Category: Administrative & Regulatory

The Evolution of AI in Healthcare: Current Trends and Legal Considerations

Artificial intelligence (AI) is transforming the healthcare landscape, offering innovative solutions to age-old challenges. From diagnostics to enhanced patient care, AI’s influence is pervasive, and seems destined to reshape how healthcare is delivered and managed. However, the rapid integration of AI technologies brings with it a complex web of legal and regulatory considerations that physicians must navigate.

It appears inevitable AI will ultimately render current modalities, perhaps even today’s “gold standard” clinical strategies, obsolete. Currently accepted treatment methodologies will change, hopefully for the benefit of patients. In lockstep, insurance companies and payors are poised to utilize AI to advance their interests. Indeed, the “cat-and-mouse” battle between physician and overseer will not only remain but will intensify as these technologies intrude further into physician-patient encounters.

  1. Current Trends in AI Applications in Healthcare

As AI continues to evolve, the healthcare sector is witnessing a surge in private equity investments and start-ups entering the AI space. These ventures are driving innovation across a wide range of applications, from tools that listen in on patient encounters to ensure optimal outcomes and suggest clinical plans, to sophisticated systems that gather and analyze massive datasets contained in electronic medical records. By identifying trends and detecting imperceptible signs of disease through the analysis of audio and visual depictions of patients, these AI-driven solutions are poised to revolutionize clinical care. The involvement of private equity and start-ups is accelerating the development and deployment of these technologies, pushing the boundaries of what AI can achieve in healthcare while also raising new questions about the integration of these powerful tools into existing medical practices.

Diagnostics and Predictive Analytics:

AI-powered diagnostic tools are becoming sophisticated, capable of analyzing medical images, genetic data, and electronic health records (EHRs) to identify patterns that may elude human practitioners. Machine learning algorithms, for instance, can detect early signs of cancer, heart disease, and neurological disorders with remarkable accuracy. Predictive analytics, another AI-driven trend, is helping clinicians forecast patient outcomes, enabling more personalized treatment plans.

 

Telemedicine and Remote Patient Monitoring:

The COVID-19 pandemic accelerated the adoption of telemedicine, and AI is playing a crucial role in enhancing these services. AI-driven chatbots and virtual assistants are set to engage with patients by answering queries and triaging symptoms. Additionally, AI is used in remote and real-time patient monitoring systems to track vital signs and alert healthcare providers to potential health issues before they escalate.

 

Drug Discovery and Development:

AI is revolutionizing drug discovery by speeding up the identification of potential drug candidates and predicting their success in clinical trials. Pharmaceutical companies are pouring billions of dollars in developing AI-driven tools to model complex biological processes and simulate the effects of drugs on these processes, significantly reducing the time and cost associated with bringing new medications to market.

Administrative Automation:

Beyond direct patient care, AI is streamlining administrative tasks in healthcare settings. From automating billing processes to managing EHRs and scheduling appointments, AI is reducing the burden on healthcare staff, allowing them to focus more on patient care. This trend also helps healthcare organizations reduce operational costs and improve efficiency.

AI in Mental Health:

AI applications in mental health are gaining traction, with tools like sentiment analysis, an application of natural language processing, being used to assess a patient’s mental state. These tools can analyze text or speech to detect signs of depression, anxiety, or other mental health conditions, facilitating earlier interventions.

  1. Legal and Regulatory Considerations

As AI technologies become more deeply embedded in healthcare, they intersect with legal and regulatory frameworks designed to protect patient safety, privacy, and rights.

Data Privacy and Security:

AI systems rely heavily on vast amounts of data, often sourced from patient records. The use of this data must comply with privacy regulations established by the Health Insurance Portability and Accountability Act (HIPAA), which mandates stringent safeguards to protect patient information. Physicians and AI developers must ensure that AI systems are designed with robust security measures to prevent data breaches, unauthorized access, and other cyber threats.

Liability and Accountability:

The use of AI in clinical decision-making raises questions about liability. If an AI system provides incorrect information or misdiagnoses a condition, determining who is responsible—the physician, the AI developer, or the institution—can be complex. As AI systems become more autonomous, the traditional notions of liability may need to evolve, potentially leading to new legal precedents and liability insurance models.

These notions beg the questions:

  • Will physicians trust the “judgment” of an AI platform making a diagnosis or interpreting a test result?
  • Will the utilization of AI platforms cause physicians to become too heavily reliant on these technologies, forgoing their own professional human judgment?

Surely, plaintiff malpractice attorneys will find a way to fault the physician whatever they decide.

Insurance Companies and Payors:

Another emerging concern is the likelihood that insurance companies and payors, including Medicare/Medicaid, will develop and mandate the use of their proprietary AI systems to oversee patient care, ensuring it aligns with their rules on proper and efficient care. These AI systems, designed primarily to optimize cost-effectiveness from the insurer’s perspective, could potentially undermine the physician’s autonomy and the quality of patient care. By prioritizing compliance with insurer guidelines over individualized patient needs, these AI tools could lead to suboptimal outcomes for patients. Moreover, insurance companies may make the use of their AI systems a prerequisite for physicians to maintain or obtain enrollment on their provider panels, further limiting physicians’ ability to exercise independent clinical judgment and potentially restricting patient access to care that is truly personalized and appropriate.

Licensure and Misconduct Concerns in New York State:

Physicians utilizing AI in their practice must be particularly mindful of licensure and misconduct issues, especially under the jurisdiction of the Office of Professional Medical Conduct (OPMC) in New York. The OPMC is responsible for monitoring and disciplining physicians, ensuring that they adhere to medical standards. As AI becomes more integrated into clinical practice, physicians could face OPMC scrutiny if AI-related errors lead to patient harm, or if there is a perceived over-reliance on AI at the expense of sound clinical judgment. The potential for AI to contribute to diagnostic or treatment decisions underscores the need for physicians to maintain ultimate responsibility and ensure that AI is used to support, rather than replace, their professional expertise.

Conclusion

AI has the potential to revolutionize healthcare, but its integration must be approached with careful consideration of legal and ethical implications. By navigating these challenges thoughtfully, the healthcare industry can ensure that AI contributes to better patient outcomes, improved efficiency, and equitable access to care. The future of AI in healthcare looks promising, with ongoing advancements in technology and regulatory frameworks adapting to these changes. Healthcare professionals, policymakers, and AI developers must continue to engage in dialogue to shape this future responsibly.

©2024 Norris McLaughlin P.A., All Rights Reserved
For more on AI, visit the NLR Artificial Intelligence section.

USCIS Issues Updated Guidance on ‘Sought to Acquire’ Requirement of Child Status Protection Act

On Sept. 25, 2024, U.S. Citizenship and Immigration Services (USCIS) updated its Policy Manual to clarify the calculation of the Child Status Protection Act (CSPA) age for noncitizens seeking CSPA protection under the “extraordinary circumstances” exception. By way of background, CSPA protects dependent children from “aging out” and becoming ineligible for permanent residence as derivative beneficiaries under certain circumstances. Please review our coverage of USCIS CSPA policy updates.

While CSPA protection is generally determined based on the date an immigrant visa becomes available, requiring dependent children to seek to acquire it within one year of that date, the “extraordinary circumstance” policy provides exceptions to that requirement under limited circumstances. Specifically, where such circumstances were not created by the applicant but directly affected their ability to seek to acquire permanent residence within one year of visa availability, and these facts are reasonable, USCIS has said it would excuse dependents from the “seek to acquire” requirement. USCIS has now provided further clarity regarding the “seeking to acquire” component of CSPA calculation under extraordinary circumstances.

Key updates:

  • Seeking to Acquire: For applicants excused from the “sought to acquire” requirement due to extraordinary circumstances, the CSPA age would be calculated from the date the immigrant visa first became available, provided the visa remained available for a continuous one (1) -year period without any intervening visa unavailability.
  • Intervening Visa Unavailability: If the immigrant visa became available and subsequently unavailable, the CSPA calculation could rely on the date an immigrant visa first became available if they can demonstrate extraordinary circumstances prevented them from seeking to acquire their immigrant visa before it became unavailable.

USCIS has issued this new guidance to ensure consistent adjudication for all Applications to Adjust Status relying on extraordinary circumstances to secure CSPA protection. This updated guidance applies to all applications pending on or after Sept. 25, 2024, and supersedes any prior related instructions.

©2024 Greenberg Traurig, LLP. All rights reserved.
For more on USCIS, visit the NLR Immigration section.

October 2024 Legal News: Law Firm News and Industry Expansion, Industry Awards and Recognition, DEI and Women in Law

Thank you for reading the National Law Review’s legal news roundup, highlighting the latest law firm news! As the cooler months settle in, legal industry news continues to be a hot topic. Please read below for the latest in law firm news and industry expansion, legal industry awards and recognition, and DEI and women in the legal field.

Law Firm News and Industry Expansion 

Ward and Smith announced the addition of five attorneys to enhance the firm’s ability to serve clients.

Jacob Britt joined the Raleigh office, focusing on intellectual property and privacy and data security issues. He will help clients manage compliance with laws and advise on data breach responses. Also joining the Raleigh office is Marley Peterson, who will assist clients with assist clients with state and federal government relations.

John “Jack” Presson will work with individuals and families on a range of matters in the firm’s Wilmington office, including custody disputes and divorce. Emily Sullivan also joined the office with a focus on development transactions, real estate development and landlord-tenant matters.

Based in the New Bern office, Anna Washa will help businesses and individuals with estate planning needs, such as drafting trust agreements and wills.

Vivi R. Besteman joined Strassburger, McKenna, Gutnick & Gefsky as an associate attorney, the firm announced. Her experience allows her to provide comprehensive legal support and advise educational institutions, as well as handle complex real estate transactions.

Ms. Besteman will provide guidance on contract drafting, leasing matters, property acquisitions and business entity formation.

Shumaker announced that Christopher A. Staine rejoined the firm as a partner after serving at a development company as in-house counsel and realizing that the best way to serve his clients was through the resources and skills that the firm offers.

“I’ve seen firsthand that the real estate experience at Shumaker is second to none,” Mr. Staine stated. “My time away gave me a unique perspective on both sides of the legal practice—working as in-house counsel deepened my understanding of the client’s needs, but being back at Shumaker allows me to truly make the most of my experience, with the support of an exceptional team.”

Mr. Staine is a board-certified construction lawyer who has represented partnerships and companies involved in all stages of the construction process. He also heavily focuses on commercial and residential real estate matters such as transactions and development.

Legal Industry Awards and Recognition

 Benchmark Litigation honored eight of Proskauer‘s Litigation practice areas and 31 of its lawyers in its 2025 U.S. guide, the definitive guide to the world’s leading litigation firms and lawyers. Proskauer’s Antitrust, Bankruptcy, Labor & Employment and Product Liability practices received a tier one ranking and four practices were named tier two.

Proskauer partners Elise Bloom, Sandra Crawshaw-Sparks and Margaret Dale were also named to Benchmark Litigation’s “Top 250 Women in Litigation” list earlier this year, while partners Susan Gutierrez, Rachel Philion, Lee Popkin and Jeff Warshafsky were featured in the “40 & Under” list.

Modern Healthcare recognized Barnes & Thornburg’s healthcare department and industry practice as a top 25 largest healthcare law firm. The firm ranked No. 25 in the 2024 Modern Healthcare survey of the largest healthcare law firms in the U.S.  based on the number of healthcare attorneys employed at the end of 2023. It is the first time the firm has achieved this rank.

The American Health Law Association also featured Barnes & Thornburg in its 2024 Top Honors list. The AHLA recognizes law firms, organizations, health plans, businesses and government agencies that consistently and enthusiastically encourage and sustain their membership affiliation with AHLA.

Womble Bond Dickinson partner Joe Whitley, was presented with a resolution from the American Bar Association during the ABA Criminal Justice Section’s 10th Annual Southeastern White Collar Crime Institute. The resolution recognizes Mr. Whitley’s contributions to the section and the legal profession.

Presented by the Chair of the Criminal Justice Section of the American Bar Association, the resolution states that “the ABA Criminal Justice Section expresses its deepest appreciation and gratitude to Joe Whitley for his outstanding service, leadership, and dedication to the Section and the broader legal community for founding the Southeastern White Collar Crime Institute.”

Mr. Whitley’s practice focuses on corporate defense and client representation in criminal and civil enforcement matters brought by federal agencies and state Attorneys General.

DEI and Women in Law 

Law firms across the country achieved 2023–24 Mansfield Certifications from Diversity Lab for ensuring that all qualified talent at participating law firms have a fair and equal opportunity to be considered for advancement into leadership roles. Diversity Lab designs, tests, and measures the outcomes of science-based and data-driven talent practices that allow for fair and equal access to advancement opportunities.

Diversity Lab recognizes firms by their continued commitment to diversity. Firms named as “Trendsetters” this year have remained certified for 2-4 years, such as Varnum. “Early Adopters”, which include Jackson Lewis, K&L Gates, Greenberg Traurig, have achieved certification for 5-6 years. Firm’s designated “Trailblazers”, including Arent Fox Schiff, McDermott Will & Emery, and Miller Canfield, have achieved ongoing certification for 7-8 years

Katten announced that three partners were named by Business Journals to the 2024 Women of Influence lists. The program recognizes women from a wide range of industries who have made a personal and professional impact.

Wendy Cohen, New York managing partner from the Financial Markets and Funds practice, was featured by New York Business Journal. Jennifer Wolfe, private credit partner and Chicago managing partner, was included by the Chicago Business Journal. Private credit partner Shana Ramirez was recognized by L.A. Business First. The partners were selected from a field of nominees submitted for consideration.

Kimberly (Kim) Dudek was announced as the successor to Donald (Don) Kunz as the chair of the Corporate Department at Honigman. She was previously the vice chair of the department.

Kim couldn’t be more deserving of this role,” said Mr. Kunz. “In her successful tenure at Honigman, she’s emerged as a strong leader and earned the trust of her peers and clients—both as a result of her impressive legal acumen and her longstanding engagement in the growth of the Corporate Department.”

Ms. Dudek focuses on representing private borrowers and private equity sponsors in connection with working capital facilities and acquisition financings. She also counsels privately held companies across a wide variety of business sectors.

“Over the years, I’ve grown my career at Honigman and found a true home among my colleagues, who have empowered me to pursue my unique career path and encouraged me to explore my interest in the inner workings of the firm,” Ms. Dudek said. “I’m grateful to Don, my peers, and valued clients of many years for the opportunity to help write the next chapter of Honigman’s Corporate Department.”

Copyright ©2024 National Law Forum, LLC
For more Legal News, visit the NLR Law Office Management section.

Recent Scrutiny of English-Only Workplace Rules Comes into Focus During National Hispanic Heritage Month

National Hispanic Heritage Month is celebrated each year from September 15 to October 15 in recognition of the contributions of Hispanic and Latino people to the history, culture, and economy of the United States. During this time, several Latin American countries celebrate their independence days. Employers can also use this month as a reminder to remain compliant with anti-discrimination and anti-harassment laws.

Quick Hits

  • National Hispanic Heritage Month starts on September 15 and ends on October 15 each year in the United States.
  • Hispanic workers constitute approximately 19 percent of the U.S. labor force, or approximately 32 million people, and that proportion continues to rise. Foreign-born workers, of which Hispanics account for 47.6 percent, make up 18.6 percent of the U.S. civilian workforce.
  • The U.S. Equal Employment Opportunity Commission (EEOC) reports that in 2023 just nineteen lawsuits alleging race or national origin discrimination cost employers $4.9 million.

Recent EEOC Cases

Employers usually have anti-discrimination and anti-harassment policies to protect Hispanic/Latino employees and applicants from employment discrimination. However, protections from discrimination based on national origin—particularly, workplace policies prohibiting language discrimination—sometimes are overlooked by employers. Title VII of the Civil Rights Act of 1964 prohibits discrimination based on national origin, and the EEOC considers an individual’s primary language “often an essential national origin characteristic.” (See 29 C.F.R. § 1606.7(a).)

This means employers generally may not mandate that employees or applicants speak English. While employers may require English in certain employment situations, such as when speaking only English is needed to ensure safe and efficient communication for specific tasks, an English-only rule must be justified by business necessity and put in place for nondiscriminatory reasons. These situations will typically be specified, limited, and communicated to all employees in a language they understand. Recent cases show how this aspect of Title VII is being enforced.

On June 26, 2024, the EEOC announced a settlement with a housekeeping company that allegedly required its employees in California to speak only English at all times. As a result, the employer agreed to pay monetary damages to the complainant—a Spanish-speaking housekeeper who worked in a nursing home in Concord, California. Additionally, the employer agreed to provide training for its California employees and to revise its policies to clearly state that it would not restrict languages spoken by employees who didn’t perform patient care—and that employees had the right to speak their preferred languages in the workplace. The employer agreed to issue its policies in Spanish, English, and any other language spoken by 5 percent or more of the employer’s California workforce. The EEOC stressed that “[c]lient relations and customer preference do not justify discriminatory [English-only] policies.”

On March 29, 2023, the EEOC announced that a staffing firm based in Washington and Oregon had agreed to pay $276,000 to settle discrimination and retaliation claims. Allegedly, the employer had imposed a no-Spanish rule, which lacked adequate business justification, and then had fired five employees who opposed the rule and continued to speak Spanish in the workplace. The employer agreed to provide an anonymous complaint process for employees, update its policies to be in English and Spanish, perform its investigations promptly, and train its staff on the new anti-discrimination policies. The director of the EEOC’s Seattle field office warned employers that they “should think twice before imposing limitations on what languages are ‘allowed’ to be used at work.” She further warned that in the absence of “a legitimate business necessity, such policies [were] likely to discriminate against workers based on their national origin.”

A Growing Demographic

In 2023, there were 65.2 million Hispanic people in the United States, representing approximately 19.5 percent of the U.S. population. Hispanic workers make up 19 percent of the U.S. labor force, and those rates continue to grow, according to the U.S. Census Bureau and the U.S. Bureau of Labor Statistics (BLS). By 2030, BLS projects Hispanic workers will constitute 21 percent of the U.S. labor force.

Looking Ahead

The EEOC is likely to scrutinize employers’ English-only rules and policies as potentially violative of Title VII, as national origin discrimination includes discrimination based on language, ancestry, place of origin, origin (ethnic) group, culture, and even accent. Employers may wish to review their hiring and onboarding policies and practices to ensure compliance with Title VII and avoid potential legal issues, as recent cases demonstrate the EEOC’s active enforcement of protections against national origin discrimination.

To mitigate the risk of costly litigation, employers may also want to consider implementing management training focused on ensuring managers understand that requiring English at all times may be considered discrimination on the basis of national origin.

© 2024, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more on Workplace Rules, visit the NLR Labor Employment section.

22 States Join Challenge to Massachusetts’ Question 3

  • Similar to California’s Proposition 12, Massachusetts’ Prevention of Farm Animal Cruelty Act (also known as “Question 3”) imposes animal welfare standards for hens, sows, and veal calves raised in Massachusetts and makes it unlawful for businesses to sell eggs, veal, or pork that they know to be in violation of these standards (even if the animals were raised out of state).
  • A July 22nd order from the U.S. District Court of Massachusetts dismissed a challenge to the law brought by various pork producers, holding that the law was not preempted by the Federal Meat Inspection Act (FMIA) because it does not regulate how slaughterhouses operate. This decision has been appealed to the First Circuit Court of Appeals.
  • Last month the pork producers’ appeal was joined by Iowa (the top pork-producing state) as well as 21 other states. The states’ brief argues that the law will increase costs for pork producers (and prices for consumers) and that such state laws, if upheld, could create a regulatory maze of differing state requirements. We note that such arguments were not foreclosed by the Supreme Court’s 2023 Proposition 12 decision (National Pork Producers Council v. Ross) which held that such laws violate the dormant commerce clause if the “burden imposed on interstate commerce” is “clearly excessive in relation to the putative local benefits.” Nevertheless, it’s not clear how such a fact-based argument can be evaluated on appeal. The states’ brief also latches onto Justice Kavanaugh’s concurring opinion in National Pork Producers Council v. Ross and states that Question 3 “may also implicate other constitutional provisions like the Import-Export Clause and the Full Faith and Credit Clause.”
© 2024 Keller and Heckman LLP
For more on Farm Animals, visit the NLR Biotech Food Drug section.

SEC Brings Multiple Enforcement Actions Relating to Beneficial Ownership and Other Reporting Obligations

On September 25, 2024, the Securities and Exchange Commission (the SEC) announced that it had instituted and settled enforcement actions under Section 13(d), Section 13(g) and Section 16(a) of the Securities Exchange Act of 1934 (as amended, the Exchange Act). The actions involved 21 individuals and entities that allegedly had failed to timely file Schedule 13D or 13G to report beneficial ownership of greater than 5% of the registered equity securities outstanding and/or amendments to such reports, and/or to timely file Form 3, 4 or 5 to report ownership of, and transactions in, registered equity securities by executive officers, directors and greater-than-10% beneficial owners (collectively, insiders). As part of the settlements, individual respondents agreed to pay civil monetary penalties ranging from $10,000 to $200,000, and entities agreed to pay civil penalties ranging from $40,000 to $750,000. As part of the same set of settlements, the SEC also instituted and settled two enforcement actions against public companies for allegedly causing certain of their insiders’ Form 3, 4 or 5 filing failures or for failing to report such filing delinquencies. Just a week earlier, the SEC had announced the institution and settlement of enforcement actions under Section 13(f) and Section 13(h) of the Exchange Act against 11 institutional investment managers that allegedly had failed on a timely basis to file one or more quarterly Form 13F reports and/or periodic Form 13H reports.

The Bottom Line

The foregoing actions are part of an SEC enforcement initiative aimed at ensuring compliance with ownership disclosure and other reporting rules. Insofar as the beneficial ownership and insider actions are concerned, the most recent set of settlements suggest a possible willingness on the SEC’s part to bring enforcement actions even for minor and technical violations. Insofar as the institutional investor enforcement actions, the recent “sweep” appears to mark the first such broad action by the SEC. Notably, for two of the sanctioned institutional investment managers that were based outside the US and where the managers self-reported their errors to the SEC, no monetary penalties were assessed. A third institutional investment manager did not pay a monetary penalty for its Form 13H filing delinquency, which had been self-reported to the agency. Further, the SEC’s public announcement of the settlements indicated that the SEC staff used data analytics to identify the delinquent filings. The SEC has occasionally used various technological solutions to search for late filings and other violations of law in the vast EDGAR database, and as artificial intelligence and similar applications become more widespread and economical, we expect the SEC to make greater use of automated techniques in the future as part of its ongoing filing review process.

The Full Story

5% Beneficial Owners, Insiders and Public Company Issuers

Under Section 13(d)(1) of the Exchange Act and Rule 13d-2(a) promulgated thereunder, any person who acquired beneficial ownership of more than 5% of a public company’s stock must, within 10 calendar days of the relevant acquisition,[1] file an initial set of disclosures on Schedule 13D with the SEC. The beneficial owner must then file updates with the SEC to report any material changes to its position or other facts disclosed in prior filings. Certain investors (mostly passive ones) are eligible to file a simplified set of disclosures on Schedule 13G. The deadline to file a Schedule 13G was also within 10 calendar days of acquiring more than 5% beneficial ownership, but certain institutional investors were permitted to defer disclosing their passive holdings on Schedule 13G until 45 days after the end of the calendar year.[2]

Under Section 16(a) of the Exchange Act and Rule 16a-3 promulgated thereunder, officers and directors of public companies, and any beneficial owners of greater than 10% of stock in a public company, were (and currently are) required to file initial statements of holdings on Form 3 either within 10 calendar days of becoming an insider or on or before the effective date of the initial registration of the stock. Such insiders are then obligated to keep this information current by reporting subsequent transactions on Forms 4 and 5 (in most instances, within two business days of any change). In addition, Section 13(a) of the Exchange Act and Item 405 of Regulation S-K promulgated thereunder require issuers to disclose information regarding delinquent Section 16(a) filings by insiders in their annual reports.

Here, the SEC alleged that 14 persons, who were obligated to file Forms 3/4/5, failed to timely file or update such reports required under Section 16(a), that two public companies caused some of those late filings and/or did not disclose the late filings when required, and that 18 persons who were obligated to file and/or amend Schedules 13D/13G failed to do so timely as required under Sections 13(d) and (g). In most of the non-issuer settlements, there appear to have been repeated failures over multiple issuers, sometimes over several years. However, not all persons settling with the SEC had failures that were repeated or otherwise egregious. Each of two of the matters that settled for $25,000 or less alleged only a few violations (and one of those included two alleged Schedule 13D violations that arguably are supported by a compliance and disclosure interpretation but not by the actual wording of Section 13 and its implementing rules). By contrast, among the 11 beneficial ownership settlements that the SEC announced nearly a year ago, none were below $66,000. This suggests that the SEC may once again be bringing less serious enforcement actions and pursuing even minor infractions.

Institutional Investment Managers

Under Section 13(f) of the Exchange Act and Rule 13f-1 promulgated thereunder, entities with investment discretion over at least $100 million worth of specified US publicly-traded securities (and certain securities exercisable for or convertible into such securities) (institutional investment managers) are required to file quarterly Form 13F reports detailing their ownership of such securities regardless of the percentages owned. Reports can omit certain de minimis positions, though the de minimis level is set quite low so relatively few positions are typically excluded from Form 13F on this basis. The $100 million threshold was originally set in 1975, is not indexed for inflation and has not been adjusted since. Each report for a calendar quarter must be filed no later than 45 calendar days after the end of the preceding quarter.

Under Section 13(h) of the Exchange Act and Rule 13h-1 promulgated thereunder, persons who trade US publicly-traded securities equal to or exceeding two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month (collectively, large traders) are required to file required Form 13H reports with the SEC. Unlike the beneficial ownership reports and Form 13F, Form 13H reports are confidential and viewable only by the SEC. While the specific reporting thresholds for Form 13F and Form 13H are different, most (but not all) large traders will also be institutional investment managers. But most institutional investment managers will not necessarily be large traders.

The SEC alleged that nine institutional investment managers failed to timely file required Form 13F reports—often over a long period of years. Those nine firms (not including one which was part of the beneficial owner settlements discussed above but had also not filed Form 13F for a number of years) agreed to pay in aggregate more than $3.4 million to settle those cases. Notably, two additional settling parties (both institutional investment managers located outside the US) were not assessed penalties relating to their delinquent Form 13F’s because they self-reported their failure to report directly to the SEC.

Two of the parties settling Form 13F failures also were charged with failing to timely file required Form 13H reports. Because both of these parties self-reported their Form 13H filing failures, neither was assessed a penalty relating to Section 13(h).

[1] The deadlines described here were in effect during the relevant periods in the settled actions. Effective on and after February 5, 2024, the initial Schedule 13D must be filed within five business days of the relevant acquisition.

[2] The deadlines described here were in effect during the relevant periods in the settled actions. Effective on and after September 30, 2024, the filing deadline for an initial Schedule 13G (other than for certain institutional investors) is within 5 business days of the relevant acquisition; certain institutional investors are permitted to delay their initial filing of Schedule 13G to 45 calendar days after the end of relevant calendar quarter.

Copyright © 2024, Hunton Andrews Kurth LLP. All Rights Reserved.
For more on SEC Enforcement Actions, visit the NLR Securities SEC section.

Are You Eligible for Passport Renewal Online?

In good news, the State Department has announced the roll-out of its new online passport renewal system. Eligible individuals can renew their 10-year passports online without having to mail in any documentation.

Be sure to plan ahead if you are using the online service because only routine service is available – no expedited processing.

Although applicants will not be required to turn in their “old” passport, that passport will be cancelled after the renewal application is submitted and will no longer be valid for international travel.

Eligibility requirements for online processing:

  • The old passport is a 10-year passport, and the applicant is at least 25 years of age;
  • The old passport was issued between 2009 and 2015, or more than 9 years but less than 15 years from the date the new application is submitted;
  • There is no request for change of name, gender, or place of date of birth;
  • The applicant is not travelling for at least 8 weeks from the application submission date;
  • The applicant is seeking a regular (tourist) passport, not a special issuance passport (such as diplomatic, official, or service [gray cover] passports);
  • The applicant lives in the United States, either in a state or territory (passports cannot be renewed online from a foreign country or using Army Post Office [APO] or Fleet Post Office [FPO]); and
  • The applicant is in possession of their current passport and it is not damaged or mutilated and it has not been reported as lost or stolen.

To renew online, the applicant must sign in or create an account on Home | MyTravelGov (state.gov) and follow the step-by-step directions. The applicant will have to:

  • Provide information about the passport they want to renew;
  • Choose whether to apply for a passport book or passport card or both;
  • Enter proposed travel dates;
  • Upload a digital photo;
  • “Sign” the application; and
  • Make the required payment by credit or debit card

Applicants can enroll to receive email updates regarding their applications.

Those not eligible to apply online may renew by mail if they meet the eligibility criteria. Those not eligible to renew by mail (such as children) must renew in person.

The State Department estimates that 5 million people will be eligible to use this new online service annually. Last year, a record 24 million passports were issued. The State Department hopes to continue to expand the online service to further optimize the passport renewal process.

Jackson Lewis P.C. © 2024
For more on Passport Renewal, visit the NLR Immigration section.

What Digital Advertisers and Influencers Need to Know About the FTC Final Rule Banning Fake Consumer Reviews and Testimonials

As previously blogged about here, following notices of proposed rulemaking in 2022 and 2023, on August 22, 2024 the Federal Trade Commission finalized a rule that will impose monetary civil penalties false and misleading consumer reviews and testimonials.  Those covered by the Final Rule, including, but not limited to, advertisers, marketers, manufacturers, brands and various intermediaries, and businesses that promote and assist such entities, should consult with an experienced FTC compliance lawyer and begin to prepare for its enforcement, immediately.

What Does the FTC Final Rule Banning Fake Consumer Reviews and Testimonials Cover?

The FTC Final Rule Banning Fake Consumer Reviews and Testimonials formalizes the prohibition of various practices relating to the use of consumer reviews and testimonials and sets forth which practices may be considered unfair or deceptive pursuant to the FTC Act.

In short, the Final Rule is intended to foster fair competition and protect consumers’ purchasing decisions.  In general, the Final Rule covers: (i) the purchase, sale or procuring of fake reviews or testimonials (for example and without limitation, a reviewer that does not exist, a reviewer that did not actually use or possess experience with the product or service, or a review that misrepresents actual experience); (ii) providing compensation or other incentives in exchange for reviews that express a particular sentiment; (iii) facilitating “insider” consumer reviews and testimonials that do not contain a clear and conspicuous disclosure of the relationship; (iv) utilizing websites that appear to be independent review websites when, in fact, they are controlled by the business whose products or services are reviewed; (v) suppressing reviews, either by intimidation or by merely publishing certain reviews or ratings (for example and without limitation, only positive reviews or ratings); and (vi) misusing fake indicators of social media influence.

The Final Rule also includes some important definitions.  For example, the Final Rule defines “consumer reviews” as reviews published to a website or platform dedicated (in whole or in part) to receiving and displaying consumer evaluations, including, for example, via reviews or  ratings.

The Final Rule defines “consumer review hosting” as “providing the technological means by which a website or platform enables consumers to see or hear the consumer reviews that consumers have submitted to the website or platform.”  In simple terms, this means that if an employee posts an unsolicited review on a corporate website concerning a product/service that they have experience using, it may not necessarily be considered deceptive as long as the material connection is disclosed.

“Clear and conspicuous” disclosures (such as, for example and without limitation, those pertaining to material relationships between a manager or officer to a brand), must be unavoidable, and easy to notice and understand for ordinary, reasonable consumers.  Note, for  audiovisual content, disclosures must be presented in “at least the same means as the representations requiring the disclosure.”

The Final Rule follows the FTC’s Updated Endorsement Guidelines (2023).  The FTC Endorsement Guides address a much broader range of conduct than the Final Rule, and provide best practice recommendations regarding the use of product endorsements and reviews in advertising.

What are the Requirements of the FTC Final Rule on Reviews and Testimonials?

The Final Rule largely codifies existing FTC policy related to reviews and testimonials and sets forth limitations for a handful of categories of conduct that the FTC will consider deceptive.  In part, the Final Rule prevents covered entities and their agents from using fake reviews and deceptive testimonials, suppressing honest negative reviews and paying for positive reviews.

In pertinent part and without limitation:

  1. 16 CFR § 465.2: Fake or false consumer reviews, consumer testimonials, or celebrity testimonials

Business and brands are prohibited from creating, buying, selling or disseminating fake or false reviews or testimonials, including, but not limited to, those that expressly or impliedly misrepresent they are by someone that does not exist (for example and without limitation, AI-generated reviews), by someone that does not have experience with the product/service, those that misrepresent experience with a product or service, and negative reviews intended to damage competitors.

Businesses and brands are prohibited from creating, purchasing, procuring or disseminating such reviews (and/or facilitating dissemination) when the business knew or should have known that the reviews or testimonials were not bona fide.

  1. 16 CFR § 465.4: Buying positive or negative consumer reviews

Business and brands are prohibited from incentivizing a consumer to write a review when the incentive is conditioned – expressly or implicitly – on the review expressing a particular sentiment (whether positive or negative) about a business or brand, or related products or services.  It is not unlawful for a company to offer incentives for consumers to write reviews, however, it is unlawful, for example, to condition the incentive upon, for example, a 5-star review.  While the FTC Endorsement Guides separately mandate a clear and conspicuous disclosure when a review is incentivized by monetary payment or another incentive/relationship, a disclosure of the incentive is not a defense when the incentive is conditioned on the review expressing a particular sentiment.

  1. 16 CFR § 465.5: Insider consumer reviews and consumer testimonials

Section 465.5 of the Final Rule prohibits businesses and brands from creating, soliciting or posting reviews or testimonials by officers, managers, employees or agents thereof without clearly and conspicuously disclosing their relationship, or “material connection.”  There are limited exceptions.  First, the prohibition does not apply to unsolicited social media posts by employees or social media posts that result from generalized solicitations (e.g., non-employee specific).  Second, the prohibition does not apply to unsolicited employee reviews that merely appear on a business’s website because of its “consumer review hosting” function.

Additionally, reviews solicited from immediate relatives (e.g., spouse, parent, child or sibling), employees or agents of officers, managers, employees or agents of a business or brand require that latter ensure that the immediate relative clearly, conspicuously and transparently disclose the material connection to the business.  The foregoing also applies, for example and without limitation, to requests that employees or agents solicit reviews from relatives.  Covered “insiders” are required to instruct such reviewers to clearly and conspicuously disclose their relationships to the business or brand and, if they knew or should have known that a related review appears without a disclosure, take remedial steps to address the disclosure.

The Final Rule states that if the business or brand knew or should have known of a material relationship between a testimonialist and the business, it is a violation for the business or brand to disseminate or cause the dissemination of a consumer testimonial from its officer, manager, employee, or agent without a clear and conspicuous disclosure of such relationship.

  1. 16 CFR § 465.6: Company-controlled review websites or entities

Companies and brands are prohibited from creating or controlling review websites or platforms that appear independent when they are, in fact, operated by the company itself.  For example, companies may not expressly or by implication falsely represent that a website they control provides independent reviews or opinions.  Section 456.6 is intended to prevent the creation of illegitimate independent review websites, organizations or entities to review products and services.  It does not apply to general consumer reviews on a brand’s website, for example, so long as those reviews comply with applicable legal regulations.

  1. 16 CFR § 465.7: Review suppression

Pursuant to Section 465.7 of the Final Rule, businesses and brands may not suppress, manipulated or attempt to suppress or manipulate negative reviews (or otherwise manipulate or attempt to manipulate overall perception) by solely displaying positive feedback, with limited exceptions such as when a review contains confidential or personal information, or is false or fake, and/or wholly unrelated to the products/services offered.  The criteria for doing so must be “applied equally to all reviews submitted without regard to sentiment.”

Businesses and brands are also prohibited from suppressing negative reviews or ratings, and misrepresenting (expressly or implicitly) that the selected consumer reviews or ratings represent most or all reviews or ratings.  The Final Rule does not prohibit sorting or organizing reviews – per se – however doing so in a manner that makes it more difficult for consumers to view/learn of negative reviews may be considered an unfair or deceptive act or practice.

All reviews must be treated fairly so that consumers are provided with a true an accurate representation of consumer experiences.

Additionally, the Final Rule prohibits the use of “unfounded or groundless legal threat” or other physical threat, intimidation or false accusation to prevent a review from being written or created or to cause the review to be removed.

Section 465.7, in pertinent part, is consistent with various portions of the January 2022 agency guidance entitled Featuring Online Customer Reviews: A Guide for Platforms.  The foregoing guidance recommends that businesses and brands: (i) that operate a website or platform that features reviews, have processes in place to ensure those reviews truly reflect the feedback received from legitimate customers about their real experiences; (ii) be transparent about your review-related practices; (ii) do not ask for reviews only from people you think will leave positive ones; (iii) that offer an incentive to consumers for leaving a review, not condition it, explicitly or implicitly, on the review being positive (even without that condition, offering an incentive to write a review may introduce bias or change the weight and credibility that readers give that review); (iv) do not prevent or discourage people from submitting negative reviews; (v) have a reasonable processes in place to verify that reviews are genuine and not fake, deceptive, or otherwise manipulated (be proactive in modifying and upgrading your processes); (vi) do not  edit reviews to alter the message (e.g., do not change words to make a negative review sound more positive); (vii) treat positive and negative reviews equally (do not subject negative reviews to greater scrutiny); (viii) publish all genuine reviews and do not exclude negative ones; (ix) do not display reviews in a misleading way (e.g., it could be deceptive to feature the positive ones more prominently or require a click through to view negative reviews); (x) that display reviews when the reviewer has a material connection to the company or brand offering the product or service (e.g., when the reviewer has received compensation or a free product in exchange for their review), clearly and conspicuously disclose such relationships; (xi) clearly and conspicuously disclose how they collect, process and display reviews, and how they determine overall ratings, to the extent necessary to avoid misleading consumers; and (xii) have a reasonable procedure to identify fake or suspicious reviews after publication (if a consumer or business tells a business or brand that a review may be fake, investigation and appropriate action are necessary – that may include taking down suspicious or phony reviews or leaving them up with appropriate labels).

  1. 16 CFR § 465.8: Misuse of fake indicators of social media influence

Section 465.7 prohibits selling, distributing, purchasing or procuring “fake indicators of social media influence” (for example and without limitation, likes, saves, shares, subscribers, followers or views generated by a bot or fake account) that are actually known to be or should be known to be fake, and that could potentially be used or are actually used to misrepresent or artificially inflate individual or business importance for a commercial purpose.  Thus, liability will not attach to a business or brand that engages an influencer using fake indicators of social media influence if the business or brand neither knew nor should have known thereof.

How is the FTC Final Rule Different from the Proposed Rule?

Notably, the Final Rule does not include a provision from the proposed rule that would have precluded advertisers from using consumer reviews that were created for a different product.  Known as “review hijacking,” the FTC was unable to resolve various concerns about the meaning of “substantially different product.”  The FTC reserved the right to revisit this issue, going forward via further rulemaking.

What are the Consequences for Violating the FTC Final Rule on Reviews and Testimonials?

The concepts, prohibitions and obligations included in the Final Rule are not entirely new.  However, the Final Rule does significantly enhance the FTC’s ability to pursue civil monetary damages in the form of penalties in the amount of up to $51,744, per violation or per day for ongoing violations.  The Final Rule also will permit the FTC to seek judicial orders that require violators to compensate consumers for the consequences of their unlawful conduct.

Takeaway:

The Final Rule banning fake consumer reviews and testimonials generally prohibits specific  practices that the FTC has determined are deceptive or misleading, including: (i) fake or false consumer reviews, consumer testimonials or celebrity testimonials; (ii) purchasing positive or negative consumer reviews; (iii) insider consumer reviews and consumer testimonials; (iv) company-controlled review websites or entities; (v) review suppression; and (vi) misuse of fake indicators of social media influence.  The Final rule will be effective October 21, 2024.  Violations of the Final Rule can result in significant financial and reputational consequences.  Companies that utilize consumer reviews, consumer testimonials or celebrity endorsements should consult with an experienced eCommerce attorney to discuss proactively implementing responsible written policies and contracts that ensure compliance with the Final Rule and other applicable legal regulations (for example and without limitation, ensure the clear and conspicuous disclosure of material connections), educating employees and agents, reviewing marketing strategies, auditing first and third-party (for example and without limitation, lead generators) promotional materials and activities for non-compliance (for example and without limitation, ensuring that reviews  provide an accurate representation of consumer experiences), and developing and implementing appropriate compliance plans and written policies that include required remedial actions.

© 2024 Hinch Newman LLP
For more on the FTC Fake Consumer Reviews rule, visit the NLR Communications Media Internet section

Preparing For the Return of Dealer Distress

Over the last five years, auto and equipment dealers experienced a period of low inventory levels with high margins on the limited inventory they had for sale and lease. Used automotive and equipment wholesale and retail prices surged. At the same time, merger and acquisition activity drove dealer valuations to record highs especially in the automotive segment.

Dealer merger and acquisition activity has started to cool even though valuations and activity remain elevated above pre-pandemic levels1. New automotive inventory levels have risen during 2024 to the point that Ford’s CFO, John Lawler, expressed worry regarding rising new car inventory levels in June2. Used automotive and equipment wholesale prices have declined from their pandemic era highs as well.

Record profits, low inventory levels, and strong merger and acquisition activity led to low delinquency and default levels in the dealer lending space, but current trends indicate those days may be coming to an end. For floor plan lenders, they should be thinking about dealer distress happening again. While times are still good, there are some steps lenders can take to prepare for distress down the road.

Review Your Documents and Security Interests

It is always easier to fix documentation and security interest deficiencies when times are good. Lenders should be checking to make sure their loan documents are correct and most importantly, their security interest position reflects their expectations. One area of particular concern is making sure no other parties have filed security interests against the dealer including merchant cash advance, factoring and other “short term” funding sources that might not show up as debt on financial statements. Even other lenders providing longer term debt financing secured by other assets like real estate may be taking a security interest in your inventory as well.

Insurance

As part of your documentation review, you should verify the dealer’s insurance meets the requirements of your loan documents, lists your interest properly, and is adequate for the dealer’s exposure. Insurance coverage tied to inventory levels can become insufficient if inventory levels rise faster than the coverage limits increase. Also ensuring the insurance covers all collateral locations is a requirement that might slip through the cracks especially if collateral locations change frequently.

Where is Your Collateral?

One benefit of low inventory levels was that dealers stopped storing inventory at satellite lots. The practice of old is starting to return as inventory levels build. Lenders want to make sure they know of these locations (they should if they are on top of the audits) and obtain landlord waivers if necessary to access the inventory upon a default.

Keeping Up on Audits

Anyone who knows the floor plan business knows the importance of audits. Low inventory levels and well performing dealers made audits easy. With increasing inventory levels, audit complexity is returning to pre-pandemic norms. Audit issues are often one of the first signs of dealer distress. A prominent example of a dealer issue recently being unearthed through audits involves a boat dealer who allegedly sold boats, but stored them for the customers and alleged the boats were still for sale3.

Financial Reporting and Covenants

Financial reporting deficiencies and financial covenant violations are also warning signs of potential distress on the horizon. Dealers rarely go bad overnight. Financial reporting and covenants going downhill are an obvious warning sign.

Taxes

Not just limited to dealers, but tax delinquencies are always a big red flag. Confirming the payment of taxes and the existence of no tax liens should be part of reviewing any dealer relationship especially one showing other signs of distress.

Used Inventory Levels and Advance Rates

During the pandemic when used vehicle and equipment prices shot through the roof, lenders became permissive of advancing beyond their standard advance rates. As used inventory values decline for vehicles4 and agricultural equipment5, dealers can be underwater on used inventory.

Manufacturer Specific Issues

Not all dealers are equal and the same is true for manufacturers. Monthly inventory level data from Cox Automotive6 shows inventory levels being substantially higher among some vehicle brands compared to others. Keeping an eye on your dealer and the average inventory levels of the brands they carry should be on your radar.

Explaining What You Do

As someone who spent a decade as lead counsel at two different financial institutions being lead counsel for floor plan businesses, I spent a lot of time explaining to others outside the floor plan businesses the nuances of floor plan lending. If things start going downhill with a dealer, be prepared for the inevitable basic questions from those not used to the dealer business.

Conclusion – Hope for the Best, Prepare For The Worst

One of the best credit people I ever worked with described a dealer failure as like a war. When a dealer failure occurs, most likely through a selling inventory out of trust, you don’t have time to learn what to do. You got to know what to do. You must have someone ready to take command and quarterback the response. You got to know who will help you accomplish your ends. If you don’t act quickly, your inventory will be gone and your losses can be in the millions within days.

1 “Dealership Buy-Sell Activity and Blue Sky Values are declining, but are elevated well above pre-pandemic levels”, The Haig Report, August 29, 2024 (2024-Q2-Haig-Report-Press-Release-FINAL.pdf (haigpartners.com))
2 “Ford CFO says growing dealer inventory ‘worries me’”, Breana Noble, The Detroit News, June 11, 2024 (Ford CFO John Lawler says growing dealer inventory ‘worries me’ (detroitnews.com))
3 “Lender Alleges Dealer Diverted Millions in Sales Proceeds”, Kim Kavin, Soundings Trade Only, April 16, 2024 (https://www.tradeonlytoday.com/manufacturers/lender-alleges-dealer-diverted-millions-in-sales-proceeds)
4 “Wholesale Used-Vehicle Prices Decrease in First Half of September”, Cox Automotive, September 17, 2024 (Wholesale Used-Vehicle Prices Decrease in First Half of September – Cox Automotive Inc. (coxautoinc.com))
5 “Lower Used Equipment Prices Are Another Sign of the Challenges in the Ag Sector”, Jim Wiesenmeyer, Farm Journal, August 14, 2024 (Lower Used Equipment Prices Are Another Sign of the Challenges in the Ag Sector | AgWeb).
6 “New-Vehicle Inventory Stabilizes as Sales Incentives Increase and Model Year 2025 Vehicles Arrive”, Cox Automotive, September 19, 2024 (New-Vehicle Inventory Stabilizes as Sales Incentives Increase and Model Year 2025 Vehicles Arrive – Cox Automotive Inc. (coxautoinc.com))

Copyright © 2024 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more on Dealers, visit the NLR Utilities Transport section

Administration Action Could Unravel the De Minimis Exception for Goods From China

Many e-commerce retailers are closely monitoring increasing bipartisan criticism of the Section 321 de minimis program. This program, which provides an exemption for goods valued at $800 or less destined to a single person on a given day, allows these goods to enter the US duty and tax-free without formal entry.

While this expedited clearance process has been beneficial for many retailers, critics argue that it creates loopholes that can be exploited, particularly by foreign sellers, to bypass tariffs and import restrictions. Addressing US Congress’ inability to pass de minimis reform legislation, on September 13, the Biden-Harris Administration took decisive action to address these concerns. They announced a notice of proposed rulemaking aimed at reducing de minimis import volumes and strengthening trade enforcement through the following measures:

  • Limiting De Minimis Exemptions for Products Subject to Other Trade Remedies: Removal of the de minimis exemption for shipments that contain products subject to additional tariffs under Sections 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962 (e.g., from China).
  • Increased Disclosure Requirements for De Minimis Shipments: Additional information would be required for de minimis shipments, including the 10-digit tariff classification and identification of the person claiming the exemption.
  • Compliance Requirements for the CPSC: All importers of consumer products must file Certificates of Compliance (CoC) with the US Consumer Product Safety Commission (CPSC).

It is unclear when the proposed rule will be published.

The Administration also calls on Congress to implement legislation to further reform the de minimis program. Earlier this year, the House Ways and Means Committee introduced H.R. 7979 – End China’s De Minimis Abuse Act, which would similarly limit the use of this program for products subject to Sections 201, 301, and 232 and require a 10-digit Harmonized Tariff Schedule of the United States declaration. There have been several other de minimis reform bills proposed however, Congress has struggled to pass comprehensive legislation to reform the program. This announcement may be the push Congress needs to pass legislation during the lame duck session, but we will see…

Although these measures are primarily aimed at restricting Chinese e-commerce giants like Shein and Temu, these government actions could have long-term implications for direct-to-consumer sales. Any changes to the program will impact other US retailers that benefit from Section 321, small start-up companies, as well as consumers who might experience longer wait times and higher costs for their online orders due to these changes.

What’s the Problem?

Over the past decade, the rise of online shopping has led to a sevenfold increase in the number of shipments that enter the United States through the de minimis exemption. The US Department of Homeland Security (DHS) has reported that nearly 4 million de minimis shipments enter the United States per day. This volume makes it impossible for the government to properly screen the shipments for import violations. The government is concerned because contraband, including drugs, counterfeit goods, goods violating the Uyghur Forced Labor Prevention Act (UFLPA), and undervalued shipments are allegedly entering the United States through this program. DHS reported that as of July 30, 89% of cargo seizures in fiscal year 2024 originated as de minimis shipments. We have previously reported on proposed legislation and government actions aimed at addressing the alleged misuse of this program to import contraband or improperly declare shipments, particularly those originating from China.

A Focus on China

Most of these shipments are sold on e-commerce platforms and originate in China. As a result, many of these shipments would normally be subject to additional duties under the Section 232, 301, or 201 programs. According to the Administration’s announcement, Section 301 tariffs apply to 40% of US imports, including 70% of textile and apparel goods from China. The Administration’s proposed rule would significantly limit the scope of goods eligible for the Section 321 de minimis program.

Enhancing Transparency in De Minimis Shipments

To assist in targeting problematic shipments and expediting the clearance of lawful shipments, the Administration will also solicit comments on a proposed rule that would require submission of more detailed information in order to use the de minimis exemption. Currently, these shipments can be entered through informal entries by providing the bill of lading or a manifest that outlines the shipment’s origin, the consignee, and details about the merchandise’s quantity, weight, and value. The additional data points required would include the tariff classification number and the identity of the individual claiming the exemption. The Administration asserts that these requirements will protect US business from unfair competition against imported goods that would otherwise be subject to duties and will facilitate US Customs and Border Protection’s (CBP) ability to detect the illicit goods at the border.

Protecting Consumers From De Minimis Shipments

The Administration also announced that the CPSC plans to propose a final rule that would require importers of consumer products to electronically file CoC with CBP and CPSC upon entry, including de minimis shipments. This action is intended to prevent foreign companies from exploiting the de minimis exemption to circumvent consumer protection testing and certification requirements.

Focus on Textiles

The Administration has committed to prioritizing enforcement efforts to prevent importation of illicit shipments of textile and apparel imports through increased targeting of de minimis shipment, more customs audits and verification, as well as the expansion of the UFLPA Entity List.

The Administration’s focus on the textile and apparel industry follows DHS’s enforcement initiative to curb illicit trade to support American textile jobs. Since the DHS announcement in April, we have seen a notable increase in enforcement actions such as CBP requests for information, risk assessment questionnaires, and detentions under the UFLPA.

Potential Legislative Implications

The Administration has also advocated for further legislative action by Congress including:

  • Exclusion of import-sensitive products such as textiles from the de minimis exemption, the exclusion of shipments containing products covered by certain trade enforcement actions, and the passage of previously proposed de minimis reforms.
  • Legislation that would expedite the process of excluding products covered by Sections 301, 201, and 232 from the de minimis exemption.
  • Reforms in the previously introduced Detect and Defeat Counter-Fentanyl Proposal, which would require more data from shippers under the de minimis program and strengthen the CBP’s ability to detect and seize illicit drugs and raw materials.

What This Means for Retailers and How We Can Help

The Administration’s notice of proposed rulemaking suggests that changes to the de minimis program are on the horizon. For e-commerce retailers, these changes could mean a shift in how they manage their imports. Stricter eligibility criteria and enhanced enforcement may require more diligent documentation and compliance efforts. Retailers should stay informed about these proposed changes and prepare to adapt their operations accordingly.

© 2024 ArentFox Schiff LLP
For more on De Minimis Exception, visit the NLR Antitrust Trade Regulation section