The National Law Forum

Massachusetts' Highest Court Upholds State's Endangered Species Regulations

In a long-awaited ruling, the Massachusetts Supreme Judicial Court affirmed the legality of the “priority habitat” regulations created by the Division of Fisheries and Wildlife (DFW) of the Massachusetts Department of Environmental Protection under the Massachusetts Endangered Species Act (MESA). In Pepin v. Division of Fisheries and Wildlife, SJC No. 11332 (February 18, 2014), the petitioners challenged the DFW’s establishment of “priority habitat” regulations “for which MESA makes make no express provision.”

MESA does expressly authorize DFW to designate certain areas as “significant habitats” of endangered or threatened species. Land designated a “significant habitat,” entitles an owner to (i) advance written notice that the land is being considered for designation as a significant habitat, (ii) a public hearing before any decision on the proposed designation is made, and (iii) an opportunity to appeal and seek compensation under the “takings” clause of the U.S. Constitution. Arguably to avoid paying just compensation, the DFW has never designated land “significant habitat.”

Instead, the DFW promulgated regulations establishing a second type of protected habitat denoted “priority habitat,” to protect species that are either endangered or threatened, or that fall into a third category of “species of special concern.” Delineations are “based on the best scientific evidence available.” A sixty-day public comment period follows the reevaluation of the priority habitat map every four years and a final map is posted on the DFW’s web site. The DFW reviews projects in a “priority habitat” on a case-by-case basis to determine whether it would result in either (i) a “no” take, (ii) a “conditional” no take, or (iii) a take. Even if DFW finds the project would be a “conditional” no take or a “take,” the project may proceed under DFW-imposed conditions or a “conservation and management permit.”

Here, the petitioners’ property consists of two building lots, totaling approximately 36 acres. In 2006, the property was delineated a priority habitat for a species of special concern (eastern box turtle). Challenging the validity of the “priority habitat” regulations, the petitioners maintained that MESA’s creation of the “significant habitat” designation with critical procedural protections meant that all landowners were entitled to the same protections whenever property development is restricted under MESA. Citing the broad authority granted by MESA, the Court rejected this view and instead found that that statute “extends to the formulation of the priority habitat concept as a means of implementing MESA’s prohibition on takes.” The Court refused to “substitute [its] judgment as to the need for a regulation, or the propriety of the means chosen to implement the statutory goals, for that of the agency, …[where] the regulation … [was] rationally related to those goals.” The petitioners could not overcome the presumption of validity accorded “duly promulgated regulations of an administrative agency….”

The Court also ruled that in deciding the petitioners’ challenge to the application of the priority habitat mapping guidelines to their property, a Division of Administrative Law Appeals (DALA) magistrate judge properly ruled in favor of the DFW even without a hearing because the petitioners failed to meet their burden of demonstrating that the DFW improperly delineated their property as priority habitat.

Article By:

Brian C. Levey

Marc J. Goldstein

Of:

Beveridge & Diamond PC

FDA (Food and Drug Administration) Proposes Tobacco Products Rule; E-Cigarettes, Cigars To Be Regulated

The rule would ban the sale of e-cigarettes, cigars, pipe tobacco, and other products to those under 18; would require warning statements on product packages and in advertisements; and would require manufacturers to register and list products the with Agency and submit new products for premarket review.

On April 25, the U.S. Food and Drug Administration (FDA or the Agency) published a proposed rule (the Rule) in the Federal Register, establishing, for the first time, federal regulatory authority over electronic cigarettes (e-cigarettes), cigars, pipe tobacco, dissolvable tobacco products, and nicotine gels (deemed tobacco products).^[1]

Key Takeaways from the Rule, if Finalized

The following would apply to the newly deemed tobacco products:

No sales to those younger than 18 years of age and requirements for verification by means of photographic identification
Requirements to include health warnings on product packages and in advertisements
Prohibition of vending machine sales unless in an adult-only facility

In addition, per the Rule, manufacturers of newly deemed tobacco products would be subject to the following requirements, among others:

Register with, and report product and ingredient listings to, the Agency
Market new tobacco products only after FDA review
Not make direct and implied claims of reduced risk unless FDA confirms (1) that scientific evidence supports the claim and (2) that marketing the product will benefit public health
Not distribute free samples

Background

The Tobacco Control Act provides FDA with the authority to regulate cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. Section 901 of the Federal Food, Drug, and Cosmetic Act (FD&C Act), as amended by the Tobacco Control Act, permits FDA to issue regulations deeming other tobacco products not named in the tobacco control statute (e.g., e-cigarettes) to be subject to the FD&C Act. Section 906(d) provides FDA with the authority to propose restrictions on the sale and distribution of tobacco products, including restrictions on access to, and advertising and promotion of, tobacco products if FDA determines that such regulation would protect public health.

The Rule would extend FDA’s existing authority over cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco to include e-cigarettes, cigars, pipe tobacco (including hookah [water pipe] tobacco), dissolvable tobacco products, and nicotine gels. This latter group of tobacco products, deemed by FDA to be subject to the Tobacco Control Act, was not named in such legislation.

Scope of the Rule

Broadly, the Agency has proposed the following two alternatives for the scope of the deeming provisions and, consequently, the application of the Rule:

Option 1 would extend the Agency’s authority to all tobacco products not previously regulated by FDA that meet the statutory definition of “tobacco product,”^[2] except accessories of such products
Option 2 would extend the Agency’s authority to all tobacco products not previously regulated by FDA that meet the statutory definition of “tobacco product,” except premium cigars^[3] and the accessories of products not previously regulated by FDA

FDA is seeking comment on the relative merits of Option 1 versus Option 2, based primarily on the public health consequences of adopting one option or the other.

The principal difference between the two options is the scope of cigar regulation. Under Option 1, all cigars would be covered. Under Option 2, only a subset of cigars (i.e., “everything but “premium” cigars) would be covered by the Rule.

As noted above, accessories of proposed deemed tobacco products are outside the scope of the Rule. FDA considers accessories of proposed deemed products to be those items that are not included as part of a finished tobacco product or items that are intended or expected to be used by consumers in the consumption of a tobacco product. For example, FDA considers accessories to be those items that may be used in the storage or personal possession of a proposed deemed product (e.g., hookah tongs, bags, cases, charcoal burners and holders, cigar foil cutters, humidors, carriers, and lighters). However, e-cigarettes, and the components thereof, and hookah pipes are covered by the Rule.

Requirements; Implications for Retailers and Manufacturers

Generally, deemed tobacco products would be subject to the same FD&C Act provisions that apply to cigarettes. These include, but are not limited to the following:

Prohibition on selling (at a retail counter or via a vending machine) these products to persons under 18 years of age and verification by means of photographic identification related to the same
Enforcement action against products determined to be adulterated and misbranded
Required submission of ingredient listing and reporting of harmful and potentially harmful constituents (HPHCs) for all tobacco products
Required registration and product listing for all tobacco products
Prohibition against use of modified risk descriptors (e.g., “light,” “low,” and “mild” descriptors) and claims unless FDA issues an order permitting their use
Prohibition on the distribution of free samples
Premarket review requirements

Display of Health Warnings on Deemed Tobacco Product Packages and Advertisements

The Rule would require the following health warning on packages of cigarette tobacco, roll-your-own tobacco, and deemed tobacco products other than cigars sold, distributed, or imported for sale within the United States: “WARNING: This product contains nicotine derived from tobacco. Nicotine is an addictive chemical.” Regarding cigars, the Rule would require that any cigar sold, distributed, or imported for sale within the United States must bear one of the following warning statements on each product package:

“WARNING: Cigar smoking can cause cancers of the mouth and throat, even if you do not inhale.”
“WARNING: Cigar smoking can cause lung cancer and heart disease.”
“WARNING: Cigars are not a safe alternative to cigarettes.”
“WARNING: Tobacco smoke increases the risk of lung cancer and heart disease, even in nonsmokers.”
“WARNING: This product contains nicotine derived from tobacco. Nicotine is an addictive chemical.”^[4]

These warning statement requirements also apply to advertisements of cigarette tobacco, roll-your own tobacco, and deemed tobacco products, regardless of form, which could encompass retail or point-of-sale displays (including functional items, such as clocks or change mats), magazine and newspaper ads, pamphlets, leaflets, brochures, coupons, catalogues, posters, billboards, direct mailers, and Internet advertising (e.g., websites, banner ads, etc.).

New Requirements for Deemed Tobacco Products; Implications for E-Cigarettes and Hookahs

Significantly, the Rule would require manufacturers of deemed tobacco products to meet new additional requirements. In addition to the deemed tobacco products themselves, the scope of the Rule also includes components and parts sold separately or as parts of kits sold or distributed for consumer use or further manufacturing or included as part of a finished tobacco product. Such examples would include, but are not limited to, the following:

Air/smoke filters
Tubes
Papers
Pouches
Flavorings used for any of the proposed deemed tobacco products (such as flavored hookah charcoals and hookah flavor enhancers)
Cartridges for e-cigarettes (including the liquid contained therein)

The Rule would require manufacturers of deemed tobacco products that were not on the market in the United States by February 15, 2007 to only market such products after FDA premarket clearance. The review process adopts a system similar to the medical device regulatory process. Manufacturers may submit either (1) a premarket tobacco product application (PMTA) to, and receive a marketing authorization order from, FDA or (2) a substantial equivalence (SE) report if the new product is substantially equivalent to a predicate product (i.e., a product commercially marketed in the United States as of February 15, 2007) at least 90 days prior to introducing or delivering for introduction into interstate commerce for commercial distribution of the product.^[5]

A PMTA may require one or more types of studies, including chemical analysis, nonclinical studies, and clinical studies. To demonstrate substantial equivalence, an SE notice must compare a new product to a predicate product to demonstrate that the products have the same characteristics or, if there are differences between such products, that the differences do not raise different questions of public health.

The Agency intends to continue to allow the marketing of such products pending FDA’s review of either a PMTA or SE notice, presuming such application or notice is submitted within 24 months after publication of the final Rule. It is unclear whether most e-cigarette products commercially marketed in the United States could be eligible for an SE report or if they would be required to go through the PMTA process.

Although the PMTA and SE requirements do not take effect until 24 months after publication of the final Rule, we would expect manufacturers to begin, in the near term, to gather the necessary information and prepare the necessary applications/notifications to come into compliance. Those manufacturers that submit their PMTAs or SE reports early within the 24-month window presumably will receive clearance before the close of the window. Retailers should be aware of supply chain issues and possible disruptions in the marketplace because of the Rule and should work with suppliers to understand the continued availability of deemed tobacco products.

What Is Not in the Rule; No Impact on Internet Sales or Flavored Products

The Rule’s prohibition on sales from vending machines is not intended to impact the sale of any tobacco product via the Internet, and the Rule does not otherwise address Internet sales. Note, however, that state laws would continue to apply to Internet sales.

Moreover, the Rule does not restrict the sale of deemed tobacco products that are flavored. FDA specifically notes in the Rule that the prohibition against the use of characterizing flavors established in the Tobacco Control Act applies to cigarettes only (i.e., it does not apply to e-cigarettes, pipe tobacco, cigars, dissolvable tobacco products, or nicotine gels). However, FDA requests comments on the characteristics or other factors it should consider in determining whether a particular tobacco product is a “cigarette” as defined in section 900(3) of the FD&C Act and, consequently, subject to the prohibition against characterizing flavors. FDA’s request for comments in this area is in response to the proliferation of products marketed as “little cigars” or “cigarillos” (allegedly to get around the flavored cigarette ban), but which the Agency has indicated are truly cigarettes.

Compliance Dates

The age restrictions in the Rule would take effect 30 days after publication of the final Rule, whereas the proposed health warning requirements would take effect 24 months after publication of the same. The PMTA and SE requirements would also take effect 24 months after publication of the final Rule.

Comments on the Rule

Interested parties are encouraged to submit comments on the Rule, identified by Docket No. FDA-2014-N-0189 and/or Regulatory Information Number (RIN) 0910-AG38 by July 9, 2014.

_{[1]. Deeming Tobacco Products To Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Regulations on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products, 79 Fed. Reg. 23,142 (proposed April 25, 2014) (to be codified at 21 C.F.R. pts. 1100, 1140, 1143), available here.}

_{[2]. Section 201(rr) of the FD&C Act (21 U.S.C. 321(rr)), as amended by the Tobacco Control Act, defines the term “tobacco product” to mean “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product (except for raw materials other than tobacco used in manufacturing a component, part, or accessory of a tobacco product).” FDA notes in the Rule that products falling within the FD&C Act’s definition of “tobacco product” may not be considered tobacco products for federal excise tax purposes. See 26 U.S.C. § 5702(c).}

_{[3]. The Rule defines “premium cigars” as cigars that are wrapped in whole tobacco leaf; contain a 100% leaf tobacco binder; contain primarily long filler tobacco; are made by manually combining the wrapper, filler, and binder; have no filter, tip, or non-tobacco mouthpiece and are capped by hand; do not have a characterizing flavor other than tobacco; weigh more than 6 pounds per 1,000 units; and sell for $10 or more per cigar.}

_{[4]. In 2000, in settlements with the Federal Trade Commission (FTC), the seven largest U.S. cigar manufacturers agreed to include warnings about significant adverse health risks of cigar use in their advertising and packaging. See, e.g., In re Swisher International, Inc., Docket No. C-3964 (FTC Aug. 25, 2000). Under the 2000 FTC consent orders, virtually every cigar package and advertisement is required to clearly and conspicuously display one of several warnings on a rotating basis. FDA is proposing to adopt these four cigar warning statements from the FTC consent orders, which the vast majority of cigars already use.}

_{[5]. FDA states in the Rule that it is aware of new product category entrants into the market after the February 15, 2007 reference date and that the SE pathway may not be available to these newer products.}

Article By:

Jonathan A. Havens

Anthony “Tony” Pavel

Kathleen M. Sanzo

Of:

Morgan, Lewis & Bockius LLP

New York Federal Judge Finally Tosses Aside Limits on Contributions to New York Super PACs (Political Action Committees)

Super PACs in the Empire State and in the Big Apple are about to become more “super.” On April 24th, a New York federal court finally (albeit begrudgingly) struck down a state law that effectively capped contributions to state Super PACs at no more than $150,000. Prior to today’s ruling, New York had been one of a few holdout states refusing to recognize the application of Citizens United to state laws limiting contributions to independent political groups. Indeed, the New York Attorney General defended the limit even after the Second Circuit concluded that it was likely unconstitutional as applied to the Super PAC that challenged it. It is not clear whether the state will appeal the decision and face a near-certain loss. If the decision stands—as we expect it will—donors may now contribute unlimited sums to independent political committees that run ads for or against New York state or city candidates.

Article By:

Zachary G. Parks

Of:

Covington & Burling LLP

Self-Directed Individual Retirement Account's (IRA): Caution Required

A number of entrepreneurial folks have created self-directed IRA, which can be traditional or Roth IRA’s, in order to make investments in real property, oil and gas interests, operating businesses, private placements and the like. Self-directed IRA’s require a custodian or trustee to manage the IRA, although the owner can direct what it invests in. The Tax Code contains a detailed and complex regime applicable to self-directed IRA’s. One of the areas where an IRA owner can find himself or herself under challenge from the IRS is with regard to “prohibited transactions” with “disqualified persons.” The list of disqualified persons includes: the IRA owner; his or her spouse and close relatives; certain fiduciaries such as a lawyer or accountant working for the IRA owner; and entities that any of the foregoing individuals control. The term “prohibited transaction” includes the sale, exchange or lease of property, furnishing goods or services, making personal use of IRA assets or pledging IRA assets to secure a loan. Therefore, when a disqualified person engages in a prohibited transaction the tax consequences to the self-directed IRA can be dire, and include causing the IRA to be immediately taxable, with the possibility of penalties and interest charges.

A recent case from the U.S. Tax Court stands as a cautionary tale: Mr. Peek and Mr. Fleck established self-directed traditional IRA’s in 2001 with rolled over cash from traditional IRA’s. They caused their self-directed IRA’s to purchase all of the stock in a new corporation which bought the assets of a company providing alarms and fire protection systems. In acquiring these assets, Peek and Fleck personally guaranteed a promissory note to the sellers for a portion of the purchase price. Several years later they converted these self-directed traditional IRA’s into self-directed Roth IRA’s and paid the tax at that time. Following several more years during which the business flourished, Peek and Fleck found a buyer for the business in 2006 and had their self-directed IRA’s sell all of the company’s stock at a significant profit. Upon audit, the IRS contended that Peek’s and Fleck’s personal guaranties of the seller financing, which still existed until the stock sale, was a prohibited transaction and all of the sale proceeds were taxable income at ordinary tax rates. The Tax Court rejected the argument of Peek and Fleck that they hadn’t engaged in a prohibited transaction because their guaranties ran to the company not to their self-directed IRA’s. The Tax Court found that these taxpayers had made an indirect extension of credit to their IRA’s. The result was that the sale proceeds which Peek and Fleck thought would be free from tax because of the Roth status were taxed immediately as ordinary income and they were made to pay accuracy-related penalties as well.

Article By:

Mark Boscoe

Of:

Ryley Carlock & Applewhite, A Professional Corporation

Microsoft-Nokia: China’s MOFCOM Quietly Slips Into the Debate about Injunctive Relief for FRAND (Fair, Reasonable and Nondiscriminatory)-Encumbered SEPs (Standard Essential Patents)

This past November and December, the US Federal Trade Commission (“FTC”) andEuropean Commission (“EC”) cleared Microsoft Corporation’s (“Microsoft”) acquisition of the bulk of the devices and services business of Nokia Corporation of Finland (“Nokia”) without any conditions. In contrast, on April 8, 2014, the Chinese Ministry of Commerce (“MOFCOM”) approved the acquisition subject to conditions that include an intellectual property issue that is still to be resolved in the US, EU and other countries: whether holders of standard essential patents (“SEPs”) who make licensing commitments under fair, reasonable and nondiscriminatory (“FRAND”) terms should be barred from seeking injunctive relief against alleged infringers of their patents. MOFCOM’s conditional approval is not controversial for this specific transaction, but raises the question of how MOFCOM’s treatment of this issue will be interpreted in future merger reviews and whether this will affect investigations related to anticompetitive conduct.

Microsoft develops, produces, licenses, and sells computer software, such as its computer operating system and PC-based productivity software, and consumer electronics. Microsoft owns both standard essential patents (“SEPs”) and non-SEPs for Android (smartphone operating system). In general, the SEPs are important in terms of implementing certain telecommunication standards, such as 2G, 3G and 4G, in smartphones. The target, the devices and services business of Nokia, includes a design team and business units for devices such as mobile phones and smart devices, production facilities, related sales and marketing activities and support functions, as well as design rights related to the devices produced by the devices and services business. Excluded from this acquisition are Nokia’s reserves of SEPs related to telecom and smartphones (the MOFCOM decision does not specify what these SEPs are for).

MOFCOM determined that Microsoft’s acquisition of Nokia’s design and services business had the effect of eliminating or restricting competition in China’s smartphone market both in terms of what Microsoft could do as a result of the acquisition and in terms of what Nokia could do with the assets that were not part of the acquisition. MOFCOM conditioned its approval of the acquisition on Microsoft’s and Nokia’s compliance with the following conditions (an unofficial translation of the MOFCOM decision can be found here).

MICROSOFT must:

1. (a) With regard to SEPs, continue to adhere to the existing FRAND terms of the standard setting organizations (SSOs).

(b) Refrain from seeking injunctions for infringement of such SEPs against smartphones produced by Chinese producers.

(c) Refrain from demanding cross-licenses when licensing such SEPs except for any patents that the licensees have in the same industry.

(d) Only transfer such SEPs to a third party who agrees to comply with the above limitations. Any potential licensee with Microsoft-related SEPs should also be bound by the same principles.

2. (a) With regard to non-SEPs, continue to offer, at consistent or discounted rates, non-exclusive licenses of its non-SEPs to domestic Chinese smartphone producers

(b) For the next five years, not transfer its SEPs listed in attachment 1 or 2 (Attachment 1 lists Microsoft patents that were reviewed by MOFCOM, Attachment 2 lists Microsoft patents related to Android) to other parties. After this five-year period, Microsoft will transfer these SEPs only to those who agree to be bound by conditions imposed on Microsoft.

MOFCOM is entitled to inspect Microsoft’s compliance with the above conditions and Microsoft is obligated to report its compliance 45 days after the end of each calendar year.

NOKIA must:

Make sure its commitments to license its SEPs continue to comply with the existing FRAND terms of the SSOs.
Refrain from seeking injunctive relief against licensees of SEPs that are subject to FRAND except in the case where a licensee has breached the FRAND terms.
Agree to define licensor or licensee “good faith” as a matter of each party’s willingness to resolve FRAND terms-related disputes through arbitration and to be bound by the arbitration decision.
Agree that licensees are not obligated to accept any license not complying with FRAND terms by Nokia.
Transfer SEPs only to those who agree to be bound by the FRAND terms applicable to those SEPs.
Not change its valuation standards for FRAND licenses.

MOFCOM is entitled to inspect Nokia’s compliance with the above conditions and Nokia is obligated to report its compliance 45 days after the end of each calendar year.

Neither the FTC nor the EC speculated on the likely post-merger licensing conduct of the merged entity or the portion of Nokia that was excluded from the acquisition with respect to SEPs and non-SEPs. The EC noted that concerns related to the licensing of Nokia’s patent portfolio that was not part of the acquisition were beyond the scope of its review, but that it will monitor Nokia’s post-merger licensing practices.

MOFCOM, in contrast, without providing any basis for its conclusion other than speculation on the companies’ motives, stated that:

(a) Microsoft “could” exclude and impede competition in China’s smartphone market based on its patents for Android: “Microsoft has the motive to raise royalty fees”—MOFCOM provides no basis for this conclusion other than the observation that, before the acquisition, Microsoft was not a player in the smartphone market. Now, with the SEPs and non-SEPs related to the Android system, it has the potential for excluding and restricting competition in the smartphone market because the Android smartphone has an 80% share of the China market.

(b) Nokia “could abuse its reserve of patent licenses” (“the acquisition enhances Nokia’s motive to rely on profits from patent licensing”)—MOFCOM provides no basis for this conclusion. MOFCOM states: “As Nokia will basically exit from downstream market of devices and services, Nokia will not have to obtain cross-licenses for its smartphone business after the acquisition, so its motivation to maintain a low level royalty fee in the smartphone industry will go down. Such lack of need will enhance Nokia’s motive to rely on profits from patent licensing.”

As in the Google-Motorola deal in 2012, this time both the FTC and the EC took a “wait and see” approach: they will continue to monitor Microsoft’s and Nokia’s post-merger conduct. MOFCOM took its analysis a step further. MOFCOM wanted in black and white Microsoft’s and Nokia’s confirmations of what they are obligated to do under the FRAND terms of the standard setting organizations. MOFCOM also wanted Microsoft to confirm that it would not seek an injunction against Chinese companies; such policy is actually already in Microsoft’s website statement of February 8, 2012, where, in reference to essential patents that are offered under FRAND terms, Microsoft announced that it would not seek an injunction against any firm on the basis of a SEP.

MOFCOM, without any discussion but merely by imposing a condition that the SEP holders, Microsoft and Nokia are barred from seeking injunctive relief against alleged patent infringers, has opened the door for debate in China. The issue of whether a FRAND commitment precludes a patent owner from seeking injunctive relief is still being debated in the US, EU and other jurisdictions. In July, 2013, the FTC lifted the ban against injunctions for FRAND patents in the Google-Motorola Mobility case. In August, 2013, the US Trade Representative wrote a letter to the US International Trade Commission (“ITC”) stating that it opposed the injunction order of the ITC but included in a footnote when injunctions would be appropriate, including but not limited to when the “putative licensee is unable or refuses to take a FRAND license and is acting outside the scope of the patent holder’s commitment to license on FRAND terms…if a putative licensee is not subject to the jurisdiction of a court that could award damage.” The bottom line was that public interest considerations must be part of the determination whether or not to grant injunctive relief. The EC’s stance is reflected in the Google/Motorola merger review decision of February, 2012—that competition may be threatened if SEP holders threaten injunctive relief.

MOFCOM’s approach may well have been influenced by Chinese domestic competitors raising concerns about the merger; in the media it has been reported that ZTE and Huawei, among others, raised concerns. Of course, this is part of the merger review process, so it is not unusual for competitors to influence proceedings, but one must not forget that MOFCOM appears to wear two hats: supporting China’s industrial policy and antitrust enforcer. Furthermore, perhaps MOFCOM required these confirmations because it would be more difficult for the enforcement agencies, the National Development and Reform Commission (“NDRC”) and the State Administration of Industry and Commerce (“SAIC”), to monitor the companies’ actions in the future.

The relevance of this decision is the following:

MOFCOM applies the antitrust laws as a regulator: rather than waiting to see how the parties behave, it micro-manages their conduct (Microsoft and Nokia are already bound by FRAND terms that can include voluntary limitations on seeking injunctive relief).
How will SAIC use the condition regarding the ban on injunctive relief in abuse of dominance investigations? Will the condition imposed by MOFCOM be interpreted as the definitive government position even though MOFCOM did not address this issue in its analysis? If so, then there is the potential that a holder of an SEP may be accused of violating Chinese antitrust law if it seeks injunctive relief against an alleged infringer because it is allegedly abusing its dominant position (assuming that this holder is found to have a dominant position in the relevant market).
Will SAIC include a ban on injunctive relief related to FRAND-encumbered SEPs in its final rules concerning intellectual property rights and the enforcement of Chinese antitrust law?
It may be prudent for holders of SEPs to review their FRAND commitments.
Potential patent infringers might want to check if there are FRAND commitments that would protect them.

This acquisition shows once more that for offshore acquisitions, which have been cleared by other jurisdictions, Chinese antitrust clearance is not to be taken for granted. This time China has quietly stepped into the debate over injunctive relief for FRAND-encumbered SEPs.

Article By:

Yasue (Becky) Nao Koblitz

Of:

Sheppard, Mullin, Richter & Hampton LLP

Federal Trade Commission (FTC) Wins Appeal: ProMedica Merger with St. Luke’s Not Allowed

vonBriesen

On April 22, 2014, the U.S. Court of Appeals for the Sixth Circuit (Sixth Circuit) upheld the Federal Trade Commission’s (FTC) finding that the merger between Ohio-basedProMedica Health System, Inc. (ProMedica) and St. Luke’s Hospital (St. Luke’s), an independent community hospital that operates in the one of the same counties as ProMedica, would adversely affect competition in violation of federal antitrust law. Prior to the merger, ProMedica and St. Luke’s comprised two of the four hospital systems in Lucas County, Ohio. After the two systems merged, ProMedica held more than 50% of the applicable market share.

Accordingly, in 2011 the FTC ordered ProMedica to divest itself of St. Luke’s. ProMedica appealed the FTC’s order to the Sixth Circuit. In a unanimous opinion, the Sixth Circuit denied ProMedica’s petition to overturn the FTC order, citing concerns about anti-competitive behavior and the ability of ProMedica to unduly influence reimbursement rates with healthcare insurance companies.

The full 22-page court opinion may be accessed here.

Article By:

Patrick J. Cannon

Of:

von Briesen & Roper, S.C.

HEARTBLEED: A Lawyer’s Perspective on the Biggest Programming Error in History

By now you have probably heard about Heartbleed, which is the biggest security threat to the Internet that we have ever seen. The bottom line of Heartbleed is that for the past two years most web sites claiming to besecure, shown by the HTTPS address (the S added to the end of the usual HTTP address was intended to indicate a web secured by encryption), have not been secure at all. Information on those webs could easily have beenbled out by any semi-skilled hacker who discovered the defect. That includes your user names and passwords, maybe even your credit card and bank account information.

For this reason every security expert that I follow, or have talked to about this threat, advises everyone to change ALL of their online passwords. No one knows who might have acquired this information in the past two years. Unfortunately, the nature of this software defect made it possible to steal data in an untraceable manner. Although most web sites have upgraded their software by now, they were exposed for two years. The only safe thing to do is assume your personal information has been compromised.

Change All of Your Passwords

After you go out and change all of your passwords – YES – DO IT NOW – please come back and I will share some information on Heartbleed that you may not find anywhere else. I will share a quick overview of a lawyer’s perspective on a disaster like this and what I think we should do about it.

Rules of the Internet

One of the things e-discovery lawyers like me are very interested in, and concerned about, is data security. Heartblead is the biggest threat anyone has ever seen to our collective online security, so I have made a point of trying to learn everything I could about it. My research is ongoing, but I have already published on detailed report on my personal blog. I have also been pondering policy changes, and changes in the laws governing the Internet that be should made to avoid this kind of breach in the future.

I have been thinking about laws and the Internet since the early 1990s. As I said then, the Internet is not a no-mans-land of irresponsibility. It has laws and is subject to laws, not only laws of countries, but of multiple independent non-profit groups such as ICANN. I first pointed this out out as a young lawyer in my 1996 book for MacMillan, Your Cyber Rights and Responsibilities: The Law of the Internet, Chapter 3 of Que’s Special Edition Using the Internet. Anyone who commits crimes on the Internet must and will be prosecuted, no matter where their bodies are located. The same goes for negligent actors, be they human, corporate, or robot. I fully expect that several law suits will be filed as a result of Heartbleed. Time will tell if any of them succeed. Many of the facts are still unknown.

One Small Group Is to Blame for Heartbleed

The surprising thing I learned in researching Heartbleed is that this huge data breach was caused by a small mistake in software programming by a small unincorporated association called OpenSSL. This is the group that maintains the open source that two-thirds of the Internet relies upon for encryption, in other words, to secure web sites from data breach. It is free software and the people who write the code are unpaid volunteers.

According to the Washington Post, OpenSSL‘s headquarters — to the extent one exists at all — is the home of the group’s only employee, a part timer at that, located on Sugarloaf Mountain, Maryland. He lives and works amid racks of servers and an industrial-grade Internet connection. Craig Timberg, Heartbleed bug puts the chaotic nature of the Internet under the magnifying glass (Washington Post, 4/9/14).

The mistake that caused Heartbleed was made by a lone math student in Münster, Germany. He submitted an add-on to the code that was supposed to correct prior mistakes he had found. His add on contained what he later described as a trivial error. Trivial or not, this is the biggest software coding error of all time based upon impact. What makes the whole thing suspicious is that he made this submission at one minute before midnight on New Year’s Eve 2011.

Once the code was received by OpenSSL, it was reviewed by it before it was added onto the next version of the software. Here is where we learn another surprising fact, it was only reviewed by one person, and he again missed the simple error. Then the revised code with hidden defect was released onto an unsuspecting world. No one detected it until March 2014 when paid Google security employees finally noticed the blunder. So much for the basic crowd sourcing rationale behind the open source software movement.

Conclusion

Placing the reliance of the security of the Internet on only one open source group, OpenSSL, a group with only four core members, is too high a risk in today’s world. It may have made sense back in the early nineties when an open Internet first started, but not now. Heartbleed proves this. This is why I have called upon leaders of the Internet, including open source advocates, privacy experts, academics, governments, political leaders and lawyers to meet to consider various solutions to tighten the security of the Internet. We cannot continue business as usual when it comes to Internet data security.

Article By:

Ralph C. Losey

Of:

Jackson Lewis P.C.

Environmental Review Commission Holds Final Meeting Prior to Start of 2014 Short Session

It seemed fitting that the Environmental Review Commission (the Commission), met yesterday, Earth Day, for its last scheduled meeting before the start of the 2014 short session. Yesterday’s meeting was chaired by Representative Ruth Samuelson. The Commission heard presentations from Tom Reeder, Director of the Division of Water Resources at DENR, Paul Newton, North Carolina State President of Duke Energy, Edward Finley, Jr., Chairman of the North Carolina Utilities Commission, and Chris Ayers, Executive Director of the North Carolina Utilities Commission Public Staff. At the close of the meeting the Chairwoman entertained public comment for close to an hour.

Duke Energy presented its support for a coal ash plan that could potentially incorporate several options into one solution and addresses, not only the Dan River, but other active and retired sites. Duke Energy presented three scenarios to the committee. The first plan, costing $2.0-2.5 billion, 1) incorporates the use of hybrid caps in places of the closure of some sites, 2) moves some sites to new lined structural fills or landfills, 3) continues the Asheville structural fill, and 4) converts some sites to dry fly ash. The second plan, costing $6.0-8.0 billion, would incrementally excavate ash from 10 sites to landfills over a 20 to 30 year period. The third plan, costing $7.0-10.0 billion, would incrementally move the ash to all-dry pneumatic bottom ash handling systems and include the thermally-driven evaporation of other process water. Mr. Newton stated Duke believed the answer was somewhere between the first and second options.

The Sierra Club, the Roanoke River Basin Association, and the Catawba Riverkeeper, among several others, offered their comment.

The Sierra Club urged that the General Assembly set minimum standards for the closure of coal ash ponds such that Duke Energy could propose alternatives that adequately demonstrate effective protection of water supplies. The Sierra Club also asked the legislature to bring coal ash under its waste management laws, since North Carolina is the only state that does not treat wet coal ash as solid waste. Finally, the Sierra Club asked legislators to regulate structural fills and require liners and groundwater monitoring when coal ash is used as structural fill.

Other speakers asked the Commission to require the drainage and removal of coal ash from all open coal ash pits and the storage of all coal ash in dry, sealed above-ground containers or the reuse of the ash in products such as concrete.

The Commission did not take any votes and did not introduce any potential legislation. The Commission had previously met on April 9th of this month and voted to approve its final report for the 2014 short session, which includes the Commission’s legislative proposals.

Article By:

Jillian DeCamp

Of:

Poyner Spruill LLP

U.S. Supreme Court Upholds Michigan’s Law Prohibiting Use of Race in College Admissions

On Tuesday, April 22, 2014, the U.S. Supreme Court issued an opinion that upholds a Michigan law prohibiting the use of race as a factor in admissions to public collegesand universities. In Schuette v. BAMN, Case No. 12-682 (argued Oct. 15, 2013) the high court reversed a Sixth Circuit Court of Appeals ruling that overturned the voter-enacted state constitutional amendment referred to as “Proposal 2” or Article I Section 26. Although the court’s 6-2 opinion stated “this case is not about the constitutionality, or the merits, of race-conscious admissions policies in higher education,” the decision is likely to influence other states to adopt similar constitutional bans on affirmative action in state-funded higher education.

Since 2003, Michigan has provided a venue for legal challenges to affirmative actionprograms in education. In that year, the U.S. Supreme Court reviewed the constitutionality of race-based admission policies of both the University of Michigan’s undergraduate college and its graduate law school. The outcomes of these cases were mixed. In Gratz v. Bollinger, 539 U.S. 234 (2003) the court struck down the undergraduate admission policy as a violation of the Equal Protection Clause of the U.S. Constitution’s 14th Amendment. In contrast, the court ruled in Grutter v. Bollinger, 539 U.S. 306 (2003) that the school’s more limited admissions policy for its law school was constitutionally permissible. Following those decisions, a number of states, including Texas, California, Oklahoma, Florida and Washington, have adopted constitutional amendments or other laws that prohibit affirmative action in school admissions and public employment.

In 2006, Michigan voters approved the following amendment to the state constitution by a margin of 58-42 percent: “The University of Michigan, Michigan State University, Wayne State University, and any other public college or university, community college, or school district shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting.” In a 8-7 decision issued in November 2012, the 6th Circuit Court of Appeals held this language as unconstitutional because Proposal 2 placed “special burdens on minority interests” by targeting a program that “inures primarily to the benefit of the minority.”

In Justice Kennedy’s opinion, joined by Chief Justice Roberts and Justice Alito, the court considered whether authority existed to overturn a constitutional amendment adopted by a state’s ballot initiative. In order to do so, and based on the appellate court’s strong reliance on Washington v. Seattle School Dist. No. 1, 458 U.S. 457 (1982) the court would be able to overturn a ballot initiative that made it “more difficult for certain racial minorities than for other groups” to “achieve legislation that is in their interest.” This expansive reading, Justice Kennedy reasoned, could not conform to principles of equal protection because courts should not be required to declare which political policies serve the interests of a group defined in racial terms. Justice Kennedy cautioned: “…in a society in which those [racial] lines are becoming more blurred, the attempt to define race-based categories also raises serious questions of its own. Government action that classifies individuals on the basis of race is inherently suspect and carries the danger of perpetuating the very racial divisions the polity seeks to transcend.”

This significant decision upholds states’ rights to enact constitutional amendments by voter ballot initiatives. The broader implications of the Schuette decision are unclear. However, the outcome confirms public universities and government employers have a vested and ongoing interest in the changing shape of affirmative action policies.

Article By:

Of:

Barnes & Thornburg LLP

Study Shows Smaller Law Firms Value Big Picture Approach to Marketing

Marketing has become a critical function of all law firms, big and small. Large law firms (over 200 attorneys) tend to have vast resources that can be devoted to all marketing aspects, while small to midsize firms (40-200 attorneys) must be more creative in the ways that they utilize their marketing resources, in order to maximize the benefits of their efforts. J. Johnson Executive Search, Inc., commissioned a study, conducted by ALM Legal Intelligence, in order to examine the marketing trends of those small and midsized firms and show how marketing departments’ efforts help their firms gain a competitive advantage in the marketplace.

A group of 90 legal marketing professionals were surveyed via web between November 18, 2013 and December 18, 2013. Professionals from small law firms (40-75 attorneys) made up 42% of the 90, while the other 58% was comprised of professionals from midsize law firms (76 or more attorneys). Part one of this two-part article will discuss how small to midsized firms are valuing marketing departments and dedicating their resources to marketing efforts in a concentrated and consistent manner. Part two will discuss the shift in the way that small and midsized firms conduct their marketing activities in order to remain competitive in our current economy; the results showing that smaller law firms do have a big picture approach to marketing.

Dedicated Marketing Functions Have Become the Norm

Ninety-percent of the firms surveyed had at least one dedicated staff member responsible for their marketing efforts, such as business development, practice development, marketing, communications, and public relations activities. Smaller firms have naturally lower budgets and resources, but according to the study, are on target to mirror larger firm marketing structures.

The ideal is to have one marketing professional for every ten attorneys at the firm. Eighty-one percent of the small firms surveyed had 1-4 dedicated marketing professionals, 48% of midsized firms have 1-4 people, and 47% of midsized firms had five or more marketing professionals on staff. In this delicate economic climate, more firms are focusing on the importance of having a marketing initiative, simply because previously used methods no longer suffice.

Additionally, the overall firm resources devoted to marketing have grown to reflect the increasing importance of marketing roles in the law firm. Forty-four percent of the firms surveyed had increased their marketing budget from 2012 to 2013.

From “Nice to Have” to “Must Have” Team Members

Traditionally, attorneys were responsible for their own rainmaking activities and the development of a dedicated marketing department may have been seen as threatening to the process and responsibilities of attorneys. Now more than ever, firm management has requested that attorneys spend more time on client development efforts, which can conflict with an attorney’s need/want to bill time. This is where having a marketing team can be crucial for their attorneys.

Two-thirds of respondents in the study confirmed that the marketing department is an important factor in winning the firm business. For smaller firms, marketing is an evenmore critical factor in the win by greater than a 3-to-1 margin. Gone are the days where corporate counsel will hire a firm simply from how they rank in publications. Winning business is predicated on building relationships.

For example, the marketing team at Porter Hedges, a smaller firm out of Houston, Texas, helped coordinate a marketing plan that gets the managing partner out in front of the clients and introduces the clients to the attorneys in the trenches. Their marketing department was able to coordinate and execute a program where clients were able to feel valued. The marketing group is also responsible for organizing client events, so that their firm has a presence among potential clients. On the whole, Porter Hedges is distinguishable from their competitors because of the emphasis they make on client connection. Developing these relationships would have been more difficult to coordinate without a dedicated marketing team.

Justification for Marketing Efforts

The firms surveyed have seen their marketing efforts pay off in several ways. In total, 82% of respondents saw a growth in their law firm and 79% saw client retention as a direct consequence of marketing efforts. There are also several other areas of success, such as an increased image or awareness of the firm in the marketplace (80% of respondents experienced this), and an increase in the firm’s competitive advantage over their competitors (64%).

This study shows that the perceived (and actual) importance of marketing departments has steadily risen over the years. Smaller and midsized firms are recognizing the value of marketing departments and investing in them because of the increased need to remain competitive with their larger brethren.

Stay tuned for part two, where I will discuss exactly what small and midsized firms have been focusing their marketing efforts on and how effective they have been.

Article By:

Nicole Angeline Cudiamat

Of:

The National Law Review / The National Law Forum LLC

The National Law Forum

Massachusetts' Highest Court Upholds State's Endangered Species Regulations

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