Executor Nominated by Decedent Deemed Unfit to Serve
When is the executor nominated by the decedent in a will deemed unfit to serve as executor? Rarely – but a recent decision in Surrogates Court set forth the standard and deemed the nominated executor in that case unfit to serve.
In Matter of Estate of Ryan, 227 N.Y.S.3d 541 (Surr. Monroe January 24, 2025), the decedent named her step-daughter (Barbara) as executor in her will. The decedent’s daughter (Susan) objected to Barbara’s nomination and filed a competing petition for letters of administration. The court noted that “the burden is exceedingly high on one who seeks to deny letters testamentary to one nominated as an executor,” but granted Susan’s petition nonetheless, following an evidentiary hearing.
The court pointed to a number of failings by Barbara as executor. First, upon the decedent’s passing, Barbara did not promptly seek letters of administration. Rather, she engaged in what amounted to self-help: she sold assets of the decedent (condominiums in Mexico) and, rather than distributing the proceeds under the will, retained them, claiming the benefit of a Spanish-language “trust agreement” that was not produced at the hearing. Second, she left hundreds of thousands of dollars in bank accounts rather than distributing them. Finally, she did not seek probate of the decedent’s will until Susan brought her petition, some 18 months after the decedent had passed away.
Susan sought to disqualify Barbara as “one who does not possess the qualifications required of a fiduciary by reason of … improvidence … or who is otherwise unfit for the execution of the office,” citing Surrogate Court Procedure Act § 707(1)(d). The court agreed, stating “[e]ven if her actions do not fit the definitions of ‘improvidence,’ they would fall within the more generalized catch-all provision of ‘unfit for the execution of the office,’” added to the S.C.P.A. in 1993 to “modernize” the provision. The court concluded: “In the ‘modern’ view, then, Barbara’s actions, again seen as a whole, render her unfit to be the administrator of the Estate. The court has no guarantee that the administration would take place with the required alacrity upon her appointment, since she did nothing for nearly 18 months to distribute the more than $300,000 that without question was to be distributed to the beneficiaries. She has not made available the ‘trust’ agreement that she says entitled her to the proceeds of the Mexican properties, and she has set up the estate for a costly turnover proceeding to claw back those proceeds. She has exposed the estate to substantial liability for estate income taxes, interest and penalties.”
The court granted Susan’s petition for letters of administration and denied them to Barbara.
The Takeaway: While the burden of displacing the executor nominated by the decedent is “exceedingly high,” it can be met. Both nominated executors and those who might be aggrieved by an executor’s actions (or inactions) should bear this in mind in evaluating conduct by an executor under a will.
Land Court’s Invalidation of Deed as the Result of Undue Influence Affirmed
What constitutes undue influence sufficient to invalidate a deed? In Erikson v. Erikson, 105 Mass. App. Ct. 1115 (February 24, 2025), the Appeals Court of Massachusetts affirmed the Land Court’s invalidation of a deed on the ground that one sibling unduly influenced his mother to deed a home occupied by his sister to his 6-year-old twin daughters.
The decedent (Doris) and her husband had three children, two of whom (Wendy and Bruce) were involved in the case. In 1985, Doris and her husband purchased a house, telling the seller that this property was “exactly what [they wanted] for [their] daughter, Wendy.” Doris told Wendy that they purchased this property to be her inheritance. Wendy lived at the property since 1985, was responsible for the property’s upkeep, utilities, insurance and taxes, and made major repairs and improvements to the property during the years she resided there.
By 2005, Doris’ physical and mental conditions were deteriorating and she moved in with Bruce and his family. While living with Bruce, in November 2006 Doris executed a deed which purported to convey the house in which Wendy lived to Bruce’s twin minor daughters, retaining a life estate for Doris. Doris was eighty-one years old at the time, while the minor daughters were six years old. Soon after, Doris moved into an assisted living facility and then a nursing home. Wendy was never informed of the deed during Doris’ lifetime.
Doris died intestate in May 2020. Wendy learned of the deed after Doris’ death, and brought an action in Land Court seeking to set aside the deed as procured by Bruce’s undue influence. After trial, the Land Court agreed. Bruce appealed, and the Appeals Court of Massachusetts affirmed. The court cited four elements as comprising an undue influence claim: “(1) an unnatural disposition has been made (2) by a person susceptible to undue influence to the advantage of someone (3) with an opportunity to exercise undue influence and (4) who in fact has used that opportunity to procure the contested disposition through improper means.”
The court found Wendy had proven all four elements. (1) The disposition was “unnatural” because “it was highly unusual to convey real estate to six year old children and to retain a life estate in property one does not intend to occupy.” (2) Citing evidence of previous confusion by Doris, the court found that “[t]he [trial] judge’s conclusion that her confusion, coupled with her age, made her susceptible to undue influence was supported by the evidence….” (3) The court agreed with the trial judge that, during the time Doris lived with Bruce, he had the opportunity to exercise undue influence. (4) The court found “Bruce benefitted from this conveyance because it benefitted his minor children, thereby reducing the financial burden of supporting them [and] Bruce [also] believed he could control the property….”
The Takeaway: In considering whether to bring an undue influence claim, or how to defend such a claim, counsel should give close attention to the four factors discussed in Erikson. Further, if the subject matter is a deed, Erikson indicates that the Land Court may be a proper forum rather than the Probate & Family Court.
U.S. Supreme Court Temporarily Stays NLRB Board Member Reinstatement; Board to Again Without a Quorum
On April 9, 2025, the Supreme Court of the United States issued a brief order, staying the District Court’s order reinstating former National Labor Relations Board (“NLRB” or “Board”) Member Gwynne A. Wilcox. The Board is now left without a quorum for a third time, which, under the National Labor Relations Act (“NLRA” or the “Act”), requires at least three members. See New Process Steel, L.P. v. NLRB, 560 U.S. 674 (2010).
Chief Justice John Roberts entered the order without an accompanying opinion, staying Member Wilcox’s reinstatement “pending further order of the undersigned or of the Court.” As reported here, here, and here, the Supreme Court appears primed to hear the merits of President Trump’s firing of Member Wilcox. Should the Supreme Court grant cert., it could determine the continuing viability of Humphrey’s Executor v. United States, 295 U.S. 602 (1935), as well as Wiener v. United States, 357 U.S. 349 (1958), which would have implications for the firing of all administrative agency heads.
We will continue to track the Wilcox litigation and its impact upon the NLRB.
Court Relies on Contractual Terms to Dismiss Dealership Suit Against Auto Manufacturer
Decozen Chrysler Jeep Corp. (“Decozen”), a New Jersey-based automobile dealership, filed a lawsuit against Fiat Chrysler Automobiles, LLC (“FCA”), in U.S. District Court for the District of New Jersey alleging that FCA engaged in unfair business practices that disadvantaged Decozen compared to other dealerships. Decozen claimed that FCA’s incentive and allocation programs created an uneven playing field, favoring larger dealerships and those in different geographic regions. FCA moved to dismiss the complaint, arguing that the claims failed to state a legally actionable cause of action. On March 13, 2025, the court issued its ruling on FCA’s motion.
Holdings
Breach of Contract: The court examined whether FCA’s incentive programs violated any contractual obligations owed to Decozen. The court found that Decozen failed to identify a specific contractual provision that FCA breached leading to the dismissal of this claim.
Violation of Franchise Laws: Decozen alleged that FCA’s practices violated New Jersey’s Franchise Practices Act. The court determined that while franchise laws protect dealerships from unfair terminations and discriminatory practices, Decozen did not sufficiently demonstrate that FCA’s actions constituted an unlawful franchise violation.
Unfair Competition and Antitrust Claims: Decozen argued that FCA’s actions harmed competition. The court ruled that Decozen failed to establish antitrust injury and that the allegations were more aligned with competitive disadvantages rather than anti-competitive conduct. The court dismissed these claims as well.
Fraud and Misrepresentation: The court dismissed Decozen’s fraud claims, noting that the allegations lacked specificity regarding false statements made by FCA.
Lessons Learned for Manufacturers
Clarity in Incentive Programs: Manufacturers should ensure that incentive structures and allocation programs are transparent and consistently applied to avoid potential legal challenges.
Contractual Precision: Franchise agreements should explicitly outline obligations and rights to minimize ambiguity in disputes.
Compliance with Franchise Laws: While manufacturers retain discretion in business decisions, they must be cautious not to create the appearance of discrimination or unfair treatment that could trigger legal scrutiny under franchise laws.
Avoiding Antitrust Risks: Manufacturers should evaluate incentive programs to ensure they do not inadvertently create antitrust concerns by favoring certain dealers over others in a way that could be deemed anti-competitive.
This ruling underscores the importance of clear contractual terms and well-structured incentive programs to mitigate legal risks for manufacturers in franchise relationships.
OH THE HUMANITY: Humana Crushed in TCPA Class Certification Order Over Wrong Number Robocalls
I told you Humana was in trouble.
The Medicare giant is facing massive TCPA exposure following a ruling by a federal court in Kentucky certifying a class containing over 23,000 individuals.
In Elliot v. Humana, 2025 WL 1065755 (W.D. Ky April 9, 2025) the Court certified a wrong number TCPA class defined as follows:
[a]ll persons or entities throughout the United States (1) to whom Humana placed, or caused to be placed, a call (2) directed to a number assigned to a cellular telephone service, but not assigned to a current account holder of Humana (3) in connection with which Humana used an artificial or prerecorded voice, (4) four years from the filing of this action through the date of class certification.
According to Plaintiff, Humana’s own data sets shows wrong number designations for 23,682 individuals that received at least one prerecorded call from Humana after they received a wrong number designation, a violation of the TCPA.
Not good.
Humana countered that the Plaintiff has failed to demonstrate any actual called parties that were not Humana customers but the Court stated “common sense” confirmed accounts coded “wrong #” or the like were sufficiently included in the numerosity count.
The Court next identified three common issues it asserts Humana did not adequately challenge: (1) whether Humana initiated non-emergency prerecorded calls to non customers; (2) whether Humana used a prerecorded voice to make calls to class members; and (3) whether the number called was a cellular telephone. The Court appears to acknowledge whether calls were made to a wrong number is not common but it refused to deny certification on that basis.
Humana argued the case should not be certified because “wrong number designations could refer to typographical errors, calls where a Humana team member called the wrong number, intentional contact with individuals who said, ‘wrong number because they didn’t want to talk,’ and Humana members who incorrectly reported a wrong number” but the Court was unmoved. The Court would not “ignore the plain meaning of ‘wrong number’ to accommodate several errors or inconsistencies Humana found in self reviewing their own record.”
Eesh.
At bottom the court acknowledged that not every call recipient noted in the Humana data set might be a wrong number call recipient but it intends to use that data set as a starting point–certify a class based on the data, and then use declarations as part of the claims process to determine who was, and was not, a class member.
Not good. At all.
The interesting thing is that it is very tough to determine potential exposure here.
Per the Plaintiff, every member of the class received at least one call after the wrong number notation. That would appear to set damages at $11,500,000-$34,500,000.00.
However TCPA damages for wrong number claims don’t work that way. Calls made even before the wrong number note are also actionable–if it is a real wrong number. So the exposure might be much higher, depending on how many calls Humana was placing here.
Then again, if very few of the 23k or so individuals with wrong number notations were “real” wrong numbers then the exposure could be much much lower. The Court’s order simply does not provide enough information to assess these issues.
What we do know is that Humana is now facing a certified TCPA class action and it is fair to say there are at least 8 figures on the line here. A few obvious take aways:
This is another prerecorded call case. Using such technology is the easiest way to get yourself caught up in a TCPA class action.
Wrong number TCPA class actions continue to be the most dangerous sort of case to defend against. These cases are far more likely to be certified than other types of TCPA cases. You MUST defend yourself by engaging in SMART data practices– Humana was hung on its own records folks– and also using the FCC’s Reassigned Numbers Database (they just lowered their rates)!
Notably the Plaintiff’s counsel in this case was Tom Alvord of LawHQ— Dr. Evil and his crew. These guys are good folks.
A Patent Without a Pulse: Provisional Rights Don’t Outlive the Patent
The US Court of Appeals for the Federal Circuit dismissed an appeal from a patent applicant seeking provisional rights on a patent that would issue only after it had already expired, finding that the applicant lacked the necessary exclusionary rights to support a claim for provisional rights. In re: Donald K. Forest, Case No. 23-1178 (Fed. Cir. Apr. 3, 2025) (Taranto, Schall, Chen, JJ.)
Donald K. Forest applied for a patent on December 27, 2016. Forest’s patent application claimed priority through a chain of earlier-filed patent applications dating back to March 27, 1995. If Forest’s patent application matured into a patent, it would have expired 20 years after the 1995 priority date (i.e., prior to the 2016 filing date). The patent examiner nevertheless examined and rejected the proposed claims. The Patent Trial & Appeal Board partially affirmed the examiner’s rejection of certain claims on grounds of obviousness and double patenting. Forest appealed.
The Patent & Trademark Office raised a threshold issue that since Forest’s application could only result in an expired patent, he lacked a personal stake in the appeal sufficient to establish jurisdiction. Forest countered that he could still acquire “provisional rights” under 35 U.S.C. § 154(d) – a limited right to royalties for certain pre-issuance activities – despite the expiration of any issued patent as it issued.
The Federal Circuit dismissed the appeal, explaining that since Forest could not be granted a patent until after the patent’s expiration date, he would never receive any exclusionary rights. The Court clarified that provisional rights only arise once a patent issues and crucially do not extend beyond the statutory patent term. Because Forest sought the issuance of a patent that would confer no enforceable rights – either exclusionary or provisional – the Court dismissed the appeal for lack of jurisdiction.
The Federal Circuit’s primary conclusion was predicated on the principle that provisional rights are only available when a patent issues with enforceable exclusionary rights, meaning the patent must issue before its expiration date. The Court emphasized that provisional rights under § 154(d) are expressly provided “in addition to other rights provided by” the patent statute. Because this statutory language indicates that provisional rights are not standalone, the Court determined that provisional rights depend on the existence of a valid, enforceable patent.
According to the Federal Circuit, the entire purpose of provisional rights is to provide temporary relief to the patentee during the gap between publication of a patent application and issuance of a patent. However, such rights only arise if the issued patent provides enforceable rights. The Court reasoned that provisional rights are meant to encourage early publication and protect patentees from pre-issuance infringement, but only as a precursor to full patent protection.
The Court rejected Forest’s interpretation of § 154(d), explaining it would create an anomalous situation where provisional rights could survive without any corresponding enforceable rights, allowing a patentee to collect royalties on a patent that could never be asserted in infringement litigation.
Practice Note: Patent rights, whether provisional or exclusionary, cannot survive beyond the 20-year term dictated by statute. Applicants seeking patents long after a priority date must ensure that enforceable rights remain possible, or risk pursuing an expired patent.
When Is a Trade Secret Accessible? As Soon as It Can Be Reverse Engineered
Although the US Court of Appeals for the Federal Circuit upheld a damages award for trade secret misappropriation and breach of a confidentiality agreement, it found that the district court erred in its determination of when the trade secret became publicly accessible for the purpose of applying a reverse engineering defense. The Federal Circuit also vacated and remanded the prejudgment interest award, finding that interest should not accrue on future sales. ams-OSRAM USA Inc. v. Renesas Elect. America, Inc., Case No. 22-2185 (Fed. Cir. Apr. 4, 2025) (Taranto, Schall, Chen, JJ.)
In 2008 ams sued Renesas for patent infringement, trade secret misappropriation, and breach of contract for using information that ams revealed in confidence. In 2015 a jury found for ams, and the district court entered judgment for trade secret misappropriation damages, but not for breach of contract. The district court determined that the breach award was duplicative of the misappropriation award. On appeal, in 2018 the Federal Circuit affirmed Renesas’ liability for misappropriation on a more limited basis than had been presented to the jury. The Court vacated the misappropriation award and remanded, instructing that disgorgement of profits damages should be decided by the judge, not the jury.
On remand, ams argued that it was entitled to “re-elect its remedy” and narrowed to the misappropriation and contract claims, which required the case to be retried. The new jury also found in favor of ams. The district judge then determined the monetary award for trade secret misappropriation, consisting of disgorgement of profits for one product and exemplary damages of double that sum. On ams’s breach of contract claim, the jury awarded a reasonable royalty on sales of products, other than the one subject to disgorgement damages. ams was also awarded prejudgment interest on both its misappropriation and contract claims, and attorneys’ fees on its breach of contract claim. Both parties appealed.
Trade Secret Accessibility and Reverse Engineering
The district court ruled that ams’s trade secrets became accessible in January 2006 when Renesas successfully reverse engineered the trade secret embodied in ams’s product. The district court determined that the relevant inquiry for accessibility is what the misappropriator actually did rather than what the misappropriator or other parties could have done. Renesas argued that the trade secret first became accessible when it could have reverse engineered the trade secret in February 2005.
The Federal Circuit agreed with Renesas, explaining that the district court’s ruling was inconsistent with Texas law. Under Texas law, information that is generally known or readily available by independent investigation does not qualify as a trade secret. Citing Fifth Circuit precedent, the Federal Circuit emphasized that the public is free to discover and exploit trade secrets through reverse engineering of products in the public domain. The Court found that Renesas could have accessed ams’s trade secrets through proper and straightforward means by February 2005. While acknowledging that the trade secret may not have been immediately apparent through casual inspection, the Court pointed out that reverse engineering is a common and widespread practice within the industry and could have been completed within approximately one week.
Prejudgment Interest
Renesas argued that the district court erred in awarding prejudgment interest on the entire damages amount from the date the complaint was filed, including future sales. Renesas contended that a portion of the sales for which disgorgement (trade secret) or reasonable royalty (breach) awards were made occurred after the complaint was filed, and thus ams “could not have been entitled to disgorged profits or a reasonable royalty for sales that had not yet occurred.”
Applying California law to the contract claim and Texas law to the trade secret claim, the Federal Circuit found that interest cannot accrue on a recovery-triggering event until that event has actually occurred. While the district court has discretion to award prejudgment interest, it cannot allow interest to accrue before the actual loss-causing event (product sales), because no right to recover damages vests until then. The Court remanded the case for recalculation of prejudgment interest, ensuring that interest is applied only to sales that actually occurred.
For Delaware, The Garden Party May Soon Be Ending Despite SB21
In speaking with a reporter earlier this year, I observed that this proxy season will tell whether DExit has legs. While not exactly, a flood, several well-known and lesser-known corporations have recently filed proxy statements proposing to reincorporate from Delaware into Nevada. The most recent filings of which I am aware were made by Madison Square Garden Sports Corp. and Madison Square Garden Entertainment Corp.
Both of these companies misuse the term “redomestication” in their proxy materials. While this may seem as a mere cavil, domestication and conversion are two entirely different processes under both Delaware and Nevada law. See Converting A Corporation Is Not Domestication. Conflating the two statutory processes may result in improper filings and botched reincorporations, as happened in at least one case of which I am aware. This same mistake was also recently made by Sphere Entertainment Co. in its preliminary proxy statement.
Both corporations cite what I believe to be the most fundamental difference between the corporate laws of Delaware and Nevada. Delaware has relied upon its Court of Chancery to make law while Nevada has relied upon its legislature. As a result and because the Court of Chancery has been populated with intelligent judges, Delaware’s corporate law has devolved into a intricate and finely nuanced body of decisional law. According to these companies,
Nevada law does not impose situation-specific conditions, such as requiring that interested transactions be both recommended by a disinterested committee of independent directors and subject to a “majority of the minority” vote, in order to benefit from the protection of the statutory business judgment rule.
This is a point that the plaintiff disputes in its recently filed complaint challenging the recent amendments to Section 144 of the Delaware General Corporation Law, claiming that it is a “false premise” that Nevada law is more predictable. Plumbers & Fitters Local 295 Pension Fund v. Dropbox, Inc., C.A. 2025-0354-KSJM (filed April 8, 2027. The complaint, however, fails to provide much information as to why the premise is false, other than to fault Dropbox’s proxy statement for including only one example of Nevada’s statute focused approach.
Last week, Xoma Royalty Corporation, a biotech royalty aggregator, last week also joined the lengthening list of publicly traded corporations seeking stockholder approval of a reincorporation from Delaware into Nevada despite the enactment of SB21.
Although Delaware historically has pleased most everyone, it now may be learning the lesson that “you can’t please everyone”.
Litigation Funding: The Good, The Bad, The Future
Third party litigation funding is the process where third party funders provide money to a plaintiff or to plaintiff’s counsel in exchange for a cut of the proceeds resulting from the underlying litigation or settlement. Until recently, outside funding for litigation was prohibited by the concepts of “maintenance” and “champerty”. The erosion of these common law concepts first began in Australia, then moved to the United Kingdom, before entering the U.S. and changing the litigation landscape.
Over the last fifteen years, litigation funding in the U.S. has expanded from a prohibited practice to a $15 billion market, and one that is expected to grow to over $25 billion by 2030. In patent litigation, conservative estimates presume funding undergirds about 30% of all patent litigation.
Litigation funding shifts the financial risks of lawsuits away from firms and individual plaintiffs to outsiders willing and able to shoulder that risk. In contrast to the traditional contingency fee model, litigation funding shifts the risk from the firm to the funders. The financial model of litigation funders allows the risk-shifting. Such investments in litigation are non-recourse loans, meaning that whether the suits are won or loss, the lawyers get paid.
In addition, litigation funding may help smaller entities and individuals compete with corporations. Without capital from funders, small businesses and even some non-practicing entities would not be able to take their cases to court because they could not compete against a large corporations’ legal departments, outside counsel, and sizeable budgets. Here, funding gives some patent holders a fighting chance.
Litigation funding also benefits patent holders by monetizing their claims up front. For example, an influx of capital from a funder can sustain a small startup, help launch its technology, and defends its interests. Without funding, smaller and startup businesses would need to take on all the risk and costs of litigation; and, if they won, at trial or settled, they would need to wait for the resolution of the case to receive that money.
Further, there is an argument that litigation funding increases access to justice. When a smaller entity holds an otherwise valuable patent, but one that it cannot litigate due to financial constraints, litigation funding allows the smaller entity access to litigation. Without funding, a small-time patent holder may have no other recourse or access to justice.
Nonetheless, litigation funding is not without criticism. For example, funders may exercise significant control over litigation. This could come in from form the terms of the agreement. Or the control may come from calculated decisions about where to file to maximize likely return. Or a funder may determine the parameters of settlements. This type of influence can interfere with the professional independence of lawyers and their loyalty to clients.
In a similar vein, funding may contravene the Model Rules of Professional Conduct, which are designed to ensure that lawyers act in the best interest of their clients. For example, Model Rule 1.2(a) says, “[a] lawyer shall abide by a client’s decision whether to settle a matter.” But, in some funding agreements, provisions allow funders to make decisions about whether and when to settle. And, unlike attorneys, funders do not owe a fiduciary duty to the plaintiffs and may not be acting in their best interest.
As another example, Model Rule 5.4 prohibits fee-splitting between a lawyer and a nonlawyer, except under some outlined exceptions. However, some funding agreements violate Rule 5.4’s fee-splitting provision because funders are paid a percentage of the legal fees secured by the plaintiff’s attorney.
Another criticism of litigation funding is that it allows outsiders to use courtrooms as a trading floor. Such funding can incentivize the filing of non-meritorious litigation. Litigation is expensive, so most businesses avoid it. Indeed, businesses often settle cases rather than engage in protracted and costly litigation, regardless of whether the claims are legitimate. Since litigation funding shifts the risk from plaintiffs to outsiders, there is less risk associated with non-meritorious claims.
Lastly, third party funding in patent suits may pose a threat to national security where the identities of funders are hidden. The fear is that this secrecy could allow foreign adversaries to benefit by influencing the American legal system, devaluing existing patents, interfering with innovation, gaining access to sensitive information, including military technology, evading sanctions, or otherwise harming U.S. interests.
With these national security concerns in mind, about two years ago fourteen state attorneys general signed a letter expressing their concerns. As Vice Chairman of the Senate Intelligence Committee, current U.S. Secretary of State Marco Rubio and Senator John Kennedy (when he was Ranking Member of the Subcommittee on Federal Courts) have also echoed these concerns. In Washington, U.S. Representative Darrell Issa, Chairman of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, is leading the charge to regulate. The related hearing, “The U.S. Intellectual Property System and the Impact of Litigation Financed by Third-Party Investors and Foreign Entities,” examined IP litigation financed by third party investors and foreign entities, including the impact of those developments on the U.S. IP system and U.S. national security.
Following the hearing, Rep. Issa released the Litigation Funding Transparency Act of 2024, which requires the disclosure of any third-party that has a right to receive any payment contingent on the outcome of the civil action and require the agreement creating the right to receive payment be produced to the court and named parties. It would not, however, require disclosure of any individuals or entities who do not receive payouts from funds obtained in settlements or court judgments. The Act further includes exceptions for funders who receive payments solely for the purposes of reimbursement or loan repayment. Ultimately, the Act would require transparency and the disclosure of the third-party funders’ involvement to ensure the court and parties are aware of the agreement.
Following the hearing, Rep. Issa released the Litigation Funding Transparency Act of 2024, Litigation Funding Transparency Act of 2024, which requires the disclosure of any third-party that has a right to receive any payment contingent on the outcome of the civil action and require the agreement creating the right to receive payment be produced to the court and named parties. It would not, however, require disclosure of any individuals or entities who do not receive payouts from funds obtained in settlements or court judgments. The Act further includes exceptions for funders who receive payments solely for the purposes of reimbursement or loan repayment. Ultimately, the Act would require transparency and the disclosure of the third-party funders’ involvement to ensure the court and parties are aware of the agreement.
In sum, litigation funding may improve access to justice to smaller entities, shifts the risk from lawyers and or clients to others, and keeps many lawyers employed. On the other hand, litigation funding may threaten the professional independence of lawyers, contravene the Model Rules of Professional Conduct, decrease transparency in the legal system, and pose national security risks. Regardless, as a $15 billion industry occurring in about 30% of patent infringement suits, it is a behemoth that has invited much criticism and some government response.
Don’t Give Up on CGL Coverage for ITC Proceedings Alleging Trade Dress Infringement
Lawsuits alleging trade dress infringement in advertising sometimes involve concurrent proceedings before the International Trade Commission (ITC). While these lawsuits typically are covered under commercial general liability (CGL) policies, insurers often take the opposite view of the associated ITC proceedings—which, unlike trade dress infringement lawsuits, seek exclusion orders instead of damages. Should you accept insurers’ position on this issue?
Not in our view. In taking the position that ITC proceedings are not covered because they do not seek damages, insurers miss the point.
Not in our view. In taking the position that ITC proceedings are not covered because they do not seek damages, insurers miss the point.
Defense costs incurred by policyholders while both a lawsuit and ITC proceedings are pending should be covered under the CGL policies as recoverable defense costs given the the ITC proceeding’s preclusive effect on the associated trade dress litigation.
When a federal court trade dress infringement suit is brought concurrently with an ITC proceeding that features identical issues of trade dress validity, scope and infringement, the defense of those issues are effectively litigated only once. See 28 U.S.C. § 1659(a). 28 U.S.C. § 1659 (“Section 1659”) states in pertinent part:
(a) STAY.—In a civil action involving parties that are also parties to a proceeding before the United States International Trade Commission under section 337 of the Tariff Act of 1930, at the request of a party to the civil action that is also a respondent in the proceeding before the Commission, the District Court shall stay, until the determination of the Commission becomes final, proceedings in the civil action with respect to any claim that involves the same issues involved in the proceeding before the Commission….
(b) USE OF COMMISSION RECORD.—Notwithstanding section 337(n)(1) of the Tariff Act of 1930, after dissolution of a stay under subsection (a), the record of the proceeding before the United States International Trade Commission shall be transmitted to the district court and shall be admissible in the civil action…Section 1659 thus allows the accused infringer to defend both the federal action and the ITC proceeding by adjudicating the issue one time and having that determination be binding in both matters. See In re Princo Corp., 478 F.3d 1345, 1355 (Fed. Cir. 2007) (“The purpose of §1659 is to prevent separate proceedings on the same issues occurring at the same time. The legislative history states that § 1659 was [enacted]… ‘to address the possibility that infringement proceedings may be brought against imported goods in two forums at the same time.’ H.R. Rep. No. 103-826(I), at 141 (1994), reprinted in 1994 U.S.C.C.A.N. 3773, 3913.”).
Following a final determination by the ITC, the entire record of the ITC proceeding is transmitted to the district court to use to resolve the underlying claims for damages. See In re Princo Corp., 478 F.3d at 1355 (“The legislative history explains that ‘use of the Commission record could expedite proceedings and provide useful information to the court.’ H.R. Rep. No. 103-826(1), at 142, reprinted in 1994 U.S.C.C.A.N. at 3914. The Commission record will be most helpful to the district court if it is a complete record of the Commission proceedings including all remand proceedings.”).
Furthermore, in non-patent cases like trade dress infringement proceedings, the ITC’s findings and determinations are given preclusive effect—binding the parties in both the federal action and the ITC proceeding. See, e.g., Mahindra & Mahindra Ltd. v. FCA US LLC, 503 F. Supp. 3d 542, 548-55 (E.D. Mich. 2020) (“Mahindra”) (recognizing that ITC proceedings have a preclusive effect on trade dress claims and granting dueling summary judgment motions based solely on the ITC’s findings and determinations). The preclusive effect is not only binding, but also reflects Congressional intent to have certain claims for damages defended only once, even though proceedings are pending in the court and the ITC. See id. at 549-50; see also McCarthy on Trademarks and Unfair Competition § 29.55 (5th Ed. 2023) (“Res judicata from an [ITC] decision may be created so as to bar relitigation of the same claim or issue in a [parallel] federal court case. An [ITC] finding that complainant had no valid trademark was held to be res judicata and precluded the losing complainant from [continuing to pursue] an identical [claim] in district court rather than appealing the ITC decision to the Federal Circuit.”) (citations omitted).
While no reported California case has addressed the issue, existing California case law supports the proposition that recoverable defense costs include costs incurred after the tender of defense, but before the conclusion of the suit, and which relate to “reasonable and necessary effort[s] to avoid or at least minimize liability.” Aerojet–General Corp. v. Transport Indemnity Co., 17 Cal.4th 38, 61 (1997).
In Aerojet, the California Supreme Court evaluated whether the insurers’ duties to defend required them to pay environmental investigation expenses imposed by an administrative order outside of the context of the covered litigation. Id. at 70. The California Supreme Court determined that “the insured’s site investigation expenses constitute defense costs that the insurer must incur in fulfilling its duty to defend” under the following conditions: (1) the site investigation must be conducted within the temporal limits of the insurer’s duty to defend, i.e., between tender of the defense and conclusion of the action; (2) the site investigation must amount to a reasonable and necessary effort to avoid or at least minimize liability; and (3) the site investigation expenses must be reasonable and necessary for that purpose. Id. at 60-61.
As in Aerojet, defense costs incurred by policyholders while both trade dress litigation and associated ITC proceedings are pending potentially meet all three of these requirements. Specifically, the binding nature of the ITC’s findings and determinations on the validity and scope of any claimed trade dress means that defending these claims before ITC directly benefits the defense in the concurrent court proceedings—making the costs of the ITC defense necessary to “avoid or minimize liability” in the court proceedings.
Accordingly, policyholders should consider pursuing coverage for ITC proceedings alleging trade dress infringement.
Federal Circuit’s Xencor Decision: Considerations for Jepson Claims and Implications for 35 U.S.C. § 101 Analysis
Go-To Guide:
Federal Circuit’s Xencor decision raises new challenges for Jepson claim format users.
Ruling requires more detailed descriptions of prior art in Jepson claims.
Decision may impact subject matter eligibility analysis under 35 U.S.C. §101.
Heightened need for articulating specific technical problems and solutions in patent applications.
Potential implications for demonstrating “significantly more” in §101 eligibility examinations.
The Federal Circuit’s March decision in In re Xencor, Inc., No. 24-1870 (Fed. Cir. Mar. 13, 2025) has altered the landscape for patent applicants using a Jepson claim format, creating new challenges that may warrant careful consideration. The ruling not only impacts written description requirements but has potential implications for subject matter eligibility analysis under 35 USC §101. As practitioners navigate these new waters, understanding both the Xencor decision and its broader ramifications appear to have become essential for effective patent prosecution strategy. The Xencor Decision: Raising the Bar for Jepson Claims
The Federal Circuit upheld the rejection of Xencor Inc.’s patent application for an antibody treatment method, finding that the company’s Jepson-formatted claims failed to adequately describe the state of the prior art. Named after a 1917 ruling, claims in Jepson format recite a preamble detailing previously known art followed by an improvement clause describing the applicant’s novel contribution that improves that art.
The court’s decision sets forth a critical new principle: “The invention is not only the claimed improvement, but the claimed improvement as applied to the prior art, so the inventor must provide written description sufficient to show possession of the claimed improvement to what was known in the prior art.” In Xencor, while the application described an improved method for treating patients with specific antibodies, the court found the evidence to establish that such antibody treatments were well-known in the field insufficient.
This ruling may create a hurdle for Jepson claim users, as it requires applicants to adequately describe both their improvement and the underlying technology it builds upon. The court expressly rejected the position that inventors could assert something is “well-known” without proper description, using a hypothetical example of someone claiming an improvement to a “time machine” without sufficiently describing such a device in their patent. According to the Federal Circuit, allowing such practice would leave the patent system vulnerable to abuse.
The decision does acknowledge that description requirements will vary based on factors including “the unpredictability of the art and the newness of the technology.” For example, while “automobile” needs little explanation today, the term would have required extensive elaboration in the 19th century. However, beyond this example, the court provided limited guidance on when technology becomes sufficiently well-known to forgo detailed description in a Jepson claim.
While patent examiners may sometimes recommend a Jepson-style claim to more quickly advance prosecution, practitioners that may have agreed to such a suggestion should now consider rejecting such an offer, given the heightened scrutiny these claims will face. Examiners and courts will need to evaluate whether the applicant’s description of prior art is adequate, creating new validity concerns that many applicants may prefer to avoid entirely.
Potential Implications for 35 USC §101 Analysis: Technical Problems and Solutions
The Xencor decision’s impact extends beyond written description requirements and into the realm of subject matter eligibility under 35 USC §101. This ruling reinforces the USPTO’s existing guidance that patent applications should clearly articulate technical problems and technical solutions to overcome subject matter eligibility challenges.
Heightened Need for Technical Problem-Solution Discussion
The Federal Circuit’s emphasis on “possession of the claimed improvement to what was known in the prior art” parallels the USPTO’s approach to analyzing eligibility under the Alice/Mayo framework. When examiners evaluate whether claims are directed to abstract ideas, they look for “meaningful limitations” that demonstrate the invention improves computer functionality or other technology. The Xencor ruling effectively raises the bar for these demonstrations, likely requiring more robust technical disclosures in the specification for some technical fields.
Patent applicants should consider being more diligent in clearly identifying the specific technical problem being addressed and precisely how their claimed solution resolves this issue. Rather than generic statements about efficiency, accuracy, or convenience, specifications should articulate concrete technical challenges in the prior art and explain how the claimed solution overcomes these challenges through technical means. Just as the Xencor court rejected vague assertions about “well-known” prior art, examiners may scrutinize vague claims of technical improvement without supporting technical explanation.
For example, an application claiming improved data processing algorithms should detail the specific technical limitations of existing processing methods (such as, for example, excessive memory usage, processing bottlenecks, or inability to handle specific data formats) and then explain how the claimed invention overcomes these specific technical hurdles. This enhanced focus on the problem-solution paradigm directly aligns with the “significantly more” analysis under Step 2B of the USPTO’s subject matter eligibility examination procedure.
Particularized Technical Component Details
Perhaps the most significant §101-related implication of the Xencor decision is the heightened need for particularized technical details regarding claim components. The ruling’s emphasis on describing prior art with specificity creates a parallel requirement for describing the technical implementation of claimed elements with similar specificity to overcome §101 rejections, where articulating the distinction over the prior art and how it is improved is paramount.
In light of this decision, practitioners should consider drafting specifications that:
Detail specific implementations: Rather than broadly claiming “a processor configured to perform X,” specifications should detail how that processor is specifically configured, what technical adaptations enable the claimed functionality, and how these configurations differ technically from conventional implementations.
Explain technical interactions: Practitioners may wish to clarify how different components interact in technically innovative ways, avoiding descriptions that merely string together conventional components performing their routine functions.
Provide technical metrics: Where possible, practitioners should consider including quantifiable improvements (e.g., processing speed increases, memory usage reductions, improved accuracy rates) that demonstrate the technical advancement over prior solutions.
Link technical details to claims: Ensure that the technical details in the specification are clearly reflected in the claims, creating a coherent narrative that examiners can follow from problem to solution.
The Xencor court’s “automobile” example provides a useful framework – while certain technologies are well understood today, emerging technologies may require more extensive explanation. Similarly, under §101 analysis, applications in cutting-edge fields may need particularly robust technical disclosures to overcome the presumption that claimed elements are merely abstract ideas implemented on generic components. Beyond Mere ‘Application’ to ‘Specific Practical Application’
The Xencor decision reinforces the distinction between a general application of known technology and a specific practical application of an improvement to technology that has become central to §101 analyses. Just as the court found that Xencor needed to describe more than just a general improvement to antibody treatments, the USPTO guidance requires that eligible claims do more than merely apply abstract ideas in a particular field using routine and conventional components. Applications thus should demonstrate specific technological improvements that go beyond mere conceptual applications. This potentially means:
Narrowing from general concepts to specific implementations: While the application may begin with broader concepts, practitioners might wish to narrow it to specific technical implementations that can be claimed.
Demonstrating transformative elements: Consider highlighting how the claimed elements transform the underlying technology rather than using existing technology in expected ways.
Avoiding result-oriented claiming: Applicants should consider focusing claims on specific technical means rather than claiming desired outcomes or results.
Creating technological interdependencies: Consider demonstrating how claimed elements work together in technically innovative ways that produce results that individual components could not achieve independently.
Conclusion
The Xencor decision represents a shift in the landscape for both Jepson claims and subject matter eligibility analysis. While directly addressing written description requirements, the decision’s underlying principles effectively raise the bar for demonstrating technical improvements necessary to overcome §101 rejections. For patent practitioners, this may mean crafting specifications that thoroughly document both the technical problem and solution, with particular attention to detailing how specific claimed components implement the invention in technically novel ways. Evolving and embracing a more rigorous approach to technical disclosure may help applicants and practitioners navigate both the Xencor requirements and the increasingly stringent §101 analysis framework examiners and judges apply.
Closing Time: Hell, High Water, and Insights from the Delaware Chancery Court Decision in Desktop Metal v. Nano Dimension
Cross-border M&A deals frequently present unique issues and strategic closing considerations for transaction parties to navigate—including national security approvals. In a recent Delaware Chancery Court decision, these issues intersected when the court was forced to weigh national security-related approval conditions imposed by the Committee on Foreign Investment in the United States (“CFIUS”) against the buyer’s stringent contractual closing obligations.
On July 2, 2024, Nano Dimension, an Israeli company, agreed to acquire Desktop Metal, a U.S. company that makes industrial-use 3D printers which produce specialized parts for missile defense and nuclear-related applications. Unsurprisingly, closing the acquisition was contingent upon receiving CFIUS approval due to the sensitive nature of Desktop Metal’s operations. At the conclusion of its review period, CFIUS required Nano Dimension to enter into a national security agreement (“NSA”) outlining several post-closing operational restrictions imposed upon the parties, which Nano Dimension refused to accept as a result of new leadership that opposed the acquisition. Desktop Metal subsequently filed suit to force Nano Dimension to enter into the NSA to obtain CFIUS approval and consummate the acquisition, which the court granted.
Key Findings and Takeaways:
Hell-or-High-Water Provision: A pivotal aspect of the court’s decision was the interpretation of a “hell-or-high-water” clause in the transaction merger agreement. This clause required Nano Dimension to undertake all necessary actions—including agreeing to several enumerated conditions typically requested by CFIUS—to secure approval, subject to limited exceptions (i.e., a condition that would require Nano to relinquish control of 10% or more of its business). The court found that Nano Dimension breached this obligation through both its negotiating posture with CFIUS in relation to the NSA and by delaying the CFIUS approval process.
CFIUS Approval Strategy: Desktop Metal’s operations in critical technology sectors resulted in a complicated CFIUS approval process. The ruling emphasized that transaction parties should be aware of the potential for CFIUS to rely on NSAs impacting post-closing operations to address potential national security risks associated with foreign control.
Contractual Clarity Around CFIUS Obligations: The court’s decision illustrates the importance of clear contractual language detailing the relative obligations of the parties to obtain CFIUS approvals. We recommend that transaction parties carefully consider the implications of CFIUS approval language included in transaction documents:
For example, agreements should clearly delineate what conditions would be considered reasonable mitigation conditions that a potential buyer must accept (e.g., data security practices and auditing mechanisms) and those conditions that would not trigger an obligation to close (e.g., divestment of certain business lines or the use of proxy boards).
The use of clear language outlining stakeholder alignment, permissible negotiation strategies and timing considerations with respect to CFIUS approval also contribute to the likelihood of a better outcome with CFIUS.
The Nano Dimension and Desktop Metal ruling serves as a crucial reminder of the complexities involved in cross-border mergers subject to CFIUS approval and provides valuable insights for practitioners and transaction parties navigating the CFIUS process.