Following the recent decision in U.S. v. Apple, Inc., counsel advising on a most favored nation clause (MFN) should analyze the MFN on its own and in relation to other contract provisions and the company’s business strategy as a whole. MFNs, which typically provide that a buyer receives the best price offered by the seller, remain:

However, as held in Apple, companies may not use MFNs to enforce a price fixing conspiracy at any level of the distribution chain. Finding a “hub and spoke” conspiracy, the US District Court for the Southern District of New York held that even though Apple did not compete with the conspiring book publishers, Apple facilitated and participated in their price fixing conspiracy, in part, by entering into similar agency agreements containing price caps and MFNs with each publisher. The court found that the standard price caps and MFNs helped to fix the retail prices of e-books sold by Apple and other retail competitors.

While standard agreements like those used by Apple generally do not violate the antitrust laws, companies should be careful of these arrangements when there is evidence of both:

For more information on MFNs, including the antitrust agencies’ recent enforcement efforts, and a detailed discussion of the Apple decision, see Practice Note, Most Favored Nation Clauses.

Vertically merging parties should be aware that the federal antitrust agencies have been increasingly using flexible behavioral provisions to remedy vertical mergers, including licensing arrangements or other contractual provisions that would preclude foreclosure. For example, the Federal Trade Commission’s recent settlement of General Electric Company’s (GE’s) proposed acquisition of supplier Avio S.p.A. included certain behavioral remedies.

Vertically merging parties should:

Vertical theories of competitive harm generally relate to foreclosing rivals from an upstream or downstream market and raising rivals’ costs. For example, GE, through its 50% ownership in a joint venture, is one of only two manufacturers of engines for a particular aircraft. Avio has the sole design responsibility for accessory gearboxes (a necessary engine input) for Pratt & Whitney’s (P&W’s) engine, GE’s only competitor. Post-acquisition, GE would be incentivized to:

Either action would likely cause P&W’s potential customers to switch to GE’s engine. With no competition, GE would be free to raise prices or reduce the quality of its engines or related services (like delivery).

However, parties should be cautious about proposing behavioral remedies early in the merger process. Although proposing fixes upfront may speed up settlement negotiations with the investigating antitrust agency, there are risks in doing so. For example, in a previous complaint, the Department of Justice used the remedy proposed by Anheuser-Busch InBev and Grupo Modelo as evidence that the transacting parties recognized that their merger was anticompetitive as originally structured.

Telemarketers and companies employing third-party telemarketers should ensure they:

The revised rules require telemarketers to obtain the consumer’s prior express written consent for calls made and messages (including texts) sent to:

A consumer’s prior express written consent must be signed and clearly and conspicuously disclose to the consumer that the telemarketer is authorized to deliver calls to the designated telephone number. Consent may also be provided electronically if obtained in compliance with the E-SIGN Act.

In disputes, the telemarketer has the burden of proving the consumer provided prior express written consent. The revised rules do not apply to non-telemarketing telephone calls, such as calls made by tax-exempt organizations or calls made with a noncommercial purpose.

For more information on direct marketing and telemarketing, see Practice Note, Direct Marketing.

For more information on vicarious liability under the TCPA, see Legal Update, FCC Rules Companies May Be Vicariously Liable for Telemarketer TCPA Violations.

Companies planning securities offerings in reliance on Rule 506 of Regulation D this fall should investigate whether the bad actor disqualification provision requires them to make certain disclosure to investors or prevents them from relying on the Rule 506 safe harbor. The bad actor disqualification provision (Rule 506(d)), implemented under Section 926 of the Dodd-Frank Act, becomes effective on September 23, 2013 and applies to all Rule 506 offerings, including offerings underway but uncompleted on that date.

If a company or its related parties have any specific disqualifying events in their past (such as securities transaction-related criminal convictions and certain SEC suspensions or disciplinary orders) the provision disqualifies the company from relying on Rule 506. Bad acts occurring before September 23, 2013 do not prevent a company from using Rule 506, but the company must disclose them to investors. Related parties covered by the rule include, among others:

Collecting information from some of these parties (particularly 20% owners) may take time, and companies should document their inquiries.

A company that relies on Rule 506 will not lose its exemption based on bad acts that it was unaware of if it can show it could not have known of them in the exercise of reasonable care. To establish reasonable care, a company must show it conducted a factual inquiry into whether any disqualifying events existed, dependent on its particular circumstances.

For a form to assist a company in conducting a bad actor inquiry, including a sample questionnaire and representations, warranties and covenants, see Standard Document, Bad Actor Questionnaire.

Employers that sponsor employee benefit plans should begin planning for compliance with U.S. v. Windsor, the US Supreme Court’s recent same-sex marriage ruling.

In Windsor, the Supreme Court held that Section 3 of the Defense of Marriage Act (DOMA) was unconstitutional on Fifth Amendment grounds. Section 3 defined “spouse” and “marriage” for federal law purposes (including ERISA and the Internal Revenue Code) as being between one man and one woman. DOMA Section 2, under which the states need not recognize valid same-sex marriages performed in other states, was not at issue in Windsor.

The Supreme Court’s decision raises significant questions regarding the taxation and administration of benefits to same-sex spouses. For example, it is presently unclear how the ruling applies to couples who were married in a state that allows same-sex marriage, but who later move to a state that does not recognize same-sex marriage. Post-Windsor, a few court decisions have addressed this question and the IRS is expected to provide guidance on the issue, as well as others (for example, whether the Supreme Court’s ruling will apply retroactively).

In advance of this guidance, employers should:

For more information on DOMA and domestic partner benefits, see Practice Note, Domestic Partner Health Benefits.

Based on a recent First Circuit decision, private equity (PE) funds may be responsible for the multiemployer plan withdrawal liability of their portfolio companies. PE funds should closely evaluate future portfolio acquisitions with special attention to the potential withdrawal liability at stake.

In Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund, the First Circuit held that at least one of two related PE funds was not a passive investor, but a “trade or business” that actively managed and received economic benefits from a portfolio company that ceased contributing to a multiemployer pension fund and incurred withdrawal liability under ERISA.

Under ERISA, withdrawal liability can be imposed on an organization if it:

The First Circuit remanded this case of first impression to the district court to determine whether:

Depending on the district court’s decision on remand, this decision may discourage PE funds from investing in companies with potentially significant pension plan withdrawal liability obligations.

Although this case addressed withdrawal liability for multiemployer plans, similar concepts apply to single employer defined benefit plan liabilities. PE funds should:

Covered banking organizations should review the recently published final rule implementing the enhanced capital and related requirements under Basel III and the Dodd-Frank Act.

In July 2013, the Federal Reserve Board (FRB) published the final rule, which largely adheres to the proposed rules issued in June 2012, including the proposed minimum regulatory capital requirements. However, in response to comment letters submitted by industry participants, the final rule includes certain key changes:

For an in-depth discussion on the US final rules implementing regulatory capital requirements under Basel III and the Dodd-Frank Act, see Webinar: Final US Basel III Rules.

A recent Tenth Circuit decision sets a high bar for brand owners seeking to prove trademark infringement in competitor keyword advertising cases.

In 1-800 Contacts, Inc. v. Lens.com, 1-800 sued Lens.com for infringement based on Lens.com’s purchase of advertising keywords incorporating 1-800’s mark, 1800CONTACTS, through Google’s AdWords program. This purchase resulted in Lens.com sponsored ads appearing along with search results for 1800CONTACTS. The district court granted Lens.com summary judgment, finding no likelihood of confusion because the ads did not display the mark.

The Tenth Circuit affirmed, relying on the following evidence to assess likelihood of confusion:

However, the Tenth Circuit reinstated contributory infringement claims based on ads placed by Lens.com affiliates that displayed the 1-800 mark, citing evidence that Lens.com knew that at least one affiliate used 1-800’s mark in the ads, but did not make reasonable efforts to stop the practice.

While counsel should consider the law of the relevant circuit and the specific facts of each case, this decision shows that trademark owners may:

For companies using affiliates or other third parties to purchase keyword ads, the ruling highlights the need to take reasonable steps to monitor and consider potential infringement by those parties.

For more information on the legal issues involved with keyword advertising, see Article: Expert Q&A on Keyword Advertising After Rosetta Stone.

Employers should review their workplace safety policies given the growing number of states enacting guns-at-work laws and employers’ obligations to provide a safe workplace. These laws differ, but generally:

Since more states will likely pass similar legislation, employers should:

For more information on state laws governing guns in the workplace, see Practice Notes, State Guns-at-work Laws: Overview and Guns at the Workplace.

The National Labor Relations Board (NLRB) continues to find that routine human resources (HR) procedures, such as asking employees to evaluate morale and supervisory leadership skills, infringe on employees’ National Labor Relations Act (NLRA) rights. Employers that conduct these interviews can reduce the risk of infringing employees’ rights by avoiding policies and practices that the NLRB found to be unlawfully coercive in the Grand Canyon Education, Inc. decision.

In Grand Canyon Education, Inc., an evaluative interview was found to be unlawfully coercive in part because HR did not identify the interview’s purpose, inquired about other employees’ sentiments and requested confidentiality. The NLRB discounted evidence that the interviewee found the interview non-coercive. Instead, it focused on how an employee could find the interview coercive.

In light of this decision, employers should:

For more information on the Grand Canyon Education, Inc. decision, see Legal Update, HR Representative Violated NLRA While Interviewing Employees To Evaluate Their Supervisor: NLRB.

Companies seeking to remove a mass action should reevaluate their removal strategy given a recent Eleventh Circuit case.

In Scimone v. Carnival Corp., the Eleventh Circuit limited a defendant’s right to remove under the mass action provision of the Class Action Fairness Act of 2005 (CAFA). CAFA allows defendants to remove, as mass actions, suits for damages involving 100 or more plaintiffs that are proposed to be tried jointly because they present common questions of law or fact.

In Scimone, 104 individuals sued Carnival in Florida state court for injuries sustained when a cruise ship ran aground. Plaintiffs’ counsel filed two nearly identical suits, one containing 48 plaintiffs and the other containing 56. Carnival removed to federal court under CAFA’s mass action provision. The federal court remanded, holding that removal was improper because neither suit had 100 plaintiffs and the plaintiffs had not proposed to try the two cases jointly. The Eleventh Circuit affirmed.

To increase the chances of successful removal, defendants should:

If remand is ordered, defendants can litigate the state-court cases more efficiently by:

Parties challenging the enforceability of arbitration clauses in contracts of adhesion should note that since the US Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, courts have increasingly declined to enforce state general contract law defenses that might otherwise invalidate arbitration agreements. Arbitration clauses in adhesion contracts, so long as their terms are even-handed or tip in favor of the consumer, are likely to be enforced.

Most recently in Mortensen v. Bresnan Communications, LLC, the Ninth Circuit held that under Concepcion, the Federal Arbitration Act preempts state general contract law defenses that have a disproportionate effect on arbitration agreements, including Montana’s public policy against adhesive arbitration agreements that run contrary to a party’s reasonable expectations. The Ninth Circuit’s decision confirmed that arbitration clauses enjoy greater protection from scrutiny under general contract law defenses than other contractual clauses.

The plaintiffs in Mortensen brought a class action against Bresnan Communications, their internet provider. At issue was Bresnan’s subscriber agreement, an adhesion contract that included a provision subjecting all claims to arbitration. The district court had refused to enforce the arbitration provision because it violated Montana’s public policy requiring that the terms of adhesion contracts be within a party’s reasonable expectations. The district court concluded that the agreement was not reasonably expected because it waived the fundamental constitutional right to a jury trial and access to the courts.

Mortensen affirms that adhesion contracts requiring arbitration will be strictly enforced, and is the latest in the pro-business and pro-arbitration line of decisions that began with Concepcion. Defenses relying on public policy or unconscionability are increasingly unlikely to succeed in negating arbitration clauses.

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

Financial institutions and others subject to the Foreign Account Tax Compliance Act (FATCA) have additional time to implement FATCA.

The IRS recently released Notice 2013-43 (Notice), which provides a six-month extension until July 1, 2014 for the beginning of FATCA withholding. The Notice also provides additional guidance for financial institutions located in countries that have signed intergovernmental agreements (IGAs) with the US but have not brought the IGAs into force.

In addition, the Notice makes other significant changes to the timelines for implementing FATCA, including:

The Notice also makes changes to the timeline for FATCA registration. The FATCA registration portal is projected to open on August 19, 2013 (instead of July 15, 2013). The IRS intends to issue Global Intermediary Identification Numbers as FATCA registrations are finalized in 2014, and will post the first list of Foreign Financial Institutions (FFIs) by June 2, 2014. To ensure inclusion on this list, an FFI must finalize its registration by April 25, 2014.

In addition, the Notice provides guidance on the treatment of IGAs. A country will be treated as having an IGA in effect if it is listed on the Treasury website. Treasury and the IRS intend to include on the list countries that have signed but not yet brought into force an IGA.