As previously noted on the Virginia Business Law Update, theVirginia State Corporation Commission (SCC) is in the process of rolling out a new suite of electronic filing capabilities on its SCC eFile website. The latest enhancement is a welcome addition to all Virginia corporations -- the ability to file corporate annual reports and pay corporate annual registration fees online.

Over the coming months, the SCC plans to further expand the services available on its SCC eFile website. Specifically, Virginia corporations and limited liability companies will be able to submit organizational documents electronically and pay associated fees on the SCC eFile website. Additionally, Virginia businesses will be able to file Uniform Commercial Code (UCC) documents and pay UCC filing fees online.

Written by H. Scott Johnson, Jr.

In EEOC v. Fairbrook Medical Clinic, a Title VII sexual harassment case in which the Equal Employment Opportunity Commission (EEOC) brought a lawsuit on behalf of a woman doctor against her former employer, the Fourth Circuit Court of Appeals (4th Circuit) reversed the district court’s grant of summary judgment and remanded the case to the district court for trial. The 4th Circuit determined that the defendant employer’s alleged conduct, if proven true, was severe enough to alter the conditions of the plaintiff employee’s employment and create an abusive work environment.

According to the summary judgment record, the plaintiff employee was subjected to nearly four years of harassment by the owner of a family medical center. Throughout the duration of her tenure with the defendant employer, the owner of the medical center (who was also the plaintiff employee’s immediate supervisor) created a hostile work environment by: routinely making vulgar and sexually graphic comments to the plaintiff employee; repeatedly showing the plaintiff employee an x-ray of his torso, which included an image of what he called “Mr. Happy;” openly discussing with the plaintiff employee his sex life and bragging that his wife was “nice” and “tight” because she had a c-section instead of vaginal delivery; and, telling the plaintiff employee’s patients, in her absence, that they could follow up with the plaintiff “when she returns from screwing.” Additionally, during the plaintiff employee’s pregnancy and continuing after her return from maternity leave, the defendant employer commented on the size of the plaintiff employee’s breasts and offered to help her pump them. After assisting the plaintiff employee with a contract dispute with a vendor, the defendant employer told the plaintiff employee that she owed him and asked, “Are you going to let me help you pump [your breasts]?”

Although the plaintiff employee frequently told the defendant employer that his comments were inappropriate as well as discussed the harassment with the office manager and personnel manager, no investigation or corrective action was taken. Accordingly, the plaintiff employee resigned from the defendant employer and took a new position.

Shortly after resigning, the plaintiff employee filed a charge with the EEOC and the EEOC filed a lawsuit alleging that the plaintiff employee was subjected to a hostile work environment because of her sex in violation of Title VII of the Civil Rights Act of 1964. The district court granted the defendant employer’s motion for summary judgment. On appeal, the 4th Circuit reversed the district court finding that the EEOC had raised a triable issue of fact with respect to each element of its hostile work environment claim.

In reversing the district court, the 4th Circuit focused on whether the offending conduct was sufficiently severe or pervasive to alter the conditions of the plaintiff’s employment and create an abusive work environment. (To be actionable under Title VII, the sexual harassment must be objectively hostile or abusive, and the victim must subjectively perceive it as such. The severity must be judged from the perspective of a reasonable person in the plaintiff’s position and a court must consider all circumstances including the frequency of the conduct, its severity, and whether it unreasonably interferes with an employee’s work performance.)

In considering the defendant employer’s argument that the offensive comments were not made because of the plaintiff’s sex and, instead, were made to men and women alike, the 4th Circuit held that the defendant employer’s use of “sex-specific and derogatory terms” indicated that he intended to demean women and that a reasonable jury could infer that the comments “would not have been made to someone of the same sex.”

The Court also rejected the defendant employer’s argument that, the conduct at issue, when viewed in its social context, was not severe but constituted simple teasing, off-color jokes, and off-hand comments. Based on the record before it, the Court concluded that the conduct was more than general crudity and that the allegations, if proven, show that the defendant employer targeted the plaintiff with highly personalized comments designed to demean and humiliate her. Also, the Court noted that the severity of the defendant employer’s conduct was exacerbated by the fact that he was not only the plaintiff’s immediate supervisor, but also the sole owner of the medical center. As such, he had significant authority over the plaintiff on a daily basis and the ability to influence her career.

Furthermore, the 4th Circuit found unpersuasive the defendant employer’s argument that the conduct was neither frequent nor severe because it did not cause the plaintiff employee to miss work due to stress or otherwise adversely affect her job performance. With respect to the frequency, the Court held that a reasonable person could conclude that comments once or twice a week was a persistent feature of the plaintiff employee’s work environment. Regarding the severity, the Court held that the critical inquiry is not whether the plaintiff employee’s work was impaired, but whether her working conditions were discriminatorily altered. Given that the defendant employer “bombard[ed] her with graphic and highly personalized comments about intimate features of his and her anatomy,” a jury could find that the plaintiff employee’s working conditions were in fact discriminatorily altered. (The Court also noted that the plaintiff employee withstanding the harassment until a new job became available does not, “without more,” defeat the plaintiff employee’s Title VII claim.)

This case, as if further proof is needed, illustrates the advantage that employers have on sexual harassment and discrimination claims in the 4th Circuit (which includes Virginia, Maryland, and North Carolina). Although the 4th Circuit remanded the case to the district court for trial, it is important to note that the district court had initially ruled in the employer’s favor on summary judgment. While Virginia employers should take some comfort with how courts construe Title VII cases, they should also recognize that there are circumstances in which the conduct is so egregious that a court may side with an employee.As such, Virginia businesses must ensure that they have a process in place to address allegations of harassment or discrimination seriously and expeditiously. 

Written by H. Scott Johnson, Jr.

A Virginia Federal Jury in Alexandria recently awarded a mining tire design development company $26 million against two foreign companies for conspiracy to steal trade secrets and other related claims.

This case involves the alleged theft and misappropriation of tire designs. The plaintiff in this case, Tire Engineering and Distribution, LLC (“TED”), designs, develops and distributes highly specialized tires for underground mining vehicles. All of TED’s underground mining tires were designed and developed by the company’s founder and Chief Executive Officer, Jordan Fishman.

According to TED’s allegations, large tire companies, such as Goodyear and Michelin, abandoned the underground mining tire market and TED became the leader in this specialized area. TED took precautions to safeguard its one-of-a-kind designs and markings for its tires, its customer lists, pricing information, production schedules, and other proprietary and confidential trade secrets. Moreover, Fishman obtained copyrights for the tire designs, a trademark for one of the tire’s distinctive names, and had a patent pending for a special tire design.

TED’s trouble began when it employed a long-time acquaintance of Fishman, Sam Vance, as marketing manager to sell its underground mining tires. Vance was entrusted with access to all of TED’s trade secrets and other confidential business information that only Fishman and one other employee had access to. According to the plaintiff, Vance began working with TED’s China-based joint venture partner and tire manufacturer to cut plaintiff out of the business. The China-based company received manufacturing specifications for plaintiff’s tires and customer and pricing information, and stopped shipping tires for TED.

Moreover, Vance also met with principals of a Dubai-based international tire distributor in Richmond, Va and offered to provide plaintiff’s customer lists, pricing information and the blueprints for molds of the tires. Within a year, the Dubai company was distributing an almost full line of tires using the stolen designs and other proprietary information.

We’ve previously discussed the issue of employee theft of trade secrets on Virginia Business Law Update. As we noted, misappropriation of trade secrets cases are often brought not only against the former employee who took the trade secrets but also against the company who hired the employee and may have benefited from use of the trade secret – as was done in this case. The plaintiffs in this matter also separately pursued a case against Vance in Florida and prevailed. But, unfortunately for TED, this judgment was vacated on jurisdictional grounds since Vance never lived in Florida. Now, Vance is living in China, which makes collection of any monies from him appear unlikely.

Written by Angela France

The Eastern District of Virginia, Alexandria Division, recently decided a case of apparent first impression involving the Native Corporations exception to Title VII’s prohibition on unlawful employment practices. The Court concluded that there were too many layers of ownership between the employer defendant and the exempt Native Corporations company, and thus, the race discrimination case against it could go forward to trial.

In Tony Fox v. Portico Reality Services Office, a former foreman at Portico’s Manassas, Virginia office alleged he was treated differently from other non-African-American employees. During his employment with Portico, he claimed that he was the subject of numerous offensive racial remarks, was not given a regularly-scheduled pay raise like other employees, and was eventually discriminatorily fired from his job.

Portico requested summary dismissal of the discrimination claim on the basis that it was a wholly-owned, indirect subsidiary of NANA Regional Corporation, an Alaskan Native Corporation. Certain groups and entities, such as Indian tribes, private membership clubs and Alaska Native Corporations are not considered to be “employers’ under Title VII’s statutory definition, and thus, are not subject to its prohibitions. Alaska Native Corporations play special roles in controlling lands and funds for Alaskan Natives, and the underlying purpose of its exception was to permit hiring favoritism toward Alaska Natives without violating Title VII.

Here, Portico is an Alaska limited liability company, but with its principal place of business in Virginia. Portico’s sole member, Qivliq LLC is a wholly-owned subsidiary of NANA Development Corporation. NANA Development is a wholly-owned subsidiary of NANA Regional Corporation - the Native Corporation. In interpreting the statute narrowly, the Court ruled that the Native Corporation exception applies to subsidiaries only where the Native Corporation directly owns the subsidiary.

It is important to note that Section 1981 of the Civil Rights Act of 1866, which provides a separate and independent basis for relief for race discrimination in private employment, contains no similar exception for Alaska Native Corporations. Thus, even Native Corporations and their direct subsidiaries may be held liable under this statute. 

Written by Angela France

In the last decade, software and so-called “business method” patents have been the subject of numerous lawsuits, academic debates, articles, economic impact studies, and Congressional hearings.  Yesterday, the U.S. Supreme Court finally weighed in on the issue with its decision that: “the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter.” Bilski v. Kappos(No. 08-964, June 28, 2010).  So, what does that mean?

First, some legal background.  U.S. Patent Law recognizes four broad categories of inventions eligible for patent protection: processes; machines; article of manufacture; and compositions of matter.  See 35 U.S.C. § 101.  The U.S. Supreme Court, however, has long recognized that there are three specific exceptions to Section 101’s four broad patent-eligibility categories: laws of nature; physical phenomena; and abstract ideas.

Second, while so-called “business method patents” have been filed and obtained by software, insurance, Wall Street and e-commerce firms, there is no precise definition of what exactly is a  business method patent. Thus, I offer the following definition to frame the discussion below: “A (software or manual) process employed in an entity’s business model in order to perform services related to insurance, securities trading, health care management, reservation systems, electronic shopping, auction systems, catalog systems, incentive programs, redemption of coupons, banking, billing, point of sale systems, accounting, inventory management and the like.”

Thus, the question which the Supreme Court addressed in the Bilski case was whether business methods are eligible for patent protection as a “process” under Section 101 and, if so, what is the test?

In Bilski, the applicants sought to patent the following claim:

“A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:

(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer;

(b) identifying market participants for said commodity having a counter-risk position to said consumers; and

(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.”

The U.S. Patent and Trademark Office (USPTO) and the U.S. Court of Appeals for the Federal Circuit (CAFC) both rejected the Bilski application as being directed to a non-patentable process under Section 101 using the “machine-or-transformation” test.  Under this test, a claimed process is patent-eligible under Section 101 only if: “(1) it is tied to a particular machine or apparatus; or (2) it transforms a particular article into a different state or thing.”

The Supreme Court, however, ruled that: “[T]he machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under [Section] 101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible ‘process.’”  The Supreme Court also ruled that Section 101 “precludes the broad contention that the term ‘process’ categorically excludes business methods.”

The Supreme Court reasoned that Section 101 is a “dynamic provision designed to encompass new and unforeseen inventions.”  “[T]he machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.  … As a result, in deciding whether previously unforeseen inventions qualify as patentable ‘process[es],’ it may not make sense to require courts to confine themselves to asking the questions posed by the machine-or-transformation test.”  Thus, the Supreme Court encouraged the CAFC to develop “other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.”

In the specific claims at issue in Bilski, the Supreme Court affirmed the USPTO and CAFC’s rejection of the Bilski patent application because: “[Bilski seeks] to patent both the concept of hedging risk and the application of that concept to energy markets. Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis … that [Bilski’s] claims are not patentable processes because they are attempts to patent abstract ideas.”

In conclusion, we will have to wait and see how the USPTO and CAFC implement the Bilskidecision.  I do know now, however, that the decision will benefit applicants seeking business methods because no categorically exclusion of such patents was endorsed by the Supreme Court.  Also, business method applicants will no longer have to show that their claims are tied to a particular machine or involve the transformation of a particular article.  Such applicants, however, may still want to ensure that their claims meet the machine-or-transformation test – when possible – so as to insure they do not run afoul of the abstract idea, law of nature, or mathematical formula exceptions.

Written by Raymond Millien

There has been a lot of recent talk, blog posts, articles, court activity and even proposed legislation in Congress around the issue of “False Patent Marking.”  What does it all mean and why should small- and medium-sized enterprises (SMEs) care!?  Well, I present answers, in brief, to these questions below.

The first thing to know is that the U.S. Patent Laws allow patent owners to give notice to the public by affixing a notice to the patented product (or its packaging if marking the product is not practical or possible) such as “Protected by U.S. Patent No. 3,141,592”  See 35 U.S.C. § 287(a).  This is colloquially known as the “patent marking” statute.  Absent such a marking, in most cases, a patent owner cannot recover damages for patent infringement unless they can prove the infringer was notified of the infringement.

Second, we know that affixing a patent notice to a product (or its packaging) not only acts as a deterrent to competitors by putting them on notice, but it also has some marketing cache!  Thus, that is why it is common to see not only actual patent number notices, but also notices of “patent pending” on many products.

Third, there is also what is known as the “false marking” statute which prohibits anyone from marking a product (or its packaging) with: (a) an expired patent number, (b) a false patent number or (c) with the words “patent applied for” or “patent pending” when no application for patent has been made or is no longer pending, respectively.  See 35 U.S.C. § 292.  Each of these three false marking offenses, however, must be shown to have been done “for the purpose of deceiving the public,” and not merely done as a result a good faith mistake.

What makes the false marking statute interesting is that it contains a whistleblower-type provision.  That is, any private citizen can sue the manufacturer of a product they believe has been falsely marked to recover “not more than $500 for every such offense.”  Thus, one can imagine that if a company produces 1,000,000 units of a product that in some way was falsely marked, a $500M lawsuit becomes very attractive for anyone with the time and the right contingency law firm behind them.  See Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009).  In fact, over 150 of these types of lawsuits have been filed in the last several months alone!  The only drawback is that 50% of any recovery must go to the federal government.  (Thus, the private citizen in my example can keep only $250M of the possible recoveries – still not too shabby!)

On June 10, 2010, a federal court of appeals, interpreting the false marking statute, ruled that “the combination of a false [patent marking] and knowledge that the [patent marking] was false creates a rebuttable presumption of intent to deceive the public.”  See Pequignot v. Solo Cup Co., Case No. 2009-1547 (Fed. Cir.).  A defendant in one of these false marking suits can successfully defend itself by showing via “a clear preponderance of the evidence that it did not have the requisite purpose to deceive.”  For example, the defendant in the Solo Cup case successfully obtained a dismissal of the suit by explaining that they knew the patent number on their products had expired but it was prohibitively expensive and disruptive to the business to prematurely replace the manufacturing molds which contained the now-expired patent numbers.

So, what should SMEs glean from all this hoopla?  Well, four things: (1) If your enterprise manufactures no products covered by U.S. patents, ignore it; (2) If your company has no patents that cover a specific product, do not “fake it until you make it” by marking it with one or more non-existent patent numbers; (3) If your company has not applied for any patents that cover a specific product, do not use the words “patent pending” in an attempt to obtain marketing cache for such product; and (4) If any of your competitors are manufacturing products which you suspect are falsely marked with an intent to deceive the public, consult a plaintiff’s lawyer!

Written by Raymond Millien

On Friday, the Virginia Supreme Court adopted new rules of appellate procedure for both the Court and theVirginia Court of Appeals. The comprehensive revisions were over four years in the making.  In 2005, an appellate rules advisory committee was convened by Justice Donald Lemons, and a report was issued mid-2008.  Many of the Lemon Commission recommendations were eventually adopted by the Court.

The new rules seek to promote uniformity in the roles of both courts. A fundamental change is the requirement that petitions for appeal to either court requires “assignments of error.” Previously, “assignments of error” were only required for appeal petitions to the Virginia Supreme Court. The chief function of such an assignment is to identify errors made by the circuit court with reasonable certainty so that the court and opposing counsel can consider and address points on which an appellant seeks reversal of a judgment. They also enable the parties to determine which portions of the trial record should be included in the joint appendix. Revisions also included changes in the form and appearance of the rules to make them more user-friendly.

The new rules will take effect on July 1, 2010.

Written by Angela France

The Virginia Supreme Court has granted the appeal of a Fairfax County business who is challenging a controversial special tax established to fund the extension of the Metrorail to Dulles International Airport. FFW Enterprises, a commercial real estate company in Tysons Corner, filed the appeal after a Fairfax County Circuit Court judge granted the Fairfax County Board of Supervisors’ motion for summary judgment in June of last year.

At issue in the case is whether the Fairfax County Board of Supervisors’ creation of a special tax district to fund the county’s share of the Dulles Metrorail expansion project is constitutional. The county charged commercial and industrial real estate owners in the special tax district 22 cents per $100 of assessed property value (in addition to their normal property taxes), but exempted residential property owners.

It is FFW Enterprises’ position that the tax is unlawful because the Virginia Constitution requires a uniform application of taxes, so that tax burdens are equally distributed amongst commercial, residential, and industrial tax payers. 

This is an important case for Fairfax County businesses and residents alike as the Virginia Supreme Court’s determination will have a substantial impact on how Fairfax County finances its share of the Metrorail expansion project.

A decision from the Virginia Supreme Court should come later this year. We will keep you updated on any new developments with this case.

Written by H. Scott Johnson, Jr.

A Virginia trial court recently dismissed a contractor’s bid protest against the City of Harrisonburg on jurisdictional grounds. In the case of General Excavation, Inc. v. City of Harrisonburg, the contractor’s bid was rejected along with all the other bids. Thus, the Court determined that there wasn’t any award for a bidder to challenge under the Virginia Public Procurement Act.

The bid by General Excavation, Inc. (GEI) for the road-improvement contract worth approximately $20 million was one of seven rejected by the City. After the City declined to award the contract to anyone, GEI filed suit pursuant to the Virginia Public Procurement Act and the City’s own purchasing manual alleging that the City’s action was done solely to avoid awarding GEI the project.

However, the Court noted that the plain language of the Virginia Public Procurement Act allows contractors to bring an action in the appropriate circuit court challenging only a proposed award or the award of a contract – not the rejection of all bids.

Although the alleged conduct of the City appeared to be in violation of Virginia Code section 2.2-4319, which allows a public body to reject all bids but not solely to avoid awarding a contract to a particular bidder, the Court declined to exercise jurisdiction. It noted that the General Assembly created relief mechanisms for those aggrieved under the Public Procurement Act, and it would not enlarge the scope of those remedial statutes.

It should be noted that the City claimed that its decision had nothing to do with a desire not to award GEI the project.  Rather, the City official recommended the rejection of all bids based on the city, state and federal transportation representatives’ determination that the contract documents were probably not clearly understood by the bidders.  However, the Court's interpretation of the Virginia Public Procurement Act's jurisdiction eliminated the contractor's ability to receive a fair and impartial hearing on whether the City's actions were opportunistic and an unlawful rejection of all bids.   

Written by Angela France

Governor McDonnell announced today that he will propose reinstating a tax deduction for Virginia employers in the biennial budget in hopes of spurring economic development. Since 2004, Virginia law has allowed companies to claim the federal Internal Revenue Code Section 199 Domestic Production Activity Deduction, which encouraged U.S. manufacturing. The tax break initially allowed a 3 percent deduction, and was increased to 6 percent then 9 percent. However, this deduction is set to gradually phase out by 2014. Governor McDonnell asserts that the elimination of the deduction would result in an estimated $30 million tax increase for Virginia employers, and is proposing an amendment to prevent this result.

McDonnell said in a statement that “[t]his is a pro-job creation amendment that will help keep employers in the commonwealth, encourage businesses to locate in Virginia and give us a further advantage over other states.” Major employer, Northrop Grumman, which is weighing whether to locate its headquarters in Virginia or Maryland, would qualify for the tax break.

The amendment will have no fiscal impact in FY 2011, according to the Governor, and an estimated $10 million in FY 2012. The Governor has until midnight Tuesday to send any further amendments to the budget to the legislature, which will be considered on April 21. 

Written by Angela France