NLR Featured on Return to Work Ultimate Resources Guide

The article Question & Answer Employer Guide: Return to Work in the Time of COVID-19 published on the National Law Review was featured on Humanyze’s list titled Return to Work: The Ultimate Resources Guide. 

Per Humanyze:

“National Law Review provides answers to commonly asked questions related to the return to work, encompassing functional areas such as when to reopen, legal obligations to consider, social distancing guidelines, and resuming meetings, conferences, and business travel, among others.”

 

Vanilla Flavoring Class Action Lawsuit Against McDonald’s Dismissed

On March 24, 2021, the U.S. District Court for the Northern District of California dismissed a consumer class action lawsuit against McDonald’s which had alleged various causes of action relating to McDonald’s sale of vanilla ice cream that the plaintiff alleged derived some portion of its vanilla flavor from vanillin rather than vanilla bean.

The Court found that the Plaintiffs had not established that their claim—that consumers were misled by the vanilla flavor labeling—was plausible as required to survive a motion to dismiss. Specifically, the court found that the allegations of consumer deception were merely conclusory and did not establish that it was “probable that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.” The court noted the labeling regulations that govern the retail sale of vanilla ice cream added no support for Plaintiffs’ claims because they indisputably did not apply to sales at fast-food establishments. Additionally, and serving as an independent grounds for dismissal, the court found that Plaintiffs’ had not established that they had paid a premium for the vanilla ice cream; rather the court found it to be “counter-intuitive” in the market context presented.

We have reported on a variety of vanilla flavoring class action lawsuits, many of which have not survived the motion to dismiss stage. This case is another demonstration of the difficulty that plaintiffs have had in convincing the court that consumers expect vanilla flavored products to contain not only the flavor of vanilla but also the ingredient vanilla bean. An amended complaint may be filed within 30 days of the order.

© 2020 Keller and Heckman LLP

ARTICLE BY Food and Drug Law at Keller and Heckman
For more articles on food flavoring, visit the NLR Biotech, Food, Drug section.

It’s Time Again for Employers to Ensure Handbook Compliance

It is early in 2021 and already the NLRB has before it ALJ determinations that employee handbook policies conflict with the NLRA. When analyzing employee handbook policies, the Board generally applies the Boeing test, whereby a handbook policy’s potential interference with employee rights under the NLRA is balanced against an employer’s legitimate justifications for the policy, when viewing the policy from the employee’s perspective. While the NLRA and the Boeing test apply to a number of employee handbook policies, confidentiality, social media, and solicitation/distribution policies are especially vulnerable.

Confidentiality Policies

Confidentiality policies can serve many purposes but primarily are in place as a means of protecting sensitive and proprietary information from disclosure to competitors and the general public. However, a primary function of the NLRA is to provide employees the right to disclose the terms and conditions of their employment with each other and third parties, including unions. Protected disclosures can include wage and benefit information, disciplinary history, and progress reports—information that often finds itself within the ambit of a confidentiality policy. As recent ALJ decisions have confirmed, confidentiality policies can interfere with employee rights under the NLRA when they are not sufficiently limited in scope and do not exclude from coverage employee communications and disclosures for protected purposes.

Social Media Policies

Social media policies can be useful tools to establish an employer’s expectations regarding employees’ public statements and help protect the employer’s reputation. However, the NLRA generally prohibits employers from restricting or attempting to control the content of employees’ public statements, unless such restrictions or controls tend to require adherence to basic standards of civility or serve legitimate business justifications. This year the NLRB has found that an employer’s business justifications are served by a social media policy that prohibits the sharing of general confidential information, speaking on behalf of the employer, and making disparaging statements. However, it is unclear whether the NLRB will hold course in the new political climate. As such, employers should consider adopting narrowly tailored social media policies—such as policies that prohibit unlawful conduct like discriminatory statements, defamation, and the disclosure of confidential information (defined to exclude information concerning the terms and conditions of employment)—to mitigate the risk that their policies interfere with employees’ rights under the NLRA.

Solicitation/Distribution Policies

Solicitation/distribution policies can promote employee safety and protect productivity by establishing parameters on when and where employees can solicit fellow employees for non-work related purposes or distribute non-work related literature. While these policies can reduce on-the-job distractions and contentious employee interactions, they must be carefully drafted to ensure they do not interfere with employees’ rights to engage in concerted activity protected by the NLRA.

While the NLRA does not require employers to allow employees to solicit other employees or make distributions during working time, or in active work areas, it does require employers to allow employees to engage in certain solicitations/distributions when employees are not working (for example, during break times) and in areas where work is not being performed (for example, in lunch rooms). Accordingly, employers should avoid introducing broad solicitation/distribution policies that prohibit non-work related solicitations/distributions generally, and should ensure such policies do not prohibit employees from engaging in protected solicitations/distributions during non-work time and in non-work areas. Further, employers should ensure such policies do not prohibit employees from engaging in protected solicitations/distributions in work areas when such are not active work areas.

Employee handbook policies are important tools to establish the expectations of the employer-employee relationship. However, these tools can often be used against employers if they are not carefully prepared to ensure compliance with the NLRA and the many other federal, state, and local laws that affect the employment relationship. Accordingly, employers should consider revisiting their employee handbooks with the assistance of labor and employment counsel to mitigate the risk that their employment policies conflict with applicable laws.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.
For more articles on handbook compliance, visit the NLR Labor & Employment section.

COVID-19: An Employer’s Role in Vaccination

As cases of the 2019 novel coronavirus (COVID-19) decrease and availability of the COVID-19 vaccine becomes more prevalent, employers face the daunting task of creating safe return to work plans. These plans often involve encouraging COVID-19 vaccination and, in some cases, mandating vaccination before employees may return to in-person work.

EMPLOYERS CAN MANDATE A COVID-19 VACCINE

On Dec. 16, 2020, the Equal Employment Opportunity Commission (EEOC) issued guidance clarifying that employers are lawfully permitted to require employees to be vaccinated before returning to work, subject to several exceptions.

These exceptions include:

1. Disability considerations

EEOC guidance reiterates an employer’s obligation to accommodate employees who have disabilities that would otherwise interfere with an employee receiving the COVID-19 vaccination. Under these circumstances, an employer may have to exempt such an employee from the vaccine mandate. Examples of such disabilities could include a history of allergic reaction to vaccine ingredients, or an employee who is pregnant or nursing and has been advised against vaccination by a doctor.

Notably, the EEOC acknowledged that under these circumstances an employer may deny a disability-related accommodation where there is no available alternative that would alleviate the “direct threat” posed by an unvaccinated employee. A direct threat is one that poses a “significant risk of substantial harm to the health or safety of the individual or others that cannot be eliminated or reduced by reasonable accommodation.” Employers must conduct an individualized assessment to determine whether a direct threat exists, taking into consideration:

  1. The duration of the risk
  2. The nature and severity of the potential harm
  3. The likelihood that the potential harm will occur
  4. The imminence of the potential harm

If such a threat is deemed to exist, the employer may be able to exclude the employee from the workplace but may need to provide an alternative accommodation, such as a remote work arrangement. Furthermore, because current guidance from the Centers for Disease Control and Prevention (CDC), recommends the ongoing use of personal protective equipment, health checks, masks and social distancing, employers may be able to accommodate unvaccinated employees within the workplace. As requirements for masking and distancing are lifted, the “direct threat” assessment will evolve.

2. Religious accommodations

Employees with sincerely held religious beliefs that conflict with vaccinations may also be entitled to an exemption from a mandatory vaccination policy. Like medical accommodations, an employer who knows that a sincerely held religious belief, practice or observance prevents the employee from receiving a vaccination must provide a reasonable accommodation, unless doing so would pose an “undue hardship” on the employer. Notably, having an “anti-vax” belief alone is not sufficient. The belief must be grounded in religion to qualify for protection.

Courts have defined “undue hardship” under Title VII as having more than a de minimis cost or burden on the employer. EEOC guidance explains that because the definition of religion is broad and protects beliefs, practices and observances with which the employer may be unfamiliar, the employer should ordinarily assume that an employee’s request for religious accommodation is based on a sincerely held religious belief. If, however, an employee requests a religious accommodation, and an employer has an objective basis for questioning either the religious nature or the sincerity of a particular belief, practice or observance, the employer would be justified in requesting additional supporting information.

The EEOC sagely advises that managers and supervisors responsible for communicating with employees about compliance with the employer’s vaccination requirement should know how to recognize an accommodation request from an employee with a disability or sincerely held religious belief and know to whom the request should be referred for consideration.

3. Mandatory vaccination policies trigger additional obligations under the ADA and other laws

The Americans with Disabilities Act (ADA) generally restricts employers’ ability to conduct medical examinations and request medical information from employees. However, the EEOC has specific guidance that clarifies that the COVID-19 vaccination itself is not a medical examination. Employers must use caution, though, as the EEOC also states that an employer’s use of pre-screening questions that ask whether the employee has been vaccinated may inadvertently constitute a disability-related inquiry. The guidance notes that employers can avoid any issues regarding disability-related inquiries if they require employees to be vaccinated by their own medical providers or encourage, but do not require, employees to be vaccinated.

If vaccination is mandated, federal law requires that employees be paid for the time spent waiting for and receiving the vaccine. Unionized employers may also consider their collective bargaining agreements when establishing a mandatory vaccination policy.

ENCOURAGING BUT NOT REQUIRING VACCINATION

Many employers are currently encouraging but not requiring vaccinations. This is especially the case in jurisdictions where vaccinations are not available to all adults. A policy of encouragement relieves the employer of the obligation to conduct disability and religious related accommodation analyses. Nevertheless, if employers offer incentives to employees to get vaccinated, like additional paid time off, gift cards, etc., accommodations may need to be made for those employees who are not eligible for the incentive due to a disability or religious belief that prevents them for receiving the vaccine.

Notably, an employer can ask or require employees to show proof of receipt of a COVID-19 vaccination. The EEOC has clearly stated this such a request is not a disability-related inquiry subject to the ADA’s restrictions. There are many reasons why employers would seek this information as they plan for return to “normal” business practices, including re-instituting in-person meetings, travel requirements, etc. In the meantime, such information will also assist employers in addressing quarantine requirements in the case of a workplace exposure. Interim CDC guidance from March 8, 2021, makes clear that vaccinated, asymptomatic employees do not have to quarantine or test after a known exposure.

PLANNING FOR A RETURN TO IN-PERSON WORK

Whether or not an employer elects to mandate vaccines now, it is advisable for employers to communicate with their workforce on their proposed strategy and expectations with respect to vaccinations. Employers should also keep in mind that they can change their vaccination policy in the future, converting from a non-mandatory policy to a mandatory one if warranted for the particular workforce.

Copyright © 2020 Godfrey & Kahn S.C.

ARTICLE BY Margaret R. Kurlinski of Godfrey & Kahn S.C.
For more articles on COVID-19 vaccinations, visit the NLR Coronavirus News section.

CBD Regulatory Enforcement Continues with Over-the-Counter CBD Pain Relief Products

Enforcement by the Food and Drug Administration (FDA) against cannabidiol (CBD)-containing products continues through the issuance of two new warning letters. On March 22, 2021, FDA published a press release cautioning companies against illegally selling over-the-counter (OTC) CBD products for pain relief. In the warning letters, FDA cited products listing CBD as an inactive ingredient for unapproved drug and misbranding violations.

Regulatory Background of CBD Products

We have previously blogged about the regulation of CBD products by the FDA and provided updates to the government’s actions to create a comprehensive regulatory framework for CBD. But as a brief refresher, FDA does not permit adding CBD as an ingredient of food products or dietary supplements. And while the Agriculture Improvement Act of 2018 (the Farm Bill) legalized the production of industrial hemp and products derived from hemp, it did not legalize all uses of and products containing hemp derivatives (such as CBD).

Under the Federal Food, Drug and Cosmetic Act (FD&C Act), any product intended to diagnose, cure, mitigate, treat or prevent a disease, and any product (other than a food) that is intended to affect the structure or function of the human body is a drug. This definition includes articles and components of drugs, which are regulated as drugs. OTC drugs must be approved by the FDA or meet the requirements for marketing without an approved new drug application under federal law; this includes drug products containing CBD.

Currently, nonprescription drug products containing CBD may not be legally marketed without an approved new drug application, regardless of whether the CBD is represented on the labeling as an active ingredient or an inactive ingredient. To date, no CBD-containing drug has met applicable FDA requirements to be legally marketed for nonprescription use. However, as noted in a prior blog post, the FDA has approved one CBD-containing prescription drug product for the treatment of seizures associated with tuberous sclerosis complex, Lennox-Gastaut syndrome, and Dravet syndrome in human patients.

FDA’s primary concerns pertaining to CBD use in products include a lack of safety data and the quality of the CBD products on the market. Currently, there is insufficient safety data to establish cumulative exposure to CBD (and THC), impact on vulnerable populations, or impact on drug development. There are also concerns about contaminants such as heavy metals, microbials, pesticides, and THC. In addition, FDA is concerned that there is a lack of appropriate processing controls and practices regarding the quality of CBD products, which puts consumers at additional risk.

Analysis of OTC CBD Warning Letters and Potential Implications to Industry

To date, FDA’s CBD enforcement has focused on disease or health claims as well as the products’ intended use. FDA commonly determines a product’s “intended use” based on: claims in the labeling, advertising, or promotion; consumer perceptions; and ingredients with well-known therapeutic uses. Products with unsubstantiated or misleading claims may result in a change to the intended use and consequently, a change to the status of the product causing it to become an unapproved drug or adulterated product under the FD&C Act.  A product is adulterated if it fails to conform to FDA’s standards of quality, strength, or purity.

FDA’s recently issued warning letters to Honest Globe, Inc. and BioLyte Laboratories, LLC are no different with the exception that these warning letters address OTC CBD drug products claiming to provide pain relief. Honest Globe and BioLyte, both manufactured and marketed OTC CBD products that allegedly provide pain relief. Although CBD is labeled as an inactive ingredient on the products, the labeling of these products represent CBD as an active ingredient due to the frequent and prominent placement of CBD claims on the products’ labeling and advertising on the companies’ websites. The labeling and advertising may lead consumers to the conclusion that the product provides benefits due to the CBD contents. To add insult to injury, CBD is not an active ingredient in any applicable final monograph or TFM, for purposes of establishing eligibility for lawful marketing without an approved application under the FD&C Act. Even if CBD was considered an “inactive ingredient” in these nonprescription drug products, the products would still require approval through a new drug application in order to be legally marketed since CBD has no known functional role as an inactive ingredient in a finished product.

In addition, Honest Globe issued a press release on its Instagram page that stated the “Did you know that Elixicure [product in question] was the first over-the-counter CBD-infused topical pain cream product to receive FDA certified registration” (the company made several similar claims identified in the warning letter). FDA noted that to state the product is “FDA registered” is inaccurate. Drugs are subject to listing with FDA, not registration. Moreover, registration of an establishment or listing of a drug does not denote approval of the establishment, the drug, or any other drugs of the establishment, nor does it mean that a product may be legally marketed. FDA stated that “[a]ny representation that creates an impression of official approval or that a drug is approved or is legally marketable because of registration or listing is misleading and constitutes misbranding.”

Aside from the labeling and advertising claims and an assessment of the products’ intended use, both companies displayed significant violations of current good manufacturing practice (CGMP) regulations for finished pharmaceuticals demonstrating FDA’s concerns over safety data and quality control. The companies’ methods, facilities, and controls for manufacturing, processing, packing, and holding did not confirm to CGMP making the product adulterated within the meaning of the FD&C Act.

Neither of the company’s products have been subject to the approval process, nor have there been any evaluation of whether they are effective for the claims used, appropriate dosage, interaction with other drugs or products, or dangerous side effects or other safety concerns.

FDA Principal Deputy Commissioner Amy Abernethy, M.D., Ph.D. stated that: “The FDA continues to alert the public to potential safety and efficacy concerns with unapproved CBD products sold online and in stores across the country. . . It’s important that consumers understand that the FDA has only approved one drug containing CBD as an ingredient. These other, unapproved, CBD products may have dangerous health impacts and side effects. We remain focused on exploring potential pathways for CBD products to be lawfully marketed while also educating the public about these outstanding questions of CBD’s safety. Meanwhile, we will continue to monitor and take action, as needed, against companies that unlawfully market their products — prioritizing those that pose a risk to public health.”

Over the past several years, FDA has continued to issue warning letters to companies that market unapproved new drugs that allegedly contain CBD at an increased rate. These new warning letters are unique in that they address OTC CBD pain relief. As noted, demonstrating a product’s intended use and making disease and health claims are common pitfalls for companies selling CBD products. The rise of OTC CBD pain relief products make this an area to watch. As this area will no doubt continue to be a hot enforcement area for the FDA, we will continue to update our readers of any important regulatory activity.

©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
ARTICLE BY Elizabeth K. Conti of Mintz
For more articles on CBD, visit the NLR Biotech, Food, Drug section

Facebook’s Augmented-Reality: Controlling Computer Functions with Your Mind

What if you could control a computer with your mind? Well, Facebook’s latest device may allow you to do just that. Facebook recently announced that it has created a wristband that allows you to move a digital object just by thinking about it. The wristband looks like a large iPod on a strap and uses sensors to detect the user’s movements through electromyography (EMG). EMG interprets electrical activity from motor nerves as information is transmitted from the brain to the hand. An example: you could navigate through the augmented-reality menus by thinking about moving your finger to scroll through the options. However, Facebook notes that this “control”  is coming from the part of the brain that controls motor information, not thought.

The wristband is still in the research-and-development phase at Facebook’s Reality Labs;  no details about its cost or release date have been provided yet. This wristband is part of Facebook’s push for every-day virtual reality and augmented-reality products for consumers, and it’s likely only the beginning.

Facebook also released information earlier this month about its augmented-reality glasses that, as you walk past your favorite coffee shop, might ask you if you want to place an order. Herein lies a privacy dilemma: products such as these glasses and wristband mean that companies like Facebook will have access to even more data points about consumers than they already do. In the coffee shop for example, the company and its advertising partners would know what kind of coffee you prefer, where you live/work/ frequently visit, and either by submission or statistical deduction, also know your demographic, health, and other personal information. A personalized consumer profile based on your every move could easily be created (or more likely added to the already-existing profile about your buying behaviors).

Copyright © 2020 Robinson & Cole LLP. All rights reserved.

ARTICLE BY Kathryn M. Rattigan of Robinson & Cole LLP
For more articles on Facebook, visit the NLR Communications, Media & Internet section.

Beauty and the Little Pig: French Judges Find Jeff Koons Guilty of Copyright Infringement Once Again

The Paris Court of Appeal confirmed a previous decision that found Jeff Koons guilty of copyright infringement for one of his “Banality” sculptures. The Paris Court of Appeal even increased the amount of damages and costs that were initially awarded in the first instance. Beyond the fact that, fortunately, it is quite rare that a famous artist is found guilty of plagiarism, this case is also interesting because Jeff Koons used more or less every defense in the (French) book.

At the end of 2014 and beginning of 2015, the Pompidou Modern Art Museum organized a retrospective of the work of Jeff Koons, which attracted thousands of visitors but gave rise to several lawsuits.

On March 9, 2017, the Paris District Court found that for one of his Banality sculptures, Jeff Koons had reproduced the original features of a French photograph created by Jean François Bauret, which had “saved him creative work.”

The retrospective also prompted another French artist, Franck Davidovici, to sue Jeff Koons personally over an allegedly infringing sculpture. Davidovici also sued Koons’ company, the Pompidou Museum, and Flammarion, a top French publishing house which published a book containing a reproduction of the sculpture in question.

This time, the plaintiff had designed an advert in 1985 for a French fashion company called NAF-NAF. The advert, reproduced below, was published in several well-known magazines, such as “Elle” and “Marie Claire.”

“Naf Naf” is the French name of one of Disney’s Three Little Pigs, the brave and smart one who builds a house with brick and mortar which can resist the wolf’s attack. The title of the advert — “Fait d’hiver” (which means literally “winter event”) — is a play on words since “fait divers” means events, such as accidents, which are reported in local newspapers. The word “winter” also refers to the NAF-NAF autumn-winter collection, which included the jacket worn by the brunette. This photograph is quite striking because the little pig is wearing a small barrel of the type rescue dogs wear.

The Koons sculpture in question was another piece of the Banality series also entitled “Fait d’hiver,” and is reproduced below.

Davidovici claimed that Jeff Koons had violated his moral rights by using the work without his permission and infringed upon his copyright.

Jeff Koons tried almost all defenses that can be raised in this kind of case but none of them was persuasive to the judges and on 8 November 2018 Jeff Koons was found to have infringed Davidovici’s copyright. Jeff Koons appealed but the Paris court of appeal reached the same conclusion and increased the amount of damages and costs awarded.

The Parody Defense: Tried Again, Failed Again

As before the first instance judges, Jeff Koons argued that the sculpture fell within the parody defense.

This defense is set out in the French Intellectual Property Code but is, in fact, the implementation of article 5 §3 (k) of the 2001/29/CE Copyright Directive. The Court quoted a decision rendered by the European Court of Justice that stated that for the exception to apply, the work of art must evoke an existing work but differ notably from that previous work and express humor or mockery.

An example of what would certainly qualify as a parody is the painting by Dali of Mona Lisa with a moustache.

Jeff Koons argued that the humor in his sculpture stemmed from the incongruity of the scene: the woman is lying in the snow, dressed with a sexy fishnet gown and the animal who comes to rescue her was a pig, a farm animal which symbolizes banality. That pig is there to free the young woman from the “fashion diktats” and to free the public from the “good taste diktats” of the so-called “Great Art.”

The Court held that even assuming that the sculpture might be seen as an expression of humor, the advert was not effectively notorious for the sculpture to be regarded as a parody.

The Freedom of Expression Defense: Tried Again, Failed Again

Koons tried once again to rely on freedom of expression as set out in Article 10 of the European Convention of Human Rights but the judges followed the same reasoning as in the Bauret case and also relied on the decision rendered by the European Court of Human Rights in the Ashby Donald case.

Jeff Koons argued that he had added flowers and penguins, which symbolize spring and life, and that his intention was to convey the message that each individual must have faith in his/her own personal tastes. Before the first instance court he had provided as an exhibit a copy of a decision rendered by the U.S. Court of Appeals for the Second Circuit in the Andrea Blanch case in which Koons successfully relied on the “fair use” defense. The French judges could have put this case aside by stating that the “fair use” doctrine simply does not exist under French law but interestingly, they noted that the U.S. case was different in that Koons had not used a substantial part of Blanch’s work. On appeal, the U.S. case was not discussed.

The French judges followed the European case law and stated that they had to balance on the one hand the interests of Davidovoci and on the other hand, Koons’s freedom of expression. Their conclusion was that it was not disproportionate to allow the plaintiff to enforce his rights.

Freedom of expression was therefore not a valid defense in this case.

The Cost of this Banality

A total amount of 207,000 euros had been awarded by the first instance court by way of damages and legal fees and the co-defendants, including the Pompidou Museum, were held jointly liable to pay that amount, which is fairly usual in copyright infringement cases. On appeal, the total amount payable was increased to 344,000 euros, which is quite high according to French standards.

Koons would have been well advised not to appeal but it is harder to predict the outcome of a judicial battle than that of a fairy tale.

© Copyright 2020 Squire Patton Boggs (US) LLP

ARTICLE BY Catherine Muyl of Squire Patton Boggs (US) LLP
For more articles on copyright infringement, visit the NLR Litigation / Trial Practice section.

The Coming Blockchain Revolution in Consumption of Digital Art and Music: The Thinking Lawyer’s Guide to Non-Fungible Tokens (NFTS)

First there were CryptoKitties. Then came digital art, CryptoPunks and NBA Top Shot. But when Beeple’s digital art piece “Everydays: The First 5000 Days” sold at Christie’s for US$69 million, the NFT mania truly began. And as with any wave of media mania, there also came the groundswell of negative media and hand-wringing about NFTs.

We believe it is time to address the pros and cons of NFTs from a thoughtful, legal perspective. NFTs are not all evil nor are they a panacea for artists and musicians. Here are our thoughts on the most common questions we have received from our clients about NFTs.

WHAT ARE NFTS?

NFTs are non-fungible tokens issued on a distributed ledger such as a blockchain. They are similar to cryptocurrencies like bitcoin in that they can be identified individually and are authenticated through a decentralized system of nodes via a consensus protocol. However, they differ from cryptocurrencies in that they are each unique, indivisible, and “non-fungible.”1 NFTs are stored in “smart contracts,” which are automatically executable code that run on top of the distributed ledger on which the NFT is recorded. They provide a method of “provable uniqueness” and ownership for pieces of digital art, images, music and other content. NFTs are provably unique because each image and piece of content is linked to a single token stored in a smart contract on the distributed ledger and its ownership can be irrefutably established. While others may have copies of the same content, only one person can own the specific token authenticating ownership of the content. Currently, most, but not all, NFTs operate on the Ethereum blockchain. NFTs may help realize the long-touted but practically elusive goal of making blockchain technology a powerful tool to protect artists’ rights to benefit from their creations without the need of intermediaries and to protect investors by helping establish provenance of art works.

WHY ARE PEOPLE SPENDING MASSIVE SUMS ON NFTS?

NFT purchasers often are collectors who view NFTs as a way to support their favorite artists, actors, musicians, and athletes. While there have been some recent high profile large dollar sales, most NFT sales are at a reasonable price that provides a much-needed way for artists, collectors, and musicians to monetize their work. As with collectors of many items (antiques, baseball cards, art) many collectors purchase NFTs because they hope they will increase in value and will be a good investment. The legal and regulatory analysis of an NFT will be heavily influenced by how it is intended to be used and how it is marketed. Whenever there are high-profile stories of ordinary people getting rich from new technology, some bad actors will try to take advantage of the situation.

WHAT ADVICE WOULD YOU PROVIDE TO ARTISTS OR MUSICIANS WHO WANT TO ISSUE THEIR OWN NFT?

Given recent high-profile stories of people getting rich from new technology, there have been media reports of bad actors who will try to take advantage of the situation.2 If you are an artist or musician who is interested in issuing NFTs as a way to monetize your creative content, you need to be careful on how you proceed. For instance:

  • Ensure that the piece of art/image, digital music or other creative work associated with the NFT is unique and authenticated. Ensure that you have all of the rights necessary to reproduce and distribute the work.
  • Work only with a reputable technology company that will issue the token on your behalf in a manner that is transparent and secure.
  • Inquire about the technology company’s position on payment of royalties. While certain token standards prohibit royalties (because they are viewed as stifling the ability to freely transfer tokens) there have been discussions in the Ethereum community about the creation of a royalty standard.3 At present, artists generally receive a payment when their NFTs are initially sold, but often not if they are resold in the future.
  • Work only with a reputable marketplace that does not over-promise or hype the NFTs, and that does not require you to make significant up-front payments in order to issue and sell your NFTs. Find out which blockchain platform the technology company is using. Jodee Rich, founder of NFT issuer Kred and the NFT conference “NFT/NYC”, told us:
    • NFTs are minted on different blockchain platforms. Ethereum is the standard (called ERC721). Minting and transacting on the Ethereum blockchain is really expensive. We recommend minting on Ethereum compatible blockchains (such as Matic) which are just as effective and much less expensive.
  • Make sure disclosures are clear regarding the purpose of the NFTs as a royalty vehicle, whether there is expected to be an established trading market for them, risk factors or other special considerations, and whether they are or are not investment contracts or other types of securities.

WHAT ADVICE WOULD YOU PROVIDE TO COLLECTORS WHO WANT TO PURCHASE NFTS?

Prospective purchasers of NFTs should keep in mind that, while the NFTs may have some similarities to other collectibles, such as artwork, comic books, music, or trading cards, they also differ from those traditional physical assets in important ways:

  • You are purchasing a unique piece of code on a blockchain that is linked to the product. You will not have a piece of art that can be hung on a wall; rather, you will need to store your NFT in a digital asset wallet, whether a wallet you control or one provided by a third-party.
  • Purchase an NFT that you personally like from an artist you admire as a collectible.
  • While the value of an NFT may be influenced by the reputation of the artist and the provenance of the NFT and the art work that it represents, do not expect that your purchase will necessarily increase in value or maintain a stable value.
  • Recognize that while you own the token with code linked to the provably unique image or other work, others may have copies of the underlying work. But only you can own that token.
  • Ensure you understand where the underlying work referenced by your NFT is stored. In most cases, the work is not actually stored on the blockchain and the NFT will “point” to a traditional internet site where the work is housed.
  • Understand whether the NFT sponsor is carefully addressing compliance with regulatory requirements, and understand the potential effect on liquidity if the NFT is marketed as a security or a commodity, and understand potential rescission rights if an NFT that is not marketed as a security is subsequently determined to be a security that was issued in violation of the registration requirements of the securities laws.

WHAT ADVICE WOULD YOU PROVIDE TO LAWYERS WHO HAVE CLIENTS INTERESTED IN NFTS?

As with any new product or service, there is some uncertainty about the regulatory landscape for NFTs. Nevertheless, there are some clear rules to follow. If you are a lawyer with clients in this space, here are some top areas of the law that you need to be familiar with. It is important to realize that plaintiffs, prosecutors or enforcement agencies have sought to hold lawyers responsible for advice in other areas of the fast-developing legal framework for digital tokens and cryptocurrencies where that advice was in hindsight considered to have been overly aggressive.

Are NFTs Securities?

As with other blockchain-based tokens, the question of whether a given NFT might be a security will be highly dependent on the facts and circumstances. Being categorized as a “security” could subject an NFT to detailed registration and disclosure requirements, or alternatively to suitability requirements and offering restrictions for transactions exempt from registration. Complying with the registration requirements of the Securities Act would be impracticably expensive, while offering restrictions could make NFTs unsuitable for certain anticipated use cases such as facilitating artists’ rights and royalties. The sale of a one-off NFT that only confers ownership over a piece of art likely would not be considered an offering of securities. However, more complicated transactions related to NFTs could easily cross the line and become securities offerings. For example, projects where large numbers of NFTs are minted and sold and where the issuer creates a platform to support secondary trading of the NFTs could potentially be viewed as a securities offering. Similarly, NFTs that are “fractionalized” and sold to individual investors are also likely to be considered securities.4 To do so, the NFT itself is held by the owner or a custodian and fungible digital tokens that collectively represent 100 percent of the ownership of the NFT are created and sold to third parties. For NFTs minted on Ethereum, the NFT would be created using the ERC-721 standard and “ownership” tokens would be created using the ERC-20 standard.

Finally, if the NFTs or ownership tokens being sold will entitle the holders to a royalty payment or dividend stream related to the underlying music or art, such digital tokens could be deemed securities if the tokens are considered to represent an investment in a common enterprise with an expectation of profits to be derived from the entrepreneurial or managerial efforts of others under the Howey test.5

The Security and Exchange Commission’s (SEC) regulatory guidance and enforcement activities over blockchain-based tokens of all types have evolved rapidly in recent years and continue to evolve to keep pace with technological innovation. Issuers of NFTs and platforms supporting the sales and trading of NFTs should be mindful of the rapid evolution within the recent past of the SEC’s view of digital tokens and the circumstances that could cause it to regard a token as a security even if the token has elements of utility tokens. Lawyers advising clients on NFTs should be familiar with no action letters, and regulatory guidance related to initial coin offerings (ICO), decentralized autonomous organizations, and “utility tokens” and “security tokens,” including the “Framework for “Investment Contract” Analysis of Digital Assets.” Lawyers should pay particular attention to the numerous SEC enforcement actions.6 Lawyers should also be mindful of the SEC statements in the context of ICOs that articulate an expectation that securities lawyers, accountants and consultants as gatekeepers have a special responsibility to help prevent violations of securities law in the design and offering of digital tokens. Moreover, if an NFT (or ownership token) is a security, a transaction that does not prompt regulatory scrutiny could nonetheless result in private litigation, because state and federal anti-fraud statutes typically apply even to securities that are exempt from registration requirements.

Are NFTs Commodities?

Even if an NFT is not a security, if the NFT may reasonably be expected to have secondary market trading and liquidity, a lawyer should also consider whether the NFT is a “commodity” under the U.S. commodity laws. A commodity is typically defined as a reasonably interchangeable good or material, bought and sold freely as an article of commerce, which includes all services, rights, and interests in which contracts for future delivery are traded presently or in the future. In several enforcement actions, the Commodity Futures Trading Commission (CFTC) has taken the view that bitcoin and virtually all other primary digital currencies that are not securities are commodities subject to the anti-fraud and anti-manipulation jurisdiction of the CFTC. Because CFTC-registered trading venues now offer futures contracts and other derivatives with Bitcoin and Ether as the underlying assets, it is now established that those digital assets are in fact commodities under U.S. law.

What are the Intellectual Property Considerations for NFTs?

With respect to intellectual property laws, we recommend that lawyers ensure that the NFT issuer controls all of the rights in the content that are necessary for the reproduction and distribution of the NFT. For example, the owner of rights in a sound recording also would need to control or have license rights to the underlying musical composition performed on the sound recording. The rights in the music composition that were granted to make and distribute the sound recording may not extend to the creation and distribution of one or more NFTs. Although fair use and first sale rights also would apply to the creation, reproduction and distribution of NFTs, no court decisions have yet addressed the application of those doctrines to NFTs. NFT creators and distributors should be quite careful in relying on those doctrines given the current lack of precedent with respect to their application.

Similarly, the distribution of images that utilize trademarks such as product logos generally will require a license from the trademark owner and typically would be outside the scope of any existing trademark license. Brand owners already have entered the NFT markets and are likely to vigorously object to unauthorized uses of their trademarks as part of an NFT.

The owner of an NFT, like the owner of a unique work of art, generally will own only the digital item itself, and not any underlying intellectual property rights, which typically remain with the creator of the work, or their designee. The owner of the NFT therefore will have limited rights to exploit ownership of the NFT, apart from resale of the NFT itself, unless additional license rights are included with the NFT.

What Other State and Federal Laws Should be Considered?

As with most all commercial transactions, transactions involving NFTs will need to consider state and federal consumer protection laws, especially restrictions on unfair, deceptive (and abusive) acts and practices. These broadly construed laws generally prohibit actions that cause unfair harm or mislead parties to transactions. Federal and state regulators have issued various warnings to consumers about the uncertainty of the cryptocurrency industry, and we expect those regulators would have equal concern about the NFT marketplace, especially given its novelty and lack of general consumer understanding. As a result, those involved in NFT transactions should pay particular attention to representations in marketing and other disclosures to ensure their accuracy and thoroughness.

NFTs may implicate other laws depending on their particular characteristics. For example, to the extent an NFT is linked to a cryptocurrency (such as ownership tokens) or other monetary value, state money transmitter laws might be implicated. Forty-nine states have money transmitter laws on their books, and some (but not all) of those laws apply to activities involving cryptocurrency, such as holding cryptocurrency on behalf of others, receiving it for transmission to a third party, or issuing it. If such laws are triggered, a license would be required (unless an exemption or partnership with a licensee applied) and various obligations would apply, such as minimum capital, recordkeeping, examinations, and disclosures.

At the federal level, the same activity that could trigger state money transmitter laws may also trigger an obligation to register with the Financial Crimes Enforcement Network (FinCEN) and implement an anti-money laundering program. FinCEN has issued guidance explaining that it regulates “administrators” and “exchangers” of cryptocurrency and has continued to expand its regulatory oversight of cryptocurrency transactions, including recent proposals to impose new reporting and recordkeeping requirements. Although FinCEN has issued little guidance on NFTs specifically, earlier this month the Financial Action Task Force (FATF), a global anti-money laundering body, proposed revisions to its virtual asset guidance that could subject certain NFTs—such as those that enable the transfer or exchange of value on secondary markets—to regulation. Although FATF has not finalized the proposed revisions, it is unlikely these attempts at regulation will fade, so NFT issuers and exchanges should proceed accordingly.

CONCLUSION

NFTs can be a true win-win for both the sellers and purchasers, as well as for the artists and musicians who use them. The close relationship of many NFTs to works of art, and their popularity with artists and musicians may provide a basis to hope that NFTs will not suffer the challenges faced by the ICO market. However, care should be taken to ensure that the NFT transactions are implemented with clear and transparent terms, and a full understanding from all as to the laws that apply, the underlying nature of the product and how it provides true provable uniqueness.

1 NFTs created using the ERC-721 standard are indivisible.

2 See David Gerard, NFTs: crypto grifters try to scam artists, again (Mar.11, 2021).

3 See James Beck, Can NFTs Crack Royalties and Give More Value to Artists?, CONSENSYS BLOG (Mar. 2, 2021).

4 See here 

5 SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

6 See SEC v. Ripple Labs, Inc., et al., Case No. 20-cv-10832, Southern District of New York, complaint filed December 22, 2020.

Copyright 2020 K & L Gates

ARTICLE BY Daniel S. Cohen,  Clifford C. Histed,
Stephen M. Humenik,  Jeremy M. McLaughlin,
Jonathan M. Miner and  Anthony R.G. Nolan of K&L Gates

Judith Rinearson, Mark H. Wittow and Daniel Charles (DC) V. Wolf contributed to this article. 

More than a “Board” Game: How Companies Thrive with Diversity, Equity and Inclusion

Over the past few years, California has enacted legislation that requires public companies in California to meet certain diversity metrics with respect to their boards of directors. These board-specific requirements follow the development of empirical data that supports the following conclusions: (1) diversity in public corporations’ boards of directors was severely lacking and (2) diversity at a top level can make a company perform better. But diversity, equity and inclusion (“DE&I”) does not end at the top, though that is a great place to start.

To that end, in 2018, Senate Bill 826 was signed into law to advance equitable gender representation on California corporate boards. The law required that by the end of 2019, all domestic general corporations and foreign public corporations whose principal offices are located in California must have a minimum of one female on its board of directors. By the end of 2021, the law requires an increase to a minimum of two female directors if the corporation has five directors, or a minimum of three female directors if the corporation has six or more directors. And in order to add teeth, the California Secretary of State is authorized to impose fines for violations of these requirements: $100,000 for a first violation, or for failure to timely file board member information with the Secretary of State, and $300,000 for a second or subsequent violation. See Cal. Corp. Code Sections 301.3 and 2115.5.

In September 2020, Assembly Bill 979 was signed into law, requiring boards of California public corporations to include directors from underrepresented communities by the end of 2021. An individual from an underrepresented community is defined as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.” By the end of 2022, those requirements grow to two board seats if there are five to eight board seats total, and three board seats for companies with nine or more board seats. Similar fines are available for non-compliance ($100,000/$300,000). See Cal. Corp. Code Sections 301.3, 301.4 and 2115.6.

While there is ample justification for these board-specific legislative changes, DE&I go far beyond the make-up of a board of directors and impact the entirety of a company. Recently, we spoke with Melynnie Rizvi, Deputy General Counsel and Senior Director of Employment, Inclusion and Impact at SurveyMonkey on our podcast, The Performance Review, to discuss how DE&I can make a company thrive. (Check out the episode here – where you can also get MCLE self-study credit).

Among the salient points: To thrive with DE&I, it cannot just happen in the boardroom – it’s the whole company. According to Ms. Rizvi, companies should let those initiatives permeate further into the company culture and be included in a company’s business plans. There are a number of reasons companies should focus on developing programs and policies to enrich DE&I efforts:

Reason 1: It is the right thing to do.

Though business can be cutthroat, more often than not, the right business decision is also just the right thing to do. Put simply, developing an environment that champions diversity is not only consistent with California law, it is good for your employees and good for your consumers. This dovetails with an ancillary benefit – it is good for a company’s image. Brand loyalty and awareness is more important than ever, both for recruiting solid talent, and making consumers happy. More and more employees and consumers are making choices about which company to support based on the company’s outward facing DE&I initiatives or protocols. As this data becomes clearer, we see more and more employees sharing positive sentiment toward racial justice and racial equality. According to Ms. Rizvi, a SurveyMonkey poll recently found that the majority of employees in the tech sector want to work for companies that take a stand on social issues.

Reason 2: It is good for business.

Indeed, research and data have shown that a focus on DE&I, along with other initiatives related to environmental, social and governmental programs, actually result in better financial performance for companies. Here are some examples cited in SB 826 and AB 979:

  • “According to a report by [an international consulting firm], for every 10 percent increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes rise 0.8 percent.”
  • “A study by [a research firm] found that the high tech industry could generate an additional $300 billion to $370 billion each year if the racial or ethnic diversity of tech companies’ workforces reflected that of the talent pool.”
  • “In 2014, [a large financial institution] found that companies with at least one woman on the board had an average return on equity (ROE) of 12.2 percent, compared to 10.1 percent for companies with no female directors. Additionally, the price-to-book value of these firms was greater for those with women on their boards: 2.4 times the value in comparison to 1.8 times the value for zero-women boards.”
  • “A 2017 study by [a finance company] found that United States’ companies that began the five-year period from 2011 to 2016 with three or more female directors reported earnings per share that were 45 percent higher than those companies with no female directors at the beginning of the period.”
  • “[A large financial institution] conducted a six-year global research study from 2006 to 2012, with more than 2,000 companies worldwide, showing that women on boards improve business performance for key metrics, including stock performance. For companies with a market capitalization of more than $10 billion, those with women directors on boards outperformed shares of comparable businesses with all-male boards by 26 percent.”

There are a number of ways to measure performance but, at minimum, seeing an increase in profitability is usually top of mind. Moreover, focusing on recruiting and training a more diverse talent pool can open a company up to a wider range of backgrounds and ideas, which can lead to better products and services.

Reason 3: It may keep you out of court.

DE&I initiatives can help prevent companies from facing discrimination or pay equity lawsuits. These lawsuits can be costly, time-consuming, and an overall business distraction – not to mention – bad for publicity. By addressing any deficiencies in diversity now, you may prevent your company from litigation heartache in the future. Moreover, SB 973, another of California’s recent laws, requires covered employers (100+ employees) to file a pay data report (Form EEO-1) with the Department of Fair Housing and Employment on or before March 31, 2021, and each year thereafter, that states the number of employees by race, ethnicity, and sex for the prior calendar year in 10 covered job categories. See Gov. Code Section 12999.

So perhaps that leaves you wondering, what should my company do? Systemic changes take time and can be difficult to get started and/or sustain. They require buy-in from the top all the way down. This will typically require a multi-faceted approach, but according to Ms. Rizvi (seriously, go listen to the podcast) here are a few ideas:

  1. Integrate DE&I into your business goals/objectives. Make this a priority with specific benchmarks and deliverables, just as you would set a profit target.
  2. Hold people accountable for lack of progress, and reward achievements. Just as you would hold someone accountable for missing a sales goal, or releasing a product behind schedule, companies could consider measuring job performance, at least in part, on how DE&I initiatives are performing.
  3. Look for ways to implement across the company, not just at the top. And this should go between departments as well. For example, it is one thing if your workforce is majority female, but if they all work only in one department, have you really created the diverse environment across the company to make it thrive? Not likely.
  4. Find ways to improve DE&I advocacy. This can be within the organization, or external, such as partnering with different social justice groups, or engaging in efforts to develop new legislation.
  5. Implement policies consistent with these goals. This means fine-tuning anti-discrimination policies, developing diversity initiatives, and crafting policies related to social justice initiatives.

There are a number of ways employers can create an environment that champions DE&I. But at minimum, California has spoken and requires covered companies to start this process in the boardroom. But as data continues to show, the need for DE&I runs all the way through a company, and can drastically transform not just the public’s perceptions, but your company’s bottom line.

©2020 Greenberg Traurig, LLP. All rights reserved.

ARTICLE BY Kurt A. Kappes and Michael Wertheim of Greenberg Traurig, LLP
For more articles on corporate law, visit the NLR Corporate & Business Organizations section.

Farm Lending Pitfalls For Urban Lawyers

OK, so you’re a sophisticated lending attorney in Metropolis who is comfortable with everything from aircraft financing to syndicated loans secured by casinos in Macau. Yet you feel a twinge of uncertainty when a business loan is to be secured by wine inventory made from grapes grown in both California and Washington. You know intuitively that anytime farmers, ranchers or food processors are in the mix, either as a borrower or a supplier to the borrower, the underwriting and documentation challenges are not uniform on a state-by-state basis, and are compounded by an overlay of federal laws designed to protect growers of perishable crops and providers of livestock. To get a reality check, you sometimes will secretly call your law school classmate who oddly returned to Smallville and now represents its one bank.

Your concerns are justified but can be reduced by understanding a handful of specific laws that should prompt discussion of documentation and collection risks. First and foremost, all 50 states have unique lien statutes designed to protect those who provide goods, services, land and labor to farmers, ranchers and food processors. Dealing with competing liens and quantifying risk is nothing new to lenders, but the problem posed by agricultural liens is that they often are not searchable (no public filing is required), yet they often are senior in lien priority to conventional Uniform Commercial Code (UCC) security interests. As a result, the number and size of such liens are unknowable except from reliance on the borrower’s own books and records, which hopefully are current and accurate.

To exemplify this risk, let’s return to the winery loan that made you uneasy. California law provides a Producers Lien (Cal. Food & Agric. Code 55631-55653) to unpaid grape producers in an unlimited amount without requiring any public or searchable filing. A Producer Lien’s priority is senior to all UCC security interests and other claims, except for UCC warehouse liens and laborers’ wage claims. Cal. Food & Agric. Code 55633; Frazier Nuts v. American AgCredit, 141 Cal. App. 4th 1263 (2006). The Producers Lien attaches not only to the wine sitting in the borrower’s inventory, but also to the accounts generated by the sale of wine. Frazier Nuts, supra, at 1270. Thus, the lender’s $10 million revolving line of credit, ostensibly well secured by wine inventory and accounts valued at $20 million, has a far different risk profile if the borrower did not fully disclose the amount of unpaid grower claims, an amount which varies during the winery’s business cycle. The full amount of these Producer Liens will prime the lender’s unpaid loan if collection remedies ever become necessary. Cal. Food & Agric. Code 55634.

Faced with this risk, a reasonable lender might attempt to identify likely holders of Producer Liens and obtain a waiver or subordination of the statutory liens. This solution is possible but not foolproof; waivers of Producer Liens laws have been overturned on grounds showing they were not knowingly and intentionally given. See, e.g., Silva Farms v. Wells Fargo Bank (In Re GVF Cannery, 202 B.R. 140 (N.D. Cal. 1996).

Before throwing in the towel, however, bear in mind that some statutory agricultural liens are searchable because of public filing requirements and are also governed by the UCC’s “first in time” priority rules. See, e.g., California’s Dairy Cattle Supply Lien, Food & Agric. Code 57401-57414; Agricultural Chemical and Seed Lien, Food & Agric. Code 57551-57595; and Poultry and Fish Supply Lien, Food & Agric. Code 57501-57545. These filing and priority rules resulted from efforts by the UCC’s Permanent Editorial Board to bring statutory liens within the UCC’s framework, but only with partial success. Thus, the lawyer’s analysis includes not only spotting the potential statutory lien, but knowing when its risk is manageable or mitigated by the specific lien’s UCC-like searchability and collection priority.

Moving beyond state lien laws, which by themselves are powerful tools in a priority dispute with a conventional UCC lender, federal laws sometimes provide an even more powerful tool. Growers of perishable fruits and vegetables, as well as providers of livestock and poultry, are afforded federal protections under the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. 499, and the Packers and Stockyards Act (PASA), 7 U.S.C. 181. PACA and PASA do not simply create a lien that competes with a UCC security interest; they may actually impose a trust on the farm products, the inventory created from such products and all receivables and other proceeds generated by those perishable commodities and livestock. 7 U.S.C. 499e(c)(2). By placing these products and proceeds in a trust, any purported security interest in the same assets is limited to the residual value after the trust beneficiaries – the unpaid suppliers – are paid. And when assets are subject to a PACA or PASA trust, certain individuals are saddled with the legal duties of a trustee to pay those unpaid beneficiaries, creating strong incentives for the PACA or PASA trustee to do so to avoid personal liability.  See, e.g. Coosemans Specialties v. Gargiulo, 485 F. 3d 701 (2d Cir. 2007).

To quantify the risks posed by these federal statutory trusts, the limits of these statutes and common defenses to them must be understood. For example, the most common questions for the application and extent of the PACA trust include: (1) is the product a perishable agricultural commodity under 7 U.S.C. 499a(b)(4); (2) was the receiver of the produce licensed or otherwise subject to PACA under 7 U.S.C. 499a(b)(6); and (3) did the PACA claimant comply with, or waive the protections of, PACA? A common defense to a PACA claim is that the payment terms exceeded 30 days. 7 C.F.R. 46.46(e)(2). Other more technical disqualifying terms or deficiencies are numerous. But once the lender is aware of the possibility of a federal trust being imposed on the collateral in question, the lender cannot rely upon the prospect of the trust beneficiary’s mistakes to value its own collateral when making underwriting decisions.

In short, an agricultural loan backed by a UCC security interest must be underwritten, sized and subsequently monitored based on the risks posed both by these federal trust statutes and a host of non-uniform, state agricultural liens. A survey of state agricultural liens, PACA and PASA are the subject of entire treatises and beyond the scope of this overview.  (Excellent scholarly papers and 50 state surveys are available from the National Agricultural Law Center, https://nationalaglawcenter.org.) The key for the careful transactional lawyer is to identify the risks and ask the right questions. Because these statutory liens and federal trusts reflect strong public policies, most of these statutory liens and trust rights cannot easily be waived or avoided, but they can be understood and the associated risks managed. In few areas of commerce is this exercise more challenging than agricultural lending to farmers, ranchers and food processors of every type.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP
For more articles on the agriculture industry, visit the NLR  Environmental, Energy & Resources

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