The Informative E-Newsletter for the International Practice Section of the Washington State Bar Association Autumn 2007 Volume 2, Number 4

In this issue: Welcome from the Incoming Section Chair …………………………………………PAGE 1 Global Trading of IPR ~ Maggy Baily …………………………………………PAGE 2 Key Points in International Patent Licensing ~ Benjamin A. Keim …………………………………………PAGE 4 Marriage, Civil Union, and Domestic Partnerships: Same-Sex Marriage in the U.S. and Around the World ~ Tracy Wood ………………………………………..…PAGE 7 Class Actions Roll Across Europe, Part I of II ~ Robert Gaudet, Jr. ………………………………………..…PAGE 9 Upcoming Events, Employment Opportunities, Gavel Contacts, and Disclaimer ………………………………………..…PAGE 16

Welcome From the Incoming Section Chair ~ Robert Richardson~ Dear Colleagues, As incoming Chair of the International Practice Section for 2007-2008, it is with great pleasure that I welcome you to the Autumn 2007 edition of our online newsletter, The Global Gavel. The International Practice Section is unique in its mandate to move beyond the substantive areas of hard law that engage us each day, and to include the broader issues that connect us as international legal practitioners through our careers. Our mandate covers many important and expansive issues such as reciprocity and foreign licensure, attorney regulation, workforce mobility, judicial independence and ethics in international practice. We take pride in this expansive view, an important one in a world rapidly shrinking where we are called upon to lead and educate. These days we do not need to seek out international issues in our practices. The world arrives at our doors. Our Section's vigorous CLE program, several annual receptions for visiting academics and lawyers, and close working relationships with foreign bar associations and the many specialized bar associations within the state

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offer Section members a rich and varied professional and personal life. In this spirit, our Autumn 2007 edition of The Gavel brings to you broad perspectives on the global trading of Intellectual Property Rights, International Patent Licensing, a comparison of same-sex marriage laws worldwide, and class-action trends in Europe. It is my sincere hope that you enjoy this latest edition of The Global Gavel. I invite you to bookmark the location of our blog at www.globalgavelnews.org and to visit us there regularly. We welcome new articles, Section or event sponsors, letters to The Global Gavel and employment opportunity postings. Please email Jacqueline Pruner, executive committee member and editor-in-chief of The Global Gavel, at the following email address: [email protected]. Yours Sincerely, Robert Richardson, Esq.

Global Trading of IPR ~ Maggy Bailly ~

The issues in global trading of Intellectual Property Rights (IPR) and the tactics to mitigate their challenge are best summarized as follows: “The confrontation with different national legal rules is the most daunting aspect of international licensing law. Only humility can save you.”1 Territory: Worldwide Tucked away in the definition clause, the spatial scope of an agreement granting rights in intellectual property, the “Territory” is often recklessly defined by just one word and an ambitious one: 1

Dr. Johan Erauw, Negotiating and Drafting Patent Licensing Contracts Under the Trips Agreement: The Business Dimension, JURIST INTERNATIONAL, Jan. 2, 2001, http://www.jurisint.org/doc/orig/con/en/2001/20 01jiconen49/2001jiconen49.pdf.

“worldwide.” A patent owner has the right to exclude others from using the patented claims or from making, having made, selling, or importing any goods or services using the patent claims, but only in the country that granted the patent.2 The license agreement’s definition of “licensed patent” may stipulate “and any foreign counterpart” to the U.S. patent, but it may be too late in the life of the invention to create such a foreign counterpart. A “definition” does not solve issues that cannot be determined by the will of the parties, and the very existence of the traded intellectual property depends on different national legal rules. Licensing a U.S. patent and its foreign counterparts “worldwide” when the U.S. application was filed after public disclosure works only in countries where absolute novelty is not a bar and when the one year grace period from the U.S. application has not yet expired. A worldwide license grant of U.S. trademark also encounters problems because trademarks too are only valid according to the laws of the country where they originated. Several international treaties allow a grace period from registration in another country. Unlike the grace period in patent treaties, the expiration of the grace period for a foreign trademark registration is not a ban from obtaining a trademark in the 2

The Supreme Court clearly decided against extraterritoriality of US patent law: “Foreign conduct is generally the domain of foreign law, and in the patent area, that law may embody different policy judgments about the relative rights of inventors, competitors, and the public. […] Foreign law alone, not United States law, currently governs the manufacture and sale of components of patented inventions in foreign countries.” The Court also said that software should be treated like exported blueprints and schematics, to which U.S. patent law does not apply. See Microsoft Corp. v. AT&T Corp. 414F. 3d 1366, reversed.

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foreign country, but merely represents a loss of the earlier priority date. If no one registered a U.S. mark in the foreign country during the now-expired grace period, the mark is still available for registration in the foreign country, with some notable exception for famous marks. A worldwide license of copyrights or trade secrets is less problematic than worldwide licensing of patents or trademarks. Copyrights treaties, which allow protection worldwide by granting “national treatment” of foreign copyrights and trade secret protection required by international treaties, are consistent with U.S. trade secret law. However some differences must still be addressed, such as the author’s inalienable moral rights that exist in most non-U.S. legal systems for even non-artistic works. One should also be prudent about noncompete clauses aimed at protecting trade secrets, as these clauses will be governed by the national labor laws where the party restricted by them resides. Choice of Law, Conflict of Laws When a contract term is imposed or forbidden by one legal system to the extent that the parties cannot “contract out,” the requirement or prohibition by writing a different term in their agreement (laws of public policy), the parties cannot accomplish the contracting out indirectly by choosing a foreign applicable law that avoids the requirement or allows the prohibition contrary to the legal system’s whose public interest is at stake. Antitrust laws of the country where the license may have anticompetitive results will determine the validity of the anticompetitive term. Some of the terms that may be affected are: hybrid agreements where licensing two different types of IPR such as patent and trademark may be considered illegal tying; improvement clauses may be abusive if the grant to the licensor is overreaching (exclusive, perpetual, royalty free); cross licensing may be an illegal pooling of patents if the parties dominate the market; forbidding licensee’s contest of validity of patent may be illegal, including an ipso facto termination of the license in case of contest; and, as seen earlier, an exclusive

territory grant in the European Union may be perceived as contrary to the EU goal of free circulation of goods, services, and people. The EU Council Regulation No 1346/2000 on Insolvency Proceedings, May 31, 2000, determines where the proceedings will be held and which law will apply. It is the debtor’s Center of Interests for principal proceedings and the debtor’s establishment for local assets. The applicable law is the place of the insolvency proceedings (Art.4), except for IPR for which the applicable law is the place of the IPR registration. For example, an ipso facto termination clause in a license of IPR is valid in Belgian law, but not in French law. In the field of formalities, some foreign countries—Brazil, for example—have requirements such as witnesses and/or legalization of signature by notaries and/or filing of the license with a governmental authority or an institution (PTO, National Bank). Some agreements may require notification for antitrust clearance (it is no longer required to notify licenses to the EU Commission). In some countries, know-how may be licensed only for a very short period. For example, in Brazil, the know-how license is limited to 5 years, renewable for 5 more years only if the technology is not obsolete. Moreover, the licensor may not charge a separate fee for the know-how if it is related to a licensed patent. Tax laws are also impervious to a choice of law clause. The tax rules applying to royalty payments by a foreign licensee, such as tax withdrawal at the source, will be those where the payment originates. If foreign tax will be withheld, the license should require that the foreign licensee provide a certificate from the foreign tax authority in order for the U.S. licensor to obtain foreign tax credit from the IRS. The rules of public advertising in some countries do not reward the pharmaceutical companies’ “value transfer” from patent to trademark, a tactic practiced in the U.S. to prolong the public’s attraction to a drug over

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its generic counterpart once the patent expires: “Ask your Doctor about it” advertising campaigns would be prohibited in EU countries, for example, because it relates to drugs for which one needs a prescription. Therefore, the value of a pharmaceutical trademark license may differ greatly depending on the country of the targeted consumer for the licensed product. A field for the Experts “To maximize their opportunities to build value in their intellectual property portfolio and to engage in successful international licensing transactions, licensors must recognize their need to engage legal counsel and tax and accounting professionals having special knowledge and expertise, including legal counsel familiar with the intellectual property and other laws in the subject country; counsel with international law experience; and specialists in issues of foreign and international taxation.”3 Preaching to the choir in this publication, I know that my colleagues from the WSBA International Practice Section only wish that potential licensors would heed the above statement. We can only hope that as globalization grows, so will the awareness of the need for our global expertise. Maggy Bailly is principal attorney of the Bailly Law Firm in Seattle. She specializes in international business transactions and intellectual property commercialization strategy. She has taught Strategic Technology Transfer at the University of Washington School of Law since 2001.

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See Loza et al., Financial Considerations in International Intellectual Property Licensing Transactions, LES NOUVELLES, Vol. XLI, No. 2, June 2006, at 120.

Key Points in International Patent Licensing ~ Benjamin A. Keim ~

An international patent license can provide the licensor a vehicle to enter the marketplace in another country without a large capital investment. It also enables the licensor to use the development and marketing expertise of a local partner. In return, the licensee gains access to technology that would otherwise be unavailable and benefits from the research and experience of the licensor. Lawyers representing U.S. patentees should point out significant differences between U.S. law and that of other countries. The first-to-file priority system found abroad can disadvantage applicants who delay in filing. The shorter or non-existent grace periods for prior use or enabling disclosures can bar patentability abroad for technology that is patentable in the U.S. Often a patent license is but one part of a larger agreement. The parties may transfer trademark rights, know-how, and technical services. Separating the rights into multiple licenses is beneficial because rights and obligations under trademark or patent licenses can be relatively clear compared to less sharply defined technical services agreements. Another reasons is that in many countries, withholding tax is lower for services agreements than for royalties. Since patents are for a limited term of years, having separate agreements for trademark licenses and provision of know-how or services prevents future disagreements about the appropriate royalty payment after the patent expires. Absent an express limitation on the right to sell or resell in other countries, the patent rights are “exhausted” upon first sale and the patent owner cannot prevent the licensee from exporting and creating gray markets. To avoid patent exhaustion, the licensor should execute exclusive sales licenses for each country or territory. Notice of the restriction should be explicit in the licensee agreement. The products should also be marked with a notice such as “This product

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is licensed for use and resale only in the following countries: [list of countries].” Prospective licensees should consider the inherent worth of the patent and know-how as well as the licensor’s ability to update the technology and provide technical service. Royalty rates are also very important. Not only the percentage, but also the method of calculation and acceptable forms of payment should be considered. The royalty can be a lump sum, a percentage of sales or profits, some combination, or any other arrangement devised by the parties. International licenses can lead to unique issues associated with money. For some organizations, sending money overseas may be viewed as less attractive than a license with a domestic company. Some countries require governmental approval for setting license or royalty fees. If sales are made in one currency and payments to the licensor are requested in another currency, currency risk also affects the licensors’ net revenue. A licensor can keep a licensee and minimize competition from ex-licensees by continuing to research and innovate in the area of the licensed patent. Providing a continuous flow of improved know-how and stressing the importance of know-how for extracting full value from the patent encourages the licensee to renew. However, if a licensor includes a commitment in the license to continue research or development, then the licensee can attempt to cancel the contract if the licensor ceases such research or development. Because international licenses often involve parties which are far apart in terms of geography, language, and legal customs, the personal relationships and communication are more important than in domestic licenses. Lack of support from a licensor can make it difficult to effectively practice a patented technology, while lack of commitment from a licensee can lead to lower sales and royalties. The best way to ensure a licensing relationship will not break down is a sound business plan that is fair and profitable for all parties.

Unless a specific agreement is made to the contrary, the amounts paid to the licensor will be the license fees after deduction of taxes required to be withheld or paid directly under the tax laws of the licensee’s country. Many countries require a licensor/payor to withhold the tax payment from royalties transferred to the licensor. To make sure the royalty bargained for is the royalty received, a licensor may ask for the payments to be free and clear of any deductions for taxes. This is called a “grossup” provision. Negotiating for a gross payment may not be the best strategy for a licensor if it could secure a sufficiently higher royalty rate by authorizing the licensee to deduct foreign taxes rather than shifting this burden. A licensee may become a powerful competitor in the world market. The licensee can take know-how into countries where the licensor does not have a patent and compete against the licensor. An even less scrupulous licensee may go into countries where the licensor has patents, but lacks the ability effectively police against infringers. One way to prevent this is for the licensor to continually innovate and improve upon the licensed invention. The licensor can also gain a stronger position in the relationship by providing tangible machinery or equipment for working the patent and maintaining control of the equipment. In many cases the licensor desires not just money, but also assurances about how the licensee will use the patent. If working of the patent leads to the production of goods, the licensor may require that the production meet certain standards and specifications. These requirements for meeting standards and maintaining quality control are very similar to terms found in trademark licenses. In a relationship that involves licensing both patents and trademarks, the right holder will want to consider drafting the quality control for trademarks to compliment similar provisions for patents. To assist with policing infringement of the patent, a licensor may ask the licensee to use its best efforts to discover any unauthorized use of patents covered by the license. Licensees are commonly required to

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promptly notify the licensor of any existing or threatened infringement. This obligation should be extended to also cover misappropriation where confidential information is part of a license agreement. When the parties to a license use different languages it is necessary to choose a language for negotiation and writing the license. English is the accepted language of international business and is often used even if neither party uses English for domestic business. If the patent at the heart of the license is not written in English, any discussion about the scope or applicability of the patent right done in English will be in a language different than the language of the claims themselves. This could be a significant issue if discussing the precise scope of the patent right is necessary for effective license negotiations. Licensors usually perform freedom-tooperate searches for the patent in their own country, but often are not certain about the patent landscape in foreign countries. This can lead to conflicts between a licensee who wants to avoid buying a lawsuit and a licensor who is reticent to make promises based on incomplete knowledge. Possible solutions are to share the cost of conducting a freedom-to-operate search, or condition the license agreement on receipt of a favorable freedom-to-operate search.

the location, and language of arbitration. Selection of an arbiter is of greater importance if patents are involved because of the specialized legal skills necessary to interpret patent law. One reason arbitration may be preferable to litigation is the relative ease of enforcing foreign arbitration awards as compared to foreign litigation awards. Many nations are signatories to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which requires courts to refuse to allow litigation if the dispute is the subject of an arbitration agreement and to enforce foreign arbitral awards. Licenses are personal contracts and usually have provisions that neither party may assign its rights to third parties. As many companies shift licensing activities to subsidiaries or assign patents to intellectual property holding companies, it is advisable to make allowances for possible future assignment of the license to a subsidiary. Companies are also acquired or merge with other companies. A favorable patent license agreement may make a company a stronger candidate for acquisition. To provide flexibility in these circumstances, many agreements also allow either party to assign the agreement to a successor to all of its assets. References

Disputes can arise frequently in international patent licenses. The license agreement should address dispute resolution at the outset. If litigation is the agreed-upon method of dispute resolution, the choice of law, forum, and submission to jurisdiction should be decided. By its international nature there will be many possible sources of law, so it is even more essential to spell out the choice of law in international license agreements than in purely domestic relationships. It makes the most sense to use the law of the country under which the patent right is granted. In international agreements of all kinds, arbitration is the most common form of dispute resolution. If the parties agree to arbitration, the license should make clear the rules of arbitration, the method for selection of arbitrators, the controlling law,

D. Patrick O’Reilley & Seiji Ohno, International Patent Exhaustion Licensing May Be a Remedy, in GOING INTERNATIONAL FUNDAMENTS OF INTERNATIONAL BUSINESS TRANSACTIONS AMERICAN LAW INSTITUTE-AMERICAN BAR ASSOCIATION CONTINUING LEGAL EDUCATION 395-429 (November 2000). HEATHER J. MEEKER, A PRIMER ON INTELLECTUAL PROPERTY LICENSING 87-91 (2d ed. 2004). KENNETH L. PORT ET AL., LICENSING INTELLECTUAL PROPERTY IN THE INFORMATION AGE 631-647 (2d ed. 2005). MATTHEW BENDER & COMPANY, INC., 1-5 PATENT LICENSING TRANSACTIONS (2006).

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William R. Woodward & Kazuko Matsuo, Drafting License Agreements in Japan and in the United States, in PATENT AND KNOW-HOW LICENSING IN JAPAN AND THE UNITED STATES 124 (Teruo Doi & Warren L. Shattuck eds., 1977). Benjamin Keim is a recent graduate of the University of Washington School of Law and also a former student liaison correspondent for The Global Gavel. He completed the intellectual property concentration track at the University of Washington. His technical field is biology. In addition, he is proficient in spoken and written Japanese.

Marriage, Civil Union, and Domestic Partnership: SameSex Marriage in the U.S. and Around the World ~ Tracy Wood ~

Same-sex partnerships, civil unions, and domestic partnerships: is it really that important for same-sex couples to have their relationships legally recognized? As I sat down to write this piece for the blog, I struggled with the question of whether to focus on the negative or positive, whether I should fixate on the continued deprivations and insults same-sex couples face on a daily basis or on the gains in marriage equality that have been made in the United States and around the world. Throughout time, discrimination against one group or another has been legalized, legitimated, rationalized, and codified. The debate over same-sex marriage in the United States and around the world has heated up over the last few years and has become a politically divisive issue. Reasons given for prohibiting same-sex marriage have included the need to (1) protect traditional heterosexual marriage, (2) discourage same-sex relationships, which are not only detrimental to the welfare of the individuals participating in them, but setting a bad example for impressionable young people who might be swayed to ‘turn gay’ by the legitimizing of these relationships, (3) further procreation, and (4) ensure the well-

being of children by encouraging families where children are reared in homes headed by the children’s biological parents. Several of these reasons were recently given to support the Washington State Supreme Court decision in Andersen v. King County4 upholding the constitutionality of the 1998 Washington Defense of Marriage Act (DOMA). It is difficult to accept such reasoning as logical, rational, or just. Fortunately for gays and lesbians, there are a few countries in the world where same-sex relationships are legally recognized, giving gays and lesbians the respect and deference due them as human beings. And in spite of federal resistance, several U.S. states have recognized the value of according same-sex couples the same legal status as that of traditional heterosexual married couples. Ultimately, the only acceptable answer is to accord gay and lesbian couples the same rights as married heterosexual couples. In addition to the societal acceptance that marriage would bestow on gay and lesbian relationships, there are many legal benefits to having their relationships formally recognized. Due to their lack of legal status, same-sex partners are currently denied hospital visitation rights, Social Security benefits, spousal health insurance, exemption from having to pay estate taxes, the right to the partner’s retirement savings, entitlement to family leave, immigration rights, the right to live together in nursing homes, and the right to pension benefits. The differences between being legally married and not being legally married are striking. Married couples have an automatic right to hospital visitation and may make medical decisions for the hospitalized spouse, while partners in a same-sex couple can be denied the right to visit a sick or injured loved one in the hospital. Married people receive Social Security payments upon the death of a spouse. But, despite contributing to payroll taxes, gay and lesbian workers receive no Social Security survivor benefits, which results in an average annual income loss of $5,528 upon the death of a partner. Many public and private employers provide medical coverage 4

Andersen v. King County, 158 Wash.2d 1,

138 P.3d 963 (2006)

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to the spouses of their employees, but most employers do not provide coverage to the life partners of gay and lesbian employees. Additionally, gay and lesbian employees who do receive health coverage for their partners must pay federal income taxes on the value of the insurance. A married person automatically inherits the property of his or her deceased spouse without having to pay estate taxes, while a gay or lesbian partner must pay estate taxes on property inherited from his or her deceased partner. And while a married person can roll a deceased spouse’s 401(k) funds into an IRA without paying taxes, a gay or lesbian partner who inherits a 401(k) may lose up to 70 percent of it in taxes and penalties. Married workers are legally entitled to unpaid leave from their jobs to care for an ill spouse, while gay and lesbian workers are not entitled to family leave to care for their partners. Additionally, U.S. immigration law does not permit American citizens to petition for their same-sex partners to immigrate, as may heterosexual partners. Married couples have a legal right to live together in nursing homes. But, because they are not legal spouses, elderly gay or lesbian couples are not accorded this same right. And after the death of a worker, most pension plans pay survivor benefits only to a legal spouse of the participant. Gay and lesbian partners are not considered legal spouses; thus, they are excluded from such pension benefits. For the countries which do legally recognize their relationships, there is no evidence that heterosexual populations have suffered any ill effects because of it. Eighteen years ago, Denmark became the first country in the world to enact legislation granting gay and lesbian couples the same legal rights as those bestowed on heterosexual married couples. Norway, Sweden, and Iceland enacted similar legislation in 1996, and Finland followed suit in 2002. In 2001, the Netherlands granted full civil marriage rights to same-sex couples. Belgium legalized gay marriage in 2003. In 2005, Canada and Spain legalized full marriage for gay couples. Germany, France, Luxembourg, Britain, New Zealand, and Argentina have all passed legislation granting same-sex couples similar rights to married couples. Further, in 2005, South

Africa's high court said it was unconstitutional to deny gay people the right to marry, and instructed the parliament to amend South Africa’s marriage laws to include same-sex unions within the year. In contrast, in the U.S., under the leadership of Bill Clinton, Congress passed the DOMA defining marriage as a legal union between one man and one woman for purposes of all federal laws, and providing that states need not recognize a marriage from another state if it is between persons of the same sex. Forty states now have their own Defense of Marriage Acts to preserve the sanctity of heterosexual unions. And here in Washington state, having just proudly upheld the DOMA to support the rule of law, Justice Madsen wrote that “although marriage has evolved, it has not included a history and tradition of same-sex marriage in this nation or in Washington State.” Yes, there is no history and tradition of legalized same-sex marriage, because it has been rendered illegal. Yet there exists a history and tradition of same-sex couples loving and supporting each other in the face of great adversity, financial loss, and social ostracism. And there are other places in the world willing to recognize those relationships and the inherent value of all human beings, regardless of their sexual orientation. Tracy Wood is our new student liaison correspondent. She is in her third year at the Seattle University Law School, where she focuses her studies on international law and serves as an article editor for the Seattle Journal for Social Justice. She spent last summer in Cambodia as a legal associate for the Documentation Center of Cambodia, where she developed and implemented a training program on concepts of international law and international police investigation standards for police investigators assigned to the Khmer Rouge Tribunals. Prior to law school, she worked as a Seattle Police Officer for eight years and is currently serving as a consultant to The Defender Association. Contact her at [email protected].

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Class Actions Roll Across Europe, Part I of II ~ Robert Gaudet, Jr. ~

The New World is re-shaping the Old World in its image, providing untapped opportunities for plaintiffs’ lawyers to partner with European colleagues on class actions. Sweden studied the U.S. model, started their own national dialogue, and eventually passed Europe’s first law permitting class actions. Sweden’s move toward allowing class actions won’t be the last. The Danish legislature just passed a similar proposal. As of January 2008, Norway will allow class actions to be filed in its national courts. These new procedural rules allow Europeans to aggregate claims against a single defendant. Because multinational corporations (MNCs) often make the same misrepresentations and antitrust violations in Europe as they do in the U.S., plaintiffs’ lawyers may bring similar complaints on both continents. In fact, Redmond-based Microsoft has already been prosecuted by public authorities in Europe for anti-trust violations, and private lawsuits may soon follow on the heels of an appeals decision that is expected in September. Therefore, American plaintiffs’ and defendants’ lawyers suing and representing MNCs in the U.S. will do well to note whether a defendant’s misconduct also occurred in Europe. Aware of the potential increase in liability, defense lawyers have carefully monitored these developments in Europe over the past two years.5 WSBA 5

See O’Melveny & Myers LLP, “European Commission Issues Green Paper on Facilitating Private Damages Actions, Including Possibly Class Actions, for Breach of EC Treaty Antitrust Rules,” (Jan. 4, 2006), available at http://www.omm.com (last viewed on Feb. 10, ’07); see also Holmes, Majorie; Davey, Lesley, “Competition enforcement in the European Union a three-way partnership: with Europe’s modernized competition regime highlighting the importance of both public and private enforcement, companies are self-assessing,” DEFENSE COUNSEL JOURNAL, no. 1, vol. 72, p. 31 (Jan. 1, 2005); Harbour, Laurel J. and

International Practice Section members with clients operating in Europe, such as Microsoft or Starbucks, should keep themselves similarly informed of new areas of potentially massive liability. Although collective actions filed by an organization or association – sometimes listed in advance on a state-held roster – are currently permitted by most E.U. Member States, this article focuses on suits filed by individuals on behalf of themselves and others. The same distinction was made at a European symposium held in Paris where the speaker said “class actions in a narrow sense, brought by an individual class member, have been non-existent in Europe so far” until introduced in Sweden.6 This two-part series gives a nutshell explanation of recent changes. This first article provides a brief overview of class action trends in Sweden (infra, at Section II) and Norway (infra at Section III). The second and final part in this series will summarize class action trends in Denmark and the remaining countries in Europe and provide concluding remarks. SWEDEN Sweden, the first country in Europe to allow class actions, allowed the suits to be filed as early as 2003 with its passage of the Group Proceedings Act in 2002.7 The Act permits Shelley, Marc E., “The Emerging European Class Action: Expanding Multi-Party Litigation to A Shrinking World,” 2006 ABA Annual Meeting, Section of Litigation (Aug. 3-6, 2006) (chock-full-of-errors paper authored by two lawyers at tobacco defense firm Shook, Hardy & Bacon LLP). 6 See Nordh, M., “Group Actions – The Swedish Experience,” presentation given at symposium, “Multi Party Actions: Similarities and Divergences of the American and European Experiences,” Cour de cassation, Paris, France, at 1 (June 2, 2005), available at www.courdecassation (last viewed on March 3, 2007) (on file with author) (“Nordh Symposium”). 7 Swedish Code of Statutes, SFS 2002: 599 (“Group Proceedings Act”); see also Nordh Symposium, at 1.

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an individual to bring a “group action” on behalf of others when group members have claims that are “common or of a similar nature.”8 The criteria for a Swedish class action closely track the American criteria.9 There is no class certification procedure, and a case may be filed as a class action from the start.10 In this respect, bringing a class action is easier in Sweden than in the United States. A lawsuit may be filed by “a person who is a member of the group” in search of compensation or for injunctive relief.11 8

Nordh Symposium, at 8-9 (attaching Group Proceedings Act §§ 1, 4, 8). 9 Compare Fed. R. Civ. P. 23(b)(3) (“questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and…a class action is superior to other available methods”) with Lindblom Paris, infra, at 9 (“The group action should be used only when it is practical, possible to manage and the best procedural alternative (superiority). If the actual claim does not meet these demands in practice it is not accepted as a group action”), 10 (“One such requirement is that the suit is based on one or more facts or questions of law that are common or similar to claims of the members of the group”); compare Fed. R. Civ. P. 23(a)(2) (“One or more members of a class may sue or be sued as representative parties on behalf of all only if…(2) there are questions of law or fact common to the class”) with Group Proceedings Act § 8 (“A group action may only be considered if 1. the action is founded on circumstances that are common or of a similar nature for the claims of the members of the group”); compare Fed. R. Civ. P. 23(a)(4) (“the representative parties will fairly and adequately protect the interests of the class”) with Group Proceedings Act § 8(5) (“the plaintiff, taking into consideration the plaintiff’s interest in the substantive matter, the plaintiff’s financial capacity to bring a group action and the circumstances generally, is appropriate to represent the members of the group”). 10 Lindblom Paris, at 10 (“there are no rules on any special leave or decision to commence proceedings (‘certification’)”). 11 Nordh Symposium, at 3; id. at 5-6 (“Claims for injunctions as well as damages can be brought to court as a group action”).

Unlike most U.S. class actions,12 a Swedish class action requires each class member to affirmatively opt in or else be excluded.13 The opt-in mechanism was a “compromise in Sweden” to “calm…fears” that Sweden would otherwise become home to vexatious litigation of the sort that Europeans perceive to take place in the U.S.14 If the suit survives dismissal, notice must be sent to potential class members with “the opportunity to inform the court that they wish to be members.”15 The court or the defendant pays the cost of notice,16 which is a more plaintiff-friendly practice than in the United States, where plaintiffs ordinarily pay for notice.17 Swedish class actions may only be settled 12

The vast majority of U.S. class actions seeking monetary damages are certified under Fed. R. Civ. P. 23(b)(3). The “opt in” procedure is used on rare occasions, such as when parties are statutorily required under the Fair Labor Standards Act to use the opt-in procedure. See 29 U.S.C. § 216(b) (“No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought”). 13 See Group Proceedings Act § 14 (attached to Nordh Symposium, at 9); Correspondence from Kenneth Nordback, at 3 (Sept. 22, 2006) (on file with author) (“Rather than follow the ‘opt-out’ model of most U.S. class actions which enables people to become automatic members of a class action unless they affirmatively ‘opt-out’ of the class, the Swedish ‘opt-in’ rule requires people to affirmatively ‘opt-in’ in order to belong to a ‘group action.’”) (“Nordback Correspondence”); Lindblom Paris, at 13 (“It is an opt in, not an opt out regime”) (emphasis in original). 14 Correspondence from Kenneth Nordback, at 3 (Sept. 22, 2006) (on file with author). 15 Nordh Symposium, at 4; id. at 9 (attaching Group Proceedings Act § 13 (detailing what notice must contain)). 16 Lindblom Paris, at 13. 17 Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178-179 (1974) (“Where, as here, the relationship between the parties is truly adversary, the plaintiff must pay for the cost of notice as part of the ordinary burden of financing his own suit”).

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upon “order of the court.”18 Only those who “opt in” to a Swedish class action will be “bound by a final decision of the court.”19

that Swedish plaintiffs may employ in crafting causes of action for a Swedish class action.

Swedes may file class actions to enforce European Union or Swedish national laws on a wide range of topics, including antitrust, consumer protection, securities fraud, and other causes of action.20 Class actions are “not restricted to certain areas of civil law.”21

Most interesting and encouraging for plaintiffs, is that Swedes have dropped the general rule that a loser must pay the defendant’s fees for class action litigation.23 This rule has been a major deterrent to plaintiffs throughout Europe.

Swedes may bring class actions over almost “[a]ny legal issue that can be litigated in the form of a traditional individual action.”22 There appears to be no limit to the creativity 18

Nordh Symposium, at 4; Lindblom Paris, at 14 (“settlement will be binding for members of the group only after notice and on order of the court”). 19 Commission of the European Communities, “Commission Staff Working Paper: Annex to the Green Paper: Damages actions for breach of the EC antitrust rules”, at 54, SEC(2005) 1732 (Dec. 19, 2005) (summarizing 2002 Swedish Group Proceedings Act) (on file with author) (“EC Working Paper”). 20 Nordh Symposium, at 3 (“Any legal issue that can be litigated in the form of a traditional individual action may be taken to court as a group action”); but see Waelbroeck, Denis; Slater, Donald; Even-Shoshan; Gil, STUDY ON THE CONDITIONS OF CLAIMS FOR DAMAGES IN CASE OF INFRINGEMENT OF EC COMPETITION RULES, “Executive summary and overview of the national report for Sweden” (Aug. 31, 2004) (report prepared by Ashurst for European Commission), available at http://ec.europa.eu/comm/competition/antitrust/o thers/actions_for_damages/executive_summaries /sweden_en.pdf (last viewed on Feb. 25, 2007) (“Class action is available in Sweden, but only undertakings and parties in a contractual relationship with the infringing party are entitled to compensation”). 21 Lindblom Paris, at 10; see also id. (“Any legal issue that can be litigated in the form of a traditional individual action may be taken to a general district court or an environmental court as a group action”); Id., at 9 (“the Act is not restricted to consumer law or environmental law only; it is applicable in all cases normally brought in the general courts of first instance”) (emphases in original). 22 Nordh Symposium, at 3.

By dropping the loser-pays rule from class actions, Swedes have paved the way for future class action filings. Ordinarily, in Sweden, the loser must pay the victor’s legal costs.24 By altering this rule for class actions, Swedes have stepped monumentally away from traditional European deterrents. The adoption of class actions in Sweden was slow in coming. It began in 1974 when “the Swedish Consumer Ombudsman, after returning home from the United States, wanted [Professor Per Hernik Lindblom’s] opinion of the federal Rule 23 class actions.”25 Prof. Per Henrik Lindblom26 of

23

See Commission of the European Communities, Commission Staff Working Paper: Annex to the Green Paper: Damages actions for breach of the EC antitrust rules, SEC(2005) 1732, at 54-55 (Dec. 19, 2005) (“Staff Working Paper”) (“The passive group members have as a general rule no obligation to pay any legal cost to a successful defendant. In relation to the representative claimant, the normal rule under Swedish procedural law applies that the loser has to pay the winning party’s cost”); see also Group Proceedings Act § 33 (“A member of the group who is not a party to the proceedings is only liable for the litigation costs regarding such cases as referred to in Sections 34 and 35 [not pertaining to the ordinary class action]”) (emphasis added) (attached to Nordh Symposium, at 12); but see Lindblom Paris, at 14 (“the representative of the group will take the risk of having to pay the opponent’s costs if the group loses the case”). The Act does not anywhere state that absent class members are liable to pay costs to a defendant. 24 Staff Working Paper, at 55. 25 Lecture by Per Henrik Lindblom, “The Swedish Group Proceedings Act, introduction,” Paris, at 2 (May 6, 2005) (unpublished) (on file with author) (“Lindblom Paris”).

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Uppsala University did not know the answer, “felt ashamed and some years later” began to study American class actions.27 In 1989, he published a 783-page book analyzing American class actions from the Swedish perspective. It was titled “GRUPPTALAN. DET ANGLOAMERIKANSKA CLASS ACTIONINSTITUTET UR SVENSKST PERSPEKTIV” or, roughly translated, “Group Actions. The Anglo-American Class Action Institution from the Swedish Perspective.” Prof. Lindblom’s book on American class actions “initiated a national dialogue in Sweden that ultimately culminated [in] the passage of Sweden’s group actions law in 2002.”28 In June 1991, “a commission was formed to examine whether there was a manifest need to improve access to justice for group claims,”29 which the professor chaired.30 In 1995, Prof. Lindblom produced a 1,400page official report for the Swedish Ministry of Justice.31 Consumers and environmentalists supported the law while the business industry was predictably “strongly against a reform.”32 Once the Act 26

Prof. Lindblom is widely regarded as the father of Swedish class actions or as the “King of Group Actions in Sweden and northern Europe.” See, e.g., Thorheim Conversation; see also Lindblom Paris, supra, at 3 (“I sometimes feel that the Swedish group action is my baby!”). To the extent Prof. Lindblom influenced a similar debate in Norway, he may be considered the step-father of Norwegian class actions. 27 Lindblom Paris, at 2. 28 Nordback Correspondence, at 1. 29 Nordh Symposium, at 1-2. 30 Lindblom Paris, at 2. 31 Nordh Symposium, at 2. 32 Nordh Symposium, at 2; see also Lindblom Paris, at 5 (“The proposal in 1994 was hailed by representatives of consumers and environmentalists, labour unions, and others. On the other hand, it was attacked by industry and defendant lawyers, dominating the Swedish Bar Association, by banks, insurance companies and by some judges unwilling to learn or try anything new in their courtrooms. The resistance was very well organized and funded”).

passed, class actions could be filed from January 1, 2003 onward.33 At the moment, no detailed information exists, in either Swedish or English, about the class actions that have been filed. Only broad descriptions of a few cases have been publicly disseminated. In one case, 500 to 700 airplane passengers sued a travel agency.34 And in another, seven people with claims worth 20 Euros each filed an action. A third case involved 1.2 million people suing an insurance company for transferring capital to its parent company, but the case was withdrawn for arbitration.35 A small Swedish plaintiffs’ class action bar has developed involving the same lawyers who appear in the handful of collective action filings.36 Ola Wiklund of the Wistrand Law Firm filed the first class action in Sweden. The opt-in mechanism is probably “one reason why there are not as many class actions in Sweden as in the United States,” said Prof. Lindblom’s former pupil, Dr. Kenneth Nordback.37 It is also possible that Swedish lawyers are still unfamiliar with this new procedural concept, particularly since they have not used it on easy applications such as securities fraud. Swedish lawyers bringing class actions may sign a written agreement entitling them to a higher-than-normal hourly rate for

33

Nordh Symposium, at 2. Nordh Symposium, at 5 (discussing 500 airplane passengers who opted into case); Lindblom Paris, at 18 (same). 35 Nordh Symposium, at 5; see also Nordback Conversation (noting case with a million Swedes against insurance company received substantial media attention, but case did not go to court); Lindblom Paris, at 18. 36 Nordback Correspondence, at 4 (“There has already developed a specialized group of firms who bring these cases”)); Nordback Conversation (noting a few Swedish lawyers have shown particular interest in these cases but it has not become a big deal for them yet) (some of the same names turn up in a few cases). 37 Nordback Correspondence, at 3. 34

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attorney’s fees if they succeed.38 Such an agreement requires court approval.39 It is unclear whether a Swedish court would authorize a contingency fee for a class action.40 Contingency fees are generally disallowed by the Swedish Bar Association without court authorization.41 Because Swedish courts may authorize contingency fees for ordinary suits, 42 it is plausible that a Swedish court might authorize a contingency fee for a class action. NORWAY Norway recently passed the Mediation and Civil Procedure Act, permitting class actions to be filed starting January 2008. Class actions in Norway will be legal proceedings 38

Nordh Symposium, at 5, 12 (attaching Group Proceedings Act § 39 (“The agreement shall indicate the way in which it is intended that the fees will deviate from normal fees if the claims of the members of the group were to be granted or rejected completely. The agreement may not be approved if the fees are based solely on the value of the subject of the dispute”)); Lindblom Paris, at 15 (“The fee will be based on an hourly rate, e.g., the double rate if the action is successful and no payment if the group action is unsuccessful”). 39 Nordh Symposium, at 6. 40 But see Nordh Symposium, at 5 (“It is possible to make risk-agreements on fees, but no contingency-fees and there is no public funds”). 41 Waelbroeck, Denis; Slater, Donald; Even-Shoshan; Gil, STUDY ON THE CONDITIONS OF CLAIMS FOR INFRINGEMENT OF

DAMAGES

OF CLAIMS FOR INFRINGEMENT OF

DAMAGES

IN

CASE

OF

EC COMPETITION RULES, “Executive summary and overview of the national report for Sweden” (Aug. 31, 2004) (report prepared by Ashurst for European Commission), available at http://ec.europa.eu/comm/competition/antitrust/o thers/actions_for_damages/executive_summaries /sweden_en.pdf (last viewed on Feb. 25, 2007). 42 Waelbroeck, Denis; Slater, Donald; Even-Shoshan; Gil, STUDY ON THE CONDITIONS IN

CASE

OF

EC COMPETITION RULES, “Executive summary and overview of the national report for Sweden” (Aug. 31, 2004) (report prepared by Ashurst for European Commission), available at http://ec.europa.eu/comm/competition/antitrust/o thers/actions_for_damages/executive_summaries /sweden_en.pdf (last viewed on Feb. 25, 2007).

“by or against a group arising out of a materially similar factual and legal basis that has been approved by the court as the group action.”43 Norwegian lawyers will have to file a “petition for group procedure” in which they “request[] that legal action be conducted according to group procedural rules.”44 The procedure is analogous to the motion for class certification filed in the United States. If the petition is approved, then the Norwegian court will impose a “time limit for registration” of class members.45 This is an opt-in mechanism. But a Norwegian court will also be able to create an “opt-out” class if the high cost of bringing individual suits for small compensatory amounts would be prohibitive.46 The precise quantum of how small a claim must be in order to qualify for an “opt-out” class is not written into the Norwegian law but custom will likely develop over time.47 Notice will have to be sent to class members to “ensure that those who can join the group action are 43

“Proposed rules concerning group action: Provisional draft issued by the Norwegian Civil Procedure Commission in February 2000” § A(1) (on file with author) (adopted in almost identical form as law) (“Proposed Norwegian Law”). 44 Proposed Norwegian Law § C(1). 45 Proposed Norwegian Law § D(2). 46 See N.O.U. Brief Summary and Overview of the Report, at 13 (2001) (providing overview in English of report that was sent to Norway Ministry of Justice, adopted with little or no modification, and eventually passed into law) (on file with author) (“The proposal does, however, allow for class action based on the principle of deregistration – opt out – on a limited scale. The court may on application allow for such form of class action, provide[d] that the individual claims are not individually viable – i.e.,it is assumed that on it cannot be expected that legal action would be taken on the basis of the costs involved”); see also Thorheim Conversation, infra (noting that Ch. 35 of the Act states that a court should describe the claims falling under a group action and decide whether the group action is opt-in or “opt-out”); Nordback Conversation (noting that Norway allows for an opt-out for the smallest cases, similar to the U.S. system). 47 Thorheim Conversation.

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informed of the [court’s] decision” creating a class.48

underlying their complaint, they may not have to pay a defendant’s costs at all.53

Although Norway is not a member of the European Union, it often implements European laws and treaties prior to the European Union’s own members.49 Norway’s new class action provisions were heavily influenced by the Swedish professor, Per Henrik Lindblom’s book on American class actions.50

Norwegian lawyers pursuing class actions will have an opportunity to earn a “conditional fee,” meaning they can agree to get paid only if the litigation succeeds.54 Such payment would be rooted in the number of hours put into the case. But Norwegian lawyers can charge whatever they want. The hourly rate in a “conditional fee” is likely to be much greater than the ordinary rate.55 There is no precise limit on the “uplift” (i.e., 100 percent or more) above the normal fee that Norwegian lawyers can take.56

As a signatory to the European Economic Area agreement, Norway abides by European market regulations but rejects European rules on agriculture or fishing. Not only may Norwegian national courts enforce European Union antitrust laws, but these laws may become the subject of future class actions in Norway. Norway will keep the loser-pays rule for class actions. But there is a possibility that a losing class action plaintiff will not have to pay the victor’s legal costs. Because this absolution has been “very rare” in non-class action litigation,51 it is uncertain whether courts will waive the loser-pays rule in class actions. Some believe that Norwegian courts will not hold class action plaintiffs responsible for a defendant’s costs if the plaintiffs had a 50/50 chance of victory at the start of the litigation or if they put forward strong legal arguments.52 As long as class action plaintiffs have a good legal theory 48

Proposed Norwegian Law § E. Telephone conversation with Ola Wislund (Aug. 16, 2006) (notes on file with author); see also Norway Ministry of Justice and the Police, Norway Ministry of Finance, “The Norwegian Government’s Action Plan for Combating Economic Crime 2004-2007,” at 50 (“When the EU has adopted a Directive, it is implemented in the EEA Agreement. Norway strives to ensure Norwegian implementation on a par with the implementation in the EU”). 50 Correspondence from Prof. Henry John Mæland, University of Bergen, Norway, to R. Gaudet (Aug. 9, 2006) (on file with author). 51 Telephone conversation with Ola Nisja, lawyer at Wikborg Rein, Oslo, Norway (Aug. 18, 2006) (notes on file with author). 52 Thorheim Conversation. 49

Norwegian courts must approve any conditional fee.57 Norwegian lawyers will not be able to take a contingency fee, i.e., a straight percentage of the recovery, from their class actions.58 But the opportunity to collect double, triple, or some other multiple of their hourly rates will provide plenty of incentive to Norwegian plaintiffs’ lawyers. Whom will Norwegian lawyers first sue in class actions? In the past 10 years, there has 53

Thorheim Conversation. Telephone conversation with Karl Otto Thorheim, Norway Ministry of Justice, Oslo (Aug. 21, 2006) (notes on file with author) (“Thorheim Conversation”); Email correspondence from Ola Ø. Nisja, lawyer, Wikborg, Rein & Co., Oslo to R. Gaudet (March 11, 2007) (“In Norway, it is allowed for a lawyer to enter into an agreement with the client on the basis of ‘no cure, no pay’.”). 55 Thorheim Conversation. 56 Email correspondence from Ola Ø. Nisja, lawyer, Wikborg, Rein & Co., Oslo to R. Gaudet (March 11, 2007) (confirming there is no fixed limit or cap on the “uplift” to a conditional fee, unlike England). There is a clear cap of 100 percent on the “uplift” permitted to lawyers working on a conditional fee in England, meaning that English lawyers can earn no more than double their ordinary billable rate per hour. See The Bar Council CFA Panel, CONDITIONAL FEE GUIDANCE, 29 (Feb., 2006), available at www.barcouncil.org.co.uk (last viewed on March 18, 2007) (“The uplift may not exceed 100% of the normal fees.”). 57 Thorheim Conversation. 58 Thorheim Conversation. 54

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been non-class action litigation against airports. The Oslo law firm of Wikborg Rein & Co. represented residents of a neighborhood against a newly constructed airport for bringing noise into the plaintiffs’ community.59 The suit succeeded. Under the new procedural rules, similar suits may be the country’s first class actions. Having launched the first class action reforms in Europe, Norway and Sweden have provided early leadership for the other countries. Their new class action weaponry will become known throughout the continent, much like the fast ships of the tenth century Vikings. The second part of this two-part series will describe recent class action trends in Denmark and the European Union and, then, offer concluding remarks on these remarkable procedural changes. Robert Gaudet, Jr. is studying class actions in Sweden, Denmark, and Norway with the support of a Fulbright grant to the European Union, T: +46 761355955, [email protected]. This article was originally published in Section Connection-International Practice, a publication of the American Association for Justice. Reprinted with permission.

59

Telephone conversation with Ola Nisja, lawyer at Wikborg Rein, Oslo, Norway (Aug. 18, 2006) (notes on file with author).

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