A recent Sixth Circuit decision highlights for companies offering price discount programs that a differential pricing policy can constitute unlawful tying if the policy lowers the discounted product’s price below cost. Differential pricing occurs when a company offers one product at a higher price if the customer does not buy an additional tied product.

In Collins Inkjet Corp. v. Eastman Kodak Co., the Sixth Circuit, in upholding a preliminary injunction issued by the district court, found that Kodak’s differential pricing policy may constitute unlawful tying. Under the policy, customers purchasing both Kodak’s refurbished printer components (the tying product) and its Versamark ink (the tied product) received a discount, whereas prices were higher for customers purchasing only components and no ink. Collins, Kodak’s competitor in the Versamark ink market, alleged that Kodak was using the policy and its 100% market share in the refurbished printer components market to:

Differential pricing can constitute coercive, unlawful tying if the discount allows the tied product to be sold below cost and selling the tied product below cost makes it unreasonable for a customer to buy the tying product without also buying the tied product. The Sixth Circuit held that Collins could likely prove that Kodak’s pricing policy was unlawful tying because:

For more information on below-cost pricing, see Practice Note, Customer Loyalty Programs in the US.

Following the Federal Trade Commission’s (FTC’s) settlement with BMW of North America, LLC, counsel should evaluate the written product warranties their clients provide to consumers to ensure that they comply with the Magnuson-Moss Warranty Act’s (Warranty Act’s) requirements, including its prohibition on using tie-in sales provisions. Seemingly innocuous warranty conditions can violate federal rules and create liability for warrantors.

BMW’s MINI Division sells MINI passenger cars to consumers and provides consumers with written warranties. BMW conditioned its warranty coverage on consumers buying only MINI parts and using only MINI dealers to perform maintenance and repair work. Using non-MINI parts and dealers voided the warranty.

In an administrative complaint against BMW, the FTC alleged that this condition violated the Warranty Act’s rule against using tie-in sales provisions in consumer warranties. These provisions condition the availability of a warranty on the consumer buying an article or a service that is identified by brand, trade or corporate name.

As part of an agreement to settle this complaint, BMW agreed to:

Generally, businesses are not legally obligated to provide written warranties for consumer products. If they do provide a written warranty, however, the content of those warranties must meet federal standards established by the Warranty Act. If a party provides a written warranty that falls short of the Warranty Act’s requirements or includes prohibited provisions, that party could face private litigation from consumers or enforcement actions from the FTC.

For more information on the requirements for sellers and manufacturers that provide consumers with written warranties, see Practice Note, The Magnuson-Moss Warranty Act for Consumer Goods.

Recent SEC enforcement activities suggest public companies should review their employment agreements and other policies and procedures addressing employee confidentiality to ensure they do not improperly restrain whistleblowers from communicating with the SEC.

The SEC recently announced its first-ever enforcement action under Exchange Act Rule 21F-17, one of a set of rules implementing the Dodd-Frank Act’s whistleblower protection requirements. The rule prohibits impeding an individual from reporting suspected wrongdoing to the SEC, including through enforcement or threatened enforcement of a confidentiality agreement.

In its settlement order against KBR Inc., the SEC focused on the company’s practice of requiring employee witnesses in internal investigation interviews to sign confidentiality statements. The statements warned that employees could face discipline, including termination, if they discussed any investigation without prior approval from KBR’s legal department. According to the SEC, this blanket pre-approval requirement violated Rule 21F-17, even though there was no evidence KBR had ever attempted to enforce any of these confidentiality statements.

While this was the first Rule 21F-17 enforcement action, it may not be the last. In February 2015, it was widely reported that the SEC was contacting companies to request copies of all confidentiality, severance and settlement agreements. The SEC’s enforcement director has also recently stated that several investigations similar to the KBR investigation are in progress.

Given the SEC’s expansive view of whistleblower protections and its aggressive enforcement efforts, companies should:

For more information on whistleblower protections under the federal securities laws, see Practice Note, Whistleblower Protections under Sarbanes-Oxley and the Dodd-Frank Act.

Companies should ensure that their compensation arrangements comply with the final regulations recently issued by the IRS relating to the deduction limitation for certain employee remuneration in excess of $1 million under Internal Revenue Code (IRC) Section 162(m). The deduction limit does not apply to qualified performance-based compensation or to compensation that is paid by newly public companies, according to a transition rule.

The final regulations address:

The final regulations largely follow the proposed regulations, but clarify that plans may satisfy the per-employee limit requirement by specifying the aggregate maximum number of shares with respect to which stock options, stock appreciation rights (SARs), restricted stock, restricted stock units (RSUs) or other equity-based awards may be granted to any individual employee during a specified period.

The transition rule for newly public companies applies to compensation received from stock options, SARs or restricted stock that are granted during the transition period, regardless of when they are exercised or vest, but not to other forms of equity compensation, such as RSUs. RSUs do not qualify for relief under the transition rule unless paid before the transition period expires. The final regulations offer some relief by providing that this change only applies to RSUs and similar types of awards granted on or after April 1, 2015.

To maximize deductibility, companies subject to IRC Section 162(m) should review the final regulations when structuring their plans and granting equity awards.

For an overview of the $1 million deduction limitation on employee compensation, see Practice Note, Section 162(m): Limit on Compensation.

The Department of Labor (DOL) issued on April 14, 2015 a proposed rule and prohibited transaction exemptions defining the term fiduciary for investment advisers and brokers providing investment advice to participants or beneficiaries of retirement plans or individual retirement accounts (IRAs). Comments are due to the DOL on the proposed rule by early July 2015.

The proposed rule generally provides a “best interest” fiduciary standard for brokers and other advisers providing investment advice for a fee, subject to several carve-outs from the standards and related prohibited transaction exemptions. The carve-outs are intended to exclude some relationships that are not regarded as fiduciary in nature, including carve-outs for:

The related prohibited transaction exemptions are intended to permit certain broker-dealers, insurance agents and other investment fiduciaries to retirement plans and IRAs to receive a variety of common forms of compensation that would otherwise be prohibited as conflicts of interest.

This proposed rule will impact all employers sponsoring ERISA-governed retirement plans and will likely require review and possibly renegotiation of their contracts with investment advisers, managers and other service providers to these plans.

Brand owners should take note of a recent US Supreme Court decision holding that Trademark Trial and Appeal Board (TTAB) determinations can have preclusive effect in federal district courts.

In B&B Hardware, Inc. v. Hargis Industries, Inc., the Supreme Court held that issue preclusion should apply to TTAB decisions when:

As a result, trademark owners should carefully plan their long-term strategies when challenging or defending a mark, as TTAB actions may no longer be a lower-stakes alternative to federal court litigation. In particular, they should consider:

The Supreme Court left some flexibility in determining when issue preclusion attaches. However, until lower courts apply this decision, counsel should be aware that it raises the stakes for both sides in a TTAB proceeding, especially for marks that are critical to a brand or company.

For more information on this decision, see Legal Update, Supreme Court: TTAB’s Likelihood of Confusion Decisions Can Have Preclusive Effect.

Following a US Supreme Court decision creating a new standard for analyzing disparate treatment claims under the Pregnancy Discrimination Act (PDA), employers should consider the effect of their accommodation policies on pregnant workers.

In Young v. United Parcel Service, Inc., the Supreme Court modified the McDonnell Douglas burden-shifting framework, holding that employees can obtain a jury trial without direct evidence of intentional discrimination if they show that both:

The reach of this decision may be narrowed because the case arose before the Americans with Disabilities Act Amendments Act of 2008 (ADAAA), which extended disability accommodation requirements to some pregnancy-related disabilities, and before many states and cities implemented pregnancy accommodation laws. However, employers should:

For more information on pregnancy accommodation and discrimination, see Practice Note, Pregnancy Discrimination.

Employers that are auditing, revising and drafting employment agreements, policies and handbooks now have extensive guidance about language that would trigger National Labor Relations Board (NLRB) unfair labor practice (ULP) litigation.

The NLRB General Counsel recently issued a memorandum identifying why language commonly contained in non-unionized employee agreements, policies and handbooks was considered either unlawful or lawful under the National Labor Relations Act (NLRA). The memorandum also includes excerpts of policies from Wendy’s International LLC’s handbook that the General Counsel’s Office found unlawful and the revised NLRB-approved handbook policies that were reissued under a high-profile ULP settlement.

Although the memorandum is not binding law, it provides insights about language and prohibitions the NLRB may likely use prosecutorial discretion to challenge. Where unions lose elections, employers should also expect that unions may use the memorandum to assert that previously unchallenged employment agreement, policy or handbook language impermissibly discouraged employees from engaging in NLRA-protected activity, tainting the results and requiring the NLRB to run a new election.

To reduce the risks of ULP charge investigations and prosecutions or union election results being overturned, employers should consider:

For more information on the NLRB memorandum, see Legal Update, NLRB General Counsel Red Flags Common Terms in Employment Rules.

A recent Federal Circuit decision serves as an important reminder that counsel must read the substance of all orders issued in a case without relying on the court’s notice of electronic filing (NEF) circulated to counsel via e-mail.

In Two-Way Media LLC v. AT&T, Inc., after losing on certain patent infringement claims, AT&T filed four post-judgment motions and requested that three of the motions be filed under seal. The court denied all four post-judgment motions and entered judgment against AT&T on all pending claims. However, three of the orders were improperly docketed only as “orders granting the motions to seal,” without indicating that they also denied the substantive relief AT&T sought. The court subsequently corrected the docket but did not send revised NEFs.

AT&T asserted that it discovered that the orders denied its post-judgment motions after the time to appeal had expired, and moved to extend or reopen the appeals period under Federal Rules of Appellate Procedure 4(a)(5) and (6). The district court denied AT&T’s motion and AT&T appealed.

The Federal Circuit affirmed, holding that AT&T had not shown excusable neglect in failing to timely appeal despite receiving incomplete descriptions of the final orders. The court emphasized that:

Counsel’s failure to download and read the full text of orders issued in a case, regardless of the docket notice circulated electronically, could negatively impact a party’s substantive rights. Not only could counsel miss the trigger to appeal, but orders might contain additional substantive rulings and internal case deadlines. Counsel has an independent obligation to monitor the docket that cannot be satisfied by relying on NEFs, which could be misleading, incomplete or end up in counsel’s spam folder. The decision’s rationale equally applies to smaller legal teams, because when there are fewer attorneys working on a matter, the more important it is for counsel to monitor the docket to ensure that important filings are not missed.

In light of the limited role of courts in reviewing arbitral awards, contracting parties determining whether to arbitrate potentially significant disputes should be aware of the development of an appeal option within the arbitral process.

Major arbitral providers have established panels of appellate arbitrators and appellate procedures for arbitral review of arbitral awards. Standards of review vary across providers. Generally, an appellate arbitral tribunal can overturn an arbitral award if the panel that issued the award made either:

Because efficiency and finality are among the principal advantages of arbitration, the optional appeal procedures are not appropriate in every case. However, when considering how to handle potential disputes of significant size, opting in to an arbitral appellate procedure allows contracting parties to proceed with greater confidence in:

Given the scheduling challenges associated with three-arbitrator hearings, a single-arbitrator hearing followed by a single-arbitrator appellate review should provide sufficient reassurance in most cases, cost less and take less time than a three-arbitrator hearing without an appeal. Where the amount in dispute is expected to be extraordinarily large, parties may want the additional comfort of a three-arbitrator appellate panel. In all cases, the parties should be satisfied that the standard of review provided in the appellate rules make sense for the nature of the dispute that may arise, and that the nature and level of experience of the provider’s appellate panelists add value to the appellate process.

For more information on the appellate rules of the three major arbitral providers, see Checklist, AAA, JAMS and CPR Comparison Chart for Optional Appellate Procedures.

Purchasers of single- and multi-family real estate owned (REO) properties should consult state and local eviction laws and notice requirements following the expiration of the Protecting Tenants at Foreclosure Act (Foreclosure Act) on December 31, 2014.

The Foreclosure Act allowed residential tenants to stay in possession for at least 90 days following the receipt of a pre-eviction notice. Without the Foreclosure Act’s protections, applicable state law may allow lenders and purchasers at foreclosure sales to commence eviction proceedings against residential tenants more quickly.

Only nine states and the District of Columbia maintain the same protections as the Foreclosure Act, and 17 states either have no specific residential tenant protections or allow immediate eviction following a foreclosure sale. In states where foreclosure terminates the rights of a residential tenant, a mortgage servicer or purchaser of an REO property may not have to file a separate notice to evict a tenant.

Below is each state’s post-foreclosure eviction timeline:

For more information on state-specific eviction laws, see State Q&A Tool, Real Estate Leasing.

For more information on state-specific foreclosure laws, see State Q&A Tool, Real Estate Finance.