The Federal Trade Commission’s (FTC’s) recently updated Horizontal Merger Investigation Data report provides key takeaways for competing companies involved in or contemplating a merger or acquisition. These companies should:

The FTC’s report analyzes the significance of bad documents, customer complaints and ease of entry in certain merger investigations between 1996 and 2011.

In 258 markets that were the subject of full horizontal merger investigations, the FTC found that the likelihood of a merger challenge was higher where bad documents existed. This was particularly pronounced in highly concentrated markets (measured by the Herfindahl-Hirschman Index (HHI)), where HHI levels fell between:

The report also indicates that the FTC is about twice as likely to challenge a deal when the transacting parties’ customers have credible and significant anticompetitive concerns about the deal, than when there are no strong customer complaints.

Additionally, the report analyzed the significance of barriers to entry in certain markets. Where entry was easy, the FTC did not challenge a deal regardless of the market concentration levels. However, the FTC challenged over 80% of deals involving markets with difficult entry.

For more information on US merger review and the role of bad documents, see Practice Note, Corporate Transactions and Merger Control: Overview.

For more information on how to calculate HHI concentration levels, see Practice Note, How to Conduct an HHI Analysis.

Parties to a deal that is likely to undergo antitrust review should take stock of their business activities that could raise non-merger related antitrust or other legal violations, as demonstrated by the FTC’s settlement involving Robert Bosch GmbH’s acquisition of SPX Service Solutions US LLC.

During its merger investigation of the Bosch/SPX transaction, the FTC found evidence that SPX both:

As a member of a standard-setting organization (SSO), SPX agreed to license its SEPs on fair, reasonable and non-discriminatory (FRAND) terms. The FTC found that SPX’s attempts to seek injunctive relief violated those FRAND commitments and Section 5 of the FTC Act. Therefore, in addition to the merger remedies set out in the consent decree, the FTC also included non-merger related remedies regarding SPX’s SEPs, requiring that Bosch:

During a merger review, the antitrust agencies may also discover evidence of non-antitrust legal violations, like fraud or Foreign Corrupt Practices Act violations, that they will disclose to the relevant government agency.

Companies should reconsider which provisions they focus on during contract negotiations in light of a recent study on the most negotiated contract terms and conditions. The International Association for Contract and Commercial Management’s (IACCM’s) study, 2012 Top Terms in Negotiation, indicates the following trends:

For a Toolkit of resources designed to assist parties in drafting and negotiating effective contract clauses, see General Contract Clauses Toolkit.

Companies operating mobile apps should re-examine their privacy policies and procedures following three recent developments that indicate increased scrutiny by authorities.

The FTC released a report in December 2012, Mobile Apps for Kids: Disclosures Still Not Making the Grade, which describes a general inadequacy of disclosures in the privacy policies of mobile apps. The FTC recommends that companies provide parents with greater transparency and basic information, such as:

The California Department of Justice also released a report, Privacy on the Go: Recommendations for the Mobile Ecosystem, which advises developers and other parties in the mobile app market to ensure that users are not surprised by their privacy practices. Among other things, the report suggests that companies take only information necessary to the app’s basic function. Although its recommendations often go beyond what is required by California law, the report provides a good outline of what companies should do to avoid being subject to an investigation.

In addition to publishing the report, the California Department of Justice recently sued Delta Airlines under the California Online Privacy Protection Act (CalOPPA), alleging that its “Fly Delta” app lacks a reasonably conspicuous privacy policy informing users what personally identifiable information the app collects and how the company uses it. This is the first lawsuit under CalOPPA against a mobile app developer.

These three developments may signal increased scrutiny of mobile app disclosure practices. To minimize risk, companies should review their privacy policies and procedures and ensure that:

For an overview of privacy and data security laws in the US, see Practice Note, US Privacy and Data Security Law: Overview.

Public companies should review the Regulation FD implications of their employees’ social media activities in light of recent Wells Notices issued by the SEC to Netflix and its CEO.

In December 2012, Netflix disclosed that the SEC is considering proceedings against the company and its CEO, on allegations that a posting by the CEO on his personal Facebook page about the monthly viewing hours of Netflix members violated Regulation FD. Netflix did not issue a press release or file a Form 8-K disclosing the viewing hours information at the time of the Facebook posting.

A key question in the Netflix scenario is whether an individual’s personal Facebook posting could satisfy the Regulation FD requirement that a public dissemination be reasonably designed to provide broad, non-exclusionary distribution of the information to the public.

To avoid SEC scrutiny, companies should consider:

For more information on securities law issues raised by the use of social media, see Checklist, Social Media and the Securities Laws: Best Practices Checklist.

For more information on Regulation FD, see Practice Note, Complying with Regulation FD (Fair Disclosure).

Public companies should reassess their executives’ use of Rule 10b5-1 trading plans given recent media attention and an increased focus on insider trades.

Rule 10b5-1 under the Exchange Act provides company insiders an affirmative defense against insider trading liability for trades made according to a preexisting written trading plan. A 10b5-1 plan is intended to allow an insider to trade the company’s securities, while preventing the insider from exercising any discretion over how, when or whether to trade once the plan is adopted. However, in November and December 2012, news sources reported several examples of executives using their 10b5-1 plans to trade at a profit before their companies disclosed material information.

To limit the potential for insider trading, companies should consider adopting additional measures, including:

For more information on 10b5-1 plans, see Standard Document, Corporate Policy on Insider Trading.

A provision in the newly enacted American Taxpayer Relief Act of 2012 (Act), commonly known as the “fiscal cliff deal,” makes it easier for retirement plan participants to save for retirement in a tax-effective manner.

Under the Act, a retirement plan (such as a 401(k) or 403(b) plan) that includes a Roth contribution option may allow a participant to convert all or a portion of his plan account to a Roth account within the same plan (called an in-plan Roth rollover conversion), regardless of whether the amount is actually distributable under the terms of the plan. The participant must pay income taxes on any amounts converted, but can receive earnings tax-free on a future distribution from the plan. For non-Roth accounts, the participant must pay taxes on all amounts that are distributed from the plan.

Previously, Roth conversions were only allowed upon the occurrence of certain distributable events, such as upon termination of employment or reaching age 59½.

Employers should decide whether to permit in-plan Roth rollover conversions under the new rules. If so, the employer should:

For language to add to a 401(k) plan document to implement an in-plan Roth rollover contribution option, see Standard Clause, Plan Language, In-plan Roth Rollover Contributions for 401(k) Plans.

Recently proposed IRS regulations clarify how health care reform’s employer mandate will be implemented and offer planning opportunities for employer-sponsored health plans. Employers that wish to comment on the proposed guidance must do so by March 18, 2013.

Under the employer mandate, beginning in 2014, large employers (generally, those with at least 50 full-time employees) are subject to penalties if they fail to offer health coverage that provides minimum essential coverage to full-time employees, or offer coverage that does not meet certain other standards. The proposed regulations, which expand on prior IRS notices addressing the employer mandate, include an optional safe harbor for determining which employees are full-time employees for the purpose of assessing and calculating penalties.

The proposed regulations include the following highlights:

For more information on the employer mandate, see Practice Note, The Health Insurance Exchange and Related Requirements under Health Care Reform.

Foreign banking organizations with significant US operations should review the proposed rule recently issued by the Federal Reserve Board, which would subject these foreign banks to new requirements and enhanced regulation and supervision. The proposed rule:

Foreign banks with global consolidated assets of $50 billion or more on July 1, 2014 would be required to meet the new standards on July 1, 2015.

Comments from the public will be accepted through March 31, 2013.

For background information on how foreign banks are currently regulated in the US, see Practice Note, International Banking.

The Group of Governors and Heads of Supervision (GHOS), the oversight body for the Basel Committee on Banking Supervision (BCBS), has endorsed the BCBS’ amendments to the liquidity coverage ratio (LCR) as a new minimum liquidity standard for banks.

The GHOS has also:

One of the BCBS’ priorities over the next two years will be the review of the net stable funding ratio (NSFR).

For more information on Basel III and its implications for banking institutions, see Practice Note, Basel III: An Overview and Article, Basel III: Overview and Implementation in the US.

Companies operating websites or providing online services should review their data collection practices to determine whether they are covered under the amendments to the Children’s Online Privacy Protection Rule, the rule interpreting the Children’s Online Privacy Protection Act (COPPA), which become effective on July 2, 2013.

COPPA requires, among other things, that operators of websites or online services that are either directed to children under the age of 13 or have actual knowledge that they are collecting personal information from these children give notice to parents and obtain verifiable parental consent before collecting, using or disclosing that information. Among other things, the amendments:

Companies should note that the expanded definition of personal identifiers restricts behavioral advertising and a website operator is now liable for third-party plug-ins or ad networks that collect children’s personal information from their website, even if the operator itself does not collect the information.

For more information on COPPA, see Practice Note, US Privacy and Data Security Law: Overview.

Companies that operate in the 24 states that have right-to-work (RTW) laws should understand how these laws affect labor relations and adjust their strategies accordingly.

In 2012, two states with traditionally strong union presences, Michigan (in December 2012) and Indiana (in February 2012), enacted RTW laws. RTW laws prohibit employers and unions from agreeing in collective bargaining to “union shops,” where unions can demand that employers terminate any union-represented employee who fails to pay union dues or follow internal union rules. Commonly misunderstood, RTW laws do not:

Additionally, RTW laws do not necessarily change employees’ views about joining or supporting unions or make labor relations less contentious. However, employers should adjust their labor relations strategies wherever RTW laws are enacted. For example:

For more information on RTW laws, see Practice Notes, Labor Law: Beyond the NLRA and RLA and Employee Rights and Unfair Labor Practices under the National Labor Relations Act.

Following the US Supreme Court’s decision in Nitro-Lift Techs., L.L.C. v. Howard, employers using restrictive covenants, whether as stand-alone agreements or as part of larger employment contracts, should decide whether they want potential later disputes to be resolved in court or through arbitration at the time of drafting the covenants, not when the disputes later arise.

In Nitro-Lift, the Supreme Court reinforced the strong federal policy favoring arbitration and held that enforceability of the restrictive covenants at issue, which were in an agreement containing an arbitration provision, should have been decided by an arbitrator, not the state court.

Employers that decide to include an arbitration provision in an agreement containing restrictive covenants should:

For a sample agreement containing restrictive covenants, with explanatory notes and drafting tips, see Standard Document, Employee Non-compete Agreement.

For more information on drafting arbitration provisions, see US Arbitration Toolkit.

When drafting a forum selection clause allowing suit to be brought in federal court, counsel should think about where the parties (and potential witnesses) are located, where the contract negotiations took place and where the contractual obligations will be carried out. These are all factors courts consider in determining whether venue is proper.

The Fifth Circuit recently joined the minority of circuits by disregarding a forum selection clause and holding that a case may be litigated in a forum that is proper under the federal venue statutes, regardless of the parties’ contractual agreement.

In In re Atlantic Marine Construction, the plaintiff filed a lawsuit in a forum different from the one identified in the contract’s forum selection clause. The district court denied the defendant’s motion to dismiss or transfer the case because the defendant failed to establish why, in accordance with the federal venue statutes, interest of justice or convenience of the parties and witnesses, the transfer was warranted. The Fifth Circuit agreed, holding that a contracted-for choice of forum, although a significant factor, is not dispositive.

Although there is no guarantee that a court will enforce a forum selection clause in the minority of circuits that agree with this opinion, counsel should consider taking the following steps to buttress the arguments in favor of enforcing any forum selection clause:

For an overview of the choice of law and choice of forum issues that parties should consider when drafting contracts, see Practice Note, Choice of Law and Choice of Forum: Key Issues.

For a sample forum selection clause, with explanatory notes and drafting tips, see Standard Clause, General Contract Clauses: Choice of Forum.

Counsel should monitor developments in two cases that the US Supreme Court recently agreed to hear. The outcomes of these cases will affect how courts evaluate the enforceability of class action waivers and the availability of class arbitration in arbitration agreements.

The Supreme Court agreed to review:

The decisions in these two cases, expected later this year, will provide enhanced guidance on how to apply the Supreme Court’s rulings in AT&T Mobility, LLC v. Concepcion and Stolt-Nielsen S.A. v. AnimalFeeds International Corp. when drafting relevant clauses in arbitration agreements.

For a model clause to expressly prohibit class arbitration, with explanatory notes and drafting tips, see Standard Clause, Class Arbitration Waiver (US).

For a PLC 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.

Practitioners should be mindful that the use of blanket “Don’t Ask, Don’t Waive” standstill provisions in an auction process can place the board of a target company at risk of violating its Revlon duties following the announcement of a deal.

In In re Complete Genomics, Inc. Shareholder Litigation, Vice Chancellor Laster of the Delaware Court of Chancery issued a bench ruling enjoining a target company from enforcing a Don’t Ask, Don’t Waive provision agreed to in a confidentiality agreement for a public-company auction process. The court focused on the provision’s restriction on private requests for waiver (which was in addition to the restriction on publicly announced requests for waiver). The court reasoned that it has the same disabling effect as a no-talk clause in a merger agreement, although on a bidder-specific basis, because it impermissibly limits certain of the board’s ongoing fiduciary obligations (including to recommend, if necessary, against a merger as a result of subsequent events).

Following the Complete Genomics ruling, Chancellor Strine issued a bench ruling in In re Ancestry.com Inc. Shareholder Litigation requiring additional proxy disclosures relating to a Don’t Ask, Don’t Waive provision ahead of a shareholder meeting to vote on a sale of the company. Although Chancellor Strine did not enjoin enforcement of the provision and noted that these provisions are not per se illegal, he cautioned that they can be problematic if used by the board to shield itself from remaining informed of materially higher subsequent bids.

Until further insight from the Delaware Court of Chancery is forthcoming, these recent cases may force many practitioners to consider designing Don’t Ask, Don’t Waive provisions with either:

For a summary of the BGI/Complete Genomics merger agreement, see BGI-Shenzhen tender offer for Complete Genomics, Inc.

For more information on standstill provisions in confidentiality agreements, including further discussion of fall-away and private waiver provisions, see Standard Document, Confidentiality Agreement: Mergers and Acquisitions.

The American Taxpayer Relief Act of 2012 (Act) extends a number of business tax provisions, some of which expired at the end of 2011. The Act also affects individuals, including by reinstating the top 39.6% income tax bracket for higher income individuals and permanently fixing the alternative minimum tax.

Some of the business tax provisions (notably the research credit) have been extended in the past, and failing to extend them in 2012 created uncertainty for many companies. Expired tax provisions extended under the Act include:

Additionally, the Act extends and modifies the production tax credit for electricity produced by a wind facility. This credit is now available for electricity produced from a wind facility for which construction begins before January 1, 2014. Under prior law, the credit was available only for electricity produced from a wind facility placed in service by December 31, 2012.

The Act also extends for one year the 50% bonus depreciation for certain qualified property acquired and placed in service before January 1, 2014 (or before January 1, 2015 for certain transportation property and longer-lived assets).

For more information on the Act, see Legal Update, Fiscal Cliff Bill Enacted into Law.