Companies targeted by Federal Trade Commission (FTC) antitrust investigations could face a greater risk of disgorgement of profits or restitution due to the FTC's withdrawal of its Policy Statement on Monetary Equitable Remedies in Competition Cases (Policy Statement).

The FTC believed that the Policy Statement chilled its pursuit of monetary equitable remedies in certain cases. The FTC now plans to rely on existing case law to guide its use of these remedies in competition cases.

The Policy Statement sets out factors for the FTC to consider before seeking monetary equitable remedies, including whether:

The withdrawal of the Policy Statement was based, in part, on courts misinterpreting the clarity requirement to mean that disgorgement should not be sought in novel cases. In the FTC's opinion, whether conduct is common or new has little to do with whether it is anticompetitive. Eliminating the clarity requirement might also prevent companies from arguing that a circuit court split makes an antitrust violation unclear. This would make it easier for the FTC to seek monetary remedies for reverse payment settlements (also known as pay-for-delay agreements) between branded and generic drug companies.

The FTC was also concerned that the Policy Statement placed an undue burden on the FTC by requiring it to demonstrate the insufficiency of other actions before the agency could secure monetary equitable remedies.

For more information on antitrust investigations, see Practice Note, DOJ and FTC Antitrust Investigations.

Companies whose foreign conduct is the subject of a Sherman Act claim will find it more difficult to succeed on a motion to dismiss in the Seventh Circuit given its recent interpretation of the Foreign Trade Antitrust Improvements Act (FTAIA).

The FTAIA limits the reach of the Sherman Act with respect to foreign conduct. In Minn-Chem, Inc. v. Agrium Inc., the Seventh Circuit eased the burden on plaintiffs by:

The court's broad interpretation of direct effects may also embolden the Department of Justice's (DOJ's) price fixing and other cartel investigations of foreign conduct. The more foreign conduct that could violate the Sherman Act, the greater the potential for criminal penalties, including fines and jail terms, and the greater leverage the DOJ will have in plea negotiations.

For more information on criminal enforcement of the antitrust laws, see Practice Note, Criminal Antitrust Enforcement in the US.

Companies that use "up to" advertising claims should be able to substantiate those claims with evidence that consumers are likely to achieve the maximum results promised under normal circumstances.

A recent FTC study examined how consumers interpret certain "up to" advertising claims made by several replacement window companies. It found that a significant number of consumers believed that products with ads promising results "up to" a certain amount will deliver results at that maximum amount. For example, one ad promised savings of up to 47% on cooling and heating bills, but included a disclaimer saying that the average customer only saves 25%. However, about one-third to one-half of the respondents believed that the ad stated or implied typical savings of 47%.

As a result of the study, in several of its recent orders, the FTC required that the replacement window companies possess evidence that "all or almost all" consumers are likely to receive the maximum "up to" benefits before the companies make an "up to" claim. These orders break from the FTC's past approach on "up to" claims, which only required that an "appreciable" number of consumers realize the maximum benefits.

Although the FTC has only applied the new "up to" standard to the companies and the facts covered by the orders, the report indicates that the FTC is closely reviewing "up to" advertising claims and signals that companies should proceed with caution when promising or predicting certain results.

For a Toolkit of resources to assist counsel in identifying key legal and business issues in advertising, see Advertising and Marketing Toolkit.

Based on two recent cases, companies that advertise in social media using testimonials should be aware that the FTC and the National Advertising Division (NAD), an investigative unit of the Council of Better Business Bureaus, are increasing their scrutiny of these ads.

Under the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising, a testimonial claim should be accompanied by clear and conspicuous disclosures of:

The first case involves Pinterest, a virtual bulletin board where users create themed collections of images they find on the internet. Posts on Nutrisystem, Inc.'s "pinboard" featured weight-loss success stories of "real" customers and were not accompanied by FTC disclosures. Pinterest users who clicked on the images were redirected to Nutrisystem's website. In its non-binding decision, the NAD found the posts to be testimonials and concluded that they should be accompanied by FTC disclosures.

In the other case, Spokeo, Inc., a data broker, instructed its employees to post favorable comments about Spokeo's services on news websites. The comments were not accompanied by FTC disclosures. The FTC determined that since the comments appeared to be posted by independent consumers, they were deceptive. In connection with these and other deceptive practices, Spokeo agreed to pay $800,000, the largest testimonial-related FTC settlement amount to date.

Despite its casual nature, social media is subject to the same FTC and NAD scrutiny as traditional media. Therefore, companies should:

For a webinar providing guidance for in-house counsel on online advertising and social media, see Webinar, Marketing and Advertising Through Social Media.

Public companies should determine whether they must disclose in their next proxy statement any compensation consultant conflicts of interest. Beginning with the proxy statement for their first annual meeting after January 1, 2013, most public companies will be required to disclose the nature of any conflict of interest raised by the work of certain compensation consultants and how the conflict is being addressed.

To determine if a conflict of interest exists, SEC rules note that companies should consider the independence factors compensation committees must take into account when assessing compensation consultant independence. These factors include, among others:

Additional stock exchange rulemaking is expected this fall that may further refine these factors. Despite this, companies should begin:

For more information on the corporate governance standards applicable to compensation committees, see Practice Note, Corporate Governance Standards: Compensation Committee.

For a form of charter for the compensation committee of the board of directors of a public company, see Standard Document, Compensation Committee Charter.

Public companies should consider asking their independent audit firms about the results of Public Company Accounting Oversight Board (PCAOB) inspections. Recent PCAOB guidance to audit committees:

Large public company audit firms are subject to annual PCAOB inspections that include reviews of selected audits that were conducted by the audit firm. The PCAOB legally cannot tell, or force an audit firm to tell, a company's audit committee certain information about these inspections. An audit firm can, however, voluntarily divulge this information.

The PCAOB guidance suggests that an audit committee consider asking the audit firm in particular to inform the audit committee if the company's audit is selected for review in an inspection. Among other things, the audit committee might ask whether the inspection raised questions about:

According to the PCAOB guidance, the PCAOB regularly shares this type of company-specific information with the SEC.

For more information on the PCAOB guidance, see Legal Update, PCAOB Release Offers Guidance to Audit Committees on the PCAOB Inspection Process.

Plan fiduciaries should promptly review the new fee information required to be disclosed by service providers to certain participant-directed retirement plans subject to ERISA.

Service providers to these plans were required to provide these new fee disclosures to plan fiduciaries by July 1, 2012 (see GC Agenda: March 2012). Failure to receive this disclosure or the receipt of an inaccurate or incomplete disclosure may expose the plan fiduciary to liability by causing the plan to enter into a prohibited transaction.

If a plan fiduciary discovers that it received an incomplete or inaccurate disclosure, the rules require it to request the information it requires from the service provider and report to the Department of Labor (DOL) if the service provider fails to respond to the request within approximately 90 days.

Significantly, the plan fiduciary must also consider whether the service provider arrangement may be continued consistent with its duty of prudence under ERISA. If the requested information relates to future services and is not disclosed within the required period of time, the plan fiduciary must terminate the contract or arrangement as soon as possible.

The DOL has developed a Fee Disclosure Failure Notice that may be used in preparing the failure to comply report.

For more information on the fee disclosure requirements, see Practice Notes, Fee and Investment Disclosure Requirements for Participant-Directed Plans and Service Provider Disclosure Requirements for Pension Plans.

The DOL recently revised its set of frequently asked questions and answers (FAQs) to clarify that certain brokerage window arrangements are not designated investment alternatives (DIAs) requiring plan administrators to disclose retirement plan fee information under ERISA.

The FAQs are intended to help companies that offer retirement plans comply with the participant-level fee disclosure rules under ERISA. As originally drafted, the FAQs were surprising because they added new requirements for fiduciaries of plans that offer brokerage windows, self-directed brokerage accounts or similar arrangements (SDBAs) to:

Instead, the revised FAQs provide that an SDBA offered under a plan is not a DIA for purposes of the participant-level fee disclosure rules where the plan has not previously designated any of the underlying investments in the SDBA as a DIA. In these cases, plan fiduciaries are not required to make disclosures for SDBAs. However, the FAQs caution that these plan fiduciaries:

While the revised FAQs provide limited relief to plan fiduciaries of retirement plans that offer SDBAs by clarifying that the SDBA is not itself a DIA, the scope of relief is not clear. Companies with plans that offer SDBAs should be aware of the DOL's continued focus on this topic.

For more information on the DOL's fee disclosure regulations, see Practice Note, Fee and Investment Disclosure Requirements for Participant-Directed Plans.

Companies should monitor closely Environmental Protection Agency (EPA) rulemaking that may be impacted by three recent DC Circuit decisions in support of the EPA's authority.

The three decisions upholding recent EPA rules under the Clean Air Act are:

While these decisions could be challenged or altered by legislation, they have boosted the EPA's confidence to issue clean air rules with less reservations since the EPA may have greater support from the courts. The EPA continues to regulate and propose rules under the Clean Air Act, including rules on:

Companies should reexamine their policies and activities to ensure compliance with current EPA standards. Companies should also track the progress of the recently proposed EPA rule on particles, which may have a wide-reaching effect across many industry sectors.

Recent supervisory guidance issued by the Federal Reserve Board (FRB) that outlines a new, optional process for applicants to request guidance on potential bank acquisitions or other proposals may be useful to certain banking organizations.

Under this new process, staff of the Federal Reserve System will review questions about potential filings (pre-filings) before formal filings are submitted. Pre-filings are inquiries related to potential applications and notices, including:

This new process could shorten the review period for many formal applications. The FRB expects the new process to be particularly helpful for community banking organizations and others that do not file applications frequently and pre-filers with novel proposals that are seeking feedback on specific areas of a proposal. Organizations that frequently file proposals with the FRB are not expected to use the pre-filing process.

For more information on the FRB guidance, see Legal Update, Bank and Nonbank Acquisitions: New Fed Guidance.

Parties engaged in pre-litigation patent disputes in the Second and Ninth Circuits should be aware that provisions in pre-litigation settlement agreements prohibiting patent validity challenges are likely to be found unenforceable.

In a recent Second Circuit decision, Rates Technology Inc. v. Speakeasy, Inc., Rates Technology Inc. (RTI) sued Speakeasy (and successor and affiliated companies) for breaching a pre-litigation agreement under which Speakeasy agreed never to challenge or assist others in challenging the validity of certain RTI patents (the no-challenge clause), after a Speakeasy successor filed an action seeking to have RTI's patents declared invalid. The no-challenge clause was part of an agreement between RTI and Speakeasy settling infringement claims threatened by RTI.

The district court dismissed RTI's breach of contract action, finding the no-challenge clause void. The court relied on the US Supreme Court's 1969 decision in Lear v. Adkins, which held that entering into a patent licensing arrangement does not preclude a licensee from challenging the validity of the licensor's patent.

In affirming the district court's decision, the Second Circuit applied the rationale of Lear and cited a Ninth Circuit decision, which found that in the pre-litigation settlement context, the public interest in discovering invalid patents outweighs the competing interest in resolving disputes. Joining the Ninth Circuit, the Second Circuit held that covenants barring challenges to a patent's validity entered into before litigation are unenforceable, regardless of how the agreement is styled.

Parties involved in settling pre-litigation patent disputes should also consider the potential impact of this decision on the enforceability of provisions designed to discourage validity challenges, for example, provisions requiring the payment of attorneys' fees for an unsuccessful challenge.

A recent Seventh Circuit decision provides greater comfort for trademark licensees that they may use a bankrupt licensor's trademark even after the debtor licensor rejects the trademark license.

In Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, the Seventh Circuit affirmed a bankruptcy court's decision that a debtor licensor's rejection of a trademark license under section 365(a) of the Bankruptcy Code did not terminate the trademark licensee's rights to use the licensed trademark.

The bankruptcy court did not decide the section 365(a) issue, but ruled for Chicago American Manufacturing on equitable grounds. The Seventh Circuit rejected this reasoning, instead holding that a debtor licensor's rejection of a trademark license under section 365(a) does not revoke the licensee's rights. In reaching its decision, the court:

This decision creates a circuit split. Outside the Seventh Circuit, trademark licensees remain subject to risk in a licensor's bankruptcy and licenses should be structured to minimize that risk. Given this decision, companies buying trademark assets out of bankruptcy should consider that they may be subject to existing licensees' rights.

For more information on trademark licenses and bankruptcy, see Practice Note, IP Licenses and Bankruptcy.

Following a recent National Labor Relations Board (NLRB) decision, both unionized and non-unionized employers should avoid blanket requests for employees to maintain confidentiality during internal investigations.

In Banner Estrella Medical Center, the NLRB held, among other things, that an employer violated Section 8(a)(1) of the National Labor Relations Act by asking an employee not to discuss an ongoing investigation with co-workers. According to the NLRB, an employer must show that it has a legitimate business justification that outweighs employees' Section 7 rights to justify a request for confidentiality. A generalized concern about protecting the integrity of an investigation is not sufficient.

In light of this decision, employers should:

For more information on workplace investigations, see Practice Note, Handling Employment-related Internal Investigations.

The Third Circuit established a new test for analyzing joint employer status under the Fair Labor Standards Act (FLSA) that has significant implications for companies with a centralized HR function that exercises control over related entities, such as franchisors or corporate parents.

In In re Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, the Third Circuit held that to determine whether a joint employment relationship exists, courts should consider the alleged joint employer's:

The Third Circuit emphasized that although these factors are generally the most relevant in the analysis, this list is not exhaustive and courts should look at the totality of the circumstances.

This case highlights that employers should strategically decide whether to exercise control over related entities, risking liability as a joint employer, or minimize their FLSA liability by exercising less control. Employers that wish to reduce the risk of joint employer liability should:

For more information on the Third Circuit's test for joint employer status, see Legal Update, Third Circuit Establishes Test for Joint Employer Status under the FLSA.

For general information on the FLSA, see Practice Note, Wage and Hour Law: Overview.

A recent Second Circuit decision underscores for corporate litigants that district courts have wide latitude to fashion discovery sanctions on a case-by-case basis.

In Chin v. Port Authority, the defendant failed to timely issue a litigation hold, resulting in the loss of relevant evidence. Relying on Pension Committee of University of Montreal v. Banc of America Securities, LLC, a well-known case from the US District Court for the Southern District of New York, one of the plaintiffs argued that this failure constituted gross negligence warranting an adverse inference instruction to the jury. The Second Circuit disagreed, holding that the failure to issue a litigation hold is but one factor that a court should consider when determining whether to award discovery sanctions. In doing so, the Second Circuit found that:

On the surface, this decision seems like welcome news to corporate litigants. However, it does not affect a party's obligation to timely issue a litigation hold and preserve potentially relevant information.

For issues to consider when instituting a litigation hold, see Practice Note, Implementing a Litigation Hold.

A recent Second Circuit decision demonstrates how difficult it is to vacate arbitration awards on the grounds of manifest disregard of the law and reminds parties to carefully consider whether to require arbitrators to issue a reasoned award.

Although the Second Circuit has concluded in several cases that manifest disregard of the law remains a valid ground for vacating arbitration awards under the Federal Arbitration Act, its decision in Goldman Sachs Execution & Clearing, L.P. v. The Official Unsecured Creditors' Committee of Bayou Group, LLC highlights just how challenging it is to obtain vacatur on this ground.

After noting that review under the manifest disregard standard is highly deferential to the arbitrators and "exceedingly difficult to satisfy," the Second Circuit affirmed the lower court's confirmation of an arbitration award, even though the arbitrators did not provide reasons for their decision. The court explained that an unreasoned award will be upheld if any valid ground for it can be discerned.

Practitioners take different views on whether an unreasoned award is preferable to an award in which the arbitrators set forth the reasons for their decision. For example:

This decision illustrates that an unreasoned award will be very difficult to overturn for manifest disregard of the law because the party opposing vacatur needs only to show some justification for the outcome.

For more information on grounds for vacating arbitration awards, see Practice Note, Enforcing Arbitration Awards in the US.

Companies who are signatories to non-recourse carve-out guaranties (also known as bad boy guaranties) should ensure they act with great care and diligence in light of several recent court decisions that have broadened the triggering events for recourse liability, and even interpreted this type of guaranty as a full guaranty of the entire loan.

Non-recourse loans generally provide that the lender has recourse:

If these bad acts are triggered, a lender could seek recourse against the personal assets of the loan's guarantors. Unfortunately for guarantors, courts have recently been deciding cases based on a literal reading of the non-recourse carve-out provisions, even if the end results go far beyond industry standards and expectations.

Therefore, guarantors should:

For more information on bad boy guaranties, see Practice Note, Commercial Real Estate Loans: Negotiating Carve-out Guaranties.

The Treasury Department recently released a model intergovernmental agreement (model agreement) to implement the Foreign Account Tax Compliance Act (FATCA) that should simplify FATCA reporting and compliance for foreign financial institutions (FFIs) resident in a country that has signed amodel agreement (partner country).

The model agreement was developed in consultation with France, Germany, Italy, Spain and the UK to address local law constraints on the implementation of FATCA. It provides an alternate mechanism for FFIs in a partner country to comply with FATCA.

The model agreement allows FFIs resident in a partner country (and branches located in those countries) to report specified information on accounts held by US persons and certain US-owned foreign entities directly to their partner country's tax authorities, rather than to the IRS. The partner country will then exchange this information with the US. An FFI that meets the information reporting requirements of the model agreement will generally:

It is expected that the Treasury Department will issue an additional model agreement (referred to as Model II) later this year to reflect the different framework for FATCA compliance developed in consultation with Japan and Switzerland.

For more information on Model II, see Legal Update, Model II Announced for Intergovernmental Framework to Implement FATCA.