Merging parties should review a report recently issued by the FTC that examines 89 FTC merger orders and outlines best practices for demonstrating that a proposed merger remedy would alleviate the harm to competition the FTC has identified.

The FTC’s Merger Remedies 2006-2012: A Report of the Bureaus of Competition and Economics (Remedies Report) affirms the FTC’s existing approach to crafting remedies that maintain competition when companies merge, including the FTC’s preference for:

Some recommendations in the Remedies Report indicate that the FTC’s approach to merger remedies may become more stringent. For example, the Remedies Report recommends that counsel identify at least three potential divestiture buyers that are interested and approvable. This departs from past agency practice and could be impracticable depending on the industry.

The Remedies Report also recommends that counsel examine whether a divestiture buyer can successfully perform back-office functions or will need to outsource them to compete effectively in the market. The Remedies Report suggests that the divesting party:

For more information on negotiating merger remedies with the FTC, see Practice Note, Merger Remedies and Legal Update, FTC Merger Remedy Study: Best Practices.

Counsel for companies that make marketing claims about the environmental benefits of their products and services should be aware that the FTC has stepped up its enforcement activity in this area. Companies making these claims must carefully adhere to the principles of advertising claim substantiation and the FTC’s Green Guides.

The FTC’s scrutiny of environmental marketing claims has increased over the last two years. In 2015, for example, the FTC sent warning letters to five groups that offered environmental seals and to 32 companies that displayed the seals for making general environmental marketing claims rather than conveying the basis for the seal. In 2016, the FTC settled four enforcement actions against companies that had claimed certain personal care products were “all natural” despite the presence of artificial ingredients. Additionally, the FTC recently entered into a settlement with Volkswagen, after determining that Volkswagen’s “Clean Diesel” campaign was deceptive and unsubstantiated. The FTC secured a $10 billion order to compensate consumers. In all of these activities, the FTC focused on the evidence necessary to substantiate the claims at issue.

Environmental marketing claims often require competent and reliable scientific evidence to substantiate the claims. When making environmental marketing claims, companies should:

For more information on the FTC’s green marketing and claim substantiation standards, see Practice Note, Green Marketing in the US and Practice Note, Substantiation of Advertising Claims.

A New York appellate court decision broadens the test for approving disclosure-only settlements of disputes over public merger transactions in which the target board makes supplemental disclosures to the stockholders in return for a global release of all related claims and payment of the plaintiffs’ attorneys’ fees. The decision applies a test that is arguably more permissive than the standard described by the Delaware Court of Chancery in In re Trulia, Inc. Stockholder Litigation.

In Gordon v. Verizon Communications, Inc., the First Department of the Appellate Division of the New York Supreme Court approved a settlement of a stockholder complaint brought over Verizon’s purchase of Vodafone Group PLC’s stake in their joint venture, Verizon Wireless. The settlement required Verizon’s board to make certain additional disclosures and agree to a condition that it would obtain a fairness opinion for a future sale of portions of the Verizon Wireless business under certain circumstances. The settlement was initially rejected by the lower court, which held that the benefits to the stockholders did not justify a release and payment of the plaintiff’s attorneys’ fees.

In reversing the lower court’s decision, the appellate court adopted a seven-factor test for judicial review of disclosure-only settlements. These factors are:

The appellate court determined that the settlement, though offering somewhat thin supplemental disclosures, passed this expanded test. The appellate court did not demand that the disclosures be “plainly material” as Trulia requires, but was satisfied that the disclosures provided “some benefit” to the stockholders.

For more information on this decision, see Legal Update, New York Appellate Court Describes New Standard for Disclosure-Only Settlements in New York.

Front-end tender offers conducted under Section 251(h) of the Delaware General Corporation Law (DGCL) now qualify for deferential business judgment rule review following the Delaware Supreme Court’s affirmance of a Delaware Court of Chancery decision extending the Corwin rule to these transactions.

Under Corwin v. KKR Financial Holdings LLC, a change-of-control transaction otherwise subject to enhanced scrutiny qualifies for review under the deferential business judgment rule if a majority of the disinterested stockholders approve the merger in an informed and uncoerced vote. In In re Volcano Corp. Stockholder Litigation, the Court of Chancery held that the cleansing effect of the stockholder vote applies equally in a tender offer when a majority of the disinterested shares are tendered into the offer, even though no stockholder vote is held.

In Lax v. Goldman, Sachs & Co., the Delaware Supreme Court upheld the Volcano decision in a one-sentence order. As a result, the Corwin rule now applies to transactions structured as two-step mergers under Section 251(h) of the DGCL when the disinterested, informed, uncoerced stockholders tender their shares into an offer.

For more information on this decision, see Legal Update, Delaware Supreme Court Affirms Chancery Court “Volcano” Decision Extending Business Judgment Rule to Tender Offers.

Counsel should be aware of two recent decisions that narrowly interpret Section 316(b) of the Trust Indenture Act of 1939 (TIA). These decisions make it easier for issuers and majority debtholders to conduct non-consensual out-of-court restructurings involving debt securities issued under TIA qualified indentures.

In Marblegate Asset Management, LLC v. Education Management Finance Corp., the Second Circuit held that Section 316(b) of the TIA:

The court found that a debt restructuring that effectively left dissenting noteholders to recover against a shell issuer did not violate Section 316(b) since:

In Waxman v. Cliffs Natural Resources Inc., the US District Court for the Southern District of New York held that an exchange offer that issued new notes to participating qualified institutional buyers, but not to other noteholders owning classes of ineligible notes, did not violate Section 316(b) because, among other things, the other noteholders were not:

By protecting noteholders only against changes to core indenture payment terms affecting their legal right to receive payment, these decisions should give issuers greater confidence in implementing out-of-court financial restructurings involving US bonds without the threat of Section 316(b) challenges by dissenting minority noteholders. Noteholders seeking to protect against these types of out-of-court restructurings should consider adding specific language to indentures protecting their rights, including the right to receive payment.

For more information on debt restructurings, see Practice Note, Methods of Restructuring Outstanding Debt Securities.

Companies entering into intellectual property (IP) licensing arrangements should review the FTC’s and DOJ’s updated Antitrust Guidelines for the Licensing of Intellectual Property (Guidelines). The Guidelines state the agencies’ antitrust enforcement policy for IP license agreements, research and development collaborations, pooling agreements, and other arrangements involving the licensing or acquisition of patents, copyrights, trade secrets, and know-how.

While the updates to the Guidelines do not represent a major shift in policy, they reflect several important legal developments since the agencies issued their original guidelines in 1995. Among other things, the Guidelines:

For international IP licensing arrangements, the Guidelines refer to the Antitrust Guidelines for International Cooperation and Enforcement, also recently updated, and state that the agencies may take enforcement action if a foreign IP licensing arrangement has a sufficient nexus to the US, taking into account international comity and foreign government involvement. Companies entering into these arrangements should therefore involve antitrust counsel in all relevant jurisdictions.

Notable omissions from the Guidelines include:

Companies should continue to rely on existing agency decisions, policy statements, and reports for guidance on these activities.

For more information on the Guidelines, see Legal Update, FTC and DOJ Issue Updated Antitrust Guidelines for IP Licensing.

Employers with internationally mobile employees should carefully consider how a Presidential Executive Order (EO) banning certain travel could impact their businesses and employees. The EO bars nationals of Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen from entering the US for 90 days, with some exceptions. The EO’s effects are in flux as it faces legal challenges and the administration reformulates implementation plans.

Given the fluid enforcement of the EO, employers with internationally mobile employees should:

For more information on working with internationally mobile employees, see Practice Note, Hiring and Employing Foreign Nationals in the US: Overview and Practice Note, Trump Administration on Immigration: Immigration-Related Executive Order Tracker.

Defendants in putative securities class actions soon could have more clarity on whether the filing of a class action freezes the clock or tolls the running of a statute of repose for all class members.

In California Public Employees’ Retirement System v. ANZ Securities, Inc. (CalPERS), the US Supreme Court granted certiorari to resolve whether the tolling rule in American Pipe & Construction Co. v. Utah applies to the three-year statute of repose for claims under Section 13 of the Securities Act of 1933. In American Pipe, the Supreme Court held that the filing of a class action pauses the running of the statute of limitations for all class members.

Unlike statutes of limitations, however, which run from when the claim accrued, statutes of repose typically are equivalent to a cutoff that places an outer limit on liability. As the Supreme Court recently stated in CTS Corp. v. Waldburger, statutes of repose therefore generally may not be tolled, even in cases of extraordinary circumstances that are beyond a plaintiff’s control.

US courts nevertheless remain split over whether tolling principles apply to statutes of repose under the securities laws. In CalPERS, the Second Circuit adhered to circuit precedent and held that tolling principles do not apply to statutes of repose. The Tenth Circuit, however, previously reached a different conclusion in Joseph v. Wiles, and held that tolling encourages judicial economy.

In resolving this circuit split, the Supreme Court could:

For more information on statutes of repose in securities litigation, see Exchange Act: Section 10(b) Defenses Against Untimely Claims.

A recent Delaware Court of Chancery decision highlights the risk of inadvertently creating a binding arbitration agreement through email negotiation of a dispute resolution mechanism.

In Gomes v. Karnell, a dispute arose between the owners of a Delaware limited liability company (LLC). Although the LLC agreement did not contain an arbitration clause, the parties verbally agreed to attempt alternative resolution by mediation followed by arbitration. Counsel for the parties exchanged emails acknowledging their agreement to mediate and arbitrate, but did not finalize the particular details, such as the place of arbitration, the governing rules, or the process for selecting arbitrators. After the parties selected a mediator, one LLC member canceled the mediation and sued in the Court of Chancery. The defendants moved to dismiss the complaint because the dispute was subject to arbitration.

The Court of Chancery granted the motion to dismiss, holding that the parties’ email exchanges demonstrated their assent to arbitration. The court found that the parties had agreed without qualification on the essential terms of mediating their dispute and then arbitrating it if mediation failed, despite the fact that the parties had left several terms open for future negotiation. Counsel easily could have avoided prematurely binding their clients by including in the emails language stating that their agreement to mediate and arbitrate was preliminary and unenforceable unless formalized in an agreement on all open terms.

An agreement to arbitrate is a contract and can be established by an exchange of emails. Therefore, when negotiating an arbitration clause by email exchange, parties should avoid inadvertently creating an enforceable obligation and understand that acknowledging an agreement on the core issue of arbitrating the dispute may constitute a binding arbitration agreement, even if some terms remain open for future negotiation.

For more information on the requirements for enforceable arbitration agreements, see Practice Note, Agreements in Writing Under US Arbitration Law.

Multinationals should review new international tax regulations recently issued by the IRS. The regulations provide guidance on:

The IRS also issued regulations: