The U.S. Court of Appeals for the Federal Circuit’s blockbuster patent ruling Thursday in the In re Bilski case obviously has important repercussions for the future of software patents, a subject I wrote about in the post entitled, “Ending software patents: Has the time come?“

Since I am under a difficult deadline on an unrelated matter, I can’t yet tackle this subject myself, but I did want to refer readers to a couple remarkable postings from a pro-software patent attorney who takes the position that Bilski amounts to a complete rejection of the whole notion of software patents - a position that, if true, would have enormous repercussions for companies like Microsoft (MSFT), which has invested millions to compile vast arsenals of them, as well as the patent-threatened Linux community, and its promoters like Novell (NOVL) and Red Hat (RHT). The poster, Gene Quinn, is a New Hampshire patent attorney at White & Quinn, and a contributing editor to the PLI’s (Practicing Law Institute’s) Patent Brief Web site, where these posts appear.

I haven’t read Bilski yet, so I’m not vouching in any way for the cogency of Quinn’s interpretation, but I just wanted to let readers see the posts, assess them, and express comments. For a quick summary of Bilski and why it’s important, here’s the Wall Street Journal Law Blog’s discussion. Here’s Quinn’s first post, entitled Federal Circuit Decides Software No Longer Patentable, and here’s the second, entitled “State Street Overruled … PERIOD.”

Yahoo’s ad alliance with Google seems like a great deal to Messrs. Brin, Page, and Yang. Now they just have to win over the Justice Department.

Google and Yahoo had hoped to have it all up and running by now. As you may recall, the two Internet giants announced an alliance last June in which Google would supply Yahoo with search ads to supplement Yahoo’s own. Google would get a big new customer for its ad-delivery service, while Yahoo would get a new source of revenue - and best of all, they’d keep Microsoft from swallowing Yahoo.

Then Washington got in the way. Due to pushback from antitrust regulators, in early October, Google (GOOG) and Yahoo (YHOO) put off the launch to give the Justice Department more time to chew on it. In September, Justice reportedly hired veteran antitrust litigator (and former Walt Disney vice chairman) Sandy Litvack to help review the deal, and soon thereafter Canadian authorities hired an outside lawyer too. The European Union is also taking a hard look.

What’s the hang-up? Well, there are three basic concerns about just what this alliance really amounts to. First, if it had been a merger between Google, with 70% share in the paid-search market, and Yahoo, with the next 20%, it would clearly violate antitrust laws by creating a monopoly. (Paid-search ads are the ones that show up near the top of a search-result screen or off to the side, under the rubric “sponsored links.”) Second, if Google were paying Yahoo to exit the paid-search arena, that would be an illegal agreement between competitors to allocate markets. Third, if Google and Yahoo were agreeing to set a price floor for the two companies’ paid-search offerings, that would be illegal price-fixing.

Russia’s $22.5 billion case against the Bank of New York Mellon now appears to hinge upon a stray misstatement contained in a continuing legal education outline written by a lawyer who’s never been involved in the case, and who was simply repeating a misstatement contained in a government press release that was later amended to delete the misstatement due to its inaccuracy.

This takes a little while to explain, but I really think it’s worth the trouble. I’ve never seen anything quite like it.

Last week, I explained here that Manhattan federal prosecutors seemed to have blown a massive hole in the Russian Federal Customs Service’s exceedingly unusual $22.5 billion civil RICO case against the Bank of New York Mellon (BK), a case that, notwithstanding its purported reliance on U.S. law, Russia has chosen to file in a commercial court in Moscow, known as an arbitrazh court.

As explained in that earlier post, Russia’s lead lawyer, a Miami-based airplane-crash lawyer named Steven C. Marks of Podhurst Orseck, has predicated his case in large part on the premise that when Bank of New York entered into a non-prosecution agreement in Nov. 2005, it admitted criminal responsibility for the actions of rogue vice president Lucy Edwards in the late 1990s. Edwards pled guilty in 2000 to having helped Russian citizens illegally wire transfer their money out of that country via Bank of New York accounts.

This July, however, the federal prosecutors office that had investigated the bank refuted Marks’ claim, explaining that the bank had never admitted “criminal culpability.” (The clarification came in this letter, which I published last week.)

Although nothing in the nonprosecution agreement itself had ever said that the bank admitted criminal responsibility for Edwards’ conduct, a poorly-written government press release that accompanied the nonprosecution agreement did leave that misimpression, stating that the bank had “admitted its criminal conduct.” It did so in part because it was actually reporting the resolution of two unrelated probes tied to different Bank of New York branches. In the view of the prosecutors, the bank was, in fact, admitting criminal responsibility for certain wrongdoing at a branch on Long Island (which had nothing to do with Russia), but not for what Lucy Edwards had done, which related to a branch in Manhattan.)

In August of this year, federal prosecutors further tried to clarify the situation by issuing an amended version of the original press release, deleting from it the language about the bank having “admitted its criminal conduct” that Marks had repeatedly quoted in statements to the press, bank stock analysts, and the court. The amended release also made clear that certain other language in the release — including language quoted by Russia’s retained expert Alan Dershowitz in his affidavit in the case — actually related to the Long Island probe, not the Lucy Edwards matter. I described that situation in this feature story for the Sept, 29 issue of Fortune. (As reported there, Dershowitz never responded to my inquiries about the apparent mistake, and Marks’s comment was cryptic and hard to characterize; you can read it for yourself there.)

On Monday of this week, at the resumption of a pretrial hearing in the case, two of the bank’s key experts testified. One of them, former U.S. attorney general Richard Thornburgh, addressed the meaning of the nonprosecution agreement, the government press release, the press release’s amendment, and the July letter from the Manhattan U.S. Attorney’s Office stating that the bank had never admitted criminal culpability in connection with Edwards’ conduct. Thornburgh, now a partner at the K&L Gates law firm, testified that the bank had never been charged with criminal conduct, let alone admitted any.

If Russia had wanted to cross-examine Thornburgh, it could have, of course. Instead, to the amazement of the bank’s lawyers, Russia sent no representatives at all to the long-scheduled hearing, as I reported here. Instead, its lawyers simply sent a fax to the judge that morning asking for an adjournment, explaining that all of its lawyers were too busy to attend. Though Marks was checked in at his Moscow hotel, according to what a hotel receptionist told me, and had apparently flown to Russia solely to attend that hearing, he didn’t show up. The judge rejected the faxed request and took testimony anyway — it was, after all, the third time Thornburgh and the other expert, Greg Joseph, had made the trip to Russia hoping to testify. At the end of the day the judge adjourned the hearing until Nov. 13.

Marks never returned a Monday voicemail or email seeking comment about why none of Russia’s lawyers attended, and Russia’s public relations firm, the Miami office of Burson Marsteller, has not yet responded to the same question, which I posed to it yesterday at about 12:30 pm.

What Burson Marsteller did do yesterday, however, was issue this statement, which does not explain or even allude to the fact that its client failed to show up. The statement also does not explain or even allude to the recently revealed July letter from the Manhattan prosecutors office — denying that the bank ever admitted criminal culpability — that, as I’ve said, seems to blow a massive hole in its case. Instead, Burson Marsteller’s statement reveals how Russia purportedly would cross-examine Thornburgh in the event that the bank agrees to schlep him back to Russia at some time in the future (and assuming, of course, that Russia’s lawyers aren’t still too busy with other matters to attend).

Here’s how Russia purportedly would undermine Thornburgh’s credibility, according to Burson Marsteller: “He and/or his firm stated the following in an article written with his assistance: ‘the Non-Prosecution Agreement relates to BNY’s responsibility for crimes involving fraud and money laundering, as well as BNY’s failure to comply with mandatory reporting obligations… As part of the non-prosecution agreement, BNY agreed to… admit to its criminal conduct.’”

I was familiar with the “article” Burson Marsteller was referring to, since Marks had cited it prominently in a document called “Case Summary for the Press,” which he sent to me when I first started looking into the case. (The article was highlighted in paragraph two of Marks’s five-page press document; paragraph one had been devoted to the subsequently deleted language from the government press release.)

In conversations with me, Marks usually referred to this document as “the Thornburgh memo,” and the digital file he sent me of it was labeled “Thornb article.” All it really is, however, is this Continuing Legal Education document, written by Barry Hartman, who, like Thornburgh, is a partner at K&L Gates, which is a firm of 1,235 lawyers and 243 partners, according to The American Lawyer. (Hartman declined to comment for this story. Suffice it to say that I am aware of no public record anywhere suggesting that Hartman has ever personally represented the Bank of New York in any matter whatsoever. A different law firm entirely, Sullivan & Cromwell, represented the bank in connection with its non-prosecution agreement in 2005.)

In the section of Hartman’s presentation relating to non-prosecution agreements, he lists 12 examples, including the Bank of New York’s, and gives a short, blurb-like summary of each. Footnotes explain the sources of Hartman’s information. For the Bank of New York entry (see page 15) Hartman’s footnote (footnote 24) lists his sole source of information as — you guessed it — the government’s Nov, 8, 2005 press release that was, in August of this year, amended to delete the language that Russia and Burson Marsteller are still trying to draw our attention to.

That leaves one final question. Why do Russia, Burson Marsteller, and Marks think that Thornburgh had anything to do with Hartman’s CLE outline? I asked Marks that question some weeks back, and he drew my attention to footnote 1 of the document (page 2) in which Hartman acknowledges that he’s made use of a CLE outline Thornburgh wrote on the subject of internal corporate investigations. What’s that got to do with anything? Probably nothing at all, since, as is apparent from the title page, Hartman’s talk had two parts: part one was about internal corporate investigations, and part two was about nonprosecution agreements. Thornburgh’s outline was pertinent to part one.

But Marks saw it differently when he emailed me on Sept. 2: “Presumably, before his partner put his name on the article, he showed it to him and Mr. Thornburgh explicitly or at least implicitly agreed to the contents. For all we know, his important contribution concerned that very section,” Marks wrote, referring to the part about the Bank of New York’s nonprosecution agreement, whose source had been explicitly identified as the government’s later corrected press release.

Is this the stuff that $22.5 billion lawsuits are made of?

Since a number of people have emailed me seeking English translations of the various international rulings relating to whether eBay (or other online auction houses, of course) can be held liable when visitors sell counterfeit goods on its site, I thought I’d collect and post all the translations I have in one location. They might be easier to find this way using a search engine. If and when I obtain more, I’ll add them. (I’m not bothering with accents and the like because they’re a hassle to produce and also sometimes foil searches when the query doesn’t include them.)

BELGIUM
July 31, 2008: Lancome Parfums et Beaute (L’Oreal) v. eBay in the Commercial Court in Brussels (Tribunal de commerce de Bruxelles)
Lancome (L’Oreal) in English
Lancome (L’Oreal) in French

FRANCE:
June 4, 2008: Hermes v. eBay in the Troyes Court of First Instance (Tribunal de grande instance de Troyes)
Hermes ruling in English (This file also includes English translations of all the LVMH rulings)
Hermes ruling in French or French link

June 30, 2008: The three LVMH rulings in the Commercial Court of Paris (Tribunal de commerce de Paris):
1. SA Louis Vuitton Malletier v. eBay
Louis Vuitton Malletier in English
Louis Vuitton Malletier in French
2. Christian Dior Couture v. eBay
Christian Dior Couture in English
Christian Dior Couture in French (link)
3. SA Parfums Christian Dior v. eBay
Parfums Christian Dior in English
Parfums Christian Dior in French (link)

July 11: stay denied in Parfums Christian Dior (Guerlain) appeals by Court of Appeal of Paris (Cour d’appel de Paris)
[sorry, no English translation yet]
French link

GERMANY
April 30, 2008: ricardo.de v Rolex in the Federal Court of Justice
Rolex in English
[ricardo.de is not eBay, of course; it's a different online auction house. eBay itself was also sued by Rolex, with a ruling against eBay in April 2007 having been controlled, I'm told, by the earlier rulings in the ricardo.de case. I don't have an English translation of the actual eBay case. The German language Rolex v eBay ruling is here.]

UNITED STATES (for convenience and completeness)
July 14, 2008: Tiffany Inc. v eBay in the U.S. District Court, SDNY
Tiffany v eBay

A weird case got weirder this morning, when the Russian Federal Customs Service failed to send any representative at all to appear in a Moscow court for the resumption of pretrial hearings in its $22.5 billion suit against the Bank of New York Mellon (BK), according to a lawyer for the bank.

According to Damien J. Marshall, a Boies Schiller & Flexner partner representing the bank at the hearing, Judge Lyodmila Pulova explained that the customs service had faxed her a petition this morning requesting a delay until Oct. 15, and explaining only that the the service’s lawyers were busy with other matters.

Overruling Russia’s request, the judge agreed to hear testimony anyway from two of the bank’s U.S. experts — including former attorney general Richard Thornburgh — who had traveled to Russia just for the hearing, according to Marshall. When the witnesses had finished (with no cross-examination, obviously), Judge Pulova put off continuation of the hearing until Nov. 13.

An email and voicemail message for Steven C. Marks of Miami’s Podhurst Orseck, the lead lawyer for Russia in the case, were not immediately returned. The voicemail was left at Marks’s Moscow hotel. (The receptionist confirmed that Marks had checked in.)

The suit stems from the conduct of a rogue Bank of New York vice president who pleaded guilty in February 2000 to having helped depositors of a Russian bank smuggle about $7.5 billion out of Russia from 1996 to 1999 through Bank of New York accounts. The bank was never charged in connection with the case, but did enter into a non-prosecution agreement on Nov. 8, 2005, in which it agreed to pay a $14 million fine, acknowledged various regulatory lapses, and accepted “responsibility” for what had happened.

The suit is unusual in that Russia has brought it under the American civil RICO statute, but has filed it in one of its own commercial courts, known as the Arbitrazh Court for the City of Moscow. There is substantial question among experts on the Russian legal system as to whether a Russian arbitrazh court has the judicial independence necessary to rule against the Russian government in a high-stakes case.

Here is a feature story I wrote about the case for Fortune’s Sept. 29 issue.

The issue at the pretrial hearings is whether the arbitrazh court — which, as a commercial court, has no jurisdiction to interpret criminal laws (even Russian criminal laws) — can adjudicate a civil RICO case, where liability of the bank hinges upon the court finding that it has violated U.S. criminal laws.

Russia had hoped to argue that the bank had already admitted criminal liability by entering into the nonprosecution agreement, and that, therefore, the Russian court would not have to interpret any criminal laws. However, in recent weeks, as explained in this update last week, the Manhattan prosecutors who investigated the bank have disputed Russia’s claim, stating in a letter that the bank never admitted “criminal culpability.”

At today’s hearing, RICO expert Gregory Joseph presented an 80-slide PowerPoint presentation to the court, explaining why he believes that the court’s task would inevitably require it to interpret U.S. criminal laws. His testimony was followed by that of former attorney general Thornburgh, who discussed the meaning of the non-prosecution agreement and the Manhattan prosecutors’ recent letter of clarification, and said that the bank had never been charged with, let alone admitted, criminal wrongdoing.

In a phone interview, the bank’s lead counsel, Jonathan Schiller of Boies Schiller & Flexner, acknowledges that he does not know the meaning of today’s events, but says they might reflect Russia’s “reconsideration of the claim and thoughtful review . . . of whether to proceed with the case. . . . The evidence presented today established the false and inaccurate assertions by the plaintiff’s U.S. attorney at the heart of the case, and made clear that the Bank of New York did not admit or engage in criminal wrongdoing as the plaintiff’s lawyer has represented in court.”

Notwithstanding frequent assertions to the contrary by lawyers representing Russia in that nation’s $22.5 billion lawsuit against the Bank of New York Mellon (BK), the bank has never admitted “criminal culpability” for a rogue employee’s criminal wire-transfer scheme in the late 1990s, according to a letter recently written to the bank by the federal prosecutor’s office that investigated the bank.

The U.S. Attorney’s Office for the Southern District of New York (in Manhattan) — which investigated the scheme from 1999 until 2006 — made the statement in this letter, dated July 29, which Fortune obtained Tuesday.

The clarification was prompted by the highly unusual case that the Russian Federal Customs Service filed against the Bank of New York Mellon in May 2007. Though the suit is being brought under America’s civil RICO statute — the Racketeer Influenced and Corrupt Organizations Act of 1970 — Russia filed the case in one of its own commercial courts, known as the Arbitrazh Court for the City of Moscow. It appears to be one of the first times anyone has ever filed a RICO suit in a court outside the United States.

As I wrote in this feature story about the case in the Sept. 29 issue of Fortune, there is considerable doubt among experts on the Russian legal system about whether such courts have the judicial independence needed to rule impartially in a high-stakes case in which the Russian government is a litigant.

The suit stems from the conduct of Lucy Edwards, who had been a Bank of New York vice president — one of about 1,700 at that time — when she was terminated in August 1999. Edwards and her husband, Peter Berlin, pleaded guilty in February 2000 to having helped depositors of a Russian bank smuggle about $7.5 billion out of Russia from 1996 to 1999 through accounts Berlin had opened, with Edwards’ assistance, in a Bank of New York branch in Manhattan. The bank was never charged in connection with the case, but did enter into a non-prosecution agreement on Nov. 8, 2005, in which it agreed to pay a $14 million fine, acknowledged various regulatory lapses, and accepted “responsibility” for what had happened.

In that story I reported that federal prosecutors had, in August of this year, issued an amended press release to replace the one that had originally announced the bank’s entry into the non-prosecution agreement. The original press release had, among other things, stated that the bank, by entering into the agreement, “has admitted its criminal conduct.” Steven C. Marks of Miami’s Podhurst Orseck, the plaintiffs lawyer who is acting as Russia’s lead lawyer in the case, has frequently cited the release as proving that the bank has admitted criminal culpability. For instance, at a teleconference he set up for bank analysts July 16 (the evening before the bank’s second-quarter earnings announcement), he cited the release in arguing that the bank had already admitted “criminal responsibility for money-laundering.” (You can listen to the teleconference here.)

But the nonprosecution agreement had actually resolved two criminal inquiries — one pertaining to Edwards’s conduct and the other pertaining to a completely unrelated fraudulent loan scheme aided by managers at a Bank of New York branch in Island Park, N.Y., on Long Island. The amended release clarified that the bank had only admitted criminal conduct in connection with the Island Park inquiry. (Here’s the original release; here’s the amended release.)

As reported in the feature story, when I informed Marks of the amended release, Marks expressed exasperation at the “power” of the bank to “influence” the Justice Department to “potentially help the wrongdoer” in pending civil litigation. But he also insisted that the non-prosecution agreement still amounted to an acknowledgment of criminal conduct by the bank, because the bank had acknowledged “responsibility” for what had happened in that document.

However, in the letter Fortune obtained yesterday and is publishing today, the government appears to reject that argument as well, writing: “While the Bank accepted and acknowledged responsibility for the conduct detailed in the [non-prosecution agreement,] the Bank did not admit criminal culpability with respect to the subject of the SDNY USAO investigation,” i.e., the probe relating to Lucy Edwards.

The letter also notes that “statements in the Press Release . . . are not themselves part of any agreement with the Bank.”

As of this writing, Marks has not yet responded to an e-mail seeking comment on the July 29 Justice Department letter, which I sent to him yesterday at about 12:30 pm Eastern Time.

Why does it matter if the bank has admitted criminal conduct? Two reasons. The first relates to a statute of limitations hurdle Russia faces. Lucy Edwards pleaded guilty in February 2000, yet Russia did not file its suit until May 2007. (The statute of limitations for civil RICO suits is four years and, according to the Bank’s lawyers, the applicable Russian statute is even shorter.) Marks has responded that, whether Russian or U.S. law applies, the statute of limitations is subject to a so-called “discovery rule”; i.e., the statute begins running only once a party discovers that he’s been injured (and by whom).

Under that rule, Marks has argued, the statute should not start running until Nov. 8, 2005, when the bank signed the non-prosecution agreement, because that’s the first time Russia discovered that the bank had been criminally involved. Since the bank had until then always protested its innocence, Marks believed that when it entered into the non-prosecution agreement it suddenly reversed its position. This purported about-face is what, he had argued, reset the statute-of-limitations clock. As he argued at the July 16 teleconference “The bank had . . . represented that it had no role in the criminal activity . . . until November 2005.” That was “the very first time” Russia “became publicly aware of involvement by the bank.” (Listen to “Podcast #3 on Marks’s site, available here.)

The prosecution’s clarification seems to wipe out that argument, since no change actually occurred in the bank’s position. (As a backup argument, Marks also contends that one type of relief he seeks under RICO — “disgorgement” — is an “equitable” form of relief, which is not subject to a rigid statute of limitations, but subject only to a more flexible doctrine of time limitation known as “laches.” But most U.S. courts begin their “laches” analyses by looking to the most analogous statute of limitations, which probably just brings Russia back to civil RICO’s four-year limit. There seems, moreover, to be no good “equitable” reason to grant Russia leniency here, since, as explained in my feature story, U.S. prosecutors actively sought the assistance of Russian authorities with their investigation back in 1999, but appear to have been largely rebuffed at the time. For whatever reason, Russian officials at the time were downplaying the gravity of what Edwards had done, and maintaining that most of her illicit wire transfers had not violated Russian law.)

The second reason that the bank’s purported admission of criminal conduct was important to Russia’s case has to do with jurisdiction. The court in which it has filed its case — the arbitrazh court in Moscow — is a commercial court, and is not authorized to interpret “public laws,” which include criminal laws (even Russian criminal laws, let alone American criminal laws). Russia had hoped to circumvent this problem by arguing that there was no need for the arbitrazh court to interpret U.S. criminal statutes, since the bank had already admitted criminal culpability. Thus, the arbitrazh court would only be required to interpret the civil aspects of the RICO law, which were more arguably within its jurisdiction.

Again, this argument would seem to be weakened, if not obliterated, by the recent clarification made by U.S. prosecutors.

Of course, all of this only matters if the court hearing the case has the judicial independence to rule against the Russian government — a big if.

Pretrial hearings in the case are set to resume in Moscow on Oct. 6.

This fall the U.S. Supreme Court will decide whether to hear a case of great interest to the $1 trillion non-profit healthcare industry: whether that sector, especially non-profit HMOs, will continue to qualify for tax-exempt status.

In 2002, the Internal Revenue Service stripped Vision Service Plan — a national HMO that reimburses for optometry services not covered by most medical plans — of the tax-exempt status it had enjoyed for 42 years, notwithstanding that there had been no change in the applicable laws or regulations and no change, VSP maintains, in its business model.

“This is, in essence, an attack on the non-profit HMO model,” says former independent counsel Ken Starr, who filed VSP’s petition seeking Supreme Court review of the case last month, and who says he expects the Court to rule on the petition in November.

Starr maintains that the case “far transcends VSP,” and is being “very closely watched” throughout the entire non-profit healthcare industry. Starr is now of counsel at his long-time law firm Kirkland & Ellis, as well as dean of the Pepperdine Law School.

Of course, it’s Starr’s job to hype the case — it’s one way to try to persuade the Supreme Court to hear it — but Thomas K. Hyatt, the co-author of the treatise The Law of Tax-Exempt Healthcare Organizations, confirms in an interview that VSP’s case has created significant “problems in the field,” and that it tees up important issues for “all nonprofits arranging for healthcare, which is the way most modern HMOs operate.” By “arranging for healthcare,” Hyatt means those HMOs that send enrollees to networks of participating healthcare providers, rather than requiring that they see staff doctors actually employed by the HMO itself. (Hyatt is a partner at the Baltimore-based Ober Kaler law firm.)

Historically, Hyatt explains, most non-profit HMOs have been eligible for tax-exempt status either under 501(c)(3) or 501(c)(4) of the Internal Revenue Code. Those that used their own staffs of doctors, like Kaiser-Permanente, could often qualify for (c)(3) status, which, unlike (c)(4) status, not only confers exemption from income tax but also provides that donations to the organization will be tax-deductible. Other HMO business models, however, like those that use contracting networks of doctors, could still usually qualify for 501(c)(4) tax exemption, which is what VSP had enjoyed since 1960. (Under the regulations, to qualify for 501(c)(4) status, an organization must be “primarily engaged in promoting … the common good and general welfare of the people of the community.” In the past, providing healthcare services was, itself, considered a service to the community.)

In 1986, Congress amended the law to strip providers of “commercial-type insurance” of their tax-exempt status, in a move that was targeted at many Blue Cross insurers, which were felt to be getting an unfair advantage over their for-profit competitors while operating, in practice, in almost identical ways. But that legislation contained a safe-harbor provision that was widely understood to preserve the tax-exempt status of most nonprofit HMOs. (The provision specifies that “commercial-type insurance” won’t include “incidental health insurance provided by a health maintenance organization of a kind customarily provided by such organizations.”)

VSP continued to enjoin its exemption for another 13 years, but in 1999, shortly after the company expanded from a regional to a national operation, the Internal Revenue Service opened an inquiry into its status. In 2002, without making clear whether the 1986 amendment played any role in its thinking, the IRS revoked VSP’s tax-exemption, effective Jan. 1, 2003, explaining that a nonprofit health care provider that limits its benefits to a class of subscribers (its enrollees) would no longer be eligible for tax exemption unless it also provided some unspecified amount of additional “community benefits.” (Since more than 40% of VSP’s enrollees were participants in Medicaid, Medicare, or comparable state-sponsored programs, and VSP was contributing millions of dollars worth of services each year to charities like Sight For Students, VSP claims that the IRS’s determination was vague and arbitrary.)

VSP began paying taxes in 2003, but it also filed suit that year to recover those taxes. In December 2005, U.S. District Judge Lawrence Karlton of Sacramento ruled for the IRS in an opinion that stressed that VSP was not an actual provider of healthcare services, but an “arranger” of such services. (While this fact had previously been seen as a factor disqualifying an organization from (c)(3) status, it had not been previously thought to disqualify an organization from (c)(4) status.)

Judge Karlton did not discuss the 1986 amendment or its safe harbor. Instead, he focused on the commercial manner in which VSP operated. (Under IRS regulations, an organization isn’t being operated primarily to promote social welfare if it is being operated “in a manner similar to organizations which are operated for profit.”) Judge Karlton emphasized, for instance, that the company earned $34.5 million in net income in 2003 and that the company’s top executives received bonuses drawn from that net income. He also noted the relatively high salaries of its top executives (the CEO had received $395,000 plus bonuses in 2003) and that they enjoyed perks like the use of a “luxury company car.”

VSP appealed to the U.S. Court of Appeals for the Ninth Circuit, which then affirmed in a terse, opaque, three-paragraph ruling that did not discuss the 1986 amendment, its safe harbor, or either issue Judge Karlton had focused upon. Instead, the three-judge panel ruled that VSP was not “primarily engaged in promoting . . . the common good and general welfare of the people of the community” because it was primarily organized to benefit its own “subscribers rather than the general welfare of the community.” The Ninth Circuit’s ruling was also “unpublished,” meaning that, notwithstanding all the attention nonprofit lawyers around the country had been giving the crucial case in hopes of receiving guidance to pass along to clients, lawyers were not supposed to treat the ruling as carrying precedential weight.

VSP’s Supreme Court counsel Starr filed its certiorari petition in August, and last week it received amicus brief support from, among others, the three charities with which it partners in its Sight For Students program: Prevent Blindness America, the National Association of School Nurses, and the National Council of La Raza. The government, represented by assistant to the Solicitor General Gregory G. Garre, is expected to file a response on Oct. 10.

At stake, Starr asserts, is whether the IRS — without having received any direction from Congress — will succeed unilaterally in “driving the healthcare system to a for-profit business model, even though it’s universally agreed that non-profit has been a very efficient and successful model.”

Not since the Reagan administration allegedly classified ketchup as a vegetable to save money on the federal school-lunch program, have the Democrats found such a potent symbol of Republican callousness. But Republicans insist that this latest purported gaffe is a complete fabrication.

As many blogs have reported, the Obama campaign and the Democratic National Committee have sued the Macomb County (Michigan) Republican Party, the Michigan Republican Party and Republican National Committee to prevent them from pursuing an outlandishly unseemly “voter suppression” tactic which Republican officials have already disavowed ever having contemplated: a plan to challenge voters’ residency qualifications if their homes have recently been foreclosed.

The complaint, filed in federal court in Detroit, is here.

The suit was triggered by this controversial article in the Michigan Messenger, an online political daily published by the nonprofit Center for Independent Media.

In the article, which came out September 10, writer Eartha Jane Melzer quoted James Carabelli, the chairman of the Republican Party of Macomb County, Michigan (a northeastern section of the Detroit Metropolitan area), as saying, “We will have a list of foreclosed homes and will make sure people aren’t voting from those addresses.” The plan, according to the article, was to mount challenges to voters who’d lost their homes on the theory that they might no longer reside within the precincts where they were registered. (According to RealtyTrac, a site that monitors foreclosures nationwide, Detroit led the nation in foreclosures in 2007, with close to 72,616 filings, reflecting almost 5% of all households.)

Carabelli responded a few days later with this press release, asserting that “The story is not true. The Michigan Messenger made it up.” He also demanded a retraction.

The state Republican party chairman, Saulius Anuzis, condemned the story in the same release, saying: “What we have here is a liberal blog funded by a liberal billionaire pushing a fabricated story that supports a liberal agenda. Never in my 30 years in politics have I seen the mainstream media pick up such a completely false and utterly ludicrous story as this one and run with it with such glee.” (The Messenger describes itself as “As a coalition of long-time progressive bloggers, freelance writers and professional journalists,” and the Center for Independent Media is partly funded by George Soros’s Open Society Institute.)

The Messenger has stood by its story. Reporter Meltzer’s editor, Jefferson Morley, wrote here that Melzer’s “notes show that she asked [Carabelli] about plans to have election challengers at the polls on Election Day. As they spoke, she typed a question about Republican voter challengers: ‘How will they know if the addresses match? How will you know which addresses to check?’ Her notes show that Carabelli responded, ‘We will have a list of foreclosed homes and will make sure people aren’t voting from those addresses.’ Melzer’s notes then show she asked a follow-up question: ‘How will you know people are who they say they are?’ Carabelli responded, ‘I would rather not tell you all the things we are doing.’”

It is, of course, not unusual for Republican Party officials to organize “election integrity” or “ballot security” challenges in what they say are efforts to prevent voter fraud; Democratic Party officials routinely decry these efforts as voter intimidation and voter suppression, and they have from time to time sued to stop them — sometimes successfully. Melzer’s story quotes two additional Michigan Republican Party officials as confirming that the party is, indeed, “gearing up for a comprehensive voter challenge program” for the upcoming Presidential election, and nobody has disavowed that portion of the story.

During the last presidential election, the DNC sued to stop a Republican attempt to challenge the residency of 35,000 voters in Franklin County, Ohio (around Columbus), two weeks before the election. In that instance, party officials sent letters to voters, and if the letters were returned to sender the voter’s residency was challenged. A federal judge in Columbus enjoined the effort, finding that the “timing and manner” of the challenges likely violated the voters’ constitutional and statutory rights, and an appeals court affirmed.

In the lawsuit filed Tuesday, attorneys for Obama for America acknowledge that Macomb County Republicans now deny having ever planned to use foreclosure notices to mount voter challenges, but they characterize these protestations as “public relations maneuvers under pressure” which provide “little comfort when compared with the Defendant Republicans’ clear statements on the record of their plans and their long history of voter suppression tactics.”

Chris Taylor, a spokeperson for the Republican National Committee says, “The RNC would not, has not, will not use foreclosure lists as a basis of any challenge lists.” He continues, “The Democrats have hung quite a bit on this one quote in a liberal blog post that’s been challenged as inaccurate, and we need to know what else they have to support their claim.”

(Foreclosure proceedings, even if they force a homeowner to move, will not necessarily affect his or her voter registration, but the precise rules vary locally. According to a press release issued by the county clerk for Macomb County: “A registered voter who moves from one precinct to another within the same city or township may vote one last time in the precinct where registered. A registered voter who moves from one Michigan city or township to another can vote one last time in the precinct where registered if the move was made within 60 days of the election.”)

For people looking for distractions from the fact that their 401k’s have recently vanished, here are a couple odds and ends.

Dan Levine at Cal Law’s Legal Pad (no affiliation to this site and, mea culpa, they were apparently using the Legal Pad name first) has this update on class-action impresario Bill Lerach’s rocky adjustment to life in the federal prison system. Lerach’s been transferred to a medium-security institution in Phoenix, Levine reports, after an incident at the minimum-security camp in Lompoc, Calif., in which he allegedly offered a guard the use of his San Diego Chargers tickets.

For a very unrelated curiosity, try this Web site called beautifullawyers.com, where you can buy a calendar displaying 12, physically attractive Massachusetts lawyers. (Should that be the 12?) They include both men and women, and the clothing is revealing only in a socioeconomic sense. Proceeds allegedly go to charity.

The “Beautiful Lawyers” logo includes, as the “i” in word ‘beautiful,’ a statuette of a statuesque woman holding something; I’m not sure, but it seems to be a hand-mirror, of the “Whose the fairest of them all?” variety. I’ve been badly scooped on this story, I should admit; Karen Donovan at Portfolio.com did this item on it three months ago.

With this morning’s Chapter 11 filing by Lehman Brothers’ parent company (LEH), we’re about to find out whether the bankruptcy laws cushion the impact of a behemoth investment bank’s insolvency on our financial system — as intended — or if those laws, instead, inadvertently exacerbate the problem. The rules have never been tested as they’re about to be.

“I think it’s a really scary time right now,” says Ed Morrison, a professor and bankruptcy expert at Columbia Law School.

In essence, Morrison explains, bankruptcy laws have evolved since 1978 in ways that actually leave investment banks like Lehman Brothers less protected than most debtors would be from hordes of creditors “descending on [it] and tearing it apart,” as Morrison puts it.

But those laws have been written specifically for the purpose of limiting systemic harm from a collapse like Lehman’s, and averting financial meltdown. Whether they really work that way in practice is what no one really knows.

First, the basic facts: Lehman Brothers’ holding company has filed for Chapter 11 bankruptcy protection, but none of the U.S. subsidiaries have. As a practical matter, its brokerage-dealer subsidiaries, asset management unit, and investment management division are all supposed to continue operating as normal.

All U.S. divisions still remain under control of management, and the expectation is that Lehman will try to sell the most attractive operating divisions while liquidating the rest. (Individual investors who have accounts with Lehman’s broker-dealer subsidiaries are supposed to be protected, as their assets are not available to Lehman’s creditors, and their accounts are further protected by the federal Securities Investor Protection Corporation.)

Here’s what makes the bankruptcy of an investment bank unusual. An ordinary bankruptcy petitioner, like an airline or a steel mill, gets immediate protection from its biggest creditors by the operation of law: as soon as it files for bankruptcy, an “automatic stay” takes effect which prevents those creditors from going forward with lawsuits and seizing the debtor’s assets. Metaphorical runs on the bank are prevented, and management gets time to organize its affairs in a way that will, theoretically, maximize value for all creditors, and maybe even allow the company to reemerge in sound health.

With a financial institution, however, the automatic stay offers no protection against many of its most important creditors. In a trend that began in 1978 and was greatly expanded in amendments passed in 2005, most financial contracts — including securities contracts, swaps, repurchase agreements, commodities contracts, and forward trades — are unaffected by automatic stays.

Worse still, as soon as Lehman’s parent corporation goes into bankruptcy, that event (under the contractual language governing most of these) triggers default, allowing the counterparty — the bank or other institution that entered into the deal with Lehman — to immediately accelerate or cancel the contract and seize whatever collateral may cover it.

Why? The thinking, Morrison explains, was that if an investment bank like Lehman ever failed, all its counterparties (like, say, a Bank of America) could extricate themselves immediately from Lehman’s troubles rather than getting mired in a bankruptcy proceeding.

“They won’t be locked in and dragged down with Lehman,” Morrison says. The laws will — theoretically — minimize risk of market meltdown.

Now comes the downside potential. The risk is that lots of these commercial counterparties will choose to terminate their financial contracts with Lehman — say, for instance, credit default swaps — all at once, and then try to rehedge themselves all at once, causing the market to seize up.

“This was one of the big fears that led to the federal government decision to orchestrate a bailout of Long Term Capital Management in the 1990s,” he says.

The International Swaps and Derivatives Association (ISDA) held a special trading session yesterday — on a Sunday — in an effort to “mitigate counterparty credit risk” stemming from the events going on at Lehman, according to a press release the group issued. But it’s far from clear if these kinds of efforts will do the trick.

“The lesson of all this,” says Morrison, “is that once a major institution has hit major distress, there’s nothing bankruptcy law can do. It’s too late. What’s needed is either federal intervention, or federal oversight earlier in the process” to prevent the faulty decisions that led to insolvency.