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Supreme Court rules on employee's rights, patents and IRS

June 20, 2014 by NCC Staff


With eight prominent cases still to be published by the end of this month, the Supreme Court took Thursday to rule on federal employee’s First Amendment rights, challenges to IRS summonses and software patents for securities trading.

The Supreme Court
The Supreme Court

In Lane v. Franks, an Alabama Community College employee was hired to direct CITY, a program designed to help at-risk youths. Lane conducted an audit of the program’s resources and found that state representative Suzanne Schmitz was on the payroll. But Schmitz had never shown up to work at CITY. President of the community college Steve Franks warned Lane that terminating Representative Schmitz’s employment at CITY would have adverse effects on Lane. Lane went ahead and terminated Schmitz’s position. A lawsuit followed.

At or around that time, the FBI began investigating Schmitz for suspected fraud in a different federally funded program. Lane was subpoenaed and testified against Schmitz at her criminal trial in 2008. After Lane gave his testimony in federal court, he and 29 other employees were “laid off” due to budget cuts at the college. Days later, Franks rescinded the layoffs of all the employees with Lane and one other employee being the only exceptions.

Lane claimed that Franks fired him in retaliation for testifying against Schmitz, violating Lane’s First Amendment rights, but Franks argued that qualified immunity protected him in his official capacity.

Qualified immunity protects federal and state actors from being held liable for violating a public employee’s constitutional rights.

In a unanimous decision, the Court ruled that Lane’s speech was protected under the First Amendment. However, the Court also held that Franks was entitled to qualified immunity because the First Amendment question was not “beyond debate” when Lane was fired. The decision provided a certain degree of protection for public employees facing adverse actions as a result of their sworn statements and also reiterated the Court’s position on qualified immunity.

In U.S. v. Clarke, the Court was asked to determine how much evidence was needed to enforce an IRS summons.

During an investigation of Dynamo Holdings L.P. (DHLP), the IRS made DHLP aware of discrepancies in DHLP’s tax return information and issued summonses to members of DHLP to inquire about the discrepancies. None of the DHLP employees, to include CFO Michael Clarke, responded to the summonses. Instead, DHLP sought readjustment. Additionally, DHLP wanted an opportunity to have an evidentiary hearing before enforcement of the summons.

Justice Elena Kagan delivered the Court’s unanimous decision, ruling that taxpayers may not examine the IRS without “specific facts or circumstances plausibly raising an inference of bad faith.” DHLP’s argument that the government summonses were unfair was defeated because summonses, as the Court restated, are not meant “to adjudicate, but only to inquire.”

Determining what constitutes an “abstract idea” was central to the Court’s decision in Alice Corporation Pty. Ltd. v. CLS Bank Int'l.

The Australian-based company Alice Corporation owned a number of patents for computer software that manages online securities trading. However, other companies, such as CLS Bank International, had similar software to manage their transactions as well, but those companies did not have patents.

The Supreme Court granted certiorari after a battle in the lower courts to determine whether companies can file security trading software patents pursuant to federal statute. In the past, the Supreme Court has stated that “laws of nature, physical phenomena, and abstract ideas” are not patentable.

The Court held that, Alice’s claims were drawn from “the abstract idea of intermediated settlement . . . and that merely requiring generic computer implementation fail[ed] to transform that abstract idea into a patent-eligible invention.” Simply stated, implementing an abstract idea with conventional computing does not meet the threshold for patent-eligibility.

Each of Thursday’s decisions was unanimous, perhaps in anticipation of what will likely be a deeply divided Court next week.

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