The complaint filed by the Federal Trade Commission (FTC) against Intel Corporation is the latest signal of the FTC's intent to step up enforcement of antitrust laws, particularly in the technology sector. The Intel case also shows that the FTC will bring antitrust enforcement actions to protect customers even where those customers are large companies that, in the past, were expected to protect themselves.

On December 16, 2009 the FTC filed an administrative complaint against Intel for alleged antitrust violations in the personal computer microprocessor markets. Among other allegations, the complaint charges Intel with using threats, rewards and bundled discounts against its customers (including Dell, HP and IBM) to safeguard and expand its monopoly position in violation of section 5 of the FTC Act. Section 5 is broader in scope than the Sherman Act, prohibiting "unfair methods of competition" that would not necessarily be caught by the Sherman Act's prohibitions against monopolization.

As we have noted before in the GC Agenda, given the new enforcement climate, companies, particularly tech companies with high market share, should review their vertical relationships with distributors and suppliers in the context of a broader antitrust audit. Also, companies confronted with possible antitrust violations by large competitors or suppliers may wish to consider filing a complaint with the FTC or the Department of Justice (DOJ), as these agencies may now be particularly receptive.

If a company's fiscal year ended on or after December 20, 2009, its Form 10-K and proxy statement must comply with new proxy disclosure rules if filed on or after February 28, 2010, the date on which new SEC proxy disclosure rules become effective.

The new rules touch on matters including compensation and risk management, director qualifications, diversity in board composition, board structure and risk oversight role, and compensation consultant fees. While the rules do not radically alter the information presented in companies' proxy statements (at least not compared to the 2006 executive compensation rules), they do raise several thorny issues.

The requirement to discuss director skills is a politically sensitive undertaking, particularly in the context of more vigorously contested director elections. Companies are grappling with the appropriate degree of specificity for this disclosure.

Companies must also decide whether to formally adopt a diversity policy (which would in turn require disclosure on the application and effectiveness of the policy) or steer away from a formal policy and instead stress diversity as a factor in identifying nominees for director. The SEC does not mandate the definition of diversity — companies are free to define diversity as they see fit.

For many companies, the requirement to describe compensation practices that create risks that are reasonably likely to have a material adverse effect on the company will not result in any new disclosure. However, the requirement will give rise to changes in certain practices that will largely remain invisible to investors. For example, the issue of whether compensation practices create risks that are reasonably likely to have a material adverse effect will need to be assessed under a formalized review process. This means that companies will have to identify and evaluate their various compensation programs and policies so that they are in a position to demonstrate that they have appropriately assessed the related risks (even if they end up not disclosing anything).

The disclosure rules on compensation consultants may lead companies to shift their compensation consultant mandates to smaller boutique consulting firms. The rules target conflicts of interest and require, among other things, disclosure of fees paid for services other than executive and/or director compensation consulting if the fees for those services are higher than $120,000. Because the rule requires a look at affiliates of the company and the compensation consultant, the fee threshold is likely easily met for larger companies. The new rules may also lead companies to focus on independence as one of the hiring criteria for compensation consultants.

Beyond mandating new disclosures, the rules serve as a reminder for boards to actively focus on their risk oversight role and, more broadly, for companies to think about company-wide risk management and whether adequate policies and procedures are in place to support the company's strategy and risk profile.

Given continued public scrutiny around compensation and corporate governance practices, legislative proposals mandating more aggressive governance requirements and the SEC's proxy access rules on the horizon for 2011, corporate governance should be high on the minds of boards of directors.

The following resources provide more detailed guidance on the 2010 proxy season and the new disclosure rules:

Proposed changes to Rule 163 would permit a well-known seasoned issuer (WKSI) to authorize underwriters to undertake confidential pre-marketing efforts before a proposed offering even if the WKSI does not already have a shelf registration statement on file. But the true takeaway from this rule change is that WKSIs should have a shelf on file. Having a shelf on file may, among other things, avoid financial statement requirements being tested at a time when there is a window for the company to conduct a securities offering.

A WKSI is a public company that has timely filed its Securities Exchange Act of 1934 reports for at least one year and either has $700 million of publicly-held shares or has issued $1 billion of non-convertible securities, other than common equity, in registered offerings for cash in the preceding three years.

The SEC's proposed changes to Rule 163, if adopted, will allow a WKSI to authorize underwriters to gauge investor appetite for the WKSI's securities on their behalf, prior to announcing an anticipated offering and before the WKSI has a shelf registration on file.

The rule currently permits only WKSIs (and not underwriters) to do this, and WKSIs may not have the compliance resources and expertise to undertake pre-marketing themselves (and of course could not solicit investor interest without revealing their identity). This is a welcome rule change for WKSIs, especially in light of the fact that many practitioners believe pre-marketed deals are here to stay.

The rule change impacts only WKSIs. Companies that do not qualify as WKSIs but are eligible to use a shelf registration statement still must have a registration statement on file if they want underwriters to test the waters on their behalf, and in practice the registration statement must be effective before any pre-marketing takes place.

The financial crisis and ensuing volatility in the markets tightened the timeframe within which capital markets transactions are executed. While volatility has somewhat abated, the frenzied deal pace for most securities offerings has not eased (in particular for offerings not registered with the SEC). This means there is additional time pressure on both outside law firms and in-house counsel to get transaction documents in order quickly.

To manage the expedited timeframe, legal departments may consider taking certain measures in advance, including:

A recent federal appeals court decision serves as a reminder that during an internal company investigation:

In United States v. Ruehle, 583 F.3d 600 (9th Cir. 2009), the defendant, William Ruehle, claimed that the statements he made to Broadcom Corporation's outside counsel during a meeting were protected by the attorney-client privilege. The meeting occurred in June 2006 as part of an internal investigation into an alleged multibillion stock options fraud within Broadcom, where Ruehle was the CFO. As intended, Broadcom released the results of its internal investigation to its auditor, Ernst & Young.

In May 2007, Broadcom authorized outside counsel to disclose the substance of the June 2006 meeting to federal investigators, and Ruehle was subsequently indicted by a grand jury for his role in the scheme. The lawyers who conducted the internal investigation denied representing Ruehle at the date of the meeting, although evidence suggested that they may have later represented him for a short period of time in related civil suits.

The trial court suppressed the statements from the June 2006 meeting, finding that:

The Ninth Circuit reversed the trial court's findings, holding that:

At both the selection stage and during proceedings, challenges to arbitrator appointments appear to be on the rise. This is the case across the range of commercial arbitration activity, but is particularly so in the investment arbitration arena.

There are several possible explanations for this trend. The wider publication of reasoned arbitration decisions might be fueling more claims of bias. When the stakes are particularly high, parties tend to adopt more aggressive litigation-style tactics. The shortage of specialist arbitrators, especially in the investment arbitration arena, and the fact that many of these arbitrators are also practicing attorneys, are factors that create more scope for grounds for attack on the basis of conflict.

Parties considering making a challenge should be aware that while the tactic may serve to delay the arbitration process and incentivize settlement, in practice most challenges fail — leaving the challenging party to deal with the potential ill-will caused by the challenge.

Parties embarking on arbitration proceedings who are anxious to avoid such a challenge being made should carefully examine the backgrounds of possible arbitrators for bias or conflict, and should encourage full disclosure from the potential arbitrators themselves.

The COBRA subsidy available under the American Recovery and Reinvestment Act of 2009 (ARRA) has been extended. Updated COBRA notices must be sent to certain involuntarily terminated individuals to explain the changes to the subsidy. Companies should ensure that:

Under the ARRA subsidy, the government pays 65% of the COBRA costs for certain individuals who were involuntarily terminated. The amended ARRA subsidy provides the following:

For additional information on COBRA notification requirements and model notices, employers should review the US Department of Labor website.

To help their employees take advantage of new Roth IRA rules, some companies are making changes to their 401(k) plans.

The new rules, which became effective January 1, 2010, make Roth IRAs more attractive to executives in the following ways:

Now that a Roth IRA can be established directly from a rollover from an employer-sponsored 401(k) plan, some companies are taking a closer look at the distribution events under their 401(k) plan. In general, a distribution from a 401(k) plan may not be made before an employee terminates employment. However, a plan can allow for in-service distributions to employees who are still employed, provided that they are age 59 ½ or older.

In response to increased employee interest, these companies are now amending their plans to allow for in-service distributions at age 59 ½. Employees who satisfy the age requirement can then take a distribution, pay the associated taxes over two years (for 2011 and 2012) and convert the amounts directly into a Roth IRA.

Companies are urged to review their nonqualified deferred compensation plans and arrangements to take advantage of a new IRS procedure (introduced at the beginning of January 2010) for correcting provisions in documents that would otherwise fail to satisfy IRC Section 409A. Early correction can mitigate adverse tax consequences for plan participants.

The IRS had previously issued correction methods for operational failures under 409A. The new program provides correction methods for document failures, that is, where the terms of the plan document as written do not comply with 409A.

Only certain types of plan document failures are addressed in the new guidance, including the following:

The guidance also includes a special transition rule allowing participants to avoid 409A income inclusion and additional taxes if the document is corrected by December 31, 2010 and any operational failures resulting from the document failure are also corrected.

For information on determining specified employees under Section 409A, see Practice Note, Specified Employees Under IRC Section 409A.

The direct result of the Copenhagen Climate Conference was the Copenhagen Accord, a short, non-legally binding document that sets out what little substance the negotiations achieved. Whether the conference has any lasting impact will depend more on the nature of the domestic emissions targets participant nations pledged at the summit to submit to the UN by January 31, 2010.

The big questions in the US are how and when the government will set domestic emission reduction targets. Timing is critical if the US is to have meaningful influence in international negotiations in 2010. The next major global summit will take place in Mexico City at the end of the year.

There are two broad options for the US domestically. The first is to adopt comprehensive climate change legislation that includes a cap and trade regime. The second is for the EPA to issue and enforce clean air regulations that address greenhouse gas emissions. A strategy based on EPA regulation would invite litigation, especially if the EPA attempts to mitigate economic impacts through a cap-and-trade regime that does not currently have explicit support in existing law.

The EPA recently issued proposed regulations that would impose stricter smog (ground level ozone) standards. The proposals, which are based on a reconsideration of decisions made by the previous administration, are widely viewed as a harbinger of things to come under the Obama administration. If adopted, the new restrictions would require states to achieve air quality standards district by district. Improved standards are expected to bring significant health benefits, but at the same time to create considerable expense for industry and local government. Following public consultation, the EPA intends to issue final standards by August 31, 2010, and states would be required to meet them between 2014 and 2031.

A recent court decision should give some comfort to senior lenders seeking to enforce waivers of rights by junior lenders.

In In re ION Media Networks, Inc. (ION), the US Bankruptcy Court for the Southern District of New York (Court) ruled on November 24, 2009 that Cyrus Select Opportunities Master Fund Ltd., a distressed investor that had purchased second lien loans at a deep discount, did not have standing under the intercreditor agreement to challenge:

By making it clear that the provisions of an unambiguous intercreditor agreement will be strictly upheld in bankruptcy, the Court's decision in ION should give some comfort to senior lenders seeking to enforce waivers of rights by junior lenders. While there is no guarantee that the ION decision will be followed by other bankruptcy courts, it is an important step in settling the conflicting body of law concerning the enforceability of intercreditor agreements in bankruptcy.

The opinion also provides some guidance on what constitutes appropriate conduct by a second lien lender. In holding that Cyrus did not have the right to raise its objections in the bankruptcy proceedings, the Court found that Cyrus willfully breached the intercreditor agreement. The Court stated that Cyrus's "aggressive" tactics in violation of the intercreditor agreement likely caused the other parties to incur increased administrative expenses, and suggested that those increased expenses may be claimed as damages against Cyrus. In future cases, debtors and senior lenders may use the threat of a damage claim against junior lenders to obtain additional leverage in DIP financing and plan negotiations.

Companies should take the following proactive steps to minimize the risks associated with the heightened enforcement efforts relating to misclassification of employees as independent contractors:

The background is that:

For a standard independent contractor/consultant agreement, see Standard Document, Independent Contractor/Consultant Agreement (Pro-Client).

Health and safety best practices should also be high on companies' compliance agendas for 2010.

David Michaels, confirmed in December 2009 as the new Assistant Secretary of Labor for the Occupational Safety and Health Administration (OSHA), has expressed longstanding support for enhanced OSHA funding during his academic and civil service career. His confirmation suggests more rigorous OSHA enforcement in 2010 and his appointment comes on the heels of Secretary of Labor Hilda L. Solis' statement that the Department of Labor (of which OSHA is a part) is "back in the enforcement business."

OSHA experts speculate that the coming year may bring:

Companies doing business on the internet should ensure that their website terms are sufficiently visible and consider requiring users to accept them using a "click-through" agreement.

In Hines v. Overstock.com Inc. (Overstock), the Eastern District of New York found the arbitration clause in Overstock's website terms of use unenforceable against an Overstock customer who had filed a lawsuit against the company. The website terms of use were available via a link at the bottom of the web page (a "browse-wrap"). The court concluded that the customer lacked actual or constructive knowledge of the arbitration clause in the terms because:

To increase the likelihood of enforceability of website terms, companies should take steps to ensure that users have sufficient notice, for example, by:

A new model privacy notice form intended for use by financial institutions may also be useful to other companies outside the financial sector.

The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to notify consumers of their information-collecting and sharing practices and inform consumers of their rights to opt out of certain sharing practices. A new model notice, released by eight federal financial regulatory agencies (including the FTC, SEC, FDIC and CFTC), aims to help consumers better understand how financial institutions use their personal information.

Although financial institutions are not required to use the form, those that do obtain a "safe harbor" and will satisfy the GLBA disclosure requirements for privacy notices. The federal agencies also published amendments to their GLBA privacy rules that will eliminate the "safe harbor" for notices based on sample clauses currently included in the rules. The amendment is effective for all privacy notices provided after December 31, 2010.

For non-financial companies that have data privacy concerns, the model form, written in plain language and a consumer-friendly format, still provides a useful precedent when drafting and implementing their own privacy policies, for example, a website privacy policy for an online business.

A renewed look at privacy issues is important given the expectation that the FTC's scrutiny of consumer privacy practices will increase, and the scheduled introduction of new Massachusetts privacy regulations (which apply to all businesses collecting information of Massachusetts residents) on March 1, 2010.

For more information and links to the Model Privacy Forms, visit ftc.gov.

Companies should start examining how proposed changes to the accounting treatment of leases may impact their balance sheets and financial covenants.

Existing accounting standards require a lessee company to classify its leases either as capital leases or as operating leases. Currently only capital leases are reported on the lessee company's balance sheet. Rental costs under operating leases are regarded as an expense and do not appear as a liability on the balance sheet.

The inconsistent accounting treatment of leases creates certain problems:

The Financial Accounting Standards Board (FASB) proposes simplifying the approach and treating all leases in the way capital leases are currently treated, so that they all appear on companies' balance sheets. The proposal is to introduce a new accounting standard in 2011 to take effect in tax year 2012/2013. Companies should, however, start preparing now for the changes as new liabilities can affect the balance sheet and financial covenants in loan documents.

Companies that are taking on new leases or facing a rent review, or that are in a position to rework their leases, can afford to feel confident about their negotiating position.

The commercial real estate market is still a long way from a full recovery. Real estate values have dropped 40% to 60% since the financial crisis began, and the current vacancy rate of 18% to 20% is extremely high. In this climate, landlords often simply want to keep their occupancy rate as high as possible and are prepared to compromise on the amount of rental income. As a result, tenants have considerable leverage over landlords when it comes to rent negotiations. Landlords are currently keen to incentivize existing or potential tenants and are more likely to accept tenants' take-it-or-leave-it attitude to avoid vacancies.

Conversely, landlord companies should be prepared to have to deal with increased pressure from tenants to lower rents.