October 7

The Misguided, Exception-Laden Volker Rule

If you want people to follow a rule, (1) the rule needs to be clear and easily understood and (2) there must be a clear negative consequence if the rule is not followed.  Despite this fact of human behavior, the federal government has once again sought to solve the problem of lack of enforcement (no negative consequence) by introducing more dense and ambiguous regulations.


The new proprietary trading rule, the so-called “Volker Rule,” set to be unveiled soon, is an example of regulations run amok.  It is a knee-jerk response to a lack of enforcement of the clear, existing rules of fiduciary duty and conflict-of-interest.  Instead of encouraging the Securities & Exchange Commission to use the tools that it has to police improper trading on proprietary desks (and giving the S.E.C. the resources to do so), Congress has created a special rule that applies solely to proprietary trading.


But this new rule suffers from severe flaws. First, because there is nothing wrong per se with proprietary trading and, in fact, it is sometimes necessary in order to create a market for a client’s trade, the new rule does not ban all proprietary trading.  Thus, the new rule contains a list of exceptions that threaten to swallow the rule. Second, the new rule (at least in the draft that has been released), does not provide a clear definition of what type of trading is disallowed. For instance, although the rule is said to apply to any trading account that takes a position for the purpose of selling in the “near-term,” “near-term” is not a defined term. Neither is “short-term.”  Instead, three types of accounts, with certain exclusions, fall within the definition of a regulated account: (1) accounts used to take short-term positions or to hedge positions; (2) accounts already subject to Market Risk Capital Rules; or (3) any account used by a securities dealer, swap dealer, or security-based swap dealer.


Taken together, the litany of exceptions and the lack of definitions make it unlikely that many will understand what the Volker Rule allows and what it bans. In short, the regulation is likely to lead to intentional evasion, unintentional non-compliance, and years of litigation over its meaning. It is a jobs act for private corporate lawyers.


And it will be one more rule that the under-funded S.E.C. will be unable to enforce.

October 4

By the Purse String

It’s no surprise that Big Law is welcoming, and perhaps incubating, the rise of investment in high-stakes lawsuits.  As Barry Ostrager,  whose standard rate is $1,000/hr, notes in today’s Wall Street Journal, litigation funding provides an “extra measure of security that the legal fees are going to be paid without incident.”

I’m all for lawyers getting paid.  But I imagine that these third-party litigation funders want something in return for their investment besides a potentially good outcome in the future. They want access to information about the case. They want to know how it is going. They want to be contacted about strategic decisions.  In other words, if they are paying bills, they want to be able to dictate how the money is spent.

But in the practice of law, the core of the client-attorney relationship is the concept of secrecy–no access for those other than the client and the attorney.  If third parties start to have access to attorney-client communications, there is a breakdown of the attorney-client privilege.  It’s easy to imagine a court finding that there is no privilege over any communications to which a third-party litigation funder is privy or—worse—over any of the subject matter that was discussed with the third-party litigation funder.

I am sure that the attorneys running the new litigation funding vehicles have thought about these ethical issues and have come up with ways to ensure that the sanctity of the attorney-client relationship is maintained.  I wonder, however, if a court will agree that the workaround is sufficient.

September 29

WillaGirl v. Wella – A worthy trademark dispute?

What struck me most about today’s N.Y. Times article about a start-up cosmetics company focused on pre-teens, WillaGirl LLC, and “trademark bully” Procter & Gamble and its subsidiary, The Wella Corporation, was not the similarity of the marks or their intended demographics, but the legal fees that WillaGirl had reportedly rung up to date: $750,000 — before trial.

Some may cheer that a start-up would spend the money to protect its right to use its mark and lament the fact that other start-ups may not have the funds to protect their right to stand up to big corporations.  But $750,000 is a lot of money.  Should WillaGirl have spent its $750,000 in re-branding instead of litigating a claim that it may not even win?

The applicable test for infringement requires the court to consider the:

  • strength of the mark,
  • similarity between the marks,
  • proximity of the products,
  • likelihood that the first owner will bridge the gap (make a product similar to the second user’s products),
  • actual confusion,
  • good faith of the second user in adopting the mark, and
  • quality of the second user’s product, and the sophistication of the consumers.

See Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir. 1961). In determining whether there is infringement, the court may also consider other variables.  (The N.Y. Times article refers to this test as “squishy.” I would say that it is fulsome and allows the court to balance the equities.)

An analysis based solely on a review of the facts set out in the N.Y. Times article and the public complaint and counterclaim suggest that: 1) the Wella mark is strong, 2) Willa and Wella sound and look alike (only one letter is different!), 3) both brands are for cosmetic products for women (albeit of different age group . . . for now), 4) there is a likelihood that Wella or its parent company Procter & Gamble will “bridge the gap” into the preteen market, and that 5) WillaGirl was on constructive and actual notice of the Wella mark.

Because I do not have access to the facts of this case, I have no basis to comment on the three additional factors: whether there is evidence of actual confusion, the quality of either companies’ products, or the sophistication of the relevant consumers.  But even without these three additional factors, the Wella Corporation’s claim seems to pass the frivolous test for infringement.  In other words, this claim is hardly a slam dunk winner for WillaGirl.

And the Wella Corporation has also brought a claim for trademark dilution, which may be an even easier standard of liability for it to meet.  If the Wella Corporation can show that “Wella” is a famous and distinctive mark, then, under the Trademark Dilution Revision Act of 2005, it may establish an actionable claim for trademark dilution by blurring if it can show that an “association arising from the similarity between a mark . . . and a famous mark that impairs the distinctiveness of the famous mark.” 15 U.S.C. § 1125(c)(2)(B).  Again, Wella and Willa are fairly close in look and sound.  Could Wella show that WillaGirl sounds like a new line of Wella products for the pre-teen set?

So the question that I keep turning back to is why didn’t the lawyers settle this dispute before the tab reached $750,000?

Perhaps the lawyers counseled in favor of settlement but the client refused to budge from her chosen brand name.  In the N.Y. Times article, the founder of WillaGirl said that she thought about changing the name but decided against it. But maybe she would have thought differently if her lawyers had made a better case for agreeing to rebrand by setting out in stark terms the cost of litigating the matter, the likelihood of winning, and the cloud of uncertainty that would weigh over her product until the case is resolved.  Or maybe she wouldn’t have.

This case strikes me as one that good lawyering could have resolved well before the eve of trial. But in that case, the legal fees would not be as striking.

September 16

The “No One Works On Friday Evening” Amendment?

As the NY Times recently reported, law firm WilmerHale may have been 1-2 days late when it filed an application for a patent extension for the Medicines Company’s Angiomax product.  To be valid, applications for patent extensions must be made within 60 days of a drug’s approval by the Food and Drug Administration.  The United States Patent and Trademark Office ruled that the Medicines Company had missed the deadline by a day or two.  The Medicines Company maintained that because it had received F.D.A. approval for Angiomax after the customary close of business on a Friday, the 60-day clock should not have started ticking until the next Monday.

The patent extension is valuable to the Medicines Company.  Without the extension, the NY Times reports that Angiomax could have been vulnerable to generic competition as early as September 2010.  With the extension, the Medicines Company is able to ward off generic competition until June 2015.  According to the NY Times, virtually all of the Medicines Company’s 2010 revenue is attributable to Angiomax.

It’s not surprising that the Medicines Company sought a legislative solution to avoid losing its golden egg four years early.  The NY Times reports that the company has spent more than $17 million on its lobbying efforts.

Its lawyers, Wilmer Cutler Pickering Hale & Dorr (which markets itself as WilmerHale) were also potentially on the hook.  The NY Times reports:

In February, WilmerHale agreed to pay $18 million to the Medicines Company to compensate it for its legal and lobbying costs. It also agreed to pay as much as $214 million more if a generic version of Angiomax reached the market before June 15, 2015, because the extension application was deemed late. Part of the payment would be covered by the firm’s insurer.

But the Medicines Company and WilmerHale can breathe a sigh of relief today.  The “America Invents Act,” signed into law by President Obama today, provides the exact relief that the Medicines Company and WilmerHale sought.  It provides that if permission for a product is transmitted after 4:30 P.M. Eastern Time on a business day, or is transmitted on a day that is not a business day, “the product shall be deemed to receive such permission on the next business day.”  Further, despite the fact that most of the provisions of the Act do not go into effect until one year from now, the Act helpfully makes 4:30 P.M. Eastern Time cut-off amendment effective in time to help the Medicines Company by providing that the amendment is applicable to any patent extension “that is pending on, that is filed after, or as to which a decision regarding the application is subject to judicial review on, the date of the enactment of this Act.”

NEWER OLDER 1 2 11 12 13