Michigan House Moves Quickly to Repeal Michigan Right to Work Act

The Michigan House of Representatives moved quickly yesterday to advance legislation repealing Michigan’s Right to Work law, which has been in effect for the last decade. Right to Work prohibits the inclusion of a clause in a union labor contract that conditions access to employment (and continued employment) on becoming and remaining a Union member in good standing. Before enactment of Michigan’s Right to Work law, Unions could legally negotiate a union security clause into a labor contract. In a nutshell, union security means that employees performing work covered by a labor contract must join the union and remain in good standing with the union or be terminated. On March 8, the House passed both House Bill 4005 (private sector unions) and House Bill 4004 (public sector unions). The bills will now be taken up by the Michigan State Senate.

What Does Repeal of Right to Work Mean for Michigan Companies?

If Right to Work is repealed, employers with Union labor contracts can expect requests to meet and bargain regarding union security clauses. If repealed, existing labor contracts will not be presumed to include such clauses. Rather, union security clauses and the terms and scope of such provisions are a subject of negotiation. Existing labor contracts should be reviewed with labor counsel to determine the employer’s obligations to engage in mid-contract bargaining on this important topic. Labor contracts on this issue vary. For example, labor contracts may contain:

  • A union security clause that becomes effective upon a change in the law;
  • An obligation to meet and negotiate with the Company upon a change in the law; or,
  • The labor contract may be silent on the issue.
© 2023 Varnum LLP

The Future of Stablecoins, Crypto Staking and Custody of Digital Assets

In the wake of the collapse of cryptocurrency exchange firm FTX, the Securities and Exchange Commission (SEC) has ratcheted up its oversight and enforcement of crypto firms engaged in activities ranging from crypto staking to custody of digital assets. This is due in part to concerns that the historically free-wheeling and largely unregulated crypto marketplace may adversely impact U.S. investors and contaminate traditional financial systems. The arguments that cryptocurrencies and digital assets should not be viewed as securities under federal laws largely fall on deaf ears at the SEC. Meanwhile, the state of the crypto economy in the United States remains in flux as the SEC, other regulators and politicians alike attempt to balance competing interests of innovation and investment in a relatively novel and untested asset class.

Is Crypto Staking Dead?

First, what is crypto staking? By way of background, it’s necessary to understand a bit about blockchain technology, which serves as the underpinning for all cryptocurrency and digital asset transactions. One of the perceived benefits of such transactions is that they are decentralized and “peer-to-peer” – meaning that Person A can transact directly with Person B without the need for a financial intermediary to approve the transaction.

However, in the absence of a central authority to validate a transaction, blockchain requires other verification processes or consensus mechanisms such as “proof of work” (which in the case of Bitcoin mining ensures that transactions are valid and added to the Bitcoin blockchain correctly) or “proof of stake” (a network of “validators” who contribute or “stake” their own crypto in exchange for a chance to validate a new transaction, update the blockchain and earn a reward). Proof of work has come under fire by environmental activists for the enormous amounts of computer power and energy required to solve complex mathematical or cryptographic puzzles to validate a transaction before it can be recorded on the blockchain. In contrast, proof of stake is analogous to a shareholder voting their shares of stock to approve a corporate transaction.

Second, why has crypto staking caught the attention of the SEC? Many crypto firms and exchanges offer “staking as a service” (SaaS) whereby investors can stake (or lend) their digital assets in exchange for lucrative returns. This practice is akin to a person depositing cash in a bank account in exchange for interest payments – minus FDIC insurance backing of all such bank deposits to protect investors.

Recently, on February 9, 2023, the SEC charged two crypto firms, commonly known as “Kraken,” for violating federal securities laws by offering a lucrative crypto asset SaaS program. Pursuant to this program, investors could stake their digital assets with Kraken in exchange for annual investment returns of up to 21 percent. According to the SEC, this program constituted the unregistered sale of securities in violation of federal securities laws. Moreover, the SEC claims that Kraken failed to adequately disclose the risks associated with its staking program. According to the SEC’s Enforcement Division director:

“Kraken not only offered investors outsized returns untethered to any economic realities but also retained the right to pay them no returns at all. All the while, it provided them zero insight into, among other things, its financial condition and whether it even had the means of paying the marketed returns in the first place.”1

Without admitting or denying the SEC’s allegations, Kraken has agreed to pay a $30 million civil penalty and will no longer offer crypto staking services to U.S. investors. Meanwhile, other crypto firms that offer similar programs, such as Binance and Coinbase, are waiting for the other shoe to drop – including the possibility that the SEC will ban all crypto staking programs for U.S. retail investors. Separate and apart from potentially extinguishing a lucrative revenue stream for crypto firms and investors alike, it may have broader consequences for proof of stake consensus mechanisms commonly used to validate blockchain transactions.

NY DFS Targets Stablecoins

In the world of cryptocurrency, stablecoins are typically considered the most secure and least volatile because they are often pegged 1:1 to some designated fiat (government-backed) currency such as U.S. dollars. In particular, all stablecoins issued by entities regulated by the New York Department of Financial Services (NY DFS) are required to be fully backed 1:1 by cash or cash equivalents. However, on February 13, 2023, NY DFS unexpectedly issued a consumer alert stating that it had ordered Paxos Trust Company (Paxos) to stop minting and issuing a stablecoin known as “BUSD.” BUSD is reportedly the third largest stablecoin by market cap and pegged to the U.S. dollar.

The reasoning behind the NY DFS order remains unclear from the alert, which merely states that “DFS has ordered Paxos to cease minting Paxos-issued BUSD as a result of several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD.”The same day, Paxos confirmed that it would stop issuing BUSD. However, in an effort to assuage investors, Paxos stated “All BUSD tokens issued by Paxos Trust have and always will be backed 1:1 with U.S. dollar–denominated reserves, fully segregated and held in bankruptcy remote accounts.”3

Separately, the SEC reportedly issued a Wells Notice to Paxos on February 12, 2023, indicating that it intended to commence an enforcement action against the company for violating securities laws in connection with the sale of BUSD, which the SEC characterized as unregistered securities. Paxos, meanwhile, categorically denies that BUSD constitute securities, but nonetheless has agreed to stop issuing these tokens in light of the NY DFS order.

It remains to be seen whether the regulatory activity targeting BUSD is the beginning of a broader crackdown on stablecoins amid concerns that, contrary to popular belief, such coins may not be backed by adequate cash reserves.

Custody of Crypto Assets

On February 15, 2023, the SEC proposed changes to the existing “custody rule” under the Investment Advisers Act of 1940. As noted by SEC Chair Gary Gensler, the custody rule was designed to “help ensure that [investment] advisers don’t inappropriately use, lose, or abuse investors’ assets.”The proposed changes to the rule (referred to as the “safeguarding rule”) would require investment advisers to maintain client assets – specifically including crypto assets – in qualified custodial accounts. As the SEC observed, “[although] crypto assets are a relatively recent and emerging type of asset, this is not the first time custodians have had to adapt their practices to safeguard different types of assets.”5

A qualified custodian generally is a federal or state-chartered bank or savings association, certain trust companies, a registered broker-dealer, a registered futures commission merchant or certain foreign financial institutions.6 However, as noted by the SEC, many crypto assets trade on platforms that are not qualified custodians. Accordingly, “this practice would generally result in an adviser with custody of a crypto asset security being in violation of the current custody rule because custody of the crypto asset security would not be maintained by a qualified custodian from the time the crypto asset security was moved to the trading platform through the settlement of the trade.”7

Moreover, in a departure from existing practice, the proposed safeguarding rule would require an investment adviser to enter into a written agreement with the qualified custodian. This custodial agreement would set forth certain minimum protections for the safeguarding of customer assets, including crypto assets, such as:

  • Implementing appropriate measures to safeguard an advisory client’s assets8
  • Indemnifying an advisory client when its negligence, recklessness or willful misconduct results in that client’s loss9
  • Segregating an advisory client’s assets from its proprietary assets10
  • Keeping certain records relating to an advisory client’s assets
  • Providing an advisory client with periodic custodial account statements11
  • Evaluating the effectiveness of its internal controls related to its custodial practices.12

The new proposed, cumbersome requirements for custodians of crypto assets appear to be a direct consequence of the collapse of FTX, which resulted in the inexplicable “disappearance” of billions of dollars of customer funds. By tightening the screws on custodians and investment advisers, the SEC is seeking to protect the everyday retail investor by leveling the playing field in the complex and often murky world of crypto. However, it still remains to be seen whether, and to what extent, the proposed safeguarding rule will emerge after the public comment period, which will remain open for 60 days following publication of the proposal in the Federal Register.


1 SEC Press Release 2023-25 (Feb. 9, 2023).

NY DFS Consumer Alert (Feb. 13, 2023) found at https://www.dfs.ny.gov/consumers/alerts/Paxos_and_Binance.

3 Paxos Press Release (Feb. 13, 2023) found at https://paxos.com/2023/02/13/paxos-will-halt-minting-new-busd-tokens/.

4 SEC Press Release 2023-30 (Feb. 15, 2023).

5 SEC Proposed Rule, p. 79.

6 SEC Fact Sheet: Proposed Safeguarding Rule.

7 SEC Proposed Rule, p. 68.

For instance, per the SEC, this could require storing crypto assets in a “cold wallet.”

9 Per the SEC, “the proposed indemnification requirement would likely operate as a substantial expansion in the protections provided by qualified custodians to advisory clients, in particular because it would result in some custodians holding advisory client assets subject to a simple negligence standard rather than a gross negligence standard.” See SEC Proposed Rule, p. 89.

10 Per the SEC, this requirement is intended to “ensure that client assets are at all times readily identifiable as client property and remain available to the client even if the qualified custodian becomes financially insolvent or if the financial institution’s creditors assert a lien against the qualified custodian’s proprietary assets (or liabilities).” See SEC Proposed Rule, p. 92.

11 Per the SEC, “[in] a change from the current custody rule, the qualified custodian would also now be required to send account statements, at least quarterly, to the investment adviser, which would allow the adviser to more easily perform account reconciliations.” See SEC Proposed Rule, p. 98.

12 Per the SEC, the proposed rule would require that the “qualified custodian, at least annually, will obtain, and provide to the investment adviser a written internal control report that includes an opinion of an independent public accountant as to whether controls have been placed in operation as of a specific date, are suitably designed, and are operating effectively to meet control objectives relating to custodial services (including the safeguarding of the client assets held by that qualified custodian during the year).” See SEC Proposed Rule, p. 101.

© 2023 Wilson Elser

Locking Tik Tok? White House Requires Removal of TikTok App from Federal IT

On February 28, the White House issuedmemorandum giving federal employees 30 days to remove the TikTok application from any government devices. This memo is the result of an act passed by Congress that requires the removal of TikTok from any federal information technology. The act responded to concerns that the Chinese government may use data from TikTok for intelligence gathering on Americans.

I’m Not a Federal Employee — Why Does It Matter?

The White House Memo clearly covers all employees of federal agencies. However, it also covers any information technology used by a contractor who is using federal information technology.  As such, if you are a federal contractor using some sort of computer software or technology that is required by the U.S. government, you must remove TikTok in the next 30 days.

The limited exceptions to the removal mandate require federal government approval. The memo mentions national security interests and activities, law enforcement work, and security research as possible exceptions. However, there is a process to apply for an exception – it is not automatic.

Takeaways

Even if you are not a federal employee or a government contractor, this memo would be a good starting place to look back at your company’s social media policies and cell phone use procedures. Do you want TikTok (or any other social media app) on your devices? Many companies have found themselves in PR trouble due to lapses in enforcement of these types of rules. In addition, excessive use of social media in the workplace has been shown to be a drag on productivity.

© 2023 Bradley Arant Boult Cummings LLP

Administration’s WOTUS Rule Muddies Jurisdictional Waters

The U.S. Environmental Protection Agency and the U.S. Army Corps of Engineers have issued a new definition of “waters of the United States” (WOTUS), which becomes effective on March 20. The regulated community is watching this new definition of WOTUS because it will determine federal jurisdiction under the Clean Water Act.

For example, projects involving oil or natural gas development or pipeline construction require federal permitting for impacts from crossing, or otherwise disturbing, WOTUS. Generally speaking, the more impacts to such federally regulated streams and wetlands, the more complicated, expensive and lengthy the Corps Section 404 permitting.

In addition to determining the scope of federal permitting for the dredging/filling of streams and wetlands, the WOTUS definition also determines the scope of several other federal regulations, including regulations associated with National Pollutant Discharge Elimination System permitting, Spill Prevention, Control and Countermeasure plans and federal spill reporting. Although WOTUS is not defined in the CWA, the WOTUS definition appears in 11 different federal regulations.

Overview And Background

The agencies have promoted this final rule as establishing a “durable definition” that will “reduce uncertainty” in identifying WOTUS. However, this definition does not appear to provide much-needed clarity. Rather, generally speaking, the new definition codifies the approach that the agencies already have been informally utilizing to determine WOTUS, for example, relying on the definition of WOTUS from the late 1980s, as interpreted by subsequent U. S. Supreme Court decisions (such as the 2006 case, Rapanos v. United States). Challenges to the new definition are already underway.

The definition of WOTUS has been debated for nearly two decades, starting with several U. S. Supreme Court cases, which addressed the meaning of the 1980s WOTUS definition. This 1980s definition is very brief and is open to much interpretation because it does not include any defined terms. As discussed further below, rather than providing clarity, the U.S. Supreme Court decisions introduced additional uncertainty by offering more than one test for determining WOTUS.

Subsequently, Presidents Obama and Trump each introduced their own WOTUS definitions. President Barack Obama introduced the Clean Water Rule (CWR) in 2015, and President Donald Trump introduced the Navigable Waters Protection Rule (NWPR) in 2020.

Not surprisingly, the CWR entailed a broader interpretation of WOTUS, based heavily of Justice Anthony Kennedy’s significant nexus test in Rapanos, while the NWPR was based heavily on Justice Antonin Scalia’s “relatively permanent waters” test in Rapanos. Both the CWR and the NWPR were immediately and significantly challenged. Neither rule remains in effect.

Current Status

The Biden administration published its draft definition of WOTUS on Dec. 7. The final rule was published in the Federal Register on Jan. 18. The agencies’ approach to interpreting WOTUS relies heavily on both of the frequently discussed tests identified in the Rapanos decision. In Rapanos, Justice Scalia issued the plurality opinion, which held that WOTUS would include only “relatively permanent, standing or continuously flowing bodies of water” connected to traditional navigable waters, and to “wetlands with a continuous surface connection to such relatively permanent waters” (such as adjacent wetlands).

Justice Kennedy, however, advanced a broader WOTUS interpretation in his concurring opinion, which was based on the concept of a “significant nexus” (for instance, wetlands should be considered as WOTUS “if the wetlands, either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical and biological integrity of other covered water”). President Biden’s new definition directly quotes and codifies these tests as regulations that may be relied upon to support a WOTUS determination.

While this new WOTUS definition may not be, conceptually, a significant change to how the agencies regulate streams and wetlands, the new definition may expand the agencies’ interpretation of a wetland that is “adjacent” to a WOTUS, through its lengthy discussion of adjacent wetlands in the final rule’s preamble.

The new definition also may expand how the agencies determine whether a water body will “significantly affect” a WOTUS, by providing a definition of “significantly affect,” which enumerates five factors to assess and five functions to consider in evaluating whether a potentially unregulated water will have a “material influence” on a traditionally navigable water.

Factors include distance from the traditionally navigable water, hydrologic factors and climatological variables. Functions include contribution of flow and retention and attenuation of runoff. Both the factors and the functions are broad and open to interpretation, which may lead to the agencies asserting jurisdiction over more water bodies. The new definition also codifies that the effect of the potentially regulated water must be evaluated alone “or in combination with similarly situated waters in the region,” which likely will broaden how the agencies evaluate the potential regulation of ephemeral and isolated water bodies.

Supreme Court And Congress

Publication of this definition, at this time, is likely a preemptive move by the agencies in advance of the Supreme Court’s impending decision in Sackett v. EPA, a case in which the court will, again, weigh in on the definition of WOTUS.

In Sackett, landowners in Idaho have had a long-standing challenge to an administrative order issued against them for allegedly filling wetlands without a permit. The Sacketts assert that Justice Kennedy’s significant nexus test in Rapanos is not the appropriate test to delineate wetlands as WOTUS, and that, under the test identified by Justice Scalia, the wetlands on their property are not WOTUS.

In 2021, the U.S. Court of Appeals for the Ninth Circuit ruled against the Sacketts’ position and held that the “significant nexus” test in the Kennedy concurrence was the controlling opinion from Rapanos. The Sacketts petitioned the U.S. Supreme Court to consider whether Rapanos should be revisited to adopt the plurality’s test for wetland jurisdiction under the CWA. However, the Supreme Court instead will consider the narrow issue of whether the Ninth Circuit “set forth the proper test for determining whether wetlands are WOTUS.”

Some have speculated that the U.S. Supreme Court’s opinion may support a narrower interpretation of WOTUS than the agencies have been implementing. For example, if the court narrows or eliminates the “significant nexus” test, the decision will create even more uncertainty in identifying WOTUS and may invalidate the Biden administration’s definition. The Sackett opinion is expected by this summer.

In a letter dated Jan. 30, 25 Republican governors asked President Biden to delay implementation of the new WOTUS definition until the U.S. Supreme Court issued the Sackett decision. The governors oppose the new definition and claim that it is, among other things, ill-timed, burdensome and overbroad. The governors assert that delaying implementation of the new definition until after the issuance of the Sackett decision will minimize the number of changes to the definition in a short time. The governors stated that multiple revisions would “impose an unnecessary strain on farmers, builders and every other impacted sector of the American economy.”

Consistent with the sentiments of the Republican governors, in early February, Republican members of Congress, led by Senator Shelley Moore Capito, R-W.V., and representatives Sam Graves, R-Mo., and David Rouzer, R-N.C., announced that they intended to use the Congressional Review Act to formally challenge the new WOTUS definition through a joint resolution of disapproval. The hearing was held on Feb 8.

The CRA provides Congress a mechanism to vote to disapprove agency rules that go beyond the authority Congress granted to federal agencies and to send the resolution to the president, who can approve or veto the resolution. If passed, the joint resolution of disapproval could invalidate the rule and prohibit an agency from issuing a rule that is in substantially the same form without further congressional authorization. President Biden is expected to veto any such joint resolution of disapproval.

Consistent with Obama’s CWR and Trump’s NWPR, the new WOTUS definition already has been challenged in the U.S. District Court of the Southern District of Texas by Texas and 18 industry groups, including the American Petroleum Institute, claiming that the new definition is “unworkable” and in conflict with the CWA (see accompanying story, page 30). These challenges may result in the stay or vacatur of the new definition. If this occurs, the agencies may, again, revert back to the current WOTUS definition.

© Copyright Babst, Calland, Clements and Zomnir, P.C.

Multiple Concussions Result in Greater Cognitive Deficits

A new study published in the Journal of Neurotrauma examined the lifetime traumatic injury and cognitive domain deficits following traumatic brain injury. Most interesting for those representing clients who sustained mild traumatic brain injuries is that the number of prior mild traumatic brain injuries and the role they play in affecting one’s cognitive abilities.

The study examined the longer-term cognitive effects of traumatic brain injury severity and the number of mild TBI’s in later life. The researchers examined the subset (n=15,764) of the PROTECT Study, a cohort assessing risk factors for cognitive decline between the ages of 50 and 90 years. The study found that those who had suffered at least a single mild TBI demonstrated significantly poorer attention scores at baseline compared with the no head injury group. Compared with those with no mild TBI’s, those in the 3 MTBI group manifested poorer baseline executive function and attention scores, while those who had suffered 4 or more mild traumatic brain injuries demonstrated poorer attention, processing speed, and working memory compared with those reporting no mild traumatic brain injuries. The researchers stated:

“TBI’s associated with fixed, dose and severity-dependent cognitive deficits. The most sensitive cognitive domains are attention and executive function, which approximately double the effect compared with processing speed and working memory. Post-TBI cognitive rehabilitation should be targeted appropriately to domain-specific effects…. Significant long-term cognitive deficits were associates with three or more lifetime MTBI’s, a critical consideration when counselling individuals post-TBI about continuing high-risk activities.”

The citation for the study is Lennon MJ, Brooker H, Creese B, Thayanandan T, Rigney G, Aarsland D, Hampshire A, Ballard C, Corbett A, Raymont V. Lifetime Traumatic Brain Injury and Cognitive Domain Deficits in Late Life: The PROTECT-TBI Cohort Study. J Neurotrauma. 2023 Jan 27. doi: 10.1089/neu.2022.0360. Epub ahead of print. PMID: 36716779.

COPYRIGHT © 2023, STARK & STARK

Tenth Circuit Declares No Remedy for Hemp Farmer Whose Federally Legal Plants Were Seized

In January, the United States Court of Appeals for the Tenth Circuit issued a published opinion in Serna v. Denver Police Department, No. 21-1446 (10th Cir. Jan. 24, 2023), upholding the dismissal of a hemp farmer’s lawsuit against local government officials in Colorado who confiscated his plants.

The farmer – Francisco Serna – brought suit under the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) which legalized hemp across the country and included limitations on states’ ability to prohibit the transportation of certain hemp plants and products across state lines. However, the three-judge panel concluded that no provision within the law allows for a private right of action by an individual to challenge instances of perceived unlawful governmental interference.

Serna grew hemp in Texas and intended to bring several plants home with him from Colorado. But when he attempted to get the plants – consisting of “plant clones or rooted clippings” – through Denver’s airport, a police officer confiscated them under a departmental policy to seize plants containing any discernible level of THC. Even though Serna had documentation showing that the plants’ THC level was beneath the limit authorized by the 2018 Farm Bill – and therefore compliant under federal law –  the officer took the plants anyway.

Serna’s Legal Proceedings

Serna sued the Denver Police Department and the confiscating officer under Section 10114(b) of the 2018 Farm Bill, which prohibits states from interfering with interstate transport of hemp and products that comply with the law. Serna asserted that because his plants were complaint, the defendants violated the provision. However, a federal magistrate judge granted the defendants’ motion to dismiss, which the district court adopted.[1] Serna then appealed to the Tenth Circuit.

The Tenth Circuit also held that no private right of action existed for Serna to employ. The court’s conclusion rests on the determination that Congress did not intend that hemp farmers, like Serna, should constitute a protected class under the 2018 Farm Bill. Without that status, they cannot sue. The court focused on the plain language of Section 10114(b), reasoning that it “makes no mention of [a] purported class of licensed [hemp] farmers” and merely provides that “no state…shall prohibit the transportation or shipment of hemp” across its borders. Thus, the provision pertains only to “the person regulated rather than the individuals protected,” which is fatal to the private right of action inquiry. The court compared Section 10114(b) with other federal statutes that do create private rights of action, such as Title VI of the 1964 Civil Rights Act, which specifies that “[n]o person…shall…be subjected to discrimination.” 42 U.S.C. § 2000d.

Takeaways

The unfortunate result of this decision is that individuals who comply with the provisions of the 2018 Farm Bill during the course of their business operations cannot seek recourse from improper government meddling. As a result, the law is significantly less protective than anticipated. Rather than suing to protect their interests, entrepreneurs like Serna must instead depend upon other actors – perhaps state attorneys general – to pursue these types of cases. However, those non-stakeholders generally have less incentive to pursue lawsuits, particularly against peer law enforcement agencies, leaving hemp operators with no remedy to enforce their rights under the 2018 Farm Bill.

In a broader sense, the Serna case is a cautionary tale for those who expect federal descheduling of marijuana to resolve the regulatory complexities currently faced throughout the cannabis industry. If hemp operators working with products that are federally legal are unable to utilize the courts to challenge unlawful seizure of their products, then the effectiveness of federal legalization of cannabis may require an express private right of action.

Going forward, Serna has a limited period of time to request that the case be re-heard by the Tenth Circuit en banc (i.e., by the entire eleven-judge court) – otherwise, the three-judge panel’s opinion will remain the operative, binding outcome.


[1] The magistrate judge and the district judge differed on their bases for concluding that Serna could not sue under the 2018 Farm Bill. Specifically, the magistrate judge determined that Section 10114(b) neither created a private right of action nor a private remedy. The district judge, on the other hand, concluded that Congress did authorize a private right of action but no private remedy to enforce it was evident. This additional divergence is another example of how the 2018 Farm Bill is susceptible to conflicting interpretations, which will likely only increase going forward as other courts consider the issue.

© 2023 ArentFox Schiff LLP

Patenting a Nice Cool Glass of Nicotinamide Riboside? Claims Covering Milk Invalid under § 101

The US Court of Appeals for the Federal Circuit found that claims covering a naturally occurring composition were not patent eligible under 35 U.S.C. § 101 merely because one component of the composition had been “isolated.” ChromaDex, Inc. v. Elysium Health, Inc., Case No. 2022-1116 (Fed. Cir. Feb. 13, 2023) (Chen, Prost, Stoll, JJ.)

ChromaDex sued Elysium (a former ChromaDex customer) for infringement of its patent directed to dietary supplements containing nicotinamide riboside (NR). Elysium moved for summary judgment, arguing that the asserted claims were invalid under the § 101 prohibition against patenting natural phenomena. After the district court granted summary judgment, ChromaDex appealed.

The asserted claims were directed to a composition comprising:

  • Isolated NR
  • One or more of tryptophan, nicotinic acid or nicotinamide
  • One of 22 carriers
  • Increased NAD+ biosynthesis after eating.

Both parties conceded that milk satisfies every element of the asserted claims with the exception that its NR is not “isolated.” Both parties also conceded that milk is a naturally occurring material and thus not patent eligible under § 101.

On these facts, the issue presented was whether the claim limitation that the NR must be “isolated” (which does not occur in nature) was sufficient to make the claims patent eligible. The Federal Circuit responded “no.”

The Federal Circuit analyzed the asserted claims under two tests: the “markedly different characteristics” test set out in Chakrabarty, and the Alice two-step test (unsure whether Chakrabarty remains controlling precedent).

Under the Chakrabarty test, a claimed composition is not a natural phenomenon if it has “markedly different characteristics” from what occurs in nature. The Federal Circuit found that ChromaDex’s claimed composition had no markedly different characteristics from natural milk. While ChromaDex argued that isolation potentially allowed for unnaturally high concentrations of NR, the claims did not require such concentrations. The claims included compositions structurally and functionally identical to milk and therefore failed the “markedly different characteristics” Chakrabarty test.

Proceeding to the two-part Alice test, under step 1 the Federal Circuit found that the claims were directed to a product of nature because there were no structural differences between the claimed composition and natural milk. Under step two, the Court found that there was no “inventive step” because the claims were merely directed to increasing NAD+ biosynthesis, which was a natural principle that resulted from drinking milk.

Practice Note: During claim drafting, care should be taken to avoid claims that encompass all structural and functional components of a naturally occurring material.

© 2023 McDermott Will & Emery

The NLRB Curtails the Scope of Nondisparagement and Confidentiality Provisions in Severance Agreements

On Tuesday, February 21, 2023, the National Labor Relations Board (“NLRB” or “Board”) issued McLaren Macomb, a decision that curtails the permissible scope of confidentiality agreements and non-disclosure provisions in severance agreements. See McLaren Macomb, 372 NLRB No. 58 (2023). Analyzing the broad provisions in the agreements at issue in this case, the Board held that simply offering employees severance agreements that require employees to broadly waive their rights under Section 7 of the National Labor Relations Act (“NLRA” or “the Act”) was unlawful. The Board held:

Where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act, because it has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain. Whether the employee accepts the agreement is immaterial.

The Board’s decision is part of a broader trend by courts and administrative agencies applying heightened scrutiny to contractual provisions that limit employees’ rights. The decision also provides a crucial reminder to union and nonunion workers alike of the relevance of federal labor law in providing legal protections for most private-sector workers.

Case Background

The case arose when Michigan hospital operator McLaren Macomb permanently furloughed eleven employees, all bargaining unit members of Local 40 RN Staff Council, Office of Professional Employees International Union (OPEIU), AFL-CIO, because it had terminated outpatient services during the COVID-19 pandemic in June 2020. After McLaren Macomb furloughed these employees, it presented them with a “Severance Agreement, Waiver and Release” that offered severance amounts to the employees if they signed the agreement. All eleven employees signed.

The agreements provided broad language regarding confidentiality and nondisparagement. The confidentiality provision stated, “The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.” (emphasis added). The non-disclosure provision provided, in relevant part, “At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer…” The employees faced substantial financial penalties if they violated the provisions. The Employer conditioned the payment of severance on Employees’ entering into this agreement.

The NLRB’s Decision

In McLaren Macomb, the Board held that simply offering employees severance agreements that contain these broad confidentiality and nondisparagement provisions violates the NLRA.

The NLRA provides broad protections of employees’ rights to engage in collective action. Section 7 of the NLRA vests employees with a number of rights, including the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8(a)(1) of the Act makes it an unfair labor practice (ULP) for an employer to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7.” As the Supreme Court, federal courts, and the NLRB have repeatedly held and reaffirmed, Section 7 provides broad rights for employees and former employees—union and nonunion alike—to engage in collective action, including discussing terms and conditions of employment and workplace issues with coworkers, a union, and the Board. As the Supreme Court has stated in elaborating on the broad construction of Section 7, “labor’s cause often is advanced on fronts other than collective bargaining and grievance settlement within the immediate employment context.” Eastex, Inc. v. N.L.R.B., 437 U.S. 556, 565 (1978).

Applying these foundational principles to the severance agreements at hand, the Board reversed Trump-era NLRB precedent and concluded that the employer’s proffer of these broad nondisparagement and confidentiality provisions contravened the employees’ exercise of Section 7 rights, which is an unfair labor practice under Section 8(a)(1). Notably, the Board held that an employer’s merely offering such broad provisions violates the Act—it does not matter whether the employee signs the agreement or not.

The Board determined that the nondisparagement provision substantially interfered with employees’ Section 7 rights on its face. That provision prohibits the furloughed employee from making any “statements to [the] Employer’s employees or the general public which could disparage or harm the image of [the] Employer.” Analyzing this language, the Board reasoned that the provision would encompass employee conduct or critiques of the employer regarding any labor issue, dispute, or term and condition of employment. Accordingly, this proscription sweeps far too broadly—it prohibits employees from exercising their right to publicize labor disputes, a right which is protected by the Act. Moreover, the nondisparagement provision chills employees from exercising Section 7 rights, including efforts to assist fellow employees, cooperate with the Board’s investigation and litigation of unfair labor practices, and raise or assist in making workplace complaints to coworkers, their union, the Board, the media, or “almost anyone else.” As the Board underscored, “Public statements by employees about the workplace are central to the exercise of employee rights under the Act.”

The Board then concluded that the confidentiality provision also interfered with employees’ Section 7 rights in at least two ways. First, the Board explained that because the confidentiality provision prohibits the employee from disclosing the terms of the agreement “to any third person,” the agreement would reasonably tend to coerce the employee not to file a ULP charge with the Board or assist in a Board investigation. (emphasis added). Second, the same language would also prohibit the furloughed employee from discussing the terms of the agreement with former coworkers in similar situations, which would frustrate the mutual support between employees at the heart of the Act. As the Board summarized, “A severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”

Takeaways for Employment Lawyers and Plaintiffs

First, while one might assume that labor law is exclusively the province of unions, their members, and their lawyers, McLaren Macomb demonstrates the relevance of the NLRA for employees regardless of union status. Although the workers in this case were unionized, the Section 7 rights at the heart of the NLRA apply to most private-sector employees, including nonunion employees. Indeed, because nonunion workers often have fewer workplace protections than their unionized counterparts, Section 7’s protections are critically important for nonunion employees. Employees who are asked to sign confidentiality and nondisparagement provisions and their attorneys should be aware that broad restrictions on employees’ concerted activity may be illegal.

Second, this decision is part of a broader effort to protect workers from being muzzled by their employers. For instance, the recent federal Speak Out Act establishes that predispute nondisclosure clauses and nondisparagement clauses—often included in employment contracts—are unenforceable in disputes involving sexual assault or sexual harassment. These recent developments in the law should be on the radar of workers and their attorneys who are navigating employer’s contracts, policies, handbooks, and proposed severance agreements.

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As White House Loses House Majority, what is Next for H-1B Visa Program?

The H-1B is a popular and highly-sought-after visa category for skilled foreign workers seeking to work in the United States. It has been the subject of much debate and controversy over the years, and recent changes in the political landscape have added new uncertainties and challenges to the H-1B visa process. This blog post explores the impact of the Biden administration on changes to the H-1B visa, as well as the role of the new Republican majority in the House of Representatives in shaping the future of the H-1B visa program.

What is the H-1B Visa?

The H-1B is a temporary, nonimmigrant visa category that allows employers to petition on behalf of highly-educated foreign professionals who work in specialty occupations that require at least a bachelor’s degree. These jobs are generally in the fields of science, technology, engineering, and mathematics (“STEM”), enhancing American competitiveness in the global economy. In fact, in an effort to be even more competitive, the Biden administration recently expanded eligible fields of study that qualify under the program, as described in greater detail on this blog.

The H-1B visa allows U.S. employers to fill critically important jobs in the United States with foreign workers.  While many critics of the H-1B argue that it potentially limits job opportunities for U.S. workers, many others suggest that H-1B workers offer critical support to the U.S. economy. In fact, according to the American Immigration Counsel, H-1B recipients provided critical assistance during the COVID-19 pandemic, with many doctors, scientists, and nurses present in the U.S. on the H-1B visa, including individuals who assisted with the development of vaccines.

Biden Administration and its Relationship with Immigration Reform

One of the key priorities of the Biden administration has been to modernize and improve the U.S. immigration system, including the H-1B visa program. To this end, the Biden administration has taken steps to make the H-1B visa process more accessible and efficient for skilled foreign workers, including increasing the number of visas available, increasing transparency and consistency in the lottery process, and streamlining the application process.

According to a recent article by Forbes, Senator Richard Durbin (D-IL) and Senator Alex Padilla (D-CA) are expected to return as Senate Judiciary Committee chair and immigration subcommittee chair, respectively. It is expected that Sen. Chuck Grassley (R-IA) will no longer be ranking member on the Senate Judiciary; Sen. Lindsey Graham (R-SC) likely will hold that position. Just last year, Senator Grassley blocked an exemption from green card limits for certain foreign nationals with PhDs in STEM fields – a move that frustrated employers and universities alike.

Although Democrats hold the majority in the Senate, the House now features a Republican majority, which may complicate immigration reform efforts on Capitol Hill.

Republicans on Capitol Hill Seek to Counter Democratic Efforts on Immigration

The new Republican majority in the House of Representatives may pose a challenge to the Biden administration’s efforts to reform the H-1B visa program. Republicans have traditionally been more critical program and have pushed for reforms that would restrict the number of visas available and make it more difficult for foreign workers to come to the United States.

Sen. Tom Cotton (R-AR) has been a vocal critic of the H-1B program, stating that it is used to hire cheap foreign labor at the expense of American workers. Similarly, Sen. Grassley has expressed concerns about the impact of the program on American workers, claiming that while the visa was intended to help American businesses recruit the best and brightest talent from around the world, it’s too often been used to import cheaper foreign labor and displace American workers.

Given these differing perspectives, the future of the H-1B visa program will likely continue to be a source of political debate and controversy in the United States. However, it is clear that both sides of the political aisle agree that it needs to be reformed in some way, whether to make it more accessible and efficient for skilled foreign workers, or to better protect the interests of American workers.

Currently, the H-1B process in the United States is in a state of flux, with the Biden administration taking steps to modernize and improve the program, while the new Republican majority in the House of Representatives raises concerns about its impact on American workers. Whether the program will ultimately be reformed to better serve the interests of foreign workers, American workers, or both remains to be seen, but clearly this issue will continue to be a major source of political debate and controversy in the United States for the foreseeable future.

Article By Raymond G. Lahoud of Norris McLaughlin P.A.

For more immigration legal news, click here to visit the National Law Review.

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FTC Launches New Office of Technology

On February 17, 2023, the Federal Trade Commission announced the launch of their new Office of Technology. The Office of Technology will assist the FTC by strengthening and supporting law enforcement investigations and actions, advising and engaging with staff and the Commission on policy and research initiatives, and engaging with the public and relevant experts to identify market trends, emerging technologies and best practices. The Office will have dedicated staff and resources and be headed by Chief Technology Officer Stephanie T. Nguyen.

Article By Hunton Andrews Kurth’s Privacy and Cybersecurity Practice Group

For more privacy and cybersecurity legal news, click here to visit the National Law Review.

Copyright © 2023, Hunton Andrews Kurth LLP. All Rights Reserved.