Recent Rulings Against Trump Administration Funding Freezes
Shortly after taking office, President Trump froze funding already allocated to various parties, citing the Administration’s disapproval of issues including climate change and social equity. Additionally, executive agencies removed content discussing climate change from websites.
Unsurprisingly, these actions have been challenged in court. Parties whose funding was frozen sued on the grounds that the freezes violated statutes including the Administrative Procedure Act (APA) or their constitutional right to free speech. While cases remain pending in courts across the country, initial decisions show a pattern of courts rejecting the initial funding freezes and agencies agreeing to restore website content.
Below, we break down three recent decisions in The Sustainability Institute v. Trump, Woonasquatucket River Watershed Council v. US Department of Agriculture (USDA), and Northeast Organic Farming Association of New York v. USDA.
Background
Shortly after his inauguration, President Trump signed several orders that froze or terminated congressionally appropriated funds under the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA). The orders are Unleashing American Energy, Ending Radical and Wasteful Government DEI Programs and Preferencing, andImplementing the President’s “Department of Government Efficiency” Cost Efficiency Initiative(previously discussed here, here, and here). In addition, agencies ordered their staff to take down climate-related webpages from their sites.
Below, we discuss three cases where courts ruled against agencies who terminated funding or took down websites on the grounds that the actions violated the APA and First Amendment.
The Sustainability Institute v. Trump
The Sustainability Institute v. Trump involves a challenge in South Carolina federal court by nonprofit groups and local governments to a freeze to federal climate funding by agencies including the US Environmental Protection Agency (EPA), USDA, and the US Departments of Energy (DOE) and Transportation (DOT). The funding was appropriated by US Congress and contractually awarded to municipalities and nonprofits before the Trump Administration sought to freeze it.
The challengers alleged:
That the freeze orders violate the APA by terminating funding with no process or notice.
That denying funding violates the separation of powers principle of the US Constitution and the executive’s duty under Article II, Section 2 of the Constitution to “faithfully execute[]” the laws of the United States by failing to distribute funds appropriated by Congress.
That EPA violated their First Amendment right to free speech by engaging in viewpoint discrimination by ordering nonprofits to remove disfavored language from grants and threatening to revoke federal funding for groups that draw attention to climate change or equity issues.
In response, the government argued, without evidence, that termination decisions were supported by reasoning made on an individualized grant by grant basis, rather than because they were funded by the IRA and IIJA, and therefore were justified.
In April, the court ordered the five agencies to produce all documents from January 20 to present, relating to the freeze, pause, and/or termination of any of the grants identified by the plaintiffs in their motion for expedited discovery. EPA and other agencies responded by releasing over 130,000 pages of documents containing internal EPA emails, spreadsheets, and other materials pertaining to the freezes. Even with these productions, the plaintiffs argued there was no evidence that EPA and other agencies made grant-specific determinations to terminate funding.
Following these productions, the government conceded that, at least for this case, it would “not contest[] the merits of a majority of plaintiffs’ APA claims” that grant decisions were not made on an individualized basis as required, but they maintain the admission is “for purposes of this case only.” On May 20, the court entered judgment in favor of the plaintiffs on the APA claims, granted the plaintiffs’ request for a preliminary injunction, and denied staying injunctive relief requiring the funding to be reissued.
Woonasquatucket River Watershed Council v. USDA
In Woonasquatucket River Watershed Council v. USDA, a court reached a similar holding. This case involves a challenge by several nonprofit organizations to the freezing of funding appropriated under the IRA and IIJA. Last month, the court issued a nationwide preliminary injunction, ordering five federal agencies — DOE, US Department of Housing and Urban Development, USDA, US Department of the Interior, and EPA — to “take immediate steps to resume the processing, disbursement, and payment of already-awarded funding appropriated under” the IRA and IIJA, and prohibited those agencies from “freezing, halting, or pausing on a non-individualized basis the processing and payment” of such funding.
When EPA argued that it should be allowed to continue its freeze on nearly 800 IRA grants that had been terminated or had terminations pending, the court ordered that the grants be unfrozen before sending termination notices, and urged EPA to expedite the termination process for the grants it believes it can legally revoke. The case is now on appeal to the US Court of Appeals for the First Circuit.
Northeast Organic Farming Association of New York et al. v. USDA
Northeast Organic Farming Association of New Yorkalso reached a similar outcome. In that case, several nonprofits sued the USDA seeking to enjoin the government from erasing webpages focused on climate change. The plaintiffs’ complaint alleges that USDA violated the APA when it took down government websites containing climate content, including statutorily required climate-related policies, guides, datasets, and other resources, without advance notice or reasoned decision-making.
The USDA originally argued that the environmental groups had failed to show that relief was warranted and that the removals should stand because it was in the public’s interest to have government websites that reflect the current presidential Administration’s priorities. However, USDA recently reversed course and committed to restore climate change-focused webpages that were taken offline. Going forward, USDA stated that it would restore required websites and that it was committed “to complying with any applicable statutory requirements in connection with any future publication or posting decisions regarding the removed content, including, as applicable, the adequate-notice and equitable-access provisions of the Paperwork Reduction Act and the reading room provisions of [the Freedom of Information Act].” The parties are expected to submit a joint status report in early June.
Supreme Court Decides Against Reinstating Wilcox to NLRB as They Rule on Her Termination – NLRB Remains Without a Quorum
On May 22, 2025, the U.S. Supreme Court ruled National Labor Relations Board (“NLRB”) Member Gwynne Wilcox cannot return to work while she challenges President Donald Trump’s decision to terminate her without cause. The latest decision comes in a long line of court decisions since Trump terminated Wilcox in January 2025. The central issue revolves around 90-year-old precedent Humphrey’s Executor v. U.S., 295 U.S. 602 (1935) limiting the President’s power to fire employees at independent agencies.
The latest Supreme Court order is not a decision on the merits, although it is likely a sign of things to come. The order was split 6-3 along ideological lines, which likely indicates a majority of justices believe Humphrey’s Executor is no longer good law or is distinguishable as it relates to the NLRB. The Supreme Court stated it will hold off on issuing a full decision on the merits until the parties fully brief and argue the central issue. In the meantime, Wilcox remains removed from her position and the NLRB is left without a three-member statutory quorum to hear cases. The Supreme Court stated the stay “reflects our judgment that the government faces greater risk of harm from an order allowing a removed officer to continue exercising the executive power than a wrongfully removed officer faces from being unable to perform her statutory duty.”
We will continue to monitor future developments as the case is heard on the merits. Employers with questions about how the decision affects them should consult experienced labor counsel.
Listen to this post
NLRB Pulls a U-Turn on Remedial Relief in Settlement Agreements: New GC Issues Guidance Encouraging Efforts at Settlement
On May 16, 2025, the National Labor Relations Board’s (“NLRB”) Acting General Counsel, William B. Cowen, issued Memorandum GC 25-06, titled “Seeking Remedial Relief in Settlement Agreements,” that significantly loosens the requirements before NLRB Regions to approve settlements of unfair labor practice charges.
The Memorandum comes on the heels of Cowen’s February 14, 2025, Memorandum GC 25-05 which rescinded dozens of memos issued by his predecessor, former General Counsel Jennifer Abruzzo, including four memos requiring Regions to seek “full remedies” in settlement agreements. Former General Counsel Abruzzo indicated that this “full remedy” could include back pay, front pay, consequential damages “attributable” to the unfair labor practice, limitations on non-admission clauses, and extensive notice postings. For more information on these former settlement priorities, please see our prior blog post.
Acting GC Cowen’s guidance is a sharp departure from prior mandate to seek “full remedies.” GC 25-06 cautions that “if [the Board] attempt[s] to accomplish everything, we risk accomplishing nothing,” and reiterates to Regions that “diligent settlement efforts should be exerted in all…cases.” This is particularly important because, as the memo highlights, since 2019 anywhere from 96% to 100% of unfair labor practice charges were resolved through settlement.
To this end, GC 25-06 provides the following guidance to Regions – and parties – interested in drafting and entering settlement agreements to resolve pending unfair labor practice charges:
Default Language: The Memo limits the need to include default language regarding a parties’ failure to comply with the agreement to only those cases where such language is appropriate, such as when dealing with a recidivist violator, installment arrangement, or liquidated damages.
Non-Admission Clauses: Except for recidivist violators, the Memo expands the ability for the parties to include non-admission of liability clauses in settlement agreements, particularly before a Region has engaged in substantial trial preparation.
Unilateral Settlements: Regions may again use their discretion to approve unilateral settlements – i.e., settlements where the charging party does not consent. Previously, Regions needed to solicit the NLRB Division of Advice’s recommendation prior to approving such settlements.
Make-Whole Relief: While the Memo recognizes that Regions should continue to attempt to secure a full remedy for individuals, Regional Directors now have the discretion to approve settlements that provide for less than 100 percent of the total amount that could be recovered if the Region fully prevailed in litigation. Settlements that provide for less than 80 percent of the “relief reasonably anticipated to be recoverable” after litigation – a standard that is not further defined in the Memo – must be authorized by the NLRB Division of Operations-Management.
Acting GC Cowen also used the Memo to explain his interpretation of the Board’s decision in Thryv, Inc., 372 NLRB No. 22 (2022) (previously discussed here), which expanded the scope of remedies for ULPs by concluding that in all cases where make-whole relief is included as a remedy, the Board will order that “respondent compensate affected employees for all direct and foreseeable pecuniary harms.”
The Memo notes that the Thryv majority opinion did not address what a “direct or foreseeable pecuniary harm” is, expressly disclaiming a comparison to remedies awarded in tort cases. Cowen expressed his reliance on the dissent’s standard that foreseeable harms are those “where the causal link between the loss and the unfair labor practice is sufficiently clear.” Though not binding on the Board in future cases, this narrower formulation helps Regions and parties understand the standard that Regions will likely use to assess if the settlement proposed can be approved under the Acting GC’s new guidance.
Takeaways
This Memo represents an expected about-face from former General Counsel’s Abruzzo prior focus on securing complete make-whole relief in settlement discussions for alleged employer violations of the Act. The Memo takes a far broader view of the importance of seeking settlements in order to permit the NLRB to utilize its limited resources, by loosening the prior requirements that made it more difficult for employers to settle ULP charges.
Although Acting GC Cowen may soon be replaced at the Board as President Trump has nominated Crystal Carey to serve as the next NLRB GC, we expect this policy shift will remain in effect to some degree during the next GC’s tenure.
Finally, it is always important to remember that, unlike NLRB precedent or rulemaking, GC Memoranda—like the one discussed here—do not have the effect of changing the law, and, therefore, the Acting GC’s interpretation of Thryv, Inc. is not binding on the Board or courts. However, the GC Memoranda still provide important insight into the GC’s policy agenda and guidance on the manner in which Regions will review, draft and approve settlements.
We will continue to monitor developments at the NLRB.
Cardiac Monitors Found Subject to Sales Tax in California
The First District of the California Court of Appeal upheld the denial of Medtronic USA, Inc.’s (“Medtronic”) refund claim for California sales tax that it collected on sales of cardiac monitors. Medtronic USA, Inc. v. California Dep’t of Tax & Fee Admin., A169290 (Cal. Ct. App. Apr. 16, 2025).
The Facts: Medtronic manufactures two types of cardiac monitors, known as “RICMS,” which are implanted into a patient’s chest to monitor and collect information about the patient’s heart rhythm. Doctors then use the information to make decisions about and diagnose heart diseases of the patient.
For the periods at issue, Medtronic collected California sales tax on sales of its RICMS monitors. Subsequently, Medtronic requested a refund, maintaining that the RICMS devices met the definition of “medicines” that were statutorily exempt from sales tax.
The Law: California’s Revenue and Taxation Code Section 6369 exempts “medicines” from sales tax. The statute, in part, defines “medicines” as those furnished or prescribed for treatment of a human body by a licensed physician and “any substance or preparation intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment, or prevention of disease[.]”
The statute states that “medicines” specifically include “articles . . . permanently implanted in the human body to assist the functioning of any natural organ, artery, vein, or limb and which remain or dissolve in the body,” including bone screws, bone pins, and pacemakers. However, the statute specifically excludes from the definition of “medicines” “articles that are in the nature of splints, bandages, pads . . . instruments, apparatus, contrivances, appliances, devices, or other mechanical, electronic, optical, or physical equipment….”
The Decision: Medtronic offered multiple arguments to support that the RICMS devices are exempt from sales tax—all of which the Court rejected. First, Medtronic argued that the RICMS devices are specifically exempt because they are “articles [that are] permanently implanted in the human body to assist the functioning of” the heart. The Court agreed that the RICMS devices are permanently implanted but did not agree that they “assist the functioning” of the heart. The Court determined that unlike bone screws, bone pins, and pacemakers—which by themselves assist an organ to function—the RICMS devices “serve a purely informational function that requires subsequent human intervention to ‘assist the functioning’ of the heart.” Because the RICMS devices are diagnostic in nature, the Court held that they do not fall squarely within the relevant statutory provision that exempts permanently implanted articles that assist any natural organ in functioning.
The Court also rejected Medtronic’s argument that the RICMS devices are not specifically excluded from the definition of “medicines.” Medtronic argued that because the relevant statutory provision only excludes those articles—such as “splints, bandages, and pads”—that are applied externally to the patient, the RICMS devices (which are implanted in the patient’s body) are not in the same nature of those external applications and are not excluded from “medicines.” The Court rejected Medtronic’s external versus internal distinction, noting that the statute’s generic definition of “medicines” includes devices that are “intended for use by external or internal application to the human body[.]” The Court reasoned that if the generic definition of “medicines” includes devices that are applied both externally and internally, it could not read a different provision of the same statute to make such distinction and to apply only to external devices.
In rendering its decision, the Court strictly construed the plain language of the statute to ultimately affirm the trial court’s decision that the RICMS devices do not meet the definition of “medicines” exempting them from California sales tax. The Court recognized that while the function of the RICMS devices touches several concerns of the statute exempting “medicines” from tax, “those touches are too tenuous to establish the firm basis needed for an exemption.”
A takeaway here is just because the spirit of a statute seems to apply to a taxpayer, it does not necessarily mean the statute actually applies. And we can ask whether the spirit of a statute creates an ambiguity, as to its words, that requires further consideration. However, the plain language of a statute generally will prevail. Whether the Court came to the correct conclusion in analyzing the plain language here seems questionable.
New York State Court Chops Retroactivity of Recent P.L. 86-272 Regulation
The New York State Supreme Court, which is a trial court, ruled that New York’s regulation that attempts to limit Public Law (“P.L.”) 86-272 in New York cannot operate retroactively. The court held that the regulation is not pre-empted by P.L. 86-272. American Catalog Mailers Association v. Department of Taxation & Finance, Index No. 903320-24 (NY Sup. Ct. Apr. 28, 2025).
P.L. 86-272 is a U.S. federal law that shields a seller of tangible personal property from imposition of a state’s net-income based tax when the company solicits orders in the state, conducts activities in the state that are ancillary to solicitation, or conducts de minimis (very small) amounts of activities in the state. Wisconsin Dep’t of Revenue v. Wm. Wrigley Jr. Co., 505 U.S. 214 (1992) (analyzing 15 U.S.C. 381 to 384 also known as P.L. 86-272). The law dates back to 1959 and, since its enactment by the U.S. Congress, it has been attacked by states—initially (and unsuccessfully) challenging Congress’ authority to enact the shield law and later (with mixed success) challenging the operation of the shield. The shield protects a minimum level of company activity (having in-state company representatives who solicit orders) and third-party selling activity (third parties are allowed to conduct selling activities on a company’s behalf). 15 U.S.C. 381(a) and (c). Congress enacted P.L. 86-272 because solicitation activity had been found by the Louisiana Supreme Court in 1958 to create a taxable state-nexus and, in 1959, the U.S. Supreme Court declined to hear appeals from the decisions, which together upset settled expectations in the business community.
In the latest round of state attacks on P.L. 86-272, New York State promulgated regulations in December 2023 that attempt to reduce the federal shield for New York State purposes back to January 1, 2015 (the date of New York’s statutory corporation tax reform) when companies use modern technology to interact with customers such as by: assisting customers via “chat” features on a corporation’s website; accepting a customer’s application for a credit card via its website; allowing New York residents to apply for non-sales jobs via its website; using Internet “cookies” to gather customer information via its website; remotely fixing or upgrading via the Internet previously purchased products; selling extended warranty plans via its website; contracting with a marketplace provider that facilitates sales via the provider’s online marketplace; or selling tangible personal property via the Internet and contracting with customers to stream videos or music to electronic devices for a fee. 20 NYCRR 1-2.10[i].
The American Catalog Mailers Association (“ACMA”) challenged the regulations by seeking a flat-out declaration that the 2023 regulations are preempted by federal law and improperly retroactive to 2015. The New York court found that P.L. 86-272 does not prohibit the State from identifying and regulating which Internet activities are construed by New York to constitute more than protected activity and ruled that there is no conflict between the regulations and P.L. 86-272. However, the court struck down the retroactive period. It noted that “‘for centuries our law has harbored a singular distrust of retroactive statutes’” and found that the ACMA’s members were “not forewarned of this retroactive application,” “had no opportunity to ‘alter their behavior in anticipation of the impact of [retroactive application of the challenged regulations]’[,]” and the nearly nine-year period of retroactivity “is excessive[.]” The ACMA New York case and the issues presented by the regulations are in their early stages. [1]
Possibly riding to somewhat of a rescue, federal legislators introduced bills in the House and Senate to amend P.L. 86-272 with respect to activities that are ancillary to solicitation. Such proposed changes may become part of the federal tax package that is currently in the reconciliation process. Stay tuned for more developments regarding P.L. 86-272!
[1] On May 13, 2025, the ACMA appealed the Decision and Order of the court to the Appellate Division, Third Department.
U.S. District Judge Upholds Federal Preemption Over Minnesota State Drug Testing Law
The U.S. District Court for the District of Minnesota recently sided with a natural gas distribution company in a lawsuit by an employee in a safety-sensitive position who alleged his discharge following a failed random drug test violated the Minnesota Drug and Alcohol Testing in the Workplace Act (DATWA). The court found federal statutes and U.S. Department of Transportation (DOT) drug and alcohol regulations for safety-sensitive positions preempted the state law.
Quick Hits
The U.S. District Court for the District of Minnesota ruled in favor of a natural gas distribution company that discharged an employee who failed a random drug test.
The court found that federal laws, including the Natural Gas Pipeline Safety Act, the Hazardous Liquids Pipeline Safety Act, and DOT drug and alcohol testing regulations preempted DATWA’s employment protections regarding drug testing.
The decision underscores the significance of federal preemption in workplace drug testing, emphasizing the necessity for employers to align their policies with federal regulations when conflicts arise with state laws.
U.S. District Judge Nancy Brasel granted summary judgment for Minnesota Energy Resources Corporation (MERC) in a lawsuit by a discharged employee who alleged the company violated DATWA. The employee, who worked as a gas distribution system designer, alleged the company violated DATWA in part by requiring the employee to submit to a random drug test and failing to provide him with required notices.
However, the court found that it was impossible for the company to comply with both the federal DOT regulations, which require random drug testing and immediate removal after positive results, and Minnesota’s DATWA, which provides employment protections regarding employer drug tests. Thus, the court ruled that the federal regulations preempt DATWA and dismissed the employee’s claims.
Background
The lawsuit was brought by an employee who was discharged after he tested positive for tetrahydrocannabinol, the primary psychoactive compound in marijuana or cannabis, in a random employer drug test.
The company is subject to the DOT regulations for companies transporting hazardous materials, which require employers to maintain a drug and alcohol testing program. The employer maintained a drug and alcohol testing policy that required employees in safety-sensitive positions who perform “covered functions” to submit to random drug testing.
Following his discharge, the employee and his union filed a grievance. An arbitrator determined that the employee was subject to random drug testing under federal law and that the company acted with just cause in discharging him for failing the drug test. The arbitrator did not address whether the employee was in a safety-sensitive position under DATWA or adjudicate any of the DATWA claims.
The employee then filed a lawsuit against the company, alleging he was not supposed to be subject to random testing and that the employer had failed to provide the required notices under DATWA. Specifically, the employee alleged the company violated DATWA by: (1) requiring him to submit to a random drug test, (2) failing to inform him of his rights in writing, (3) failing to offer counseling or rehabilitation before discharging him, and (4) disclosing his positive test result to a federal agency without a confirmatory test.
Federal Preemption
The district court found that the federal DOT regulations expressly preempt the employee’s DATWA claims because complying with both DATWA and the applicable federal regulations would be impossible or impede the execution of federal drug testing procedures.
DATWA includes many employment protections for employees regarding drug testing. The law requires employers to inform employees in writing of their rights to testing and to a confirmatory test, prohibits employers from discharging employees without first providing them with an opportunity to participate in a counseling or rehabilitation program, and restricts the disclosure of a positive test result.
Also, DATWA contains a preemption clause that exempts employees who are subject to drug and alcohol testing under “federal regulations that specifically preempt state regulation of [such] testing with respect to those employees.”
On the other hand, the applicable DOT regulations state that they preempt state or local requirements where compliance with both “is not possible.” The regulations also require mandatory random drug testing for employees in safety-sensitive positions, require immediate removal from such positions upon a positive test result, require the medical review officer (not the employer) to take certain actions, and further outline specific procedures for notifying employees of positive test results.
“DOT regulations expressly preempt DATWA because compliance with both federal regulations and DATWA is either impossible or an obstacle to the accomplishment and execution of DOT requirements,” the court said.
Alternatively, the court further determined that the company had met the burden of showing that the federal regulations preempt DATWA under a theory of conflict preemption for the same reasons.
Next Steps
The court’s decision in favor of the employer highlights the importance of federal preemption in workplace drug testing. Employers must adhere to federal regulations, which can override state laws when there is a conflict. This ruling serves as a critical reminder for employers to ensure their drug testing policies comply with federal standards, particularly for employees in safety-sensitive positions.
Supreme Court Stays Orders Reinstating NLRB, MSPB Members, Pending Appeal
On May 22, 2025, the Supreme Court of the United States accepted the Trump administration’s argument to keep former National Labor Relations Board (NLRB) member Gwynne Wilcox and former Merit Systems Protection Board (MSPB) member Cathy Harris off their respective boards during the pendency of their consolidated legal action alleging that President Donald Trump unlawfully removed them without cause.
Quick Hits
The Supreme Court has granted a stay of orders from the District Court for the District of Columbia enjoining the president’s removal of NLRB member Gwynne Wilcox and MSPB member Cathy Harris pending the disposition of an appeal in the U.S. Court of Appeals for the District of Columbia Circuit.
The stay, which will remain in effect until the Supreme Court rules on the issue, has the effect of preventing the NLRB from having the quorum needed to issue decisions for the foreseeable future.
The Supreme Court granted the government’s emergency application to stay two district court orders that had reinstated Wilcox and Harris as members of the NLRB and MSPB, respectively. The Supreme Court stated that the stay would remain in effect through the appeal in the U.S. Court of Appeals for the District of Columbia Circuit and until the Supreme Court rules on the issue, if a writ of certiorari is timely sought.
“Should certiorari be denied, this stay shall terminate automatically,” the Court stated. “In the event certiorari is granted, the stay shall terminate upon the sending down of the judgment of this Court.”
The stay ruling comes after an en banc decision by the U.S. Court of Appeals for the D.C. Circuit voided a decision by a three-judge D.C. Circuit panel and revived the two district court orders reinstating Wilcox and Harris. The Trump administration then sought emergency relief from the Supreme Court, and Chief Justice John Roberts granted a temporary stay.
By statute, the president is prohibited from removing NRLB and MSPB members except for cause. However, the Trump administration has argued that provisions limiting the president’s removal power are unconstitutional and infringe the president’s authority as the executive.
“The stay reflects our judgment that the Government is likely to show that both the NLRB and MSPB exercise considerable executive power,” the Supreme Court stated. “But we do not ultimately decide in this posture whether the NLRB or MSPB falls within such a recognized exception; that question is better left for resolution after full briefing and argument.
“The stay also reflects our judgment that the Government faces greater risk of harm from an order allowing a removed officer to continue exercising the executive power than a wrongfully removed officer faces from being unable to perform her statutory duty,” the Court stated.
Justice Elena Kagan issued a dissenting opinion, joined by Justices Sonia Sotomayor and Ketanji Brown Jackson, arguing the Court should not “overrule or revise existing law” through an expedited emergency application “with little time, scant briefing, and no argument.”
The dissent pointed to the 1935 decision in Humphrey’s Executor v. United States, in which the Supreme Court upheld restrictions on the president’s authority to remove officers of certain types of independent agencies—in that case, a commissioner of the Federal Trade Commission.
A D.C. Circuit panel is currently considering the consolidated action of Wilcox and Harris challenging their removal. The court heard oral arguments in the case on May 16, 2025.
Next Steps
Though not final, the Supreme Court’s ruling backs President Trump’s near-unprecedented removal of members of independent federal agencies without cause. Notably, the Supreme Court’s stay will remain in effect until it decides the issue, as litigation remains ongoing.
In the meantime, the NLRB lacks the quorum required to issue decisions, hampering its ability to revise or reverse some of the employee-friendly decisions issued during the Biden administration. At least until the president appoints, and the U.S. Senate confirms, one or more new Board members, the Supreme Court’s stay seems to ensure that the NLRB will remain without a quorum for the foreseeable future.
Remote Employee Solidifies Manufacturer’s Right to Apportion Income
A plethora of case law, state guidance, and practitioner musings are devoted to discussions of what income of a multistate taxpayer is subject to apportionment and the fairness of various apportionment methods. Much less discussion centers on whether a taxpayer with only one brick-and-mortar location has a right to apportion its income. A recent decision of the Michigan Tax Tribunal addresses this fundamental question. Vidon Plastics Inc v. City of Lapeer, MTT Docket No. 23-002017 (Apr. 17, 2025).
The Facts: Vidon Plastics Inc. (“Vidon”), a Michigan manufacturing corporation, operates its sole manufacturing plant in Lapeer, Michigan. On its Lapeer Corporation Income Tax returns, Vidon reported 100% of its property and payroll as being in Lapeer. However, Vidon reported 0% of its sales to Lapeer because all of its sales of tangible personal property were shipped to customers located outside of the City.
The City rejected Vidon’s apportionment of its sales because Vidon’s only physical location is within the City. Vidon appealed the City’s rejection to the Lapeer Income Tax Board of Review, which agreed with the City’s position. Vidon appealed to the Michigan Tax Tribunal.
The Law: Cities in Michigan are authorized to levy an income tax “on such part of the taxable net profits as is earned by [a] corporation as a result of work done, services rendered and other business activities conducted in the city[.]” A corporation is entitled to apportion net profit outside of a Michigan city where it is located when its entire net profit is “not derived from business activities exclusively within the city.” Though not defined in the law, the Tribunal determined that the term “business activity” warrants a “broad and liberal interpretation” and, thus, includes “the enterprise, profession, or undertaking of any nature conducted or ordinarily conducted for profit or gain by any person.”
In 2018, the Lapeer City Commission approved Regulation 18.1, which provides that a corporation is not entitled to apportion its net profit if it “has no regularly maintained and established out-of-city location and engages in no out-of-city business activity,” even if it fills orders by shipment to out-of-city destinations.
The Decision: Vidon asserted its right to apportion was established by several aspects of its business. Finding the burden rested with Vidon to establish its right to apportion by a preponderance of the evidence, the Tribunal examined each of Vidon’s purported out-of-City activities.
First, the Tribunal concluded that Vidon failed to establish that it conducted business outside of Lapeer via ownership of inventory in Texas. For inventory shipped free-on-board by carrier to the Texas warehouse, the Tribunal found that title transferred from Vidon to its customer when the inventory was given to the carrier because Vidon presented no evidence that title transferred at any other point. For consignment stock, the Tribunal applied provisions of the Uniform Commercial Code to determine that although the parties contracted that title did not pass until the purchaser withdrew inventory from the warehouse, this retention of title by the seller to goods shipped to a buyer merely created a security interest in the property—not the reservation of title in the property by Vidon.
Second, the Tribunal concluded that Vidon’s sale of goods destined outside of the City did not constitute business activity outside of the City. Though the Tribunal noted that such sales would not be counted in the numerator of the Lapeer sales factor for apportionment purposes, the Tribunal concluded that this does not mean that Vidon “conducted business activity outside the [C]ity[.]”
Next, finding that Vidon’s Lapeer-based employees and Vidon’s Illinois-based independent contractor do nothing outside of the City other than solicit orders of tangible personal property, the Tribunal found no evidence that their conduct constitutes business activity outside of the City.[1]
Finally, the Tribunal analyzed the conduct of a Vidon employee who primarily worked from his home in Ann Arbor. Reviewing the nature of the Ann Arbor employee’s activities, the Tribunal found that the employee’s activities included not just sales activities, but “things in addition to sales” including helping with strategic planning. Based on the location and type of work done by the Ann Arbor employee, the Tribunal found that Vidon established its “right to apportion its income.”
The Takeaway: Setting aside any discussions of constitutional law, this case serves as an important reminder that even a business with only one physical location may have a statutory right to apportion its income when the business engages in activities outside of its home jurisdiction. To substantiate its right to apportion, a business should think holistically about its activities—especially those of remote and/or travelling employees. Apportionment is a right—use it, don’t lose it!
[1] The Tribunal relied on MCL 141.605(a) for the proposition that a person is not doing business based on the solicitation of orders outside the City for sales of tangible personal property, which orders are sent inside the City for approval or rejection and, if approved, are filled by shipment or delivery from a point inside the City. This Michigan law seems to parallel Public Law 86-272, a federal law that generally prohibits a jurisdiction from imposing a net income tax where the taxpayer’s activities within the jurisdiction are limited to the solicitation of orders of tangible personal property, activities ancillary to solicitation, or de minimis activity.
D.C. Federal Court Rules Termination of Democrat PCLOB Members Is Unlawful
On May 21, 2025, the U.S. District Court for the District of Columbia ruled that two Democrat members of the United States Privacy and Civil Liberties Oversight Board (“PCLOB”) were unlawfully terminated by President Trump.
The plaintiffs, Travis LeBlanc and Edward Felten, argued in their complaint against the PCLOB and others that the termination by the President of their positions on the PCLOB violated federal law and the U.S. Constitution. The court concluded that Congress intended to restrict the President’s power to remove PCLOB members, the restriction as applied to the plaintiffs is constitutional, and the plaintiffs’ required relief is appropriate. Accordingly, the court granted plaintiffs’ motion for summary judgment and denied the defendants’ cross-motion for summary judgment.
In reaching its conclusion, the court reasoned:
In response to the 9/11 Commission Report, Congress created an independent, multimember board of experts and tasked its members with the weighty job of overseeing the government’s counterterrorism actions and policies, and recommending changes to ensure that those actions and policies adequately protect privacy and civil liberties interests. And, as the Court has now concluded, that responsibility is incompatible with at-will removal by the President, because such unfettered authority would make the Board and its members beholden to the very authority it is supposed to oversee on behalf of Congress and the American people. To hold otherwise would be to bless the President’s obvious attempt to exercise power beyond that granted to him by the Constitution and shield the Executive Branch’s counterterrorism actions from independent oversight, public scrutiny, and bipartisan congressional insight regarding those actions. And, when the President contravenes a statutory scheme designed by Congress to ensure that these interests are adequately protected, it is specifically the “province and duty” of the independent Judiciary to “say what the law is.”
Fourth Circuit Decides “Non-Ink-to-Paper” Agreement Among Defense Contractors May Toll Statute of Limitations for Antitrust Claims
On May 9, 2025, the U.S. Court of Appeals for the Fourth Circuit published a significant decision in Scharpf v. General Dynamics Corp., reviving a dormant class action lawsuit against a group of the country’s largest naval defense contractors. The plaintiffs, two former naval engineers, alleged that the defendants maintained an unwritten “no-poach” agreement not to recruit each other’s employees, thereby suppressing labor mobility and wages for over two decades. While the district court dismissed the claims as time-barred under the Sherman Act’s four-year statute of limitations, the Fourth Circuit reversed, holding “that an agreement that is kept ‘non-ink-to-paper’ to avoid detection can qualify as an affirmative act of concealment” sufficient to toll the statute of limitations.
The case is notable for both its subject matter – a purported industry-wide, decades-long no-poach conspiracy among the largest players in the $40 billion shipbuilding industry – as well as its reaffirmation and arguable expansion of a relatively plaintiff-friendly fraudulent concealment standard. In adopting a practical view of what constitutes an “affirmative act” of concealment, the Fourth Circuit aligns itself with a growing consensus among federal courts and signals that unwritten antitrust conspiracies cannot escape judicial scrutiny merely because they were designed to leave no paper trail.
Background
The plaintiffs, Susan Scharpf and Anthony D’Armiento, are former naval engineers who worked for various naval shipbuilding companies between 2002 and 2013. In 2023, they brought a putative class action against “many of the largest shipbuilders and naval-engineering consultancies in the country,” alleging that the defendants had entered into an unwritten agreement to not actively recruit each other’s employees. This alleged no-poach conspiracy, which the plaintiffs claim “began as early as 1980 and was ubiquitous by 2000,” purportedly suppressed wages and prevented labor mobility across the industry.
The plaintiffs only discovered the alleged conspiracy in April 2023, following an investigation centered on insider witness accounts. According to the complaint, the conspiracy was deliberately concealed through a “non-ink-to-paper agreement,” which consisted of verbal agreements, passed down through oral instruction and enforced through coded language and informal executive communications. The plaintiffs argued that such tactics justified tolling the statute of limitations under the doctrine of fraudulent concealment.
The district court disagreed. In granting the defendants’ Rule 12(b)(6) motion, the court held that merely keeping an agreement unwritten did not constitute an affirmative act of concealment and dismissed the suit as barred by the statute of limitations. The plaintiffs appealed.
Fourth Circuit Decision
The Fourth Circuit reversed and remanded. Writing for the majority, Judge James Wynn concluded that the district court misapplied the standard for fraudulent concealment. Under “cornerstone” Fourth Circuit precedent in Supermarket of Marlinton, Inc. v. Meadow Gold Dairies, a plaintiff can toll the statute of limitations by alleging that the defendants engaged in affirmative acts intended to conceal their illegal conduct. In Scharpf, the majority held that maintaining a “non-ink-to-paper” agreement specifically for the purpose of avoiding detection qualified as such an affirmative act.
The court rejected the defendants’ argument that “a secret agreement… is not an affirmative act of concealment” and emphasized that “neither logic nor our precedent supports distinguishing between defendants who destroy evidence of their conspiracy and defendants who carefully avoid creating evidence in the first place.” Indeed, the latter may be even more effective at concealing misconduct. According to the court, the defendants’ alleged strategy of enforcing the no-poach agreement exclusively through oral instruction, euphemistic language (such as referring to other firms as “friends”), and private phone calls amounted to a deliberate scheme to avoid scrutiny. These tactics, if proven, reflected more than mere silence or passive nondisclosure and instead amounted to affirmative efforts to suppress evidence of the conspiracy.
Importantly, the court also applied a relaxed pleading standard under Rule 9(b), which governs fraud allegations. Recognizing the challenges plaintiffs face in pleading fraud-by-omission claims without access to discovery, the court held that the plaintiffs’ detailed factual allegations, “the bulk of [which] are quotes from interviews with industry insiders,” constituted particularity sufficient to survive a motion to dismiss.
Context in Federal Antitrust Law
Scharpf reinforces the Fourth Circuit’s alignment with the intermediate “affirmative-acts standard” for fraudulent concealment – a standard increasingly favored by federal courts. The First, Fourth, Fifth, Sixth, and Ninth circuits have adopted this standard holding that concealment need not be separate from the underlying antitrust violation, so long as the defendants undertook deliberate acts to keep the conspiracy hidden. For instance, the Fourth Circuit cited for support Texas v. Allan Construction Co., in which the Fifth Circuit held that covert price-fixing meetings could qualify as acts of fraudulent concealment, and Conmar Corp. v. Mitsui & Co., in which the Ninth Circuit emphasized that plaintiffs need not show additional deception beyond the conspiracy itself if the antitrust violation was secretly executed.
The Fourth Circuit again declined to adopt the “inapplicable” “self-concealing standard” enforced in the Second, Eleventh, and D.C. circuits, which allows tolling whenever “deception or concealment is a necessary element of the antitrust violation.” The court also declined to follow the Tenth Circuit’s lonely adherence to the restrictive “separate-and-apart” standard that allows tolling only on a showing of active concealment distinct from the underlying misconduct. Scharpf explained that the self-concealing standard is “inapplicable” to cases involving alleged price-fixing because “price-fixing is not inevitably deceptive or concealing.” Without discussion, the majority summarily dismissed the separate-and-apart standard as “too stringent and indeterminate.”
Notably, the Fourth Circuit also distinguished its ruling from its earlier, arguably more defendant-friendly decisions in Pocahontas Supreme Coal Co. v. Bethlehem Steel and Robertson v. Sea Pines Real Estate, in which the court had rejected tolling arguments based on an alleged “failure to admit wrongdoing” despite little to no initiative by plaintiffs to uncover such wrongdoing. In Scharpf, by contrast, the court held that defendants engaged in active concealment through coordinated non-documentation, covert verbal policies, and indirect enforcement mechanisms, all of which are hallmarks of intentional secrecy rather than mere passive non-disclosure.
Diaz Dissent
Chief Judge Albert Diaz dissented, arguing that the majority effectively adopted the lenient self-concealing standard rather than applying the Fourth Circuit’s established affirmative acts standard for fraudulent concealment. He contended that the plaintiffs failed “to allege discrete and particularized acts by the defendants to conceal the conspiracy” beyond “general descriptions” of the conspiracy itself. According to the dissent, simply labeling the no-poach agreement as unwritten or secret was insufficient to constitute an affirmative act of concealment, as the concealment was inherent in the alleged unlawful conduct. Diaz warned that the majority’s approach risks collapsing the distinction between conspiratorial conduct and concealment, thereby undermining the statute of limitations and permitting time-barred claims to proceed based solely on the inherently secretive nature of the original violation.
The Impact
The Scharpf decision is poised to create ripple effects in antitrust and employment litigation, particularly as courts and enforcers increasingly scrutinize collusion in labor markets.
Most immediately, the decision reinforces that the statute of limitations will not shield conspirators who hide their agreements through sophisticated concealment tactics. Employers in high-skill or high-security industries – especially those with limited pools of specialized labor – should pay close attention to this ruling. “Gentlemen’s agreements” and “non-ink-to-paper agreements” among competitors, even if never memorialized or acknowledged publicly, may still allow tolling for actionable antitrust claims.
More broadly, the ruling validates plaintiffs’ reliance on insider testimony and circumstantial evidence to plead fraudulent concealment in complex conspiracies. In practical terms, the Fourth Circuit may have lowered the procedural barriers for employees and other would-be plaintiffs to challenge long-running but unwritten anticompetitive arrangements.
Unpacking the Federal Anti-Kickback Statute’s Application to Payments to Medicare Advantage Agents and Brokers
On December 11, 2024, the U.S. Department of Health & Human Services’ Office of Inspector General (OIG), issued a Special Fraud Alert (Alert) focusing on financial arrangements involving Medicare Advantage (MA) Organizations (MAOs), their agents and brokers, and health care professionals (HCPs).[1] This blog post will unpack OIG’s commentary on these arrangements and discuss how – and if – the federal Anti-Kickback Statute (AKS) applies to them.
The first section provides a brief background on the Centers for Medicare & Medicaid Services’ (CMS) regulations applicable to compensation for agents and brokers for MA plans with a focus on the regulations that were to be effective for Contract Year 2025 but have been stayed (i.e., delayed) pending the outcome of court cases in the Northern District of Texas. The second section provides an overview of OIG’s 2024 Alert, and the final section explores the application of the AKS to arrangements involving payments to MA plan agents and brokers.
CMS Revised Agent, Broker & TPMO Compensation Regulations
By statute, CMS is given regulatory authority over MA agent and broker compensation – see Social Security Act (SSA) § 1851(j)(2)(D), 42 U.S.C. § 1395w-21(j)(2)(D) – which describes prohibited activities and limitations related to eligibility, election, and enrollment, including “[t]he use of compensation other than as provided under guidelines established by the Secretary. Such guidelines shall ensure that the use of compensation creates incentives for agents and brokers to enroll individuals in the Medicare Advantage plan that is intended to best meet their health care needs.” That statutory authority is implemented through CMS regulation at 42 C.F.R. § 422.2274, which addresses MA plan payments to agents and brokers.
In its April 2024 Final Rule revising section 422.2274, CMS outlined the following approach for revisions to the agent, broker and third-party marketing organization (TPMO) compensation structures:
generally prohibit contract terms between MA organizations and agents, brokers or other TPMOs that may interfere with the agent’s or broker’s ability to objectively assess and recommend the plan which best fits a beneficiary’s health care needs;
set a single agent and broker compensation rate for all plans, while revising the scope of what is considered “compensation”; and
eliminate the regulatory framework which currently allows for separate payment to agent and brokers for administrative services.[2]
In several places in the Final Rule, CMS noted that, depending on the circumstances, agent and broker relationships can also be problematic under the AKS if they involve, for example, compensation in excess of fair market value (FMV), compensation structures tied to the health status of the beneficiary (e.g., cherry picking for the most profitable enrollees), or compensation that varies based on the attainment of certain enrollment targets.[3]
On July 3, 2024, the U.S. District Court for the Northern District of Texas issued preliminary injunctions in Americans for Beneficiary Choice v. HHS, No. 4:24-cv-00439, and Council for Medicare Choice v. HHS, No. 4:24-cv-00446, which stayed for the duration of the litigation the effective date of certain of the provisions of the revised CMS agent/broker/TPMO compensation provisions, specifically, those amending 42 C.F.R. § 422.2274(a), (c), (d), (e) (and for Medicare Part D at § 423.2274(a), (c), (d) and (e)). Therefore, the regulatory language within those subsections that were effective prior to the issuance of the final rule will be in effect in Contract Year 2025 so long as the stay remains in place.[4]
To be clear, with or without the revisions to the compensation provisions, the agent, broker and TPMO compensation regulations at 42 C.F.R. § 422.2274 currently and as revised allow compensation that is quite different than what is reflected in the AKS safe harbors and OIG guidance on the provider side. For example, the CMS regulations allow per enrollment fees to brokers or agents based on successfully enrolling beneficiaries into MA plans (a “success fee”), which have caps set at “fair market value” amounts (defined in the regulation) determined by CMS.[5] Further, payments for referrals (up to $100) are specifically allowed (e.g., a lead fee) for the “recommendation, provision, or other means of referring beneficiaries to an agent, broker or other entity for potential enrollment into a plan.”[6] These compensation methodologies have been commonplace in the insurance market for decades, but they are quite different than sales agent compensation for providers that are paid by the federal health care programs.
Overview: OIG Special Fraud Alert
In the wake of CMS’ Final Rule, OIG released a Special Fraud Alert, which focuses on:
marketing arrangements between MAOs and HCPs and
arrangements between HCPs and agents and brokers for MA plans.[7]
The Alert illustrates how OIG views the application of AKS in arrangements between HCPs and agents and brokers for MA plans.
OIG noted that a substantial area of risk involves MAOs, directly or indirectly, paying remuneration (i.e., anything of value) to HCPs or their staff in exchange for referring patients to the MAOs’ plans.[8] OIG acknowledged that CMS regulations allow HCPs to engage in certain limited marketing related functions on behalf of an MAO, but MAOs must ensure that HCPs acting on their behalf do not “[a]ccept compensation from the [MAO] for any marketing or enrollment activities performed on behalf of the [MAO],”[9] citing a CMS regulation. (The OIG cited a recent Department of Justice settlement for $60 million involving alleged kickbacks paid to insurance agents in Medicare Advantage patient recruitment.[10])
The Alert noted that the second area of risk involves payments from HCPs to agents and brokers, e.g., payments from an HCP to agents and brokers to recommend that HCP to a particular MA enrollee or refer to the enrollee to the HCP.[11] According to OIG, in some cases, HCPs make these payments to refer Medicare enrollees to the HCP, in return to become designated as the primary care provider for the enrollee at their particular MA plan.[12]
OIG is concerned that agents, brokers and HCPs may skew the guidance they provide related to HCPs or MA plans based on their financial self-interest.[13] When a party knowingly and willfully pays remuneration to induce or reward referrals of items or services payable by a federal health care program, the AKS may be implicated.[14] By its terms, the statute ascribes liability to parties on both sides of an impermissible kickback transaction. Arrangements involving HCP compensation to an agent or broker could implicate the statute if the HCP offers or pays an agent or broker to refer enrollees to the HCP for the furnishing or provision of items or services that are reimbursable by a federal health care program.[15] Similarly, arrangements involving MAO compensation to an HCP or their staff could implicate the statute if the MAO offers and pays an HCP or their staff to refer enrollees to a particular MA plan to furnish or arrange for the furnishing of items or services that are reimbursable by Medicare.[16]
Based on its experience, OIG provides a list of “suspect characteristics” that “taken together or separately, could suggest that an arrangement presents a heightened risk of fraud and abuse.”[17] These characteristics include, but are not limited to:
MAOs, agents, brokers, or any other individual or entity offering or HCPs or their staff remuneration (such as bonuses or gift cards) in exchange for referring or recommending patients to a particular MAO or MA plan.
MAOs, agents, brokers, or any other individual or entity offering or paying HCPs remuneration that is disguised as payment for legitimate services but is actually intended to be payment for the health care provider’s referral of individuals to a particular MA plan.
MAOs, agents, brokers, or any other individual or entity offering or paying HCPs or their staff remuneration in exchange for sharing patient information that may be used by the MAOs to market to potential enrollees.
MAOs, agents, brokers, or any other individual or entity offering or paying remuneration to HCPs that is contingent upon or varies based on the demographics or health status of individuals enrolled or referred for enrollment in an MA plan.
MAOs, agents, brokers, or any other individual or entity offering or paying remuneration to HCPs that varies based on the number of individuals referred for enrollment in an MA plan.
HCPs offering or paying remuneration to an agent, broker, or other third party that is contingent upon or varies based on the demographics or health status of individuals enrolled or referred for enrollment in an MA plan.
HCPs offering or paying remuneration to an agent, broker, or other third party to recommend that HCP to a Medicare enrollee or refer an enrollee to the HCP.
HCPs offering or paying remuneration to an agent, broker, or other third party that varies with the number of individuals referred to the HCP.[18]
Application of the Federal AKS to Arrangements Involving Agents and Brokers for MA Plans
On the provider side, the AKS is well known and should be carefully navigated. The AKS prohibits providers from knowingly and willfully soliciting, receiving, offering, or paying, directly or indirectly, any remuneration in return for either making a referral for an item or service covered by a federal health care program (including Medicare and Medicaid) or ordering any covered item or service.[19] For purposes of this statute, remuneration includes the transfer of anything of value, in cash or in kind, directly or indirectly, covertly or overtly.[20] OIG has promulgated AKS regulations, which provide safe-harbor protection for certain activities that might otherwise be subject to scrutiny under the AKS.[21] If a safe harbor applies to an arrangement, it must satisfy all elements of the safe harbor to receive protection. If an arrangement does not fall within a safe harbor, OIG will review the full facts and circumstances to make a compliance determination.
In the Alert, OIG suggests that financial arrangements involving agents and brokers for MA plans may implicate the AKS. Arrangements involving HCP compensation to an agent or broker could implicate the statute if the HCP offers or pays an agent or broker to refer enrollees to the HCP for the furnishing or provision of items or services that are reimbursable by a federal health care program.[22] Similarly, arrangements involving MAO compensation to an HCP or their staff could implicate the AKS if the MAO offers and pays an HCP or their staff to refer enrollees to a particular MA plan to furnish or arrange for the furnishing of items or services that are reimbursable by Medicare.[23]
However, the AKS’s application to agent/broker arrangements is murky territory, which we explore further below.
i. AKS History
In 1972, the federal AKS was created in two (2) identically worded sections of the SSA in title XVIII (SSA § 1877) (Medicare) and title XIX (SSA § 1909) (Medicaid). Until 1999, there were Parts A and B of Medicare, but no Part C – i.e., no Medicare Advantage (previously called Medicare+Choice).[24] The AKS prohibition related then, as it does now, to referrals of “items or services” and purchasing, leasing, ordering or arranging for or recommending purchasing, leasing, or ordering any good, facility, service or item for which payment may be made in whole or in part “under the [Medicare and Medicaid] title.” (That payor language is now “under a Federal health care program.”[25])
The Medicare definitions for that original SSA section 1877 were found in SSA section 1861 (42 U.S.C. § 1395x) (under Part E – Miscellaneous Provisions). Under the Medicare definitions (SSA Sec. 1861 Definition of services, institutions, etc.), “item or service” is not specifically defined, but there are references to its meaning in the other definitions in that section. For example, SSA section 1861(n) “The term ‘physicians’ services means professional services performed by physicians, including surgery, consultation, and home, office, and institutional calls….”[26] SSA section 1861(s) “The term ‘medical and other health services’ means any of the following items or services: (1) physician services; (2)(A) services and supplies…; (B) hospital services…(C) diagnostic services….”[27]
In 1987, Congress moved SSA section 1909 to section 1128B and repealed the anti-kickback provisions of SSA section 1877. (Remember SSA sections 1877 and 1909 were identically worded.) SSA section 1128B is under SSA title XI (General Provisions, Peer Review and Administrative Simplification) and does not have a definition of “item or service.”[28] However, the definitions section under SSA title XVIII (Medicare) at section 1861 still exist. Further, and as previously noted, in 1999, Medicare Part C (also known as Medicare+Choice, now Medicare Advantage) was created and is part of the SSA title XVIII.
The meanings of items or services have remained at SSA title XVIII, section 1861 (entitled “Definitions”). As such, items include, e.g., prescription drugs and supplies; services include, e.g., physician services. Items and services have never been interpreted as being a Medicare Advantage plan itself.
ii. Agent/Broker Payments
Payments tied to marketing for enrollment of beneficiaries into an MA plan do not implicate the AKS because such plan marketing services are not referrals of items or services nor are such plan marketing services purchasing, leasing, ordering or arrangement for or recommending purchasing, leasing, or ordering any good, facility, service or item.
AKS does apply to health plans, but in looking at the AKS regulatory safe harbors (the OIG’s implementing regulations), it is clear that the statute’s application (and the meaning of items and services), does not include marketing and other pre-enrollment activities.
1. 42 C.F.R. § 1001.952(l) Increased coverage, reduced cost-sharing amounts, or reduced premium amounts offered by health plans. “(1) As used in section 1128B of the Act, ‘remuneration’ does not include the additional coverage of any item or service offered by a health plan to an enrollee or the reduction of some or all of the enrollee’s obligation to pay the health plan or a contract health care provider for cost-sharing amounts (such as coinsurance, deductible, or copayment amounts) or for premium amounts attributable to items or services covered by the health plan, the Medicare program, or a State health care program, as long as the health plan complies with all of the standards within one of the following two categories of health plans….”
2. 42 C.F.R. § 1001.952(m) Price reductions offered to health plans. “As used in section 1128B of the Act, ‘remuneration’ does not include a reduction in price a contract health care provider offers to a health plan in accordance with the terms of a written agreement between the contract health care provider and the health plan for the sole purpose of furnishing to enrollees items or services that are covered by the health plan, Medicare, or a State health care program, as long as both the health plan and contract health care provider comply with all of the applicable standards within one of the following four categories of health plans….”
3. 42 C.F.R. § 1001.952(t) Price reductions offered to eligible managed care organizations. “(1) As used in section 1128B of the Act, ‘remuneration’ does not include any payment between: (i) an eligible managed care organization and any first tier contractor for providing or arranging for items or services, as long as the following three standards are met — (A) the eligible managed care organization and the first tier contractor have an agreement that: (1) Is set out in writing….
(2) For purposes of this paragraph, the following terms are defined as follows:
…(iv) Items and services meanshealth care items, devices, supplies or services or those services reasonably related to the provision of health care items, devices, supplies or services including, but not limited to, non-emergency transportation, patient education, attendant services, social services (e.g., case management), utilization review and quality assurance. Marketing and other pre-enrollment activities are not “items or services” for purposes of this section.”
4. 42 C.F.R. § 1001.952(u) Price reductions offered by contractors with substantial financial risk to managed care organizations. “(1) As used in section 1128(B) of the Act, “remuneration” does not include any payment between: (i) A qualified managed care plan and a first tier contractor for providing or arranging for items or services, where the following five standards are met — (A) The agreement between the qualified managed care plan and first tier contractor must: (1) Be in writing and signed by the parties;….
(2) For purposes of this paragraph, the following terms are defined as follows:
…(iv) Items and services means health care items, devices, supplies or services or those services reasonably related to the provision of health care items, devices, supplies or services including, but not limited to, non-emergency transportation, patient education, attendant services, social services (e.g., case management), utilization review and quality assurance. Marketing or other pre-enrollment activities are not “items or services” for purposes of this definition in this paragraph.”
Except for the Alert discussed in this Article, there is no OIG regulatory or sub-regulatory guidance providing direction related to MA plan-agent/broker arrangements. The recent Alert discusses arrangements involving MAO compensation to an HCP or their staff that could implicate AKS if the MAO offers and pays an HCP or their staff to refer enrollees to a particular MA plan to furnish or arrange for the furnishing of items or services that are reimbursable by Medicare. The Alert’s analysis concludes applicability of the AKS while it jumps past (or around) the “conduct” – i.e., the recommendation of the MAO plan enrollment – to the items and services provided by a plan.
Prior to the most recent Alert, OIG’s last discussion of such arrangements was in 1996 (even before MA) and noted that the issue of independent agents and brokers in the managed care arena was beyond the scope of the 1996 final rule (regarding safe harbors for protecting health plans) and “would require separate notice and public comment in order to be adopted.”[29] There has been no such separate notice and comment.
The 2008 and 2024 rules from CMS noted that “agents and broker relationships can be problematic under the federal anti-kickback statute if they involve, by way of example only, compensation in excess of fair market value, compensation structures tied to the health status of the beneficiary (for example, cherry picking), or compensation that varies based on the attainment of certain enrollment targets.”[30] OIG, not CMS, has authority to interpret the AKS and its safe harbors. Thus, this CMS preamble language is interesting, but it is not OIG guidance, or more fundamentally a statutory expansion that would apply the AKS to incentives related to MA plan choices.
In the 2024 Final Rule, in its discussion of AKS, CMS also referenced a 2010 OIG report, but that 2010 report specifically stated: “Finally, we [OIG] did not determine whether plan sponsors’ payments complied with the Federal anti-kickback statute. A legal analysis of whether plan sponsor payments violated the Federal anti-kickback statute was beyond the scope of this study.”[31]
Conclusion
The AKS is broadly applicable to items and services provided by the federal health care programs, but it is not currently applicable to MA broker and agent compensation related to MA plan choices that are not “items and services.” CMS has broad authority related to MA broker, agent and TPMO compensation by statute and regulation. Without a statutory change to the AKS, CMS is the sole authority over MA broker, agent and TPMO compensation in accordance with the rules set forth at 42 C.F.R. § 422.2274.
[1] U.S. Dep’t. of Health & Hum. Servs. Office of Inspector General, Special Fraud Alert: Suspect Payments in Marketing Arrangements Related to Medicare Advantage and Providers (Dec. 11, 2024) (available at https://oig.hhs.gov/compliance/alerts/).
[2] 89 Fed. Reg. 30,448, 30,620 (CMS Final Rule, Apr. 23, 2024).
[3]Id. at 30,617, 30,618 and 30,624.
[4] CMS, Medicare Drug and Health Plan Contract Administration Group, UPDATED Contract Year 2025 Agent and Broker Compensation Rates, Submissions, and Training and Testing Requirements (July 18, 2024) available at https://22041182.fs1.hubspotusercontent-na1.net/hubfs/22041182/Memo_Updated%20AB%20Compensation%20and%20T%20and%20Testing%20Requirements%20CY2025_Final.pdf.
[5] 42 C.F.R. § 422.2274(a), (d).
[6]Id. § 422.2274(f).
[7] U.S. Dep’t. of Health & Hum. Servs. Office of Inspector General, Special Fraud Alert: Suspect Payments in Marketing Arrangements Related to Medicare Advantage and Providers (Dec. 11, 2024), available at https://oig.hhs.gov/documents/special-fraud-alerts/10092/Special%20Fraud%20Alert:%20Suspect%20Payments%20in%20Marketing%20Arrangements%20Related%20to%20Medicare%20Advantage%20and%20P.pdf (hereinafter, “Alert”).
[8]Id. at 2.
[9] 42 C.F.R. § 422.2266.
[10]See Press Release, U.S. Department of Justice, Oak Street Health Agrees to Pay $60 Million to Resolve Alleged False Claims Act Liability for Paying Kickbacks to Insurance Agents in Medicare Advantage Patient Recruitment Scheme (Sept. 18, 2024), https://www.justice.gov/opa/pr/oak-street-health-agrees-pay-60m-resolve-alleged-falseclaims-act-liability-paying-kickbacks.
[11] Alert at 2.
[12]Id.
[13]Id. at 3.
[14]Id. at 4.
[15]Id.
[16]Id.
[17]Id. at 5.
[18]Id.
[19] SSA 1128B(b)(1), 42 U.S.C. § 1395a-7b(b)(1).
[20]Id.
[21] 42 C.F.R. § 1001.952.
[22] Alert at 4.
[23]Id.
[24]See Balance Budget Act of 1997, P. L. 105-33, 111 Stat. 251, tit. IV (Aug. 5, 1997).
[25] “Federal health care program” is defined as “(1) any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government (other than the health insurance program under chapter 89 of title 5); or (2) any State health care program, as defined in section 1320a-7(h) of this title.” SSA 1128B(f), 42 U.S.C. § 1320a-7b(f).
[26] SSA § 1861(n), 42 U.S.C. § 1395x(n).
[27] SSA § 1861(s), 42 U.S.C. § 1395x(s).
[28]See generally SSA § 1861, 42 U.S.C. § 1395x.
[29] 61 Fed. Reg. 2122, 2124 (OIG Final Rule, Jan. 25, 1996).
[30]See, e.g., 89 Fed. Reg. 30,448, 30,617 (Final Rule, Apr. 23, 2024).
[31] 89 Fed. Reg. at 30,618 (citing Levinson, Daniel R, Beneficiaries Remain Vulnerable to Sales Agents Marketing of Medicare Advantage Plans (March 2010), https://oig.hhs.gov/oei/reports/oei-05-09-00070.pdf)).
No Credit Where It Isn’t Due: The Importance of Preemption and Inventorship in Patent Law
Mr. Storms, an individual with significant experience with Bitcoin mining, is the founder and sole employee of BearBox LLC. Mr. McNamara and Dr. Cline co-founded Lancium in November 2017 with the intention of co-locating flexible datacenters (e.g., Bitcoin miners) at wind centers to exploit the highly variable power output of windfarms.
Lancium intended to exploit the power output of flexible datacenters by “ramping down” and selling power to the electrical grid when energy prices are high. Conversely, when energy prices were low flexible datacenters would “ramp up.” These concepts were disclosed by Lancium in February 2018 in International Publication No. WO 2019/139632, entitled “Method and System for Dynamic Power Delivery to a Flexible Datacenter Using Unutilized Energy Sources.” This application names McNamara and Cline as inventors, and has a priority date of January 2018.
In 2019, Lancium began to develop internally its own software to control cryptocurrency miners, which it monitored at least one windfarm with by May 2019. Lancium also worked with various companies to design and manufacture portable mining containers.
Around this same time (late 2018 to early 2019) BearBox began to design, build, and test the BearBox system that allowed a remote user to control an individual relay to turn on and off Bitcoin miners. By May 7, 2019, Mr. Storms developed source code that could control a mining site based on various economic conditions, such as the cost of electricity.
On May 3, 2019, Mr. Storms met Lancium for cocktails and dinner at a cryptocurrency conference, where Mr. Storms and Mr. McNamara discussed the Bear Box system. The two exchanged numbers, but never met in person again. On May 8, 2019, after a few exchanged text messages, Mr. McNamara asked Mr. Storms for BearBox design specifications. Mr. Storms responded the by an email with the following attachments: (1) a one-page BearBox Product Specification Sheet; (2) an annotated diagram of BearBox’s Automatic Miner Management System; (3) specification sheets on fans and other hardware components; and (4) a data file modeling a simulation of the BearBox system. Mr. McNamara credibly testified that he spent no more than three minutes reviewing the attachments before considering the price of the BearBox system too high compared to other solicited manufacturers.
On October 28, 2019, Lancium filed U.S. Provisional App. No. 62/927,119 ( the ’119 application), which ultimately issued as the ’433 patent, entitled, “Method and Systems for Adjusting Power Consumption Based on a Fixed-Duration Power Option Agreement.” The ’433 patent relates to a set of computing systems that are configured to perform computational operations using power from a power grid; and a control system that monitors a set of conditions and receives power option data based, in part, on a power option agreement, and McNamara and Cline are the named inventors.
BearBox brought a lawsuit against Lancium asserting, inter alia, claims of sole or joint inventorship of the ’433 patent and conversion under Louisiana state law. Lancium succeeded on summary judgment that federal patent law preempted the conversion claim as pled.
Lancium was denied summary judgment on inventorship, but in the interim, the district court struck a supplemental report from BearBox’s technical expert. The district court determined BearBox had acted in bad faith when it served the report three weeks before the start of trial, and five months after the close of expert discovery, without seeking leave of court or Lancium’s consent, as required by the district court’s scheduling order.
Following a three day bench trial, the district court concluded that BearBox had not met its burden under the inventorship claim by clear and convincing evidence. BearBox appealed the district court decision.
Issues
Did the district court err in holding BearBox’s claim for conversion, under Louisiana state law, as pled is preempted by federal patent law?
Did the district court err in deciding to strike BearBox’s expert’s supplemental report in toto?
Did the district court err in holding that BearBox failed to provide clear and convincing evidence that Mr. Storms should be named a sole or joint inventor?
Holding
No, the district court properly held that federal patent law preempted the state law conversion claim as pled by BearBox.
No, the district court properly excluded BearBox’s expert’s supplemental report.
No, the district court properly held that BearBox failed to provide clear and convincing evidence that Mr. Storms should be named a sole or joint inventor.
Reasoning
Preemption of Conversion Claim
The Federal Circuit reviewed de novo the district court’s grant of summary judgment as is required under the law of the regional circuit, the Third Circuit. However, for the question of whether federal patent law preempts a state law claim Federal Circuit law governs.
While there are three types of preemption: explicit, field, or conflict preemption; only conflict preemption was implicated by BearBox’s claim. Conflict preemption occurs “when a state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” BearBox v. Lancium, 2023-1922, 12 (Fed. Cir. 2025) (quoting Ultra-Precision Mfg., Ltd. v. Ford Motor Co., 411 F.3d 1369, 1377 (Fed. Cir. 2005)). While there are several congressional objectives for federal patent law, “public disclosure and use . . . is the centerpiece of federal patent policy.” BearBox, 23-1922 at 12 (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 157 (1989)). Thus, any state law that “substantially interferes with the enjoyment of an unpatented utilitarian or design conception which has been freely disclosed by its author to the public” is preempted as contravening the ultimate goal of federal patent law. Id.
Under Louisiana state law, conversion is “an act in derogation of the plaintiff’s possessory rights and any wrongful exercise or assumption of authority over another’s goods, depriving him of the possession, permanently or for an indefinite time.” BearBox, 23-1922 at 13 (quoting Bihm v. Deca Sys., Inc., 226 So. 3d 466, 478 (La. App. 1 Cir. 2017)). A Louisiana conversion cause of action is not necessarily preempted by federal patent law, as a it may cover a range of conduct not implicating federal patent law. Id. at 13. Additionally, BearBox’s claim was not based on acts of patent infringement or a determination of inventorship, but rather on conversion of documents and information. Id. at 13. However, under Federal Circuit law, a preemption analysis is not a “mechanical compar[ison]” of the required elements of the state law claim with the objectives embodied in the federal law. Id. Instead, the analysis is whether the state law as pled “stands as an obstacle to the accomplishment of the full purposes and objectives of Congress.” Id. (quoting Ultra Precision, 411 F.3d at 1378).
Under this analysis the Federal Circuit affirmed the district court’s determination that BearBox’s conversion claim was preempted by federal patent law. BearBox’s claim, as pled, was “essentially an inventorship cause of action and patent infringement cause of action” that sought patent-like protection for ideas that are unprotected under federal law. BearBox, 23-1922, at 14. The Federal Circuit held the conversion claim “reads like a patent infringement cause of action.” BearBox, 23-1922 at 14. Even the damages sought by BearBox for the use, sale, and monetization of the technology it alleged it owns and invented, were patent-like damages. BearBox’s proposed damages were a “repackaged form of a royalty payment,” instead of the proper measure of damages under a Louisiana conversion claim, which is the return of the property or the value of the property at the time of the conversion. BearBox, 23-1922at 15-16.
Furthermore, federal patent law generally precludes a plaintiff from recovering damages from a defendant’s making, using, offering to sell, or selling an “unpatented discovery after the plaintiff makes the discovery available to the public.” BearBox, 23-1922 at 16 (quoting Ultra-Precision, 411 F.3d at 1380). Here, BearBox’s technology was not patented and was freely shared with others. Thus, allowing BearBox’s claim to proceed would potentially allow it to “recover lost profits or a reasonable royalty from its competitor . . . [for] alleged use of technical information that ‘otherwise remain[s] unprotected as a matter of federal law.’” BearBox, at 16-17 (quoting Bonito Boats, 489 U.S. at 156).
Exclusion of Expert Report
BearBox argued the district court’s decision to strike the supplemental expert report in toto was an abuse of discretion for three reasons: (1) the untimely supplemental report was justified; (2) the supplemental report did not offer new opinions; and (3) the district court incorrectly determined the Pennypack factors weighed in favor of exclusion. BearBox, 23-1922 at 17. The Federal Circuit reviewed the district court’s evidentiary rulings for abuse of discretion.
BearBox first asserted that its expert’s supplemental report, although untimely, was justified because Lancium raised a new claim construction dispute for the first time after the close of discovery. BearBox, 23-1922 at 17-18. The Federal Circuit, however, viewed this assertion as a mischaracterization of the record. While the district adopted Lancium’s construction after the close of discovery, the adopted constructions were raised before and were not new to either BearBox or its expert. The Federal Circuit agreed that BearBox should have addressed Lancium’s proposed constructions in its expert reports.
Next, BearBox asserted that the district court erred in concluding its expert’s report offered new opinions. BearBox, 23-1922 at 19-20. The Federal Circuit saw no error in the determination that the opinions in the Supplemental Report were “beyond mere elaboration or clarification.” Id. at 19. Furthermore, the portions of the prior expert reports BearBox pointed to as support for its claim construction did not overcome or otherwise rectify its expert’s “clearly contradictory testimony.” Id.
Lastly, the Federal Circuit took up BearBox’s contention that even if the supplemental report contained new opinions, striking the report was an “extreme sanction, not normally warranted absent a showing of willful deception or flagrant disregard of court orders.” BearBox, 23-1922 at 20 (internal citations omitted). The Federal Circuit reviewed the district court’s Pennypack factor analysis forabuse of discretion in excluding the evidence. BearBox, 23-1922 at 20-21. The Pennypack factors are:
(1) “the prejudice or surprise in fact of the party against whom the excluded witnesses would have testified” or the excluded evidence would have been offered; (2) “the ability of that party to cure the prejudice”; (3) the extent to which allowing such witnesses or evidence would “disrupt the orderly and efficient trial of the case or of other cases in the court”; (4) any “bad faith or willfulness in failing to comply with the court’s order”; and (5) the importance of the excluded evidence.
BearBox, 23-1922 at 20-21 (quoting ZF Meritor, 696 F.3d at 298 (quoting Meyers v. Pennypack Woods Home Ownership Assn., 559 F.2d 894, 904–05 (3d Cir. 1977))).
For factors (1) and (2), the Federal Circuit reiterated that “the supplemental report offered new legal theories and opinions related to BearBox’s alleged conception and communication of the subject matter of the ’433 patent.” BearBox, 23-1922 at 21. Additionally, the new theories, if allowed, would have unfairly prejudiced Lancium because it was months after the close of discovery and only a few weeks before trial. While allowing Lancium’s expert to respondcould have cured some of the prejudice, given the strained schedule and quickly approaching trial, the Federal Circuit agreed that Lancium had “no meaningful opportunity” to sufficiently cure the prejudice. Id.
Similarly, for factor (3), the Federal Circuit saw no error in the conclusion that the risk of prejudice to Lancium was uncurable in light of the strained schedule and quickly approaching trial, and BearBox presented no evidence to demonstrate that the district court’s determination for this factor was erroneous. Id. at 22.
For factor (4), the Federal Circuit pointed to the district court’s scheduling order that stated that “after discovery no other expert reports [would] be permitted without either the consent of all parties or leave of the court.” BearBox, 23-1922 at 22. Since BearBox did not seek either Lancium’s consent or leave from the district court, the Federal Circuit saw no error in the determination that BearBox’s disregard of the scheduling order indicated bad faith and weighed in favor of exclusion of the report. Id.
For factor (5), the Federal Circuit reviewed the district court’s analysis, which it noted was assessed in two different ways. See BearBox, 23-1922 at 22-23. First, the district court compared BearBox’s expert opening and reply reports to the supplemental report at issue, and concluded the supplemental report “went beyond mere elaboration or clarification.” Id. at 22. Alternatively, the district court assumed the supplemental report did not contain new opinions. Id. at 23. Nevertheless, the district court found it could not reasonably conclude that the exclusion of the supplemental report would harm BearBox. Id. Thus, under either analysis the Federal Circuit viewed the district court as doubtful of the supplemental report’s importance and saw no error in either analysis.
The Federal Circuit ultimately determined, noting the considerable discretion of district courts in expert discovery and case management matters, that there was no abuse of discretion in excluding BearBox’s supplemental report.
Inventorship
For inventorship, BearBox did not challenge the district court’s factual findings or credibility determinations, rather it contended that the district court erred by: (1) excluding Mr. Storms’ testimony as hearsay; (2) analyzing individual claim elements (rather than a combination) by comparing them to Mr. Storms’ corroborating documents; and (3) applying the rule of reason by evaluating documents in isolation.
A district court may correct inventorship under 35 U.S.C. § 256 when it determines that an inventor has been erroneously omitted from a patent. BearBox, 23-1922 at 24. Inventorship is determined on a claim-by-claim basis and the issuance of a patent creates a presumption that the named inventors are the true and only inventors. Id. Any party seeking to correct inventorship of a patent must show by clear and convincing evidence that a joint inventor “contributed significantly to the conception . . . or reduction to practice of at least one claim,” and the “contribution” must arise out of some joint behavior of the inventors. Id. at 25 (internal citations omitted). Furthermore, an alleged joint inventor’s testimony is insufficient to establish inventorship and must be corroborated by further evidence. Id.
To determine whether an alleged co-inventor’s testimony has been sufficiently corroborated a rule of reason is applied by the district court. BearBox, 23-1922 at 24 (quoting Blue Gentian, LLC v. Tristar Prod., Inc., 70 F.4th 1351, 1357 (Fed. Cir. 2023)). The rule of reason requires the district court to examine all pertinent evidence to “determine whether the inventor’s [testimony] is credible.” BearBox, 23-1922 at 24 (quoting Blue Gentian, 70 F.4th at 1358). Since inventorship is a question of law based on underlying facts, a district court’s inventorship determination is reviewed de novo and the underlying fact findings are reviewed for clear error. BearBox, 23-1922 at 24-25 (citing In re VerHoef, 888 F.3d 1362, 1365 (Fed. Cir. 2018); and Dana-Farber Cancer Inst., 964 F.3d at 1370 (Fed. Cir. 2020)).
With respect to the ’433 patent, the only information shared by Mr. Storms with Lancium was his May 2019 email containing the four attachments, which the district court held were insufficient to establish that Mr. Storms’ inventorship. As a result, the Federal Circuit affirmed that BearBox had failed to prove by clear and convincing evidence that Mr. Storms had either conceived of, or communicated prior to Lancium’s independent conception, the subject matter of any claim of the ’433. BearBox, 23-1922 at 25.
BearBox also contended that the district court improperly excluded, as hearsay, Mr. Storms’ testimony about statements he made to Mr. McNamara at the May 2019 dinner. The Federal Circuit acknowledged some merit in BearBox’s contention but held that BearBox did not properly preserve its claim of error for appellate review. BearBox, 23-1922 at 27. Specifically, when the district court ruled that Mr. Storms’ testimony was hearsay, BearBox’s counsel made no offer of proof as to what Mr. Storm’s response would have been had he been permitted to answer the question. Id. Therefore, the Federal Circuit could not determine that there was prejudicial error in excluding Mr. Storms’ testimony as hearsay. Id.
BearBox’s next contention was that the district court failed to consider claim elements in combination and only focused on individual elements when it evaluated whether Storms conceived of the claimed inventions. BearBox, 23-1922 at 27-28. The only case BearBox cited in support of this argument that addressed inventorship was Blue Gentian. Id. The Federal Circuit, however, noted that in Blue Gentian it did not adopt a general criticism of limitation-by-limitation analysis. Id. Thus, Blue Gentian could not support a determination that the district court erred in adopting a limitation-by-limitation approach.
Lastly, BearBox contended that the district court erred by “referenc[ing] the Rule of Reason” but “not address[ing] whether, under the Rule of Reason, the totality of the evidence, including circumstantial evidence supports the credibility of the inventors’ story.” BearBox, 23-1922 at 28 (internal quotations omitted). BearBox asserted that two of the district court’s fact findings were inconsistent, and thus, improperly evaluated. First was the finding that “through late 2018 into early 2019, Storms began to design, build, and test a system . . . that allowed a remote user to control individual relays so that miners could be turned on or off.” Id. The alleged conflicting finding was “BearBox did not otherwise proffer evidence establishing that the BearBox System could individually control the system of 272 miners.” Id. The Federal Circuit held the that the later fact finding was taken out of context. For that finding of fact, the district court found, based on a credibility determination regarding competing expert testimony, that Mr. Storms’ “Source Code ‘only ever instructs . . . all the relays of the PDUs to turn on or off.” Id. at 29 (emphasis added). Additionally, the district court found, which BearBox did not mention on appeal, that “even if Storms’ Email did meet [the claim element at issue] of the ’433 patent, the Court finds as a matter of fact that Storms did not communicate [this element] prior to [Lancium’s] independent conception.” BearBox, 23-1922 at 29. Finding the remaining arguments unpersuasive, the Federal Circuit affirmed the district court’s dismissal of the state law conversion claim, exclusion of the supplemental expert report, and denial of the claim that Mr. Storms was either a sole or joint inventor of the ’433 patent.
Listen to this post