6 Supreme Court Cases Investors Should Watch (On the Street)

Published Oct. 2, 2009 at 4:00 a.m.

The Supreme Court opens its new term Monday, marking what will likely prove a big year for business conflicts. Many cases with broad implications for companies and investors are on the docket, from suits dealing with fraud and antitrust allegations to questions of securities law. One of the most anticipated cases scheduled -- a challenge to the patenting of a financial tool -- could set a precedent for all patents of business methods.

In recent years, the Court has been very sympathetic toward business, and experts say the economic meltdown and the surge in public hostility toward corporate dealings aren't likely to change that. But that doesn't mean business always wins.

Here's a look at six key cases coming before the court.

Jones v. Harris Associates

In this executive pay case, a group of investors sued Harris Associates, a Chicago-based advisor to the Oakmark Funds of Kansas City, Mo., claiming that Harris's fees are so exorbitant that they violate the federal Investment Company Act. Lower courts dismissed the claims against Harris, but circuit courts have disagreed considerably on the issue, with some finding that a fund's directors are under a strong obligation to negotiate for lower fees for shareholders. The Court's decision could affect millions of investors and trillions of dollars in mutual funds. "For excessive fees, the question is whether it should be a marketplace test, or whether there's room for litigation," says Donald Langevoort, an expert in securities law at Georgetown University Law Center.

Bilski v. Kappos

Can a financial method be patented? Bernard Bilski, a founder of Pittsburgh-based WeatherWise, created a tool to hedge commodity trading risk, but was denied a patent because his invention isn't a physical device and doesn't alter an existing object. Bilski, now a borderline celebrity in the patent community, lost his appeal to the patent board. A federal appeals court also sided against him. Experts say the case may have significant consequences for intellectual property law, particularly in the business domain. "This is an intense challenge to the business method patent," says Eric Talley, co-director of the Berkeley Center for Law, Business and the Economy. "If the court buys this challenge, no business method patent could get protection unless it involves a machine or transformation from one state or another."

Merck v. Reynolds

Some Merck (MRK) shareholders say the company misled them about the risks of Vioxx, the pain drug that Merck pulled from the market in 2004. The pharmaceutical giant, based in New Jersey, says it put investors on notice two years before their suit was filed, and that shareholders waited too long to pursue fraud claims. Congress has set limits on when investors can bring a securities case to court; the question is when the clock starts ticking, says Langevoort. "The business community wants that to start very early -- as soon as there are warnings in the press," Langevoort says. "The argument in this case says that if you apply that too strictly, you'll have a rush to bring lawsuits."

American Needle v. NFL

For decades, American Needle had individual licensing deals to make and sell caps and baseball hats for National Football League teams. In 2000, the NFL gave Reebok the exclusive right to make its uniforms and merchandise. American Needle, based in Illinois, sued the NFL, claiming that the league was attempting to monopolize the market. The decision may determine when businesses are treated as a single entity for antitrust purposes -- and could be one of the most important decisions ever for the U.S. sports industry. "The Court could limit its decision to the sports league," says Deanne Maynard, a partner at Morrison & Foerster in Washington. "But even if it tries, the decision would likely have implications beyond that and affect a large number of business collaborations, including formal joint ventures and arrangements by contract." Although lower courts have sided with the NFL, the league and American Needle asked the court to hear the case. The NFL is hoping that a broad decision could protect it from any antitrust claims in the future.

Free Enterprise Fund and Beckstead and Watts v. Public Company Accounting Oversight Board

This case is a constitutional challenge to the Sarbanes-Oxley Act, the 2002 corporate governance measure that created a national oversight board for public company auditors. Members of the Public Company Accounting Oversight Board are selected by the Securities and Exchange Commission. The plaintiffs, an anti-tax group and a Nevada accounting firm, say the SEC doesn't have the authority to create a regulatory body, and that act violates the separation-of-powers doctrine. If the challenge is successful, it probably won't be the end of the oversight board, but it would force a change in the way members are nominated and confirmed. "There have been vocal opponents of the PCAOB for years," says Berkeley's Talley. If the Court decides members should be appointed through a presidential nominating process, Talley says, "individual objections to members would have a greater chance of being heard."

Black v. United States

Former newspaper baron Conrad Black, convicted in 2007 of fraud charges and sentenced to six and a half years in a Florida prison, won a review of his case, claiming that he did not intend to harm his company or investors. Fraud is currently defined as an act carried out for personal gain and to harm others by denying them "honest services." (Black's lawyers argue that his acts were committed merely for personal gain.) A federal appeals court upheld the convictions of Black and three other former Hollinger International executives, but other courts are divided on whether the "honest services" clause applies to defendants who did not intend to cause economic harm. The case may affect how narrowly fraud is defined, a question of interest to anyone ensnared in recent financial scams.

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