• See the Similarities?

    Intentional or not, the Beatles were smart not to call their band the Beetle, which is a very common bug. Their name, the Beatles, was original and, as a unique word, gets strong trademark protection.

    How strong the protection is, a half-century later, is clear as the maker of an “electric mobility aid” has discovered. You-Q, formerly Handicare Holding BV, from the Netherlands, filed an application in early 2004 for a trademark for their electric wheelchair to be called BEATLE. The company requested use of the mark for electric and non-electric mobility devices for disabled persons.

    The request was opposed by the company that owns the mark “Beatles” and “The Beatles” going back to the 1960s. The company noted that its marks had been filed to apply to almost every category of goods possible, including “ashtrays” and “artificial flowers,” let alone things related to music, in the European Union.

    The “Opposition Division” rejected the complaint by the owners of The Beatles marks, noting that while the owner claimed nearly everything imaginable, it did not include electric wheelchairs. Furthermore, the Division noted, no one is going to confuse an electric wheelchair with the musical group.

    That decision was annulled by the Second Board of Appeal of the Office of Harmonisation in the Internal Market. The Board held that while the mark was most famous in the area of music, the mark is very famous and can be extended to other markets. Use of the mark by You-Q would be free riding and could result in tarnishment of the mark.

    That decision was appealed and, a mere eight years after the matter began, the General Court (Eighth Chamber) in Luxembourg held that the mark could not be used by You-Q. The mark is too distinctive and famous for any other commercial use.

    The decision is likely what could have happened in the United States. Powerful, unique marks, such as Nike, have near universal protection against commercial use in any market.

    Discussion: Suppose the Beatles had called themselves the Beetles. Would the mark have as much protection? What other successful product is called the Beetle? Is confusion likely?

  • NYU Students Lose Their Case Against Law School for Misleading Them on Salaries

    Nine graduates of New York University Law School (NYLS) brought suit against their alma mater alleging that the school misled them with the data it released about the school’s graduates’ employment and salaries. However, their case, Gomez-Jimenz v. New York Law School ( --- N.Y.S.2d ----, 2012 WL 934387 (N.Y.Sup.)), was dismissed by the Supreme Court of New York for the failure to state a cause of action.

    The nine plaintiffs had all paid $47,800 per year in tuition and sought to recover damages of the difference between the alleged inflated tuition they paid because of the inflated data on placement and the “true value” of their education.

    The nine plaintiffs had varying experiences following their graduation in terms of professional success. Plaintiff Alexandra Gomez–Jimenez attended NYLS between 2004–2007 and after graduating in 2007, Ms. Gomez–Jimenez secured full-time, permanent employment in April 2008 and now “enjoys a thriving practice as an immigration attorney” with her own office. You can find more information on the background of these graduates here.

    However, Plaintiff Chloe Giligan first worked as a saleswoman in a department store and then as a legal secretary in a small law firm, and now does not practice law. Other plaintiffs work as contract attorneys, one works as a paralegal, and some remain unemployed.

    According to the students’ complaint in the case, the NYLS data allegedly omitted facts which would have given a better picture on post-graduation employment prospects. For example, the data consistently reported that approximately 90–92 percent of NYLS graduates secured employment within nine months of graduation, but did not report the percentage of graduates employed in part-time or temporary positions. A graduate could be working part-time as a barista in Starbucks and be deemed employed in business,' although such employment is temporary and does not require a law degree. A contract attorney, without permanent employment, working in document review projects in a law firm, would be deemed employed in private law practice under the NYLS profile.

    The allegedly inflated graduate mean salaries by reporting them based on a small, deliberately selected, intensely solicited, subset of graduates. The subset of graduates ranged from 22 to 26 percent, and means for choosing this subset cut of the data was not disclosed by NYLS. In two years, 2005 and 2006, NYLS did not report the percentage of graduates on which the compensation statistic was based at all.

    The court dismissed the complaint because it concluded that there was nothing materially misleading about NYLS’s data:

    The court does not view these post-graduate employment statistics to be misleading in a material way for a reasonable consumer acting reasonably. By anyone's definition, reasonable consumers-college graduates-seriously considering law schools are a sophisticated subset of education consumers, capable of sifting through data and weighing alternatives before making a decision regarding their post-college options, such as applying for professional school. These reasonable consumers have available to them any number of sources of information to review when making their decisions.

    The court also found that there was no evidence of fraud or any violation of New York’s consumer protection statute. The court did, however, chastise law schools and encouraged them to be more transparent in their disclosures about post-graduation employment.

    Discussion Starters

    1. What would the students need to show in order to establish fraud?

    2. What burden did the law students have as reasonable consumers?

    3. What impact will the decision have on school’s reporting processes on placement?

  • Supremes: A Bit of Fair Play Is in Order

    The Sacketts bought a lot near Priest Lake in northern Idaho in 2005 for $23,000. They planned to build a home on the site pictured above, in an area with many homes already. Homes were built between their lot and the lake, which is 500 feet away. They rounded up needed permits and began work.

    In 2007 the EPA declared their lot was a wetland. They were ordered to cease construction on the 0.63 acre parcel. EPA told them the area was a wetland that could not be changed without its permission. EPA ordered them to remove the gravel that had been dumped on the lot, to restore the vegetation what existed there previously, to fence off the property, and to file annual reports about the condition of the property. EPA claimed jurisdiction, holding the land to be a wetland. The Sacketts were threatened with fines up to $32,500 per day until they were in compliance. (EPA claims the right to double the fine to $75,000 per day when it prevails—and it declared that it had prevailed because it said it had prevailed.)

    The Sacketts sued, seeking a declaration that the property was not a wetland. It is not on the lake shoreline and has no creek running through it. It gets wet only when it rains. The federal district court and Ninth Circuit Court of Appeals held that the Sacketts could not go to court until the EPA requested a federal court to enforce their order. The courts held that they could not review compliance orders of the EPA and that there was no violation of their due process guarantees.

    The Sackets were stuck. Complying with EPA demands would cost hundreds of thousands of dollars—while they waited for EPA to decide what it would do. If they ignored the EPA they would be liable for the massive fine and possibly be subject to criminal liability.

    The Pacific Legal Foundation took the case to the Supreme Court for them, arguing that they had the right to have the matter heard in federal court. The Court held unanimously for the Sacketts. The Court did not address the wetland issue, the point is one of administrative procedure.

    The Court held that the Sacketts had the right to contest the EPA order as “arbitrary” and “capricious” under the Administrative Procedure Act. The EPA deprived them of their Fifth Amendment due process right. Since the EPA order was a “final agency action” the Sacketts had the right to go to court to challenge the agency. There there was no other remedy. The courts can review the actions of agencies under the Administrative Procedure Act to ensure the its requirements have been followed properly by the agency. The agency cannot simply declare victory and the party subject to the ruling have no alternative.

    Justice Alioto noted that “real relief” must come from Congress. The Clean Water Act does not contain clear rules regarding procedure. The EPA took advantage of the lack of clarity

    Discussion: Why would Congress not set clear boundaries on agency action?

  • Jury Deadlocks on Rape Charge against Police Officer; Judge Gives Allen Charge


    A police officer was tried this week on charges that he grabbed a woman who was standing on the street and sexually assaulted her at gunpoint while he was off duty.  The officer was charged with various sex crimes including rape.  While the jury found the officer guilty on several counts,  it was unable to reach a verdict on the rape charge.     

    For a jury to “reach a verdict,” requires that many of the jurors agree.  The number varies from state to state and depends on whether the case is criminal or civil.  For a criminal case, the vote required is most frequently unanimous.  

    Sometimes a jury deliberates for numerous days but is unable to reach the necessary concurrence.  In such circumstances, the jurors typically notify the judge that they are “hopelessly deadlocked.”   In the police rape case, the jury so informed the judge.

     When a judge receives such notification, there is a protocol s/he must follow.  The judge cannot just accept the jury’s assessment and dismiss the jurors without a verdict.  The judge’s responsibility is to summon the jurors, the parties, and the lawyers into court.  The judge then reads what is called an Allen Charge, which asks the 6 or 12 people to return to the jury room and try again to reach a verdict.  The gist of the charge is quoted below.  Note how the charge balances a request to jurors to reconsider their position in an attempt to reach a verdict, and at the same time encourages them to retain their position if they continue to believe it is the right one.

     ++ + + + + + + + + + + + + + + +

    The Allen Charge:

    As jurors, you have a duty to discuss the case with one another and to deliberate in an effort to reach a unanimous verdict if each of you can do so without violating your individual judgment and conscience.  Each of you must decide the case for yourself, but only after you consider the evidence impartially with your fellow jurors.  During your deliberations, you should not hesitate to reexamine your own views and change your opinion if you become persuaded that it is wrong.  However, you should not change an honest belief as to the weight or effect of the evidence solely because of the opinions of your fellow jurors or for the mere purpose of returning a verdict.

     All of you are equally honest and conscientious jurors who have heard the same evidence.  All of you share an equal desire to arrive at a verdict.  Each of you should ask yourself whether you should question the correctness of your present position. 

    You may now retire and continue your deliberations.

    + +++ + + + + + + + +

     The name Allen charge is derived from a United States Supreme Court case in which the high court approved the use of such an instruction.  Allen v. United States, 164 US 492, 501-502 (1896).  The decision serves as a strong precedent  (an earlier decision that guides current decisions).  

    In the police rape case, the jurors returned to the deliberation room following the charge and later, again informed the judge of their inability to reach a verdict.  The judge declared a mistrial (a trial that does not result in a verdict; a deadlocked jury is a common ground for a mistrial)  on the rape count and the jurors were dismissed.  In such circumstances the prosecutor has the option of retrying the case.  If the prosecutor chooses to do so, a new jury will be selected.


    1) Why does the law require a judge to give an Allen charge to a jury that cannot reach unanimaour agreement?



  • McDonald’s Announces New CEO; Selection and Role of Corporate Officers


     McDonald’s Corporation, owner of the yellow arches trademark and the name McDonald’s when used in conjunction with hamburgers, announced the election of a new Chief Executive Officer (CEO), Don Thompson.  A vacancy was created because the current CEO, Jim Skinner, announced his retirement, effective in June, 2012. 

    The Chief Executive Officer of a company is one of the highest ranking executives in a business.  S/he  is responsible for the success or failure of the company, and oversees all aspects of its operations.  Primary responsibilities include setting strategy and vision, building culture, team building, and capital allocation.

    CEOs  are elected by the Board of Directors when a vacancy exists.  The CEO serves at the pleasure of the board, meaning the board can terminate the CEO at any time for any reason.    

    A vacancy in the position can be caused by a number of circumstances including retirement of the current CEO, a debilitating illness necessitating resignation, or termination by the board.  A majority vote of the board is determinative.  If the corporation has addressed the issue of succession (groomed someone for the position), the vote is often unanimous.  If there is disagreement among board members over the ideal candidate, the process of selecting a CEO can be fraught with dissention.

     Thompson has worked at the corporation since 1990 when he joined as an electrical engineer designing restaurant equipment.  He has since been appointed to increasingly responsible positions,  most recently Chief Operating Officer (COO) and President.  A COO is responsible for the daily operation of the company and typically reports to the CEO.  The COO often carries the additional title of President which renders him or her the number-two person in command, second to the CEO.

    Significant occurrences in the life of a corporation may cause its stock prices to rise or fall.  One such event is a change in the CEO.  Skinner had been with the company for 43 years and was well liked.  His retirement announcement was balanced by the careful planning McDonald’s had done to prepare Thompson for the job.  In the morning following  Skinner’s retirement announcement,  McDonald’s stock prices fell only $.59.

     Thompson will be the first black CEO in McDonald’s history, and one of only a few black corporate leaders heading a Fortune 500 company, meaning one of the top 500 public companies (they sell shares on a stock market)  measured by sales, assets, earnings, and capitalization . 

    Skinner is credited with modernizing  the restaurants, increasing menu variety, and expanding international penetration of the brand.  Among the accomplishments attributed to Thompson are the rollout of the McCafe beverage lineup, and replacement of the double cheeseburger on the dollar menu with the McDouble, which addressed franchisees’ complaints of lack of profitability.

     The last vacancy in the CEO position occurred in April, 2004 when the then current CEO died of a heart attack.  Succession plans don’t always work as expected.  The designated successor had to resign only weeks after taking office due to advanced colon cancer.

     There are more than 33,000 McDonald’s restaurants in 199 countries.  Thompson will not lack for work to fill his days.

    Discussion Questions:

    1) How are CEOs selected?

    2) Why is a succession plan important for a corporation?

    3)  Why might major events involving a company impact the price of its stock?




  • When It’s A Generic, You Lose on Label/Product Liability Suits

    In Wyeth v. Levine, 555 U.S. 555 (2009), the U.S. Supreme Court held that Diana Levine, a professional musician who lived in Vermont, could recover from Wyeth ($6.8 million) for the loss of her hand and forearm to gangrene that resulted from improper injection of Wyeth’s drug, Phenergan.  The case was one of “failure to warn” because Wyeth’s label did not include enough information for health care professionals about the dangers of the administration of this anti-nausea medication directly into the patient’s veins.  Wyeth argued that Ms. Levine’s private suit was preempted by federal law because the FDA controls what it puts on its labels and that it could not meet state failure-to-warn liability standards and still comply with the FDA requirements.  The court held that the suit was not preempted, thus opening the door to pharmaceutical company liability under state standards even when their labels comply with FDA requirements.

    At this point Phenergan is now available in generic form, known as promethazine.  Debbie Schork, a deli worker from Indiana, had promethazine injected into her arm.  She lost her hand to gangrene and sued the generic manufacturer.  Her case was dismissed because the court held that because the generic manufacturer had no control over what was included in the label – that the label content is controlled by the FDA requirements for the original drug, Phenergan.  You can read more about Ms. Schork and Ms. Levine here, Kate Thomas, "Generic Drugs Prove Resistant to Damage Suits," New York Times, March 21, 2012, p. A1.

    Ms. Schork’s case was tossed because of another U.S. Supreme Court decision last year on generic drug manufacturers’ duty to warn in the context of their legal label requirements. Pliva v. Mensing, 131 S.Ct. 2567 (2011).  In the Pliva case, involving a suit against a generic drug manufacturer by plaintiffs who experienced severe side effects from generic drugs administered using a process that was not warned about on the labels the court held that if the generic drug manufacturer had independently changed its labels to satisfy its state-law duty to attach a safer label (product liability and the duty to warn), it would have violated federal laws and regulations that require generic drug labels to be the same as the brand-name drug labels. The court held that it was impossible for the generic manufacturer to comply with both state and federal law. The court also noted that even if a generic manufacturer had fulfilled its federal duty to ask for FDA help in strengthening the brand-name label, assuming such a duty exists, such action would not have satisfied the state tort-law duty to warn. State law demanded a safer label; it did not require communication with the FDA about the possibility of a safer label.


    Discussion Starters


    1.     Why did federal law preempt one lawsuit but allow the other?

    2.    When are state laws preempted by federal law?

    3.    What do you learn about the risks of buying generic drugs?

  • OSHA Finds Safety Violations at Work Site; Insights on Inspections



    Excessive levels of a carcinogen have been found at an underground work site  in New York City.  Workers on a subway repair and neighbors of the project had complained about poor air quality, excessive dust and respiratory illnesses.  In response, a state legislator from the area asked the Occupational Safety and Health Administration (OSHA) to inspect. The resulting report reveals excessive levels of a carcinogen called silica which has been linked to an incurable lung disease called silicosis.  The companies hired to do the work were ordered to pay a fine of $4,250 for tolerating the unsafe workplace. 

    The Occupational Safety and Health Administration (hereinafter, “OSHA”) is a government agency whose mission is “to assure safe and healthful working conditions for employees by setting and enforcing standards and by providing training, outreach, education and assistance.” www.osha.gov. 

    Pursuant to the Occupational Safety and Health Act of 1970 (hereinafter, “the Act”), employers have a duty to provide employees with a safe workplace.  Companies must follow all safety and health standards specified in the Act and regulations adopted by OSHA. Failure to do so can result in substantial fines. 

    Although OSHA inspectors make periodic unannounced visits to work sites for examinations, the frequency is limited given a finite number of inspectors.  Not infrequently, inspections are triggered by a complaint to OSHA by an employee who feels at risk due to an unsafe or hazardous condition, or as in this case, another interested party.  An employer is prohibited from taking any disciplinary action against an employee who complains to the agency. Any adverse action would constitute retaliatory discharge which is illegal.  

    OSHA safety requirements for construction sites also require that employers ensure that workers have face masks when indicated by the circumstances of the job.  Additionally, employers must test the fit of the mask on the worker to ensure it minimizes exposure to toxic substances.  The companies hired to perform the subway work are accused of overlooking this responsibility.  A second fine in the amount of $4,250  was imposed for these omissions.  Another OSHA requirement is that employers must test employees to verify that no workers are allergic to the face masks.  The companies are accused of failing to comply with this rule as well.   

    The employers have a right to appeal.  They are considering their options.  

    Discussion Questions:


    1)    What are OSHA’s primary objectives?

    2)    Why do you think the law bars employers from retaliating against employees who notify OSHA of safety violations?

    3)    What should employers do to avoid the plight of the employers at the subway work site?












  • Dealing with Dementia in Business Relationships

    Fran Schulber, then age 83, bought an annuity from insurance agent Glenn Neasham. As the SEC explains, there are various kinds of annuities. Many indexed annuities are not regulated by the SEC, although that would likely have made any difference here. No one claims it was a “bad” annuity; it was a sound product. The money invested in the annuity pays a return based on the performance of the stock and bond market; the principal is usually guaranteed against loss when the market goes down.

    Ms. Schulber was brought to Neasham in 2008 by her long-time boyfriend, also in his 80s, who had bought an annuity from Neasham some years before and thought it was a good investment.

    The problem with annuities is that, like life insurance, they make little sense for elderly people given their life expectancy. The purchase includes a commission earned by the agent (in this case $14,000 commission for a $175,000 sale) and there is a penalty for withdrawal of funds before certain dates.

    When Ms. Schulber went to the bank with her boyfriend to withdraw the money to buy the annuity, the bank manager thought she seemed confused about the transaction. He alerted Adult Protective Services in California. It investigated and brought criminal charges against Neasham in December 2010. He testified that Ms. Schulber, who did not testify, did not seem confused to him. He believed her to be mentally competent. He was convicted of felony theft in state court in California and sentenced to 300 days in jail, reduced to 90 days. The conviction is on appeal.

    The case sent shock waves through the insurance industry. Annuity sales are in the tens of billions of dollars each year. But the issue is not peculiar to annuities. The case may be an oddball, but as the number of elderly people is growing rapidly, the issue will become more common.

    Discussion: How can an insurance agent, or anyone involved in any business transaction, make a determination of mental competence? Similarly, in employment, if an employee seems to be slipping mentally, can you fire the employee? Legal determinations of mental competence are usually costly and difficult. How does one balance the rights of elders to participate fully in transactions against the dementia that affects many people at various ages?

  • Is a "Complicated Notion of Truth" Defamation? Apple, Chinese Factories, and Public Radio

    Mike Daisey had a very successful one-man play, “The Agony and Ecstasy of Steve Jobs,” that ran at the Public Theater in New York.  The play focuses on Apple’s supply chain and its manufacturing processes in China.  In fact, the play is credited with bringing international attention to the problems at Apple’s suppliers. National Public Radio broadcast the play on one of its radio stations, “This American Life.” However, an NPR reporter for another public radio program, “Marketplace,” (Rob Schmidt) did some fact-checking on the Daisey play and an NPR  hour-long retraction via interviews and disclosures followed.  Mr. Daisey was unable to provide contact numbers for the people whose stories were told in play.  Indeed, Mr. Daisey could not even provide a phone number for his interpreter that he said that he used in researching the Apple supplier plants in China. Ira Glass, the NPR producer for “American Life” disclosed that the parts of the Daisey play that audiences found most compelling were the parts that were fabricated.

    Mr. Daisey’s defense is that while he took some license with facts, the underlying story line is true:  there are problems with Apple’s suppliers.  Mr. Daisey explained why he did not come clean when the fact-checking began, “I think I was terrified that if I untied these things, that the work, that I know is really good, and tells a story, that does these really great things for making people care, that it would come apart in a way where, where it would ruin everything.” David Carr, “Theater; Disguised As Real Journalism,” New York Times, March 19, 2012, p. B1.

    Some of the facts that started the questioning of sources included tales of 12- and 13-year old employees at Foxconn (Apple’s supplier in China) as well as statements that armed guards were used to keep employees working their long hours. There are serious issues at Apple’s suppliers, issues that have been well documented in the media. You can view them here. However, the issues highlighted in the play never occurred.

    Apple has not responded to either the airing of the play or the NPR retraction.  One journalism expert has noted that the cause for reform of conditions at the factories had experienced a setback because of the problems with the stories in the play.

    Discussion Starters

    1.     Does the retraction by NPR stop an claims for defamation?

    2.    Does it matter that NPR was not aware of the problems before it ran the play?

    3.    Does it matter that the underlying theme is true if the facts are not?  i.e., that Apple has problems with its suppliers’ labor conditions?



  • Which is worse: frogs, hookers, or druggies?

    Brinkwood offered to buy 4 acres of undeveloped land just north of Hilo, Hawaii for $1.915 million. Randall, the seller, accepted the offer by signing a Deposit Receipt Offer and Acceptance (DROA). The buyers said they were attracted to the property because, as the property description states, it was close to “the views and sounds of waterfalls.” Brinkwood paid $25,000 earnest money.

    A couple months later, Brinkwood cancelled the deal and demanded return of the earnest money. A night time visit to the property revealed the presence of coqui frogs (the cute little fellow pictured here). The area was also “populated by drug dealers and hookers,” which seller failed to disclose.

    When the earnest money was not returned, Brinkwood sued, contending the seller and real estate agent misrepresented the property by saying one would hear a waterfall when the most notable sound is that of the coqui frog. The trial court granted summary judgment to the defendants; buyer appealed.

    The frog is an invasive specie that has obnoxiously established itself on several islands. It has no natural enemies so has populated rapidly. According to the state Department of Agriculture its population may exceed 10,000 frogs per acre and the noise it makes at night has been “measured at up to 80-90 decibels, comparable to that produced by a lawnmower.” When an area is invested it can be hard to sleep “due to the noise produced by the shrieking frogs.” The shrieking comes from males trying to attract females, which are silent. It is a criminal offense to be caught in possession of a frog and to transport it.

    The seller had, in fact, signed a “Caribbean Tree Frog Pest Alert Addendum” as part of the DROA, notifying buyers of the existence of the coqui frogs. The buyer claimed not to realize how awful the noise was until a night time visit was made to the property after the DROA had been signed, so contended that the notice was inadequate. Further, plaintiff noted that seller and realtor had failed to note the presence of drug dealers and hookers in the area.

    The appeals court upheld the decision of the trial court. The tree frog alert was properly given to the buyer. The alert said the buyer should make an inspection to determine the extent of the frog problem. There is no duty on the part of the seller to go into more detail about the noise generated by the frogs. Adequate notice, as required by state law, had been given.

    As to the claim that seller and realtor failed to volunteer that druggies and hookers were in the area, the court found there was no duty to provide information about adverse “off-site social conditions.” No cases existed on point in Hawaii and plaintiff did not provide cases from other jurisdictions. The case cited by plaintiff, Strawn v. Canuso, from the New Jersey high court, found a duty to disclose the existence of negative physical conditions (toxic waste), but no duty to disclose negative social conditions.

    Discussion: Should a seller, who is much more likely to know of adverse social conditions in a neighborhood than would a potential buyer, have a duty to provide information about bad social conditions? If so, where would the line be drawn?

  • Lottery Partnership Gone Bad; The Importance of A Good Partnership Agreement


      A dollar and a dream.  $77 million and a nightmare.  This is the story of a lotto partner gone rogue. For five years, six co-workers pooled $2 each, twice a week, and bought a total of $12 in lotto tickets.  One of the six paticipants was designated the money collector and ticket purchaser.  The group got lucky (well, maybe – read on) and one of the tickets won a jackpot worth $77 million.  Here the plot thickens.  The designated buyer claimed he bought the winning ticket with his own money, not pooled money.  The other partners were incredulous but the buyer would not budge.  The case went to trial and the judge ruled in favor of the five co-workers; each is entitled to his one-sixth share.

    There is a clear lesson here.   All partnership agreements, even among friends, should be in writing and address in detail each partner’s obligations and rights.  When the agreement is created, consider all the possible circumstances that could go wrong and include in the agreement a way to amicably resolve such situations.

    Not unusual are partnerships formed to share costs of purchasing lotto tickets and hoped-for winnings.  With such arrangements, it is not difficult to imagine a circumstance where one party might both buy tickets for the group and, while he is at the purchase location, buy a few tickets for himself.  To avoid the uncertainty of determining which tickets are whose, the written partnership agreement should address this circumstance.  For example, it might provide that the designated buyer will post the numbers of the group tickets via the internet prior to the time of the drawing.  Another option would be for the group to play the same numbers every time, and those numbers are agreed upon and known by the group at the inception of their affiliation.  The particular resolution selected is not critical.  What is important is that the written agreement address the issue, and the parties all agree on the chosen method.

    Note: The relationship between the parties in this matter might best be designated a joint venture.  This is a partnership for a limited purpose.  It might also be considered a syndicate which is a somewhat loosely affiliated group who join forces to finance a particular enterprise.

    Discussion Questions:

    1) Why is it important for partners to have a detailed partnership agreement?

    2) What could the partners in this scenario have included in a written partnership agreement that would have avoided the problem that developed?



  • The Restaurant No-Shows: Posting Their Names on Twitter? Privacy Problems? Charging? Breach of Contract?

    You make a reservation for dinner.  The restaurant holds a place for you, and holds, and holds, but then you are a no-show.  The restaurant is out the revenue it might have earned because it held, and held, and held, an empty table – for you!  Because the costs are high, restaurants are trying new approaches to reservations, all of which involve legal issues.

    The first new strategy (from Australia) finds restaurants tweeting the names of customers who did not show up for their reservations.  One restaurant owner claims that what he does by posting their names is no worse than when customers post rants on Twitter and Facebook about his restaurant. The legal issue here is privacy.  Years ago, restaurants and stores used to place bounced checks on their walls to disclose publicly those customers who had failed to pay.  Such practices are considered a breach of privacy and rarely done.  However, what is posted on Twitter is not account information, but just poor etiquette in failing to show and not notifying the restaurant. See examples of Twitter no-show posts at Sumath Reddy, "Knives Are Out for No-Show Diners," Wall Street Journal, March 14, 2012, p. D1. 

    A second strategy for online reservations has become popular with restaurants because many hotel concierges make reservations 30 days in advance online and just hold them for hotel guests who may want them at the last minute.  However, they don’t take the time to cancel if no hotel guest needs those reservations.  There is no downside for the concierge because there is no name associated with the reservation.  As a result, restaurants are using OpenTable.com, a generic booking site that charges $50 a head for a no-show.  The use of the site is the same as the use of a hotel or airline site:  the rules are clear and there are click options that indicate the customer understands the terms of the agreement and when a contract is formed.

    A third strategy is one from Chicago.  Diners must buy nonrefundable tickets for meals in advance.  In effect, the customer pays for the meal in advance, but if they do not show up, they lose the advance payment, just as with nonrefundable airline tickets.  The contract law issues here are the same as with the online booking – those who buy the meal tickets in advance must be told of the terms and conditions prior to purchase.

    A final strategy is for the restaurant to take a credit card number for a deposit.  Just as hotels have done for decades, restaurants are now asking diners for a credit card to secure a reservation.  As they take the credit card number, they are also disclosing that unless you cancel by a certain time (some require 24 hours notice and others have a “no later than 4 PM on the day of the reservation), your card is still charged a deposit for the table.  If you show up, the deposit goes toward paying for your meal. As part of this new contractual strategy, the restaurant also discloses that it will hold the table for a limited amount of time – 15 to 30 minutes.  The contract issues here are letting the customer know the terms of the reservation, including both the costs and the obligation to cancel within time limits.

    Discussion Starters

    1.     Are there privacy issues with tweeting the names of customers who do not show up for their reservations?

    2.    Make a list of the things those taking restaurant reservations using strategies 2-4 should say to customers who call to make reservations if they want to charge a fee for a no-show.


  • Raw Crimes: Unpasturized Milk

    The picture above is alleged to be of a raw milk vending machine in France. In that country, as in many others, raw milk can be sold. Its status in the U.S. is much different.

    James Stewart, a California farmer with no criminal history, was jailed in Los Angeles County on $1 million bail for selling raw milk. Suspects accused of rape usually have much lower bail. No one claimed Stewart was forcing raw milk on unsuspecting milk drinkers. Bail was later reduced to $100,000. In fact there are other issues involved that complicate matters, but the main charge against Stewart was participating in a criminal conspiracy to produce and sell unlicensed raw milk and that is what has raw milk fans up in arms. A Canadian publication found it odd that the U.S. mainstream media has ignored the case, while it is generally happy to discuss brutal incarcerations in other countries.

    Stewart claims that he suffered a “week of torturous Hell” in the LA lock up, where he was subjected to starvation, sleep deprivation, hypothermia, loss of blood circulation, intimidation, involuntary medical testing, and 30 hours of contact with raw sewage. Presumably litigation is forthcoming on those claims.

    Some natural foods advocates see the matter as a suppression of the right of citizens to consume products they believe, such as raw milk, to be wholesome. The pasturization requirement goes back to older times when sanitation was not at the levels enjoyed today.

    The Food and Drug Administration, Department of Agriculture and various state agencies disagree, citing possible contamination problems with raw milk, necessitating the criminal sanctions against the sale of raw milk products.

    There is a mix of laws in the states. In Texas, raw milk may be sold at a dairy farm. Some states allow sales in other locales. The Indiana legislature just ordered a study of the possibility of expanding sales, as more “natural foods” advocates press for legalization.

    Discussion: Should people be allowed to consume a product such as raw milk or are blanket restrictions justified? Some raw milk fans give the product to their children—is that acceptable?

  • Patent Law and Compulsory Licenses; Bayer’s Indian Experience

    Bayer produces a drug to treat advanced kidney cancer and liver cancer, called Nexavar.   The company has a patent on the product, entitling Bayer to make and sell the pill exclusively. A patent owner can also, at its option, license (authorize) others to use the product, typically in exchange for royalties, which are payments made for permission to use. 

     The monthly cost to purchase the drug in India is $5,600, unaffordable to most people in that country who need it.  As a result, only 200 Indians used the drug in 2011.

     To enlarge access, India’s government has granted a compulsory license to an Indian pharmaceutical company.  This means Bayer has no choice but to authorize the company to make and sell the drug. Bayer’s patent remains in effect and the company with the license must pay royalties to Bayer. The Indian government’s authority to issue a compulsory license comes from the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement.

     The government that grants a compulsory license also decides the price at which the licensed item will sell.  The Indian government has determined the price will be $176 (8,800 rupees) a month, a mere three percent of the price Bayer had been charging in India.   

    Bayer announced the company was “disappointed by the decision “and is evaluating its legal options.  One of those is to appeal.  See www.wto/org.

     The use of compulsory licenses is limited.  They can be imposed only for public health reasons and only if the patented item is not available to the public at a “reasonably affordable price.”  An interesting question that Bayer is grappling with is – how is “reasonably affordable” determined.  Bayer argues it should reflect not only the public’s buying power but also the costs Bayer incurred to develop the drug.

    Few countries have granted compulsory licenses.  Most of the existing such licenses were granted for AIDS drugs.

    Discussion Questions

    1) What is the rationale for permitting a country to force a business to license patented drugs?

    2) Do the facts of Bayer's Nexavar drug satisfy the rationale for a compulsory license?  Why or why not?


  • The Hostess Twinkie Bankruptcy: Lessons on Contracts, Unions, and Chapter 11

    In January 2012, Hostess Brands filed for Chapter 11 bankruptcy.  Citing the increasing costs of sugar and flour, the 88-year-old manufacturer of sweet treats sought reorganization through Chapter 11.  This new Chapter 11 filing was not quite three years after Interstate Bakeries (the former name of the Hostess company) emerged from its 2004 Chapter 11 bankruptcy proceedings. However, federal bankruptcy laws allow the declaration of bankruptcy once six years have elapsed since the time of the last filing. 

    Hostess is a large company with 19,000 employees (83% are unionized)  in 48 states.  Its medical and pension costs are higher than most of its snack-food producer competitors such as Little Debbie’s.  Chapter 11 reorganizations allow companies to change contract terms that will allow them to move forward.  For example, in the airline bankruptcies, the bankruptcy courts often emerged with modified pension plans, a contractual obligation that has proven to be a high cost of doing business as well as a focal point in reorganization negotiations with creditors.

    At the time of the January filing, Hostess had $860 million in debt.  Hostess’s largest unsecured creditor is the Bakery & Confectionary Union & Industry International Pension Fund, to which it owes about $944.2 million. As an unsecured creditor, the pension fund is low on the distribution list for company assets, should there be a liquidation.  In addition, secured creditors enjoy higher leverage in the Chapter 11 negotiations because of their ability to take property subject to their liens and other forms of security. On March 9, 2012, the bankruptcy court approved the appointment of a new CRO (Chief restructuring officer), Gregory Rayburn, a business person who has extensive experience in dealing with Chapter 11 companies, including WorldCom, whose bankruptcy was, at the time (2002), the largest bankruptcy in the history of the United States.  See Caroline Scott-Thomas, "Hostess Appoints New CEO to Lead It Out of Bankruptcy," Food Navigator, February 12, 2012, for more information on the bankruptcy and restructuring.

    The unions have issued statements indicating that they are negotiating with the company to reach an agreement on medical and pension benefits that will allow the company to move forward profitably. The bankruptcy judge will have to approve the new structure of the company and any changes in contracts with the company, including the pension agreements as well as any changes in the logistics and union rules related to deliveries.

    Discussion Starters

    1. What are the laws that apply to company-funded pension plans?  Are companies required to have pension plans?

    2.  Is bankruptcy something that discharges duties under a contract?

  • Tell Insurance Companies Exactly What You Should Pay

    Many Americans have conflicting views about the Internet. On the one hand, they want privacy. On the other hand, they spill their guts on social media, thereby revealing a lot of information about themselves.

    Insurance companies are beginning to troll social media, such as Facebook, to look for information that can be used as predictors in setting insurance rates for individuals.

    A discussion of how such information is used appears in a consultant report that is mentioned in an article on the subject on Justia.

    Insurance is regulated by the states. State insurance commissions have only begun to consider if social media information gathering use is proper. If you post it for the world to see, don’t complain if the information is used.

    Federal law may come into play via the Fair Credit Reporting Act, as the Justia article explains, but the law was not written with this issue in mind, so the application is not clear.

    If social media is trolled for insurance gathering purposes, then the system could be gamed as people figure out how to post alleged information about themselves that make them appear to be better insurance risks than is the case.

    Adjusting to new technology usually requires courts and legislatures a time to learn how to adapt existing rules to new situations.

    Discussion: Since few people will intentionally make themselves look like worse insurance risks than they in fact are, can you think of any reasons why there should be restrictions placed on the use of published information?

  • Copyright Suit Threatened by SONY against CBS; Girl with Dragon Tattoo


     The exceptionally popular book titled The Girl with the Dragon Tattoo was a best seller, as were the other two books in the trilogy.  The movie version of the first book was nominated for five Academy Awards, including best actress for Rooney Mara’s portrayal of the lead role, Lisbeth Salander.  She is goth, and a computer hacker by trade.  She also works part-time at a private investigative firm.  

    The movie was produced by SONY which owns the copyright  to the books and intends to make two additional movies based on the last two volumes.    

    CBS recently created a pilot for a new TV drama series called Quean, about an “edgy, female computer hacker who [works with a police detective to solve crimes and]  is also a loner, very similar to Tattoo’s lead female.”  See Dragon Tattoo Copycat Killed, New York Post 3/8/2012.    In response, SONY threatened to sue CBS for copyright infringement. To deflect the suit, CBS engaged the pilot’s author to rewrite the script.  The loner character was changed  to having a boyfriend, and her boss was adjusted from a white male private investigator (which parallels the owner of the investigative company in the movie), to a female African-American lawyer.  Additional modifications were also made.  Nonetheless, SONY was not appeased and reasserted the lawsuit threat.  CBS backed down and has now abandoned the project.  

    A copyright prevents unauthorized reproduction of protected works.  It applies to all genres of literature including novels and scripts, as well as fictional characters, story-lines and settings.  The concept of copyrights, like patents, is meant to encourage creativity by rewarding the author with the exclusive use of his own works.

     Copyright infringement refers to illegal use or unauthorized copying of protected works.   Among the elements plaintiff must prove to succeed in an infringement lawsuit are similarity and access.  The former means plaintiff must establish that substantial similarity exists between the copyrighted work and the allegedly infringing work.  Access means  opportunity to examine plaintiff’s work and copy from it.  In this case access by CBS’s script writer can be assumed, based on the popularity of the Tattoo book and movie. 

    An interesting question is whether the revised script sufficiently reduced the similarities to defeat SONY’s threatened infringement case.  The answer can only be determined by a judge and is hard to predict.  This much is known – the primary question the judge will address is this - Was the script for the CBS pilot significantly similar to the famous book series?

     Discussion Question:

    1) Do you think the modifications made by CBS were sufficient to doom SONY's threatened infringement lawsuit?  Why or why not?



  • Ski Resorts Allege Feds Are Taking Their Snow Water Without Just Compensation


    Ski resorts cannot run without snow, but they also cannot run without water necessary to produce the artificial snow that is the lifeblood of their existence. And it is a great deal of water that the resorts need to produce that snow. 

    However, the U.S. Forest Service has issued a directive that requires the ski resorts to turn over their water rights to the federal government. You can read more about the suit and the position of the ski resorts at Ann Zimmerman, "Water Fight Hits the Slopes," Wall Street Journal, March 7, 2012, p. A3 and here. There has been a long history of how these water rights came to belong to the ski resorts, and you can find good background on the back-and-forth battle for ski water here.

    A group of ski resorts has filed suit in federal district court in Colorado alleging that the directive is a violation of their Fifth Amendment rights as an “uncompensated taking of private property.” Most ski resorts have acquired their water rights from private landowners by following the requirements for transfer of such rights under each state’s real estate laws. Some of those water rights have required that the ski resorts put in place considerable infrastructure, such as pipelines, in order to transport the water from the private property to their resorts. The National Ski Areas Association, a trade group with 121 resorts located in 13 states, says that it had to file suit to seek clarification of the directive.

    The Forest Service has not yet filed its answer in the case, but a spokesperson explained that the Service is worried that should those water rights become valuable the ski resorts could sell them to someone else and leave the local resident without a source of water.

    The ski resort owners also maintain that they were not notified of the proposed directive and given a chance to comment on it, something that is required under the Administrative Procedures Act.  They maintain that many of the issues could be resolved without the federal government taking over their water/property rights.


    Discussion Starters

    1.      What are the two legal bases for the ski resorts’ suit against the federal government?

    2.     What is the concern of the Forest Service about resort ownership of the water rights?


  • Is Your Job Face in Your Facebook?

    Facebook, and other social media, are having ever-larger impacts within organizations. They can be used by employers as part of a background check on a prospective employee or to check out suspicions about a current employee.

    It took some time for the legal rules regarding e-mail to be established. While the issues are still not all settled, in general it is understood that employees have limited privacy expectations for e-mails sent from work on a computer provided by an employer.

    A possible new use for Facebook (and possibly other information-revealing media) is for it to be used as a predictor of likely success on the job. As the Wall Street Journal video discusses,

    A study published in the Journal of Applied Social Psychology mapped the content of participants’ Facebook pages onto scales for the Big Five personality traits. You can take the personality test for yourself.

    The study found that trained examiners who looked at Facebook pages produced quality predictors of job performance.

    The cost of hiring employees, especially bad ones, is high, so employers look for statistically validated metrics to help select new hires. This could be one such non-discriminatory new method.

    Discussion: If the results are shown to be at least as statistically valid as other pre-employment aptitude exams now used, are there legal reasons why they might be challenged?


  • Age and Criminal Responsibility; Ohio High School Shooting

    The tragic story of the shooting rampage at the high school cafeteria in Chardon, Ohio continues to unfold.  Charges have been filed against the alleged shooter, teenager T.J. Lane.  They include three counts of aggravated murder, two counts of attempted murder and one count of felonious assault.  The media is reporting that Lane has been charged in juvenile court but, said the prosecutor, “[T]he seriousness of the case would probably mean that Mr. Lane, 17, would be charged as an adult.”  So which is it – juvenile or adult?  

     All states have laws concerning the age at which people becomes criminally responsible for their actions, called the age of responsibility.  The age varies from state to state but hovers around later teen years, typically 16, 17 or 18.  People younger than the threshold age are said to have the defense of Infancy, meaning they are too young to be prosecuted in an adult criminal court.  These defendants are called juvenile delinquents and their cases are referred to Family Court. Whereas adult criminal court is concerned with punishment of convicted defendants, Family Court is more focused on the care, education and protection of the child, along with rehabilitation and treatment as needed.  The judge and social workers will seek to determine what went wrong - Why is this youngster engaged in criminal activity at such a tender age?  What can society do to get this child back on the straight and narrow?   

    Also unlike criminal court, the records of juvenile delinquents are sealed, which means they are not accessible by the public.  This rule is designed to protect the young person so that one mistake does not follow him for life limiting his opportunities.  In some states a juvenile’s records will be expunged upon the juvenile reaching age 18 provided he has met certain conditions such as good behavior.

     Notwithstanding the minimum age of liability and defense of infancy, state law also recognizes that some young people can be hardened criminals despite a tender age.  To address this situation, states have carved out exceptions to juvenile delinquent treatment.  Typically the exception is restricted to young defendants who commit either murder or a violent felony such as robbery, rape or assault with a weapon.  In those cases the judge typically is mandated to refer the case to adult criminal court.  In some states the referral is optional, depending on the crime.  In those states, statutes customarily prescribe the factors a judge should consider when making the decision.  They include: Is the minor amenable to treatment; the safety of the community; the violence of the act; whether the victim is elderly or disabled. The ruling has significant impact on the case and onthe defendant.

     In Ohio, a person under age 18 is a juvenile and, as a general rule, is referred to Family Court, which is called Juvenile Court in Ohio.  However, where the defendant is 17 and charged with murder or aggravated murder, as Lane is, the procedure is different.  The Juvenile Court must hold a hearing to determine if  probable cause exists to believe the youngster committed the acts charged.  If so, the judge of Juvenile Court must transfer the case to adult criminal court.  (See Ohio Revised Code Annotated Sections 2152.02, 2152.10 and 2152.12.)  Thus the statement concerning the Ohio high school shooter - His case was filed as a juvenile but he will likely be charged as adult.- is not contradictory but rather is consistent with the law. 

    Discussion Question:

    1) What are the main differences between adult criminal court and Family Court?


    2) What is the justification for treating young people who allegedly commit crimes different from adults who do so?


  • Eploiting Users?

    Five plaintiffs sued Facebook in California state court claiming to represent a class of Facebook users who suffered injury by Facebook’s use of a “Sponsored Story” system. That allows Facebook to turn certain user acts, such as “liking” a company, into a paid ad that includes the user’s name or picture.

    Plaintiffs claimed that the practice violated California’s right of publicity statute. It protects against misappropriation of a person’s identity for financial benefit. They also asserted that the practice violated California’s unfair competition law.

    Facebook removed the case to federal court and moved to dismiss the suit, contending that plaintiffs had not shown they suffered any injury—that is, their likeness did not have commercial value. The practice employed by Facebook was an “editorial function.” There is no unfair competition because Facebook is free.

    The trial court refused to dismiss the suit.

    First, using names and faces in “Sponsored Stories” is more than an editorial function (who did they think they were kidding?).

    Second, Facebook claimed that the “Stories” were “newsworthy” because the Facebook users were “public figures to their friends.” The court noted that since Facebook’s use is commercial, not journalistic, the newsworthy exception does not apply. However, since friends are known to their friends, their commercial use may create a commercially exploitable likeness that is protected by statute.

    Third, the fact that Facebook found value in Sponsored Stories showed that there is real commercial value in the practice, which would mean that there could be a claim for damages for the value of likeness misappropriated.

    As Facebook is expanding its offering of Sponsored Stories to advertisers, it must not be all that worried about the final outcome of this dispute. Facebook users must generally understand that the platform would not be offered for free if the company could not exploit the value of the media it provides.

    Discussion Question: As long as Sponsored Storied are explained in the “terms of use” agreement, which few read, should that be adequate to create acceptance of the arrangement?

  • When Bloggers Reverse Decisions: 98-Year-Old Mom Will Not Be Evicted

    Sometimes bloggers and media attention cause folks to rethink decisions.  Mary Kantorowski, 98, will not be evicted from her home by her son, Peter Kantorowski, after all. (See blog entry from February 18, 2012 on this topic).  Following a firestorm of controversy when the story went viral, Mr. Kantorowski halted the eviction proceedings. 

    As it turns out, Mr. Kantorwoski’s issues were with his brother who resides with Mary, his mother.  And it seems that Peter, as trustee of his late father’s assets, has noticed that there are too many bills from liquor and cigar stores for a 98-year-old woman.  His eviction was intended to get his mother away from his free-spirited brother.  The good-natured Peter has received angry phone calls and feels like the bad guy, but did not understand how important the home was to his mother.  So, Mary will stay put and family relations will remain strained.

    In cases of undue influence, those who are elderly and dependent on others for company and/or care are often taken advantage of by those who live with them and/or provide care.  The law provides ways to set aside gifts, wills, and contracts when there is undue influence.  Peter feels that perhaps his brother is exerting undue influence over his mother and causing her to spend too much money on items she does not need or use. However, backlash being what it is, Peter is willing to let his mother remain in the home and continue paying the cigar and liquor bills. Read about the change of heart here. Krisanne Alcantara, "After Backlash, Man Evicting 98-Year-old Mother Relents,"  March 2, 2012, CBS, Channel 2, Connecticut.

    Discussion Starters 

    1.  When does undue influence occur?

    2.  What can be done when there is undue influence?


  • That Pesky Burden of Proof Thing; Scuba Murder Trial


    Did the newlywed husband purposefully tamper with his wife’s underwater air supply or was her drowning an accident?

     The concept of burden of proof is a hard one for students to understand.  Probably most can parrot the rules – Plaintiff must satisfy the relevant burden of proof to win a case; the burden of proof in a criminal case is beyond a reasonable doubt; the burden of proof in a civil case is preponderance of the evidence . 

     But what do these terms really mean?  Can they be quantified?  The answer is yes for preponderance of the evidence - the jury must be more than 50% sure that defendant is liable.  Proof beyond a reasonable doubt is more difficult to assign a precise measure.  Instead, it is inexact.   Many might say that the jury must be at least 90% sure of the defendant’s guilt.  If the jury, after listening to all the evidence, has any reasonable or rational doubt about guilt, the prosecution has not met its burden

     An example of the prosecution failing to meet this burden is provided in a recent case referenced informally in the news as the honeymoon scuba case.   Newlyweds from Alabama went scuba diving in Australia.   She ended up dead on the sea floor while he swam to the surface, allegedly to get help.  He was accused of causing her death under water and abandoning her.  The only eye witness, a fellow diver, testified that he thought the husband was trying to save his wife.

     Per trial procedure, a plaintiff presents his case-in-chief first because the plaintiff in every case has the burden of proof.  Each witness for the prosecution is called to the stand, one at a time, and is subject to direct exam, cross exam, redirect if any, and possibly recross.   In a typical case, once the plaintiff completes his case-in-chief (“rests”), the judge will assess the legal sufficiency of the evidence, that is, whether the plaintiff satisfied its burden of proof.  If so, the defendant’s case-in- chief follows.  Once all the evidence is in, and following the judge’s charge, the jury deliberates. 

     However, if plaintiff rests and the judge determines that the facts presented, when viewed as a whole, fall short of the required burden of proof, plaintiff loses.   In that situation there is no reason to proceed with the balance of the trial; no need for defendant to present his case-in-chief.  Instead, the judge at that juncture dismisses the case.  The jury is excused without the need to deliberate.

     Another term for this type of dismissal is a trial order of dismissal (or TOD) meaning the charge is dismissed because the plaintiff’s evidence was insufficient to satisfy the applicable standard of proof .  

     This is exactly what happened in the scuba diving case.  The defendant opted for a jury trial. The prosecutor presented  its case-in-chief.  The court determined the prosecutor’s evidence fell short of proof beyond a reasonable doubt.  Case dismissed.

      In response, the prosecutor commented “We are stunned, shocked.”   Presumably the prosecutor would not have pursued the case if he felt the evidence amounted to less than proof beyond a reasonable doubt.  At trial the judge refused to admit into evidence, as unreliable or prejudicial, certain testimony the prosecution had hoped to present.  Perhaps the prosecutor’s assessment was optimistic; perhaps witnesses’ testimony at trial varied from what they said during trial preparation. Regardless, criminal defendants are innocent until proven guilty, and the husband was not proven guilty.  In these circumstances the defendant goes free. 

     Due to the Constitutional right against double jeopardy, the husband cannot be retried for his wife’s death.  Case closed.  Such is the critical role at trial of the burden of proof.

    Discussion Question

    1) Why is a case dismissed when the plaintiff cannot meet the required burden of proof?




  • The First Amendment and "Grisly" Tobacco Labels

    In the case of R.J. Reynolds Tobacco Company et al. v. FDA et al., (D.D.C. 2012), federal district judge Richard Leon has enjoined the Food and Drug Administration (FDA) from requiring tobacco companies to put one of its 12 picture labels (shown in the above video). The judge held that the graphic picture labels do not contain factual information and violated the tobacco companies’ First Amendment rights by forcing them to speak.  Judge Leon noted that the First Amendment allows us to speak freely but also allows us to choose not to speak at all.  You can read the judge’s full opinion here. The new labels were promulgated by both the FDA and the Department of Health and Human Services (HHS) pursuant to authority granted by Congress in 2009 under the Family Smoking Prevention and Tobacco Control Act. 

    Under the law, the following nine textual statements were to be included on cigarette labels:

    WARNING:        Cigarettes are addictive.

    WARNING:        Tobacco smoke can harm your children.

    WARNING:        Cigarettes cause fatal lung disease.

    WARNING:        Cigarettes cause cancer.

    WARNING:        Cigarettes cause strokes and heart disease

    WARNING:        Smoking during pregnancy can harm your baby.

    WARNING:        Smoking can kill you.

    WARNING:        Tobacco smoke causes fatal lung diseases in nonsmokers.

    WARNING:        Quitting smoking now greatly reduces serious risks to your health.


    The act required that these warnings and graphic labels take up 50% of the cigarette package label and 20% of all cigarette ads.


    After publishing the proposed rule and receiving more than 1,700 comments, the FDA published its final rule in June 2011.  Three of the largest tobacco companies filed suit seeking an injunction against the rules.

    Judge Leon granted the injunction based on First Amendment precedent that has held that the government cannot mandate speech that a speaker would not otherwise make in order to tilt the public debate in its direction.  Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011).  By imposing its will on a speaker, the government is altering speech. Judge Leon also had constitutional difficulties with imposing speech and advertising requirements even in the case of commercial speech when such requirements are not based in fact and not within the role of the FDA and HHS of protecting consumers. 

    The following, included following as part the decision, explains the First Amendment concerns:


    “The graphic images here were neither designed to protect the consumer from confusion or deception, nor to increase consumer awareness of smoking risks; rather, they were crafted to evoke a strong emotional response calculated to provoke the viewer to quit or never start smoking.”


    The FDA will appeal the decision, but will miss the deadline of September 2012 that Congress placed in the statute for the new packaging and ads warnings. You can read more on the history of the rule and see photos of the labels at Mike Esterl, “Grisly Tobacco Labels Blocked,” Wall Street Journal, March 2, 2012, p. A6.


    Discussion Starters

    1.     Where was the authority for the development of the labels granted?

    2.     Does the First Amendment protect commercial speech (advertising and labels)?