“We Can Be Better Than That”

Law school is hard.  Being a lawyer is harder.  But that difficulties and responsibilities come with entering the legal profession is not something to bemoan or a cause to run away.  Nor should the difficulty of legal education and practice be sought purely as a means to financial rewards, especially since these rewards are becoming all the more elusive in today’s world.  It is an opportunity for intellectual development and experience, all lifetime benefits to embrace.

The difficulty starts from the moment we study for the LSAT.  In our first years, we are tasked with reading and processing and cogently articulating concepts gleaned (or pulled like teeth) from ancient cases about barrels falling out of windows, churches burning down, and smoke balls that supposedly cured every minor ailment under the sun.  Come second year, we may find ourselves toiling in the law review cite-check room as staffers or coming out of our shells as we practice oral argument for Appellate Writing & Advocacy, along with even more copious amounts of reading, this time on topics like criminal process, agency and corporate law, taxation, postmortem property transfers, and intellectual property.  Then you will get the taste of working as an attorney, whether in a summer associate position at a large firm or clerking for a mid-size or smaller firm, in which your legal studies for the first time become “real.”  When third year arrives, you will have the chance to take workshops on pretrial practice and contract drafting among others, and (you guessed it) more reading.  In sum, as Justice Stephen Breyer was right to tell his children, “[I]f you do your homework really well, . . . you can do homework the rest of your life!”

Once you begin practicing in the real world, you will have even more difficult homework, and the stakes are even higher. 

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Combatting Gray Markets: A Copyright-Protected Distribution Right or a Sherman Act Violation?

At one time, the prospect of stating legal claims against gray market importers looked bleak.  Product manufacturers tried trademark protection, but trademark law proved disappointingly unsuccessful.  One company has now turned to copyright protection, and this company obtained a Ninth Circuit decision that found a store using a gray market importation scheme unable to raise a defense to copyright infringement.  The company is Omega S.A., a Swiss luxury watch manufacturer known for producing the Seamaster line of watches appearing in many James Bond films, and the case is Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008). In spite of Omega’s favorable Ninth Circuit judgment and opinion,  market-wide legal questions about Omega’s distribution practice remain.  Regardless of whether or not a manufacturer could state a claim for copyright infringement against gray marketers, infringement defendants may answer back by counterclaiming an antitrust violation.  And if an antitrust counterclaim can halt copyright enforcement, then Omega’s win at the Ninth Circuit would end up a hollow victory at best or an academic stroll through the Copyright Act at worst.

Here are the facts of Omega v. Costco.  Omega maintains a tight grip on its authorized distribution channels.  Omega attempted to gain control of its watches’ distribution by engraving a design on the back of its watches (pictured below) and registering this design at the U.S. Copyright Office. Omega sold watches with these designs to their authorized distributors.  Somewhere along the distribution line, however, the watches ended up in the hands of distributors outside of Omega’s authorized channels abroad.  As the Ninth Circuit recognized, this is a paradigm gray market importation scheme, in which products meant to be sold in one territory are imported into another, usually for cheaper prices. One of Costco’s suppliers based in New York imported watches from these unauthorized distributors and eventually transferred the watches to Costco, which then sold these watches to its customers in California. One of those purchasing customers turned out to be a plant employed by Omega.

Omega then sued Costco for violating their exclusive right to distribute  its copyrighted works and for importing them without Omega’s authorization.  Costco asserted the first-sale defense, arguing that Omega’s right to control the distribution of its watches under both the distribution and importation statutes ends with its first transfer to its authorized distributors.  Costco v. Omega’s ending at the Supreme Court was a bit anticlimactic, with the U.S. Supreme Court evenly divided 4-4 (Justice Kagan didn’t take part in the non-decision).  This led to a summary affirmance of the Ninth Circuit’s decision below and no rule from the Supreme Court resolving the statutory tension in the Copyright Act.

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Measuring the McCarran-Ferguson Act’s Antitrust Immunity

That insurance regulation rests primarily with the fifty states has become axiomatic and even cliché.  Around the country are operational state insurance commissions, and for much of the twentieth century, the federal government has let these agencies be.  The Employee Retirement Income Security Act’s (ERISA) sweeping preemptive force is cabined by a savings statute that allows the business of insurance to escape federal employee benefit plan regulation.  And the McCarran-Ferguson Act, generally speaking, provides that three comprehensive federal statutes sanctioning anti-competitive, unfair, and deceptive market activity—namely the Sherman Act, the Clayton Act, and the Federal Trade Commission Act—do not reach the insurance industry inasmuch as the business of insurance is regulated by the states.

This state-centric arrangement has come under fire in the last couple of decades, with the federal government staking its ground regulating insurance first around the periphery and then increasingly at the core of the insurance industry.  Some federal statutes make certain practices with certain aspects of an application for or policy of insurance illegal, whether proscribing genetic discrimination, as the Genetic Information Nondiscrimination Act (GINA) does, or limiting the pre-existing condition as the Health Insurance Portability and Accountability Act (HIPAA) did.  Also regulating health insurance at the federal level is the monumental Patient Protection and Affordable Care Act of 2010 (PPACA or “Obamacare” as it is more popularly known).  The PPACA statutorily mandates that some health insurance policies and group health plans eliminate certain provisions altogether, such as lifetime limits on health benefits and the pre-existing condition limitation.  Perhaps even more radically, the PPACA delegates authority to the Department of Health and Human Services to regulate the contents of health insurers’ and plans’ summary of benefits and even the policies themselves.

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