Should federal court jurisdiction be expanded, and what effect would an expansion have on the judiciary? Alongside three legal experts, I discussed this question at a panel event hosted by the Federalist Society earlier in June. The discussion kicked off the National Association of Manufacturers’ Center for Legal Action’s Restore Our Courts initiative and centered around the primary criticism of expanding diversity jurisdiction – the impact on federal court caseload.
In my latest study, “Estimating the Impact of a Minimal Diversity Standard on Federal Court Caseloads,” I found that these concerns are largely unfounded. Empirical analysis of almost 3,600 complaints filed in state court shows that replacing complete diversity with a minimal diversity standard would increase existing federal district court caseloads by an estimated 7.7 percent. This translates to an additional 43 cases per year for each judgeship – an inconsequential amount, with great potential to restore the balance in the United States judicial system.
As the Founding Fathers intended, diversity jurisdiction protects out-of-state residents from potentially biased state courts. It is meant to ensure that commercial cases would be heard in an impartial forum to protect foreign litigants from local bias. The traditional diversity statute has been interpreted by the courts to require “complete diversity,” where there cannot exist a common state citizenship between any plaintiff and any defendant. But Article III of the U.S Constitution only requires a “minimal diversity” standard for federal diversity jurisdiction, where at least one plaintiff and one defendant must be diverse in state citizenship.
State courts operating under a complete diversity standard open the door to harmful bias and costly lawsuits. Empirical evidence indicates that, compared to federal judges, many state judges tend to favor in-state plaintiffs over out-of-state defendants. This could be due to the intensifying politicization of state courts and state judicial elections where state court judges rely on voters for reelection and thus conform to the preferences of in-state litigants who are also voters.
Countless examples exist of overt bias in state courts, with state judges favoring local litigants and plaintiffs’ attorneys over out-of-state corporate defendants. State courts in Madison County, Illinois have been accused of favoring plaintiffs’ lawyers over out-of-state corporations in asbestos litigation. In fact, approximately one-third of all asbestos injury suits in the United States are brought in this single rural county.
It is clear that biases against out-of-state and corporate litigants continue to thrive today. Returning to the minimal diversity standard required by the Constitution would extend protection against these biases, enhancing fairness in our civil court justice system and discouraging speculative litigation. Most importantly, to the critics of this effort who cite an increased burden on federal court caseload, I say – an additional 43 cases per year is a small price to pay for equal justice.
Copyright © Emory University School of Law 2015 – All Rights Reserved
On July 22, 2015, the Bureau of Industry and Security (BIS), an agency of U.S. Department of Commerce, amended the Export Administration Regulations (EAR) to reflect Cuba’s removal from designation as a State Sponsor of Terrorism. The Secretary of State rescinded Cuba’s designation on May 29, 2015.
As part of Cuba’s removal from designation as a State Sponsor of Terrorism, BIS amended the EAR to remove references in the text associating Cuba with terrorism. It also removes anti-terrorism (AT) license requirements from Cuba. Finally, BIS amended the EAR to remove Cuba from Country Group E:1, although Cuba remains on the Country Group E:2 list.
These amendments to the EAR affect certain license requirements and exceptions that apply to exports to Cuba. Specifically, the EAR apply to items that contain more than a de minimis amount of U.S.-origin content. For exports to most countries, that de minimis amount is 25 percent, but for exports to countries on the Country Group E:1 list, that de minimis amount is 10 percent. Exports of most items to Cuba are now also subject to the 25 percent de minimis rule. Yet, foreign-made items destined for Cuba that incorporate certain U.S.-origin 600 series content continue to be subject to the EAR regardless of level of U.S.-origin content.
Additionally, Cuba’s removal from the Country Group E:1 list makes exports to the country eligible for four new license exceptions including:
- License Exception Servicing and Replacement of Parts and Equipment (RPL);
- License Exception Governments, International Organizations, International Inspections Under the Chemical Weapons Convention and the International Space Station (GOV);
- License Exception Baggage (BAG); and
- License Exception Aircraft, Vessels and Spacecraft (AVS).
Despite these changes, it is important to remember that Cuba is still subject to a comprehensive embargo. Licenses are still required to export or reexport to Cuba any item subject to the EAR unless authorized by a license exception. Those who would like to export items authorized by license exceptions may only use license exceptions listed in 15 CFR 746.2(a).
©2015 Drinker Biddle & Reath LLP. All Rights Reserved
Anti-bribery and corruption has been a hot topic in the US for almost 40 years. The topic has historically however received much less attention within Europe. That is now changing as Europe is beginning to catch up and many European countries have already implemented anti-bribery laws much stricter than those in the US. Recent events have put the topic back on the agenda and we can expect further debate on the effectiveness and efficacy of enforcement in Europe.
The levels of perceived corruption within Europe are generally quite good. Transparency International publish an annual Corruptions Perceptions Index which shows the perceived levels of corruption in 175 countries globally. In its 2014 report, the average score across the EU and Western Europe was 66 (with 0 being highly corrupt and 100 being very clean), much better than the global average of 43. Even those countries with the lowest scores in the EU and Western Europe, being Greece, Romania and Italy, had a score of 43, consistent with the global average. Seven of the top 10 least corrupt countries are actually in Europe (Denmark, Finland, Sweden, Norway, Switzerland, Netherlands and Luxembourg).
Over the last five or so years, countries within Europe have been overhauling their existing, in many cases insufficient, anti-bribery regimes and some countries have implemented anti-bribery laws for the first time. We consider some of the specific regimes below along with their differences and similarities. The majority, if not all, are actually stricter than the laws in the US. The differences of the laws in Europe to the laws in the US have been somewhat of a surprise to many organisations who currently comply with the laws in the US and who don’t necessarily realise that they now need to enhance their practices to comply with more stringent regimes.
What’s Been Happening Across the Pond?
In the US, the Foreign Corrupt Practice Act (FCPA) came into force on 19 December 1977. The FCPA criminalises the paying or offering of a bribe to a foreign official, although the public official themselves do not commit an offence by receiving the bribe. The FCPA requires organisations to have accounting and other controls in place to prevent and detect bribery, but does not specifically require broader anti-bribery programmes. As well as US organisations, the FCPA has extraterritorial reach and catches any other organisation that uses any means of US commerce, including mails, emails, faxes, bank transactions, and similar acts.
Top of the Class: the Uk
Much of the change in approach within Europe and indeed further afield has arguably been led by the introduction in the UK of the Bribery Act 2010 (Bribery Act), which came into force on 1 July 2011, and which is thought to be the strictest anti-bribery legislation in the world.
Similarities between the FCPA and the Bribery Act Differences between the FCPA and the Bribery Act
The Bribery Act has a wide territorial reach. It extends not only to offences committed in the UK but also to offences committed outside the UK where the person committing them has a close connection with the UK by virtue of them being a British national or ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership. For corporations, the corporate offence in the Bribery Act extends to UK as well as non-UK organisations that carry on business or part of a business in the UK. So, for example, a Spanish company that exports to the UK can be in breach of the corporate offence for bribery occurring in Spain, even though that bribery does not involve any UK connected person.
The penalties available for breaches of the Bribery Act are severe. They include an unlimited fine, up to 10 years in prison, and orders for directors to be disqualified. Companies can also be prohibited from public procurement and the proceeds from the bribe, for example the monies gained from a contract obtained through corruption, can be confiscated. Penalties under FCPA are slightly less severe with fines being capped to US$2 million (for corporations) and imprisonment for individuals being limited to a maximum of five years.
All Bribes Are Caught, Even Business-to-Business!
Arguably the single most important difference between the Bribery Act and the FCPA is that the Bribery Act prohibits the offering or receiving of a bribe and the bribery of Foreign Public Officials. Unlike the FCPA, the Bribery Act therefore captures private (business to business) bribery and also makes it an offence to receive a bribe as well as pay/offer to pay one. Directors and senior managers can also be found guilty of an offence if their organisation commits one of these offences with their consent or connivance.
Facilitation Payments are payments made to expedite or secure the performance of a “routine government action”. The FCPA expressly authorises such payments. In the UK, such payments are prohibited under the Bribery Act.
The Corporate Defence
The Bribery Act also introduces a corporate offence of failing to prevent a bribe being paid, for which it will be a defence for an organisation to show that it has “adequate procedures” in place to prevent such bribery. Guidance produced by the UK Ministry of Justice explains that these “adequate procedures” need to be guided by six principles: Top-level commitment; Risk assessment; Proportionate procedures; Due diligence; Communication (including training) and Monitoring and review. As stated above, FCPA only requires accounting and other controls to prevent and detect bribery, nothing broader.
Other EU Member States
Most EU Member States have enacted anti-bribery laws with heavy fines. When compared to the Bribery Act, however, such laws are generally more limited in scope and tend to focus on bribery of public officials. Most are however at least consistent with FCPA.
In France, most of the French anti-corruption provisions relevant to businesses are laid down in the French Criminal Code and relate to both the public and private sector and both the offeror and the recipient. Like the UK, the law in France also has an extraterritorial reach and will interestingly apply amongst other situations, where the victim of the bribe is a French national. Penalties for breach of French laws include imprisonment for, in some cases, up to 15 years and financial penalties including, for companies, fines of, in some cases, up to €5 million or twice the amount of the proceeds stemming from the offence. Unlike the UK, there are in France, however, no legal requirements for implementing preventive procedures.
Germany’s anti-bribery laws are contained in the Criminal Code, which prohibits offering, paying or accepting a bribe in domestic or foreign transactions. Separately, civil liability can, if certain criteria are met, attach to companies for offences committed on their behalf due to the Administrative Offences Act. Owners/managers can also be found liable in certain situations. Penalties include five years’ imprisonment (10 years’ imprisonment in severe cases involving a member/official of a public body), a criminal fine and confiscation of monies obtained from the bribe. The Criminal Code also applies to offences committed abroad. One of the key cases to be enforced in Germany was that against Siemens AG, who paid German authorities almost €600 million in fines after they were investigated for paying bribes to secure public-works contracts in a number of countries. This was in addition to fines paid in the US for breaching FCPA.
In the Netherlands, anti-corruption and bribery laws are predominantly aimed at attempts to bribe public officials. Unlike the UK, Dutch law has relatively limited jurisdictional reach. For example, a foreign non-Dutch company that has committed acts of bribery of a non-Dutch foreign official outside the Netherlands is not subject to the criminal laws of the Netherlands. The maximum penalty under Dutch law is a fine of €740,000 for each case of bribery and for individuals, imprisonment for four years (one year for private commercial bribery) and a fine of up to €74,000.
While most Member States have clearly improved their anti-bribery regimes in recent years, what seems to be the biggest hurdle is insufficient enforcement and the considerable differences in the enforcement levels across Europe, in particular when it comes to bribery abroad. Relying on the UK (or the US) will soon stretch the already limited resources that individual countries can bring to bear. It seems that the European Union itself will take action in the foreseeable future. Certainly there would be jurisdictional concerns as regards the criminal aspects for individuals, but the Commission’s war on cartels has shown that it is well-suited to enforcing policy. Currently, however, the Commission contends itself with issues in a biannual report on corruption in each Member State.
Given the extra-territorial reach discussed above, European businesses need to make sure that they are compliant with all the different antibribery laws that could affect their business. This is not only the laws in their own countries, but also the laws abroad. Many organisations acting internationally and globally are seeking compliance with the Bribery Act as compliance with the Bribery Act should be sufficient to also achieve compliance with any other anti-bribery legislation.
Puerto Rico Supreme Court: Former Exec Cannot Sue Individual Board Members for Breach of Employment Contract
A former employee cannot sue individual members of a corporation’s board of directors for breach of an employment contract and negligence in execution of fiduciary duties, where: 1) the individual board members are not parties to the employment contract; and 2) the employee and his relatives are not shareholders with standing to sue board members for alleged breach of fiduciary duty, the Puerto Rico Supreme Court has held. Randolfo Rivera San Feliz et al v. Junta de Directores de Firstbank Corporate et al., 2015 TSPR 61, 196 DPR ___ (2015).
Plaintiff Randolfo Rivera was a former executive of a banking entity in Puerto Rico. The terms of his employment were established in a contract with the bank. The contract provided that any decision regarding the contract, including termination of employment, had to be approved by at least two-thirds of all the members of the bank’s board of directors. The contract also contained a clause requiring arbitration of any controversy regarding the interpretation of the employment contract.
The bank terminated Rivera’s contract in June of 2010. He filed a lawsuit against the bank in Puerto Rico Superior Court, alleging unjust dismissal and breach of contract under the law of Puerto Rico. While this litigation was pending, Rivera filed a separate lawsuit against each member of the board of directors, requesting damages for breach of contract and alleged negligence in the execution of their fiduciary duties. He asserted the board members wrongfully allowed his termination in violation of his employment contract. Rivera’s partner, children, and siblings were included as co-plaintiffs in the second lawsuit, each alleging emotional and economic damages arising out of the employment termination.
The initial lawsuit between Rivera and the bank was dismissed by the court for lack of jurisdiction in light of the employment contract’s arbitration provision.
The second lawsuit, against the board of directors, also was dismissed at the pleadings stage. The court held Rivera and his family may not sue individual members of the board of directors for violation of their fiduciary duty, because such a claim was available only to shareholders of a corporation through a derivative action and neither Rivera nor his relatives were shareholders. Rivera and his relatives appealed the dismissal of this lawsuit and the case eventually came before the Puerto Rico Supreme Court.
Puerto Rico’s highest court upheld dismissal of the action because a non-shareholder does not have standing to sue individual directors of a corporation for an alleged violation of their fiduciary duty. The Supreme Court reiterated that a breach of fiduciary duty claim requires an existing relationship between plaintiffs and defendants, such as the one that exists between shareholders and a corporation’s board of directors. The Court also held that the board of directors could not be liable for breach of contract because it was the corporation, and not the individual members of the board, that was a party to the contract.
Associate Justice Annabelle Rodriguez-Rodriguez dissented. She noted that the employment contract at issue had a clause that was undisputed which provided for arbitration of all controversies related to interpretation of the contract. Since the second lawsuit was based on alleged breach of fiduciary duty arising out of the termination of the contract, she would have dismissed for lack of jurisdiction in light of the arbitration clause and abstained from analyzing the nature of the claims for purposes of a standing issue.
In light of Puerto Rico law governing employee terminations, employers should tread carefully when drafting employment contracts that contain specific reasons for termination, as well as notification requirements.
USCIS announced that Deferred Action for Childhood Arrivals (DACA) recipients of employment authorizations documents (EAD) after February 16, 2015, with validity longer than two years, were “likely mistakenly issued and must be returned.” According to a USCIS Factsheet:
“Individuals who are required to return three-year EADs and have not done so will be contacted by USCIS by phone or in-person. For the purpose of retrieving these three-year EADs, USCIS may visit the homes of those individuals who have not yet returned their invalid 3-year EAD or responded to USCIS. When contacting individuals in person, the USCIS employees will show the individuals their credentials. USCIS will make every attempt to call the individual in advance of the visit…
The reason for this action is that, after a court order in Texas v. United States, No. B-14-254 (S.D. Tex.) was issued, USCIS could approve DACA deferred action requests and related employment authorization applications only for two-year periods.”
EADs mailed before February 16, 2015 are not subject to this requirement as they were issued before the court injunction.
Further information and contact details can be found on the USCIS factsheet.
On June 29, 2015, President Barack Obama signed the Trade Preferences Extension Act (the Act) into law. In addition to containing several revenue offsets, the Act significantly increased penalties for incorrect information returns, including those required by the Affordable Care Act (ACA).
The Internal Revenue Service (IRS) may impose penalties for both failing to file and filing incorrect or incomplete information returns and/or payee statements after the due dates for such forms pursuant to Internal Revenue Code Section 6721 and 6722. These penalty provisions apply to a variety of information reporting requirements including Forms W-2 and 1099, and now more recently to Forms 1094-B, 1095-B, 1094-C, and 1095-C relating to compliance with the ACA.
Below we have summarized a few of the notable penalty changes made by the Act.
|Description||Old Penalty Amount||New Penalty Amount|
|Penalty for filing incorrect returns (per return)||$100||$250|
|Penalty for incorrect returns if corrected within 30 days (per return)||$30||$50|
|Penalty for incorrect returns if corrected by August 1
|Penalty for intentionally disregarding to file timely and correct returns||$250||$500|
|Maximum penalty per calendar year||$1,500,000||$3,000,000|
|Maximum penalty per calendar year if corrected within 30 days||
|Maximum penalty per calendar year if corrected by August 1||
Keep in mind that the final ACA regulations provide that penalties will not be imposed on entities that show they made good faith efforts to comply with the reporting requirements for 2015. The IRS has indicated that anuntimely filed form will not meet the good faith requirement. Should the requirements regarding ACA reporting not be met due to good faith requirements, the penalties may be still be waived if the failure was due toreasonable cause.
Because the penalties for incorrect forms are applied with respect to each incorrect form, it may be advisable, where possible, to take advantage of the combined form reporting where authorized. For example, an employer may use one Form 1094-C to transmit all Forms 1095-C rather than multiple Forms 1094-C.
In summary, employers should be aware that larger fines now exist for failures in reporting and the penalties apply to each incomplete or incorrect form. For example, intentionally incorrect information with respect to one employee could result in a penalty of $500 for both the Form 1095-C filed with the IRS and the Form 1095-C provided to the employee, for a total of $1,000 for that one employee. Furthermore, it is important to file all forms in a timely manner to show good faith under the ACA transition rule for 2015 Forms.
Most people have experienced a “pocket dial” – be it as the sender or receiver – and some have found themselves in embarrassing situations as a consequence. But should people reasonably expect that conversations overhead during a “pocket dial” call are private and protected? Should the recipient feel obligated to end the call? The Sixth Circuit says no.
Yesterday, the Sixth Circuit decided whether a reasonable expectation of privacy exists with respect to “pocket dialed” communications. Carol Spaw, assistant to the CEO of Cincinnati/Northern Kentucky International Airport, received a call from James Huff, chairman of the airport board. It didn’t take long for Spaw to figure out that she had received a pocket dial, and that the conversation in the background was not intended for her ears. Spaw stayed on the line for an hour and a half – taking notes and recording the audio as Huff discussed private business matters with another board member, and later with his wife. Spaw sent the recording to a third party company to enhance the quality, and shared the recording with other board members. Huff and his wife sued Spaw for intentionally intercepting their private conversation in violation of Title III of the Omnibus Crime Control and Safe Street Act of 1968. The district court granted summary judgement in favor of Spaw, finding no “reasonable expectation” that the conversation would not be heard. On appeal, the Sixth Circuit affirmed in part, reversed in part, and remanded.
Title III only protects communication when the expectation of privacy is subjectively and objectively reasonable. The Sixth Circuit agreed with the district court that James Huff did not have a reasonable expectation that his conversation was private. Although Mr. Huff did not deliberatelydial the call, he knew that “pocket dials” were possible, and did not take any precautions to prevent them. The court analogized Huff’s situation to a homeowner who neglects to cover his windows with drapes; under the plain view doctrine, the homeowner has no expectation of privacy in his home when the windows are uncovered. Huff could have easily utilized protective settings on his phone to prevent pocket dials.
The Sixth Circuit reversed with respect to Bertha Huff’s claim. Bertha Huff was communicating with her husband in the privacy of a hotel room. She had a reasonable expectation of privacy in that context, and she was not responsible for her husband’s pocket dial. The Sixth Circuit feared that affirming the district court’s decision with respect to Bertha’s claim would undermine what we currently consider a reasonable expectation of privacy in face-to-face conversations. The court remanded the case back to the district court to decide whether Spaw’s actions made her liable for “intentionally” intercepting oral communications.
The Sixth Circuit’s decision leaves us with this: if you receive a pocket-dialed call, feel free to listen, record, and share (but be wary of the privacy interest of the other participants in the conversation); if you are a pocket dialer, lock your phone.
A panel appointed by New York Governor Andrew Cuomo recommended a minimum hourly wage increase to $15 for fast food service workers on Wednesday. The recommendation comes just three months after Governor Cuomo tasked the state’s acting Labor Commissioner to empanel a Wage Board to investigate and make recommendations on increasing the minimum wage in the fast food industry.
The Labor Commissioner now has to adopt the recommended changes, but it is largely expected that he will, even if he first makes minor changes. The minimum wage hike would be phased in over time, with the first increase to $10.50 for City fast food workers and to $9.75 for State fast food workers coming at the end of the year. The minimum wage rate for City workers would then rise by $1.50 each year for the next three years until it tops out at $15 in 2018. For the rest of the State, the wage rate would rise incrementally each year until it tops out at $15 in 2021.
The wage order covers Fast Food Employees working in Fast Food Establishments. Fast Food Establishments mean any establishment in the state of New York serving food or drink items:
where patrons order or select items and pay before eating and such items may be consumed on the premises, taken out, or delivered to the customer’s location;
which offers limited service;
which is part of a chain; and
which is one of thirty (30) or more establishments nationally, including: (i) an integrated enterprise which owns or operates thirty (30) or more such establishments in the aggregate nationally; or (ii) an establishment operated pursuant to a Franchise where the Franchisor and the Franchisee(s) of such Franchisor owns or operate thirty (30) or more such establishments in the aggregate nationally.
Fast Food Employee covers anyone whose job duties include at least one of the following: customer service, cooking, food or drink preparation, delivery, security, stocking supplies or equipment, cleaning, or routine maintenance.
San Francisco, the City of Los Angeles and Seattle each have raised their minimum wage rates to $15 for all employees. But New York becomes the first state to do so, even though it is limited to the fast food industry. Many believe this hike will serve as a precursor to wage hikes in other low wage industries and possibly state-wide. Similar efforts are being made on the left coast, where on the same day that the New York Wage Board released its recommendations, the County of Los Angeles Board of Supervisors voted for a $15 minimum wage. Moments later, the University of California, which employs nearly 200,000 workers statewide, announced that it will pay its workers at least $15/hr. We will continue to track these developments.
U.S. Customs and Border Protection (CBP) has announced that it will begin collecting biographic and biometric data from some foreign national travelers in a test program when they depart the United States at Atlanta’s Hartsfield-Jackson International Airport
The biometric and departure data will be collected through use of an “enhanced mobile device” that will allow CBP to record exit information efficiently and streamline inspection queries for foreign national travelers. All test passengers will have their fingerprints and passports scanned by a CBP Officer using the mobile device on the loading bridge of selected flights departing the U.S. Each traveler’s departure data will be matched to the digital biometrics information that was collected when he or she arrived in the country. This information will be stored and managed by the U.S. Department of Homeland Security (DHS). Only non-U.S. citizens will have their information collected and processed.
The test program is expected run through June 2016, eventually expanding beyond Atlanta into the following major air travel ports: Chicago, Dallas, Houston, Los Angeles, Miami, Newark, New York, San Francisco, and Washington-Dulles.
“Not too hard, not too soft,” says the Supreme Court in FTC v. Actavis, 133 S. Ct. 2223 (2013). The majority tries to reach middle ground by rejecting both the FTC’s argument that any reverse payment in settlement of a patent claim is presumptively unlawful and Actavis’ argument that any settlement within the scope of the patent is permissible, but is the court’s new “rule of reason” approach really “just right?” Let’s see how this plays out in a simple scenario using a product whose success everyone loves to hate—the Snuggie.
Meet Peter. He has a pug with whom he likes to spend his evenings, wrapped up in a Snuggie, watching movies and sharing popcorn. Peter was quite dismayed, though, to see his poor little pug shivering and cold without a Snuggie of his own. So, Peter invented the Puggie. He used special fibers formulated specifically to maintain heat while resisting odors because no one likes a smelly dog blanket. Peter even obtained a patent on his Puggie and began producing more to sell around his neighborhood, the Franklin Terrace Community. Once word spread of Peter’s success, however, several of Peter’s neighbors began producing competing products—the Pug Pelt, the Schnauzzie, and so on–which boasted the same odor-resistant properties as Peter’s Puggie.
Outraged, Peter publicly accused his competitors of patent infringement and demanded that they stop producing their “piddly dog pelts.” But they refused, claiming their fibers were different. Knowing how costly an extensive fiber dispute could be, Peter offered his competitors $1,000 to stop producing their competing pelts for a period of two years. The other pelt producers agreed, took the money, and stopped production immediately. The Franklin Terrace Community, however, was not pleased. Peter had not only run off the competition, but he had also bumped the Puggie price up afterward, making a killing during the chilly winter as the sole pelt producer. Community members petitioned the homeowners’ board for some guidance on whether Peter’s payment constituted an unfair trade practice. Peter opposed the petition and claimed that he had the right to pay whatever amount he deemed fit to protect his patent.
The board found the community’s argument that any “reverse settlement” payment by a patent holder is presumptively unlawful to be too harsh. Peter’s assertion, however, that any payment is immune from attack so long as it remains within the scope of the patent was believed to be too soft. Peter complained that the money and time he would have to commit to an extensive patent lawsuit over his odor-resistant fibers would put him out of business, but the board believed that his willingness to drop a grand to keep his competitors at bay was a much more accurate representation of Peter’s confidence in his patent. Specifically, the board found Peter’s payment of $1,000 to be a “strong indicator of power.” In an effort to come up with a more “middle of the road” approach, the board created the “rule of reason” to determine the legality of reverse settlement payments. No real guidance was provided, though, on how to apply the new rule—just not too hard, not too soft.
Without any elaboration on how this new “rule of reason” is to be applied in antitrust lawsuits, did the board cause more confusion than clarity? And, how large must a reverse settlement payment be to stand as an “indicator of power” and “lack of confidence” in the patent? If Peter’s patent was iron-clad and his competitors were infringing, should he have had the right to pay any amount he deemed fit to protect his patent, or was $1,000 too much for some piddly pooch pelts? Does this unfairly prohibit Peter from settling litigation that he may see as too costly or damaging? Or, does the need to protect consumers from the Puggie monopoly Peter created outweigh Peter’s patent rights?
It is hard to say exactly what effect the Supreme Court’s “rule of reason” decision in FTC v. Actavis will have on future antitrust litigation. We are likely to see an increase in the number of antitrust suits that are tried as opposed to settled. What do you make of this amorphous, middle-of-the-road approach?
Recently, the Senate passed the Every Child Achieves Act to replace No Child Left Behind, which was seven years past the reauthorization date. This bipartisan agreement was shepherded through the Senate by the Senate Health, Education, Labor, and Pensions Chairman Lamar Alexander (R-Tenn.) and Ranking Member Patty Murray (D-Wash.)
What the Every Child Achieves Act Does
Strengthens state and local control – The bill recognizes that states, working with school districts, teachers, and others, have the responsibility for creating accountability systems to ensure all students are learning and prepared for success. These accountability systems will be state-designed but must meet minimum federal parameters, including ensuring all students and subgroups of students are included in the accountability system, disaggregating student achievement data, and establishing challenging academic standards for all students. The federal government is prohibited from determining or approving state standards.
Maintains important information for parents, teachers, and communities – The bill maintains the federally required two annual tests in reading and math in grades 3 through 8 and once in high school, as well as science tests given three times between grades 3 and 12. These important measures of student achievement ensure that parents know how their children are performing and help teachers support students who are struggling to meet state standards. A pilot program will allow states additional flexibility to experiment with innovative assessment systems. The bill also maintains annual data reporting, which provides valuable information about whether all students are achieving, including low-income students, students of color, students with disabilities, and English learners.
Ends federal test-based accountability – The bill ends the federal test-based accountability system of No Child Left Behind, restoring to states the responsibility for determining how to use federally required tests for accountability purposes. States must include these tests in their accountability systems, but will be able to determine the weight of those tests in their systems. States will also be required to include graduation rates, another measure of academic success for elementary and middle schools, English proficiency for English learners. States may also include other measures of student and school performance in their accountability systems in order to provide teachers, parents, and other stakeholders with a more accurate determination of school performance.
Maintains important protections for federal taxpayer dollars –The bill maintains important fiscal protections of federal dollars, including maintenance of effort requirements, which help ensure that federal dollars supplement state and local education dollars, with additional flexibility for school districts in meeting those requirements.
Helps states fix the lowest-performing schools – The bill includes federal grants to states and school districts to help improve low-performing schools that are identified by the state accountability systems. School districts will be responsible for designing evidence-based interventions for low-performing schools, with technical assistance from the states, and the federal government is prohibited from mandating, prescribing, or defining the specific steps school districts and states must take to improve these schools.
Helps states support teachers –The bill provides resources to states and school districts to implement activities to support teachers, principals, and other educators, including allowable uses of funds for high quality induction programs for new teachers, ongoing rigorous professional development opportunities for educators, and programs to recruit new educators to the profession. The bill allows, but does not require, states to develop and implement teacher evaluation systems.
Reaffirms the states’ role in determining education standards – The bill affirms that states decide what academic standards they will adopt, without interference from Washington, D.C. The federal government may not mandate or incentivize states to adopt or maintain any particular set of standards, including Common Core. States will be free to decide what academic standards they will maintain in their states.
COPYRIGHT © 2015, STARK & STARK
I do not usually write about non-precedential Federal Circuit decisions, but I could not let the discussion of “simultaneous invention” in Columbia University v. Illumina, Inc., go without comment. As if protecting patents from a hindsight-based determination of obviousness is not challenging enough, this theory holds that subsequent invention by another relatively soon after the invention at issue can support a finding of obviousness.
The Columbia University DNA Sequencing Patents
The patents at issue were three DNA sequencing patents: U.S. Patent No. 7,713,698; U.S. Patent No. 8,088,575; and U.S. Patent No. 7,790,869. Illumina challenged selected claims of the patents in Inter Partes Review (IPR) proceedings, and the USPTO Patent Trial and Appeal Board (PTAB) found all challenged claims anticipated or obvious over the asserted prior art references.
The Obviousness Issue
The Federal Circuit opinion was authored by Judge Wallach and joined by Chief Judge Prost and Judge Schall.
As summarized in the Federal Circuit opinion, the claims at issue “involve modified nucleotides that contain: (1) a labeled base; (2) a removable 3’-OH cap; and (3) a deazasubstituted base.” Columbia argued that “‘it would not have been obvious … to use ‘a reversible chain-terminating nucleotide with a label attached to the base, rather than to the cap on the 3’-OH group of the sugar.’”
After reviewing the prior art, the court found substantial evidence to support the PTAB’s findings regarding the disclosures of the asserted prior art references and reasonable expectation of success. It is in its discussion of secondary considerations of non-obviousness that the court discusses “simultaneous invention”:
“Independently made, simultaneous inventions, made within a comparatively short space of time, are persuasive evidence that the claimed apparatus was the product only of ordinary mechanical or engineering skill.” George M. Martin Co. v. Alliance Mach. Sys. Int’l LLC, 618 F.3d 1294, 1305 (Fed. Cir. 2010) ….
As a secondary consideration … simultaneous invention is relevant when it occurs within a short space of time from the date of invention, and “is strong evidence of what constitutes the level of ordinary skill in the art.” Ecolochem v. S. Cal. Edison Co., 227 F.3d 1361, 1379 (Fed. Cir. 2000). Unlike the ultimate determination of obviousness, which requires courts to answer the hypothetical question of whether an invention “would have been obvious,” 35 U.S.C. § 103, simultaneous invention demonstrates what others in the field actually accomplished.
On the facts before it, the court noted that “Illumina did not present its simultaneous invention argument to the PTAB,” and because “the record is not fully developed, the evidence of simultaneous invention as a whole weighs only modestly in favor of obviousness.”
Why cite it as a factor at all if it wasn’t raised in the PTAB proceedings on appeal?
I traced the theory of “simultaneous invention” through the cases cited in the Federal Circuit decision.
In George M. Martin Co., the Federal Circuit already had determined that the district court had “correctly concluded as a matter of law that the differences between the prior art and the claimed improvement were minimal,” before it discussed “simultaneous invention.” Even then, it discussed it with this caveat:
Independently made, simultaneous inventions, made “within a comparatively short space of time,” are persuasive evidence that the claimed apparatus “was the product only of ordinary mechanical or engineering skill.” Concrete Appliances Co. v. Gomery, 269 U.S. 177, 184, 46 S.Ct. 42, 70 L.Ed. 222 (1925). But see Lindemann Maschinenfabrik GMBH v. Am. Hoist & Derrick Co., 730 F.2d 1452, 1460 (Fed. Cir. 1984) (“Because the statute, 35 U.S.C. § 135, (establishing and governing interference practice) recognizes the possibility of near simultaneous invention by two or more equally talented inventors working independently, that occurrence may or may not be an indication of obviousness when considered in light of all the circumstances.”).
In Ecolochem, the Federal Circuit discussed “simultaneous invention” in the context of reflecting the level of ordinary skill in the art, not obviousness per se:
The fact of near-simultaneous invention, though not determinative of statutory obviousness, is strong evidence of what constitutes the level of ordinary skill in the art.” The Int’l Glass Co. v. United States, 187 Ct.Cl. 376, 408 F.2d 395, 405 (1969). “[T]he possibility of near simultaneous invention by two or more equally talented inventors working independently, … may or may not be an indication of obviousness when considered in light of all the circumstances.” Lindemann, 730 F.2d at 1460, 221 USPQ at 487.
In the pre-Patent Act 1925 decision in Concrete Appliances Co., the Supreme Court noted that “[t]he several elements in the petitioners’ claims which we have enumerated embrace familiar devices long in common use, separately or in smaller groups, both in this and in kindred mechanical arts. It is not argued that there is any novelty in such units or groups; and the only serious question presented is whether, in combination in the apparatus described, they constitute an invention.” The Court then discussed numerous examples of similar devices made around the same time as the invention at issue before it explained:
The adaptation independently made by engineers and builders of these familiar appliances to the movement and distribution of wet concrete in building operations and the independent patent applications, within a comparatively short space of time, for devices for that purpose are in themselves persuasive evidence that this use in combination of well known mechanical elements was the product only of ordinary mechanical or engineering skill and not of inventive genius.
This appears to be the genesis of “simultaneous invention.”
Now that U.S. patent applicants are becoming accustomed to the importance of being the “first inventor to file” under the America Invents Act, do they also have to worry about how many file after them?
Former minor league baseball players are one step closer to gaining class certification of their wage and hour lawsuit against 22 Major League Baseball (“MLB”) franchises. The players allege that the franchises have been paying them less than minimum wage, denying them overtime pay, and requiring them to train during off-season without any pay. They contend the MLB and its clubs violated the FLSA, as well as similar state wage and hour laws in eight states by paying them a total of only $3,000 to $7,000 over the course of a five-month season despite workweeks of 50 to 70 hours.
On July 13, a California federal district court denied a motion by the baseball franchises to dismiss the high-profile suit for failure to pay minimum wages and overtime pay under the Fair Labor Standards Act and state wage and hour laws, allowing the players to proceed to discovery “to determine whether certification is appropriate and whether the proposed class representatives have standing to represent the various proposed classes.” Senne v. Kansas City Royals Baseball Corp., No. 3:14-cv-00608 (N.D. Cal. July 13, 2015).
On May 2, the court dismissed claims against eight of the MLB franchises, finding they did not have sufficient contacts with California, where the suit is pending, to establish personal jurisdiction over them. In the July 13 ruling, however, the court denied Defendants motion to dismiss stating that “the named plaintiffs who are proposed as class representatives of the various state classes seek to represent unnamed plaintiffs who were employed by these other franchise defendants on the basis that they suffered a similar injury. As to these claims, the court ruled that it is appropriate to defer addressing the question of standing until after class certification.” (Senne, p. 25). As a result, the players have established sufficient standing to pursue discovery by claiming that at least one of the named plaintiffs was denied minimum wages or overtime pay from each of the remaining 22 defendants, and that at least one of the named plaintiffs was employed in each of the states for which the players assert state wage and hour violations.
The franchises have yet to reveal their defense to the specific claims; however, they may argue the players are exempt from FLSA’s minimum wage and overtime requirements because they are employed by a “seasonal amusement or recreational establishment.” Employees of establishments that operate for up to seven months per calendar year, or whose average receipts for any six months of the calendar year are not more than one-third its average receipts for the other six months of the year, are exempt from the FLSA’s minimum wage and overtime requirements.
Rulings on the applicability of the exemption to non-player employees in baseball have been inconsistent. In 1998, members of the Cincinnati Reds maintenance staff sued the team, demanding overtime pay. An Ohio district court initially ruled in favor of the Reds, describing the team as “an amusement or recreational establishment” that played its games during a season that lasted seven months or less. That decision was overruled when the United States Court of Appeals conducted a detailed accounting analysis of the team’s operation and determined that the Reds did not qualify for a seasonal exemption.
The Detroit Tigers won a similar lawsuit in 1997 when bat boys sought overtime pay for their work in excess of 40 hours in a week. The Tigers claimed the seasonal exemption as a defense and were successful as the court recognized that Tiger Stadium only operated on a seven-month schedule, making its operation seasonal.
The Sarasota White Sox, a former minor league franchise in the Florida State League, also won a lawsuit by claiming a seasonal exemption in 1995 when a groundskeeper sued for overtime. The court ruled that the team played in a six-month season and made 99 percent of its revenue during that time period.
The question of whether the franchises will be safe from potentially significant wage and hour liability in this latest litigation may be a close call.
August Visa Bulletin – Monthly ‘Check-In’ with Charlie Oppenheim, Chief of the Visa Control and Reporting Division, DOS
Charles Oppenheim, chief of the Visa Control and Reporting Division of the U.S. Department of State, held his monthly meeting with AILA to shed light on the data in the recently released August Visa Bulletin. Among the highlights of meeting are the following:
1. China EB-3 Retrogression. The August Visa Bulletin shows that the EB-3 China category will have a cut-off date of June 1, 2004, a retrogression of seven years. One reason for this retrogression is that earlier in the year the EB-3 China category had advanced which generated sufficient demand to bring the overall number within the allowable annual limit. According to Charlie, the good news is that this category will progress forward in the beginning of the new fiscal year to a 2010 or maybe even a 2011 cut-off date.
2. Other EB-3 News. EB-3 Other Worker will retrogress to Jan. 1, 2004 (an additional two-year retrogression from where it is currently). There is a potential that the EB-3 category for China, India and the Philippines will move slightly forward (a few months) in September. EB-3 Worldwide and Mexico, Charlie predicts, will continue to advance in September, but hold steady for a few months at the beginning of the new fiscal year in October 2015.
3. EB-2 China and India. As predicted earlier by Charlie, EB-2 India remained unchanged and is not likely to change until October. EB-2 China moved forward to Dec. 15, 2003, a move of 2 1/2 months. This date is likely to move slightly forward or remain unchanged for September
4. F-2A Worldwide. Due to lack of demand in this category (Spouses and Children of Permanent Residents), the cut-off date for F-2A worldwide is advancing and is likely to continue to advance until demand increases. The worldwide August cut-off date for this category is Dec. 15, 2013
©2015 Greenberg Traurig, LLP. All rights reserved.
The private sector is likely to produce critical cyber innovations—at least, that is what the U.S. Defense Advanced Research Projects Agency (“DARPA”) and the U.K. Centre for Defence Enterprise (“CDE”) would like to see.
In the United States, although the internet may have been invented at DARPA, DARPA is turning to a private sector competition to protect it. In March 2014, DARPA solicited a “Cyber Security Grand Challenge”: an open competition to devise automated security systems that can defend against cyberattacks as fast as they are launched. DARPA pitched the Grand Challenge as a “first of its kind,” “capture the flag”-style competition for computer security experts in academia, industry, and the broader security community. Over 100 teams registered to compete. Some likely saw the cash prizes—$2 million for first place, $1 million for second, and $750,000 for third—as nominal incentives compared to the value of shaping future cybersecurity efforts. On July 8, 2015, DARPA announced its selection of seven finalists for the final round of the competition. The finalists include computer security experts from industry, start-up incubators, and academia.
Not one of DARPA’s Grand Challenge finalists? Take heart: DARPA is said to be developing technology that would allow spectators to watch the final contest in real time. Or better yet, look to the United Kingdom, where the CDE has an open competition seeking “novel approaches to human interaction with cyberspace to increase military situational awareness.” CDE is asking for “revolutionary approaches” to “rapidly convey” cyberspace information, events, and courses of action to military commanders, analysts, and decision-makers. Just as DARPA officials acknowledged the limitations of existing cybersecurity strategy and technology, CDE officials have recognized that “the traditional human-computer interface” is inadequate for “current military information processing and sense-making in the cyber domain.” Up to £500,000 in research funding will be awarded. A July 9, 2015 presentation given by CDE is available online; slides from a July 16, 2015 webinar soon could be available, as well. The competition closes on September 3, 2015. Proposals must be submitted through CDE’s online portal.
© 2015 Covington & Burling LLP
Discussions about protecting intellectual property often focus on cutting-edge technologies, corporate branding campaigns, and widely distributed artistic works like movies and music. But let’s mix things up a bit. Follow us through this four-part series as we answer a question that is sure to hit home for anyone with taste buds—can you protect a food recipe? In Part 1, here, we examined whether food recipes are eligible for copyright protection.
We concluded that, although a recipe itself is not eligible, you can claim copyrights in certain commentary, illustrations, or other expressive elements used to present the recipe. Here, in Part 2, we investigate whether patent protection offers a viable solution for chefs, bakers, restaurateurs, and others hoping to safeguard their culinary creations. Later, in Parts 3 and 4, we will break down whether recipes are eligible for trade secret protection (Part 3) or trademark/trade dress protection (Part 4).
PART 2: Can you Patent a Recipe?
To qualify for patent protection, an invention must be useful, new, and nonobvious. See 35 U.S.C. §§ 101-103. It must also fall into one of the Patent Act’s defined categories of “patent-eligible subject matter” (some things are outright barred from receiving patent protection, such as a mathematical algorithm). See 35 U.S.C. § 101. To warrant patent protection, a recipe must satisfy all four requirements.
On the “patent-eligible subject matter” front, a recipe would need to qualify as either a “process,” a “machine,” a “manufacture,” or a “composition of matter.” See 35 U.S.C. § 101. Of those categories, we can safely eliminate “machine” as a potential candidate and focus on the remaining possibilities.
A “process” is “a mode of treatment of certain materials to produce a given result. It is an act, or series of acts, performed upon the subject-matter to be transformed and reduced to a different state or thing.”Gottschalk v. Benson, 409 U.S. 63, 70 (1972). Most recipes are essentially a set of step-by-step instructions for combining specified ingredients to produce a dish or food product. Thus, as a “series of acts” that transforms ingredients into a different end product, a recipe could constitute a patent-eligible “process.”
A “manufacture,” more commonly called “an article of manufacture,” is “an article produced from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations, whether by handlabor or by machinery.” Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980). A recipe itself does not qualify as an article of manufacture, but many consumer food products created according to a recipe likely qualify (think Hot Pockets® sandwiches, for example).
A “composition of matter” is “all compositions of two or more substances and all articles, whether they be the results of chemical union, or of mechanical mixture, or whether they be gases, fluids, powders or solids, for example.” Chakrabarty, 447 U.S. at 308. Most recipes—a basic cake batter recipe, for instance—call for the mechanical or chemical mixture of “fluids” and “powders or solids” (e.g., water and flour). Accordingly, although a recipe is not a “composition of matter,” the end product could be.
Thus, a recipe can be a patent-eligible process, while a resulting dish or food product can be a patent-eligible article of manufacture or composition of matter. But whether or not a recipe is patent-eligible subject matter is only one of four hurdles along the road to patent protection. The recipe must also be useful, new, and nonobvious. The bar for what counts as “useful” under the Patent Act is low and, as a result, virtually every recipe will satisfy the usefulness requirement.
When it comes to demonstrating that a recipe is “new” and “nonobvious,” however, the road gets much tougher. Every recipe seeking patent protection must distinguish itself from the millions of recipes that preceded it (eating is, after all, one of our most basic needs). Not only are multitudes of recipes already known, but in many cases the properties and effects of the underlying ingredients are also well-known. Adding a roux to a soup, for example, will predictably thicken the soup. Adding chocolate chips to a cake recipe will predictably increase the likelihood that the resulting cake will taste like, well, chocolate. When examining patent applications, the U.S. Patent and Trademark Office often views the results obtained from combining well-understood ingredients as having been predictable or obvious to people of ordinary skill in the culinary arts.
But take heart, innovative foodies, because the Patent Office does occasionally grant patents for recipes, dishes, and food products. Many of them involve an unconventional step, ingredient, or end product. Check out, for instance, U.S. patent number 5,894,027 titled Milk and protein powder-coated cereal products; U.S. patent number 8,147,893 titled Refrigerator stable pressurized baking batter; U.S. patent number 5,510,137 titled Sweet ice stuffs and jellied foods; or U.S. patent number 8,236,366 titled Flavorful Waterless Coffee. As the Patent Office recently put it, “[i]f you look at most of these patents, you’ll find that the recipe was more likely to have been created in a laboratory than on a kitchen counter.” Larry Tarazano. Can Recipes Be Patented? United States Patent and Trademark Office. InventorsEye 4:3 (June 2013). With the popularity of modernist techniques like “molecular gastronomy” on the rise (molecular gastronomy focuses on transforming physical and chemical properties to produce new tastes and textures), we could see a slight uptick in recipe patents in the coming years.
In short, returning to our original question—can you patent a food recipe?—the answer is “yes, if you can overcome the difficult nonobviousness hurdle.” Stay tuned for the next part of our series as we investigate the benefits of safeguarding a recipe under the banner of trade secret protection.
©2015 All Rights Reserved. Lewis Roca Rothgerber LLP
When one thinks of industries where union activity remains strong and additional organizing is likely, one may think of health care, education, retail, heavy manufacturing, and other “old school” fields, but not high tech and “new media.” Recent developments, however, including targeted campaigns focusing on employers in the Silicon Valley, its East Coast cohort Silicon Alley, and online, demonstrate that these assumptions may not be correct. High tech and new media are in the sights of not only some of America’s most actively organizing unions but also a coalition of interest and advocacy groups that are partnering with a coalition of unions with the common goal of increasing union representation at high-tech companies and the various contractors, subcontractors, and vendors that clean their facilities, feed their employees, and drive them to and from their facilities.
Taken together with the recent rule changes adopted by the National Labor Relations Board (“NLRB” or “Board”) to allow for much faster union representation elections in smaller units defined by unions, and the Board’s continuing emphasis on the application of the National Labor Relations Act to employees who are not represented by unions and who work in non-union workplaces, employers in the high-tech and new media fields should be aware of how these forces can impact their businesses and the ability to maintain dynamic workplaces.
Silicon Valley Rising: An Industry-Targeted Movement
When 1930s legendary bank robber Willie Sutton was asked why he robbed banks, he replied that was where the money was. Today’s labor unions, with their emphasis on income inequality and the gap between the 1 percent and the 99 percent have realized that Silicon Valley and technology companies are where the money is today and that there are many more employees in these industries who are not receiving the high salaries, stock options, and perks that many think of when they think of Silicon Valley.
A well-financed effort by a coalition of unions—including the Teamsters, the Service Employees International Union (SEIU), the Communication Workers of America (CWA), UNITE-HERE, the South Bay Labor Council, the NAACP, and other community organizations—have banded together to establish “Silicon Valley Rising” to organize employees of high-tech employers and the various vendors and service providers that they rely upon.
Silicon Valley Rising’ describes its goal as addressing what it sees as a two-tiered economic system in which, in its view, direct employees of the companies in the technology and media industry are paid well and receive good benefits, while those who support the industry as employees of contractors and suppliers are not. Silicon Valley Rising’s focus includes the vendors and contractors that Silicon Valley employers rely upon for transportation, maintenance, food service, and the like.
One of Silicon Valley Rising’s first successes came earlier this year, when it was certified as the bargaining representative of the company that Facebook relies upon to provide shuttle bus services between its various facilities at its headquarters. Soon after it won a representation election, Teamsters Local 853 negotiated a first contract with Loop Transportation that significantly increased wages and benefits and changed work rules and the like. In its campaign, Local 853 made clear that it saw the party that ultimately controlled the purse strings as being Facebook and media reports demonstrated the fact that Facebook was dragged into the matter and was ultimately responsible.
SiliconBeat (the “tech blog” of the San Jose Mercury News), theLos Angeles Times, USA Today, and other publications are all reporting that while apparently not a direct party to the negotiations between Loop and the union, Facebook has now “approved” the collective bargaining agreement, which it had to do before the contract could go into effect. In fact, Loop and Local 853 announced in their joint press release, “The contract, which workers overwhelmingly voted to ratify, went to Facebook for its agreement as Loop’s paying client before implementation.” Such economic realities are the type of consideration that the NLRB’s General Counsel has been urging the Board to look at in deciding whether a joint-employer relationship exists.
High-tech and new media companies often rely upon third-party vendors to provide a range of non-core support services so that their own employees can focus on their primary activities. But if, as expected, the NLRB rewrites its definition and standards for determining who is a joint employer, the risks are increasing that high-tech and new media companies, like other employers, will face the prospect of having to stand alongside their vendors as employers of the vendors’ personnel, including bargaining with their unions when they are represented.
©2015 Epstein Becker & Green, P.C. All rights reserved.
U.S. Equal Employment Opportunity Commission Rules That Sexual Orientation Discrimination Violates Title VII Of The 1964 Civil Rights Act
In a potentially groundbreaking decision that increases legal protections throughout the U.S. for lesbian, gay and bisexual employees, the Equal Employment Opportunity Commission (EEOC) ruled on June 15, 2015, that existing civil rights law bars sexual orientation-based employment discrimination. The EEOC addressed the question of whether the ban on sex discrimination in Title VII of The Civil Rights Act of 1964 (“The Civil Rights Act”) bars anti-LGB discrimination in a charge brought by a Florida employee.
The ruling was issued without objection from any members of the five-person commission, and while it technically only applies directly to federal employees’ claims, the EEOC also applies such rulings across the nation when it investigates claims of discrimination in private employment. Although only the Supreme Court can issue a final, definitive ruling on the interpretation of The Civil Rights Act, EEOC decisions are given significant deference by federal courts.
Although the EEOC had been moving in this general direction with cases and field guidance addressing specific types of discrimination faced by gay people, the July 15 decision unequivocally states that sexual orientation is inherently an unlawful “sex-based consideration,” reasoning that sexual orientation discrimination “necessarily entails treating an employee less favorably because of the employee’s sex” and constitutes “associational discrimination on the basis of sex.” In making this ruling, the EEOC joins approximately 22 states that provide sexual orientation discrimination protections in employment.
Given that this EEOC decision is entitled to deference by federal courts, employers across the U.S. should anticipate that practices that could be construed as discriminatory on the basis of a worker’s sexual orientation will be challenged in federal court and subject the employer to potential liability.
For EEOC guidance on this issue, click the following link: http://www.eeoc.gov/eeoc/newsroom/wysk/enforcement_protections_lgbt_workers.cfm
The White House has just released a new report titled “Modernizing & Streamlining our Legal Immigration System for the 21st Century,” which builds on the President’s executive actions of Nov. 21, 2014. This report provides for plans to improve the immigration system to modernize and streamline the processes for certain visa categories and to address security issues. The report also calls for plans to strengthen the United States’ humanitarian system by providing benefits for certain individuals.
The report specifically addresses the EB-5 program in important ways. The White House acknowledges that the U.S. Immigration and Citizenship Services (USCIS) has undergone significant changes in an effort to enhance the program’s processes and to improve its integrity, including the creation of a new team with expertise in economic analysis and specific EB-5 components, as well as the issuance of updated policy guidance to provide better clarity as to program requirements.
The White House recognizes that there is a need for additional enhancements and improvements to address the integrity and impact of the EB-5 program. Specifically, the White House recommends additional measures including enhancements to avoid fraud, abuse, and criminal activity; measures to ensure that the program is reaching its full potential in terms of job creation and economic growth; and recommendations to streamline the program to make it efficient and stable for participants in the program, including petitioners and Regional Centers.
The report announces that Homeland Security Secretary Jeh Johnson has adopted the creation of a new protocol, announced previously, intended to insulate the EB-5 program from “the reality or perception of improper outside influence.” Further, the report reiterates the Secretary’s recommendations to Congress to provide the department with authority to deny or revoke cases based upon serious misconduct; prohibit individuals with past criminal or securities-related violations from program participation, and a mechanism to ensure regional center compliance with securities laws. It is notable that these recommendations are included in the bill that Senator Leahy and Senator Grassley introduced on June 3, 2015.
The report makes two specific recommendations. First, it announces that DHS will pursue rulemaking to improve program integrity, including conflict-of-interest disclosures by Regional Center principals, enhanced background checks and public disclosure requirements, and an increase in the minimum qualifying level of investment. The department will also pursue new regulations to improve adjudication of Regional Center applications. Second, the report announces that the State Department will amend guidance in the Foreign Affairs Manual to permit potential EB-5 investors to obtain visitor visas for the purpose of evaluating investment.
In addition, DHS will propose a parole program for entrepreneurs who “provide a significant public benefit.” The examples of “significant public benefit” include innovation and job creation through new technology development.
©2015 Greenberg Traurig, LLP. All rights reserved.
Negotiators Have Reached Deal with Iran – U.S. Persons Should Not Expect Quick Relief From Sanctions
On July 14, 2015, the five permanent members of the UN Security Council (China, France, Russia, the United Kingdom, and the United States) plus Germany (the “P5 + 1”) announced a Joint Comprehensive Plan of Action (JCPOA) with Iran intended to ensure that Iran’s nuclear program will be exclusively peaceful. The agreement builds on the JCPOA framework announced on April 2, 2015, and is intended to provide Iran with phased sanctions relief based on verification that Iran has implemented key nuclear commitments.
Under the JCPOA, Iran agrees to cap its uranium enrichment capability for 10 years and to accept international monitoring of its nuclear program. In exchange, the United States, European Union, and United Nations will relax sanctions on Iran in stages. Once international nuclear inspectors verify that Iran has implemented the agreed to nuclear-related restrictions, the United Nations will pass a new resolution that will terminate various resolutions currently in place. If, at any time, Iran is determined to be out of compliance with its obligations, those resolutions will “snapback” or be re-imposed against Iran. The EU further agreed to terminate its regulations implementing all nuclear-related economic and financial sanctions at the time the inspectors verify Iran is in compliance.
U.S. sanctions relief will initially be limited to the suspension of secondary sanctions that target the commercial activities of non-U.S. companies in key sectors of the Iranian economy, such as oil, gas and petrochemical industries, as well as companies in the shipping and shipbuilding and automotive sectors. In other words, the sanctions relief that was provided to non-U.S. persons earlier in the negotiations will continue. Eventually, these secondary sanctions may be eliminated (rather than suspended) but only if the International Atomic Energy Agency (IAEA) verifies that Iran has implemented key nuclear-related measures described in the JCPOA.
It is anticipated that the United Nations Security Council will endorse the Agreement over the new few days. The JCPOA and its commitments will come into effect 90 days after the Security Council’s endorsement, which will be known as “Adoption Day.” Beginning on Adoption Day, the P5+1 and Iran will prepare for implementation of the agreement, but no sanctions relief will be granted until inspectors have verified Iran is in compliance with its commitments.
What changes, if any, will be made in primary U.S. sanctions, such as the Iranian Transactions and Sanctions Regulations (ITSR), is less certain. Under the Iran Nuclear Review Act, passed into law in May 2015, the president must transmit the agreement to Congress, which then has 60 days to review it. During Congress’ review period, the president may not waive, suspend, reduce, or provide relief from statutory sanctions or refrain from applying existing sanctions. In other words, there will be no sanctions relief for U.S. persons in the immediate future. If, as some members of Congress have threatened, Congress issues a joint resolution of disapproval, which the president in turn has threatened to veto, there is another waiting period during which the president may take no action to reduce sanctions.
Thus, the status quo will likely continue for quite some time, and from the perspective of U.S. primary sanctions – those that apply to U.S. individuals and entities, as well as entities owned or controlled by U.S. persons – no changes are imminent.
©2015 Drinker Biddle & Reath LLP. All Rights Reserved
U.S. Department of Labor (“DOL”) yesterday issued an Administrator Interpretation Memorandum announcing its position that most American workers are employees (as opposed to independent contractors), and thus are covered by the Fair Labor Standards Act (FLSA). The announcement comes exactly two weeks after the DOL issued a Notice of Proposed Rulemaking that would significantly change the legal requirements for an employee to qualify as exempt from the overtime requirements of the FLSA.
According to the Memo, employers are intentionally misclassifying workers as independent contractors to cut costs and avoid compliance with various laws, which deprives workers of certain benefits of employment. Taken together, the two recent DOL actions make the DOL’s true intentions abundantly clear: to sweep more American workers under the umbrella of the FLSA, and in turn, have more of those covered employees earning overtime compensation (or significantly higher salaries).
In the Memorandum, the DOL sets forth its interpretation of the FLSA’s definition of “employ” and the multi-factored “economic realities test” utilized by the courts to guide the analysis of whether a worker is properly classified as an independent contractor under the law. According to the DOL, applying the economic realities test in view of the FLSA’s expansive definition of “employ” will result in most workers being employees, and not independent contractors. In other words, a worker is an employee unless a convincing argument can be made that the worker is properly classified as an independent contractor.
While the “economic realities test” might vary somewhat depending on the court applying the test, the traditional questions considered are:
- Is the work done by the worker an integral part of the employer’s business?;
- Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?;
- How does the worker’s relative investment compare to the employer’s investment?;
- Does the work performed require special skill and initiative?;
- Is the relationship between the worker and the employer permanent or indefinite?; and
- What is the nature and degree of the employer’s control over the worker?
These questions should be considered under the guiding principle that workers who are economically dependent on the employer are employees, and only workers who are really in business for themselves are independent contractors. All factors must be considered in each case, no one factor is determinative, and the ultimate determination must be the degree of the worker’s economic independence from the employer.
© Copyright 2015 Armstrong Teasdale LLP. All rights reserved
What should employers be thinking about in the benefits arena now that the US Supreme Court has ruled in Obergefell v. Hodges that all states must issue marriage licenses to same-sex couples and fully recognize same-sex marriages lawfully performed out of state?
We suggest that employers consider whether the following plan design changes, health plan amendments, and/or administrative modifications are necessary:
Review employee benefit plans’ definition of “spouse” and consider whether the Court’s decision will affect the application of the definition (e.g., if the plan refers to “spouse” by reference to state laws affected or superseded by the Obergefell decision). Qualified pension and 401(k) plans generally conformed their definitions of spouse to include same-sex spouses post-Windsor to comply with Internal Revenue Code provisions that protect spousal rights in such plans, but health and welfare plans may not have been so conformed.
Communicate any changes in the definition of spouse or eligibility for benefits to employees and beneficiaries, as applicable.
Update plan administration and tax reporting to ensure that employees are not treated as receiving imputed income under state tax law for any same-sex spouses who are covered by their employer-sponsored health and welfare plans (to the extent that coverage for opposite-sex spouses would otherwise be excluded from income).
If an employer currently covers unmarried domestic partners under its benefit plans, it may want to consider whether to eliminate coverage for such domestic partners on a prospective basis (and therefore only allow legally recognized spouses to have coverage). Employers that make that type of change also will need to determine the timing and communication of such a change.
Employers with benefit plans that treat same-sex spouses differently than opposite-sex spouses should consider whether to maintain that distinction. Even though nothing in Obergefell expressly compels employers to provide the same benefits to same-sex and opposite-sex spouses, and self-insured Employee Retirement Income Security Act (ERISA) health and welfare plans are not subject to state and municipal sexual orientation discrimination prohibitions, we believe these types of plan designs are likely to be challenged.
Copyright © 2015 by Morgan, Lewis & Bockius LLP. All Rights Reserved.
On June 22, 2015, the US Supreme Court in Kimble v. Marvel Entertainment LLC declined on stare decisis grounds to overturn a criticized intellectual property precedent on royalty payments. In both the majority and dissenting opinions, the justices said that their respect for precedent would have been less had it been one interpreting the Sherman Antitrust Act. These comments prompt the question: Which old and criticized antitrust precedent might be subject to reversal?
Kimble had a patent on a device that allowed a user to shoot webs—really, just pressurized foam string—from the palm of his hand. Kimble and Spider-Man’s owner, Marvel, reached an agreement that allowed Marvel to sell such toys in exchange for a lump sum payment to Kimble plus a 3% annual royalty that had no end date. After years of payments, Marvel discovered Brulotte v. Thys Co., a 1964 Supreme Court case that had read the patent laws to prevent a patent owner from receiving royalties for sales made after the patent’s expiration. The Court considered such arrangements illegal per se because they were attempts to extend the patent’s monopoly beyond the patent’s life. Relying on that precedent, Marvel convinced lower courts that its payments to Kimble should stop with the 2010 expiration of the patent.
Kimble asked the Court to overturn Brulotte and replace it with a rule of reason analysis. Six justices declined that invitation, saying the long-standing precedent was based on an interpretation of patent statutes that Congress could, but had declined to, amend and that contracting parties might have relied on. The dissent would have overturnedBrulotte because its rationale was based on now-discredited antitrust policy, not statutory interpretation.
Perhaps more interesting to antitrust practitioners, the two opinions discussed the lower level of respect for the Court’s antitrust precedents. As the majority opinion pointed out, Congress “intended [the Sherman Act’s] reference to ‘restraint of trade’ to have ‘changing content,’ and authorized courts to oversee the term’s ‘dynamic potential.’” As a result, the Court has “felt relatively free to revise our legal analysis as economic understanding evolves.” The dissent agreed, saying “we have been more willing to reexamine antitrust precedents because they have attributes of common-law decisions.”
Given that seeming-unanimity on the weakness of antitrust precedents, the next obvious question for antitrust lawyers is which antitrust precedents might be overturned. One candidate is the so-called baseball exemption. In 1922’s Federal Baseball Club v. National League, the Court found that the “business [of] giving exhibitions of base ball” did not constitute interstate commerce and so was not reached by the Sherman Act. Commentators and even subsequent Court opinions have termed the decision an “anomaly” (though refusing to overturn it). Even retired Justice Stevens criticized the breadth of the exemption in a recent speech. In reaching this conclusion, Stevens relied on his experience on the Court, his early representation of the former A’s owner, and his work for Congress in the 1950s as it studied the exemption. Yet, while lower court decisions and The Curt Flood Act of 1998 have narrowed its scope, the exemption is still very much alive and has been used recently to cut short actions involving both the Cubs and the A’s. The Court could revisit the exemption yet again if it accepts the cert petition from the City of San Jose in the case involving the latest possible relocation of the A’s franchise.
Another candidate is the per se rule against tying, the only remaining vertical restraint to which the per se rule applies. In a tying arrangement, a seller agrees to sell one product (“tying product”) but only on the condition that the buyer also purchase a different product (“tied product”). Early Court cases applied the per se rule and described the arrangements harshly, saying they “serve hardly any purpose beyond the suppression of competition.” More recently, the Court has recognized that tying might be pro-competitive in certain circumstances. It has retained a rule that it calls per se; however, unlike per se rules against horizontal price fixing and the like, the tying per se rule requires proof of the seller’s power in the market for the tying product. If an appropriate case reaches the Court, it might complete the evolution of vertical restraints analysis and make all tying arrangements subject only to the rule of reason.
Finally, the Court’s 1963 Philadelphia National Bank opinion has faced severe criticism. In that case, the Court found that a merger that “produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms” is presumptively anticompetitive. While that presumption has been significantly weakened in the various iterations of the DOJ/FTC Horizontal Merger Guidelines, it still plays a role at least when the agencies challenge a merger in court. FTC Commissioner Wright has called it bad law based on outdated economics and has criticized its continued use by the agencies. DOJ Assistant Attorney General Bill Baer, on the other hand, has called the presumption a useful tool for the agencies when challenging mergers in court. Because so few merger cases go beyond the preliminary injunction standard, let alone all the way to the Supreme Court, this precedent might remain safe.
© 2015 Schiff Hardin LLP
What should employers be thinking about now that the US Supreme Court has upheld the Affordable Care Act’s (ACA’s) premium assistance structure in King v. Burwell? Because the ACA, as we know it today, will remain in place for the foreseeable future, employers should continue to plan for and react to the numerous and detailed ACA requirements, including the following:
Determining their ACA full-time employee population—including whether contingent workers or independent contractors may be deemed to be common-law employees for ACA purposes.
Analyzing whether all ACA full-time employees and their dependents are being offered affordable ACA-compliant coverage at the right time.
Preparing for the exceedingly complicated 2015 ACA employer Shared Responsibility and individual mandate reporting due in early 2016 on Forms 1095-B and 1095-C and the associated transmittal forms.
Capturing ACA health plan design changes in plan documents, summary plan descriptions, open enrollment material, and required notices to respond to participant needs, lawsuits, and growing federal agency audits.
Paying the Patient-Centered Outcomes Research Institute fee in July.
Conducting the necessary plan design analysis and preparing for any changes necessary to avoid the Cadillac Tax in 2018.
Copyright © 2015 by Morgan, Lewis & Bockius LLP. All Rights Reserved.
It can be an intimidating experience to be sure… A DEA agent or Diversion Investigator, on an unscheduled visit to your office, confronts you with a KASPER, a KBML complaint or some other state regulatory action and alleges violations of the Controlled Substances Act. The DEA Agent then asks you to sign DEA Form 104. This form, which is titled “Voluntary Surrender of Controlled Substances Privileges,” is placed in front of you while the agent explains why you should sign it immediately, rather than face potential action to revoke your DEA and other adverse consequences. The DEA Agent tells you that you are already in deep, deep trouble (of a vague and unspecified nature), and that the simple act of signing this form can make your troubles go away and prevent federal action. Also, he tells you that all you have to do to get the number back is to reapply! Hold on…this is not the full story! This scenario is becoming a harsh reality and common situation for physicians, pharmacists, nurse practitioners, and PAs.
The truth is that signing any voluntary surrender will create multiple problems for providers including the loss of Medicare and Medicaid participation among other things that have the potential to destroy medical practices and livelihoods. Providers should know, for instance, that the DEA’s final rules, codified at 21 C.F.R. §§ 1301.52(a) and 1301.62(a), state that signing this form and handing it to a DEA employee will result in immediate loss of prescribing privileges for controlled substances in schedules II through V. When a voluntary surrender is executed, the DEA does not have to investigate further or bring any sort of charges – the signed form is akin to agreeing to a criminal sentence by bypassing an arrest, arraignment and trial, with the consequences being immediate forfeiture of a provider’s ability to prescribe any controlled substances. Make no mistake – the form may say “voluntary,” but it is in the best interest of the DEA to make the form as much the opposite as possible.
When a provider signs the form, there are three important things that happen – the provider’s surrender becomes officially “voluntary,” no matter how much that provider was pressured into signing; the provider’s signature officially resolves any governmental concerns that led to the provider being asked to sign, essentially proving the government’s case for them; and the signature creates a waiver of any right to an administrative hearing that could prevent the loss of the provider’s DEA registration. In other words, signing the form essentially is an irrevocable action.
There are other consequences beyond the immediate loss of the registration number. Once a DEA registration number is lost, it becomes excruciatingly difficult to regain. The proceedings will likely take between 18 months and two years, with the DEA opposing the provider at every step. All the while, the provider has no DEA registration and can’t prescribe controlled substances, rendering practice potentially impossible.
Also, when the form is signed, the DEA reports it to Medicare and Medicaid, which mot likely results in termination of participation. Understandably, Medicare and Medicaid do not want to pay for a provider’s services when he or she can not provide the full spectrum of care that includes prescribing controlled substances. Additionally, signing the form may trigger administrative and disciplinary action like civil monetary penalties or loss of medical staff privileges. Essentially, one signature has the potential to destroy a provider’s entire livelihood.
The DEA agent, of course, will do his or her level best to convince you that this is your best possible legal action. The DEA Agent’s intent is far from giving the provider the full story. The only advice that a provider should be accepting is legal advice from her or his attorney. When a provider confronts a DEA Agent, particularly in an unscheduled visit, the first thing a provider should do is contact an attorney before making any decisions as to how to proceed, whether the DEA is requesting consent to a search or a surrender of controlled substance prescribing privilege. Above all, do not sign anything without the advice your attorney. Tell the DEA Agent that you will have to consult with your attorney before signing any voluntary surrender or making any statements. The DEA Voluntary Surrender Form 104 is not a simple matter, whatsoever!
What You Need to Know About the FCC’s July 10th Declaratory Ruling on the Telephone Consumer Protection Act (TCPA)
A sharply divided FCC late Friday issued its anticipated TCPA Declaratory Ruling and Order (the “Declaratory Ruling”). This document sets forth a range of new statutory and policy pronouncements that have broad implications for businesses of all types that call or text consumers for informational or telemarketing purposes. While some of its statements raise interesting and in some cases imponderable questions and practical challenges, this summary analysis captures the FCC’s actions in key areas where many petitioners sought clarification or relief. Certainly there will be more to say about these key areas and other matters as analysis of the Declaratory Ruling and consideration of options begins in earnest. There will undoubtedly be appeals and petitions for reconsideration filed in the coming weeks. Notably, except for some limited relief to some callers to come into compliance on the form or content of prior written consents, the FCC’s Order states that the new interpretations of the TCPA are effective upon the release date of the Declaratory Ruling. Requests may be lodged, however, to stay its enforcement pending review.
Scope and Definition of an Autodialer
An important threshold question that various petitioners had asked the FCC to clarify was what equipment falls within the definition of an “automatic telephone dialing system” or “ATDS.” The TCPA defines an ATDS as:
equipment which has the capacity—
(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and
(B) to dial such numbers. 47 U.S.C. § 227(a)(1) (emphasis added).
Two recurring points of disagreement have been: (1) whether “capacity” refers to present or potential capacity, i.e., whether it refers to what equipment can do today, or what some modified version of that equipment could conceivably do tomorrow; and (2) whether “using a random or sequential number generator” should be read to limit the definition in any meaningful way.
Stating that a broad definition would be consistent with Congressional intent and would help “ensure that the restriction on autodialed calls not be circumvented,” the FCC concluded that “the TCPA’s use of ‘capacity’ does not exempt equipment that lacks the ‘present ability’ to dial randomly or sequentially.” Rather, “the capacity of an autodialer is not limited to its current configuration but also includes its potential functionalities.”
The Declaratory Ruling stated that “little or no modern dialing equipment would fit the statutory definition of an autodialer” if it adopted a less expansive reading of the word “capacity.” But as for whether any “modern dialing equipment” does not have the requisite “capacity,” the agency declined to say:
[W]e do not at this time address the exact contours of the “autodialer” definition or seek to determine comprehensively each type of equipment that falls within that definition that would be administrable industry-wide…. How the human intervention element applies to a particular piece of equipment is specific to each individual piece of equipment, based on how the equipment functions and depends on human intervention, and is therefore a case-by-case determination.
Indeed, although the Declaratory Ruling insisted that this interpretation has “outer limits” and does not “extend to every piece of malleable and modifiable dialing equipment,” the only example that that Declaratory Ruling offered was anything but “modern”:
[F]or example, it might be theoretically possible to modify a rotary-dial phone to such an extreme that it would satisfy the definition of “autodialer,” but such a possibility is too attenuated for us to find that a rotary-dial phone has the requisite “capacity” and therefore is an autodialer.
Finally, the FCC majority brushed off petitioners’ concerns that such a broad definition would apply to smartphones—not because it would be impossible to read that way, but because “there is no evidence in the record that individual consumers have been sued….”
Commissioner Pai’s dissent expressed concern that the FCC’s interpretation of the ATDS definition “transforms the TCPA from a statutory rifle-shot targeting specific companies that market their services through automated random or sequential dialing into an unpredictable shotgun blast covering virtually all communications devices.” He also noted that even if smartphone owners have yet to be sued, such suits “are sure to follow…. Having opened the door wide, the agency cannot then stipulate restraint among those who would have a financial incentive to walk through it.”
Commissioner O’Rielly took issue with the FCC’s “refusal to acknowledge” the other half of the statutory definition, specifically that equipment “store or produce telephone numbers to be called, using a random or sequential number generator.” 47 U.S.C. § 227(a)(1). “Calling off a list or from a database of customers … does not fit the definition,” he explained. And as for the reading of the word “capacity,” the Commissioner stated that the FCC majority’s “real concern seems to be that … companies would game the system” by “claim[ing] that they aren’t using the equipment as an autodialer” but “secretly flipping a switch to convert it into one for purposes of making the calls.” He explained that even if there had been examples of this in the regulatory record, “this could be handled as an evidentiary matter. If a company can provide evidence that the equipment was not functioning as an autodialer at the time a call was made, then that should end the matter.”
Given the breadth of the FCC’s purported interpretation of ATDS, which clashes with the views of a number of courts in recent litigation and is replete with ambiguity, this portion of the Declaratory Ruling will most certainly be challenged.
Consent and Revocation of Consent
The Declaratory Ruling addressed the question of whether a person who has previously given consent to be called may revoke that consent and indicated that consumers have the ability to revoke consent in any “reasonable manner.” As dissenting Commissioner Pai noted, this can lead to absurd results if consumers are entirely free to individually and idiosyncratically select their mode and manner of revocation, particularly for any such oral, in-store communication. The Commissioner’s dissent asked ruefully whether the new regime would cause businesses to “have to record and review every single conversation between customers and employees….Would a harried cashier at McDonald’s have to be trained in the nuances of customer consent for TCPA purposes?……the prospects make one grimace.”
FCC Petitioner Santander had sought clarification of the ability of a consumer to revoke consent and alternatively, to allow the calling party to designate the methods to be used by a consumer to revoke previously provided consent. In considering the TCPA’s overall purpose as a consumer protection statute, the FCC determined that the silence in the statute on the issue of revocation is most reasonably interpreted in favor of allowing consumers to revoke their consent to receive covered calls or texts. The Declaratory Ruling found comfort both in other FCC decisions and in the common law right to revoke consent, which is not overridden by the TCPA. The Declaratory Ruling stated that this interpretation imposes no new restriction on speech and established no new law.
The FCC noted that its prior precedent on the question of revocation was in favor of allowing consumer revocation “in any manner that clearly expresses a desire not to receive further messages, and that callers may not infringe on that ability by designating an exclusive means to revoke.” Stating that consumers can revoke consent by “using any reasonable method,” the FCC determined that a caller seeking to provide exclusive means to register revocation requests would “place a significant burden on the called party.” The Declaratory Ruling contains no serious discussion of the burdens placed on businesses by one-off individual revocations. The FCC majority also rejected the argument that oral revocation would unnecessarily create many avoidable factual disputes, instead stating that “the well-established evidentiary value of business records means that callers have reasonable ways to carry their burden of proving consent.”
Reassigned Number “Safe Harbor”
There is perhaps no issue that garners more frustration among parties engaged in calling activities than potential TCPA liability for calls to reassigned numbers. No matter how vigilant a caller is with respect to compliance, under the FCC’s preexisting and now expanded statements, it is impossible to eliminate the risk of exposure short of not calling anyone. As explained in Commissioner O’Rielly’s Separate Statement: “numerous companies, acting in good faith to contact consumers that have consented to receive calls or texts, are exposed to liability when it turns out that numbers have been reassigned without their knowledge.” This portion of the Declaratory Ruling will also most certainly be subject to challenges.
While relying on a number of flawed assumptions, the FCC: (1) rejected the sensible “intended recipient” interpretation of “called party”; (2) disregarded the fact that comprehensive solutions to addressing reassigned numbers do not exist; (3) adopted an unworkable and ambiguous “one-call exemption” for determining if a wireless number has been reassigned (a rule that constitutes “fake relief instead of a solution,” as explained by Commissioner O’Rielly); and (4) encouraged companies to include certain language in their agreements with consumers so that they can take legal action against consumers if they do not notify the companies when they relinquish their wireless phone numbers.
First, the FCC purported to clarify that the TCPA requires the consent of the “current subscriber” or “the non-subscriber customary user of the phone.” It found that consent provided by the customary user of a cell phone may bind the subscriber. The FCC declined to interpret “called party” as the “intended recipient,” as urged by a number of petitioners and commenters and held by some courts.
Second, the FCC quickly acknowledged and then set aside the significant fact that there exists no comprehensive public directory of reassigned number data provided by the carriers. Instead, it seemed flummoxed by the purported scope of information accessible to companies to address the reassigned number issue. The FCC suggested that companies could improvise ways to screen for reassigned numbers (e.g., by manually dialing numbers and listening to voicemail messages to confirm identities or by emailing consumers first to confirm their current wireless phone numbers) and explained that “caller best practices can facilitate detection of reassignment before calls.” Ignoring the reality of TCPA liability, the FCC explained that “[c]allers have a number of options available to them that, over time, may permit them to learn of reassigned numbers.” (emphasis added).
Third, the FCC purported to create an untenable “one-call exemption.” The Declaratory Ruling explained “that callers who make calls without knowledge of reassignment and with a reasonable basis to believe they have valid consent to make the call should be able to initiate one call after reassignment as an additional opportunity to gain actual or constructive knowledge of the reassignment and cease future calls to the new subscriber. If this one additional call does not yield actual knowledge of reassignment, we deem the caller to have constructive knowledge of such.”
One potentially helpful clarification made was the determination that porting a number from wireline to a wireless service is not to be treated as an action that revokes prior express consent, and thus the FCC stated that that prior consent may continue to be relied upon so long it is the same type of call for which consent was initially given. The FCC agreed with commenters who had observed that if a consumer no longer wishes to get calls, then it is her right and responsibility to revoke that consent. Unless and until that happens, however, the FCC stated that a caller may rely on previously provided consent to continue to make that same type of call. Valid consent to be called as to a specified type of call continues, “absent indication from the consumer that he wishes to revoke consent.” As wireline callers need not provide express consent to be autodialed, any party calling consumers would have to still be aware of the nature of the called number to determine whether appropriate consent to be called was present.
Finally, the FCC – which claims to be driven by consumer interests throughout its Declaratory Ruling – makes the suggestion that companies should require customers, through agreement, to notify them when they relinquish their wireless phone numbers and then initiate legal action against the prior holders of reassigned numbers if they fail to do so. “Nothing in the TCPA or our rules prevents parties from creating, through a contract or other private agreement, an obligation for the person giving consent to notify the caller when the number has been relinquished. The failure of the original consenting party to satisfy a contractual obligation to notify a caller about such a change [of a cell phone number] does not preserve the previously existing consent to call that number, but instead creates a situation in which the caller may wish to seek legal remedies for violation of that agreement.”
Treatment of Text Messaging and Internet-to-Phone Messaging
The Declaratory Ruling also addressed a number of issues that specifically affect text messaging under the TCPA. First, the FCC addressed the status of SMS text messages in response to a petition that asked the FCC to make a distinction between text messages and voice calls. The FCC reiterated that SMS text messages are subject to the same consumer protections under the TCPA as voice calls and rejected the argument that they are more akin to instant messages or emails.
Second, the FCC addressed the treatment of Internet-to-phone text messages under the TCPA. These messages differ from phone-to-phone SMS messages in that they originate as e-mails and are sent to an e-mail address composed of the recipient’s wireless number and the carrier’s domain name. The FCC explained that Internet-to-phone text messaging is the functional equivalent of phone-to-phone SMS text messaging and is therefore covered by the TCPA. The FCC also found that the equipment used to send Internet-to-phone text messages is an automatic telephone dialing system for purposes of the TCPA. In so doing, the FCC expressly rejected the notion that only the CAN-SPAM Act applies to these messages to the exclusion of the TCPA.
Finally, the FCC did provide some clarity as to one issue that had created significant confusion since the adoption of the current TCPA rules in 2012: whether a one-time text message sent in response to a consumer’s specific request for information constitutes a telemarketing message under the TCPA. The specific scenario that was presented to the FCC is one confronted by many businesses: they display or publish a call-to-action, they receive a specific request from a consumer in response to that call-to-action, and they wish to send a text message to the consumer with the information requested without violating the TCPA and the FCC’s rules.
The FCC brought clarity to this question by finding that a one-time text message does not violate the TCPA or the FCC’s rules as long as it is sent immediately to a consumer in response to a specific request and contains only the information requested by the consumer without any other marketing or advertising information. The FCC explained that such messages were not telemarketing, but “instead fulfillment of the consumer’s request to receive the text.” Businesses may voluntarily provide the TCPA disclosures in their calls-to-action, as the FCC noted in the Declaratory Ruling, but a single text message to consumers who responded to the call-to-action or otherwise requested that specific information be sent to them would not be considered a telemarketing message and, as such, would not require the advance procurement of express written consent.
Limited Exemptions for Bank Fraud and Exigent Healthcare Calls and Texts
The TCPA empowers the agency to “exempt . . . calls to a telephone number assigned to a cellular telephone service that are not charged to the called party, subject to such conditions as the Commission may prescribe as necessary in the interest of the privacy rights [the TCPA] is intended to protect.” 47 U.S.C. § 227(b)(2)(C). In March 2014, the FCC invoked this authority to grant an exemption from the TCPA’s prior express consent requirement for certain package-delivery related communications to cellular phones, requiring that for such communications to be exempt, they must (among other things) be free to the end user.
The Declaratory Ruling invoked that same provision and followed that same framework in granting exemptions for “messages about time-sensitive financial and healthcare issues” so long as the messages (whether voice calls or texts) are, among other things discussed below, free to the end user. Oddly, the Declaratory Ruling referred to these two types of messages as “pro-consumer messages,” showcasing an apparent view that automated/autodialed calls are “anti-consumer” by default.
The FCC first addressed a petition from the American Bankers Association (ABA), seeking an exemption for four types of financial-related calls: messages about (1) potential fraud or identity theft, (2) data security breaches, (3) steps to take to prevent identity theft following a data breach, and (4) money transfers. After analyzing the record before it regarding the exigency and consumer interest in receiving these types of communications, and finding that “the requirement to obtain prior express consent could make it impossible for effective communications of this sort to take place,” the FCC imposed the following very specific requirements in addition to the requirement that the messages be free to the end user: (1) the messages must be sent only to the number provided by the consumer to the financial institution; (2) the messages must state the name and contact information for the financial institution (for calls, at the outset); (3) the messages must be strictly limited in purpose to the four exempted types of messages and not contain any “telemarketing, cross-marketing, solicitation, debt collection, or advertising content;” (4) the messages must be concise (for calls generally one minute or less, “unless more time is needed to obtain customer responses or answer customer questions,” and for texts, 160 characters or less); (5) the messages must be limited to three per event over a three-day period for an affected account; (6) the messages must include “an easy means to opt out” (an interactive voice and/or key-press activated option for answered calls, a toll-free number for voicemail, and instructions to use “STOP” for texts); and (7) the opt-out requests must be honored “immediately.”
The FCC then addressed a petition from the American Association of Healthcare Administrative Management (AAHAM) seeking similar relief for healthcare messages. Relying on its prior rulings regarding the scope of consent and the ability to provide consent via an intermediary, the FCC stated that (1) the “provision of a phone number to a healthcare provider constitutes prior express consent for healthcare calls subject to HIPAA by a HIPAA-covered entity and business associates acting on its behalf, as defined by HIPAA, if the covered entities and business associates are making calls within the scope of the consent given, and absent instructions to the contrary”; and, (2) such consent may be obtained through a third-party when the patient is medically incapacitated, but that “ just as a third party’s ability to consent to medical treatment on behalf of another ends at the time the patient is capable of consenting on his own behalf, the prior express consent provided by the third party is no longer valid once the period of incapacity ends.”
The FCC also granted a free-to-end-user exemption for certain calls “for which there is exigency and that have a healthcare treatment purpose”: (1) appointment and exam confirmations and reminders; (2) wellness checkups; (3) hospital pre-registration instructions; (4) pre-operative instructions; (5) lab results;(6) post-discharge follow-up intended to prevent readmission; (7) prescription notifications; and (8) home healthcare instructions. The FCC specifically excluded from the exemption messages regarding “account communications and payment notifications, or Social Security disability eligibility.”
The Declaratory Ruling imposed mostly the same additional restrictions on free-to-end-user health-care related calls as it did with free-to-end-user financial calls: (1) the messages must be sent only to the number provided by the patient; (2) the messages must state the name and contact information for the healthcare provider (for calls, at the outset); (3) the messages must be strictly limited in purpose to the eight exempted types of messages, be HIPAA-compliant, and may not include “telemarketing, solicitation, or advertising content, or . . . billing, debt-collection, or other financial content”; (4) the messages must be concise (for calls generally one minute or less, and for texts, 160 characters or less); (5) the messages must be limited to one per day and three per week from a specific healthcare provider; (6) the messages must include “an easy means to opt out” (an interactive voice and/or key-press activated option for answered calls, a toll-free number for voicemail, and instructions to use “STOP” for texts); and (7) the opt-out requests must be honored “immediately.”
Service Provider Offering of Call Blocking Technology
A number of state Attorneys General had sought clarification on the legal or regulatory prohibitions on carriers and VoIP providers to implement call blocking technologies. While declining to specifically analyze in detail the capabilities and functions of particular call blocking technologies, the FCC nevertheless granted the request for clarification and stated that there is no legal barrier to service providers offering consumers the ability to block calls – using an “informed opt-in process” at the individual consumer’s direction. Blocking categories of calls or individual calls was seen as providing consumers with enhanced tools to stop unwanted robocalls.
Service provider groups, which expressed concern that any blocking technology could be either over or under-inclusive from an individual consumer’s perspective, were provided the assurance that while both the FCC and the FTC recognize that no technology is “perfect,” accurate disclosures to consumers at the time they opt-in for these services should suffice to allay these concerns. The Declaratory Ruling also noted that consumers are free to drop these services if they wish, and encouraged providers to offer technologies that have features that allow solicited mass calling, such as a municipal or school alerts, to not be blocked, as well as to develop protocols to ensure public safety calls or other emergency calls are not blocked.
So you have a blog. Great! Everyone – from legal marketers to managing partners – has probably told you that writing a regular blog will establish you as a thought leader and drive business development.
Unfortunately, it’s not that easy. Finding a blog on the Internet is akin to picking out a needle from a haystack.
Just because you write it doesn’t mean they will read it. For your blog to attract readers, you need to give it a push. And that means coming up with a solid distribution strategy.
Let’s look at potential channels that could send readers to your blog.
You can bet that your target audience will be using search engines – Google, Bing, etc. – to find articles and blogs. Understanding topics and keywords that people search for should be the first step in blog writing.
Use Google Trends and Google News to mine for topics. Then research which keywords people are using to search for your topic. Google’s keyword planner provides data on how many searches are conducted every month. For example, if you’re writing about Title IX, are people using search phrases like “title IX discrimination on campus” or “gender equality in education”?
Once you determine the best keywords, integrate them into your blog – naturally. Don’t overuse phrases again and again. Instead, choose five or six phrases and sprinkle them throughout your blog.
Next, give consideration to your title tag. This is separate from the headline on your blog post. The title tag is what is known as a “meta” field and is accessible on the back end of most content management systems (WordPress, Drupal, etc.). Select one prominent keyword phrase that has relatively high search volume, along with high relevancy, to use in your title tag. Search engines use title tags to index your blog posts. Your title tag is also what search engines use to designate your posts in their results pages.
And don’t forget about “domain authority.” Domain authority is a third-party metric that indicates how well search engines will rank a website in search results. Hosting your blog on your firm website (as opposed to building a brand-new site for your blog) will most likely provide higher authority for your blog.
Have a way for readers to sign up for email alerts that are triggered when you put up a new blog post. This type of “opt-in” automated program delivers your blog to engaged readers – that is, potential leads.
If your blog focuses on various practice areas or industries, creating sign-up categories will help you target your readers with relevant content. As an example, Kirton McConkie recently launched a multi-practice blog that provides email sign-up options by category.
Subscription-Based Legal Syndication Sites
Sites like the National Law Review, JD Supra and Mondaq repost blogs on their websites. These online resources are hubs for general counsel, attorneys and reporters to find information on legal topics. Subscribers can join for free, while contributors pay monthly or annual fees to have their content included.
These types of sites have an added benefit for blog authors: They also use social media and email marketing tactics to deliver your content, creating additional visibility.
It goes without saying that social media has the potential to reach an enormous pool of readers. But getting the attention from the right people on social media is a daunting task. Sending out a tweet linking to your blog can be like putting a message in a bottle and throwing it into the ocean. Fortunately, there are a few best practices to help you get additional visibility.
First, decide which social media platforms you’re going to use based on the audience you want to attract. Every social network has a unique culture and demographic characteristics. Don’t waste your time chasing a crowd that’s not relevant – for instance, Snapchat users are not interested in legal blogs.
Once you’ve identified one or two social platforms, search for influencers in your topic area. These influencers will frequently write about and share relevant content and will have high follower and engagement metrics. Start engaging with these people. Don’t bombard them with requests to share your blog, but show interest in their content and join in conversations. Also, sprinkle links to your blog into your social stream. Just be careful not to make it all about you.
Use the LinkedIn “Publish a Post” feature to repurpose your blogs on your profile. It’s a simple way to expand your reach on LinkedIn. Not only are posts searchable on LinkedIn, but they also are pushed out through LinkedIn’s email notification program.
Blog Directory Sites
Setting up your blog’s RSS feed to relevant blog directory sites like AllTop’s legal section and ABAJournal blogs will drive readers to your blog. Track visits from these sites in the “Referral” section of your Google Analytics dashboard to measure the effectiveness of these visitors.
nvite thought leaders with high online visibility to write guest posts for your blog. These authors will have followers who read their content. If they post to your site, they will help you share their post through their social media channels, which again drives visits to your website.
It may be difficult to recruit guest bloggers. If you find that is the case, try to provide benefits to writers, such as prominent links back to their websites.
Other Digital Marketing Initiatives
Leverage all your digital marketing channels by including a link to your blog in your electronic communications – email signature lines, client alerts, invoices, etc. Add a link to your blog in all your social media profiles – LinkedIn, Twitter, Google+ and Facebook.
As with all digital marketing initiatives, measurement and tracking are key steps for identifying tactics that work and tactics that don’t. Review your Google Analytics or other analytics-tracking platform regularly. Understanding which topics resonate with your readers will inform your content strategy as you go forward.
© Copyright 2008-2015, Jaffe Associates
Beer-Maker Puts an End to Brewhaha: Anheuser Busch Agrees to Settle Second of Two Class Action Lawsuits over Beer Origin Disclaimers
Anheuser Busch recently agreed to settle a consumer class action over Beck’s Beer labeling that we previously reported on with regard to the uptick in consumer class actions proceeding past the pleading stage in the Southern District of Florida. Marty et al. v. Anheuser-Busch Cos., 13-cv-23656-JJO (S.D. Fla.). Anheuser-Busch’s decision to settle the Beck’s suit is not surprising, given that the company had agreed in January of this year to settlement of a sister suit commenced in Florida state court over the labeling of Kirin beer (Suarez et al. v. Anheuser-Busch Cos. LLC, 2013-33620-CA-01 (Fla. Cir. Ct.)), as we also previously reported.
According to the motions for approval, the settlement terms appear to be almost identical. Under the terms of both deals, consumers who bought Kirin or Beck’s during the respective class periods (back to October 2009 for Kirin and May 2011 for Beck’s) are entitled to obtain partial refunds varying from ten cents a bottle to $1 for a twelve pack, with the refund capped at $50 per household for those whose reimbursements are supported by proofs of purchase and $12 per household for those without. Neither settlement is subject to a capped total settlement fund amount.
Both settlements also include five year injunctions, with Anheuser-Busch agreeing to inclusion of the phrase “Brewed Under Kirin’s Strict Supervision by Anheuser-Busch in Los Angeles, CA and Williamsburg, VA” more prominently on Kirin products, packaging and website, and Beck’s agreeing to the inclusion of either “Brewed in USA” or “Product of USA” on Beck’s products, packaging and website. (The Kirin injunction also requires Anheuser-Busch to refrain from using the term “import” or “imported” with reference to Kirin beer.) In both settlements, Anheuser-Busch agreed not to oppose seven figure motions for class counsel fees — $1,000,000 in the Kirin suit and $3,500,000 in the Beck’s suit.
What’s notable about both settlements is that the phrases Anheuser-Busch agreed to include on its products, packaging and product websites already appeared on the products. This fact was central to Anheuser-Busch’s failed motion to dismiss the Amended Complaint in the Beck’s suit, in which they argued that a reasonable consumer could not be deceived as to the beer’s origin because that fact was printed on the product itself. The judge, however, sided with Plaintiffs on the issue, finding that (1) a reasonable consumer could be deceived because the disclaimer was difficult to read and blocked by the packaging (the judge specifically noted that the statement was printed on a metallic background, which could be obscured by light, while the packaging submitted to the Alcohol Tobacco Tax and Trade Bureau (“TTB”) was printed on a matte background); (2) product statements referencing German “Purity Laws” might be misleading to the average consumer, even if true; and (3) product statements referencing German “Quality” were not “puffery” as a matter of law.
Notably, the injunction Beck’s agreed to addresses only the first of these issues, and we have to wonder whether the judge’s decision on the motion to dismiss would have been different had the disclaimers appeared more prominently or on the matte background approved by the TTB. These two settlements certainly serve as a warning for nationwide sellers to consider the more prominent display of the products’ origin on products and packaging, if the product labeling is potentially obscured.
© 2015 Proskauer Rose LLP.
Related to our recent blog post on immoral marks, U.S. trademark law also prohibits registration of trademarks that consist of “matter which may disparage … persons, … institutions, beliefs, or national symbols.” This Section of the Lanham Act is central to the long-running controversy over the name of the well-known professional football team, theWashington “Redskins,” which some critics label as a racial epithet. Although the team name has been in use since 1933 and was first registered in 1976, at a climactic point in the controversy last year theTrademark Trial and Appeal Board (TTAB) ordered those registrations to be cancelled pursuant to this Section. TTAB held that “redskins” is a racial slur that was disparaging to “a substantial composite” of Native Americans at the time of registration. Just today, on July 8, a federal judge upheld this decision, not only affirming that the marks violate Section 2(a) of the Lanham Act, but also that Section 2(a) itself does not violate the First Amendment.
The saga over the trademark registrations began when a group of Native American petitioned to cancel the federal registrations for the Washington Redskins’ name. The litigation has continued for over two decades as the case (and a companion case) bounced around the TTAB, the district court, and the D.C. Circuit. Most recently, the owner of the registrations, Pro-Football Inc., appealed last year’s TTAB order cancelling its registrations to the District Court for the Eastern District of Virginia.
In today’s ruling, the District Court held that the Native American challengers met the legal requirements to prove that the marks indeed “may disparage” a substantial composite of Native Americans at the time of their registration. Additionally, the Court addressed the major issue of whether Section 2(a) of the Lanham Act violates the First Amendment by restricting protected speech. The Court held that it did not, because cancelling the federal registrations under Section 2(a) does not implicate the First Amendment, as the cancellations do nothing to burden, restrict or prohibit Pro-Football’s ability to use the marks in commerce. Indeed, a federal registration is not required in order for one to use trademarks in commerce, and thus nothing in Section 2(a) impedes the ability of members of society to discuss unregistered marks. In addition, the Court found that the federal registration program is government speech (as opposed to commercial or private speech) and is thus exempt from First Amendment scrutiny.
The saga is not over, however, until Pro-Football exhausts its appellate options. Even then, assuming today’s decision stands, will the team adopt a new name that is eligible for federal trademark registration? Not likely. Pro-Football can still rely on its long-standing common law rights in the mark, stemming back to its first use in 1933. The only thing the team will lose is its ability to enjoy the benefits of federal registration, including the ability to use the coveted ® symbol.
On June 30, 2015, the Federal Trade Commission (FTC) published “Start with Security: A Guide for Businesses”(the Guide).
The Guide is based on 10 “lessons learned” from the FTC’s more than 50 data-security settlements. In the Guide, the FTC discusses a specific settlement that helps clarify the 10 lessons:
Start with security;
Control access to data sensibly;
Require secure passwords and authentication;
Store sensitive personal information securely and protect it during transmission;
Segment networks and monitor anyone trying to get in and out of them;
Secure remote network access;
Apply sound security practices when developing new products that collect personal information;
Ensure that service providers implement reasonable security measures;
Implement procedures to help ensure that security practices are current and address vulnerabilities; and
Secure paper, physical media and devices that contain personal information.
The FTC also offers an online tutorial titled “Protecting Personal Information.”
We expect that the 10 lessons in the Guide will become the FTC’s road map for handling future enforcement actions, making the Guide required reading for any business that processes personal information.
In a recent action, SEC v. Luca International Group, LLC et al. (“SEC v. Luca“), the Securities and Exchange Commission (SEC) has charged a California-based oil and gas company and its CEO with violations of securities laws in connection with a $68 million Ponzi scheme and affinity fraud. The target of the fraud was the Chinese American community. Additionally, a portion of the funds raised by the defendants came from EB-5 investors seeking green cards through the EB-5 Program. The SEC issued both a press release and cease and desist order this week in connection with this most recent action. We think that this case highlights two important and relevant points for our readership, and that the SEC exposing the defendant schemers/fraudsters in SEC v. Luca is good for the EB-5 industry and integrity of the EB-5 program.
Prosecution efforts are going global– government agencies in Hong Kong and China assisted the SEC’s efforts
Now more than ever before, the SEC is on the path to closing down actors in the EB-5 context that engage in deception and fraud. We are in a new era of enforcement, with the SEC becoming more familiar with the EB-5 Program. We think that this enforcement trend will move at an even faster clip as the SEC and United States Citizenship and Immigration Services (USCIS) become more agile in cooperating and responding to credible allegations of fraud.
EB-5 regional centers and issuers need to put into place sound and workable policies to ensure that marketing practices are in line with securities laws. Note that in SEC v. Luca, there was cooperation with the SEC and two foreign agencies, namely the Hong Kong Securities and Futures Commission and the China Securities and Regulatory Commission. Enforcement and prosecution efforts in this context are going global. Regional centers and issuers should ensure that any offshore sales efforts are in compliance with the laws of the countries in which sales activities are performed.
Overlooked federal and state investment adviser registration requirements
SEC v. Luca is a reminder that investment adviser requirements may apply broadly in EB-5 transactions and require federal or state registration by regional centers, issuers and/or EB-5 deal facilitators. In SEC v. Luca, the SEC asserted that the defendants acted as “investment advisers” within the meaning of Section 202(a)(11) of the U.S. Investment Advisers Act of 1940 (“Advisors Act”) [15 U.S.C. Section 80(b)-2(a)(11), but had no registrations with the Commission. Confusion over investment adviser registration requirements is a commonplace problem in the EB-5 space. In SEC v. Luca, the defendants were in the business of providing investment advice concerning securities for compensation. According to the SEC, these key facts triggered registration requirements under the Advisers Act.
We will soon be providing an extensive alert with regulatory advice to EB-5 regional centers and issuers on the applicability of both federal and state investment adviser registration requirements. The applicability of such requirements should be made on a case-by-case with qualified securities counsel. There is no “one size fits all” advice. States have their own considerations in interpreting investment adviser registration requirements. And the SEC has its own interpretive guidance on the parameters of the registration requirements of the Advisers Act apply.
The egregious pattern of unlawful behavior by the defendants in SEC v. Luca included deceit in the marketing process, fraud in offering materials, comingling and misappropriation of funds, and violation of registration requirements. These are issues not just in the EB-5 context, but with private placements generally. Affinity fraud is also common in private placements.
EB-5 stakeholders should be aware that we are seeing a visible uptick in securities related prosecutions. No issuer, regional center or deal facilitator is immune from scrutiny. The SEC and USCIS are also working together more nimbly with foreign securities agencies. Sound policies, securities compliance and meaningful due diligence by experts are important in EB-5 offerings.
Sunlight is the best disinfectant. This adage is true for the EB-5 program. Stakeholders who promote a transparent and strong EB-5 program should applaud the SEC’s efforts.