Richard Manfredi, Author at Gibson Dunn

Click for PDF

A quarterly update of high-quality education opportunities for Boards of Directors of public and pre-IPO companies and members of private boards.

Gibson Dunn’s summary of director education opportunities has been updated as of April 2024. A copy is available at this link. Boards of Directors of public and pre-IPO companies find this a useful resource as they look for high quality education opportunities.

This quarter’s update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior updates. Some of the new opportunities include unique events for members of private boards.

Read More

The following Gibson Dunn attorneys assisted in preparing this update: Hillary Holmes, Lori Zyskowski, Elizabeth Ising, and Ronald Mueller, with assistance from Caroline Bakewell, Ben Blefeld, Mason Gauch, To Nhu Huynh, and Mariana Lozano.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Regulation and Corporate Governance practice group, or the following authors:

Hillary H. Holmes – Houston (+1 346.718.6602, [email protected])
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, [email protected])
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, [email protected])
Lori Zyskowski – New York (+1 212.351.2309, [email protected])

Please also view Gibson Dunn’s Securities Regulation and Corporate Governance Monitor.

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

Gibson Dunn’s Workplace DEI Task Force aims to help our clients develop creative, practical, and lawful approaches to accomplish their DEI objectives following the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center. Should you have questions about developments in this space or about your own DEI programs, please do not hesitate to reach out to any member of our DEI Task Force or the authors of this Update (listed below).

Key Developments:

America First Legal (AFL), the conservative organization founded and run by former Trump policy advisor Stephen Miller, announced two new actions targeting DEI policies. On March 27, the organization sent a letter to The Walt Disney Company’s CEO Bob Iger, Board of Directors, and management, alleging breaches of fiduciary duty and violations of federal securities laws. AFL claims that Disney’s internal DEI policies and certain diversity-related content in Disney’s children’s streaming programming have contributed to a nearly 40% decline in the company’s market capitalization. AFL has asked Disney to immediately cease and desist from all employment and contracting practices that may discriminate on the basis of race, color, sex, or national origin; disclose the risks associated with its DEI practices and policies in its Form 10-K and proxy statements; and retain an independent counsel for a full investigation of the company’s hiring, promotion, recruitment, and purchasing practices. Two days later, on March 29, AFL released internal research alleging that the Bill and Melinda Gates Foundation is funding DEI programs, highlighting donations made by the Gates Foundation to the Inland Empire Community Foundation’s Black Equity Fund, the Indian American Impact Project, and the Equity in Education Coalition, among others. Miller said in a statement that “these foundation gifts appear to be funding extreme activists and programs that promote illegal racial discrimination against whites and other groups, radically undermine public safety, and foment dangerous anti-cop extremism.” AFL demanded an “explanation and accounting” from the Foundation.

On March 25, the Equal Protection Project of the Legal Insurrection Foundation (EPP), a conservative non-profit organization, filed a complaint with the Department of Education’s Office for Civil Rights (DOE) alleging that the George Floyd Memorial Scholarship at Minnesota’s North Central University violates Title VI of the Civil Rights Act. The scholarship, a four-year, full-tuition award, is granted to one undergraduate Black student based on community recommendations and a written essay. EPP contends that the scholarship discriminates against non-Black students by excluding them from consideration. This complaint follows EPP’s January 22nd complaint against the University of Wisconsin-Madison regarding its Creando Comunidad: Community Engaged BIPOC Fellows program. That scholarship program requires applicants to be a “member of a historically underrepresented racial or ethnic group or community.” EPP alleges that UW’s active promotion of the program violates the Equal Protection Clause of the Fourteenth Amendment and Title VI of the Civil Rights Act. The same day that EPP filed its complaint against North Central University, DOE confirmed it is investigating UW’s program.

On March 21, Idaho Governor Brad Little (R) signed into law Senate Bill 1274, which restricts the use of diversity statements by colleges and universities. The law prohibits public postsecondary institutions from requiring candidates for employment or admission to submit or ascribe to any “diversity statement,” defined broadly to include written or oral statements relating to “race, sex, color, ethnicity, or sexual orientation,” views on DEI and social justice, or experiences working with others of diverse backgrounds. The law also prohibits institutions from requiring or soliciting diversity statements in any contract renewal or promotion process “or as a condition of participation in any administrative or decision-making function of the institution.” The law does not bar students from voluntarily submitting information that would fall under the definition of a diversity statement. Because the law states that it is responsive to an “emergency,” it takes effect on July 1, 2024.

On March 6, the Congressional Black Caucus, chaired by Representative Steven Horsford (D-Nev.), issued a letter to Attorney General Merrick Garland, calling for the Department of Justice to “examine the lawfulness of states acting to dismantle the Diversity, Equity, and Inclusion (DEI) programs at American institutions of higher learning.” The letter emphasizes the historical importance of civil rights laws in promoting the growth of diversity on college campuses, and notes that diverse college students continue to face ongoing challenges in obtaining equal access to higher education. The letter—which follows the recent moves by the University of Florida to eliminate all of its DEI-related spending, Alabama Senate Bill 129 which limits DEI programs and teaching, and Texas Senate Bill 17 that eliminates DEI programs in state colleges—stresses that “Anti-DEI bills have been introduced in more than 30 states as of February 29, 2024.” The letter contends that because these university systems are recipients of federal funding, their anti-DEI actions constitute potential violations of federal anti discrimination laws codified in Title VI and Title IX of the Civil Rights Act of 1964.

Media Coverage and Commentary:

Below is a selection of recent media coverage and commentary on these issues:

Axios, “‘The backlash is real’: Behind DEI’s rise and fall” (April 2): Emily Peck of Axios reports on the recent decline of corporate DEI programs over the past two years in the wake of widespread attacks from lawmakers and conservative activists. Peck suggests that some companies, which may have been less invested in DEI or more concerned about potential lawsuits, are using this moment to back away. Peck reports that these businesses are cutting back funding, trimming DEI staff, and considering limits to initiatives like employee resource groups based on workers’ races, ethnicities or interests. Conversely, according to Peck, companies that are continuing their DEI efforts are doing so quietly and altering their approach.
Bloomberg Law, “States Clash With First Amendment on DEI, Captive Audience Laws” (April 1): Bloomberg Law’s Chris Marr reports on the impact of recent state legislation on private companies’ approach to communications with their employees regarding diversity-related topics. Roughly a half-dozen states, including California and New York, have enacted statutes requiring diversity training, while courts in other states such as Michigan have found diversity training to be an implied part of employers’ obligations under state anti-discrimination laws. However, Marr opines that the First Amendment may be in tension with these diversity statutes, which may be construed as impermissibly requiring content-based communication. Marr also discusses instances where the courts have struck down conservative state legislation aimed at limiting diversity-related discussion in the workplace as a violation of employees’ free-speech rights, such as the Eleventh Circuit’s recent decision in Honeyfund.com, Inc. v. DeSantis, — F.4th —, 2024 WL 909379 (11th Cir. Mar. 4, 2024). Marr notes that states are poised to continue testing the bounds of when and how they can regulate workplace speech, setting up future courtroom clashes over the extent of employers’ First Amendment rights in protecting their communications with employees.
Law.com, “What’s in a Name? Group Urges Full 2nd Circuit to Scrap Rule Against Pseudonymity” (March 29): Avalon Zoppo of Law.com reports on the efforts of conservative nonprofit group Do No Harm to petition the U.S. Court of Appeals for the Second Circuit to scrap its new standing test requiring organizations to provide members’ names when seeking preliminary injunctions. In its petition for en banc review of the court’s recent decision in Do No Harm v. Pfizer, Inc., — F.4th —, 2024 WL 949506 (2d Cir. Mar. 6, 2024), Do No Harm argues that the rule will deter organizations from bringing lawsuits on behalf of individuals who may wish to remain anonymous due to fears of retaliation. Gibson Dunn partner and co-head of the firm’s Labor and Employment practice group Jason Schwartz said the case could affect a recent influx of lawsuits against corporate diversity initiatives, where conservative groups have sued on behalf of anonymous members: “This is a super important threshold question for a lot of this new wave of lawsuits . . . If the court says you have to come forward with real live human beings, that’s going to change the wave of these cases in a material way.”
The Hill, “Texas AG Paxton probes Boeing supplier, takes aim at DEI practices” (March 29): The Hill’s Saul Elbein reports on Texas Attorney General Ken Paxton’s investigation of a major supplier to aerospace company Boeing, whose flagship 737 MAX aircraft has been linked to a series of deadly accidents since 2018. Paxton ordered the supplier, Spirit AeroSystems, to provide documents related to manufacturing defects that resulted in the grounding of numerous Boeing planes. Elbein reports that, as part of his request for information, Paxton also asked for information related to the company’s DEI policy and demanded the company substantiate its claim that a diverse workplace improves product quality, enhances performance, and/or helps Spirit make better decisions. Paxton reportedly also asked the company to explain how company-wide demographics for race, national origin, sexual orientation, and age have changed since 2022, when Spirit first adopted its DEI policy.
CNN, “University of Texas at Austin students say cultural programs are struggling to stay afloat in wake of anti-DEI law” (March 28): CNN’s Nicquel Terry Ellis reports on the impact of Texas SB17 on students at the University of Texas at Austin. Signed into law in 2023 by Texas Governor Greg Abbott, SB17 prohibits public colleges and universities in Texas from maintaining diversity, equity, and inclusion offices; hiring or assigning anyone to perform DEI office duties; giving preference to any job applicants or employees based on race, sex, color, ethnicity or national origin; or requiring anyone to complete DEI training. Ellis reports that, at UT Austin, the implementation of the law has caused cultural and identity groups on campus to struggle to find funding for events, meetings, and conferences previously sponsored by the school. According to Aaliyah Barlow, president of the University’s Black Student Alliance, the anti-DEI law makes marginalized communities feel unwanted on campus. However, UT Austin President Jay Hartzell emphasized that although the University will comply with the new law, it will not change the institution’s “commitment to attracting, supporting, and retaining exceptional talent across diverse backgrounds and perspectives.”
Wall Street Journal, “Government Changes How It Asks About Race and Ethnicity, Adds Middle Eastern” (March 28): The Wall Street Journal’s Paul Overberg and Michelle Hackman report on how, for the first time in 27 years, the U.S. government is changing the racial and ethnic categories used in the federal census and on other government forms. Under the new standard, respondents can now identify with more than one race, including American Indian or Alaska Native; Asian; Black or African-American; Hispanic or Latino; Middle Eastern or North African; Native Hawaiian or Pacific Islander; and white. Overberg and Hackman note that the change marks the first time that “Middle Eastern or North African” is included as its own category. Under the previous standard, individuals from these backgrounds were categorized as white.
CNN, “US House Office of Diversity and Inclusion to be disbanded as part of government spending bill” (March 25): Reporting for CNN, Nicquel Terry Ellis, Chandelis Duster, and Eva McKend cover the dissolution of the U.S. House of Representatives’ Office of Diversity and Inclusion as part of the spending bill that passed on March 22. The office, established in March 2020 with a mission to foster a congressional workforce reflective of the nation’s demographics, will be replaced by a newly-formed entity, the Office of Talent Management.

Case Updates:

Below is a list of updates in new and pending cases:

1. Contracting claims under Section 1981, the U.S. Constitution, and other statutes:

Roberts & Freedom Truck Dispatch v. Progressive Preferred Ins. Co., et al., No. 23-cv-1597 (N.D. Oh. 2023): On August 16, 2023, plaintiffs represented by AFL sued defendants Progressive Insurance, Hello Alice, and Circular Board, Inc., alleging that the defendants’ grant program that awarded funding specifically to Black entrepreneurs to support their small businesses violated Section 1981.
- Latest update: On March 22, the plaintiffs filed a response to the defendants’ combined motion to dismiss, motion to stay and compel arbitration, and motion to transfer. On March 28, the Equal Protection Project of the Legal Insurrection Foundation (EPP) filed an amicus brief in support of the plaintiffs. EPP argued that the grant of the defendants’ motion would prevent civil rights groups from enforcing laws against civil rights violations by “carving out a massive loophole to characterize discriminatory conduct as protected speech.”
Am. Alliance for Equal Rights v. Zamanillo, No. 1:24-cv-509-JMC (D.D.C. 2024): On February 22, 2024, AAER filed a complaint and motion for a preliminary injunction against Jorge Zamanillo in his official capacity as the Director of the National Museum of the American Latino, part of the Smithsonian Institution. The complaint targets the Museum’s internship program, which aims to provide Latino, Latina, and Latinx undergraduates with training in non-curatorial art museum careers. AAER claimed that the program constitutes race discrimination in violation of the Fifth Amendment because the Museum allegedly considers the race of applicants in choosing interns and purportedly refuses to hire non-Latino applicants. AAER had asked for an injunction to prevent the Museum from closing the application window on April 1, or selecting interns for the program (currently scheduled to begin in late April).
- Latest update: On March 26, AAER filed a notice of settlement and stipulation of dismissal. In the settlement agreement, the Smithsonian agreed to add the following statement to the text of the scoring rubric before the application window for the undergraduate internship closes: “The Undergraduate Internship is equally open to students of all races and ethnicities. Reviewers should not give preference or restrict selection based on race or ethnicity.”
Bradley, et al. v. Gannett Co. Inc., 1:23-cv-01100 (E.D.V.A. 2023): On August 18, 2023, white plaintiffs sued Gannett over its alleged “Reverse Race Discrimination Policy,” claiming that Gannett’s expressed commitment to having its staff demographics reflect the communities it covers violates Section 1981. On November 24, 2023 Gannett moved to dismiss and to strike the plaintiffs’ class action allegations. On February 8, 2024, the plaintiffs moved for a preliminary injunction and for class certification. Gannett filed a motion to stay briefing on the plaintiffs’ motions pending a ruling on Gannett’s motion to dismiss, arguing that it may moot any need for class certification or a preliminary injunction.
- Latest update: On March 20, Gannett filed a notice of supplemental authority in support of its motion to dismiss, bringing the court’s attention to the recent Fourth Circuit opinion in Duvall v. Novant Health, Inc., No. 22-2142 (4th Cir. Mar. 12, 2024), which Gannett contends stands for the proposition that DEI programs are not per se unlawful, as long as they do not entail “a system wide decision making process” for employment based on DEI metrics.
Alexandre v. Amazon, Inc., No. 3:22-cv-1459 (S.D. Cal. 2022): White, Asian, and Native Hawaiian entrepreneur plaintiffs, on behalf of a putative class of past and future Amazon “delivery service partner” (DSP) program applicants, challenged a DEI program that provides $10,000 grants to qualifying delivery service providers who are “Black, Latinx, and Native American entrepreneurs.” The plaintiffs allege violations of California state civil rights laws prohibiting discrimination. On December 6, 2023, Amazon moved to dismiss, and the plaintiffs opposed the motion on February 16, 2024.
- Latest update: On March 20, Amazon filed a reply in support of its motion to dismiss, arguing that the plaintiffs lack standing because only a person who was already an Amazon DSP could suffer the injury of being denied a DSP diversity grant, and the plaintiffs are neither current DSPs nor applicants to become DSPs. Amazon further argued that the plaintiffs waived their claims under Section 1981 (because they did not respond to Amazon’s argument to dismiss that claim) and Section 51.5 of the Unruh Act (because they had already conceded that Section 51 does not apply). On March 26, 2024, the court announced that it would not hold oral argument on the motion.
Do No Harm v. Pfizer, No. 1:22-cv-07908 (S.D.N.Y. 2022), aff’d, No. 23-15 (2d Cir. 2023): On September 15, 2022, conservative medical advocacy organization Do No Harm filed suit against Pfizer, alleging that Pfizer discriminated against white and Asian students by excluding them from its Breakthrough Fellowship Program. To be eligible for the program, applicants must “[m]eet the program’s goals of increasing the pipeline for Black/African American, Latino/Hispanic and Native Americans.” Do No Harm alleged that the criteria violate Section 1981, Title VI of the Affordable Care Act, and multiple New York state laws banning racially discriminatory internships, training programs, and employment. In December 2022, the Southern District of New York dismissed the case for lack of subject matter jurisdiction, finding that Do No Harm did not have standing because it did not identify at least one member by name. On March 6, 2024, the United States Court of Appeals for the Second Circuit affirmed the district court’s dismissal, holding that an organization must name at least one affected member to establish Article III standing under the “clear language” of Supreme Court precedent.
- Latest update: On March 20, Do No Harm petitioned the court for a rehearing en banc, arguing that the panel’s opinion splits with at least two circuits and creates “an irreconcilable line of intracircuit precedent,” and predicting that the panel’s opinion would “deter associations from representing vulnerable members in court.” Do No Harm also moved to supplement the record on appeal with three additional anonymous declarations from potential applicants to the Pfizer Breakthrough Fellowship Program.

2. Employment discrimination and related claims:

Kascsak v. Expedia Inc., 1:23-cv-01373-DII (W.D. Tex. 2023): On November 9, 2023, a white man sued Expedia and a top executive for reverse discrimination in relation to the hiring process for a leadership role. The plaintiff claimed he was passed over in favor of a “diverse” candidate, a Black woman. The plaintiff claimed he was the victim of discrimination on the bases of race and sex in violation of Title VII, Section 1981, and the Texas Labor Code. On January 22, 2024, the defendants moved to dismiss, arguing that (1) the plaintiff lacked personal jurisdiction over the Expedia executive, and (2) the plaintiff failed to sufficiently plead a Section 1981 claim because race was not the sole but-for cause of the adverse hiring decision. The plaintiff opposed the motion on January 29, 2024, and the defendants replied on February 5.
- Latest update: On March 25, the court dismissed all claims against the individual executive defendant for lack of personal jurisdiction. The court denied the motion to dismiss as to Expedia, holding that Section 1981 permits claims where race is not the single but-for cause of an adverse contracting action.
Haltigan v. Drake, No. 5:23-cv-02437-EJD (N.D. Cal. 2023): A white male psychologist sued the University of California Santa Cruz, arguing that a requirement that prospective faculty candidates submit and be evaluated in part on the basis of statements explaining their views and understanding of DEI principles functioned as a loyalty oath that violated his First Amendment rights. The plaintiff claimed that because he is “committed to colorblindness and viewpoint diversity”––which he alleged was contrary to UC Santa Cruz’s position on DEI––he would be compelled to alter his political views to be a viable candidate for the position. The plaintiff sought a declaration that the University’s DEI statement requirement violated the First Amendment and a permanent injunction against the enforcement of the requirement. On January 12, 2024, the district court granted UC Santa Cruz’s motion to dismiss with leave to amend.
- Latest update: On March 1, the defendant moved to dismiss the plaintiff’s second amended complaint, arguing that the plaintiff lacks standing and failed to state claims of First Amendment viewpoint discrimination or compelled speech. On March 29, the plaintiff filed an opposition, arguing that he has standing because he was “as ready and able to apply [for the faculty position] as anyone could be.” The plaintiff also argued that the DEI statement is viewpoint discrimination because it is a “political litmus test,” and an unconstitutional condition rather than speech subject to Pickering balancing.

3. Challenges to agency rules, laws, and regulatory decisions:

American Alliance for Equal Rights v. Ivey, No. 2:24-cv-00104-RAH-JTA (M.D. Ala. 2024): On February 13, 2024, AAER filed a complaint against Alabama Governor Kay Ivey, challenging a state law that requires Governor Ivey to ensure there are no fewer than two individuals “of a minority race” on the Alabama Real Estate Appraisers Board (AREAB). The AREAB consists of nine seats, including one for a member of the public with no real estate background (the at-large seat), which has been unfilled for years. Because there was only one minority member among the Board at the time of filing, AAER asserts that state law will require that the open seat go to a minority. AAER states that one of its members applied for this final seat, but was denied purely on the basis of race, in violation of the Equal Protection Clause of the Fourteenth Amendment.
- Latest update: On March 19, the district court denied AAER’s motion for a temporary restraining order/preliminary injunction. The court ordered AAER to confidentially disclose of the identity of Member A, the anonymous member of AAER who asserted an injury. It also ordered the parties to submit briefing, due in early April, on why Member A should be allowed to proceed anonymously in the case.

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Blaine Evanson, Molly Senger, Zakiyyah Salim-Williams, Matt Gregory, Zoë Klein, Mollie Reiss, Alana Bevan, Marquan Robertson, Janice Jiang, Elizabeth Penava, Skylar Drefcinski, Mary Lindsay Krebs, David Offit, Lauren Meyer, Kameron Mitchell, Maura Carey, and Jayee Malwankar.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment practice group, or the following practice leaders and authors:

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, [email protected])

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, [email protected])

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, [email protected])

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, [email protected])

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, [email protected])

Blaine H. Evanson – Partner, Appellate & Constitutional Law Group
Orange County (+1 949-451-3805, [email protected])

Lennar Homes of Tex. Inc. v. Rafiei, No. 22-0830 – Decided April 5, 2024

In a unanimous per curiam opinion, the Texas Supreme Court held on Friday that when an arbitration agreement contains a clause delegating questions of arbitrability to the arbitrator, an unconscionability challenge must be supported with specific evidence showing that the cost of arbitrating any arbitrability issues is itself excessive. Because the plaintiff’s evidence went only to the overall costs of arbitration, the Court found no basis to conclude that the delegation clause was itself unconscionable.

“[T]he record fails to support a finding that the parties’ delegation clause is itself unconscionable due to prohibitive costs to adjudicate this threshold issue in arbitration.”

Per curiam

Background:

Rafiei bought a house from Lennar Homes. The purchase contract required the parties to submit their disputes to arbitration and delegated decisions about the arbitrability of disputes to the arbitrator. Rafiei later sued for personal injuries that he attributed to improper installation of a garbage disposal. Lennar moved to compel arbitration, and Rafiei opposed the motion, arguing that the agreement was unconscionable because arbitration was prohibitively expensive. In support of his unconscionability challenge, Rafiei submitted the AAA fee schedules and affidavits from himself and his attorney. The trial court denied Lennar’s motion, and the Fourteenth Court of Appeals affirmed.

Issue:

When an arbitration agreement delegates arbitrability issues to an arbitrator, may a court deny a motion to compel arbitration on unconscionability grounds absent evidence that the delegation provision is itself excessively costly?

Court’s Holdings:

No. “When an agreement delegates arbitrability issues to an arbitrator,” the only question for the court in an unconscionability challenge is whether the cost of arbitrating the “delegated threshold issue of unconscionability is excessive, standing alone.” Rafiei failed to “show that the delegation provision itself is unconscionable” as the supporting affidavits discussed only “the cost to arbitrate the overall dispute”—not “the cost to arbitrate the arbitrability question.” Nor did he present evidence of how the AAA fee schedule “would be applied to resolve the unconscionability challenge” itself. He also failed to establish that he could “afford litigation but not arbitration.” So the Court found no basis to set aside the delegation clause on unconscionability grounds. It refrained from deciding, however, whether the arbitration agreement as a whole was unconscionable because that issue was “reserved for the arbitrator.”

What It Means:

The Court continues to uphold the enforceability of arbitration agreements. When an agreement contains a delegation clause, a court’s inquiry on a motion to compel arbitration is “narrow.” Courts will order arbitration absent proof that the “delegation clause is itself unconscionable.”

Plaintiffs challenging arbitration agreements on unconscionability grounds face an uphill climb in Texas. They must adduce “specific evidence” showing (1) “the relevant costs between litigating in court and in arbitration”; and (2) their lack of “ability to pay the difference in such costs.” And if the agreement contains a delegation clause, plaintiffs must “estimate the actual costs associated with arbitrating the arbitrability question”—not the costs of the overall arbitration.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Texas Supreme Court. Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 [email protected]	Allyson N. Ho +1 214.698.3233 [email protected]	Julian W. Poon +1 213.229.7758 [email protected]
Brad G. Hubbard +1 214.698.3326 [email protected]

Related Practice: Texas General Litigation

Trey Cox +1 214.698.3256 [email protected]	Collin Cox +1 346.718.6604 [email protected]	Gregg Costa +1 346.718.6649 [email protected]
Andrew LeGrand +1 214.698.3405 [email protected]	Russ Falconer +1 346.718.3170 [email protected]

This alert was prepared by Texas associates Elizabeth Kiernan, Stephen Hammer, and Joseph Barakat.

From the Derivatives Practice Group: ISDA submitted responses to proposals from various bodies this week, both domestically and abroad.

New Developments

CFTC’s Energy and Environmental Markets Advisory Committee to Meet. The CFTC’s Energy and Environmental Markets Advisory (EEMAC) will hold a public meeting from 9:00 a.m. to 12:00 p.m. (CDT) on Wednesday, April 10 at the University of Missouri – Kansas City in Kansas City, Missouri. At this meeting, the EEMAC will continue its discussion on the federal prudential financial regulators’ proposed rules implementing Basel III and the implications for and impact on the derivatives market. There will also be presentations and discussions on the state of crude oil markets and the future of power markets. Finally, the two EEMAC subcommittees will offer updates on their continued work related to traditional energy infrastructure and metals markets.
CFTC’s Agricultural Advisory Committee to Meet. The CFTC’s Agricultural Advisory Committee (AAC) will hold a public meeting on April 11 from 9:30 a.m. to 11:00 a.m. (CDT) at the Sheraton Overland Park Hotel in Overland Park, Kansas. At this meeting, the AAC will discuss topics related to the agricultural economy and recent developments in the agricultural derivatives markets.
SEC Adopts Reforms Relating to Investment Advisers Operating Exclusively Through the Internet. On March 27, the SEC adopted amendments to the rule permitting certain internet investment advisers to register with the Commission (the “internet adviser exemption”). The amendments will require an investment adviser relying on the internet adviser exemption to have at all times an operational interactive website through which the adviser provides digital investment advisory services on an ongoing basis to more than one client. The amendments will also eliminate the current rule’s de minimis exception by requiring an internet investment adviser to provide advice to all of its clients exclusively through an operational interactive website and to make certain corresponding changes to Form ADV.
CFTC’s Market Risk Advisory Committee to Meet. The CFTC’s Market Risk Advisory Committee (MRAC) will meet on April 9 at 9:30 am ET. The MRAC will introduce recommendations, reports and presentations on current topics and developments, including an approach to manage the resilience, recovery or wind down of central counterparties, the implications of concentration risk in intermediation, the U.S. treasury cash-futures basis trade and risk-management considerations, a work plan for the integration of artificial intelligence in the markets; possible recommendations regarding efforts to manage climate-related market risks; and updates on the work of several workstreams on block implementation rules, post-trade risk reduction services, and margin transparency, margin procyclicality and margin calls.

New Developments Outside the U.S.

UK’s Accelerated Settlement Taskforce Publishes Report on the Path to T+1. On March 28, the UK’s Accelerated Settlement Taskforce published its report on the path to a T+1 settlement cycle. The report finds there is a clear consensus on the need for the UK to move to a T+1 settlement cycle and this shift will require substantial investment in greater automation and standardization. In addition, the report emphasizes a need for ongoing engagement with stakeholders during the transition period and the opportunity to learn from the U.S. move to T+1 in May 2024. The report recommends the immediate creation of a technical group to identify the challenges of transition and formulate solutions and suggests a two-step transition to T+1 before the end of 2027, with the exact date to be determined by the technical group. [NEW]
ESMA Clarifies Application of Certain MIFIR Provisions, Including Volume Cap. On March 27, the European Securities and Markets Authority (ESMA) published a statement, including practical guidance supporting the transition and the consistent application of the revised Markets in Financial Instruments Regulation (MiFIR).The statement covers guidance on equity transparency and non-equity transparency; the systematic internaliser (SIs) regime; designated publishing entities (DPEs); and reporting. Regarding the volume cap, following the publication by the European Commission, ESMA confirmsed that DVC data will continue to be published, with the next publication scheduled for early April.
ESMA Provides Market Participants with Guidance on the Clearing Obligation for Trading with 3rd Country Pension Schemes. On March 27, ESMA issued a public statement on deprioritizing supervisory actions linked to the clearing obligation for third-country pension scheme arrangements (TC PSA), pending the finalization of the review of EMIR. ESMA expects National Competent Authorities (NCAs) not to prioritize supervisory actions in relation to the clearing obligation for derivative transactions conducted with TC PSAs exempted from the clearing obligation under their third-country’s national law. Additionally, ESMA recommends that NCAs apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner. The Council and the European Parliament reached a provisional agreement on February 7. The political agreement on the EMIR 3 text provides for an exemption regime from the EMIR clearing obligation when the TC PSA is exempted from the clearing obligation under that third country’s national law.
ESMA Finalizes First Rules on Crypto-Asset Service Providers. On March 25, ESMA published the first Final Report under the Markets in Crypto-Assets Regulation (MiCA). ESMA stated that Tthe report, which aims to foster clarity and predictability, promote fair competition between crypto-asset service providers (CASPs) and a safer environment for investors across the Union, includes proposals on: (1) information required for the authorization of CASPs; (2) the information required where financial entities notify their intent to provide crypto-asset services; (3) information required for the assessment of intended acquisition of a qualifying holding in a CASP, and (4) how CASPs should address complaints.
ESMA Launches the Third Consultation Under MiCA. On March 25, ESMA published its third consultation package under the MiCA. In the consultation package, ESMA is seeking input on four sets of proposed rules and guidelines, covering: (1) detection and reporting of suspected market abuse in crypto-assets; (2) policies and procedures, including the rights of clients, for crypto-asset transfer services; (3) suitability requirements for certain crypto-asset services and format of the periodic statement for portfolio management; and (4) ICT operational resilience for certain entities under MiCA.
SGX Issues Consultation on Revised Limit on Clearing Members’ Liability for Multiple Defaults. On March 22, Singapore Exchange (SGX) issued a consultation paper proposing to refine the existing cap on a clearing member’s liability to meet default losses arising from multiple events of default. The cap is imposed on clearing members of Singapore Exchange Derivatives Clearing Limited (SGX-DC) and The Central Depository (Pte) Limited (CDP). The proposal purports to limit a non-defaulting clearing member’s liability to meet multiple default losses arising within a 30-day period to three times the aggregate of its funded and unfunded clearing fund contributions (prescribed contribution) as determined at the start of the 30-day period. The revised limit is intended to be independent of the clearing member’s resignation. SGX has also proposed changes to the SGX-DC clearing rules set out in Appendix B of the consultation. SGX is seeking views and comments on: (1) capping the limit for multiple defaults at three times a clearing member’s clearing fund contribution amount for all defaults occurring within a 30-day period; (2) the methodology for calculating the amount of a non-defaulting clearing member’s clearing fund contributions available to meet losses suffered by the SGX central counterparty arising from or in connection with an event of default (as set out in SGX-DC Clearing Rule 7A.06.9.2); and (3) the rule amendments to effect the proposed change. The consultation closes on April 24, 2024. [NEW]
SFC and HKMA Further Consult on Enhancements to Hong Kong’s OTC Derivatives Reporting Regime. On March 22, 2024, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) launched a joint-further consultation on enhancements to the over-the-counter (OTC) derivatives reporting regime in Hong Kong. This further consultation follows an earlier joint-consultation in April 2019, in which the SFC and HKMA proposed a requirement to identify transactions submitted to the Hong Kong Trade Repository (HKTR) for the reporting obligation by a Unique Transaction Identifier. The current joint-further consultation consults on the implementation of the Unique Transaction Identifier, together with the mandatory use of Unique Product Identifier and Critical Data Elements for submission of transactions to the HKTR. The Interested parties are encouraged to submit responses to the SFC or HKMA on the consultation by May 17, 2024.
ESMA Publishes Feedback on Shortening Settlement Cycle. On March 21, the ESMA published feedback received to its Call for Evidence on shortening the settlement cycle in the EU. According to ESMA’s report on the feedback, respondents focused on four areas: (1) many operational impacts, beyond adaptations of post-trade processes, were identified as the result of a reduction of the securities settlement cycle in the EU; (2) respondents identified a wide range of both potential costs and benefits of a shortened cycle, with some responses supporting a thorough impact assessment; (3) respondents provided suggestions around how and when a shorter settlement cycle could be achieved, with a strong demand for a clear signal from the regulatory front at the start of the work and clear coordination between regulators and the industry; and (4) stakeholders made clear the need for a proactive approach to adapt their own processes to the transition to T+1 in other jurisdictions. Additionally, according to ESMA, some responses warned about potential infringements due to the misalignment of the EU and North America settlement cycles.

New Industry-Led Developments

IOSCO Seeks Feedback on the Evolution of Market Structures and Proposed Good Practices. On April 4, the International Organization of Securities Commissions (IOSCO) published a consultation report on Evolution in the Operation, Governance and Business Models of Exchanges: Regulatory Implications and Good Practices. The consultation report analyzes the structural and organizational changes within exchanges, focusing on business models and ownership structures. It highlights a shift towards more competitive, cross-border, and diversified operations as exchanges integrate into larger corporate groups. The consultation report discusses regulatory considerations, particularly in the organization of individual exchanges and exchange groups and the supervision of multinational exchange groups. It addresses potential conflicts of interest arising from matrix structures and the challenges of overseeing individual exchanges within exchange groups. Additionally, it outlines a set of six proposed good practices for regulators to consider in the supervision of exchanges, particularly when they provide multiple services and/or are part of an exchange group. The good practices are also complemented by a non-exclusive list of supervisory tools used by IOSCO jurisdictions to address the issues under discussion, in the form of “toolkits”. While the Consultation Report focuses on equities listing trading venues, the findings are also relevant to other trading venues, including non-listing trading venues and derivatives trading venues. IOSCO is seeking input from market participants on the major trends and risks observed, and the proposed good practices on or before July 3, 2024. [NEW]
ISDA Submits Response to CFTC Proposed Operational Resilience Rules. On April 1, ISDA submitted comments on the CFTC’s notice of proposed rulemaking on requirements to establish an Operational Resilience Framework for Futures Commission Merchants, Swap Dealers and Major Swap Participants, which was published in the Federal Register on January 24, 2024. ISDA recommended that the CFTC adjust adjust portions of the proposed rules relating to governance, third-party relationships, incident notification and implementation period. [NEW]
ISDA Submits Response to IOSCO Consultation on Post-Trade Risk Reduction. On March 29, ISDA submitted a response to IOSCO consultation on post-trade risk reduction (PTRR) services. According to ISDA, PTRR services are intended to optimize bilateral and cleared derivatives portfolios to minimize the build-up of notional amounts and trade count, counterparty risk, and basis risk respectively, which in turn reduces systemic risk. ISDA stated that it is broadly supportive of IOSCO’s proposed sound practices. [NEW]
ISDA Submits Joint Response to PRA on Approach to Policy. On March 28, ISDA and the Association for Financial Markets in Europe (AFME) submitted a joint response to the Prudential Regulation Authority (PRA) consultation on its approach to policy. The associations highlighted the importance of considering UK market specificities in meeting the secondary competitiveness and growth objective, and in the implementation of international standards. The associations expressed support for the continuation of structured policy development in dialogue with the industry, while also advocating for the enhancement of the PRA’s stakeholder engagement by re-establishing standing groups and horizon risk scanning groups, and greater industry cooperation during the initiation phase of the policy cycle. ISDA highlighted certain other points in the response, including recommendations on clustering regulatory principles and suggested improvements to the cost-benefit analysis and data collection processes to achieve greater transparency. [NEW]
ISDA Submits Joint Response to BCBS Crypto Standard Amendments Consultation. On March 28, ISDA, with the Global Financial Markets Association, the Futures Industry Association, the Institute of International Finance and the Financial Services Forum, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on proposed crypto asset standard amendments. ISDA and the other trade associations stated that they welcome the BCBS’s continued focus on designing and improving the prudential framework for crypto assets. The key topics in the consultation response include public permissionless blockchains, classification condition 2 and settlement finality and Group 1b eligibility.
ISDA Responds to CFTC on Clearing Member Funds Protection. On March 18, ISDA responded to the CFTC’s consultation on proposed rules for the protection of clearing member funds held by derivatives clearing organizations (DCOs), including the assets of futures commission merchants (FCMs). According to ISDA, it proposed that the CFTC should finalize the enhanced protection for clearing member assets in connection with an intermediated DCO only, which includes multiple FCMs, unaffiliated with the DCO, as its members. Regarding a DCO providing direct clearing without multiple FCMs unaffiliated with the DCO, ISDA suggested the CFTC should wait to propose enhanced protection for clearing members’ assets, once a full assessment of the risks and complications associated with a DCO providing direct clearing has been completed. At which point, in ISDA’s opinion, it would be appropriate for the CFTC to propose a comprehensive framework to address these risks holistically. Otherwise, ISDA said, the current notice of proposed rulemaking would create a sense of safety for the disintermediated model, which is superficial due to the rule not creating a comprehensive safety regime for disintermediated central counterparties (CCPs), with many risks arising from such models being left unaddressed.
ISDA Responds to FASB on Induced Conversion of Convertible Debt. On March 18, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) exposure draft on File Reference No. 2023-ED600, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. ISDA indicated that it supports FASB’s proposals in the exposure draft and believes it achieves the objective of improving the application and relevance of the induced conversion guidance to cash convertible debt instruments.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, and Karin Thrasher.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, [email protected])

Michael D. Bopp, Washington, D.C. (202.955.8256, [email protected])

Michelle M. Kirschner, London (+44 (0)20 7071.4212, [email protected])

Darius Mehraban, New York (212.351.2428, [email protected])

Jason J. Cabral, New York (212.351.6267, [email protected])

Adam Lapidus – New York (+1 212.351.3869, [email protected])

Stephanie L. Brooker, Washington, D.C. (202.887.3502, [email protected])

Roscoe Jones Jr., Washington, D.C. (202.887.3530, [email protected])

William R. Hallatt, Hong Kong (+852 2214 3836, [email protected])

David P. Burns, Washington, D.C. (202.887.3786, [email protected])

Marc Aaron Takagaki, New York (212.351.4028, [email protected])

Hayden K. McGovern, Dallas (214.698.3142, [email protected])

Karin Thrasher, Washington, D.C. (202.887.3712, [email protected])

The Delaware Supreme Court announced that MFW remains the lodestar of earning the business judgment rule’s protections for all conflicted controller transactions, and a single conflict on a special committee can be fatal to those efforts.

On April 4, 2024, the Delaware Supreme Court issued its highly anticipated decision in In re Match Group, Inc. Derivative Litigation, — A.3d —, 2024 WL 1449815 (Del. Apr. 4, 2024), which we previewed in our 2023 Year-End Securities Litigation Update. The opinion includes two notable holdings.

First, the Court held that the entire fairness standard is the default standard of review applicable to all transactions with a controlling stockholder in which the controller receives a non-ratable benefit. For the transaction at issue, involving IAC/InterActiveCorp’s reverse spinoff from its controlled subsidiary March Group, Inc., the Court concluded that in order to invoke more deferential business judgment rule review, both requirements of Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) must be satisfied: review and approval by an independent and well-functioning special committee, and the informed approval of disinterested stockholders.

Second, the Court held that to satisfy the first MFW element, all members of the special committee reviewing and approving the transaction must be independent of the controller. The Court found that one committee member’s historical business ties with the controller were sufficient at the pleadings stage to compromise the member’s independence, and therefore cast “a reasonable doubt” on “the entire [s]eparation [c]ommittee’s independence.” The Court therefore reversed the Court of Chancery’s holding that MFW can be satisfied when a majority of a special committee’s members are independent of the controller.

Takeaways

This decision confirms the Delaware Supreme Court’s view of transactions involving a controlling stockholder and their potential for coerciveness. Because any transaction with a controlling stockholder from which the controller conceivably derives a non-ratable benefit presumptively will be reviewed under the entire fairness standard, careful attention and adherence to all aspects of the MFW framework is important to parties seeking to invoke its protections.

That is especially true after In re Match Group, Inc. with respect to the independence of special committee members. The Delaware Supreme Court’s holding expressly requires the independence of all members of a special committee, meaning that even a foot-fault in committee-member independence could subject a transaction to lengthy and expensive litigation. This was the case even though the Court of Chancery found that the conflicted special committee member “did not ‘infect’ or ‘dominate’ the separation committee process”—a finding that was unchallenged on appeal. Thus, even a rigorous, arms-length process alone will not be sufficient to invoke the protections of the business judgment rule at the pleadings stage if even one member lacks independence from a controlling stockholder.

Together, these holdings provide important clarity to parties undertaking transactions in which a conflicted controller is, or may be, present. In short, MFW remains the lodestar of earning the business judgment rule’s protections for all conflicted controller transactions, and a single conflict on a special committee can be fatal to those efforts.

The following Gibson Dunn lawyers participated in preparing this update: Monica K. Loseman, Brian M. Lutz, Colin B. Davis, Mark H. Mixon, Jr., Chase Weidner, and Dasha Dubinsky.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Securities Litigation practice group:

Christopher D. Belelieu – New York (+1 212.351.3801, [email protected])
Jefferson Bell – New York (+1 212.351.2395, [email protected])
Michael D. Celio – Palo Alto (+1 650.849.5326, [email protected])
Colin B. Davis – Orange County (+1 949.451.3993, [email protected])
Jonathan D. Fortney – New York (+1 212.351.2386, [email protected])
Monica K. Loseman – Co-Chair, Denver (+1 303.298.5784, [email protected])
Brian M. Lutz – Co-Chair, San Francisco (+1 415.393.8379, [email protected])
Mary Beth Maloney – New York (+1 212.351.2315, [email protected])
Jason J. Mendro – Washington, D.C. (+1 202.887.3726, [email protected])
Alex Mircheff – Los Angeles (+1 213.229.7307, [email protected])
Lissa M. Percopo – Washington, D.C. (+1 202.887.3770, [email protected])
Jessica Valenzuela – Palo Alto (+1 650.849.5282, [email protected])
Craig Varnen – Co-Chair, Los Angeles (+1 213.229.7922, [email protected])
Allison K. Kostecka – Denver (+1 303.298.5718, [email protected])
Mark H. Mixon, Jr. – New York (+1 212.351.2394, [email protected])

This edition of Gibson Dunn’s Federal Circuit Update for March 2024 summarizes the current status of several petitions pending before the Supreme Court, and recent Federal Circuit decisions concerning indefiniteness, obviousness, eligibility under Section 101, and the safe harbor provision under Section 271.

Federal Circuit News

Noteworthy Petitions for a Writ of Certiorari:

There were no new potentially impactful petitions filed before the Supreme Court in March 2024. We provide an update below of the petitions pending before the Supreme Court that were summarized in our February 2024 update:

In Vanda Pharmaceuticals Inc. v. Teva Pharmaceuticals USA, Inc. (US No. 23-768), after the respondents waived their right to file a response, the Court requested a response, which was filed on March 18, 2024. Three amicus curiae briefs have been filed.

The Court denied the petition in Ficep Corp. v. Peddinghaus Corp. (US No. 23-796).

Upcoming Oral Argument Calendar

The list of upcoming arguments at the Federal Circuit is available on the court’s website.

Key Case Summaries (March 2024)

Chewy, Inc. v. International Business Machines Corporation, No. 22-1756 (Fed. Cir. Mar. 5. 2024): Chewy sued IBM seeking a declaratory judgment of noninfringement of several patents including two patents relating to improvements in web-based advertising. Following claim construction, the district court granted Chewy’s motion for summary judgment of noninfringement of the asserted claims for one patent, because it determined no reasonable factfinder could find Chewy’s accused products “establish[] characterizations for respective users based on the compiled data” as required by the claims. The district court also granted a motion for summary judgment that claims from the second patent were ineligible under 35 U.S.C. § 101.

The Federal Circuit (Moore, C.J., joined by Stoll and Cunningham, JJ.) affirmed-in-part and reversed-in-part. The Court reversed the grant of summary judgment of noninfringement, because it determined that Chewy’s privacy policy and other documents created a genuine dispute of material fact regarding whether Chewy “establish[es] characterizations for respective users.” Indeed, the privacy policy explained that the ads were based on information such as “browsing or purchasing,” and drawing all inferences in the nonmoving party’s favor, this provided evidence that Chewy uses a specific user’s browsing or purchasing history to provide personalized or targeted ads. The Court affirmed the grant of summary judgment that the second patent was ineligible under § 101, determining that the patent was directed to the abstract idea of “identifying advertisements based on search results.” The Court concluded that the patent claims as an ordered combination did not recite an inventive concept because none of the three distinctive concepts raised by IBM—(1) a generic database configured to associate search results with advertisements, (2) offline batching process, and (3) assigning session identifiers to a search query—transformed the claimed abstract idea into patent-eligible subject matter.

Maxell, Ltd. v. Amperex Technology Limited, No. 23-1194 (Fed. Cir. Mar. 6, 2024): Maxell sued Amperex for infringement of Maxell’s patent directed to a rechargeable lithium-ion battery. The district court conducted claim construction proceedings and held that the claims were indefinite because the claim language recited a contradiction—one limitation did not require the presence of cobalt (it was optional), whereas the second limitation did.

The Federal Circuit (Taranto, J., joined by Prost and Chen, JJ.) reversed and remanded. The Court concluded that the claim language was not indefinite because even “[i]f there are two requirements,” if “it is possible to meet both, there is no contradiction.” Moreover, “[t]hat there are other ways of drafting the claim does not render the claim language contradictory or indefinite.”

Edwards Lifesciences Corp. et al. v. Meril Life Sciences Pvt. Ltd. et al., No. 22-1877 (Fed. Cir. Mar. 25, 2024): Edwards sued Meril for patent infringement after Meril imported two transcatheter heart valve systems into the United States that it intended to display at a conference in order to, among other things, find clinical investigators for its FDA premarket submission. The district court held that their importation fell within the safe harbor provision of 35 U.S.C. § 271(e)(1), and therefore granted summary judgment of noninfringement to Meril.

The majority (Stoll, J., joined by Cunningham, J.) affirmed. Section 271(e)(1) “is a safe harbor for defendants for what would otherwise constitute infringing activity.” It states that it “shall not be an act of infringement to . . . import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law . . . .” The majority held that “solely” in § 271(e)(1) modifies the phrase “for uses,” meaning that a use falls within the safe harbor provision if it is reasonably related to preparing a regulatory submission, even if the use also has additional (e.g., commercial) purposes.

Judge Lourie dissented, reasoning that the Court has consistently erred in interpreting the word “solely” in the safe harbor provision and that the question could benefit from en banc review. Specifically, Judge Lourie explained that the plain meaning of “solely” and the legislative history of § 271(e)(1) requires an otherwise infringing use to be carried out only for regulatory purposes (i.e., not for additional or commercial purposes) to benefit from the safe harbor.

Virtek Vision International ULC v. Assembly Guidance Systems, Inc., No. 22-1998 (Fed. Cir. Mar. 27, 2024): Assembly Guidance d/b/a Aligned Vision challenged Virtek’s patent directed to an improved method for aligning a laser project with respect to a work surface in an inter partes review (“IPR”). The Patent Trial and Appeal Board (“Board”) had found that a skilled artisan would have been motivated to use the 3D coordinate system in one prior art reference (Briggs) instead of the angular direction systems found in the other prior art references (Keitler, Bridges), and that it would have been obvious to try because Briggs disclosed both. The Board issued a final written decision holding that certain claims of the patent were unpatentable.

The Federal Circuit (Moore, C.J., joined by Hughes and Stark, JJ.) reversed-in-part and affirmed-in-part. The Court concluded that the Board erred as a matter of law with regard to the motivation to combine. The Court found that although Briggs disclosed that different possible arrangements existed, this did not provide a reason why a skilled artisan would have substituted the one-camera angular direction system in Keitler and Bridges with the two-camera 3D coordinate system disclosed in Briggs. “In short, this case involves nothing other than an assertion that because two coordinate systems were disclosed in a prior art reference and were therefore ‘known,’ that satisfies the motivation to combine analysis. That is an error as a matter of law. It does not suffice to simply be known. A reason for combining must exist.”

The following Gibson Dunn lawyers assisted in preparing this update: Blaine Evanson, Jaysen Chung, Audrey Yang, Julia Tabat, Michelle Zhu, and Evan Kratzer.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups, or the following authors:

Blaine H. Evanson – Orange County (+1 949.451.3805, [email protected])
Audrey Yang – Dallas (+1 214.698.3215, [email protected])

Appellate and Constitutional Law:
Thomas H. Dupree Jr. – Washington, D.C. (+1 202.955.8547, [email protected])
Allyson N. Ho – Dallas (+1 214.698.3233, [email protected])
Julian W. Poon – Los Angeles (+ 213.229.7758, [email protected])

Intellectual Property:
Kate Dominguez – New York (+1 212.351.2338, [email protected])
Y. Ernest Hsin – San Francisco (+1 415.393.8224, [email protected])
Josh Krevitt – New York (+1 212.351.4000, [email protected])
Jane M. Love, Ph.D. – New York (+1 212.351.3922, [email protected])

As we wrap up the first quarter of 2024, Gibson Dunn’s Media, Entertainment and Technology Practice Group highlights some of the notable rulings, developments, deals, and trends from 2023 forward that will inform the industry this year and beyond.

TABLE OF CONTENTS

1. Copyright
2. Artificial Intelligence
3. Trademark
4. Music
5. Fashion & Entertainment
6. Sports
7. Transactions/Deals

_______________________

1. COPYRIGHT

Fourth Circuit Sets Aside $1 Billion Jury Verdict and Orders New Trial on Damages for Contributory Copyright Infringement by Cox Communications

On February 20, 2024, the Fourth Circuit set aside a $1 billion jury verdict against Cox Communications, Inc. for contributory and vicarious copyright infringement in a suit brought by more than 50 record labels and music publishers.[1] The plaintiffs, including Sony Music Entertainment, Warner Music Group, and Universal Music Group, alleged that users of Cox’s internet service downloaded or distributed music over the internet without permission, resulting in the infringement of over 10,000 copyrighted works.[2] After the Fourth Circuit previously held that the Digital Millennium Copyright Act (DMCA)’s safe harbor defense—which protects internet service providers from monetary liability resulting from copyright infringement by their users—did not apply to Cox because of its failure to reasonably implement an anti-piracy policy, the case proceeded to trial.[3] The jury found Cox liable for both willful contributory infringement and vicarious infringement, and awarded $1 billion in statutory damages.[4]

On appeal, the Fourth Circuit affirmed the jury’s willful contributory infringement verdict, holding that sufficient evidence was presented to the jury that Cox “knew of specific instances” of infringement, “traced those instances to specific users,” and “chose” to continue providing internet service to those users in order to preserve its revenue stream.[5] However, the court reversed the vicarious infringement verdict, because the plaintiffs failed to show (a) that infringing users subscribed to Cox’s services, as opposed to a competitor’s, because it gave them a better ability to infringe due to Cox’s more lenient policies, and (b) that users paid more for faster internet so as to engage in infringement.[6] Instead, the court concluded that Cox received the same monthly fees from subscribers, regardless of whether those subscribers engaged in infringing activity.[7] Because the jury’s damages award was a “global figure” for liability under both claims, the Fourth Circuit remanded for a new damages trial to determine damages for solely the willful contributory infringement claim.[8] In doing so, the Fourth Circuit rejected arguments by Cox that certain works should be excluded from the damages calculation because they were being double-counted.[9] Specifically, Cox argued that individual sound recordings compiled in a single album should be counted as one work, and that a music composition and its derivative sound recording should also be counted as one work.[10] The Fourth Circuit, without deciding the merits of Cox’s theories, held that Cox had failed to present evidence that would have allowed the jury to determine which works were derivative or part of a compilation, and declined to reduce the number of copyrighted works at issue.[11]

Supreme Court Holds New Meaning Alone Is Not Sufficient for the Fair Use Defense

On May 18, 2023, the Supreme Court ruled that the Andy Warhol Foundation for the Visual Arts’s (“AWF’s”) licensing of an Andy Warhol-created illustration of a photograph of Prince to a magazine was not a fair use of the underlying photograph of Prince under copyright law.[12] In 1981, professional photographer Lynn Goldsmith was commissioned to photograph the musician Prince.[13] Years later, she licensed her photo to Vanity Fair for a one-time use as an artist’s reference.[14] Warhol created a purple silkscreen portrait of Prince to appear in Vanity Fair.[15] In total, Warhol created 16 silkscreen portraits, now known as the Prince Series, that he derived from Goldsmith’s original copyrighted photograph of Prince.[16] In 2016, Condé Nast, Vanity Fair’s parent company, purchased a license from AWF to publish another Warhol work from the series, Orange Prince, for a commemorative issue on Prince.[17]

After Goldsmith notified AWF of her belief that Orange Prince infringed on her original photo’s copyright, AWF sued Goldsmith for a declaratory judgment of noninfringement or, alternatively, fair use.[18] Goldsmith counterclaimed for infringement.[19] The sole question presented to the Court was whether the first fair use factor, “the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes,” 17 U.S.C. § 107(1), weighed in favor of AWF’s recent commercial licensing to Condé Nast.[20] The Court rejected AWF’s transformative use argument, finding that Goldsmith’s original photograph and Warhol’s illustration shared the substantially same purpose, i.e., both were portraits of Prince used in magazine stories about him.[21] Although the Court acknowledged that a derivative work might add a new expression, that alone does not equate to a transformative use that dispenses with the need for licensing.[22] Moreover, AWF’s use of the photograph was commercial, also weighing against a finding of fair use.[23] As such, the Court affirmed the Second Circuit’s decision that the first fair use factor favored Goldsmith.[24]

Ninth Circuit Concludes That Epic Games’ Dance Animations Share Substantial Similarities with Copyrighted Choreographic Works

On November 1, 2023, the United States Court of Appeals for the Ninth Circuit reversed the dismissal of choreographer Kyle Hanagami’s copyright claim against Epic Games, finding that Hanagami had plausibly alleged that the company released a virtual animation, or “emote,” that was “substantially similar” to Hanagami’s copyrighted choreographic material.[25] In 2022, Hanagami alleged that the emote, released for purchase on Epic Games’ Fortnite in August 2020, included four “counts of movement” that copied the most recognized portion of a five-minute choreographic work that Hanagami created.[26] The United States District Court for the Central District of California found that Hanagami’s dance steps were not protectable under copyright laws on their own, because the “individual poses” at issue were only a “small component” of the work.[27] The court found that copyright law protected Hanagami’s work “only for the way the Steps are expressed in his registered choreography.”[28] Because “[t]he two works contain[ed] a series of different poses performed in different settings and by different types of performers,” the district court reasoned that the works were not “substantially similar as a matter of law” and dismissed Hanagami’s copyright claims.[29]

The Ninth Circuit disagreed, rejecting the district court’s contention that choreography can be analyzed by breaking down a routine into “individual poses.”[30] The Ninth Circuit stated that copyright protects the “[o]riginal selection, coordination, and arrangement” of individual dance movements in a manner akin to an analysis of the original elements inherent in music or photography.[31] Consequently, the Ninth Circuit concluded that the proper analysis for the original elements in a choreographic work centers less on analyzing “poses” in isolation and instead evaluates them alongside myriad elements including “body position, body shape, body actions, [and] use of space.”[32] By applying this analysis, the court found that the copied portion of Hanagami’s work was “the most recognizable and distinctive portion of his work, similar to the chorus of a song.”[33] Because the copied portion “ha[d] substantial qualitative significance to the overall Registered Choreography” and was a “complex, fast-paced series of patterns and movements,” it could receive the benefit of copyright protections.[34] Accordingly, the Ninth Circuit reversed the district court’s dismissal and remanded the case for further proceedings. The parties ultimately entered into an agreement settling the dispute on February 12, 2024.

Supreme Court Takes Up Question of Time Limit On Copyright Infringement Damages

On September 29, 2023, the Supreme Court granted certiorari in Warner Chappell Music, Inc. v. Nealy, a long-running music copyright dispute, to address the limited question of whether the discovery accrual rule and the Copyright Act allow a copyright plaintiff to recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit.[35]

In the underlying case, the United States Court of Appeals for the Eleventh Circuit held that in certain cases a copyright plaintiff “may recover retrospective relief for infringement that occurred more than three years prior to the filing of the lawsuit.”[36] As the Eleventh Circuit acknowledged, the federal Copyright Act establishes a three-year statute of limitations, stating that that “[n]o civil action shall be maintained . . . unless it is commenced within three years after the claim accrued.”[37] Under the Eleventh Circuit’s “discovery rule,” however, “a copyright ownership claim accrues, and therefore the limitations period starts, when the plaintiff learns, or should as a reasonable person have learned, that the defendant was violating his ownership rights.”[38] The Eleventh Circuit held that neither imposes a bar on retrospective relief for an otherwise timely copyright claim.[39]

In holding that a copyright plaintiff may in certain cases recover for infringement occurring more than three years before a lawsuit’s filing, the Eleventh Circuit has entered an ongoing circuit split, as various appellate courts around the country disagree on the relevance of the discovery rule to a plaintiff’s ability to recover retrospective relief for copyright claims.[40] The Supreme Court held oral argument on February 21, 2024 and may soon provide clarity on this long-disputed issue.

Southern District of New York Holds That Scanning and Lending Print Books for Free Infringes Publishers’ Copyrights

On March 24, 2023, the United States District Court for the Southern District of New York, on a motion for summary judgment, held that scanning lawfully acquired books and lending them out like a library violates the copyright of the books’ publishers.[41] The lawsuit concerned Internet Archive’s (“IA”) “controlled digital lending” (“CDL”) practice for sharing books. Under this practice, IA would electronically lend out fully scanned copies of books that it had lawfully acquired through purchase or subscription.[42] In June 2020, the publishers of 127 books challenged IA’s CDL practices, stating that the publishers possessed the exclusive right to publish the works in print and digital form.[43] In response, IA argued that its lending of the books was protected under copyright’s fair use doctrine. Id. Both parties cross-moved for summary judgment.

District Judge John Koeltl found in favor of the publishers, concluding that a straightforward application of copyright law’s four-factor fair use text compelled summary judgment. Focusing on the first prong of the test, the court found that “[t]here is nothing transformative about IA’s copying and unauthorized lending of the Works in Suit.” In doing so, the court rejected IA’s argument that its CDL practice was inherently transformative by “making the delivery of library books more efficient and convenient.”[44] The court distinguished IA’s CDL practice from other utility expanding transformative uses of copyrighted works, because lending ebooks in full “merely replace[s]” the original print books and does not “provid[e] information” about the books in a novel or interesting way.[45] Similarly, the court rejected IA’s argument that IA did not lend the books for a commercial use, both because the company did not charge patrons to borrow books and also because private reading is noncommercial in nature.[46] In so finding, the court noted that IA’s lending practices would help the company by “attract[ing] new members, solicit[ing] donations, and bolster[ing] its standing in the library community.”[47] In assessing the fourth fair use factor—”the effect of the [copying] use on the potential market for or value of the copyrighted work,”—the court noted that IA’s offer of “complete ebook editions of the Works in Suit” without paying a licensing fee to Publishers for those books would “‘bring[ ] to the marketplace a competing substitute’ for library ebook editions of the Works in Suit, ‘usurp[ing] a market that properly belongs to the copyright holder.’”[48] Following the March 2023 opinion, the court approved and entered a negotiated consent judgment that declared IA’s CDL practices to constitute copyright infringement, and further permanently enjoined IA from lending scanned copyrighted works that are available digitally.[49] IA appealed the district court’s ruling to the Second Circuit and submitted its opening brief in December 2023;[50] Hachette filed its answering brief on March 15, 2024.[51] The case has not been set for oral argument.

2. ARTIFICIAL INTELLIGENCE

Getty Images Sues Stability AI

In February 2023, Getty Images (US) sued Stability AI in federal district court in Delaware for allegedly infringing more than 12 million of Getty’s photographs and their associated captions and metadata, in connection with two of Stability AI’s products—Stable Diffusion and DreamStudio—which generate images in response to text prompts. Getty Images also brought trademark and unfair competition claims, alleging the generative output of Stability AI’s products have included Getty Images watermarks.[52] The copyright claims are based on Stability AI having allegedly reproduced images from Getty’s collection without authorization and by using a version of the Getty watermark in Stable Diffusion output.[53] The Lanham Act claims and the state law claims allege Stability AI’s products are causing the public to mistakenly believe that Getty has authorized Stability AI to use and alter its images, resulting in lower quality products.[54] Stability AI has challenged the lawsuit on personal jurisdiction grounds, and the case is currently in jurisdictional discovery.[55]

Artists File Class Action Against Stability AI, Midjourney, and DeviantArt

In January 2023, artists Sarah Andersen, Kelly McKernan, and Karla Ortiz, along with a proposed class of “at least thousands” of other artists, filed a class action complaint against Stability AI, Midjourney, and DeviantArt. The complaint alleges direct and vicarious copyright infringement, DMCA violations and right of publicity violations, and unfair competition based on the creation and functionality of the defendants’ generative AI products.[56] The named plaintiffs, all artists, allege the defendants allegedly used their art to train their artificial intelligence models. The complaint also seeks to certify a class of individuals whose work was used to train any of the defendants’ artificial intelligence products.[57] Plaintiffs’ copyright, DMCA, and state law claims assert that the defendants used plaintiffs’ art in their products for training and other commercial purposes without licensing or in violation of existing contracts.[58] The defendants have moved to dismiss under Rule 12(b)(6).

District of Columbia District Court Holds AI-Generated Art Is Not Copyrightable

On August 18, 2023, the D.C. District Court affirmed the Copyright Office’s denial of the plaintiff’s application to register visual artwork generated by the “Creativity Machine”—an artificial intelligence system owned by Stephen Thaler.[59] The court agreed with the Copyright Office’s determination that a work generated autonomously by a machine, without human input, is not copyrightable because it lacks the requisite “authorship” under the Copyright Act.[60]

In holding that the Register of Copyrights did not err in denying Thaler’s application, the court determined that the Copyright Act’s plain text—conferring protection to “original works of authorship”—requires protectable works to have an “author,” and that authorship is necessarily “human creation.”[61] Because the administrative record reflected Mr. Thaler’s admissions that the Creativity Machine “autonomously” created the work, the court rejected Mr. Thaler’s new arguments before the district court that he provided instructions to and directed the AI system to create such work.[62] The court acknowledged, however, that “[t]he increased attenuation of human creativity from the actual generation of the final work will prompt challenging questions regarding how much human input is necessary to qualify the user of an AI system as an ‘author.’”[63]

New York Times Files Lawsuit against AI Companies, Alleging Copyright Infringement

On December 27, 2023, the New York Times filed a lawsuit against Microsoft and its partner OpenAI, accusing the companies of copyright infringement and other related claims.[64] The Times alleges that Microsoft and OpenAI “directly infringed The Times’s exclusive rights in its copyrighted works” by using the newspaper’s registered, copyrighted works to train artificial intelligence models like ChatGPT.[65] According to the Complaint, Microsoft and OpenAI “seek to free-ride on The Times’s massive investment in its journalism by using it to build substitutive products without permission or payment” by essentially providing Times content directly to consumers.[66]

In response to the lawsuit, OpenAI published a statement on its website addressing the allegations, calling The Times’ claims “without merit.”[67] According to the OpenAI statement, “[t]raining AI models using publicly available internet materials is fair use,” but regardless, OpenAI still has “led the AI industry in providing a simple opt-out process for publishers,” including the New York Times.[68] According to OpenAI, the Times “intentionally manipulated prompts, often including lengthy excerpts of articles, in order to get [ChatGPT] to regurgitate” information, which forms the basis of the lawsuit.[69] OpenAI also highlighted its collaboration with various prominent news organizations, noting that one of the company’s goals is “to support a healthy news ecosystem.”[70]

The Times is seeking damages and injunctive relief.[71] Both OpenAI and Microsoft have filed motions to dismiss the lawsuit.[72] The Times reported that its lawsuit “could test the emerging legal contours of generative A.I. technologies . . . and could carry major implications for the news industry.”[73]

3. TRADEMARK

The Supreme Court Holds That Source-Identifying Uses of Trademarks Are Not Afforded First Amendment Protection against Infringement Claims

In June 2023, the Supreme Court unanimously held that VIP, a dog toy maker that made chewable dog toys designed to look like a bottle of Jack Daniel’s whiskey, could not rely on the First Amendment as a shield against Jack Daniel’s trademark claims.

VIP had originally sought a declaratory judgment that its toy neither infringed nor diluted Jack Daniel’s trademarks. Jack Daniel’s counterclaimed for infringement and dilution. VIP conceded that while its “Bad Spaniels” mark was meant to communicate a humorous message, it also used its “Bad Spaniels” trademark and trade dress as source identifiers.[74] The defendant sought to rely on the Second Circuit’s Rogers test, which affords limited First Amendment protections to the use of trademarks in “expressive works.”[75] The Court held the test does not apply when a trademark is used to indicate the source of a product, as it was here, and remanded the case to the district court to assess Jack Daniel’s claim on the merits. The Court also held that the Lanham Act’s exclusion from liability for dilution for “non-commercial” uses of a mark does not apply to parody, criticism, or commentary when the alleged infringer uses a mark to designate the source of its own goods.[76]

The Supreme Court Clarifies the Lanham Act’s Extraterritorial Reach

On June 29, 2023, the Supreme Court harmonized the extraterritoriality framework of trademark law with recent developments in the Court’s presumption against extraterritoriality jurisprudence. Hetronic International, a domestic manufacturer of radio remote controls for construction equipment, sued six foreign parties (collectively Abitron) for trademark infringement under the Lanham Act.[77] As one of Hetronic’s authorized distributors, Abitron claimed it held the rights to much of Hetronic’s intellectual property, including the marks at issue, in connection with selling its own Hetronic-branded products—mostly in Europe, but some in the United States.[78] Hetronic sought damages for Abitron’s alleged infringement worldwide, while Abitron countered that Hetronic’s claims required an impermissible extraterritorial application of the Lanham Act.[79]

In applying the presumption against extraterritoriality, the Court held that the two provisions of the Lanham Act that prohibit trademark infringement through the unauthorized use in commerce of a protected trademark that is likely to cause confusion (15 U.S.C. § 1114(1)(a) and § 1125(a)(1)) are not extraterritorial, and apply only to claims where the infringing “use in commerce” is domestic.[80] “Use in commerce” means the legitimate use of a mark in the ordinary course of trade where the mark has a source-identifying function, serving to identify and distinguish the goods.[81] The Court held that the location in which the infringing “use in commerce” of a trademark occurs dictates whether the Lanham Act provisions at issue may apply extraterritorially.[82] The Court remanded the case for fact-finding on that issue.[83]

4. MUSIC

Ed Sheeran Successfully Defends against Copyright Claim in New York

In May 2023, following a jury trial in the Southern District of New York, singer Ed Sheeran won a copyright lawsuit over the hit song “Thinking Out Loud,” which Plaintiff Ed Townsend alleged infringed on Marvin Gaye’s “Let’s Get It On.”[84] Subsequently, U.S. District Judge Louis Stanton dismissed Structured Asset Sales, LLC’s closely related complaint on a motion for reconsideration of a prior verdict, finding that the parts of “Let’s Get It On” that Sheeran was accused of infringing—namely, the chord progression and harmonic rhythm—were too common for copyright protection.[85] The court concluded that protecting the combination of these musical elements in “Let’s Get It On” would give the song an “impermissible monopoly over a basic musical building block.”[86] If such a “selection and arrangement” were “protected and not freely available to songwriters,” the court noted, “the goal of copyright law . . . would be thwarted.”[87]

Plaintiffs Claim That over 1,600 Songs by Reggaeton Artists, Like Bad Bunny and Pitbull, Infringe a 1989 Work

Popular artists Bad Bunny, Pitbull, and Daddy Yankee found themselves among hundreds of artists targeted in a lawsuit that threatens the entire genre of “Reggaeton” music—a blend of reggae music with Latin American dance hall music, with hip-hop influences.[88] This litigation, which began in 2021 in the Central District of California, will address the extent to which rhythm is deemed protectable under Copyright Law. Specifically, Plaintiffs Cleveland Browne and the estate of Wycliffe Johnson, who performed under the name Steely & Clevie, allege that the 100-plus artists named in the litigation infringed on the rhythm of the 1989 song “Fish Market.”[89] In June 2023, Bad Bunny moved to dismiss Plaintiffs’ Second Consolidated Amended Complaint. Bad Bunny argued Plaintiffs were seeking to protect the “basic building block(s)” of the genre, which belong in the public domain.[90] The parties are awaiting a decision.

5. FASHION & ENTERTAINMENT

Hermès Prevails in Request for Permanent Ban on US “MetaBirkin” NFT Sales

In June 2023, in Hermes International v. Rothschild, U.S. District Judge Jed Rakoff permanently blocked Mason Rothschild and his associates from selling or minting MetaBirkin non-fungible tokens (NFTs).[91] This ruling was made pursuant to Hermès’s request to block Rothschild’s sales of “MetaBirkin” NFTs following a jury verdict that the NFTs violated Hermès’s trademark rights in its popular Birkin bags.[92] That jury had found Rothschild liable on all three counts of trademark violations in February 2023, and awarded Hermès damages in the amount of $133,000 for Rothschild’s use of the Birkin mark in his “MetaBirkin” NFTs.[93]

The court found Hermès satisfied the four threshold requirements for a permanent injunction articulated by the Supreme Court in eBay Inc. v. MercExchange, L.L.C., specifically that (i) Hermès suffered an irreparable injury, (ii) the remedies available at law are inadequate, (iii) a remedy in equity is warranted due to the balance of hardships between Hermès and Rothschild, and (iv) the public interest would not be disrupted by a permanent injunction.[94] The court ordered Rothschild to transfer the metabirkins.com domain name and relevant materials to Hermès; however, the court refused to order the transfer of the NFTs and smart contracts out of an abundance of caution related to First Amendment concerns, as the court reasoned that “MetaBirkins NFTs are at least in some respects works of art.”[95]

Historic Strike Ends following SAG-AFTRA’s Approval of Agreement

In November 2023, SAG-AFTRA’s negotiating committee unanimously voted to approve a tentative three-year agreement that ended a 118-day strike—the longest actors’ strike against the television and film studios in Hollywood history. Union leadership voted to ratify the deal shortly thereafter.[96] The deal included historic protections for actors against artificial intelligence, increases in health and pension contributions, a “streaming participation bonus,” and an unprecedented pay increase.[97] The deal resulted in a 7% pay increase effective immediately after it was approved, another 4% increase in July 2023, and another 3.5% increase set to take effect in July 2024.[98]

Chanel Prevails in Trademark Dispute against Luxury Reseller

On February 6, 2024, a New York federal jury found luxury reseller What Goes Around Comes Around (“WGACA”) liable on all four of Chanel’s claims for trademark infringement, false advertising, unfair competition, and counterfeiting.[99] Chanel brought the action in 2018, accusing WGACA of, among other allegations, (1) selling counterfeit Chanel bags, including bags bearing serial numbers tied to stolen bags and bags made from materials not used by Chanel’s factories; and (2) creating consumer confusion by using Chanel’s marks in advertising and consumer communications in violation of the Lanham Act.[100] On July 26, 2021, both parties moved for summary judgment.[101] Chanel sought findings of liability for the trademark infringement and false association claims, and WGACA sought summary judgment in its favor with respect to all claims. The court granted Chanel’s motion in part, finding WGACA liable for trademark infringement for selling handbags loaned to retailers for display that were never authorized for sale, and several handbags bearing serial numbers associated with those reported as stolen or pirated. The court emphasized Chanel’s rights to control the quality of its marks.[102] By selling handbags that were never authorized for sale or whose serial numbers confirm they never went through Chanel’s quality control procedures, WGACA sold non-genuine products in violation of the Lanham Act.[103] The court also granted WGACA’s motion for summary judgment in part, but only with respect to Chanel’s New York state law claims because it determined issues of material fact existed as to the remaining federal claims.[104] The case proceeded to a jury trial, after which the jury returned a verdict in favor of Chanel for all surviving claims, awarding the company $4 million in statutory damages.[105]

6. SPORTS

N.Y. Knicks Say Former Employee Took Trade Secrets to the Toronto Raptors

In August 2023, the New York Knicks filed a lawsuit in federal district court against Maple Leaf Sports & Entertainment, the parent company of the Toronto Raptors, Darko Rajakovi, Noah Lewis, and Ikechukwu Azotam (together “Raptors”), over an alleged theft of the Knicks’ trade secrets, seeking damages over $10 million.[106] The Knicks claim that a former team employee, Ikechukwu Azotam, stole proprietary information from the Knicks franchise, and took the information with him to the Toronto Raptors, where he assumed the role of assistant coach.[107] The alleged stolen proprietary information includes scouting files, season preparation books, play reports, and other materials.[108] The Knicks further allege that Azotam stole this information under the instruction of the Toronto Raptors, including head coach Darko Rajakovic.[109]

On October 16, 2023, the Raptors filed a motion to dismiss, denying all allegations and arguing that the alleged stolen proprietary information is not a protected trade secret because the information was not unique to the Knicks and contained data on all NBA teams that could be gathered by watching televised games.[110] The motion further argued that federal court was the improper forum for commencing the action and that, per the NBA Constitution, the Knicks and Raptors were to arbitrate their dispute.[111]

On November 20, 2023, the Knicks filed their response to the Raptors’ motion to dismiss, arguing the dispute is not governed by the NBA Constitution because it is not a dispute about “basketball operations,” but rather a dispute over “the theft of trade secrets by a disloyal employee.”[112] The parties are awaiting a decision.[113]

7. TRANSACTIONS/DEALS

Lionsgate Acquires eOne

On December 27, 2023, Lionsgate announced its acquisition of studio Entertainment One (eOne) from toy company Hasbro for $375 million.[114] The acquisition added 6,500 film and television titles to Lionsgate’s library.

Artémis Acquires Majority Stake in CAA

On October 2, 2023, Artémis, an investment company run by French billionaire Francois-Henri Pinault, agreed to acquire a majority stake in Creative Artists Agency (CAA) that was previously held by global investment firm TPG.[115] Although an exact figure has not been disclosed, the sale has been reported to be for around $7 billion.

AMC Entertainment Executes Distribution Agreements with Beyoncé and Taylor Swift

In mid-2023, AMC Entertainment struck deals with Beyoncé and Taylor Swift to distribute the artists’ concert films: “Taylor Swift: The Eras Tour” and “Renaissance: A Film by Beyoncé.”[116] The films represented the first ever movies distributed by AMC, and bypassed the usual protocol where studios distribute the films to theaters.[117] The deals also included minimum ticket prices for both films: starting at $19.89 for Eras and $22 for Renaissance.[118] The deals boosted AMC’s earnings, with AMC’s CEO attributing AMC’s 2023 fourth quarter revenue and EBITDA increases entirely to the two films, which collectively earned more than $115 million at the domestic box office on their opening weekends.[119] According to reports, AMC shared in 43% of the profits from the Eras film with Taylor Swift taking home the remaining 57%, whereas Beyoncé split box office earnings from the Renaissance film roughly 50% with exhibitors while AMC accepted a small distribution fee.[120]

Music Catalog Acquisitions

The market for music catalog acquisitions—which includes master recordings, music publishing, and other trademark and IP—cooled in 2023 due to rising interest rates.[121] Catalog acquisitions had become extremely lucrative revenue streams for investors, who use the songs in licensing deals, film and television, and advertisements, but became less attractive in the past year given rising borrowing costs.[122] Nonetheless, the year still saw major acquisitions by companies like Sony Music Group, Universal Music Group, Litmus Music, and Hipgnosis. Some highlights from the past year include:

Universal Music Group and Shamrock Capital Acquire Dr. Dre’s Music Catalog

In January 2023, Universal Music Group and Shamrock Capital purchased various passive income streams from Dr. Dre’s catalog, including producer royalties, his share of N.W.A artist royalties, and the writer’s share of the song catalog where he does not own the publishing.[123] Reported to be at around $200 million, the deal was the largest-ever hip-hop catalog deal for a single artist.

Litmus Music Acquires Katy Perry’s Music Catalog

On September 18, 2023, Litmus Music announced its $225 million purchase of Katy Perry’s master rights royalties and publishing income from her five albums released between 2008 and 2020.[124] Litmus Music is a music rights company founded in 2022, backed by private equity company Carlyle Group LLC. The deal marked the year’s largest artist catalog transaction.

Hipgnosis Acquires Justin Bieber’s Music Catalog

On January 24, 2023, Hipgnosis Songs Capital announced that it had reached a deal to purchase all of Justin Bieber’s publishing royalties, artist royalties from his master recordings, and neighboring rights.[125] The catalog included 290 titles, covering songs released through the end of 2021. The deal was reported to be valued at around $200 million.

Sony Music Group Acquires Half of Michael Jackson’s Music Catalog

On February 9, 2024, Sony Music Group announced that it had reached a deal to acquire half of Michael Jackson’s publishing and recorded masters catalog in a transaction that reportedly valued the total catalog at over $1.2 billion, which could be the highest-ever valuation of a single artist’s work.[126] Sony reportedly paid at least $600 million for its stake. The deal also included assets from Jackson’s Mijac publishing catalog, including songs by Sly & the Family Stone and Ray Charles.

Vice Media Group Acquired by Consortium of Lenders

Gibson Dunn represented Fortress Investment Group and a consortium of lenders, including Soros Fund Management and Monroe Capital, in the debtor-in-possession financing and acquisition of Vice Media Group in its chapter 11 filing. With its secured lenders’ support, Vice Media filed for Chapter 11 on May 15, 2023.[127] On July 31, 2023, the lenders, represented by Gibson Dunn, closed on the sale of substantially all of Vice Media’s assets, including its international next-gen media and entertainment platform for a purchase price of $350 million, plus the assumption of certain liabilities.[128] In a joint statement, the lender group said, “We are very pleased to complete the acquisition of Vice and we are excited to build upon the achievements of one of the most iconic brands in news and entertainment. We look forward to growing a strong business that is committed to serving audiences, brands and partners with award-winning content.”[129]

RedBird IMI Takes Stake in Media Res

Gibson Dunn advised RedBird Capital Partners in RedBird IMI’s investment in Media Res, the production studio behind Apple TV+ shows The Morning Show and Pachinko.[130] The investment, announced in January 2024, is RedBird IMI’s first investment in scripted entertainment.[131] Jeff Zucker, CEO of RedBird IMI, said, “Media Res was a natural partnership for us as we continue to expand our presence across all forms of scripted, unscripted and children’s entertainment as well as news and information.”[132] The studio, founded by former HBO executive Michael Ellenberg, will use the investment to “strike new strategic partnerships” and continue “championing artists’ original ideas and sourcing projects from exceptional IP.”[133]

NFL and Skydance Media Partner to Form Skydance Sports

Gibson Dunn represented the NFL in its joint venture with Skydance Media to form Skydance Sports, a premier global multi-sports production studio.[134] NFL Films Senior Executive Ross Ketover said, “Through this new venture, we will be able to expand our storytelling acumen into different areas of content by tapping into the expertise and creativity of a highly accomplished media company in Skydance.”[135] Via the partnership, the studio will produce both scripted and unscripted sports media content.[136] In May 2023, the studio announced the first project to come from the joint venture, which is a docuseries chronicling Dallas Cowboys owner Jerry Jones and the Cowboys franchise.[137] The series is currently in development and will feature never-before-seen content from the NFL Films archive.[138]

Investment Partnership Led by Josh Harris Acquires the Washington Commanders

On July 21, 2023, a partnership led by Josh Harris, founder of Apollo Global Management, announced the closing of its acquisition of the Washington Commanders.[139] The Harris group includes 20 limited partners, including NBA legend Magic Johnson.[140] The acquisition closed for a North American sports franchise record $6.05 billion.[141] Dan Snyder, the former Commanders owner, bought the franchise in 1999 for $800 million.[142]

WWE and UFC Merge to Create TKO Group

On April 3, 2023, Endeavor Group Holdings, UFC’s parent company, announced the closing of its merger with WWE and the formation of the new publicly listed TKO Group.[143] The newly merged TKO Group has a valuation of $21.4 billion.[144] Former WWE majority shareholder and chairman Vince McMahon will serve as executive chairman of TKO, while Dana White, former UFC president, is named as UFC CEO.[145] Shares in TKO began trading on September 12, 2023, pegged to WWE’s stock price, which closed at $100.65/share on its final day of trading.[146]

Microsoft’s Acquisition of Activision Blizzard

In October 2023, Microsoft closed its $69 billion acquisition of the gaming firm Activision Blizzard, the largest deal in Microsoft’s 48-year history.[147] The deal, which was announced in January 2022, underwent a lengthy and robust review from regulators, including the U.K.’s Competition and Markets Authority, before finally being cleared nearly two years later.[148]

Disney’s Acquisition of Comcast’s Stake in Hulu

On November 1, 2023, the Walt Disney Company (“Disney”) announced its intention to acquire the 33% stake in Hulu, LLC held by Comcast Corp.’s NBCUniversal (“NBCU”) by December for an anticipated $8.6 billion.[149] The deal has a $27.5 billion guaranteed floor value but will be subject to an appraisal process by which Hulu’s equity fair value will be assessed as of September 30, 2023.[150] Under this process, “if the value is ultimately determined to be greater than the guaranteed floor value, Disney will pay NBCU its percentage of the difference between the equity fair value and the guaranteed floor value.”[151] According to a company press release, the acquisition is anticipated to “further Disney’s streaming objectives.”[152]

Production Company M&A

Blumhouse Productions and James Wan’s Atomic Monster Merge

On January 2, 2024, Jason Blum’s Blumhouse Productions and James Wan’s Atomic Monster, two of the world’s leading horror film production houses, merged in a deal that resulted in a three-way ownership structure split amongst Blum, Wan, and Universal Pictures.[153] Blumhouse and Atomic Monster will continue to operate as separate labels, but Blum and Wan look forward to increased content output as a result of their collaboration.[154] The merged company retains and expands Blumhouse’s long-standing first-look deal with Universal Pictures, which Gibson Dunn represented in connection with the merger.

The North Road Company Expands with Key Acquisitions

On November 7, 2023, Peter Chernin’s production studio, North Road, acquired an undisclosed stake in Questlove’s production house, Two One Five Entertainment.[155] The purchase is the latest in a series of acquisitions by North Road in 2023, including the Turkish film and television studio, Karga Seven Pictures on June 6, 2023.[156] North Road also received $150 million capital investment from the Qatar Government Investment Fund back in January, 2023, adding to the capital base of $300 million from Apollo and up to $500 million from Providence Equity Partners that North Road secured at its launch in July 2022.[157]

__________

[1] [ ] Sony Music Ent. v. Cox Commc’ns, Inc., 93 F.4th 222 (4th Cir. 2024).

[2] Id. at 229.

[3] Id. at 227-28.

[4] Id. at 229.

[5] Id. at 236.

[6] Id. at 232-33.

[7] Id. at 232.

[8] Id. at 237.

[9] Id. at 238.

[10] Id.

[11] Id. at 239-41.

[12] Andy Warhol Found. for the Visual Arts, Inc. v. Goldsmith, 598 U.S. 508, 508-09 (2023).

[13] Id. at 508.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[7] Id.

[18] Id.

[19] Id. at 508-09.

[20] Id. at 535-36.

[21] Id. at 541.

[22] Id. at 537.

[23] Id. at 551.

[24] Hanagami v. Epic Games, 85 F.4th 931, 935 (9th Cir. 2023).

[25] Id.

[26] Id.

[27] Id. at 938.

[28] Id.

[29] Id. at 943.

[30] Id.

[31] Id.

[32] Id. at 946.

[33] Id. at 947.

[34] Warner Chappell Music, Inc. v. Nealy, 216 L. Ed. 2d 1313 (Sept. 29, 2023).

[35] Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325, 1334 (11th Cir. 2023).

[36] 17 U.S.C. § 507(b).

[37] Nealy, 60 F.4th at 1330.

[38] Id. at 1334.

[39] Id. at 1331.

[40] Hachette Book Grp., Inc. v. Internet Archive, 664 F. Supp. 3d 370, 374 (S.D.N.Y. 2023).

[41] Id. at 375-76.

[42] Id. at 377.

[43] Id. at 380.

[44] Id. at 382.

[45] Id. at 383.

[46] Id.

[47] Id. at 388 (quoting Fox News Network, LLC., v. Tveyes, Inc., 883 F.3d 169, 179 (2d Cir. 2018)).

[48] Consent J. and Permanent Inj., Hachette Book Grp. v. Internet Archive, 664 F. Supp. 3d 370 (S.D.N.Y. 2023) (No. 1:20-cv-04160), ECF No. 215.

[49] Docketing Notice, Hachette Book Grp. v. Internet Archive, No. 23-1260 (2d Cir. Sept. 15, 2023).

[50] Brief of Appellee, Hachette Book Grp. v. Internet Archive, No. 23-1260 (2d Cir. Mar. 15, 2023).

[51] Getty Images (US), Inc. v. Stability AI, Inc., et. al., No. 1:23-cv-00135-UNA (D. Del.).

[52] Getty Images (US), Inc. v. Stability AI, Inc., et. al., No. 1:23-cv-00135-UNA (D. Del.).

[53] Id.

[54] Id.

[55] Id.

[56] Andersen v. Stability AI, et al., No. 3:23-cv-00201 (N.D. Cal.).

[57] Id.

[58] Id.

[59] Thaler v. Pelmutter, No. CV 22-1564 (BAH) (D.D.C. Aug. 18, 2023).

[60] Id.

[61] Id. at 9-10.

[62] Id. at 14.

[63] Id. at 13.

[64] Complaint, New York Times Co. v. Microsoft Corp., No. 23-CV-11195 (S.D.N.Y. Dec. 27, 2023).

[65] Id.

[66] Id.

[67] OpenAI, OpenAI and Journalism (Jan. 8, 2024) https://openai.com/blog/openai-and-journalism.

[68] Id.

[69] Id.

[70] Id.

[71] Id.

[72] Motion to Dismiss, New York Times Co. v. Microsoft Corp., No. 23-CV-11195 (S.D.N.Y. Feb. 26, 2024); Motion to Dismiss, New York Times Co. v. Microsoft Corp., No. 23-CV-11195 (S.D.N.Y. Mar. 4, 2024).

[73] Michael M. Grynbaum and Ryan Mac, The Times Sues OpenAI and Microsoft Over A.I. Use of Copyrighted Work, N.Y. Times, Dec. 27, 2023.

[74] Jack Daniel’s Properties, Inc. v. VIP Prod. LLC, 599 U.S. 140, 159-60 (2023).

[75] Id. at 153.

[76] Id. at 161-63.

77] Abitron Austria GmbH v. Hetronic Int’l, Inc., 600 U.S. 412, 415-16 (2023).

[78] Id. at 416.

[79] Id.

[80] Id. at 419-20.

[81] Id. at 428.

[82] Id. at 422-24.

[83] Id. at 423.

[84] Ben Sisario, Ed Sheeran Wins Copyright Case Over Marvin Gaye’s ‘Let’s Get It On’, New York Times (May 4, 2023), https://www.nytimes.com/2023/05/04/arts/music/ed-sheeran-marvin-gaye-copyright-trial-verdict.html.

[85] Structured Asset Sales, LLC v. Sheeran et al, 1:18CV05839, Dkt. 217 at 13 (S.D.N.Y May 16, 2023); Bill Donahue, Ed Sheeran Wins Another Copyright Case Over ‘Let’s Get It On’, Billboard (May 16, 2023) https://www.billboard.com/pro/ed-sheeran-wins-second-lets-get-it-on-lawsuit/.

[86] Id.

[87] Id. at 15.

[88] Grace Flynn, Reggaeton: Origin and Evolution of a Genre, Marquette Wire (Nov. 28, 2011).

[89] Cleveland Constantine Browne et al v. Rodney Sebastian Clark Donalds et al, 2:21CV02840, Dkt. 305 (C.D.C.A) (April 21, 2023).

[80] Cleveland Constantine Browne et al v. Rodney Sebastian Clark Donalds et al, 2:21CV02840, Dkt. 330 (C.D.C.A) (June 30, 2023).

[91] Blake Brittain, Hermes wins permanent ban on ‘MetaBirkin’ NFT sales in US lawsuit, Reuters (2023), https://www.reuters.com/business/hermes-wins-permanent-ban-metabirkin-nft-sales-us-lawsuit-2023-06-23/ (last visited Feb 10, 2024).

[92] Id.

[93] Hermes Int’l v. Rothschild, No. 22-CV-384 (JSR), 2023 WL 4145518 (S.D.N.Y. June 23, 2023).

[94] Melanie J. Howard & Jennifer Kahn, Hermès International v. Rothschild, Loeb & Loeb LLP (2023), https://www.loeb.com/en/insights/publications/2023/06/hermes-international-v-rothschild (last visited Feb 10, 2024).

[95] Id.

[96] Gene Maddus, SAG-AFTRA Approves Deal to End Historic Strike, Variety (2023) https://variety.com/2023/biz/news/sag-aftra-tentative-deal-historic-strike-1235771894/ (last visited Feb 10, 2024).

[97] Id.

[98] Andrew Dalton, Hollywood Actors Union Board Approves Strike-Ending Deal as Leaders Tout Gains, TIME (2023) https://time.com/6334007/hollywood-actors-union-approves-deal-strike-ends (last visited Feb 10, 2024).

[99] Chanel, Inc. v. What Comes Around Goes Around LLC et al., No. No. 18-CV-2253 (LLS), Dkt. 407 (S.D.N.Y.).

[100] Chanel, Inc. v. What Comes Around Goes Around LLC et al., No. 18-CV-2253 (LLS), 2022 WL 902931, at *1 (S.D.N.Y. Mar. 28, 2022).

[101] Id.

[102] Id.

[103] Id.

[104] Id.

[105] Chanel, Inc. v. What Comes Around Goes Around LLC et al., No. No. 18-CV-2253 (LLS), Dkt. 407 (S.D.N.Y.).

[106] Compl., N.Y. Knicks vs. Maple Leaf Sports & Ent. Ltd., No. 1:2023cv07394 (Aug. 21, 2023).

[107] Id.

[108] Id.

[109] Id.

[110] Memorandum of Law in Support of Motion to Dismiss, N.Y. Knicks vs. Maple Leaf Sports & Ent. Ltd., No. 1:2023cv07394 (Oct. 16, 2023).

[111] Id.

[112] Mike Vorkunov & Eric Koreen, Knicks Argue Lawsuit Against Raptors Should Stay in Federal Court and Not Be Moved to NBA-Run Arbitration, Athletic (Nov. 20, 2023), https://theathletic.com/5078586/2023/11/20/knicks-raptors-lawsuit-nba.

[113] Alder Almo, Raptors Label Knicks Lawsuit a PR Stunt, Push for Dismissal, Heavy (Feb. 20, 2024), https://heavy.com/sports/new-york-knicks/raptors-slams-knicks-lawsuit/.

[114] Jennifer Maas, Lionsgate Closes eOne Acquisition for $375 Million, Variety (Dec. 27, 2023), https://variety.com/2023/tv/news/lionsgate-closes-eone-375-million-1235851625.

[115] Nellie Andreeva, Francois-Henri Pinault’s Artémis Closes Deal For Majority Stake In CAA – Update, Deadline (Oct. 2, 2023), https://deadline.com/2023/10/caa-tpg-majority-stake-iacquired-francois-henri-pinault-artemis-bryan-lourd-ceo-1235539266.

[116] Nardine Saad, No Surprise Here: Taylor Swift, Beyoncé Concern Films Boost AMC Quarterly Earnings, L.A. Times (Feb. 29, 2024, 2:03 PM), https://www.latimes.com/entertainment-arts/business/story/2024-02-29/taylor-swift-beyonce-concert-films-boost-amc-earnings.

[117] Id.

[118] Ephrat Livni & Michael J. de la Merced, How Beyoncé and Taylor Swift Struck a New Kind of Movie Deal, N.Y. Times (Oct. 7, 2023), https://www.nytimes.com/2023/10/07/business/dealbook/how-beyonce-and-taylor-swift-struck-a-new-kind-of-movie-deal.html.

[119] Nardine Saad, No Surprise Here: Taylor Swift, Beyoncé Concern Films Boost AMC Quarterly Earnings, L.A. Times (Feb. 29, 2024, 2:03 PM), https://www.latimes.com/entertainment-arts/business/story/2024-02-29/taylor-swift-beyonce-concert-films-boost-amc-earnings.

[120] Id.

[121] Glenn Peoples, The 10 Biggest Music Business Deals of 2023, Billboard (Dec. 29, 2023), https://www.billboard.com/lists/biggest-music-deals-2023-katy-perry-justin-bieber-hybe.

[122] Id.; Anna Nicolaou & Eric Platt, Rising Interest Rates Rock Private Equity’s Billion-Dollar Bets On Music, Fin. Times (Dec. 14, 2023), https://www.ft.com/content/86bb6d35-91f6-4002-9e9e-5412e609be52.

[123] Peoples, supra.

[124] Jem Aswad, Katy Perry Sells Catalog Rights to Litmus Music for $225 Million, Variety (2023), https://variety.com/2023/music/news/katy-perry-sells-catalog-rights-litmus-music-1235726293.

[125] Ethan Millman, Justin Bieber Sells Publishing and Recorded Catalog for Reported $200 Million, Rolling Stone (2023), https://www.rollingstone.com/music/music-news/justin-bieber-sells-catalog-hipgnosis-1234651518.

[126] Ed Christman, Sony Music Buys Stake in Michael Jackson Catalog, Valuing Rights at Over $1.2B, Billboard (Feb. 9, 2024), https://www.billboard.com/business/business-news/michael-jackson-estate-sells-music-rights-sony-valuation-1235604155.

[127] Jesse Whittock, Vice Media Files for Chapter 11 Bankruptcy, Deadline (May 15, 2023, 1:01 AM), https://deadline.com/2023/05/vice-media-chapter-11-bankruptcy-1235366640/.

[128] Todd Spangler, Vice Media Closes $350 Million Sale to Investors Fortress, Soros Fund Management and Monroe Capital, Variety (July 31, 2023, 6:58 AM), https://variety.com/2023/digital/news/vice-media-closes-sale-post-bankruptcy-investors-fortress-soros-monroe-1235683295.

[129] Id.

[130] Dade Hayes, Jeff Zucker-Led RedBird IMI Takes Stake In ‘The Morning Show’ Studio Media Res, Deadline (Jan. 4, 2024, 6:09 AM), https://deadline.com/2024/01/jeff-zucker-redbird-imi-invests-in-the-morning-show-pachinko-studio-media-res-1235695014.

[131] Todd Spangler, Jeff Zucker-Led RedBird IMI Takes Minority Stake in ‘Morning Show’ Producer Media Res, Variety (Jan. 4, 2024, 7:15 AM), https://variety.com/2024/tv/news/jeff-zucker-redbird-imi-media-res-investment-minority-stake-1235861452.

[132] Id.

[133] Id.

[134] Dade Hayes, NFL and Skydance Team To Create Multi-Sport Production Studio, Deadline (Nov. 15, 2022, 10:05 AM), https://deadline.com/2022/11/nfl-skydance-team-up-for-multi-sport-production-studio-1235172891/.

[135] Id.

[136] Press Release, The National Football League, NFL, Skydance Media partner to expand Skydance Sports into the preeminent global sports content studio (Nov. 15, 2022, 12:52 PM), https://www.nfl.com/news/nfl-skydance-media-partner-to-expand-skydance-sports-into-the-preeminent-global-.

[137] BreAnna Bell, Jerry Jones Docuseries in Development at Skydance Media, Variety (May 3, 2023, 12:00 PM), https://variety.com/2023/tv/news/jerry-jones-docuseries-skydance-media-1235602545/.

[138] Id.

[139] Josh Harris Announces Acquisition of Washington Commanders, Washington Commanders (July 21, 2023), https://www.commanders.com/news/josh-harris-announces-acquisition-of-washington-commanders.

[140] Bruce Haring, NFL’s Washington Commanders Sold For $6.05B, A North American Sports Franchise Record, Deadline (July 20, 2023), https://deadline.com/2023/07/nfl-washington-commanders-sold-for-6-05b-north-american-sports-franchise-record-1235443619/.

[141] Id.

[142] Id.

[143] Endeavor Announces UFC® and WWE® to Form a $21+ Billion Global Live Sports and Entertainment Company, WWE (April 3, 2023), https://corporate.wwe.com/investors/news/press-releases/2023/04-03-2023-115019034.

[144] Marc Raimondi, UFC, WWE officially combine under TKO umbrella, ESPN (September 12, 2023), https://www.espn.com/mma/story/_/id/38386430/ufc-wwe-officially-combine-tko-umbrella.

[145] Id.

[146] Todd Spangler, WWE, UFC Officially Merge to Form TKO Group, New Stock to Start Trading, Variety (September 12, 2023), https://variety.com/2023/tv/news/wwe-ufc-deal-closes-tko-group-1235719908/.

[147] Josh Novet, Microsoft closes $69 billion acquisition of Activision Blizzard after lengthy regulatory review, CNBC (October 13, 2023), https://www.cnbc.com/2023/10/13/microsoft-closes-activision-blizzard-deal-after-regulatory-review.html.

[148] Id.

[149] The Walt Disney Company, The Walt Disney Company to Purchase Remaining Stake in Hulu from Comcast, (November 1, 2023), https://thewaltdisneycompany.com/disney-hulu/.

[150] Id.

[151] Id.

[152] MoneyWatch, Disney reaches $8.6 billion deal with Comcast to fully acquire Hulu, (November 1, 2023), https://www.cbsnews.com/news/disney-8-6-billion-dollar-deal-fully-acquire-hulu-from-comcast/.

[153] Aaron Couch, Jason Blum’s Blumhouse and James Wan’s Atomic Monster Close Merger Deal, The Hollywood Reporter (Jan. 2, 2024).

[154] Id.

[155] Jennifer Maas, North Road Acquires Significant Stake in Questlove and Black Thought’s Two One Five Entertainment, Variety (November 7, 2023), https://variety.com/2023/tv/news/questlove-black-thought-production-company-two-one-five-north-road-1235782787/.

[156] Nick Vivarelli, Peter Chernin’s The North Road Company Buys Turkish Film and TV Powerhouse Karga Seven Pictures, Variety (June 6, 2023), https://variety.com/2023/film/global/peter-chernin-north-road-company-karga-seven-pictures-1235634663/.

[157] Todd Spangler, Peter Chernin’s North Road Receives $150 Million From Qatar Government Investment Fund, Variety (January 31, 2023), https://variety.com/2023/film/news/peter-chernin-north-road-qatar-investment-authority-1235507929/.

The following Gibson Dunn attorneys assisted in preparing this update: Scott Edelman, Ilissa Samplin, Brian Ascher, Jillian London, Marissa Mulligan, Shaun Mathur, Doran Satanove, Dillon Westfall, Cate Harding, Monica Woolley, Sasha Dudding, Zachary Montgomery, Elise Widerlite, Peter Jacobs, Amanda Bello, Maya Halthore, Ignacio Martinez Castellanos, Maryam Asenuga, Narayan Narasimhan, Zachary Goldstein, and Sophia Amir.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s Media, Entertainment & Technology practice group:

Scott A. Edelman – Co-Chair, Los Angeles (+1 310.557.8061, [email protected])
Kevin Masuda – Co-Chair, Los Angeles (+1 213.229.7872, [email protected])
Benyamin S. Ross – Co-Chair, Los Angeles (+1 213.229.7048, [email protected])
Theodore J. Boutrous, Jr. – Los Angeles (+1 213.229.7000, [email protected])
Orin Snyder – New York (+1 212.351.2400, [email protected])
Brian C. Ascher – New York (+1 212.351.3989, [email protected])
Jillian N. London – Los Angeles (+1 213.229.7671, [email protected])
Ilissa Samplin – Los Angeles (+1 213.229.7354, [email protected])

From the Derivatives Practice Group: This issue addresses ESMA’s ongoing process to potentially shorten the settlement cycle in EU Markets, developments in Hong Kong and Australia, and a couple responses from ISDA to regulators.

New Developments

CFTC’s Global Markets Advisory Committee Advances Three Recommendations. On March 7, the CFTC’s Global Markets Advisory Committee (GMAC), sponsored by Commissioner Caroline D. Pham, advanced three new recommendations intended to (1) promote U.S. Treasury markets resiliency and efficiency, (2) provide resources on the upcoming transition to T+1 securities settlement, and (3) publish a first-ever digital asset taxonomy to support U.S. regulatory clarity and international alignment.
CFTC’s Market Risk Advisory Committee to Meet. The CFTC’s Market Risk Advisory Committee (MRAC) will meet on April 9 at 9:30 am ET. The MRAC will consider current topics and developments in the areas of central counterparty risk and governance, market structure, climate-related risk, and emerging technologies affecting derivatives and related financial markets.

New Developments Outside the U.S.

ESMA Publishes Feedback on Shortening Settlement Cycle. On March 21, the European Securities and Markets Authority (ESMA) published feedback received to its Call for Evidence on shortening the settlement cycle in the EU. According to ESMA’s report on the feedback, respondents focused on four areas: (1) many operational impacts, beyond adaptations of post-trade processes, were identified as the result of a reduction of the securities settlement cycle in the EU; (2) respondents identified a wide range of both potential costs and benefits of a shortened cycle, with some responses supporting a thorough impact assessment; (3) respondents provided suggestions around how and when a shorter settlement cycle could be achieved, with a strong demand for a clear signal from the regulatory front at the start of the work and clear coordination between regulators and the industry; and (4) stakeholders made clear the need for a proactive approach to adapt their own processes to the transition to T+1 in other jurisdictions. Additionally, according to ESMA, some responses warned about potential infringements due to the misalignment of the EU and North America settlement cycles. [NEW]
HKMA Issues New SPM Modules on Market Risk and CVA Risk Capital Charges. On March 15, the Hong Kong Monetary Authority (HKMA) released a circular informing the industry that it has issued new Supervisory Policy Manual (SPM) modules MR-1: Market Risk Capital Charge and MR-2: CVA Risk Capital Charge as statutory guidance, which will come into effect on a day to be appointed by the HKMA (intended to be January 1, 2025). The HKMA said that the revised market risk and credit valuation adjustment (CVA) risk capital frameworks will be set out in Part 8 and Part 8A of the Banking (Capital) Rules, respectively. The SPM MR-1: Market Risk Capital Charge covers the standardized approach for market risk, the internal models approach, the simplified standardized approach and requirements related to the boundary between the trading book and banking book, while the SPM MR-2: CVA Risk Capital Charge covers the reduced basic CVA approach, the full basic CVA approach and the standardized CVA approach. According to the HKMA, both new SPM modules are designed not just to provide additional technical details in addition to the rules but to integrally cover all of the related requirements. They set out the minimum standards that all locally incorporated authorized institutions are expected to adopt for the calculation of their market risk and CVA risk capital charges. [NEW]
ASIC Finalizes Minor and Technical Changes to OTC Derivatives Reporting Rules. On March 13, the Australian Securities and Investments Commission (ASIC) finalized the minor and technical changes to the ASIC Derivative Transaction Rules (Reporting) 2024 under ASIC Derivative Transaction Rules (Reporting) 2024 Amendment Instrument 2024/1 to implement the proposed changes to the 2024 rules set out in Consultation Paper 361a ASIC Derivative Transaction Rules (Reporting) 2024: Follow-on consultation on changes to data elements and other minor amendments (CP 361a). The changes include (1) seven additional data elements; (2) provide clarifications and administrative updates to the data elements; (3) make consequential changes to Chapter 2: Reporting Requirements; and (4) make other administrative updates including re-referencing the location of definitions in the Corporations Act 2001 that have been moved by the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023. According to ISDA, feedback to CP 361a was broadly supportive. In response to industry requests, the final changes also (1) provide for an additional circumstance where the name of Counterparty 2 is not reported and (2) change how the amount of one kind of collateral is reported. [NEW]

New Industry-Led Developments

ISDA Responds to CFTC on Clearing Member Funds Protection. On March 18, ISDA responded to the CFTC’s consultation on proposed rules for the protection of clearing member funds held by derivatives clearing organizations (DCOs), including the assets of futures commission merchants (FCMs). According to ISDA, it proposed that the CFTC should finalize the enhanced protection for clearing member assets in connection with an intermediated DCO only, which includes multiple FCMs, unaffiliated with the DCO, as its members. Regarding a DCO providing direct clearing without multiple FCMs unaffiliated with the DCO, ISDA suggested the CFTC should wait to propose enhanced protection for clearing members’ assets, once a full assessment of the risks and complications associated with a DCO providing direct clearing has been completed. At which point, in ISDA’s opinion, it would be appropriate for the CFTC to propose a comprehensive framework to address these risks holistically. Otherwise, ISDA said, the current notice of proposed rulemaking would create a sense of safety for the disintermediated model, which is superficial due to the rule not creating a comprehensive safety regime for disintermediated central counterparties (CCPs), with many risks arising from such models being left unaddressed. [NEW]
ISDA Responds to FASB on Induced Conversion of Convertible Debt. On March 18, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) exposure draft on File Reference No. 2023-ED600, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. ISDA indicated that it supports FASB’s proposals in the exposure draft and believes it achieves the objective of improving the application and relevance of the induced conversion guidance to cash convertible debt instruments. [NEW]
ISDA Submits Response to IOSCO Voluntary Carbon Markets Consultation. On March 1, ISDA submitted a response to IOSCO’s Voluntary Carbon Markets Consultation Report. The response welcomes IOSCO’s work on developing good practices for regulation of voluntary carbon markets (VCMs), as well as its recognition of the critical role that financial market participants play in VCMs. ISDA explains that clear legal and regulatory categorization of voluntary carbon credits is key to building liquidity in order to support scaling VCMs and to develop safe, efficient markets in Voluntary Carbon Credit derivatives.
ISDA Submits Response to the UK Financial Conduct Authority’s Money Market Funds Consultation. On March 8, ISDA responded to the UK Financial Conduct Authority’s (FCA) consultation on updating the regime for money market funds (MMF). In the response, ISDA highlights its support for using MMFs as collateral for non-cleared derivatives margin requirements and the advancement of tokenized MMFs to be used as collateral to increase collateral mobility, reduce collateral-related transaction costs and related settlement risks.
ISDA Publishes Whitepaper Charting the Next Phase of India’s OTC Derivatives Market. On March 4, ISDA published a new whitepaper that explores the growth of India’s financial markets and makes a series of market and policy recommendations to encourage the further development of a safe and efficient over-the-counter (OTC) derivatives market. The whitepaper proposes several initiatives that industry participants and regulators could take that ISDA believes will create deeper and more liquid domestic derivatives markets and enhance risk management practices. The recommendations are centered on five key pillars: (1) Broaden product development, innovation and diversification; (2) Foster adoption of similar market and risk principles across regulatory regimes; (3) Enhance market access and diversification of participants in the OTC derivatives market; (4) Ensure growth in a safe and efficient manner; and (5) Encourage greater alignment with international principles and practices.