What’s Happening in Technology, Intellectual Property & Contracts – February 2019

This month:

  •           United States v. Stetkiw
  •           Helsinn Healthcare v. TEVA
  •           Goggin v. National Union Fire Insurance Company

Technology News – Bitcoin

United States v. Stetkiw, Case No. 18-2057 (E.D. Mich., 2/1/19)

The U.S. District Court for the Eastern District of Michigan, Southern Division, was asked to determine whether the defendant, Bradley Stetkiw, was entitled to a decision in his favor on two motions: 1. A motion to dismiss for lack of probable cause and 2. A motion to dismiss his indictment’s the third count alleged in this criminal case under 18 U.S.C. § 1960, Prohibition of unlicensed money transmitting businesses. These motions were filed in relation to an ongoing criminal case regarding his Bitcoin exchange service and his alleged possession of child pornography.


In an indictment entered on August 29, 2018, a grand jury charged Bradley A. Stetkiw under the following counts: 1) That Bradley Stetkiw “did knowingly receive child pornography, as defined in 18 U.S.C. § 2256(8)(A) and “that images received were “mailed, shipped and transported using the Internet … in violation of Title 18, United States Code Section 2252A(a)(2)” 2), that Bradley Stetkiw “did knowingly possess images that contained an image of child pornography” and 3) that Bradley Stetkiw “did knowingly conduct, control, manage, supervise, direct, and own all and part of a money transmitting business affecting interstate and foreign commerce, that is, a Bitcoin exchange service, which failed to comply with the money transmitting business registration requirements set forth in Title 31, United States Code, Section 5330, in violation of Title 18, United States Code, Section 1960.”


In Stetkiw’s motion to dismiss for lack of probable cause, Stetkiw claimed that evidence collected during a search of his home must be suppressed because the search warrant, based on the alleged violation of Section 1960, was not supported by probable cause.

In Stetkiw’s motion to dismiss the third count, he claimed that the count failed to state an offense under Section 1960 and must be dismissed.

In both claims, Stetkiw asserted that bitcoin was not money or funds as required under Section 1960, because it did not “enjoy the protection of a sovereign government” and that the term “money transmitting” only applied in situations where a defendant acted “as an intermediary to transfer from one person or entity on behalf of another and does not cover the type of two-party transactions [he] is accused of conducting.”

In the alternative, Stetkiw asked for leniency because the “statute is ambiguous as applied to buying and selling Bitcoin.”

Court Analysis

The court said that although the applicable section does not “specify what counts as ‘money’ for purposes of determining a violation, it is clear that it pertains to the transmission of funds.” The court provided several examples of federal district court decisions where the courts found that “Bitcoin constitutes ‘money’ and ‘funds’ were within the meaning of 18 U.S.C. § 1960.”

The court also said that the transactions in which Stetkiw was engaged “falls within the plain meaning of ‘transferring funds on behalf of the public by any and all means’ (emphasis in original)” under Section 1960. The court goes on to explain that its findings may have been different if Stetkiw was alleged to have engaged in the transmissions for his own benefit as an investment for his own account, but the allegation is that he was engaged in a business related to the exchange of bitcoin for fiat. In addition, it is alleged that Stetkiw charged a per transaction fee.

Finally, the court said that Stetkiw is not entitled to leniency because the statute is unambiguous. It quoted the case Moskal v. United States, 498 U.S. 103, 108 (1990) which said leniency is “reserved … for those situations in which a reasonable doubt persists about a statute’s intended scope even after resort to ‘the language and structure, legislative history, and motivating policies’ of the statute.” The court said that there was no ambiguity regarding the statute’s scope under Section 1960.

The court denied both motions. The case is ongoing.

Intellectual Property – Patents

Helsinn Healthcare v. TEVA Pharmaceuticals (2019)

This appeal to the Supreme Court from the Federal Circuit which reversed a District Court decision in favor of Helsinn, asked “whether the sale of an invention to a third party who is obligated to keep the invention confidential places the invention ‘on sale’ within the meaning of §102(a)” which says: “A person shall be entitled to a patent unless … the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the pubic before the effective filing date of the claimed invention.”  §102(a) Novelty, Prior Art.


Helsinn Healthcare makes a chemotherapy-induced nausea treatment product called “palonosetron.” In about 2011, it entered into two agreements with a company called MGI Pharma that markets and distributes drugs in the United States. One was a licensing agreement and the other was a supply and purchase agreement. Under the license, MGI was granted the right to “distribute, promote, market and sell” two dosage sizes, 0.25 mg and 0.75 mg in return for upfront payments and future royalties. Under the supply agreement, MGI was required to purchase any FDA-approved palonosetron product exclusively from Helsinn. Both agreements required that MGI maintain as confidential any proprietary information it received. These agreements were announced in Helsinn’s SEC form 8-K filing with attached redacted agreement versions. Close to two years later, in 2003, Helsinn started filing a series of patent applications. The fourth and most recent application, and the one at issue in this case, was filed in May 2013.

TEVA is a generic drug manufacturer that sought FDA approval to market a generic 0.25 mg palonosetron product. Helsinn brought an infringement suit against TEVA under all its palonosetron related patents, including the 2013 patent. The patents filed before 2013 were subject to what is called the “on sale” bar in effect before the America Invents Act (AIA) was applicable starting in 2011.

Court Analysis

The federal patent systems is intended to encourage “‘the creation and disclosure of new, useful, and nonobvious advances in technology and design’ by granting inventors ‘the exclusive right to practice the invention for a period of years.’” (Citations omitted.) There are restrictions on the grant of the exclusive right, including the “on-sale” bar which “reflects Congress’ ‘reluctance to allow an inventor to remove existing knowledge from public use’ by obtaining a patent covering that knowledge.” Helsinn asked the Court whether the AIA language which includes the phrase “or otherwise available to the public” required that the invention itself be available to the public in order to meet the bar. The Court identified several cases where the term “on sale” was interpreted as well as situations where there were “secret sales” that invalidated a patent. The Court goes on to say that it presumed that Congress, when it drafted the AIA, intended to adopt the “earlier judicial construction” of the phrase “on-sale” since it had settled meaning and settled body of law.

The Federal Circuit’s determination that the invention was “on sale” within the meaning of the patent statute before the AIA was not disputed by Helsinn. Since the Court determined that Congress did not “alter the meaning of ‘on sale’ when it enacted the AIA” it held that “an inventor’s sale of an invention to a third party who is obligated the keep the invention confidential can qualify as prior art under §102(a)

This case serves as a useful reminder that the on-sale bar is alive and well post America Invents Act. It is also a useful reminder that confidentiality agreements can only be used so far as they related to patent-protection intended products.

Contracts – Directors & Officers Insurance

Goggin v. National Union Fire Insurance Company, C.A. No.: N17C-10-083 PRW CCLD (Del Sup. Nov.30, 2018)

Businesses rely on Directors & Officers (D&O) insurance policies to guard a company against the acts of their directors and officers. These policies usually cover attorney costs and indemnification. Insurance companies include exceptions to coverage under specific circumstances, and will generally only cover those acts that arise out of directors and officers actions while performing for the benefit of the covered business. A D&O policy generally does not cover a director’s or officer’s wrongful or illegal acts in the form of acts that constitute a conflict of interest against the covered company. Plaintiffs here asked the court whether U.S. Coal’s D&O policy with National Union required the policy to pay damages and defense costs for claims made against them.


The plaintiffs, Keith Goggin and Michael Goodwin, sought a decision in their favor requiring U.S. Coal Corporation’s insurance company to pay for damages and defense costs for claims made against “U.S. Coal’s past, current, or future directors and officers.” Goggin and Goodwin were initially investors and became directors in 2009 until their resignations. Goodwin resigned in 2012, and Goggin resigned in 2014. National Union Fire Insurance Company issued a D&O policy from 11/2013–5/2015 that covered U.S. Coal and its officers. The policy said that it “pay[s] the Loss of an Individual Insured … for any Wrongful Act … except when and to the extent that the Company has indemnified such Individual Insured.”

Almost from the beginning of their director status, Goggin and Goodwin engaged in activities to allegedly improve U.S. Coal’s prospects via debt purchases and capital restructuring. They used two investment vehicles, East Coast Miner, LLC (EMC), formed in 2009, and East Coast Mine II LLC (EMCII) formed in 2011. Googin was an investor/manager in both. Goodwin was just an investor in both.

In 2014, U.S. Coal entered into Chapter 7 bankruptcy proceedings brought by their creditors. A trustee was appointed and the Official Committee of Unsecured Creditors brought individual suits against Googin, Goodwin, ECM and ECM II alleging “among other things, that Goggin and Goodwin breached their fiduciary duties and committed other acts in favor of their own personal interests.” Goggin and Goodwin’s counsel requested that National Union assume defense, which it did for some claims, but with regard to the claims against Goggin and Goodwin, it determined that the D&O policy did not cover their actions as found under the policy’s “capacity” exclusion, which says that the wrongdoing that breached their fiduciary duties was not “solely by reason of their status as [U.S. Coal] Executives.”

The parties entered into unsuccessful mediation which resulted in the action in Delaware’s Superior Court. Goggin and Goodwin wanted the court to declare that National Union had to pay all defense and indemnity costs. After an exchange of pleadings and motion filings, Goggin and Goodwin asked the Superior Court to make a judgment based on the pleadings.


Goggin and Goodwin claimed that the “alleged conflict of interest existed due to their capacities and status as both the directors of U.S. Coal and the member/managers of ECM and ECM II does not eliminate the coverage via the ‘capacity’ exclusion if the alleged wrongful action was performed in their capacities as directors of U.S. Coal.”

National Union claimed that the conduct did not arise from the plaintiffs’ capacity as U.S. Coal directors, but rather in their capacity as members/managers of the ECM entities.

Court Analysis

Under Delaware law, a contract’s language, including those in an insurance policy, should adhere to what “would be understood by an objective, reasonable third party.” The court determined that the policy’s exclusion language was “clear and unambiguous” so the court considered the contract terms based on their “plain and ordinary meaning.” The court further explained that Delaware law adopted the construction of the term “arising out of” as understood to mean “incident to, or having connection with.” In this context, the court considered if the conduct of the underlying claim would have failed “but for” that conduct. The court therefore concluded that but for the plaintiffs’ actions taken as members/managers of the ECM entities, there would not have been a claim.

The court found that the creation and use of the ECM entities was to facilitate self-dealing benefiting themselves “at the expense of U.S. Coal” and was the “core of the Trustee Claims.” It concluded that the exclusionary clause under the D&O Policy applied and that National Union was not obligated to cover the plaintiffs’ actions.

The motion for judgment on the pleadings were denied.

This case is instructive regarding directors’ and officers’ behavior and D&O policy coverage. Fortunately, the policy was resolved in favor of the entity that it was designed to benefit – U.S. Coal.


Legal Aspects of Engineering, Design and Innovation 10th edition by Cynthia Gayton, February 2017.

This edition is available through the publisher, Kendall-Hunt publishers and on Amazon.com in paper and e-book form. This book is used in several engineering courses and is a useful reference for anyone interested in contracting, intellectual property, engineering practice, and other general legal issues. This new edition includes separate chapters for each intellectual property type, introduces and explanation of blockchain smart contracts, discusses trends in product liability, and has recent case law to highlight chapter topics. It also expands from a primarily engineering perspective to include design professionals and innovation-specific coverage.

Guide to Copyrights & Trademarks for CryptoCreatives by Cynthia Gayton, January 2019.

This guide is available as an e-book on Amazon.com and is intended to introduce basic contract, copyright and trademark concepts for the benefit of creatives in the crypto community. It covers the art and music market, provides an introduction to contracts and smart contracts, and briefly explains copyright and trademarks.

Thank you for reading!

The information contained in this post is for general guidance on matters of general interest only. The application and impact of laws can vary widely based on specific facts. The information contained in this newsletter should not be construed as a substitute for consultation with professional advisors. Certain links in this newsletter connect to other websites maintained by third parties over whom Gayton Law has no control. Gayton Law makes no representations as to the accuracy or any other aspect of information contained in other websites.

© 2019 Gayton Law


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