Category: Global

Top Risks for Businesses in 2024

Just weeks into 2024, it is already clear that uncertainty will be the watchword. Will the economic soft landing of 2023 persist into 2024? Will labor unrest, strong in 2023, settle down as inflation cools? Will inflation remain tamed? Will the U.S. elections bring continuity or a new administration with very different views on the role of the U.S. in the world and in regulating business?

Uncertainty is also fueling a complex risk environment that will require monitoring global developments more so than in the past. As outlined below, geopolitical risks are present, multiple, interconnected and high impact. International relations have traditionally fallen outside the mandate of most C-Suites, but how the U.S. government responds to geopolitical challenges will impact business operations. Beyond additional disruptions to global trade, businesses in 2024 will face risks associated with expanding protectionist economic policies, climate change impacts, and AI-driven disruptors.

Geopolitical Tensions Disrupting Global Trade

The guardrails are coming off the international system that enshrines the ideals of preserving peace and security through diplomatic engagement, respecting international borders (not changing them through military might) and ensuring the free flow of global trade. In 2022, the world was shocked by Russia’s invasion of Ukraine, but it has taken time for the full impact to reverberate through the international system. While political analysts write on a “spillover of conflict,” the more insidious impact is that more leaders of countries and non-state groups are acting outside the guardrails because they are no longer deterred from using military force to achieve political goals, making 2024 ripe for new military conflicts disrupting global trade beyond the ongoing war in Europe.

In October 2023, Hamas launched a war from Gaza against Israel. Thus far, fighting has spread to the West Bank, between Israel and Lebanese Hezbollah in the north, and to the Red Sea, with Iranian-backed Houthis attacking shipping through the strategic Bab al Mandab strait. Container ships and oil tankers, to avoid the risks, are re-routing to the Cape of Good Hope, adding two weeks of extra sailing time, with the associated costs. Insurance premiums for cargo ships sailing in the eastern Mediterranean have skyrocketed, with some no longer servicing Israeli ports. Companies and retailers with tight delivery schedules are switching to airfreight, which is expected to drive up airfreight rates.

Iran, emboldened by its blossoming relationship with Russia as one of Moscow’s new arms suppliers, is activating its proxy armies in Yemen, Iraq, Syria and Lebanon to attack Western targets. In a two-day period in January 2024, the Iran Revolutionary Guards directly launched strikes in Syria, Iraq and Pakistan. Nuclear-armed Pakistan retaliated with a cross border strike in Iran. While there are many nuances to these incidents, it is evident that deterrence against cross-border military conflict is eroding in a region with deep, festering grievances among neighbors. Iran is in an escalatory mode and could resume harassing shipping in the Persian Gulf and the strategic Strait of Hormuz, where about a fifth of the volume of the world’s total oil consumption passes through on a daily basis.

In East Asia, North Korea is also emboldened by the changing geopolitical environment. Pyongyang, too, has become a major supplier of weaponry to Moscow for use in Ukraine. While Russia (and China) in the past have constructively contained North Korean predilection for aggression against its neighbors, Supreme Leader Kim Jong Un may believe the time is ripe to change the status quo. Ominously, in a Jan. 15 speech before the Supreme People’s Assembly (North Korea’s parliament), Kim rejected the policy of reunification with South Korea and proposed incorporating the country into North Korea “in the event of war.” While North Korean leaders frequently revert to brinksmanship and aggressive language, Kim’s speech reflects confidence of a nuclear power, aligned with Russia against a shared adversary – South Korea, which is firmly aligned with the G7 consensus on Russia. A war in the Korean peninsula would be felt around the world because East Asia is central to global shipping and manufacturing, disrupting supply chains, as well as the regional economy.

China is also waiting for the right moment to “unite” Taiwan with the mainland. Beijing has seen the impact of Western sanctions on Russia over Ukraine and has been deterred from aiding the Russian war effort. In many ways, China has benefited from these sanctions and the reorientation of global trade. Also, Russia, with its far weaker economy, has proven surprisingly resilient to sanctions, another lesson for China. Meanwhile, the Taiwanese people voted in January and returned for a third time the ruling party that strongly rejects Chinese territorial claims. Tensions are high, with the Chinese military once again harassing Taiwanese defenses. For Beijing, the “right moment” could fall this year should conflict break out on the Korean peninsula, which would tie the U.S. down because of the Mutual Defense Treaty.

The uncertainty here is not that there are global tensions, but how the U.S. will respond as they develop and how U.S. businesses can navigate external shocks. Will the U.S. be drawn into a new war in the Middle East? Can the U.S. manage multiple conflicts, already deeply involved in supporting Ukraine? Is the U.S. economy resilient enough to withstand trade disruptions? How can businesses strengthen their own resiliency?

Economic Protectionism Increasing Costs and Risks

Geopolitical tensions, the global pandemic and the unequal benefits of globalization are impacting economic policies of the U.S. and the political discourse around the merits of unrestrained free trade. Protectionist economic policies are creeping in, under the nomenclature of “secure supply chains,” “friend-shoring” and “home-shoring.” The U.S. has imposed tariffs on countries (even allies) accused of unfair trade practices and has foreclosed access to certain technologies by unfriendly countries, namely China.

While the response to some of these trade restrictions are new trade agreements with “friends” to regulate access under preferred terms, in essence creating multiple “friends” trade blocs for specific sectors, other responses are retaliatory, including counter tariffs and export restrictions or outright bans. In 2024, the U.S. economy will see the impact of these trade fragmentation policies in acute ways, with upside risks of new business opportunities and downside risks of supply chain disruptions, critical resource competition, increased input costs, compliance risks and increased reputational risks.

Trade with China, which remains significant and important to the stability of the U.S. economy, will pose new risks in 2024. While Washington and Beijing have agreed to some political and security guardrails to manage the relationship, economic competition is unrestrained and stability in the bilateral relations is not guaranteed. The December 2023 bipartisan report by the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party, with its 150 recommendations on fundamentally resetting economic and technological competition with China, if even partially adopted, risks reigniting the trade war.

2024 is a presidential election year for the U.S. A change of control of the executive branch could result in many economic and regulatory policy reversals. The definition of “friend” could shift or narrow. Restrictions on trade with China could accelerate.

Impacts of Climate Change and Sustainability Policies

2023 was the hottest year on record, and El Niño conditions are expected to further boost the warming trend. Many regions experienced record-breaking wildfire activity in 2023, including Canada where 18 million hectares of land burned. Extreme storms caused life-threatening flooding in Europe, Asia and the Americas. 2024 is expected to bring even more climate hazards. The impacts will be physical and financial, including growing insurance losses and adverse impacts on operations and value chain. Analysts expect that in 2024, the economic and financial costs of adverse health impacts from climate change will increase, with risks related to the spread of infectious disease, insufficient access to clean water, and physical harm to the elderly and vulnerable. The direct economic effect will be on health systems, but also loss of productivity due to extreme weather incidents and effects of epidemics.

Energy transition to low-carbon emissions is underway in the U.S., but it is uneven and still uncertain. The financial market is investing in an impressive number of startups and large-scale projects revolving around cleantech. Still, there is hesitancy on the opportunity and risks of sustainability. Thus far, progress towards sustainability goals has been private sector-led and government-enabled. There is a risk that government incentive programs encouraging the transition to low-carbon energy could be reversed or curtailed under a new administration.

In 2024, some companies will face more climate disclosure compliance requirements. The Securities and Exchange Commission (SEC) is expected to release its final rule on climate change disclosures. The final action has been delayed several times because of pushback by public companies on some of the requirements, including Scope 3 greenhouse gas emission disclosures (those linked to supply chains and end users). California has not waited for the SEC’s final rule: In October 2023, Gov. Gavin Newsom signed into law legislation that will require large companies to disclose greenhouse gas emissions. The California climate laws go into effect in 2026, but companies will need to start much earlier to build the capabilities to plan, track and report their carbon footprint. For U.S. companies doing business in the European Union, they will need to comply with the EU Corporate Sustainability Reporting Directive, with the rules coming into force mid-2024.

Disruptive Technology

In 2023, generative AI was the talk of the town; in 2024, it will be the walk. Companies are popping up with new tools for every imaginable sector, to increase efficiency, task automation, customization, personalization and cost reduction. Business leaders are scrambling to integrate AI to gain a competitive edge, while navigating the everyday risks related to privacy, liability and security. While there are concerns that AI will displace humans, there is a growing consensus that while some jobs will disappear, people will focus on higher value work. That said, new rounds of labor disruptions linked to workforce transition are likely in 2024.

2024 will also bring AI-generated misinformation and disinformation. Bad actors will spread “synthetic” content, such as sophisticated voice cloning, doctored images and counterfeit websites, seeking to manipulate people, damage companies and economies, and foment dissent.

In 2024, around 2 billion people in more than 50 countries will vote in elections at risk of manipulation by misinformation and disinformation, which could destabilize the real and perceived legitimacy of newly elected governments, risking political unrest, violence, terrorism and erosion of democratic processes. Large democracies will hold elections in 2024, including the U.S., the EU, Mexico, South Korea, India, Pakistan, Indonesia and South Africa. Synthetic content can be very difficult to detect, while easy to produce with AI tools.

This is not a theoretical threat; synthetic content is already being disseminated in the U.S., targeting New Hampshire voters with robocalls that share fake recorded messages from President Biden encouraging people not to vote in the primary election. The U.S. is already polarized with citizens distrustful of the government and media, a ready vulnerability. Businesses are not immune. Notably, CEOs have stood apart, with higher ratings for trustworthiness and risk being called upon to vouch for “truth” (and becoming collateral damage in the fray).

AI-powered malware will make 2023 cyber risks look like child’s play. Attackers can use AI algorithms to find and exploit software vulnerabilities, making attacks precise and effective. AI can help hackers quickly identify security measures and evade them. AI-created phishing attacks will be more sophisticated and difficult to detect because the algorithms can assess larger amounts of piecemeal information and craft messages that mimic communication styles.

The role of states backing cyber armies to spread disinformation or steal information is growing and is part and parcel of the erosion of the existing international order. States face little deterrence from digital cross-border attacks because there are yet to be established mechanisms to impose real costs.

© 2024 Bradley Arant Boult Cummings LLP
For more on Business Risks, visit the NLR Corporate & Business Organizations section.

Domestic Visa Processing – Application Slots Now Available

On January 29, 2024, the Department of State’s stateside visa pilot renewal program began accepting DS-160s for qualifying individuals seeking to renew their existing H-1B visas while they are in the United States. As discussed in our previous blog post about this new program, the program allows individuals in the United States who are renewing an H-1B visa issued by US consular sections in Canada between 1/1/2020 and 4/1/2023 or one issued by US consular sections in India from 1/2/2021 and 9/30/2023 to do so online through the Department’s CEAC website rather than having to travel outside the US to obtain the visa.

Under the pilot program, each week for five weeks the Department will release 4000 application slots—2000 for applicants whose most recent H-1B visa were issued in Canada, and 2000 for those whose most recent H-1B visas were issued in India. If all designated slots are filled before the next week’s allotment becomes available, the Department will lock the portal until the next group is released. Applications can be submitted online at https://travel.state.gov/content/travel/en/us-visas/employment/domestic-renewal.html, where you can also find program FAQs published by the Department of State.

The first group of application slots was released on Monday, January 29. Later groups will be released on February 5, February 12, February 19, and February 26. The program will end when all available slots are filled or on April 1, 2024, whichever happens first.

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Copyright © 2024, Hunton Andrews Kurth LLP. All Rights Reserved.
For more on Domestic Visas, visit the NLR Immigration section.

As Three Recent Settlements Demonstrate, Whistleblowers Are the Key to Enforcement of Section 301 Tariffs

The Section 301 tariffs on Chinese-made goods—at the time, known as the Trump Tariffs, although President Biden has embraced them as well—were put in place in 2018. Only recently, more than five years later, have enforcement efforts begun to show up publicly. And, as is often the case, whistleblowers are the tip of the enforcement spear. In particular, over the course of two weeks at the end of 2023, the U.S. Department of Justice (“DOJ”) announced settlements of three qui tam cases, brought under the False Claims Act, that alleged evasion of Section 301 tariffs. These are the first such settlements to be made public, but likely signal the beginning of a wave of settlements or litigation in the coming years.

Starting in July of 2018, and pursuant to Title III of the Trade Act of 1974 (Sections 301 through 310, 19 U.S.C. §§ 2411-2420), titled “Relief from Unfair Trade Practices,” and often collectively referred to as “Section 301,” the United States imposed additional tariffs on a wide range of products manufactured in China. The Section 301 tariffs were rolled out in tranches, but they fairly quickly covered a majority of all Chinese-made products imported into the United States. The Section 301 tariffs imposed an additional 25% customs duty on those products.

As is always the case when high tariffs are imposed on imported goods, the Section 301 tariffs were met with a mix of responses by importers. In some cases, importers simply paid the additional 25% duties. In some cases, the importers found new sources, outside of China, for the products they wished to import. And in many cases, the importers started cheating—evading the tariffs either by lying to Customs and Border Protection (“CBP”) about what was being imported, or engaging to transshipping schemes to make it appear that the products were actually made in some country other than China.

Evasion of customs duties violates the False Claims Act, a federal law that, among other things, outlaws the making of false statements to avoid payment of money owed to the government. Evasion of customs duties will almost always involve such false statements because when goods are imported into the United States, the importer must provide CBP with a completed form, called an Entry Summary (also known as a Form 7501), in which the importer provides information about the nature, quantity, value, and country-of-origin of the goods being imported. To avoid or reduce the payment of duties, the importer will almost always lie on the Entry Summary about one or more of those, thus exposing the importer to liability under the False Claims Act.

The False Claims Act has a qui tam provision, which means that a private person or company may bring a lawsuit in the name of the government against the importer that has evaded payment of duties. If the qui tam lawsuit is successful, most of the money goes to the government. But the person or company that brought the lawsuit typically referred to as a whistleblower or, more technically, as the “relator”—gets an award that is between 15% and 30% of the amount recovered for the government.

When a qui tam case is first filed, it is put “under seal” by the court, meaning that it is secret and not available to the public. The case stays under seal, often for multiple years, as DOJ investigates the claims made in the case. But once DOJ decides to pursue a case, the seal is lifted, and the case becomes public. Often, this happens almost simultaneously with the announcement of a settlement of the case.

That is what happened with three cases that became public in late 2023. The first announcement came on November 29, 2023, when the U.S. Attorney’s Office for the Northern District of Georgia announced a $1.9 million settlement in a case captioned United States ex rel Chinapacificarbide Inc. v. King Kong Tools, LLC. In that case, the whistleblower that had brought the qui tam lawsuit was a competitor company which alleged that King Kong Tools was manufacturing cutting tools in a factory in China, shipping them to Germany, and then importing them from Germany into the United States, claiming falsely that the tools were made in Germany. The whistleblowing company received an award of $286,861.

The second such announcement came on December 5, 2023, when the U.S. Attorney’s Office for the Northern District of Texas announced a $2.5 million settlement in a case captioned United States ex rel. Reznicek et al. v. Dallco Marketing, Inc. In that case, the whistleblowers were two individuals who alleged that the defendants evaded the Section 301 tariffs by underreporting the value of the products they were importing from China into the United States. The whistleblowers received an award of $500,000.

The third such announcement case on December 13, 2023, when the U.S. Attorney’s Office for the Eastern District of Texas announced a settlement of $798,334 in a case captioned United States ex rel. Edwards v. Homestar North America LLC. Like the Dallco Marketing case, the Homestar case was also brought by an individual who alleged that the importer had lied to the government about the value of the goods being imported from China into the United States, in order to avoid payment of Section 301 tariffs. The whistleblower received an award of $151,683.

Accordingly, over the course of just two weeks in late 2023, three Section 301 settlements were publicly announced in quick succession. And notably, all three were whistleblower qui tam cases. This demonstrates the key role that whistleblowers play in the enforcement of customs tariffs and duties. No doubt, many other such cases remain under seal, and will start to become public as DOJ concludes its investigations. And because the Section 301 tariffs remain in place to this day, additional qui tam cases will almost certainly continue to be brought by both individual whistleblowers and competing companies seeking to level the playing field. Accordingly, these three settlements are likely just the early signs of a wave of Section 301 cases that will crest in the coming years.

© 2024 by Tycko & Zavareei LLP
For more news on Whistleblowers and Section 301 Tariffs, visit the NLR Antitrust & Trade Regulation section.

January 2024 Update: US Department of State Announces Pilot Program for Stateside H-1B Visa Renewals

On January 18, 2024, the Department of State published an online tool that H-1B visa applicants can use to determine if they are eligible for the stateside visa renewal pilot program. Over time, it is likely that the Department of State will expand eligibility. We expect the online tool for the program described below to be updated as the program expands.

Domestic Visa Renewal Eligibility Assessment

In December 2023, the US Department of State announced a pilot program for stateside renewal of certain visas. For the first time in nearly two decades, a limited number of H-1B nonimmigrants will be able to renew their visas from within the United States.

All nonimmigrant visas are currently issued by US Embassy and Consular officials outside of the United States. Beginning on January 29, 2024, the State Department will begin allowing certain nonimmigrants to renew their expired and expiring visas inside the United States. Applicants meeting the requirements of the program may submit an online application between January 29 and April 1, 2024. This is welcome news as visa processing at Consulates and Embassies abroad has become increasingly unpredictable and fraught with delays.

This is a pilot program that will be available on a very limited basis initially. However, the State Department has indicated a desire to expand the program after the pilot allows for the resolution of any operational issues.

This pilot program will allow for limited renewal of nonimmigrant visas in the United States. Eligibility will be limited to applicants who(se):

  1. are renewing H-1B visas (H-4 and other visa classifications are not part of the pilot program);
  2. prior H-1B visa being renewed was issued by either:
  3. Mission Canada (i.e., US Consular posts located in Canada) with an issuance date from January 1, 2020 through April 1, 2023 OR
  4. Mission India (i.e., US Consular posts located in India) with an issuance date of February 1, 2021 through September 30, 2021;
  5. are nationals of countries which are not subject to reciprocity fees for H-1B visas;
  6. are eligible for a waiver of the usual in-person interview requirement;
  7. have submitted ten fingerprints in connection with a previous visa application;
  8. prior H-1B visa does not contain a “clearance received” notation;
  9. does not have an ineligibility basis that requires a waiver prior to visa issuance;
  10. 10.has an approved and valid H-1B petition;
  11. 11.was most recently admitted to the US in H-1B status;
  12. 12.is currently maintaining H-1B status in the US;
  13. 13.period of authorized H-1B admission has not expired; and
  14. 14.intends to reenter the US in H-1B status after temporary travel abroad.

Beginning January 29, 2024, eligible applicants may submit an application online through the State Department website. The State Department will allow approximately 4,000 applications each week, with 2,000 for applicants whose prior H-1B visas were issued by Mission Canada, and another 2,000 for applicants whose prior H-1B visas were issued by Mission India. Once the application limit has been reached, the application portal will be locked until the next allotment of application slots are released based on the schedule. On each Monday in February, the website will reopen for new submissions. The application period for the program will end the earlier of when all available application slots have been filled, or on April 1, 2024.

Applicants will be asked to complete an online application including:

  • a self-assessment of eligibility for the pilot program;
  • a Form DS-160 online visa application;
  • payment of the $205 non-refundable Machine-Readable Visa (MRV) fee; and
  • required documents, including:
    • a properly completed, electronically filed Form DS-160;
    • one photograph meeting Department of State specifications;
    • original passport, valid for at least 6 months beyond the visa application date;
    • original or copy of current Form I-797 Notice of Action (H-1B approval notice);
    • original or copy of the applicant’s Form I-94 (available online here); and
    • fee payment confirmation.

Processing time is expected to be approximately 6 to 8 weeks, with visaed passports returned to applicants via US postal service or courier. All documents must be submitted by April 15, 2024. The State Department aims to complete processing of all applications under this pilot program by the program’s conclusion date of May 1, 2024.

Prior to 2004, the State Department ran a similar program, allowing for H, L, O, I, E, and P visas to be renewed by mail through a State Department office in Washington, DC. Visa revalidation in the US was terminated in July 2004 due to the State Department’s inability to collect biometric data in the US as required by post-9/11 security enhancements.

The return of this program, and the ability of participants to secure a needed visa before departing the United States, will help alleviate the uncertainty associated with foreign travel for those who must secure new visas while abroad in order to return to the United States.

©1994-2024 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
For more news on Stateside H-1B Visa Renewals, visit the NLR Immigration section.

February 2024 Visa Bulletin: Advancement of Priority Dates for Employer-Based Petitions Remains Minimal

U.S. Citizenship and Immigration Services (USCIS) and the U.S. Department of State have not indicated significant advancement in the priority dates for employer-based immigrant petitions, continuing the fiscal year (FY) 2024 trend of long wait times for immigrant visas.

Quick Hits

  • USCIS and the State Department reported minimal movement in the EB-2 and EB-3 categories for Mexico, the Philippines, and all other chargeability areas except India and China.
  • USCIS authorized use of the Dates for Filing chart.
  • Continued limitations on immigrant visas particularly impact chargeability areas of India and China where employers and individuals had hoped to take advantage of shorter wait times in the EB-1 category.

The February 2024 Visa Bulletin

USCIS will continue to use the Dates for Filing chart in the February 2024 Visa Bulletin in determining eligibility for I-485, Application to Register Permanent Residence or Adjust Status, filings. The Dates for Filing chart reflects priority dates anticipated to become current during the fiscal year, whereas the Final Action Dates chart reflects priority dates considered current and available for the specific month. This means that while an applicant may file the I-485 based on the Dates for Filing chart, the application will not be adjudicated at least until the applicant’s priority date becomes current on the Final Action Dates chart.

In summary, there is no advancement in final action dates for China and India in all employment-based categories except that the Other Workers category for India has advanced by one month. For all other chargeabilities, Mexico, and the Philippines, the EB-1 category remains current, the EB-2 category advances by fifteen days, the EB-3 category advances by one month, and the EB-4 Certain Religious Workers category remain the same.

The Final Action Dates chart is shown below.

Source: U.S. Department of State, February 2024 Visa Bulletin

USCIS has confirmed its continued use of the Dates for Filing chart for adjustment of status filing purposes. However, the dates for filing remain the same as in the January 2024 Visa Bulletin in all categories for all countries.

The Dates for Filing chart for employment-based categories follows below.

Source: U.S. Department of State, February 2024 Visa Bulletin

Impacts of Immigrant Visa Backlogs, Slow Movement, and Retrogression: EB-1 Considerations

In the January 2024 Visa Bulletin, we saw some forward movement in certain employment-based categories, particularly in the EB-1 category. This movement aligned with the hope that all EB categories, including the EB-1 category, would advance significantly or at least steadily. USCIS and the State Department had also indicated holding this hope in the August 2023 Visa Bulletin. However, the Visa Bulletins for October 2023, November 2023, December 2023, and January 2024 showed slow movement, with the Visa Bulletin for February 2024 indicating little to no movement at all.

The lack of advancement in priority dates particularly impacts those chargeable to India and China. While those chargeable to India and China have historically experienced long green card wait times in the common categories of EB-2 and EB-3, many employers and individuals choose to pursue the EB-1 category in hopes to secure the green card in a much shorter time. The benefits to an employer if a sponsored employee receives a green card earlier is that there is a reduction in immigration costs and a reduction in time that an employer would be beholden to immigration regulations. The employer can also rest assured that their talent can be retained beyond the limits of a nonimmigrant visa status.

However, despite the retrogression of the EB-1 categories for China and India, there still stands a benefit that visa availability wait times for the EB-1 category remains much faster than any other category. Employers considering pursuing the EB-1 process for their employees may want to note that the EB-1 holds an extremely high standard. The EB-1 is generally reserved for highly talented individuals who have risen to the top of their field or individuals who will work in a managerial capacity in addition to meeting other narrow criteria.

© 2024, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more news on 2024 Visa and Immigration Updates, visit the NLR Immigration section.

A Holiday Gift From The State Department: Domestic Visa Revalidation Pilot Program And Visa Interview Waiver Guidance

Kris Kringle bestowed an old friend upon us for the 2023 holiday season, which, if successful, could permanently bring back stateside visa renewal.

Before biometrics were required for U.S. visas, foreign nationals (FN) legally in the U.S. on temporary (nonimmigrant) visas could renew their visa stamps through the Department of State. The process was typically efficient, resulting in a great time and expense saver for both the FN and U.S. employers. Then, biometrics became a requirement in 2002, and the State Department eliminated the program, reasoning that visa applicants’ biometrics were not available in the U.S.

History evolves, new challenges arise, and the State Department finds itself taking steps to resume this old process. The COVID-19 pandemic caused the global closure of U.S. consulates, resulting in an enormous backlog of visa processes. While the State Department has made significant progress in addressing some of these backlogs, the agency continues to struggle with lengthy wait times in many consular jurisdictions, causing considerable difficulty for individuals and businesses.

PILOT PROGRAM DETAILS
The Stateside Visa Revalidation Pilot Program was published in the Federal Register just before the Christmas holiday. However, this pilot holiday gift is limited.

Online applications will begin Jan. 29, 2024. Each week, the State Department will release approximately 2,000 application slots each for individuals whose most recent H-1B visas were issued by Mission Canada and by Mission India (approximately 4,000 combined total each week). The releases will be on Jan. 29; Feb. 5; Feb. 12; Feb. 19; and Feb. 26.

The criteria set out in the program notes:

The foreign national (FN) seeks to renew only an H-1B visa that was previously issued by Mission Canada or Mission India
20,000 renewals will be issued on a staggered schedule
To be eligible, the prior H-1B visa stamp must have been issued by Mission Canada with an issuance date from Jan. 1, 2020, through April 1, 2023, or by Mission India with an issuance date between Feb. 1, 2021, and Sept. 30, 2021
The FN is not subject to the payment of a “reciprocity fee” as part of a nonimmigrant visa issuance fee based on the country of birth
The FN is also eligible for a waiver of the in-person interview requirement based on a recent policy update
The FN submitted 10 fingerprints to the Department of State in connection with a previous visa application
An annotation of “clearance received” was not noted in prior visa stamps; this annotation will disqualify the FN for this program
No visa ineligibility that requires a waiver prior to visa issuance
Possess an approved and unexpired H-1B petition evidenced by an I-797 Notice
Most recently admitted to the United States in H-1B status
Currently maintaining H-1B status in the United States; a person on the 60-day grace period after a lay-off will not qualify
Must be in an unexpired period of authorized admission in H-1B status
Intends to reenter the United States in H-1B status after a temporary period abroad
NEW INTERVIEW WAIVER GUIDANCE
On a separate, but related, note, the State Department also published new Visa Interview Waiver guidance to replace expiring COVID-19 era policies; this guidance goes into effect on Jan. 1, 2024. This guidance applies to those individuals renewing visas abroad at a U.S. Consulate and allows Consular officers to waive interviews in certain instances.

The new interview waiver guidance will also make the following individuals eligible for interview waivers:

First time H-2 visa applicants (temporary agricultural and non-agricultural workers)
Other nonimmigrant visa applicants applying for any nonimmigrant visa classification who:
Were previously issued a nonimmigrant visa in any classification, unless the only prior issued visa was a B visa
Are applying within 48 months of their most recent nonimmigrant visa’s expiration date
This new guidance is indefinite in duration, but the State Department has indicated it will review this waiver guidance annually. This authority expands access to interview waiver eligibility, while also instituting some new restrictions from the 2023 authority. All nonimmigrant categories are considered under this authority. They can be mixed and matched and still be eligible for a waiver of interview, but are no longer eligible if their only prior visa issuance was a B visa. Overall, the population of people who are eligible for the in-person interview waiver will expand.

© 2023 BARNES & THORNBURG LLP

by: Tejas Shah , M. Mercedes Badia-Tavas of Barnes & Thornburg LLP

For more news on Domestic Visa Revalidation, visit the NLR Immigration section.

All I Want for Christmas is Effective Sports Governance

At the start of this year, following his appointment as Chair of the UK’s Department for Culture, Media, and Sport (“DCMS”), Damian Green MP put sports governance firmly on the agenda.

This commitment came after the publication of the Whyte Review in June 2022 (the “Review“), which was an independent report into allegations of mistreatment in the sport of gymnastics led by Anne Whyte KC.

Sport England’s CEO Tim Hollingsworth and UK Sport’s CEO Sally Munday, the two individuals who commissioned the report, provided a joint statement following the Review, which included a commitment to “not rest until [we] have a sporting system that fully champions and enables participant and athlete wellbeing”.

Sports governance is a multi-faceted issue; systematic failings cannot be solved overnight. Effective and comprehensive investigations are needed to uncover the existing issues before remediation can take place.

As such, this blog will lay out five top tips for ensuring that all goes to plan when conducting a sports investigation.

Tip 1: Have Policies In Place

Terms and conditions, policies and procedures are rarely updated and often overlooked. However, when issues arise, it is these terms and conditions, policies and procedures that are an immediate source of authority for standards of behaviour; they are your “dos” and “don’ts”.

Therefore, first and foremost, it is essential to have robust, fair and proportionate policies and procedures in place to guide the investigative process.

During a recent sport investigation it quickly became apparent that the sport had no definition of “bullying” even though that was the accusation levelled at an athlete. Some of the practical issues with this included uncertainty as to:

  1. whether an imbalance of power was a necessary ingredient of bullying;
  2. whether intent was a requirement of bullying; and
  3. what amounted to a “course of conduct”.

In the end, those investigating the allegations relied on a combination of the athlete code of conduct, analogous previous investigations, and the governing bodies’ social media guidance to piece together a definition.

This investigation into bullying is not an isolated incident and most of the recent complaints raised with Sport Integrity (UK Sport’s confidential reporting line and independent investigation service) relate to bullying, so to not have a universal definition of “bullying” was and is particularly troublesome.

Since this investigation, we have worked with National Governing Bodies (“NGBs”) to devise a uniform definition of “bullying”. Of course, some NGBs will require bespoke definitions to reflect the nature of their sport, but a reference point (and, over time, a precedent bank) will help both individuals and NGBs.

We would caution that, in an attempt ‘do the right thing’, sporting governing bodies can sometimes overcommit, leading to policies that are too onerous. An example includes allowing an automatic right to appeal if the complainant is not satisfied with the outcome, rather than requiring them to establish a basis for appeal. It comes from a good intention but can often be costly and time consuming.

Tip 2: Identifying the Right People to Handle the Investigation

A key issue to consider at the start of an investigation is not only (i) who is going to undertake the investigation; but also (ii) who will advise the governing body in respect of the investigation report.

In determining issue (i), thought must be given to whether the investigator has appropriate experience and whether they are, of course, truly independent.

But once the investigation has ended, the commissioning governing body does not just put the report into the top drawer, the recommendations within the report will need to be actioned. But often those recommendations may have legal consequences such as employment issues, data protection considerations, and defamations risks, to name but a few. We believe it is advisable for a governing body to instruct an external law firm from the outset so that they are able to receive independent advice while remaining separate from the investigation.

Tip 3: Nail the Terms of Reference

The terms of reference (“ToR”) set out the parameters of an investigation and provide something of a roadmap. Investigations often uncover facts or events which were not in contemplation at the outset, and so it is crucial that the ToR provides for such eventualities.

For an international rugby referee, it is standard practice to consider the “what if” situations. What if there is a thunderstorm? What if the crossbar falls down? What if the ball is stolen by a streaker? Referees want to be as prepared as possible when people turn to them for an answer – the same is true in an investigative setting.

Essential features of the ToR include:

  1. what will be investigated and what won’t;
  2. what happens if you discover something that isn’t covered;
  3. how do you amend the ToR; and
  4. who will provide what material and when.

Some less obvious matters for inclusion:

  1. how many times do you email someone before concluding that they have refused to comply;
  2. what are acceptable methods of contact;
  3. who is allowed to attend the meeting with the individual being interviewed;
  4. will you produce transcripts of meetings; and
  5. who will see the report.

Doing the legwork beforehand saves time, stress, and distress down the track.

Tip 4: Specialist Support to the Investigating Team

During one of our sporting investigations, it became clear that athletes in that particular sport liked technical jargon even more than lawyers. To ensure that key information is not hidden in opaque terminology, we have found it useful to involve people with relevant experience who can put factual sporting matters in layman’s terms.

Contact sports is a good example of this. Physical intimidation during training sessions seems at odds with most places of work, but when athletes are competing for a single spot at the Olympic Games, this can be part and parcel of their world.

Interviewing ex-athletes as part of the initial stages of an investigation not only allow us to understand the jargon, but also to understand the realities of the sport, the difference between male and female athletes, and when aggression transgresses into bullying.

Tip 5: Involve Data Privacy Experts

Data Privacy is a fast-moving area of law which requires careful consideration in the context of sports investigations. The approach to data is two-fold: how and what can I collect, and with who and how can I share it.

You must have a clearly identified purpose and an appropriate lawful basis for processing personal data, or be able to show that your processing fits within one of the narrowly defined statutory exceptions. Be aware that sharing personal data is a form of “processing”, so ensure that you have a clear purpose and lawful basis for sharing, and that the recipient (for example an expert) has a clearly stated purpose and lawful basis for receiving that data.

From a UK perspective, you (or someone with the relevant expertise) will need to be familiar with the relevant provisions of the UK General Data Protection Regulation 2018 and the Data Privacy Act 2018 to ensure compliance. Reference should also be made to any policies which may set out how employee data may be processed. In the first instance, you will need to ensure that you have a lawful basis for collecting and processing data. Additional care should be taken when you are processing criminal offences data – as is often the case in investigations – or any “special category” data revealing factors such as racial or ethnic origin, political opinions, religious or philosophical beliefs, health, sex life or sexual orientation.

Data Protection Impact Assessments (DPIA) and Legitimate Interests Assessments (LIA) are now a reality of sporting investigations that should not be overlooked. Helpfully, in relation to “special category” and criminal offence data, UK data protection laws make express provision for processing where it is necessary to protect the integrity of a sport or a sporting event against dishonesty, malpractice or other seriously improper conduct, or failure by a person participating in the sport or event in any capacity to comply with standards of behaviour set by a body or association with responsibility for that sport or event. However, in each case it is essential that you involve experts to check that the factual situation justifies reliance on those provisions.

Summary

Sports organisations would be well served to address the issues highlighted above, particularly as their feet are often held to the fire by governments, sponsors, participants, and the general public on whether they have done enough to identify or remedy high profile matters.

This article was co-authored by Molly Mckenna.

© Copyright 2023 Squire Patton Boggs (US) LLP
For more news on Effective Sports Governance in the UK, visit the NLR Entertainment, Art & Sports section.

2023 Foreign Direct Investment Year End Update: Continued Expansion of FDI Regulations

As previously reported, regulations and restrictions on Foreign Direct Investment (“FDI”) have expanded quickly in the United States and in many of its trading partner countries around the world. FDI has been further complicated in the U.S. by the passage of individual State laws – often focused the acquisition of “agricultural land,” and in Europe by the passage of screening regimes by the individual Member States of the European Union (E.U.).

In 2023, fifteen U.S. States enacted some form of FDI restrictions on real estate. Some States elected to incorporate U.S. Federal regulations regarding who is prohibited from acquiring certain real estate, while other States have focused on broadly protecting agricultural lands. State laws also vary from those that prevent foreign ownership, to those that only require reporting foreign ownership.

Thus far Alabama, Arkansas, Florida, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wisconsin have passed laws related to FDI in real estate.

Alabama, Arkansas, Florida, Illinois, Iowa, Kansas, Maine, Missouri, Ohio and Texas all currently require foreign investors to disclose acquisitions of certain real estate, much like the U.S. Federal Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA). Arkansas, Illinois, Maine, and Wisconsin, actually allow acquirers to fulfill their reporting requirements by simply submitting a copy of applicable federal AFIDA reports. Texas currently only limits Direct Foreign Investment in certain “critical infrastructure.”

Ohio, Pennsylvania, South Carolina, South Dakota, and Wisconsin limit foreign investment in real estate based on the number of acres; while Iowa, Minnesota, Missouri, Nebraska, North Dakota, and Oklahoma ban foreign ownership of certain land completely.

The Alabama Property Protection Act (“APPA”), which went into effect in 2023, is one of the most expansive of the U.S. State laws, and which also incorporates U.S. Federal law. The APPA restricts FDI by a “foreign principal” in real estate related to agriculture, critical infrastructure, or proximate to military installations.

The APPA broadly covers acquiring “title” or a “controlling interest.” The APPA also broadly defines “foreign principal” as a political party and its members, a government, and any government official of China, Iran, North Korea, and Russia, as well as countries or governments that are subject to any sanction list of the U.S. Office of Foreign Assets Control (“OFAC”). The APPA defines “agricultural and forest property” as “real property used for raising, harvesting, and selling crops or for the feeding, breeding, management, raising, sale of, or the production of livestock, or for the growing and sale of timber and forest products”; and it defines covered “critical infrastructure” as a chemical manufacturing facility, refinery, electric production facility, water treatment facility, LNG terminal, telecommunications switching facility, gas processing plant, seaport, airport, aerospace and spaceport infrastructure. The APPA also covers land that is located within 10 miles of a “military installation” (of at least 10 contiguous acres) or “critical infrastructure.”

Notably, APPA does not specifically address whether leases are considered a “controlling interest,” nor does it specify enforcement procedures.

U.S. Federal Real Estate FDI

Businesses involved in the U.S. defense industrial base have been historically protected from FDI by the Committee on Foreign Investment in the United States (“CFIUS”). The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) expanded those historic protections to include certain Critical Technologies, Critical Infrastructure, and Sensitive Data – collectively referred to as covered “TID.”

FIRRMA specifically expanded CFIUS to address national security concerns arising from FDI impacting critical infrastructure and sensitive government installations. Part 802 of FIRRMA established CFIUS jurisdiction and review for certain covered real estate, including real estate in proximity to specified airports, maritime ports, military installations, and other critical infrastructure. Later in 2022, Executive Order 14083 further expanded CFIUS coverage for certain agricultural related real estate.

Covered installations are listed by name and location in appendixes to the CFIUS regulations. Early this year, CFIUS added eight additional government installations to the 100-mile “extended range” proximity coverage of Part 802. The update necessarily captured substantially more covered real estate. Unlike covered Section 1758 technologies that can trigger a mandatory CFIUS filing, CFIUS jurisdiction for covered real estate currently remains only a voluntary filing. Regardless, early diligence remains critical to any transaction in the United States that may result in foreign ownership or control of real estate.

U.S. Trading Partners FDI Regimes

The U.S. is not alone in regulating FDI, or the acquisition of real estate by foreign investors. Canada, United Kingdom and the European Union have legislative frameworks governing foreign investment in business sectors, technology, and real estate. Almost all European Union Member States have some similar form of FDI screening.

Key U.S. trading partners that have adopted FDI regimes include, Australia, Austria, Belgium, China, Germany, France, Hungary, Ireland, Italy, Japan, Luxembourg, Netherlands, Poland, Singapore, Spain, and Sweden. What foreign parties, economic sectors, or technologies are covered vary from country to country. They also vary as to the notification and approval requirements.

The UK National Security and Investment Act (NSI Act) came into effect on 4 January 2022, giving the UK government powers to intervene in transactions where assets or entities are acquired in a manner which may give rise to a national security risk. There were over 800 notifications under the NSI during the previous 12-month reporting period. In November 2023 the Deputy Prime Minister Oliver Dowden published a call for evidence on the legislation which aims to narrow and refine the scope of powers to be more ‘business friendly’, given that very few notified transactions have not been cleared within 30 working days. We will revisit developments on this in 2024.

The UK has continued to implement other reforms to improve transparency of foreign ownership of UK property. Part of the UK Economic Crime (Transparency and Enforcement) Act 2022 requires the register of overseas entities. The register is maintained by Companies House and requires overseas entities which own land in the UK to disclose details of their beneficial owners. Failure to comply with the new legislation will impact any registration of ownership details at the UK Land Registry (and thus the relevant legal and equitable ownership rights in any relevant property) and officers of any entity in breach will also be liable to criminal proceedings.

Recommendations

Whether a buyer or a seller, all transactions involving FDI should include an analysis of the citizenship of the interested parties, the nature of the business, land and products, and the applicability of laws and regulations that can impact the parties, timing, or transaction.

Copyright © 2023 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more news on Foreign Direct Investment Updates, visit the NLR Global law section.

EU to Ban Carbon Offset Claims Entirely?

Responding to pressure from activists who have argued that “[c]arbon neutral claims are greenwashing, plain and simple,” the European Parliament and Council have reached a provisional agreement to ban all carbon-neutral claims in member states. If the Parliament approves the deal, member states will have 24 months to enact legislation to implement it. So, a new set of laws could become effective in 2026. Corporations will have some lead time to come into compliance.

The EU provisional agreement, if made final, will be the latest blow to carbon neutrality claims and is particularly unfortunate in not distinguishing between credible and non-credible offsets. This could also hurt voluntary carbon markets, which have been jarred by the recent demise of the giant, offset-producing African Kariba Project.

Commentators have also speculated that the EU Parliament and Council action is an effort to “put a thumb on the scales” of the FTC Green Guides revision process, currently underway in the United States. If the FTC were to follow suit, carbon reforestation projects worldwide could be jeopardized. Of course, the FTC is bound by the First Amendment and would be reluctant to “ban” a statement. However, it could erect onerous substantiation and disclosure requirements that render such claims much more difficult to make.

The ill-fated Kariba Project has become an unfortunate bellwether for carbon neutrality claims based on credits generated from reforestation or forest preservation. The episode may say more about financial speculation in carbon markets than it does about the science of reforestation. Replanting trees is a surefire way to sequester carbon – at least for a while – and financial incentives to do so should be encouraged, not discouraged.

These realities aside, the clear upshot is that carbon neutrality claims are increasingly under attack by activists who seemingly lump all carbon offsets together as “harmful” – whether generated by reforestation, carbon capture, or voluntary carbon reduction. That’s too bad, as any credible financial incentive to remove carbon from the atmosphere should be encouraged, if not financially incentivized. The role of independent certifiers is to ensure that the carbon offsets are real and not overstated. A flat ban seems counterproductive to environmental protection and greenhouse gas reduction.

The sad reality is that many companies will begin to migrate away from reliance on carbon offsetting. It is simply becoming too risky. Meanwhile, voluntary carbon trading markets will suffer greatly, and a crucial green development mechanism will be lost.

The sad reality is that many companies will begin to migrate away from reliance on carbon offsetting. It is simply becoming too risky.
©2023 Katten Muchin Rosenman LLP
by: Christopher A. Cole of Katten 
For more news on Carbon Offsetting in the EU, visit the NLR Environmental, Energy & Resources section.

Algorithmic Pricing Agents and Price-Fixing Facilitators: Antitrust Law’s Latest Conundrum

Are machines doing the collaborating that competitors may not?

It is an application of artificial intelligence (“AI”) that many businesses, agencies, legislators, lawyers, and antitrust law enforcers around the world are only beginning to confront. It is also among the top concerns of in-house counsel across industries. Competitors are increasingly setting prices through the use of communal, AI-enhanced algorithms that analyze data that are private, public, or a mix of both.

Allegations in private and public litigation describe “algorithmic price fixing” in which the antitrust violation occurs when competitors feed and access the same database platform and use the same analytical tools. Then, as some allege, the violations continue when competitors agree to the prices produced by the algorithms. Right now, renters and prosecutors are teeing off on the poster child for algorithmic pricing, RealPage Inc., and the many landlords and property managers who use it.

PRIVATE AND PUBLIC LITIGATION

A Nov. 1, 2023 complaint filed by the Washington, DC, Attorney General’s office described RealPage’s offerings this way: “[A] variety of technology-based services to real estate owners and property managers including revenue management products that employ statistical models that use data—including non-public, competitively sensitive data—to estimate supply and demand for multifamily housing that is specific to particular geographic areas and unit types, and then generate a ‘price’ to charge for renting those units that maximizes the landlord’s revenue.”

The complaint alleges that more than 30% of apartments in multifamily buildings and 60% of units in large multifamily buildings nationwide are priced using the RealPage software. In the Washington-Arlington-Alexandria Metropolitan Area that number leaps to more than 90% of units in large buildings. The complaint alleges that landlords have agreed to set their rates using RealPage.

Private actions against RealPage have also been filed in federal courts across the country and have been centralized in multi-district litigation in the Middle District of Tennessee (In re: RealPage, Inc., Rental Software Antitrust Litigation [NO. II], Case No. 3:23-md-3071, MDL No. 3071). The Antitrust Division of the Department of Justice filed a Statement of Interest and a Memorandum in Support in the case urging the court to deny the defendants’ motion to dismiss.

Even before the MDL, RealPage had attracted the Antitrust Division’s attention when the company acquired its largest competitor, Lease Rent Options for $300 million, Axiometrics for $75 million, and On-Site Manager, Inc. for $250 million.

The Antitrust Division has been pursuing the use of algorithms in other industries, including airlines and online retailers. The DOJ and FTC are both studying the issue and reaching out to experts to learn more.

JOURNALISTS AND SENATORS

Additionally, three senators urged DOJ  to investigate RealPage after reporters at ProPublica wrote an investigative report in October 2022. The journalists claim that RealPage’s price-setting software “uses nearby competitors’ nonpublic rent data to feed an algorithm that suggests what landlords should charge for available apartments each day.” ProPublica speculated that the algorithm is enabling landlords to coordinate prices and in the process push rents above competitive levels in violation of the antitrust laws.

Senators Amy Klobuchar (D-MN), Dick Durban (D-IL) and Cory Booker (D-NJ) wrote to the DOJ concerned that the RealPage enables “a cartel to artificially inflate rental rates in multifamily residential buildings.”

Sen. Sherrod Brown (D-OH) also wrote to the Federal Trade Commission with concerns “about collusion in the rental market,” urging the FTC to “review whether rent setting algorithms that analyze rent prices through the use of competitors’ private data … violate antitrust laws.” The Ohio senator specifically mentioned RealPage’s YieldStar and AI Revenue Management programs.

THE EUROPEANS

The European Commission has enacted the Artificial Intelligence Act, which includes provisions on algorithmic pricing, requiring algorithmic pricing systems be transparent, explainable, and non-discriminatory with regard to consumers. Companies that use algorithmic pricing systems will be required to implement compliance procedures, including audits, data governance, and human oversight.

THE LEGAL CONUNDRUM

An essential element of any claimed case of price-fixing under the U.S. antitrust laws is the element of agreement: a plaintiff alleging price-fixing must prove the existence of an agreement between two or more competitors who should be setting their prices independently but aren’t. Consumer harm from collusion occurs when competitors set prices to achieve their maximum joint profit instead of setting prices to maximize individual profits. To condemn algorithmic pricing as collusion, therefore, requires proof of agreement.

It may be difficult for the RealPage plaintiffs to prove that the RealPage’s users agreed among themselves to adhere to any particular price or pricing formula, but not impossible. End users are likely to argue that RealPage’s pricing recommendations are merely aggregate market signals that RealPage is collecting and disseminating. The use of the same information service, their argument will go, does not prove the existence of an agreement for purposes of Section 1 of the Sherman Act.

The parties and courts embroiled in the RealPage litigation are constrained to live under the law as it presently exists, so the solution proposed by Michal Gal, Professor and Director of the Forum on Law and Markets at the University of Haifa, is out of reach. In her 2018 paper, “Algorithms as Illegal Agreements,” Professor Gal confronts the agreement problem when algorithms set prices and concludes that it is time to “rethink our laws and focus on reducing harms to social welfare rather than on what constitutes an agreement.” Academics have been critical of the agreement element of Section 1 for years, but it is unlikely to change anytime soon, even with the added inconvenience it poses where competitors rely on a common vendor of machine-generated pricing recommendations.

Nonetheless, there is some evidence that autonomous machines, just like humans, can learn that collusion allows sellers to charge monopoly prices. In their December 2019 paper, “Artificial Intelligence, Algorithmic Pricing and Collusion,” Emilio Calvano, Giacomo Calzolari, Vincenzo Denicolo, and Sergio Pastorello at the Department of Economics at the University of Bologna showed with computer simulations that machines autonomously analyzing prices can develop collusive strategies “from scratch, engaging in active experimentation and adapting to changing environments.” The authors say indications from their models “suggest that algorithmic collusion is more than a remote theoretical possibility.” They find that “relatively simple [machine learning] pricing algorithms systematically learn to play collusive strategies.” The authors claim to be the first to “clearly document the emergence of collusive strategies among autonomous pricing agents.”

THE AGREEMENT ELEMENT IN THE MACHINE PRICING CASE

For three main reasons, the element of agreement need not be an obstacle to successfully prosecuting a price-fixing claim against competitors that use a common or similar vendor of algorithmic pricing data and software.

First, there is significant precedent for inferring the existence of an agreement among parties that knowingly participate in a collusive arrangement even if they do not directly interact, sometimes imprecisely referred to as a “rimless wheel hub-and-spoke” conspiracy. For example, in Toys “R” Us, Inc. v. F.T.C., 221 F.3d 928 (9th Cir. 2000), the court inferred the necessary concerted action from a series of individual agreements between toy manufacturers and Toys “R” Us in which the manufacturers promised not to sell the toys sold to Toys “R” Us and other toy stores to big box stores in the same packaging. The FTC found that each of the manufacturers entered into the restraint on the condition that the others also did so. The court found that Toys “R” Us had engineered a horizontal boycott against a competitor in violation of Section 1, despite the absence of evidence of any “privity” between the boycotting manufacturers.

The Toys “R” Us case relied on the Supreme Court’s decision in Interstate Circuit v. United States, 306 U.S. 208 (1939), in which movie theater chains sent an identical letter to eight movie studios asking them to restrict secondary runs of certain films. The letter disclosed that each of the eight were receiving the same letter. The Court held that a direct agreement was not a prerequisite for an unlawful conspiracy. “It was enough that, knowing that concerted action was contemplated and invited, the distributors gave their adherence to the scheme and participated in it.”

The analogous issue in the algorithmic pricing scenario is whether the vendor’s end users that their competitors are also end users. If so, the inquiry can consider the agreement element satisfied if the algorithm does, in fact, jointly maximize the end users’ profits.

The second factor overcoming the agreement element is related to the first. Whether software that recommends prices has interacted with the prices set by competitors to achieve joint profit maximization—that is, whether the machines have learned to collude without human intervention—is an empirical question. The same techniques used to uncover machine-learned collusion by simulation can be used to determine the extent of interdependence in historical price setting. If statistical evidence of collusive pricing is available, it is enough that the end users knowingly accepted the offer to set its prices guided by the algorithm. The economics underlying the agreement element in the first place lies in prohibition of joint rather than individual profit maximization, so direct evidence that market participants are jointly profit maximizing should obviate the need for further evidence of agreement.

A third reason the agreement element need not stymie a Section 1 action against defendants engaged in algorithmic pricing is based on the Supreme Court’s decision in American Needle v. NFL, 560 U.S. 183 (2010). In that case the Court made clear that arrangements that remove independent centers of decision-making from the market run afoul of Section 1, if the net effect of the algorithm is to displace individual decision-making with decisions outsourced to a centralized pricing agent, the mechanism should be immaterial.

The rimless wheel of the so-called hub-and-spoke conspiracy is an inadequate analogy because the wheel in these cases does have a rim, i.e., a connection between the conspirators. In the scenarios above in which the courts have found Section 1 liability i) each of the participants knew that its rivals were also entering into the same or similar arrangements, ii) the participants devolved pricing authority away from themselves down to an algorithmic pricing agent, and iii) historical prices could be shown statistically to have exceeded the competitive level in a way consistent with collusive pricing. These elements connect the participants in the scheme, supplying the “rim” to the spokes of the wheel. If the plaintiffs in the RealPage litigation can establish these elements, they will have met their burden of establishing the requisite element of agreement in their Section 1 claim.

© MoginRubin LLP
For more news on AI in the context of Antitrust Law, visit the NLR’s Communications, Media & Internet section.