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The Supreme Court Gets Back to Business

Take a look at 4 cases on the Supreme Court's 2006-2007 docket that'll affect small business--no matter what the Court decides.

The U.S. Supreme Court is back to business this fall term as it decides several important cases impacting employment, punitive damages, patent and antitrust laws. Here's a preview of some key business cases the high court has agreed to hear and their potential impact on your business:

Reaching for Back Pay
If you get sued for pay discrimination, how far back can an employee reach? Ledbetter v. Goodyear Tire & Rubber Co. will determine just that. Specifically, it's about whether employees alleging disparate pay under Title VII can recover damages based on discrimination that occurred prior to the statute's 180-day limitations period.

Here's what happened: Former Goodyear manager Lilly Ledbetter claimed Goodyear paid her a lower salary than her male co-workers. At trial, she introduced evidence of discrimination spanning the entirety of her nineteen-year career and was awarded $300,000 in damages plus $60,000 in back pay. On appeal, however, the decision was reversed. The appellate court held that employees may reach back no further than their most recent salary review to prove discrimination, and their claims should be limited to acts of discrimination that take place within a 180-day time period prior to filing the claim.

If the Supreme Court affirms the 180-day limitation, you'll be protected from the burden of defending claims arising from decisions long past. Employees won't be able to call old pay decisions into question, and pay claims will become more focused--and easier--to defeat.

However, if the Supreme Court decides that older pay decisions are subject to scrutiny, employees will have a larger arsenal at their disposal to prove that their current pay is discriminatory. To protect yourself against a possible onslaught of claims, you may want to decide whether to review each employee's complete pay history to correct any possible past discrimination. While this could be a costly and time-consuming task, it may protect you down the road.

Determining Damages
In Philip Morris USA v. Williams, the Supreme Court will clarify the constitutional limits on punitive damage awards. Basically, they're looking at two aspects of the case: whether a $79.5 million punitive damages award against Philip Morris was unconstitutionally excessive in light of a compensatory damage award of only $820,000, and whether punitive damages may be awarded to punish a company for damages to others who weren't parties to the lawsuit.

This'll be the Court's first ruling on punitive damages since 2003, when it held that punitive damages should be reasonable and proportionate to the actual damage incurred. And while it didn't set a specific formula for determining punitive damage awards, the Court hinted that any awards exceeding a 9-to-1 ratio would likely be considered excessive.

If the Court upholds the award, it could impose crippling, unpredictable financial costs on businesses nationwide. And these costs could drive companies--especially smaller ones--out of business. Additionally, the size of punitive damage awards would generally increase. Individual cases could, in essence, turn into class action suits, and juries would be permitted to consider damages suffered by people not parties to the particular lawsuit in calculating their award.

The increased risk of getting hit with a very large punitive damages award may force you to settle cases, even ones you believe are meritless, out of court. And if you do believe the case has legs, you may end up settling for far more money than it's actually worth. Or you may want to take the "better safe than sorry" route and spend more in areas such as legal compliance and product safety.

There is a brighter side: A decision reversing or reducing the punitive damages award against Philip Morris would shield your company from runaway juries. And if you're involved in actual or potential litigation, you'll enjoy greater predictability in determining your liability.

Protecting Patents
In a time of exploding patent applications, the decision made in the case of KSR International Co. v. Teleflex Inc. will determine under what circumstances a new patent can be granted based on combining pre-existing products. Teleflex, which owns a patent for a specific gas pedal design, sued KSR for patent infringement. In response, KSR claimed that Teleflex's patent was invalid due to its "obviousness," contending anyone could have come up with the idea.

A decision in favor of KSR would change the way patents are evaluated, which could affect the status of a great many patents pending or already granted. If you have a product patent, it could be invalidated for lack of innovativeness, and any pending patent could require significant extensions of existing technology. As a result, it'll be harder to get patents and it may become more difficult to fund R&D. One upside to this ruling is that you won't need to spend as much time working with lawyers and patent agents to file defensive patent applications, and will have more time to focus on product development and research.

A decision in favor of Teleflex would preserve the status quo, and inventions that are add-ons to existing, patented products will remain protected. While the risk of inadvertent infringement will continue, you won't have to worry about your patent being invalidated, and you'll continue earning royalties on all your patented products.

Killing the Competition
Antitrust laws are around to protect smaller businesses, so you'd better hope they stay strong. In Weyerhaeuser v. Ross-Simmons Hardwood Lumber, the Supreme Court will decide whether certain business activities constitute "predatory overbidding." Ross-Simmons claimed Weyerhaeuser forced it out of business by paying higher prices for logs and purchasing more logs than it needed, thus cornering the market. The jury agreed, and Ross-Simmons was awarded $78 million in damages.

Weyerhaeuser maintains that its business model was simply more efficient than its rivals'. But the biggest fear for Weyerhaeuser and other business giants is that if the decision stands, it'll call all aggressive competitive behavior into question and could actually chill pro-consumer activity by making companies uncertain about whether they're being business savvy or breaking the law.

If the ruling's overturned, smaller companies who can't afford the artificially inflated prices of materials could be in danger of being squeezed out of business. But if the Supreme Court finds Weyerhaeuser did indeed engage in illegal conduct, you'll be protected from the corporate giants who use their purchasing power to keep prices higher than their competitors can afford.

Look for decisions on all these cases by June 2007.

Aron Rofer is an attorney with Bingham McCutchen in Costa Mesa, California. A graduate of the University of Southern California School of Law, Aron's practice focuses on business and complex commercial litigation.

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