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Following the close of the Supreme Court’s 2019 Term, Gibson Dunn’s Supreme Court Round-Up provides summaries of the Court’s opinions, the questions presented in cases that the Court will hear next Term, and other key developments on the Court’s docket. Gibson Dunn presented 5 oral arguments during the 2019 Term, and was involved in 18 additional cases as counsel for amici curiae. To date, the Court has granted certiorari in 31 cases for the 2020 Term, and Gibson Dunn is co-counsel for a party in 1 of those cases.

Spearheaded by former Solicitor General Theodore B. Olson, the Supreme Court Round-Up keeps clients apprised of the Court’s most recent actions. The Round-Up previews cases scheduled for argument, tracks the actions of the Office of the Solicitor General, and recaps recent opinions. The Round-Up provides a concise, substantive analysis of the Court’s actions. Its easy-to-use format allows the reader to identify what is on the Court’s docket at any given time, and to see what issues the Court will be taking up next. The Round-Up is the ideal resource for busy practitioners seeking an in-depth, timely, and objective report on the Court’s actions.

To view the Round-Up, click here.

Gibson Dunn has a longstanding, high-profile presence before the Supreme Court of the United States, appearing numerous times in the past decade in a variety of cases. During the Supreme Court’s 5 most recent Terms, 9 different Gibson Dunn partners have presented oral argument; the firm has argued a total of 16 cases in the Supreme Court during that period, including closely watched cases with far-reaching significance in separation of powers, administrative law, intellectual property, and federalism. Moreover, although the grant rate for petitions for certiorari is below 1%, Gibson Dunn’s petitions have captured the Court’s attention: Gibson Dunn has persuaded the Court to grant 29 petitions for certiorari since 2006.

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Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following attorneys in the firm’s Washington, D.C. office, or any member of the Appellate and Constitutional Law Practice Group.

Theodore B. Olson (+1 202.955.8500, [email protected])
Amir C. Tayrani (+1 202.887.3692, [email protected])
Jacob T. Spencer (+1 202.887.3792, [email protected])
Allison K. Turbiville (+1 202.887.3797, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On Thursday, July 9, 2020, the U.S. Supreme Court consolidated and agreed to review two closely watched cases, FTC v. Credit Bureau Center, LLC (case number 19-825) and AMG Capital Management, LLC v. FTC (case number 19-508), concerning whether Section 13(b) of the Federal Trade Commission Act (“FTC Act”) authorizes the FTC to seek an award of restitution.[1] With this grant of certiorari, the Court will address a circuit split that developed in August 2019, when the Seventh Circuit in FTC v. Credit Bureau Center, LLC broke with eight other circuits and explicitly overturned its own long-standing precedent in holding that the FTC cannot seek restitution under Section 13(b) of the FTC Act.

The implications of this review are significant. The FTC claims broad authority to regulate consumer protection violations, has increasingly targeted industry-leading companies in headline-grabbing matters, and regularly secures massive monetary remedies under Section 13(b). Credit Bureau Center calls the viability of the FTC’s approach into question, and if the Supreme Court affirms the decision, the FTC would be required to navigate a more complex procedural process in order to obtain monetary relief.

Section 13(b) provides that the FTC “may seek, and after proper proof, the court may issue, a permanent injunction” and does not reference monetary relief. Nevertheless, until the Seventh Circuit’s decision in Credit Bureau Center, every circuit court to consider the issue (including the Seventh Circuit thirty years ago in FTC v. Amy Travel Service, Inc.[2]) had held that Section 13(b) implicitly authorizes a wide range of equitable remedies, including restitution, rescission, and disgorgement involving monetary relief, through the word “injunction.” Many such courts have invoked the Supreme Court’s 1946 decision in Porter v. Warner Holding Co., which held in the context of a separate federal statute that a reference to “permanent or temporary injunction, restraining order, or other order” permitted district courts to use “all inherent equitable powers,” including monetary remedies such as restitution.[3]

When a panel of the Seventh Circuit reversed Amy Travel in Credit Bureau Center, it explained that “[a]n implied restitution remedy doesn’t sit comfortably within the text” of Section 13(b), contrasting restitution with injunctions, and describing the latter as forward-facing and the former as a “remedy for past actions.”[4] The panel noted that unlike two remedial provisions in the FTC Act that expressly authorize restitution when the FTC follows specific procedures, Section 13(b) lacks similar language, and to impliedly authorize restitution under Section 13(b) would render the other provisions “largely pointless.”[5] With respect to the decision’s departure from Amy Travel, the panel explained that in the ensuing three decades, “the Supreme Court has clarified that courts must consider whether an implied equitable remedy is compatible with a statute’s express remedial scheme” and instructed courts “not to assume that a statute with ‘elaborate enforcement provisions’ implicitly authorizes other remedies.”[6]

In contrast, in FTC v. AMG Capital Management, LLC, the Ninth Circuit held in December 2018 that Section 13(b) does, in fact, authorize monetary relief. Notably, Ninth Circuit Judge Diarmuid O’Scannlain issued a special concurrence to the majority opinion, calling on the court to hear the case en banc to reconsider its prior holding that Section 13(b) authorizes monetary relief, but the Ninth Circuit denied AMG’s petition for rehearing en banc in June 2019.[7]

Court watchers will not be surprised by the grants of certiorari, given this clear circuit split and the Court’s recent willingness to examine the disgorgement authority of the Securities and Exchange Commission (“SEC”) in Liu v. Securities and Exchange Commission,[8] decided only three weeks ago. In Liu, the Court held that even though the SEC Act of 1934 does not expressly permit disgorgement, this remedy is nonetheless available because the statute permits the SEC to obtain “equitable relief.”[9] The Court, however, also held that any disgorgement remedy must conform with principles of equity, identifying three ways in which the SEC’s disgorgement practices may test the bounds of equity practice: (1) ordering the proceeds of fraud to be deposited in Treasury funds instead of disbursing them to victims; (2) imposing joint and several liability; and (3) declining to deduct even legitimate expenses from the receipts of fraud.[10]

Following the decision in Liu, Credit Bureau Center and AMG each submitted a supplemental brief to the Court regarding Liu’s implications, both arguing that Liu does not conflict with their position because Section 13(b) of the FTC Act, unlike the SEC Act, does not authorize “equitable relief,” and instead speaks only in terms of an “injunction.”

If the Court sides with Credit Bureau Center and AMG, the decision will have significant practical consequences for the FTC. Without legislative intervention, to obtain restitution the agency would largely have to turn to Section 19 of the FTC Act, which explicitly authorizes the agency to obtain monetary relief including restitution, but sets forth a cumbersome and lengthy process, requiring the FTC to first prevail in an administrative proceeding and then seek legal and equitable relief (including restitution) in federal court thereafter.

The FTC has already issued a statement in response to the Court’s announcement that it will review these cases, stating that the Commission “look[s] forward to proving to the Supreme Court that the FTC Act empowers [the FTC] to fully protect consumers by ensuring that money unlawfully taken from them is rightfully returned.”[11] Interestingly, however, in January, FTC Chairman Joseph Simons stated that he would like Congress to clarify that Section 13(b) allows for monetary relief,[12] at least suggesting that the statute is not crystal clear on this issue. And in May 2019, FTC Commissioner Christine S. Wilson requested in congressional testimony that Congress clarify the FTC’s powers under Section 13(b).[13]

Despite the FTC’s stated optimism, several Justices have taken public positions suggesting that they may be open to the Seventh Circuit’s position. In a past oral argument, Justice Gorsuch stated that the Court had never approved lower-court precedent permitting an implied disgorgement remedy stemming from an injunction, and there was no statute governing this remedy, so the Court was “just making it up.”[14] Chief Justice Roberts and Justice Sotomayor have questioned the SEC’s authority to impose monetary penalties, specifically including disgorgement.[15] And in Liu, Justice Thomas argued in his dissent that disgorgement was not an available form of equitable relief in English Chancery Court at the time of the founding, and therefore should not be read into a statute permitting only “equitable relief.”[16]

On the other hand, as reflected in Liu, the Court appears willing to limit the enforcement authority of executive agencies, but reluctant to categorically take remedies off of the table. It is, of course, difficult to predict the how the Court might come out, but this is certainly a case worth watching.

The cases are set for argument in the Court’s October 2020 term. Our experienced teams of FTC, appellate, and trial lawyers—which have litigated these and similar issues in forums across the country—will continue to monitor the cases closely, and are available to discuss these and any related issues.

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[1] 591 U.S. 2.

[2] 875 F.2d 564 (7th Cir. 1989).

[3] 328 U.S. 395 (1946).

[4] 937 F.3d 764, 772 (7th Cir. 2019).

[5] Id. at 774.

[6] Id. at 767.

[7] 910 F.3d 417, 429-37 (9th Cir. 2018).

[8] 140 S. Ct. 1936 (2020).

[9] 15 U.S.C. § 78u(d)(5).

[10] Liu, 140 S. Ct. at 1946.

[11] Statement of Alden F. Abbott Regarding Supreme Court Orders Granting Review of Two FTC Matters (July 9, 2020), here.

[12] Matthew Perlman, FTC’s Antitrust Powers Under Indirect Attack, Law 360 (Jan. 21, 2020) available at https://www.law360.com/articles/1236118/ftc-s-antitrust-powers-under-indirect-attack.

[13] Oral Statement of FTC Commissioner Christine S. Wilson Before the U.S. House Committee on Energy and Commerce Subcommittee on Consumer Protection and Commerce (May 8, 2019), here.

[14] See Transcript of Oral Argument at 52, Kokesh v. SEC, 137 S. Ct. 1635 (2017).

[15] Id. at 7:20-8:2; 9:5-11; 33:12-18.

[16] 140 S. Ct. at 1950.

The following Gibson Dunn lawyers assisted in the preparation of this client update: Alex Southwell, Ryan Bergsieker, Elizabeth Papez, Kristen Limarzi, Ashley Rogers, Sophie Rohnke, Julie Hamilton, and Emily Riff.

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, or any member of the firm’s Privacy, Cybersecurity and Consumer Protection or Antitrust and Competition practice groups, or the following authors:

Alexander H. Southwell – New York (+1 212-351-3981, [email protected])
Ryan T. Bergsieker – Denver (+1 303-298-5774, [email protected])
Elizabeth P. Papez – Washington, D.C. (+1 202-955-8608, [email protected])
Kristen C. Limarzi – Washington, D.C. (+1 202-887-3518, [email protected])
Ashley Rogers – Dallas (+1 214-698-3316, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

The New York Court of Appeals recently accepted a certified question from the United States Court of Appeals for the Ninth Circuit that could have far-reaching consequences for the litigation funding industry. Litigation funding typically involves a funder lending money to a client and/or her counsel on a non-recourse basis to pursue legal action in exchange for a share of the proceeds of the litigation. The tripartite relationship between funder, attorney, and client has raised a host of legal issues in the past, and this certified question reflects an important issue relating to so-called “portfolio” litigation funding. Portfolio litigation funding occurs where a funder lends money to an attorney and her clients to use in specific cases in exchange for prospective payment not just from those cases but also from cases where lent funds may not actually be used.

The certified question presents an emerging issue related to portfolio litigation funding:

Whether a litigation financing agreement may qualify as a “loan” or a “cover for usury” where the obligation of repayment arises not only upon and from the client’s recovery of proceeds from such litigation but also upon and from attorney’s fees the client’s lawyer may recover in unrelated litigation?

And, if so, what are the appropriate consequences, if any, for the obligor to the party who financed the litigation, under agreements that are so qualified?

Fast Trak Inv. Co., LLC v. Sax, 962 F.3d 455, 459 (9th Cir. 2020), certified question accepted sub nom. Fast Trak Inv. Co., LLC v. Sax, 2020 WL 3420856 (N.Y. June 23, 2020). In other words, the Court of Appeals will decide whether a portfolio litigation funding agreement is a “loan” and subject to New York’s usury laws where the agreement requires an attorney to pay the funder attorneys’ fees from cases unrelated to the litigation the funder is financing directly. How the Court of Appeals decides the question could have a wide-ranging impact on the growing litigation finance industry in New York and how such issues are resolved in federal and state appellate courts across the country.

Certification Procedure

Certification is an important procedure whereby certain appellate courts that are grappling with a complex, novel issue of New York law can petition New York’s highest court for an answer to the question. 22 N.Y.C.R.R. § 500.27(a). Under New York law, certification requires only that (1) there be no controlling New York Court of Appeals decision on the question at issue; and (2) the certified question is determinative of the outcome of the case. Id. Some courts impose additional requirements before they will submit a certified question. For example, the Second Circuit considers (1) whether “the New York Court of Appeals has addressed the issue and, if not, whether the decisions of other New York courts permit [the court] to predict how the Court of Appeals would resolve it; (2) whether “the question is of importance to the state and may require value judgments and public policy choices”; and (3) whether the question is “determinative of a claim.” Expressions Hair Design v. Schneiderman, 877 F.3d 99, 105 (2d Cir. 2017) (internal quotation marks omitted).

Courts are often reluctant to certify questions to the Court of Appeals because certification can result in added costs and potential delay by requiring the parties to effectively take on an interlocutory appeal before New York’s high court. For that reason, certification is rare. In 2019, the New York Court of Appeals answered only three certified questions and had just two pending at the end of 2019.[1] But as the court in Fast Trak demonstrated, a certifying court may find certification appropriate, either upon a party’s request or sua sponte, when a case turns on an ambiguous question of state law that is particularly important and “likely to have wide-reaching implications.” 2020 WL 3092063, at *9 (noting that certification “helps build a cooperative judicial federalism” (internal quotation marks omitted)).

The New York Court of Appeals has discretion to determine both whether to accept the certification and what procedure it will undertake in answering the question. 22 N.Y.C.R.R. § 500.27(d)-(e). In general, the Court of Appeals accepts only issues that are likely to arise in state court proceedings and are “fact and case-specific,” rather than “[a]bstract or overly generalized questions” that might “curb [its] ability to promulgate a precedentially prudent and definitive answer to a law question.” Yesil v. Reno, 92 N.Y.2d 455, 457 (1998).

Fast Trak and Its Potential Impact on Litigation Finance

In Fast Trak, the Ninth Circuit considered whether a portfolio litigation funding agreement violates New York’s usury laws. 962 F.3d at 458. Under the funding agreement at issue, which was governed by New York law, Fast Trak provided funding for clients bringing specific lawsuits Sax brought as the attorney of record, in exchange for a portion of the proceeds in those cases and his attorney fees in separate unrelated cases. Id. When Sax obtained proceeds for attorney fees (presumably through guaranteed hourly fees, though the opinion is unclear on this point) in those unrelated cases and refused to pay them, Fast Trak sued him for, among other things, breach of contract and breach of fiduciary duty. Id. at 461. In his defense, Sax argued that the contracts constituted usurious loans and were therefore unenforceable. Id. at 461-62.

New York usury laws typically apply only to agreements that constitute a “loan.” Id. at 458. To qualify as a “loan,” “the purported lender must have the right to collect from the purported borrower in absolute terms—that is, a right not dependent on the occurrence of any condition precedent.” Id. at 465. Based on this principle, New York courts have found that litigation finance does not constitute a “loan” when the finance agreement is contingent upon success in a single case. See Cash4Cases, Inc. v. Brunetti, 167 A.D.3d 448 (1st Dep’t 2018). As the Ninth Circuit stated, however, such an agreement stands in “sharp contrast” to the agreement between Fast Trak and Sax, where repayment “was secured in each instance with [Sax’s] future attorney fees in about five to ten unrelated cases,” and thus repayment was “all but guaranteed.” 962 F.3d at 467.

To that end, the Ninth Circuit asked the Court of Appeals to address whether an agreement like that between Saks and Fast Trak constitutes a “loan” or a “cover for usury.” The Ninth Circuit deemed that issue sufficiently novel and its effect on the rapidly growing litigation finance industry sufficiently important to seek certification. Id. at 459 n.3 (citing Ass’n of the Bar of the City of N.Y. Comm’n on Prof’l and Judicial Ethics, Formal Op. 2011-2, 2011 WL 6958790 at *1). Certification was particularly important here, according to the Ninth Circuit, because “the result is likely to have wide-reaching implications,” and because “[o]ther states that have addressed [the issue] have reached conflicting results.” Id. at 468. A court in Colorado, for instance, concluded these portfolio litigation funding agreements constitute “loans,” whereas another in Texas came out the opposite way. Id. at 468 n.8.

Resolution of this issue could impact both current and future litigation finance agreements and particularly portfolio litigation finance agreements. If the Court finds the litigation finance agreement in Fast Trak to be usurious, it also has indicated that it will determine “the appropriate consequences, if any, for the obligor to the party who financed the litigation, under agreements that are so qualified.” 962 F.3d at 459. The Court could, for example, find the contract void, providing the obligor with a windfall; cancel the interest obligation; or revise the obligation to a pay a non-usurious rate. The precise impact of finding these portfolio litigation finance agreements to be “loans” is uncertain, but it may have far-reaching effects.

Gibson Dunn will continue to monitor developments in Fast Trak and other important cases in the New York Court of Appeals.

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[1] See 2019 Annual Report of the Clerk of the Court of Appeals at 6, App’x 5, https://www.nycourts.gov/ctapps/news/annrpt/AnnRpt2019.pdf.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors:

Akiva Shapiro – New York (+1 212-351-3830, [email protected])
Matthew S. Kahn – San Francisco (+1 415-393-8212, [email protected])
Lee R. Crain – New York (+1 212-351-2454, [email protected])
Seth M. Rokosky – New York (+1 212-351-6389, [email protected])
Grace E. Hart – New York (+1 212-351-6372, [email protected])
Andrew C. Bernstein – New York (+1 212-351-5234, [email protected])
Jason Bressler – New York (+1 212-351-6204, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

The New York State Department of Financial Services is the state’s primary regulator of financial institutions and activity, with jurisdiction over approximately 1,500 financial institutions and 1,400 insurance companies. This year, the agency has been poised to make its mark, with new leadership focused heavily on consumer protection in the absence of federal regulation, and asserting its authority over emerging areas of significance to New York’s banking and insurance industries. In recent months, the agency has been actively confronting unprecedented challenges posed by the COVID-19 pandemic. In this exclusive one-hour presentation, three experienced practitioners—Mylan Denerstein, Akiva Shapiro, and Seth Rokosky—explain key developments at this important financial services regulator. They will discuss not only significant structural changes to the agency’s leadership and organizational structure, but also recent developments with respect to the agency’s guidance, regulations, and enforcement matters in a broad array of areas, including insurance, data privacy, fintech and cryptocurrency, student loans, confidential supervisory information, state responses to the coronavirus, and a wide range of enforcement actions.

View Slides (PDF)

PANELISTS:

Mylan Denerstein is a litigation partner in the New York office of Gibson, Dunn & Crutcher. Ms. Denerstein is Co-Chair of Gibson Dunn’s Public Policy Practice Group and a member of the Crisis Management, White Collar Defense and Investigations, Labor and Employment, Securities Litigation, and Appellate Practice Groups. Ms. Denerstein leads complex litigation and internal investigations, representing companies in their most critical times, typically involving state, municipal, and federal government agencies. Prior to joining Gibson Dunn, Ms. Denerstein served as Counsel to New York State Governor Andrew Cuomo; in a diverse array of legal positions in New York State and City agencies; and as a federal prosecutor and Deputy Chief of the Criminal Division in the U.S. Attorney’s Office for the Southern District of New York. Ms. Denerstein was named to the 2020 “Albany Power 100”, 2020 “Law Power 100” and 2019 “Law Power 50” list by City & State and the 2019 list of “Notable Women in Law” by Crain’s New York Business.

Akiva Shapiro is a litigation partner in the New York office of Gibson, Dunn & Crutcher, where he is a member of the firm’s Appellate and Constitutional Law, Media & Entertainment, Securities Litigation, and Betting & Gaming Practice Groups. Mr. Shapiro’s practice focuses on a broad range of high-stakes constitutional, commercial, and appellate litigation matters, successfully representing plaintiffs and defendants in suits involving civil RICO, securities fraud, breach of contract, misappropriation, and many other tort claims, as well as CPLR Article 78, First Amendment, Due Process, and statutory challenges to government actions and regulations. He is regularly engaged in front of New York’s trial courts, federal and state courts of appeal, and the U.S. Supreme Court, and has been named a Super Lawyers New York Metro “Rising Star” in Constitutional Law.

Seth Rokosky is an associate in the New York office of Gibson, Dunn & Crutcher. He is a member of the firm’s Litigation Department and focuses his practice in the Appellate and Constitutional Law group. Mr. Rokosky has extensive experience challenging and defending government policies at the state, local, and federal level. He rejoined Gibson Dunn after serving in the New York Attorney General’s Office. As an Assistant Solicitor General in the Bureau of Appeals and Opinions, his public service included representing the State and its agencies as principal attorney on 43 appellate matters. Mr. Rokosky has conducted more than 20 oral arguments and filed more than 70 appellate briefs in both state and federal court, and he maintains a robust litigation practice in trial courts with a particular focus on complex briefing and providing strategic advice to trial counsel.

On 6 July 2020, the UK Government introduced into law the “Global Human Rights Sanctions Regulations 2020” (the “Regulations”), and designated the first individuals under the Regulations in connection with their involvement in gross human rights violations. The Regulations are made under powers in the Sanctions and Anti-Money Laundering Act 2018 (the “SAMLA”), which was enacted in order to empower the UK Government to introduce the UK’s own sanctions post-Brexit. EU sanctions will continue to apply in the UK until 11 pm on 31 December 2020, but the Regulations will apply alongside EU sanctions.

Secretary of State for Foreign Affairs, Dominic Raab, announcing the Regulations in Parliament, stated that the UK’s first autonomous human rights sanctions regime would impose travel bans and asset freezes against “those who have been involved in some of the gravest human rights violations and abuses around the world.” And that the new regime “means the UK has new powers to stop those involved in serious human rights abuses and violations from entering the country, channelling money through UK banks, or profiting from our economy.”

The Regulations came into force at 1 pm BST on 6 July 2020, with the Government simultaneously imposing sanctions against 49 individuals and organisations in Russia, Saudi Arabia, Myanmar and North Korea. These were described by the Government as the “first wave” of designations under the new regime, with further sanctions expected in the “coming months”.

Human rights-focussed sanctions are often referred to as “Magnitsky sanctions”, following the so-called “Magnitsky Act,” a U.S. law (the Sergei Magnitsky Rule of Law Accountability Act of 2012) (the “U.S. Magnitsky Act”) imposing sanctions on certain Russian officials alleged to be involved in the death of corruption whistleblower Sergei Magnitsky. In 2016, the U.S. Global Magnitsky Human Rights Accountability Act (“U.S. Global Magnitsky”) became effective, authorizing the U.S. Government to sanction foreign government officials implicated in human rights abuses anywhere in the world, including asset freezes and travel bans.

The Sanctions and Anti-Money Laundering Act 2018

SAMLA empowers the UK Government to make sanctions regulations as it considers appropriate, inter alia:

to comply with UN or any other international obligations;
to further the prevention of terrorism, domestically or abroad;
in the interests of international peace and security;
to further a foreign policy objective;
to promote the resolution of armed conflict or protect civilians in conflict zones;
to provide accountability for or deter gross violations of human rights;
to promote compliance with international human rights law;
to promote respect for human rights;
to promote compliance with international humanitarian law;
to contribute to multilateral efforts to prevent the spread and use of weapons and materials of mass destruction; or
to promote respect for democracy, the rule of law and good governance.[1]

Under SAMLA, the UK Government can impose a range of sanctions that have financial, immigration, and trade implications. Prior to the passing of SAMLA, the UK introduced sanctions predominantly by virtue of its membership as a member of the UN or EU; domestic sanctions powers were generally used in connection with matters such as terrorism, nuclear proliferation or military aggression. The Government has indicated its aspiration that SAMLA would allow the UK to regain “full control” over its own sanctions policy.

The Global Human Rights Sanctions Regulations 2020

The Regulations allow the Government to designate individuals and organisations who will be subject to asset freezes and/or travel bans, with such individuals being named in the “UK sanctions list”. The Regulations can be used to impose sanctions for serious human rights violations in three areas: the right to life; the right not to be subjected to torture or cruel, inhuman or degrading treatment or punishment, and the right to freedom from slavery, servitude or forced or compulsory labour.

In conjunction with the Regulations, and to assist in their implementation, the Government has published statutory guidance.

The Offences

The Regulations create a series of substantive offences, which can be committed by natural or legal persons, similar to those contained in UK Regulations implementing EU sanctions regimes containing asset-freezes, namely offences of:

dealing with funds or economic resources knowing, or with reasonable cause for suspicion, that they are owned, held or controlled by a designated person.[2]

This offence applies to funds or economic resources in which the designated person has a legal or equitable interest, whether solely or jointly with any other person, and to tangible property or bearer security in the person’s possession.

For these purposes, “dealing” with funds is construed widely to mean using, altering, moving, transferring or allowing access to the funds, dealing with them in any other way that would result in any change in volume, amount, location, ownership, possession, character or destination, or making any other change, including portfolio management that would enable use of the funds, “Dealing” with economic resources means exchanging for funds, goods or services or to use the economic resources in exchange for funds, goods or services, whether by pledging them for security or otherwise.

knowingly, or with reasonable cause for suspicion, directly or indirectly making funds or economic resources available to (or for the benefit of) a designated person.[3]

The offence of making resources available to a designated person requires knowledge or cause for suspicion that the designated person would be likely to exchange or use the economic resources for funds, goods or services.

Funds are available to a designated person’s benefit if the designated person thereby obtains, or is potentially able to obtain, a “significant financial benefit”, including the discharge of a financial obligation, as a result of the availability of the funds.

Economic resources are available to a designated person’s benefit if the designated person thereby obtains, or is potentially able to obtain, a “significant financial benefit”, including the discharge of a financial obligation, from the availability of the economic resource.

Owned, held or controlled?

The Offences extend to funds and economic resources that are “owned, held or controlled” by a designated person either “directly or indirectly”.[4]

A legal entity (e.g., a company) is under such ownership or control if the designated person owns or holds, directly or indirectly, (i) more than 50% of its shares, (ii) more than 50% of the voting rights in it, or (iii) the right to appoint or remove a majority of its board of directors.[5] Schedule 1 to the Regulations sets out detailed rules for interpreting this provision.

Alternately, if “having regard to all the circumstances” a person otherwise has de facto control of a legal entity, it is deemed to be owned, held or controlled by them.[6]

Circumvention, enablement and facilitation offences

The Regulations also include “anti-circumvention” provisions, which are common in sanctions regimes. It is an offence to intentionally participate in activities knowing that the object or effect, whether directly or indirectly, is to circumvent the prohibitions which are the subject of the Offences.[7] It is also an offence to intentionally participate in activities knowing that the object or effect, whether directly or indirectly, is to enable or facilitate contravention of the prohibitions which are the subject of the Offences.[8]

Exceptions

Regulation 18 sets out a list of exceptions from the prohibitions, which, for example, enable financial institutions to credit a frozen account with interest or other earnings.

Regulation 19 includes exceptions for certain agents acting on behalf of the Crown to take actions for the purposes or national security or the prevention of serious crime.

Licences

Under Regulation 20, the UK Treasury may issue general or specific licenses that exempt acts covered by the Offences at Regulations 11 to 15.

The Treasury may issue a licence where it deems it appropriate for one of the listed purposes,[9] which include providing basic needs; paying legal fees; maintaining assets; satisfying pre-existing judicial or arbitral decisions; satisfying prior obligations; enabling the functioning of a diplomatic mission; enabling humanitarian assistance; or dealing with “an extraordinary situation”.[10]

Provision is also made for local licensing in relation to Guernsey, Jersey, the Isle of Man and the British Overseas Territories.[11]

Application

Liability for the Offences under the Regulations may arise as a result of conduct (i) by any person in the UK,[12] or (ii) by a UK national or legal entity wholly or partly outside the UK.[13]

The Regulations apply to any “United Kingdom person”,[14] which includes citizens of Guernsey, Jersey, the Isle of Man and the British Overseas Territories, as well as nationals falling within historic categories of British nationality such as British National (Overseas) citizens from Hong Kong.[15]

Reporting obligations

The Regulations also set out strict reporting obligations for certain entities in the financial and other re, and carry potential criminal liability for non-compliance.

Under Regulation 25, “relevant firms”, which includes certain financial institutions, law firms, accountants, auditors and estate agents (amongst others) are required to notify the Treasury if, in the course of carrying on business, they know, or have reasonable cause to suspect, that a person is a designated person or that any person has committed one of the above offences.[16] Certain relevant details must also be provided.[17]

A relevant institution, namely a person that has permission under Part 4A of the Financial Services and Markets Act 2000, must inform the Treasury without delay if it (a) credits a frozen account in accordance with regulation 18(4) (finance: exceptions from prohibitions), or (b) transfers funds from a frozen account in accordance with Regulation 18(6).

Persons that fail to comply with these requirements commit an offence.[18]

Simultaneously with the promulgation of the Regulations, the Office of Financial Sanctions Implementation, which is part of HM Treasury and the UK’s primary sanctions authority, published a Financial Sanctions Notice (the “Notice”), which sets out details of the 49 individuals and organisations subject to asset freezes, and directs parties (in practice, those subject to information and records obligations under Part 6 of the Regulations) to:

check whether they maintain any accounts or hold any funds or economic resources for the persons set out in the Notice;
freeze such accounts, and other funds or economic resources and any funds which are owned or controlled by persons set out in the Notice;
refrain from dealing with the funds or assets or making them available (directly or indirectly) to such persons unless licensed by OFSI;
report any findings to OFSI, together with any additional information that would facilitate compliance with the Regulations; and
provide any information concerning the frozen assets of designated persons that OFSI may request. Information reported to OFSI may be passed on to other regulatory authorities or law enforcement.

OFSI has also published new General guidance for financial sanctions under SAMLA.

Additional powers for the Treasury

Under Regulation 27, the Treasury is granted powers to request specified documents or documents of a specified description about funds or economic resources owned, held or controlled by or on behalf of the designated person, or any disposal of such funds or economic resources. Regulation 29 makes it an offence for a person to refuse or fail within the time and in the manner specified to comply with a request under Regulation 27.

What is not covered by the Regulations?

The Regulations are limited to sanctions in relation to involvement in violations of the right to life and the prohibitions on torture, slavery and inhuman or degrading treatment or punishment, and not, at this stage, for involvement in other human rights violations. The Government has also chosen at this stage not to impose sanctions in respect of involvement in corruption. However, the Foreign Secretary has indicated that the current regime may be expanded to cover such issues.

Who are the 49 individuals and organisations named?

The new designations apply to:

20 nationals of Saudi Arabia said to be involved in the unlawful killing of journalist, Jamal Khashoggi – 17 of those Saudi nationals are subject to OFAC sanctions pursuant to the U.S. Global Magnitsky and the related Executive Order 13818, an authority separate from the U.S. Magnitsky Act that targets human rights abusers globally. However, the UK has also designated three further Saudi officials in connection with the killing of Khashoggi;
25 Russian nationals said were involved in the mistreatment and death of lawyer Sergei Magnitsky. The individuals are already subject to OFAC sanctions pursuant to the U.S. Magnitsky Act;
2 Myanmar nationals (both high ranking Myanmar military officials, both of whom are already designated under U.S. Global Magnitsky) said to be involved in atrocities and serious human rights violations committed against the Rohingya population in Rakhine state; and
2 North Korean entities said to be involved in human rights violations in the country’s political prison camps, both of which are already subject to OFAC sanctions under the North Korea sanctions program.

What does this mean for the UK?

The Regulations mark a cautious departure for the UK in charting a path towards its own, distinct and independent sanctions policy. It is not the first time the UK has acted before other European countries in the field of sanctions, but it is nonetheless an assertion of intent to project the economic power of the UK internationally to pursue its diplomatic and macro-political agenda. As with asset-freezes generally, the regime effectively outsources its day-to-day heavy lifting to the financial sector, but in a manner that financial sector entities will likely be able to absorb without undue difficulty. If the Regulations can be criticised for their modesty of ambition, focussing as they do on only gross violations of human rights which are matters of global notoriety and (in the main) existing U.S. sanctions, this can perhaps be excused by reference to the Government’s explicit acknowledgment that it is starting cautiously with a view to ensuring that the regime is working before expanding it. The intention to expand is clear from the Government’s rhetoric, with likely future targets including officials who have participated in kleptocratic regimes, suppression of press freedoms and corruption.

The Regulations have been welcomed, including by U.S. Secretary of State Pompeo, as a further step towards the cross-border enforcement of international human rights standards, and the accountability on the international stage of those responsible for gross human rights abuses (although it should also be noted that Russia has indicated an intention to introduce countermeasures in response to the Regulations).

This development is another step forward in advancing cross-border enforcement of international human rights standards, with the UK Government harnessing the power of corporate sanctions compliance programs to exclude undesirable persons from taking advantage of the UK economy. The Regulations are also reflective of a broader trend, which sees growing expectations of, and interconnectedness between, the work of a corporation’s financial crime, onboarding, compliance, risk and due diligence teams on matters related to human rights. In addition to financial crime regulation, mandatory non-financial reporting and due diligence requirements in fields such as modern slavery, human trafficking, conflict minerals, biodiversity, environmental standards, and climate change are becoming increasing commonplace across Europe. With new European-wide legislation anticipated in 2021 which will require mandatory corporate human rights due diligence, these synergies are only set to increase.

Ultimately, however, the acid test of the UK’s commitment to establishing its own unique sanctions ‘identity’ will be its zeal in enforcing this and other new regimes. Promulgating legislation and designating targets is the easy part of sanctions regulation; effective enforcement is much more challenging. The UK has the enforcement tools and institutions to do the job. The future will tell whether commitment will be met with action.

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[1] SAMLA, section 1(1), (2).

[2] Regulation 11, in conjunction with Regulation 32.

[3] Regulations 12 to 15, in conjunction with Regulation 32.

[4] Reg. 11(7), 12(4), 14(4).

[5] Reg. 7(1).

[6] Reg. 7(2).

[7] Reg. 16(1)(a), (2).

[8] Reg. 16(1)(b), (2).

[9] Reg. 20(3).

[10] Sch. 2.

[11] Reg. 21.

[12] Reg. 3(7).

[13] Reg. 3(1), (4), (5).

[14] Reg. 3

[15] Reg. 2; Act s. 22.

[16] Reg. 25(1).

[17] Reg. 25(2), (4).

[18] Reg. 25(6).

The following Gibson Dunn lawyers assisted in preparing this client update: Patrick Doris, Susy Bullock, Steve Melrose, Matt Aleksic, Judith Alison Lee, Adam M. Smith, and R.L. Pratt.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above 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 International Trade practice group:

Europe:
Peter Alexiadis – Brussels (+32 2 554 72 00, [email protected])
Attila Borsos – Brussels (+32 2 554 72 10, [email protected])
Nicolas Autet – Paris (+33 1 56 43 13 00, [email protected])
Susy Bullock – London (+44 (0)20 7071 4283, [email protected])
Patrick Doris – London (+44 (0)207 071 4276, [email protected])
Sacha Harber-Kelly – London (+44 20 7071 4205, [email protected])
Penny Madden – London (+44 (0)20 7071 4226, [email protected])
Steve Melrose – London (+44 (0)20 7071 4219, [email protected])
Matt Aleksic – London (+44 (0)20 7071 4042, [email protected])
Benno Schwarz – Munich (+49 89 189 33 110, [email protected])
Michael Walther – Munich (+49 89 189 33-180, [email protected])
Richard W. Roeder – Munich (+49 89 189 33-160, [email protected])

United States:
Judith Alison Lee – Co-Chair, International Trade Practice, Washington, D.C. (+1 202-887-3591, [email protected])
Ronald Kirk – Co-Chair, International Trade Practice, Dallas (+1 214-698-3295, [email protected])
Jose W. Fernandez – New York (+1 212-351-2376, [email protected])
Marcellus A. McRae – Los Angeles (+1 213-229-7675, [email protected])
Adam M. Smith – Washington, D.C. (+1 202-887-3547, [email protected])
Stephanie L. Connor – Washington, D.C. (+1 202-955-8586, [email protected])
Christopher T. Timura – Washington, D.C. (+1 202-887-3690, [email protected])
Ben K. Belair – Washington, D.C. (+1 202-887-3743, [email protected])
Courtney M. Brown – Washington, D.C. (+1 202-955-8685, [email protected])
Laura R. Cole – Washington, D.C. (+1 202-887-3787, [email protected])
R.L. Pratt – Washington, D.C. (+1 202-887-3785, [email protected])
Samantha Sewall – Washington, D.C. (+1 202-887-3509, [email protected])
Audi K. Syarief – Washington, D.C. (+1 202-955-8266, [email protected])
Scott R. Toussaint – Washington, D.C. (+1 202-887-3588, [email protected])
Shuo (Josh) Zhang – Washington, D.C. (+1 202-955-8270, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Denver partner Jessica Brown and Palo Alto associate Collin James Vierra are the authors of “Are Your Slack Communications Primed For E-Discovery?” [PDF] published by Law360 on July 7, 2020.

In the first three months of 2020, the US economy suffered its sharpest decline since the 2007-8 financial crisis. Venture-backed companies are not immune. According to a white paper recently published by the National Venture Capital Association, investment in the US startup ecosystem is expected to drop significantly. In this turbulent period, companies may exhaust (or face difficulties obtaining) funding available under government stimulus programmes. Venture-backed companies in need of capital may have trouble finding new investors or convincing existing stockholders to inject additional capital. They may then be forced to decide between strategic alternatives such as a merger, a partial or complete liquidation, or a down round or cramdown financing.

Originally published by International Financial Law Review on June 25, 2020.

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

Bradford P. Weirick – Los Angeles (+1 213-229-7765, [email protected])
Mark Goldman – Los Angeles (+1 213-229-7456, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On June 25, 2020, the five regulatory agencies (Agencies) responsible for implementing the Dodd-Frank Act’s Volcker Rule finalized their rulemaking (2020 Rule), substantially revising the “covered funds” provisions of the regulation. Of particular significance, the 2020 Rule:

Excludes “credit funds” and “venture capital funds” from the definition of a “covered fund,” thus allowing banking entities to invest their own money in such funds without limitation
Eliminates restrictions on banking entities’ directly investing their own money in portfolio companies in parallel with investments by covered funds they sponsor
Permits certain exemptions from the so-called “Super 23A” provisions, which limit transactions between banking entities and covered funds that they advise or sponsor
Excludes so-called “foreign excluded funds” from the Volcker Rule’s prohibitions on proprietary trading and fund investments
Permits exempt loan securitization vehicles to hold up to 5% of their assets in certain previously impermissible debt securities

The 2020 Rule becomes effective on October 1, 2020.

I. New Exclusion for Credit Funds

The 2020 Rule provides a new exclusion from the definition of Volcker “covered fund” for “credit funds.” The effect of this is banking entities may now invest balance sheet moneys in up to 100% of the interests of such funds. Although the Agencies had rejected such an exclusion in their 2013 Volcker regulation, they stated that the time since then had shown that credit funds had difficulty fitting within any other exclusions, and that allowing the exclusion would be consistent with Congress’s intent that the Volcker Rule not restrict banks’ ability to sell loans.

The 2020 Rule defines a “credit fund” as an issuer whose assets solely consist of:

loans;
debt instruments;
related rights, and other assets that are related to or incidental to acquiring, holding, servicing, or selling loans or debt instruments – including warrants and other “equity kickers;” and
certain interest rate and foreign exchange derivatives, similar to those allowed in the regulation’s loan securitization exemption.

Although the new exclusion means that a banking entity can invest in up to 100% of the interests of a credit fund, regardless of whether the banking entity or a third party was the fund sponsor, the 2020 Rule does place certain limitations on a credit fund:

A credit fund is not permitted to engage in proprietary trading
If a banking entity sponsors or serves as an investment adviser to a credit fund, it must provide the type of disclosures to investors that it would provide for a covered fund
A banking entity cannot guarantee the performance of a credit fund
Super 23A, as modified by the revisions, applies to transactions between a banking entity that sponsors or advises a credit fund and the fund
The Volcker Rule prohibition on material conflicts of interest and high-risk trading strategies applies
A credit fund may hold only those assets that a bank can hold directly, and thus may hold equity only as a “kicker” to a loan, not equity generally
A credit fund is not permitted to issue asset-backed securities

II. New Exclusion for Venture Capital Funds

The 2020 Rule also contains a new exclusion for qualifying venture capital funds. Such a fund is an issuer that meets the requirements set forth in the definition of “venture capital fund” contained in Rule 203(l)-1 under the Investment Advisers Act and meets the additional conditions for credit funds listed above, other than the limitation of fund assets to those assets that a bank can hold directly.

Under Rule 203(l)-1, a “venture capital fund” is limited in the types of companies in which it can invest, namely private portfolio companies; the types of assets it may hold, principally equity of qualifying portfolio companies and short-term assets; and the amount of leverage that it may incur.

III. Eliminating Restrictions on Direct Investments by Banking Entities and Their Officers and Directors

In a substantial change relating to bank investments, the 2020 Rule permits banking entities to make parallel direct investments in portfolio companies alongside investments by sponsored covered funds, without counting the direct investments towards the 3% per-fund and 3% of Tier 1 capital investment limits. Such parallel direct investments – in reliance on available legal authorities such as the Merchant Banking Rule – are subject to no quantitative Volcker Rule limitations. The preamble to the 2020 Rule further states that banking entities will also be permitted to market sponsored funds by referring to a direct co-investment strategy.

In addition, the loosening of restrictions on parallel investments applies to director and employee investments. Such investments are no longer attributed to the 3% per-fund and 3% of Tier 1 capital limits, and can be made by bank directors and employees that provide no services to the fund.

IV. Revisions to Super 23A Provisions

One of the more limiting aspects of the Volcker Rule is its so-called “Super 23A” provision, which placed outright prohibitions on certain transactions between banking entities and covered funds that they sponsor or advise – extensions of credit, guarantees issued on behalf of the fund, and purchases of assets or securities from the fund. One of the reasons the provision is called “Super 23A” is that the Volcker statute did not include any language stating that the exemptions in Section 23A of the Federal Reserve Act, on which Super 23A is based, apply. In their 2013 regulation, the Agencies declined to import the Federal Reserve Act Section 23A exemptions by administrative action.

The 2020 Rule changes course on this issue as well. It includes, moreover, not simply the historical Section 23A exemptions, but an additional exemption as well. The principal Section 23A exemptions are for: (i) extensions of credit secured by government securities or cash in a segregated, earmarked deposit account; (ii) purchases of certain assets having a publicly available and readily identifiable market quotation and purchased at that quotation; (iii) purchases of certain marketable securities; (iv) purchasing certain municipal securities; and (v) intraday extensions of credit.

The additional exemption is for an affiliated banking entity’s extension of credit to, or purchase of asset from, a covered fund, as long as:

The transaction is in the ordinary course of business in connection with payment transactions; settlement services; or futures, derivatives, and securities clearing
Each extension of credit is repaid, sold or terminated by the end of five business days, and
The banking entity making each extension of credit has established and maintains policies and procedures reasonably designed to manage the credit exposure arising from the extension of credit in a safe and sound manner and ensure that it is on market terms, and has no reason to believe that the covered fund will have difficulty repaying the extension of credit in accordance with its terms.

V. “Foreign Covered Funds” and the “Banking Entity” Problem

The 2013 regulation created a substantial issue for non-U.S. banking organizations. The Volcker statute’s prohibitions on proprietary trading and investing in hedge funds and private equity funds apply broadly to every subsidiary in a bank holding company structure, because those subsidiaries are “banking entities” subject to the prohibitions. The 2013 regulation exempted “covered funds,” as defined in the regulation, from the banking entity definition, since the statute permitted banking entities to sponsor hedge funds and funds of funds, which by definition engage in proprietary trading and fund investing.

The “covered fund” definition in the 2013 regulation, however, did not cover many funds sponsored by non-U.S. banks, i.e, those that had no U.S. investors, because it focused on Section 3(c)(1)/3(c)(7) funds. As a result, these funds, which were controlled companies within the meaning of the Bank Holding Company Act, were “banking entities” that were prohibited from proprietary trading and investing in private funds. The Agencies did not attempt to revise their regulations when this became apparent; rather, once the Volcker Rule conformance period finally ended in July 2017, annual orders were issued to the effect that no enforcement action would be taken with respect to these funds – essentially deferring the issue.

The 2020 Rule exempts so-called qualifying “foreign excluded funds” from the prohibitions on proprietary trading and sponsoring and investing in hedge funds and private equity funds. To qualify for the exemption, an entity must meet these requirements:

Be organized and established outside the United States, with all ownership interests offered and sold solely outside the United States
Would be a covered fund if the entity were organized or established in the U.S., or is or holds itself out as being, an entity or arrangement that raises money from investors primarily for the purpose of investing in financial instruments for resale or other disposition or otherwise trading in financial instruments
Would not otherwise be a banking entity except by virtue of a non-U.S. banking entity’s acquisition or retention of an ownership interest in, or sponsorship of, the entity
Be established and operated as part of a bona fide asset management business
Not be operated in a manner that enables evasion of the requirements of the Volcker Rule.

In addition, the 2020 Rule makes clear that non-U.S. banks are not required to have a formal Volcker compliance regime in place with respect to these funds.

VI. Broadening the Types of Assets That Can Be Held by Loan Securitizations

The Volcker statute provided that “[n]othing [herein] shall be construed to limit or restrict the ability of a banking entity . . . to sell or securitize loans in a manner otherwise permitted by law.”[1] Based on this legal authority, the 2013 regulation contained an exemption from the definition of “covered fund” for loan securitization vehicles; those vehicles, however, were significantly limited in the types of assets they could hold. For example, as a general matter, debt securities were impermissible assets.

The 2020 Rule reverses this position in part. It permits a loan securitization vehicle to hold up to five percent of assets in otherwise impermissible debt securities, if those debt securities are not asset-backed securities or convertible debt obligations.

VII. Other Proposed Changes

Family Wealth Management Vehicles. The 2020 Rule includes a new exclusion from the definition of covered fund for “family wealth management vehicles.” Such vehicles cannot hold themselves out as raising money from investors generally; they can be either trusts, where all the grantors are family customers, or non-trust vehicles, where a majority of the voting and total interests are owned by family customers, and the entity is owned only by family customers and up to 5 closely related persons of those family customers. A “family customer” is defined as “a family client, as defined in Rule 202(a)(11)(G)-1(d)(4) of the Advisers Act; or . . . any natural person who is a father-in-law, mother-in-law, brother-in-law, sister-in-law; son-in-law or daughter-in-law of a family client, spouse or spousal equivalent of any of the foregoing.”

Super 23A, as modified, does not apply to transactions between a banking entity and a sponsored or advised “family wealth management vehicle,” but the Agencies did impose the limitation that a banking entity cannot purchase a low-quality asset from such vehicles. Such vehicles are subject to the following additional requirements and limitations:

Banking entity transactions with the vehicles must be on market terms
Banking entity ownership is limited to 0.5% and only when necessary for establishing corporate separateness or to address bankruptcy/insolvency concerns
Banking entities are required to provide the same type of disclosures to vehicle investors as they would covered funds
Banking entities may not guarantee the obligations or performance of the vehicles
The Volcker prohibitions against material conflicts of interest and high-risk trading strategies apply

Customer Facilitation Vehicles. The 2020 Rule also contains an exclusion from the definition of covered fund for “customer facilitation vehicles.” This exclusion would cover any issuer that is formed “by or at the request of” a customer of a banking entity for the purpose of providing the customer or its affiliates with exposure to a transaction, investment strategy or other service provided by the banking entity. A banking entity could market its services through the use of customer facilitation vehicles and discuss with customers prior to formation of the vehicle the potential benefits of using such a vehicle. Such vehicles are subject to the same prudential conditions as family wealth management vehicles.

Definition of Ownership Interest. The 2020 Rule eliminates an inconsistency in the manner in which the 3% limits and the regulations’ capital deduction were calculated, by requiring, in all such calculations, banking entities to include employee/director payments in connection with a “restricted profits interest” (carried interest) only when the banking entity finances such payments.

Conclusion

The 2020 Rule should be seen as a material relaxation of the covered funds provisions. In addition, it shows significant flexibility on the part of the Agency staffs in revisiting their prior positions. The Agencies seem to have determined, after over six years’ experience, that bank fund activities may be broadened, in some cases, substantially, without creating issues of undue risk taking, and that such broadened activities may benefit the overall economy at a particularly challenging time.

_____________________________

[1] 12 U.S.C. § 1851(g)(2).

The following Gibson Dunn lawyers assisted in preparing this client update: Arthur Long and James Springer.

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 in the firm’s Financial Institutions or Investment Funds practice groups, or the following:

Financial Institutions Group:
Arthur S. Long – New York (+1 212-351-2426, [email protected])
Matthew L. Biben – New York (+1 212-351-6300, [email protected])
Michael D. Bopp – Washington, D.C. (+1 202-955-8256, [email protected])
Stephanie Brooker – Washington, D.C. (+1 202-887-3502, [email protected])
M. Kendall Day – Washington, D.C. (+1 202-955-8220, [email protected])
Michelle M. Kirschner – London (+44 20 7071 4212, [email protected])
Jeffrey L. Steiner – Washington, D.C. (+1 202-887-3632, [email protected])
James O. Springer – New York (+1 202-887-3516, [email protected])

Investment Funds Group:
Chézard F. Ameer – Dubai and London (+971 (0)4 318 4614, [email protected])
Albert S. Cho – Hong Kong (+852 2214 3811, [email protected])
John Fadely – Hong Kong (+852 2214 3810, [email protected])
Jennifer Bellah Maguire – Los Angeles (+1 213-229-7986, [email protected])
Y. Shukie Grossman – New York (+1 212-351-2369, [email protected])
Edward D. Sopher – New York (+1 212-351-3918, [email protected])
C. William Thomas, Jr. – Washington, D.C. (+1 202-887-3735, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On Friday, July 3, 2020, the U.S. Department of Justice (“DOJ”) Criminal Division and U.S. Securities Exchange Commission (“SEC”) published the Second Edition of A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “FCPA Resource Guide,”), a consolidated manual setting forth the authorities’ guidance regarding the Foreign Corrupt Practices Act (“FCPA”) that has served as an essential resource for practitioners in understanding the government enforcers’ views on the statute and approaches to enforcing it.

The FCPA Resource Guide had not been substantively updated in the nearly eight years since it was originally published in November 2012 (an update containing mainly non-substantive changes was issued in August 2015). The Second Edition largely retains the core structure and content of the original FCPA Resource Guide, while including updates to reflect several important developments in governmental guidance, relevant case law, and enforcement activity since the original publication. In so doing, the Second Edition re-establishes the FCPA Resource Guide as an invaluable “one-stop shop” for companies and practitioners to understand the perspectives of both enforcers regarding a variety of FCPA-related topics.

The Second Edition reflects significant updates regarding a variety of legal issues under the FCPA. These include the definition of “foreign official,” the scope of the SEC’s disgorgement power, the scope of the term “agent” for assessing corporate liability, the statute of limitations applicable to violations of the accounting provisions, and the requirements for criminal violations of the books and records and internal controls provisions. The Second Edition likewise incorporates recent governmental guidance regarding the key components of an effective compliance program, the application of the FCPA in the context of M&A transactions, the selection of corporate monitors, and, notably, the FCPA Corporate Enforcement Policy.

Notable updates reflected in the Second Edition include the following:

Updated Guidance Regarding FCPA Internal Controls Provision: The Second Edition attempts to add texture to the sometimes ambiguous FCPA internal accounting controls provision, which requires companies to establish processes that provide “reasonable assurances” regarding the reliability of financial reporting and preparation of financial statements. Recognizing that the FCPA does not specify a particular set of controls, and that such mechanisms are not synonymous with a company’s FCPA compliance program, the Second Edition notes that “an effective compliance program contains a number of components that may overlap with a critical component of an issuer’s internal accounting controls.” The guidance adds that a company’s internal controls must take into account the “operational realities and risks attendant to the company’s business” such as the types of products and services offered, supply chain, work force, degree of regulation, extent of government interaction, and operations in high-risk jurisdictions. Although this is a welcome recognition that internal accounting controls and compliance regimes are not entirely coextensive, this language also seeks to ground some of the SEC’s enforcement actions by suggesting that operational risk is part of the internal accounting controls of a company when those words are absent from the statute. It therefore is unlikely that the SEC will alter its sometimes aggressive interpretation of the FCPA’s internal controls provision in bringing enforcement actions where companies have fallen short, in the SEC’s judgment, in building, for example, effective controls around third parties.
Additional Focus on Successor Liability in Mergers and Acquisitions: The Second Edition provides increased clarity into corporate successor liability under the FCPA, with a particular focus on the M&A context. The update recognizes that while pre-acquisition due diligence is encouraged, robust due diligence prior to a merger or acquisition may not always be feasible. In such circumstances, the Second Edition instructs that the timeliness and thoroughness of compliance integration efforts, appropriate due diligence, and voluntary disclosure of uncovered wrongdoing post-acquisition will be primary considerations for DOJ and SEC in considering whether to take action against a successor for violations identified at a predecessor company. Further, under the FCPA Corporate Enforcement Policy, incorporated into the Second Edition, an acquiring company that voluntarily discloses post-acquisition conduct by the acquired company and takes appropriate remediation steps may be eligible for a presumption of declination, even where aggravating circumstances exist as to the acquired party. The Second Edition further points out that enforcement actions against acquiring parties in such instances have been rare, and generally they have involved either egregious and sustained violations, or culpability on the part of a successor following an acquisition. The Second Edition notes that where a successor company identifies and remediates issues in a timely fashion, any enforcement action is more likely to target the predecessor company, particularly where the government’s investigation pre-dated the acquisition. Though the Second Edition provides additional interpretive guidance regarding the authorities’ approach to successor liability in M&A transactions, it retains the original FCPA Resource Guide’s direction regarding sound practices in this context in relation to pre-acquisition due diligence, the prompt application of anti-corruption policies and procedures to new acquisitions, the training of relevant stakeholders regarding the parent’s anti-corruption obligations and applicable policies, prompt anti-corruption audits of newly acquired businesses or entities, and the prompt and thorough disclosure of any corrupt payments identified through these due diligence and audit processes.
Expanded Guidance Regarding the Evaluation of Corporate Compliance Programs: The Second Edition builds on the prior edition’s guidance to companies regarding the hallmarks of effective anti-corruption compliance programs, conforming it to the updated regulatory expectations set forth in DOJ’s most recent update to its guidance regarding the “Evaluation of Corporate Compliance Programs,” issued in June 2020 (detailed in our recent client alert). The Second Edition more strongly signals the extent to which DOJ and the SEC will consider the effectiveness of corporate compliance and ethics programs both at the time of the misconduct and at the time of the resolution, which will impact the form of a resolution, its monetary value, and any required compliance undertakings. Among the more notable changes in this section is a sharpened focus on a company’s remediation efforts to apply “lessons learned” from compliance lapses, which the Second Edition characterizes as “the truest measure of an effective compliance program.”
Incorporation of Other Recent Guidance: As practitioners are well aware, U.S. enforcers (particularly DOJ) have issued a litany of new memoranda in the last several years on a variety of topics in an effort to provide greater clarity and transparency to companies regarding the enforcement authorities’ approaches to investigating and prosecuting corporate misconduct, including in the FCPA space. The Second Edition references these new guidance documents, including DOJ’s guidance for selecting monitors in Criminal Division matters (covered in our 2018 Year-End FCPA Update), “anti-piling on” policy regarding the coordinated resolution of enforcement actions involving multiple enforcement authorities (discussed in our 2018 Mid-Year FCPA Update), and the corporate compliance program guidance noted above. The FCPA Resource Guide now includes a section regarding DOJ’s FCPA Corporate Enforcement Policy, which was most recently updated in November 2019 (as discussed in our 2019 Year-End FCPA Update). The policy, which was established as a pilot program in April 2016 and codified in November 2017, and the principles of which have since been applied in Criminal Division matters outside of the FCPA setting, provides incentives to companies—up to a presumption of declination—that voluntarily self-report, fully cooperate with DOJ, and engage in prompt and thorough remediation. The Second Edition includes a series of examples in which companies received declinations under the Corporate Enforcement Policy.
Updated Case Studies and Hypotheticals: The Second Edition includes a number of updates to case studies and hypotheticals, which illuminate how DOJ and the SEC are likely to view particular fact patterns. In some instances, the Second Edition replaces older case studies with more recent examples; the Second Edition also includes new case studies to illustrate the types of gifts that might lead to enforcement action, such as a 2017 enforcement action involving a company allegedly paying for foreign officials to travel to sporting events and providing them with significant “spending money,” paying tuition for foreign officials’ children, and providing foreign officials with luxury vehicles. Other topics benefitting from new and/or updated case studies and hypotheticals include gifts or payments to third parties; payments to employees of agencies and instrumentalities of foreign governments; liability for the misconduct of third-party agents or intermediaries; the applicability of the “local law defense”; parent-company and post-acquisition liability; ineffective internal controls and compliance programs; and the assessment of FCPA penalties, among other subjects.
Refinements to Scope of Liability for Foreign “Agents” Following Hoskins: The Second Edition reflects the government’s view of the scope of FCPA liability for foreign individuals not directly covered by the FCPA’s anti-bribery provisions following the Second Circuit’s decision in United States v. Hoskins (discussed most recently in our 2019 Year-End FCPA Update). In that case, the Second Circuit held that foreign nationals are subject to the FCPA anti-bribery provisions if they are agents, employees, officers, directors, or shareholders of a U.S. issuer or domestic concern, or if they act in furtherance of a bribery scheme while in the territory of the United States. Though the Second Edition acknowledges Hoskins, it takes the position that this decision has not been applied outside the Second Circuit, characterizes this legal question as “unsettled,” and cites to a contradictory district court opinion which held, relying on a Seventh Circuit precedent, that defendants can be liable for conspiracy to violate, or for aiding and abetting in violations of, the FCPA even where they do not “belong to the class of individuals capable of committing a substantive FCPA violation.” Such a reluctance to accept the limits of Hoskins speaks volumes regarding the DOJ’s desire to expand the FCPA further than permitted by the Second Circuit. Notably, the updated guidance does not mention the subsequent history of the Hoskins case, in which the district court granted the defendant’s post-trial motion for a judgment of acquittal on seven FCPA-related counts based on DOJ’s inability to establish the defendant’s agency relationship with his employer’s U.S. subsidiary. Also absent from the Second Edition is language echoing the December 2019 comments from the former Assistant Attorney General for the Criminal Division, Brian Benczkowski, in which he suggested that, following the Second Circuit decision in Hoskins, DOJ “is not looking to stretch the bounds of agency principles beyond recognition, or even push the FCPA statute toward its outer edges,” but would use its discretion to apply theories of agency liability following a thorough evaluation of each case, based on “provable facts that align with agency principles.” The Second Edition likewise maintains the position that foreign companies and their agents can be liable in civil or administrative proceedings for aiding and abetting FCPA anti-bribery violations, and emphasizes that Hoskins is limited to the anti-bribery provisions, whereas the accounting provisions apply to “any person.” The Second Edition, therefore, suggests that the government will continue to construe Hoskins narrowly, in terms of both the breadth of its holding and its precedential effect outside of the Second Circuit.
Incorporation of Recent Case Law Regarding SEC Disgorgement Power: The Second Edition reflects two recent Supreme Court decisions narrowing the scope of the SEC’s ability to seek disgorgement as an equitable remedy, including in FCPA enforcement actions. The Second Edition includes references to the Court’s 2017 decision in Kokesh v. SEC, which held that disgorgement was a “penalty” subject to the five-year statute of limitations set forth in 28 U.S.C. § 2462. The Second Edition also briefly references the Court’s recent decision in Liu v. SEC, which (as detailed in our recent client alert) upheld the SEC’s authority to seek disgorgement as an equitable remedy, but on the conditions that the disgorgement not exceed the defendant’s net profits and that it be awarded for the benefit of victims.
Updated Guidance Regarding the Definition of “Instrumentality”: The Second Edition incorporates the Eleventh Circuit’s seminal 2014 decision in United States v. Esquenazi, which analyzed the definition of “instrumentality” under the FCPA. The Second Edition approvingly cites the Esquenazi court’s definition of an instrumentality as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own,” and incorporates the factors identified in Esquenazi for assessing the “government control” and “government function” prongs of this definition. These factors offer refinements, but not major changes, to the guidance provided in prior versions of the FCPA Resource Guide.
Clarifications Regarding Application of FCPA Accounting Provisions: The Second Edition includes two key clarifications regarding the application of the books-and-records and internal controls provisions of the FCPA, which have grown in prominence in recent years, particularly in SEC matters, as a powerful tool to bring enforcement actions absent direct allegations of bribery. First, the Second Edition states the government’s view that in the absence of a statute of limitations in the FCPA itself, substantive violations of the anti-bribery provisions are subject to a five-year statute of limitations under 18 U.S.C. § 3282, whereas criminal violations of the FCPA accounting provisions are considered “securities fraud offenses” subject to the six-year statute of limitations provided for in 18 U.S.C. § 3301. Second, the Second Edition clarifies that criminal penalties for violations of the FCPA accounting provisions are imposed only where the defendant knowingly and willfully failed to maintain accurate books and records or implement an adequate system of internal accounting controls.

Although the Second Edition generally does not break new ground, this update helpfully incorporates key takeaways from recent governmental guidance, case law, and enforcement actions, keeping the FCPA Resource Guide current as a valuable resource for companies and practitioners alike. As with the original FCPA Resource Guide, the Second Edition includes the caveat that it is “non-binding, informal, and summary in nature,” and many of the concepts described in the document are nuanced and open to a range of interpretations. Companies navigating complex FCPA matters should therefore continue to rely on experienced counsel to understand how U.S. enforcement authorities interpret and enforce the FCPA in practice.

The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, Richard Grime, Patrick Stokes, Michael Diamant, Oleh Vretsona, Chris Sullivan, Alexander Moss, Brian Williamson, Will Cobb, and Ciara Davis.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. We have more than 110 attorneys with FCPA experience, including a number of former federal prosecutors and SEC officials, spread throughout the firm’s domestic and international offices. Please contact the Gibson Dunn attorney with whom you work, or any of the following:

Washington, D.C.
F. Joseph Warin (+1 202-887-3609, [email protected])
Richard W. Grime (+1 202-955-8219, [email protected])
Patrick F. Stokes (+1 202-955-8504, [email protected])
Judith A. Lee (+1 202-887-3591, [email protected])
David Debold (+1 202-955-8551, [email protected])
Michael S. Diamant (+1 202-887-3604, [email protected])
John W.F. Chesley (+1 202-887-3788, [email protected])
Daniel P. Chung (+1 202-887-3729, [email protected])
Stephanie Brooker (+1 202-887-3502, [email protected])
M. Kendall Day (+1 202-955-8220, [email protected])
Stuart F. Delery (+1 202-887-3650, [email protected])
Adam M. Smith (+1 202-887-3547, [email protected])
Christopher W.H. Sullivan (+1 202-887-3625, [email protected])
Oleh Vretsona (+1 202-887-3779, [email protected])
Courtney M. Brown (+1 202-955-8685, [email protected])
Jason H. Smith (+1 202-887-3576, [email protected])
Ella Alves Capone (+1 202-887-3511, [email protected])
Pedro G. Soto (+1 202-955-8661, [email protected])

New York
Zainab N. Ahmad (+1 212-351-2609, [email protected])
Matthew L. Biben (+1 212-351-6300, [email protected])
Reed Brodsky (+1 212-351-5334, [email protected])
Joel M. Cohen (+1 212-351-2664, [email protected])
Lee G. Dunst (+1 212-351-3824, [email protected])
Mark A. Kirsch (+1 212-351-2662, [email protected])
Alexander H. Southwell (+1 212-351-3981, [email protected])
Lawrence J. Zweifach (+1 212-351-2625, [email protected])
Daniel P. Harris (+1 212-351-2632, [email protected])

Denver
Robert C. Blume (+1 303-298-5758, [email protected])
John D.W. Partridge (+1 303-298-5931, [email protected])
Ryan T. Bergsieker (+1 303-298-5774, [email protected])
Laura M. Sturges (+1 303-298-5929, [email protected])

Los Angeles
Debra Wong Yang (+1 213-229-7472, [email protected])
Marcellus McRae (+1 213-229-7675, [email protected])
Michael M. Farhang (+1 213-229-7005, [email protected])
Douglas Fuchs (+1 213-229-7605, [email protected])

San Francisco
Winston Y. Chan (+1 415-393-8362, [email protected])
Thad A. Davis (+1 415-393-8251, [email protected])
Charles J. Stevens (+1 415-393-8391, [email protected])
Michael Li-Ming Wong (+1 415-393-8333, [email protected])

Palo Alto
Benjamin Wagner (+1 650-849-5395, [email protected])

London
Patrick Doris (+44 20 7071 4276, [email protected])
Charlie Falconer (+44 20 7071 4270, [email protected])
Sacha Harber-Kelly (+44 20 7071 4205, [email protected])
Michelle Kirschner (+44 (0)20 7071 4212, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Steve Melrose (+44 (0)20 7071 4219, [email protected])

Paris
Benoît Fleury (+33 1 56 43 13 00, [email protected])
Bernard Grinspan (+33 1 56 43 13 00, [email protected])
Jean-Philippe Robé (+33 1 56 43 13 00, [email protected])

Munich
Benno Schwarz (+49 89 189 33-110, [email protected])
Michael Walther (+49 89 189 33-180, [email protected])
Mark Zimmer (+49 89 189 33-130, [email protected])

Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Oliver D. Welch (+852 2214 3716, [email protected])

São Paulo
Lisa A. Alfaro (+5511 3521-7160, [email protected])
Fernando Almeida (+5511 3521-7093, [email protected])

Singapore
Joerg Bartz (+65 6507 3635, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Decided July 6, 2020

Barr v. American Association of Political Consultants, Inc., No. 19-631

Today, the Supreme Court held 6-3 that the federal-debt-collection exception to the TCPA’s robocall ban violates the First Amendment, but also held 7-2 that the proper remedy is to sever the exception—leaving in place the entirety of the TCPA’s 1991 ban on robocalls.

Background:
The Telephone Consumer Protection Act of 1991 (TCPA) generally prohibits robocalls to cell phones and home phones. In 2015, Congress amended the Act to exempt robocalls to cell phones for collecting debts owed to or guaranteed by the federal government—including student-loan and mortgage debts—from the TCPA’s general prohibition.

Plaintiffs—a group of political and nonprofit organizations seeking to make robocalls—sued the U.S. Attorney General arguing that the 2015 government-debt exception violates the First Amendment by unconstitutionally favoring debt-collection speech over political and other speech. As relief, the plaintiffs sought to invalidate the TCPA’s entire robocall ban for cell phones, rather than only the 2015 government-debt exception. Plaintiffs’ theory was that the exception undermines the credibility of the purported privacy interest supporting the entire robocall ban.

The district court held that the 2015 government-debt exception was a content-based speech regulation, but that it survived strict scrutiny given the government’s compelling interest in collecting debt. The Fourth Circuit reversed, holding that the government-debt exception failed strict scrutiny. Applying traditional severability principles, the Fourth Circuit then concluded that the government-debt exception should be severed from the statute, leaving the TCPA’s robocall ban in effect.

Issue:
1. Whether the government-debt exception from the TCPA’s robocall ban for cell phones violates the First Amendment.

2. If so, whether the TCPA’s entire robocall ban is unconstitutional.

Court’s Holding:
1. The government-debt exception is a content-based speech restriction that impermissibly favors debt-collection speech over political and other speech in violation of the First Amendment.

2. The TCPA’s robocall ban stands because the government-debt exception is severable from the remainder of the statute.

“Congress has impermissibly favored debt-collection speech over political and other speech . . . As a result, plaintiffs still may not make political robocalls to cell phones, but their speech is now treated equally with debt-collection speech.”

Justice Kavanaugh, writing for a plurality of the Court

What It Means:

The TCPA’s robocall ban remains in effect as it existed before 2015, prohibiting virtually all automated voice calls and text messages to cell phones. Six Justices (writing a total of three opinions) agreed that the 2015 government-debt exception was content based and that the government, in attempting to defend the content-based speech restriction, failed to sufficiently justify treating government-debt-collection speech differently from other important categories of robocall speech, such as political speech and issue advocacy.
Seven Justices agreed that the 2015 government-debt exception could be severed from the remainder of the statute to preserve the underlying 1991 robocall restriction. Not only has the Communications Act (of which the TCPA is part) had an express severability clause since 1934, the Court explained, but also, even without the severability clause, the presumption of severability would still apply—and the remainder of the restriction is capable of functioning independently without the narrow government-debt exception.
As in Seila Law LLC v. Consumer Financial Protection Bureau (No. 19-7), Justices Gorsuch and Thomas dissented from the Court’s severability holding. Justice Gorsuch wrote, “[s]evering and voiding the government-debt exception does nothing to address the injury” of barring plaintiffs from engaging in political speech robocalls. Slip. op. 6 (Gorsuch, J., concurring in the judgment in part and dissenting in part). Justice Gorsuch and Justice Thomas argued that the Court should reconsider its severability doctrine.

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 Supreme Court. Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho
+1 214.698.3233
[email protected]

Mark A. Perry
+1 202.887.3667
[email protected]

Related Practice: Privacy, Cybersecurity and Consumer Protection

Alexander H. Southwell
+1 212.351.3981
[email protected]

Ahmed Baladi
+33 (0) 1 56 43 13 00
[email protected]

Timothy W. Loose
+1 213.229.7746
[email protected]

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Gibson Dunn’s lawyers regularly counsel clients on issues raised by the COVID-19 pandemic, and we are working with many of our clients on their response to COVID-19. The following is a round-up of today’s client alerts on this topic prepared by the Gibson Dunn team. Our lawyers are available to assist with any questions you may have regarding developments related to the outbreak. As always, for additional information, please feel free to contact the Gibson Dunn lawyer with whom you usually work, or any member of the firm’s Coronavirus (COVID-19) Response Team.

Recent constitutional litigation challenging governmental responses to the COVID-19 pandemic

In a series of Gibson Dunn client alerts, we discussed the constitutional limitations on governmental responses to COVID-19 under the Takings, Contracts, Due Process, and Equal Protection Clauses of the U.S. Constitution, and have also considered how the constitutional right to travel and the Dormant Commerce Clause limits governmental actors. A number of businesses and others subject to COVID-19 regulations have now filed suit challenging governmental actions as unconstitutional, including under some of the same theories we identified in these alerts.

Some plaintiffs have alleged that state and local responses to the COVID-19 pandemic, particularly shut-down orders, have effected unconstitutional takings without just compensation, are arbitrary and irrational and deprive them of fair notice and equal protection, and violate their right to travel. Other plaintiffs have brought Freedom of Assembly, Association, and Petition claims under the First Amendment, while still others have raised Dormant Commerce Clause objections or challenges under the Republican Guarantee Clause. So far, while all courts have recognized that constitutional restrictions bind governmental actors even during emergencies, plaintiffs’ challenges have had mixed success. Originally published by Thomson Reuters/Westlaw on July 1, 2020.
Read more

New York partner Avi Weitzman, Washington, D.C. partner Mark Perry and New York partner Akiva Shapiro are the authors of “Recent Constitutional Litigation Challenging Governmental Responses to the COVID-19 Pandemic,” [PDF] published by Westlaw on July 1, 2020.

Munich partner Lutz Englisch, of counsel Birgit Friedl, and associates Marcus Geiss, Sonja Ruttmann and Dennis Seifarth are the authors of “Corporate M&A in Times of the Corona Crisis: Specific Consequences of the Pandemic for the German Transaction Business” [PDF] published in the June 2020 issue (volume 24/issue 6) of The M&A Lawyer.

GLOBAL OVERVIEW

Don’t Count On PREP Act To Defend Pandemic IP Infringement

As COVID-19 cases continue to rise worldwide, the demand for products used to test for, prevent and treat the virus has grown. Both established businesses and new enterprises are serving the market by producing, supplying, distributing and/or administering products that combat COVID-19. Some of those businesses may invoke, or plan to invoke, the Public Readiness and Emergency Preparedness Act, or PREP, Act to protect against certain product-based lawsuits relating to COVID-19 countermeasures.

Although the PREP Act’s applicability to product liability claims is clear, whether or not companies may invoke the act as a defense against intellectual property infringement claims remains unsettled. That uncertainty could affect supply chains for personal protective equipment, COVID-19 tests and other in-demand countermeasures as companies evaluate potential exposure. Because the question of whether the PREP Act extends to IP claims has not yet been resolved by courts, companies embarking on new product ventures in response to COVID-19 should carefully evaluate associated IP infringement risks. Originally published by Law360 on July 2, 2020.
Read more

COVID-19 UK Bulletin – July 1, 2020

This bulletin provides a summary and compendium of English law legal developments during the current COVID-19 pandemic in the following key areas: Competition and Consumers; Corporate Governance (including accounts, disclosure and reporting obligations); Cybersecurity and Data Protection; Disputes; Employment; Energy; Finance; Financial Services Regulatory; Force Majeure; Government Support Schemes; Insolvency; International Trade Agreements (private and public); Lockdown and Public Law issues; M&A and Private Equity; Real Estate; and UK Tax.
Read more

New York partners Joseph Evall and Richard Mark and associate Amanda First are the authors of “Don’t Count On PREP Act To Defend Pandemic IP Infringement,” [PDF] published on July 2, 2020.

Today marks the date that the California Consumer Privacy Act (“CCPA”) becomes enforceable. Just one week ago, however, on June 24, 2020, a new and tougher proposed privacy law, the California Privacy Rights Act (“CPRA”), cleared the final hurdle to appear on the November 3, 2020 ballot in California. The CPRA ballot initiative represents an effort to address the perceived inadequacies of the CCPA, which, according to some, was hastily enacted into law by the California state legislature to avoid its enactment as a ballot initiative. Further, the ballot initiative reflects a fear by its proponents that the California legislature will make compromises that are, by its own standards, unacceptable. Hence, unlike the CCPA, if the CPRA is enacted by California voters in November, it could not be amended by the state legislature. Given the significance of the proposed privacy provisions (one of which would create a new state privacy enforcement agency to replace the Attorney General as the police of privacy rights), the prospects of the CPRA on the November ballot should be monitored.

Below we highlight a few notable aspects of the CPRA, including important dates.

Background

In September 2019, before the CCPA even went into effect, Alastair Mactaggart and the Californians for Consumer Privacy (the non-profit group behind the original CCPA initiative in 2018), filed the new ballot initiative, CPRA (referred to by many as “CCPA 2.0”). If enacted in November, the CPRA would become state law as written, and could be amended only by another ballot initiative, not the state legislature, as noted above.

By mid-march 2020, the Californians for Consumer Privacy reported that it had collected more than enough signatures (roughly 930,000) to appear on the November 2020 ballot. Though delays in the counties’ official signature counting process nearly derailed the CPRA as a viable ballot initiative (prompting Californians for Consumer Privacy to file a motion for writ of mandate to order the Secretary of State to direct the counties to complete the process by the deadline), two of the final three counties alone reported 718,233 verified signatures, which is more than the required number of 675,000 signatures to put the initiative on the November 2020 ballot. This final verification occurred just one day before the June 25, 2020 deadline.

Brief Overview of CPRA and its Interaction with CCPA

If the CPRA is approved by California voters in November, it will go into effect on January 1, 2023. Until that time, the CCPA will remain in full force and effect, and compliance with the CCPA will be critical. Indeed, under Section 1798.185(c) of the CCPA, the California Attorney General is authorized to enforce the CCPA starting today, July 1, 2020.[1]

The CPRA would impose new obligations that would only apply to personal information (“PI”) collected after January 1, 2023, except the right to access personal information would extend to personal information collected on or after January 1, 2022. The CPRA would grant the California Attorney General the power at the outset to adopt regulations to expand upon and update the CCPA until July 1, 2021, at which point a newly created California Protection Agency would assume responsibility for administering the law. In addition, the final regulations arising from the CPRA would need to be adopted by July 1, 2022, a full year before the CPRA goes into effect.

Importantly, the CPRA would also extend the current moratoria on the application of CCPA to PI collected in the employee/job applicant and business-to-business contexts until January 1, 2023, allowing the legislature time to consider addressing those categories in a separate bill. This extension would be effective immediately, should the ballot measure pass, and the extended timeline should give businesses the time necessary to prepare for the compliance challenges that might arise with respect to these categories of PI.

Among the other significant changes that the CPRA would effectuate are: clarification of the definition of “sale” of PI and related obligations (e.g., to explicitly include the “sharing” of PI for monetary or other valuable consideration, and clarifying obligations regarding “cross-context behavioral advertising”); the expansion of consumer rights to include the right to correct PI and limit the use of sensitive PI (the definition of which the CPRA seeks to amend); data retention limitation requirements; service provider obligations to assist businesses with CPRA compliance; and the expansion of the private right of action to cover breach of an email address in combination with a password and security question and answer permitting access to the email account. Notably, the CPRA does not add a comprehensive private right of action for any other violations, leaving that enforcement to the proposed California Protection Agency.

Looking Forward

Because the initiative has only been certified for four days, the prospects for the initiative in the November election are unclear. It can be expected that the initiative will garner significant support, however. The CPRA joins nearly a dozen other initiatives that will also be on the ballot in California in November.

As the possibility of the CPRA moves closer to reality, we will provide additional information on how it will change data privacy and cybersecurity regulation in California. In the meantime, if you are interested in hearing more about the most notable provisions, and their application to your particular concerns, we are happy to discuss. Please do not hesitate to contact anyone in the list below with your questions.

_____________________

[1] California Attorney General Xavier Becerra recently denied requests to consider a 6-month enforcement delay to January 2, 2021, due to challenges and disruptions presented by the coronavirus pandemic, including a request from a coalition of more than 60 businesses led by the Association of National Advertisers. Attorney General Becerra’s office noted in an email to Forbes, “Right now, we’re committed to enforcing the law upon finalizing the rules or July 1, whichever comes first. . .We’re all mindful of the new reality created by COVID-19 and the heightened value of protecting consumers’ privacy online that comes with it. We encourage businesses to be particularly mindful of data security in this time of emergency.” See Marty Swant, “Citing COVID-19, Trade Groups Ask California’s Attorney General To Delay Data Privacy Enforcement,” Forbes (Mar. 19, 2020), available at: https://www.forbes.com/sites/martyswant/2020/03/19/citing-covid-19-trade-groups-ask-californias-attorney-general-to-delay-data-privacy-enforcement/#1ecf88de5c30.

The following Gibson Dunn lawyers assisted in the preparation of this client update: Alexander Southwell, Benjamin Wagner, Cassandra Gaedt-Sheckter, and Lisa Zivkovic.

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, or any member of the firm’s California Consumer Privacy Act Task Force or its Privacy, Cybersecurity and Consumer Protection practice group:

California Consumer Privacy Act Task Force:
Ryan T. Bergsieker – Denver (+1 303-298-5774, [email protected])
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650-849-5203, [email protected])
Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, [email protected])
H. Mark Lyon – Palo Alto (+1 650-849-5307, [email protected])
Alexander H. Southwell – New York (+1 212-351-3981, [email protected])
Deborah L. Stein (+1 213-229-7164, [email protected])
Eric D. Vandevelde – Los Angeles (+1 213-229-7186, [email protected])
Benjamin B. Wagner – Palo Alto (+1 650-849-5395, [email protected])

Please also feel free to contact any member of the Privacy, Cybersecurity and Consumer Protection practice group:

United States
Alexander H. Southwell – Co-Chair, PCCP Practice, New York (+1 212-351-3981, [email protected])
Debra Wong Yang – Los Angeles (+1 213-229-7472, [email protected])
Matthew Benjamin – New York (+1 212-351-4079, [email protected])
Ryan T. Bergsieker – Denver (+1 303-298-5774, [email protected])
Howard S. Hogan – Washington, D.C. (+1 202-887-3640, [email protected])
Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, [email protected])
Kristin A. Linsley – San Francisco (+1 415-393-8395, [email protected])
H. Mark Lyon – Palo Alto (+1 650-849-5307, [email protected])
Karl G. Nelson – Dallas (+1 214-698-3203, [email protected])
Deborah L. Stein (+1 213-229-7164, [email protected])
Eric D. Vandevelde – Los Angeles (+1 213-229-7186, [email protected])
Benjamin B. Wagner – Palo Alto (+1 650-849-5395, [email protected])
Michael Li-Ming Wong – San Francisco/Palo Alto (+1 415-393-8333/+1 650-849-5393, [email protected])

Europe
Ahmed Baladi – Co-Chair, PCCP Practice, Paris (+33 (0)1 56 43 13 00, [email protected])
James A. Cox – London (+44 (0)20 7071 4250, [email protected])
Patrick Doris – London (+44 (0)20 7071 4276, [email protected])
Bernard Grinspan – Paris (+33 (0)1 56 43 13 00, [email protected])
Penny Madden – London (+44 (0)20 7071 4226, [email protected])
Michael Walther – Munich (+49 89 189 33-180, [email protected])
Kai Gesing – Munich (+49 89 189 33-180, [email protected])
Alejandro Guerrero – Brussels (+32 2 554 7218, [email protected])
Vera Lukic – Paris (+33 (0)1 56 43 13 00, [email protected])
Sarah Wazen – London (+44 (0)20 7071 4203, [email protected])

Asia
Kelly Austin – Hong Kong (+852 2214 3788, [email protected])
Jai S. Pathak – Singapore (+65 6507 3683, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On June 30, 2020, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice released new Vertical Merger Guidelines, which replace the Non-Horizontal Merger Guidelines published in 1984. The FTC’s vote to issue the Guidelines was 3-2, with Commissioners Rebecca Kelly Slaughter and Rohit Chopra dissenting. The new Vertical Merger Guidelines are effective immediately.

Vertical mergers are M&A transactions that combine firms or assets operating at different stages of the supply chain. Examples of vertical mergers include a car manufacturer acquiring the company that supplies it with auto parts, or a grocery store acquiring a milk processor. The Vertical Merger Guidelines aim to describe the agencies’ current approach to vertical mergers and provide greater transparency about how they evaluate such deals.

The finalized Guidelines include substantial revisions to previously released draft guidelines in response to more than 70 public comments. The Vertical Merger Guidelines acknowledge certain procompetitive benefits of vertical mergers, noting that vertical deals “often benefit consumers” by increasing incentives to lower prices and tend to raise fewer competitive concerns than horizontal mergers between competitors. But the final Vertical Merger Guidelines also remove from the initial draft what some observers viewed as a “safe harbor” and describe several additional ways in which vertical mergers could harm competition. And they leave several questions unresolved, including about remedies for vertical mergers.

Significant Changes from the Draft Guidelines

Market Share: One notable change to the final Vertical Merger Guidelines compared with the draft guidelines is the removal of a “safe harbor” for certain transaction based on market shares. The agencies previously said they were unlikely to challenge a vertical merger where the parties to the merger have less than a 20 per cent share in the relevant market and the “related product” (a product or service supplied to firms in the relevant market by the merged firm) is used in less than 20 per cent of the relevant market. The agencies removed this provision following widespread criticism. Now, the Guidelines state that, though levels of concentration may be relevant to assessing a deal’s competitive effects, the agencies will not rely exclusively on market shares or concentration statistics as screens for competitive harm.
Elimination of Double Marginalization: The draft guidelines explained that when two vertically related firms merge, the merged firm can often profitably reduce its downstream prices by combining its upstream and downstream margins. The final Vertical Merger Guidelines continue to stress the consumer benefits from this effect, called elimination of double marginalization (“EDM”), but elaborate on the agencies’ approach to EDM in three ways. First, they explain that the agencies will consider EDM earlier in the analytical process, in assessing whether the merged firm would have an incentive to raise or lower prices as a result of the merger. Second, they suggest that parties will be expected to substantiate claims that their merger will produce EDM. And third, they explain that the agencies will address whether EDM is merger-specific by looking at the merged firms’ cost of self-supply and its existing contracting practices.
Foreclosure and Raising Rivals’ Costs: Like the draft version, the final Guidelines emphasize that vertical mergers may harm competition by increasing the merged firm’s incentive and ability to foreclose rivals from, or raise rivals’ costs to access, related products such as necessary inputs or distribution channels. The Guidelines clarify, however, that mergers will “rarely warrant close scrutiny” on such grounds when rivals could readily switch to alternative providers of the related product, or supply themselves. And as already noted, the Guidelines now explain that the agencies will consider whether the merged firm’s incentive to set lower downstream prices as a result of EDM offsets potential price increases from foreclosing rivals or raising their costs.
Complement and “diagonal” mergers: The Guidelines now describe the agencies’ approach to two types of mergers that, while not strictly vertical, bear similarities to vertical mergers. First, they explain that mergers between makers of complements, such as necessary components of the same product, can raise competitive concerns. Because the price of one complement in certain cases might affect demand for the other, a merged firm may harm rivals by raising the price of one input to customers that do not buy the other. However, the Guidelines acknowledge that mergers involving complementary products and services can also lead to lower prices and other consumer benefits. Second, the Guidelines describe possible competitive concerns that might arise in “diagonal” mergers—mergers between firms at different stages of competing supply chains. In certain cases, such mergers might raise competitive concerns by giving the merged firm control over inputs that facilitate competition between the different supply chains.
Entry: The final Vertical Merger Guidelines also revive the “two-level entry” theory of harm, which also appears in the 1984 Guidelines. First, the agencies suggest that vertical mergers may harm competition by creating a need for “two-level entry.” A vertically integrated company (according to the Guidelines) may have little incentive to encourage the entry of new upstream or downstream competitors, which may mean a new entrant has to self-supply, making entry more costly. Second, the Guidelines state that the agencies will consider whether a vertical merger harms competition by forestalling the potential entry of one merging party into the other firm’s market.

Analysis and Implications

Changes to the final Guidelines attempt to address comments from multiple directions and perspectives. Merging parties will welcome the Guidelines’ greater emphasis on and recognition of the procompetitive benefits of many vertical mergers—EDM foremost among them. The Guidelines now also helpfully describe situations in which vertical mergers will rarely raise concerns about foreclosure or raising rivals’ costs. At the same time, advocates for more active antitrust enforcement will be pleased that the final Guidelines lack a safe harbor and describe additional ways in which a vertical merger could potentially harm competition, including by discouraging potential entry and through “diagonal” and other relationships.

Still, several areas of uncertainty remain from the draft guidelines, and present potential ambiguities for merging parties.

For instance, the Guidelines resurrect the “two-level entry” theory of harm, asserting that vertical mergers can raise barriers to entry by effectively requiring new rivals to simultaneously enter both the upstream and downstream markets. Although the 1984 Guidelines also explored this theory, it is unclear whether “two-level entry” has ever provided a standalone basis for challenging a merger, and the agencies’ draft guidelines would have eliminated it.

The elimination of the safe harbor also creates uncertainty about how market shares and concentration will factor into the agencies’ approach to vertical mergers. The draft Guidelines contained language suggesting that enforcement action was unlikely for mergers below certain market share thresholds, while holding out the possibility that mergers with shares below the thresholds could still give rise to competitive concerns. But with the safe harbor gone, parties now have little insight into how the agencies will factor the merged firms’ market shares and concentration into their analysis, other than knowing that “high” concentration may sometimes cause concerns.

How the agencies will approach EDM in practice also remains unclear from the final Guidelines. The Guidelines at times appear to suggest that merging parties have the burden of showing that EDM is verifiable and merger specific, as with efficiencies under the Horizontal Merger Guidelines. But elsewhere, the Guidelines suggest that the agencies may “independently attempt to quantify” EDM based on available evidence, including the evidence agencies develop themselves to assess other price effects.

Lastly, the Guidelines remain silent about how the agencies will address remedies in vertical mergers. Recent policy statements and the retraction of DOJ’s 2011 Policy Guide for Merger Remedies have created considerable uncertainty about the agencies’ approach. For example, it is unclear whether either or both agencies will seek structural remedies in the form of divestitures, or will continue to accept conduct or “behavioral” remedies as they have in the past. It remains to be seen whether or how the new Guidelines will impact agency policy concerning remedies.

Companies considering vertical mergers should carefully consider whether their transactions will receive increased scrutiny under the new Vertical Merger Guidelines. Gibson Dunn successfully defended the only vertical merger challenge litigated to trial by the DOJ in the last forty years (involving AT&T’s acquisition of Time Warner), and attorneys in our Antitrust and Competition Law practice stand ready to assist clients in analyzing and securing approval of vertical transactions.

The following Gibson Dunn lawyers prepared this client alert: Kristen Limarzi, Adam Di Vincenzo, Richard Parker, Chris Wilson and Harry Phillips.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please feel free to contact the Gibson Dunn attorney with whom you usually work, the authors, or any member of the firm’s Antitrust and Competition Practice Group:

Antitrust and Competition Group:

Washington, D.C.
D. Jarrett Arp (+1 202-955-8678, [email protected])
Adam Di Vincenzo (+1 202-887-3704, [email protected])
Scott D. Hammond (+1 202-887-3684, [email protected])
Kristen C. Limarzi (+1 202-887-3518, [email protected])
Joshua Lipton (+1 202-955-8226, [email protected])
Richard G. Parker (+1 202-955-8503, [email protected])
Cynthia Richman (+1 202-955-8234, [email protected])
Jeremy Robison (+1 202-955-8518, [email protected])
Andrew Cline (+1 202-887-3698, [email protected])
Chris Wilson (+1 202-955-8520, [email protected])
Harry R. S. Phillips (+1 202-887-3706, [email protected])

New York
Eric J. Stock (+1 212-351-2301, [email protected])
Lawrence J. Zweifach (+1 212-351-2625, [email protected])

Los Angeles
Daniel G. Swanson (+1 213-229-7430, [email protected])
Samuel G. Liversidge (+1 213-229-7420, [email protected])
Jay P. Srinivasan (+1 213-229-7296, [email protected])
Rod J. Stone (+1 213-229-7256, [email protected])

San Francisco
Rachel S. Brass (+1 415-393-8293, [email protected])

Dallas
Veronica S. Lewis (+1 214-698-3320, [email protected])
Mike Raiff (+1 214-698-3350, [email protected])
Brian Robison (+1 214-698-3370, [email protected])
Robert C. Walters (+1 214-698-3114, [email protected])

Brussels
Peter Alexiadis (+32 2 554 7200, [email protected])
Attila Borsos (+32 2 554 72 11, [email protected])
Jens-Olrik Murach (+32 2 554 7240, [email protected])
Christian Riis-Madsen (+32 2 554 72 05, [email protected])
Lena Sandberg (+32 2 554 72 60, [email protected])
David Wood (+32 2 554 7210, [email protected])

Munich
Michael Walther (+49 89 189 33 180, [email protected])
Kai Gesing (+49 89 189 33 180, [email protected])

London
Patrick Doris (+44 20 7071 4276, [email protected])
Charles Falconer (+44 20 7071 4270, [email protected])
Ali Nikpay (+44 20 7071 4273, [email protected])
Philip Rocher (+44 20 7071 4202, [email protected])
Deirdre Taylor (+44 20 7071 4274, [email protected])

Hong Kong
Kelly Austin (+852 2214 3788, [email protected])
Sébastien Evrard (+852 2214 3798, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

This briefing examines the United Kingdom’s latest oil and gas industry sector consultation relating to the regulator’s (the Oil and Gas Authority (the OGA)) strategy to maximise economic recovery from the basin, and integrating this strategy with the United Kingdom’s carbon emissions reduction ambitions. This briefing will be relevant to all existing and prospective market actors in the United Kingdom’s offshore hydrocarbons industry, as well as those companies involved in the United Kingdom’s energy transition to a low carbon economy.

Background to the MER Strategy

The United Kingdom’s Continental Shelf (the UKCS) is a mature basin with many ageing assets. In 2013, the UK Government announced a review of UKCS recovery and regulation by Sir Ian Wood (the Wood Review). The Wood Review report was published in 2014 with key recommendations to maximise economic recovery from the UKCS, including the establishment of a new regulator and the development of a new strategy to maximise economic recovery, which recommendations were accepted by the Government.

The UK’s upstream oil and gas sector has since been regulated by the OGA. The OGA is required to set strategies for achieving the “principal objective” under Part 1A of the Petroleum Act 1998 (the Act), which is to maximise the economic recovery of the UK’s oil and gas resources. In 2016, the OGA set its first strategy to achieve this objective – the Maximising Economic Recovery, or MER Strategy, which came into force on 18 March 2016.

Under the Act, the OGA has the power to produce a new strategy or revise a current strategy at any time, and is also required to review each current strategy every four years (s.9F of the Act).

Proposal to revise the MER Strategy

On 6 May 2020, the OGA launched a formal consultation to review the MER Strategy. The OGA has invited comments, and the UK oil and gas industry is actively engaged in dialogue, on the terms of the revised proposal for the MER Strategy (the Proposal). The terms of the Proposal remain open to the consultation process, with the OGA due to review responses to the consultation before a draft of the revised strategy is laid before Parliament.

At the heart of the Proposal is the integration of the maximisation of economic recovery from the UKCS with the UK’s recent commitments to reducing carbon emissions and achieving a transition to net zero by 2050. This significantly widens the original scope of the MER Strategy from one that focussed on the economic and commercial considerations of recovery of oil and gas from the basin to the environmental impacts of recovery and associated infrastructure.

Background to the UK’s net zero ambitions

In the backdrop to this consultation is the UK’s statutory commitment to the net zero carbon emission 2050 target. Under the Climate Change Act 2008, the UK initially committed to achieving an 80% reduction (to 1990 levels) in greenhouse gas (GHG) emission levels by 2050. In June 2019, this target was revised upward to 100% (net zero reduction in GHG levels) by 2050 by way of the Climate Change Act 2008 (2050 Target Amendment) Order 2019 (SI 2019/1056).

Referring to the Committee on Climate Change’s “Net Zero” report, the OGA has reemphasised in the consultation (p.6) that, although the UK will be transitioning to net zero, for the foreseeable future, oil and gas will remain a crucial part of the UK’s energy mix and that the oil and gas industry’s capital, skills and technology will be vital in achieving the net zero target. The OGA also expects the oil and gas industry to play “a critical role in delivering net zero for the UK as a whole” (p.7).

Given that oil and gas accounts for around 75% of the UK’s total energy needs,[1] working towards carbon neutrality and playing a critical role in delivering the transition is the right step for the industry.

Extent of existing statutory mandate

In integrating the net zero commitments in the Proposal however, the OGA has expanded the “Central Obligation” to include the requirement to assist the Secretary of State in meeting the net zero target – both by reducing GHG emissions and by supporting, in particular, carbon capture and storage (CCS) projects. By way of the “Supporting Obligations”, these obligations apply at each stage of operations – so relevant persons must consider reduction of GHG emissions and support for CCS from exploration to decommissioning. The attempt to tie-in net zero to the original scope of the MER Strategy is clear – the inclusion of the words “and, in doing so” at the end of the original MER central obligation (s.2a) is an attempt to preserve the sanctity of the legislative mandate (i.e. the primary objective under the Act). However, carbon neutrality does not fall within the existing “principal objective” as the statutory basis for the MER Strategy under the Act. Whilst supporting obligations can rightly be used to deliver the central obligation, the central obligation remains a reflection of the principal objective under the Act and we question whether this can be expanded without a new legislative mandate notwithstanding the terms of the Energy Act (which empower the OGA in connection with certain CCS matters) and the Climate Change Act (as amended).

Given the UK oil and gas industry is in no way ignoring the need to transition by 2050, inclusion of the net zero target as a central obligation rather than a supporting obligation in this way seems unnecessary. The industry is working with industry bodies, the Government and regulators (see below) to commit not only to a “Net-Zero Basin” but also towards developing a “Sector Deal” which will ultimately have legislative force.

Industry commitments to emission reduction and the Sector Deal

In September 2019, UK’s oil and gas industry group, the Oil & Gas UK (OGUK), released “Roadmap 2035: A Blueprint for Net Zero” highlighting the role that the industry can play in the transition to a decarbonised economy. On 16 June 2020, working with industry and regulators, the OGUK also set targets in the “Pathway to a Net-Zero Basin: Production Emissions Targets” to reduce emissions associated with the UKCS oil and gas production – through changes to operations, reductions in flaring and venting, capital investment programmes for the electrification of offshore facilities. The industry has committed to halving the GHG emissions from UKCS exploration and production activities by 2030, delivering 90% reduction by 2040.

Alongside the recent emissions targets, the industry is also in formal discussions with the Government on a range of options for a sector deal (the Sector Deal) to support a green recovery. The Sector Deal is expected to act as a catalyst in delivering both energy security and a transition to net zero, whilst stimulating jobs growth and technological advancements and the supply chain.[2]

The inclusion of the net zero target in this way also seems premature. The Government has not yet delivered its wider strategy roadmap to achieving energy transition (the Energy White Paper – see further below). This move by the regulator, in the absence of the Government’s direction and the Energy White Paper creates a potential for inconsistency and overlap. With an Environment Bill also in Parliament, there remains a lack of clarity on the authority/ies that wield(s) enforcement powers on environmental and emissions matters.

At a time when the oil and gas industry is facing a “triple whammy” and about to embark on a fundamental re-set, it would be better guided by a more co-ordinated and holistic Government approach – with the Energy White Paper leading the way, followed by a Parliament-approved Sector Deal and any required strategy or guidance rounding up the rough edges (if any).

Energy White Paper and enforcement of climate change commitments

The Energy White Paper – the Government’s roadmap to achieving net zero 2050 – was initially scheduled for an early summer 2019 release. Following the Department for Business, Energy & Industrial Strategy’s (BEIS) release of a number of consultations in summer 2019 targeting these areas, there was speculation that the Energy White Paper would eventually include clear direction on new nuclear, CCS and similar projects to transition the UK to net zero. Through the course of 2020, the Government has indicated different timelines for the release of the Energy White Paper, which is yet to be published. Though the global COVID-19 pandemic has in many ways reinforced the need to push ahead with de-carbonisation of the economy, the effects of global shut-down measures has also arguably slowed the pace of change in some respects, with the COP26 United Nations climate change conference being postponed from November 2020 until 2021 and the Government having substantial competing legislative priorities.

The Government also introduced the Environment Bill in October 2019. This Bill envisages the establishment of a new independent regulator – the Office for Environmental Protection – with enforcement powers, covering all climate change legislation and the UK’s commitment to reaching its net zero target.

Under the Energy Act 2016 (s.8), the OGA must have regard, when exercising its functions, to the storage of carbon dioxide, including “[t]he development and use of facilities for the storage of carbon dioxide, and of anything else (including, in particular, pipelines) needed in connection with the development and use of such facilities, and how that may assist the Secretary of State to meet the target in section 1 of the Climate Change Act 2008”. The OGA is also the licensing authority for carbon dioxide storage. However, these powers do not extend to the entire CCS value chain – perhaps the OGA needs to clarify that it is not seeking to (and it has no legislative mandate to) regulate the entire CCS chain, which is the domain of BEIS.

The Proposal refers specifically to CCS and hydrogen. Although the OGA may not have intended to discourage investment in other green technologies and clean energy strategies, clearer drafting could be used to clarify that the references to CCS and hydrogen are not to the exclusion of other welcome green investment.

ESG and Governance

The non-binding introductory “high-level principles” introduce ESG and governance for the first time (para (c)), requiring relevant persons to “develop and maintain good environmental, social and governance practices in their plans and daily operations”. At one level, it would have been remiss of the OGA not to refer to both ESG and governance – these are fundamental pillars, which are intrinsically linked, to ensure a careful and appropriate approach to meeting the UK’s net zero targets. There are no binding obligations included in the Proposal supporting ESG, which area is already covered by other governance standards, including the 2020 UK Stewardship Code.

However, a significant change to the scope of the MER Strategy and the OGA’s own powers is the introduction of “Governance” as a new Supporting Obligation (s.3). This obligation requires offshore licensees and the joint ventures in which they engage to “apply good and proper governance at all times, including complying with any principles and practices as the OGA may from time to time direct”. Prior to making a direction, the OGA “would consult on what is proposed and consider any responses made”. However, it is worth noting that there are no such corporate governance requirements in the Act, the Energy Act or the model clauses that apply to UKCS petroleum licences.

In the consultation, the OGA rightly acknowledges (para 39) that a number of governance codes/principles already exist for both public and private companies (referring specifically to the 2018 UK Corporate Governance Code, 2020 UK Stewardship Code and the Wates Corporate Governance Principles for Large Private Companies), which would indicate that the OGA intends to direct companies to follow the “Comply or Explain” approach under existing codes and principles. However, the OGA also believes (para 40) it “requires the flexibility to be able to update and adapt what is considered good and proper governance based on current events and learning”. Whilst good governance systems are necessary, this indicates a wider approach to governance than currently exists – this power could extend further than a direction to comply or explain non-compliance to the OGA.

Neither the consultation nor the Proposal clarify the scope of the OGA’s powers in this regard – it is unclear whether the OGA has identified gaps in applicable principles, the companies covered by the scope of existing principles or if it expects to hold licensees to a higher standard than other private and public companies, which would be both unusual and dangerous. If the intention is to hold private companies to public company standards, query whether this should be expressly acknowledged and, in any event, whether instead consultation through existing codes should be undertaken. This new inclusion is likely to make the area of governance murkier rather than clearer – inevitably leading to overlapping (and potentially conflicting) governance standards, enforcement powers and increasing the administrative burden on companies in reporting to multiple regulators on governance matters.

Collaborate and co-operate

Originally, the MER Strategy required relevant persons (as a “Behaviour”) to “where relevant, consider whether collaboration or co-operation with other relevant persons and those providing services” would achieve cost reduction or improve recovery (s.28). The Proposal (s.21) states that relevant persons “must” collaborate and co-operate with other relevant persons, the supply chain and “persons seeking to acquire an interest or invest in offshore licences or infrastructure in a region”.

This subtle change in language from “consider” to “must” signifies a fairly significant shift in position – this is the first time the OGA has required collaboration and co-operation in the UKCS. The industry recognises the importance of collaboration, which is indeed crucial during a transition period. However, the OGA has not explained why the wording in the existing MER Strategy did not meet the OGA’s expectations. The OGA has also changed the focus of this provision – collaboration previously tied into the obligations under the MER Strategy – the Proposal de-links the collaboration requirement from the central obligation(s) under the Proposal, significantly expanding the scope of the requirement.

Although the Act (s.9A(1)(b)) includes “collaboration” in meeting the principal objective of MER, it does not require collaboration with the categories of persons included in the Proposal – the addition of new entrants/potential licensees and the wider industry supply chain are not covered by the Act. Whilst the Act always referred to collaboration[3], the solution reached by the OGA when drafting the original MER Strategy was sensible, i.e. to “consider” collaboration as opposed to requiring it. It is unclear how the OGA will implement, monitor compliance or enforce the collaboration or co-operation requirement also noting that agreements to agree are not enforceable under English law.

Existing players and new entrants will likely watch this area closely, as it also requires collaboration and co-operation with new entrants, potentially easing the way for further private equity access to the basin.

Collaboration and Competition Law

In connection with the Energy Act 2016 and the creation of the OGA, the UK Competition and Markets Authority (the CMA) and the Government had discussed the approach to collaboration objectives. The CMA had confirmed that the collaboration objectives of the OGA were not necessarily inconsistent with UK competition law. However, it also identified risks (inherent in the proposals) in terms of encouraging or facilitating anti-competitive information exchange or anti-competition collusion or agreements, with care required to avoid breaching competition laws.[4]

The Proposal (s.1) clarifies that the Supporting Obligations and any Required Actions and Behaviours “must be read subject to the Safeguards”. According to the Safeguards provision (s.32), “[n]o obligation imposed by or under this Strategy permits or requires any conduct which would otherwise be prohibited by or under any legislation, including legislation relating to competition law, health, safety or environmental protection”. The Proposal (including the obligation to collaborate) is therefore expressly subject to competition law. Relevant persons are expected to consider whether any proposed arrangement or collaboration complies with competition law on a case-by-case basis.

Third Party Access to Infrastructure

The Proposal includes new supporting obligations requiring infrastructure owners to negotiate access to infrastructure (terminals and, upstream of a terminal, equipment, pipelines, platforms, production installations and subsurface facilities) in a timely fashion and in good faith (s.12a). The Proposal requires access to the infrastructure to be provided on “fair, reasonable and non-discriminatory terms” (s.12b). Notably, the Proposal now expressly requires infrastructure owners and operators to achieve optimum potential for the re-use and re-purpose of infrastructure taking account of the UK’s net zero target (s.10c) and to negotiate access to infrastructure for CCS projects (s.22).

The newly introduced supporting obligations are consistent with the existing access to infrastructure principles set out in the non-statutory Infrastructure Code of Practice (the Code). The OGA encourages all parties to follow the Code and, when considering third party access disputes under the Energy Act 2011, the OGA will assess the extent to which parties have followed the Code (see also Third Party Access Disputes Guidance). The supporting obligations in the Proposal therefore represent a continued shift in emphasis from a voluntary industry-led access to infrastructure regime (with the OGA resolving issues) to a requirement under the Proposal enforceable directly by the OGA.

When negotiating access to infrastructure, owners and operators should also remain conscious of the CMA powers to investigate abuses of a dominant position under UK competition law; and the European Commission’s (the EC) ability to investigate similar breaches under EU competition laws, where conduct may have an effect on trade between Member States. The OGA stated in the Third Party Access Disputes Guidance that the CMA “is unlikely to consider that infrastructure owners infringe the Chapter II prohibition on abuse of a dominant position where they offer third parties use of their infrastructure on fair, reasonable and non-discriminatory terms”. This is now the test that the OGA has included in the Proposal. The changes proposed may potentially overlap with the CMA’s and EC’s jurisdiction.

The consultation also states that the OGA will, in due course, work with industry to provide further guidance on the asset stewardship supporting obligations. Such guidance should specifically address how parties are expected to negotiate access to infrastructure whilst balancing the potential competing or conflicting demands of (i) the maximising economic recovery objective, (ii) the net zero target, (iii) the commercial objectives and existing contractual commitments of the infrastructure owners and operators, and (iv) competition law.

Conclusion

The OGA’s bold steps towards the integration of the path to net zero within the oil and gas industry’s roadmap are likely to be welcomed by society and industry. Engagement by industry in committing to emission reduction targets and developing a Sector Deal with the Government show buy-in from industry into delivering energy transition. The industry and industry bodies are actively engaging in the consultation process.

In the absence of any clear policy steer by the Government by way of the Energy White Paper or agreement on a Sector Deal, the OGA’s move has jumped ahead of the more logical sequence of the Government’s fully framed strategy and action plan leading the way. The twin-track being created by the Proposal may not only dilute the purpose of the MER Strategy but also confuse the net zero message. The OGA may therefore want to reconsider whether the MER Strategy is the right instrument by which to introduce the energy transition obligations. Perhaps if covered by a separate instrument for energy transition, there may be an ability to consider collaboration with offshore renewables – an area currently missing in the Proposal as it is not within the OGA’s purview.

Where the OGA intends to integrate two fundamental concepts, the Proposal leaves potential for conflicts between maximising economic recovery of natural resources and the UK’s net zero objective. In any redraft, the OGA should ensure that the primacy of the MER principal objective is clear over energy transition – perhaps delivering the transition net zero as a supporting obligation, rather than a central obligation.

The OGA will need to work closely with industry and other existing regulatory bodies to ensure that projects are able to maintain a reasonable balance between maximising and transitioning and that there is no overlapping areas of authority and jurisdiction between regulators. These areas would benefit from clarity – preferably by way of the original drafting rather than future guidance.

Over the past four years, the OGA has been flexible and supportive in the interpretation and implementation of the MER Strategy. The extensive proposed amendments require industry to place a lot of reliance on that behaviour. In order to future-proof the MER Strategy, it would be prudent and good practice to clarify the OGA’s intentions in relation to a number of the changes and also to include more clear drafting to avoid ambiguity.

Next steps

The consultation closes on 29 July 2020, followed by a period of (potential) redrafting by the OGA based on representations received.

The process for revising an existing strategy is set out in the Act (s.9G) and summarised below:

OGA produces a draft of the revised strategy;
OGA consults with persons it thinks appropriate;
OGA considers representations / responses to consultation;
OGA sends the draft (original or modified) to the Secretary of State for BEIS (the SoS), who may return it if he/she considers that the draft does not enable the principal objective to be met or if the consultation process was not followed;
SoS lays the draft before each House of Parliament;
If neither House of Parliament passes a negative resolution after 40 days (excluding periods of Parliament adjournment of more than four days, dissolution or prorogation), the OGA may issue the revised strategy; and
OGA can determine when the revised strategy comes into force (the earliest date being the date of issue).

_________________________

[1] Pathway to a Net-Zero Basin: Production Emissions Targets, OIL & GAS UK (June 16, 2020), https://oilandgasuk.cld.bz/OGUK-Pathway-to-a-Net-Zero-Basin-Production-Emissions-Targets-Report-2020 (p.4).

[2] UK offshore oil and gas industry outlines plan to cut emissions as talks on transformational sector deal formally begin, OIL & GAS UK, https://oilandgasuk.co.uk/category/press-release/.

[3] In addition, under the Energy Act 2016 (s.8), the OGA is required to have regard, when exercising its functions, to “collaboration”, i.e. the need to work collaboratively with the Government and with persons who carry on, or wish to carry on, relevant activities.

[4] Letter from the CMA to the Department of Energy and Climate Change (December 3, 2015), see paras 5 to 13, here.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For additional information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Oil and Gas practice group, or the following authors:

Anna P. Howell – London (+44 (0)20 7071 4241, [email protected])
Mitasha Chandok – London (+44 (0)20 7071 4167, [email protected])
Kelly Powers – London (+44 (0)20 7071 4147, [email protected])
Ade Adesiyan – London (+44 (0)20 7071 4251, [email protected])

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On June 29, 2020, in response to a request from the Ninth Circuit, the California Supreme Court provided guidance on pressing questions of California employment law in Oman v. Delta Airlines, Inc., No. S248726, ___Cal.5th___ (Oman). The Court issued a unanimous opinion on (1) the scope and applicability of California Labor Code Sections 204 and 226, which respectively govern the timing of wage payments and the content of wage statements, and (2) compliance with state minimum wage laws for employers who pay their employees on a non-hourly basis. The Court held that Labor Code Sections 204 and 226 apply to employees only if California is the principal place of their work, meaning the employee either works primarily in this state during the pay period, or does not work primarily in any state but has his or her base of operations in California. (Id. at [pp. 10, 13].) The Court then held that although employers who pay on a non-hourly basis may “average” wages across the unit of payment to determine minimum wage compliance, they may not engage in “wage borrowing,” meaning, “borrowing compensation contractually owed for one set of hours or tasks to rectify compensation below the minimum wage for a second set of hours or tasks.” (Id. at [p. 19].) The decision provides both local and multi-state employers with long-awaited guidance on two important issues of California wage-and-hour law.

A. Flight Attendants Sue Airlines Claiming That Their Wage Statements and the Timing of Their Wage Payments Violated California Law and That They Were Not Paid Minimum Wage for All Hours Worked

Plaintiffs Dev Anand Oman, Todd Eichmann, Michael Lehr, and Albert Flores are current or former flight attendants for Delta Airlines, Inc (“Delta”). In 2015, they filed a putative class action in federal court alleging that Delta violated several California labor laws. Plaintiffs alleged that Delta failed to pay its flight attendants in accordance with the state’s minimum wage laws, provide comprehensive wage statements required under California Labor Code Section 226, and timely pay wages within the semimonthly schedule provided in Labor Code Section 204. The district court ultimately granted summary judgment to Delta on all issues. First, the district court concluded that Delta’s compensation plan—which involved a complex, multi-factor formula intended to compensate for a “rotation” of work—did not violate California’s minimum wage laws. It then determined the Labor Code provisions governing pay periods and wage statements did not apply to Plaintiffs because the multi-jurisdictional nature of their work and the short duration of their time in California were insufficient to warrant application of California law.

Plaintiffs appealed the decisions to the Ninth Circuit. Before deciding the appeal, the Ninth Circuit certified the following three questions of California state law to the California Supreme Court (id. at [p. 4]):

(1) Do sections 204 and 226 apply to wage payments and wage statements provided by an out-of-state employer to an employee who, in the relevant pay period, works in California only episodically and for less than a day at a time?

(2) Does California minimum wage law apply to all work performed in California for an out-of-state employer by an employee who works in California only episodically and for less than a day at a time?

(3) Does the Armenta/Gonzalez bar on averaging wages apply to a pay formula that generally awards credit for all hours on duty, but which, in certain situations resulting in higher pay, does not award credit for all hours on duty?

The California Supreme Court accepted the request, continuing its recent pattern of accepting certified-question appeals from the Ninth Circuit, particularly on labor and employment issues. Oman was decided alongside two companion cases, Ward v. United Airlines, Inc., and Vidrio v. United Airlines, Inc., No. S248702, ___ Cal.5th ___ (together, Ward), which similarly concerned the applicability of state labor laws to flight attendants primarily based outside the state’s territorial jurisdiction.

**B. The Court’s Opinion in Oman Offers Clarity on the Geographical Scope of Certain California Labor Laws and Compliance with State Minimum Wage Requirements**

Justice Kruger authored the opinion of the Court, in which Chief Justice Cantil-Sakauye and Justices Chin, Corrigan, Liu, Cuéllar, and Groban concurred. The Court addressed the first and third questions certified by the Ninth Circuit, commencing with the question concerning the reach of Labor Code Sections 226 and 204, which respectively address the content of wage statements and the mandatory timing of wage payments. The Court, relying on its decision in the companion Ward case, unanimously held that an employee was not entitled to the protection of either section unless California was the principal place of that employee’s work during the relevant pay period. (Oman, supra,___ Cal.5th ___ at [pp. 10, 13].) The Court clarified that California would be the principal place of an employee’s work if the employee either (1) works primarily in California during the pay period, or (2) does not work primarily in any state but has his or her base of operations in California. The Court reasoned that any other conclusion would lead to impractical and burdensome results for multi-state employers and, importantly, lacked any reasonable policy justification. Because the proposed class of Delta employees included individuals like Plaintiff Dev Oman who neither performed their work predominantly in California nor were based in the state for work purposes, they were not entitled to the protections of Sections 204 and 226. (Id. at [p. 7].) The Court also clarified for the Ninth Circuit that the location or residence of the employer is irrelevant to the analysis of the applicability of Section 226 (and by implication, irrelevant to the applicability of Section 204 as well). (Ibid.)

The remainder of the Court’s opinion addressed the Ninth Circuit’s questions regarding the permissibility of Delta’s compensation scheme in light of California’s minimum wage laws, with the Court ultimately determining that Delta complied with California’s minimum wage requirements. The Court, however, chose not to resolve the Ninth Circuit’s question of whether California minimum wage laws applied under the factual circumstances of the case.[1] (Id. at [pp. 13–14].) Instead, the Court’s analysis centered on the substance of California’s minimum wage laws themselves, specifically the issues involved in determining if a compensation scheme that does not pay employees an hourly wage, but instead pays per task or other “method of compensation,” complies with such laws.

In analyzing that issue, Justice Kruger focused on the nature of the contractual obligation between the employer and employee with respect to pay. (Id. at [pp. 19–20].) Her premise was simple: the employer’s first obligation is to pay all employees at least the hourly minimum wage for those units compensated under the contract, whether those units are day, task, piece, or some other metric. (Id. at [pp. 20–21].) The Court held that determining whether the employer had satisfied its contractual obligation could be done by “translat[ing] the contractual compensation into an hourly rate by averaging pay across those tasks or periods.” (Id. at [p. 21].) For example, an employer that pays in daily units can average pay across all hours worked in a day to determine if the resulting hourly wage meets the minimum required. Delta easily satisfied this obligation; the parties did not contest that Delta’s flight compensation rates, when averaged, far exceeded the minimum wage requirements. (Id. at [pp. 24–25].)

Justice Kruger, however, emphasized that this was not the end of the inquiry. The employer must meet its minimum wage obligations while also paying for each task, day, or other unit at the contractually promised rate. The Court used the seminal case of Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314 (Armenta), to illustrate this concept. (Oman, supra,___ Cal.5th ___ at [pp. 21–22].) In Armenta, the employer agreed to compensate employees for hours engaged in specified “productive tasks” at a rate well above the minimum wage threshold, but did not compensate for work that was not captured by the “productive tasks” category. (Ibid.) The employer there argued that there was no minimum wage violation because the employees’ total wages, when averaged across the total amount of time spent on productive and non-productive tasks, exceeded the minimum wage. (Id. at [pp. 18–19].) The Court of Appeal rejected that argument and held that wages for productive tasks could not be averaged, or “borrowed,” in Justice Kruger’s words, to satisfy the employer’s minimum wage obligations for the non-productive tasks, because to do so would essentially provide the employer a discount on the rate it agreed to pay the employee for contractually-covered work. (Ibid.)

The Court ultimately distinguished Armenta in analyzing Delta’s compensation scheme. Unlike Armenta, Delta’s payment scheme, although based on a complex formula with particular inputs, did not provide specific compensation for any particular hour of work; instead it offered a guaranteed level of compensation for each rotation. (Id. at [p. 28].) Justice Kruger reasoned that there were “no on-duty hours for which Delta contractually guarantees certain pay—but from which compensation must be borrowed to cover other un- or undercompensated on-duty hours,” and as such, “the concerns presented by the compensation scheme in Armenta . . . are absent here.” (Ibid.)

This holding serves as an important clarification for employers: Averaging wages across hours worked is not a per se improper way to determine minimum wage compliance, provided the averaging is done across the contractually agreed-upon unit of payment. What is impermissible is wage borrowing—using wages in excess of the minimum wage for the contracted-for hours to meet minimum wage requirements for other hours worked that are not covered by the contractual arrangement.

C. Justice Liu’s Concurrence Reiterates the Importance of Contractual Interpretation

Justice Liu’s concurring opinion, joined by Justice Cuéllar, addressed only the third question certified by the Ninth Circuit and centered on the first step in the Court’s analysis—identifying the nature of the contractual commitment between the employer and employee. (Oman, supra, ___Cal.5th___[conc. opn. of Liu, J.], at [p. 1].) Justice Liu directed courts to give adequate attention to interpreting the parties’ mutually-understood contractual obligations, as those obligations are key to determining whether wages have been unlawfully borrowed. (Id. at [p. 3].) He further cautioned against allowing employers to circumvent their wage obligations by simply inserting minimum wage floors into their employment contracts. (Ibid.)

D. Implications of the Court’s Decision for Employers

The Court’s decision resolves open questions with respect to the extraterritorial reach of Sections 226 and 204, but does not address those same issues with respect to California’s minimum wage provisions. Still, the Court’s decision does clarify that what was once perceived as an outright prohibition on averaging wages in determining minimum wage compliance is now more precisely understood as a bar on borrowing wages in a manner that contractually undercompensates an employee. Further, the Court’s emphasis on contractual interpretation underscores the importance of clear contractual drafting: going forward, employers with California operations should stay current on court decisions involving the interpretation of the scope of contractual employment terms, including for pay plans with so-called hourly backstops, which have become increasingly common in industries where the dominant unit of pay is something other than hourly pay.

_______________________

[1] The Court did not resolve the Ninth Circuit’s certified question concerning the applicability of California’s minimum wage laws to all work performed in California for an out-of-state employer by an employee with limited working hours in California. (Id. at [pp. 13– 14].) The Court determined that the question of applicability was immaterial based on its preliminary determination that, regardless, Delta would have been in compliance with those laws. (Ibid.)

For more information, please feel free to contact the Gibson Dunn lawyer with whom you usually work or any of the following attorneys listed below.

Theodore J. Boutrous, Jr. – Co-Chair, Litigation Practice, Los Angeles (+1 213-229-7000, [email protected])
Catherine A. Conway – Co-Chair, Labor and Employment Practice, Los Angeles (+1 213-229-7822, [email protected])
Julian W. Poon – Los Angeles (+1 213-229-7758, [email protected])
Michael Holecek – Los Angeles (+1 213-229-7018, [email protected])
Lauren M. Blas – Los Angeles (+1 213-229-7503, [email protected])

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Washington, D.C. partner Howard Hogan and New York associates Connor Sullivan and Sheri Pan are the authors of “Should the Law Treat Profit Awards Differently in Trademark Infringement and Dilution Cases?” [PDF] published by The National Law Journal on June 26, 2020.