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Insight and Information on Louisiana Law, Litigation, and Legal Culture.

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Is it Time for Your Business to Have a Check Up?

Posted in Business and Corporate, Insurance, Insurance Coverage and Recovery, Intellectual Property, Labor and Employment Law, Louisiana In General, Real Estate, State and Local Taxation


By Sonny Chastain

We have become accustomed to having regular check-ups with our doctors. The doctor will analyze our current physical condition, including heart rate, blood pressure, cholesterol level, lung condition or otherwise. The doctor may order a treadmill test or a screening for a particular function. The doctor will also compare current test results to any prior tests to determine any changes to the body and mind resulting from the stress of our daily lives. The doctor considers any symptoms to determine whether risks associated with developing any particular disease can be reduced through diet, exercise, medication or other intervention. The goal is to stay healthy and fit. While the probing, pricking, injecting, and waiting are all uncomfortable, these activities are certainly better than a stay in the hospital or worse.

Our businesses should undergo a similar checkup or audit – to analyze risks that are connected to the business. Vital signs of the business should be examined to determine the current state of affairs. Similar to the condition of a body, after the business is formed, business owners are often just too busy competing in the marketplace to “take a physical.” The important and urgent items such as payroll, inventory, and sales are the immediate focus. Matters which are important, but non-urgent, including the “vital signs of the business,” get placed on the back burner. Business owners just do not take the time to pay attention to signs or symptoms. No different than a frog that dies because it does not realize the water is heating up, business owners do not pay attention to growth, market changes, etc., which have caused their own “water to heat up.”

Too many times the legal issues in a business are not noticed until after the business has had a “heart attack.” Steps should be taken to proactively consider areas in which the business may be vulnerable. Remedying problems which may be identified in any check-up are much easier to address before a legal issue arises. A legal check-up should be customized for the particular business, but should typically include: (1) review of the By-Laws or Operating Agreement to determine if they are current and appropriately govern the operation of the business; (2) review of insurance coverage to determine whether operational risks of the business are covered or not; (3) identification of any trade secrets and consideration of whether reasonable steps are really being taken to keep them confidential; (4) review of logos, slogans, or other indicia utilized as a trademark to identify the business and whether they are protected; (5) analyze whether the business owns a copyright in or has a license for any works that are integral to operations, like software, publications, drawings, etc.; (6) review of employee handbook and consideration of whether the business is operating consistent with it; and (7) analysis of whether certain employees should have to execute a valid non-compete or non-solicitation agreement. Similar to action items for the body like exercise, diet, or medication, intervention or remedies can be considered for any identified shortcomings of the business.

So, maybe it is time for a check up — to pick up your head and work “on” the business and not just “in” the business. Maybe it is time to consider the applicable vital signs of the business so as to get the “house in order.” After all, there are three outcomes for a business: (1) it fails/dissolves, (2) it is inherited by the owner’s heirs, or (3) it is sold or transferred to a third party. Failing to check vital signs may contribute to the first possible outcome. Otherwise, appropriate business checkups and action items to keep the business healthy, wealthy and wise make the other two outcomes much easier to accomplish.

How healthy is your business? Is it fit, fat, or on the verge of a heart-attack or stroke? Maybe it is time to conduct a business audit to determine the current condition of the business. Much like a routine physical exam, a legal check-up by your attorney will help you address and troubling finding, and provide you with a full report on the health of your company.



The Hobby Lobby Aftermath: What Does This Mean For For-Profit Companies?

Posted in Business and Corporate, Labor and Employment Law

By Edward Warner

On Monday June 30, 2014, the Supreme Court ruled that requiring family owned corporations to pay for insurance coverage for contraception under the Affordable Care Act (“ACA”) violated a federal law protecting religious freedom. As noted in my previous entry, the contraception coverage requirement was challenged by corporations whose owners claimed that they run their businesses according to their faith-based beliefs. The parties to the case engaged in heated oral arguments before the Court in late March of this year. The Court’s ruling in favor of Hobby Lobby signifies an important shift in corporate rights. As Justice Ruth Bader Ginsburg asserted in the dissent, this ruling could apply to numerous commercial enterprises and countless laws. Questions abound as companies try to make sense of this sensationalized decision.

What does this ruling mean in plain English?

The court held that the requirement that the companies provide contraception coverage imposed a substantial burden on the companies’ religious liberties. Put simply, the ACA mandate hindered the companies’ religious freedom. This ruling extends the religious rights of corporations, classifying them as “persons” under the Religious Freedom Restoration Act (“RFRA”).

Does the ruling really apply to all corporations?

According to the majority decision, the ruling does not apply to all corporations. The opinion states that the decision only applies to closely held, for profit corporations run on religious principles. Justice Samuel Alito also emphasized that these types of corporations are not necessarily likely to prevail if they object to complying with other laws on religious grounds.

Why is this ruling relevant to corporations other than Hobby Lobby?

This decision of “startling breadth” may have opened the door to challenges from other corporations. Essentially, despite the limited scope of the ruling, nothing would stop similar corporations from arguing that other laws that burden their religious liberty are unconstitutional. These companies may then seek exemptions from the requirements of these laws. Prior to the decision, Hobby Lobby faced annual fines of hundreds of millions of dollars if it failed to comply with the ACA mandate.

What are the legal implications moving forward?

The Court will one day have to decide clearly whether publicly traded companies and other corporate forms are also protected under RFRA. The ACA mandate has been challenged in at least 50 other cases. Hobby Lobby Stores Inc. is a family owned chain of 500 craft stores with 13,000 employees. This large company made substantial, formal commitments to run the stores according to religious principles years prior to signing on to the lawsuit and winning before the high court. The question remains: will other large corporations try to jump on the proverbial Hobby Lobby bandwagon?

If you wish to view the full Supreme Court opinion, you may do so at the link here.


EEOC Issues Updated Enforcement Guidance on Pregnancy Discrimination

Posted in Labor and Employment Law


By Michael D. Lowe

On July 14, 2014, the U.S. Equal Employment Opportunity Commission (“EEOC”) issued an updated “Enforcement Guidance on Pregnancy Discrimination and Related Issues” (Notice No. 915.003), along with a question and answer document about the guidance and a fact sheet for small businesses. The Enforcement Guidance, Q&A document, and Fact Sheet are available on the EEOC’s web site.

This is the first comprehensive update of the EEOC’s guidance on the subject of pregnancy discrimination since 1983. The guidance addresses the requirements of the Pregnancy Discrimination Act (“PDA”) and the application of the Americans with Disabilities Act (“ADA”) to individuals who have pregnancy-related disabilities.

The fact that the guidance addresses both the PDA and the ADA is significant. The EEOC has made it clear that employer compliance with the recently amended ADA is a priority. To this point, EEOC Chair Jacqueline A. Berrien has commented that the guidance is intended to “aid employers, job seekers, and workers in complying with the Pregnancy Discrimination Act and Americans with Disabilities Act, and thus advance EEOC’s Strategic Enforcement Plan priority of addressing the emerging issue of the interaction between these two anti-discrimination statutes.” The updated guidance is also a response to the increase in pregnancy discrimination complaints. The latest EEOC data shows a 46 percent increase in pregnancy-related complaints from 1997 to 2011.

The guidance is largely an update of longstanding EEOC policy regarding pregnancy and related conditions. It sets forth the fundamental PDA requirements that an employer may not discriminate against an employee on the basis of pregnancy, childbirth, or related medical conditions; and that women affected by pregnancy, childbirth or related medical conditions must be treated the same as other persons similar in their ability or inability to work. The guidance also explains how the ADA’s expanded definition of “disability” might apply to workers with impairments related to pregnancy.

Several of the key issues discussed in the guidance include:

  • The fact that the PDA covers not only current pregnancy, but discrimination based on past pregnancy and a woman’s potential to become pregnant
  • Lactation as a covered pregnancy-related medical condition
  • The circumstances under which employers may be required to provide light duty for pregnant workers
  • Issues related to leave for pregnancy and for medical conditions related to pregnancy
  • The PDA’s prohibition against requiring pregnant workers who are able to do their jobs to take leave
  • The requirement that parental leave (which is different from medical leave associated with childbearing or recovering from childbirth) be provided to similarly situated men and women on the same terms
  • When employers may be required to provide reasonable accommodations for workers with pregnancy-related impairments under the ADA and the types of accommodations that may be necessary
  • Best practices for employers to avoid unlawful discrimination against pregnant workers.

The guidance is the product of a February 2012 public meeting where the EEOC solicited stories about issues related to pregnancy discrimination and discrimination against individuals with caregiving responsibilities. The materials from that meeting, including testimony and transcripts, are available here.

The new guidance, like all EEOC guidelines, is not controlling law. It will ultimately be up to the Courts to interpret and enforce the PDA and ADA. However, the guidance serves as a good indication of how the EEOC will address the issue of pregnancy discrimination. Employers should review their policies regarding pregnancy, including any light-duty policies, to confirm compliance with both the PDA and the ADA.


Lagniappe: Tips When Buying Louisiana Tax Credits

Posted in Business and Corporate, Film and Entertainment, Louisiana In General, State and Local Taxation

Fleur de lis plaque

By Meg Alsfeld Kaul

Buying Louisiana tax credits is a relatively easy way to reduce your state income tax (and sometimes franchise tax) liability. The following is a sampling of issues you and your legal or tax professional should discuss when making the decision to purchase tax credits.

The tax credits must be earned in compliance with applicable statutory and regulatory requirements.

In certain cases, this may mean the credits are “certified” by a state department, and in other cases your professional may have to review applicable documentation to determine if the credits have been legally earned by the seller.

There is also a new tax credit registry administered by the Louisiana Department of Revenue and with this registry comes new paperwork and regulations. Be sure that your professional is up to date with the latest requirements for obtaining credits and then properly applying them against your tax liability. For example, if you are purchasing motion picture tax credits that were certified by Louisiana Economic Development on or after January 1, 2014, you will need to complete a Form R-6140 with your seller in order to transfer the credits, and you will need to wait until you receive a Form R-6135 from the Louisiana Department of Revenue before you can apply these tax credits against your tax liability.

Reputation matters.

Use only reputable brokers or sellers when purchasing tax credits. There have been instances of fraud by individuals selling fake credits or credits that they did not own. Therefore, make sure that you use a reputable broker, and get the advice of an attorney in order to help protect your investment.

Ensure you get “clean” title.

Tax credits are described as “general intangibles” subject to the Louisiana UCC rules and can be pledged by the person earning the credits as collateral for their indebtedness. A professional can perform a UCC check to determine if the tax credits are subject to such liens and can assist with removing them. A reputable broker, however, should have performed this step upon its own purchase of the credits, but if you are purchasing the credits directly from the credit earner, such as a production company, you will want to have a professional ensure that any liens or security interests are removed prior to your purchase.

Put it in writing.

Put the details of your agreement with the seller in writing. This includes but is not limited to the price, the amount of tax credits being purchased, the tax year of the tax credits being purchased, and the social security or federal identification numbers of both parties. The seller should also warrant that it neither claimed on its own behalf nor conveyed to any other transferee the tax credits being transferred and sold to you.

Notify the State.

Most statutes require state notification of the credit transfer within 10-30 days of the transaction, depending on the type of tax credit being transferred. So be sure to review the statutes and rules governing the particular type of credit being purchased to ensure your compliance with the law. Copies of the transfer documentation, state tax credit certification letter, and any forms issued or required by the Louisiana Department of Revenue, if applicable, should be sent to the state as well. Some credits, like the motion picture tax credits, also require a separate processing fee for each tax year of tax credits transferred.

Consider transferability limits.

Some tax credits have a limit on the number of times they can be transferred, and some cannot be transferred at all. For example, while motion picture tax credits are not limited, live performance tax credits may only be transferred once to one transferee. Always check the law and verify with your professional to ensure that you are within the transfer limits.

Not all tax credits are the same.

There are many forms of tax credits—motion picture, digital media, solar and historic, just to name a few. Each type of tax credit has its own set of rules and regulations. So be mindful that your transfer must adhere to the particular rules surrounding that type of tax credit in order for the transfer to be valid.

Act 281: Louisiana’s Overhaul of the Civil Code Articles on Security, Pledge and Recordation

Posted in Business and Corporate, Louisiana In General, Real Estate


By Allison Lewis Reeves

On the recommendation of the Louisiana Law Institute, the Louisiana Legislature passed Act 281 (the “Act”). The Act concerns amendments to the Louisiana Civil Code relative to security, pledge and recordation. Civil Code art. 3133 et seq. concerning pledge have been deleted in their entirety and replaced with general articles on the liability of an obligor for his obligations and the relationship of creditors vis-à-vis the obligor and other creditors. The articles concerning pledge have moved to Civil Code art. 3141 et seq. although the substance of the pledge articles has also changed.

Civil Code art. 3136 defines security as “an accessory right established by legislation or contract over property, or an obligation undertaken by a person other than the principal obligor to secure performance of an obligation.” The article is new, but the concept is not. It broadens the scope of security beyond simply an obligation created by contract. The new Civil Code art. 3133 et seq. are consistent with previous articles from the 1984 Civil Code Revision. The latest revision seeks to align the civil code articles on security rights with the Louisiana Uniform Commercial Code in Title 10.

Importantly, new Civil Code art. 3346 provides that a pledge of the lessor’s rights in the lease of an immovable and its rents is recorded in the mortgage records of the parish in which the immovable is located. Note that new Civil Code art. 3169 provides that the pledge of the lessor’s rights in the lease of an immovable is not effective as to third parties until the contract is recorded. This represents a change in the law, which formerly required recordation in the conveyance records. For transitional rules applicable to the continued effectiveness of assignments of leases and rents filed in the conveyance records in accordance with former R.S. 9:4401 prior to January 1, 2015, as well as rules that apply to the reinscription, release, transfer, amendment, or other modification of those assignments, see R.S. 9:4403.

For a complete text of the Bill, click here.


Employers: Are You Prepared For the New Full-Time Employee Reporting Requirements Under the Affordable Care Act?

Posted in Business and Corporate, Health Law, Labor and Employment Law


By Brian R. Carnie

Starting January 1, 2015, all employers subject to the Affordable Care Act must track, on a month-to-month basis, each full-time employee (generally any employee who averages 30+ hours of service per week per month) and the employee’s share of the lowest cost monthly premium for self-only coverage (if any) by calendar month, among other information. These employers will also have to track the total number of full-time employees for each calendar month. This information will be reported to the IRS annually on a new form (IRS Form 1095-C, which has yet to be released), and employers will be required to file separate 1095-Cs for every person who was a full-time employee in any given month the preceding year (even if that person has since died or is no longer employed).

Anyone whose information is reported has to be furnished with a copy of their individual 1095-C by January 31st of each year starting in 2016 for the 2015 reporting year (the same due date for W-2s). The IRS will use the information reported on the 1095-Cs to determine whether a penalty may be assessed against the employer, and whether an employee is eligible for premium tax credits if the employee tries to purchase coverage on the public insurance exchange.

These reporting requirements affect every “large” employer subject to the ACA, even if the transition relief rules do not require your company to begin offering affordable group health coverage until later in 2015 or 2016 in order to avoid the employer penalties. For example, if you are an employer who has between 50-99 full-time employees/full-time equivalents and you are not subject to the employer penalties until the first day of your plan year in 2016, you still must track and report this data for calendar year 2015.

The scope and detail of the Form 1095-Cs will make reporting a significant burden for most companies. It will require employers to integrate and reconcile data from their payroll vendors, third party administrators and human resource personnel. There are alternative, streamlined reporting methods for full-time employees who receive a “qualifying offer” of coverage for all 12 months of the year. A “qualifying offer” is an offer of coverage to the employee, the employee’s spouse and dependents that meets the ACA’s minimum value standard and the employee’s annual premium cost for self-only coverage does not exceed 9.5% of the federal single poverty level (for 2014, a premium of $1,109 or less). For 2015 only, there are also reduced reporting obligations if your company provided qualifying offers to 95% or more of your full-time employees.

The only employers who need not worry about identifying and reporting full-time employees for each calendar month are those companies that offer at least 98% of all employees (including part-time and temporary employees) the option to purchase group health coverage.

The penalty for failure to file returns for your full-time employees will be $100 per missing or incorrect return, subject to certain monetary caps. All applicable large employers should make certain that they have systems in place to track this data beginning next January so you are not facing a mad scramble to gather everything needed to complete the new forms in January 2016.


Preservation Obligations: How Much Data Must a Party Hold During Active Litigation?

Posted in Business Litigation, E-Discovery, General Litigation


By Jason R. Cashio

The United States District Court, Northern District of California, offered some additional guidance regarding what a party must do, and by when, in terms of its preservation obligation. Commenting that Judge Scheindlin “woke up the legal world from its electronic discovery slumber in the Zubulake series,” and that most parties have gotten the basic message concerning when the duty to preserve begins, the court explained that exactly what a party must do to preserve and by when is less understood.

The issue before the court was whether the destruction of evidence on a former employee’s computer was sanctionable conduct. A matter of days before the plaintiff filed the lawsuit in AMC Technology, LLC, v. Cisco Systems, Inc., 2013 WL 3733390 (N.D. Cal.2013), a project manager for the defendant retired. Approximately one month later, the defendant wiped the project manager’s computer pursuant to its records retention policy. When the defendant could not produce the data from the project manager’s computer during the course of discovery, plaintiff filed a motion for sanctions.

The court found that the project manager’s involvement with the matter in dispute was merely tangential. Although the company knew of the lawsuit before destroying the computer, the court found the company could not have known that the project manager’s data would be relevant because he was not a key player. The court then reiterated sound advice, explaining that “requiring a litigant to preserve all documents, regardless of their relevance, would cripple parties who are often involved in litigation or are under the threat of litigation.”


Definitely Indefinite? Supreme Court Issues Decision in Nautilus v. Biosig Instruments

Posted in Intellectual Property


By Devin Ricci

One of the lesser-known requirements for a patent is that it must claim a “definite” invention. The issue of definiteness lies primarily with the patent draftsperson, often a patent attorney or agent that is hired to expand the scope of an invention as broadly as possible without crossing the line into indefiniteness. Nevertheless, as patent litigation continues to develop, alleged infringers are growing ever wiser that claims can be invalidated for stretching too far, rendering them indefinite. On June 2, 2014, the Supreme Court issued its decision in Nautilus, Inc. v. Biosig Instruments, Inc., relaxing the standard for a court to find a patent claim invalid as indefinite.

By statute, the definiteness requirement mandates that each patent must “conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as [the] invention.” [1]  Courts have struggled throughout the years to balance the inherent limitations of written language with the need to limit the monopolistic rights granted through a patent for a clear invention. In so doing, Courts have mandated that the notion of definiteness is to be evaluated in light of the specification (the written description of the invention) and prosecution history from the perspective of a person skilled in the relative art at the time the patent was filed.

For over a decade, the Federal Circuit has erred on the side of validity for claim definiteness, questioning whether patent claims were “amenable to construction” or “insolubly ambiguous.” Under these guidelines the Federal Circuit would hold that “if reasonable efforts at claim construction result in a definition that does not provide sufficient particularity and clarity to inform skilled artisans of the bounds of the claim, the claim is insolubly ambiguous and invalid for indefiniteness.” [2]  The United States Patent and Trademark Office interpreted this standard to mean that “the validity of a claim will be preserved if some meaning can be gleaned from the language.” [3]

That standard is no more. In Nautilus, the Supreme Court held that the concepts of “insolubly ambigu[ity]” and “amenab[ility] to construction” are not apt standards for definiteness. The Court sought to mandate clarity of patent claims, while recognizing that absolute precision is unobtainable. Under this reasoning, the Court returned to traditional notions, holding that a patent is invalid for indefiniteness if its claims, read in light of the patent’s specification and prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.

It can be noted that the Nautilus decision does not create any breakthroughs in patent invalidation. In reality, the Supreme Court rendered no new standard as it returned to a more barebones, traditional approach to the definiteness standard. Rather, the decision lessens the burden for patent and patent claim invalidation for lack of definiteness and acts as a subtle hint to the Federal Circuit and lower courts that a definiteness challenge shouldn’t necessarily err on the side of validity. Thus, the decision opens the gate for further validity challenges based on indefinite claims.

[1] 35 U.S.C. 112, Paragraph 2
[2] Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1371; see, also. ExxonResearch & Eng'g Co. v. United States, 265 F.3d 1371, 1375 (Fed. Cir. 2001) (“Only when a claim remains insolubly ambiguous without a discernible meaning after all reasonable attempts at construction must a court declare it indefinite.”)
[3] See, MPEP 2173.02


Judicial Troll Hunting

Posted in Intellectual Property


By Jessica Engler and Devin Ricci

On May 21, 2014, Senate Judiciary Committee Chairman Patrick Leahy pulled the plug on the latest bill aimed at fighting patent trolls. The term “patent troll” is an aptly coined name for non-practicing entities, companies formed to hold and collect royalties on patent rights without manufacturing, using, or otherwise selling the patented products or processes. The news of the judiciary committee’s removal of patent reform from the agenda has left many wondering about the future of patent reform. While some are predicting that patent reform will not be addressed until the next term, another branch of government has recently begun issuing rulings that affect the American patent law sector, potentially making patent infringement litigation costlier to trolls.

On April 29, 2014, the United States Supreme Court issued opinions in both Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark v. Allcare Health Management System, Inc. In both Octane Fitness and Highmark, the Supreme Court was presented with the nearly identical issue of when attorney’s fees can be awarded to the winning party of a patent infringement suit. These two opinions are the first decisions in a line of several patent cases currently on the Supreme Court’s intellectual property-heavy docket.

The Patent Act permits district courts to award attorney’s fees to prevailing parties in “exceptional circumstances;” however, the Patent Act does not provide a definition or examples of what would constitute those “exceptional circumstances.” 35 U.S.C. § 285. Though early decisions had taken a holistic, equitable approach to awards of attorney’s fees, in the 2005 case Brooks Furniture Manufacturing, Inc. v. Dutailier Int’l, Inc., the Federal Circuit Court adopted a rigid and mechanical formulation for determining if such fees would be awarded. 393 F.3d 1378 (2005). Under Brooks Furniture, a prevailing party could recovery attorney’s fees only when: (1) the opposing party engaged in misconduct during the litigation or in securing the patent; or (2) when the claim of infringement is objectively baseless and brought in bad faith. The Federal Circuit Court has subsequently stated that a claim is “objectively baseless” only when the claim is “so unreasonable that no reasonable litigant could believe it would succeed,” and that litigation is brought in bad faith only when the plaintiff “actually know[s]” the claim is objectively baseless. iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1378 (2011). Last, the Brooks Furniture decision stated that the evidence of this bad faith must be “clear and convincing,” the most burdensome legal standard of proof.

By requiring this rigid, nearly-impossible standard for the award of attorney’s fees, the Brooks Furniture decision insulated patent trolls from the costly repercussions of their highly litigious behavior. The typical modus operandi of a patent troll commences with a demand letter sent to an alleged infringer demanding payment of a licensing fee for the allegedly impermissible use of the patent trolls’ patented technology. In an overwhelming number of cases the patent trolls’ claims of infringement are extremely weak and may even be invalidated if brought to trial. However, the high cost of patent litigation often renders it more economical to pay the licensing fee or settle, further promulgating the patent trolls’ ability to collect funds on extremely weak claims. As stated by Apple, Inc. in an amicus curiae brief to the Supreme Court, the opening line of many negotiations with patent trolls is some form of “What we are asking for is less than it will cost you to litigate this case to judgment.”

The Supreme Court, in its Octane Fitness and Highmark decisions, recognized that the Brooks Furniture framework is unnecessarily rigid, and that it impermissibly encumbers the district courts’ discretion. In Octane Fitness, the Court held that the term “exceptional” should be given its ordinary meaning; thus, an “exceptional” case is “one that stands out from the others with respect to the substantive strength of the party’s litigating position or the unreasonable manner in which the case was litigated.” This definition permits the district court to look to the totality of the circumstances in determining whether the case is one that would be described as “exceptional.” In so doing, the Court rejected the requirement that patent litigants establish their entitlement to fees by “clear and convincing evidence” and instead adopted a more relaxed standard. Further, in Highmark, the Supreme Court noted that because attorney’s fees were within the district court’s discretion, the Federal Circuit Court can only review that award for an “abuse of discretion.”

These opinions will likely have several positive effects against the more nefarious behaviors of patent trolls. Under this relaxed standard for attorney’s fees, the district courts will now have a greater ability to impose costs upon parties whom they believe have brought unreasonable claims. With that flexibility reinstated, an increase in attorney’s fees awards for patent litigation may be anticipated. Further, the Highmark decision has greatly hindered the Federal Circuit Court’s role in the determination to award attorney’s fees. Because the Federal Circuit Court can only review the decisions to determine whether they are an abuse of the district court’s discretion, the Federal Circuit Court can no longer reverse awards of attorney’s fees on the basis that the case does not include “exceptional” circumstances. Therefore, if a party is granted attorney’s fees by the district court, there may be less danger that the award will be reversed on appeal.

The impact of these decisions is already starting to take shape. Wasting no time, the Supreme Court put these opinions into action with its recent decision in Kobe Properties v. Checkpoint Systems. The district court in Kobe Properties issued a $6.6 million award of attorney’s fees against the patent owner. Using the now defunct standard, the Federal Circuit Court reversed the district court’s award because it found that the patent owner’s lawsuit was not “objectively baseless.” Under the decisions of Octane Fitness and Highmark, the award has now been reinstated and the case remanded back to the Federal Circuit Court for reconsideration in light of these decisions. However, the Federal Circuit Court’s hands may now be tied as it will have to consider the award under the “abuse of discretion” model, and not on the merits.


CMS Proposes Prior Authorization Requirements for Certain DMEPOS Items

Posted in Health Law


By Deborah J. Juneau

CMS issued a proposed rule on May 28, 2014 designed to reduce the rate of medically unnecessary DMEPOS items supplied to beneficiaries. According to CMS, reports issued by GAO and HHS OIG, including Comprehensive Error Rate Testing (CERT) reports, show that DMEPOS claims had a 66% improper payment rate, accounting for approximately 20% of the overall Medicare FFS improper payment rate, although Medicare FFS DMEPOS expenditures represents only 3% of all Medicare FFS expenditures.

In response to these reports, CMS proposes to establish a prior authorization requirement for certain DMEPOS items that meet the three criteria set forth in the proposed rule. CMS proposes to define “unnecessary utilization” as the furnishing of items that do not comply with one or more of Medicare’s coverage, coding, and payment rules, as applicable. To identify those items that would require a prior authorization, CMS has proposed a “Master List” of DMEPOS items that meet the following criteria: 1) the item has been identified in a GAO or HHS OIG report that is national in scope and published in 2007 or later as having a high rate of fraud or unnecessary utilization; 2) the item is listed in the 2011 or later Comprehensive Error Rate Testing (CERT) program’s Annual Medicare FFS Improper Payment Rate Report DME Service Specific Overpayment Rate Appendix; and 3) the item meets a payment threshold amount of an average purchase fee of $1,000 or greater or an average rental fee schedule of $100 or greater. Items included on the Master List would remain on the list for ten years, subject to certain criteria for early removal. The Master List would be self-updated annually, to include any items in future OIG or GAO reports that meet the criteria. CMS proposes to make prior authorization for some of the items a national requirement, if claims data analysis shows that unnecessary utilization of the item is widespread and occurs across multiple geographical areas. On the other hand, if claims data shows the unnecessary utilization is localized to a specific geographic region, the prior authorization requirement may be limited to that geographic region.

The proposed rule includes the initial Master List of items that would require prior authorization. However, the list includes Power Mobility Devices that are already subject to a prior authorization requirement, and that would not change. The proposed initial Master List also includes such as items as respiratory assist and CPAP devices, semi-electric hospital bed with mattress, certain pressure mattresses for the beds, negative therapy wound pressure equipment, lightweight wheel chairs, and certain orthotics equipment.

According to CMS, the proposed prior authorization requirement would not create new clinical documentation requirements. It would simply require the same clinical information earlier in the process. Prior to furnishing the item and prior to submitting a claim for the item, the prior authorization requestor would submit evidence that the item complies with all coverage, coding and payment rules. After receipt of all required documentation, CMS or its contractors would conduct a medical review and notify the requestor whether the request for prior authorization was affirmed or non-affirmed. CMS proposes that it or its contractors would make reasonable efforts to communicate this decision within ten (10) days of receipt of all applicable information. A requestor could submit a request for expedited prior authorization by also submitting documentation to show that the standard time frame for a decision would jeopardize the life or health of the beneficiary. In that case, CMS proposes that it or its contractors would make reasonable efforts to communicate the decision within two (2) days of receipt of all applicable information.

The affirmation of a request for prior authorization is provisional. Claims receiving a provisional affirmation may still be denied based on technical requirements that cannot be evaluated until after the claim has been submitted, such as submission of a duplicate claim. A prior authorization request that is not affirmed is not an initial determination on a claim for payment for items furnished and would not be appealable. A request for prior authorization may be submitted multiple times. CMS and its contractors would use reasonable efforts to communicate the decision on a re-submitted request within twenty (20) days of receiving all applicable information.

CMS proposes to automatically deny payment for a claim for an item on the Required Prior Authorization list that is submitted without a prior authorization decision. A requestor who submits a claim for a non-affirmed prior authorization request, or for which no prior authorization request was submitted, is afforded appeal rights on the denial of the claim.

After promulgation of a final rule governing the prior authorization requirement, CMS or its contractor will presume the supplier knows Medicare would automatically deny the claim for which the supplier failed to request a prior authorization but would presume the beneficiary does not know and cannot reasonably be expected to know that Medicare will deny or did deny payment. In that case, the supplier bears the financial responsibility for the denied claim and is obligated to refund any money paid by the beneficiary. When the beneficiary insists on getting the item without affirmation of the prior authorization decision, while the decision is pending, or where the prior authorization request was non-affirmed, the supplier must issue an Advanced Beneficiary Notice of Noncoverage (ABN) to the beneficiary, and the beneficiary must agree to pay for the item and sign the ABN, in order to shift the financial responsibility for the item to the beneficiary.