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    Supreme Uncertainty: How the Death of Justice Scalia May Impact Your Small Business
    The Vault

    Supreme Uncertainty: How the Death of Justice Scalia May Impact Your Small Business

    March 2016

    Supreme Court Justice Antonin Scalia died unexpectedly in February.  While we don’t typically look to our highest court as a major player in our local businesses (it’s typically about individual candidates, especially in an election year), this year we must.  Scalia’s passing has immediate consequences for business.

    Five cases affecting small business -- dealing with issues of health care, immigration, unions, and small business contracting -- were before the Court at the time of Scalia’s passing.  His death literally scrambles the outcome of these cases, and will leave lower court rules in place until a new candidate is confirmed and the cases reconsidered (the Court is now a 4-4 tie and, under Supreme Court practice, that means the ruling from the lower-instance court stands).  

    Here are 5 issues currently before the Court that affect small business and are currently on hold:

    1. Intellectual Property

    The Supreme Court has repeatedly stepped in to address the country’s troubled patent system, and has also handed down important copyright rulings. Scalia was the first to introduce the term “patent troll”, describing someone who purchases rights to expired or soon-to-expire patents and then sues businesses for infringement, with no other goal than quick monetary settlement.  

    Currently before the Court is Halo Electronics v. Pulse Electronics.  The issue here is whether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages.  Arguably, this is the same as the rigid, two-part test the Supreme Court rejected last term (Octane Fitness vs. ICON Health & Fitness) for imposing attorney fees.  Without a majority decision here, it could be more difficult for district courts to award attorneys’ fees, totaling billions of dollars, to prevailing parties in patent troll cases.  

    In 2014, when the last major cases involving such infringements were decided, the Court ruled unanimously against patent trolls. In the long-term then, businesses can be somewhat assured that the Court will seek to remedy the issue of patent trolls despite its ideological differences.

    1.  Religious Exemptions for ACA Mandates

    The Affordable Care Act (ACA) mandates comprehensive health care coverage, including some forms of birth control.  In 2014, in Burwell v. Hobby Lobby Stores, the Supreme Court granted a strengthened religious exclusion for private companies that objected to the ACA’s coverage of birth control.  In Zubik v. Burwell, currently before the Supreme Court, the Zubik/Pittsburgh Catholic Diocese claims the government accommodation imposes a significant burden on its religious exercise--even though the Diocese's employees will not receive contraception reimbursement--because the Diocese has chosen to operate an insurance trust, the Catholic Benefits Trust, which offers insurance plans that other employers may use.  An evenly split decision in Zubik is likely to leave the high court's most recent ruling, which allows for a religious accommodation to the mandate, without taking it further.

    1.  Unions

    The big labor case this term is Friedrichs vs. California Teachers Association.  The case hinges on whether public employees at a California union can refuse, on First Amendment grounds, to pay fees for collective bargaining. Lower courts upheld previous case law that allowed public unions to do so.  Scalia showed initial antipathy to such protections and, until his death, many thought the Supreme Court would side with the employee plaintiffs. Now, the opposite is true.

    The split court will let lower court judgement stands, which is a win for unions.  This could filter into the private sector, and affect small business labor relations, especially in “right to work” states.

    1. Government contracting for small business

    The U.S. government is the largest supplier to small businesses in the U.S., dishing up hundreds of billions of dollars worth of contracts each year. In recent years, various federal agencies have strengthened efforts to award more contracts to economically disadvantaged businesses, including veteran-owned companies.

    In Kingdomware Technologies, Inc. v. United States, the Supreme Court is to decide whether the Federal Circuit erred in construing a code’s mandatory set-aside restricting competition for Department of Veterans Affairs' contracts to veteran-owned small businesses as discretionary.  Kingdomware is a firm based in Waldorf, MD that provides government and private customers with a range of information technology services.  It is owned by an Army veteran who is disabled from wounds suffered during Operation Desert Storm.  The firm has been carrying on a running legal battle with the Veterans Administration, claiming that the VA is failing to carry out its obligations to veteran-owned contractors by awarding contracts to non-veteran-owned businesses.

    This case gets to the heart of what are often called set-asides in government contracting for small business. A split court might leave unsettled questions of how contracts are offered.

    1.    Immigration

    The biggest case of this term is Texas v. United States, in which the state is challenging an executive order by President Obama to give legal status to approximately 11 million undocumented immigrants who reside in the U.S.. (Texas and 25 other states immediately sued to overturn the order.)  Last May, the U.S. Court of Appeals for the 5th Circuit sided with the states, and issued an injunction against Obama’s executive order.  The case then went to the Supreme Court on appeal.  

    The outcome of Texas v. United States has enormous implications for industries like agriculture and construction, which tend to draw heavily on immigrant labor.  The deadlocked Supreme Court means the injunction remains in place and the case will potentially be sent back to the lower courts for further argument.  Companies seeking to pull from this pool of workers will have to wait.

    Until our next justice is confirmed, the Supreme Court is literally deadlocked.  My guess is that the selection process is going to be long, filled with political infighting, but will be followed by a busy time of decision making at the Court once that ninth justice is in place.  Keep your eyes on these important cases and how they impact your business.  Things may change quickly.

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