Tag: business

Digging for Trouble: The Double-Edged Sword of Decisions to Report Misconduct

On May 10, 2024, Romy Andrianarisoa, former Chief of Staff to the President of Madagascar, was convicted for soliciting bribes from Gemfields Group Ltd (Gemfields), a UK-based mining company specializing in rubies and emeralds. Andrianarisoa, along with her associate Philippe Tabuteau, was charged after requesting significant sums of money and a five percent equity stake in a mining venture in exchange for facilitating exclusive mining rights in Madagascar.

The investigation, spearheaded by the UK’s National Crime Agency (NCA), began when Gemfields reported their suspicions of corruption. Using covert surveillance, the NCA recorded Andrianarisoa and Tabuteau requesting 250,000 Swiss Francs (approximately £215,000) and a five percent equity stake, potentially worth around £4 million, as payments for their services. Gemfields supported the investigation and prosecution throughout.

During the investigation, six covertly recorded audio clips were released, suggesting Andrianarisoa had significant influence over Madagascar’s leadership and her expectation of substantial financial rewards. The arrests in August 2023 and subsequent trial at Southwark Crown Court culminated in prison sentences of three and a half years for Andrianarisoa and two years and three months for Tabuteau.

Comment

Gemfields has, quite rightly, been praised for reporting this conduct to the NCA and supporting their investigation and prosecution. In doing so, they made a strong ethical decision and went above and beyond their legal obligations: there is no legal requirement on Gemfields to report solicitations of this kind.

Such a decision will also have been difficult. Reporting misconduct and supporting the investigation is likely to have exposed Gemfields to significant risk and costs:

  • First, in order to meet their obligations as prosecutors, put together the best case, and comply with disclosure requirements, the NCA likely required Gemfields employees to attend interviews and provide documents. These activities require significant legal support and can be very costly both in time and money.
  • Secondly, such disclosures and interviews might identify unrelated matters of interest to the NCA. It is not uncommon in these cases for corporates reporting misconduct to become the subject of unrelated allegations of misconduct and separate investigations themselves.
  • Furthermore, to the extent that Gemfields supported the covert surveillance aspects of the NCA’s investigation, there may have been significant safety risks to both the employees participating, and unrelated employees in Madagascar. Such risks can be extremely difficult to mitigate.
  • Finally, the willingness to publicly and voluntarily report Andrianarisoa is likely to have created a chilling effect on Gemfields’ ability to do legitimate business in Madagascar and elsewhere. Potential partners may be dissuaded from working with Gemfields for fear of being dragged into similar investigations whether warranted or not.

Organisations in these situations face difficult decisions. Many will, quite rightly, want to be good corporate citizens, but in doing so, must recognise the potential costs and risks to their business and, ultimately, their obligations to shareholders and owners. In circumstances where there is no obligation to report, the safest option may be to walk away and carefully record the decision to do so. No doubt, Gemfields carefully considered these risks prior to reporting Andrianarisoa’s misconduct.

Businesses facing similar challenges should:

  • Ensure they understand their legal obligations. Generally, there is no obligation to report a crime. However, particularly for companies and firms operating in the financial services or other regulated sectors, this is not universally the case.
  • Carefully consider the risks and benefits associated with any decision to report another’s misconduct, including not only financial costs, but time and safety costs too.
  • Develop a compliance programme that assists and educates teams on how to correctly identify misconduct, escalate appropriately, and decide whether to report.
© 2024 Bracewell LLP
For more news on Reporting Global Misconduct, visit the NLR Criminal Law & Business Crimes section.

Trademark Insights: What the First Precedential TTAB Expungement Decision Means for You

As a trademark applicant, encountering a prior registration that obstructs your path to registration is never a pleasant experience (nor for your attorneys who have to inform you about it). The frustration only intensifies when it becomes evident that the registered mark has never been used for the specified goods or services. Until 2021, the sole recourse with the USPTO to address this issue was filing a Petition to Cancel, with the hope that the registrant would not respond, leading to a swift default judgment. Unfortunately, this is not always the case, and a response means expending an appreciable amount of time and money before resolution can be obtained, often through a settlement agreement.

In late 2021, the landscape changed with the passing of the Trademark Modernization Act of 2020, which brought about two new ex parte proceedings: reexamination and expungement. The goal was to provide faster, more efficient, and less expensive alternatives to contested cancellation proceedings at the Trademark Trial and Appeal Board (the “Board”).

Expungement proceedings, in particular, offer a means to cancel trademarks that have never been used in commerce. “Any party can request cancellation [by the USPTO Director] of some or all of the goods or services in a registration because the registrant never used the trademark in commerce with those goods or services.” This action is available against all types of registrations, but must be requested between three and ten years after the registration date.

Now, after two-and-a-half years of these proceedings, on July 1, 2024, the Board issued its first precedential decision in an expungement proceeding: In Re Locus Link USA.

In July 2022, a third party filed expungement actions against Locus Link USA’s (the “Registrant”) two SMARTLOCK registrations, alleging nonuse of the marks for the specified goods: “components for air conditioning and cooling systems, namely, evaporative air coolers.” The USPTO Director found sufficient evidence of nonuse and proposed cancellation. The registrant responded with evidence of use in the form of specimens showing connectors for metal tubing and air condition components, arguing that this evidence was sufficient, and had been previously accepted by the USPTO during examination. The USPTO maintained the cancellation, noting that the subject registrations only covered the specific goods following the term “namely” in the identification, here “evaporative air coolers.”

On appeal, the Registrant argued that the SMARTLOCK marks are in use in connection with the goods identified in the registration because the identification of goods covers components for evaporative air coolers. The Board disagreed and affirmed the USPTO’s decision.

Goods and services in an application should “state common names for goods or services, be as complete and specific as possible, and avoid indefinite words and phrases.” TMEP § 1402.03(a), cited in In re Solid State Design Inc., Ser. No. 87269041, 2018 TTAB LEXIS 1, at *18 (TTAB 2018).

Applicants take notice: “the goods or services listed after the term ‘namely’ must further define the introductory wording that proceeds ‘namely’ using definite terms within the scope of the introductory words.” In other words, the goods or services that come after “namely” must specifically define the broader category mentioned before. Essentially, “namely” helps to clarify otherwise vague descriptions.

In this case, the broad category is “components for air conditioning and cooling systems.” The applications were only accepted for registration because they specified “namely, evaporative air coolers.” This means the SMARTLOCK marks cover evaporative air coolers that are components for air cooling systems. It does not cover component parts that go into making evaporative air coolers.

Key Takeaways

  1. Grammar Matters. Properly identifying goods and services in an application is vital. The USPTO continues to increase its specificity requirements for identifying goods and services, and applicants need to ensure not only original identifications, but also amendments to identifications proposed by an examiner accurately and correct reflect their goods and services. In Locus Link, was the Board, splitting hairs? Maybe, but the lesson is critically important for obtaining and maintaining trademark registrations.
  2. Specimen Acceptance Isn’t Conclusive. The acceptance of specimens by the USPTO does not control the ultimate question of use. Although not a new concept, one to keep in mind. It is more important to have multiple records of proper and consistent trademark use than to rely on a single specimen. It is wise to retain an attorney with experienced eyes to review your use specimens prior to filing for both registration and for maintenance of your registrations.
  3. File for New Marks as Necessary. While the SMARTLOCK marks were never in use for the goods, nonuse or lack of coverage can happen. Businesses expand and evolve over the years and so too should the portfolio of trademark registrations. It is important to occasionally audit your trademark portfolio to look for any gaps in coverage for certain marks and certain goods and services. Do not just think you have proper coverage, be sure so you are in the best offensive and defensive position possible for your brand. You never know who else is out there, looking to use your mark. If your registrations are in not order, your marks are vulnerable.

It is still early days for these new ex parte proceedings, but the hope is that they will prove a useful tool moving forward. This precedential decision although not groundbreaking does provide a good overview of the relatively new expungement proceeding and some good reminders for trademark owners.

Copyright © 2024 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more news on Trademark Expungement, visit the NLR Intellectual Property section.

United States | H-1B, AOS, Schedule A and Other Regulatory Agenda Updates

According to the recent publication of the Spring 2024 regulatory agenda, the Biden administration has the H-1B modernization rule, adjustment of status proposal and seasonal/temporary worker regulations targeted for publication by the end of 2024. The next step toward Schedule A reform will occur this August.

  • H-1B modernization: The Department of Homeland Security proposed to amend regulations governing H-1B specialty occupations and certain F-1 students. DHS accepted comments on its wide-ranging proposed rule until Dec. 22, 2023 and finalized and implemented H-1B registration selection provisions in April 2024. The agency says it “continues to consider the suggestions made in public comments received as they relate to the other proposed provisions discussed in the Oct. 23, 2023 NPRM, and intends to finalize the remaining provisions in one or more actions.”
  • Lawful permanent residence (adjustment of status proposal): To reduce processing times, improve agency partnerships and promote efficiencies in visa availability, DHS plans to amend regulations governing adjustment of status to lawful permanent residence in the U.S. including permitting concurrent filing of a visa petition and the application for AOS for the employment-based fourth preference category. The target date for publishing the proposal is now August 2024. After publication, there will be a public comment period.
  • Schedule A: The Department of Labor is considering updating Schedule A and opened a Request for Information period on Dec. 21, 2023 that was extended through May 13, 2024. During this period, the public provided input on whether Schedule A served as an effective tool for addressing current labor shortages, and how DOL can create a timely, coherent, and transparent methodology for identifying science, technology, engineering and mathematics and other occupations that are experiencing labor shortages while ensuring the employment of foreign nationals does not displace U.S. workers or adversely affect their wages and working conditions. According to the regulatory agenda, DOL aims to complete analysis of the comments in August 2024.
  • H-2 modernization: DHS published a proposal for modernizing H-2 programs on Sept. 20, 2023 intended to reduce inefficiencies, enhance pay protections and address “aspects of the program that may unintentionally result in exploitation or other abuse of persons seeking to come to this country as H-2A and H-2B workers.” Comments were accepted through November 2023 and final action is targeted for November 2024.
  • Nonimmigrant workers: DHS plans to propose amendments to regulations governing certain nonimmigrant workers including updating the employment authorization rules regarding dependent spouses of certain nonimmigrants; increasing flexibilities for certain nonimmigrant workers and modernizing policies and procedures for employment authorization documents. The targeted publication date is now January 2025.
  • Immigrant worker reforms: DHS also plans to propose to amend regulations governing employment-based immigrant petitions in the first, second and third preference classifications. According to the regulatory agenda, proposed rule amendments would include updating and modernizing provisions governing extraordinary ability and outstanding professors and researchers; clarifying evidentiary requirements for first preference classifications, second preference national interest waiver classifications and physicians of national and international renown; ensuring the integrity of the I-140 program and correcting errors and omissions. Publication of the proposed rule is now targeted for June 2025.

BAL Analysis: While these regulations would have a significant impact on immigration programs, they are at different stages in the rulemaking process, and policies are still being formulated. Proposed regulations are subject to a public notice-and-comment period, during which members of the public may submit feedback. BAL continues to monitor progress on the regulatory agenda and will provide clients with updates on individual regulations as they move through the rulemaking process.

©2024 Berry Appleman & Leiden. All Rights Reserved.
For more news on Spring 2024 US Immigration Regulatory Updates, visit the NLR Immigration section.

What is Market Manipulation?

The financial market is supposed to be a place where investors put their hard-earned money to work. Market manipulation disrupts the playing field, undermining the integrity of financial systems and causing a great deal of harm to investors. Between 2020 and 2022, the United States recovered $2.7 billion from market manipulation incidents.

What Does Market Manipulation Mean?

The stock market thrives on constant movement as part of a healthy financial ecosystem. However, when someone artificially exploits the supply and demand for securities, the stock market sees a shift in the pricing and value of certain stocks. Market manipulation is an attempt to take advantage of those shifts with insider information, or create false ups and downs to turn a profit. A simple example might be spreading misinformation about a stock in order to cause its price to rise or fall.

How Market Manipulation Works

Market manipulation disrupts the natural flow of supply and demand in a security. For example, a person may attempt to manipulate the stock market in their favor by engaging in a series of transactions designed to make it look like there is a flurry of activity around their stock. This illusion prompts others to buy into such stock, convinced that the company is on the rise because of this artificial energy. This way, the person who began the market manipulation ends up in a better position.

Who Manipulates Stocks?

The stock market is manipulated by any number of bad actors. Investors, company leadership, and anyone who buys and sells securities may attempt to partake in market manipulation.

Why is Market Manipulation Illegal?

If the stock market naturally ebbs and flows, and people are always seeking to profit from it, why is market manipulation illegal?

The answer lies in the importance of honest trading practices and consumer trust. Market manipulation is a method of misleading investors, usually by spreading false information or artificially adjusting prices. Just as you should not sell someone a house by claiming that it has six stories when it is really a shack, similarly you should not manipulate security prices to scam investors.

Who Investigates Market Manipulation?

The US Department of Justice’s Market Integrity and Major Frauds Division (MIMF) investigates claims of securities fraud and market manipulation. The MIMF Division prosecutors can bring criminal charges as well as civil claims for damages against those accused of market manipulation. They utilize data analysis tools and traditional law enforcement techniques to identify and prosecute instances of securities fraud, manipulation, spoofing, insider trading, and more.

How Big Players Manipulate the Stock Market

While more smaller and highly liquid stocks or widely traded securities, are most susceptible to market manipulation, major players can influence the stock market in significant ways. Large financial institutions like Goldman Sachs or Morgan Stanley have a massive hold on how the overall market moves. The 2008 financial crisis is a reminder of how securitization and risky trading of mortgage-backed securities played such a role and led to a ripple effect throughout the market.

Market Manipulation Examples

Stock market manipulation is only limited by the bounds of human ingenuity. Unfortunately, there are a number of ways scam artists attempt to manipulate the market. We have outlined common market manipulation schemes that have emerged over the years:

CRYPTOCURRENCY MARKET MANIPULATION

Although cryptocurrency is less regulated than other investments, it can still be subject to market manipulation. The legal classification of crypto assets as securities is still debatable. However, an August 2023 ruling in Manhattan federal court stated that all cryptocurrencies should be considered securities, regardless of the context in which they are sold. The SEC guidelines on the subject, meanwhile, have hinged on whether or not the particular blockchain is sufficiently decentralized.

The ICO, or Initial Coin Offering, is usually the area where cryptocurrency market manipulation occurs. Crypto is particularly vulnerable to the spread of misinformation on social media, the use of celebrities to artificially inflate an ICO’s value, and pump-and-dump schemes.

HEDGE FUNDS MARKET MANIPULATION

The 2021 GameStop scenario highlighted the upper hand hedge funds often have in the market. In this case, a group of individuals met online and attempted to manipulate the market. Retail investors on Reddit collectively purchased the stock in large quantities after being concerned about the alleged short selling by hedge funds that could devalue GameStop. This surge in buying pressure forced hedge funds to buy back their shares for more money to cover their short sales. However, in the long run, many hedge fund managers profited from the massively increased prices.

FUTURES MARKET MANIPULATION

Attempting to create monopoly power, or “cornering the market” is the primary method of futures market manipulation. This strategy involves a major player artificially creating scarcity in the market by buying up available assets, along with a large stake in a futures contract for delivery at a later date. This is followed by the player refusing to sell at anything except their own price, creating a squeeze on investors who need to buy contracts to fulfill their delivery obligations. Because the futures market hinges upon upcoming deliverables, it forces short sellers to buy contracts at inflated prices from the dominant player.

CROSS-MARKET MANIPULATION

Cross-market manipulation has become more prevalent in recent years, as technology allows trades to happen in real-time and with a higher frequency. Cross-market manipulation is the effort to trade in one venue with the goal of affecting the price of the same security or financial instrument in another market. Cross-market manipulation is also known as inter-trading venue manipulation.

CHURNING MARKET MANIPULATION

Churning is an illegal practice designed to create the illusion of activity and generate commission fees. It involves an excessive amount of trading in a brokerage account solely to generate commissions for the broker from each sale, and not for the client’s benefit.

WHAT IS SPOOFING MARKET MANIPULATION?

Order spoofing, or spoofing, is a method of market manipulation designed to generate interest in a security. One or more players place multiple buy or sell orders on a stock to adjust its price, only to cancel them once other traders accordingly adjust their activities. Thus, the bids are “spoofs,” and therefore, never meant to be followed through.

WHAT IS COORDINATED PRICE MANIPULATION IN THE STOCK MARKET?

Coordinated price manipulation involves agreements between competitors to artificially inflate or deflate stock market prices. For instance, short selling, while legal on its own as a strategy, can cross the line into market manipulation by generating fear around securities to unnaturally lower its price.

WHAT IS LAYERING MARKET MANIPULATION?

Layering is a form of spoofing that involves placing a series of orders designed to be eventually canceled. However, in layering market manipulation efforts, the bids are all placed at different price points, setting the market price somewhere in the middle of the fake trades. This way, the manipulator achieves a better understanding of the market price based on their fake activity, and can trade on the other side of the market to turn in a profit while canceling extraneous offers.

FRONT-RUNNING MARKET MANIPULATION

Front running is often done by an individual broker who has insider information about a future development that will impact stock price. For example, a broker who is ordered to sell a large amount of stock instead goes to their own account before executing the trade and dumps their stock in the same company, now knowing the market price is predicted to plummet. Here, the broker has “run out in front” of natural market fluctuations to illegally sell their stock.

SHORT SELLING MARKET MANIPULATION

Short selling can become market manipulation in the event of cross-market manipulation or coordinated price manipulation.

Naked short selling is the illegal practice of selling shares in an asset before acquiring them, or ensuring that they can in fact be purchased or acquired. The goal here is the same as in usual shorting; however, in short selling, shares must be borrowed before they can be offered to other investors.

PUMP-AND-DUMP SCHEMES

Pump-and-dump schemes typically involve spreading misinformation about a stock in order to “pump up” a frenzy of orders and investments. The perpetrators then “dump” their stocks at the new and artificially inflated price point. The Securities and Exchange Commission (SEC) warns that microcap securities are particularly vulnerable to pump-and-dump schemes because of limited publicly available information.

How Do You Tell if a Stock is Being Manipulated?

Opportunities for market manipulation have become more widespread with mobile trading apps, AI algorithms and bot activity enabling trading to happen in the blink of an eye from anywhere. Traders must examine stock market activity more thoroughly, keeping an eye out for possible warning signs of market manipulation:

  • Unlikely performance compared to company indexes: The stock market cannot tell the full picture of a company’s well-being. It is better to compare market prices against other metrics like revenue, growth potential, and capitalization. When a company’s stock prices remain low even as other signs point to growth, it may be a sign that artificial market activity is at play.
  • Fake news on social media: The spread of bot-led accounts designed to appear like genuine human activity on social media points toward the potential for misinformation. False information often plays a key role in market manipulation and price-adjusting efforts.
  • Flurries of activity: Churning, spoofing, and layering all involve sudden onsets of orders not related to genuine developments. A sudden rush can indicate that a stock is being manipulated. Likewise, a large volume of activity without matching price action can be a warning sign of wash trading.

How Do You Stop Market Manipulation?

Here are some tips to protect yourself from stock market manipulators:

  • Understand your risk appetite and ensure you have an exit strategy for your investments
  • Verify claims that seem too good to be true
  • Avoid excessively large bids or “limited time offers”
  • Review your account activity on a regular basis and report any suspicious activity in your account

SEC MARKET MANIPULATION

The SEC runs the Office of the Whistleblower, which allows whistleblowers to come forward to anonymously report market manipulation. The SEC Office of the Whistleblower has awarded over $1 billion to whistleblowers who have shared information leading to a recovery after a stock market manipulation scheme.

CFTC MARKET MANIPULATION

The Commodity Futures Trading Commission (CFTC) relies heavily on tips and whistleblower information to ensure fair trading practices in the commodity and futures markets. The CFTC Whistleblower Program offers rewards for information as well as protection against retaliation.

How Do You Prove Market Manipulation?

A whistleblower attorney can be your strongest ally to help you gather proof of market manipulation, including:

  • Proof of intent to defraud: Emails, text messages, social media posts, and sworn testimonies to private conversations
  • Refutation of legitimate business purposes: Internal memos, monthly reports, notes from meetings, staff emails, etc. to show that the suspicious activity was not in pursuit of legitimate business purposes
  • Records of trades, monthly account statements, canceled checks, wire transfers, stock transfers, and more: All of these documents can help present a bigger financial picture to illustrate the motive to manipulate market prices

What Are the Consequences of Market Manipulation?

Market manipulation undermines fair and stable markets, and erodes investors’ trust in financial systems. When investors fear manipulation, they may become less confident and willing to invest in diverse portfolios. Market manipulation also creates an uneven playing field, hurting fair competition when scam artists profit at the expense of investors who may lose savings and watch their assets dissolve.

Rewards for Reporting Market Manipulation

You may qualify as a protected whistleblower under the following statutes:

How Are Whistleblowers Protected After Reporting Market Manipulation?

Whistleblowers can anonymously report suspected market manipulation through the SEC Whistleblower Program and have their identity redacted even from Freedom of Information Act (FOIA) requests. Whistleblowers who have been retaliated against by their employers can sue for the following actions:

  • Reinstatement to former seniority level
  • Payment of double back pay, with interest
  • Payment of front pay, in cases where reinstatement is not possible
  • Attorney fees and legal costs
  • Additional damages

Biggest Market Manipulation Cases

New market manipulation cases are constantly coming to light, as whistleblowers step forward to reveal wrongdoings in the stock market. Some of the biggest market manipulation settlements include:

  • $1.186 billion against Glencore International AG: The CFTC ordered Glencore to pay $1.186 billion to settle accusations that the energy and commodities trading firm strategically manipulated at least four US-based S&P Global Platts physical oil benchmarks from 2007 to 2018.
  • $920 million from JP Morgan for spoofing: The 2020 settlement ordered JP Morgan Chase to pay $920.2 million to settle allegations of at least eight years of spoofing in precious metals and US Treasury futures contracts.
  • $249 million from Morgan Stanley and former executive Pawan Passi: In 2024, the SEC charged Morgan Stanley and its former executive Pawan Passi for executing block trades and acting on insider information. The firm agreed to pay $249 million to settle allegations of multi-year wrongdoing.

What is the SEC Doing about Market Manipulation?

The SEC relies on tips from whistleblowers to take out insider trading rings, spoofing attempts, pump-and-dump schemes, and other kinds of market manipulation attempts. If you have information about such tactics, you may be able to take part in the SEC Whistleblower Program. A whistleblower lawyer with Tycko & Zavareei LLP can help make sure your claim is as strong as possible before you bring it to the SEC. Remember, information once reported is no longer eligible for a reward.

Market Manipulation: FAQs

IS MARKET MANIPULATION ILLEGAL?

Yes. While everyone wants to “get ahead” on the stock market, manipulating the market is an illegal activity that can result in criminal penalties like jail time, as well as the imposition of civil fines and damages.

WHAT IS A REAL-LIFE EXAMPLE OF MARKET MANIPULATION?

One of the most notorious examples of market manipulation is the 2001 Enron scandal. When the energy company was found to have altered and misrepresented financial statements to inflate its stock price, it went bankrupt and multiple executives were indicted for the fraud.

WHO DOES MARKET MANIPULATION HURT?

Market manipulation hurts investors who lose money on investments that are either illegitimate or inaccurately represented. At the same time, its negative impact may also be felt throughout the economy, the 2008-2009 Great Recession being a case in point.

WHAT IS THE DIFFERENCE BETWEEN MARKET ABUSE AND MARKET MANIPULATION?

Market manipulation is a specific tactic within the larger issue of market abuse. Market manipulation focuses on artificially controlling prices to secure unearned profit, whereas market abuse encompasses various schemes with the aim of disadvantaging investors for personal gain.

© 2024 by Tycko & Zavareei LLP
For more news on Market Manipulation, visit the NLR Criminal Law & Business Crimes section.

The End of Chevron Deference and the Anticipated Impact on Withdrawal Liability

The U.S. Supreme Court recently overturned the decades-old Chevron doctrine of judicial deference to a federal agency’s interpretation of an ambiguous statute. (See “Go Fish! U.S. Supreme Court Overturns ‘Chevron Deference’ to Federal Agencies: What It Means for Employers”) Following the decision in Loper Bright Enterprises v. Raimondo, courts must exercise independent judgment in reviewing the agency’s interpretation of the statute. Courts may apply the standard set forth in Skidmore v. Swift & Co., 323 U. S. 134 (1944), in which a court can uphold a regulation if it finds the agency’s interpretation of the statute persuasive.

The Loper Bright decision could prove to have an immediate impact on the actions of the Pension Benefit Guaranty Corporation (PBGC). The PBGC is a federal agency with regulatory authority over the withdrawal liability provisions in Title IV of ERISA. Two recent actions taken by the PBGC that are under current scrutiny figure to be challenged under Loper Bright: the Special Financial Assistance (SFA) plan asset phase-in and withdrawal liability interest rate assumption regulations.

Conditions for MEPPs Receiving Special Financial Assistance (SFA)

The American Rescue Plan Act of 2021 (ARPA) provided for SFA for troubled multiemployer pension plans (MEPPs). The SFA program will provide between $74 and $91 billion in assistance to eligible MEPPs. Pursuant to ARPA, Congress delegated authority to the PBGC to issue “reasonable conditions” for SFA applications and for withdrawal liability calculated by SFA recipients. On July 8, 2022, the PBGC published a final rule detailing the eligibility criteria, application process, and restrictions and conditions associated with a MEPPs’ use of SFA funds.

As previously discussed in “More Bad News for Employers in the PBGC Final Rule,” the final rule expresses PBGC’s opinion that “payment of an SFA was not intended to reduce withdrawal liability or to make it easier for employers to withdraw.” Consistent with these concerns, the PBGC’s final rule mandated that recipient MEPPs “phase-in” the SFA as a plan asset over a 10-year period. This interpretation will significantly (and arguably artificially) increase the amount of many employers’ withdrawal liability. It is anticipated that the final rule will be challenged in the near future.

Withdrawal Liability Interest Rate Assumption

The interest rate assumptions used by an MEPP to calculate withdrawal liability can have a massive impact on the amount of an employer’s liability. In 1980, when amending Title IV of ERISA by enacting the Multiemployer Pension Plan Amendments Act (MPPAA), Congress delegated authority to the PBGC to issue regulations relating to these critical interest rates assumptions. To date, PBGC has not done so.

Specifically, in response to several recent court rulings (See “Withdrawal Liability Interest Rate Must Reflect Projected Investment Return, D.C. Circuit Holds”), the PBGC issued a proposed regulation to allegedly “make clear that use of 4044 rates [the settlement interest rate], either as a standalone assumption or combined with funding interest assumptions represents a valid approach to selecting an interest rate assumption to determine withdrawal liability in all circumstances.” Even more problematic, the proposed rule states that a “plan’s actuary would be permitted to determine withdrawal liability under the proposed rule without regard to section 4213(a)(1) [including foregoing the reasonableness and actuarial best estimate requirements].” The proposed rule directly contradicts recent judicial interpretations of the referenced statute that was enacted as part of MPPAA over 44 years ago.

Further, the PBGC’s proposed rule ignored the critical issue of whether the selection of an interest rate that ignores the statutory reasonableness and best estimate requirements satisfies other provisions of ERISA, such as Section 4221(a)(3)(B)(i). In this regard, and consistent with Loper Bright, several Circuit Courts of Appeal have already exercised their independent judgment to interpret the statutory “best estimate of anticipated experience under the plan” language as referring to the “unique characteristics of the plan” such as the plan’s investment asset mix and the expected rate of return on such assets. These recent Circuit Court decisions therefore directly contradict the PBGC’s proposed regulations. Any final regulation promulgated by PBGC that follows the proposed regulations would inevitably be challenged and resolved under the less-deferential standard established under Loper Bright.

Final Thoughts

The exact impact of Loper Bright on agency actions in general and the PBGC actions discussed above remains to be seen. Since Skidmore is still good law, a court that is sympathetic to an agency’s position could still opt to defer to that interpretation. Courts will no doubt be busy with a plethora of suits challenging administrative actions. The two current hot-button topics discussed above seem destined to be challenged and resolved by judges in a post-Chevron world. The resolution of these issues will have massive implications for employers with significant potential withdrawal liability exposure.

Jackson Lewis P.C. © 2024
For more news on the impact of Loper Bright on the Pension Benefit Guaranty Corporation (PBGC), visit the NLR Labor Employment section.

Petition for Certiorari Filed in Supreme Court in False Claims Act Case Seeking Review of Whether “Willful” Under the Anti-Kickback Statute Requires Knowledge that the Conduct is Unlawful

The Supreme Court now has the opportunity to define “willfulness” under the federal criminal Anti-Kickback Statute (AKS). In a declined qui tam case filed against McKesson Corporation, a pharmaceutical wholesaler, the relator, Adam Hart, a former McKesson employee, filed a petition for certiorari seeking Supreme Court review of a Second Circuit decision that upheld the dismissal of relator’s complaint asserting claims under the civil False Claims Act (FCA) premised on alleged violations of the AKS. U.S. ex rel. Hart v. McKesson Corp., 96 F.4th 145 (2d Cir. 2024). A violation of the AKS requires as the scienter element that the defendant “knowingly and willfully” offered or paid remuneration to induce the recipient of the renumeration to purchase goods or items for which payment may be made under a federal health care program. 42 U.S.C. § 1320a-7b(b)(2). The Second Circuit held that a defendant does not act “willfully” within the meaning of the AKS unless that defendant “act[s] knowing that his conduct is unlawful.” United States ex rel. Hart, 96 F.4th at 154.

The AKS is enforced both as a criminal statute and, as in this case, is frequently used by the government or relators as a predicate violation to support an alleged violation of the civil FCA. Since 2010, Congress has specified that a claim that includes items or services “resulting from” an AKS violation is a false or fraudulent claim under the FCA. 42 U.S.C. § 1320a-7b(g). Though the evidentiary standard in criminal and civil cases differs, the government or relator in civil cases must adequately plead the “knowingly and willfully” scienter element of the AKS.

Hart alleged in his Second Amended Complaint that McKesson offered physician oncology practices two valuable business tools, the Margin Analyzer and the Regimen Profiler, to induce those practices to purchase oncology pharmaceuticals from McKesson. Hart alleged that these business tools were prohibited remuneration, and that McKesson acted “knowingly and willfully” in offering these two tools to its customers in violation of the AKS. Hart’s basis for alleging “willfulness” included: (1) alleged document destruction during the litigation; (2) Hart informed his supervisor during compliance training about the potential AKS violation, yet McKesson continued to provide these tools, worth about $150,000, to medical practices free of charge in exchange for commitments to purchase drugs from McKesson; and (3) Hart’s discussions with other employees that McKesson was inappropriately exploiting the business tools.

After the government declined to intervene, the District Court dismissed the FCA claims in a Second Amended Complaint (after dismissing the prior complaint as well) by ruling that Hart failed to plausibly allege sufficient facts to suggest McKesson acted “willfully”. The Second Circuit upheld the dismissal and agreed that a defendant acts “willfully” under the AKS only if the defendant knows “that its conduct is, in some way, unlawful.”

The Second Circuit rejected the relator’s proposed approach, a looser standard that would meet the “willfully” standard of the scienter element if (a) the company provided something of value in connection with the sale of pharmaceuticals reimbursed by the government, and (b) knew, even through general compliance training, that it is illegal to provide things of value to induce sales. Hart filed a petition for a writ of certiorari, presenting the question: “[t]o act ‘willfully’ within the meaning of the [AKS], must a defendant know that its conduct violates the law?”

There is no dispute, under the law, that a defendant does not need “specific intent” to violate the AKS. 42 U.S.C. § 1320a-7b(h). However, the petition raises questions about how certain sister Circuits interpret “willfully” when addressing violations of the AKS:

  • The Second Circuit held in this case that a defendant does not act “willfully” within the meaning of the AKS unless that defendant “act[s] knowing that his conduct is unlawful, even if the defendant is not aware that his conduct is unlawful under the AKS specifically.” United States ex rel. Hart v. McKesson Corp., 96 F.4th 145,154 (2d Cir. 2024).
  • The Eleventh Circuit, in accord with the Second, has also held that a defendant must know that its conduct is unlawful in order to violate the AKS. United States v. Sosa, 777 F.3d 1279, 1293 (11th Cir. 2015) (“[T]o find that a person acted willfully in violation of § 1320a-7b, the person must have acted voluntarily and purposely, with the specific intent to do something the law forbids, that is with a bad purpose, either to disobey or disregard the law.”) (internal quotations omitted)).
  • The relator argues in the petition that the Fifth and Eighth Circuits are split with the Second Circuit. Relator relies on a Fifth Circuit case holding that “willfully” requires that a “defendant willfully committed an act that violated the . . . Statute” without a requirement that a defendant know its conduct is unlawful. United States v. St. Junius, 739 F.3d 193, 210 & n.19 (5th Cir. 2013). However, a more recent Fifth Circuit case, which was cited by the Second Circuit, defines “willfully” to mean “the act was committed voluntarily or purposely, with the specific intent to do something the law forbids; that is to say, with bad purpose either to disobey or disregard the law.” United States v. Nora, 988 F.3d 823, 830 (5th Cir. 2021) (citation omitted).
  • The relator cites an Eighth Circuit case holding a defendant’s conduct is willful if a defendant “knew that his conduct was wrongful,” but asserts the Eighth Circuit has not “require[d] proof that [the defendant] . . . knew it violated ‘a known legal duty.’” United States v. Jain, 93 F.3d 436, 441 (8th Cir. 1996). However, a more recent Eighth Circuit relied on Jain to uphold a jury instruction stating, “[a] defendant acts willfully if he knew his conduct was wrongful or unlawful.” United States v. Yielding, 657 F.3d 688, 708 (8th Cir. 2011).
  • The Second Circuit did recognize a circuit split, but described its view as in “align[ment] with the approach to the AKS taken by several of our sister courts [including the Third, Fifth, Sixth, Seventh, Eighth, and Eleventh Circuits], which have held or implied that to be liable under the AKS, defendants must know that their particular conduct was wrongful.” United States ex rel. Hart, 96 F.4th at 154-55.

It is important to remember that the AKS is a felony statute subject to criminal fines and up to 10 years of imprisonment. It also criminalizes conduct that, in other industries, is not illegal. Further, due to the breadth of the statute and its complexity, Congress and the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) have developed a complicated set of guidance to help attorneys and compliance professionals understand and provide counsel with respect to AKS compliance, including statutory exceptions, regulatory safe harbors, advisory opinions, and an enormous body of sub-regulatory guidance. The Second Circuit understood this and noted that its “interpretation of the AKS’s willfulness requirement thus protects those (and only those) who innocently and inadvertently engage in prohibited conduct.” Id. at 155-56.

If the Supreme Court takes an interest in this case, it likely will invite the view of the Solicitor General. Any Supreme Court interest in granting this petition will likely attract a wide range of amici participation at the certiorari stage by health care industry groups and associations, pharmaceutical company associations, other business groups, as well as associations of whistleblower counsel and other supporters of the private action qui tam provisions of the FCA. Though the range of holdings by the Courts of Appeal are often nuanced, Supreme Court consideration of the issue would be viewed as very significant, and a decision that creates a rigorous standard for “willfulness,” or alternatively, a lenient one, could considerably impact the Department of Justice (DOJ) and relators’ ability to successfully plead, and prove, an AKS violation as a predicate to an alleged FCA violation.

©1994-2024 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
For more news on Criminal Anti-Kickback Statutes, visit the NLR Criminal Law & Business Crimes section.

Google Modifies Ad Policy to Benefit Daily Fantasy Sports and Lottery Couriers

Google has set the stage for a transformative change slated for July 15, 2024, providing a roadmap to extend Google Ads to daily fantasy sports (“DFS”) operators and lottery courier services across numerous U.S. states. A significant shift in the search engine’s Google Ads gambling and games policy, this move is indicative of the company’s responsiveness to the evolving legal landscape surrounding online gaming and lottery courier services. Industry stakeholders must navigate this new advertising landscape mindfully, seizing its potential within regulatory bounds. Legal advice and assistance may be needed to address the new policies and understand the new Google environment.

Google announced that it would permit these businesses to advertise on a state-by-state basis.

  • Approved for DFS Advertising: Alaska, California, Florida, Georgia, Kentucky, Minnesota, Nebraska, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Utah, West Virginia, Wisconsin, and Wyoming.
  • Approved for Lottery Courier Advertising: Alaska, Arkansas, Colorado, District of Columbia, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, West Virginia, and Wyoming.

If advertisers are targeting their ads in a state that does not require a license to conduct DFS or lottery courier service, they must be licensed in at least one other U.S. state that mandates such a license.

The Legal Context of the Updated Google Ads Policy

Usually circumspect when it comes to gambling-related content, Google’s policy update marks a notable departure. Traditionally, its stringent restrictions limited advertising to state-run lotteries and horse racing only. The historical context here is important as this shift from Google’s previously conservative policy marks a wider change in the digital advertising of gaming activities. Now, licensed lottery courier services will be able to market themselves through Google Ads in 40 states, excluding California due to specific state restrictions. The revised guidelines correspond with the expanding endorsement and enactment of governance over online gaming and lottery operations. Nonetheless, this update enforces rigorous procedural rules and criteria for advertising compliance, encompassing adherence to both individual state regulations and the certification processes established by Google.

This paradigm shift in Google’s policy echoes their latest requirements for advertisers, who are compelled to demonstrate compliance not just through licensing but also through the integrity of their ad content and search positioning efforts, reflecting a commitment to consumer trust and regulatory adherence.

Daily Fantasy Sports Advertising: A New Playing Field

On the DFS front, Google’s policy expansion allows operators to advertise in 17 states, including jurisdictions where online sports betting remains unlegislated. DFS operators in states which currently do not permit online sports betting will remain at liberty to run Google ads. This reflects Google’s nuanced approach to advertising within the gaming industry, ensuring that ads from entities that have met state-imposed standards are available to users. DFS providers can enter new markets at the rollout, subject to regulatory compliance, including state licensing. In states without such licensing requirements, operators must nonetheless hold a valid license from another state that does enforce scrutiny of operators, underscoring Google’s effort in promoting only legitimate, reputable services.

Lottery Courier Advertising: Riding the Wave of Legalization

Entities such as Jackpocket and Lotto.com, acting as intermediaries, can now increase their visibility and customer base through Google Ads. Among other recent developments, DraftKings’ recent acquisition of Jackpocket for $750 million showcases the growing economic significance of lottery courier services. This growing market, while gaining popularity for convenience, is also varied in acceptance across states; advertisers must navigate diverse regulations and be keenly aware of states like California, where the State lottery commission has expressed restrictions and presently takes a dim view of courier operations.

Understanding Compliance: Standing At the Gate of Certification

Google’s guidelines mandate advertisers provide evidence of all aspects of their operation, from licensing to customer data protection and legal compliance. Certification thus becomes synonymous with service integrity, with Google’s policy now establishing this as a prerequisite. To synchronize with this directive, advertisers must:

  • Hold an official license in one state, considering the dynamics of interstate variances in regulation.
  • Target ads with precision, respecting the complexities of state-specific legal frameworks.
  • Engage diligently with Google’s certification process, indicative of an advertiser’s adherence to compliance and transparency.

Advertisers seeking certification need to demonstrate compliance with rigorous legal standards, including the authentication of tickets and adherence to regulations. The process calls for delivering not just proof of licensing where required, but also extensive details pertaining to their business operations. The intent behind this comprehensive evaluation is to safeguard consumers by preventing untrustworthy services from gaining approval to advertise.

It will be particularly interesting to understand how Google enforces its ”licensing” requirement for vendors, such as marketing affiliates, which promote lottery/fantasy sports services indirectly. Unlike B2C fantasy sports operators or couriers, these B2B entities traditionally not providing consumer-facing services may not be subject to the same state licensing demands, yet they must still navigate the intricacies of Google’s policy in their marketing efforts.

Implications for Advertisers: A Forward-Looking Approach

In navigating Google’s updated advertising framework, adherence to its detailed certification process is paramount to successful marketing. A failure to meet Google’s more robust standards could lead to advertising restrictions on its platform and related services—underscoring the need for meticulous strategy alignment and transparent operations.

The alterations to Google’s policy demand substantial attention to detail and legal compliance. These policy changes necessitate careful scrutiny and a proactive stance from advertisers to ensure alignment with new advertising avenues. On July 15, 2024, Google’s updated advertising policies will come into effect, after which the related policy page will be updated to reflect these changes.

Google’s revisions to its policies underscore the company’s pragmatic response to the dynamic realm of Internet-based lottery-related and gaming services. Notably, Google’s decision enables lottery courier advertising in a majority of states, acknowledging the sector’s growth. It is highly likely that other social media platforms will soon follow suit, thereby setting new standards for these business to adhere to if they want to take advantage of these powerful tools.

© 2024 Blank Rome LLP

It Takes More than an Algorithm to Prove an Agreement: An Analysis of Gibson v. Cendyn Group

On May 8, 2024, Chief Judge Miranda Du of the U.S. District Court for the District of Nevada granted defendants’ motion to dismiss with prejudice the complaint in Gibson v. Cendyn Group, LLC, Docket No. 2:23-cv-00140-MMD-DJA, an antitrust case alleging that hotel operators on the Las Vegas Strip used algorithms to inflate room prices in violation of Section One of the Sherman Act. The court’s reasoning provides litigants on both sides with a framework for future cases.

Plaintiffs claimed that Caesars Entertainment, Inc., Treasure Island, LLC, and Wynn Resorts Holdings, LLC (hereinafter, the “Hotel Operators”) charged supercompetitive prices for rooms through GuestRev (individual rooms) and GroupRev (rooms for groups), which are shared-revenue management systems licensed by the Cendyn Group. Cendyn allegedly spearheaded a hub-and-spoke conspiracy[1] through an algorithm that used price and occupancy data to recommend room rates. The algorithm’s “optimal” rate was visible to individual hotel operators, who were discouraged by system prompts from overriding the recommendation. To establish anticompetitive effects in the relevant market, the plaintiffs relied on third-party economic analyses of revenue and price trends as well as circumstantial evidence known as “plus factors”—e.g., the motive and opportunity to conspire, market structure, the interchangeability of hotel rooms, and inelastic demand.

Before the court entered judgment in favor of defendants, Judge Du closely scrutinized plaintiffs’ claims. In an October 23, 2023 order dismissing plaintiff’s original complaint with leave to amend, the court asked plaintiffs to address: (i) when the conspiracy began and who participated; (ii) whether the Hotel Operators colluded to adopt a shared set of pricing algorithms; (iii) whether the Hotel Operators must accept the price recommendations; and (iv) whether the algorithm facilitated the exchange of non-public information.[2]

In its 2024 decision, the court ruled that plaintiffs’ amended complaint failed to meet these threshold requirements. First, the court disagreed with plaintiffs’ contention that the initial timing of the conspiracy was irrelevant because the Hotel Operators renewed their licensing agreements every year. Because defendants started using Cendyn’s technology at various points in time over a 10-year period, there was “no existing agreement to fix prices that a late-arriving spoke could join” and “a tacit agreement among [the Hotel Operators] was implausible.”[3]

Nor did plaintiffs allege that the Hotel Operators “agreed to be bound by [Cendyn’s] recommendations, much less that they all agreed to charge the same prices.”[4] To the contrary, plaintiffs maintained that Cendyn had difficulty getting customers to accept the recommendations. Even drawing all inferences in plaintiffs’ favor, the court determined that the Hotel Operators were independently reacting to similar pressures within an interdependent market, consistent with lawful conscious parallelism.

Finally, the court rejected plaintiffs’ contention that the Hotel Operators used Cendyn to exchange confidential information or, in the alternative, that Cendyn used machine learning and algorithms to facilitate the exchange of confidential information. The court reasoned that without more evidence, “using data across all your customers for research does not plausibly suggest that one customer has access to the confidential information of another customer—it instead plausibly suggests that Cendyn uses data from various customers to improve its products.”[5] The Cendyn dismissal will not be the last word on the “relatively novel antitrust theory premised on algorithmic pricing.”[6] Pricing algorithms are the focus of three class action lawsuits pending in different jurisdictions.[7] As algorithms become a mainstream tool for pricing, more are certain to follow.

[1] A hub-and-spoke antitrust conspiracy consists of (i) a leading party (“the hub”); (ii) co-conspirators (“the spokes”); and (iii) connecting agreements (“the rim”).

[2] See generally Order, Gibson v. Cendyn Group, Inc., 2:23-cv-00140-MMD-DJA (D. Nev. Oct. 23, 2023).

[3] Order, Gibson v. Cendyn Group, Inc., 2:23-cv-00140-MMD-DJA at 4 (D. Nev. May 8, 2024).

[4] Id. at 6.

[5] Id. at 10.

[6] Id. at 5.

[7] See Cornish-Adebiyi v. Caesars Entertainment, Inc., 1:23-cv-02536-KMW-EAP (D. N.J. filed Mar. 28, 2024); Duffy v. Yardi Sys. Inc., 2:23-cv-01391-RSL (W.D. Wash. filed on Mar. 1, 2024); In re: RealPage, Rental Software Antitrust Litig., 3:23-md-03071 (M.D. Tenn. filed on Nov. 15, 2023).

Copyright © 2024 Robinson & Cole LLP. All rights reserved.
For more news on Algorithmic Price Inflation Lawsuits, visit the NLR Antitrust & Trade Regulation.

Ozempic Lawsuit Overview

Makers of Ozempic and other semaglutide drugs are facing hundreds of lawsuits throughout the United States. While intended for diabetes management and weight loss, research has linked the drug to increased risk of gastroparesis, stomach paralysis, pancreatitis and bowel obstruction.

Plaintiffs and their Ozempic lawsuit lawyers are seeking monetary compensation through products liability litigation. Victims are continuing to come forward. As of June 2024, cases are in preliminary stages, with new cases being added to multi-district litigation.

What Is the Ozempic Lawsuit About?

The Ozempic lawsuit is about whether the manufacturers of semaglutide drugs created and sold an unreasonably dangerous drug that hurt people. Plaintiffs say that the drugs created an unreasonable risk of gastrointestinal injury – a risk that the drug manufacturers knew about, and that they hid from the public.

What drugs are involved in the Ozempic weight loss lawsuit?

Ozempic might be the best known of the drugs involved in the weight loss lawsuits, but there are several drugs named in litigation. These drugs include:

● Ozempic
● Wegovy
● Rybelsus
● Trulicity
● Mounjaro

Ozempic, Wegovy and Rybelsus are manufactured by Danish pharmaceutical giant Novo Nordisk. Trulicity and Mounjaro are manufactured by Eli Lilly and Company.

Each individual case names the drug or drugs that the plaintiff took.

What are the issues in the Ozempic lawsuit?

There are three primary issues alleged in the Ozempic lawsuits:

1. Whether the drug companies knew or should have known that their semaglutide drugs could cause gastroparesis and other gastrointestinal issues.

2. Whether the drug companies adequately warned doctors and patients about the dangers of their products.

3. Whether the drug companies made false, misleading, or incomplete statements about safety as they marketed their products.

Overview of the Drug of Ozempic and How It Works

Danish pharmaceutical company Novo Nordisk developed the diabetes drug Ozempic. Its purpose is to treat type 2 diabetes.

How do Ozempic and related weight loss drugs work?

Ozempic is a glucagon-like peptide-1 (GLP-1) receptor agonist. The drug signals the body that it is not hungry and to stop eating. It is meant to act like the GLP-1 hormone.

When we eat, the body releases the GLP-1 hormone in the intestinal tract. The hormone signals the brain that it is full. When the hormone is present, a person may eat less or stop eating. In diabetes patients, the drugs trigger insulin production and reduce a hormone from the pancreas that increases blood sugar. The drug helps keep the person’s blood sugar level lower, managing their diabetes.

Over time, Novo Nordisk made and marketed three different semaglutide GLP-1 receptor agonist drugs:

● Ozempic – Injected with a pen, approved in 2017
● Rybelsus – Taken by pill, approved in 2019
● Wegovy – Targeted for weight loss patients, in a higher concentration than other forms of semaglutides, approved in 2021

With FDA approval, sales of these weight loss drugs soared. Medicare even began to cover the drug Wegovy in 2024, with some restrictions. There was such a demand for the products that there was a shortage in 2023.

Not a miracle drug after all

At first, manufacturers thought that they had created a miracle drug. The New England Journal of Medicine reported that people taking semaglutide drugs lost up to 15% of their body weight. Novo Nordisk aggressively marketed the drugs, including with consumer-direct marketing campaigns. Influencers on social media touted the benefits, and there were stories of celebrities who had found seemingly effortless success.

However, it soon became clear that there may be serious problems with the drugs. Doctors and researchers began learning that the drugs may cause higher rates of gastroparesis and other gastrointestinal issues. Victims say that when these drugs were marketed to them, they were unaware that they were placing themselves in serious danger.

What’s the problem with Ozempic?

Ozempic and other weight loss drugs may cause higher rates of gastroparesis. Gastroparesis is a medical condition of weakened stomach muscles and intestines. The condition can lead to other problems and complications because the person cannot move food through the body in a
timely manner.

What is gastroparesis?

Gastroparesis is delayed gastric emptying of the digestive tract, including the stomach, intestines and bowels. The person has weakened muscles in their stomach and intestines, so they’re not able to digest food at a reasonable pace. The condition can cause several problems
and complications, including:

● Stomach pain
● Vomiting, nausea, diarrhea
● Fatigue
● Vitamin, nutrition deficiencies
● Bloating
● Too many bacteria in the small intestine
● Obstructed intestine or bowel

Gastroparesis can cause discomfort. The condition can be dangerous and life-threatening. Diabetes can mask the symptoms of gastroparesis, making it harder to detect.

Ozempic Lawsuit Case Details

What type of case is the Ozempic lawsuit?

The Ozempic stomach paralysis lawsuit is a tort product liability case, which is not an Ozempic class action lawsuit. The claims have been consolidated into multidistrict litigation. People who were harmed by taking the drug are bringing civil claims, seeking compensation for their monetary damages, physical harm and suffering.

What is the Ozempic lawsuit case number?

The Ozempic gastrointestinal lawsuits are currently joined in Multi-District Litigation In Re: Glucagon-Like Peptide – 1 Receptor Agonists (GLP-1 RAS) Products Liability Litigation, MDL-3094. The cases are joined in the United States District Court for the Eastern District of Pennsylvania. Each individual case that is part of the multi-district litigation proceeds retains its
own individual case number.

Note: Ozempic is also the subject of unrelated multi-district litigation regarding patents (MDL-3038). The cases have been consolidated in a Delaware court. The issues are unrelated to the issues in the defective drug products liability cases.

Who is the judge of the Ozempic multi-district litigation?

District Judge Gene E.K. Pratter was assigned to preside over the Ozempic multidistrict litigation. However, she passed away in May 2024. A new judge will be assigned to the case.

How many cases are a part of the Ozempic lawsuit?

As of June 2024, there are 101 cases pending in the Ozempic lawsuit multi-district litigation. New cases are being added periodically as victims come forward.

Multi-District Litigation – Cases Joined Together for Preliminary Proceedings

The Ozempic lawsuit started as separate lawsuits filed throughout the United States. At first, 18 cases were filed in 11 judicial districts. There were another 37 related cases in 15 districts.

Nine of the original plaintiffs believed that it would make more sense to build their cases together. They thought their cases were similar enough that they should work together for preliminary proceedings. They wanted to work together in discovery, preliminary motions, depositions and evidentiary rulings. On December 1, 2023, they filed a motion to transfer the cases from their respective courts.

On February 5, 2024, the courts agreed and ordered the cases combined for preliminary proceedings in multi-district litigation.

Not everyone wanted the transfer. Some plaintiffs thought that only claims against Novo Nordisk should be combined. The parties opposing MDL didn’t want multiple defendants combined.

However, the court transferred all claims involving similar allegations about GLP-1 RA drugs and whether they cause gastrointestinal issues. The court said that even though the two companies sold drugs with different molecular structures, complete overlap of issues is not required.

Current Status of the Ozempic Weight Loss Litigation

The Ozempic weight loss litigation is in the early stages. As of June 9, 2024, the court has issued four case management orders. These orders direct the parties to do certain things in preliminary proceedings.

Case management order no. 1 – February 15, 2024

● A statement that cases transferred to the court, and cases subsequently transferred to the court, will be subject to the court’s orders.
● Attorneys are directed to review the court’s policies and procedures.
● The court set the date, time and place for the first in-court case conference. The court set aside two hours of court time for the conference.
● Topics to be discussed included selecting plaintiff’s lead counsel, the responsibilities of lead counsel and allocation of tasks. The court said that pleadings, timing, future status conferences and other issues could be discussed.

Case management order no. 2 – February 16, 2024

● Waiving pro hac vice fees in the case.
● Requiring parties to submit the court’s pro hac vice form, if applicable.

Case management order no. 3 – April 23, 2024

● Appointing Liaison Counsel for Plaintiffs, and a mentor.
● Identifying and appointing counsel to the Plaintiff’s Committee.
● Authorizing Committee members to select additional counsel for the Committee, up to 25 total members.
● Allowing the Committee to create subcommittees.
● Ordering the Committee to propose conference dates.

Case management order no. 4 – April 24, 2024

● Requiring the parties to preserve potentially relevant evidence.
● Parties must keep documents, data and tangible things in their presence that are relevant to the claims and defenses in the case.
● Each party must take reasonable steps to avoid loss of the evidence. Auto-delete features must be disabled.
● Certain sources don’t need to be preserved, searched or produced from.
● Keeping evidence or information is not an agreement or concession that the material is relevant to litigation.

There have been other filings in the case. These filings are procedural, like asking the court for additional time to respond to the motion to transfer the cases to multi-district litigation and required proof of service documents.

The court held a status conference on March 14, 2024. Preliminary proceedings will continue, after which the court may schedule bellwether trials. These early trials inform the parties as to how cases may be decided if they go to trial.

Basis of a Claim

The decisions that people make about their medical care may impact the rest of their lives. The choices that people make about their healthcare should be informed.

A critical basis for the Ozempic lawsuit is the claim that the drug manufacturer failed to warn consumers about the risks of the drugs. Some claims allege that the warning label was too generic, listing minor symptoms but saying too little about gastrointestinal issues, and not
emphasizing the dangers enough.

Many patients saw the direct-to-consumer marketing campaigns, including $180.2 million spent to market the drug in 2022. Marketing efforts for Rybelsus were similarly robust in 2022, at $167.2 million spent. Much of the marketing budget was spent on national television ads.

The marketing worked, and sales climbed high that year. Novo Nordisk credited the marketing effort for its 36% revenue growth in North America in 2022.

Consumers say that with marketing efforts this strong, they had the right to complete information before taking Ozempic or another semaglutide drug.

U.S. products liability law and the Ozempic case

In the United States, drug manufacturers have a legal liability to make products that are reasonably safe. Product liability is the type of case that a victim may bring if they are harmed by a dangerous drug. One of the ways that a drug can be dangerous is if the public doesn’t have the information that they need about the risks and potential harm.

A claim may also be based on misleading statements in advertising. The lawsuits say that the drug manufacturer proclaimed the benefits of the drugs without emphasizing the potential risks. Plaintiffs say that the advertising campaigns were deficient enough that the drug companies
should be liable for damages.

Damages for Ozempic Lawsuit

The purpose of the Ozempic lawsuit is to compensate victims. A person who develops gastroparesis likely has significant losses due to medical expenses. They may have physical suffering.

Damages claimed may include economic and non-economic losses. Valuing damages is an important part of any case.

Proving an Ozempic Legal Claim

While you can file an Ozempic lawsuit, to succeed in an Ozempic lawsuit, a person must prove:

● They took Ozempic or a related drug.
● The drug was defective under legal standards.
● Because of taking the drug, the victim developed medical problems. There is causation between using the drug and the harm that occurred.
● Damages resulted to the victim including medical bills, other financial losses, physical pain, suffering and other damages.

Novo Nordisk is aggressively fighting claims. They have responded to the allegations and will be fighting the claims in the months to come. The parties will continue to discuss medical evidence and pursue their respective positions.

Justice for Ozempic Victims

Ozempic lawsuits are still in the early stages. New plaintiffs are continuing to join, and the cases are moving through preliminary proceedings. The court will schedule future dates as the parties develop their cases, pursue settlement and prepare for trial.

Oberheiden P.C. © 2024
For more news on Ozempic Lawsuits, visit the NLR Products Liability section.

“Arbitrary and Capricious” – A Sign of Things to Come?

On July 3, 2024, the US District Court of Northern Texas issued a Memorandum Opinion and Order in the combined cases of Americans for Beneficiary Choice, et al. v. United States Department of Health and Human Services (Civ. Action No. 4:24-cv-00439) and Council for Medicare Council, et al., v. United States Department of Health and Human Services (Civ. Action No. 4:24-cv-00446).

The Plaintiffs (in this combined case) challenged the Centers for Medicare and Medicaid Services (“CMS”) rule issued earlier this year. The new rules attempt to place reimbursements to third-party firms into the definition of compensation where the prior rules did not include reimbursements into the definition of compensation which would have been subject to the regulatory cap on compensation.

This Memorandum Opinion Order granted the Plaintiffs’ Motion for a Stay in part and denied it in part. The Motion was granted in relation to the new CMS rules around compensation paid by Medicare Advantage and Part D plans to independent agents and brokers who help beneficiaries select and enroll in private plans.

The Court found that the compensation changes were arbitrary and capricious and that the Plaintiffs were substantially likely to succeed on the merits of the case. The Court found that CMS failed to substantiate key parts of the final rule. During the rulemaking process, industry commenters asked for clarification around parts of the rule, but CMS claimed “the sources Plaintiffs criticized were not significant enough to warrant defending them.” The Court found “because CMS failed to address important problems to their central evidence…that members of the public raised during the comment period, those aspects of the Final Rule are most likely arbitrary and capricious.”

One of the Plaintiffs, Americans for Beneficiary Choice, also challenged the consent requirement of the final rule. The final rule states that personal beneficiary data collected by a third party marketing organization (“TPMO”) can only be shared with another TPMO if the beneficiary gives prior express written consent. The Plaintiff argued that the consent requirement is “in tension with HIPAA’s broader purpose of facilitating data sharing” and CMS stated that HIPAA might facilitate data sharing, but that does not limit CMS’s ability to limit certain harmful data-sharing practices. The Court denied the Motion to Stay regarding the consent requirement, but interestingly stated that Plaintiff’s “claim regarding the Consent Requirement may ultimately have merit, [Plaintiff]’s current briefing does not demonstrate a substantial likelihood of success at this stage”.

What does this mean now that we are less than 90 days from the start of the 2025 Medicare Advantage/Part D contract year?

  1. The consent requirement is still moving forward – While the memorandum order hints at the possibility of it being rejected, as of right now, TPMO’s must get prior express written consent before sharing personal beneficiary data with another TPMO.
  2. The fixed-fee and contract-terms restrictions in the final rule have had their effective date’s stayed until this suit is resolved. Therefore, the compensation scheme that was in place last year is essentially the same for those two sections.

How does this affect the FCC’s 1:1 Ruling?

It doesn’t. While this case does show that courts are willing to look critically at agencies’s rulemaking process, the FCC’s 1:1 consent requirement is different than the compensation changes set forth by CMS.

The FCC arguably just clarified the existing rule around prior express written consent by requiring the consent to “authorize no more than one identified seller”.

CMS, on the other hand, attempted to make wholesale changes and “began to set fixed rates for a wide range of administrative payments that were previously uncapped and unregulated as compensation.”

There is still the IMC case against the FCC , so there is the possibility (albeit small) there could be relief coming in that case. However, the advice here is to continue planning for obtaining consent to share personal beneficiary data AND single seller consent.

© 2024 Troutman Amin, LLP
For more news on Challenges to CMS in the US District Court of Northern Texas, visit the NLR Health Law Managed Care section.