The National Law Forum

Get the FATCA Outta Here? Not Likely. – Foreign Account Tax Compliance Act

Despite several delays, it seems almost certain that the “Foreign Account Tax Compliance Act”¹ (FATCA) will finally go into effect on July 1, 2014. FATCA is a withholding tax regime designed to prevent U.S. taxpayers from hiding income offshore and avoiding U.S. taxes. FATCA’s impact will need to be considered in most cross-border transportation finance transactions. While the FATCA rules are complex and a thorough treatment of them is beyond the scope of this article, below are some key issues relating to the impending effectiveness of FATCA that are important to keep in mind.

When Do the FATCA Rules Go Into Effect?

After several delays and extensions, the FATCA rules are currently scheduled to become effective with respect to payments of interest, dividends and rentals and other similar payments made on or after July 1, 2014. While this deadline has been extended several times, the Internal Revenue Service (IRS) has repeatedly stated that no further delays are anticipated.² Obligations outstanding on July 1, 2014 will be “grandfathered,” and the FATCA rules will not apply to payments made under these pre-existing obligations,³ unless such obligations are substantially modified after that date.4 Withholding on payments of “gross proceeds” is not set to begin until after December 31, 2016. Although FATCA withholding will not apply until July 1, 2014, parties who are currently negotiating transportation finance transactions are typically taking into account the possible application of FATCA withholding in the future and are documenting such transactions accordingly.

Overview of the Rules

In general, FATCA imposes a 30% withholding tax on “withholdable payments” to certain non-U.S. persons (foreigners). Withholdable payments broadly include any payment of: (a) U.S. source interest (including OID), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments and other fixed and determinable annual or periodical gains, profits or income, or (b) U.S. source gross proceeds from the sale or other disposition of any property of a type that can produce U.S. source interest or dividends.⁵

Since it is the payor that is obligated to withhold from payments if withholding is required under FATCA, any payor making a payment to a foreigner should confirm that such payment is either (a) related to an obligation to which FATCA does not apply (such as a grandfathered obligation or a non-U.S. source obligation), or (b) made to a foreigner who can provide proof of exemption from FATCA withholding.

Determining U.S. Source

Determining the source of interest payments is usually straight forward, as the jurisdiction of the borrower generally determines the source.⁶ However, in the complex financing structures often utilized for transportation finance transactions, a deeper analysis may be required. For instance, in certain cross-border structured finance transactions a nominal U.S. borrower is used to “own” and “lease” the aircraft to a foreign airline lessee. However, for U.S. tax purposes this borrower is merely an agent, or conduit, for the lessee and the lessee would be treated as the owner of the aircraft. In these circumstances, notwithstanding the nominal U.S. borrower, the parties take the position that, since the true borrower is the foreign airline, the interest is not U.S. source and thus not subject to the FATCA rules.

While sourcing rental payments may seem straightforward at first glance, as you generally look to the jurisdiction where the asset is used, the analysis become trickier for transportation equipment like aircraft.⁷ As aircraft may be used in many jurisdictions, the Internal Revenue Code provides special rules treating as U.S. source: (a) 100% of the income attributable to flights that begin AND end in the U.S., and (b) 50% of the income attributable to flights not described in (a) which begin OR end in the U.S.⁸ Thus, even aircraft leased to a foreign carrier could generate U.S. source rental income if, for example such foreign carrier operates flights to the U.S. or has the ability to sublease the aircraft to a U.S. carrier. For these reasons, it is prudent to include FATCA provisions in aircraft leases with foreign carriers, even where such leases do not initially seem as though they will generate U.S. source income.⁹

Avoiding Withholding Under FATCA

A payor of U.S. source income will need to ensure that its payee is exempt from FATCA withholding. Payments to U.S. entities are generally exempt from FATCA withholding and a payor should collect a Form W-9 or other appropriate evidence of U.S. status when making a payment of U.S. source income to a U.S. entity in order to confirm FATCA withholding is not required.

FATCA is directed primarily at “foreign financial institutions” (FFIs), but also covers “non-financial foreign entities” (NFFEs). While there are various methods for FFIs and NFFEs to be exempt, several of the most common ones are discussed below.

An FFI may be exempt either by reason of the government of its home jurisdictions having entered into an intergovernmental agreement (IGA) with the U.S. or by entering into an agreement with the IRS to report U.S. account holders. There are two types of IGAs: (a) Model 1 IGAs, whereby the FFIs report to their local government, which shares the relevant information with the IRS, and (b) Model 2 IGAs, whereby the FFIs report directly to the IRS. The U.S. and numerous foreign jurisdictions have concluded IGAs¹⁰ and FFIs in a country with an IGA can obtain a “global intermediary identification number” (GIIN), which can be supplied to payees to evidence exemption.

NFFEs can obtain exemption from FATCA by confirming they are the beneficial owner of the payment and reporting their substantial (10% or more) U.S. owners, if any. Reporting information includes name, address and U.S. taxpayer identification number (TIN) of U.S. owners. Under certain circumstances the NFFE can report its ownership information to the IRS rather than the payee. In addition, certain classes of NFFEs are exempt, such as publicly traded companies or companies predominantly engaged in an active business. It remains to be seen whether a leasing company will be considered to be engaged in an active trade or business (and what tests will be applicable to qualify for this status).

When making a payment of U.S. source income to a foreigner, a payor should collect a Form W-8BEN-E to confirm the payee’s FATCA exemption status.¹¹

Negotiating and Documenting FATCA Provisions

Bad news – you will probably need to get tax lawyers involved. Many, if not most, parties seem to be taking a cautious approach and are inserting FATCA provisions where there is any possibility that the payments could be U.S. source currently or in the future. The Loan Market Association has drafted a variety of “standard” provisions but cautions that there are no simple drafting solutions.

Approaches to the allocation of risk vary from a shared approach to an allocation of all of the risk to either the borrower or the lender, in the case of a secured financing, or the lessee or the lessor, in the case of a lease. Borrowers and lessees often make the argument their lender or lessor, as the case may be, should “come to the table” as FATCA compliant and be able to demonstrate such compliance or suffer withholding if they cannot. Lessors and lenders, on the other hand, often make the argument that they should not be at risk for changes in U.S. law. However, these perspectives should not be over emphasized as each transaction needs to be examined in the light of the particular parties and circumstances. In the short run, the negotiation and documentation of these provisions will continue to require time and effort. In the long run, the terms and allocations of risk will likely standardize in a manner similar to how U.S. withholding tax provisions have standardized over the years.

¹ I.R.C. §§ 1471-1474.

²“Final” FATCA regulations were published in the Federal Register on March 6, 2014 (Fed Reg Vol 79 No 44 p. 12812).

³ Technically the obligation needs to be issued before July 1, 2014 and outstanding on July 1, 2014 in order to be grandfathered, and an obligation issued on July 1, 2014 does not qualify for the exception.

⁴ A substantial modification may be triggered by, among other things, a change in interest rate, maturity or obligor.

⁵ Unlike traditional withholding rules, the FATCA regime will eventually apply to proceeds from the sale or other disposition of instruments producing U.S. source interest or dividends. The rules are broad enough to include principal payments on debt instruments.

⁶ I.R.C. § 861(a)(1).

⁷ I.R.C. § 861(a)(4) covering rentals generally.

⁸ I.R.C. § 863(c) covering transportation income which includes aircraft rentals (I.R.C. § 863(c)(3)(A)).

⁹ Where there is a foreign lessee with no other U.S. payor connection, it remains to be seen how the IRS will enforce the FATCA withholding obligation against the foreign lessee with minimal U.S. contacts (e.g., such as merely flying back and forth to and from the U.S.).

¹⁰ The U.S. has concluded Model 1 IGAs with: Canada (2-5-2014), Cayman Islands (11-29-2013), Costa Rica (11-26-2013), Denmark (11-19-2012), Finland (3-5-2014), France (11-14-2013), Germany (5-31-2013), Guernsey (12-13-2013), Hungary (2-4-2014), Ireland (1-23-2013), Isle of Man (12-13-2013), Italy (1-10-2014), Jersey (12-13-2013), Malta (12-16-2013), Mauritius (12-27-2013), Mexico (11-19-2012), Netherlands (12-18-2013), Norway (4-15-2013), Spain (5-14-2013) and the United Kingdom (9-12-2012); and Model 2 IGAs with: Bermuda (12-19-2013), Chile (3-5-2014), Japan (6-11-2013) and Switzerland (2-14-2013).

¹¹ A new W-8BEN-E form will be used for foreign entities and will include the appropriate information to demonstrate FATCA compliance or an exemption from FATCA withholding. Note that a proper exemption from “regular” U.S. withholding will also need to be documented. It is possible that a payee may be exempt from FATCA withholding but not regular withholding.

Article By:

Jonathan H. Bogaard

Michael E. Draz

Of:

Vedder Price

Department of State Releases May 2014 Visa Bulletin

Bulletin shows minor forward movement in the EB-2 China category and the EB-3 India category, with no movement in the EB-2 India category or the EB-3 China category.

The U.S. Department of State (DOS) has released its May 2014 Visa Bulletin. The Visa Bulletin sets out per-country priority date cutoffs that regulate the flow of adjustment of status (AOS) and consular immigrant visa applications. Foreign nationals may file applications to adjust their statuses to that of permanent residents or to obtain approval of immigrant visas at a U.S. embassy or consulate abroad, provided that their priority dates are prior to the respective cutoff dates specified by the DOS.

What Does the May 2014 Visa Bulletin Say?

The May Visa Bulletin indicates minor forward movement of the cutoff date in the EB-2 China category and no movement in the EB-3 China category. The May Visa Bulletin also indicates minor forward movement of the cutoff date in the EB-3 India category and no movement in the EB-2 India category.

A cutoff date of April 15, 2012 will remain in effect for individuals in the F2A category chargeable to Mexico, while a cutoff date of September 8, 2013 will remain in effect for individuals in the F2A category chargeable to all other countries.

EB-1: All EB-1 categories will remain current.

EB-2: The cutoff date of November 15, 2004 for individuals in the EB-2 category chargeable to India will remain unchanged from the April Visa Bulletin. The cutoff date for individuals in the EB-2 category chargeable to China will advance by 38 days to April 15, 2009. The EB-2 category for all other countries will remain current.

EB-3: The cutoff date for individuals in the EB-3 category chargeable to India will advance by 16 days to October 1, 2013. The cutoff date for individuals in the EB-3 category chargeable to China will remain unchanged at October 1, 2012. The cutoff date for individuals in the EB-3 category chargeable to the Philippines will advance by 139 days to November 1, 2007. The cutoff date for individuals chargeable to Mexico and the Rest of the World will remain unchanged at October 1, 2012. We note that the EB-3 China category remains ahead of the EB-2 China category.

The relevant priority date cutoffs for foreign nationals in the EB-3 category are as follows:

China: October 1, 2012 (no movement)
India: October 1, 2003 (forward movement of 16 days)
Mexico: October 1, 2012 (no movement)
Philippines: November 1, 2007 (forward movement of 139 days)
Rest of the World: October 1, 2012 (no movement)

Developments Affecting the EB-2 Employment-Based Category

Mexico, the Philippines, and the Rest of the World

The EB-2 category for individuals chargeable to all countries other than China and India has been current since November 2012. The May Visa Bulletin indicates no change to these categories. This means that individuals in the EB-2 category chargeable to all countries other than China and India may continue to file AOS applications or have applications approved through May 2014.

China

The April Visa Bulletin indicated a cutoff date of March 8, 2009 for EB-2 individuals chargeable to China. The May Visa Bulletin indicates a cutoff date of April 15, 2009, reflecting forward movement of 38 days. This means that individuals in the EB-2 category chargeable to China with a priority date prior to April 15, 2009 may file AOS applications or have applications approved in May 2014.

India

In December 2013, the cutoff date for EB-2 individuals chargeable to India retrogressed by 3.5 years to November 15, 2004 due to unprecedented demand for EB-2 visa numbers from applicants in this category. This cutoff date has since remained constant, and the May Visa Bulletin again indicates no change. This means that only individuals in the EB-2 category chargeable to India with a priority date prior to November 15, 2004 may file AOS applications or have applications approved in May 2014.

Developments Affecting the EB-3 Employment-Based Category

China

From September through December 2013, the cutoff date for EB-3 individuals chargeable to China advanced by 2.75 years, and, from January through April, this cutoff date advanced by an additional 366 days. The May Visa Bulletin indicates a cutoff date of October 1, 2012, reflecting no change to the cutoff date from April. This means that individuals in the EB-3 category chargeable to China with a priority date prior to October 1, 2012 may continue to file AOS applications or have applications approved in May 2014.

India

In March, the cutoff date for EB-3 individuals chargeable to India advanced by 14 days to September 15, 2003. There was no change to this cutoff date in April. The May Visa Bulletin indicates a cutoff date of October 1, 2013, reflecting forward movement of 16 days. This means that only EB-3 individuals chargeable to India with a priority date prior to October 1, 2003 may file AOS applications or have applications approved in May 2014.

Rest of the World

From September through December 2013, the cutoff date for EB-3 individuals chargeable to the Rest of the World advanced by 2.75 years, and, from January through April, this cutoff date advanced by an additional 366 days. The May Visa Bulletin indicates a cutoff date of October 1, 2012, reflecting no movement of this cutoff date. This means that individuals in the EB-3 category chargeable to the Rest of the World with a priority date prior to October 1, 2012 may continue to file AOS applications or have applications approved in May 2014.

Developments Affecting the F2A Family-Sponsored Category

Beginning in October 2013, a cutoff date of September 1, 2013 was imposed for F2A spouses and children of permanent residents from Mexico, and a cutoff date of September 8, 2013 was imposed for F2A spouses and children of permanent residents from all other countries. In March, as a result of heavy demand in the F2A Mexico category, the cutoff date for F2A applicants born in Mexico retrogressed by 504 days to April 15, 2012; the cutoff date for F2A applicants from all other countries remained unchanged. There was no change to these cutoff dates in April, and the May Visa Bulletin again indicates no change to these cutoff dates. This means that those applicants from Mexico with a priority date prior to April 15, 2012 will be able to file AOS applications or have applications approved in May 2014, and those applicants from the Rest of the World with a priority date prior to September 8, 2013 may file AOS applications or have applications approved through May 2014.

The May Visa Bulletin indicates that demand in the F2A category continues to increase dramatically and that the cutoff date for individuals from Mexico and all other countries is therefore likely to retrogress in the coming months.

How This Affects You

Priority date cutoffs are assessed on a monthly basis by the DOS, based on anticipated demand. Cutoff dates can move forward or backward or remain static. Employers and employees should take the immigrant visa backlogs into account in their long-term planning and take measures to mitigate their effects. To see the May 2014 Visa Bulletin in its entirety, please visit the DOS website here.

McSweeny Joins FTC as Fifth Commissioner as Republican Commissioners Continue to Make Waves – Federal Trade Commission

On April 9, 2014, Terrell McSweeny was confirmed by the Senate as the fifth and final Federal Trade Commissioner. She joins fellow Democrat appointees Chairwoman Edith Ramirez and Commissioner Julie Brill. It is the two Republican appointees, Commissioners Maureen Ohlhausen and Josh Wright, however, who have been making the most news in the last several months with dissents and speeches. Now that the FTC is at full-strength, clients should be on the lookout for a more active discussion of new FTC initiatives.

McSweeny is a relative newcomer to the antitrust community, serving as Senior Counsel for Competition Policy in the Justice Department’s Antitrust Division since 2012. She held several positions supporting Vice President Joseph Biden, both as Vice President and Senator, and worked on earlier Democratic presidential campaigns. At her confirmation hearing, she pledged to “continue the [FTC’s] tradition of collegiality and consensus-oriented decision making,” but described no specific initiatives she planned to pursue. She received support from the few Senators present at the hearing and her confirmation vote was 95-1.

During the many months when there were two Democrat and two Republican Commissioners, the FTC continued to be very active in clearing mergers, challenging fraudulent activities and issuing rules and guidance for businesses of all types. Almost all those actions that required votes of the Commissioners received unanimous support. The two Republican Commissioners, however, have publicly dissented from some current and past FTC actions involving intellectual property, FTC Act Section 5 and particular mergers. Also, the lack of a fifth vote caused a rare 2-2 split on claims of collusion in the recent McWane case.

On intellectual property, Ohlhausen vigorously dissented to a portion of the Commission’s late 2012 Robert Bosch consent agreement resolving merger issues. She objected only to the finding of an unfair method of competition when the patent holder sought injunctive relief on a standard essential patent over which there was dispute about a fair, reasonable and non-discriminatory license (FRAND). Ohlhausen saw that issue as one better left to courts or standard setting organizations adjudicating contract provisions. She similarly dissented early in 2013 when the FTC obtained a consent agreement in Google/Motorola Mobility that again required a patent holder to forego unrestricted use of injunction actions as part of a FRAND dispute. While Wright took no part in those actions, he reiterated his earlier academic writing in an April 2013 speech that patent and contract law were better than antitrust law in dealing with FRAND disputes involving standard essential patents. In a March 2014 speech, he called those decisions deviations from the principle embedded in past FTC decisions and guidelines that the antitrust analysis should be symmetrical whether the rights were for intellectual property or real property.

Wright has taken the lead on the Section 5 issues. As explained in our earlier alert, FTC Section 5 allows the FTC to go beyond the Sherman Act and prevent “unfair methods of competition,” but opinions about the extent of that power have varied with the identities of the commissioners. Wright proposed specific guidance to be issued by the FTC that would tether the FTC’s power here to modern antitrust’s “harm to competition” concept. In a July 2013 speech, Ohlhausen endorsed the concept of guidance from the FTC and suggested a limited use of Section 5 similar to Wright’s. Brill questioned the need for such guidance, pointing to the limited number of recent Section 5 actions and no groundswell from business for such guidance, and thought it only made sense when the Commission was back to full strength. On several occasions, Chairwoman Ramirez has said that the periodic Commission actions and Commissioners’ speeches were sufficient guidance on the issue.

Finally, Wright dissented (Ohlhausen was recused) from the September 2013 challenge to the Nielsen/Arbitron merger. The Commission was concerned about the effect of the merger on a market that does not now exist. While acknowledging that merger review necessarily involves some level of prediction, he thought the effects of a merger on such a “future market case” beyond the ability of any enforcer to predict. Finally, Wright was the lone dissent from the December 2013 decision to require changes in the Fidelity National/Lender Processing merger before allowing it to proceed. Wright would have allowed the merger to close with no changes, observing that “modern economics” required something more before concluding that the mere reduction in competitors would increase the likelihood of post-merger collusion in the industry.

In the McWane matter, FTC complaint counsel claimed the company excluded some competitors from a slice of the ductile iron pipe fitting market through a loyalty rebate program while also colluding with those same competitors to raise prices in the overall market. The FTC Administrative Law Judge found exclusion but not collusion. The four sitting commissioners missed two deadlines to issue an opinion because, according to media reports, they were deadlocked. Finally, the deadlock was broken but only on exclusion — Wright dissented from a finding that there was sufficient evidence that the rebate program constituted anticompetitive exclusive dealing. The commissioners deadlocked 2-2 on the collusion claims so the ALJ’s finding of insufficient evidence was allowed to stand and those claims were dismissed.

These dissents and deadlocks can overstate the differences among the commissioners. Since Chairwoman Ramirez rose to her current role last year and the Commission was left shorthanded, the FTC’s enforcement and education activities have continued apace, usually supported by unanimity from the four commissioners. Also, Ramirez has not publicly indicated any particular initiatives she had been unable to pursue because of the lack of a third Democratic vote. Still, the McSweeny addition will give her the opportunity to regain the initiative from her Republican colleagues. Clients should be alert for any changes in the debates or new initiatives now that the Commission is back to full strength.

Article By:

Steven J. Cernak

Gregory L. Curtner

Jacob K. Danziger

William M. Hannay

Sondra A. Hemeryck

Richard J. Hoskins

Of:

Schiff Hardin LLP

PTO Litigation Center Report – April 11, 2014

Listed below are all new filings before PTAB of requests for inter partes review (IPR) and covered business methods review (CBM). Also listed are any newly-posted requests for ex parte reexamination at the USPTO. This listing is current as of 9:45 AM on Friday, April 11, 2014.

New IPR Requests

Trial Number – IPR2014-00604
Filing Date – 4/10/2014
Patent # – 6,896,775
Title – HIGH-POWER PULSED MAGNETICALLY ENHANCED PLASMA PROCESSING
Assignee – ZOND, INC.
Petitioner – THE GILLETTE COMPANY
Status – Pending
Tech Center – 1700

Trial Number – IPR2014-00605
Filing Date – 4/10/2014
Patent # – 7,348,723
Title – EMISSION DEVICE, SURFACE LIGHT SOURCE DEVICE, DISPLAY AND LIGHT FLUX CONTROL MEMBER
Assignee – ENPLAS CORPORATION
Petitioner – Seoul Semiconductor Co., Ltd.
Status – Pending
Tech Center – 2800

Trial Number – IPR2014-00606
Filing Date – 4/10/2014
Patent # – 6,833,404
Title – HOT MELTS UTILIZING A HIGH GLASS TRANSITION TEMPERATURE SUBSTANTIALLY ALIPHATIC TACKIFYING RESIN
Assignee – H.B. FULLER COMPANY
Petitioner – HENKEL CORPORATION
Status – Pending
Tech Center – 1700

Trial Number – IPR2014-00607
Filing Date – 4/10/2014
Patent # – 7,870,249
Title – NETWORKED SYSTEM FOR INTERACTIVE COMMUNICATION AND REMOTE MONITORING OF INDIVIDUALS
Assignee – ROBERT BOSCH HEALTHCARE SYSTEMS, INC.
Petitioner – Medtronic, Inc.
Status – Pending
Tech Center – 2400

Trial Number – IPR2014-00610
Filing Date – 4/10/2014
Patent # – 7,490,151
Title – ESTABLISHMENT OF A SECURE COMMUNICATION LINK BASED ON A DOMAIN NAME SERVICE (DNS) REQUEST
Assignee – VIRNETX INC.
Petitioner – Microsoft Corporation
Status – Pending
Tech Center – 2100

New CBM Review Requests

Trial Number – CBM2014-00115
Filing Date – 4/10/2014
Patent # – 7,970,674
Title – AUTOMATICALLY DETERMINING A CURRENT VALUE FOR A REAL ESTATE PROPERTY, SUCH AS A HOME, THAT IS TAILORED TO INPUT FROM A HUMAN USER, SUCH AS ITS OWNER
Assignee – ZILLOW, INC.
Petitioner – TRULIA, INC.
Status – Pending
Tech Center – 3600

Newly-Posted Reexam Requests

Control # – 90/013,207
Date – 4/10/2014
Patent # – 7,489,423
Inventor – Nachman, Marvin J. et al.
Assignee – INFINITY COMPUTER PRODUCTS, INC.
Title – INTERFACE CIRCUIT FOR UTILIZING A FACSIMILE MACHINE COUPLED TO A PC AS A SCANNER OR PRINTER
Co-pending Litigation – Infinity Computer Products, Inc. v. Toshiba America Business Solutions, Inc., No. 2:12-cv-06796-LDD (E.D. Pa.) and 11 other litigations.

Control # – 90/013,208
Date – 4/10/2014
Patent # – 6,894,811
Inventor – Nachman, Bruce G. et al.
Assignee – INFINITY COMPUTER PRODUCTS, INC.
Title – INTERFACE CIRCUIT FOR UTILIZING A FACSIMILE COUPLED TO A PC AS A SCANNER OR PRINTER
Co-pending Litigation – Infinity Computer Products, Inc. v. Toshiba America Business Solutions, Inc., No. 2:12-cv-06796-LDD (E.D. Pa.) and 11 other litigations.

Control # – 90/013,209
Date – 4/10/2014
Patent # – 8,040,574
Inventor – Nachman, Bruce G. et al.
Assignee – INFINITY COMPUTER PRODUCTS, INC.
Title – INTERFACE CIRCUIT FOR UTILIZING A FACSIMILE MACHINE TO A PC AS A SCANNER OR PRINTER
Co-pending Litigation – Infinity Computer Products, Inc. v. Toshiba America Business Solutions, Inc., No. 2:12-cv-06796-LDD (E.D. Pa.) and 11 other litigations.

Control # – 90/013,210
Date – 4/10/2014
Patent # – 8,294,915
Inventor – Nachman, Bruce G. et al.
Assignee – INFINITY COMPUTER PRODUCTS, INC.
Title – INTERFACE CIRCUIT FOR UTILIZING A FACSIMILE MACHINE COUPLED TO A PC AS A SCANNER OR PRINTER
Co-pending Litigation – Infinity Computer Products, Inc. v. Toshiba America Business Solutions, Inc., No. 2:12-cv-06796-LDD (E.D. Pa.) and 11 other litigations.

Article By:

PTO Litigation Center

Of:

Sterne, Kessler, Goldstein & Fox P.L.L.C.

Supreme Court Inks Uniform Standing Test for Lanham Act False Advertising Claims

Key Takeaways

The US Supreme Court created a uniform test for standing for false advertising claims under Section 43(a) of the Lanham Act, resolving a three-way circuit split.
The new standing test requires the plaintiff to allege and prove that it suffered an injury to a commercial interest in sales or business reputation, and that such injury was proximately caused by the defendant’s alleged misrepresentations.
The Court closed the courthouse doors to consumer class action suits under Section 43(a), pointing to the commercial interest requirement.
The decision may prompt speculation regarding uncertainty as to standing for other claims under Section 43(a), including claims for infringement of unregistered trademarks.

Discussion of the Case

In a decision issued March 25, 2014, Lexmark International, Inc. v. Static Control Components, Inc., the US Supreme Court rejected three conflicting tests for standing for false advertising claims under Section 43(a) of the Lanham Act, creating a new test in the process. Specifically, plaintiffs must now “plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.”

Plaintiff Lexmark International, Inc. (Lexmark) sells laser printers and corresponding ink cartridges. The ink cartridges contain a microchip that deactivates them after they run out of ink, which is intended to stop “remanufacturers” from refurbishing and selling the ink cartridges in competition with Lexmark. Defendant Static Control Components, Inc. (Static Control), while not a direct competitor of Lexmark, sells component parts to remanufacturers, including a replacement microchip that allows the remanufacturers to once again refurbish and sell ink cartridges in competition with Lexmark. In response, Lexmark sent letters to the remanufacturers, advising that it was illegal to sell the refurbished ink cartridges and, in particular, that it was illegal to use Static Control’s products to refurbish the ink cartridges.

Lexmark sued Static Control for copyright infringement based on its creation and sale of the microchips. Static Control counterclaimed for false advertising based on, among other things, the letters to the remanufacturers. The US District Court for the Eastern District of Kentucky dismissed Static Control’s counterclaim for lack of “prudential standing,” and the US Court of Appeals for the Sixth Circuit reversed.

The Supreme Court granted certiorari and ultimately held that Static Control satisfied the Court’s new test for standing under Section 43(a) of the Lanham Act. In so holding, the Court swept aside what it called the “misleading” concept of “prudential standing,” which has been applied by courts as an additional hurdle to alleging standing beyond the broad “case or controversy” requirement (i.e., an injury in fact that is fairly traceable to the conduct complained of) of Article III of the US Constitution. The Court held that standing simply flows from traditional statutory interpretation principles. In particular, courts need only look to the at-issue statute to determine (1) whether the plaintiff’s alleged injury falls within the “zone of interest” protected by the statute, and if so, (2) whether such injury was proximately caused by the defendant’s alleged misrepresentations.

The Court’s new standing analysis falls somewhere in the middle of the three rejected tests: one, which conferred standing only on direct competitors of the defendant; the second, which used a multifactor analysis borrowed from antitrust law; and the third, which conferred standing on any plaintiff that demonstrated a “reasonable interest to be protected against” and a “reasonable basis for believing” that such interest was likely to be harmed.

Turning to the interpretation of the “zone of interest” protected by the Lanham Act, the Court looked to the statute’s clear statement of intent in Section 45 regarding protection against “unfair competition.” Citing to a law review article from 1929, the Court found that unfair competition “was generally understood to be concerned with injuries to business reputation and present and future sales.” Thus, the Court concluded that the “zone of interest” of Section 43(a) was limited to injuries to a commercial interest in reputation or sales. The Court then slammed the courthouse doors on consumer class actions under Section 43(a), pointing out that this “zone of interest” excluded a suit based on a “consumer who is hoodwinked into purchasing a disappointing product.”

On the facts at hand, the Court held that Static Control had sufficiently alleged lost sales and damage to its business reputation, easily satisfying the “zone of interest” requirement. Further, the Court found that Static Control’s allegations sufficiently pled that those injuries were proximately caused by Lexmark’s representations that Static Control’s business was illegal. Accordingly, the Court held that Static Control had standing and was thus “entitled to a chance to prove its case.”

While this decision provides some welcome certainty for false advertising litigants, ending the three-way circuit split regarding Section 43(a) false advertising standing, it also opens the door to speculation regarding standing for other “unfair competition” claims under Section 43(a) (e.g., infringement of unregistered trademarks). Specifically, the Court’s holding and analysis were not expressly limited to Section 43(a)(1)(b), which relates to false advertising, but instead apply to all of Section 43(a). It is thus unclear whether, for example, some increased level of “proximate harm” will be required for trademark claims under Section 43(a). Then again, the Court’s formulation of what constitutes proximate harm under Section 43(a)—when “deception of consumers causes them to withhold trade from the plaintiff”—seems to fit nicely with the “likelihood of consumer confusion” standard applied in trademark cases.

Article By:

Roger P. Furey

Doron S. Goldstein

Michael R. Justus

Of:

Katten Muchin Rosenman LLP

Miami-Dade County Road Impact Fees Increasing by 23% on April 22, 2014

On April 22, 2014, the roadway impact fee will increase by 23%. Developers should be aware of these increases in impact fees, as substantial cost savings can be achieved by paying the applicable impact fees and pulling building permits on or before April 21, 2014, which is the last day to pay fees at current rates.

Miami-Dade County Impact Fees

If plans have been filed but the building permit is not yet ready for issuance, it would be worthwhile to attempt to pay the impact fee at the current rate prior to April 22. In addition, some exemptions or credits against road impact fees may be available for certain projects and locations, particularly for many uses proposed in the downtown Miami or Brickell area.

This increased amount is only for road impact fees; other applicable impact fees will also be due.

Unless subject to an applicable exemption or credit (such as certain uses in a development of regional impact), new developments in both unincorporated and incorporated areas of Miami-Dade are levied Miami-Dade County roadway impact fees. These fees must be paid or bonded prior to obtaining a building permit for new construction or increased development.

Miami-Dade County adopted a schedule to increase road impact fees in phases commencing in 2009. The phases were expressed as a discount off of the eventual full impact fee rate to be implemented in the future. However, in order to help alleviate the impact of the increased fees during the economic downturn, the Board of County Commissioners twice-passed legislation that delayed implementation of the increased fees, thus extending the discount. The discount is slated to increase on April 22, 2014 from 65% of the full rate to 80% of the full rate. While this may appear to be a 15% change, the net result is actually a 23% increase over current rates. However, coupled with the “present day cost multiplier” annual increase incorporated into the County Code, the fees have increased exponentially over the last several years.

As noted above, although the County has, in the past few years, extended the discount in recognition of the downturn in the economy, there has been no County legislation filed as of yet that would do the same this year.

Represented below are the differences in roadway impact fees between April 1, 2014 and April 22, 2014:

Miami-Dade

As an example, roadway impact fees for a 200 unit condominium located in the urban infill area (UIA) would increase from $610,138 to $750,940, for an increase of $140,802.

Article By:

Brian S. Adler

Of:

Bilzin Sumberg

IRS Clarifies How Plan Sponsors Should Handle Same-Sex Spouses in Qualified Retirement Plans

On April 4, 2014, the IRS issued Notice 2014-19, requiring that qualified retirement plans apply “spouse” and “marriage” to same-sex spouses just as the plan would to opposite-sex spouses and establishing criteria for what plan amendments are needed and the timing for doing so.

Background

In September of 1996, Congress enacted the Defense of Marriage Act (DOMA), which provided that same-sex marriages would not be recognized under federal law. On June 26, 2013, however, the U.S. Supreme Court held in the Windsor case that DOMA’s treatment of such marriages was unconstitutional. Following Windsor, the IRS issued Revenue Ruling 2013-17 on August 29, 2013 (effective September 16, 2013), requiring same-sex marriages legally performed under state law to be recognized for federal tax purposes in any state regardless of whether the state recognizes the validity of same-sex marriages. This Revenue Ruling further provided that individuals who entered into registered domestic partnerships, civil unions, or other similar relationships under state law did not qualify as “spouses” and that these relationships did not qualify as “marriages” for federal tax purposes.

The newly issued April 4 Notice gives further guidance respecting qualified retirement plans on a wide range of subjects including qualified joint and survivor annuity rules, the Retirement Equity Act’s spousal beneficiary safeguards, required minimum distribution calculations and timing, control group determinations, ESOP rules, and the QDRO exceptions to the Code’s anti-alienation rules.

Notice 2014-19

The new IRS Notice describes when qualified retirement plans must be in administrative and documentary compliance with Windsor and the August 2013 Revenue Ruling. Plan sponsors and recordkeepers must have been administering their retirement plans consistent with Windsor as of June 26, 2013, even if these plans did not contemplate valid same-sex marriages. The corollary to this is that failing to recognize same-sex marriages before June 26, 2013, will not disqualify a plan. Furthermore, because last summer’s Revenue Ruling was not effective until September 16, 2013, there will be no risk of disqualification during the gap period between the effective date of Windsor and September 16 for plans that recognized same-sex marriages only if a participant was domiciled in a state that recognized same-sex marriages. The IRS further clarified that plan sponsors could operate their plans prior to June 26, 2013 to reflect Windsor on some or all qualification requirements without risk of disqualification so long as the basic qualification rules were satisfied, i.e., plan sponsors could be more generous than the Code required if it was feasible administratively.

From a documentation standpoint, all qualified retirement plans must be consistent with Windsor and both the IRS Revenue Ruling and the new Notice. Depending on how a plan uses or defines the terms “spouse” and “marriage,” plan amendments may or may not be needed. If a plan uses or defines these terms in a neutral manner without reference to “opposite-sex” or DOMA and they can be reasonably construed in harmony withWindsor and the IRS guidance, then no plan amendment is likely needed. However, if a plan couches the terms “spouse” and “marriage” in accordance with DOMA or inconsistently with Windsor, then the plan will need to be amended retroactively to June 26, 2013 to maintain its qualified status.

The deadline for adopting any needed amendments is generally going to be December 31, 2014, although for some plan sponsors, the amendment deadline could be later depending on their unique circumstances.

Next Steps

In response to Notice 2014-19, plan sponsors will need to review the terms of their retirement plans to ensure each plan contains a proper definition of “spouse” and “marriage” and to timely amend their plans, as necessary. Additionally, plan sponsors should confirm the administrative aspects of their plans with their recordkeepers. Based on all of this, Notice 2014-19 is welcome news as it provides certainty: individuals can better plan their benefits and retirements, recordkeepers can confidently begin any needed programming and website changes, and plan sponsors can undertake any needed revisions to their plan documents, summary plan descriptions and other communications.

Article By:

Jorge M. Leon

Kirk A. Pelikan

Charles P. Stevens

Of:

Michael Best & Friedrich LLP

Gaga for Gigabit: The FCC (Federal Communications Commission) Liberates 100 MHz of Spectrum for Unlicensed Wi-Fi

On April 1, the FCC took steps to remedy a small but growing annoyance of modern life: poor Wi-Fi connectivity. Removing restrictions that had been in place to protect the mobile satellite service uplinks of Globalstar, and by unanimous vote, the FCC’s First Report and Order on U-NII will free devices for both (i) outdoor operations; and (ii) operation at higher power levels in the 5.15 – 5.25 GHz band (also called the U-NII-1 band).¹The Report and Order also requires manufacturers to take steps to prevent unauthorized software changes to equipment in the U-NII bands, as well as to impose measures protecting weather and other radar systems in the band.

The practical impact of these rule changes is difficult to overstate. By removing the operating restrictions in the U-NII-1 band, the FCC essentially doubled the amount of unlicensed spectrum in the 5 GHz band available to consumers. In the near future, use of this spectrum will help to alleviate congestion on existing Wi-Fi networks, especially outdoor “hotspots” typically used at large public places like airports, stadiums, hotels and convention centers. Two less-obvious, longer-term benefits also are worth watching.

First, the new IEEE 802.11ac standard for Wi-Fi was finalized in January 2014. This next generation Wi-Fi standard is capable of delivering vast increases in raw throughput capacity to end-users, often approaching the holy grail of transfer speeds: 1 gigabit. To achieve those speeds, wide channels of operation are required – channels that simply were not available to Wi-Fi devices. Now that the U-NII-1 band has been unleashed for Wi-Fi usage, there should be little impediment to the near-term rollout of 802.11ac compatible devices.

This new standard will offer marked improvements in download speeds and streaming quality, and be a boon to consumers who increasingly rely on mobile devices for bandwidth intensive applications such as HD video. Unsurprisingly, cable operators in particular are excited by the possibilities of this technology; on the day the Report and Order was released, Comcast Chief Technology Officer Tony Werner authored a lengthy blog post touting the possibilities of Comcast offering Gigabit Wi-Fi to its customers utilizing the U-NII-1 band.^[2]

Second, in addition to the untempered enthusiasm of the MSOs, wireless carriers also have a stake in this unlicensed spectrum. Specifically, as use of licensed mobile spectrum continues to expand exponentially, the wireless carriers will increasingly encourage wireless offloading as a means of addressing congestion and capacity issues on macro cellular networks. For example, Cisco Systems estimates that 45% of global mobile data traffic was offloaded onto the fixed network through Wi-Fi or small cells in 2013^.[3]

This transformation of 100 MHz of spectrum in the U-NII-1 band marks one part of a renewed focus on consumer broadband at the FCC. In addition to unlicensed Wi-Fi, the FCC is also in the middle of a proceeding – covered in an earlier FCC Law Blog post^[4]– to streamline rules for wireless infrastructure. Taken together with the FCC’s release earlier this week of auction rules for 65 MHz of AWS-3 spectrum later this year, it becomes clear that although it is early yet, the Wheeler Commission is gaga for broadband.

_{[1] U-NII is the acronym for “Unlicensed National Information Infrastructure devices”, unintentional radiators which facilitate broadband access and wireless local area networking, including Wi-Fi. A copy of the First Report and Order is available here.}

_{[2] See Tony Werner’s blog post here.}

_{[3] See Global Mobile Data Traffic Forecast Update, 2013-2018.}

_{[4] See Sleeper “Small” Cells: The Battle Over The FCC’s Wireless Infrastructure Proceeding.}

Article By:

Douglas A. Svor

Dave Thomas

Of:

Sheppard, Mullin, Richter & Hampton LLP

Illinois Trust Taxation Deemed Unconstitutional

In Linn v. Department of Revenue, the Illinois Fourth District Appellate Court reviewed the state’s statutory framework for taxing trusts. Linn v. Department of Revenue, 2013 Il App (4th) 121055. On constitutional grounds, the court limited Illinois’ power to impose taxes under its “once subject to tax, forever subject to tax” regime.

This case creates planning opportunities to minimize Illinois income taxes. However, it should be noted that the Linn case applies to trusts that pay Illinois income tax on trust dividends, interest, capital gains or other income retained by the trust and not distributed to a beneficiary. This case does not apply to income distributed to an Illinois beneficiary; that income clearly can be taxed by Illinois.

Illinois Trusts

Illinois trusts are subject to a 5 percent income tax plus a 1.5 percent personal property replacement tax. A nonresident trust is subject to taxation only on income generated within Illinois or apportioned to the state. Resident trusts, on the other hand, are subject to tax on all income, regardless of the source of that income. For an individual, state income taxation on a resident basis generally requires domicile or residence within the taxing state. With respect to a trust, one or more of the grantor, trustees and beneficiaries may have contacts with a state sufficient to uphold as constitutional a tax on all of the trust income.

Illinois defines a resident trust based solely on the domicile of the grantor. 35 ILCS 5/1501(a)(20). A resident trust means:

A trust created by a will of a decedent who at death was domiciled in Illinois or
An irrevocable trust, the grantor of which was domiciled in Illinois at the time the trust became irrevocable. For purposes of the statute, a trust is irrevocable when it’s no longer treated as a grantor trust under Sections 671 through 678 of the Internal Revenue Code.

The Illinois statute would forever tax the income generated by the trust property, regardless of the trust’s continuing connection to Illinois. One can analogize the Illinois statute to a hypothetical statute providing that any person born in Illinois to resident parents is deemed an Illinois resident and subject to Illinois taxation no matter where that person eventually resides or earns income. Many lawyers believe that the Illinois statute is unconstitutional.

Linn

Linn involved a trust established in 1961 by A.N. Pritzker, an Illinois resident. The trust was initially administered under Illinois law by trustees who lived in Illinois. In 2002, the trustee exercised a power granted in the trust instrument to distribute the trust property to a new trust (the Texas Trust). Although the Texas Trust generally provided for administration under Texas law, certain provisions of the trust instrument continued to be interpreted under Illinois law. The Texas Trust was subsequently modified by a Texas court to eliminate all references to Illinois law, and the trustee filed the Texas Trust’s 2006 Illinois tax return as a nonresident. At that time:

No current trust beneficiary resided in Illinois;
No trustee or other trust officeholder resided in Illinois;
All trust assets were located outside Illinois; and
Illinois law wasn’t referred to in the modified trust instrument

The Illinois Department of Revenue (the IDR) asserted that the trust was a resident trust for 2006 and that, as such, the trust pay Illinois income tax on all income. The trustee countered that the imposition of Illinois tax under these circumstances was unconstitutional as a violation of the due process clause and the commerce clause. The court held the statute was unconstitutional based on due process grounds (not reaching the commerce clause arguments), and stated that the following are the requirements for a statute to sustain a due process challenge: (1) a minimum connection must exist between the state and the person, property or transaction it seeks to tax during the period in issue and (2) the income attributed to the state for tax purposes must be rationally related to values with the taxing state. Quill Corp. v. North Dakota, 504 U.S. 298, 306 (1992).

This was the first case in Illinois on this issue so the court cited cases from other jurisdictions, including Chase Manhattan Bank v. Gavin, 733 A. 2d 782 (Conn. 1999), McCulloch v. Franchise Tax Board, 390 P.2d 412 (Cal. 1964), Blue v. Department of Treasury, 462 N.W.2d 762 (Mich. Ct. App. 1990) and Mercantile-Safe Deposit & Trust Co. v. Murphy, 242 N.Y.S.2d 26 (N.Y. App. Div. 1963). Gavin, which upheld the application of the Connecticut income tax on the undistributed income of a lifetime trust created by a Connecticut grantor, was cited at length by the court. A critical fact in that case was that the beneficiary resided within the state for the year in question and the court assumed that the beneficiary would receive all trust property shortly. In Linn, the court noted, there were no Illinois beneficiaries. Relying on Blue and Mercantile, the court found that a grantor’s residence within a state isn’t itself enough to satisfy due process.

The IDR argued that significant connections with Illinois existed, maintaining that the trust owed its existence to Illinois law and listing legal benefits Illinois provides to the trustees and beneficiaries. The IDR cited some cases that involved trusts created by a will (i.e.,testamentary trusts). The Illinois court disagreed with the testamentary trust cases the IDR relied on, finding that a lifetime trust’s connections with a state are more attenuated than in the case of a testamentary trust. Further, the court found that the Texas Trust wasn’t created under Illinois law, but rather by a power granted to the trustees under the original trust instrument. The court proceeded to dismiss the trust’s historical connections to Illinois and focused on contemporaneous connections, finding that “what happened historically with the trust in Illinois courts and under Illinois law has no bearing on the 2006 tax year.” Linn at ¶30. For 2006, the court concluded that the trust received the benefits and protections of Texas law, not Illinois law.

Steps to Consider

The IDR did not appeal the Linn decision to the Illinois Supreme Court. We anticipate that additional cases will test and define the boundaries of the Linn decision. Of course, Illinois might change its statute. For the time being, however, the Linn decision is binding authority for trustees of trusts that can eliminate all contact with Illinois.

Trustees of resident trusts with limited contacts to Illinois (in particular, those trusts without trustees, assets or non-contingent beneficiaries in Illinois) should consider the following issues.

Review state taxation: The trustee should review connections to Illinois and consider whether actions could be taken to fall within theLinn holding. Contacts with other states and those states’ rules for taxing trusts should also be reviewed.
File Illinois return with no tax due: Pending guidance from the IDR, the trustee could consider filing an IL Form 1041, referencing theLinn case and reporting no tax due. For each tax year, a tax return must be filed in order to commence the running of the statute of limitations. An Illinois appellate court decision that supports the taxpayer’s position will ordinarily provide a basis for the abatement of tax penalties. 86 Ill. Admin Code Section 700.400(e)(8). However, if the facts are not exactly like those in Linn, a penalty cold be imposed on the trustee. A safer method for trusts when the facts are not the same as in Linn would be to file and pay the Illinois tax in full but then file a claim for refund. This should eliminate penalties but likely will result in a dispute with the IDR.
Amend prior tax returns: The trustee could consider filing amended tax returns for prior years and claim a refund. A trustee that has timely filed prior year tax returns may file an amended tax return at any time prior to the third anniversary of the due date of the tax return, including extensions. For example, the 2010 tax year return may be amended at any time prior to October 15, 2014.

Other Considerations

Given the holding in Linn and uncertainty regarding trust tax law, trusts that offer flexibility and can adapt to changing circumstances may have a distinct advantage.

Officeholders: Carefully consider the residency of trustees and other trust officeholders (such as investment advisers) and provisions regarding the appointment and removal of those officeholders.
Decanting provision: Consider providing the trustee with broad authority to distribute trust property in further trust.
Lifetime trusts: While the legal basis for the continued income taxation of a testamentary trust may also be questionable, testamentary trusts can be avoided by creating lifetime trusts.
Situs and administration: Consider establishing and administering the trust in a state that doesn’t assess an income tax against trust income.
Governing law: Consider including trust provisions that allow the trustee to elect the laws of another state to govern the trust.
Discretionary dispositive provisions: Consider including discretionary rather than mandatory trust distribution provisions, as some states may tax a trust based on the residence of beneficiaries with non-contingent trust interests.
Division provisions: Consider including provisions authorizing a trustee to divide a trust without altering trust dispositive provisions. This type of provision may allow a trustee to divide a trust into separate trusts and isolate the elements of a trust attracting state taxation. For example, a trust may simply be divided into two separate trusts, one trust for the benefit of a child and his descendants that live in Illinois and a second trust that might not be subject to Illinois taxation, for a child and his descendants that don’t live in Illinois.

Article By:

James H. Cundiff

L. Timothy Halleron

Of:

McDermott Will & Emery

Revitalized National Labor Relations Board (NLRB) Takes on Vigorous Agenda Including Reissued Quickie Union Election Rules And Greater Employee Handbook Scrutiny

The National Labor Relations Board (“NLRB” or the “Board”) has been notably active in the first quarter of 2014.

As addressed in our March 2013 Alert, the Board faced uncertainty regarding its power to act following the January 23, 2013 decision in Noel Canning v. NLRB by the U.S. Court of Appeals for the District of Columbia Circuit. Noel Canning held that President Obama’s three recess appointments to the Board, made on January 4, 2012, were unconstitutional. Then, in August 2013, the NLRB received a full complement of five Senate-confirmed members.

While it has taken a few months for the Board to ramp up after the new members were sworn in, the newly invigorated NLRB is quickly making up for that time. For instance, the Board issued 19 decisions in January 2014 alone.

Below are summaries of certain significant NLRB developments from the first quarter of 2014:

NLRB Proposes Quickie Election Rules Again – Will Help Unions to Organize On February 5, 2014, the Board reissued proposed amendments to its existing rules governing union election procedures, new rules which it first proposed in2011. These rules will make union organizing easier by dramatically expediting the Union election process. In May 2012, the United States District Court for the District of Columbia had blocked the prior rules, holding that the NLRB lacked a quorum when it adopted those rules.

The new proposed rules, which the Board issued with a full quorum, would make several significant changes that would greatly benefit unions. The proposed rules would:

speed up union elections by ending the current practice of scheduling pre-election hearings within fourteen days from the petition filing and instead requiring hearings to be held within seven days of the filing;
substantially reduce an employer’s right to litigate whether employees are eligible to vote prior to an election, by automatically deferring such issues until after the election; and
require employers to provide union organizers with the names, addresses, email addresses and phone numbers of employees once a petition has been filed.
The NLRB is accepting public comments on the proposal until April 7, 2014. In addition, the Board will hold a public hearing on the proposed rules during the week of April 7, 2014.

NLRB Employee Handbook Scrutiny The Board has been more closely examining provisions in companies’ employee handbooks. This increased scrutiny impacts employers in both union and non- union workplaces.

As noted in our April 2013 Alert, several of the Board’s prominent decisions over the past few years have addressed social media policies. Recently, the NLRB has expanded its focus to other aspects of employer handbook policies, such as those policies pertaining to confidentiality, dispute resolution, at-will employment statements, and non-union statements.

A recent example is a decision issued by an NLRB Administrative Law Judge (“ALJ”) that partially invalidated an employer’s dress code. Boch Imports, Inc., NLRB, No. 1-CA-83551 (Jan. 13, 2014).

In Boch, the ALJ found that a dress code provision in a Honda dealer’s employee handbook that prohibited employees who have contact with the public from wearing pins, insignia, or other message clothing violated section 8(a)(1) of the National Labor Relations Act (“NLRA” or the “Act”) (which prohibits employers from interfering with employees as they engage in protected concerted activity). Although the dress code rule applied to all pins, insignia, or other message clothing, the ALJ found that the rule violated an employee’s presumptive right to display a union insignia in the workplace.

Notice Posting Rule Abandoned – But New Emphasis on Digital Media to Publicize NLRA’s Protections in Union and Non-Union Workplaces The Board has decided not to seek U.S. Supreme Court review of two U.S. Court of Appeals decisions which held that the NLRB’s Notice Posting Rule was invalid. The Notice Posting Rule would have required private employers to post a notice in the workplace of employee rights under the Act.

The Board has issued an update on its website stating that the NLRB remains committed to making sure that “workers, businesses and labor organization are informed of their rights and obligations under the National Labor Relations Act.” According to that update, the workplace poster is available on the NLRB website and may be disseminated voluntarily. The Board has also established a free mobile app for iPhone and Android users, which provides information about the NLRA.

Although the NLRB chose to abandon its proposed Notice Posting Rule, the Board’s subsequent statements and its use of digital media to disseminate information about the Act demonstrate a commitment to remain relevant, modernize, and seek to influence employees in both unionized and non-unionized workplaces.

Employer Take Aways

Employees must prepare for the new quickie election rules. Management must promote positive employee relations before union organizing occurs. Employers will no longer have the time to campaign fully against unionization once a labor organization files a petition.
Employers must be very mindful of the Board’s increased focus on non-union workplaces, including its scrutiny of employee handbook and social media policies.

The NLRA applies to virtually all private sector employers, whether unionized or not unionized. If the NLRB finds that a policy violates the NLRA, the Board may order that the employer rescind that policy and may also require management to post a notice to employees stating that the employer will not violate the Act. The NLRB may also invalidate any discipline or termination that the employer based on that policy and can require the reinstatement, with back pay, of any discharged employee.

The U.S. Supreme Court is still considering the Board’s appeal of Noel Canning, which may require the Board to revisit certain prior rulings. In the meantime, the NLRB is moving forward with its vigorous agenda.

Article By:

David I. Rosen

Galit Kierkut

Charles S. Zucker

Grace A. Byrd

Of:

Sills Cummis & Gross P.C.

When Do the FATCA Rules Go Into Effect?

Overview of the Rules

Determining U.S. Source

Avoiding Withholding Under FATCA

Negotiating and Documenting FATCA Provisions

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Bulletin shows minor forward movement in the EB-2 China category and the EB-3 India category, with no movement in the EB-2 India category or the EB-3 China category.

What Does the May 2014 Visa Bulletin Say?

Developments Affecting the EB-2 Employment-Based Category

Mexico, the Philippines, and the Rest of the World

China

India

Developments Affecting the EB-3 Employment-Based Category

China

India

Rest of the World

Developments Affecting the F2A Family-Sponsored Category

How This Affects You

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New IPR Requests

New CBM Review Requests

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Key Takeaways

Discussion of the Case

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Background

Notice 2014-19

Next Steps

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Illinois Trusts

Linn

Steps to Consider

Other Considerations

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