Companies that have entered into or that are negotiating settlements with the US or foreign antitrust regulators should prioritize and monitor compliance with those settlements to avoid potentially costly consequences.

The European Commission (EC) recently opened an investigation into Microsoft's alleged violations of a 2009 settlement. The settlement required Microsoft to offer users of the Microsoft operating system a choice screen, allowing each user to choose an alternative web browser. Despite previously reporting that it was complying with the settlement, Microsoft confirmed that, due to a technical error, the choice screen was unavailable to users running a particular version of a Windows update. Microsoft also stated that it was taking immediate steps to remedy the issue.

Joaquín Almunia, Vice President of the EC, stated that the EC takes settlement violations seriously and that there will be sanctions against Microsoft. Sanctions have the potential to reach 10% of a company's global annual revenue, although that is unlikely in this case. In addition, Almunia said that he will consider strengthening the EC's monitoring of settlements going forward. Microsoft is already facing a fine of €860 million for failing to comply with a separate EC decision from 2004.

In the US, violations of settlements with the antitrust agencies are punishable by, among other things, civil penalties and, in the case of enforcement by the Department of Justice (DOJ), criminal penalties.

Companies involved in mergers or acquisitions should ensure that even contemporaneous commercial agreements, separate from the acquisition, do not violate antitrust laws, as those agreements are also subject to antitrust scrutiny.

The DOJ recently announced a settlement with Verizon Communications Inc. relating to certain commercial agreements Verizon Wireless entered into with several leading cable companies at the same time it agreed to purchase spectrum from those companies (spectrum acquisitions). These commercial agreements were:

While the spectrum acquisitions were cleared by the DOJ, the DOJ brought a Sherman Act Section 1 claim against the parties related to the commercial agreements to sell each other's products and form an exclusive research joint venture. The DOJ was concerned that these agreements would lessen competition in video and broadband services markets in areas where Verizon's FiOS product competes against the cable companies' services. This is because the agreements, in part:

The proposed settlement includes terms that prohibit Verizon from selling the cable companies' services where it offers or is likely to offer its FiOS service and that limit the duration of the joint venture and certain exclusivity provisions.

For more information on Section 1 of the Sherman Act, see Practice Note, US Antitrust Laws: Overview.

Companies that develop and market mobile apps should refer to the set of general guidelines on marketing mobile apps recently published by the Federal Trade Commission (FTC).

The guide, Marketing Your Mobile App: Get it Right From the Start, summarizes key points the FTC has made about mobile apps in previous settlements and policy documents, including:

The guide clarifies some issues that have been troublesome for mobile app developers, such as:

The guide serves as a valuable roadmap that companies should use when considering advertising and privacy issues prior to launching an app.

For a Toolkit of resources to assist companies with key legal and business issues related to advertising and marketing, see Advertising and Marketing Toolkit.

Franchisors should take note of two recent cases that illustrate the different approaches courts take in applying the principles of vicarious liability to franchise relationships.

In Ketterling v. Burger King Corp., the Idaho Supreme Court indicated that an independent owner/operator provision protected the franchisor (Burger King) from vicarious liability for the franchisee's negligence. General franchise operating requirements found in Burger King's franchise operations manual were not enough to establish control or a right of control giving rise to vicarious liability. The court placed greater emphasis on language in the operations manual that the franchisee was an independent owner and operator of the restaurant and was responsible for its day-to-day operation.

In contrast, in Patterson v. Domino's Pizza, LLC, a California Court of Appeal used a totality of the circumstances approach to determine that the franchisor (Domino's) exercised sufficient control to incur vicarious liability. Provisions of Domino's franchise agreement that allocated control to the franchisee were relevant but not dispositive. Despite an independent owner/operator provision in the franchise agreement, the court found that aspects of the agreement, as well as a management guide, limited the franchisee's independence and could give Domino's substantial control over local franchise management and give rise to vicarious liability.

Given the varied approaches used by the courts, franchisors should use caution when drafting franchise agreements and manuals to ensure that they:

Public companies must begin preparing to comply with the final conflict minerals disclosure rules recently adopted by the SEC to implement Section 1502 of the Dodd-Frank Act. The new rules impose costly obligations on a wide range of companies, not just those in the electronics or jewelry industries.

The new rules apply to reporting companies that manufacture or contract to manufacture products for which certain commonly-used minerals or their derivatives, including gold, tin and tungsten, are necessary to the products' functionality or production. Subject companies must:

The first conflict minerals report, covering calendar year 2013, must be filed by May 31, 2014. Steps companies should take now include:

For more information on the new rules, see Legal Update, SEC Adopts Conflict Minerals Disclosure Requirements.

Companies planning to conduct or participate in private placements should re-examine their investor screening procedures in light of proposed amendments, mandated by the JOBS Act, to Regulation D under the Securities Act.

The SEC's proposed amendments to Rule 506 of Regulation D permit general solicitation and general advertising in offerings conducted under that rule if:

The proposed amendments do not require specific verification procedures or offer a non-exclusive list of measures that would satisfy the "reasonable steps" requirement. However, the proposing release offers guidance on factors companies should consider when determining whether their verification steps are reasonable.

The SEC is soliciting comments on whether the final rules should set out specific verification steps issuers must or should take. Comments on the proposed amendments are due by October 5, 2012.

For more information on the proposed amendments, see Legal Update, SEC Proposes JOBS Act General Solicitation Rules.

Employers may find it helpful to use new safe harbors for determining which employees are treated as full-time employees for purposes of health care reform's employer mandate.

Under the mandate, a full-time employee is an employee who is employed on average at least 30 hours per week. Beginning in 2014, large employers are subject to potentially severe penalties if they fail to offer health coverage that provides minimum essential coverage to full-time employees, or offer coverage that does not satisfy certain other standards.

The IRS recently issued temporary guidance providing safe harbors that permit employers to use a look-back measurement period that is between three and 12 consecutive months for determining the full-time status of ongoing employees and newly-hired variable hour and seasonal employees. Employees who average at least 30 hours per week during the look-back period are treated as full-time employees during a subsequent "stability period" of at least six months or the length of the look-back period, whichever is longer.

Employers, plans and insurers can rely on the safe harbors at least through the end of 2014, although upcoming regulations are also expected to address the issues dealt with in the temporary guidance.

Beginning January 2014, health care reform also prohibits plans and insurers from applying eligibility waiting periods of more than 90 days. However, under guidance issued in coordination with the safe harbors, employers are permitted a reasonable amount of time (up to 12 months) to determine whether certain employees meet plan eligibility conditions based on working a specified number of hours.

As 2014 nears, large employers (generally having 50 or more employees) subject to the employer mandate should:

For more information on the employer mandate, see Practice Note, Private Health Insurance Exchanges.

The DC Circuit's recent rejection of the Cross-State Air Pollution Rule (CSAPR) reveals limits to the Environmental Protection Agency's (EPA's) regulatory authority under the Clean Air Act (CAA). Companies should follow the EPA's rulemaking attempts and be prepared to adjust their policies and activities depending on the judicial decisions concerning future EPA regulations.

In the 2-1 decision, the DC Circuit found that CSAPR overstepped the EPA's authority under the CAA and vacated the entire rule. CSAPR was the EPA's latest attempt to implement provisions in the CAA that prohibit states from contributing to unsafe air pollution levels in downwind states. The EPA's first attempt to address this problem was its Clean Air Interstate Rule (CAIR), which the DC Circuit remanded without vacatur in 2005, leaving that rule in place while the EPA developed a replacement. As a result of CSAPR being struck down, CAIR remains in effect until the EPA develops yet another replacement, which is likely to take years.

Before this decision, the EPA seemed to be gaining regulatory momentum, with the DC Circuit upholding EPA rules on greenhouse gasses and National Ambient Air Quality Standards for nitrogen oxide and sulfur dioxide. The overturning of CSAPR therefore came as a surprise to many, particularly since the rule was crafted in response to the CAIR decision.

While the outcome of this case primarily impacts power plants, the holding highlights the legal uncertainty that continues to cloud many EPA regulations. For example, it calls into question the enforceability of the EPA's recently finalized rules on hazardous air pollutants and mercury.

The recent launch of the International Swaps and Derivatives Association (ISDA) Dodd-Frank Protocol (Protocol) provides assistance to over-the-counter (OTC) derivatives industry participants to facilitate amendments of ISDA documents in order to comply with swaps regulations under Title VII of the Dodd-Frank Act.

The Protocol allows market participants to supplement the terms of existing ISDA Master Agreements under which the parties to the agreement may execute individual swaps and derivatives transactions.

For more information on the Protocol, see Legal Update, ISDA Launches Dodd-Frank Protocol to Amend Swap Documents.

Following a recent Federal Circuit decision, a patent owner may be able to prove induced infringement of a patented method even where no single entity performs all of the claimed method's steps.

In Akamai Technologies, Inc. v. Limelight Networks, Inc., the Federal Circuit did not address joint direct infringement, but held that a party may be liable for induced infringement of a patented method under Section 271(b) of the Patent Act if that party either:

Previously, inducement liability required direct infringement by a single entity. This left method patent owners without recourse where multiple parties collectively performed the claimed steps. Now a method patent owner may be able to prove induced infringement where multiple parties together perform the claimed method's steps. However, a method patent owner must still prove that the alleged infringer knowingly induced infringement, such as by urging, encouraging or aiding the infringement.

Method patent owners, especially those with patents concerning cloud computing and life sciences, should reevaluate:

Potential defendants should consider whether:

For more information on patent infringement claims and defenses in the US federal courts, see Practice Note, Patent Infringement Claims and Defenses.

Potential patentees and their counsel should consider the implications of the Federal Circuit's recent decision in Association for Molecular Pathology v. Myriad Genetics, Inc., which found that isolated DNA molecule claims are patent-eligible.

The US Supreme Court had remanded this case in light of Mayo Collaborative Services v. Prometheus Laboratories, Inc., where it held that methods concerning the calibration of a patient's drug dosage are not patent-eligible unless the claims recite additional significant, unconventional steps that are an inventive application of the natural occurring correlations.

Noting that Prometheus should be limited to method claims, the Federal Circuit's latest Myriad decision largely follows its previous decision upholding the patent-eligibility of certain isolated DNA molecule claims. A divided panel concluded that isolated DNA molecule claims are patent-eligible under Section 101 of the Patent Act because they have markedly different characteristics than larger chromosomal DNA molecules. The Federal Circuit also considered the patent-eligibility of certain method claims and determined that:

The plaintiff will likely seek an en banc rehearing and review by the Supreme Court if the decision is not reversed. Despite this uncertainty, counsel should continue to seek claims covering isolated naturally occurring compositions of matter. Counsel can support the patent-eligibility of these claims by identifying:

For more information on Myriad, see Practice Note, In Dispute: Ass'n for Molecular Pathology v. Myriad Genetics.

Employers cannot rely on definitions of workdays or workweeks in collective bargaining agreements (CBAs), employment agreements or job descriptions to prove that employees did not work the 1,250 hours required for Family and Medical Leave Act (FMLA) leave.

In Donnelly v. Greenburgh Central School District No. 7, the Second Circuit held that:

Employers that wish to preserve arguments that employees (including those who work remotely or do not clock in or out because they are exempt from overtime) have not worked the 1,250 hours required for FMLA leave eligibility should consider:

In close cases, before denying FMLA leave based on insufficient hours worked, employers should consider interviewing supervisors and co-workers to understand what hours the employee and other employees performing the same jobs actually worked.

For more information on the FMLA, see Practice Note, Family and Medical Leave Act (FMLA) Basics.

Following a recent Sixth Circuit decision holding that psychological counseling constitutes a medical examination under the Americans with Disabilities Act (ADA), employers should ensure that any request or requirement that an employee seek psychological counseling is job-related or consistent with business necessity.

In Kroll v. White Lake Ambulance Authority, the Sixth Circuit held that psychological counseling may be a medical exam under the ADA if it meets any one criterion of the seven-factor test in the Equal Employment Opportunity Commission's Enforcement Guidance: Disability-Related Inquiries and Medical Examinations of Employees. In Kroll, the court remanded the case to determine whether the counseling was either job-related or consistent with business necessity.

In light of this decision, employers should:

For issues to consider before requiring applicants or employees to undergo medical testing, see Checklist, Medical Examinations and Inquiries in Employment Checklist.

Companies should make sure their compliance programs encourage employees to report wrongdoing (or potential wrongdoing) internally rather than going straight to the SEC.

The SEC recently announced its first-ever payout under the whistleblower bounty program established by the Dodd-Frank Act to curb violations of federal securities laws. In a press release, the SEC indicated that the whistleblower will receive the maximum payout of 30% of all monies collected by the SEC in connection with the underlying action. More than $1 million in sanctions have been ordered by the court in the action, meaning the whistleblower could ultimately receive an award of $300,000 or more.

Companies have expressed concern that the SEC's bounty program will encourage employees to bypass internal corporate reporting mechanisms and instead go straight to the SEC with evidence of possible securities law violations.

To bolster its compliance program, a company should look at whether it:

For more information on the whistleblower bounty program, see Practice Note, Whistleblower Protections under Sarbanes-Oxley and the Dodd-Frank Act and Article, Whistleblower Bounty Rules: Impact on Corporate Compliance Programs.

Counsel should continue to monitor developments in case law on class action arbitration waivers, as circuits remain split on this issue.

In a recent non-precedential decision, the Third Circuit upheld a waiver of the right to class arbitration, even though individualized arbitration would be impracticable. In Homa v. American Express Co., the plaintiff sought to represent a class of American Express Blue Cash cardholders for false marketing claims. The cardholder's agreement required cardholders to arbitrate claims individually and waive any right to arbitrate a claim on a class basis. Despite a factual record that shows that it would be very difficult for Homa to vindicate his statutory rights on an individual basis, the Third Circuit held that the class arbitration waiver was enforceable.

The Third Circuit observed that for the plaintiff to prevail, the court would have to order class arbitration or invalidate the arbitration agreement so that he could proceed in court. Because American Express did not agree to class arbitration, it could not be compelled to do so under the US Supreme Court's decision in AT&T Mobility LLC v. Concepcion. As for invalidating the arbitration agreement, the Third Circuit departed from the Second Circuit's holding in In re American Express Merchants' Litigation and found that invalidation would be inconsistent with the Federal Arbitration Act.

The post-Concepcion progeny of cases demonstrates that courts are analyzing class arbitration waivers on a case-by-case basis. Even with this recent ruling, if counsel wants to insulate their class arbitration waiver clauses, they should draft them in a way that favors potential plaintiffs because this narrows the issue of the expense of individual arbitration.

For a Standard Clause that may be inserted into a corporate or commercial agreement to expressly prohibit class arbitration, with explanatory notes and drafting tips, see Standard Clause, Class Arbitration Waiver (US).

For a webinar on how to draft class action waivers in arbitration agreements, see Webinar: Class Action Waivers in Arbitration Agreements: Drafting Effective Clauses in the New Environment.

A recent Delaware Supreme Court decision affirming the largest award handed down by the Delaware Court of Chancery to date underscores for companies and their boards the importance of transactions being entirely fair to the company and its minority stockholders when a controlling stockholder is involved.

In Americas Mining Corporation v. Michael Theriault, the Delaware Supreme Court affirmed the October 2011 Delaware Court of Chancery's award of damages of more than $2 billion and $304 million in attorneys' fees. In the lower court case, In re Southern Peru Copper Corp., the Delaware Court of Chancery held that the controlling stockholder defendants breached their fiduciary duty of loyalty in a transaction involving the controlling stockholder's subsidiary, finding that the transaction failed the entire fairness standard of review and that Southern Peru overpaid by more than $1 billion when it acquired the controlling stockholder's subsidiary.

In addition to challenging the damages and attorneys' fee award, the defendants also claimed that the lower court erred by failing to determine which party bore the burden of proof before trial and improperly allocated the burden to the defendants, despite the existence of what they claimed was an independent and well-functioning special committee.

Boards of companies considering or engaging in transactions with conflicts that would render them subject to an entire fairness standard of review should not expect that forming a special committee will shift the burden of proof to the plaintiffs. In cases where the facts do not lend themselves to a pre-trial determination of the party that should bear the burden of proof, defendants should assume that the burden of proving entire fairness remains with them.

For more information on this decision, see Legal Update, Americas Mining Corporation v. Michael Theriault: Delaware Supreme Court Upholds Unprecedented Damages Award and Attorneys' Fees.

A recent ruling by the Third Circuit will likely impact the structure of transactions designed to allow private sector equity investors to claim the federal rehabilitation tax credit under Section 47 of the Internal Revenue Code (IRC), and may have broader implications for the structuring of partnership investments.

In Historic Boardwalk Hall, LLC v. Commissioner, the Third Circuit, reversing the Tax Court, held that a private sector investor in Historic Boardwalk Hall, LLC (LLC), formed in connection with the renovation of a historic boardwalk venue in Atlantic City known as East Hall, was not a bona fide partner in the LLC for US federal income tax purposes. As a result, the investor was not able to claim US federal historic rehabilitation credits allocated to the investor by the LLC. Under IRC Section 47, a property owner is generally eligible to claim a tax credit equal to 20% of the qualified rehabilitation expenses for a certified historic structure.

The Third Circuit determined that the private sector investor was not a bona fide partner because it did not have any meaningful stake in the success or failure of the LLC, and had no meaningful downside risk or upside potential. In reaching its decision, the court focused on the following facts:

The IRS recently finalized regulations that significantly expand the definition of "publicly traded" debt. This is significant because restructurings of discounted debt that is publicly traded (unlike non-publicly traded debt) often trigger cancellation of indebtedness income (CODI) for a US issuer or borrower.

Under the final regulations, debt is publicly traded for tax purposes if at any time during the 31-day period ending 15 days after the issue date of the relevant debt instrument:

The final regulations make several important changes to the proposed regulations issued in January 2011, including:

The final regulations became effective on September 13, 2012 and generally apply to debt instruments issued on or after November 13, 2012.

For more information on debt restructurings and CODI, see Practice Notes, Restructuring Outstanding Debt Securities: Cancellation of Indebtedness Income for Issuers and Loan Buybacks and Loan Amendments: Cancellation of Indebtedness Income for Borrowers.