transparent, easier to understand and apply, and will further promote the commercial development of inventions created at the UT institution. The new rules:
by Dana Hollingsworth (Business Law)
Texas Constitution, Article XVI, Section 21, requires that certain goods and services, including printing and natural gas, be performed under a contract awarded to the lowest responsible bidder “under such regulations as shall be prescribed by law.” On June 16, 2006, the Texas Attorney General issued Opinion No. GA‑0438 confirming that the Board of Regents may, consistent with Section 21, adopt rules having the force of law that exclude certain purchases from the competitive bidding requirement of Section 21.
In the absence of applicable regulations, UT institutions had been purchasing goods and services covered by Section 21 through the competitive bidding process. The exclusive use of competitive bidding for Section 21 goods and services led to certain inefficiencies because Texas Education Code §§51.9335, 73.115, and 74.008 authorize UT institutions to procure most other goods and services through the method that provides best value to the institution, including competitive bidding, competitive sealed proposals, a catalog purchase, a group purchase program, or an open market contract.
To address these inefficiencies, the Board of Regents recently adopted Rule 20901 of the Regents’ Rules and Regulations that makes the procurement practices applicable to the goods and services covered by Section 21, including printing and natural gas, consistent with the procurement practices applicable to most other goods and services.
Rule 20901 permits UT institutions to acquire goods and services covered by Section 21 from institutional departments or purchase the goods and services from external sources. If the goods or services are purchased from external sources, then the goods and services must be purchased using the method that provides best value to the institution in accordance with (a) the requirements of Texas Education Code §§51.9335, 73.115 or 74.008, as applicable, (b) the Regents’ Rules and Regulations, (c) the UT System Administrative Rules, and (d) the policies and procedures of the institution. In addition, Rule 20901 specifies that UT institutions must use competitive procurement methods (unless another procurement method is authorized by law) and comply with all applicable procurement policies including any applicable dollar limits.
If you have any questions regarding the procurement of printing, natural gas, or other goods and services covered by Section 21, please contact Dana Hollingsworth or 512/499-4475.
by Carol Longoria (Public Information Coordinator, General Law)
According to the Merriam-Webster and the The American Heritage Dictionaries, the words “mandatory” and “discretionary” have specific meanings. In fact, both publications offer definitions that are more similar than not.
However, as is often the case with the law, even clear definitions leave room for interpretation.
In Texas, questions of interpretation specific to the Texas Public Information Act (TPIA) are left to the Attorney General…and they have their own dictionary. Using the Attorney General’s dictionary, “mandatory” and “discretionary” exceptions to the TPIA differ in that the former protects an individual’s or third party’s interest in privacy or confidentiality while the latter typically protects a governmental body’s interest. In both instances, to claim mandatory or discretionary exceptions to disclosure governmental bodies are required to submit arguments to the Attorney General explaining how and why the exceptions apply.
However, as to “discretionary” exceptions an entity can choose to invoke or waive the protection. A discretionary exception is also subject to involuntary waiver by non-compliance with the deadlines imposed by TPIA.
Interestingly, the Attorney General is of the opinion that the “attorney-client privilege” (§552.107, Texas Government Code) is a discretionary exception that can be waived by non-compliance with TPIA deadlines. Notwithstanding the fact that UT System is currently challenging this position, the Attorney General’s opinion underscores the fact that determining whether a protection is mandatory or not, is often a matter of perspective.
Alternatively, the Attorney General identifies mandatory exceptions as those that protect the interests of a third party and those encompassed by ‘other law.’ These protections cannot be waived by a governmental body, even if a TPIA deadline is missed. In some cases, release of information subject to a mandatory exception may expose an institution’s Public Information Officer to liability. It is not surprising then, that the Attorney General will raise mandatory exceptions that a governmental body failed to brief in their request for decision.
Settling the question of whether an exception is mandatory or discretionary can have real-world applications. Last month the Attorney General issued Opinion No. GA-0519 in response to questions on whether §552.147, Texas Government Code, (confidentiality of social security numbers) is mandatory or discretionary in nature. In that opinion, General Abbott’s confirmation that social security numbers (SSNs) are protected by law caused quite a stir across the state. County clerks, many of whom currently post public records with SSNs on the internet, were particularly distraught by the opinion because it would require the seemingly monumental task of removing SSNs from all their public records.
Almost immediately legislation was filed to repeal Section 552.147 and render General Abbott’s opinion moot. While repealing the SSN protection might return county clerks to the status quo, as noted in GA-0519, state law never intended SSNs to be public:
In the face of legislation that appeased county clerks while re-opening gaps in SSN protection that existed pre-Section 552.147, General Abbott issued a 60-day abatement to GA-0519 to allow legislators the time necessary to address the issues on both sides of the debate.
Presently our Legislature is considering several bills with respect to the release of SSNs and the ultimate outcome is as yet, unclear. Determining whether protection of SSNs is mandatory or discretionary will depend on the final enacted legislation…and whether you understand Greek.
The Bottom Line: The Attorney General opines on the mandatory or discretionary nature of TPIA exceptions. Discretionary exceptions protect a governmental body and can be waived by non-compliance with TPIA deadlines. Mandatory exceptions capture ‘other law’ and protect third parties. Legislation regarding release of SSNs is under consideration and will affect our business process when enacted.
by Brenda Strama (Health Law)
Fear of lawsuits and blockbuster damage awards have long dominated the motivation and actions of healthcare professionals. These fears compelled the healthcare industry to emphasize risk management and defensive medicine in their daily operations. But there have been three recent developments regarding malpractice liability, risk management, and patient safety that could be the catalyst for a dramatic change in focus from a reactive risk management system to a proactive patient safety system.
To Err Is Human
The first call for change was the Institute of Medicine’s 1999 report that approximately 98,000 patient deaths occur annually due to preventable medical errors. To Err Is Human: Building a Safer Health System, Institute of Medicine. Clearly, risk management and defensive medicine have not been adequate tools to fully ensure patient safety.
Texas Tort Reform
Second, in 2003, Texas, where malpractice liability and the cost of professional liability insurance have been barriers to physician recruitment, adopted comprehensive tort reform that radically changed the environment for the practice of medicine. Texas tort reform is credited with a turnaround in physician recruitment, the cost of professional liability insurance, and the number of malpractice suits filed. According to the Texas Medical Board, 400 more doctors are being licensed per year than pre-reform. Hospitals had a 17% insurance rate cut the year after the tort reform measures passed. In Harris County, medical malpractice filings went from 746 in the quarter immediately preceding the effective date of tort reform to 49 in the next quarter. The UT System health institutions have experienced similar decreases in lawsuits filed.
Patient Safety and Quality Improvement Act of 2005
The third development is the federal Patient Safety and Quality Improvement Act of 2005 (Act), which encourages voluntary medical error reporting by providing a federal privilege protecting the confidentiality of documents generated in a patient safety evaluation system. The privilege attaches only if the data collected is provided to a certified patient safety organization. This Act is an important step forward in the patient safety movement.
The federal government is addressing patient safety on a number of levels: pay for performance, patient safety data collection and measures to encourage or require the use of health information systems, especially electronic medical records. Experts believe that electronic medical records will provide the capability to collect data that will identify the most effective clinical practices as well as the root cause of common medical errors. As we analyze the collective information on medical errors, sentinel events, and best practices through databases created by patient safety organizations, we should see significant and welcome changes in healthcare delivery. Hopefully, these changes will alter clinical practice on the front end of patient care, before errors occur; replacing the reactive mode of changing processes as a result of medical errors that result in medical malpractice suits.
Taken together, the identification of the extent of medical errors in health institutions, the adoption of significant and clearly effective tort reform, and the combined protections of the Texas peer review privilege statutes and the Act require a fresh look at risk management. Is it time for risk managers to think of themselves as patient safety officers whose primary task is the reduction of medical errors and enhanced patient safety activities?
So what can I do now?
The implementation of the Act is likely to take years, perhaps as much as the development time for the National Practitioner Data Bank (“Data Bank”) created by the Health Care Quality Improvement Act (“HCQIA”). Although HCQIA was enacted in 1986, the Data Bank did not become operational until regulations were published in 1991. Healthcare providers, however, can begin to take advantage of the privilege and confidentiality provisions of the Act now. Risk managers and other healthcare professionals should consider the following potential actions as part of a patient safety program.
Regulations explaining the requirements for the certification of patient safety organizations and addressing various open issues in the Act are expected soon.
To have a successful patient safety initiative requires a serious commitment at the highest levels of the organization. The chief executive officer is key to the creation of a patient safety culture. Leadership for this culture extends to the board of directors and key management. Achievement of patient safety goals could be reflected in performance evaluation and incentive compensation. Policies governing practices that have resulted in adverse outcomes should be consistently enforced.
The Bottom Line: There should be constant self-assessment of patient safety performance, and UT institutions should share their experience with other organizations that participate in patient safety activities. The patient safety movement will dominate healthcare and health law for the foreseeable future. As well it should.
by Kevin Brown (Claims & Bankruptcy)
When a UT institution is unable to collect payment from a debtor, it is important to next consider whether Texas law makes a third party liable for that debt. Two laws that are helpful to UT System and the institutions address spousal and parental liability. Depending on the facts of a particular case, both make a third party personally liable for certain types of expenses incurred with or without his or her authorization.
In the Seventeenth Century, English courts created what has become known as the doctrine of necessaries. Manby v. Scott, 1 Lev. 4, 86 Eng. Rep. 781, 1 Sid. 109 (1659). This case-made law held a husband personally liable for necessaries provided to his wife. The doctrine was adopted in the United States early on and later codified in numerous state statutes. At the end of the Twentieth Century, many states modified the statutes to bring them in line with the Equal Rights amendments found in the U.S. and state constitutions. Several states abolished the laws altogether for treating one gender differently than the other, while the majority of states updated the statutes to apply to both genders. Today, over half of the states still have some form of the doctrine of necessaries in case-made or codified law. Texas joined the majority and extended spousal liability to include the wife. Texas Family Code §§3.201, 2.501. Now, both spouses are personally liable for necessaries provided to the other.
In addition to spousal liability, a similar law was developed to provide for the support of children. Texas Family Code §151.001. It makes a parent liable for necessaries and a specific set of goods and services that are provided to an unmarried individual less than eighteen (18) years of age while under parental control and continuing until he or she is out of high school. This statute protects our institutions when they provide healthcare, education at charter schools and daycare.
So the key question is: what are necessaries? Most courts agree that food, clothing, shelter and medical treatment are necessaries. But this is not a complete list and even something that falls into one of those categories must still pass a reasonableness standard. Daggett v. Neiman-Marcus Co., 348 S.W.2d 796, 799 (Tex.Civ.App. 1961, reh'g denied). For example in Monty Python’s The Meaning of Life (1983), providing Mr. Creosote with “a waffer theen mint” after his bucket of food would most likely not be deemed a necessary. However, a plane ticket to receive specialized medical services has been found to be necessary. Jarvis v. Jenkins, 417 S.W.2d 383 (Tex.Civ.App. 1967, reh'g denied). Most importantly, in my opinion as an attorney, the contract for services from an attorney may be deemed a necessary. Archer v. Blakemore, 367 S.W.2d 402 (Tex.Civ.App. 1963), ref. n.r.e., error granted, affirmed 390 S.W.2d 735. Unlike the spousal liability statute, which applies liability only to necessaries, the parental liability statute includes a defined set of goods and services for which a parent is responsible: clothing, food, shelter, medical and dental care and education. It extends coverage to include educational expenses and does not codify the reasonableness standard.
Applying these statutes, an institution can seek compensation for medical bills from patients’ spouses as well as parents of minor patients, even if they have not signed as guarantors. Institutions can also use these statutes to pursue the spouse of a student for boarding fees and parents of children for education, infant care, and food-related expenses. While other States may or may not have similar provisions in their statutory and case-made law, Texas law could arguably still apply to situations where persons from out of state have sought out services or goods in the state of Texas.
The Bottom Line: When pursuing any debt, consider whether a Texas statute may make a third party liable.
by Steve Rosen (Business Law)
This past January, the Supreme Court decided MedImmune, Inc. v. Genentech, Inc., 127 S.Ct. 764 (Jan. 9, 2007), concluding that a patent licensee need not breach its license agreement by refusing to pay royalties prior to filing suit against a licensor regarding non-infringement, invalidity or unenforceability. The decision injects uncertainty into the technology licensing landscape by reversing previous Federal Circuit case law holding that the existence of a license agreement forecloses the ability of a non-repudiating licensee from seeking declaratory judgment relief. Whether and how the decision affects technology license deals remains to be seen, though in theory the decision will compel licensors to seek alternative ways to make their licensing agreements more secure. No longer can a licensor buy peace by simply executing a license agreement. However, the desired result could still be achieved, for example, with specific contract language designed to constrain challenges to a license agreement or by increasing royalties to account for the greater legal risk entering into agreements.
The facts of the case were not unusual in the biotechnology and pharmaceutical industries. MedImmune manufactures Synagis, a drug designed to prevent respiratory tract illnesses in children. Synagis is core to MedImmune’s business--it accounts for more than 80 percent of the company’s sales revenue. Following the introduction of Synagis, MedImmune and Genentech entered into a patent license agreement covering an existing patent and a second, then-pending patent application (later known as the “Cabilly II” patent). Upon award of the Cabilly II patent, Genentech notified MedImmune that the Synagis drug was covered by the patent and asserted that MedImmune owed royalties under the agreement. Although MedImmune believed no royalties were due because, it felt, the Cabilly II patent was invalid and unenforceable and because Synagis did not infringe the Cabilly II patent, MedImmune considered the letter a threat to enforce the patent, terminate the license agreement and bring an infringement action if MedImmune did not pay. Because such an action could have resulted in MedImmune’s being ordered to pay treble damages and attorney’s fees and also enjoined from selling Synagis (which represents the vast majority of the company’s business), MedImmune paid the royalties “under protest and with reservation of all of [its] rights.” It then filed an action for declaratory relief. The District Court dismissed the declaratory judgment claims for lack of subject-matter jurisdiction because, under Federal Circuit precedent, a patent licensee in good standing cannot establish an Article III case or controversy with regard to the patent’s validity, enforceability or scope. The Federal Circuit affirmed.
In reversing the Federal Circuit, the Supreme Court focused the reasoning in its 8-1 decision upon a reading of the Constitution’s case-or-controversy requirement: “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” The Court decided such facts existed even though MedImmune continued to make royalty payments under the license agreement and therefore was not in breach. In so ruling, the Court effectively eviscerated an earlier Federal Circuit holding in Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed. Cir. 2004). In Gen-Probe, the Federal Circuit held that the existence of a license agreement eliminates any real threat of suit by the licensee, thus precluding the possibility of a case or controversy sufficient to meet the requirements of Article III or the Declaratory Judgment Act. But according to the Court, it has long been the case that where government action is threatened, the Court “do[es] not require a plaintiff to expose himself to liability before bringing suit . . . .” Similarly, the Court reasoned, there is support for the proposition that the threat of private action also triggers Article III case-or-controversy jurisdiction.
In its decision, the Court rejected Genentech’s argument that the parties effectively settled any underlying dispute about the Cabilly II patent by entering into a license agreement, and that MedImmune should not be able to later challenge the “settlement” (the license agreement) by filing suit. The Court disagreed, writing that “[p]romising to pay royalties on patents that have not been held invalid does not amount to a promise not to seek a holding of their invalidity.” The Court also held that Genentech could not rely upon “the common-law rule that a party to a contract cannot at one and the same time challenge its validity and continue to reap its benefits.” The Court reasoned that “[p]etitioner is not repudiating or impugning the contract while continuing to reap its benefits. Rather, it is asserting that the contract, properly interpreted, does not prevent it from challenging the patents, and does not require the payment of royalties because the patents do not cover its products and are invalid.”
Notably, the Court did not address the merits of the case, including whether the concepts of licensee estoppel or the limits of the so-called Lear doctrine (permitting a breaching licensee to challenge the validity of a patent) prevent MedImmune from challenging the Cabilly II patent, even if it has jurisdiction to do so. So, MedImmune must still run the gauntlet of proving its case before a district court and beating established Federal Circuit precedent on licensee estoppel before it can prevail on the merits.
The technology licensing community remains uncertain about the extent of fallout over the Court’s decision. Some commentators fear the decision will permeate all licensor-licensee relationships, creating uncertainty in such relationships and stimulating an incentive among licensors to charge “deal premiums” to account for the new-found uncertainty or to insert new terms in license agreements that limit a licensee’s ability to challenge the license. Others feel the effect will more limited, investing non-repudiating licensees with subject matter jurisdiction, only to be prevented on other legal grounds (such as licensee estoppel) from obtaining relief in court. Only time will reveal the full import of the decision.
The Bottom Line: The MedImmune decision will need to percolate in the lower courts before the full import of the decision is understood. In the meantime, licensors may wish to moderate any new uncertainty in their license relationships with contractual provisions that more tightly control potential conflicts between licensors and licensees (e.g., termination-upon-challenge provisions (where valid) and arbitration provisions). Licensees may wish to consider ways to leverage their new-found legal rights.
by Priscilla Lozano (General Law)
When it comes to ICE don’t roll the dice;
The Immigration Reform and Control Act (IRCA) states that an employer violates IRCA by “knowingly” hiring or employing an individual who does not have authorization to work in the United States. The term “knowing” is not limited to actual knowledge, but also includes constructive knowledge that the employee is unauthorized to work. The statute and regulations, which are now over twenty years old, specifically state that constructive knowledge may include situations where an employer fails to complete or improperly completes the Employment Eligibility Form (Form I-9); has information available to it that would indicate that the alien is not authorized to work, such as Labor Certification and/or an Application for Prospective Employer; or acts with reckless and wanton disregard for the legal consequences of permitting another individual to introduce an unauthorized alien into its work force or to act on its behalf. Recently ICE published a proposed regulation which expands the definition of constructive knowledge. Under the proposed regulations an employer may be found to have constructive knowledge of an individual’s unauthorized work status if the employer receives a Social Security Administration (SSA) no-match letter and does not promptly take steps to resolve the no-match and take other reasonable steps to verify whether the individual is work authorized.
Under current law, if an employer shows good faith compliance with completing the I-9 requirements, then the employer has an affirmative defense available to charges that it employed an individual who is not authorized to work. Similarly, in the proposed rule, there is a safe harbor provision setting forth the steps that ICE considers reasonable and if followed will allow the employer to avoid an adverse finding of hiring unauthorized employees. The section below regarding completing Form I-9 sets forth steps to take and common mistakes to avoid in the process. The section regarding the no-match safe harbor provision summarizes the proposed safe harbor provision which is anticipated will be effective within the next few months. In light of increased political interest in issues associated with illegal immigration as well as increased focus by ICE on work site enforcement efforts, it is only prudent to review I-9 requirements and institutional compliance. Taking steps now to review I-9 practices and procedures and to prepare to implement procedures to respond to SSA no-match letters will serve to help institutions preserve affirmative defenses and take advantage of the safe harbor provision, thus reducing institutional liability in the area of employment verification.
Completing Form I-9
Contracting For Services
UT institutions are not required to complete the I-9 for the employees of independent contractors who are providing services under contract. Generally, “independent contractors” are those individuals or entities that carry on independent businesses, contract to do a piece of work according to their own means and methods, and are subject to control only regarding results. The factors that ICE will consider regarding whether individuals are considered UT employees for I-9 purposes include not just the economic arrangement of who pays salary, but also elements of control of work such as whether the “independent contractor” supplies the tools or materials, makes services available only to UT and not to the public in general, and whether the “independent contractor” directs the order or sequence of the work to be performed and/or the hours of work. Thus, in those situations where UT or its employees exercise control over the work of the contractor such as where individuals are on the payroll of an outside contractor but work on UT premises under the supervision of UT employees, care should be taken to ensure that the I-9 obligations are being met. Further, in addition to the paperwork obligations, UT institutions may not use the services of an independent contractor to knowingly obtain the services of unauthorized aliens. The term “knowing” includes not just actual but constructive knowledge which arises when the employer shows reckless and wanton disregard for the consequences of letting the contractor into its workforce. The Office of General Counsel has developed contract terms for inclusion in such contracts that specify the contractor’s
The Bottom Line: In light of increased political interest in issues associated with illegal immigration as well as increased focus by ICE on work site enforcement efforts, it is only prudent to review I-9 requirements and institutional compliance. Taking steps now to review I-9 practices and procedures, including conducting a self-audit, and to prepare to implement procedures to respond to SSA no-match letters will serve to help institutions preserve affirmative defenses and take advantage of the safe harbor provision, thus reducing institutional liability in the area of employment verification.
Office of General Counsel
201 W. 7th Street
Austin, TX 78701