Category: Regulatory

Indicted—Not Once, But Twice! Former GlaxoSmithKline In-House Counsel, Lauren Stevens, Tells Her Harrowing Story And Hard Lessons Learned From Being Indicted

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Imagine, one of the worst things that could happen to any person, especially an attorney—being indicted.  This not only happened to former GlaxoSmithKline (“GSK”) Vice President and Associate General Counsel, Lauren Stevens (“Stevens”) once—but twice!  On November 8, 2010, a federal grand jury in the District of Maryland returned an indictment charging Stevens with one count of obstructing an official proceeding  in violation of 18 U.S.C. §1512, one count of falsification and concealment of documents in violation of 18 U.S.C. §1519, and four counts of making false statements in violation of 15 U.S.C. §1001. On March 23, 2011, the District Court dismissed the indictment without prejudice due to erroneous and prejudicial legal advice that the prosecutors gave to the grand jury.  However, on April 13, 2011, Stevens was indicated again, based on the same charges in the earlier indictment.  For more than 18 months, Stevens lived this harrowing ordeal, and eventually was exonerated of any wrong doing.  Stevens will discuss the events leading up to the indictment, the grueling court proceedings, and the lessons she learned at the National Association of Women Lawyers’ Ninth Annual General Counsel Institute on November 8, 2013 at the Intercontinental Hotel in New York City.

The indictments against Stevens arose out of a letter from the Food and Drug Administration (“FDA”) to GSK stating that it had information that GSK possibly promoted the use of Wellbutrin (a drug approved by the FDA to treat depression) for an unapproved use (namely, weight loss).  The FDA requested that GSK voluntarily provide numerous materials and information related to the promotion of Wellbutrin.

GSK assembled a team, led by Stevens, which included in-houseattorneys, a former FDA reviewer, and employees from GSK’s marketing, compliance, regulatory affairs and medical divisions, to respond to the FDA’s request.  GSK also retained an outside law firm to conduct an internal review and advise GSK how to respond to the inquiry.  Ultimately, GSK submitted six substantive letters, all signed by Stevens, in which she denied that GSK promoted Wellbutrin for an unapproved use and/or paid doctors to give promotional talks that included information on the unapproved use.  On December 17, 2010, the government filed a motion to bar Stevens from relying on the defense of advice of counsel on the basis that it was not a defense to a charge of violating 18 U.S.C. §1519 because, the government argued, the statute is not a specific intent crime.  That same day, Stevens filed a motion to disclose the government’s presentation to the Grand Jury relating to the advice of counsel defense.  She also filed two motions to dismiss Count II of the indictment.  In the first motion, Stevens sought dismissal for unconstitutional multiplicity and for failure to state an offense, arguing that Counts I and II violated her due process rights because they sought to impose multiple punishments for the same offense.  She also argued that the government’s case was legally flawed because the government did not allege that she altered or falsified any pre-existing documents.  In her second motion, Stevens sought dismissal of Count II on the basis that the charges were unconstitutionally vague.

On February 25, 2011, Stevens filed her opposition to the motion to exclude, arguing that where a defendant relies in good faith on the advice of counsel, she lacks the intent necessary to be found guilty of making false statements and obstructing justice, which required proof that she “knowingly” submitted false information.  She also argued that she met the prerequisites for asserting the defense because outside counsel was aware of all material facts as evidenced by over 350 drafts of the six response letters to the FDA and 1,300 pages of notes regarding the matter.

On March 23, 2011, the Court denied the government’s motion to prohibit Stevens from asserting the advice of counsel defense.  The Court then dismissed the indictment without prejudice due to erroneous and prejudicial legal advice the prosecutors gave to the grand jury.

On April 13, 2011, a federal grand jury re-indicted Stevens.  The trial commenced thirteen days later, and proceeded through May 6, 2011, at which time the government rested its case.  Stevens filed a Rule 29 Motion for Acquittal on the basis that the government failed to present evidence sufficient to prove beyond a reasonable doubt any of the six counts.  On May 10, 2011, the Court granted Stevens’ Motion and dismissed the indictment.  The Court determined that the government was given access to attorney-client privileged communications, which formed the basis of the government’s case, as the result of an erroneous decision by a Massachusetts magistrate judge that the communications were evidence of a scheme to perpetrate a crime of fraud.  However, the documents revealed a “studied, thoughtful analysis of an extremely broad request from the [FDA] and an enormous effort to assemble information and respond on behalf of the client.”  Although GSK’s responses may not have satisfied the FDA, they were sent to the FDA in the course of Stevens’ bona fide representation of a client and in good faith reliance on both external and internal lawyers for GSK.  The Court concluded: “the defendant sought and obtained the advice of counsel of numerous lawyers.  She made full disclosure to them.  Every decision that she made and every letter she wrote was done by consensus.”  Further, although some statements were not literally true, they were made in good faith which would negate the requisite element of intent required for the charged crimes.

Stevens learned many lessons from this ordeal including: (1) when hiring outside legal counsel, make sure they know all of the facts; (2) make sure other parties know you have hired outside counsel; (3) take clear, accurate notes, knowing they could end up in Court; and (4) be careful in correspondence with adverse parties.

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Watt's New? Michigan Energy News – September 2013

Varnum LLP

Still Getting Ready to Make Good Energy Decisions

After reviewing and analyzing the submissions from seven public forums and from the 114 questions posted on the web for feedback, Energy Office Director Steve Bakkal and MPSC Chairman John Quackenbush will be issuing four reports on the following schedule:

■ Renewable Energy: Draft report release for comments – 9/20/13

Due date for public comments – 10/11/13

Release final report – 11/4/13

■ Additional Areas: Draft report release for comments – 10/1/13

Due date for public comments – 10/22/13

Release final report – 11/15/13

■ Electric Choice: Draft report release for comments – 10/15/13

Due date for public comments – 11/1/13

Release final report – 11/20/13

■ Energy Efficiency: Draft report release for comments – 10/22/13

Due date for public comments – 11/6/13

Release final report – 11/26/13

All this material will be posted at: www.michigan.gov/energy

Net Metering Participation Increases

The Michigan Public Service Commission issues an annual report on electric customers participating in the statewide net metering program required under the Clean, Renewable, and Efficient Energy Act of 2008. [Under net metering, when a customer produces electric energy in excess of its needs, energy is provided back to the serving utility and the customer receives a credit.] In 2012 the size of the net metering program increased 55 percent to 9,583 kW. The number of net metering customers has gone from 53 in 2008 to 1,330 in 2012. While most of the recent increase was due to new solar installations, a 535 kW methane digester in Great Lakes Energy Cooperative’s service territory is Michigan’s first Category 3 (methane digester up to 550 kW) modified net metering project.

Methane-to-Methanol Plant Operational

Oil wells also produce natural gas. When there is no way to get the natural gas to market it is usually “flared”. Now Gas Technologies LLC of Walloon Lake has demonstrated its 25-foot, portable, singlestep, gas-to-liquids plant in a Kalkaska County oil field. This first in the industry process can monetize stranded natural gas, biogas, coal mine methane, and landfill gas. www.gastechno.com

Adopt-A-Watt Helps Library

Dearborn’s Henry Ford Centennial Library has installed 25 energy efficient street lights and an electric vehicle charging station under the national Adopt-A-Watt program. Modeled on the AdoptA-Highway program, sponsorships are sold to fund new, energy-efficient equipment, alternative fuel vehicles and other green technologies for financially challenged public agencies. The agencies then realize the cost savings into the future.

Restrictive Wind Zoning Struck Down by Michigan Court

Forest Hill Energy recently won a court order striking down alleged “police power” ordinances passed by townships attempting to regulate the construction and operation of wind turbines. The Clinton County Zoning Ordinance already had extensive wind energy provisions. Nonetheless, three townships passed ordinances that were more restrictive to wind energy development than the county zoning. The additional restrictions related to height, noise, setbacks, and shadow flicker. Forest Hill Energy brought suit seeking a declaration that the townships’ “police power” actions were really zoning ordinances in disguise. The Clinton County Circuit Court ruled that since the townships were subject to the county’s zoning, the township ordinances were invalid because they were inconsistent with the county’s zoning plan—the townships could not get a “second bite at the zoning apple.” Forest Hill Energy had already obtained a special use permit for the construction of a 39 turbine project in January of 2012, and now expects to move forward with construction in late 2013.

More Wind Farms to Commence Construction in 2013

NextEra’s 150 MW Pheasant Run Wind projects are commencing construction this fall, with the energy to be sold to DTE Electric Company. The two projects will be located in Brookfield, Fairhaven, Grant, Oliver, Sebewaing and Winsor townships, all in Huron County. The Michigan Public Service Commission approved a 20 MW power purchase agreement (PPA) for DTE Electric Company with Big Turtle Wind Farm, LLC. The twenty year PPA has estimated pricing of up to 5.3 cents per kilowatt-hour. The project will have more than 50 percent Michigan-sourced content, and brings the DTE renewable energy portfolio to 9.8 percent. Consumers Energy will begin construction on its 105 MW Cross Winds Energy Park in Akron and Columbia townships in Tuscola County before the end of the year.

Michigan Shorts

ΩΩ Bay City Electric, Light & Power has signed a 20-year contract to purchase 4.8 MW of energy from the Beebe Community Wind Farm at a price starting at 4.5¢/kWh and increasing to 7.2¢/kWh Ω Revolution Lighting Technologies has acquired Relume Technologies, a Michigan manufacturer of LED lighting products and control systems Ω The City of Ypsilanti has set a goal to have 1000 solar roofs within the city limits by 2020 Ω DTE Energy is offering its customers the opportunity to buy BioGreenGas derived from the Sauk Trail Hills Landfill in Canton Ω Lansing Board of Water & Light has announced it will purchase energy from eight wind turbines in Gratiot County under a power purchase agreement with Exelon Wind ΩΩ

Virtual Solar Engineering Center Meeting with Success

GreenLancer.com, a Detroit-based solar energy technology company, has announced its initial $500,000 in funding. The company, launched in 2011, combines state-of-the-art cloud computing with a national network of green energy engineering freelancers (“greenlancers”). Their goal is to reduce the soft costs associated with solar energy projects. Initial investors include Bizdom (Detroit), Start Garden (Grand Rapids), Blue Water Angels (Midland), Northern Michigan Angels (Traverse City), and a private investor. The company has projects in 33 states and six foreign countries.

Converting Corn Stalks into Biofuel

Using a fungus and E. coli bacteria, University of Michigan researchers have turned inedible waste plant material into isobutanol. The waste used in the initial work was corn stalks and leaves. Isobutanol has 82 percent of the energy in gasoline, whereas ethanol has only 67 percent. It also has the added advantage over ethanol of not mixing easily (or absorbing) water. So it is a viable candidate to replace ethanol as a gasoline additive. The fungi turns the plant roughage into sugars that are then converted by escherichia coli to isobutanol. Through bioengineering the researchers believe they can produce a variety of petroleum-based chemicals through this same process.

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Federal Court Rules That Patent Infringement Can Violate Antitrust Laws

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Patent infringement can be considered anticompetitive conduct under federal antitrust law, according to a recent ruling issued by the U.S. District Court for the Eastern District of Texas.

This ruling arose out of a dispute between Retractable Technologies, Inc. (Retractable) and Becton, Dickinson and Company (BD),1 in which Retractable alleges, among other claims, that BD’s infringement of Retractable’s patents foreclosed competition and maintained BD’s monopoly power in the hypodermic syringe market, thereby violating Section 2 of the Sherman Act.2

Retractable manufactures patented safety syringes and IV catheters, which protect against needlestick injuries by automatically retracting the needle after injection.  According to Retractable’s complaint, BD is the leading U.S. manufacturer of hypodermic syringes and holds a very large share of the relevant market.  Retractable claims that BD took steps to protect its dominant position after Retractable’s entry into the market, including by introducing an inferior line of safety syringes that infringe on Retractable’s patents.  Retractable contends that these actions, together with other exclusionary conduct including unlawful bundling and loyalty discounts, impeded the adoption of new and novel safety syringes, including those of smaller rivals such as Retractable, substantially lessening competition and maintaining BD’s dominance.  Retractable also alleges false advertising and other unfair competition claims.

To prove a violation of Section 2 of the Sherman Act, a plaintiff must demonstrate that the defendant (1) possesses monopoly power, and (2) acquired, enhanced, or maintained that power by exclusionary or anticompetitive conduct.3 In one of several motions to dismiss, BD asked the court to find that, as a matter of law, patent infringement can never be considered “exclusionary or anticompetitive conduct,” and therefore cannot be the basis of a Section 2 monopolization claim.  BD argued that no court has ever found patent infringement to be an “anticompetitive” act under Section 2 and that Retractable’s claim makes no economic sense, because patent infringement actually increases competition by making more products available to consumers.

On September 9, 2013, U.S. District Court Judge Leonard Davis adopted the recommendations of U.S. Magistrate Judge Roy S. Payne’s August 5 Report and Recommendation and issued an order denying BD’s motion.  Judge Davis agreed with Judge Payne that the only binding precedent offered by BD in support of its arguments held that patent infringement is not an injury recognized under the Sherman Act,4 but this has nothing to do with patent infringement as anticompetitive conduct.  Both judges noted the U.S. Supreme Court’s statement in U.S. v. American Tobacco Co. that the Sherman Act covers “every conceivable act which could possibly come within the spirit or purpose of the prohibitions of the law, without regard to the garb in which such acts were clothed.”5 Judge Payne further explained in his Report that while patent infringement often increases competition and benefits the end consumer despite harming a specific competitor, in this case Retractable alleges that the effect of BD’s patent infringement was to decrease competition by keeping BD’s inferior products on the market and preventing the sale of other, better quality safety syringes.

The complex interactions between intellectual property rights and the antitrust laws have received significant attention recently in various contexts, such as pay-for-delay settlements in pharmaceutical patent cases and abusive enforcement of standard essential patents.  The decision in this case adds an arrow to the quiver of companies with patented technology that are trying to compete in a market with a large and established player.  Companies with high market shares should take note that this ruling may expose them to additional antitrust risks, and should carefully consider whether any of their business practices would support a Section 2 monopolization claim against them.

1 Retractable Technologies, Inc., et al. v. Becton, Dickinson and Co., Case No. 2:08-CV-00016 (E.D. Tex.).

2 15 U.S.C. § 2.

3 United States v. Grinnell Corp., 384 U.S. 563 (1966).

4 A plaintiff must prove antitrust injury in order to recover damages.

5 221 U.S. 106, 181 (1911).

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Lessons Learned about Real Estate Lending in this Last Recession

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We all know real estate, and especially real estate lending, was heavily affected by the recession. Now that banks are starting to lend again, what can we learn from those bad years to set us on a better course for the future?

1. Real estate lending in the last cycle. We learned problem loans arose principally on loans with high loan to value ratios, or based on projections that were too optimistic, or in geographic markets where the lender did not have good market knowledge, and especially where the bank became more of a joint venturer with the developer. Smaller community banks especially felt more pressure to help home grown companies expand.

2. Problems exposed in the recession and recovery.

  • Appraisal methodology. Through the hard lessons of foreclosure and bankruptcy we learned more acutely about appraisal methodology, and the weaknesses of this methodology in troubled times became transparent. We learned that, although appraisers are not supposed to take “forced sales” into account in calculating fair market value, when the market is thin, “forced sales” may be the only comparables.
  • Exercise of developer’s rights. We also learned a developer’s decisions can have a drastic impact on a lenders’ ability to recover collateral, and on holding costs during workout or foreclosure. This was especially clear in cases where a condominium developer suddenly expanded the condominium into future phases, even when units were not selling, thus creating many separate tax key numbers with separate real estate tax bills, separate condominium association assessments, and no means of reversing that decision except with unanimous or near-unanimous consent of all condo unit owners and their lenders.
  • Interstate Land Sale Act. Condo unit buyers attempting to cancel contracts to purchase condos whose value had fallen, started using the long-dormant Interstate Land Sale Act as a weapon, with increased liability to developers.
  • Priority of municipality’s rights under development agreements. The Baylake Bank case in Wisconsin highlighted the ability to challenge the priority of charges and obligations contained in municipal development agreements.
  • Drastic impacts to condominium and homeowners’ associations’ budgets. Failure of even a small percentage of condo unit owners or homeowners to pay their assessments resulted in grave difficulties in that association’s ability to function.
  • Foreclosing on less than all needed assets of a project. Lenders foreclosing on projects discovered they lacked the ability to make needed changes in the project to facilitate its resale and needed to negotiate with their delinquent borrowers to secure Declarant rights reserved in condo declarations, permits issued only in the borrower’s name, and necessary easements.

3. Reaction to market risks. In response to these risks exposed in the recession, parties in the real estate market took action.

  • Title insurance changes. In reaction to the sudden increase in title claims, title companies not only increased their fees substantially, but also reversed their practice of deleting the “creditor’s rights” exception in their policies.
  • Secondary mortgage market changes. In response to liability claims, Fannie Mae, Freddie Mac, the Department of Veterans Affairs and others modified their requirements for purchase of loans from primary lenders, which changed requirements for condominium declarations and strongly encouraged phasing of projects.
  • Lending changes. Lenders are now under more scrutiny and stiffer governmental oversight on all real estate loans.

Those of us who are involved in the commercial real estate world hope we are starting on a new cycle of expansion. However the “hangover” of this recession will require us to change our documents and practices for success in this new period.

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The Facts on FATCA – Foreign Account Tax Compliance Act

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On August 19, 2013, the Internal Revenue Service introduced its new registration portal to assist Foreign Financial Institutions (“FFI”) as they make efforts to comply with the Foreign Account Tax Compliance Act (“FATCA“). Financial firms (banks, investment funds, and insurance companies) around the world must comply with the law, aimed at keeping US persons from hiding income and assets overseas, or risk serious consequences that could shut them out of financial markets. In recent years, the U.S. government has suspected that U.S. persons are underreporting massive sums of money hidden in offshore accounts.

FATCA was enacted as part of the Hiring Incentives to Restore Employment Act of 2010 (“HIRE”). Under FATCA, FFIs are required to collect, verify, and provide information about their U.S. clients to the IRS. If they fail to do so, they are subject to a 30% withholding tax on U.S. source payments. To assist foreign countries with the Act’s reporting requirements, the U.S. Treasury Department developed model Intergovernmental Agreements (“IGAs”). FATCA implementation has been tumultuous, largely because there are foreign governments which have not entered into these IGAs with the U.S. government. To date, the Treasury has signed ten IGAs, and is engaged in ongoing conversations with more than 80 other countries. The Act was scheduled to take effect in January 2014, but the enforcement date has been postponed to July 2014. As of now, the IRS will start collecting firms’ customer account information in 2015.

FATCA implementation is set to occur in three phases. The first is implementation of the Act itself, with the collection of information regarding U.S. accountholders in FFIs. Second, FATCA partner countries will enter into bilateral agreements for the purpose of exchanging this information. Last, this information will be transferred to a centralized FATCA database that acts as the central repository for offshore account information for all countries that are members of the Organization for Economic Co-Operation and Development (“OECD”). A list of these countries can be found here.

There has been significant resistance from FFIs, who are opposed to the IRS snooping into their financial affairs and frustrated with FATCA’s reporting and compliance requirements. Many FFIs believe that the law turns them into tax collectors and burdens them with a job that the IRS should be handling itself. Some FFIs, faced with the complicated burdens and tax exposure risks, have simply chosen to drop their U.S. clients. Major banks like HSBC, Deutsche Bank, Credit Suisse and Commerzbank are among those that have done so. This, of course, presents a major problem to Americans who conduct business or invest internationally; it is harder to obtain bank accounts, find insurance coverage, and qualify for loans. Expatriates are especially hard hit by institutions that are dropping American clients. Businesses are not exempt, either. Pursuant to FATCA, FFIs are required to report any private foreign corporation, business, or partnership in which a U.S. citizen is a ten percent or greater shareholder. A foreseeable consequence of the law is that foreigners become hesitant to do business with U.S. citizens because FATCA could expose sensitive account information and compel tax investigations.

Curbing tax evasion is a worthy goal, but FATCA comes at an expense to the law-abiding Americans citizens, expatriates, and businesses that engage in financial transactions overseas. Whether it will be a successful endeavor remains to be seen, but you can be sure that the side effects of it are already being felt by many.

A Federal District Court in Florida Finds Hospital System Properly Terminated a Professional Services Contract for a Health Insurance Portability and Accountability Act (HIPAA) Breach

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The U.S. District Court for the Southern District of Florida found on June 20, 2013 that defendant Community Health Systems, Inc., and its affiliated hospital, Salem Hospital (collectively, “CHS”) properly terminated a Professional Services Agreement it had with Managed Care Solutions, Inc. (“MCS”) for breach of contract after determining that Nichole Scott, one of MCS’s employees, misappropriated Protected Health Information (“PHI”) from the hospital. Ms. Scott misappropriated PHI from the hospital’s patients including patients’ checks, credit card numbers and social security numbers.

The Business Associate Agreement (“BAA”) between CHS and MCS provided, among other things, that in the event MCS breached its obligations under the BAA, CHS could terminate both the BAA and the Professional Services Agreement. After CHS terminated the Professional Services Agreement with MCS as a result of Ms. Scott’s misappropriation of its patients’ PHI, MCS sued CHS for breach of contract. The Florida District Court granted CHS’s motion for summary judgment and dismissed the lawsuit.

The lesson from this case is that healthcare entities should have clear cross-default provisions in their Professional Services Agreements with their business associates and in their Business Associate Agreements that allow them to terminate the Professional Services Agreement or take other appropriate remedial action in the event of a breach by the business associate of its obligations under the Professional Services Agreement and/or under the Business Associate Agreement.

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International Group Structures Are Subject to An Ongoing Review for Optimizing Their Tax Position

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The recent trends show that offshore jurisdictions are off the corporate agenda in view of the increased scrutiny and decreased levels of acceptance from both fiscal and corporate social responsibility perspectives. Client feedback confirms the following rationale for moving corporate tax planning solutions onshore:

  • Increased scrutiny on tax havens and statutory requirements regarding tax substance, potential issues concerning withholding tax and taxation of foreign profits; and
  • Avoiding overtly complicated tax systems with strict CFC (controlled foreign company) regulations, thin capitalization rules and prohibitive transfer tax applicability.

It is a well-known fact that the Netherlands is not a tax haven but a safe haven and a logical choice as an alternative with an extensive double taxation treaty network. In addition, the Netherlands has an extensive bilateral investment protection treaty network that is regarded to provide premium coverage in view of the broad definition of “investor” and “investment” and providing access to dispute resolution through arbitration against independent states and awards that are enforceable against states, often referred to as “the Dutch Gold Standard.” Dutch structures are increasingly a recurring feature in international corporate structures for the purpose of protecting key corporate and personal assets. In this GT Alert, we briefly set out the options for migrating a corporate structure to the Netherlands to benefit from the all of the features that the Netherlands has to offer.

How to Achieve a Corporate Migration

Migrating a corporate entity within the EU into the Netherlands is a straightforward process from a Dutch law perspective. The following options are available:

Registration of an EU member state entity with the Dutch Trade Registry

The tax residence of an existing holding company can often be changed by moving its place of effective management and control outside of its existing jurisdiction for tax purposes. This may trigger a tax charge on exit.

Cross border merger

EU parent companies can migrate to the Netherlands by effecting a statutory merger with a Dutch entity under the cross-border merger regulations. It is also possible for non-EU parent companies to merge with a Dutch company by initially entering into the EU through a conduit EU jurisdiction that permits cross-border mergers with non-EU entities.

Share swap

It is possible to incorporate a holding company in the Netherlands whereby the existing shareholders exchange their existing shares for shares in the newly created Dutch holding company.

Re-registration as Societas Europaea 

An EU parent company can re-register as a European Company (Societas Europaea) and transfer its statutory seat to the Netherlands followed by a re-registration in the Netherlands as a Dutch parent company.

Why migrate to the Netherlands?

Key drivers for migrating the top holding company of an international group structure to the Netherlands are:

  • Low corporate income tax rate of 25% on trading profits (20% up to EUR 200K first band);
  • The Netherlands has an extensive double taxation treaty network with well over 90 jurisdictions;
  • The Netherlands has entered into a vast number of bilateral investment protection treaties (BITS) that offer comprehensive protection against unfair treatment of investments by sovereign states through access to world class dispute arbitration;
  • International and well-recognized jurisdiction with one-tier corporate governance system similar to that of common law countries;
  • Straightforward, cost-efficient and fast incorporation process for Dutch entities;
  • Public company N.V. entities are widely recognized as listing vehicles;
  • The Netherlands is the premier port of entry to mainland Europe with excellent facilities in terms of corporate and financial services;
  • English language optional for proceedings before the Amsterdam courts; and
  • Limited and straightforward corporate reporting requirements.

Taxation

The Netherlands is a gateway to Europe and the rest of the world. For many years, the Netherlands has been a preferred location for foreign companies to establish a business. The location, the political stability and, especially, the beneficial tax regime have turned the Netherlands into one of the go-to countries in this respect. The following tax points are of particular relevance:

  • The general Dutch corporate income tax rate is 25% (20% up to EUR 200K first band). This rate is more than competitive in the region, as all countries surrounding the Netherlands have higher corporate income tax rates.
  • Traditionally, the Dutch participation exemption has been a major attractor of companies to the Netherlands. This facility allows the receipt of dividends and capital gains from subsidiaries free of tax in the Netherlands. The Dutch facility is still one of the most flexible and easy accessible compared to other jurisdictions, especially, with regard to the following conditions: no holding period is required, an interest of 5% is already sufficient to apply, interest in subsidiaries located in tax havens are allowed to benefit from the facility and certain other specific benefits are available.
  • No withholding tax on royalties and no withholding tax on interest.
  • Dividends are taxed at a statutory rate of 15%. However, this rate may be reduced by virtue of tax treaties to 0-10%. In principle, no dividend withholding tax applies to distributions made by a Dutch cooperative pursuant to the domestic rules.
  • No controlled foreign company/Subpart F rules
  • No thin capitalization rules.
  • There is no stamp duty or capital tax.
  • One of the most extensive international tax treaty networks (the Netherlands has concluded over 90 tax treaties, more than most other countries) and the membership of the EU (and corresponding access to EU treaties) ascertain minimal taxation on payments to any group company.
  • Another traditional benefit of the Netherlands is the open attitude of the Dutch tax authorities. The Netherlands offers the possibility to discuss and reach agreement on tax positions in advance with the Dutch tax authorities that can be formalized in agreements (or advance tax rulings) to offer optimum certainty in advance.
  • Currently, the Dutch government´s main focus is on innovation. In 2007, the government was one of the first countries to introduce a special tax regime aimed at innovation (Innovation box). Based on the Innovation box, income earned out of R&D activities can benefit from an 80% exemption, resulting in an effective tax rate of 5%;
  • The Netherlands has extensive experience in the use of hybrid structures (i.e. hybrid entities and hybrid loans). These structures can be used to further optimize the group tax rate.
  • The Netherlands has traditionally not only been very welcoming to foreign companies, but also to expatriates. In the Dutch Personal Income Tax Act, expatriates (with certain skills) can receive 30% of their income as a tax free allowance under the so-called “30%-ruling.” A benefit that also benefits the employer in negotiating (net) salaries.
  • Customs authorities in the Netherlands have a reputation for being cooperative, innovative and exceptionally efficient; all to facilitate the free flow of goods. Customs duties or import charges are charged at a later date, if the goods are stored in accordance with customs procedures in the Netherlands. This leads to considerable cash-flow advantages to foreign shippers.
  • The Netherlands’ position on Value Added Tax (VAT) is also advantageous. In contrast to other EU member states, the Netherlands has instituted a system that provides for the deferment of VAT at the time of import. Instead of paying VAT when the goods are imported into free circulations within the EU, the payment can be deferred to a periodic VAT return. The Dutch VAT system offers companies significant cash-flow and interest benefits.
  • Even though the Netherlands provides several unparalleled tax facilities, it is not blacklisted as a tax haven, but can be considered as a safe haven.
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Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and Financial Institutions Anti-Fraud Enforcement Act (FIAFEA): A Novel Approach To Protecting Financial Institutions From Themselves

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In a matter of first impression, Judge Lewis Kaplan of the U.S. District Court for the Southern District of New York ruled that the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) not only prohibits fraud perpetrated by a third party that harms a financial institution, but also renders unlawful fraudulent conduct committed by a financial institution that results in harm to itself. In the case of U.S. v. Bank of New York Melon (“BNYM”), the Government alleged that BNYM violated FIRREA by engaging in a scheme to defraud its clients regarding the pricing of foreign exchange trades and that the bank was ultimately harmed by its own misconduct.

FIRREA was passed in the late 1980s in reaction to the savings and loan crisis, and although it has been around for nearly a quarter century, it has not been utilized very often until recently. The law allows the Government to bring a civil action against any individual or entity for violating a number of criminal statutes prohibiting fraud, including mail and wire fraud, if the fraud affects a federally insured financial institution. In the case against BNYM, the Government asserted that the bank committed mail and wire fraud by making false representations regarding its pricing of foreign currency trades in connection with its “standing instruction” program. Under BNYM’s standing instruction program, the bank automatically set the price of foreign currency trades, relieving the client of the need to contact the bank directly and negotiate a price. BNYM allegedly represented that its standing instruction program provided “best execution” with respect to its foreign currency trades, which within the financial industry was commonly understood to mean that the client received the best available market price at the time the trade was executed. According to the lawsuit, however, BNYM did not provide best execution as the term was understood within the industry and instead priced its currency trades within a range least favorable to its clients.

Over time, BNYM’s clients allegedly learned about its pricing practices, which led to a number of lawsuits being filed against the bank by investors and customers, potentially exposing the bank to billions of dollars in liability. In addition, many of BNYM’s clients allegedly terminated their relationship with the bank in the wake of the revelations about its currency pricing policies. Thus, according to the lawsuit, BNYM’s fraudulent misrepresentations with regard to its currency pricing practices ultimately harmed the bank by causing it to lose customers and exposing it to liability.

In response, BNYM argued that it could not be held liable under FIRREA because the financial institution harmed by the fraud must be the victim of the fraud or an innocent bystander, not the perpetrator of the fraud. The Court rejected this argument explaining that, in passing FIRREA, Congress’s goal was to broadly deter fraudulent conduct that might put a federally insured financial institution at risk. Accordingly, it was entirely consistent with Congress’s intent to render unlawful fraudulent conduct perpetrated by a financial institution and its employees that affects the financial institution itself in order to deter these institutions from engaging in such misconduct in the future.

This decision represents a potentially important breakthrough for whistleblowers. Under the Financial Institutions Anti-Fraud Enforcement Act (“FIAFEA”), a whistleblower that provides information to the Government regarding fraudulent activity affecting a financial institution that constitutes a violation of FIRREA may be entitled to a reward if the Government obtains a monetary recovery. Unlike other whistleblower statutes, a whistleblower recovery under FIAFEA does not hinge on whether the Government has suffered a monetary loss. If a whistleblower is aware of fraudulent conduct affecting a financial institution-even if the only financial institution that is harmed by the fraud is the very same institution that engaged in it-FIAFEA provides an avenue for disclosing the fraud to the authorities with the potential upside of a substantial reward for doing so. Given the recklessness and misconduct that led to the Great Financial Disaster, the Government’s use of FIRREA and FIAFEA to protect financial institutions from their own excesses is not only warranted, but may also deter future misconduct, just as Congress intended.

 

WildTangent Files its Supreme Court Certiorari Petition in Patent Infringement Case – Part 1

Schwegman Lundberg Woessner

In September of 2009, Ultramercial, Inc. sued WildTangent, Inc., Hulu and YouTube in the Central District of California for alleged patent infringement of U.S. 7,346,545 (the ’545 patent).  The ’545 patent claims trading advertisement viewing for access to content over the Internet.  The Abstract of the ’545 patent reads:

The present invention is directed to a method and system for distributing or obtaining products covered by intellectual property over a telecommunications network whereby a consumer may, rather paying for the products, choose to receive such products after viewing and/or interacting with an interposed sponsor’s or advertiser’s message, wherein the interposed sponsor or advertiser may pay the owner or assignee of the underlying intellectual property associated with the product through an intermediary such as a facilitator.

Claim 1 of the ’545 patent is more detailed:

1. A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

a first step of receiving, from a content provider, media products that are covered by intellectual-property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;

a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;

a third step of providing the media product for sale at an Internet website;

a fourth step of restricting general public access to said media product;

a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;

a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;

a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;

an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;

a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;

a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and

an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

As you can see, there are 11 method steps recited in Claim 1, so it is a very detailed claim and it cannot be summarized in a sentence or two.

The history of the case is not easy to summarize either.  In short, the District Court found that the subject matter of the patent was not patent eligible and dismissed the district court action before interpreting the claims.  In 2011, the Federal Circuit reversed the District Court decision, but the Supreme Court vacated the Federal Circuit’s decision in 2012 based on its recent opinion in Mayo v. Prometheus.  And in June of 2013 the Federal Circuit again reversed the District Court decision, leading to WildTangent’s Petition for Writ of Certiorari filed last week.

WildTangent’s cert petition is attached.  I will be discussing the petition and the ongoing patent eligibility battle in more detail in future posts.

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Mexico Legal Highlights (Volume II, 2013)

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Latin American Region Enviromental Report, Second Quarter, 2013

Mexico Enacts Landmark Environmental Liability Law

On June 7, 2013, Mexico published its long-awaited Federal Environmental Liability Law (Ley Federal de Responsabilidad Ambiental; the “Law”), establishing the types of harms that incur liability and specifying which parties have standing to sue for environmental restoration.  The scope of occurrences that create liability under the Law is broad: “Any person or entity who by act or omission directly or indirectly occasions a harm to the environment, will be liable and will be obligated for the reparation of the harm or, when reparation is not possible, to environmental compensation.”  (Art. 10)  The Law provides important exceptions, stating that “environmental harm” is not deemed to have occurred if: (1) the activity that caused it was previously authorized through an environmental impact assessment process; or (2) the limits (i.e., of emissions, etc.) established by the relevant laws or regulations were not exceeded.  (Art. 6)  Where there is a qualifying activity and harm, the Law grants standing to the following: (1) the inhabitant of the community adjacent to the environmental harm; (2) Mexican environmental non-profit organizations; (3) the federal government through its environmental prosecution office (Procuraduría Federal de Protección al Ambiente; commonly known as “PROFEPA”); and (4) the state governments through their prosecutorial offices or institutions that exercise environmental protection functions.  (Art. 28)

The Law enumerates the factors that judges must observe in the issuance of judgments, both in determining the appropriate measure of liability (Art. 39) and in the elements that a judicial decision must contain (Art. 37).  Rather than money damages, the principal restoration due under the Law is either remediation of the harm or “compensatory” investment in other environmental improvements.  For cases of intentional causation of environmental harm, in addition to requiring restoration, courts may assess “economic sanctions” (apparently a counterpart to punitive damages) ranging from 300 to 50,000 (for individuals) or 1,000 to 600,000 (for companies) times the daily minimum wage in Mexico City.  (Art. 19)  The Law provides for two forums in addition to the existing court system: first, the Law envisions the creation of District courts specialized in environmental issues to be established within two years (Art. 30; Third Transitory Art.); second, the Law encourages the use of alternative dispute resolution in parallel with formal judicial proceedings (Arts. 47-51).   The statute of limitations for bringing actions under the Law is twelve years from the date on which the environmental harm and its effects were caused.  (Art. 29)

Reference Sources (in Spanish):

Mexico Regulates Vehicle Greenhouse Gas Emissions

A new Official Mexican Standard (Norma Oficial Mexicana; “NOM”), NOM-163-SEMARNAT-ENER-SCFI-2013, limits the emissions of greenhouse gases allowed from passenger vehicles and light trucks sold in Mexico.  The emission limits are mandatory for new vehicles up to 3, 857 kilograms, and apply to the fleets of vehicles sold by a given company in model-years 2014-2016; however, companies that sell less than 500 vehicles per model-year are exempt.  (Art. 2)  The bulk of NOM-163 sets forth the parameters and methodology used to calculate corporate targets and actual averages of carbon dioxide emissions (reported in grams of carbon dioxide per kilometer) and its equivalent in terms of fuel efficiency (reported in kilometers per liter).  Companies that registered sales of between 501 and 2,500 vehicles in 2012 may opt for an alternative, potentially less stringent program that requires emissions reductions of approximately 25% from 2012 levels.  (Art. 6)  A credit system will be established in order to incentivize the use and development of high-efficiency vehicles.  (Art. 5.5.2)

Reference Sources (in Spanish):

Mexico Issues Product Stewardship Requirements for Plastics

Through a May 21, 2013, decree (the “Decree”) amending the General Law for the Prevention and Integral Management of Wastes (Ley General para la Prevención y Gestión Integral de los Residuos; the “Waste Law”), Mexico has enacted product stewardship requirements for plastics at both the beginning and end of their life.  The Decree provides for the issuance of Official Mexican Standards (Normas Oficiales Mexicanas; “NOMs”) that establish environmental and technical criteria for the plastic and expanded polystyrene materials used in products and packaging and which becomes wastes.  (Art. 7(VI))  The NOMs must consider the principles of reduction, recycling and reuse.  Unlike the technical standards of most countries, most NOMs stand as binding law (i.e., without being incorporated by legal provisions), so criteria developed in Mexico can potentially have a direct impact on materials used internationally.  At the end of life, the Decree subjects plastics and expanded polystyrene to the producer take-back requirements that apply to special management wastes.  (Art. 28)  For certain circumstances, plastics and expanded polystyrene had already been included in the regulation on special management waste take-back plans, NOM-161-SEMARNAT-2011, issued in February 2013.  Their inclusion in the Waste Law may be intended to backfill a legal gap, and could also be used as authority to expand take-back requirements for these materials.

Reference Sources (in Spanish):

Mexico Will Establish Voluntary Sustainability Certification for Goods and Services

On May 24, 2013, Mexico amended its General Law of Ecological Balance and Environmental Protection (Ley General del Equilibrio Ecológico y la Protección del Ambiente; “LGEEPA”) to provide for the establishment of a certification and labeling program for environmentally sustainable goods and services.  Specifically, LGEEPA now directs the Secretariat of Environment and Natural Resources (Secretaría del Medio Ambiente y Recursos Naturales; “SEMARNAT”) “to promote the identification of those products, goods, inputs and services with lesser environmental impact.”  (Art. 37 bis)  Such identification would be through a voluntary marking or certificate, and would have to be based on environmental criteria taking into account the life cycle of the product or service to be certified.  The new LGEEPA text also includes a broadly worded directive for SEMARNAT to issue regulations on the “requirements, specifications, conditions, procedures, goals, parameters and permissible limits that must be observed . . . in the use of natural resources, in the development of economic activities, in the production, use and disposition of goods, in inputs and in processes.”  (Art. 36)

Reference Sources (in Spanish):

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