FDA Finalizes FSVP Guidance for Importers of Human and Animal Food

On January 10, the FDA issued a final guidance for the Foreign Supplier Verification Programs (FSVP) for Importers of Food for Humans and Animals. As our readers know, under the Food Safety Modernization Act (FSMA), FSVP requires that importers verify that the food which they import provides the same level of public health protection as the preventive controls or produce safety regulations (as appropriate) in the U.S. and to ensure that supplier’s food is not adulterated and is not misbranded with respect to allergen labeling.

The guidance is intended to assist importers in developing and implementing FSVP records, and following FSVP requirements for each food they import. The guidance includes recommendations on the requirements to analyze the hazards in food; how to evaluate a potential foreign supplier’s performance and the risk posed by the food; ways to determine and conduct appropriate foreign supplier verification activities; and how importers of dietary supplements or very small importers can meet modified FSVP requirements.

The guidance finalizes a 2018 draft guidance, and addresses comments received regarding what food the FSVP regulation applies to, what information must be included in the FSVP, and who must develop and perform the FSVP activities.

For more Biotech, Food, and Drug Legal News, click here to visit the National Law Review.

© 2023 Keller and Heckman LLP

IP Rights in Virtual Fashion: Lessons Learned in 2022 and Unanswered Questions

There was a lot of talk and much hype about the “metaverse” in 2022. While some were skeptical and stayed on the sidelines to watch, many companies began offering virtual counterparts to their real-world products for use by avatars in the metaverse, including virtual clothing and accessories. For example, Tommy Hilfiger live-streamed a virtual fashion show on Roblox as part of the New York Fashion Week, and Decentraland hosted a Metaverse Fashion Week. Many companies also introduced NFTs into fashion product lines, such as Alo’s NFT offering.

The emergence of virtual goods has generated novel questions about how to protect and enforce IP rights in virtual fashion, and how those strategies might differ from IRL (meaning “in real life”) fashion. Although many questions remain unanswered, this article sets out important considerations for how companies might use various IP laws to protect virtual fashion goods in the United States.

I. DISTINCTIONS BETWEEN VIRTUAL FASHION AND IRL FASHION

Before diving into the IP discussion, it’s worth highlighting some distinctions between virtual fashion and IRL fashion outside the legal context, beyond the obvious fact that virtual fashion is worn by avatars. IRL clothing and accessories are worn primarily for protection against the elements, to conform to societal standards, to conform with a specific event’s dress requirements, to communicate via express messages on clothing or accessories, or to express oneself through the style or design of the clothing.

Virtual fashion can also serve each of those purposes for an avatar, and in some cases the person behind the avatar. But, because it is comprised of software code, the possibilities for virtual fashion utility are endless. For example, a particular piece of virtual clothing can also grant access to certain virtual spaces or events or give the avatar special powers within virtual worlds. If tied to an NFT (non-fungible token), virtual clothing can also provide benefits on and off virtual platforms, including exclusive access to sales promotions and IRL events.

Unlike IRL clothing, however, virtual fashion items currently face compatibility limitations, as the ability to use any virtual fashion item across all virtual platforms is unlikely.

To muddy the waters, as virtual and augmented reality technologies are becoming more popular, they can blur the lines between IRL and virtual fashion. For example, an IRL sweatshirt, when viewed through an appropriate lens, could feature virtual components.

II. IP PROTECTION FOR VIRTUAL FASHION

Because there are no IP laws specific to virtual fashion items, we must seek protection from laws that have traditionally applied to real-life clothing, namely, trademark, trade dress, copyright, and design patent. But the application of these laws can sometimes differ in the virtual context. Each is addressed below.

A. TRADEMARK

Trademark law protects source identifiers such as words, names, logos, and slogans. Obtaining trademark rights specifically in virtual goods, whether acquired through use in commerce or federal registration, is generally straightforward and similar to marks covering IRL fashion. This is evidenced by many marks that were registered in 2022 and specifically cover virtual goods.

That said, even if a company does not have trademark coverage specifically for its virtual goods, the owner of a trademark covering IRL fashion items should have strong arguments that such trademark rights extend to their virtual counterparts. To that point, the U.S. Patent & Trademark Office (USPTO) has refused registration of marks covering virtual goods and services based on prior registrations for the identical marks covering the corresponding IRL goods and services. See, e.g., the refusals of Application No. 97112038 for the mark GUCCI and Application No. 97112054 for the mark PRADA, each of which were filed by parties unrelated to the famous brands.

However, for purposes of enforcement outside of the USPTO context, if a defendant’s goods are virtual, it would have a stronger argument that such goods are not commercial products, but rather expressive works protected by the First Amendment. If a court accepts such an argument, it must then weigh the plaintiff’s trademark rights against the defendant’s First Amendment right of free expression, meaning it would be more challenging for a brand owner to enforce its trademark rights.

In this regard, please see our earlier alert regarding the Hermès v. Rothschild case, in which the court deemed NFTs tied to images of bags called “MetaBirkins” subject to First Amendment protection. [1] In denying Rothschild’s motion to dismiss, the court acknowledged in a footnote that virtually wearable bags (i.e., as opposed to virtual fashion that is displayable but not wearable) might not be afforded First Amendment protection. But we suspect defendants will argue even virtually wearable items should be afforded First Amendment protection, especially given that video games have received such protection. [2]

On balance, companies should consider seeking federal trademark registration specifically for virtual goods and services, for a few reasons:

More direct coverage could help a company in an enforcement action against infringing virtual goods, even if the defendant successfully argues it should be entitled to First Amendment protection. For instance, if the plaintiff has direct coverage for virtual goods, it may be easier to prove the defendant’s use of the mark was “explicitly misleading” under the Rogers test. [3]

Certain platforms featuring virtual fashion items may only honor a takedown request if the complainant company has a federal registration covering goods that are the same or nearly identical to the allegedly infringing virtual goods.

The registration will provide a presumption of valid trademark rights nationwide, and it may serve as a deterrent to third parties wishing to use confusingly similar marks in virtual worlds.

B. TRADE DRESS

U.S. trademark law also protects certain source-identifying elements of a product’s aesthetic design, configuration/shape, and packaging, often referred to as “trade dress.” To obtain trade dress protection, such elements must be (1) non-functional and (2) distinctive (either inherently or acquired through use). There are a couple of interesting nuances with respect to acquiring trade dress protection in the virtual context.

First, although we have not yet seen any case law specifically addressing this, companies will likely have stronger arguments that virtual shape or design elements (as opposed to IRL elements) are non-functional. Specifically, the non-functionality requirement means the relevant elements must not be essential to the use or purpose or affect the cost or quality of the article. For real-life fashion items, this can be difficult to meet due to the inherently functional nature of many aspects of clothing or accessories. However, because virtual fashion items are essentially software code with endless possibilities, in many instances the fashion item will not require any particular design or shape to function.

Second, some virtual fashion items could receive more favorable treatment from a distinctiveness perspective. The distinctiveness requirement has historically been a difficult barrier for protecting IRL fashion. Specifically, case law prior to 2022 established that, while packaging can sometimes be inherently distinctive, product design and configuration/shape can never be, meaning companies must prove such elements have acquired distinctiveness. Proving acquired distinctiveness is burdensome because the company must have used the elements extensively, substantially exclusively, and continuously for a period of time. Often, by the time a company can acquire distinctiveness in the design, the design is no longer in style. Or, if a design is popular and copied by third parties, it can be difficult for the company to claim it used the design substantially exclusively.

If, however, a virtual fashion item provides the user with benefits that go beyond merely outfitting the avatar, such as by providing access to other products or services, one might argue that those items should be construed as packaging, or some new category of trade dress, for such other products or services, in which case the elements could possibly be deemed inherently distinctive with respect to those other products or services.

That said, if a company already has trade dress protection for IRL fashion goods, it should have good arguments that the protection extends to any virtual counterpart. On the flipside, given the difficulties companies typically face in seeking trade dress protection in IRL fashion, to the extent they can obtain trade dress protection in a virtual counterpart more easily, perhaps it can argue the rights in any virtual goods should also extend to the physical counterpart. Or, if a company introduces a physical design and virtual design simultaneously, it could possibly acquire distinctiveness in both sooner, as the simultaneous use would presumably create greater exposure to more customers and reinforce the source-identifying significance of the alleged elements.

With respect to enforcement, like traditional marks, defendants are more likely to raise a successful First Amendment defense for any virtual products allegedly infringing trade dress. The Hermès case is again an example of this, as Hermès alleged infringement of both its BIRKIN word mark and the trade dress rights in the design of its handbags, and the court held that the defendant’s MetaBirkin NFTs were entitled to the First Amendment protection.

Finally, although obtaining trade dress protection is typically more difficult than obtaining trademark protection for traditional marks such as words and logos, companies should also consider seeking registration for trade dress in virtual goods, particularly for important designs that are likely to carry over from season to season, for the same reasons discussed in the trademark section above.

C. COPYRIGHT

Copyright protects original works of authorship that contain at least a modicum of creativity, which is a relatively low bar. However, copyright does not protect useful articles. In effect, for IRL fashion items, copyright generally extends only to those designs that would be entitled to copyright protection if they were extracted or removed from the clothing or viewed on a different medium, and not to the shape of the fashion item itself.

Like trade dress protection, copyright protection should provide companies with greater protection for virtual fashion items than would be available for IRL items, particularly because the software behind the virtual fashion can theoretically create an infinite number of clothing shapes that are creative and not necessarily “useful.” Nonetheless, if a virtual clothing item is merely shaped like its IRL counterpart that lacks originality (e.g., a virtual t-shirt shaped like a basic real-life t-shirt), it may also fail to qualify for copyright protection based on a lack of creativity.

Unlike trade dress protection, however, copyright protection arises immediately upon creation of the work and its fixation in a tangible medium of expression, so it can be a useful tool for protecting virtual fashion without having to spend the time and resources required to seek registration as trade dress and establish acquired distinctiveness.

In addition, unlike IRL fashion, a separate copyright protects the underlying source code for virtual clothing items, which could provide owners with an additional, though likely limited, claim against unauthorized source code copycats.

A copyright registration will provide owners with the ability to sue for copyright infringement, but companies should balance:

  • the benefits of seeking potentially broader copyright protection in virtual fashion items (apart from the code) than it would for IRL items with the risks of conceding that virtual fashion items are works of art entitled to First Amendment protection, which would make trademark and trade dress enforcement more difficult; and
  • the benefits of obtaining any copyright registration for source code with the benefits of keeping the source code secret (although the Copyright Office permits some redactions, significant portions are required to be deposited into the public record).

We are unaware of any 2022 case law specifically addressing copyright in virtual fashion. However, the following cases are worth watching:

  • Andy Warhol Found. for Visual Arts, Inc. v. Goldsmith[4]: In October 2022, the U.S. Supreme Court heard arguments regarding whether Andy Warhol’s “Prince Series” silk screen prints and pencil drawings based on a photograph infringed the photographer’s copyright, or whether they were sufficiently “transformative” to constitute fair use. The outcome of this case could affect a copyright owner’s ability to enforce copyrights against unauthorized digital reproductions of its work, especially if the original work is fixed in a physical medium (e.g., enforcing copyright in a physical clothing item against a third party’s digital reproduction).
  • Thaler v. Perlmutter[5]: Filed in June 2022, the plaintiff is suing the U.S. Copyright Office for refusing registration of an AI-created image because there was no human author. The outcome of this case will necessarily implicate virtual fashion incorporating any AI-generated work.

D. DESIGN PATENT

Design patents protect the ornamental appearance or look of a unique product. Specifically, they protect any new, original, and ornamental design for an article of manufacture. Traditionally, this law was interpreted to require that the article of manufacture is a physical or tangible product. Thus, in the fashion industry for example, one can file a design patent application directed to a unique shoe, handbag, or jewelry design. Historically, an image or picture would not qualify for design patent protection.

However, the USPTO is currently assessing design patents with respect to new technologies such as projections, holograms, and virtual and augmented reality. In December 2020, the USPTO issued a request for public comment regarding a potential rule change to the “article of manufacture” requirement and whether U.S. law should be revised to protect digital designs. Public opinion was mixed, and in April 2022, the USPTO issued a summary of this requested information.

Although the USPTO has not yet formally revised the rules, it has issued guidelines over the years that provide examples of non-physical products that could be protected by a design patent, suggesting changes may ultimately be coming to U.S. design patent law. For example, in 1995, the USPTO released guidelines for design patent applications claiming computer-generated icons. In general, to be eligible for protection, the computer-generated icon must be embodied in a computer screen monitor, or other display monitor. The USPTO has also issued guidance allowing type font to be protectable by design patents. However, it is still unclear whether the USPTO will set forth design patent guidance specific to digital designs or virtual fashion.

Notwithstanding the possibility of obtaining a design patent specifically on such virtual goods, courts have been reluctant to find that a virtual product infringes the design patent for an IRL product. For example, in 2014, in P.S. Products, Inc. v. Activision Blizzard, Inc.,[6] P.S. Products accused Activision of infringing its design patent directed to a stun gun by depicting a virtual weapon in its video game that P.S. Products claimed resembled its patent-protected IRL product.

The court found there was no infringement because “no ordinary observer would be deceived into purchasing a video game believing it to be plaintiffs’ patented stun gun.” This case may have come out differently if the virtual gun was sold separately from the video game and could be used across various platforms rather than being one component of a particular video game. Although there are still software compatibility restrictions for virtual goods, portability of virtual goods is likely to grow as technology evolves and companies respond to consumer demands.

While we wait for further USPTO guidance that ultimately may have application to virtual fashion, parties seeking design patent protection may consider simultaneously filing one application to protect the work as a digital design on a display screen, like a patentable computer-generated icon, and a second, traditional design patent application to protect the design as a tangible product. That said, companies should consider other options for protecting any designs created by AI, as the Federal Circuit Court of Appeals held in 2022 that AI cannot qualify as an inventor for purposes of obtaining a patent.[7]

III. Virtual Fashion in Practice

Contracts relating to virtual fashion are analogous to contracts for IRL fashion and should be structured accordingly. For instance, companies should ensure that contracts with IP contributors include an assignment of all IP rights, or at least a sufficiently broad license. In the virtual context, this includes rights to the software code itself. Likewise, downstream licensing should generally address ownership, licensee rights, and if applicable, confidentiality for any trade secrets in the source code. In addition, for both IP contributors and licensees, if AI software is used in any part of the creative process, companies should give thought to allocation of ownership.

In addition, some designers or marketing teams may prefer to encourage a brand’s customer base to copy its designs or create derivative works. Although this seems counterintuitive (especially to an IP lawyer), many players in the Web3 space encourage others to build off their own designs. For example, the Bored Ape Yacht Club (BAYC), known for issuing NFTs tied to images of apes, grants owners of its NFTs the rights to use the images of apes, including for commercial purposes.[8] For example, one purchaser of a Bored Apt NFT created a Bored Ape-themed restaurant.

In the virtual fashion context, if a marketing team wants customers to build off the brand’s virtual designs but wants to retain ownership of its own designs (and perhaps derivatives), it should implement standard licensing terms relating to ownership, customer licensee rights, and other provisions. However, it’s important to consider how the terms are presented and how customers indicate assent to maximize the prospects of enforceability.

From a business perspective, companies can also now use NFTs and smart contracts to receive automatic royalties in any downstream sales or licenses. And because NFTs use blockchain technology, which provides an immutable chain of title, third parties will be able to trace such designs to the original source. This means companies can encourage the sharing of designs and receive royalties in connection with the downstream licensing of designs tied to NFTs, and third parties can confirm that the designs are legitimate by reviewing the relevant blockchain ledger. Accordingly, although encouraging customers to use the brand’s designs may not be a model for every brand, there are some steps brands can take to protect the IP rights associated with them and reap financial benefits.

As virtual fashion items become more popular, companies are faced with uncertainties and novel questions regarding how to protect and enforce their IP rights. In 2022, some questions were answered, but many more remain open. Therefore, it is important to discuss strategies for protecting innovative virtual fashion with IP counsel.

FOOTNOTES

[1] Notably, on December 30, 2022, the Hermès court denied both parties’ motions for summary judgment, with an opinion to follow by January 20. A jury trial is scheduled to begin on January 30, 2023. Hermès International, et al. v. Mason Rothschild, 1:22-cv-00384-JSR (S.D.N.Y.).

[2] See, e.g., AM Gen. LLC v. Activision Blizzard, Inc., 450 F. Supp. 3d 467, 485 (S.D.N.Y. 2020).

[3] If a defendant’s unauthorized use of a mark is protected by the First Amendment, many courts use the Rogers test to balance the plaintiff’s trademark rights with the defendant’s First Amendment right of expression. This test looks at whether the defendant’s use of the plaintiff’s mark was artistically relevant and, if so, whether it was explicitly misleading. Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).

[4] 11 F.4th 26 (2d Cir. 2021), cert. granted, 142 S. Ct. 1412 (2022).

[5] Case No. 1:22-cv-01564 (D.D.C.).

[6] 140 F. Supp. 3d 795, 802 (E.D. Ark. 2014).

[7] Thaler v. Vidal, 43 F.4th 1207, 1213 (Fed. Cir. 2022).

[8] We will save for another day a discussion of the recent lawsuit against BAYC and many celebrities for failing to disclose financial incentives when promoting the BAYC NFT collection, and instead focus here on IP protection. Adonis Real, et al., v. Yuga Labs, Inc., et al., 2:22-cv-08909 (C.D. Cal.). But companies should also ensure that influencers properly disclose any incentives and other material connections.

For more intellectual property legal news, click here to visit the National Law Review.

©2023 Pierce Atwood LLP. All rights reserved.

New Climate Guidance Issued to Federal Agencies Conducting Environmental Impact Analyses

Overview

On January 9, 2023, the Council for Environmental Quality (“CEQ”) published interim National Environmental Policy Act Guidance on Consideration of Greenhouse Gas Emissions and Climate Change (hereafter, “guidance” or “GHG Guidance”).1 CEQ intends for agencies to apply the guidance now even as CEQ seeks public comment on it.2 The guidance aims to establish best practices to ensure that Federal agencies conduct detailed analyses of greenhouse gas emissions and climate change when evaluating proposed major Federal actions in accordance with the National Environmental Policy Act (“NEPA”) and CEQ’s Regulations Implementing the Procedural Provisions of NEPA.3 The guidance states that these analyses should (1) quantify a proposed action’s GHG emissions; (2) place GHG emissions in appropriate context and disclose relevant GHG emissions and relevant climate impacts; and (3) identify alternatives and mitigation measures to avoid or reduce GHG emissions.

The long-awaited GHG Guidance does not set a numerical threshold for significant impact under NEPA, but it emphasizes achievement of national and other climate objectives. The guidance also stresses monetization of climate-related impacts (social cost of carbon) and consideration of alternatives to fossil energy production and transport, mitigation of climate-related impacts, and resilience and adaptation to climate-related vulnerability. Also prominent in the guidance is consideration of disparate impacts to environmental justice communities.

GHG Guidance

Quantifying a Proposed Action’s GHG Emissions

The guidance explains that agencies should quantify the reasonably foreseeable direct and indirect GHG emissions of their proposed actions and reasonable alternatives (including the no-action alternative) to ensure that each agency adequately considers the incremental contribution of its action to climate change. CEQ recommends that agencies quantify gross emissions increases or reductions (including direct and indirect emissions) individually by each GHG, as well as aggregated in terms of total CO2 by factoring in each pollutant’s global warming potential (“GWP”). CEQ further recommends that agencies quantify the proposed action’s total net GHG emissions or reductions (both by pollutant and by total CO2 emissions) relative to baseline conditions. Finally, CEQ recommends that “[w]here feasible . . . [agencies] should present annual GHG emissions increases or reductions, as well as net GHG emissions over the projected lifetime of the action, consistent with existing best practices.”4 CEQ emphasizes that agencies should be guided by the rule of reason when quantifying emissions. The guidance does not set a “significance” threshold that would trigger the requirement to prepare an EIS.

Disclosing and Providing Context for a Proposed Action’s GHG Emissions and Climate Effects

In the eyes of CEQ, quantifying emissions and summarizing this information in a NEPA document is not sufficient. Agencies should also disclose and provide context for GHG emissions and climate effects to help decision makers and the public understand a proposed action’s potential GHG emissions and climate change effects. CEQ provides a list of best practices for disclosing and contextualizing quantified GHG emissions:5

  • Use the Social Cost of Greenhouse Gases (“SC-GHG”) to estimate the dollar value of impacts associated with each type of GHG emission;
  • Explain how the proposed action and alternatives would help meet or detract from achieving climate action goals and commitments, and discuss whether and to what extent the proposal’s reasonably foreseeable GHG emissions are consistent with GHG reduction goals;
  • Summarize and cite to available scientific literature to help explain the real-world effects associated with an increase in GHG emissions that contribute to climate change; and
  • Provide accessible comparisons or equivalents to help the public and decision makers understand GHG emissions in more familiar terms (i.e., household emissions per year, annual average emissions from a certain number of cars on the road, etc.).

CEQ explicitly states that monetizing the “social cost” of GHG emissions as recommended does not require the agency also to monetize the social benefits of the proposed action, nor does it have to compare estimated costs and benefits.6 The guidance also emphasizes the use of “substitution analysis” to discern the GHG-related changes associated with shifting energy sources if the proposed or alternative actions occurred.7

Identifying Reasonable Alternatives and Potential Mitigation Measures

The GHG Guidance directs agencies to use the NEPA process to identify and assess the reasonable alternatives to proposed actions that will avoid or minimize GHG emissions or climate change effects. CEQ recognizes that reasonable alternatives must be consistent with the purpose and need of the proposed action, and that agencies are not required to select the alternative with the lowest net GHG emissions or climate costs or the greatest net climate benefits.8 However, “in line with the urgency of the climate crisis,” agencies should identify the alternative with the lowest net GHG emissions or the greatest net climate benefits among the alternatives they assess and should “use the NEPA process to make informed decisions grounded in science that are transparent with respect to how Federal actions will help meet climate change goals and commitments, or alternately, detract from them.”9 When quantifying reasonably foreseeable emissions associated with the proposed action or alternatives, CEQ directs agencies to include reasonably foreseeable direct and indirect GHG emissions of their proposed actions. CEQ provides that processing, refining, transporting, and end-use of the fossil fuel being extracted, including combustion of the resource to produce energy, would constitute indirect emissions of fossil fuel extraction.10

CEQ encourages agencies to mitigate GHG emissions “to the greatest extent possible.”11 It instructs agencies to consider potential mitigation measures by determining whether impacts from a proposed action or alternatives can be avoided, considering whether adverse impacts can be minimized, and rectifying or requiring compensation for residual impacts where unavoidable. CEQ considers available mitigation that avoids, minimizes, or compensates for GHG emissions and climate change effects to include measures like renewable energy generation and energy storage, carbon capture and sequestration, and capturing GHG emissions such as methane.12

Examples

The guidance provides a number of examples as to how it would work in specific scenarios. For example, the guidance notes that “absent exceptional circumstances,” construction of renewable energy projects “should not warrant a detailed analysis of lifetime GHG emissions.”13 CEQ uses natural gas pipelines as an example of consideration of indirect effects, stating that they create the “economic conditions for additional natural gas production and consumption, including both domestically and internationally, which produce indirect (both upstream and downstream) GHG emissions that contribute to climate change.”14 When discussing the need to analyze the effects of climate change on a proposed action (and not just the impacts of the proposed action on climate change), CEQ gives as an example a project that may require water from a source with diminishing quantities available and advises the agency consider such issues to “inform decisions on siting, whether to proceed with and how to design potential actions and reasonable alternatives, and to eliminate or mitigate effects exacerbated by climate change.”15

Conclusion

Robust comments are likely to be filed to further inform CEQ’s effort on the GHG Guidance. Nevertheless, CEQ has directed agencies to apply the guidance to all new proposed actions and to consider applying it to proposed actions that are currently under NEPA review. Comments on the interim guidance are due March 10, 2023.

FOOTNOTES

1. CEQ, National Environmental Policy Act Guidance on Consideration of Greenhouse Gas, 88 Fed. Reg. 1,196 (Jan. 9, 2023), https://www.govinfo.gov/content/pkg/FR-2023-01-09/pdf/2023-00158.pdf (“GHG Guidance”).

2. Id.

3. Note that CEQ has announced its intention to further revise its existing NEPA regulations in 2023, after having issued an earlier round of regulatory amendments in 2022. See CEQ Fall 2022 Regulatory Agenda, National Environmental Policy Act Implementing Regulations Revisions Phase 2, RIN No. 0331-AA07, https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202210&RIN=0331-AA07; CEQ, National Environmental Policy Act Implementing Regulations Revisions, 87 Fed. Reg. 23,453 (Apr. 20, 2022), https://www.govinfo.gov/content/pkg/FR-2022-04-20/pdf/2022-08288.pdf.

4. GHG Guidance at 1,201.

5. Id. at 1,202-03.

6. Id. at 1,203, 1,211.

7. Id. at 1,205.

8. Id. at 1,204.

9. Id.

10. Id.

11. Id. at 1,206.

12. Id.

13. Id. at 1,202.

14. Id. at 1,204 n.86.

15. Id. at 1,208.

For more Environmental and Energy News, click here to visit the National Law Review.

© 2023 Bracewell LLP

Who Owns the Crypto, the Customer or the Debtor?

Whose crytpo is it? With the multiple cryptocurrency companies that have recently filed for bankruptcy (FTX, Voyager Digital, BlockFi), and more likely on the way, that simple sounding question is taking on huge significance. Last week, the Bankruptcy Court for the Southern District of New York (Chief Judge Martin Glenn) attempted to answer that question in the Celsius Network LLC bankruptcy case.

The Facts of the Case

Celsius and its affiliated debtors (collectively, “Debtors”) ran a cryptocurrency finance platform. Faced with extreme turbulence in the cryptocurrency markets, the Debtors filed Chapter 11 petitions on July 13, 2022. As part of their regular business, the Debtors had allowed customers to both deposit cryptocurrency digital assets on their platform and earn a percentage yield, as well as take out loans by pledging their cryptocurrencies as security. One specific program offered by the Debtors was the “Earn” program, under which customers could transfer certain cryptocurrencies to the Debtors and earn “rewards” in the form of payment of in-kind interest or tokens. On the petition date, the Earn program accounts (the “Earn Accounts”) held cryptocurrency assets with a market value of approximately $4.2 billion. Included within the Earn Accounts were stablecoins valued at approximately $23 million in September 2022. A stablecoin is a type of cryptocurrency designed to be tied or pegged to another currency, commodity or financial instrument.

Recognizing their emerging need for liquidity, on November 11, 2022, the Debtors filed a motion seeking entry of an order (a) establishing a rebuttable presumption that the Debtors owned the assets in the Earn Accounts and (b) permitting the sale of the stablecoins held in the Earn Accounts under either section 363(c)(1) (sale in the ordinary course of business) or section 363(b)(1) (sale outside the ordinary course of business) of the Bankruptcy Code. The motion generated opposition from the U.S. Trustee, various States and State securities regulators and multiple creditors and creditor groups. The Official Committee of Unsecured Creditors objected to the sale of the stablecoins under section 363(c)(1) but argued that the sale should be approved under section 363(b)(1) because the Debtors had shown a good business reason for the sale (namely to pay ongoing administrative expenses of the bankruptcy cases). On January 4, 2023, the court issued its forty-five (45) page memorandum opinion granting the Debtors’ motion.

The Court’s Decision

Although the ownership issue may appear complex given the nature of the assets (i.e., cryptocurrency), the bankruptcy court framed the issue into relatively straightforward state law questions of contract formation and interpretation. The court first analyzed whether there was a valid contract governing the parties’ rights to the cryptocurrency assets in the Earn Accounts. Under governing New York law, a valid, enforceable contract requires an offer and acceptance (i.e., mutual assent), consideration and an intent to be bound. The court found that all three elements were satisfied. The Debtors required that all customers agree to and accept “Terms of Use.” The Terms of Use was set up as a “clickwrap” agreement that required customers to agree to the terms and prevented the customers from advancing to the next page and completing their sign up unless they agreed to the Terms of Use. Under New York law, “clickwrap” agreements are sufficient to constitute mutual assent. The court also found that consideration was given by way of allowing the customers to earn a financing fee (i.e., the rewards in the form of payment of in-kind interest or tokens). Finally, the court noted that no party had presented evidence that either the Debtors or the customers lacked intent to be bound by the contract terms. Accordingly, the court held that the Terms of Use constituted a valid contract, subject to the rights of customers to put forth individual contract formation defenses in the future, including claims of fraudulent inducement based on representations allegedly made by the Debtors’ former CEO, Alex Mashinsky.

Having found a valid contract to presumptively exist, the court turned its attention to what the Terms of Use provided in terms of transfer of ownership. In operative part, the Terms of Use provided:

In consideration for the Rewards payable to you on the Eligible Digital Assets using the Earn Service … and the use of our Services, you grant Celsius … all right and title to such Eligible Digital Assets, including ownership rights, and the right, without further notice to you, to hold such Digital Assets in Celsius’ own Virtual Wallet or elsewhere, and to pledge, re-pledge, hypothecate, rehypothecate, sell, lend or otherwise transfer or use any amount of such Digital Assets, separately or together with other property, with all the attendant rights of ownership, and for any period of time, and without retaining in Celsius’ possession and/or control a like amount of Digital Assets or any other monies or assets, and use or invest such Digital Assets in Celsius’ full discretion. You acknowledge that with respect Digital Assets used by Celsius pursuant to this paragraph:

  1. You will not be able to exercise rights of ownership;
  2. Celsius may receive compensation in connection with lender or otherwise using Digital Assets in its business to which you have no claim or entitlement; and
  3. In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, any Eligible Digital Assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable, and you may not have any legal remedies or rights in connection with Celsius’ obligations to you other than your rights as a creditor of Celsius under any applicable laws.

Based on this language, the court held that the Terms of Use unambiguously transferred ownership of the assets in the Earn Accounts to the Debtors. Central to the court’s decision was that under the Terms of Use customers had granted the Debtors “all right and title to such Digital Assets, including ownership rights.” Based on this language, the court found that title and ownership of the cryptocurrency held in the Earn Accounts was “unequivocally transferred to the Debtors and became property of the Estate on the Petition Date.”

Finally, the court found that the Debtors had shown that they needed to generate liquidity to fund the bankruptcy cases, and that additional liquidity would be needed early this year. Accordingly, the court held that the Debtors had shown sufficient cause to permit the sale of the stablecoins outside of the ordinary course of business in accordance with section 363(b)(1).

Implications

Given the turbulent nature of the cryptocurrency market and the likelihood of further cryptocurrency bankruptcy filings, the court’s ruling is sure to have significant implications. First, unless it is reversed on appeal, the opinion means that the Debtors’ Earn program customers do not own the funds in their digital accounts and will instead be relegated to the status of unsecured creditors with a highly uncertain recovery. Second, the opinion underscores the Wild West nature of crypto and the fact that unlike deposits at a federally insured financial institution, deposits at cryptocurrency exchanges are not similarly insured and may be at risk. Third, customers or account holders in other cryptocurrency exchanges or businesses should carefully review the applicable terms of use to determine if those terms transferred ownership of their digital assets to their cryptocurrency counterparty. It is likely a fair assumption that such other terms of use transferred ownership in the same way that the Celsius Terms of Use did, in which case customers must remain vigilant of the financial health of their cryptocurrency counterparty. Finally, all parties engaging in on-line business transactions, including those outside of cryptocurrency, are on notice that clickwrap agreements commonly found in such transactions are, at least under New York law, enforceable. In short, those agreements mean something, and the fact that a party did not read the terms before agreeing to them through a “click” is likely not going to be a viable defense to the enforcement of those terms.

For more Bankruptcy Legal News, click here to visit the National Law Review.

© Copyright 2023 Squire Patton Boggs (US) LLP

EU Foreign Subsidies Regulation Enters Into Force In 2023

On December 23, 2022, Regulation (EU) 2022/2560 of December 14, 2022 on foreign subsidies distorting the internal market (FSR) was published in the Official Journal of the European Union. The FSR introduces a new regulatory hurdle for M&A transactions in the European Union (EU), in addition to merger control and foreign direct investment screening. The FSR’s impact cannot be overstated as it introduces two mandatory pre-closing filing regimes and it gives the Commission wide-reaching ex officio investigative and intervention powers. Soon, the Commission will also launch a public consultation on a draft implementing regulation that should further detail and clarify a number of concepts and requirements of the FSR.

The bulk of the FSR will apply as of July 12, 2023. Importantly, the notification requirements for M&A transactions and public procurement procedures will apply as of October 12, 2023.

We highlight the key principles of the FSR below and provide guidance to start preparing for the application of the FSR. We refer to our On The Subject article ‘EU Foreign Subsidies Regulation to Impact EU and Cross-Border M&A Antitrust Review Starting in 2023’ of August 2, 2022 for a more detailed discussion of the then draft FSR. We also refer to our December 8, 2022 webinar on the FSR. Given the importance of the FSR, we will continue to report any future developments.

IN DEPTH

FSR in a Nutshell

The FSR tackles ‘foreign subsidies’ granted by non-EU governments to companies active in the EU and which ‘distort the internal market’.

  • First, a ‘foreign subsidy’ will be considered to exist where a direct or indirect financial contribution from a non-EU country or an entity whose actions can be attributed to a non-EU country (public entities or private entities) confers a benefit on an undertaking engaging in an economic activity in the EU internal market, and where that benefit is not generally available under normal market conditions but is, instead, limited, in law or in fact, to assisting one or more undertakings or industries. A ‘financial contribution’ covers a broad spectrum and encompasses, amongst others, positive benefits such as the transfer of funds or liabilities, the foregoing of revenue otherwise due (e.g., tax breaks, the grant of exclusive rights below market conditions, or the provision or purchase of goods or services).

  • Second, a ‘distortion in the internal market’ will be considered to exist in case of a foreign subsidy which is liable to improve the competitive position of an undertaking and which actually or potentially negatively affects competition in the EU internal market. The Regulation provides some guidance on when a foreign subsidy typically would not be a cause for concern:
    – A subsidy that does not exceed EUR 200,000 per third country over any consecutive period of three years is considered de minimis and therefore not distortive;
    – A foreign subsidy that does not exceed EUR 4 million per undertaking over any consecutive period of three years is unlikely to cause distortions; and
    – A foreign subsidy aimed at making good/recovering from the damage caused by natural disasters or exceptional occurrences may be considered not to be distortive.

The FSR looks at ‘undertakings’, as is the case for merger control. Therefore, the Commission will not look merely at the legal entity concerned, but at the entire corporate group to which the entity belongs in order to calculate the total amount of foreign financial contributions granted to the undertaking. Even companies headquartered in the EU that have entities outside of the EU that have received foreign financial contributions are covered by the FSR.

The FSR introduces three tools for the European Commission (Commission): (i) a notification requirement for certain M&A transactions, (ii) a notification requirement for certain public procurement procedures (PPP) and (iii) investigations on a case by case basis.

Notification Requirement for Certain M&A Transactions

M&A transactions (or “concentrations”) involving a buyer and/or a target that has received a foreign financial contribution shall be notifiable if they meet the following cumulative conditions:

  • At least one of the merging undertakings, the acquired undertaking (target, not buyer) or the joint venture is established in the EU and has an EU turnover of at least EUR 500 million, AND

  • The combined aggregate financial contributions provided to the undertakings concerned in the three financial years (combined) prior to notification amounts to more than EUR 50 million.

M&A transactions that meet these criteria will need to be notified and approved by the Commission prior to implementation. During its review, the Commission will determine whether the foreign financial contributions received constitute foreign subsidies in the sense of the FSR and whether these foreign subsidies actually or potentially distort or negatively affect competition in the EU internal market. The Commission likely will consider certain indicators including the amount and nature of the foreign subsidy, the purpose and conditions attached to the foreign subsidy as well as its use in the EU internal market. For example, in a case of an acquisition, if a foreign subsidy covers a substantial part of the purchase price of the target, the Commission may consider it likely to be distortive.

Notification Requirement for Certain Public Procurement Procedures

A notifiable foreign financial contribution in the context of PPP shall be deemed to arise where the following cumulative conditions are met:

  • The estimated value of the public procurement or framework agreement net of VAT amounts to at least EUR 250 million, AND

  • The economic operator was granted aggregate foreign financial contributions in the three financial years prior to notification of at least EUR 4 million from a non-EU country.

Where the procurement is divided into lots, the value of the lot or the aggregate value of all lots for which the undertaking bids for must, in addition to the two criteria set out above, also amount to at least EUR 125 million.

Through this procedure, the Commission will ensure that companies that have received non-EU country subsidies do not submit unduly advantageous bids in public procurement procedures.

During the Commission’s review, all procedural steps may continue except for the award of the contract.

Even if the thresholds are not met, the Regulation requires undertakings to provide to the contracting authority in a declaration attached to the tender a list of all foreign financial contributions received in the last three financial years and to confirm that these are not notifiable, which the contracting authority will subsequently send to the Commission.

Investigations on a Case-by-case Basis

The Commission may on its own initiative investigate potentially distortive foreign subsidies (e.g. following a complaint). These investigations are not limited to M&A transactions or PPP. However, on the basis of this power, the Commission may investigate M&A transactions and awarded contracts under PPP which do not fall within the scope of the notification requirements set out above.

If the Commission carries out an ex-officio review, its analysis will be structured in two phases: a preliminary examination and an in-depth investigation. Although these phases have no time limits, the Commission will endeavor to take a decision within 18 months of the start of the in-depth investigation.

HOW TO PREPARE FOR THE APPLICATION OF THE FSR

Application of the FSR – Timetable

As mentioned above, the FSR will apply as of July 12, 2023. The FSR shall apply to foreign subsidies granted in the five years prior to July 12, 2023 where such foreign subsidies create effects at present, i.e., they distort the internal market after July 12, 2023. By way of derogation, the FSR shall apply to foreign financial contributions granted in the 3 years prior to July 12, 2023 where such foreign financial contributions were granted to an undertaking notifying a concentration or notifying a PPP pursuant to the FSR.

The FSR shall not apply to concentrations for which the agreement was signed before July 12, 2023. The FSR shall also not apply to public procurement contracts that have been awarded or procedures initiated before July 12, 2023.

In general, the FSR shall apply from July 12, 2023 while the notification obligations for M&A transactions and PPP shall only apply from October 12, 2023. However, it is advisable to start preparing immediately for the application of the FSR, given the substantial scope of the regulation.

Actions to Take Now

Businesses which conduct activities in the EU, should put in place a system to monitor and quantify foreign financial contributions received since at least July 2020 – to cover the three-year review – and, preferably, July 2018. In particular, attention should be paid to positive benefits and reliefs from certain costs normally due by the company. External counsel can assist in determining whether these foreign financial contributions constitute a ‘foreign subsidy’.

As soon as a company decides to engage in an M&A or PPP in the EU, the company should map all relevant foreign financial contributions for the relevant time period to check whether the relevant notification thresholds are met. Subsequently companies must carefully consider whether any such financial contribution constitutes a foreign subsidy and, if so, whether such foreign subsidy may have a distortive effect. It is also advisable to determine whether there any positive effects relating to the subsidy that could be invoked. Companies should ensure that the preparation above is ably assisted by external counsel.

In particular with regard to M&A transactions, companies should carry out an FSR analysis in addition to merger control and foreign direct investment reviews. Even at the stage of due diligence, it would already be advisable to check whether the target has received any foreign financial contributions. If the transaction might eventually trigger a notification to the Commission, the M&A agreement should provide for Commission approval in the closing conditions. When acting as a bidder for a target that meets the EU turnover threshold, your bid will be much better viewed when accompanied with clear assurances that no FSR filing is required or, alternatively, that a filing may be required but that the foreign subsidies received are not distortive of competition.

© 2023 McDermott Will & Emery
For more Antitrust Legal News, click here to visit the National Law Review.

Artists Are Selling AI-Generated Images of Mickey Mouse to Provoke a Test Case

Several artists, frustrated with Artificially Intelligent (AI) image generators skirting copyright laws, are using similar image generators to produce images of Mickey Mouse and other copyrighted characters to challenge the current legal status of AI art. While an artist’s copyright in a work typically vests at the moment of fixation, including the right to prosecute copyright violation, AI-generated work complicates the issue by removing humans from the creative process. Courts have ruled that AI cannot hold copyright, which by corollary also means that AI-generated art sits in the public domain. This legal loophole has angered many professional artists whose art is used to train the AI. Many AI generators, such as Dall-E 2 and Midjourney, can render pieces in the style of a human artist, effectively automating the artist’s job.

Given Disney’s reputation for vigorously defending its intellectual property, these artists hope that monetizing these public-domain AI Mickeys on mugs and T-shirts will prompt a lawsuit. Ironically, provoking and losing a case in this vein may set a favorable precedent for the independent artist community. As AI becomes more advanced, society will likely need to address how increasingly intelligent and powerful AI can complicate and undermine existing law.

Blair Robinson also contributed to this article.

For more Intellectual Property Legal News, click here to visit the National Law Review.

Venezuela Program Expanded to Cuba, Haiti, and Nicaragua – 30,000 Per Month for All Countries

The Biden administration has announced the expansion of its Venezuela Parole program to three additional countries – Cuba, Haiti, and Nicaragua. On Jan. 5, 2023, the Department of Homeland Security announced an expansion of its new migration process for Venezuelan nationals. The expansion allows those nationals from Cuba, Haiti, and Nicaragua and their immediate family members to request advance authorization for travel and temporary parole for up to two years in the United States, including work authorization. There will be a 30,000 per month cap on the number of parolees from all four countries.

Parolees must have a supporter in the United States who will provide financial and other support, among other requirements. In order to be eligible for advance travel to the United States to request parole at the border, a person must:

  • Be a national of one of the four countries or be an immediate family member (spouse, common-law partner, or unmarried child under the age of 21) of an eligible applicant and traveling with them;
  • Possess a passport valid for international travel;
  • Be outside the United States;
  • Have a U.S.-based supporter who filed a Form I-134 on their behalf that USCIS has vetted and confirmed;
  • Provide for their own commercial travel to a U.S. airport and final U.S. destination;
  • Undergo and clear required screening and vetting;
  • Not be a permanent resident or dual national of any country other than one of these four countries, and not currently hold refugee status in any country;
    • This requirement does not apply to immediate family members (spouse, common-law partner, or unmarried child under the age of 21) of an eligible national of Venezuela with whom are traveling.
  • Not be an unaccompanied child;
    • Children under the age of 18 must be traveling to the United States in the care and custody of their parent or legal guardian.
  • Not have been ordered removed from the United States within the past five years or be subject to a bar based on a prior removal order;
  • Not have crossed irregularly into the United States, between ports of entry, after Oct. 19, 2022;
  • Not have crossed irregularly into the United States, between ports of entry, after Oct. 19, 2022;
  • Not have unlawfully crossed the Mexican or Panamanian borders after Oct. 19, 2022; and
  • Comply with all additional requirements, including vaccination requirements and other public health guidelines.

When the national arrives at the United States port of entry, there will be additional screening and vetting. If granted parole, it will typically be for two years. Once granted parole, nationals may apply for employment authorization and request a social security number.

©2023 Greenberg Traurig, LLP. All rights reserved.
For more Immigration Law news, click here to visit the National Law Review.

Top Legal News of 2022: A Review of the Most Notable and Newsworthy Thought Leadership from the National Law Review’s Contributors

Happy New Year from the National Law Review! We hope that the holiday season has been restful and rejuvenating for you and your family. Here at the NLR, we are wrapping up the second season of our legal news podcast, Legal News Reach. Check out episode seven here: Creating A Diverse, Equitable and Inclusive Work Environment with Stacey Sublett Halliday of Beveridge & Diamond! A few weeks ago, we also announced the winners of our 2022 Go-To Thought Leadership Awards! Each year, around 75 recipients are selected for their timely and high-quality contributions to the National Law Review. This year’s slate of winners was particularly competitive – to see the full list, check out our 2022 National Law Review Thought Leadership Awards page.

As we look forward to a bright and busy 2023 for the legal industry, it is more prudent than ever to review the previous year and all that came with it. 2022 was a chaotic and monumental year for not only the legal profession, but for the world at large. The invasion of Ukraine, global supply chain issues, and the ongoing coronavirus pandemic were only some of the many challenges all industries and sectors faced. In the United States, companies and employers dealt with enormous changes at every level, including but not limited to the reversal of Roe v. Wade, shifting attitudes toward cannabis legalization, and ever-changing standards for COVID-19 vaccinations.

Read on below for some thought leadership highlights from this past year, and for a reminder of all that we’ve passed through in 2022:

January

Most prominently in 2022, the US Supreme Court handed down substantial rulings for coronavirus vaccine mandates, which affected not only healthcare workers but all employers across the country. With a 6-3 majority, SCOTUS stayed the Biden Administration’s OSHA Emergency Temporary Standard that applied to all private employers, but simultaneously ruled in a 5-4 majority that issued a 5–4 unsigned majority that vaccine mandates for medical facilities and medical workers can remain.

January also saw noteworthy changes to labor law in the United States, inviting a handful of significant standard changes for all employers. At the end of 2021 and early in 2022, the NLRB considered cases that altered the standard for determining independent contractor status, as well as the standard that established whether a facially neutral work rule violates Section 8(a)(1) of the National Labor Relations Act. These changes also paved the way for briefings on determining appropriate bargaining units.

Read January 2022’s thought leadership focusing on Labor and Employment law and the related Supreme Court rulings  below for more information:

Supreme Court Stays Private Vaccine Mandate; Upholds Requirement for Certain Healthcare Workers

On Again, Off Again Vaccine Mandates: What Should Employers Do Now?

NLRB Rings in the New Year by Inviting Briefing on Multiple, Far-Reaching Standards Impacting Employers

February

On February 24, 2022, Russia launched a large-scale ground invasion of Ukraine, leading to considerable damage and loss of life and throwing the geopolitical landscape into chaos. Both in February and in the months since, the Russia-Ukraine war has placed an extraordinary  strain on the global supply chain and businesses around the world, as the European Union, the United Kingdom, and the United States have continued to enforce sanctions and trade regulations. Companies must be careful to comply with these orders as the political landscape continues to change and learn how to juggle the dual headaches of the lingering COVID crisis and evolving Ukrainian war

Domestically, President Biden nominated Ketanji Brown Jackson to the US Supreme Court. Succeeding Justice Stephen Breyer, Judge Jackson graduated magna cum laude from Harvard University in 1992 and cum laude from Harvard Law in 1996 and has since served as a judge on the U.S. Court of Appeals for the District of Columbia Circuit. She is the first African American woman to serve on the United States’ highest court of law.

Read select thought leadership articles below for more information:

President Biden Nominates D.C. Circuit Judge Ketanji Brown Jackson to U.S. Supreme Court

Russian Invasion of Ukraine Triggers Global Sanctions: What Businesses Need to Know

Consequences from the Ukrainian Conflict

March

March of 2022 saw the long term  impacts from the military conflict in Ukraine emerge locally and around the world. Sanctions continued to affect businesses, leading to global supply chain slowdowns and difficulties in manufacturing and shipping and new immigration changes and challenges. In the US, the Securities and Exchange Commission “SEC” issued new and noteworthy regulations regarding Environmental, Social & Corporate Governance “ESG” and climate change disclosures for public companies. The Supreme Court also heard oral argument for a large slate of cases, perhaps most notably in ZF Auto. US v. Luxshare, Ltd. and AlixPartners v. The Fund for Prot. of Inv. Rights in Foreign States, which interpreted provisions of Title 28 of the US Code’s (“Section 1782”) reach in seeking US-style discovery from a interested party to a foreign proceeding and whether or not ection 1782 can be used to obtain key information for private international arbitrations.

Read key thought leadership articles published in March for more details:

SEC Issues Long-Awaited Proposed Rule on Climate Disclosures

U.S. Supreme Court Hears Oral Argument on Circuit Split Over Scope of 28 U.S.C. § 1782 for Obtaining Discovery in International Arbitrations

The Effects of the Military Conflict in Ukraine on Supply Contracts

April

In April of 2022, the Biden Administration made notable changes to the National Environmental Policy Act, better known as NEPA, which had been substantially altered under the Trump Administration. A number of key provisions were returned to their pre-Trump state in order to better center the administration’s larger focus on environmental justice. Also of note, a US court for the first time contested the Center for Disease Control’s  “CDC’s” travel mask mandate, on the grounds that it exceeded the CDC’s Statutory Authority under the Administrative Procedure Act “the federal APA”. This ultimately led to a vacating of the COVID travel mask mandate on a nationwide basis.

Elon Musk announced his intention to purchase Twitter in April of 2022, as well. Twitter ultimately adopted a shareholder rights plan, known as a poison pill, in hopes of preventingMusk’s hostile takeover. Poison pills are widely regarded as the an effective but a draconian anti-takeover defense available.

Read select  thought leadership articles below for more information:

Biden Administration Walks Back Key Trump Era NEPA Regulation Changes

Twitter Board of Directors Adopts a Poison Pill

Administrative Law Takeaways from the Federal Travel Mask Mandate Decision

May

On May 17th, the first case of Monkeypox in the United States was reported in Massachusetts. In response, the Environmental Protection Agency “EPA” and the federal government implemented a number of policy changes in hopes of preventing a wider spread, including the speedy authorization of anti-Monkeypox claims for certain registered pesticides and disinfectant products.

The SEC and administrative law at large received a considerable blow after the Fifth Circuit’s ruling in Jarkesy v. SEC. The Fifth Circuit Court held that the SEC in-house courts violated a series of constitutional protections, which may result in far-reaching impacts for how administrative bodies are used to regulate in the future. Additionally in May, the Senate confirmed Commissioner Alvaro Bedoya for the Federal Trade Commission “FTC”, shifting the balance of power back at the Commission in favor of the Democratic Party.

Read the following highlighted thought leadership articles published in May  for more information:

EPA Authorizes Anti-Monkeypox Claims for Pre-Designated Disinfectant Products

Fifth Circuit Holds That SEC Administrative Law Courts Are Unconstitutional

Big News at The FTC: Democrats Finally Get the Majority Back

June

In June of 2022, the Supreme Court released its decision in Dobbs v. Jackson, reversing Roe v. Wade’s 50-year precedent of ensuring abortion as a  protected right. Dobb’s is a  momentous decision and has resulted in a myriad of complex issues for employers, healthcare providers and individuals, including the updating of employee policies, healthcare provisions, ethical and criminal considerations for healthcare providers and the protection of personal data, and ultimately represents a massive shift away from women’s bodily autonomy in the United States. And the partial advance leak of the Dobb’s ruling, added to the myriad of concerns about the stability and public perception of the Supreme Court.

Other notable litigation and legislation in June included the passing of the Uyghur Forced Labor Prevention Act, subjecting the importers of raw materials from China to new enforcement provisions. The Supreme Court also ruled in West Virginia v. EPA, limiting the SEC’s ability to enforce ESG requirements on public companies. The West Virginia v. EPA ruling  presents a considerable obstacle for the Biden Administration’s ongoing climate goals.

Read select legal news  articles below for more information:

Employment Law This Week: SCOTUS Overturns Roe v. Wade – What Employers Should Consider [VIDEO]

Uyghur Forced Labor Prevention Act Enforcement Starts on Imports from China and on Imports with China Origin Inputs

Implications of West Virginia v. EPA on Proposed SEC Climate Rules

July

July of 2022 saw a great deal of changes for the Equal Opportunity Commission’s “EEOC’s” COVID testing guidance for employers. The largest change is determining if testing is needed to prevent workplace transmission and interpreting the business necessity standard under the American with Disabilities Act “ADA”.. The labor law landscape around the country also saw an increased focus on pay transparency laws – most notably, New York state passed a bill requiring employers to post salary or wage ranges on all job listings. Notably, this law is quite similar to one already in effect in New York City and Washington state, Colorado, and Jersey City.

Beginning most prominently in July, the cryptocurrency world also found itself under increased scrutiny by the federal government. Of note this month, the SEC filed a complaint against certain Coinbase employees, alleging insider trading and claiming that these employees had tipped off others regarding Coinbase’s listing announcements. This move was one of the more aggressive moves made by the SEC toward the digital asset industry.

Read select legal thought leadership articles published in July for more information:

EEOC Revises COVID-19 Testing Guidance for Employers

SEC v. Wahi: An Enforcement Action that Could Impact the Broader Crypto / Digital Assets Industry

Pay Transparency Laws Are All The Rage: Looks Like New York State Is Joining the Party

August

On August 12, 2022, the Inflation Reduction Act (“IRA”) was passed by Congress, representing enormous changes for industries across the country. Perhaps most notably, the landmark legislation contained new government incentives for the clean energy sector, creating tax incentives for renewable energy projects that previously did not exist. The Act also included 15% alternative minimum corporate tax and a 1% excise tax on stock buybacks to raise government revenue.

The Inflation Reduction Act also provided significant funding for tribal communities, including but not limited to the reduction of drug prices, the lowering of energy costs, and additional federal infrastructure investments. While the funding is not as significant as COVID relief from previous years and there are still some remaining hurdles, the IRA provides groundbreaking new opportunities for Native communities, including those in Alaska and Hawaii.

Read the select legal articles published in August for more information:

The Inflation Reduction Act: How Do Tribal Communities Benefit?

The Inflation Reduction Act: A Tax Overview

Relief Arrives for Renewable Energy Industry – Inflation Reduction Act of 202

September

In September of 2022, Hurricane Ian made landfall in the United States, caused substaintial property damage and loss of life despite preparations ahead of time. After addressing safety concerns, policyholders began reviewing their insurance policies, collecting documentation and filing claims. In addition to filing claims for property damage, corporate policyholders also filed claims for business interruption and loss of business income.

Lawsuits opposing the remaining COVID-19 vaccine mandates also continued throughout the month of September, exceeding 1,000 complaints nationally. Previously, lawsuits had largely targeted the Biden Administration, but additional focus was also directed toward large employers with vaccine mandates.

Of global significance, Queen Elizabeth II, the UK’s longest reigning monarch, passed away at 96 years old. Her funeral was held September 19, 2022, and was a national holiday in the United Kingdom marking the last day of public mourning.

Read following key thought leadership articles on Hurrican Ian, UK Bank Holiday due to the Sovereign’s passing and Employer’s COVID Mandate headaches  for more information:

Hurricane Ian – Navigating Insurance Coverage

Bank Holiday Announced for Her Majesty Queen Elizabeth II’s State Funeral

Challenges Against Employer COVID-19 Vaccine Mandates Show No Sign of Slowing

October

October saw forward movement in environmental justice, cannabis decriminalization, and Artificial Intelligence  “AI” regulation. The EPA launched their new Office of Environmental Justice and External Civil Rights, to work with state, local, and tribal partners providing financial and technical support to underserved communities disproportionately impacted by the ill effects of climate change. The EPA’s new office has 200 staff members across 10 regions and is expected to provide a unifying focus on civil rights and environmental justice for the EPA and federal government as a whole.

President Biden’s pardon of federal marijuana charges and mandate to review the plant’s Schedule I status signaled a shift in cannabis regulation, with the president urging state officials to follow his example and consider the contrast between wealthy cannabis business owners and those imprisoned for possession in the recent past.

Later in the month, the White House Office of Science and Technology Policy addressed the swell of artificial intelligence technology with their Blueprint for an AI Bill of Rights, which provides guidelines to prevent privacy violations, implicit bias, and other forms of foreseeable harm.

Read selected thought leadership articles below for more information:

EPA Launches Their New Office: What Does the Office of Environmental Justice and External Civil Rights Mean for Companies and ESG in the United States?

“Up in Smoke?” President Biden Announces Pardons and Orders Review of Cannabis Classification

The White House’s AI Bill of Rights: Not for the Robots

November

November was dominated by a nail-biting midterm election season, a cryptocurrency catastrophe, and NDA (Non Disclosure Agreement) reform. While the midterms did not result in a Red Wave as expected, Republicans were able to regain a small majority in the House of Representatives, with the Senate remaining in Democratic control.

The digital finance world was considerably less stable, with the second largest cryptocurrency trading platform, FTX, filing for bankruptcy three days after its lawyers and compliance staff abruptly resigned. The collapse brought into stark relief the importance of solidifying the cryptocurrency custody and insurance landscape.

Also of note, President Biden signed the Speak Out Act, rendering unenforceable nondisclosure and nondisparagement agreements signed prior to incidents of sexual harassment or assault. The law’s passage offers employers the opportunity to review their states’ more robust laws in this area and ensure clauses meant to protect trade secrets and proprietary information don’t inadvertently create issues for sexual misconduct claimants.

Read select  thought leadership articles below fora deeper dive:

2022 Midterm Election Guide

The Spectacular Fall of FTX: Considerations about Crypto Custody and Insurance

Nondisclosure and Nondisparagement Agreements in Sexual Harassment and Assault Cases: Speak Out Act Heads to President’s Desk

December

In December, the Federal Trade Commission (FTC) released their hotly anticipated “Green Guides” amendment proposals, intended to combat greenwashing amidst growing demand for environmentally friendly products. The amended Guides for the Use of Environmental Marketing Claims would impose stricter standards for the use of terms such as “recyclable,” “compostable,” “organic,” and “sustainable” in advertising and on packaging.

Meanwhile, Congress narrowly avoided a railroad worker strike by passing Railway Labor Act legislation affirming all tentative agreements between rail carriers and unions. The contracts included a roughly 24% increase in wages over 4-5 years, along with an extra day of leave. Biden promised to address paid leave further in the near future.

The National Labor Relations Board (NLRB) closed out 2022 with a number of impactful decisions favoring workers. Employees have expanded remedies for National Labor Relations Act violations and protection during Section 7 questioning, while employers have the burden of proof when seeking to expand micro-units or deny union protestors.

Read select legal thought leadership pieces below for more details:

Congress Votes to Impose Bargaining Agreement to Avoid Nationwide Railroad Strike

FTC Starts Long-Awaited Green Guides Review

NLRB Issues Flurry of Blockbuster End-of-Year Decisions (With More to Come?) (US)

Thank you to our dedicated readers and as always to our highly regarded contributing authors and our talented NLR editorial staff for working day in and day out to produce one of the most well read and reputable business law publications in the US.  Have a happy 2023!

Copyright ©2023 National Law Forum, LLC

Complying With New Federal Pregnant Workers Fairness Act, PUMP for Nursing Mothers Act

The new Pregnant Workers Fairness Act (PWFA) and the Providing Urgent Maternal Protections for Nursing Mothers Act (PUMP For Nursing Mothers Act) were adopted when President Joe Biden signed the Consolidated Appropriations Act, 2023 on Dec. 29, 2022.

PWFA: Pregnancy Finally Given Disability-Like Protection

The PWFA applies to employers with at least 15 employees and becomes effective on June 27, 2023.

Like the Americans with Disabilities Act (ADA), the PWFA includes the obligation to provide reasonable accommodations so long as they do not impose an undue hardship. Many courts have determined that pregnancy alone was not a disability entitled to accommodation under the ADA. Under the PWFA, employers will be required to provide reasonable accommodations to employees and applicants with known temporary limitations on their ability to perform the essential functions of their jobs based on a physical or mental condition related to pregnancy, childbirth, and related medical conditions.

The PWFA adopts the same meaning of “reasonable accommodation” and “undue hardship” as used in the ADA, including the interactive process that will typically be used to determine an appropriate reasonable accommodation.

The PWFA provides that an employee or their representative can make the employer aware of the employee’s limitations. It also provides that an employer cannot require an employee to take a paid or unpaid leave of absence if another reasonable accommodation can be provided. Of course, that does not mean the employee gets the accommodation of their choice. The statute provides a defense to damages for employers that, in good faith, work with employees to identify alternative accommodations that are equally effective and do not cause an undue hardship.

Practical Advice for PWFA Compliance

  1. Employers do not have to have a policy for every rule or practice that applies in the workplace. However, if an employer has a reasonable accommodations policy, that policy should be reviewed and updated, as necessary.
  2. Human resources professionals are not the only ones who need training. If managers are not trained as well, they may unwittingly say something in response to an employee’s question that is inconsistent with your policies and practices.
  3. Create a process to follow when employees request an accommodation due to pregnancy-related limitations. The process should be similar to the ADA process, including requesting supporting documentation from the treating healthcare provider. Have employees in states or cities that have adopted versions of the pregnant workers fairness law or other similar laws that are more generous than the federal PWFA? The federal PWFA does not preempt more generous state and local laws. Therefore, any policy, practice, or form may need to be modified depending on where employees are located. As an example, some city and state laws, except in specific circumstances, prohibit employers from requesting medical documentation to confirm an employee’s pregnancy, childbirth, or related medical conditions as part of the accommodation process.
  4. Like under the ADA, when an employee requests an accommodation under the PWFA, Human resources professionals should think about how to make this work, not this will never work. This simple shift in approach makes finding a reasonable accommodation that does not impose an undue hardship on operations more likely.

PUMP for Nursing Mothers Act

The PUMP for Nursing Mothers Act expands existing employer obligations under the Fair Labor Standards Act (FLSA) to provide an employee with reasonable break time to express breast milk for the employee’s nursing child for one year after the child’s birth. The employer obligation to provide a place to express milk shielded from view and intrusion from coworkers and the public (other than a bathroom) continues.

Except for changes to available remedies, the amendment to the FLSA took effect on December 29, 2022. The changes to remedies will take effect on April 28, 2023.

What Changed Under PUMP for Nursing Mothers Act

The PUMP for Nursing Mothers Act covers all employees, not just non-exempt workers. The break time may be unpaid unless otherwise required by federal or state law or municipal ordinance. Employers should ensure that non-exempt nursing employees are paid if they express breast milk during an otherwise paid break period or if they are not completely relieved of duty for the entire break period. Exempt employees should be paid their full weekly salary as required by federal, state, and local law, regardless of whether they take breaks to express breast milk.

With some exceptions, the law requires employees to provide notice of an alleged violation to the employer and give the employer a 10-day cure period before filing a suit.

Employers with fewer than 50 employees can still rely on the small employer exemption, if compliance with the law would cause undue hardship because of significant difficulty or expense. Crewmembers of air carriers are exempted from the law. Rail carriers and motorcoach services operators are covered by the law, but there are exceptions and delayed effective dates for certain employees. No similar exemption is provided for other transportation industry employers.

Practical Advice for PUMP for Nursing Mothers Act Compliance

  1. Educate the HR team and front-line managers on the update to the law and refresh them on the process for providing break time and private spaces to express breast milk.
  2. Like the PWFA, the law does not preempt state law or municipal ordinances that provide greater protection than provided by the PUMP for Nursing Mothers Act. Depending on where employees are located, policies, practices, and the private space provided to express breast milk may need to be modified.
  3. Creativity is the key to being able to come up with staffing solutions and private spaces for nursing mothers to express breast milk. Nothing in the law requires employers to maintain a permanent, dedicated space for nursing mothers. A space temporarily created or converted into a space for expressing breast milk and made available when needed by a nursing mother is sufficient if the space is shielded from view and free from intrusion from coworkers and the public. In other words, allowing an employee to use an office with a door that locks would be convenient, but not practical for many worksites. Depending on the workplace settings, privacy screens, curtains, signage, portable pumping stations, and partnerships with other employers to provide private spaces for nursing mothers are all possibilities.

For more election & legislative news, click here to visit the National Law Review.

Jackson Lewis P.C. © 2023

Ankura CTIX FLASH Update – January 3, 2023

Malware Activity

Louisiana’s Largest Medical Complex Discloses Data Breach Associated to October Attack

On December 23rd, 2022, the Lake Charles Memorial Health System (LCMHS) began sending out notifications regarding a newly discovered data breach that is currently impacting approximately 270,000 patients. LCMHS is the largest medical complex in Lake Charles, Louisiana, which contains multiple hospitals and a primary care clinic. The organization discovered unusual activity on their network on October 21, 2022, and determined on October 25, 2022, that an unauthorized actor gained access to the organization’s network as well as “accessed or obtained certain files from [their] systems.” The LCMHS notice listed the following patient information as exposed: patient names, addresses, dates of birth, medical record or patient identification numbers, health insurance information, payment information, limited clinical information regarding received care, and Social Security numbers (SSNs) in limited instances. While LCMHS has yet to confirm the unauthorized actor responsible for the data breach, the Hive ransomware group listed the organization on their data leak site on November 15, 2022, as well as posted files allegedly exfiltrated after breaching the LCMHS network. The posted files contained “bills of materials, cards, contracts, medical info, papers, medical records, scans, residents, and more.” It is not unusual for Hive to claim responsibility for the associated attack as the threat group has previously targeted hospitals/healthcare organizations. CTIX analysts will continue to monitor the Hive ransomware group into 2023 and provide updates on the Lake Charles Memorial Health System data breach as necessary.

Threat Actor Activity

Kimsuky Threat Actors Target South Korean Policy Experts in New Campaign

Threat actors from the North Korean-backed Kimsuky group recently launched a phishing campaign targeting policy experts throughout South Korea. Kimsuky is a well-aged threat organization that has been in operation since 2013, primarily conducting cyber espionage and occasional financially motivated attacks. Aiming their attacks consistently at entities of South Korea, the group often targets academics, think tanks, and organizations relating to inter-Korea relations. In this recent campaign, Kimsuky threat actors distributed spear-phishing emails to several well-known South Korean policy experts. Within these emails, either an embedded website URL or an attachment was present, both executing malicious code to download malware to the compromised machine. One (1) tactic the threat actors utilized was distributing emails through hacked servers, masking the origin IP address(es). In total, of the 300 hacked servers, eighty-seven (87) of them were located throughout North Korea, with the others from around the globe. This type of social engineering attack is not new for the threat group as similar instances have occurred over the past decade. In January 2022, Kimsuky actors mimicked activities of researchers and think tanks in order to harvest intelligence from associated sources. CTIX continues to urge users to validate the integrity of email correspondence prior to visiting any embedded emails or downloading any attachments to lessen the risk of threat actor compromise.

Vulnerabilities

Netgear Patches Critical Vulnerability Leading to Arbitrary Code Execution

Network device manufacturer Netgear has just patched a high-severity vulnerability impacting multiple WiFi router models. The flaw, tracked as CVE-2022-48196, is described as a pre-authentication buffer overflow security vulnerability, which, if exploited, could allow threat actors to carry out a number of malicious activities. These activities include stealing sensitive information, creating Denial-of-Service (DoS) conditions, as well as downloading malware and executing arbitrary code. In past attacks, threat actors have utilized this type of vulnerability as an initial access vector by which they pivot to other parts of the network. Currently, there is very little technical information regarding the vulnerability and Netgear is temporarily withholding the details to allow as many of their users to update their vulnerable devices to the latest secure firmware. Netgear stated that this is a very low-complexity attack, meaning that unsophisticated attackers may be able to successfully exploit a device. CTIX analysts urge Netgear users with any of the vulnerable devices listed in Netgear’s advisory to patch their device immediately.

For more cybersecurity news, click here to visit the National Law Review.

Copyright © 2023 Ankura Consulting Group, LLC. All rights reserved.

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