Trade Archives - The National Law Forum

6 Steps to Manage Tariff Risks in a Trade War

As Trump seeks to raise U.S. tariffs (which currently tend to be among the lowest worldwide), manufacturers, distributors, retailers, and other companies that frequently import (“importers”) must determine the best strategy to deal with the resulting uncertainties. Determining such a strategy is further complicated by the fact that President Trump has made a number of different proposals depending on the country and product.

Trump Tariff Proposals

25% tariffs on Mexico and Canda
10% tariffs on China
100% tariffs on BRICS countries (comprising Brazil, Russia, India, China, and more recently additional countries in the Middle East and Africa)
10–20% tariffs on the rest of the world
“Reciprocal tariffs” that would impose varying tariff levels by country

But while the exact form of higher tariffs is unknown, the reality is that higher tariffs are coming. This means importers have three tariff-related problems:

Identifying and Managing Immediate Risks and Cost Increases. Importers need to manage the immediate risk of higher tariffs, which can sharply change production cost structures.
Nimbly Responding by Changing Supply Chain Structure. Importers need to ensure they can nimbly respond to rapid shifts in importing from planned suppliers, even if it means entirely changing long-standing supply chains.
Maintaining Supply Chain Integrity to Avoid Detained Goods. Importers need to continue to comply with ongoing efforts of Customs & Border Protection (CBP) to emphasize supply chain integrity issues so that goods do not get detained at the border — specifically, supply chain integrity issues related to forced labor, human trafficking, and the importing of goods potentially violating the Uyghur Forced Labor Prevention Act (UFLPA).

To cope with these problems, importers need to identify their import-related risks, add flexibility within their supply chains, address tariff-related risks in both their buy- and sell-side contracts, and ensure their customs and supply chain integrity compliance is in good working order. Below are six practical steps that importers can take to identify and mitigate their import-related risks.

Step 1: Risk Identification – Understanding Your Company’s Importing Patterns and How They Impact Your Company’s Importing Risk Profile. Importers need to gather full information on their historic and planned import patterns so that they can understand the full scope of potential supply chain disruptions and higher tariffs on importing costs.
Step 2: Risk Planning – Understanding How to Add Flexibility to Your Supply Chain to Address Your Company’s Import-Related Risk. It is likely that the Trump Administration will announce tariff rates that target certain countries, including not just China, Canada, and Mexico but also Europe and countries that have free trade agreements with the United States. Accordingly, importers need to conduct risk planning and identify areas where they can build in supply chain flexibility to ensure they have the ability to quickly pivot import patterns if needed to respond to a rapidly changing tariff environment, particularly when importing from countries that maintain higher tariffs and non-tariff barriers, such as China, India, and Brazil (which will likely be targets of reciprocal tariffs).
Step 3: Contractual Risk Management – Identifying Ways to Increase Your Company’s Contractual Ability to Adapt to Unexpected Changes in the Importing Environment. Importers should gather and audit their contractual provisions, on both the buy and sell sides, to determine how the contracts address tariff-related risks. The goal is to ensure all contractual arrangements incorporate supply, sales, and pricing flexibility to deal with unanticipated tariff changes.
Step 4: Risk Minimization– Ensuring Your Company’s Customs Compliance Is in Order. In a high-tariff environment, tariff underpayments mount up much more quickly, as do potential penalties. As a result, manufactures must examine import-related compliance to ensure your company is exercising reasonable care in import operations and not underpaying customs tariffs.
Step 5: Opportunity Identification – Ensuring Your Company Is Maximizing Tariff Savings. In a high-tariff environment, it also is more important to identify potential tariff-saving opportunities. Therefore, importers must examine their historic and planned import patterns to identify available tariff-saving opportunities, including potential ways to minimize tariffs if USMCA disappears (or if it is substantially modified), or if additional tariffs are imposed on Canada or Mexico or other major sources of imports.
Step 6: Minimizing Supply Chain Integrity Risks– Understanding Your Supply Chain and Mitigating Supply Chain Integrity Risk, Right Down to the Last Sub-Supplier. Finally, CBP has been detaining a record number of goods for supply chain integrity issues, especially for UFLPA violations. An importer must carefully consider whether it has implemented measures to help ensure it is ethically sourcing goods from abroad, including the need to quickly vet secondary or alternative suppliers brought on board to expand supply chain flexibility.

The Trade War Begins with Canada, China, and Mexico

On February 1, 2025, President Trump declared a national emergency based upon the threat posed by undocumented foreign workers and drugs entering the United States. The White House has published a fact sheet outlining steps to address the threat by implementing (i) a 25% additional tariff on imports from Canada and Mexico, (ii) a 10% additional tariff on imports from China, and (iii) a carveout for a lower 10% tariff for energy resources from Canada (see Fact Sheet: President Donald J. Trump Imposes Tariffs on Imports from Canada, Mexico and China – The White House).

President Trump declared the national emergency pursuant to the International Emergency Economic Powers Act (IEEPA) and the National Emergencies Act. This action marks the first time a President has used the IEEPA to impose tariffs. President Nixon had used a precursor law to impose 10% tariffs on all imports in 1971 in order to avoid a balance of payments crisis resulting from ending the U.S. dollar’s gold standard (see prior alert Can the President Impose Tariffs Without Congressional Approval?).

President Trump issued Executive Orders imposing these additional tariffs on Canada, China, and Mexico (see link to Canada EO, China EO (unpublished), and Mexico EO (unpublished)).[1] The Executive Orders generally provide that the IEEPA national security tariffs may be removed if Canada and Mexico demonstrate adequate steps have been undertaken to alleviate the illegal migration and illicit drug crisis through cooperative actions, and China demonstrates adequate steps have been taken to alleviate the opioid crisis through cooperative actions.

A quick overview of five key initial questions:

1. When do the IEEPA national security tariffs take effect?

These IEEPA national security tariffs will be collected at the ad valorem rate of duty beginning 12:01 am ET, Tuesday, February 4, 2025.

2. How do I know if my import is subject to the IEEPA national security tariffs?

The Executive Orders reference “all articles” suggesting that the IEEPA national security tariff will apply to all merchandise imported from Canada, China, and Mexico; excepting that, there will be a carveout for energy from Canada, with the definitions based upon section 8 of Executive Order 14156 of January 20, 2025 (Declaring a National Energy Emergency). The necessary modifications to the Harmonized Tariff Schedule of the United States will be updated by the Department of Homeland Security and published in the Federal Register.

3. How is the IEEPA national security tariff rate calculated and applied?

The IEEPA national security tariff will be collected at an ad valorem rate based upon the entered value of the merchandise, meaning that the IEEPA national security tariff will be calculated on the entered value of the merchandise and simply added to any other duty applicable on the subject merchandise.

4. Who is responsible for paying the IEEPA national security tariff?

The importer of record is responsible for paying all duties to U.S. Customs and Border Protection. There is no change to this requirement.

5. Is there a process to apply for exclusions from IEEPA national security tariffs?

There have been no stated exemptions or processes for exclusions from the IEEPA national security tariffs, but importers may continue to review mitigation strategies for application (see prior alert Preparing for Tariff Increases – Mitigation Strategies: Miller Canfield).

In addition, the Executive Orders further provide that:

There is no duty drawback available for the covered merchandise, i.e. the refund of duties, taxes, and fees paid on imported merchandise subsequently exported or destroyed;
Merchandise must be admitted as “privileged foreign status,” meaning the merchandise remains subject to the tariff based upon its imported state, regardless of whether the classification changes in a Free Trade Zone, i.e. no avoiding the tariff by importing the merchandise into a Free Trade Zone;
There is no de minimis treatment available under Section 321, i.e. duty free treatment for shipments below $800; and
The President may increase or expand in scope the tariffs imposed under the Executive Orders upon retaliation against the United States by Canada, China, or Mexico through the application of tariffs or similar.

Because the imposition of additional IEEPA national security tariffs remains in flux, importers should carefully monitor this situation. For up-to-date advice and assistance on mitigation options to tariff exposure applicable to your business, please contact your Miller Canfield attorney or one of the authors of this alert.

[1] Press reports indicate that the China EO and Mexico EO have been signed and are similar in form, but as of the time of this publication the China EO and Mexico EO have not yet been posted to www.whitehouse.gov.

Back to the Antitrust Basics: FTC and DOJ Call for Case-by-Case Enforcement With the Withdrawal of Longstanding Competitor Collaboration Antitrust Guidelines

With the US Department of Justice (DOJ) and Federal Trade Commission (FTC) withdrawing yet another set of antitrust compliance guidelines last month, companies that collaborate with their competitors — whether directly or through a trade association — are left without any official agency guidance regarding safe harbors, other than the murkier background of a century of antitrust cases. However, the forthcoming change in presidential administrations might provide increased clarity.

The DOJ and FTC in 2023 had earlier withdrawn the decades-old safe harbors for information sharing among competitors, which many companies and associations relied on to tailor their data analytics. Our alert regarding that withdrawal is available here.

The agencies followed up by jointly announcing on December 11, 2024, their withdrawal of the Antitrust Guidelines for Collaborations Among Competitors (Collaboration Guidelines). The FTC announced the withdrawal of the 24-year-old Collaboration Guidelines following a narrow 3-2 party-line vote. The three Democratic commissioners supported withdrawal, while the two Republican commissioners opposed it.

The Guidelines Are Gone

The Collaboration Guidelines provided detailed guidance about US federal antitrust enforcers’ advice to companies for antitrust compliance when collaborating with competitors. According to the FTC’s press release, the 2000 Collaboration Guidelines “no longer provide reliable guidance about how enforcers assess the legality of collaborations involving competitors.” Instead, the DOJ and FTC encourage businesses thinking about partnering with competitors to “review the relevant statutes and caselaw to assess whether a collaboration would violate the law.”

The Dissents May Portend a Trump Administration Action Item

The FTC’s Republican Commissioners Melissa Holyoak and Andrew Ferguson, who likely will be the next FTC chairperson, strongly criticized the withdrawal of the Collaboration Guidelines, arguing in their dissents that the decision was terribly timed and will leave companies without clear guidance:

Improper Timing

They both argued that it was inappropriate for the Commission to make this decision during the lame-duck presidential period, “a mere 40 days before the country inaugurates a new President,” “further compounding today’s poor policy decision.”
Commissioner Ferguson’s dissent indicated that although the FTC seeks to promote “transparency and predictability,” now is not the time to “withdraw existing guidance or to push through revised or new guidance.” Instead, the time left for the Biden-Harris Commission should be reserved to “facilitate an orderly transition.”
Commissioner Holyoak’s dissent conveyed her opposition to the Commission’s decision, stating “The Majority had four years to address its concerns with the Collaboration Guidelines — now is not the time.”

Unclear Guidance

Commissioner Holyoak further expressed her opposition to the withdrawal, stating that the withdrawal announcement happened “without providing any replacement guidance, or even intimating plans for future replacement.” She contended that withdrawal of the Collaboration Guidelines leaves “businesses grasping in the dark.”
Commissioner Ferguson stated the Commission should “revisit its nonbinding guidance to ensure that it properly informs the public of the Commission’s enforcement position” which may become evident with the next Administration.

In response to Commissioners Ferguson and Holyoak, Commissioner Alvaro Bedoya, writing for the majority, wrote that the FTC is “not on vacation,” emphasizing that “[t]he American people expect their government to keep working for them even in periods of transition.” Commissioner Bedoya further asserted that he looks forward to working with the incoming Trump Administration with “evolving jurisprudence on competitor collaborations and issue new guidance for the business community.”

What Is Next?

For now, companies should no longer rely on the Collaboration Guidelines and instead must look for guidance in the underlying caselaw that the DOJ and FTC’s guidelines were based upon.

Yet, given the anticipated appointment of Commissioner Ferguson as the next FTC chairperson and his dissenting comments, the incoming Trump Administration might seize the opportunity to revisit the Collaboration Guidelines.

Barring that change in position, as Commissioner Melissa Holyoak indicated, companies will need “antitrust lawyers on speed dial” to obtain specific guidance to navigate case-by-case situations and evaluate the nuances of each project’s antitrust compliance.

Trump Administration Tariffs: Considerations for U.S. and Global Companies

Donald Trump’s reelection as president of the United States raises considerations for both U.S. and non-U.S. companies importing goods into the country. Specifically, given Trump’s plan to impose “universal baseline tariffs on most foreign products” to “reward[] domestic production while taxing foreign companies,” what tariffs will be imposed, and what can importers do to protect themselves from the increased financial burden tariffs create? After Trump takes office on Jan. 20, 2025, supply chains most likely will be more expensive, with any additional tariffs likely impacting U.S. retailers, wholesalers, and manufacturers. During the campaign, Trump announced he would impose an additional 10-20% on global products and an additional 60% on products of China. Presidents have broad authority to impose tariffs and there are numerous legal authorities the Trump administration can rely on to impose them. In this GT Alert, we address those statutes and discuss strategies importers should consider to protect themselves from the increased financial burden. Statutory legal authority includes:

International Emergency Economic Powers Act of 1977 (IEEPA) provides the president with the authority to address unusual and extraordinary threats to national security through economic sanctions. According to the IEEPA, “Any authority granted to the President by section 1702 of this title may be exercised to deal with any unusual and extraordinary threat . . . if the President declares a national emergency with respect to such threat.” President Trump may use this act to address U.S. trade deficits.
Section 232 of the Trade Expansion Act of 1962 grants the president the power to impose restrictions on imports that pose a threat to national security, including through the imposition of tariffs. Previous legal challenges to the use of Section 232 have been unsuccessful.
Section 301 of the Trade Act of 1974 allows the president to respond to foreign trade practices that disadvantage the United States, authorizing the executive to (1) impose duties or other import restrictions, (2) withdraw or suspend trade agreement concessions, or (3) enter into binding agreements with foreign governments to eliminate the conduct in question or provide compensation. In his first term, President Trump used Section 301 beginning in July 2018 to impose additional tariffs of 25% or 7.5% on four lists of products from China. To date, the tariffs are still in place.
Section 338 of the Tariff Act of 1930 allows the president to impose additional tariffs of up to 50% on any country that discriminates against U.S. goods.
Section 122 of the Trade Act of 1974 provides the president with a “balance of payments” authority, allowing the imposition of an additional 15% tariff on imports for 150 days “[w]henever fundamental international payments problems require special import measures to restrict imports—(1) to deal with large and serious United States balance-of-payments deficits, (2) to prevent an imminent and significant depreciation of the dollar in foreign exchange markets.”

Prior to the implementation of additional tariffs, U.S. companies should consider increasing visibility into their supply chains. Importers may wish to review each imported product and confirm its country of origin. Specifically, if an additional 10% is added to products of the European Union and 60% is added to products of China, and a purchase agreement states the country of origin is the EU, U.S. companies should consider confirming the bill of materials and production steps to ensure that the product is in fact manufactured in the EU and not merely assembled there.

In addition, U.S. importers should consider reviewing incoterms (international commercial terms) on all purchase orders to determine which party is responsible for the tariffs. Note that tariffs are assessed based on the date of entry of goods into the United States and not the purchase order date. If a U.S. importer and non-U.S. supplier are currently negotiating a master purchase agreement that will take effect between now and the implementation of new tariffs under the Trump administration, importers may wish to add language so that the purchase price does not include the additional duties at whatever date the goods enter the United States.

Finally, there are numerous duty-mitigation strategies importers can consider to potentially blunt the impact of increased costs, including the use of “first sale” in a multi-tier transaction. Imported merchandise may have been the subject of more than one sale, with the middleman buyer adding an amount for profit and expenses to the price paid by the U.S. importer at entry. For example, merchandise may be manufactured in China, sold to a middleman in Hong Kong, and then sold to a buyer/importer in the United States. Under certain circumstances, importers can declare the value of the goods on the “first” or earlier sale, rather than on the last one, thereby reducing the declared value of the goods upon which duty payments are based. In addition, importers may consider taking legal deductions from the declared value, such as foreign inland and international freight.

The implementation of tariffs in the Trump administration seems likely, although the specifics have yet to be disclosed. In the meantime, companies should consider increasing transparency into their global supply chains and employing duty-mitigation strategies.

Recent Federal Strike Force Prosecutions Serve as Warning to U.S. Manufacturers and Other Exporters

The recent enforcement activities of the newest federal strike force serve as a warning to U.S. manufacturers and other businesses involved in the export of products that the government is doubling down on prosecuting trade violations. The expressed mission of the multi-agency Disruptive Technology Strike Force (Strike Force) is “to counter efforts by hostile nation states to illicitly acquire sensitive U.S. technology to advance their authoritarian regimes and facilitate human rights abuses.” The latest Strike Force criminal indictments focus on technology such as:

Aerospace and defense source code,
Aircraft components,
Microelectronic components used in unmanned aerial vehicles (UAVs),
Laser welding machinery.

There is every reason to expect that the Department of Justice’s (DOJ) future targets will extend beyond the kind of individual defendants who have been the focus of the 24 criminal indictments to date and include legitimate companies whose compliance program deficiencies allow the illicit exports to occur. Ensuring that a company’s trade compliance program meets or exceeds the expressed standards of the DOJ and the Department of Commerce (DOC) is now more essential than ever.

Compliance Keys

Exposure Risk for Manufacturers and Distributors. The export-diversion schemes prosecuted to date share a common element—a bad actor sought to exploit innocent U.S. manufacturers and distributors by misrepresenting their identity and end-use plans or by seeking to compromise the manufacturer’s computer systems. As U.S. export controls (particularly those aimed at Russia and China) have expanded over the past several years, schemes like those alleged in these indictments have proliferated. Failing to be alert for the warning signs of such schemes may expose a company to becoming a victim of sanctions evaders or, worse, an enforcement target for ignoring red flags. The Export Administration Regulations prohibit companies from engaging in a transaction with the knowledge that a violation has occurred or will occur. “Knowledge” is not limited to actual knowledge; it can also be inferred from turning a blind eye to red flags in a transaction. As a result, having personnel trained to identify and respond appropriately to red flags suggesting that diversion could be occurring can be crucial to avoiding export violations.
Precautions to Detect and Prevent Imposter Schemes.
- First, a written risk-based export control compliance plan can be a valuable aid in detecting diversion schemes and other illicit behavior. Such plans detail procedures employees must follow for conducting diligence on new and existing customers and transactions, evaluating when export licenses are required for a transaction, and detecting and responding to red flags. They provide clear guidance on when and how to escalate potential issues. Such a compliance plan gives employees the tools to help them identify when their company may be facing a diversion scheme and how to respond appropriately before a transaction is executed.
- Second, companies can emphasize conducting “know your customer” (KYC) diligence on transactions. The importance of such diligence is heightened when new customers are involved, when business with an existing company is expanding to new products, or to involve new product destinations. The DOC has published extensive guidance on KYC diligence (often in conjunction with other U.S. government agencies and with enforcement authorities in allied countries). This week, the DOC and export control authorities from the other G7 countries issued new guidance that identifies items most likely to be the subject of diversion efforts by Russia, lists common red flags suggesting potential export control and sanctions evasion in a transaction, and suggests some diligence best practices to prevent diversion and evasion. This new guidance echoes similar guidance issued by U.S. and allied government agencies over the last two years for detecting diversion schemes in the current environment of export controls and sanctions regarding Russia and China. (For example, our summary of the joint guidance issued last year by export-control authorities in the United States, the United Kingdom, Canada, Australia, and New Zealand addressing 45 types of goods at high risk for diversion and recommended KYC diligence steps can be found here.) Companies should be tracking and incorporating, as appropriate, these guidance updates
- Third, companies can be knowledgeable about the potential uses of their products and technology. This knowledge informs when and where a company may face diversion risk. Products and technology with permissible uses could be a target for diversion where they can be used for purposes the U.S. government restricts. For example, in one of the recent Strike Force cases, U.S. v. Postovoy, the alleged diversion scheme targeted a company whose microelectronic components could be used in drones and UAVs. Keeping U.S.-origin components out of such vehicles used by Russia in the war with Ukraine has been a major U.S. export control policy priority. Similarly, in another Strike Force case, U.S. v. Teslenko, the alleged diversion scheme targeted a company whose laser welders had applications that could aid Russia’s nuclear weapons program. Knowing the market for illicit uses for a company’s products and technology helps a company tailor its compliance efforts by identifying what products may be attractive to bad actors and what specific red flags may be of most concern regarding the company’s products and technology.
Cybersecurity Vigilance to Prevent Technology Theft. Another case announced alongside the Strike Force cases, U.S. v. Wei, is a reminder that U.S. manufacturers of sensitive technology face a multifront effort by foreign malign actors to gain access to that technology. In addition to ensuring up-to-date export controls and sanctions compliance programs, U.S. manufacturers should consider measures to protect their technology from misappropriation through cyber intrusion by implementing appropriate processes and tools to prevent and detect such activity by these actors. These processes and tools can include:
- Regularly sharing cyber hygiene tips and training on current phishing schemes and conducting phishing tests to increase employee awareness of these risks,
- Maintaining system hygiene by regularly scanning systems for vulnerabilities and unauthorized accounts, monitoring access logs for suspicious activity, and prohibiting automatic email forwarding to external addresses to prevent data leakage,
- Installing a secure email gateway to filter out spam, malware, and phishing attempts and employing email authentication techniques (e.g., SPF, DKIM, and DMARC),
- Tracking and monitoring all endpoints and mobile devices to detect suspicious activities and regularly auditing access logs to identify violations or attempted violations of access policies, and
- Restricting administrative and privileged account access to minimize potential damage and limiting remote access to critical data and functions.

The Indictments

The six most recent indictments relating to the Strike Force’s efforts confirm that export control and sanctions compliance, particularly concerning Russia, China, and Iran, is a significant enforcement priority for the DOJ and other government agencies. As one Strike Force member stated, the DOJ, “through the work of the Strike Force, will continue to do all [it] can to prevent advanced technologies from falling into the hands of our adversaries and protect our national security.” These indictments and a related indictment announced simultaneously highlight the risks of manufacturers and distributors falling victim to schemes like those alleged in the indictments or becoming the focus of enforcement efforts for committing export control violations.

U.S. v. Postovoy. A Russian citizen living in the United States was indicted for conspiring to violate the Export Control Reform Act (ECRA), to smuggle, launder money, and defraud the United States. After Russia invaded Ukraine, the individual used a series of companies he owned around the world to obtain and unlawfully export microelectronic components that could be used in drones and UAVs from the United States to Russia. The individual concealed and misstated end-user and destination information in communications with U.S.-based distributors.

U.S. v. Song. A Chinese national was indicted for wire fraud and aggravated identity theft in connection with attempts to obtain software and source code from the National Aeronautics and Space Administration (NASA), research universities, and private companies. Over several years, the individual “spear phished” individuals at NASA, the Air Force, Navy, Army, and Federal Aviation Administration; research universities; and aerospace companies in an attempt to obtain code to which the individual suspected the victims had access. At all relevant times, the individual, who assumed the identities of persons known to the victims, was an employee of a Chinese state-owned aerospace and defense contractor.

U.S. v. Teslenko. A U.S. resident and a Russian national were indicted for smuggling and conspiracy to violate the ECRA, smuggle, and defraud the United States. For approximately six years, the individuals exported laser welding machines from one’s employer in the United States to a Russian company involved in Russia’s nuclear weapons program. The individuals falsified export documentation to conceal the end user.

U.S. v. Goodarzi. A dual U.S. and Iranian citizen was charged with smuggling UAV components to Iran from the United States. For four years, the individual obtained U.S.-originated parts and either transshipped them, typically through the United Arab Emirates or transported them in his own checked luggage during trips to Iran. The individual had acknowledged in numerous emails with U.S. suppliers that the parts could not be transferred to Iran because of sanctions. The individual also lacked the proper export license to send these items to a sanctioned country like Iran.

U.S. v. Nader. A dual U.S. and Iranian citizen was indicted for violating U.S. economic sanctions and other federal laws in connection with procuring U.S.-originated aircraft components for Iran’s armed forces. Customers in Iran placed orders with the individual, who, in turn, directly or through others, contacted U.S. companies for the components. The individual falsely identified himself or his U.S.-based company as the end user of the components. The individual attempted to export the components, including transshipment to Iran, on several occasions; however, DOC agents detained each export.

U.S. v. Wei. In addition to the above criminal cases brought through the work of the Strike Force, the DOJ announced the indictment of a Chinese national on charges of fraud, conspiracy, computer intrusion, and aggravated identity theft for unlawfully accessing the computer network of a U.S. telecommunications company. The individual—a member of the People’s Liberation Army—and co-conspirators accessed the company’s systems in 2017 and stole documents relating to communications devices, product development, testing plans, internal product evaluations, and competitive intelligence. The individual attempted to install malicious software to maintain access to the company’s systems; his access continued for approximately three months.

FTC Staff Issue Report on Multi-Level Marketing Income Disclosure Statements

On September 4, 2024, the Federal Trade Commission announced that it has issued a report that details findings from a review of income disclosure statements from 70 different multi-level marketers (MLMs).

Staff reviewed income disclosure statements in February 2023 that were publicly available on the websites of a wide array of MLMs, from large household names to smaller, less well-known companies, according to FTC attorneys. “These statements are sometimes provided to consumers who are considering joining MLMs, and often purport to show information about income that recruits could expect to receive.”

According to the report, FTC staff found a number of issues with the statements they reviewed, including that most omit key information when calculating the earnings amounts they present. Specifically, the report notes that most of the reviewed statements do not include participants with low or no earnings in their display of earnings amounts and also don’t account for the expenses faced by participants, which can outstrip the income they make. The report notes that these omissions are often not plainly disclosed in the income statements.

The report also notes that most statements emphasize the high earnings of a small group of participants, and many entirely omit or only inconspicuously disclose key information about the limited earnings made by most participants. In addition, the staff report notes that most of the disclosure statements staff reviewed present earnings information in a potentially confusing way, “like giving average earnings amounts for groups that could have very different actual incomes, or using annual income figures that aren’t based on what an actual group of participants made for the year.”

The report also notes based on staff’s analysis of data in the income disclosure statements, including information included in fine print, that many participants in those MLMs received no payments from the MLMs, and the vast majority received $1,000 or less per year—that is, less than $84 per month, on average.

“The FTC staff report documents an analysis of 70 publicly available income disclosure statements from a wide range of MLMs — big and well-known to smaller companies. The report found that these income disclosure statements showed most participants made $1,000 or less per year — that’s less than $84 dollars per month. And that may not account for expenses. In at least 17 MLMs, most participants didn’t make any money at all.”

As referenced above, the staff report documents (and provides numerous examples of) how most of the publicly available MLM income disclosure statements used all the following tactics:

Emphasizing the high dollar amounts made by a relatively small number of MLM participants.
Leaving out or downplaying important facts, like the percentage of participants who made no money.
Presenting income data in potentially confusing ways.
Ignoring expenses incurred by participants — even though expenses can, and in some MLMs often do, outstrip income.

The BR International Trade Report: September 2024

Welcome to this month’s issue of The BR International Trade Report, Blank Rome’s monthly digital newsletter highlighting international trade, sanctions, cross-border investment, geopolitical risk issues, trends, and laws impacting businesses domestically and abroad.

Recent Developments

BIS issues export controls targeting GAAFET, quantum, additive manufacturing, and other emerging technologies.
On September 5, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued new export controls covering gate all-around field effect transistor (“GAAFET”) technology, quantum computing items, advanced semiconductor manufacturing equipment, additive manufacturing equipment, and aerospace coating systems technology. The BIS rule establishes an export licensing requirement for the export of any such covered item to any destination in the world, as well as a new license exception authorizing export to certain specified “like-minded” countries that have implemented similar controls. See our alert.

Canada announces 100 percent tariff on Chinese EVs, while China retaliates with probe into imports of Canadian canola.
Canada’s electric vehicle (“EV”) tariff follows similar measures by the United States and the European Union, based on claims that China subsidizes its EV industry and thus has an “unfair advantage,” in the words of Canadian Prime Minister Justin Trudeau. Following the announcement of the tariff, China announced an antidumping investigation regarding imports of Canadian-origin canola.

BIS proposes rule establishing reporting requirements for AI developers and cloud providers.
On September 9, BIS issued a notice of proposed rulemaking outlining new requirements for developers of powerful AI models and computing clusters to report certain information to the U.S. government. Reportable information would include development activity, cybersecurity measures, and results of “red-team” testing to identify capabilities for illicit uses such as cyberattacks and development of chemical, biological, radiological, or nuclear weapons. The deadline for comments on the proposal is October 11.

United States implements AUKUS through ITAR exemptions for Australia and the United Kingdom.
On August 16, 2024, the U.S. Department of State announced a broad exemption from export licensing requirements under the International Traffic in Arms Regulations (“ITAR”) for most defense trade involving “authorized users” in the United States, Australia, and the United Kingdom. The ITAR relief was the linchpin of implementation of the AUKUS security pact between the three defense partners. See our alert.

Canada seeks public input on United States-Mexico-Canada Agreement (“USMCA”).
Canada has asked for public input on what Canadian priorities should be in the upcoming trilateral review of the USMCA in 2026. Unlike the previous North American Free Trade Agreement, the USMCA provides for a review at least every six years to assess how the agreement is doing and whether it should continue. Canada is inviting input on key areas that “are working well and potential areas for improvement.” Comments are due by October 31, 2024.

United States to dispute Canadian Digital Services Tax in USMCA.
The United States will challenge Canada’s new tax on digital services in a dispute under the USMCA. Canada imposes a tax on online revenues from companies that have a large global presence (€ 750 million in revenues) as well as Canadian digital revenue of $20 million (US$15 million). The U.S. claims that the tax unfairly discriminates against U.S. businesses. The first step will be consultations between the U.S. and Canadian governments. If a resolution cannot be reached, the U.S. may then request a formal dispute resolution panel. Governments have also been negotiating for years at the Organization for Economic Cooperation and Development (“OECD”) for an agreed regime to govern these taxes, and those negotiations are ongoing.

Xi Jinping touts U.S.-China “traditional friendship.”
In a meeting with U.S. National Security Advisor Jake Sullivan on August 29, Chinese leader Xi Jinping spoke of China’s interest in preserving stability in U.S.-China relations, referred to the “traditional friendship” between the two countries, and asked Sullivan to pass on his regards to President Biden. Sullivan reported after the meeting that he reassured Xi that the United States seeks to maintain stable ties, but also pressed the issues of de-escalation in the South China Sea and concerns over U.S. election interference.

The Netherlands adopts new export controls on semiconductor manufacturing equipment (“SME”), while Japan anticipates robust SME sales to China.
The Dutch government announced new controls on exports of certain advanced SME on national security grounds, reportedly bringing Dutch law in line with U.S. restrictions, a move that China blamed on U.S. “coercion.” Meanwhile, reports indicate that Japanese SME companies are counting on significant revenue from Chinese customers, even amidst heightened U.S. export controls, based on sales of SME for less advanced legacy chips that are used in cars and not in smartphones or advanced AI applications.

Huawei reportedly planning to unveil AI chip.
Reports indicate that Chinese telecom giant Huawei is nearing a release of an artificial intelligence chip, the Ascend 910C, that supposedly is comparable to high-end U.S. AI chips. The potential development comes as intense U.S. export controls aim to restrict the flow to China of advanced semiconductors that power the AI technology stack, and likely will prompt calls by Congress and national security thought leaders to consider continued calibration of U.S. policy in addressing technology-related national security challenges.

Federal study recommends that Pentagon engage with commercial chipmakers.
A report by the National Academies of Sciences, Engineering, and Medicine found that the U.S. Department of Defense (“DoD”) “currently lacks an overarching microelectronics strategy.” The report recommends that the DoD work more closely with the semiconductor industry, as it did in the latter half of the 20^th century, and partner with civilian agencies such as the U.S. Department of Commerce in order to ensure a reliable supply of semiconductors for national defense.

China implements new export controls for antimony and revises controls for drones.
China recently updated its export controls amidst escalating volleys of trade controls between the United States and China. First, China issued restrictions on exports of antimony, a key input in military items such as missiles, nuclear weapons, night vision goggles, and ammunition. Furthermore, China is adjusting its export controls over drones to lift temporary export controls over certain consumer drones, adjust standards for other controlled items, and add certain high-precision measurement equipment to its control list.

Biden Administration crafting plan for a U.S. sovereign wealth fund (“SWF”). National Security Advisor Sullivan reportedly is working on a proposal for a U.S. SWF that would support investments in emerging technologies and critical minerals, in an effort to keep pace with countries like China and Singapore, which have invested aggressively through SWFs. The plan is similar to a recent proposal by former President Trump, suggesting there could be bipartisan support for the measure.

United States considers price support for critical minerals projects.
Reports indicate that the Biden Administration is considering price support for certain U.S. critical minerals projects, in response to an influx of less costly Chinese lithium, nickel, and other minerals, and delays and cancellations of several U.S. minerals processing projects. Specifically, the administration reportedly is considering the establishment of a price floor for a limited time, with the U.S. Department of Energy paying the difference when market prices fall below the floor. The mechanism would be intended to assure investors and customers that domestic suppliers can thrive.

OFAC extends recordkeeping requirements from five to 10 years.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued an interim final rule extending the recordkeeping requirement under economic sanctions regulations from five years—which had been the requirement for decades—to 10 years. The measure is consistent with the recent extension of the statute of limitations for sanctions violations from five years to 10 years. See our prior alerts.

BIS expands export controls against Russia and Belarus.
BIS issued measures on August 23 that (i) expanded the scope of the Russia/Belarus Military End User and Procurement Foreign Direct Product rule; (ii) added 123 entities to the Entity List; (iii) added four high-diversion risk addresses to the Entity List to target diversion through shell companies; and (iv) issued new guidance to exporters on contractual language restricting exports to Russia and Belarus.

United States International Trade Commission (“USITC”) proposes quota on textile materials.
The four commissioners of the USITC unanimously recommended that the President impose a four year tariff-rate quota on imports of fine denier polyester staple fiber (“PSF”), to address serious injury to the U.S. domestic industry. Fine denier PSF is used in the production of textiles and other products such as diapers, baby wipes and coffee filters. The USITC recommends that a number of countries be excluded from this quota, primarily free trade partners of the United States. The President has the final decision on whether or not to impose a tariff-rate quota.

In Case You Missed It…

DDTC Issues Long-Awaited Rule Implementing AUKUS: Five Key Takeaways
On August 16, 2024, the U.S. Department of State announced a broad exemption from export licensing requirements for most defense trade between and among “authorized users” in the United States, Australia, and the United Kingdom, thereby issuing much-anticipated export control relief in implementation of the AUKUS security pact. Read More >>

BIS Issues New Export Controls Targeting GAAFET, Quantum, and Additive Manufacturing, and Ushers in New Age of Plurilateral Export Controls: 5 Key Takeaways
The U.S. Department of Commerce’s Bureau of Industry and Security recently issued an interim final rule under the Export Administration Regulations imposing licensing requirements for exports to all destinations worldwide of certain gate all-around field effect transistor technology, quantum computing items, advanced semiconductor manufacturing equipment, additive manufacturing equipment, and aerospace coating systems technology. Read More >>

Deep in the Heart of Texas: Court Blocks FTC Non-Compete Rule

On August 20, 2024, the United States District Court for the Northern District of Texas invalidated the FTC’s rule banning most non-compete agreements. Ryan LLC et al v. Federal Trade Commission, WL 3297524 (08/20/2024). In its highly anticipated opinion, the Court determined the FTC exceeded its authority in promulgating the rule and that the rule is arbitrary and capricious. This decision was not limited to the parties before the Court and blocks the rule from becoming effective nationwide on September 4, 2024. As a result, existing non-compete agreements may still be valid and enforceable when permitted under applicable law.

Ryan, LLC (“Ryan”) filed its lawsuit on April 23, 2024, arguing the FTC did not have rulemaking authority under the Federal Trade Commission Act, that the rule is the product of an unconstitutional exercise of power, and that the FTC’s acts and findings were arbitrary and capricious. Several plaintiffs, including the U.S. Chamber of Commerce, intervened in the lawsuit to challenge the rule.

In July, the Court enjoined the FTC from implementing or enforcing the rule. That ruling, however, was limited in scope and only applied to Ryan and the intervening plaintiffs. Shortly thereafter, all parties filed motions for summary judgment. Plaintiffs asked the Court to invalidate the FTC’s rule, and the FTC sought dismissal under the theory it has express rulemaking authority under the FTC Act.

The Court first examined the FTC’s statutory rulemaking authority and determined the rulemaking provisions under the FTC Act do not expressly grant the FTC authority to promulgate substantive rules. The Court reasoned that although the Act provides some rulemaking authority, that authority is limited to “housekeeping” types of rules. The Court concluded “the text and the structure of the FTC Act reveal the FTC lacks substantive rulemaking authority with respect to unfair methods of competition…” As a result, the Court held the FTC exceeded its statutory authority in promulgating the rule.

Next, the Court considered whether the rule and the promulgation procedure was arbitrary and capricious. The Court was unconvinced by the studies and other evidence relied on by the FTC in promulgating the rule and found that the FTC failed to demonstrate a rational basis for imposing the rule. The Court also noted that the FTC was required to consider less disruptive alternatives to its near complete ban on non-compete agreements. Although the FTC argued it had “compelling justifications” to ignore potential exceptions and alternatives, the Court concluded the rule was unreasonable and the FTC failed to adequately explain alternatives to the proposed rule. Ultimately, the Court opined the rule was based on flawed evidence, that it failed to consider the positive benefits of non-compete clauses and improperly disregarded substantial evidence supporting non-compete clauses.

As a result of this ruling, the FTC’s rule will not become effective on September 4, 2024, short of any additional orders or rulings from a higher court reversing or staying the decision. For the time being, the existing laws governing non-compete agreements will remain in place. In Michigan, employers may enforce non-compete agreements that are reasonable in duration, geographical area and type of employment or line of business. In Illinois, they are regulated by the Illinois Freedom to Work Act, which imposes a stricter regulatory scheme. This should come as a relief for employers who can generally avoid—at least for now—analyzing complex issues regarding the impact that the FTC’s rule would have had on executive compensation arrangements tied to compliance with non-compete agreements, especially in the tax-exempt organization context.

by: D. Kyle Bierlein, Brian T. Gallagher, Barry P. Kaltenbach, Brian Schwartz of Miller Canfield

For more news on the Federal Court Ruling Against the FTC’s Non-compete Rule, visit the NLR Labor & Employment section.

Congress Extends Statute of Limitations for Sanctions Violations

What Happened:

On April 24, 2024, President Biden signed into law the Fentanyl Eradication and Narcotics Deterrence (FEND) Off Fentanyl Act, as part of a national security legislative package, which, among other things, amended the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) to extend the statute of limitations for the enforcement of sanctions violations from five years to ten years (the Amendment). The ten-year statute of limitations applies to civil and criminal enforcement for all sanctions programs.

The Bottom Line:

The Amendment changes the lookback period for sanctions compliance from five years to ten years, impacting how sanctions compliance is treated internally at companies with international touchpoints, as well as counterparty diligence in corporate transactions. Companies will need to update their compliance programs to account for the extended period.

The Full Story:

IEEPA authorizes the President of the United States to impose economic sanctions by declaring a national emergency in response to any unusual or extraordinary threat to the national security of the United States that originates outside of the United States. IEEPA authorizes both civil enforcement actions and criminal prosecution against persons found to have violated US sanctions and previously established a five-year statute of limitations on enforcement.

As part of a broader national security package, President Biden signed into law the FEND Off Fentanyl Act on April 24, 2024. The Act requires the President to, among other things, impose sanctions under IEEPA on any person involved in the trafficking of Fentanyl through a forthcoming Fentanyl sanctions regime and amends IEEPA to extend the statute of limitations on enforcement to ten years. Critically, the extended statute of limitations under the Amendment applies not only to the forthcoming Fentanyl sanctions regime, but to almost all sanctions programs administered by the US Department of Treasury’s Office of Foreign Assets Control (OFAC). The Amendment also impacts other programs authorized under IEEPA, including some programs administered by the US Department of Commerce’s Bureau of Industry and Security (BIS), such as the Information and Communications Technology and Services (ICTS) Program, as well as other programs administered by the Department of Justice and Department of the Treasury.

The Amendment impacts compliance obligations for US companies and others seeking to comply with US sanctions. For example, OFAC regulations implementing US sanctions include record-keeping requirements for financial institutions with respect to certain transactions that currently track the previous five-year limitations period under IEEPA and it is likely that OFAC will amend its regulations to increase record-keeping requirements to ten years. Similarly, OFAC guidance on effective sanctions compliance has pegged recommended record retention periods to the five year limitations period. For example, the “safe harbor” for service providers under the prohibition on maritime services for Russian oil under the Russian oil price cap sanctions requires that persons retain records for five years. It is likely that OFAC will update its guidance to reflect the new ten-year limitations period following the Amendment and companies should carefully consider updates to sanctions compliance programs accordingly.

The Amendment does not address retroactive application. Retroactive criminal prosecution (i.e., for conduct currently beyond the prior five year limitations period) raises constitutional concerns. It is currently unclear whether OFAC will seek to bring civil enforcement actions for conduct already beyond the five-year limitations period.

The new ten-year limitations period should also be considered in conducting sanctions diligence on external counterparties. Companies will need to consider the longer lookback period when evaluating potential mergers and acquisitions and when seeking or providing representations and warranties involving sanctions compliance.

Design Patent vs. Trade Dress: Strategic Considerations for Protecting Product Designs

Product designs often serve as the cornerstone of a brand’s identity, evoking instant recognition and loyalty among consumers. From the iconic silhouette of Coca-Cola’s glass bottle to the distinctive shape of Gibson guitars, the visual appeal of product designs can be a critical asset in the competitive marketplace. However, protecting a product design requires careful consideration and strategic planning. Two forms of IP protection are the most common – design patents and trade dress.

1. Design Patents

Design patents offer a streamlined and cost-effective means of protecting the ornamental appearance of product designs. The allowance rate is extremely high – over 95% – and is usually complete within 18 months. The result is that a design patent is significantly easier and less expensive to obtain as compared to conventional utility patents. This might explain the growing popularity of design patents for protecting product designs across various industries.

Design Patents Filed by Industry¹

Enforcing design patents can sometimes be more streamlined as compared to utility patents. For example, a design patent can be quickly enforced on the Amazon Brand Registry and other e-commerce platforms against copycat products sold on the platform. While Amazon does offer a procedure for utility patent enforcement, it tends to be more expensive and unpredictable.

However, design patents are not always an option. For example, a design patent can protect a functional article, but the protection only applies to the ornamental appearance of that article. So, a design patent on Crocs footwear does not protect the overall idea of a ventilated shoe. Instead, the protection only extends to the overall ornamental appearance of the shoe. And this protection only lasts for 15 years after the patent issues.

A design patent risks being overly narrow if its drawings contain too many solid lines. To counter this, a common practice involves converting unnecessary solid lines into dashed lines to broaden the patent’s scope and enhance its exclusionary effect. An example is below – the dashed lines do not narrow the design and are only provided to show the environment in which the design exists.

Is the End of Crocs Really Upon Us? Not So Fast. - The Fashion Law

Figure from Crocs Design Patent – U.S. Design Patent No. D517,789

2. Trade Dress

Trade dress is a form of trademark that protects the commercial look and feel of a product. Like all trademarks, trade dress indicates or identifies the source of the product and protects against consumer confusion in the marketplace. A classic example is the Coca-Cola bottle and how its shape and design immediately connect a consumer to the Coca-Cola brand:

A black and white drawing of a bottle Description automatically generated

Coca-Cola Bottle Trade Dress – U.S. Registration No. 696,147

Trade dress protection offers several advantages. It can sometimes be considered broader than a design patent because it attaches to any confusingly similar design. Additionally, trade dress protection is not limited to a 15-year term, like a design patent, and can continue for as long as the trade dress is used commercially in the marketplace.

So why not protect every product design as trade dress? First, product trade dress is not protectable unless it has “acquired distinctiveness” in the minds of consumers.
The Coca-Cola bottle serves as an example; its distinctive shape immediately invokes consumer association with the brand, demonstrating its acquired distinctiveness. However, proving acquired distinctiveness can be difficult and usually requires consumer survey evidence or other more costly endeavors. As a result, trade dress protection is less common than design patent protection for product designs.

Second, trade dress protection does not extend to any functional aspect of the product. The functionality requirement of trade dress protection is stricter than that of design patents – anything that is “essential to the use or purpose of the product or [that] affects the cost or quality of the product”² cannot be protected as trade dress. Many product designs include functions that cannot be separated from their branded “look and feel” and this disqualifies the design from trade dress protection.

Determining the optimal form of protection for a product design hinges on the specific attributes of the design and its commercial significance to the company. Navigating the path to protection demands meticulous attention to crafting intellectual property rights that are expansive yet defensible.

Footnotes

[1] This chart reflects the top ten owners of design patents over the past five years.

[2] Inwood Laboratories, Inc. v. Ives Laboratories, Inc.,456 U.S. 844 (1982).

For more news on product design protections, visit the NLR Intellectual Property section.

Category: Trade

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