Author: National Law Forum

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China’s Supreme People’s Court Issues First Anti-Anti-Suit Injunction in Huawei v. Netgear

Following Huawei obtaining two anti-anti-suit injunctions (AASI) against Netgear on December 11, 2024 at the Unified Patent Court’s Munich Local Division and the Munich I Regional Court, China’s Supreme People’s Court also awarded an AASI in favor of Huawei against Netgear in a decision dated December 22, 2024. This is believed to be the first AASI issued by a Chinese court.

China’s Supreme People’s Court granted Huawei’s request for an AASI against Netgear’s pursuit of an Anti-Suit/Enforcement Injunction in the U.S. reasoning:

First, Huawei’s application for injunction has factual and legal basis. Huawei Huawei is the patent owner of the two patents involved in the case. The two patents are Chinese invention patents granted by the China National Intellectual Property Administration in accordance with the Patent Law of the People’s Republic of China. They are currently in a valid state and their intellectual property rights are relatively stable. Huawei filed patent infringement lawsuits in the Chinese courts against Netgear for alleged infringement of the two Chinese patents involved in the case. The Chinese court, namely the Jinan Intermediate People’s Court, accepted the lawsuits in the two cases, which complies with Article 29 of the Civil Procedure Law on the jurisdiction of infringement cases and is also in line with the internationally recognized territorial principle of intellectual property protection.

In the first instance judgment of the two cases, the Jinan Intermediate People’s Court has determined that the alleged infringing products offered for sale, sold, and imported by Netgear fall within the scope of protection of the two patents involved in the case, and that Huawei fulfilled its fair, reasonable, and non-discriminatory (FRAND) licensing obligations in the licensing negotiations with Netgear, while Netgear had obvious faults such as delaying negotiations, making unreasonable counter-offers, and not actively responding to Huawei’s negotiation offers during the licensing negotiations, and ordered Netgear to stop its infringement. Netgear, based on its interest relationship with Netgear Beijing, applied to the U.S. court for a so-called anti-suit injunction order against the judicial relief procedures, including the patent infringement lawsuits filed by Huawei in the Jinan Intermediate People’s Court, in an attempt to prevent Huawei from filing normal lawsuits in Chinese courts, which obviously lacks legitimate reasons.

Second, if behavioral preservation measures are not taken, the legitimate rights and interests of Huawei will suffer irreparable damage or the two cases will be difficult to proceed or the judgments will be difficult to enforce. For standard essential patents, based on the principle of good faith and the fair, reasonable and non-discriminatory (FRAND) licensing obligations it promised in the standard setting process, the patent owner generally cannot request the alleged infringer to stop implementing its standard essential patents when the alleged infringer has no obvious fault as stipulated in Article 24, paragraph 2 of the “Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Laws in the Trial of Patent Infringement Disputes (II)” revised in 2020.. However, if the alleged infringer has obvious faults such as delaying negotiations and not actively responding to the patent owner’s negotiation offer in the negotiation of standard essential patents, the patent owner still has the right to request the alleged infringer to stop implementing its standard essential patents.

As mentioned above, based on the facts ascertained in the first-instance judgments of these two cases, it can be preliminarily determined that Netgear had obvious faults in the negotiation of the SEP license involved and was not a good-faith, honest patent implementer, while Huawei did not intentionally violate the fair, reasonable, and non-discriminatory (FRAND) licensing obligations. In this case, the legitimate rights and interests of Huawei as a good-faith licensor should be fully protected by law. If Netgear applies to the U.S. court for the so-called injunction (enforcement) order for the two cases, Huawei will at least face the pressure of considering terminating the litigation in the Chinese court, including giving up the future application for the enforcement of the Chinese court’s judgment, and its legitimate rights and interests will obviously suffer irreparable damage.

Third, if the behavior preservation measures are not taken, the damage caused to the Chinese company will obviously exceed the damage caused to Netgear by taking the behavior preservation measures. As mentioned above, if the behavior preservation measures are not taken, the Chinese company will suffer obvious damages, which include not only the damages to its substantive rights such as the long-term infringement of its patent by Netgear and the inability to obtain normal income in a timely manner, but also the improper obstruction of the Chinese company’s due process rights to promote the trial of these two cases and apply for judgment and enforcement in Chinese courts in accordance with Chinese law. Allowing the Chinese company to apply for and take behavior preservation measures is only to impose a procedural non-action obligation on the respondent and its affiliated companies within a certain period of time, and will not cause any additional losses to Netgear.

Fourth, the adoption of behavioral preservation measures in these two cases will not harm the public interest, and this court has not found any other factors that require special consideration.

The full text of the decision (with redacted party names) is available here (Chinese only) courtesy of Michael Ma at PRIP.

Tax and Disclosure Considerations Related to Executive Security Benefits

Key Takeaways

Executives and companies may deduct the cost of security benefits that meet certain requirements under the Treasury Regulations
Public companies are generally required to disclose the cost of security benefits they provide to their executive teams in certain filings with the Securities and Exchange Commission

As individual executives are attracting increased attention for their roles in high-profile consumer-facing companies, their employers are establishing or expanding executive security programs. An executive security program allows key employees to focus on the business and protects shareholder value from stock price fluctuations associated with a security incident. All employers establishing an executive security program should be familiar with the tax consequences of these benefits for both the employer and the executive and public company employers should be aware of the related rules for disclosure of executive perquisites in their proxy statements.

Certain security benefits may be deductible by the employee and employer

Generally, any benefit provided to an employee is includible in taxable income. Certain fringe benefits, including “working condition fringes,” are excludible from income if properly structured. Employer-provided transportation may be excluded from income if it addresses a bona fide business-oriented security concern and the employer establishes an overall security program with respect to the relevant executive. An “overall security program” is a comprehensive program that provides 24-hour security to the executive subject to the following rules:

The executive must be protected while traveling for business or personal purposes; and
The program must include the provision of:
- A bodyguard or chauffeur trained in evasive driving techniques;
- An automobile with security equipment installed;
- Guards, metal detectors, alarms or similar methods of controlling access to the executive’s workplace and residence; and
- Flights on the employer’s aircraft for business and personal reasons, where appropriate.

Employers may find that such an exhaustive security program is unnecessary for their needs. In this situation, the Treasury Regulations also provide that the employer may engage an independent security consultant to perform a security study. If the study demonstrates that the default 24-hour security program is not required to address the employer’s security concerns, the cost of a less comprehensive transportation security program may still be deductible from the employee’s income.

These tax benefits may also extend to the executive’s spouse and dependents. If there is a bona fide business-oriented security concern with respect to an executive, that concern also extends to the executive’s spouse and dependents. The cost of transporting the executive’s spouse and dependents in the same vehicle or aircraft at the same time as the executive remains deductible as a working condition fringe. Deductions for personal travel are limited, however, to the excess of the transportation cost with additional security measures over the transportation cost absent the security concern. For example, if an executive purchases an automobile with bulletproof glass, the executive may only deduct the difference between the cost of the vehicle with and without bulletproof glass.

Despite the elimination of the general commuter expense deduction for employers under the Tax Cuts and Jobs Act, employers may still deduct the cost of providing transportation between the executive’s residence and place of employment if the cost is necessary to ensure the safety of the executive. The standard for a transportation security expense to be deductible by the employer is much lower than the standard that the expense must meet to be excludible from the employee’s income. Transportation expenses are deductible by the company if a reasonable person would consider it unsafe for the employee to commute during the applicable time of day.

Executive security benefits are considered perquisites that must be disclosed with other executive compensation

Under Item 402 of Regulation S-K, companies must disclose executive perquisites with an aggregate value over $10,000 in their proxy statements. The SEC has stated that an item is not a perquisite if it is integrally and directly related to the performance of an executive’s duties. A benefit that is not integrally and directly related to the performance of an executive’s duties is then considered a perquisite if it confers a personal benefit regardless of whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a non-discriminatory basis to all employees. The SEC has specifically listed “personal travel using vehicles owned or leased by the company” and “security provided at a personal residence or during personal travel” as benefits that constitute perquisites and has brought enforcement actions against companies and executives for failure to disclose or properly value these benefits in recent years. Companies that provide security benefits often take the position that these benefits are integrally and directly related to the performance of the executive’s duties but disclose the value of the benefits in an abundance of caution.

Institutional Shareholder Services (ISS) also scrutinizes executive perquisite disclosures. Listed among ISS’ examples of problematic pay practices that could cause ISS to recommend a vote against an executive pay package are “excessive or extraordinary perquisites,” which include personal use of corporate aircraft and any associated tax gross-ups. Filers must carefully draft their disclosures to explain that these security programs are necessary for the business.

Congress Passes Defense Bill with AI Provisions — AI: The Washington Report

On December 18, Congress passed the FY 2025 National Defense Authorization Act (NDAA), which includes a number of AI provisions. The NDAA is expected to be signed into law by President Biden.
The NDAA includes the first – and likely the only – AI provisions passed by the 118th Congress.
Although the Bipartisan Senate AI Working Group had called for comprehensive AI legislation earlier this year, the AI provisions in the NDAA do not substantially regulate the use of AI. Instead, they direct defense agencies to launch pilot programs and initiatives to support the adoption of AI by the government for defense purposes.

On Wednesday, the US Congress voted to pass with bipartisan support the 2025 National Defense Authorization Act (NDAA), which includes a number of AI provisions. The bill will now be sent to President Biden’s desk, where he is expected to sign it into law.In recent months, Senator Schumer (D-NY) and other Senators who had been determined to act on AI, as we covered, had increasingly touted the NDAA as the most likely pathway through which to pass AI legislation this Congress. And while the NDAA does include AI provisions, it does not include generally applicable provisions, for example, the comprehensive AI legislation that the Bipartisan Senate AI Working Group and other members called for this year, as we covered. Instead, the AI provisions in the NDAA direct defense agencies to launch pilot programs and initiatives to support the adoption of AI by the government for strategic and operational purposes.

AI in the NDAA

The NDAA includes a number of AI provisions that direct defense agencies to adopt the use of AI for strategic and operations purposes. The NDAA would:

Create a Chief Digital Engineering Recruitment and Management Officer: The NDAA appoints a Chief Digital Engineering Recruitment and Management Officer at the Department of Defense (DOD) who is charged with “clarifying the roles and responsibilities of the artificial intelligence workforce” at DOD.
Promote AI Education: The Act tasks the Chief Digital and AI Officer at DOD, with 180 days after the NDAA is enacted, to develop educational course on AI for members of DOD.
Identify AI National Security Risks: The NDAA modifies the existing responsibilities of the Chief Digital and AI Officer Governing Council to direct the council to identify AI models that “could pose a national security risk if accessed by an adversary of the United States” and “develop strategies to prevent unauthorized access” of such technologies. The NDAA also directs the Council to “make recommendations and relevant federal agencies for legislative action” on AI.
Harness AI for Auditing: The Act directs the secretaries of the different branches of the armed forces to “encourage” the use of AI for “facilitating audits of the financial statements of the Department of Defense.”
Improve the Human Usability of AI: The Under Secretary of Defense for Research and Engineering shall launch an initiative to “improve the human usability of artificial intelligence systems and information derived from such systems through the application of cognitive ergonomics techniques.”
Consider AI in Budgeting: Within 180 days of the NDAA’s enactment, the Chief Digital and Artificial Intelligence Officer at DOD shall make sure that budgets for AI “includes estimates for the types of data required to train, maintain, improve the artificial intelligence components or subcomponents contained within such programs.”

The Secretary of Defense’s AI Programs

The NDAA specifically directs the Secretary of Defense to launch a number of pilot programs and initiatives to accelerate the adoption and development of AI by DOD.

Pilot Program for Biotechnology and AI: The Secretary ofDefense shall launch a pilot program to “develop near-term use cases and demonstrations of artificial intelligence for national security-related biotechnology applications” with support for public-private partnerships within one year after the NDAA is enacted.
Pilot Program on AI Workflow Optimization: Within 60 days after the NDAA is enacted, the Secretary of Defense shall launch a pilot program to study and determine the feasibility of using AI to optimize the workflow and operations for DOD manufacturing facilities and contract administration services.
Multilateral AI Working Group: Within 90 days after the NDAA is passed, the Secretary of Defense shall form a working group “to develop and coordinate artificial intelligence initiatives among the allies and partners of the United States.”
Expanded DOD AI Capabilities: The Secretary of Defense shall establish a program “to meet the testing and processing requirements for next generation advanced artificial intelligence capabilities” at DOD installations. The Secretary is directed to expand the infrastructure of DOD for the “development and deployment of military applications of high-performing computing and artificial intelligence capabilities,” as well as develop “advanced artificial intelligence systems that have general-purpose military applications.”

Sense of Congress

The NDAA acknowledges both the potential strategic benefits that AI provides, as well as the risks its poses. The use of AI presents numerous advantages, from strengthening “the security of critical strategic communications” to improving “the efficiency of planning process to reduce the risk of collateral damage.” However, it is the sense of Congress that “particular care must be taken to ensure that the incorporation of artificial intelligence and machine learning tools does not increase the risk that our Nation’s most critical strategic assets can be compromised.”

The new Congress will have to start over from scratch, i.e., bills will have to be introduced or reintroduced, activity in the current Congress will be of no effect, and control of the Senate will pass to the Republicans. In this divided Congress, the efforts to pass AI regulations, largely led by Democrats, had always faced an uphill battle, complicated by partisan disagreements about the urgency with which to regulate AI and the need to better understand AI. With Republicans taking control of both chambers in January, Republicans in the next Congress are unlikely to push for the substantial AI regulation that we’ve seen proposed in the past year, instead favoring deregulation and investments in AI R&D. But just as AI continues to evolve, it remains to be seen how the next Congress will chart the future course of AI legislative activity.

Texas Attorney General Launches Investigation into 15 Tech Companies

Texas Attorney General Ken Paxton recently launched investigations into Character.AI and 14 other technology companies on allegations of failure to comply with the safety and privacy requirements of the Securing Children Online through Parental Empowerment (“SCOPE”) Act and the Texas Data Privacy and Security Act.

The SCOPE Act places guardrails on digital service providers, including AI companies, including with respect to sharing, disclosing and selling minors’ personal identifying information without obtaining permission from the child’s parent or legal guardian. Similarly, the Texas Data Privacy and Security Act imposes strict notice and consent requirements on the collection and use of minors’ personal data.

Attorney General Paxton reiterated the Office of the Attorney General’s (“OAG’s”) focus on privacy enforcement, with the current investigations launched as part of the OAG’s recent major data privacy and security initiative. Per that initiative, the Attorney General opened an investigation in June into multiple car manufacturers for illegally surveilling drivers, collecting driver data, and sharing it with their insurance companies. In July, Attorney General Paxton secured a $1.4 billion settlement with Meta over the unlawful collection and use of facial recognition data, reportedly the largest settlement ever obtained from an action brought by a single state. In October, the Attorney General filed a lawsuit against TikTok for SCOPE Act violations.

The Attorney General, in the OAG’s press release announcing the current investigations, stated that technology companies are “on notice” that his office is “vigorously enforcing” Texas’s data privacy laws.

For more on Texas Attorney General Investigations, visit the NLR Communications Media Internet and Consumer Protection sections.

Kroger/Albertsons Ruling Provides Lessons for Merger Remedy Divestitures

On December 10, a federal court in Oregon issued a preliminary injunction against Kroger’s proposed $24.6 billion acquisition of Albertsons, which would have been the largest supermarket merger in US history (Albertsons terminated the merger agreement after the ruling).¹ The Federal Trade Commission, the District of Columbia, and eight States filed the suit in February 2024, alleging that the transaction would substantially lessen competition in violation of Section 7 of the Clayton Act. The opinion by Judge Adrienne Nelson tackled a number of interesting antitrust issues, including the government’s allegation that the merger would reduce competition not only for grocery store sales but also for union grocery store labor. However, one of the most instructive aspects of the opinion is the court’s rejection of the defendants’ proposed divestiture package.

We have outlined the scope of the competitive problem that the divestiture needed to mitigate, the parameters of the proposed divestiture, and the deficiencies the court found. Companies assuming that divestitures will eliminate regulatory concerns about the anticompetitive impact of a transaction should examine whether there is a divestiture package that is commercially acceptable and that can account for the concerns Judge Nelson highlighted. The antitrust agencies and courts will almost certainly use this latest judicial decision as guidance when evaluating such proposals.

Competitive Problem

The government’s economic expert offered what the court found to be a persuasive market concentration analysis showing the merger would be presumptively anticompetitive in 1,574 local geographic markets for “supermarkets” and 1,785 local geographic markets for “large format stores” (i.e., traditional supermarkets and supercenters, natural and gourmet food stores, club stores, and limited assortment stores). The court also found evidence (ordinary course documents and witness testimony) of substantial head-to-head competition between the merging firms bolstered the government’s case. Finally, the court credited the government’s expert’s analysis showing that the loss of head-to-head competition would lead to price increases at numerous stores. The government thus put forth a multiprong prima facie showing that the merger would lessen competition substantially. On rebuttal, the defendants first sought to establish that competitive entry and merger efficiencies would mitigate the merger’s anticompetitive effects, but the court was not convinced. The defendants then attempted to show that their proposed divestiture remedy would solve the competitive concerns.

Divestiture Proposal

Defendants entered into an agreement — contingent on the merger closing — to divest 96 Kroger stores and 483 Albertsons stores to a third party. The proposed third-party divestiture buyer is primarily a wholesaler but has acquired retail chains in the past and currently operates approximately 25 stores. The divestiture package also included ownership of four store banners, a license to use two other banners in certain states, ownership of five private label brands, a temporary license to use two other brands, six distribution centers, and one dairy manufacturing plant. A transition services agreement provided the divestiture buyer the right to use certain of the defendants’ services, technology, and data for periods ranging from six months to four years.

Deficiencies

The court explained numerous ways in which the Kroger-Albertsons divestiture package was inadequate to sufficiently mitigate the anticompetitive effects of the merger and overcome the government’s showing of a substantial lessening of competition:

Many markets unaddressed – The court noted that 113 of the presumptively unlawful markets did not contain even a single store to be divested, meaning the divestiture would have done nothing to change the merger’s anticompetitive effects in those markets. (The high number of unaddressed markets was in part a function of the fact that the defendants’ economic expert utilized a market definition method and applied market concentration presumption thresholds that differed from those the government advanced and the court adopted.)
Many markets insufficiently addressed – Other markets contained divestiture stores, but those divestitures were insufficient to take away a presumption of harm. Crediting the government’s economic expert, the court noted that even if all the proposed divestitures were perfectly successful, the merger would still have been presumptively unlawful in 1,002 local supermarket markets and 551 large format store markets based on market concentration levels.
Risk of unsuccessful divestitures – The court also agreed with the government’s analysis showing that if divested stores were to lose sales or close, the number of presumptively problematic markets would rise significantly. For example, if the divested supermarkets were to lose 10 percent of their sales, the number of presumptively unlawful markets would increase from 1,002 to 1,035. If they lose 30 percent of their sales, the number would increase to 1,276.
Mixed and matched assets – The divestiture package did not represent an existing, standalone, fully functioning company but rather a mix of stores, banners, private labels, and other assets. This meant the buyer would have had to rebanner 286 of the 579 divested stores (and for some of these stores, the buyer would not be acquiring any banner currently used in the state). The court cited testimony from the government’s expert in retail operations and consumer shopping behavior, as well as other witnesses, explaining that rebannering is complicated and risky. The divestiture buyer also would have eventually lost access to many Kroger and Albertsons private label brands that customers are familiar with and would need to replace those with new private label products. The court noted witness testimony emphasizing the importance of private label brand equity and recounting the time required to launch a new private label brand.
Divestiture size – The court expressed concern that with only 604 total stores (25 existing stores plus the 579 divested stores), the divestiture buyer may not have replaced the competitive intensity lost from Kroger and Albertsons, each of which had thousands of stores.
Divestiture buyer’s experience – The court was concerned that the divestiture buyer had no experience running a large portfolio of retail grocery stores. The 579 divestiture stores included hundreds of pharmacies and fuel centers, whereas the buyer’s current 25 stores include only one pharmacy and no fuel centers. The court also noted that the buyer’s experience offering private label products was much more limited than what the divestiture stores demand and that the buyer currently lacks any retail media capabilities, which would have taken three years to set up.
Divestiture buyer’s track record – The buyer has made divestiture purchases in the past, which the court noted have not been successful. Specifically, the buyer acquired 334 retail grocery stores between 2001 and 2012, but only three remained under its operation by the end of 2012 (the rest were closed or sold off). The court also cited evidence that the buyer’s current stores are performing below expectations.
Transfer of employees – Approximately 1,000 Albertsons employees agreed to transfer to the divestiture buyer, including Albertsons’ current Chief Operating Officer, who had experience with prior divestiture integrations. The court found, however, that these transfers would not have fully mitigated the buyer’s inexperience and lack of success in grocery retail and could not overcome difficulties inherent in the selection of assets and structure of the transition services agreement in the divestiture package.
Divestiture buyer’s independence – The court viewed the transition services agreement as broad in services and time. It noted that the buyer would remain interdependent with the merged firm for many years. The court expressed particular concern over the fact that Kroger would have provided sales forecasting data and a base pricing plan to the buyer, which the buyer could have adjusted only by communicating with Kroger’s “clean room.”

1 Federal Trade Commission v. Kroger Co. & Albertsons Cos., Inc., 2024 WL 5053016, No. 3:24-cv-00347 (D. Or. Dec. 10, 2024).

“Don’t You Have to Look at What the Statute Says?” – IMC’s Oral Arguments

As we noted earlier on TCPAWorld, the IMC odds against the FCC might be better than initially thought due to the panel of judges from the Eleventh Circuit hearing the oral arguments. Oral argument recordings are available online.

And the panel did not disappoint in pushing back on the FCC.

The conversation hinged on the FCC’s power to implement regulations in furtherance of the TCPA’s statutory language. This is important because the FCC is limited to implementation, and they are do not have the authority “to rewrite the statute” as was mentioned in the oral arguments.

Judge Luck (HERE) had some concerns with the FCC’s limitations on the consumer’s ability to consent. The statute, according to Luck, intends to allow consumers to agree to receive calls. If that is the case, then a limitation of the consumer’s ability to exercise their rights is an attempt to rewrite the statute.

Luck agreed that implementing the statute is fine, but limiting the right of consumers to receive calls they consent to receive is over reach. Luck continued “Just because you [the FCC] are ineffective at enforcing the authority doesn’t mean you have the right to limit one’s right, a statutory right, or rewrite those rights to limit what it means.”

The FCC attempted to argue that implementation of statute by their very nature is going to lead to restriction, but Judge Luck pushed back on that. According to Luck, there are ways to implement statutes that don’t restrict a consumer’s statutory rights. This exchange was also telling:

LUCK: Without the regulation do you agree with me that the statute would allow it?

FCC: Yes.

LUCK: If so, then it’s not an implementation. It’s a restriction.

Luck was not the only Judge who pushed back on the FCC. Judge Branch (I believe because she was not identified) also strongly pushed back on the FCC’s restriction on topically and logically associated as an element of consent. Branch stated that the FCC was looking at consumer behavior and essentially stated too many consumers didn’t know what they were doing in giving consent. The FCC stated “I think we have to look at how the industry was operating…” only to be interrupted by Branch who questioned that statement by asking “Don’t you have to look at what the statute says?”

YIKES.

Finally, the FCC’s turn in oral argument ended with this exchange:

JUDGE: Perhaps the question should be “We have a problem here. We should talk to Congress about it.”

FCC: Congress did task the agency to implement here.

JUDGE: It’s given you power to implement, not carte blanche.

DOUBLE YIKES.

There was also a conversation around whether or not the panel should issue a stay in this case. The IMC argued that yes – a stay was appropriate due to the uncertainty in the market.

It’s pretty clear that the judges questioned the statutory authority of the FCC to implement the 1:1 consent and the topically and logically related portions of the definition of prior express written consent.

While we don’t have a definitive answer yet on this issue, we do know this is going to be a lot more interesting than everyone thought before the oral arguments.

We will keep you up to date on this and we will have more information soon.

FTC Closely Monitoring Healthcare Lead Generators As Open Enrollment Begins

The Federal Trade Commission is watching the healthcare lead generation industry closely.

On December 10, 2024, the Federal Trade Commission announced that it has sent warning letters to 21 companies that market or generate leads for healthcare plans. The letters were sent as open enrollment season for healthcare plans is ongoing. They provide guidance and provide about deceptive or unfair claims that likely violate laws enforced by the FTC.

The letters were sent to companies that provide marketing or advertising, including lead generation, related to Affordable Care Act Marketplace health insurance and healthcare-related products, such as limited benefit plans and medical discount programs.

“It is critical for consumers’ health and financial well-being that marketers of health plans be honest about the plans they and their partners are offering,” said FTC lawyer Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC has been watching this important sector closely, especially during open enrollment season, and these warning letters put companies on notice that unlawfully marketing or advertising health plans to consumers can result in serious legal consequences.”

Based on information collected by FTC staff and the agency’s enforcement experience in this area, the types of claims FTC staff has warned about include those that may:

misrepresent the benefits included in a healthcare plan, including any insurance benefits;
misrepresent that a healthcare plan is major or comprehensive medical health insurance or the equivalent of such health insurance;
misrepresent the costs of healthcare plan; and
falsely claim that consumers who enroll in a healthcare plan will receive free offers, cash rewards, rebates, or other incentives.

Consult with a season FTC defense lawyer if you are a lead generator or marketer of health insurance leads in order to minimize risk of government scrutiny.

The letters provide examples of prior relevant FTC actions against marketers and lead generators that operate in this field, including Simple Health, Benefytt Technologies, Partners in Healthcare Association, and Consumer Health Benefits Association.

While the letters do not allege any wrongdoing by any of the recipients, they encourage the companies to conduct a thorough review of their advertisements to ensure they are complying with applicable laws and rules, and the letters note that the FTC is closely monitoring this marketplace for unlawful conduct that is harming consumers.

OIG Releases Special Fraud Alert About Suspect Payments in Marketing Arrangements Related to Medicare Advantage and Providers

On December 11, 2024, the Office of Inspector General for the U.S. Department of Health and Human Services (“OIG”) issued a special fraud alert warning about certain marketing schemes that involve questionable payments and referrals between Medicare Advantage (“MA”) health plans, health care professionals, and third-party marketers (e.g., agents and brokers) and that can mislead MA enrollees into choosing specific health plans or providers that may not be in the MA enrollees’ best interests or meet their needs (“MA Marketing Alert”). As we have previously advised, special fraud alerts are few and far between—OIG has only issued six in the past 20 years. The importance of the MA Marketing Alert, like its predecessors, should not be taken for granted because it may be instructive as to subsequent enforcement action taken by OIG and/or the U.S. Department of Justice (“DOJ”).

In the MA space, historical enforcement actions taken by both OIG, under their administrative authorities, and DOJ, under the False Claims Act (“FCA”), have related to alleged MA risk adjustment payment inflation schemes. See, e.g., DaVita, Sutter Health, Beaver Medical, Martin’s Point, and Cigna. While allegations of this nature continue to be a focus area (e.g., in OIG’s work plans), a light is also now being shone on inappropriate marketing schemes that could violate the Federal anti-kickback statute (“AKS”). And, based on historical empirical data connecting DOJ’s enforcement actions taken subsequent to OIG’s issuance of special fraud alerts, that light may broaden and brighten.

For example, in July 2022, OIG issued a special fraud alert about arrangements involving telemedicine companies. In a footnote, OIG provided three enforcement actions resolved under the FCA as examples of allegedly problematic arrangements. After providing the footnote examples, OIG described bullet-pointed “Suspect Characteristics” that tracked the allegedly inappropriate characteristics of the footnote examples. Since the alert’s issuance, DOJ has recovered millions under the FCA and also criminally charged and convicted many individuals and entities for allegedly submitting or causing the submission of more than $3.1 billion (in 2023 and 2024 pursuant to DOJ’s nationwide takedowns) in allegedly fraudulent Medicare claims resulting from telemedicine schemes.

While the MA Marketing Alert provides footnotes of only two enforcement actions resolved under the FCA as examples of allegedly problematic arrangements, the bullet point list of “Suspect Characteristics” is broader than and reaches beyond the footnote examples. This may signal OIG’s awareness of and current investigations into allegedly inappropriate arrangements relating to “Suspect Characteristics” that have yet to be settled or resolved.

It is possible that there may be forthcoming enforcement actions in these areas. And they may follow the same trend of enforcement actions taken by DOJ relating to telemedicine schemes after OIG’s July 2022 special fraud alert. We also note that the MA Marketing Alert aligns with the Centers for Medicare & Medicaid Services’ recently finalized regulatory updates relating to MA health plan marketing arrangements with agents, brokers, and Third-Party Marketing Organizations, which will be effective January 1, 2025, and prohibit such parties from creating direct or indirect incentives “that would reasonably be expected to inhibit an agent or broker’s ability to objectively assess and recommend which plan best fits the health care needs of a beneficiary.” Proskauer’s Health Care Group will continue to monitor these developments in and provide updates about these areas of scrutiny and enforcement.

OSHA Issues Final Rule on Personal Protective Equipment for Construction Workers, but It Could Start Back at Square One

On December 11, 2024, the Occupational Safety and Health Administration (OSHA) issued a statement that it had finalized a rule amending 29 C.F.R. 1926.95(c) to require construction employers to make personal protective equipment (PPE) available that “properly fits” their employees.

Quick Hits

On December 11, 2024, OSHA finalized a rule requiring construction employers to provide properly fitting PPE, effective January 13, 2025, though it faces potential rollback due to political opposition.
The new OSHA rule aims to address PPE fit issues, particularly for smaller workers and women, but lacks clear guidance on defining “properly fitting” PPE, causing industry concern.
Despite OSHA’s assertion that the term “properly fits” is sufficiently clear, industry feedback highlights the need for more detailed regulatory text and clarification on compliance.

This change has been on OSHA’s to-do list for quite some time. In 2011, an OSHA advisory committee first put it on the radar—followed by a written proposal five years later. The 2016 proposal was ultimately thwarted after receiving staunch opposition from both the construction industry and the first Trump administration. Although the rule was finalized this month, it will not become effective until January 13, 2025—but may not make it that far. As a result of the upcoming change of administrations and with both the U.S. Senate and the U.S. Congress being under Republican control, it is likely that the rule will either meet the same fate as its 2016 counterpart or be reversed via the Congressional Review Act (CRA). A CRA reversal would effectively result in a permanent prohibition on such rulemaking in the absence of express legislation from Congress.

The regulation was published in the Federal Register on December 12, 2024. The added language to the construction standard mirrors the current PPE fit requirements found in the general industry and shipyard standards. In OSHA’s notice of proposed rulemaking (NPRM) issued on July 20, 2023, the agency set a comment period on the proposal through September 18, 2023. During that period, comments from industry skeptics and supporters alike mirrored those previously seen.

OSHA reiterated its primary claim that PPE that does not properly fit is an issue for “smaller construction workers,” particularly women, and that implementation of the standard could increase productivity and expand the market for differently sized PPE. Many supporters of the regulatory change submitted comments reflecting that female employees praised the change and bemoaning instances of working with improperly fitting PPE. The preamble highlighted instances in which female employees had created improvised PPE when their PPE did not properly fit.

The industry’s comments acknowledged the essential nature of PPE for all employees while also continuing to express concern about the lack of clarity and guidance on how this rule would be actually implemented by employers. The core of the industry’s concern remained that the rule creates a requirement that an employee’s PPE must “fit properly” but it does not provide an explanation for how “properly fitting” PPE will be defined. Many comments highlighted this hole would create a significant opportunity for employees to complain about whether the provided PPE “properly fit” them if the PPE was simply uncomfortable. There is also no guidance on what factors employers or OSHA’s investigators should consider when evaluating whether PPE properly fits and employee and is therefore compliant with the standard.

OSHA previously dismissed this issue, stating that “employers in general industry have had no issue understanding the phrase ‘properly fits’ with regard to PPE.” The preamble reflects that several commentors requested more detailed regulatory text and clarification of responsibilities and some included recommendations. The American Industrial Hygiene Association (AIHA) recommended an operational definition for compliance, while the National Institute for Occupational Safety and Health (NIOSH) agreed with OSHA but noted the term was not universally understood. Other comments highlighted the need to consider how the body changes during pregnancy in the determination of whether PPE “properly fits” but did not suggest a specific definition for the phrase.

Ultimately, OSHA came to the same conclusion as before that the phrase “‘properly fits’ provides employers with enough information that they can select PPE for their workers that will adequately protect them from the hazards of the worksite without creating additional hazards.” OSHA pointed to the minimal confusion in other sectors and few citations for improperly fitting PPE as a suggestion that most employers can comply with the standard using the phrase “properly fits” without a definition.

We previously warned that this lack of clarity would mean that employers would still have to determine whether the range of sizes they offer would comply with the requirement for properly fitting PPE. One question to resolve is whether the “universal fit” of the PPE would assist with compliance. OSHA did note in a footnote in the preamble that one comment included an objection to the term “universal fit” arguing that “[n]o PPE is universal fit, even the most adjustable PPE may not fit workers on the extremes of anthropometric data.”. In light of this comment, OSHA acknowledged that:

[A]t the tail ends of the distribution of human variation, some adjustable PPE will not fit. For the purposes of this analysis, however, OSHA maintains that some items of PPE that come in standard, adjustable sizes will fit nearly all individuals working in the construction industry and so maintains this designation for a limited number of items in this analysis.

While this does mean employers can use the “universal fit” as a blanket mode of compliance with the standard, OSHA’s comment indicates that use of “universal fit” should allow compliance with “nearly all individuals working in the construction industry[.]”

Ultimately, while this rule remains a likely rollback priority for the second Trump administration, employers should still be mindful of the January 13, 2025, effective date.

A Holiday Surprise for U.S. Distilleries: TTB Unveils Long-Awaited ‘American Single Malt’ Standard of Identity

Standards of identity and viticultural area designations add significant complexity to the production and labelling of alcoholic beverages. While not exactly a holiday miracle, many distillers are rejoicing over the TTB’s new rule on American whisky (or whiskey) [1].

On Dec. 13, 2024, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued its long-awaited final rule (the “Rule”) that establishes formal definitions for both “American single malt whisky” and “straight American single malt whisky”. In both cases, the TTB is requiring that the base mash or wort for the whiskey be:

1) fermented from 100 percent malted barley produced in the United States;

2) be distilled to 160 proof or less at the same distillery [2] in the United States;

3) be stored and aged in either used, new charred, or new oak barrels no greater than 700 liters (185 gallons);

4) not use any neutral spirits; and

5) not use any coloring, flavorings, or other blending materials with the exception of caramel color (which must be disclosed on the label).

Like other whiskys such as bourbon and rye, a “Straight American single malt whisky” must be aged at least two (2) years. The new Rule is scheduled to be published on Dec. 18, 2024, and takes effect on Jan. 19, 2025.

Notably, the new Rule allows distillers to use a wide range of barrel sizes, and also permits the use of new charred, new uncharred, and used barrels. This may lead to a number of different styles and expressions in the American single malt category and will allow distillers the ability to repurpose for their American single malt whiskys the same barrels they have used for other products. This brings better efficiency and, potentially, lower costs to production.

These new standards of identity help provide clarity to distilleries in Pennsylvania and beyond that are already producing whiskys made from malted barley, and may also help U.S. malt houses[3] that are already working with distilleries to better cross-market the whiskys made with local malt. Likewise, the new Rule preserves the ability of breweries and distilleries to continue to partner on fermenting malt for use in American single malt whisky by not requiring the fermentation (or storage or bottling) to occur at the place of distillation.

It is noteworthy that prior to the adoption of the Rule, many distilleries were producing and labeling products as “American Single Malt” whisky despite the absence of specific standards, and the TTB has previously approved Certificates of Label Approval (COLA) for those products that generally met the definition of a “malt whisky” before the new Rule. Because the new Rule provides additional requirements, the TTB has provided a “transition period” that allows distillers in the U.S. to continue to use the term “American Single malt whisky” or “straight American single malt whisky” for products that met the applicable standards before the new Rule, but only if those products are bottled before Jan. 19, 2030.

Distillers that are currently producing products they intend to market and label as “American Single Malt” should ensure either that those products comply with the new Rule, or that they are bottled prior to Jan. 19, 2030. The new standards will be added to Section 5.143 of the Code of Federal Regulations, which will include the following chart:

While these new standards add new requirements, the new Rule is expected to provide clarity and a boost for producers of American Single Malt. We hope you find a bottle of American Single Malt in your stocking next year!

Endnotes

TTB Regulations allow the use of “whisky” or “whiskey” for products that meet the definition of “whisky”.
The new Rule does not require that fermentation and distillation occur at the same distillery, leaving open the option to have the mash fermenter at a different location such as a brewery. Likewise, aging and bottling can occur at a different location than where the distillation occurred.
See, e.g. Double Eagle Malt (Montgomery County, PA) and Deer Creek Malt (Chester County, PA).

Author: National Law Forum

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