by Lee Gesmer | Aug 15, 2020 | Copyright
Will the Supreme Court dodge the thorny copyright infringement issues in the long-running (ten year) Oracle v. Google case on a technicality? The case was originally scheduled to be argued in March 2020, but after Covid-19 it was deferred to the 2020-21 term. Then, on May 4, 2020 the Court ordered the parties to file supplemental briefs:
“The parties are directed to file supplemental letter briefs addressing the appropriate standard of review for the second question presented, including but not limited to the implications of the Seventh Amendment, if any, on that standard. The briefs, not to exceed 10 pages, are to be filed simultaneously with the Clerk and served upon opposing counsel on or before 2 p.m., Friday, August 7, 2020.”
The “second question presented” is Google’s appeal of the Federal Circuit’s 2018 decision reversing a trial jury’s fair use finding in favor of Google. The “standard of review” is a reference to the “de novo” standard used by the Federal Circuit in the opinion under review. The Seventh Amendment is the constitutional right to a jury trial (“the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any court of the United States …”).
The Court gave the parties a long time to write those ten pages – three months. (Oracle’s Brief, Google’s Brief). Now that August 7, 2020 has come and gone, and the letter briefs have been filed, where does the issue stand?.
For brief background let me describe the events that led to this point.
After the Federal Circuit reversed the trial court on the copyrightability of the Java API declaring code there was a jury trial on Google’s fair use defense. The jury entered a general verdict in favor of Google. Oracle filed a motion for judgment as a matter of law before the case went to the jury, and renewed it following the verdict. The trial judge denied that motion, upholding the verdict.
Oracle appealed and in 2018 the Federal Circuit reversed, holding that Google’s fair use defense had failed as a matter of law. The Federal Circuit reviewed the verdict “de novo” – weighing the facts itself and giving no deference to the legal conclusion the jury had reached based its evaluation of those facts.
That decision (along with the Federal Circuit’s 2014 decision on copyrightability) is now before the Supreme Court.
As it turns out, the issue Oracle and Google focus on in their August 7th briefs is a legal technicality. The technicality arises from the Supreme Court’s conclusion, in a 1985 copyright case, that fair use is a “mixed” question of fact and law. However, mixed questions are not all alike, and may depend on whether a case involves primarily legal or factual work. Which predominates in this case – law or facts? Is Google right that factual issues predominate, in which case the Federal Circuit applied the incorrect standard of review? Is Oracle right that de novo review was appropriate here and that, more broadly, every fair case should be decided by judges alone?
GOOGLE’S ARGUMENT
Google argues that the Federal Circuit failed to give appropriate deference to the jury verdict and the trial judge’s post-trial decision in its favor. Google asserts that the correct legal standard, which the trial judge held favored upholding the verdict, is whether a “rational trier of fact” could have reached the jury’s conclusion. Under this standard, Google argues, the jury verdict for Google should be upheld.
On the mixed fact/law issue, Google argues that in this case factual questions predominated, and therefore the appeals court should have deferred to the jury and trial judge. To drive its point home Google provides this list of factual questions that were presented to the jury:
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- “the significance of the common practice of reusing software interfaces;
- the extent to which Oracle made the declarations available to use without a license;
- whether or how Java SE was used in smartphones or was suited for that environment;
- how functional the declarations are, and thus removed from the core of copyright;
- how quantitatively or qualitatively significant the reused declarations were in comparison to the whole of the copyrighted work;
- how much Sun Microsystems (the original creator of Java SE) supported Google’s reuse;
- the degree of market harm, if any, suffered by Oracle;
- how transformative Google’s reuse of the declarations in a smartphone was;
- whether Google reused more than necessary to achieve an innovative purpose;
- whether Android competed with Java SE in the market for any derivative product;
- what were the reasonably likely future derivative markets for Java SE;
- whether the amount of creativity Android unleashed justified the reuse; and
- which of the four statutory factors or other unenumerated factors was more or less important in view of all other evidence in the record.”
Google asks the Court to find that when a jury renders a general verdict on disputed facts such as these a reviewing court must view the evidence in the light most favorable to the verdict, not perform its own de novo weighing of the evidence.
ORACLE’S ARGUMENT
Oracle argues that fair use is a primarily legal, not factual, question properly determined de novo:
The ultimate determination whether a defendant’s copying qualifies as fair use entails primarily legal work because that analysis involves legal judgments balancing the competing policies embodied in the Copyright Act of rewarding innovation, protecting the author’s property rights, encouraging progress of science and arts, and safeguarding constitutional free expression. It is the job of a judge, not a lay jury, to calibrate these interests … Because fair use entails primarily legal work, it receives de novo review.
Based on this argument Oracle asks the Supreme Court to go one step further and hold that there is no right to a jury trial on copyright fair use, an issue the Court has never before directly addressed.
And, in case the Court doesn’t accept this argument, Oracle argues that in this particular case the balance of facts and law is mostly legal, and therefore the appeals court was right to review the jury verdict de novo.
WHAT WILL THE SUPREME COURT DO?
First, it’s unlikely that the Court will decide the broad issue of whether fair use should be tried by judge or jury. There’s no need to address such an important issue in this case, particularly when that issue hasn’t been briefed in depth and neither party raised it as a question on appeal.
However, there is a good chance the Court will decide that under the facts of this specific case the fair use determination was primarily factual, and therefore the Federal Circuit was wrong to review the case de novo – the jury verdict should have been reviewed under the “deferential” standard.
One incentive for the Court to decide the case in this manner is that it allows the Court to avoid the thorny Java API “copyrightability” issue, which is difficult both technically and legally. Deciding the case on fair use grounds avoids that issue. Deciding that the Federal Circuit failed to give proper deference to the fair use jury verdict for Google resolves the case on the narrowest possible grounds.
I’ll go out on a limb and predict that the Court will reverse the Federal Circuit based on its erroneous application of the de novo standard. I’ll also predict that rather than send the case back to the Federal Circuit for a third hearing it will uphold the verdict in favor of Google and end this marathon litigation once and for all.
Oral argument is schedule for October 7th, so stay tuned. In the meantime, the key legal documents in this case can be found on my Oracle v. Google Resource Page here.
by Lee Gesmer | Jul 7, 2020 | Trademark
(Bill Hilton, a partner at my firm, co-authored this post with me.)
On June 30, 2020, the U.S. Supreme Court held that the addition of “.com” to a generic term has the potential to create a protectable trademark. In so ruling the Court rejected the United States Patent and Trademark Office’s “nearly per se rule” that when a generic term is combined with a generic top-level domain the resulting combination is generic. The background of this case is discussed in detail in an earlier post, Supreme Court Will Decide if “generic.com” Trademarks Are Entitled to Trademark Protection. A few days after this case was decided Kevin Kickstarter scheduled a meeting with his long-time attorney, Mr. Jaggers, to discuss how he might be able to profit from this decision. Regular readers of this blog may recall Kevin and Mr. Jaggers’ past appearances. Kevin has little regard for the attorney-client privilege, and once again he recorded his meeting with Mr. Jaggers and gave us permission to share it.
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KEVIN KICKSTARTER: Hey, Mr. Jaggers. Good to see you! Are you ready to help me make a lot of money? Still hoping to sell my business to Google someday, ha ha!
JAGGERS: Good to see you Kevin. What’s up?
KEVIN: Well, I was reading Barstool Sports and I learned about this Bookings.com case the Supremes decided. Hey, dude, just kidding, I read about it in the Wall Street Journal, not Barstool! Seriously, Mr. Jaggers sir, the Supreme Court seems to be saying that you can take a generic word, add a “dot com” to it, and maybe get trademark rights in the domain name. Am I understanding that right? J
AGGERS: Yes, you are, but like most Supreme Court IP cases, there’s more to it than that …
KEVIN: So tell me about it!
JAGGERS: Well, the court agreed with the Trademark Office’s argument that “booking” for a hotel reservation service is generic. For example, someone might say, “what booking service are you going to use for your trip?” But they disagreed with the Trademark Office’s argument that “booking.com” is generic – as they note, no one would say “what booking.com are you going to use for your trip?” While “booking” may be generic, Booking.com is not a generic term to consumers. Consumers associate Booking.com with a specific website. Booking.com proved this when it commissioned an extensive consumer survey that established that — to use some trademark law lingo — Booking.com has “secondary meaning.” However, keep in mind that Booking.com only achieved secondary meaning by spending many millions of dollars marketing the name over many years.
KEVIN: That makes a lot of sense. Someone might say “what dating service are you using,” but not “what dating.com service are you using.” And everyone knows that Booking.com is a popular business.
JAGGERS: Exactly. Not to get too technical, but the court recognized that a “generic.com” term – booking.com or dating.com, for example – can convey to consumers an association with a particular website, something the Trademark Office was unwilling to do. Not to get too legalistic on you, but the way the court described it is that “whether any given ‘generic.com’ term is generic depends on whether consumers in fact perceive that term as the name of a class or, instead, as a term capable of distinguishing among members of the class.”
KEVIN: OK, I think I get it. So, I have a few ideas for some “generic.com” domain names. I think I can develop these as trademarks by investing in them, and get them to the point where consumers distinguish them as members of a class, rather than the name of a class. It may take a few years and some bucks, but if Booking.com could do it, I can do it. What do you think?
JAGGERS: Well, what you describe is certainly possible, but it will take a lot of time and money, and ….
KEVIN: …. Yeah, I get that. But I have a couple of ideas, and I have financial backers. I think I can pull this off. What’s the downside? Why not give it a try?
JAGGERS: The downside is that you’ll spend a lot of money, invest a lot of time, and be unable to pull off what Booking.com did. It’s really a low percentage shot without a huge budget and years of brand development. Also, smart competitors could poach on you and frustrate your strategy. For example, they could use domain names so similar to yours that you’ll never develop secondary meaning. In other words, they could purposefully create confusion before you acquire trademark rights that would allow you to stop them.
KEVIN: OK Mr. Jaggers, thanks. You’re a lawyer, and you’re naturally conservative – very conservative. Fortunes aren’t made without taking risks. Booking.com is a private company, but its value is soaring following the Supreme Court’s decision. So, I’m gonna give it a try. I’ll keep you in the loop, and hopefully a few years from now I’ll be able to tell you that I got the last laugh on this. Ciao, dude!
United States Patent and Trademark Office v. Booking.com, June 30, 2020
by Lee Gesmer | Jun 8, 2020 | Copyright
After the Internet Archive launched a “National Emergency Library” the copyright community held its collective breath, waiting to see if the authors and publishers affected would tolerate it, or challenge it in court. Now we have the answer. On June 1, 2020, four major publishers — Hachette, HarperCollins, Wiley, and Penguin Random House — filed a copyright infringement suit against the Archive.
Background. In late March 2020, in response to the COVID 19 pandemic, the Internet Archive opened a digital “library” of 1.4 million books, to last until June 30, 2020 or the end of the emergency in the U.S., “whichever is later.” Anyone, anywhere in the world, can access this online collection. Users can “check out” (download) books for two weeks at no cost, with no limit on the number of copies that can be checked out at any one time. One thousand or ten thousand copies of The Catcher In The Rye could be downloaded and read simultaneously by different users. Authors and publishers receive no payments.
It appears that there was no effort to distinguish books that might be used in an educational setting from those that are unlikely to be used for education. The Internet Archive did not discriminate between books under copyright vs. books in the public domain, or popular books vs. obscure books.
The Archive explained its reason for taking this step as follows:
“to address our unprecedented global and immediate need for access to reading and research materials” . . . [to ensure] that students will have access to assigned readings and library materials that the Internet Archive has digitized for the remainder of the US academic calendar, and that people who cannot physically access their local libraries because of closure or self-quarantine can continue to read and thrive during this time of crisis, keeping themselves and others safe. . . . ‘In a global pandemic, robust digital lending options are key to a library’s ability to care for staff and the community, by allowing all of us to work remotely and maintain the recommended social distancing.’”
The Archive did offer authors and publishers an opt-out/takedown option.
Controversy. The Emergency Library immediately triggered controversy. The Archive asserted that the Emergency Library was protected by fair use. Authors and publishers disagreed. The U.S. Copyright Office analyzed the issue at the request of a U.S. senator.
The case brought by the publishers was filed in the federal district court for the Southern District of New York – a court, and an appellate circuit, that has deep experience in copyright law, and specifically copyright fair use when applied to digital copies of books.
1.4 Million Books or 127 Books? Despite headlines and press releases, the subject of the publishers’ suit is not the 1.4 million books in the Emergency Library or the Library as a whole. The four plaintiff-publishers do not own the
copyright in many of these books. Many of the books may be in the public domain or may be “orphan works” whose owner is unknown. Some may not be registered with the Copyright Office, which is necessary to file an infringement action.
Rather, the complaint alleges infringement of 127 specific books, although this list may be increased by an amended complaint. Absent a class action, whether the Archive has infringed these 127 books must be considered on a work-by-work basis. Damages, if a judge or jury decides they are justified, must be decided as to each book individually, not the 127 books as a whole or based on the other 1.4 million books in the collection.
Fair Use. That said, for each book the question of infringement is likely to come down to the Internet Archive’s public justification – fair use. The answer will depend on a court’s (and possibly a jury’s) evaluation of four nonexclusive factors listed in Section 107 of the Copyright Act. The law requires an individualized analysis and weighing of the factors, making the outcome of fair use cases difficult to predict. However, the publishers have chosen carefully – the 127 books include works by authors such as Bill Bryson, Elizabeth Gilbert, Malcolm Gladwell, Erik Larson, Dennis Lehane, C.S. Lewis, Sylvia Plath, J.D. Salinger and Herman Wouk. Most of the books appear to be popular and in-print. Also, these are creative works, which are entitled to strong copyright protection.
Based on these facts, here’s my short take on the factors as applied generally to this group of books.
First Factor: the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes. Under Supreme Court precedent the central issue under this factor is whether the use is “transformative.” A number of cases point to the conclusion that merely reproducing the work in a new format (in this case moving the text from a physical book to digital format) is not transformative. The Archives’ lack of commercial motivation may help it on this factor, although the publishers’ complaint argues that in fact there is an underlying commercial motivation.
Because the transformative nature of the use is so important, this factor DISFAVORS FAIR USE.[efn_noteThe Second Circuit’s opinion in the “Google Books” case, Authors Guild v. Google, Inc. (2d Cir. 2015), is unlikely to help the Archive here. In that important case Google created a search engine that provided “snippets” from books, not full text. The court found making the books searchable via a full text index, but limiting access to “snippet views,” qualified as a transformative purpose. The Emergency Library, in contrast, provides unrestricted full text access.[/efn_note]
Second Factor: the nature of the copyrighted work. As noted above, many of the 127 books identified in the complaint are novels and similarly highly creative works. As to these books, this factor DISFAVORS FAIR USE.
Third Factor: The amount and substantiality of the portion used in relation to the copyrighted work as a whole. The books are copied in their entirety. This factor DISFAVORS FAIR USE.
Fourth Factor: The effect of the use upon the potential market for or value of the copyrighted work. It’s not clear that the Emergency Library has hurt sales of the books at issue. I expect this to be a subject of discovery and dispute on a book-by-book basis. Therefore, at present this factor is NEUTRAL.
On balance, under this analysis the Emergency Library is not protected by fair use.
As mentioned, these factors are not exclusive. In theory, a judge could rule, or a jury could find, that the emergency circumstances of a pandemic created a new fair use justification for online book sharing as to any one, or all, of these books. However, there is no legal precedent for such a ruling.
Controlled Digital Lending. It’s also notable that the suit includes a legal challenge to “controlled digital lending” (CDL) a process that the Internet Archive has permitted for some time and which publishers have objected to but not, until now, challenged in court. Under CDL the Archive lends digital copies of books as long as it owns a physical copy of the book for each copy loaned at any one time. For example, under this “owned-to-loaned” ratio if the Archive has ten copies of Catcher In The Rye in its warehouse, it will loan up to ten copies of the digitized book at any one time. The theory behind this is that it’s analogous to, or at least no more harmful than, the lending practices of a traditional library. The publishers’ challenge to controlled digital lending will require a separate copyright analysis. It appears to be a harder case for the publishers than their challenge to the Emergency Library. It may be that the publishers’ goal is to force the Archive to end the Emergency Library. Whether they will also force the Archive to stop controlled digital lending or back off on this issue is to be seen. Controlled lending may have been included as a negotiating card (“kill the Emergency Library but keep the controlled lending for now, without prejudice to our right to challenge it in the future”).
Where’s It All Going? It seems unlikely that the Internet Archive has the financial resources to defend a case of this magnitude, both in terms of defense costs and potential liability. Worst case, for the 127 books named in the complaint alone (which could be supplemented), statutory damages could exceed $19 million (127 books x $150,000 per book). The Archive could also be liable for the publishers’ legal fees.
Bottom line: one way or the other, I expect this case to settle quickly.
Update: On June 10, 2020, less than a week after I posted this article the Internet Archive announced that it was terminating the Emergency Library. Controlled digital lending will continue. (link)
FOOTNOTES
by Lee Gesmer | Jun 1, 2020 | DMCA/CDA
On May 28, 2020 President Trump issued an “Executive Order on Preventing Online Censorship” (the Order). It takes aim at Twitter, Facebook and Google through the lens of 47 U.S. Code § 230 (Section 230), the federal law that allows internet platforms to host and moderate user created content free of liability under state law. The Order came just days after Twitter, for the first time, added warning labels and fact-checking to several of Trump’s tweets.
A lot has already been written about the politics behind the Order. But what does the Order accomplish as a legal matter? Here’s my take, in brief.
First, the Executive Order directs the Commerce Department to ask the FCC to do rulemaking to interpret Section 230. Section 230 does not delegate to the FCC rule-making authority, so I don’t see how the FCC could exercise rule making authority with respect to Section 230. If they try, expect litigation. For in-depth discussion of this issue, see Harold Feld’s analysis here.
Second, the Executive Order instructs all federal agencies to report their online advertising expenditures. The Order doesn’t state what will be done with this information. Perhaps the agencies will be instructed to pull their advertising from these services? However, federal agency spending on Twitter is trivial, as discussed by CNBC here.
Third, it encourages the FTC to bring Section 5 enforcement actions against Internet companies for false marketing statements. The FTC already has enforcement authority over “unfair or deceptive acts or practices.” Whether it will exercise that authority against Twitter remains to be seen. However, it’s hard to believe that anything Twitter has done vis-a-vis Trump (or anyone else) constitutes an unfair or deceptive act or practice. This would have to be proven in court, so if the FTC pursues this, expect litigation.
Fourth, it instructs the U.S. attorney general (William Barr) to form a working group of state attorneys general to investigate how state laws can be used against Internet services, and to develop model state legislation to further the goals of the Order. Section 230 and the First Amendment would likely preempt any state law attempting to regulate Twitter, so this is a non-starter.
Fifth, it instructs the U.S. attorney general to draft legislation that would reform Section 230 and advance the goals of the Executive Order. OK, but this would require that a law reforming Section 230 could be enacted. Unless the Republicans control both legislative branches and the executive branch, this seems unlikely.
That’s it. For the most in-depth, line-by-line analysis of the Order I’ve seen, see Prof. Eric Goldman’s (and Section 230 expert) post, Trump’s “Preventing Online Censorship” Executive Order Is Pro-Censorship Political Theater.
by Lee Gesmer | May 30, 2020 | Contracts
[Disclosure: Kevin Peters and Jennifer Henricks, attorneys at Gesmer Updegrove LLP, represented Dr. Hlatky in the case discussed below]
Contact law is complicated. It dates back centuries, and is mostly common law, meaning it evolves case-by-case in judicial opinions. There are thousands of cases, involving thousands of fact patterns, and it seems like there’s always room for one more variation. This was the case in the Massachusetts Supreme Judicial Court’s (SJC) April 28, 2020 decision in Hlatky v. Steward Health Care System LLC, where the plaintiff was awarded $10.2 million for damage to an asset — a cancer research lab — that she didn’t own.
The Facts. Dr. Lynn Hlatky is a prominent cancer researcher. She has over three decades of research experience, including at one time a faculty position in the radiation and oncology department at Harvard Medical School. Her research targets the development of a cancer vaccine. In 2010 Dr. Hlatky had been the principal researcher of a cancer research lab at Boston’s St. Elizabeth’s Hospital for five years. As 2010 began, little could she imagine the difficulties she would soon face. That year Steward Health Care System LLC (Steward), a for-profit hospital chain, acquired St. Elizabeth’s.
To comply with federal law regulating research grants the assets of Dr. Hlatky’s cancer lab were moved into a non-profit corporation, controlled by Steward, which would administer grant money and the lab’s operations. This is a common “business model” in federally grant-funded research labs. Dr. Hlatky continued as the lab’s principal researcher, and Steward entered into a three year contract with her committing, inter alia, to pay her an annual salary and to “continue to provide support and suitable office space” for the lab (the “support clause”). Dr. Hlatky anticipated that if this agreement was not renewed or extended at the end of three years, she would move her program (lab equipment, grants and cell samples) to another institution, a process that is not unusual in the world of grant-supported medical research.
Shortcutting a complicated story, Steward withdrew its support before the end of the three year period and left the non-profit and its assets in the hands of three unqualified individuals who drove the non-profit into bankruptcy. The lab equipment was sold and tens of thousands of cell samples were incinerated. For the gruesome details and machinations (what lawyers euphemistically call “bad facts”) behind these events see Death of a Cancer Lab in the April 2017 issue of Commonwealth Magazine.
Dr. Hlatky claimed breach of contract by Steward, and the case went to trial in Suffolk Superior Court in Boston. The jury found for Dr. Hlatky, and after the dust settled on post-trial motions she was awarded $10.2 million, almost all of which was the amount Hlatky testified it would cost her to reestablish the cancer research lab. Steward appealed, arguing that Dr. Hlatky was not entitled to the damages suffered by the lab. At most, she was entitled to her personal financial losses, such as lost compensation. An award of $10 million to Dr. Hlatky personally, Steward argued, would be a windfall to her. And, it asked, what would present her from using the money for her own personal interest, for example to fund her retirement? Dr. Hlatky responded that she had an individual, legally protected interest in continuing her life’s scientific work, which Steward’s breach had destroyed. The “support clause” referenced above spelled a loss for Steward before the jury, and then again before the SJC, which stated:
It is important to recognize that the contract that Hlatky entered into with Steward was not merely an employment contract; Steward committed not only to employ Hlatky as the director of the [cancer center], . . . but also to “provide support” to the [cancer center], which it envisioned would evolve, under Hlatky’s leadership, “into an internationally competitive program.” The structure and terms of the contract, which Steward, a sophisticated entity, negotiated, involved more than contracting for Hlatky’s labor.. . . The jury determined that Steward committed a breach of the contract by withdrawing support for the [center], and the judge further found that this breach foreseeably resulted in the destruction of Hlatky’s life’s work.
So while damages principles are difficult to apply in this case, the [trial court] judge did not err in concluding that Hlatky personally suffered harm from the foreseeable destruction of her life’s work. Nor did she err in concluding that the jury reasonably could have sought to restore Hlatky to the position she would have been in if Steward had complied with its obligations under the contract by awarding her the amount of money needed to reestablish a functioning cancer laboratory — which, based on Hlatky’s testimony, the judge determined to be $10 million.
Having decided this issue in favor of Dr. Hlatky, the SJC decision then took an odd turn, from a legal perspective. Six judges sat on the appeal (a seventh was recused), and the six split over how Dr. Hlatky should be awarded the money. Three justices voted to require the trial judge to fashion a form of judgment to ensure that the money in fact went toward a new cancer lab – presumably a trust that limited the use of the money for this purpose.
However, the remaining three judges disagreed with this restriction. Justice Barbara Lenk, writing for those judges, stated: “whether Dr. Hlatky wishes to start again, whether she even could start again after so much time has passed and her faculty position has been lost, whether she wishes to use the money to fund different research or others’ research in the same field, or whether she wants to hike the Appalachian trail — these matters simply are not our concern. . . . Hlatky should receive the money damages the jury awarded, just as she would in any other case of breach of an employment contract.” Because the trial judge had entered damages for Dr. Hlatky without restriction, and because the court split 3-3 on the restriction/no restriction issue, the trial court’s decision stands – she will receive this money without restriction. This means Dr. Hlatky won’t have to suffer the indignities of a trustee scrutinizing her expenditures, not to mention a trustee’s fees and bureaucratic complications in obtaining federal grant funding that could result from use of a trust.
Implications. To say that this case was unusual is an understatement. The SJC itself noted that out of the thousands of cases applying contract law nation-wide, only one case came close to the unique circumstances of this case. It’s difficult to know whether this case represents the origin of a new branch of contract law in Massachusetts, or whether, based on its unusual facts, it’s a one-off, never to be repeated. However, we can make a couple of general observations. At the very least, organizations that administer grant-funded research labs — especially those in Massachusetts — will review their current contracts to see if they are vulnerable in the way that Steward was in this case. This may lead to the renegotiation of existing contracts to block potential damages, or to ensure that principal investigators such as Dr. Hlatky are employees of the non-profit administering their grant money, and have no direct contractual relationship with a deep-pocketed parent company (in this case Steward).
And, of course, well-represented research institutions won’t follow the “split duty” approach that Steward used here, where there is a fiduciary duty toward the non-profit that owns the grant-funded assets and a separate employment contract with the principal researcher. Whether the case will have consequences outside the realm of research grants is uncertain. Lawyers will take every opportunity to push the envelope on behalf of their clients, and the “destruction of life’s work” theory could provide the basis for damages theories in contexts far removed from the Hlatky case.
A last word on damages.While the base damages in the case are $10.2 million, Dr. Hlatky will receive a judgment for substantially more than that. Under Massachusetts law interest for breach of contract runs at 12% per year from the filing of the complaint in February 2014. As of February 2020 six years has passed, adding 72% in interest to the judgment, or $7,344,000, for a total of $17,544,000, plus 1/365 of $10.2 million per day after that date, until the judgment is paid. Hlatky v. Steward Health Care Systems, LLC (Mass. April 28, 2020)
