The National Law Forum

At first blush, the passage of House Bill 5483, entitled the “Special Registration for Telemedicine Clarification Act of 2018” (the “Bill”), appears to address the issue concerning the lack of regulatory guidance regarding the “Special Registration” exception to the Ryan Haight Act of 2008; however, a deeper and more careful analysis reveals that the Bill may not be as effective as most health care practitioners may hope. The Bill, sponsored by Rep. Carter (R-Georgia), a pharmacist, Rep. Bustos (D-Illinois), and nine others, cleared the House on June 12, 2018 without objection. The Bill would require the federal Drug Enforcement Agency (“DEA”) to promulgate rules that would allow health care providers to apply for a “Special Registration” that would allow a provider to prescribe controlled substances via telehealth without first conducting an initial in-person examination of the patient. A transcript of the testimony in support of the Bill (“Transcript”) reveals enthusiasm by the sponsors of the Bill, as well as by Representatives Pallone (D-New Jersey) and Walden (R-Oregon), who called the Bill “a commonsense measure that cuts through the red tape to provide more treatment options to underserved communities through the use of telemedicine.” While Section 413 of the current version of S.B. 2680 would only give the DEA six months to promulgate such rules, the two bills are very similar and almost guarantee that a law will be signed in the coming months that will require DEA to promulgate rules that will finally create a Special Registration exception to the Ryan Haight Act. While the prospect of rules implementing the Special Registration may be exciting for many practitioners, it should be noted that the DEA has been obligated to create these regulations, and has ignored this obligation, for a decade.

Once enacted, the Ryan Haight Online Pharmacy Consumer Protection Act of 2008 (the “Act”) effectively banned the prescription of controlled substances via telehealth without an in-person examination of the patient. While there are exceptions to the Act, these exceptions are very technical and do not apply to the majority of treatment settings for which a controlled substance could be prescribed by a treating physician to a patient in his or her home. When the Act was passed, Congress appeared to have the foresight to know that the Act was restrictive and that the Act should have some mechanism by which its prohibitions could be relaxed, because the Act also created 21 U.S.C. § 831(h)(2), which orders the Attorney General of the United States and the DEA to “promulgate regulations specifying the limited circumstances in which a special registration under this subsection may be issued and the procedures for obtaining such a special registration.”  However, as we have previously discussed, the only related action the DEA has taken in the decade between the passage of the Act and today was, in 2016, to mark the creation of these rules a “Long-Term Action” that has not substantively been addressed. By suggesting that the DEA “understand[s] the need to implement this provision of law” Rep. Walden appears to be incognizant of the historical lack of the DEA’s movement to promulgate the Special Registration rules, despite the DEA having the authority to do so since the Act originally was passed in 2008. Mr. Walden also seems to advocate for the DEA, as he supports revising the Bill’s original 90-day deadline for the promulgation of rules to implement a one-year deadline on account of the DEA’s position it would be burdensome. As such, the question remains whether the DEA, who has avoided this exact obligation for nearly a decade, will at last take action within the year if the Bill becomes law.

Even if the DEA promulgates rules to create the Special Registration, there is no indication how broadly such rules will be written. In this regard, the transcript illustrates a fundamental difference in how Representatives Walden and Carter view the value of the DEA creating a Special Registration process and, importantly, what the scope of that Special Registration process should be from many psychiatrists and other practitioners. For example, Rep. Walden described the exception to the Act in narrow terms: “for emergency situations, like the lack of access to an in-person specialist” (a phrase also used by Rep. Carter). Mr. Carter stated as well that the original purpose of the Special Registration was for “legitimate emergency situations” as follows:

“The law included the ability for the Attorney General to issue a special registration to healthcare providers detailing in what circumstances they could prescribe controlled substances via telemedicine in legitimate emergency situations, such as a lack of access to an in-person specialist.”

Rep. Carter further stated that the Special Registration could serve as a tool to fight the opioid crisis “to connect patients with the substance use disorder treatment they need without jeopardizing important safeguards to prevent misuse or diversion,” but he did not speak of the Special Registration in broader terms. The statements by Reps. Walden and Carter mischaracterize the original language of the Act regarding the “Special Registration for Telemedicine,” which does not limit the Special Registration to emergency situations.  Rather, the Act explicitly authorizes the Attorney General to issue the Special Registration to a practitioner who “demonstrates a legitimate need for the special registration” without defining the phrase “legitimate need”. As such, “legitimate need” could include “emergency situations” but also could be interpreted to include circumstances under which a physician is authorized to prescribe a controlled substance via telehealth as long as such prescription is in accordance with the substance’s label or the applicable standard of care for treatment of the illness for which the prescription was issued to treat,

If the DEA takes its cues from the recent House testimony supporting the Bill, the agency may decide the Special Registration should be limited to certain declarations of emergencies, such as the declaration of the opioid crisis as a Public Health Emergency. Such a narrow definition may be fruitful in the fight against opioid use disorder, but may ultimately fall short of expectations held by telehealth practitioners interested in providing services to patients via telehealth that involve prescribing controlled substances.

TCPA defendants have enough to deal with without having to worry about secret limitations on their ability to call phone numbers supplied by customers. But, oh well!

In Benedetti v. Charter Communications, No.1:16-CV-2083 RLM-DLP, 2018 WL 2970998 (S.D. Ind. June 13, 2018) a customer supplied his nanny’s phone number to the Defendant in connection with his account. After the account went delinquent the Defendant began calling the phone number in an effort to collect. The nanny sued under the TCPA contending that the calls had been made to her without her express consent.

Charter sought summary judgment in the case arguing that it had permission to call the number supplied by its customer. Importantly, the nanny had admitted in deposition that she had given permission to the customer to provide the phone number to Charter. Thus, Charter argued, under the FCC’s presumed consent rule it had permission to make the informational calls at issue.

The Court disagreed. The nanny had testified that she only gave the customer permission to supply the phone number to Charter for a limited purpose–specifically for setting up the cable service and for troubleshooting if it was on the fritz. Because the record was barren respecting what the customer had actually told Charter in providing the phone number, the Court concluded that a jury might find that the customer told Charter that it could only call the number for those limited purposes. If that was the case, then the scope of consent would not have be broad enough to encompass debt collection calls. So summary judgment was denied.

Although the issue of what the customer did or did not say to Charter is obviously speculative given the poorly-developed record, the Court found that it was Charter’s job to prove the negative–i.e. that the customer didn’t tell it to call the number for a limited purpose. That’s always fun.

The take away here is that a caller receiving a third-party’s phone number from a customer must always be cautious for secret limitations imposed by the third-party. Absent documentation that the customer did not provide additional instruction related to the scope of consent, the third-party may sue the caller on the theory that the customer had exceeded the scope of his or her consent in providing the number to the caller. While a counterclaim would likely exist against the overreaching customer, that is of little comfort.

Of course if the customer never even reveals that the number belongs to a third-party in the first place things get even trickier. All the more reason to see the FCC adopt the “expected recipient” approach in defining the phrase “called party.” Keep your fingers crossed.

On June 11, 2018, an equally divided United States Supreme Court affirmed per curiam the Ninth Circuit’s decision in United States v. Washington, known as the “Culvert Case.” The lower courts had found that numerous road culverts blocked salmon access to habitat to an extent that violated treaty rights and necessitated their removal. The Supreme Court affirmed by an equally divided Court the decision with no written opinion. The divided per curiam decision means that the Supreme Court did not clarify the rules that could apply in similar situations down the road. Nevertheless, the Culvert decision is still likely to impact a wide range of regulatory and permitting issues in Washington and potentially throughout the Pacific Northwest in coming years. It could have broad implications for government and private entities that own, manage, and/or control structures, including tide gates, floodgates, and dams, which block or diminish salmon runs in Washington, as well as local, state, and federal permitting regimes.

The Ninth Circuit Decision

The Culvert Case is the most recent in a line of cases interpreting and defining the treaty-protected fishing rights of Northwest Indian tribes, commonly known as U.S. v. Washington. In 2001, twenty-one tribes (the “Tribes”) brought a new subproceeding alleging State-owned culverts blocking salmon from their spawning grounds infringe upon the Tribes’ treaty-protected fishing rights.

In 2017, the Ninth Circuit affirmed the district court’s injunction requiring the State to repair and replace State-owned culverts prohibiting free passage of fish to spawning grounds and other important habitats. The court interpreted the Tribes’ treaty right to take fish to include protection of fishery habitat from man-made degradation. It found that such degradation includes culverts owned by the State of Washington that block free passage of salmon. The court agreed with the district court’s finding of a significant decrease in salmon stocks in the state since 1985 and emphasized evidence showing that barrier culverts block hundreds of thousands of salmon from reaching their spawning grounds. [1]

Potential Implications for Regulators and Private Parties

Going forward, Washington tribes may ask courts within the Ninth Circuit, as well as state and federal regulators, to examine and consider whether other man-made environmental degradation of fish habitats in the region also violate their treaty protected fishing rights. As a result, although the Culvert Case applies solely to specific habitat-blocking culverts owned by Washington State, it could have broad implications for other government and private entities that own, manage, and/or control structures, including tide gates, floodgates, and dams, which block or diminish salmon runs in Washington, as well as local, state, and federal permitting regimes. While the treaties in Oregon and Idaho have some differences, the decision will likely impact regulatory decisions in those state as well.

Tribes may argue that the decision and principles announced in the Culvert Case should apply in the context of regulations, environmental review documents, and permit decisions affecting water temperature, ocean acidification, and bank hardening (both freshwater and near-shore tidal waters), and similar environmental conditions that might degrade salmon habitat or cause a decline in salmon runs. Indeed, regulators have already started invoking the Culvert decision to protect tribal rights not explicitly covered by the decision itself. The preamble to EPA’s 2016 revision of human health water quality standards applicable to Washington, for example, discusses the relevance of the Ninth Circuit’s decision, noting that the decision supports “the interpretation of tribal fishing rights to include the right to sufficient water quality to effectuate the fishing right.” [2]

There are limits, however, to the reach of the Culvert Case. It is still grounded in equitable principles that require a clear and distinct showing of an actual impact on fish passage and treaty-protected fishing rights and a balancing of the interests and hardships of the parties before the court. The facts of the Culvert Case were distinct because the State of Washington had identified road culverts as a substantial threat to salmon, and it is unclear how far the courts will extend the treaty right and remedy beyond the specific facts of this case. The Culvert decision does not contain clear guidance that would apply to other situations and the dissent to the denial of rehearing en banc suggest that future litigants may face challenges in expanding or applying the right outside of this specific context. Notably, the dissent — likely aimed at the Supreme Court — called the denial of rehearing a “regrettable choice” and emphasized that “rather than reining in a runaway decision” the court chose to do nothing, “tacitly affirming the panel opinion’s erroneous reasoning.” [3] Regulators and private parties must be aware of this limitation and take it into consideration when applying the Culvert Case to future scenarios and causes of action.

Conclusion

While the contours of the Culvert Case and its lasting impacts are still unclear, it has now survived Supreme Court review. The Supreme Court decision leaves in place a significant Ninth Circuit decision that requires the State of Washington to undertake a lengthy and expensive course of culvert removal. While the actual order in the Culvert Case is narrowly drawn, we expect it to resonate for years with both tribal and nontribal parties. Further, the Supreme Court’s inability to reach a majority decision is a missed opportunity for the Court to provide the tribes, regulators, and the regulated community with clear guidance on the extent of the treaty right to take fish in the context of man-made environmental impacts to salmon.

_{Notes:
[1] United States v. Washington, No. 13-35474, order and amended op. at 58 (9th Cir. Mar.2, 2017).
[2] EPA, Revision of Certain Federal Water Quality Criteria Applicable to Washington, 81 Fed. Reg. 228, 85424, fn. 39 (Nov. 28, 2016).
[3] United States v. Washington, No. 13-35474, order at 19 (9th Cir. May 19, 2017). Seven judges joined the dissent in full, and two judges joined the dissent in part.}

On 7 June, the UK’s Competition Appeal Tribunal (CAT) annulled in part a decision by the UK’s Competition and Markets Authority (CMA) imposing fines of nearly £90 million on two pharma companies, Pfizer and Flynn, for charging excessive prices for the anti-epileptic drug, phenytoin sodium capsules. The case is notable as it marks the first time that the CAT has ruled on a pure excessive pricing case in the pharma sector.

In its decision, the CMA had found that both Pfizer and Flynn held a dominant position in their respective markets and that each company had abused that position by significantly raising the prices of phenytoin sodium capsules from £2.83 to £67.50 – corresponding to a price increase of 2,600%. The price increase followed from Flynn’s decision in 2012 to genericise the drug with a view to effectively removing it from the sectoral pricing regulation that applies to branded medicines.

Pfizer and Flynn appealed the CMA’s decision before the CAT. Although the Tribunal upheld the CMA’s findings on market definition and dominance, it found that the CMA misapplied the two-limb test for excessive pricing established by the European Court of Justice in its seminal judgment in United Brands. That test involves assessing (i) whether the price is excessive by comparison to the cost of production (the ‘excessive’ limb); and if so, (ii) whether a price is unfair either in itself or when compared to competing products (the ‘unfair’ limb).

As regards the ‘excessive’ limb, the Tribunal held that the CMA was wrong to restrict its assessment to a cost plus¹ approach, to the exclusion of other methodologies and the evidence more widely available. In doing so, the CMA focused its analysis on “a theoretical concept of idealised or near perfect competition, than to the real world”. The correct approach, according to the Tribunal, was to identify a benchmark price or price range, which would have applied in conditions of “normal and sufficiently effective competition”.

In respect of the ‘unfair’ limb, the CAT found that the CMA wrongly examined only if the Pfizer/Flynn price was unfair in itself, thereby failing to adequately assess the possible impact of phenytoin tablets (the price of which was 25% higher than that of capsules), as meaningful comparators.

In light of the misapplication of the test on excessive pricing, the CAT concluded that the CMA’s findings on abuse of dominance were defective and set aside that part of the decision. In terms of remedy, the Tribunal has indicated that its provisional view is to remit the case back to the CMA for further consideration, noting that the correct application of the test on excessive pricing will require detailed examination of the facts, which the CMA is better placed to carry out.

Cases of pure excessive pricing are very rare in competition law and notoriously difficult to establish. The Tribunal’s judgment illustrates the practical issues that competition authorities face when intervening in such cases, notably the lack of a single methodology to determine that a price/profit margin is excessive and the inherent complexity of establishing an appropriate benchmark price. The structure and specificities of the pharmaceutical market, in particular national pricing regulations, compound the complexity of the legal analysis and increase the likelihood of errors.

Despite these difficulties, competition authorities across the EU, including the European Commission, have been in recent years actively pursuing excessive pricing cases in the pharma sector, in particular cases involving significant prices increases.

Shortly after the Pfizer/Flynn decision, the CMA issued a Statement of Objections to Actavis UK in the context of its investigation into excessive pricing of hydrocortisone tablets – involving price increases up to 12,000%. The authority is also currently investigating alleged excessive pricing with respect to liothyronine tablets, a drug used to treat hypothyroidism.

In 2016, the Italian competition authority imposed a €5 million fine on Aspen for charging excessive prices (through increases up to 1,500%) for a suite of off-patent cancer drugs; the fine has been recently upheld by the Italian Administration Court. The company is currently under investigation by the European Commission for having allegedly implemented excessive prices in several EU Member States on five cancer drugs and for having threatened to withdraw those drugs in some other EU Member States.

Earlier this year, the Danish competition authority found that CD Pharma abused its dominant position by charging excessive prices for the drug Syntocinon, an off-patent drug used by public hospitals in Denmark in connection with childbirth. The authority found that in 2014 CD Pharma increased the price on Syntocinon from €6 to €127, corresponding to a price increase of 2,000%. The case has been submitted to the Danish State Prosecutor for Serious Economic and International Crime, who will be deciding on prosecution and financial penalties.

In addition, the French competition authority has recently launched a sector-wide investigation into healthcare, targeting specifically the distribution of pharmaceuticals and their price regulation mechanism, while the president of the Dutch competition authority has published a working paper regarding enforcement of competition law in the pharma sector, where it is noted that “excessive pricing cases addressing patented products are bound to follow”.

These developments highlight that cases of excessive pricing will continue to remain high on the agenda of competition authorities across the EU in the coming years and suggest that the EU could be moving towards establishing a comprehensive framework for pursuing excessive pricing cases – the CAT’s judgment was the first step in that direction.

_{[1] In assessing the ‘plus’ element, the CMA considered that an ROS (return on sales) of 6% was a reasonable rate of return, as the maximum permissible ROS for a portfolio of branded medicines under UK pharma pricing regulation. This was one of the most controversial elements of the CMA’s decision, raising doubts about the appropriateness and probative value of a regulatory price cap for a portfolio of products as an indicator of a reasonable rate of return for a single generic product.}

If an agreement qualifies as a “subcontract” under a government contract, then it may be subject to certain flow-down, compliance, and reporting requirements.  These requirements are intended to protect the government’s interests, and have significant ramifications for contractors, e.g., increasing transaction costs, expanding potential areas of exposure.  These compliance obligations and risks can even deter some companies from performing under government contracts, especially those companies offering commercial items.

Currently, there is no uniform definition of “subcontract” in the applicable procurement regulations or in the procurement chapters under Titles 10 and 41 of the U.S. Code.  Indeed, there are more than twenty varying definitions of “subcontract” in the FAR and DFARS, with many clauses failing to specify which definition applies.  Now Congress is looking to address this lack of uniformity through the FY 2019 National Defense Authorization Act (NDAA).

The House’s Proposed Definition of “Subcontract”

The House’s version of the FY 2019 NDAA (H.R.5515), which passed on May 24, 2018, offers a single definition of “subcontract” that would be added to Chapter 1 of Title 41 and Chapters 137 and 140 of Title 10.  Section 832 of H.R.5515 generally defines a “subcontract” to mean “a contract entered into by a prime contractor or subcontractor for the purpose of obtaining supplies, materials, equipment, or services of any kind under a prime contract. The term includes a transfer of a commercial product or commercial service between divisions, subsidiaries, or affiliates of a contractor or subcontractor.”

More importantly, section 832 excludes the following categories of agreements from the definition of subcontract: “(1) a contract the costs of which are applied to general and administrative expenses or indirect costs; or (2) an agreement entered into by a contractor or subcontractor for the supply of a commodity, a commercial product, or a commercial service that is intended for use in the performance of multiple contracts.”  (See Section 831 for the definitions of a “commercial product” and a “commercial service,” which would replace the term “commercial item” for procurement purposes.)

The Significance of This New Definition

The HASC Committee Report explains that a single definition of “subcontract” would provide “clarification, simplicity, and consistency for defense procurement actions.”  The Section 809 Panel – an independent advisory panel on streamlining DoD acquisition regulations – likely would agree with the HASC’s assessment as the House’s definition of “subcontract” appears to have been taken directly from the Section 809 Panel’s January 2018 Report.

The House’s proposed definition of “subcontract” is significant because it would exclude a broad range of agreements from that definition.  As a result, fewer agreements would be subject to the mandatory flow-down, compliance, and reporting requirements imposed on procurement contracts.

This approach is consistent with the intent of the Section 809 Panel, which noted in its January 2018 Report that excluding commodities, commercial products and commercial services from the definition of subcontract “makes clear to both government and industry that Congress is serious about simplifying the procurement process, especially for items that are clearly available on the commercial market, for which the burden would be the greatest.”

Remaining Hurdles and Open Questions

There still remain a number of hurdles and open questions before contractors can rely on this narrowing of obligations.

• First, this new definition of “subcontract” must make its way into the final version of the FY 2019 NDAA. (The definition is missing from the SASC mark-up, S.2987, issued on June 5, 2018, and has not been included in any of the proposed Senate amendments.)

• Second, even if this new definition becomes part of the FY 2019 NDAA that ultimately is signed into law by President Trump, it still must be implemented through the FAR and DFARS.

• Third, key questions surrounding the implementation of this new definition and its potential impact would need to be addressed. For example, would this new definition apply to every mention of the word “subcontract” in the FAR and DFARS?  Or, would exceptions to the general definition be needed, e.g., to avoid potential ambiguity in a clause or subpart, to ensure that particular requirements flow-down to certain categories of agreements?  Would this new definition apply retroactively?  What is the definition of a “commodity”?  How will this new definition reconcile with requirements that exist, at least in part, outside the FAR and DFARS, e.g., requirements pertaining to Department of Labor regulations and related Executive Orders?  And, finally, how would the new definition impact the underlying regulatory requirements that higher-tier contractors currently must flow-down to certain of their suppliers, and which serve to protect the government’s interests?

• Fourth, the timing of potential implementation remains unclear. To draw a parallel, Section 874 of the FY 2017 NDAA (Dec. 23, 2016) and Section 820 of the FY 2018 NDAA (Dec. 12, 2017) both included a definition of “subcontract” with less expansive exclusions that would apply only to commercial item subcontracting under 10 U.S.C. § 2375 and 41 U.S.C. § 1906, respectively.  Years later, regulations still have not been promulgated, though the government has signaled that they are likely to be issued soon.

Accordingly, government contractors at all tiers should closely monitor developments related to this potential new definition of “subcontract,” as it will have significant ramifications downstream.

The Southern District of Ohio recently denied class certification because the defendant’s unrebutted testimony—which established that its procedures ensured that faxes were only sent to those who had given their prior express permission—created individualized issues that predominated over any common ones. See Sawyer v. KRS Biotechnology, 2018 U.S. Dist. LEXIS 8595 (S.D. Oh. May 30, 2018).

The plaintiff moved for class certification based in large part on a transmission log purportedly showing that over 34,000 faxes had been sent. The defendant opposed that motion and explained that only 1,000-10,000 of those faxes had been the advertisements that the plaintiff had received. As for the recipients of those advertisements, the defendant insisted that the plaintiff was the only recipient who had not provided prior express permission. Specifically, it offered unrebutted testimony that its practice—although it was not memorialized in a written policy—was to obtain express permission prior to sending any fax. The defendant also testified that it did not fax blast advertisements to its entire list of contacts, but rather it reached out to its contacts to confirm that the contact wished to receive materials about the specific product the defendant was marketing.

The court denied the motion for class certification. It explained that the defendant’s testimony was “sufficient, non-speculative evidence that a bona fide issue of consent exists to all other faxes” and that the plaintiff was therefore required “to come up with something . . . to persuade this Court that those individualized consent issues would not drive this litigation[.]” The court rejected the plaintiff’s argument that the defendant could not rely on testimonial evidence alone, finding that both forms of evidence were probative. Because the defendant’s testimony supported the theory that the plaintiff’s receipt of an unsolicited fax was an “aberration” of the defendant’s normal business practices, and because that testimony was wholly unrebutted, individual inquires of consent predominated and prohibited class certification.

The court’s reasoning demonstrates that defendants can defeat class certification even if they have no documentary evidence regarding their past practices. While it remains a best practice to document prior express permission, business that have not done so—perhaps because, like the defendant here, they were unaware of the TCPA’s requirements—are not foreclosed from putting plaintiffs to their proofs.

A recent California case may force companies doing business with foreign entities to reconsider—and maybe rewrite—their contracts. In Rockefeller Tech. Invs. (Asia) VII v. Changzhou Sinotype Tech. Co., No. B272170, 2018 WL 2455092 (Cal. App. June 1, 2018), the California Court of Appeal held that parties may not contract around the formal service requirements of the Convention on the Service Abroad of Judicial and Extrajudicial Documents, commonly referred to as the Hague Service Convention. The decision could have profound implications for international business.

When a U.S. company conducts business with foreign companies, it typically requires the foreign company to resolve its dispute in U.S. courts or in some arbitral forum. The Rockefeller decision arguably makes it impossible to require foreign companies from some of the largest economies including China, Japan, Germany, U.K., India, Korea, Russia and Mexico, to show up in a California court based on notice provided by mail, courier (FedEx), or email even if the parties agreed to such forms of notice in their contract. This will have profound consequences for companies with global supply chains such as Apple and GM, for investment funds with foreign investors, for engineering and construction companies that procure materials and handle projects around the world, such as AECOM, and potentially for any company that imports or exports goods to or from the United States. Contract drafters beware!

The court in Rockefeller held that parties cannot enter into a private agreement to circumvent the official service requirements set forth in the Hague Service Convention. The Convention was created to allow and regulate service of process in a foreign country, ensuring that service is in compliance with the Convention would be valid, and that service was reasonably calculated to provide actual notice. Service under the Convention requires transmission of court documents through the “Central Authority” of the requesting and receiving countries, with the latter to arrange actual service on the foreign party. Not surprisingly, Hague service is expensive and cumbersome; it often takes many months to complete.

Article 10 of the Convention allows contracting states to permit service by mail; and it allows them to object to service by mail. Many commercially important countries, including the eight big economies listed above, submitted objections to Article 10 when they joined the Convention, meaning service in those countries generally cannot be accomplished by mail. In the U.S., parties often agreed to allow notification in accordance with contractual notice provisions. After Rockefeller, such contract language is no longer enforceable, at least in California.

In Rockefeller, Rockefeller Technology Investments (Asia) VII (a U.S. company) wanted to enforce its $414M arbitration award in California state court. SinoType (a Chinese company), although aware of the proceedings, did not participate in the arbitration or the court case, and the California trial court granted recognition of the award. Fifteen months later, SinoType moved to set aside the recognition judgment on the basis of improper service. The trial court denied the motion, acknowledging that service had not complied with the Convention, but concluding that the parties had privately agreed to accept service by mail.

The Court of Appeal reversed, explaining that the Hague Service Convention does not permit service by mail in countries that have objected to Article 10, and China, where SinoType was served, has filed an Article 10 objection. The court rejected Rockefeller’s argument that private parties may establish terms of service by contract, finding that the language of the Convention refers explicitly to the rights of each State, not its citizens, and as such, private parties cannot contract around the treaty.

The Court also rejected Rockefeller’s argument that the judgment remained valid due to SinoType’s actual notice of the proceedings and failure to timely move to set aside the judgment. The court held that personal jurisdiction requires valid service of process, and any judgment rendered without proper service is “void as violating fundamental due process,” and void judgments can be challenged at any time. (The Court did not address the validity of service for the underlying arbitration or potential defenses to enforcement of the award.)

For existing contracts with foreign companies, the Rockefeller decision means parties should review them carefully to identify and evaluate provisions that purport to bypass Hague service requirements, including assessment of whether the foreign contracting party might have to be served in a country that objected to Article 10 of the Convention.

For future contracts, the decision puts companies doing business with foreign parties on notice that attempts to contract around Hague Service Convention are likely to be ineffective. At the least, U.S. parties should provide in their contracts that the foreign party will pay for the costs of service if the foreign party does not appear voluntarily. (The Convention does not prohibit a foreign party from appearing in litigation voluntarily.)

Finally, the full import of the Rockefeller decision remains to be seen. Although purporting to interpret an international treaty as a matter of federal law (under the Supremacy Clause), a decision of the California Court of Appeal does not bind federal courts or courts in other states—and it may be subject to review by the Supreme Court of California. But for now, the Rockefeller decision makes it harder to get foreign parties into a court in the U.S. by providing notice by mail, courier or email.