Tag: legal

China’s Supreme People’s Court Releases Two Recent Patent-Related Typical Anti-Monopoly Cases

On June 24, 2024, China’s Supreme People’s Court (SPC) released five recent typical anti-monopoly cases, two of which relate to patents. The SPC stated that the cases were released so that Courts can “correctly apply the revised Anti-Monopoly Law and accurately understand the new judicial interpretation of anti-monopoly civil litigation issued today, fairly and efficiently hear monopoly cases, ensure the correct implementation of the Anti-Monopoly Law, and maintain fair competition in the market.”

Explanations from the SPC regarding the two cases follows:

Case No.:【案号】（2020）最高法知民终1140号

[Basic facts of the case] Yang XX Pharmaceutical Group Co., Ltd. and its subsidiaries (collectively referred to as Yang) are the manufacturers of the anti-allergic drug desloratadine citrate tablets with the trade name “Beixue.” Hefei Yi XX Pharmaceutical Co., Ltd. owns the relevant patents for desloratadine citrate. The company and its subsidiaries and affiliated companies (collectively referred to as Yi) are the only suppliers of the desloratadine citrate API required for the production of “Beixue”. In addition to producing desloratadine citrate API, Yi also produces desloratadine citrate hard capsules. Yi and Yang are both the supply and demand parties of the desloratadine citrate API involved in the case, and are also competitors in desloratadine citrate preparations. Yang believed that Yi used its dominant position in the market of desloratadine citrate API to restrict Yang to only purchase the API involved in the case from it, significantly raised the price of the API involved in the case, and threatened to stop supplying the API involved in the case to force Yang to accept other commercial arrangements unrelated to the API transaction involved, causing huge losses to Yang and therefore constituting an abuse of market dominance. Yang requested that Yi stop abusing its market dominance and compensate Yang for losses and reasonable expenses of 100 million RMB. The court of first instance found that Yi had abused its market dominance by restricting transactions, setting unfair high prices, and attaching unreasonable transaction conditions, and ordered it to immediately stop the above-mentioned behaviors and compensate Yang more than 68 million RMB. Both parties were dissatisfied and appealed to the Supreme People’s Court.

The Supreme People’s Court held in the second instance that Yi has a dominant market position in the desloratadine citrate API market in China, but its dominant market position has been weakened to a certain extent due to the strong indirect competition constraints from the downstream second-generation antihistamine preparation market. Based on the existing evidence, it is difficult to determine that it has abused its dominant market position. First, desloratadine citrate falls within the scope of protection of Yi’s patent rights. The time and scope of Yi’s restriction that Yang can only purchase the patented API involved in the case from it do not exceed the scope of the legitimate exercise of patent rights, and the resulting market blocking effect does not exceed the statutory exclusive scope of patent rights, so it does not constitute a restricted transaction behavior that abuses the dominant market position. Second, considering the internal rate of return after the price increase and the matching degree of price and economic value, it is more likely that the initial price of the patented API involved in the case is a promotional price, and the subsequent large price increase is likely to be a reasonable adjustment from the promotional price to the normal price. The fact that the price increase is significantly higher than the cost increase is not enough to determine that there is an unfair high-price behavior that abuses the dominant market position. Third, the existing evidence is insufficient to prove that Yi has explicitly or implicitly bundled the sales of the patented API involved in the case with unrelated products, so it is difficult to determine that there is an act of attaching unreasonable transaction conditions. Therefore, the judgment was revoked and the first-instance judgment was changed to dismiss Yang’s lawsuit request.

[Typical Significance] This case is the first monopoly civil lawsuit in China involving raw material pharmaceuticals. The judgment clarified the consideration of indirect competition constraints from the downstream market when judging the market dominance of intermediate input operators, the relationship between the market blocking effect of limited trading behavior and the statutory exclusive scope of patent rights, and the basic ideas and specific methods for judging unfair high prices. It has positive significance for promoting the accurate application of the Anti-Monopoly Law and effectively maintaining fair competition in the pharmaceutical market.

【案号】（2021）最高法知民终1482号

[Basic facts of the case] Ningbo XX Magnetics Co., Ltd. is an enterprise engaged in the production of sintered NdFeB materials in Ningbo, Zhejiang Province. A Japanese metal company has more than 600 sintered NdFeB patents in the field of rare earth materials worldwide. After licensing eight companies in China to implement its patented technology, it decided not to add new licensees. From March 2014 to March 2015, Ningbo XX Magnetics Co., Ltd. repeatedly requested a license from the Japanese metal company but was rejected. Therefore, it filed a lawsuit in December 2014, requesting that the Japanese metal company stop the abuse of market dominance such as refusal to trade and compensate Ningbo XX Magnetics Co., Ltd. for economic losses of 7 million RMB. The court of first instance determined that the Japanese metal company had a dominant position in the patent licensing market for essential patents for sintered NdFeB and that its refusal to trade had no legitimate reason. Therefore, it ordered the Japanese metal company to stop abusing its market dominance by refusing to trade and compensate Ningbo XX Magnetics Co., Ltd. for economic losses of 4.9 million RMB. The Japanese metal company was dissatisfied with the decision and filed an appeal.

The Supreme People’s Court held in the second instance that the evidence in this case was insufficient to prove that the sintered NdFeB patent of a Japanese metal company was irreplaceable, nor was it sufficient to prove that there was an independent licensing market for patents necessary for the production of sintered NdFeB. Therefore, it was difficult to determine that the relevant market in this case was the patent licensing market for patents necessary for the production of sintered NdFeB owned by the Japanese metal company. In this case, based on the demand substitution of sintered NdFeB material production technology, the relevant market in this case should be defined as the global sintered NdFeB material production technology market, including patented technologies and non-patented technologies with close substitution. Given that sintered NdFeB material production technology is used to produce sintered NdFeB materials, and the market share of sintered NdFeB materials (products) and other conditions can more accurately and conveniently reflect the market conditions of sintered NdFeB production technology, the market power of the technology owner in the relevant market involved in the case can be evaluated through the market share of the sintered NdFeB material market. Taking into account the evidence in the case, the Japanese metal company does not have a dominant position in the global sintered NdFeB material production technology market. Therefore, the court ruled to revoke the first-instance judgment and dismiss the lawsuit filed by the Ningbo magnetic company.

[Typical Significance] This case is a typical case in which intellectual property rights and antitrust are intertwined, and has received widespread attention. The second-instance judgment properly handled the relationship between the exercise of patent rights and antitrust, and through scientific and reasonable definition of the relevant market, revised the judgment in accordance with the law to determine that the foreign right holder’s refusal to license the patent involved did not constitute monopoly behavior. The judgment in this case demonstrates the judicial concept of Chinese courts to equally protect the legitimate rights and interests of Chinese and foreign parties and the trial ideas of antitrust cases involving intellectual property abuse in accordance with the law, and actively responded to the concerns of the industry at home and abroad.

The original text including three additional cases is available here (Chinese only).

© 2024 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.
For more news on Chinese Patent Litigation, the NLR Intellectual Property section.

SCOTUS Freezes States’ Efforts to Resolve Water Conflict

What Happened?

On June 21, 2024, the Supreme Court narrowly held that three states could not enter a consent decree to settle their interstate water dispute without the support of the intervening federal government. The ruling halts the agreement between Texas, New Mexico, and Colorado to settle Texas’s claims and reconfigure water allocation under the Rio Grande Compact going forward. The decision frustrates multi-year efforts by the states to fairly apportion shrinking water supplies and continues uncertainty for water users dependent on flows from the Rio Grande. More generally, the decision highlights the federal government’s power in cases arising under interstate compacts where federal interests are “inextricably intertwined” with the outcome.

Background

In 2013, Texas sued New Mexico and Colorado, claiming that New Mexico’s increased groundwater pumping was diminishing flows from the Rio Grande, unfairly shorting water allocated to the Lonestar state. This claim arose under the Rio Grande Compact, a 1938 allocation agreement between the three states that depend on the Rio Grande’s waters. The Supreme Court allowed the federal government, although not a party to the Compact, to intervene in the dispute in 2014, based on the federal interests in delivering water to Mexico under a 1906 treaty, in operating a Bureau of Reclamation reservoir and irrigation project closely connected to Compact compliance, and in fulfilling potential federal obligations to Indian tribes. The Supreme Court held that the federal government’s interests were “inextricably intertwined” with the case.

Since that decision, the states sought a compromise, recognizing that the 1938 Compact failed to predict severe droughts and dwindling water supplies, new circumstances that require adaptation. Despite this negotiated solution, the federal government refused to sign the agreement. The federal government claimed that the settlement undermines the Compact’s plain language, which cannot be modified without congressional approval, and that the negotiated agreement would impose new obligations on the federal reservoir and irrigation project. Based on its intervenor status, the federal government asked the Supreme Court to reject the deal in the absence of its consent.

Writing for the 5-4 majority, Justice Jackson explained that the Court’s 2018 decision to allow federal claims in the case to proceed “leads inexorably” to the federal government’s approval being necessary before a valid resolution. Justice Gorsuch, writing for the dissent, cautioned that this deference to the intervenor risks federalizing interstate water disputes and limiting the necessary discretion for states to independently manage their waters. Despite previously authoring a unanimous 2018 decision that green-lighted the federal claims, his dissent pointed back to “a century’s worth” of precedent, holding that the Reclamation Act requires the federal government to comply with state control of water resources and not to assert incompatible federal interests. The majority reasoned, by contrast, that the federal government’s interest was particular to the Compact, where compliance depends on federal action.

Analysis

The Court’s acknowledgment of the federal interest in the three states aligning Rio Grande Compact compliance with contemporary water realities is expressly tailored to the unique federal role in this situation. The problem the Court focused on was the proposed resolution’s failure to include the federal government, given its intervenor status and its integral role in managing a reservoir and irrigation project essential to the Compact. This does not authorize federal interference in all interstate water compacts, as the dissent fears, but others may be “inextricably intertwined” with federal interests. Still, the pointed dissent may signal that a significant court minority stands ready to guard state control of water resources when the federal government overreaches. The decision’s immediate impact will perpetuate uncertainty for water users in all three states as the parties are forced back to trial or the negotiating table.

The Commodity Futures Trading Commission Cracks Down on Employer Non-Disclosure Provisions

The Commodity Futures Trading Commission (“CFTC”) has now joined the Securities and Exchange Commission (“SEC”) in taking a stand against broad non-disclosure provisions in employment agreements.

Last week, the CFTC announced a settlement with Trafigura Trading LLC, in which the company agreed to pay a $55 million penalty, in part because it required employees to sign agreements that impeded voluntary communications with the CFTC.

In its decision, the CFTC specifically found:

Between July 31, 2017 and 2020, Trafigura required its employees to sign employment agreements, and requested that former employees sign separation agreements, with broad non-disclosure provisions that prohibited the sharing of Trafigura’s confidential information with third parties. These nondisclosure provisions did not contain carve-out language expressly permitting communications with law enforcement or regulators like the Commission.

The CFTC concluded that such non-disclosure provisions violate Regulation 165.19(b), 17 C.F.R. § 165.19(b) (2023), implementing Section 23(h)-(j) of the Act, 7 U.S.C. § 26(h)–(j), even without any additional actions impeding communications.

As a result of this finding, among others involving misappropriation of material nonpublic information and manipulative conduct, the CFTC not only levied a significant fine on Trafigura, but imposed a host of conditions and undertakings with which Trafigura was required to comply. Relevant here, the CFTC required that Trafigura modify its non-disclosure provisions to include language making clear that “no term in any such Agreement should be understood to limit or prevent the filing of a complaint with; or voluntary, lawful communication with; or disclosure of information to any federal, state, or local governmental regulatory or law enforcement agency.”

Director of the Whistleblower Office Brian Young commented, “This is the first CFTC action charging a company under regulations designed to prevent interference with whistleblower communications. This groundbreaking action demonstrates the CFTC’s commitment to protecting potential whistleblowers and puts the market on notice that the CFTC will not tolerate contractual arrangements that could impede communication by potential witnesses.”

We have long reported on the SEC’s targeting of employment agreements. With the CFTC following suit, employers should expect additional agencies to scrutinize language in employment agreements, separation agreements and other employment-related documents, such as employee handbooks and Codes of Conduct. To minimize such scrutiny and exposure employers should take action to modify non-disclosure and other provisions such as non-disparagement and confidentiality clauses that might have the purpose or effect of impeding agency communications. Such modifications must include carve-out language clarifying that nothing precludes current and former employees from communicating in any way with a government agency, such as the CFTC or the SEC. It is more important than ever for employers to work with counsel to conduct a comprehensive review of their policies, practices, and agreements for language that such agencies may find problematic.

©2024 Epstein Becker & Green, P.C. All rights reserved.
For more news on Employer Non-Disclosure Provisions, visit the NLR Labor & Employment section.

The SEC Continues Its War On Crime Victims

More than a decade ago, I expressed concern when the Securities and Exchange Commission charged Koss Corporation and one its CEO, Mr. Koss, with filing materially false financial statements after the corporation had discovered that it had been the victim of employee embezzlement. In the post, I decried the SEC’s decision to punish the victims of crime:

The SEC’s decision to prosecute this case is troubling. Surely, neither Koss Corporation nor Mr. Koss intended or wanted to be the victim of a criminal embezzlement. It is also hard to see how the shareholders’ benefited from the company incurring the legal costs associated with defending and settling the SEC investigation. While the SEC did force the return of bonus compensation, the injunctive relief ordering the company and Mr. Koss not to do this again strikes me as silly. Does it really make sense for the court to order a company not to be the victim of a theft?

I was therefore heartened by the recent statement by Commissioners Hester Peirce and Mark Uyeda on the SEC’s recent settlement of administrative proceeding against R.R. Donnelly & Sons, Co.:

Also concerning is the Commission’s decision to stretch the law to punish a company that was the victim of a cyberattack. While an enforcement action may be warranted in some circumstances, distorting a statutory provision to form the basis for such an action inappropriately amplifies a company’s harm from a cyberattack.

According to the SEC’s press release, R.R. Donnelly & Sons, Co. “cooperated throughout the investigation, including by reporting the cybersecurity incident to staff prior to filing a disclosure of the incident, by providing meaningful cooperation that helped expedite the staff’s investigation, and by voluntarily adopting new cybersecurity technology and controls”. Nonetheless, the SEC thought a just resolution required payment of a $2.125 million civil penalty for transfer to the U.S. Treasury. I remain unconvinced that the expropriation of millions of dollars from a crime victim to the U.S. Treasury protects, much less helps, the shareholders of R.R. Donnelly & Sons, Co.

© 2010-2024 Allen Matkins Leck Gamble Mallory & Natsis LLP
For more news on SEC Punishing Crime Victims, visit the NLR Securities SEC section.

Supreme Court Rules Against Taxpayers in IRC Section 965 Case

On June 20, 2024, the Supreme Court of the United States issued a 7-2 opinion in Moore v. United States, 602 U.S. __ (2024), ruling in favor of the Internal Revenue Service (IRS).

Moore concerned whether US Congress and the IRS could tax US shareholders of controlled foreign corporations (CFCs) on those corporations’ earnings even though the earnings were not distributed to the shareholders. The case specifically focused on the so-called “mandatory repatriation tax” under Internal Revenue Code (IRC) Section 965, a one-time tax on certain undistributed income of a CFC that is payable not by the CFC but by its US shareholders. Some viewed the case as hinging upon whether Congress has the power to tax economic gains that have not been “realized.” (i.e., In the case of a house whose value has appreciated from $500,000 to $600,000, the increased value is “realized” only when the house is sold and the additional $100,000 reaches the taxpayer’s coffers.)

However, Justice Brett Kavanaugh, joined by Chief Justice John Roberts and Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson, rejected that position on the ground that the mandatory repatriation tax “does tax realized income,” albeit income realized by a CFC. On this basis, they reasoned that the question at issue was whether Congress has the power to attribute realized income of a CFC to (and tax) US shareholders on their respective shares of the undistributed income. This group of justices ultimately decided Congress does have the power.

The majority went out of its way to avoid expressing any opinion as to whether Congress can tax unrealized appreciation, with Justice Amy Coney Barrett’s concurrence and Justice Clarence Thomas’s dissent asserting that it cannot. Perhaps the Court was signaling a distaste for the Billionaire Minimum Income Tax proposed by US President Joe Biden, which would impose a minimum 20% tax on the total income of the wealthiest American households, including both realized and unrealized amounts, among other Democratic proposals.

Practice Point: We previously noted that certain taxpayers should consider filing protective refund claims contingent on the possibility that Moore would be decided in favor of the taxpayers. In light of the case’s outcome, however, those protective claims are now moot.

© 2024 McDermott Will & Emery
For more news on US Shareholders of Foreign Corporations Taxes, visit the NLR Tax section.

Junk Science or Relevant Evidence: Supreme Court Says Experts May Now Aid in Determining Criminal Intent

In criminal cases, oftentimes the most significant element in dispute is whether the defendant harbored the intent to “knowingly” or “willfully” violate the criminal law at issue. If the defendant denies that he knew what he was doing was illegal, the government must prove beyond a reasonable doubt that the defendant had the required mens rea — or mental state — to violate the law. The government does this by presenting circumstantial evidence that it argues supports a reasonable inference that the defendant had the required mental state to violate the law. And defense lawyers test that evidence largely on cross examination and by presenting counterevidence.

The more complicated the law — think tax, securities, or federal election conduit contribution laws — the riskier it is that a person can be held criminally liable for what seemed like innocent or at least not illegal conduct. In these cases, experts may be called to testify about how a certain industry or regulatory regime is structured or how it operates, and the parties can argue to the jury whether the facts of the case circumstantially prove the reasonable inference that the defendant knowingly or willfully violated a criminal law related to that industry or regulatory regime. But Federal Rule of Evidence 704(b) prohibits an expert from stating an opinion about whether a criminal defendant “did or did not have the mental state or condition that constitutes an element of the crime charged or of a defense. Those matters are for the trier of fact alone.” FRE 704(b) was adopted in response to President Ronald Reagan’s shooter, John Hinkley, being found not guilty by reason of insanity after competing experts offered opinions on the ultimate issue of Hinkley’s sanity. So FRE 704(b) now requires that a jury alone must decide whether the defendant intended to commit a crime. And the answer to this question is often the difference between freedom or years in prison.

In Diaz v. United States, ___ S. Ct. ___, 2024 WL 3056012 (June 20, 2024), the U.S. Supreme Court ruled that FRE 704(b) does not preclude expert testimony about the likelihood that the defendant intended to commit a crime based on the defendant’s membership in a particular group. Diaz was charged with “knowingly” transporting drugs across the U.S.-Mexican border. She argued the “blind mule” defense: she did not know there were drugs in the car, therefore she did not knowingly transport them. The government called as an expert a Homeland Security Investigations Special Agent to testify that “in most circumstances, the driver knows they are hired to take drugs from point A to point B.” The Agent said that drug-trafficking organizations would expose themselves to too much risk by using unknowing couriers. The Agent admitted on cross examination that he was not involved in Diaz’s case, and that drug-trafficking organizations sometimes use unknowing couriers. The jury found Diaz guilty and she was sentenced to 84 months in prison.

Diaz argued that the Agent’s expert testimony violated FRE 704(b)’s proscription of expert’s providing opinions about whether a defendant did or did not have the required state of mind to violate the law. The Court affirmed the Ninth Circuit’s opinion that the Agent’s expert testimony did not violate FRE 704(b) because the expert “did not express an opinion about whether Diaz herself knowingly transported [drugs].” Instead, he testified that “most” drug couriers know they are hired to drive drugs from point A to point B. “That opinion does not necessarily describe Diaz’s mental state. After all, Diaz may or may not be like most drug couriers.” The Court acknowledged that it would have violated Rule 704(b) if the Agent had testified that “all” drug couriers know they are transporting drugs, since Diaz would be included in that drug courier group thus making it an opinion about Diaz’s mental state.

The Court said that FRE 704(b) only proscribes expert opinions “in a criminal case that are about a particular person (‘the defendant’) and a particular ultimate issue (whether the defendant has ‘a mental state or condition’ that is ‘an element of the crime charged or of a defense.’).” Because the Agent “did not give an opinion ‘about whether’ Diaz herself ‘did or did not have a mental state or condition that constitutes an element of the crime charged or of a defense,’ his testimony did not violate Rule 704(b).”

In her concurrence, Justice Ketanji Brown Jackson inferred that “what’s good for the goose is good for the gander” when she wrote that criminal defendants were now free to offer expert testimony “‘on the likelihood’ that the defendant had a particular mental state, ‘based on the defendant’s membership in a particular group.’” For example, “Diaz could have offered expert testimony on the prevalence and characteristics of unknowing drug couriers.” Justice Jackson said that the Diaz opinion will now allow psychiatrists to testify as experts “to tell the jury that when people with schizophrenia as severe as a defendant’s commit acts of violence, it is generally because they do not appreciate the wrongfulness of their conduct.” This would not create a “spectacle of dueling experts on the defendant’s mental state,” Justice Jackson wrote, but instead “could help jurors better understand a defendant’s condition and thereby call into question a mens rea that might otherwise be too easily assumed…given the biases, stereotypes, and uneven knowledge that many people have about mental health conditions.”

Justice Neil Gorsuch wrote a terse dissent that was joined by Justices Sonia Sotomayor and Elena Kagan. The dissent said the Agent’s probabilistic assessment that “most” couriers know they are transporting drugs violated FRE 704(b) because it was a statement “about whether the defendant” had a “mental state . . . that constitutes an element of the crime charged.” The word “about” is defined as “concerning, regarding, with regard to, with reference to; in the matter of.” And according to the dissent, expert testimony about what most drug couriers know was testimony about the likelihood of what Diaz knew. Justice Gorsuch warned of “warring experts” on the issue of a defendant’s intent, which he says will make the criminal justice system less reliable as lawyers may try and find probabilistic expert opinions on intent rather than doing the hard work of gathering circumstantial evidence and arguing about what that evidence reasonably infers about a defendant’s intent.

© 2024 Miller, Canfield, Paddock and Stone PLC

Supreme Court Upholds Refusal to Register Trademark Containing the Name of Living Individual – Donald Trump

In a recent unanimous decision in the case Vidal v. Elster (602 U.S. ___ (2024)), the U.S. Supreme Court upheld the refusal to register a federal trademark for the phrase “Trump Too Small” based on the fact that the Lanham Act prohibits the registration of the name of a living individual without their consent. The plaintiff in this case, Mr. Elster, filed a federal trademark application in 2018 for the mark “TRUMP TOO SMALL” for use on clothing as shown below, without the prior consent of former President Trump, arguing that the phrase was intended to be a criticism of Donald Trump and his policies and that the refusal was a violation of Mr. Elster’s First Amendment right of free speech. Mr. Elster claimed he wanted to register the mark to convey a political message about the former president.

The Supreme Court reviewed the matter based on the initial refusal to register issued by the United States Patent & Trademark Office, which was then appealed to the U.S. Court of Appeals for the Federal Circuit, who overturned the refusal holding that barring registration of “Trump Too Small” under a provision of federal trademark law unconstitutionally restricted free speech. The Court’s ruling upholds the “living-individual rule” established under the Lanham Act which requires the consent of the living individual prior to registration. Specifically, “No trademark … shall be refused registration … on account of its nature unless it…[c]onsists of or comprises a name, portrait, or signature identifying a particular living individual except by his written consent….” 15 U.S.C. §1052(c). Proponents of the law, including the International Trademark Association, argue that this provision of trademark law is consistent with the concepts of the right of publicity and privacy, and assists in preventing the unauthorized use of individuals’ names in commercial contexts. In explaining the rationale for the decision, Justice Thomas wrote: “This Court has long recognized that a trademark protects the markholder’s reputation, and the connection is even stronger when the mark contains a person’s name,” and further stated, “This history and tradition is sufficient to conclude that the names clause — a content-based, but viewpoint-neutral, trademark restriction — is compatible with the First Amendment.”

It is worth noting the Court’s decision does not affect the ability of Mr. Elster to offer goods or services under any particular name or brand – in fact, Mr. Elster’s T-shirts bearing the phrase “Trump Too Small” are still available online for $24.99, even though his trademark application was refused. But the ruling does uphold the prohibition of seeking and obtaining federal trademark protection where the mark contains the name of a living individual without their consent. This ruling from the Supreme Court joins a string of other First Amendment challenges to provisions of the Lanham Act, the main statute governing trademarks. The high court in 2017 struck down a section of the law that barred registration of disparaging marks and did the same for a provision prohibiting immoral or scandalous marks in 2019.

The key takeaway from this narrowly tailored decision is that, prior to seeking federal trademark protection for a mark containing the name of a living individual, consent from that individual must be obtained. In the context of protecting a name or brand focused on a living individual, or in the continuation of such use post-merger or other transaction, it is important to ensure that the consent of the living individual is secured in some manner.

© Polsinelli PC, Polsinelli LLP in California

Confused About the FCC’s New One-to-One Consent Rules– You’re Not Alone. Here Are Some FAQs Answered For YOU!

Heard a lot about what folks are concerned about in the industry. Still seems to be a lot of confusion about it. So let me help with some answers to critical questions.

None of this is legal advice. Absolutely critical you hire a lawyer–AND A GOOD ONE–to assist you here. But this should help orient.

What is the new FCC One-to-One Ruling?

The FCC’s one-to-one ruling is a new federal regulation that alters the TCPA’s express written consent definition in a manner that requires consumers to select each “seller”–that is the ultimate good or service provider–the consumer chooses to receive calls from individually.

The ruling also limits the scope of consent to matters “logically and topically” related to the transaction that lead to consent.

Under the TCPA express written consent is required for any call that is made using regulated technology, which includes autodialers (ATDS), prerecorded or artificial voice calls, AI voice calls, and any form of outbound IVR or voicemail technology (including ringless) using prerecorded or artifical voice messages.

Why Does the FCC’s New One-to-One Ruling Matter?

Currently online webforms and comparison shopping websites are used to generate “leads” for direct to consumer marketers, insurance agents, real estate agents, and product sellers in numerous verticals.

Millions of leads a month are sold by tens of thousands of lead generation websites, leading to hundreds of millions of regulated marketing calls by businesses that rely on these websites to provide “leads”–consumers interested in hearing about their goods or services.

Prior to the new one-to-one ruling website operators were free to include partner pages that linked thousands of companies the consumer might be providing consent to receive calls from. And fine-print disclosures might allow a consumer to receive calls from business selling products unrelated to the consumer’s request. (For instance a website offering information about a home for sale might include fine print allowing the consumer’s data to be sold to a mortgage lender or insurance broker to receive calls.)

The new one-to-one rule stop these practices and requires website operators to specifically identify each good or service provider that might be contacting the consumer and requires the consumer to select each such provider on a one by one basis in order for consent to be valid.

Will the FCC’s One-to-One Ruling Impact Me?

If you are buying or selling leads, YES this ruling will effect you.

If you are a BPO or call center that relies on leads– YES this ruling will effect you.

If you are a CPaaS or communication platform–YES this ruling will effect you.

If you are a telecom carrier–YES this ruling will effect you.

If you are lead gen platform or service provider–YES this ruling will effect you.

If you generate first-party leads–Yes this ruling will effect you.

When Does the Rule Go Into Effect?

The ruling applies to all calls made in reliance on leads beginning January 27, 2025.

However, the ruling applies regardless of the date the lead was generated. So compliance efforts need to begin early so as to assure a pipeline of available leads to contact on that date.

In other words, all leads NOT in compliance with the FCC’s one-to-one rule CANNOT be called beginning January 27, 2025.

What Do I have to Do to Comply?

Three things:

i) Comply with the rather complex, but navigable new one-to-one rule paradigm. (The Troutman Amin Fifteen is a handy checklist to assist you);

ii) Assure the lead is being captured in a manner that is “logically and topically” related to the calls that will be placed; and

iii) Assure the caller has possession of the consent record before the call is made.

© 2024 Troutman Amin, LLP
For more news on FCC Consent Regulations, visit the NLR Communications, Media, & Internet section.

Understanding the Enhanced Regulation S-P Requirements

On May 16, 2024, the Securities and Exchange Commission adopted amendments to Regulation S-P, the regulation that governs the treatment of nonpublic personal information about consumers by certain financial institutions. The amendments apply to broker-dealers, investment companies, and registered investment advisers (collectively, “covered institutions”) and are designed to modernize and enhance the protection of consumer financial information. Regulation S-P continues to require covered institutions to implement written polices and procedures to safeguard customer records and information (the “safeguards rule”), properly dispose of consumer information to protect against unauthorized use (the “disposal rule”), and implementation of a privacy policy notice containing an opt out option. Registered investment advisers with over $1.5 billion in assets under management will have until November 16, 2025 (18 months) to comply, those entities with less will have until May 16, 2026 (24 months) to comply.

Incident Response Program

Covered institutions will have to implement an Incident Response Program (the “Program”) to their written policies and procedures if they have not already done so. The Program must be designed to detect, respond to, and recover customer information from unauthorized third parties. The nature and scope of the incident must be documented with further steps taken to prevent additional unauthorized use. Covered institutions will also be responsible for adopting procedures regarding the oversight of third-party service providers that are receiving, maintaining, processing, or accessing their client’s data. The safeguard rule and disposal rule require that nonpublic personal information received from a third-party about their customers should be treated the same as if it were your own client.

Customer Notification Requirement

The amendments require covered institutions to notify affected individuals whose sensitive customer information was, or is reasonably likely to have been, accessed or used without authorization. The amendments require a covered institution to provide the notice as soon as practicable, but not later than 30 days, after becoming aware that unauthorized access to or use of customer information has occurred or is reasonably likely to have occurred. The notices must include details about the incident, the breached data, and how affected individuals can respond to the breach to protect themselves. A covered institution is not required to provide the notification if it determines that the sensitive customer information has not been, and is not reasonably likely to be, used in a manner that would result in substantial harm or inconvenience. To the extent a covered institution will have a notification obligation under both the final amendments and a similar state law, a covered institution may be able to provide one notice to satisfy notification obligations under both the final amendments and the state law, provided that the notice includes all information required under both the final amendments and the state law, which may reduce the number of notices an individual receives.

Recordkeeping

Covered institutions will have to make and maintain the following in their books and records:

  • Written policies and procedures required to be adopted and implemented pursuant to the Safeguards Rule, including the incident response program;
  • Written documentation of any detected unauthorized access to or use of customer information, as well as any response to and recovery from such unauthorized access to or use of customer information required by the incident response program;
  • Written documentation of any investigation and determination made regarding whether notification to customers is required, including the basis for any determination made and any written documentation from the United States Attorney General related to a delay in notice, as well as a copy of any notice transmitted following such determination;
  • Written policies and procedures required as part of service provider oversight;
  • Written documentation of any contract entered into pursuant to the service provider oversight requirements; and
  • Written policies and procedures required to be adopted and implemented for the Disposal Rule.

Registered investment advisers will be required to preserve these records for five years, the first two in an easily accessible place.

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U.S. Supreme Court Raises Standard for Labor Board When Seeking 10(j) Injunctions

The U.S. Supreme Court issued a decision directing district courts to use the traditional four-part test when evaluating whether a preliminary injunction should issue at the request of the National Labor Relations Board pending litigation of a complaint under the National Labor Relations Act. No. 23-367 (June 13, 2024).

The decision settles the split among the federal circuit courts over the standard that should be applied when the Board files a motion for a “10(j)” injunction, named for the section of the Act that authorizes the Board to seek injunctive relief. Circuit courts were split on which test should apply: the traditional four-part test, a more lenient two-part test, or a hybrid of the two.

The Court’s decision raises the bar for the Board, requiring it to meet each prong of the four-part test for a court to grant an injunction. In particular, it will be more difficult for the Board to establish it is “likely to succeed on the merits,” as opposed to the more lenient standard espoused by the Board that “there is reasonable cause to believe that unfair labor practices have occurred.”

The Court vacated and remanded the case to the U.S. Court of Appeals for the Sixth Circuit to reevaluate the merits of the injunction request under the four-part test.

10(j) Injunctions

Section 10(j) of the Act allows the Board to seek preliminary injunctions before federal district courts against both employers and unions to stop alleged unfair labor practices during the pendency of the Board’s administrative processing of an unfair labor practice charge. Section 10(j) authorizes a district court “to grant to the Board such temporary relief … as it deems just and proper.”

The requests are rare; the Board has sought only 20 such injunctions since 2023, according to the Board’s website. Nonetheless, the standard a court will use in evaluating the injunction request has been determinative of whether the relief was granted.

Prior Standards

The U.S. Court of Appeals for the Sixth Circuit, as in this case, used a two-part test to assess whether the Board was entitled to an injunction. The two-part test examined whether “there is reasonable cause to believe that unfair labor practices have occurred,” and “whether injunctive relief is ‘just and proper.’” McKinney v. Ozburn-Hessey Logistics, LLC, 875 F.3d 333 (2017). The Supreme Court noted in its latest decision that the Board could establish reasonable cause “by simply showing that its ‘legal theory [was] substantial and not frivolous.’”

Conversely, other courts, such as the U.S. Court of Appeals for the Seventh and Eighth Circuits applied the four-part test used for preliminary injunctions in traditional litigation settings set forth in Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008). Under the Winter framework, a party seeking injunctive relief must “make a clear showing” that:

  1. He is likely to succeed on the merits;
  2. He is likely to suffer irreparable harm in the absence of preliminary relief;
  3. The balance of equities tips in his favor; and
  4. An injunction is in the public interest.

New Standard for Labor Board

In holding that the four-part test applies to 10(j) injunction requests by the Board, the Court declined to allow Section 10(j) language “to supplant the traditional equitable principles governing injunctions.” Rather, courts should apply standard principles involved in granting injunctive relief, not 10(j)’s “discretion-inviting directive.”

The Court explained that the reasonable-cause standard in the two-part test “goes far beyond simply fine tuning the traditional criteria to the Section 10(j) context—it substantively lowers the bar for securing a preliminary injunction by requiring courts to yield to the Board’s preliminary view of the facts, law, and equities.” It noted there is a substantial difference between the “likely”-to-succeed-on-the-merits standard versus a finding that the charge was “substantial and not frivolous.” Under the “less exacting” standard, courts could evaluate injunction requests giving significant deference to the Board under even a “minimally plausible legal theory” without assessing conflicting facts or questions of law.

Accordingly, the Board must satisfy the traditional standard that requires it to make a clear showing it is likely to succeed on the merits of the claim under a valid theory of liability.

The Court’s decision to standardize 10(j) injunction requests not only raises the Board’s burden of proof, but it creates more consistency across district courts at a time employers increasingly face injunction requests by an activist Board general counsel.

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