Given two recent speeches by Department of Justice (DOJ) officials highlighting the importance of antitrust compliance, companies should ensure that they have effective antitrust compliance programs.

While the DOJ has historically been reluctant to indicate what a successful antitrust compliance program must include, in a September 9, 2014 speech, Deputy Assistant Attorney General Brent Snyder stated that, at a minimum, a compliance program must:

Snyder noted that if a company committed an antitrust crime but refused to accept responsibility or implement a meaningful compliance program the DOJ, in some cases, will appoint an antitrust compliance monitor. He cited the DOJ’s 2012 decision to appoint an antitrust compliance monitor at AU Optronics when the company refused to admit guilt or adopt a compliance program even after being convicted of price-fixing.

Assistant Attorney General Bill Baer echoed Synder’s remarks in a subsequent speech on prosecuting antitrust crimes. Baer stressed the importance of compliance programs in minimizing the risk of violations and maximizing the chances of detection.

For resources to conduct an antitrust audit and implement a compliance program, see Antitrust Compliance Toolkit.

While companies frequently analyze the federal antitrust implications of their actions, they should also be aware of state-specific antitrust enforcement. In particular, a number of recent state antitrust actions against companies illustrate state-specific review of:

For example, the New York Attorney General (NY AG) filed a lawsuit against Actavis plc and its New York subsidiary alleging that Actavis engaged in product-hopping by switching patients to its new drug Namenda XR right before the patent expired on the drug’s original formulation. This increased the difficulty for patients to switch to generic Namenda when it entered the market. While the Federal Trade Commission (FTC) has noted that product-hopping may deserve more antitrust scrutiny, it has not actively pursued the behavior. The NY AG’s office is leading the enforcement on this issue.

State enforcers also have been investigating mergers that may have anticompetitive effects in their state. States will frequently sign on to a federal merger action and seek state-specific remedies. For example, many states joined the DOJ’s investigation of the Time Warner and Comcast merger. Additionally, New York State’s Public Service Commission noted that it will require specific concessions to allow the deal to close in the state.

States can also bring independent actions to prevent anticompetitive mergers. For example, in Massachusetts v. Partners Healthcare System, Inc., Massachusetts entered into a consent decree requiring Partners to limit price increases and expansion post-merger.

Companies should ensure their ads include necessary disclosures that are clear and conspicuous and that comply with the FTC’s disclosure rules. The FTC recently sent warning letters to over 60 companies that made inadequate disclosures in their television and print ads, including 20 of the country’s 100 largest advertisers.

As part of Operation Full Disclosure, an initiative to ensure compliance with federal advertising laws, the FTC reviewed over 1,000 national ads to identify and remedy misleading ads. The FTC targeted ads in which necessary disclosures were:

For example, the FTC negatively commented on ads that:

The FTC noted that necessary disclosures should use clear and unambiguous language and stand out in the ad. To achieve this, disclosures should be:

The relatively new font size recommendation could pose practical compliance issues. However, the FTC has noted that using the same size font as the claim is not the only way to make a disclosure clear and conspicuous.

Operation Full Disclosure could result in future enforcement actions against companies with misleading ads, whether or not they received a warning letter.

For more information on the FTC’s disclosure rules, see Practice Note, Advertising: Overview and Legal Update, FTC Releases Revised Online Advertising Disclosures.

The Eleventh Circuit recently clarified how creditors and debt collectors can use the prior express consent exception to the Telephone Consumer Protection Act’s (TCPA’s) rule against making autodialed and prerecorded calls to consumers.

In Mais v. Gulf Coast Collection Bureau, Inc., Mais claimed his medical provider’s debt collection agency, Gulf Coast, violated the TCPA by making autodialed or prerecorded calls to his cell phone without his prior express consent. However, Gulf Coast had obtained Mais’s cell phone number from a hospital form that his wife completed. The form’s privacy notice stated that the hospital could use and disclose a patient’s information for billing purposes.

The Eleventh Circuit held that Gulf Coast did not violate the TCPA because its calls fell within the prior express consent exception as interpreted by a 2008 Federal Communications Commission declaratory ruling (FCC Ruling). Under the FCC Ruling, a person providing his number to a creditor (for example, in a credit application) is evidence of prior express consent to receive autodialed and prerecorded calls.

The Eleventh Circuit reversed the district court decision that the FCC Ruling was either invalid or did not apply to medical creditors. It clarified that the FCC Ruling:

Counsel should review this decision and the FCC Ruling to evaluate how the exception applies to their clients.

For more information on complying with the TCPA, see Practice Notes, Advertising: Overview and Direct Marketing.

Reporting companies should review their Section 16 beneficial ownership reporting compliance in light of SEC charges brought in September 2014 against a number of reporting companies and Section 16 insiders for alleged violations of the reporting requirements under Section 16 of the Exchange Act. The charges are noteworthy because the SEC has not historically taken enforcement action against delinquent Section 16 filers or related companies.

Charges against the reporting companies alleged, among other things, that they:

Due to the SEC’s increased attention on Section 16 reporting, reporting companies should focus on training their insiders on Section 16 requirements. If a company has undertaken to make filings on behalf of its directors and officers, it should review its procedures and staff its compliance program with knowledgeable personnel. Companies should also consider how to harmonize pre-clearance requirements under their insider trading policies with their Section 16 compliance programs.

If a company discovers that a required Section 16 report has not been filed on time, it should make the filing as soon as possible and ensure the delinquency is disclosed as required by Item 405 of Regulation S-K in its proxy statement and Form 10-K.

For more information on Section 16 beneficial ownership reporting, see Practice Note, Section 16 Reporting: Why, How and When to Do It.

Reporting companies preparing for the second year of conflict minerals reporting should consider recent remarks on the first year’s reports made by Keith Higgins, Director of the SEC’s Division of Corporation Finance.

According to reports, at the annual meeting of the Business Section of the American Bar Association on September 12, 2014, Director Higgins:

The SEC staff did not issue any written comments on the first round of conflict minerals reports and has not included the substance of Director Higgins’s remarks in formal guidance. Companies required to report under the conflict minerals rule must make filings covering the 2014 calendar year by June 1, 2015.

For more information on conflict minerals reporting, see Conflict Minerals Rule Compliance Toolkit.

An employer should determine whether it is currently a covered health insurance provider (CHIP) subject to Section 162(m)(6) of the Internal Revenue Code (IRC) and establish an ongoing process for monitoring its coverage status.

The IRS issued final regulations under IRC Section 162(m)(6), which became effective on September 23, 2014. IRC Section 162(m)(6) imposes a $500,000 annual deduction limit on compensation paid by CHIPs to almost all service providers. There are no exceptions for performance-based compensation or commissions.

The impact of being a CHIP subject to IRC Section 162(m)(6) can be significant. Unlike the $1 million deduction limit of IRC Section 162(m)(1)-(5), the limit under IRC Section 162(m)(6):

Even if the employer itself is not a health insurance issuer, the employer may still be a CHIP, and subject to the deduction limit, if it is or becomes part of an aggregated group that contains a health insurance issuer. If an employer is a CHIP, it must consider the tax and financial accounting issues caused by the potential loss of a deduction. Any CHIP that is public must also consider the potential disclosure obligations of providing non-deductible compensation, especially given recent shareholder lawsuits basing claims on a company’s inability to deduct compensation under IRC Section 162(m) and its disclosure of IRC Section 162(m) compliance.

For more information on IRC Section 162(m)(6), see Practice Note, Section 162(m)(6) of the Code: Limit on Deduction for Compensation Paid by Health Insurers under the ACA.

A recent decision by the US Bankruptcy Court for the Southern District of New York underscores the importance of carefully drafting a make-whole provision in a financing agreement.

In In re MPM Silicones, LLC, Momentive Performance Materials and its affiliates (Debtors) issued notes under indentures that included an Optional Redemption provision, which provided that the noteholders could not voluntarily redeem the notes before October 15, 2015, except in circumstances triggering payment of the make-whole provision.

The Debtors filed Chapter 11 petitions and declaratory judgment actions, challenging the noteholders’ right to over $200 million in claims for make-whole premiums. After the noteholders rejected the Debtors’ proposed plan, the court found the noteholders were not entitled to the make-whole premiums, holding that:

The court also supported the formula approach in calculating the cramdown interest rate, which resulted in a below-market interest rate.

To avoid ambiguity regarding the application of a make-whole provision, financing agreements should:

For more information on this decision, see Legal Update, In re MPM Silicones: SDNY Bankruptcy Court Denies Make-whole Claim and Approves Cramdown of Secured Creditors with Below-market Replacement Notes.

Two recent circuit court decisions highlight the need for companies to clearly identify their intellectual property (IP) assets and retain records of updates and other IP modifications on an ongoing basis.

In InDyne, Inc. v. Abacus Tech. Corp., the Eleventh Circuit affirmed an award of attorneys’ fees to the copyright defendants after the plaintiff failed to identify the versions of its software allegedly infringed. Similarly, in Fair Wind Sailing, Inc. v. Dempster, the plaintiff Fair Wind’s inability to identify its allegedly infringed trade dress with reasonable specificity resulted in both:

Although these decisions addressed diverse IP rights and considered fee awards under different standards, the decisive factor in each case was the plaintiff’s failure to properly identify and produce the IP asset at the heart of its claims. This gives courts new precedent for censuring plaintiffs who inadequately identify their allegedly infringed IP.

Companies should therefore:

For more on proving copyright infringement, see Practice Notes, Copyright Infringement Claims, Remedies and Defenses and Copyright Litigation: Analyzing Substantial Similarity.

For more information on trade dress protection and enforcement, see Practice Note, Trade Dress Protection.

Employers covered by the federal Occupational Safety and Health Act should ensure their policies and practices regarding injury and illness reporting and recordkeeping comply with new requirements issued by the Occupational Safety and Health Administration (OSHA).

Effective January 1, 2015, OSHA’s new final rule imposes updated:

Covered employers should:

Employers in locations with state OSHA programs should review state-specific rules for reporting and recordkeeping. Federal OSHA has requested state OSHA programs to implement these new requirements within the same timeframe.

For more information on federal and state OSHA requirements, see Practice Note, OSHA Injury and Illness Recordkeeping and State Occupational Safety and Health Plan Laws Chart: Overview.

A recent decision and subsequent proposed settlement of a putative class action emphasized the importance of paying close attention to a company’s consumer-facing data security statements.

Unlike other data breach cases that typically allege inadequate security or failure to promptly notify customers, in In re LinkedIn User Privacy Litigation, the lead plaintiff claimed that she purchased her subscription to LinkedIn based on its representation in its privacy policy that users’ information would be protected by industry standard safeguards. According to the lead plaintiff, this representation proved to be false when a data breach compromised customers’ passwords.

The US District Court for the Northern District of California denied the defendant’s motion to dismiss and held that the plaintiffs adequately alleged fraud under California’s Unfair Competition Law. Shortly after, the parties reached a proposed settlement. This case demonstrates that liability can attach for statements a company makes even before a breach occurs.

Following this decision, when dealing with data security statements, counsel should:

Following a recent Eleventh Circuit decision, companies that include a forum selection provision in an arbitration clause should ensure they designate an available forum and carefully examine whether the provision is integral to the agreement.

In Inetianbor v. CashCall, Inc., the Eleventh Circuit affirmed a district court’s decision refusing to compel arbitration in a forum different from the one selected in the parties’ consumer loan agreement. The court held that:

Therefore, companies should confirm that arbitration is available in the chosen forum at the time the arbitration clause is drafted. Failure to consider the potential effects of selecting an unavailable forum may lead courts to find the entire arbitration agreement unenforceable.

For information on the procedures and considerations implicated when compelling arbitration in US courts, see Practice Note, Compelling Arbitration in US Federal Courts.

A recent amendment to the Interstate Land Sales Full Disclosure Act of 1968 (ILSA) exempts condominium developers from the filing and registration requirements of ILSA. The new law eliminates the need for developers to:

ILSA was enacted to protect consumers from intentionally misleading ads and other fraud surrounding the sale or lease of land. The legislation formerly saddled condominium developers with costly registration and filing requirements, as well as the risk of substantial civil and criminal liability for noncompliance. After the 2008 market crash, remorseful condominium purchasers began using trivial ILSA filing errors as a way to back out of contracts while retaining their deposits.

The ILSA exemption for the sale or lease of a condominium defines a condominium as a unit of residential or commercial property to be designated for separate ownership under a condominium plan or declaration provided that upon conveyance both:

The new law goes into effect on March 29, 2015. However, developers should be aware that the fraud and misrepresentation provisions of ILSA still apply to exempt properties. Developers also must maintain compliance with any relevant state land sale regulations.

The Treasury Department and IRS recently released Notice 2014-52 announcing new Treasury regulations they intend to issue that will make it more difficult for US companies to invert and will reduce the tax benefits of corporate inversions. These new anti-inversion rules apply to deals closed on or after September 22, 2014.

The anti-inversion rules in IRC Section 7874 were enacted to prevent a corporate group with a US parent from restructuring so that a foreign corporation in a jurisdiction with more favorable tax rules becomes the parent of the group (referred to as a corporate inversion). If the former stockholders of the US company own at least 80% of the new foreign parent, IRC Section 7874 disregards the inversion transaction and treats the new foreign parent as a US corporation for US federal income tax purposes. If the former stockholders own at least 60% but less than 80% of the new foreign parent, IRC Section 7874 respects the new foreign parent for US tax purposes, but certain limits are placed on the US company’s use of its tax attributes.

The new Treasury regulations will make it more difficult for US companies to invert by strengthening the test for determining whether the former owners of the US company own less than 80% of the new foreign parent. In particular, the new regulations will:

The new Treasury regulations will also eliminate certain post-inversion techniques that inverted companies currently use to access the overseas earnings of their controlled foreign corporations (CFCs) without paying US tax. Specifically, they will prevent inverted companies from: