This bulletin provides a summary and compendium of English law legal developments during the current COVID-19 pandemic in the following key areas:

1. Competition and Consumers
2. Corporate Governance (including accounts, disclosure and reporting obligations)
3. Cybersecurity and Data Protection
4. Disputes
5. Employment
6. Energy
7. Finance
8. Financial Services Regulatory
9. Force Majeure
10. Government Support Schemes
11. Insolvency
12. International Trade Agreements (private and public)
13. Lockdown and Public Law issues
14. M&A and Private Equity
15. Real Estate
16. UK Tax

Links to various English law alerts prepared by Gibson Dunn during this period are also included in the relevant sections.

As always, for additional information, please feel free to contact the Gibson Dunn lawyer with whom you usually work, any member of the UK COVID-19 Taskforce (listed at the end of this bulletin), or one of the taskforce co-leads:

Charles Falconer – London (+44 (0)20 7071 4270, [email protected])
Anna Howell – London (+44 (0)20 7071 4241, [email protected])

1. COMPETITION AND CONSUMERS

Abuse of dominance investigations launched in light of excessive pricing practices

On 18 June 2020, the UK Competition and Markets Authority (CMA) launched investigations into suspected breaches of Chapter II of the Competition Act 1998 (concerning the abuse of a dominant position) by four pharmacies and convenience stores. Those under investigation are suspected of charging excessive and unfair prices for hand sanitizer products during the coronavirus (COVID-19) pandemic.

Government widens its transaction intervention powers

On 22 June 2020, the Government laid before Parliament two pieces of legislation to extend its “public interest” intervention powers.

Fight against public health emergencies

The first Order, which came into force the next day, introduces a new ground upon which a public interest intervention can be launched. This is: “the need to maintain in the United Kingdom the capability to combat, and to mitigate the effects of, public health emergencies”.

National security

The second, which will come into force once debated and approved by both Houses of Parliament, proposes an extension of the companies to which the lower thresholds for public interest intervention (as introduced in 2018) apply. This concerns target companies with specified activities connected with: artificial intelligence, cryptographic authentication technology and certain advanced materials (as defined in the legislation).

This second set of proposals is intended to assist with public interest interventions on national security grounds. However, the amendments (due to their configuration) will also lower in a similar manner the UK merger control thresholds for the same transactions (i.e. technically allowing for easier intervention also on competition grounds for such cases). The CMA will, however, only investigate a transaction on competition grounds on its own initiative if there is a reasonable chance that the transaction may give rise to a realistic prospect of a substantial lessening of competition.

A more detailed, separate briefing on the above mentioned changes in the law (and other pending changes in the area of national security intervention) will be issued shortly.

2. CORPORATE GOVERNANCE (INCLUDING ACCOUNTS, DISCLOSURE AND REPORTING OBLIGATIONS)

The Financial Reporting Council (FRC)’s Financial Reporting Lab has published reports on disclosures in corporate reporting

The Financial Reporting Lab, established by the FRC, has issued two reports to provide practical guidance to companies focusing on the areas of corporate reporting identified as being the most critical to investors during the economic uncertainty caused by COVID-19. The Financial Reporting Lab states that investors require clear, good-quality and timely disclosures which set out the impact of COVID-19 on a company’s business and its long-term prospects. Such disclosures will enable investors to identify the companies that require the most attention and support and to make informed decisions regarding capital allocation.

The first report provides practical advice to companies setting out the nature of the disclosures that investors expect to see during COVID-19. The report notes that, while historical information on a company’s position is always valuable, reporting on a company’s future, its risks and its strategy is increasingly important in the current circumstances. The second report gives specific guidance on going concern, risk and viability disclosures that may be made by a company. The reports include examples of good practice reporting to assist companies and in particular, the reports encourage boards of directors to consider plausible future scenarios and to report on how they intend to respond to these going forward.

The Financial Reporting Lab has produced a summary of the first report and a summary of the second report, as well as some FAQs on the two reports.

For further information, see here.

The Pensions Regulator (PR) has issued updated COVID-19 guidance

The PR has updated its guidance designed to help pension scheme trustees and employers manage the financial impact of COVID-19.

Among the updated guidance is further guidance for trustees of defined benefit (DB) schemes facing employer requests to agree to suspend or reduce deficit repair contributions. Trustees may agree these where it may be necessary to support employers navigating the challenges resulting from COVID-19. However, the updated guidance states that pension trustees should resume reporting key information to the PR from 1 July 2020, including details of suspended or reduced contributions. This will ensure the PR is able to horizon-scan effectively, identify risks and act as necessary to protect savers.

The following guidance has been updated:

For further information, see here.

Companies House has updated guidance on company accounts amid COVID-19

Companies House has updated its guidance on companies applying for more time to file their accounts. Initial guidance in March 2020 stated that companies who had been adversely affected by COVID-19, in circumstances where the company’s filing deadline has not yet passed, could apply for an automatic and immediate three-month extension to file their accounts (see our COVID-19 UK Bulletin – 8 April 2020).

The updated guidance states that if a company’s filing deadline falls between 26 March 2020 and 29 September 2020, the deadline will be extended (retrospectively where applicable) to the earlier of 30 September 2020 and 12 months from the end of the company’s accounting period. The Government website states that if a company is eligible, its filing deadline will be updated automatically and it is not necessary to apply for an extension.

Law Society has updated its guidance note on virtual execution and e-signature during COVID-19

The Law Society has updated its guidance note on its position on the use of virtual execution and e-signature during COVID-19. The update includes the addition of a new section of the guidance note titled “Tips on how to operate in practice”. The tips are as follows:

Best practice: follow the practice notes execution of documents by virtual means and execution of a document using an electronic signature.
Agree: make a clear agreement with the lawyers on the other side of any transaction on how to manage the transaction.
Verify: consider what steps (if any) you wish to take to verify the identity and authority of each of the signatories beyond that which is required by law; this may depend on common practice or specific regulatory requirements.
Evidence: ensure that you have the evidence immediately to hand on file in a timely and accessible manner, which may include taking screen shots if it is not possible to save evidence directly to your system.
Report: use electronic means to report back to all parties that the transaction has closed.
Understand: ensure you are aware of the legislature, regulatory or cultural requirements for virtual execution and e-signatures in the relevant legal area.

UK Finance blog discusses why operational resilience is a strategic imperative

UK Finance has published a blog highlighting the need for financial firms to focus on operational resilience as they adapt to COVID-19. The blog notes that difficult decisions taken by firms in the name of achieving business continuity during COVID-19 may expose firms to risks such as occupational fraud and cyberattacks.

The blog highlights the need for transparency and clear communication with staff members and that firms should have due regard to the opinions of employees in relation to any proposed changes and consider employee well-being in decision making. The blog also includes insights on outsourcing to overseas suppliers and the need to be mindful of the supplier company’s ethical and cultural fit.

Corporate Insolvency and Governance Act enacted

The Corporate Insolvency and Governance Act 2020 has received Royal Assent and is now in force. The new legislation temporarily relaxes various statutory obligations in relation to wrongful trading, company filings, AGMs and general meetings (amongst other things) to provide companies and other corporate bodies with greater flexibility in the midst of the current crisis (see our COVID-19 UK Bulletin – 3 June 2020 for a summary temporary provisions).

Impact of COVID-19 on UK AGMs

Lexis Nexis has issued research looking at the impact of COVID-19 on AGMs in the UK. Data captured from AGM notices issued by 170 FTSE 350 and AIM 50 companies between 1 March 2020 and 31 May 2020 shows the following:

Changing the date of AGMs: The vast majority of the companies in the data set (94%) did not change the date of their AGM. There did not appear to be much take up of recent proposals to enable companies with a December 2019 year end to postpone AGMs until 30 September 2020, as outlined in the Corporate Governance and Insolvency Bill (discussed above). The research notes that there may be more companies opting to take advantage of the extension in AGM notices issued in June 2020 and onwards. However, given that for many companies, shareholder authorities will expire before September 2020, it may be impractical for companies to postpone their AGMs beyond the date on which these expire, especially where companies may need to raise capital quickly.
Form of AGM: The majority of companies (87%) have held physical meetings with the quorum requirements satisfied by alternative arrangements such as the attendance of two shareholder employees with other shareholders told not to attend. This is unsurprising given that virtual meetings raise potential legal issues.
Amending articles of association: A majority of companies (81%) in the data set did not propose amendments to their articles. However there has been a slight increase in the number of companies who have proposed amendments (14% compared to 9% earlier in the year) and there are still companies that have not confirmed their arrangements (5%). Of those companies from the FTSE 350 and AIM 50 indices that have proposed amendments to their articles, 42% belong to the FTSE 100, 46% to the FTSE 250 and 12% to the AIM 50. The most popular proposed amendments were amendments which allowed a company to hold a hybrid general meeting, allowed the board to change the time, date or place of general meeting after notice had been issued or allowed shareholders to electronically participate in general meetings.
Adaptions to the procedure of meetings: A significant proportion of the companies in the data set made changes to the way their AGM should be conducted (e.g. encouraging voting by proxy and adapting the way that shareholder questions are handled at the meeting). In relation to shareholder engagement, the research states that most companies have taken to welcoming questions in advance of the AGM with companies being split between addressing the questions prior to, at or after the AGM; although, the overall preferred route appeared to be for questions to be addressed after the AGM. Live Q&A sessions were comparatively unpopular with companies.
Further adaptions: Given the rapid developments in the legislative and regulatory backdrop, companies have encouraged their shareholders to monitor their websites for amendments to AGM arrangements and around 70% of companies within the data set provided their shareholders with links to dedicated website areas.

The findings are largely consistent with an interim report issued by Lexis Nexis in April 2020 (see our COVID-19 UK Bulletin – 29 April 2020 for a summary of the interim report).

3. CYBERSECURITY AND DATA PROTECTION

No update to our COVID-19 UK Bulletin – 17 June 2020.

4. DISPUTES

Commercial Bar Association guidance on remote hearings

On 23 June 2020, the Commercial Bar Association (COMBAR) published a revised Guidance Note on Remote Hearings, which sets out “best practice” for remote hearings in the Commercial Court, against the backdrop of the gradual return to business in Court and the emergence of hybrid hearings. It is intended to be read alongside the Commercial Court Guide (which continues in effect during the COVID-19 pandemic) as well as any relevant advice or guidance issued by the judiciary.

Since early June 2020, four types of hearings have been taking place in the Commercial Court: (i) fully remote hearings with the Judge at home; (ii) remote hearings with the Judge in their office of Court in the Rolls Building; (iii) hybrid hearings with the Judge and some participants in Court, and some participating remotely; and (iv) normal physical hearings in which all the participants attend in person. The Note reaffirms that interlocutory hearings are likely to be conducted remotely, and recommends that practitioners take certain measures such as arranging practice-run hearings and testing all relevant technology in advance. It also advises that where trials have been listed prior to the COVID-19 pandemic, it is prudent in cases where this has not already been arranged, to propose a pre-trial review prior to the substantive hearing to clarify whether remote trial would be appropriate. The Note provides a specimen pre-trial review checklist with commentary for parties to consider in relation to proposing remote hearings in the Commercial Court, in addition to the usual checklist contained in the Commercial Court Guide. The Note also provides practical advice and considerations for advocates partaking in virtual justice arrangements. COMBAR anticipates that further guidance will be issued on hybrid hearings in the near future.

5. EMPLOYMENT

Coronavirus Job Retention Scheme

On 26 June 2020, the Government issued a further Treasury Direction on the Coronavirus Job Retention Scheme (CJRS) which sets out the amended CJRS rules, and confirms the details set out in our client alert of 2 June 2020, including allowing “flexible furlough” arrangements. The amended CRJS rules will apply from 1 July 2020 until the scheme’s winding up on 31 October 2020.

Shielding employees

On 22 June 2020, the Government announced that, from 1 August 2020, clinically extremely vulnerable people in England will no longer be advised to shield and will be able to return to their workplaces if they need to work and cannot do so from home, as long as their workplace is COVID secure. The government has asked employers to ease the transition for their clinically extremely vulnerable employees by: (i) putting in place robust measures to ensure their workplaces are COVID secure; and (ii) for those concerned about returning to work, agreeing a return to work plan, taking account of any adjustments that may be needed before they return and the employer’s existing COVID-19 policies.

Employment Share Plans

The Finance Bill 2020 now includes a new provision into the EMI legislation which, in effect provides that there will be no “disqualifying event” resulting from an EMI option holder not being required to work for reasons connected with the COVID-19 coronavirus. The explanatory notes state that this includes circumstances where the individual has had to take leave, is furloughed or reduces their working hours because of COVID-19. This clause will have effect from 19 March 2020 to 5 April 2021 (although there is provision for this relaxation to be extended to 5 April 2022, if required).

6. ENERGY

Global demand and “peak” oil?

Though oil prices have rebounded somewhat from the early days of the global COVID-19 shut down, substantial questions remain about the industry in the longer term. Industry analyst Rystad Energy has revised its estimate of the occurrence of “peak oil” (maximum global commercial production level of oil) from 2030 to 2027-8, based on the recent fall in demand and concurrent growth in environmental consciousness. Others, including BP’s CEO Bernard Looney, have previously suggested that peak oil may be in the past already. Moody’s has commented that 2019 oil demand levels may not return until 2025, if at all.

Impact of COVID-19 on projects and companies

The effects of COVID-19 continue to take their toll on transactions, sites and projects globally as second waves of infection are threatened and the effects of a historic glut of oil in storage continue to push prices down. Some specific examples of note include:-

US-based Chesapeake Energy has filed for a Chapter 11 bankruptcy, with commentators expecting others in the shale space to follow. Lenders appear to have agreed a US $2.5 billion financing facility to assist in the bankruptcy process. Observers have noted that this reflects a substantial dampening in excitement around US shale sector.
Occidental Petroleum Corp, the largest US onshore oil producer, is preparing for a write down of up to US $9 billion after cutting its dividend to a penny earlier this year.
Energy services company Petrofac saw shares drop 12% after announcing that they have been “materially impacted” by the pandemic and the oil price drop.
Following its failure to secure debt to fund its share of the Senegalese Sangomar development owing to adverse market conditions, Australian FAR Ltd. has failed to pay the latest development cash call for the development. FAR is also said to be planning a sale of its interest in the project, which currently has Woodside Petroleum, Cairn Energy and Petrosen as partners. Although the Senegalese President has indicated a COVID-impact related delay of between one to two years for various oil and gas projects, Woodside Petroleum, the operator, has confirmed that it is on schedule for its early 2020 projection of first oil due in 2023.

7. FINANCE

No update to our COVID-19 UK Bulletin – 17 June 2020.

8. FINANCIAL SERVICES REGULATORY

Further extension to filing deadlines for certain regulatory returns

On 26 June 2020, the UK Financial Conduct Authority (FCA) updated its webpage on changes to regulatory reporting during the COVID-19 pandemic.

This now states that the FCA will continue to allow flexibility in relation to submission deadlines for certain regulatory returns. Of most relevance to the majority of firms is the inclusion on this list of the complaints return (DISP Annex 1R). The list also includes the credit union complaints return (CREDS 9 Annex 1R) and claims management companies complaints return (DISP 1 Annex 1AB).

For these returns, firms may apply two-month extensions to the deadlines for returns falling due up to and including 30 September 2020. Firms are reminded by the FCA that the flexibility is intended to cover the situation where the impacts of COVID-19 have made it impractical to submit the named returns on time. Firms should, therefore, continue to submit all returns as soon as they are reasonably able to.

9. FORCE MAJEURE

No update to our COVID-19 UK Bulletin – 17 June 2020.

10. GOVERNMENT SUPPORT SCHEMES

No update to our COVID-19 UK Bulletin – 17 June 2020.

11. INSOLVENCY

The Corporate Insolvency and Governance Act 2020 has received Royal Assent and is now in force. See the Corporate Governance section above for an update.

12. INTERNATIONAL TRADE AGREEMENTS (PRIVATE AND PUBLIC)

No update to our COVID-19 UK Bulletin – 17 June 2020.

13. LOCKDOWN AND PUBLIC LAW ISSUES

Lockdown easing

In reviewing the lockdown regulations, the Government announced on 23 June 2020 its intention to introduce further regulations to amend the existing lockdown restrictions in place since 26 March 2020. The changes are expected, inter alia, to allow reopening of most businesses in the hospitality sector whilst maintaining appropriate social distancing measures. These changes are expected to come into effect on 4 July 2020.

Planning changes to support economic recovery

The Business and Planning Bill 2019-2021 was introduced in the House of Commons on 25 June 2020. The bill proposes temporary measures for restaurants, bars and pubs to quickly obtain permission to set up seating on the pavement outside their premises and also to extend alcohol licences to all off-sales without fee or application. The measures are intended to counter the effects of social distancing on seating capacity. The bill would also make changes to the Bounce Back Loan Scheme to make it easier to apply for small business loans, would relax the planning system for developers, and would make certain changes to relax commercial vehicle licensing.

14. M&A AND PRIVATE EQUITY

No update to our COVID-19 UK Bulletin – 17 June 2020.

15. REAL ESTATE

Commercial outlook

Last week was a big week in UK real estate. The market held its breath to see how June quarter day (24 June 2020) rent collections would play out. Unfortunately some of the industry’s worst predictions came true, with historically low rent receipts: just 18% of commercial rent due was paid, down from 25% in March. Many tenants have insisted on paying a reduced rent, (e.g. Pret a Manger reportedly paid 30%); others (e.g. Waitrose) are paying monthly; some (e.g. JD Sports) are taking the opportunity to renegotiate their leases (often using a prepack administration to leverage their negotiating position); and even more not paying at all.

Intu, the major UK listed shopping centre owner, has entered into administration. Jefferies analyst Mike Prew, predicted that a fire sale would be likely given the lack of willing buyers.

Code of Practice

The Government released its Code of Practice on 19 June 2020, developed by a working group of large landlords and tenants, and previously reported on here. It is intended to aid in negotiations, particularly with regards to rent, and to encourage cooperation. It will be in force until 24 June 2021 but is not legally binding.

Eviction of tenants

The Corporate Governance and Insolvency Bill, previously reported on here, came into force on 26 June 2020, severely limiting landlords’ use of statutory demands. These measures have been extended and are currently scheduled to be effective until 30 September 2020.

The forfeiture moratorium, introduced by the Coronavirus Act 2020 and previously reported on here, will be extended by statutory instrument to last until 30 September 2020. Some commentators argue that ministers have, in effect, encouraged tenants not to pay rent and stopped market forces taking their course, causing substantial disruption for property owners and lenders. Similarly, the new CPR 55.29 will also extend the stay on all possession proceedings issued under CPR 55 introduced by CPR Practice Direction 51Z until 23 August 2020. This means that any proceedings sent to the court for issue will immediately be stayed and cannot continue until after the stay has expired.

16. UK TAX

HMRC confirm DAC 6 reporting deadline deferral

Earlier in June 2020, the European Parliament voted in favour of the proposal for an optional six-month deferral of reporting deadlines under the EU Mandatory Disclosure Rules (DAC6). HMRC has also confirmed that the first reporting deadlines under the UK implementation of DAC6 will be deferred by six months. The Government will amend the International Tax Enforcement (Disclosable Arrangements) Regulations 2020 to give effect to this deferral. HMRC has advised that, as the amendment may not be in force by 1 July 2020, no action will be taken for non-reporting during any period between 1 July 2020 and the date that the amended Regulations come into force. There is therefore no expectation that reports will be made in July 2020. Please see here for further details.

Anticipated losses may be used to reclaim corporation tax in “exceptional circumstances”

HMRC updated the guidance in its company taxation manual to confirm that companies may, in exceptional circumstances, reclaim corporation tax where the claim depends on anticipated losses in a subsequent accounting period that has not yet ended. Please see here and here for further details.

Option to tax land and buildings

HMRC had previously announced that it was extending the deadline for notifying it about an option to tax land and buildings to 90 days due to the coronavirus pandemic. The extension to the time limit now applies to decisions made between 15 February 2020 and 31 October 2020 (extended from 30 June 2020). For further details see here.

Delayed VAT repayments to overseas businesses

HMRC has published a briefing informing overseas businesses that are not established in the EU of the current delay in processing and refunding VAT claims submitted under the Overseas Refund Scheme. The affected claims are those within the prescribed year 1 July 2018 to 30 June 2019, submitted on or before 31 December 2019. The brief also sets out what businesses need to do if they are unable to obtain a certificate of status for the prescribed year 1 July 2019 to 30 June 2020. For further details, please see here.

COVID-19 UK TASKFORCE LEADERS

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact your usual contact or any member of the Firm’s (COVID-19) UK Taskforce:

Areas	Task Force Leaders
Competition and Consumers	Ali Nikpay – [email protected]
Corporate Governance	Selina Sagayam – [email protected]
Cybersecurity and Data Protection	James Cox – [email protected]
Disputes	Charlie Falconer – [email protected]
Employment	James Cox – [email protected]
Energy	Anna Howell – [email protected]
Finance	Greg Campbell – [email protected]
Financial Regulatory	Michelle Kirschner – [email protected]
Force Majeure	Patrick Doris – [email protected]
Government Support Schemes	Amar Madhani – [email protected]
Insolvency	Greg Campbell – [email protected]
International Trade Agreements	Patrick Doris – [email protected]
Lockdown and Public Law issues	Patrick Doris – [email protected]
M&A	Jeremy Kenley – [email protected]
Private Equity	James Howe – [email protected]
Real Estate	Alan Samson – [email protected]
UK Tax	Sandy Bhogal – [email protected]

An en banc decision by D.C. Circuit today likely ends the Federal Energy Regulatory Commission’s (“FERC’s”) practice of issuing tolling orders for the purpose of allowing additional time for consideration. In Allegheny Defense Project v. FERC, No. 17-1098 (June 30, 2020), the D.C. Circuit on rehearing en banc found that FERC’s routine practice of issuing an order to allow additional time for consideration of a rehearing request is inconsistent with the plain language of the Natural Gas Act (“NGA”). Although this case concerned the hearing provisions of the NGA, this order can be expected to end the practice of rehearing tolling orders under the Federal Power Act (“FPA”) as well.

The NGA requires a party aggrieved by a FERC order to first obtain an order on rehearing from FERC before proceeding to judicial review.[1] The NGA also states that a rehearing request may be deemed denied if FERC does not act upon it within thirty days.[2] The question in Allegheny Defense was whether FERC “granting rehearing” simply to allow additional time for consideration qualified as “acting upon” the rehearing request. The D.C. Circuit concluded it does not. The court found that Congress had identified four actions that FERC may take to “act upon” a rehearing request within the meaning of the statute: (i) grant it, (ii) deny it, (iii) abrogate its order without further hearing, or (iv) modify its order without further hearing.[3] The court found FERC’s tolling orders did not qualify as any of the foregoing. Accordingly, the court concluded that FERC cannot escape the consequence of its inaction by “kicking the can down the road” with a non-substantive tolling order.[4] The court held that tolling orders would be treated “deemed denials” that allow the aggrieved party to proceed with judicial review.[5] The court, however, did stop short of requiring that FERC decide all rehearing requests within thirty days, leaving open the possibility that something short of a substantive decision on rehearing may be sufficient.[6]

RULING’S IMPACT

This decision will have immediate and broad consequences for a range of FERC matters. First, with respect to pipeline construction cases, this decision in combination with FERC’s recently issued rule on construction during rehearing will prevent pipeline construction from starting while the rehearing process plays out, but provide additional timing certainty for that process. Indeed, there should now be less uncertainty for both pipelines and landowners in how the rehearing process plays out. Second, this decision will likely change the calculation on pipeline opponents pursuing stays of construction in the court of appeals because judicial review will always be available at the time construction begins. Third, while we expect landowners spurred by plaintiff’s lawyers to argue that the D.C. Circuit’s decision in combination with the new FERC rule should cause certain district courts to hold eminent domain cases in abeyance while the rehearing process plays out, the Court today was very careful to not create new law on this point and the prevailing law remains in place.[7] However, it should be noted that the concurring opinion by Judges Griffith, Katsas, and Rao called out allowing construction and eminent domain suits to go forward despite FERC granting rehearing for further consideration.

Finally, more broadly, going forward this order will place additional demands on FERC and its Staff since the long standing tolling practice is no longer available under the NGA or FPA. Given how often rehearing papers are filed, and the complexity of many rehearing requests, FERC would be more than justified in seeking additional resources to handle what is now a cramped rehearing time frame.

No Pipeline Construction During Rehearing

On June 9, 2020, FERC issued Order No. 871 and will no longer allow pipeline construction to proceed before it decides requests for rehearing on a certificate order.[8] In Order No. 871, FERC announced that it will no longer authorize construction of an approved natural gas project under sections 3 or 7 of NGA, until either FERC acts on the merits of any timely-filed request for rehearing or the time for filing such a request has passed.[9] At the time this decision was announced, that meant construction could be delayed for an indefinite period of time (months or possibly years) while FERC considered timely filed rehearing requests.[10] Now Order No. 871 in combination with the Allegheny Defense decision, mean that construction typically should be delayed only during the thirty day period permitted for an aggrieved party to seek rehearing and then the additional thirty days for FERC to act on the request (i.e., a total of sixty days). The court made clear that even after a petition for review is filed with the court, FERC retains concurrent jurisdiction to modify or set aside a challenged order until the administrative record is filed with the court, which typically happens forty days after the petition is served on FERC.[11] Therefore, in certain cases, the time period where construction could not move forward under Order No. 871 could extend an additional hundred days or longer (the up to sixty days for a party to petition for review and the forty days to file the administrative record, which could be extended with leave from the court). This, however, still provides a more definite end point in terms of timing than under FERC’s prior tolling practice. Thus, the Allegheny Defense decision removes timing uncertainty for both proponents and opponents to new pipeline construction.

Implications for Stays

Prior to the Allegheny Defense decision, it was challenging for opponents of gas construction projects to obtain a stay while rehearing was pending because, absent a final order on rehearing, the only readily available forum for such a request was FERC itself.[12] Now that the beginning of construction will coincide with the availability of judicial review, more litigants may pursue stays in the court of appeals. FERC has had a relatively good track record in fending off stays, and it will be interesting to see how the rule change and Opinion today change the frequency and velocity of stay requests.

Pending Tolled Actions

Although Allegheny Defense was an NGA case, the implications of this decision are not limited to the NGA, as FERC routinely uses tolling orders under parallel provisions of the FPA.[13] Indeed, the Allegheny Defense court noted that matters beyond pipeline cases have “met a similar fate, with open-ended tolling orders leaving applicants awaiting action for a year or more.”[14] Given that the NGA and the FPA are generally interpreted in parallel, it is likely that the D.C. Circuit would similarly find FERC’s use of tolling orders impermissible under the parallel provisions of the FPA. Accordingly, any request for rehearing under the NGA or FPA that is pending under a tolling order may now be fair game to proceed to the court of appeals for judicial review.

__________________________

[1] 15 U.S.C. § 717r(a) (“No proceeding to review any order of the Commission shall be brought by any person unless such person shall have made application to the Commission for a rehearing thereon.”).

[2] Id.

[3] Slip Op at 22 (explaining that FERC is given four options under the statute to “act on” rehearing requests: “the Commission can (i) ‘grant * * * rehearing,’ (ii) ‘deny rehearing,’ (iii) ‘abrogate * * * its order without further hearing,’ or (iv) ‘modify its order without further hearing[.]”).

[4] Id. at 24.

[5] Id. at 27.

[6] Id. at 29-30 (“[W]e need not decide whether or how Section 717r(a), the ripeness doctrine, or exhaustion principles might apply if the Commission were to grant rehearing for the express purpose of revisiting and substantively reconsidering a prior decision, and needed additional time to allow for supplemental briefing or further hearing processes.”).

[7] Id. at 18 n.2 (explaining that FERC adopted Order 871 after oral argument, but that rule does not prevent courts from moving forward with eminent domain proceedings); id. at 30 n.4 (noting that the court was not deciding what the implications of a grant of merits rehearing might mean for reliance in eminent domain proceedings); see also, e.g., Transcon. Gas Pipe Line Co. v. Permanent Easements for 2.14 Acres & Temp. Easements for 3.59 Acres in Conestoga Township, Lancaster County, Pa., Tax Parcel No. 1201606900000, 2017 WL 3624250, at *3-4 (E.D. Pa. Aug. 23, 2017); Steckman Ridge GP, LLC v, An Exclusive Nat. Gas Storage Easement Beneath 11.078 Acres, 2008 WL 4346405 at *4 (W.D. Pa. Sept. 19, 2008).

[8] Limiting Authorizations to Proceed with Construction Activities, Order No. 871, 171 FERC ¶ 61,201 (2020).

[9] Id. at P 1.

[10] Id. at PP 8-9.

[11] Slip Op. at 30.

[12] Certain litigants pursued extraordinary relief in the court of appeals as a work-around in this circumstance, but that is not done frequently. See, e.g., Emergency Petition for a Writ of Prohibition, New York Dept. of Enviro. Conservation v. FERC, (2nd Cir. filed Nov. 14, 2017) available at https://elibrary.ferc.gov/idmws/common/OpenNat.asp?fileID=15000152.

[13] See Slip Op. at 26-27; 16 U.S.C. § 825l(a) (“Any person, electric utility, State, municipality, or State commission aggrieved by an order issued by the Commission in a proceeding under this chapter to which such person, electric utility, State, municipality, or State commission is a party may apply for a rehearing within thirty days after the issuance of such order. . . . Unless the Commission acts upon the application for rehearing within thirty days after it is filed, such application may be deemed to have been denied. No proceeding to review any order of the Commission shall be brought by any entity unless such entity shall have made application to the Commission for a rehearing thereon.”).

[14] Slip Op. at 26 (citing a challenge under the Federal Power Act where it took FERC twenty two months to act on a rehearing request).

Gibson Dunn’s Energy, Regulation and Litigation lawyers are available to assist in addressing any questions you may have regarding the developments discussed above. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or the authors:

William S. Scherman – Washington, D.C. (+1 202-887-3510, [email protected])
Ruth M. Porter – Washington, D.C. (+1 202-887-3666, [email protected])
Jeffrey M. Jakubiak – New York (+1 212-351-2498, [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, the European Commission (the Commission) published a Third Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (the Temporary Framework).[1]

As described in Gibson Dunn’s client alert of 27 March 2020, on 19 March 2020 the Commission adopted the Temporary Framework aimed at enabling Member States to use State aid rules to support the economy in the context of the on-going pandemic, namely by allowing Member States to ensure that sufficient liquidity remains available to businesses and to preserve the continuity of economic activity during and after the COVID-19 outbreak.

Since its adoption, the Temporary Framework has already been subject to several amendments by the Commission. Firstly, it was amended on 3 April 2020, to include aid to accelerate the research, testing and the production of COVID-19 relevant products, to protect jobs and to further support the economy during the current crisis (the First Amendment).[2] Secondly, it was amended on 8 May 2020, to further ease access to capital and liquidity for undertakings affected by the crisis (the Second Amendment).[3]

With the Thrid Amendment the Commission further extended the scope of the Temporary Framework, in order to enable Member States to provide public support to micro and small companies, even in cases where the companies were already in financial difficulty on 31 December 2019, with the exception of companies undergoing insolvency proceedings and of companies which have received rescue aid that has not been repaid, or are subject to a restructuring plan under State aid rules. In addition, the Commission also took this opportunity to introduce certain clarifications to the application of the Temporary Framework, drawing from its experience in applying the relevant rules during the previous months.

The First and Second Amendments

On 3 April 2020, the Commission adopted the First Amendment to the Temporary Framework, so that Member States would be able to accelerate the research, testing and production of relevant products in the COVID-19 context, protect jobs and further support the economy in light of the pandemic.

The Commission recognized that beyond ensuring access to liquidity and finance, it was also important to foster research and development, as well as to protect employment across the European Union. Therefore, the amendment introduced five additional types of aid measures: (i) support for research and development related to COVID-19, in the form of direct grants, repayable advances or tax advantages; (ii) support for the construction and upscaling of testing facilities, in the form of direct grants, tax advantages, repayable advances and no-loss guarantees; (iii) support for the production of products deemed relevant to tackle the pandemic outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees; (iv) targeted support in the form of deferral of tax payments and/or suspensions of social security contributions, in order to reduce liquidity constraints on companies; and (v) targeted support in the form of wage subsidies for employees, to limit the impact of the outbreak on workers.

Moreover, to encourage cooperation and support between Member States, in the first three types of aid listed above the Commission introduced the possibility of increasing the aid intensity in projects involving cross-border cooperation between Member States.

On 8 May 2020, the Commission adopted the Second Amendment to the Temporary Framework. The amendment expanded the Temporary Framework in order to enable Member States to provide recapitalizations and subordinated debt to companies in distress. The Commission recognized that well-targeted public interventions providing equity and/or hybrid capital instruments to companies could reduce the risk of a serious economic downturn impacting the whole EU economy, ensure the continuity of economic activity during the outbreak and foster subsequent economic recovery. Therefore, the amendment further allows Member States to design measures in line with additional policy objectives, setting conditions in order to avoid undue distortions of competition, namely (i) conditions on the necessity, appropriateness and size of the intervention; (ii) conditions on the State’s entry in the capital of companies and remuneration; (iii) conditions regarding the exit of the state from the capital of the companies concerned; (iv) conditions regarding governance; as well as (v) a prohibition of cross-subsidization and an acquisition ban. The Commission also emphasizes the importance of green and digital transformation, encouraging Member States to take these into consideration when designing national support measures.

In addition, the Commission also adjusted the rules for loans, in particular with regard to subordinated debt. According to the amendment, Member States can provide subordinated loans subject to the Member States receiving a higher remuneration and a further limitation as to the amount when compared to senior debt.

The Third Amendment

The Third Amendment aims at: (i) extending the scope of the current framework in order to allow access to liquidity support also to micro and small companies as well as start-ups; (ii) providing incentives for private investors to participate in coronavirus-related recapitalization aid measures; (iii) eliminating the dependency of aid on the relocation of a production activity from another country within the European Economic Area (EEA) to the territory of the Member State granting the aid; and (iv) introducing procedural adjustments and improvements on the basis of the acquired experience over the past four months.

i. Micro and small companies and start-ups

Micro and small companies. The Commission has now further extended the Temporary Framework to micro and small companies (i.e., undertakings with less than 50 employees and less than EUR 10 million of annual turnover and/or annual balance sheet), as these companies have been particularly affected by the liquidity shortage caused by the pandemic. Further to the Third Amendment, State aid can be granted to micro and small enterprises even if they were in financial difficulty on 31 December 2019.[4] The Commission’s rationale is premised on the fact that due to their limited size and involvement in cross-border transactions, this type of aid will be less likely to distort competition in the Internal Market than State aid provided to larger companies.

However, the amendment is not applicable to companies subject to collective insolvency procedures under national law and to companies which have received either rescue aid that has not been repaid or restructuring aid and are operating under a restructuring plan.

Start-ups. The amendment is also intended to increase the possibility to provide support to innovative start-up companies, which are in their high-growth phase and may be considered crucial for the economic recovery of the European Union. Although there is no EU-wide definition for start-ups, it appears that the vast majority would fall within the micro and small companies cluster of the definition of small and medium enterprises (SMEs) in Annex I of the General Block Exemption Regulation (the GBER).[5] It should be recalled that even prior to this amendment, all SMEs that were in existence for less than three years on 31 December 2019 already benefitted from the possibility of receiving State aid provided under the Temporary Framework, since they could not qualify as undertakings in difficult under the GBER.

In addition, the current framework provides the possibility to Member States to modify existing schemes already approved by the Commission under the Temporary Framework in order to include as beneficiaries within their scope micro and small companies that were already in difficulty on 31 December 2019.

The Commission has also adapted the conditions for recapitalization measures under the Temporary Framework for those cases where private investors contribute to the capital increase of companies together with the State.

These changes will encourage capital injections with significant private participation in companies, limiting the need for State aid and the risk of competition distortions. In particular, if the State decides to grant recapitalization aid, but private investors contribute to the capital increase in a significant manner (in principle at least 30% of the new equity injected) at the same conditions as the State, the acquisition ban and the cap on the remuneration of the management are limited to three years. Furthermore, the dividend ban is lifted for the holders of the new shares as well as for existing shares, provided that the holders of those existing shares are altogether diluted to below 10% in the company.

Furthermore, in line with the principle of neutrality towards public and private ownership, this amendment will also enable companies with an existing State shareholding to raise capital from their shareholders similar to private companies. In instances where the conditions above as regards the participation of private investors in the capital increase are met and the State was a shareholder already before the granting of recapitalization aid, if the State invests pro rata, the Commission will not to impose specific conditions as regards the State’s exit.

iii. Relocation of a production activity

The amendment also clarified that the aid should not be conditioned on the relocation of the production activity or of another activity of the beneficiary from another country within the EEA to the territory of the Member State granting the aid. According to the Commission, such a condition would be particularly detrimental to the internal market.

iv. Clarifications ameliorations to the current framework

Building on the experience of the application of the Temporary Framework in the previous months, the Commission also seized this opportunity to introduce some clarifications to the Temporary Framework. In particular, the Commission clarified the method for analyzing the compatibility of the measures and the factors taken into account for the balancing test applied in the context of this analysis.

In addition, the Commission also specified the methods for applying recapitalisation measures, as well as measures intended to reduce companies’ wage costs.

Conclusion

The Third Amendment constitutes a welcomed development in the Commission’s State aid policy-making in view of the pandemic, which will remedy the paradox of having the “undertakings in difficulty” rules preventing government support for lossmaking companies.

The application of these rules has so far been an obstacle for many high-growth equity backed businesses in essential sectors, such as pharmaceuticals and technology, from accessing crucial State funds. The lifting of this impediment is expected to allow governmental bodies to finally be able to direct funds to viable innovation-driven companies of significant importance to the post-pandemic economy.

At the same time, the Third Amendment will also allow private equity-backed companies which often use specific tax-structures in order to hold stakes that can leave their balance sheets in the negative to be entitled to State aid. This means that otherwise viable companies will be able to eventually take part in government loan schemes aimed at helping businesses that have suffered from the pandemic.

______________________

[1] Communication from the Commission of 19 March 2020, C(2020)1863, OJ C 091I of 20.03.2020, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.CI.2020.091.01.0001.01.ENG

[2] Communication from the Commission of 3 April 2020, C(2020) 2215, OJ C 112I of 04.04.2020, available here.

[3] Communication from the Commission of 8 May 2020, C(2020) 3156, OJ C 164, 13.05.2020, available here.

[4] Companies that were already in difficulty before 31 December 2019 are not eligible for aid under the Temporary Framework, but may benefit from aid under existing State aid rules, in particular the Rescue and Restructuring Guidelines. These Guidelines set clear conditions according to which such companies must define sound restructuring plans that will allow them to achieve long-term viability.

[5] Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty Text with EEA relevance, OJ L 187, 26.6.2014, p. 1–78

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 Antitrust and Competition practice group or the following authors in Brussels:

Attila Borsos (+32 2 554 72 11, [email protected])
Lena Sandberg (+32 2 554 72 60, [email protected])
Maria Francisca Couto (+32 2 554 72 31, [email protected])
Vasiliki Dolka (+32 2 554 72 01, [email protected])

Antitrust and Competition Group in Europe:

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])

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

Decided June 30, 2020

U.S. Patent and Trademark Office v. Booking.com B.V., No. 19-46

Today, the Supreme Court held 8-1 that under the Lanham Act, the combination of an otherwise generic term and a top-level Internet domain (such as “.com”) can create a protectable mark if consumers recognize the mark as a brand name.

Background:
Under the Lanham Act, 15 U.S.C. § 1051 et seq., generic terms may not be registered as trademarks, but terms that are “merely descriptive” of goods or services may be registered if the public has come to understand them as identifying the trademark owner’s goods or services. Booking.com, a hotel reservation website, applied to register the mark BOOKING.COM. The U.S. Patent and Trademark Office (PTO) determined that “booking” is the generic term for hotel reservation services and denied registration. Booking.com sought judicial review, and the district court overturned the denial. The court held that the mark was protectable because combining the generic term “booking” with the top-level domain name “.com” resulted in a descriptive term, and survey evidence showed that most consumers recognize BOOKING.COM as a brand name, not merely a product category. A divided Fourth Circuit panel affirmed.

Issue:
Whether the addition by an online business of a generic top-level domain (“.com”) to an otherwise generic term can create a protectable trademark under the Lanham Act.

Court’s Holding:
Yes. The addition of “.com” to an otherwise generic term can create a protectable trademark where the evidence shows that consumers understand the combined term as identifying or distinguishing a particular supplier’s goods or services.

“Whether any given ‘generic.com’ term is generic . . . depends on whether consumers in fact perceive that term as the name of a class or, instead, as a term capable of distinguishing among members of the class.”

Justice Ginsburg, writing for the Court

Gibson Dunn submitted an amicus brief on behalf of Salesforce.com, Inc. et al. in support of respondent: Booking.com B.V.

What It Means:

The Court grounded its decision in the “principle that consumer perception demarcates a term’s meaning.” Slip op. at 7 n.3. That principle applies even to marks that combine generic elements. The Court thus adopted an evidence-based approach consistent with the position advocated in Gibson Dunn’s amicus brief in this case.
The Court rejected the PTO’s reliance on Goodyear’s India Rubber Glove v. Goodyear Rubber Co., 128 U.S. 598 (1888), a pre-Lanham Act case in which the Supreme Court held that combining a generic term with a corporate designation such as “Company” or “Inc.” cannot create a protectable common-law trademark. Rather than interpret Goodyear as a bright-line rule, the Court said, “whether a term is generic depends on its meaning to consumers,” thereby relegating Goodyear to stand for the “more modest” principle that “[a] compound of generic elements is generic if the combination yields no additional meaning to consumers capable of distinguishing the goods or services.” Slip op. at 10.
The Court also rejected the PTO’s argument that Booking.com’s position would grant it a monopoly on the use of the term “booking.” The Court reasoned that trademark law doctrines such as fair use will provide adequate protection against any potential anti-competitive effects of the ruling, and mark holders still must show a likelihood of consumer confusion to prevail on any trademark infringement claims against competitors.
The Court’s decision eschews a bright-line rule that all “.com” marks are protectable, and makes clear that courts and the PTO must consider all relevant evidence in determining how consumers understand a particular term, including consumer surveys, dictionaries, and usage by consumers and competitors. The decision thus continues the Court’s recent trend against establishing bright-line rules in trademark law, as noted in our May 14, 2020 alert on the Court’s decision in Lucky Brand Dungarees v. Marcel Fashions Group, Inc.

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]

Thomas G. Hungar
+1 202.887.3784
[email protected]

Related Practice: Intellectual Property

Howard S. Hogan
+1 202.887.3640
[email protected]

London partner Susy Bullock is the co-author of “Directors’ duties in the age of COVID-19: where to from here?” [PDF] published in the July/August 2020 issue of the Buttersworths Journal of International Banking and Financial Law.

New York partner Barry Goldsmith, Denver partner Frederick Yarger, and New York associate Jonathan Seibald are the authors of “Supreme Court Reins In, But Does Not Overturn, SEC’s Disgorgement Authority,” [PDF] published by the New York Law Journal on June 25, 2020.

Decided June 29, 2020

Seila Law LLC v. Consumer Financial Protection Bureau, No. 19-7

Today, the Supreme Court held 5-4 that the single-Director structure of the Consumer Financial Protection Bureau violates the Constitution’s separation of powers, but ruled 7-2 that the proper remedy is to sever the Director’s statutory for cause removal restriction, thereby making the Director removable by the President at will.

Background:
The Consumer Financial Protection Bureau (“CFPB”) was created as an independent federal agency by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The CFPB enforces 19 federal consumer-protection statutes and is headed by a single Director who is removable by the President only “for cause,” not “at will” for mere policy disagreements with the President. The CFPB served a civil investigative demand on petitioner, a law firm that provides debt-collection services, and later sought to enforce that demand in federal court. Petitioner argued that the demand was invalid because the CFPB’s structure violated the Constitution’s separation of powers by vesting too much executive power in a single Director who does not answer to the President. The district court and the U.S. Court of Appeals for the Ninth Circuit both rejected the challenge, concluding that the CFPB is constitutionally structured.

Petitioner then sought and obtained Supreme Court review, supported by the United States and the CFPB itself, both of which agreed that the agency’s structure unconstitutionally limited the President’s removal authority. The parties disagreed, however, on whether the proper remedy for the constitutional violation was to sever the Director’s statutory “for cause” removal restriction, thereby making the Director answerable to the President, or instead to invalidate the entire statute creating the CFPB. The Supreme Court appointed amicus curiae counsel to defend the constitutionality of the CFPB’s structure, as the United States declined to do so.

Issue:
Whether the CFPB’s structure as a powerful agency headed by a single Director removable by the President only “for cause” violates the Constitution’s separation of powers, and, if so, whether severing the statute’s “for cause” removal restriction to make the Director removable “at will” by the President cures the unconstitutionality.

Court’s Holding:
The CFPB’s structure as a powerful federal agency headed by a single Director removable by the President only “for cause” violates the Constitution’s separation of powers. The violation is cured by severing the “for cause” removal restriction and making the Director answerable to the President.

“[A]n independent agency led by a single Director . . . lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential control.”

Chief Justice Roberts, writing for the Court

Gibson Dunn submitted an amicus brief on behalf of the Center for the Rule of Law in support of petitioner: Seila Law LLC

What It Means:

The Court’s decision recognizes a significant limitation on Congress’s ability to create so-called “independent” agencies. Agencies that execute federal law and are headed by a single Director, including financial regulators, now cannot be “independent” of the President, but instead must be subject to the President’s constitutional duty to control the federal officers who assist the President in executing federal law. The reasoning of Humphrey’s Executor v. United States, 295 U.S. 602 (1935), which provides the constitutional rationale for “independent” agencies, is limited to “multimember expert agencies that do not wield substantial executive power,” such as the Federal Trade Commission as it existed in 1935.
Because the CFPB’s Director is now answerable to the President, the CFPB’s regulatory and enforcement activities now should more closely align with the President’s policy objectives. The Court’s decision gives the President greater power to execute federal consumer-protection law, and makes the President accountable for the CFPB’s performance.
The Court’s prospective remedy of severing the statutory provision that limited removal of the CFPB Director “for cause” may mean that the agency can continue to operate without significant disruptions.
The Court did not address whether a civil investigative demand issued by a Director unconstitutionally insulated from removal but later purportedly ratified by an Acting Director who was accountable to the President is enforceable. The Court remanded the case for the lower courts to decide the ratification issue in the first instance.
Justice Thomas, joined by Justice Gorsuch, concurred in part in the Court’s constitutional holding and dissented in part from the Court’s severability holding. Justice Thomas and Justice Gorsuch argued that the Court should “reconsider Humphrey’s Executor in toto” in a future case. As he has done previously, Justice Thomas also questioned the Supreme Court’s modern severability precedents and argued that the Court need not have addressed the severability question in this case.
Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, dissented in part and would not have found a constitutional violation. The four dissenters argued that the Constitution allows for for-cause removal limits and says nothing about the President’s removal power, that financial regulators historically have had a degree of independence from Presidential oversight, and that the Court’s precedents have sustained other independent agencies. But the dissenters agreed that the Director’s statutory removal restrictions were severable.
The Court’s decision caps nearly a decade of litigation over the constitutionality of the CFPB’s structure. Gibson Dunn pioneered this litigation and handled the first constitutional challenge to the CFPB’s structure that produced a major separation of powers decision and ultimately resulted in the vacatur of a $109 million penalty imposed by the unconstitutionally structured agency. See PHH Corp. v. CFPB, 839 F.3d 1 (2016) (Kavanaugh, J.), on reh’g en banc, 881 F.3d 75 (D.C. Cir. 2018) (en banc). Gibson Dunn is also handling an en banc Fifth Circuit appeal that will further test the important issue of ratification that the Supreme Court expressly left open. See CFPB v. All American Check Cashing, Inc., No. 18-60302 (5th Cir.).

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

Theodore B. Olson
+1 202.955.8668
[email protected]

Allyson N. Ho
+1 214.698.3233
[email protected]

Mark A. Perry
+1 202.887.3667
[email protected]

Joshua S. Lipshutz
+1 202.955.8217
[email protected]

Lucas C. Townsend
+1 202.887.3731
[email protected]

Related Practice: Administrative Law and Regulatory Practice

Helgi C. Walker
+1 202.887.3599
[email protected]

Private Equity firms and other investors naturally are identifying opportunities and challenges that are arising in the highly disrupted post-COVID 19 markets. But those actions are subject to second guessing by other market participants, official creditors’ committees, lenders and regulators. In this hour-long discussion among Gibson Dunn’s Bankruptcy and White Collar Defense and Investigations Practice Group Co-Chairs, a leading economic research commentator from Cornerstone and Harvard Business School’s renowned Bankruptcy expert, we will identify and address credit and valuation risks, fiduciary duty obligations and potential civil and criminal bankruptcy fraud issues that may embroil even cautious investors who participate in the new market opportunities.

View Slides (PDF)

PANELISTS:

Joel M. Cohen, a trial lawyer and former federal prosecutor, is Co-Chair of Gibson Dunn’s White Collar Defense and Investigations Practice Group, and a member of its Securities Litigation, Class Actions and Antitrust & Competition Practice Groups. He has been lead or co-lead counsel in 24 civil and criminal trials in federal and state courts, and he is equally comfortable in leading confidential investigations, managing crises or advocating in court proceedings. Mr. Cohen’s experience includes all aspects of FCPA/anticorruption issues, in addition to financial institution litigation and other international disputes and discovery.

Stuart “Stu” Gilson is the Steven R. Fenster Professor of Business Administration at the Harvard Business School. Professor Gilson is an expert on corporate restructuring, business bankruptcy, credit analysis, business valuation, corporate financial analysis, and financial strategy. His research and teaching focus on strategies that companies use to revitalize their business, improve performance, and create value in a challenging business environment. Professor Gilson’s research has been cited by news media, including The Wall Street Journal, The New York Times, Business Week, and Bloomberg. Professor Gilson has served on the advisory boards of various organizations distressed debt investment funds. Professor Gilson has testified as an expert on a number of high profile bankruptcy matters.

Robert A. Klyman is Co-Chair of Gibson Dunn’s Business Restructuring and Reorganization Practice Group. Mr. Klyman represents debtors, acquirers, lenders, ad hoc groups of bondholders and boards of directors in all phases of restructurings and workouts. His practice regularly includes advising PE Firms and boards of directors of portfolio companies with respect to navigating financial distress, and he has significant experience litigating claims for breach of fiduciary duty, equitable subordination, alter ego and related matters arising in chapter 11 cases, both at trial and on appeal. Mr. Klyman also represents (a) debtors in connection with traditional, prepackaged and “pre-negotiated” bankruptcies, (b) lenders and bondholders in complex workouts, (c) strategic and financial players who acquire debt or provide financing as a path to take control of companies in bankruptcy, and (d) buyers and sellers of assets through Section 363 of the Bankruptcy Code.

Allie Schwartz is a principal at Cornerstone Research and the co-head of the firm’s bankruptcy practice, where she leads teams in supporting experts during the litigation process. She specializes in valuation of businesses, securities, and financial instruments in the context of bankruptcy, securities litigation, and regulatory disputes. Dr. Schwartz has worked with hedge funds, asset managers, private equity firms, FinTech firms, broker/dealers, and major financial institutions in addressing issues related to valuation and solvency, as well as allegations of insider trading, market manipulation, and disruptive trading.

Emma Strong is a litigation associate in Gibson Dunn’s Palo Alto office. Her practice focuses on internal investigations, government investigations, and enforcement actions regarding business crimes and civil fraud. Ms. Strong also represents clients in high-stakes litigation involving fraud, breach of contract, and patent infringement claims.

To address the pandemic, the Government announced several sweeping regulations and ushered through the Coronavirus Act 2020. These actions have a broad impact on law, public policy and daily life, impacting areas including health, social welfare, commerce, trade, competition, employment and the free movement of people.

In this webinar we will cover:

The current state of the lockdown in England
An update on the UK Government’s Financial Support Measures for the COVID-19 pandemic
The UK Government’s widening of its transaction intervention powers – national security and the fight against coronavirus (and future public health emergencies)

We want to hear from you about the impacts the current measures and conditions are having on your business and the legal issues you are facing. We therefore welcome suggested topics, as well as questions in advance of each webinar, to ensure that we can address issues relevant to your business.

PANELISTS:

Charlie Falconer QC: An English qualified barrister and Gibson Dunn partner. Former UK Lord Chancellor and first Secretary of State for Justice, he spent 25 years as a commercial barrister, and became a QC in 1991.

Ali Nikpay: A partner and head of our Competition and Consumer practice group in London. Prior to joining Gibson Dunn, he served in senior positions at the UK competition and consumer authority. He was also a legal and policy advisor at the European Commission.

Matt Aleksic: An associate in the Litigation and International Arbitration practice groups of Gibson Dunn. He has experience in a wide range of disputes, including commercial litigation, international arbitration and investigations.

Sarah Parker: An associate in the London Competition and Consumer practice group. She has experience in advising on a range of competition issues, covering all aspects of EU and UK competition law, as well as advising on UK consumer law and national security/public interest issues.

Amar Madhani: A senior associate in the London Corporate M&A practice group of Gibson Dunn. Mr. Madhani’s practice focuses on general corporate and corporate finance transactions, including domestic and international mergers and acquisitions, joint ventures, private equity, venture capital and equity capital markets transactions.

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.

GLOBAL OVERVIEW

This Alert reports on recent intellectual property law developments relating to the COVID-19 pandemic. First, we describe the United States Patent and Trademark Office’s new initiatives to expedite review of initial trademark applications for COVID-19-related trademarks, and to extend additional relief from certain deadlines under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Second, we provide updates on the Open COVID Pledge (a project facilitating the donation of patent rights during the pandemic), and a lawsuit arising from the COVID-prompted creation of a “National Emergency Library.”
Read more

COVID-19 UK Webinar – June 29, 2020

The COVID-19 pandemic is undoubtedly the biggest public health crisis of our times. Like many other countries, the UK Government has exercised broad powers and passed new laws that impact how we do business and interact as a society. To address the pandemic, the Government announced several sweeping regulations and ushered through the Coronavirus Act 2020. These actions have a broad impact on law, public policy and daily life, impacting areas including health, social welfare, commerce, trade, competition, employment and the free movement of people.

Join our team of Gibson Dunn London lawyers, led by partner and former Lord Chancellor Charlie Falconer QC, for a discussion of these changes and to answer your questions on how they will affect British businesses and community, including the impact on new and ongoing business relationships. In this webinar we will cover: The current state of the lockdown in England; an update on the UK Government’s Financial Support Measures for the COVID-19 pandemic; and the UK Government’s widening of its transaction intervention powers – national security and the fight against coronavirus (and future public health emergencies).
Read more

(1) The United States Patent and Trademark Office (“USPTO”) Prioritizes COVID-19-Related Trademarks and Extends Deadlines Under the CARES Act

Expedited Trademark Application Process: On June 12, 2020, the USPTO announced a new examination procedure that aims to prioritize and expedite review of certain COVID-19-related trademark and service mark applications. The USPTO ordinarily evaluates trademark applications in the order in which they were received, although applicants can request that the initial examination of their application be advanced out of turn when special circumstances exist. In view of the need for medical products and services to combat the pandemic, the USPTO Director is leveraging this procedure to accept petitions to advance the initial examination of marks specifically used to identify medical products and services intended to help prevent, diagnose, treat, or cure COVID-19. Having found that the COVID-19 pandemic presents an “extraordinary situation,” the USPTO director has also agreed to waive application fees for these petitions.

Medical products and services that qualify for prioritized examination include “diagnostic tests, ventilators, and personal protective equipment,” that prevent, diagnose, treat, or cure COVID-19, and that are subject to FDA approval, and “medical services or research services” in support of the prevention, diagnosis, treatment of, or cure for COVID-19. If a petition for prioritized examination is granted, the application will be immediately assigned for attorney review, which is intended to expedite examination by approximately two months.

Further CARES Act Deadline Relief: The USPTO has also expanded the type of relief available under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which granted the USPTO temporary authority to extend statutory deadlines. The USPTO previously exercised that authority to extend deadlines regarding prosecution and maintenance fees. Under the USPTO’s latest June 11 notice, certain non-provisional applications can now claim priority to applications filed more than 12 months earlier. Specifically, non-provisional applications that are filed before July 31, 2020, can claim priority to those applications for which (i) the original priority period expired between March 27, 2020 and July 30, 2020, (ii) the delay in filing “was due to the COVID-19 outbreak” (as defined in the USPTO’s April 28, 2020 notice), and (iii) the applicant meets other formal filing requirements. The extension applies to U.S. applications only.

(2) Growth of The Open COVID Pledge

The urgency of the COVID-19 crisis has prompted initiatives like the Open COVID Pledge, which is intended to help businesses make use of technology needed to provide supplies and treatments to combat the pandemic, without running the risk of becoming defendants in patent infringement litigation. Signatories to the pledge grant a non-exclusive, royalty-free, worldwide license to use their patents and copyrights “for the sole purpose of ending” the COVID-19 pandemic (prior reporting available here).

Since it was launched in April, the pledge has garnered support of some of the world’s largest patent owners, collectively holding hundreds of thousands of patents. That pledged intellectual property now covers a range of applications in health care, diagnostics, and emergency response, such as 3D-printed respirators, methods for designing grocery stores to ensure social distancing, and software for accelerating COVID-19 diagnoses. Recently, the Open COVID pledge website added a feature providing examples of how pledged technology can be used, reportedly in an effort to boost the project’s ability to spur follow-on innovation, in light of studies finding that pledge efforts that simply publish lists of patents do not boost such innovation.

(3) Internet Archive Ends National Emergency Library Project

As reported in our last update, four large publishing companies sued Internet Archive in early June 1 for copyright infringement, arising out of Internet Archive’s “National Emergency Library,” implemented during the pandemic. Internet Archive described the new library as “a temporary collection of books that supports emergency remote teaching, research activities, independent scholarship, and intellectual stimulation while universities, schools, training centers, and libraries are closed.” The project was intended to run until the end of June, but Internet Archive ended the project on Tuesday, June 23, due to the pending lawsuit.

_____________________

Gibson Dunn lawyers regularly counsel clients on the issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team. Please also feel free to contact the Gibson Dunn lawyer with whom you usually work, or the authors:

AUTHORS: Richard Mark ([email protected]), Joe Evall ([email protected]), Doran Satanove ([email protected]), and Amanda First ([email protected])

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

GLOBAL OVERVIEW

Due to the ongoing assessment of the impact of COVID-19 on companies’ operations, liquidity and capital resources and overall economic and market conditions, companies should take special care in preparing for their quarterly reporting. To aid in this effort, the staff (the “Staff”) of the Securities and Exchange Commission (“SEC”) has posted a new set of questions that companies should consider in evaluating whether certain disclosures should be included in their earnings release and, in light of its potential materiality, in the management discussion and analysis (“MD&A”) included in the periodic reports (e.g., the upcoming Form 10-Q for the second quarter of 2020).
Read more

Defending Group Actions in the UK Employment Tribunal in the Wake of COVID-19 – July 8, 2020 Webcast

Join our panel of seasoned Gibson Dunn partners and associates in a discussion concerning how such group actions might arise in the wake of COVID-19 and strategies for defending them in the UK employment tribunal.
Read more

On June 25, 2020, the California Supreme Court issued its second major Unfair Competition Law (“UCL”) opinion of the term, unanimously deciding in Abbott Laboratories v. Superior Court, No. S249895, ___Cal.5th___, that local prosecutors have the power to seek civil penalties for violations in California that occur outside their territorial jurisdiction. According to the Court, the UCL “grants broad civil enforcement authority to district attorneys … consistent with the statute’s purpose and history.” (Id. at [p. 16].) While the Court acknowledged that its ruling could create conflicts of interest and duplicative enforcement among competing district attorneys, the decision and a three-Justice concurrence outlined a path for the Legislature to mitigate these negative consequences.

I. Procedural Background of Abbott Laboratories

As summarized in Gibson Dunn’s previous client alert, the UCL empowers the Attorney General as well as any district attorney, any county counsel, and certain city attorneys to file a civil enforcement action on behalf of the People of the State of California. (See Bus. & Prof. Code §§ 17204, 17206.) Local prosecutors have claimed authority under the UCL to bring civil actions for injunctive and monetary relief alleging unfair competition violations occurring throughout the State of California—including beyond their territorial jurisdiction.

In this case, the Orange County District Attorney sued various brand and generic pharmaceutical manufacturers and distributors under the UCL, alleging an unlawful conspiracy to prevent other generic manufacturers from launching a generic drug that would compete with Niaspan, a prescription medication used to help maintain healthier levels of cholesterol. As a result of the allegedly unlawful conspiracy, the District Attorney asserted that California consumers paid more than they otherwise would have for generic Niaspan. The District Attorney sought civil penalties not only for alleged violations that occurred in Orange County, but also for violations that occurred anywhere throughout California. Defendants moved to strike the complaint’s claims for monetary relief for violations outside of Orange County; the Superior Court denied that motion.

Defendants sought writ relief, and a divided Court of Appeal vacated the Superior Court’s decision and ordered the claim for statewide civil penalties stricken. Emphasizing that the California Constitution recognizes that the Attorney General is “the chief law officer of the State,” the Court of Appeal majority reasoned that the UCL’s grant of standing to local prosecutors “cannot reasonably or constitutionally be interpreted as conferring statewide authority or jurisdiction to recover such monetary remedies beyond the county the district attorney serves, or restricting the Attorney General’s constitutional power to obtain relief on behalf of the entire state.” (Abbott Labs, Inc. v. Sup. Ct (2018) 24 Cal. App. 5th 1, 24–25.) The Court of Appeal further noted that “the text of the UCL provides no basis to conclude the Legislature intended to grant local prosecutors extraterritorial jurisdiction to recover statewide monetary relief” and that if the Legislature had wished to confer upon local prosecutors the same remedial authority given to the Attorney General, the UCL would have explicitly vested local prosecutors with such authority. (Id. at pp. 27–28.)

The Supreme Court granted the Orange County District Attorney’s petition for review.

II. A Divide Emerges Among State and Local Prosecutors

The amicus briefs filed in the Supreme Court manifested a notable divide among state and local prosecutors. The California District Attorneys Association and California Attorney General each filed a brief in support of Defendants, arguing that local district attorneys lack the power to seek civil penalties for conduct occurring outside their territorial jurisdiction. The Attorney General argued that the Orange County District Attorney’s reading of the UCL would create conflict and competition among local prosecutors each acting to obtain a greater share of remedies for their localities. Such a construction, argued the Attorney General, would “undercut the constitutional authority of the Attorney General as the State’s chief law officer.” The Attorney General argued instead for a reading that would “encourag[e] cooperation” and permit California to “speak with one voice in consumer law matters.”

The District Attorneys Association expressed concern in its brief to the Court about reduced public accountability of local prosecutors who obtain relief for consumers outside their jurisdiction. The Association argued that “[a] district attorney who could exercise binding authority to alter or extinguish the rights of consumers in other counties would be subject to no democratic safeguards if he or she misused that authority.”

Meanwhile, a coalition of City Attorneys and County Counsels—who do not fall under the broad oversight of the Attorney General (as do district attorneys)—and the League of Cities filed an amicus brief in support of the Orange County District Attorney’s position and in favor of permitting local prosecutors to exercise statewide jurisdiction.

III. California Supreme Court Holds First Teleconference Oral Argument After COVID-19 Shelter-In-Place Order

On Tuesday, March 26, 2020, oral argument was held before the California Supreme Court. Notably, it was one of the first teleconference hearings after COVID-19-related safer-at-home orders were issued. The argument centered around two themes: how to interpret the UCL’s silence on the issue presented, and the practical import of the Court’s ruling.

Generally, the teleconference format worked well. While there were a few instances of delayed questions causing some cross-talk and confusion, the Court managed the argument well. In a departure from traditional practice, at the conclusion of each advocate’s argument, the Chief Justice invited each of the Justices to ask any remaining questions any of them had.

Ultimately, the argument foreshadowed the Court’s opinions: Justice Liu appeared most skeptical of the practical concerns raised by Defendants and amici, and ultimately authored the Court’s decision ruling in favor of the Orange County District Attorney.

IV. The Supreme Court’s Opinion

Justice Liu authored the unanimous opinion of the Court. Justice Kruger filed a separate concurrence in which Chief Justice Cantil-Sakauye and Justice Corrigan joined to outline their view that the UCL should be amended to provide for a more robust notice provision. All seven Justices (including Justice Fujisaki of the First Appellate District, who sat pro tem in place of Justice Groban, who was recused) agreed that “[t]he UCL does not preclude a district attorney, in a properly pleaded case, from including allegations of violations occurring outside as well as within the borders of his or her county,” confirming their ability to seek “civil penalties for violations occurring outside of the district attorney’s county as well as restitution on behalf of Californians who do not reside in the county.” (Abbott Laboratories, supra, ___Cal.5th___[p. 1, 11].)

A. Justice Liu’s Opinion for the Court Holds That the “Text and Purpose of the UCL” Supports District Attorneys Exercising Statewide Authority

Justice Liu, writing for the Court, reasoned that the UCL uses “broad language” in authorizing courts to impose civil penalties “for each violation” and to make orders to restore to “any person in interest any money.” (Id. at [p. 12].) Reviewing the provisions contemplating statewide injunctions (sections 17203 and 17207), and those empowering courts to impose civil penalties (section 17206), the Court emphasized that “[t]he statute contains no geographic limitation on the scope of relief that courts may order in an enforcement action brought by a district attorney.” (Id.)

The Court first distinguished Safer v. Superior Court (1975) 15 Cal.3d 230, cited by Defendants for the proposition that civil litigation by district attorneys must be specifically authorized by the Legislature. Justice Liu noted that “the district attorney is expressly authorized to maintain a civil action for either injunctive relief or civil penalties for acts of unfair competition” under the UCL. (Abbott Laboratories, supra, ___Cal.5th___[p. 10].) Next, the Court emphasized that “Safer says nothing about the scope of remedies that may be sought,” and was thus inapposite to the question before the Court. (Id.)

Turning to the “text and purpose of the UCL,” Justice Liu made three points. (Id. at [p. 11].) First, as noted above, the statute’s broad language, coupled with the lack of any geographic limitation, suggest no legislative “concern about the geographic scope of relief sought in an enforcement action by a district attorney.” (Id. at [p. 13].) Here, the Court assumed that district attorneys may seek statewide injunctive relief under the UCL (and Defendants conceded as much in their brief). While the issue of statewide injunctive relief was not squarely before the Court, this assumption nevertheless guided the Court’s decision. Second, the Court noted that section 17206(c), which allocates “one-half of civil penalties in a statewide action [brought by the Attorney General] to the county in which the judgment was entered indicates that the Legislature did not design the civil penalty scheme to ensure an allocation of civil penalties to counties in accordance with the number of violations in each county.” (Id.) Third, the fact that section 17207(b) distinguishes “‘any county in which the violation occurs’ and ‘any county . . . where the injunction was issued’” for purposes of civil penalties imposed for violating injunctions suggests that the “Legislature knows how to write language limiting the award of civil penalties to the county in which the violation occurs”; here though, the Legislature “did not enact any such limitation.” (Id. at [p. 13-14].)

Taken together, the Court held that “the text of the UCL grants broad civil enforcement authority to district attorneys, and this broad grant of authority is consistent with the statute’s purpose and history.” (Id. at [p. 14].)

Next, the Court rejected Defendants’ argument that the California Constitution limited district attorneys’ enforcement authority to their districts’ boundaries, “find[ing] nothing in those provisions that constrains the Legislature’s prerogative to structure UCL enforcement so that a district attorney has authority to seek civil penalties and restitution for violations outside of his or her county.” (Id. at [p. 18].)

Finally, the Court addressed the Attorney General’s amicus brief and the practical concerns it raised about political accountability, degradation of the Attorney General’s primary role in consumer protection, and a loss of inter-office cooperation. While Justice Liu “[did] not take [these concerns] lightly,” conceding that the Court’s decision may incentivize a race to the courthouse, the Court was “unable to conclude that the Legislature necessarily believed this concern outweighs the incentive that the scheme provides for district attorneys to bring enforcement actions that might otherwise not be brought at all.” (Id. at [p. 20, 22].) Further, the Attorney General’s “authority to intervene or take over the case” from a district attorney mitigated, in the Court’s view, any concerns about coordinated enforcement of the UCL. (Id. at [p. 22].) Indeed, at oral argument Justice Liu noted that Defendants failed to identify a case in which local prosecutors “ran amok” with such authority.

Justice Liu’s opinion noted that the “pros and cons” of the result of this decision “is a matter of policy for the Legislature to decide,” adding that voters could “plac[e] an initiative on the ballot to restrict this authority for local prosecutors if they believe it is not sound policy.” (Id. at [p. 25].)

In conclusion, Justice Liu was careful to outline the limits of the Court’s holding, writing that the Court did not “address whether a district attorney could bring a UCL claim for conduct occurring entirely outside the bounds of his or her county”; in the case before the Court, the Orange County District Attorney had alleged violations of the UCL both within and outside of Orange County. (Id. at [p. 26].)

B. Justice Kruger’s Concurrence Emphasizes the “Gap in the Statutory Scheme”

Justice Kruger agreed with the Court’s reading of the UCL’s text and purpose. However, she wrote a separate concurrence, in which the Chief Justice and Justice Corrigan joined, to point out the “gap in the statutory enforcement scheme” that should be filled by the Legislature. (Abbott Laboratories, supra, ___Cal.5th___[conc. opn. of Kruger, J.], at [p. 1].) Indeed, at oral argument Justice Kruger repeatedly asked about the sufficiency of the notice provided to the Attorney General. Noting that the “current statutory scheme contains no mechanism to ensure notice to the Attorney General for trial proceedings,” Justice Kruger wrote that the “Legislature may wish to fill this gap by requiring that district attorneys and other public prosecutors serve the Attorney General with a copy of any UCL complaint whose prayer for relief seeks monetary relief for violations occurring beyond the borders of their respective jurisdictions.” (Id. at [p. 3].) Justice Kruger voiced concern that “absent an effective mechanism for coordinating efforts, [this decision] will inevitably create some practical challenges,” including the possibility of “district attorneys . . . rac[ing] each other to the courthouse and . . . enter[ing] settlements that maximize their own counties’ recoveries, potentially at the expense of consumers elsewhere in the state.” (Id. at [p. 1-2].)

V. Implications for Future Cases and Outstanding Questions

The Court’s opinion and Justice Kruger’s concurrence firmly place the ball in the Legislature’s court to address any potential policy implications of the Court’s decision. Time will tell whether voters or the Legislature act swiftly to write into the UCL a means for coordinating enforcement actions or pull back on the authority of district attorneys to seek statewide monetary relief.

In the meantime, the Court’s reading of the UCL establishes a significant incentive for district attorneys to bring UCL actions, given the potential financial windfall of statewide civil penalties. As a result, defendants should be prepared for the possibility of multiple and overlapping cases, brought not only by district attorneys, but also by other prosecutors.

Overlapping suits will in turn increase the need for companies to effectively coordinate their defense of government enforcement actions with any parallel matters. Defendants should look carefully at how government enforcement cases interact with arbitrations, consumer class actions, and suits brought under the Private Attorneys General Act, Lab. Code. § 2699 et seq., and develop a cohesive unified strategy. With overlapping issues, defendants may need to consider arguments for stays, preclusion and other remedies.

In addition to the issues of the power of district attorneys to prosecute purely extraterritorial violations and to seek statewide injunctive relief, an additional question not squarely presented by this case remains unanswered: does the Court’s decision extend to city attorneys and county counsels, over whom the Attorney General does not exercise supervisory authority? Indeed, the Court emphasized the potential problems resulting from its decision were mitigated because the Attorney General “has direct supervision over the district attorneys,” and “retains authority to intervene or take over the case.” (Abbott Laboratories, supra, ___Cal.5th___[p. 18-19, 22].) Defendants may therefore wish to carefully scrutinize any future enforcement matters brought by city attorneys and county counsels seeking civil penalties on a statewide basis. Further, in pursuing any reform to the UCL, the Legislature may wish to consider the different relationship the Attorney General has with district attorneys compared to city attorneys and county counsels.

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. – Los Angeles (+1 213-229-7000, [email protected])
Daniel M. Kolkey – San Francisco (+1 415-393-8420, [email protected])
Julian W. Poon – Los Angeles (+1 213-229-7758, [email protected])
Winston Y. Chan – San Francisco (+1 415-393-8362, [email protected])
Michael Holecek – Los Angeles (+1 213-229-7018, [email protected])
Victoria L. Weatherford – San Francisco (+1 415-393-8265, [email protected])

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

On June 23, 2020, the Division of Corporation Finance of the SEC issued disclosure guidance in the form of CF Disclosure Guidance: Topic No. 9A (“Topic 9A”) providing additional views regarding operations, liquidity, and capital resources disclosures that companies should consider with respect to business and market disruptions related to COVID-19. This complements CF Disclosure Guidance: Topic No. 9 (“Topic 9”) published on March 25, 2020 (which was addressed on our previous post, available here).

Separately, on June 23, 2020, the SEC Chief Accountant issued a Statement on the Continued Importance of High-Quality Financial Reporting for Investors in Light of COVID-19, highlighting the Office of the Chief Accountant’s recent work to promote high-quality financial reporting, and its engagement with the Financial Accounting Standards Board, the Public Company Accounting Oversight Board, the International Accounting Standards Board, the International Organization of Securities Commissions, the International Federation of Accountants, and the Public Interest Oversight Board. This complements the Chief Accountant’s previous Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19 issued on April 3, 2020.

With many public companies now preparing for their next reporting cycle (e.g., the upcoming Form 10-Q for the second quarter of 2020), the SEC continues to emphasize the important role the financial reporting system plays in the functioning of the markets and in the national effort to mitigate the COVID-19 pandemic (see, e.g., SEC Chairman Jay Clayton, Remarks to the Financial Stability Oversight Council) and, consequently, the importance of disclosure controls and procedures and internal control over financial reporting. As Chairman Clayton recently stated in testimony before the House Committee on Financial Services:

A fundamental principle for the SEC and our capital markets has always been—and today is even more important than ever—the importance of issuers providing investors with financial and operational disclosures that are clear, high-quality and timely. Staff has been monitoring and providing guidance with respect to corporate and municipal filings and disclosures of U.S. issuers, as well as foreign companies listed in the United States… I believe that the timely disclosure of high-quality information—be it positive, negative or neutral, and be it definitive or subject to uncertainty in light of the circumstances—increases credibility and has a generally calming value that contributes to market function, and in turn, reduces the potential for systemic risk.

Relatedly, the SEC announced a roundtable to be held on June 30, 2020: “Q2 Reporting: A Discussion of COVID-19 Related Disclosure Considerations.” Moderated by SEC Chair Jay Clayton, the roundtable’s participants will include National Economic Council former director Gary Cohn, Silver Lake Partners co-founder Glenn Hutchins, Advent Capital Management President Tracy Maitland, and BlackRock Vice Chair Barbara Novick. The roundtable will be webcast live on the SEC’s website.

Disclosure Considerations Raised in Topic 9A

As with Topic 9, Topic 9A includes questions companies can ask when considering their disclosure obligations. The Staff makes clear that Topic 9A represents the Staff’s views and does not change applicable law or add new disclosure obligations.

Topic 9A advises that companies consider how operational adjustments undertaken due to COVID-19 (e.g., transition to telework, supply chain and distribution adjustments, and suspending or modifying certain operations to comply with health and safety guidelines) and financing activities undertaken due to COVID-19 (e.g., obtaining and utilizing credit facilities, accessing public and private markets, implementing supplier finance programs, and negotiating new or modified customer payment terms) may be required to be disclosed in MD&A under Item 303 of Regulation S-K. While each company must consider its own specific facts and circumstances, the questions posed by the Staff can help a company identify factors that may need to be addressed as a result of their impact on the company’s operations, liquidity, and capital resources. The Staff encourages companies to consider a broad range of topics when preparing their disclosures, including:

Business Considerations

Operational Challenges

operational challenges monitored and evaluated by management and the board;
alterations to operations (g., implementation of health and safety policies);
impact (or reasonable likelihood of future impact) of such changes to the financial condition and short- and long-term liquidity;

Expenditures

the amount of any reduction in capital expenditures, and any suspension of share repurchase programs or dividend payments;
to termination of any material business operations or disposal of any material assets or line of business;
any material reduction or increase in human capital resource expenditures;
any expected timing of the implementation of any of the measures mentioned above;
any factors considered in extending or curtailing any of these measures;
the short- and long-term impact of these reductions on the ability to generate revenues and meet existing and future financial obligations

Customer Relationships

any alteration of terms with customers (g., extension of payment terms or refund periods) and materiality of the impact of such actions on the financial condition or liquidity;
any concessions or changes on terms of arrangements as a landlord or lender that will have a material impact;
any modifications of other contractual arrangements in response to COVID-19 that could materially impact the financial condition, liquidity or capital resources;

Supplier Relationships

reliance on any supplier finance programs, supply chain financing, structured trade payables, reverse factoring, or vendor financing, to manage cash flow;
description of any material impact on balance sheet, statement of cash flows, or short- and long-term liquidity due to such arrangements;
description of any material terms of the arrangements, including any guarantees provided by the company or any subsidiaries;
any potential material risk in case of termination of any such arrangements;
amount of amounts payable related to these arrangements at the end of the period, and portion of these amounts already settled by an intermediary;

Financing Considerations

Overall Liquidity Position and Outlook

the development of the overall liquidity position and outlook due to the COVID-19’s impact;
the materiality of any adverse impact of COVID-19 to revenues in sources and uses of funds, and assumptions made about the magnitude and duration of COVID-19’s impact on revenues;
any material impact in liquidity position and outlook due to a decrease in cash flow from operations;

Liquidity Sources

whether revolving lines of credit were accessed or whether capital was raised in the public or private markets to address liquidity needs;
disclosure of any actions related to access of lines of credit or capital raise and any unused liquidity sources provided with a complete discussion of the financial condition and liquidity;

Use of Specific Metrics by Management

clear definitions of any performance metrics used (g., cash burn rate or daily cash use) and the explanation of how management uses such metrics in managing or monitoring liquidity (see the SEC’s Guidance on Management’s Discussion and Analysis of Financial Condition and Results of Operations, and our post about such SEC guidance);
estimates or assumptions underlying such metrics necessary for such metrics not to be misleading;

Cost of Capital

impact on the ability to access traditional funding sources on reasonably similar terms;
need to provide additional collateral, guarantees, or equity to obtain funding;
material changes in the cost of capital;
impact on the ability to obtain additional funding due to any changes, or potential changes, in credit rating;
terms in financial arrangements that limits the ability to obtain additional funding;
the reasonable likelihood that any uncertainty of additional funding would result in liquidity decreasing in a way that would result in inability to maintain current operations;

Debt Obligations

the ability to timely service the debt and other obligations;
availability and use of any payment deferrals, forbearance periods, or other concessions;
description and expected extension of such concessions;
foreseeability of any liquidity challenges once those accommodations end;

Covenant Maintenance

material risk of not meeting covenants in existing credit and other agreements;

Financial Statements

Subsequent Events Since the End of the Reporting Period and Known Trends or Uncertainties

discussion and assessment of any impact of material events since the end of the reporting period, but before the financial statements are issued; and
consideration of disclosure of subsequent events in the financial statements and known trends or uncertainties in the MD&A.

CARES Act

In addition, Topic 9A notes that companies should consider addressing the short- and long-term impact of any government assistance (including under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (available here)) on financial condition, results of operations, liquidity and capital resources. This includes:

the material terms and conditions of any assistance received and anticipated ability to comply with such terms and conditions;
any limitation on the ability to seek other sources of financing or impact on cost of capital due to such terms and conditions;
impact of restrictions (g., maintaining certain employment levels) on revenues or income from continuing operations or in the relationship between costs and revenues;
any expected material change to operations once restrictions lapse;
the impact of any tax relief in short- and long-term liquidity;
the description of any material tax refund for prior periods;
a description of any new material accounting estimates or judgments or material changes to prior critical accounting estimates; and
a description of accounting estimates made (g., probability of loan forgiveness); and
any uncertainties involved in applying the related accounting guidance.

Going Concern

The Statement from the Chief Accountant and the Topic 9A guidance also each underscore that companies should pay particular attention to the going concern evaluation in connection with the issuance of the financial statements (see our client alert on Key Considerations for Issuers and Auditors Regarding Going-Concern Analysis). Considering all conditions and events (including those described above), taken as a whole, management should evaluate the company’s ability to meet its obligations as they become due within one year after the issuance of the financial statements. If the financials will include a going concern qualification, then companies should include additional MD&A disclosure about:

conditions and events that give rise to the substantial doubt about the company’s ability to continue as a going concern (g., any default on outstanding obligations, any labor challenges or work stoppage); and
management’s plans to address these challenges and whether any portion of those plans have been implemented.

_____________________________________

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding developments related to the COVID-19 pandemic. For additional information, please contact the Gibson Dunn lawyer with whom you usually work, any lawyer in the firm’s Securities Regulation and Corporate Governance and Capital Markets practice groups, or the authors:

Hillary H. Holmes – Houston (+1 346-718-6602, [email protected])
Andrew L. Fabens – New York (+1 212-351-4034, [email protected])
James J. Moloney – Orange County, CA (+1 949-451-4343, [email protected])
Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, [email protected])
Rodrigo Surcan – New York (+1 212-351-5329, [email protected])
Candice Lundquist – Orange County, CA (+1 949-451-3973, [email protected])

Please also feel free to contact any of the following practice leaders:

Securities Regulation and Corporate Governance Group:
Elizabeth Ising – Co-Chair, Washington, D.C. (+1 202-955-8287, [email protected])
James J. Moloney – Co-Chair, Orange County, CA (+1 949-451-4343, [email protected])
Lori Zyskowski – Co-Chair, New York (+1 212-351-2309, [email protected])
Brian J. Lane – Washington, D.C. (+1 202-887-3646, [email protected])
Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, [email protected])
John F. Olson – Washington, D.C. (+1 202-955-8522, [email protected])
Michael J. Scanlon – Washington, D.C. (+1 202-887-3668, [email protected])
Gillian McPhee – Washington, D.C. (+1 202-955-8201, [email protected])
Michael A. Titera – Orange County, CA (+1 949-451-4365, [email protected])

Capital Markets Group:
Stewart L. McDowell – Co-Chair, San Francisco (+1 415-393-8322, [email protected])
Peter W. Wardle – Co-Chair, Los Angeles (+1 213-229-7242, [email protected])
Andrew L. Fabens – Co-Chair, New York (+1 212-351-4034, [email protected])
Hillary H. Holmes – Co-Chair, Houston (+1 346-718-6602, [email protected])

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

On June 10, 2020, Mr Justice Trower, sitting in the English High Court, handed down his judgment in A v B [2020] EWHC 1491 (Ch). The judgment addressed the treatment of privileged documents that had been disclosed to an auditor by their clients under a limited waiver, with a finding that it was for the auditors (and not their clients) to decide, objectively, if the relevant materials could be withheld on the grounds of privilege, or should be disclosed to the Financial Reporting Council.

The judgment has implications for communications between clients and their auditors, and the practicalities associated with the sharing of privileged information in connection with audits and audit procedures performed in the United Kingdom.

Overview of the decision

These proceedings arose out of an investigation conducted by the Financial Reporting Council (the “FRC”) into the 2018 audit of a company, ‘A’, carried out by its former auditor, ‘B’ (the “Audit”). The FRC’s investigation was conducted pursuant to its powers under the UK’s Statutory Auditors and Third Country Auditors Regulations 2016 (“SATCAR“). As part of the investigation, the FRC required the provision of documents held by B, relating to the Audit. While non-compliance with an FRC production request is an offence, under the provisions of SATCAR, there is no failure to comply if a relevant document is withheld on the grounds of legal professional privilege.[1]

In response to the FRC’s instruction to B, company A asserted privilege in respect of some of the requested documents, claiming that these materials were only in B’s possession for the purpose of the Audit, on the basis of a limited waiver of privilege (meaning that the privileged information had been shared with the auditor for the limited purpose of the Audit, under strict confidentiality requirements, such that any privilege was preserved, as is permitted by English law). B disagreed with A’s assertion of privilege in respect of six documents. A sought a declaration from the Court that B was bound to withhold production of the documents on the basis of A’s assertion of privilege alone. Both B and the FRC disagreed, arguing that an auditor is entitled to make its own assessment of privilege in respect of documents that it holds.

Trower J refused to make the declaration sought by A[2] and held that whether a document is protected by privilege is a matter of fact and law that is unaffected by any assertions made by the parties.[3] As B was the party under the obligation to provide the requested documents, it was for B to determine whether or not it was entitled to withhold any or all of them on the basis of privilege.[4] Moreover, the declaration sought by A was incapable of resolving the dispute; only a decision on the privilege status of the six specific disputed documents could do that. As such, a declaration was deemed an inappropriate remedy.[5]

Additionally, the Court offered guidance on the proper approach to resolving a dispute between an auditor and client (or indeed the FRC) as to the privileged nature of documents:

If the client disagrees with the auditor’s privilege decisions, it remains open to the client to issue proceedings to restrain the use of the privileged documents in the usual way.[6]
In the event that an auditor discloses client documents to a regulator that are in fact privileged, and depending on the arrangements between the parties, the auditor could be exposed to risk of liability to its client for breach of its right to privilege.[7]
If the FRC disagrees with a privilege assertion by the auditor, then it can proceed against the auditor for non-compliance with the request, under the SATCAR enforcement regime.[8]

It remains to be seen if this decision will be appealed, and/or if this approach will be upheld in a broader regulatory context, beyond the confines of an FRC investigation.

Implications

For a company’s in-house counsel, the challenge of ensuring cooperation and transparency with auditors as they fulfil their day to day role, while at the same time seeking to protect and preserve legal professional privilege over the company’s sensitive legal material, will not be new.[9] This decision underscores the importance of how clients and their auditors navigate this delicate balance, particularly in the context of regulatory investigations.

Despite the objective nature of legal professional privilege, Trower J acknowledged in his judgment the existence of a potential tension between the interests of an auditor and its client in the context of a regulatory investigation. Rejecting the principle that an auditor should unquestioningly accept its client’s view on privilege when responding to its regulator’s request, it was noted that an auditor “has interests of its own to protect”[10] and as such may “wish to ensure that the FRC has access to the maximum amount of information”.[11] Against that backdrop, the following considerations are relevant.

Firstly, the importance, when sharing information pursuant to the English doctrine of limited waiver, of ensuring only clearly privileged documents are physically shared with auditors during day to day interactions. The likelihood of auditor-client disagreements over privilege will be reduced if the documents shared are indisputably privileged. Where alternative means of sharing information are acceptable (for example, through briefings or in person review of documents), these should be considered.

Secondly, the significance of a constructive and pre-emptive dialogue between auditors and their clients on questions of privilege. The parties should seek to reach a common understanding as to the privileged status of materials as early as possible, before such materials are passed over to the auditor, and it may be appropriate to document this understanding in a memo. As this decision makes clear, the independent obligation of the auditor to produce documents during a regulatory investigation should motivate the client to seek to protect its claims to legal professional privilege from the outset of the engagement. Similarly, it would seem beneficial for the auditor to seek to understand at the outset the client’s perspective on the privileged status of their materials. Parties may also wish to consider the extent to which the terms of any limited waiver of privilege, and arrangements for notice of disclosure to regulators, could be addressed in their terms of engagement. However, the English courts may be hesitant to construe the terms of an engagement letter as requiring an auditor to be bound by its client’s views on privilege. As noted by Trower J, such an agreement would need to be expressed in “clear words”.[12]

Thirdly, the ramifications for audits of multi-national companies which include a UK component. Audit work papers are generally retained by each firm that performs audit procedures, including by UK auditors performing work on the UK-based subsidiaries of international clients. Such clients may be used to different legal rules concerning the assertion of privilege in audit work papers, such as the common practice in the United States of auditors deferring to the legal assertions of their clients. Non-UK companies whose legally privileged information may appear in the work papers of their UK-based auditors that perform audit work on subsidiaries of those non-UK companies should be mindful of how this decision may impact assertions of privilege over relevant material in the UK.

____________________________

[1] SATCAR, Schedule 2, paragraph 1(8).

[2] A v B [2020] EWHC 1491 (Ch), paragraph 60.

[3] Ibid., paragraph 67.

[4] Ibid.

[5] Ibid., paragraph 63.

[6] Ibid., paragraph 72.

[7] Ibid.

[8] Ibid., paragraph 71.

[9] See, by way of illustration, the obligation to cooperate with auditors in SUP 3.6.1 R, FCA Handbook and the protections afforded to privileged documents by Section 413, Financial Services and Markets Act 2000.

[10] Ibid., paragraph 70.

[11] Ibid.

[12] A v B [2020] EWHC 1491 (Ch), paragraph 69.

Susy Bullock – London (+44 (0)20 7071 4283, [email protected])
Patrick Doris – London (+44 (0)20 7071 4276, [email protected])
Michael J. Scanlon – Washington, D.C. (+1 202-887-3668, [email protected])
Monica K. Loseman – Denver (+1 303-298-5784, [email protected])
David C. Ware – Washington, D.C. (+1 202-887-3652, [email protected])
Jonathan Cockfield – London (+44 (0)20 7071 4021, [email protected])

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

Anti-Money Laundering (AML), Bank Secrecy Act (BSA) and sanctions compliance and enforcement have become leading issues for companies across the full spectrum of the world’s economy. Join Gibson Dunn partners as they discuss significant trends, emerging issues, and areas of risk in this dynamic, constantly evolving space.

Topics to be covered include:

Regulatory and Enforcement Trends in AML/BSA and Sanctions Examinations and Enforcement
Key Developments in AML Enforcement and Developments in Core Sanctions Programs
What To Expect in 2020 and Beyond

View Slides (PDF)

PANELISTS:

Stephanie L. Brooker is co-chair of Gibson Dunn’s Financial Institutions Practice Group. She is former Director of the Enforcement Division at the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Ms. Brooker is also a former DOJ prosecutor, serving as a trial attorney for several years and Chief of the Asset Forfeiture and Money Laundering Section in the U.S. Attorney’s Office for the District of Columbia. Ms. Brooker has been named a National Law Journal White Collar Trailblazer and a Global Investigations Review Top 100 Women in Investigations. Ms. Brooker’s practice involves a wide range of white collar matters, including representing financial institutions, multi-national companies, and individuals in connection with criminal, regulatory, and civil enforcement actions involving sanctions, anti-corruption, anti-money laundering (AML)/Bank Secrecy Act (BSA), securities, tax, and wire fraud, “me-too” matters, employment matters, and other sensitive matters. Ms. Brooker’s practice also includes compliance counseling, deal due diligence, and significant criminal and civil asset forfeiture matters.

Kendall Day, a partner in Washington, D.C., was a white collar prosecutor for 15 years, eventually rising to become an Acting Deputy Assistant Attorney General, the highest level of career official in the Criminal Division at DOJ. He represents financial institutions, multi-national companies, and individuals in connection with criminal, regulatory, and civil enforcement actions involving anti-money laundering (AML)/Bank Secrecy Act (BSA), sanctions, FCPA and other anti-corruption, securities, tax, wire and mail fraud, unlicensed money transmitter, false claims act, and sensitive employee matters. Mr. Day’s practice also includes BSA/AML compliance counseling and due diligence, and the defense of forfeiture matters.

Adam M. Smith, a partner in Washington, D.C., was the Senior Advisor to the Director of the U.S. Treasury Department’s OFAC and the Director for Multilateral Affairs on the National Security Council. His practice focuses on international trade compliance and white collar investigations, including with respect to federal and state economic sanctions enforcement, the FCPA, embargoes, and export controls. He routinely advises multi-national corporations regarding regulatory aspects of international business. Mr. Smith is ranked by Chambers and Partners and was named by Global Investigations Review as a leading sanctions practitioner.

F. Joseph Warin is co-chair of Gibson Dunn’s global White Collar Defense and Investigations Practice Group, and chair of the Washington, D.C. office’s nearly 200-person Litigation Department. Mr. Warin’s group is repeatedly recognized by Global Investigations Review as the leading global investigations law firm in the world. Mr. Warin is a former Assistant United States Attorney in Washington, D.C. He is ranked annually in the top-tier by Chambers USA, Chambers Global, and Chambers Latin America for his FCPA, fraud and corporate investigations expertise. Among numerous accolades, he has been recognized by Benchmark Litigation as a U.S. White Collar Crime Litigation “Star” for ten consecutive years (2011-2020).

Washington, D.C. partners Miguel Estrada and Mark Perry and associate Kellam Conover are the authors of “High Court Should Review Goldman’s Maintenance Theory,” [PDF] published by Law360 on June 24, 2020.

The Antitrust Criminal Penalty Enhancement & Reform Act (“ACPERA”) is an essential complement to the Corporate Leniency Policy, which the Department of Justice, Antitrust Division has described as its “most important prosecutorial tool.”[1] In essence, ACPERA releases a leniency recipient from the treble damages and joint-and-several liability that would otherwise apply in private civil claims related to its self-reported cartel conduct. But this limitation on private damages was lost when ACPERA expired on June 22, 2020 following a legislative impasse between the DOJ and a member of the Senate Judiciary Committee regarding an unrelated oversight concern. Until a political solution is found, potential leniency applicants face significant uncertainty about the civil damages exposure they may eventually confront.

ACPERA was originally passed in 2004, after lobbying by the Antitrust Division, to “creat[e] greater incentives for corporations to self-report illegal conduct to the Department’s Antitrust Division.”[2] The Division recognized that the onerous burdens of private civil litigation were discouraging potential leniency applicants.[3] ACPERA was an effort to craft a policy solution that eliminated punitive treble damages for leniency applicants, while continuing to hold them accountable for “actual damages” caused by their own misconduct and to require their cooperation with the plaintiffs against their co-conspirators.

Among the legislative compromises reflected in the final ACPERA bill was a “sunset” provision that required reauthorization in five years. Following a brief one-year extension in 2009, Congress reauthorized ACPERA for ten years in 2010 after studying its effectiveness.[4] As the 2020 horizon for reauthorization approached, the DOJ again supported reauthorization and this time lobbied for a bill to permanently extend ACPERA,[5] which Sen. Lindsey Graham introduced earlier this year.[6] While there have been active debates about ACPERA’s effectiveness and ways in which it could be improved,[7] the DOJ, plaintiffs’ bar, and defense bar all seemed to agree that ACPERA should be reauthorized in some form.[8]

Despite the apparent broad support for ACPERA’s reauthorization in the criminal antitrust community, it has encountered difficulties in Congress. On June 9, 2020, Sen. Whitehouse sent a letter to Makan Delrahim, the Assistant Attorney General for the Antitrust Division, explaining that he would “withhold [his] consent to any request to expedite consideration of [Sen. Graham’s] bill” until he had received “satisfactory answers” to questions relating to a prior Antitrust Division investigation.[9] In particular, Sen. Whitehouse expressed concern with “the Antitrust Division’s investigation of agreements four automakers made with the State of California to follow vehicle greenhouse gas emissions standards set by the state.”[10] Sen. Whitehouse similarly raised “concerns of political interference and improper use of the Department’s legal authority to intimidate businesses that made decisions contrary to the interests of the President” when AAG Delrahim appeared before the Senate Judiciary Committee on September 17, 2019.[11]

The Department of Justice has responded to Sen. Whitehouse, but has not yet satisfied his concerns. In a response to Sen. Whitehouse on June 19, 2020—three days before ACPERA was scheduled to expire—the DOJ explained that the Antitrust Division’s investigation into the automakers’ agreement with California was “entirely reasonable.”[12] However, this assertion was challenged when AAG Delrahim’s former acting chief of staff testified on June 23, 2020 at an oversight hearing before the House Committee on the Judiciary that explored “Political Interference and Threats to Prosecutorial Independence.”[13] While the broader issues between the Department of Justice and Congress may take time to resolve, ACPERA’s June 22, 2020 expiration date has now come and gone, changing the cartel enforcement landscape.

The immediate effect of ACPERA’s expiration will be uncertainty for potential leniency applicants. At least in the near term, leniency applicants must weigh the risk of increased civil liability against the benefits of immunity from criminal prosecution. Congress had the foresight to ensure that recipients of a marker or conditional leniency letter prior to ACPERA’s expiration would continue to be protected.[14] However, it remains to be seen whether Congress will reauthorize ACPERA. Anyone applying for leniency during this interim period must account for this risk.

The long-term repercussions of ACPERA’s expiration may be more profound. While Congress may soon reauthorize the legislation, the uncertainty it injects into the Antitrust Division’s leniency program will not quickly subside. The Antitrust Division has previously explained that a leniency program can only excel if there is “transparency and predictability to the greatest extent possible throughout a jurisdiction’s cartel enforcement program, so that companies can predict with a high degree of certainty how they will be treated if they seek leniency and what the consequences will be if they do not.”[15] The expiration of ACPERA thus undermines the confidence that the Antitrust Division recognizes is a necessary predicate for its leniency program to succeed and may negatively affect its future criminal enforcement efforts if not quickly remedied.

___________________________

[1] Richard A. Powers, Deputy Assistant Attorney General, Dep’t of Justice, A Matter of Trust: Enduring Leniency Lessons for the Future of Cartel Enforcement (Feb. 19, 2020), available at https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-richard-powers-delivers-remarks-13th-international.

[2] Dep’t of Justice, ACPERA Roundtable Executive Summary, available at https://www.justice.gov/atr/page/file/1184396/download.

[3] United States, Organisation for Economic Co-operation and Development, Relationship Between Public and Private Antitrust Enforcement (June 9, 2015), available at https://www.justice.gov/atr/file/823166/download (“ACPERA protects a successful leniency applicant from the burden of treble damages and joint and several liability in private litigation . . . .”).

[4] Gibson Dunn, U.S. Congress Renews Civil Leniency for Companies That Self-Report Sherman Act Criminal Violations (June 4, 2010), available at https://www.gibsondunn.com/u-s-congress-renews-civil-leniency-for-companies-that-self-report-sherman-act-criminal-violations/; Gov’t Accountability Office, Criminal Cartel Enforcement: Stakeholder Views on Impact of 2004 Antitrust Reform Are Mixed, but Support Whistleblower Protection (July 2011), available at https://www.gao.gov/new.items/d11619.pdf.

[5] Richard A. Powers, Deputy Assistant Attorney General, Antitrust Division, Dep’t of Justice, A Matter of Trust: Enduring Leniency Lessons for the Future of Cartel Enforcement (Feb. 19, 2020), available at https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-richard-powers-delivers-remarks-13th-international (“The division supports reauthorization and the elimination of the sunset provision.”).

[6] Antitrust Criminal Penalty Enhancement and Reform Permanent Extension Act, S. 3377, 116th Cong. (2020).

[7] Dep’t of Justice, ACPERA Roundtable Executive Summary, available at https://www.justice.gov/atr/page/file/1184396/download.

[8] Scott Hammond, Global Competition Review, Takeaways from the DOJ’s ACPERA Roundtable and Proposed Next Steps (April 17, 2020), available at https://globalcompetitionreview.com/article/1225312/takeaways-from-the-doj%E2%80%99s-acpera-roundtable-and-proposed-next-steps.

[9] Letter from Sen. Sheldon Whitehouse to Makan Delrahim, Assistant Attorney General, Antitrust Division, Dep’t of Justice (June 9, 2020), available at https://www.whitehouse.senate.gov/imo/media/doc/200609_Follow-up%20letter%20to%20Makan%20Delrahim_Final.pdf.

[10] Id.

[11] Id.

[12] Kelsey Tamborrino, Politico, A New Era of WOTUS (June 22, 2020 10:00 AM EST), available at https://www.politico.com/newsletters/morning-energy/2020/06/22/a-new-era-of-wotus-788682.

[13] House Committee on the Judiciary, Oversight of the Department of Justice: Political Interference and Threats to Prosecutorial Independence (June 17, 2020 12:05 PM), available at https://judiciary.house.gov/calendar/eventsingle.aspx?EventID=3034; Kelsey Tamborrino, Politico, A new era of WOTUS (June 22, 2020 10:00 AM EST), available at https://www.politico.com/newsletters/morning-energy/2020/06/22/a-new-era-of-wotus-788682; U.S. House Committee on the Judiciary, Testimony of John W. Elias (June 24, 2020), available at https://judiciary.house.gov/uploadedfiles/elias_written_testimony_hjc.pdf?utm_campaign=4024-519.

[14] Act to amend the Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub. L. No. 111-190, § 1, 124 Stat. 1275, 1275 (2010).

[15] Scott Hammond, Director of Criminal Enforcement, Antitrust Division, Dep’t of Justice, Cornerstones of an Effective Leniency Program (Nov. 22, 2004), available at https://www.justice.gov/atr/speech/cornerstones-effective-leniency-program.

The following Gibson Dunn lawyers prepared this client alert: Scott Hammond, Jeremy Robison, Kristen Limarzi, Rachel Brass, Jarrett Arp, Cynthia Richman, Dan Swanson, and Joshua Wade.

Gibson, Dunn & Crutcher’s Antitrust and Competition Practice Group includes several former DOJ officials with extensive experience with the implementation and oversight of the Antitrust Division’s Corporate Leniency Program. No law firm has a more distinguished record of success than Gibson Dunn in handling high-stakes criminal antitrust investigations and follow-on civil antitrust litigation. 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 or the authors.

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])

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])

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

On 15 June 2020, the European Commission (the Commission) published Implementing Regulation 2020/776, which imposes definitive countervailing duties on imports of certain woven and/or stitched glass fibre fabrics originating in China and Egypt (the Regulation).[1] The Regulation was adopted two days before the publication of the Commission’s White Paper on tackling foreign subsidies, and appears to form part of a broader move to level the playing field with China.

While a few years ago the Commission considered that imports from China cannot be subject to an anti-subsidy investigation because China was considered as a non-market economy, in recent years the Commission has conducted a number of anti-subsidy investigations concerning imports from China. The new countervailing duties against imports from Egypt extend the boundaries of the EU anti-subsidy regime, as this is the first time that the Commission has imposed countervailing duties on imports not only from the country that provided the subsidy (China), but also on imports from another country where the subsidies in question were put in place (Egypt).

Subsidies countervailed by the Regulation

In addition to countervailing subsidies that the Chinese Government granted to Chinese exporting producers and subsidies that the Egyptian Government granted to exporting producers located in Egypt, the Regulation also countervails subsidies provided by the Chinese Government to exporting producers located in Egypt.

More specifically, the Regulation concerns the following types of subsidies:

Subsidies of various forms (e.g., preferential financing) provided by the Chinese public authorities to Chinese exporters (e.g., companies belonging to the China National Building Materials Group);
Subsidies granted directly by Egypt to companies carrying out activities in the China-Egypt Economic and Trade Cooperation zone (the SETC-Zone), located in Egypt,[2] in the form of supply of land and tax incentives; and
Subsidies granted by Chinese public authorities in the form of preferential financing to the companies carrying out activities in the SETC-Zone.

The two main companies concerned by the Commission’s investigation, Jushi Egypt and Hengshi Egypt, are producers of Glass Fibre Fabrics (GFF), a light-weight construction material used in the production of various products such as medical devices, vehicle body panels and boats. They both have corporate links to Chinese mother companies, which are ultimately owned by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

Attributing Chinese subsidies to Egypt

During the Commission’s anti-subsidy investigation, China took the position that the Commission could not legally investigate Chinese involvement in the financing of companies operating in the SETC-Zone, because the alleged financial contributions by Chinese authorities to the companies operating in Egypt did not fall under the definition of ‘subsidy’ pursuant to Article 1.1.(a) of the WTO Agreement on Subsidies and Countervailing Measures (the SCM Agreement).[3] The SCM Agreement provides that a subsidy exists only where there is a financial contribution by a government or a public body within the territory of the WTO member. According to Article 3.1.(a) of Regulation 2016/1037 on protection against subsidised imports from countries not members of the European Union (the Basic Regulation)[4] (which is the direct legal basis for the Commission to conduct anti-subsidy investigations and adopt countervailing duties), a subsidy exists if there is a financial contribution by the government in the country of origin or the country of export of the product concerned.

While the Commission acknowledged that only subsidies granted by the government of the exporting country can be subject to countervailing duties, a position that it consistently held in the past,[5] it considered that the notion of contribution “by the government” should include not only measures that are directly emanating from the government of Egypt but also measures which can be attributed to that government.

In order to attribute to the Egyptian Government the subsidies granted by the Chinese authorities to exporting producers in Egypt, the Commission relied on principles of public and customary international law, giving an expansive interpretation to both the SCM Agreement and the Basic Regulation, as well as to its own powers regarding the type of subsidies that it can investigate. The Commission argued that according to Article 3.2 of the Dispute Settlement Understanding (DSU)[6] and Article 31.3.(c) of the Vienna Convention on the Law of Treaties (VCLT)[7] “[a]ny relevant rules of international law applicable in the relations between the parties” must be taken into account in the assessment of the context of the terms of a treaty. This includes the rules on State responsibility which are part of customary international law and have been codified by the International Law Commission (the ILC Articles).[8] These rules provide guidance on when certain acts or omissions can be attributable to a State, even if those acts or omissions do not emanate from that State directly. Article 11 of the ILC Articles provides that even if a conduct is not attributable to a State per se, it can nevertheless be considered an act of that State if the State acknowledges and adopts the conduct as its own.

To determine whether the Egyptian Government had acknowledged and adopted the conduct of the Chinese Government as its own, the Commission focused its analysis on the links of cooperation between the two countries. In particular, the Commission held that the Egyptian authorities had publically acknowledged that the Chinese financing of the SETC-Zone was to play a significant role in Egypt’s industry upgrade. Furthermore, the authorities were clearly aware that the Chinese ‘One Belt and One Road’ initiative involved State financing through different financial instruments. By jointly setting up the SETC-Zone, the Egyptian authorities clearly acknowledged and adopted the financing as their own conduct.

In addition, the Commission held that Egypt explicitly accepted that China may apply its laws with respect to operators in the SETC-Zone and it can designate the zone as an “overseas investment area” for the purposes of its ‘One Belt and One Road’ initiative. Egypt has also expressed full endorsement of the preferential financing benefiting its GFF producers in the zone.

For the above reasons, the Commission held that the preferential public financing from Chinese public bodies to the GFF producers Jushi and Hengshi Egypt was attributable to the government of Egypt as the government of the country of origin/export under Article 3.1.(a) of the Basic Regulation.

What this means for future EU anti-subsidy investigations

While the Commission’s decision to extend the application of countervailing duties to imports from Egypt against subsidies granted by China is based on the specific circumstances of this particular investigation, it clearly demonstrates the Commission’s willingness to broaden the scope of its existing toolbox when it comes to tackling the effects of Chinese subsidies in the European economy.

China and Egypt as well as the Egyptian exporting producers will no doubt contest the validity of the Regulation both before the EU General Court (on the basis that it infringes the Basic Regulation) and before the WTO (because of the interpretation that it gives to the SCM Agreement).

This is, however, unlikely to be the last regulation by which the Commission imposes countervailing duties on non-Chinese imports because they have benefitted from Chinese subsidies. Indeed, the SETC-Zone is far from being unique and forms part of a larger Chinese initiative. Producers exporting to the EU and located in similar economic and trade cooperation zones may need to reassess their EU export strategy.

_____________________________

[1] Implementing Regulation 2020/776 imposing definitive countervailing duties on imports of certain woven and/or stitched glass fibre fabrics originating in the Chinese mainland and Egypt, OJ L 189, 15.6.2020, p. 1– 170 . The Regulation was adopted on the basis of and amended Implementing Regulation 2020/492 imposing definitive anti-dumping duties on such imports.

[2] This cooperation concerns the pooling of resources between the two Countries in order to benefit their industries. This project is part of the Chinese ‘One Road One Belt’ initiative, a global development strategy adopted by the Chinese government in 2013. The initiative involves infrastructure development in nearly 70 countries. Companies ‘going abroad’ can receive various forms of preferential financing such as fiscal and tax support, project financing, concessional loans, export credits and support through syndicated loans.

[3] Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1869 U.N.T.S. 14.

[4] OJ L 176, 30.6.2016, p. 55–91.

[5] Commission Implementing Regulation (EU) 2017/969 of 8 June 2017 imposing definitive countervailing duties on imports of certain hot-rolled flat products of iron, non-alloy or other alloy steel originating in the People’s Republic of China and amending Commission Implementing Regulation (EU) 2017/649 imposing a definitive anti-dumping duty on imports of certain hot-rolled flat products of iron, non-alloy or other alloy steel originating in the People’s Republic of China (OJ L 146, 9.6.2017, p. 17) (the HRF case).

[6] Dispute Settlement Rules: Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994).

[7] Vienna Convention on the Law of Treaties, 23 May 1969, United Nations.

[8] International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, November 2001, Supplement No. 10 (A/56/10), chp.IV.E.1.

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 International Trade Practice Group, or the following authors:

Attila Borsos – Brussels (+32 2 554 72 11, [email protected])
Vasiliki Dolka – Brussels (+32 2 554 72 01, [email protected])

International Trade Group:

Europe:
Peter Alexiadis – Brussels (+32 2 554 72 00, [email protected])
Nicolas Autet – Paris (+33 1 56 43 13 00, [email protected])
Attila Borsos – Brussels (+32 2 554 72 10, [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])
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.

Compliance with securities laws is a crucial element of any restructuring. This webcast addresses a range of potential securities laws issues arising in a variety of restructuring and bankruptcy scenarios (whether out of court or in a free-fall, pre-negotiated or pre-packaged case under chapter 11 of the Bankruptcy Code), including the registration requirements of the Securities Act of 1933 (and potential exemptions therefrom); the potential application of the tender offer regulations under the Securities Exchange Act of 1934; the role of Regulation FD for public company debtors and other concerns about material non-public information that may be obtained in creditor diligence of debtor-provided information and negotiations with the debtor; issues arising under the Trust Indenture Act of 1939; and more.

View Slides (PDF)

PANELISTS:

Alan Bannister is a partner in the New York office of Gibson, Dunn & Crutcher and a member of the Firm’s Capital Markets, Global Finance, Securities Regulation & Corporate Governance and Business Restructuring & Reorganization Practice Groups. Mr. Bannister concentrates his practice on securities and other corporate transactions, acting for underwriters and issuers (including foreign private issuers), as well as strategic or other investors, in high yield, equity (including ADRs and GDRs), and other securities offerings, including U.S. public offerings, Rule 144A offerings, other private placements and Regulation S offerings, as well as re-capitalizations, NYSE and NASDAQ listings, shareholder rights offerings, spin-offs, PIPEs, exchange offers, other general corporate transactions and other advice regarding compliance with U.S. securities laws, as well as general corporate advice. Mr. Bannister also advises issuers and underwriters on dual listings in the U.S. and on various exchanges across Europe, Latin America and Asia. In addition, Mr. Bannister works closely with the Gibson Dunn bankruptcy and restructuring team, advising on applicable securities laws issues that arise in such transactions.

Michael A. Rosenthal is a partner in the New York office of Gibson, Dunn & Crutcher and Co-Chair of Gibson Dunn’s Business Restructuring & Reorganization Practice Group. Mr. Rosenthal has extensive experience in reorganizing distressed businesses and related corporate reorganization and debt restructuring matters. He has represented complex, financially distressed companies, both in out-of-court restructurings and in pre-packaged, pre-negotiated and free-fall chapter 11 cases, acquirors of distressed assets and investors in distressed businesses. Mr. Rosenthal’s representations have spanned a variety of business sectors, including investment banking, private equity, energy, retail, shipping, manufacturing, real estate, engineering, construction, medical, airlines, media, telecommunications and banking.

1. COMPETITION AND CONSUMERS

2. CORPORATE GOVERNANCE (INCLUDING ACCOUNTS, DISCLOSURE AND REPORTING OBLIGATIONS)

3. CYBERSECURITY AND DATA PROTECTION

4. DISPUTES

5. EMPLOYMENT

6. ENERGY

7. FINANCE

8. FINANCIAL SERVICES REGULATORY

9. FORCE MAJEURE

10. GOVERNMENT SUPPORT SCHEMES

11. INSOLVENCY

12. INTERNATIONAL TRADE AGREEMENTS (PRIVATE AND PUBLIC)

13. LOCKDOWN AND PUBLIC LAW ISSUES

14. M&A AND PRIVATE EQUITY

15. REAL ESTATE

16. UK TAX

RULING’S IMPACT

No Pipeline Construction During Rehearing

Implications for Stays

Pending Tolled Actions

The First and Second Amendments

The Third Amendment

i. Micro and small companies and start-ups

ii. Incentives for private investors to participate in COVID-19-related recapitalization aid measures

iii. Relocation of a production activity

iv. Clarifications ameliorations to the current framework

Conclusion

Update on Intellectual Property-Related Issues in the Response to COVID-19

COVID-19 UK Webinar – June 29, 2020

Additional U.S. Public Company Disclosure Considerations Related to the Impact of COVID-19

Defending Group Actions in the UK Employment Tribunal in the Wake of COVID-19 – July 8, 2020 Webcast

I. Procedural Background of Abbott Laboratories

II. A Divide Emerges Among State and Local Prosecutors

III. California Supreme Court Holds First Teleconference Oral Argument After COVID-19 Shelter-In-Place Order

IV. The Supreme Court’s Opinion

A. Justice Liu’s Opinion for the Court Holds That the “Text and Purpose of the UCL” Supports District Attorneys Exercising Statewide Authority

B. Justice Kruger’s Concurrence Emphasizes the “Gap in the Statutory Scheme”

V. Implications for Future Cases and Outstanding Questions

Disclosure Considerations Raised in Topic 9A

Business Considerations

Financing Considerations

Financial Statements

CARES Act

Going Concern

Subsidies countervailed by the Regulation

Attributing Chinese subsidies to Egypt

What this means for future EU anti-subsidy investigations