October 8, 2008 9:36 AM

The Am Law Litigation Daily: Oct. 8, 2008

Posted by Joe Phalon

Edited by Andrew Longstreth

WHITE-COLLAR
Beware the E-Mail Trail: Former UBS General Counsel Pays $6.5 Million to Settle Insider Trading Allegations
It wasn't just the market that took another blow to the gut yesterday. So did the reputation of David Aufhauser, the former UBS general counsel for the Americas, who agreed to pay $6.5 million to end an insider-trading investigation of his sale of personal holdings in the auction-rate securities market. In the deal announced yesterday by New York Attorney General Andrew Cuomo, Aufhauser also agreed to some stiff penalties. For two years, he will not practice law in New York, will not serve as a director or officer of any public company, and will not participate in the securities industry.

"While thousands of UBS customers were kept in the dark as the auction rate market began to collapse, David Aufhauser, one of the company's top executives, acquired insider information and quietly dumped his personal holdings of auction rate securities," said Cuomo in a statement.

Aufhauser's attorney, F. Joseph Warin of Gibson, Dunn & Crutcher, referred us to a statement by a spokesperson for Aufhauser, who tried to put a positive spin on the settlement. "We are pleased to have reached this amicable agreement and avoided a potentially lengthy litigation," the spokesperson said. "Today's settlement will allow [Aufhauser] to close the door on what was an unfortunate incident and move on with his life."

As part of the deal, Aufhauser and Warin signed a consent decree that lays out the case against the onetime UBS GC. Not surprisingly, bad e-mails are involved. According to the document, Aufhauser was on an Amtrak Acela train from New York to Washington, D.C., last December, when he read an e-mail from one of his colleagues that said UBS's auction-rate securities market was falling apart. Just minutes later, Aufhauser e-mailed his broker and instructed him to sell off his holdings. "I want to get out of ars [auction rate securities]," he wrote. "Let's talk on Monday."

When Monday came, according to the consent decree, Aufhauser once again told his broker that he wanted out of the auction-rate securities market. Later that night, at a party at the New York Museum of Natural History, Aufhauser mentioned to UBS's deputy CEO that he had sold his auction-rate holdings. But his colleague thought, given Aufhauser's position as a high-ranking UBS lawyer, that the statement was "a joke." The deputy CEO later testified that after he pressed Aufhauser, Aufhauser backed off the statement. More than a month later, after Aufhauser learned that other executives had also sold off their auction-rate securities in anticipation of the market's collapse, he instructed his broker to buy back the same securities he had sold in December.

PRO BONO
Bingham, Kramer At Last Win Release of Chinese Muslims Held at Gitmo
We knew the government was on shaky ground going into yesterday's hearing on the status of 17 Chinese Muslims who had been held at Guantánamo Bay: Last week, prosecutors conceded that those prisoners were no longer considered enemy combatants. But the government claimed no other country would accept the prisoners, who are ethnic Uighurs, and insisted the men could not be released in this country.

Yesterday, Washington, D.C., federal district court judge Ricardo Urbina ordered the men released, ruling that their imprisonment was unconstitutional. "I think the moment has arrived for the court to shine the light of constitutionality on the reasons for their detention," the judge said, according to The New York Times's account of the hearing.

Credit for the Uighurs' release goes to attorneys at Bingham McCutchen and Kramer Levin Naftalis & Frankel, who have been representing the men for years in what has become an inspiring example of pro bono dedication. As David Bario explained in an excellent feature in the July issue of the American Lawyer, the Uighurs' case has been a long, tough road, with stops not only in Guantánamo Bay but also in Albania. (Yep--Albania. Read Bario's piece to find out why.) Bingham partner P. Sabin Willett continued to champion the Uighurs' cause even after yesterday's ruling. "In the history of our republic," Willett told the Am Law Daily's Daphne Eviatar, "the military never imprisoned any men so harshly and for so long, let alone men who are not the enemy."

Although the government has suggested it may appeal Judge Urbina's order, it appears the Uighurs are going to resettle in the U.S. According to the Am Law Daily, religious and community leaders in Tallahassee and the Washington, D.C., area have offered to help them with housing, counseling, and employment.

IP
Kilpatrick Scores Cox Patent Defense Win
Maybe Verizon should have stuck with Winston & Strawn and McGuireWoods. Last fall, the two firms represented the telecom in a patent infringement trial against Vonage in federal district court in the Eastern District of Virginia. After a jury found that Vonage had infringed Verizon's patents, Vonage agreed to a $117.5 million settlement.

In January, Verizon returned to Alexandria with a new patent infringement defendant--Cox Communications--and new lawyers, Mark Hansen and Michael Kellogg of Kellogg, Huber, Hansen, Todd, Evans & Figel. (Winston & Strawn served as local counsel.) But this time when the case went to trial the results were quite different: On Monday, the jury ruled not only that Cox hadn't infringed Verizon's six patents--but also that two of the Verizon patents were invalid. Verizon said it has not decided whether to appeal, according to The Wall Street Journal. (We called Kellogg, Huber for comment, and they referred us to the Verizon statement.)

Cox's trial counsel, William Boice of Kilpatrick Stockton, said Verizon was seeking $404 million in damages from his client, which meant settlement was never a real option. "It's the same reason cases always don't settle, and it's that the other side is seeking too much," Boice said. "But on these particular patents, Cox didn't believe it had infringed them, believed that they covered technology that was different than what Cox was doing, and was not willing to pay the money that Verizon wanted to settle the case."

The Eastern District of Virginia lived up to its "rocket docket" rep, moving the Verizon case from filing to trial in nine months. But unlike other patent litigation venues touted for their speed--notably the Eastern District of Texas or the Western District of Wisconsin--Virginia isn't known for juries that favor patent holders, according to New Orleans-based jury consultant Douglas Green. "Nobody's going to Eastern Virginia," he said. No doubt Cox is glad that Verizon did.

--Nate Raymond

IP
Hollywood Studios Win Extended Ban on RealNetworks DVD Software
For the time being, RealNetworks' controversial new DVD copying software won't see the light of day. At a hearing yesterday, San Francisco federal district court judge Marilyn Patel extended the Friday deadline on a temporary restraining order Hollywood studios had sought against RealNetworks' RealDVD.

At issue is whether the software, which allows computer users to copy DVDs onto their computers, breaks copyright laws, violates the Digital Millennium Act, or breaches a license agreement RealNetworks signed with the DVD Copy Control Association. Judge Patel said she was reserving judgment, but said that extending the ban on the software would impose the least harm. "It's impossible to bring back that which was copied," said Patel, according to The Recorder.

The studios, represented by Bart Williams of Munger, Tolles & Olson, sued RealNetworks last week for violating the DMCA. On the same day last week, RealNetworks, represented by James DiBoise of Wilson Sonsini Goodrich & Rosati, sought a declaration that its software in compliance with its agreement with the DVD Copy Control Association.

PRODUCT LIABILITY
Sidley, Pepper Hamilton on $62 Million Eli Lilly Settlement
It's a good thing the antipsychotic drug Zyprexa rakes in sales of nearly $5 billion every year for Eli Lilly & Co., because the pharma giant continues to pay huge fines to settle Zyprexa suits. That has meant a boatload of work for Sidley Austin and Pepper Hamilton, the firms Lilly has used for most of its Zyprexa litigation.

On Tuesday, Lilly forked over $62 million to 32 states that claimed it improperly marketed the drug to patients with dementia, minor bipolar disorder, and other ailments that the anti-hallucination drug shouldn't have been used to treat. It is the largest settlement ever in a state consumer protection case, The New York Times reported. Lilly admitted no violations of state laws, and Zyprexa will remain on the market.

This deal comes after the company agreed to pay Alaska $15 million to cover the state's Medicaid payments to patients who developed side effects, including weight gain and diabetes, after taking the drug. Lilly has also paid at least $1 billion to settle thousands of individual suits brought by patients who suffered those side effects, and it still faces off-label marketing suits in 11 states that declined to participate in today's settlement, The Indianapolis Star reports.

Even worse news is likely ahead for Lilly on the Zyprexa front, according to The New York Times. The multi-state settlement could signal that Lilly is ready to pay at least $1 billion to end a federal investigation of its off-label marketing of Zyprexa, the Times says. Lilly may even face criminal charges for the fraudulent marketing. Meanwhile, the Indy Star says patients in the U.S. and abroad could get as much as $7.7 billion in another Zyprexa side effects action.

Paul Kalb, head of Sidley's health care group, is leading the Sidley team on several of these cases, according to published reports and a spokeswoman for Pepper Hamilton. Kalb did not return messages seeking comment. Partners Nina Gussack and Barry Boise led the Pepper team on Tuesday's settlement.

--Zach Lowe

APPELLATE
Michael Tigar Defeats Sam Seymour in Mock Supreme Court Argument
The Office of the Appellate Defender in New York doesn't just hand out its annual award for Outstanding Oral Advocacy every year. It makes recipients work for it. They have to show their stuff by arguing a Supreme Court case, with their colleagues in the bar serving as justices. (We understand that putting on a robe and grilling a lawyer is very therapeutic for some attorneys.)

For the uninitiated, the OAD is a nonprofit law firm--staffed with attorneys from prestigious law schools--that takes on appeals for indigent defendants. It gets funding from public grants and private donations.

On Monday night, The Litigation Daily headed up to New York University Law School to see Sullivan & Cromwell's Samuel Seymour and Duke law school professor Michael Tigar receive this year's award. We rubbed elbows with an impressive crowd that included some past recipients of the OAD prize whose names you may recognize: David Boies of Boies, Schiller & Flexner; Evan Chesler of Cravath, Swaine & Moore; Bernard Nussbaum of Wachtell, Lipton, Rosen & Katz; Theodore Wells, Jr. of Paul, Weiss, Rifkind, Wharton & Garrison; Mary Jo White of Debevoise & Plimpton; and Floyd Abrams of Cahill Gordon & Reindel. The event's host joked that if someone were to add up the billable hourly rates of the lawyers in attendance, there would be enough to bail out the economy.

Before they received their hardware, Seymour and Tigar argued Van De Kamp v. Goldstein, an actual Supreme Court case that the justices will hear in November. The issue at stake is the degree to which a district attorney's supervisors are immune from civil liability for overseeing the training, supervision, and policy-making that resulted in evidence being withheld in a criminal case. The real-life defendants, who led the Los Angeles District Attorney's office, were sued for their role in violating the rights of Thomas Goldstein, who was released after spending 24 years in prison for murder when it was discovered that his prosecutor withheld exculpatory evidence. At the district court level, the defendants argued that they were protected by prosecutorial immunity, but in denying their motions to dismiss, the district court found that the alleged behavior involved administrative duties, not prosecutorial work. The Ninth Circuit affirmed the ruling.

Naturally, Seymour, a former assistant U.S. attorney, argued for the prosecutors; Tigar, who has represented such defendants as Oklahoma City bomber Terry Nichols, represented the exonerated prisoner, Goldstein. Seymour had the slightly easier case to make, with Supreme Court precedent and Congressional history on his side. But Tigar, a smooth and folksy Supreme Court veteran, made an impassioned plea to the justices to hold prosecutors liable. He cited impressive stats on wrongful convictions overturned because of prosecutorial misconduct. "What we're talking about here is 'What's the proper function of a system of tort law?'" said Tigar. "Should we spend as much taxpayer money to vindicate our constitution as the executive branch spends tearing it down?"

Both attorneys got rave reviews from the justices, who included Frank Wohl of Lankler Siffert & Wohl and Ernst & Young general counsel Kathryn Oberly. At the conclusion of the argument, the justices voted 5-4 in favor of affirming the Ninth Circuit, handing Tigar the win. We'll keep any eye on the real case to see if it plays out the same way, though given the makeup of the Roberts Court, we have our doubts.

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