Regulatory Playbook

Trending Issues

District Court Ruling Bars Federal Trade Commission Non-Compete Rule for the Near Term
09.10.2024

The Federal Trade Commission (FTC) and the Non-Compete Clause Rule (Rule)
Under Section 5 of the FTC Act, “[t]he Commission is [] empowered and directed to prevent persons, partnerships, or corporations … from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a)(2). As such, Section 6 of the FTC Act, grants the FTC the power to “[f]rom time to time classify corporations and … to make rules and regulations for the purpose of carrying out the provisions” of the FTC Act.

FinCEN Finalizes Rule to Compel Reporting of Individuals and Beneficial Ownership of Entities Involved in Specified Transfers of Residential Real Estate
09.09.2024

On August 28, 2024, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule (RRE Rule) creating a reporting regime for transfers of residential real estate. This RRE Rule, proposed in preliminary form on February 16, 2024, supplements FinCEN’s current General Targeting Order (GTO) program for reporting of such transactions but is quite different in approach and scope. Unlike the GTO, it applies on a nationwide basis and without a floor amount of consideration.

U.S. Government Intervenes in Georgia Tech Cybersecurity False Claims Case
09.06.2024

On August 22, 2024, the U.S. Department of Justice (DOJ) filed a complaint as intervenor in a False Claims Act (FCA) lawsuit filed against Georgia Tech Research Corporation and the Board of Regents of the University System of Georgia (Georgia Tech). The case was originally filed against Georgia Tech under seal in July 2022 by two whistle-blowers, its former associate director of cybersecurity and a former principal information security engineer.

IRS Issues Proposed Regulations Regarding Updates to the Qualified Domestic Trust Regulations
09.06.2024

The United States taxes a U.S. resident on their assets above a certain amount at death and non-residents on their U.S. assets. So, if someone dies owning assets worth more than their remaining lifetime exemption, a U.S. estate tax is typically due. Payment of this tax can often be delayed with the use of a Qualified Terminable Interest Property (QTIP) trust for the benefit of a surviving (U.S.) spouse. Additionally, spouses can transfer property to the other free of any transfer taxes, as transfers of property between spouses qualify for the unlimited marital deduction. Although transfers of property to a noncitizen spouse would not qualify for the marital deduction under Internal Revenue Code (IRC) Section 2056(d)(1), IRC Section 2056(d)(2)(A) provides an exception to the general rule. If the qualified domestic trust (QDOT) requirements under IRC Section 2056A are met, property that passes from a U.S. person to a noncitizen spouse in a QDOT qualifies for the marital deduction. An executor of the estate must elect QDOT treatment.

Important Delaware General Corporation Law Amendments Are Signed into Law amid Recent Delaware Chancery Court Decisions
09.03.2024

Significant amendments to the Delaware General Corporation Law (DGCL) were signed into law by Governor John Carney on July 17, 2024 (SB 313). These amendments were initially introduced in March 2024 in response to three controversial Delaware Court of Chancery rulings, Moelis, Activision and Crispo, which called into question the validity of several well-established and commonly used market practices. SB 313 went into effect on August 1, 2024, and applies retroactively to all contracts and agreements made by a corporation (including merger and consolidation agreements) and all agreements, instruments or documents approved by a board of directors. However, SB 313 will not apply to or affect any civil action or proceeding completed or pending on or before August 1, 2024.

OSHA’s First Federal Heat Standard for Outdoor and Indoor Work
08.27.2024

On July 2, 2024, the Occupational Safety and Health Administration (OSHA) issued a proposed rule for Heat Injury and Illness Prevention in Outdoor and Indoor Work Settings. If finalized, the proposed Section 1910.148 would be OSHA’s first federal heat standard. It would apply to all employers conducting outdoor and indoor work in all general industry, construction, maritime and agriculture sectors where OSHA has jurisdiction.

Technology Transfer Agreements: Latest Developments in California
08.26.2024

In 1993, the California Legislature amended Revenue and Taxation Code (RTC) sections 6011 and 6012 to exclude from California sales and use tax amounts charged for intangible personal property transferred with a technology transfer agreement (TTA) if the TTA separately stated a reasonable price for the tangible personal property (TPP). Nine years later, the State Board of Equalization (SBE) adopted Regulation 1507, Technology Transfer Agreements, to implement and interpret the TTA statutes and to incorporate the California Supreme Court’s holding in Preston v. State Board of Equalization, 25 Cal.4th 197 (2001). Subsequent litigation over the next 13 years in Nortel Networks, Inc. v. State Board of Equalization, 191 Cal.App.4th 1259 (2011) and Lucent Technologies, Inc. v. State Board of Equalization, 241 Cal.App.4th 19 (2015), invalidated portions of Regulation 1507, as well as Regulation 1502 (Computers, Programs and Data Processing). In the nine years since the Lucent decision, the SBE and its successor, the California Department of Tax and Fee Administration (CDTFA), have been engaged in a seemingly endless regulation project. There finally appears to be some meaningful movement. But first, a little background.

Supreme Court Rejects Education Department’s Bid to Stay Injunctions Barring Enforcement of New Title IX Rules
08.21.2024

Title IX of the Education Amendments of 1972 provides: “No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance.”

Bankruptcy Court Splits the Baby on Real Estate Landlord’s Claim for Unpaid Postpetition Rent
08.20.2024

In In re Jughandle Brewing Co. LLC, 23-15703 (Bankr. D.N.J. June 3, 2024), the U.S. Bankruptcy Court for the District of New Jersey faced the following question: whether, in a chapter 7 case, postpetition, pre-rejection payments due under an unexpired lease of nonresidential real property must be treated as an administrative expense claim under section 503(b)(1), regardless of whether the rent payments were actual, necessary costs of preserving the estate. It answered the question in the negative, holding that there is no per se rule that a trustee’s obligation to perform postpetition lease obligations under section 365(d)(3) creates an administrative expense claim. And on the facts before it, the Court crafted a middle ground, allowing an administrative expense claim in favor of the landlord in an amount equal to three months of base rent less amounts paid to the landlord by the secured creditor as a use and occupancy fee for removal of its collateral, along with a general unsecured claim for prorated stub rent for the initial postpetition period. In so doing, the Court confirmed that courts may craft an appropriate remedy when a trustee or debtor in possession breaches a real estate lease before rejection on a case-by-case basis.

The Department of Defense Issues New Proposed Rule Implementing Contractual Requirements Related to CMMC 2.0
08.19.2024

On August 15, 2024, the Department of Defense (DoD) released a long-awaited proposed rule implementing certain requirements of the Cybersecurity Maturity Model Certification (CMMC) program 2.0. As we have previously reported, CMMC is a program developed by the DoD to protect the Defense Industrial Base from cyber threats. Under this program, nearly all DoD contractors and subcontractors will be required to achieve certain levels of cybersecurity maturity. The DoD first announced the CMMC program in 2019, then issued an initial version of the program (CMMC 1.0) in November 2020. In November 2021, the DoD announced that it would be overhauling the CMMC and replacing it with CMMC 2.0. The purpose of CMMC 2.0 was to restructure the CMMC program and to reduce the cost and administrative burden of achieving cybersecurity compliance. On December 26, 2023, the DoD issued a proposed rule and related guidance implementing many aspects of CMMC 2.0. The newly released proposed rule would amend the Department of Defense Federal Acquisition Regulation Supplement (DFARS) to implement the contractual requirements related to CMMC 2.0. This new proposed rule is largely consistent with the December 26, 2023, proposed rule, but provides additional detail about how the CMMC program will be administered and introduces new contract clauses to implement the program.

Department of Commerce Releases Five Products to Help Guide AI Development
08.16.2024

Less than a year after the publication of the Executive Oder (EO) on the Safe, Secure, and Trustworthy Development of AI, the Department of Commerce has finalized three pieces of guidance to fulfill its obligations under the EO. In addition, the recently created AI Safety Institute (AISI) has provided draft guidance to help AI developers mitigate risk of dual-use foundation models. AISI is soliciting comments on this proposal, which are due by September 9. The National Institute of Standards and Technology (NIST) has released open-source software that can be used to test AI systems responses to adversarial attacks.

Truth-in-AI and Robo-Deception: How Regulation Is Evolving to Address Deepfakes, Robocalls and More to Avoid the Erosion of Consumer Trust
08.14.2024

While major legal cases involving AI have largely focused on copyright issues, few cases thus far have directly addressed truthful advertising of AI products and AI-generated content. Indeed, the ease with which consumers and the public can be deceived by AI, as well as the fear of mal-intentioned interference in political elections, has underscored the urgency of considering legislation and regulations that are capable of addressing these issues directly.

FCC Attempts to Regulate Artificial Intelligence in Political Advertising Through New Disclosure Requirements
08.01.2024

The Federal Communications Commission (FCC) last week released a highly anticipated Notice of Proposed Rulemaking (NPRM) seeking comment on proposed disclosure requirements for political ads containing AI-generated content. The item was adopted earlier this month by a 3 – 2 party-line vote, nearly two months after FCC Chairwoman Rosenworcel first announced its circulation among the commissioners for consideration.

Bankruptcy Court Rejects Attempts to Lock Up Creditor Votes in Favor of Reorganization Plan
07.30.2024

In April 2024, Chief Judge Martin Glenn for the U.S. Bankruptcy Court for the Southern District of New York rejected a provision in certain post-petition agreements with aircraft lessors (collectively, the “Aircraft Agreements”) requiring the aircraft lessor (and creditor) to vote its claim in favor of a not yet filed or negotiated chapter 11 plan. See In re GOL Linhas Aéreas Inteligentes S.A., No. 24-10118 (WG), 2024 WL 1716490 (Bankr. S.D.N.Y. Apr. 22, 2024). The Court’s decision, as well as other decisions in In re SAS AB and In re LATAM Airlines Group S.A., reflects a renewed focus on lock-up provisions by bankruptcy courts. This focus comes as debtors are requesting with increasing frequency similar commitments from creditors to attain the requisite votes for confirmation. None of these cases, however, resulted in a court disregarding the votes cast by the lessors.

Preclusion Confusion: Federal Circuit Decision in ZyXEL Communications v. UNM Rainforest Sparks Uncertainty at the PTAB
07.30.2024

The Federal Circuit’s decision in ZyXEL Communications Corp. v. UNM Rainforest Innovations (Appeal Nos. 2022-2220, 2022-2250, July 24, 2024) starts out as a garden variety appeal from an inter partes review proceeding (“IPR”) before the Patent Trial & Appeal Board (“PTAB”). However, the opinion takes a final, unexpected turn by remanding to the PTAB to reconsider whether the new substitute claims are unpatentable in light of collateral estoppel and an additional prior art combination that the petitioner never even raised.

Discovery Dilemma: An Update on the Legal Battle Between The New York Times and OpenAI
07.29.2024

OpenAI’s defense of the lawsuit brought by The New York Times (“The Times”) has sparked controversy relating to OpenAI’s discovery demand for access to reporter notes and other behind-the-scenes materials associated with millions of articles that appeared in The Times. These materials, the AI company argues, are crucial for assessing the copyrightability of The New York Times’ content, which content is being incorporated into OpenAI’s AI models.

Subsidence from Geothermal Operations: Navigating the Regulatory Landscape and Potential Claims
07.26.2024

Geothermal projects in the United States and abroad face scrutiny of their potential impacts on the surrounding environment and communities. Seismic activity, noise and water contamination are commonly cited concerns.

The Dunes Sagebrush Lizard Saga Continues: FWS Lists the Species as Endangered, Draws Congressional Response
07.25.2024

On May 20, 2024, the U.S. Fish and Wildlife Service (Service) published a significant final rule listing the dunes sagebrush lizard (DSL) as endangered under the Endangered Species Act (ESA). 89 Fed. Reg. 43,748. This small lizard is at the center of a debate pitting species conservation against the oil and gas development in the Permian Basin, a region that currently produces about 2.5 million barrels of oil per day. The listing goes into effect on June 20, 2024, and is codified in 50 C.F.R. § 17. However, the Service has not included a designation of a critical habitat and has one year to do so.

Recent Ruling Addresses Applicability of Alternative A and Cape Town Convention in U.S. Bankruptcy Cases
07.24.2024

Although several non-U.S. airlines have filed for chapter 11 in the United States in recent years, no U.S. bankruptcy court has issued a written opinion analyzing the applicability of Alternative A (set forth in Article XI of the Aircraft Protocol to the Cape Town Convention) in a chapter 11 case. In a recent ruling, Judge Michael E. Wiles of the U.S. Bankruptcy Court for the Southern District of New York addressed Alternative A’s applicability in SAS A.B.’s chapter 11 case after an aircraft lessor relied on Alternative A to assert an administrative expense claim (rather than a general unsecured claim) for (i) the full rent specified in the underlying aircraft leases and (ii) amounts due because the debtors did not comply with the return conditions or maintenance obligations specified in the leases. See In re SAS AB, No. 22-10925, 2024 WL 3506430, (Bankr. S.D.N.Y. July 22, 2024).

The End of the Chevron Doctrine and the Reassertion of Judicial Primacy in Reviewing Federal Regulatory Actions
07.24.2024

In 1984, the U.S. Supreme Court (SCOTUS) decided Chevron USA, Inc. v. National Resource Defense Council. See 467 U.S. 839 (1984). The unanimous decision, written by Justice Stephens, reversed then-D.C. Circuit Judge Ruth Bader Ginsburg’s ruling that set aside EPA’s Clean Air Act “bubble policy,” which was intended to provide regulatory relief from certain EPA permitting requirements.

The EU’s AI Act: A Review of the World’s First Comprehensive Law on Artificial Intelligence and What This Means for EU and Non-EU Companies
07.19.2024

Regulation (EU) 2024/1689 (the AI Act) introduces a risk-based framework for regulating AI systems based on how those systems are used, along with a separate framework for regulating general-purpose AI models. Different obligations apply to various actors in the AI supply chain, including providers developing AI systems or GPAI models in the EU, deployers using AI systems in the EU, importers and distributors supplying AI systems into the EU, and product manufacturers incorporating AI systems into regulated products sold into the EU. The AI Act also applies to providers and deployers whose AI systems or their outputs are made available in the EU, regardless of their location, emphasizing its broad territorial scope and the need for global companies to align with its requirements.

U.S. Supreme Court Ruling Gives Insurers with Financial Responsibility “Party in Interest” Standing in Chapter 11 Cases Filed by Insured Entities
07.19.2024

On June 6, 2024, in Truck Insurance Exchange v. Kaiser Gypsum Company, Inc., the U.S. Supreme Court ruled unanimously that an insurer with financial responsibility for claims asserted in a bankruptcy has standing under the U.S. Bankruptcy Code to object to plan confirmation. The Supreme Court reversed a decision by the Fourth Circuit Court of Appeals denying an insurer standing based on the “insurance neutrality” doctrine but did not adopt the insurer’s position that the underlying insurance contract’s “duty to cooperate” triggered the insurer’s right to be heard in connection with the chapter 11 proceeding. Justice Sotomayor delivered the Supreme Court’s unanimous decision. Justice Alito did not take part in the decision.

Purdue Pharma and the Future of Nonconsensual Third-Party Releases in Chapter 15 Cases
07.19.2024

On July 27, 2024, the U.S. Supreme Court issued a long-awaited ruling regarding the validity of nonconsensual third-party releases in the chapter 11 plan of pharmaceutical company Purdue Pharma. In Harrington v. Purdue Pharma L.P., the Supreme Court held that absent consent from the affected claimants, the bankruptcy court lacked the power to approve a plan provision releasing Purdue’s founders, the Sackler family, from liabilities arising from Purdue’s sale of opioids. In reaching that result, the Supreme Court concluded that nonconsensual third-party releases fall outside the scope of section 1123(b) of the Bankruptcy Code, which limits the types of provisions a bankruptcy plan may include. It also reasoned that nonconsensual third-party releases contravene section 1141(d), which provides “a discharge” from liability only to “a debtor.”

Landslide Election Victory for UK Labour Party Marks Seismic Shift in UK’s Political Terrain
07.15.2024

Following 14 years of Conservative Party rule in the UK, Sir Keir Starmer’s Labour Party has formed His Majesty’s Government with a widely anticipated and substantial election victory at the ballot box on July 4, 2024, marking a seismic shift in the UK’s political terrain. There is now much speculation as to those areas on which Sir Keir Starmer will look to focus, and the earliest concrete signal we will see on his priorities will be the King's Speech, scheduled for the morning of July 17, 2024, which will set out the government's legislative agenda for the coming parliament.

U.S. Treasury Department Issues Proposed Rulemaking for Forthcoming Outbound Investment Program
07.15.2024

On June 21, 2024, the U.S. Department of Treasury issued a Notice of Proposed Rulemaking (NPRM) setting forth proposed regulations that would implement regulatory framework to review and prohibit certain investments in “countries of concern,” namely the People’s Republic of China (PRC), Hong Kong and Macau. This follows the Advanced Notice of Proposed Rulemaking (ANPRM) that was released in August 2023. The NPRM issued on June 21 builds on comments received in response to the ANPRM and seeks to clarify the scope and direction of outbound investment restrictions. Comments will be accepted on the NPRM until August 4, 2024.