Companies relying on immunity from antitrust liability for their collaborative actions under the Copperweld "single entity" doctrine should consider the latest US Supreme Court antitrust decision, in American Needle, Inc. v. National Football League (NFL).

The Supreme Court held that the NFL and its member teams were not a single entity immune from liability under Section 1 of the Sherman Act. As a result, the Supreme Court ruled that the NFL's exclusive IP licensing arrangement with Reebok International Ltd. must be analyzed under the rule of reason and remanded the case for further consideration.

The Court declined to grant the NFL the defense commonly known as the Copperweld doctrine (see Copperweld Corp. v. Independence Tube Corp.), which generally treats two or more firms under common ownership or having unified interests as a single entity not capable of conspiring or acting collectively under US antitrust laws. The Supreme Court stated that the key to determining whether legally distinct entities are a single entity is whether the collaboration involves separate economic actors pursuing separate economic interests so that it deprives the marketplace of independent centers of decision-making. This requires a fact-specific analysis of the economic substance of the arrangement.

The Supreme Court's ruling did not provide detailed guidance on the kinds of proofs of independence it would find persuasive in making this determination in contexts other than sports. It would therefore be prudent for counsel to companies involved in joint ventures expecting to rely on the Copperweld doctrine to examine the American Needle holding and monitor how the lower courts interpret it outside of the sports industry.

Companies considering mergers or acquisitions of any size that may raise competition issues should take note of the Department of Justice's (DoJ) recent revival of the "prior notice" remedy, and be aware of the continuing importance of market entry in the antitrust agencies' analysis of potential anticompetitive effects.

In a proposed May 2010 final judgment closing the DoJ's investigation into the acquisition of most of the assets of Kerasotes Showplace Theatres, LLC by AMC Entertainment Holdings, Inc. (AMC), the DoJ and AMC agreed on a requirement that AMC notify the agency before acquiring any assets or interests in the business of movie theaters in certain markets in the future. This prior notice requirement would apply to acquisitions of any size, without regard to the Hart-Scott-Rodino filing thresholds.

Prior notice provisions were previously used mainly as a remedy in markets where the antitrust agencies worried about the effects on competition of any further small transactions. Although this remedy had fallen out of favor, the DoJ has now sought to impose prior notice conditions in at least six merger investigations this year.

Meanwhile, the closing of the FTC's investigation of the acquisition of Admob by Google provides further comfort for acquisitive companies that the ability to show potential entry into a market can outweigh other anticompetitive concerns and help avoid lengthy antitrust investigations or required divestitures. While the FTC had been expected to challenge the merger, it released a statement in May 2010 noting that Apple Computer Inc.'s move to launch a competing mobile advertising network overshadowed the antitrust issues raised, and it allowed the acquisition to proceed.

Companies making changes to their gift card programs to comply with the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the Credit CARD Act) should carefully consider how to take account of state unclaimed property laws in their updated programs.

States are increasingly applying unclaimed property laws to unredeemed gift cards. Under these laws, property that goes unclaimed for a defined period of time automatically reverts (or "escheats") to the state. In some states, once a gift card is deemed abandoned (sometimes after only three years), the gift card issuer must pay to the state all or a portion of an amount equal to the card's unused value.

Before the implementation of the Credit CARD Act, issuers could avoid this trap by setting their cards to expire before a state's escheatment deadline. However, the Credit CARD Act, among other things, sets the minimum allowable expiration period for gift cards sold on or after August 22, 2010 at five years.

As a result, to avoid selling gift cards that escheat prior to their designated expiration date, issuers should structure their schemes to appropriately account for choice of law principles among the states where the gift cards are issued and (separately) where they are sold to determine which state's unclaimed property law may have priority.

Among the measures included in the financial reform package, the provisions that public companies are most focused on include those requiring say on pay, majority voting (which many S&P 500 companies already have but is significantly less prevalent among smaller and mid-sized companies), compensation clawback policies (see below Employee Benefits and Executive Compensation) and pay equity disclosures.

Although companies have long been aware of these changes on the horizon, it is still premature for most companies to take any definitive action until the final text of the bill is agreed and signed into law. At time of going of press, work by a congressional conference charged with reconciling the House and Senate reform bills was well under way, with a view to presenting a bill to the President by early July.

For more information on the financial reform legislation, see Practice Note, Financial Regulation Reform Initiatives.

A recent Second Circuit case is a reminder to companies not to let the cautionary language relating to forward-looking statements in their disclosure documents go stale (see Slayton v. American Express Company).

Forward-looking statements, such as information on anticipated performance, plans and projections, may fall within a safe harbor from liability under the Securities Act (by virtue of the Private Securities Litigation Reform Act) when identified and accompanied by meaningful cautionary statements and a list of factors that may cause actual results to differ materially.

Companies usually include a separately-captioned section in disclosure documents defining forward-looking statements and identifying certain risk factors affecting the company. Whether it relates to disclosure in a periodic report or an offering document, this section should be reviewed periodically (rather than just duplicated) to ensure that, among other things, the risks are current and specific.

Slayton stands for the proposition that a cautionary statement is not meaningful if it warns of potential risks when the risks have actually begun to materialize at the time the cautionary statement is made. Similarly, if the underlying risk the cautionary statement warns about changes as time passes and the cautionary statement remains the same in subsequent disclosure documents, this reinforces the impression that the cautionary statement is boilerplate and, as the court stated, "belies any contention that the cautionary language was ‘tailored to the specific future projection'."

Although the court in this case found against the plaintiffs based on the particular facts and circumstances, the case reminds companies to keep cautionary statements specific, current and meaningful.

For more information on forward-looking statements and a discussion on risk factors, see Practice Note, Risk Factors: What Keeps You Up at Night?

Recently adopted amendments to the Federal Sentencing Guidelines (Guidelines) reduce sentences for criminal wrongdoing by companies that have in place effective compliance programs and certain related processes. Implementing these processes can lead to a reduction even if high-level personnel are involved in the underlying conduct. Companies should take a fresh look at their compliance programs now to determine whether any modifications should be made to take full advantage of the changes in the Guidelines.

Under the amendments to the Guidelines, a company:

Barring any action to the contrary by Congress, the amendments are set to take effect on November 1, 2010.

Counsel seeking to reduce discovery costs should consider adding a provision in their arbitration clauses that subjects the arbitrators to the International Bar Association's (IBA's) recently revised Rules on the Taking of Evidence in International Arbitration.

The IBA rules:

For more information on appointing an arbitrator, see Practice Note, How Do I Appoint an Arbitrator?

Companies without an existing clawback policy should consider implementing one.

The Restoring American Financial Stability Act passed by the Senate on May 20, 2010 includes a provision that would cause national securities exchanges to require listed companies to adopt and disclose clawback policies. Although the Act is subject to reconciliation with the House bill that was passed in December, it is likely that the final legislation will require some type of clawback policy for publicly traded companies. Institutional shareholders generally favor clawback policies.

A clawback policy requires an employee or former employee to return to the company all or a portion of compensation previously paid if certain circumstances occur. Under the Act, the clawback policy must:

Companies should consider whether to implement a broader policy.

For more information on the executive compensation provisions of the Act, see Practice Note, Financial Regulation Reform Initiatives: Corporate Governance and Executive Compensation.

The 1,200 randomly selected 401(k) plan sponsors that received the 401(k) plan compliance questionnaire recently issued by the IRS should complete and return it within 90 days of receipt. Failure to timely respond to the questionnaire will result in IRS enforcement action, likely in the form of a plan audit.

Employers who have not received the questionnaire should still review it and use it to evaluate their 401(k) plans. The questionnaire is a useful tool for employers that are not required to complete it because the IRS has announced that it intends to focus on 401(k) plan compliance, and the questionnaire provides insight as to the areas that the IRS will target in future enforcement efforts. If a plan identifies certain compliance failures prior to an IRS audit, it may be eligible to self-correct the problems or correct them for reduced fees and penalties through various IRS programs. The questionnaire and related materials are available on the IRS website.

Eligible employers should act fast to ensure that they receive reimbursement under the Early Retiree Reinsurance Program (ERRP).

This temporary federal program provides financial incentives for employers to continue providing health coverage to certain early retirees. Employers can receive up to 80% reimbursement on total claims between $15,000 and $90,000 for each early retiree (a former employee who is at least 55 years old and not yet Medicare eligible, including his spouse, surviving spouse and dependents).

To receive reimbursement, eligible employers must submit an application to the Department of Health and Human Services for certification. It is important for employers seeking reimbursement to get their applications in early because the $5 billion that the government has set aside to fund the ERRP will be distributed on a first-come, first-served basis.

For companies involved in high-risk enterprises, the Gulf Coast disaster offers a painful reminder of the importance of planning and preparedness, and should spur in-house counsel to revisit existing compliance programs and management systems to ensure robust performance.

In light of the oil spill, government agencies, shareholders, lenders, credit analysts, insurers and the public are far more likely to subject corporate disaster plans (and their underlying assumptions) to closer scrutiny. Companies, particularly those up and down the oil and gas supply chain, are also likely to face greater demands for transparency regarding operational risks. Expectations surrounding preventive technologies will grow, as will demands for clear lines of accountability within compliance and disaster response programs.

The internal corporate culture underlying these programs is key. Above all, compliance programs and management systems must be sustained by the commitment of (and resources from) top management. Training, record keeping and auditing are significant elements of an overall program. One often-overlooked area involves the timely reporting of incidents and timely follow-through in addressing internal complaints and responding to suggested improvements. These are exactly the areas that regulators (civil and criminal) focus on if things do go wrong.

A recent Ninth Circuit decision underscores the need for companies to enter into written agreements with both independent contractors and employees that effectively provide for the company's ownership of any intellectual property created in the scope of employment or during the course of the contractor's engagement.

JustMed, Inc. v. Byce involved a dispute over copyright ownership between a start-up company and an individual who created software for the company. No written agreement was entered into between the parties, but the Ninth Circuit found sufficient other evidence to classify Byce as JustMed's employee. Consequently JustMed owned the copyright as a "work for hire" under the Copyright Act.

To avoid similar disputes, companies should enter into written agreements with both employees and independent contractors that, among other things:

For model agreements, see Standard Documents, Independent Contractor/Consultant Agreement (Pro-client) and Employee Confidentiality and Proprietary Rights Agreement.

Companies should update document retention policies and processes to minimize privacy risks related to digital copier hard drives, which typically store a copy of documents they copy, scan, e-mail or fax. Personal information of customers, employees and other third parties may end up being stored in this way. Companies that fail to implement reasonable safeguards to protect or properly dispose of this information may violate federal and state privacy laws.

Privacy concerns posed by digital copiers have been in the news recently: in May 2010 the FTC announced it would investigate these risks after a CBS news investigation uncovered multiple security breaches including one involving personal medical information stored in a copier returned to a leasing company by a healthcare insurance provider.

Companies should:

For more information on privacy and data security laws, see Practice Note, US Privacy and Data Security Law: Overview. For a Checklist describing common data security pitfalls, see Common Gaps in Information Security Compliance Checklist.

Companies now have until December 31, 2010 to comply with the FTC's Red Flags Rule (the previous deadline was June 1, 2010) while Congress considers legislation that could affect the scope of entities covered by the rule. The Red Flags Rule requires certain "creditors" (broadly defined to include businesses or organizations that regularly provide goods or services first and allow customers to pay later) and financial institutions to develop and implement a written identity theft program.

For a model master Red Flags Rule policy, see Standard Document, Red Flags Rule Identity Theft Prevention Program Master Policy.

To minimize delays in taking action against infringers and maximize the ability to claim statutory damages and attorney's fees, copyright owners should institute a practice of promptly registering copyrights in valuable works.

Owners of copyrights in US works must register the copyright with the US Copyright Office before filing an infringement action. While the US Supreme Court's decision in Reed Elsevier, Inc. v. Muchnick recently clarified that copyright registration was a precondition for an infringement action (not a jurisdictional requirement), courts are split on what "registration" requires.

In Cosmetic Ideas, Inc. v. IAC/InteractiveCorp, the Ninth Circuit joined the Fifth and Seventh Circuits, holding that the registration requirement is met when the US Copyright Office receives the registration application. However, the Tenth and Eleventh Circuits require that the Copyright Office have acted on the application. District courts in other circuits are also split.

Copyright holders with unregistered copyrights (or pending registration applications) must review the relevant jurisdiction's requirements before filing an infringement action. Where an issued registration certificate is required, copyright owners should consider the Copyright Office's expedited registration process (a special handling fee applies).

Employers should consider taking steps to tighten up the processes surrounding all employment practices with a potential disparate impact, in particular employment tests.

The Supreme Court issued its unanimous decision in Lewis v. City of Chicago on May 24, 2010, holding that a disparate impact employment discrimination charge filed with the Equal Employment Opportunity Commission (EEOC) within 300 days of the application (as opposed to the adoption) of a discriminatory practice, is timely. For example, an employee alleging an employment test has a disparate impact can therefore file a discrimination charge within 300 days of taking the test, even if the test was adopted three years previously.

To minimize risk, employers should:

For information about disparate impact risk in recruitment, see Practice Note, Recruiting and Interviewing: Minimizing Legal Risk.

Employers should reassess their health and safety compliance programs in light of a new Occupational Safety and Health Administration (OSHA) program intended to identify "recalcitrant employers” that violate safety and health requirements.

The Severe Violator Enforcement Program (SVEP) increases the penalties for certain types of violations and prompts greater scrutiny of the activities of employers in the program. OSHA may also issue press releases identifying the companies that are added to the program.

Employers should review their compliance programs and consider:

For information about OSHA inspections, see Practice Note, Handling an OSHA Inspection. For more information about health and safety law generally, see Practice Note, Health and Safety in the Workplace: Overview.

Most going private transactions are challenged in court on fiduciary duty or disclosure claims. In May 2010, the Delaware Court of Chancery revisited the applicable standard of review for a going private transaction structured as a tender offer followed by a short-form merger (see In re CNX Gas Corporation Shareholders Litigation, C.A.). This case casts doubt on what standard the Delaware courts will apply.

In CNX Gas Vice Chancellor Laster applied a "unified" standard of review requiring that additional hurdles be met, including that the transaction be negotiated and recommended by a special committee, before a controlling stockholder can benefit from the deferential business judgment rule. In applying this standard, Laster opted not to follow the opinion issued by Vice Chancellor Parsons less than three weeks before in which the same court ruled that the standard of review articulated in Pure Resources applies, which allowed a controlling stockholder to potentially structure a transaction to avoid negotiating with a special committee.

As the decision itself states, "the choice among Lynch [Kahn], Pure Resources and Cox Communications implicates fundamental issues of Delaware law and public policy that only the Delaware Supreme Court can resolve." Until the matter is resolved, controlling stockholders should plan to negotiate with a fully functioning special committee or else risk court review under the onerous entire fairness standard.

For a comprehensive guide to going private transactions, see Practice Note, Going Private Transactions: Overview.

Many companies could potentially derive considerable cost savings and improved earnings over time by taking a more active approach to the management of their real estate assets.

For immediate results, a company could consider:

For longer-term results, a company could survey its business needs and reorganize the use of its leased space. Any unnecessary space can be subleased or possibly returned to the landlord. A company that owns real property could turn it into a capital investment in the company by, among other options, conveying it to either a real estate investment trust (REIT) or to a joint venture (JV) in which the company participates with a REIT. In some cases, the company could convert interests in the JV to publicly-traded REIT shares.

These types of scenarios can also allow a company to remove any real property debt from its balance sheet while maintaining a percentage of ownership interest and a steady stream of income. Especially in the instance of a publicly-traded REIT the interest held through REIT shares will be more liquid.

There are various options that can be explored to determine which option works best for the company. The important point is that real estate assets, like any other assets of the company, should be actively managed.

Taxpayers can rely on recently proposed rules to facilitate workouts of distressed debt, even before the rules are finalized.

The IRS recently released proposed regulations (under Treasury Regulations § 1.1001-3) clarifying an ambiguity in the current regulations that imposes a significant barrier to distressed debt restructurings. The proposed regulations clarify that the deterioration of a debtor's credit quality generally is not taken into account in determining whether a modified debt instrument is treated as debt for US tax purposes. This is significant because there is a deemed taxable exchange if the modified debt instrument is not treated as debt for US tax purposes. The deemed taxable exchange could generate a gain or loss for the lender and cancellation of indebtedness income or a repurchase premium deduction for the borrower.

Although the proposed regulations are technically not effective until finalized, taxpayers can rely on them for debt restructurings occurring now.